At Insight Venture Partners, we’re constantly on the lookout for fast-growing tech companies whose growth we can help further accelerate. And when I say constantly, I mean it: We speak with approximately 20,000 companies in a given year and meet in person with 2,000 entrepreneurs. In the end, we make investments in 20 or more of the world’s fastest growing software companies each year.
Many of our investments are in infrastructure topics such as DevOps, Cloud, Cyber Security, Artificial Intelligence/Machine Learning (AI/ML), and data services, among numerous other verticals. But thus far, we’ve made only a handful of investments in financial technology — FinTech — companies. There’s a reason for that. FinTech may be red hot, but few industries are experiencing the challenges of digital transformation the way financial services is. Even fewer companies are figuring out how to tackle those challenges.
What complicates digital transformation for financial services is not just the vast array of products banks, in particular, have historically offered, it’s the sheer volume of regulatory and compliance issues that must be taken into account during every stage of product development. Banks offer products ranging from individual checking, savings and retirement accounts to massive commercial loans.
Nonetheless, the financial industry is ripe for disruption. For some insight on what that disruption might look like, I turned to Spencer Lake who spent the last 29 years in investment banking. Among other institutions, Lake held various leadership roles at HSBC, including vice chairman of global markets. These days he’s running a consulting firm and happens to hold board seats on two of the FinTech companies where Insight Venture Partners has invested.
The Challenge of Siloes
As Lake has observed, one of the biggest challenges facing banks is the fact that they’ve become increasingly siloed, from functional, legal, product and geographic perspectives. Their operations have been siloed as well, into front, middle and back office operations.
What’s more, plenty of financial institutions have grown as the result of acquisitions. When that happens, he says, the heart of the individual bank isn’t integrated and the institution ends up with a lot of data and systems that don’t speak to each other. “It’s like a big bowl of spaghetti that winds through the business,” Lake says, “Everything touches but it’s not necessarily connected.”
For example, there’s the data within the “payments” business, the foreign and lending businesses, the capital markets — all siloed and all beholden to different sets of regulations. Then there’s data associated with every individual and institution needing financial products. Add to that the fact that the systems are different in America than they are in Europe and Asia. It’s not like there’s just one way to do banking.
With the current banking structure, as Lake knows firsthand, it takes a lot of time to borrow money. And consumers are demanding to do their banking quickly…and from their phone. Bottom line: Systems that have worked for decades or more are no longer working.
Banks are seeing other kinds of businesses come in and eat off of their profits because these startups are developing innovative, convenient solutions that are compliant with regulations and, more important, that customers love. Just think about what you can now do with Venmo or Apple Pay — consumers want banking to be that frictionless and fast, and banks haven’t thought that way until now.
Re-architecting the Data Infrastructure
Banks are finally starting to reorient themselves toward Digital, and they’re becoming more customer-centric. At Insight Venture Partners, we’ve found a handful of FinTech firms that are “best in class” in solving the problems banks are facing and growing lightning fast as a result. And these companies’ solutions all start with being able to use AI/ML to make sense of data, and then make lending and investmen decisions within minutes or hours instead of days or weeks.
Thus far, the companies Insight Venture Partners see offering solutions and gaining traction are:
NCino is a “bank operating system” that has figured out a way to consolidate data and deliver information digitally, the way an increasing number of customers expect. The result? Data that used to come from six different departments and take six weeks to consolidate now takes 24 hours or less. This means banks can make lending decisions so much more efficiently and transparently — which, again, customers are demanding.
Fenergo is a “client lifecycle management” solution, that streamlines everything from regulatory onboarding, data integration, client and counterparty data — and more — for financial institutions. The company has found a way to improve compliance and operational efficiencies, and improve client experience — all while speeding time to revenue.
PrecisionLender is using artificial intelligence to price commercial loans. Pricing these kinds of loans has always been a manual process and reconciling accounts was very inefficient. Precision Lender is able to collect data from various sources — CRMs, LOS, etc. The composite data is more valuable than the siloed data. Having the data in one portal is a win-win because bankers and customers both have a seamless experience.
Duco provides self-service data engineering in the cloud. Empowering users to normalize, validate and reconcile any type of data on demand. From there, it’s possible to put P&Ls together almost instantly and make lending decisions more quickly.
This small number of companies are showing us how AI/ML will have a material effect on digital transformation — they are re-architecting the data infrastructure in order to leverage “the machine” more effectively. As Spencer Lake says, banks are having to unwind existing systems to make the new systems fit together. It’s complicated and it’s expensive, but banks are all looking for solutions to change the orientation for customers. It’s a big ask, but it’s underway.
Stay tuned for more thought leadership about FinTech in future columns here. Spencer Lake will lead two FinTech breakout sessions at our next Ignite Innovation Roundtable in Ireland, April 6-8. To learn more, please contact Emmet B. Keeffe III, Founder, Insight IGNITE at firstname.lastname@example.org.