FinTech Startups: Unbundling Wells Fargo, Citi and Bank of America

CB Insights has published its excellent graphical overview on how FinTech is “unbundling” or disaggregating American Banks. The graphic illustrates the intense FinTech activity in the traditional banking space:

In November, Tom Loverro of RRE Ventures wrote that “banks are under attack” and showed a few of the major players leading this trend. Inspired by his post and Alexander Pease’s, we wanted to dig in and see how banks are being unbundled by startups. The graphic below details companies attacking bank services ranging from robo-advisers wealth management services like Wealthfront and Betterment to small business loan companies like OnDeck Capital and Kabbage to small business service providers like Zenefits and ZenPayroll, and many other areas.

It’s worth highlighting a few key quotes from Tom Leverro’s original post:

Non-bank actors are attacking just about every valuable and revenue-generating activity that traditional players engage in

One of the core threads you can pull out from this disruption is that we are in the early stages of the financial services industry’s version of the Industrial Revolution

Algorithm-driven disruption is occurring everywhere from wealth management to lending and just about everywhere in between.

These are early days to be sure but are these new players really innovating and can they really compare against the traditional banks?  Will these new “non-bank” players compete head on or will they complement existing services?

Let’s take a look at a couple of examples.

LendingHome, operating for only a year, was featured in a April 2105 Forbes article Mortgage Marketplace LendingHome Reels In $70 Million From China’s Renren highlighting its recent investment round:

“We’re rethinking the entirety of the mortgage process–how we find borrowers with the experience originating online,” said CEO Humphrey.  ”[We’re] closing in days not months and applications are taking minutes, not days. We’re rethinking that to frankly what we think a customer expects in 2015 for an industry that has traditionally been trapped many years in the past.”

LendingHome provides real estate loans but in their words:

We brought together the best technology, operations, and data to build the next generation mortgage platform. This meant rethinking customer acquisition, user experience, credit analysis, algorithmic underwriting, operational efficiency, loan servicing, capital markets, financial automation, consumer brand, and more.

Fundamentally, we believe a technology-enabled marketplace that brings together borrowers and investors is the future of mortgage. By combining our platform with a world-class entrepreneurial team, we’ve made that future a reality.

The key point is that Silicon Valley technologists are building digital platforms.

LendingClub (NYSE:LC) is more established and focuses on the peer to peer lending space.  It bills itself as the world’s largest online credit marketplace boasting frictionless transactions:

Borrowers access lower interest rate loans through a fast and easy online or mobile interface. Investors provide the capital to enable many of the loans in exchange for earning interest. We operate fully online with no branch infrastructure, and use technology to lower cost and deliver an amazing experience. We pass the cost savings to borrowers in the form of lower rates and investors in the form of attractive returns. We’re transforming the banking system into a frictionless, transparent and highly efficient online marketplace, helping people achieve their financial goals everyday.

It has attracted high profile support:

“Lending Club’s platform has the potential to profoundly transform traditional banking over the next decade.”

— Larry Summers, 71st Secretary of the Treasury of the United States of America; Lending Club Board member

Very interestingly, LendingClub recently (April 2015) announced Lending Club and Citi Team Up on Community Lending:

Renaud Laplanche, founder and CEO of Lending Club, said, “Many banks across the country are looking for opportunities to enhance their community lending efforts for low- and moderate-income families. We’re excited to expand the use of the Lending Club platform to make this process easier for Citi and other banks, and help lower the cost of credit for borrowers.”

The PR adds:

Lending Club’s mission is to transform the banking system to make credit more affordable and investing more rewarding. The company’s technology platform enables it to deliver innovative solutions to borrowers and investors.

Again, what’s most interesting here is that the strategic move to work with Citi illustrates one important fact: Lending Club is very much a technology company, born on the web and designed as a platform.  Being a platform gives it the ability to scale and extend its service to traditional lenders.

It’s far too early to say that traditional banks will be disrupted but it’s clear that the new players are taking the banks head on.  As we peel back the story of these potential disruptors, we see that the use of big data, new algorithms and cloud technologies are at the heart of these new disruptive forces.

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