ABA Banking Journal - November/December 2016 - 21


Most (if not all) fintech startups have focused their efforts
on building a seamless digital customer experience that
is not offered by all banks today. This focus on user
experience, however, means that few startups have
developed the back-end systems to handle financial
transactions. As such, they rely heavily on bank partners to
perform these functions.
Just as they have relied on banks' technology infrastructure
to operate, fintech startups also typically rely on third

parties to hold the assets that they originate. Rather
than hold onto the loans or relationships they originate,
most fintech firms choose to offload the risk and make
their profits from originations.
McKinsey estimates that while 54 percent of global
banking revenues are driven by balance sheeting
assets, this accounts for just 41 percent of after-tax
profits. Moreover, when the cost of capital is
considered, the ROE for balance sheeting assets is just
6 percent compared to 22 percent for originations.
Finally, the vast majority of startups focus on a narrow
line of business, cherry picking the most profitable
businesses for banks. A prime example of this is
Promise, a company offering only wedding loans-
taking the old "something borrowed" maxim perhaps
too seriously. Funding for startups confirms this focus,
with 46 percent of fintech investment going to lending
and 23% to payments. A bank would be hard pressed
to find a line of business that is not challenged by
one startup or another, but few, if any, startups today
compete with banks across multiple lines of business.

Collaboration, not competition
"Silicon Valley is coming," J.P. Morgan Chase chairman
and CEO Jamie Dimon direly warned his shareholders
in 2014. Fortunately, this narrative has changed
dramatically in the past two years. Today's fintech
startups have pivoted to a collaborative model in which
they actively seek partnerships with banks.
Banks and startups both have a unique set of strengths.
When the two collaborate, they are able to deliver their
customers innovative products that are safe and secure.
Fintech startups bring a culture of innovation that
is difficult to replicate at financial institutions that
specialize in managing risk. Their technology expertise
and lack of legacy systems have allowed them to build a
digital customer experience that does not exist at most
banks today.
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21


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Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016

Chairman’s View
Upfront
Picture This
Banking’s ‘Amazon Moment’
Special Report on Innovation and Technology
Building an ‘Internet of Value’
Do You Do What the Data Tell You?
Innovation in the Bank
Core Exercises
Cover Story Pillar of Her Community
Maintaining a Commitment to Ag Customers
Who You Gonna Call?
Anti-Money Laundering
Power Up Profile
Compliance ‘When Can I Call My Customer?’
Risk Management
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2016 - bellyband1
ABA Banking Journal - November/December 2016 - bellyband2
ABA Banking Journal - November/December 2016 - cover1
ABA Banking Journal - November/December 2016 - cover2
ABA Banking Journal - November/December 2016 - 3
ABA Banking Journal - November/December 2016 - 4
ABA Banking Journal - November/December 2016 - 5
ABA Banking Journal - November/December 2016 - 6
ABA Banking Journal - November/December 2016 - 7
ABA Banking Journal - November/December 2016 - Chairman’s View
ABA Banking Journal - November/December 2016 - 9
ABA Banking Journal - November/December 2016 - 10
ABA Banking Journal - November/December 2016 - Upfront
ABA Banking Journal - November/December 2016 - 12
ABA Banking Journal - November/December 2016 - 13
ABA Banking Journal - November/December 2016 - 14
ABA Banking Journal - November/December 2016 - 15
ABA Banking Journal - November/December 2016 - Picture This
ABA Banking Journal - November/December 2016 - 17
ABA Banking Journal - November/December 2016 - 18
ABA Banking Journal - November/December 2016 - 19
ABA Banking Journal - November/December 2016 - Special Report on Innovation and Technology
ABA Banking Journal - November/December 2016 - 21
ABA Banking Journal - November/December 2016 - 22
ABA Banking Journal - November/December 2016 - Building an ‘Internet of Value’
ABA Banking Journal - November/December 2016 - 24
ABA Banking Journal - November/December 2016 - 25
ABA Banking Journal - November/December 2016 - Do You Do What the Data Tell You?
ABA Banking Journal - November/December 2016 - 27
ABA Banking Journal - November/December 2016 - insert1
ABA Banking Journal - November/December 2016 - insert2
ABA Banking Journal - November/December 2016 - Innovation in the Bank
ABA Banking Journal - November/December 2016 - 29
ABA Banking Journal - November/December 2016 - 30
ABA Banking Journal - November/December 2016 - Core Exercises
ABA Banking Journal - November/December 2016 - Cover Story Pillar of Her Community
ABA Banking Journal - November/December 2016 - 33
ABA Banking Journal - November/December 2016 - 34
ABA Banking Journal - November/December 2016 - 35
ABA Banking Journal - November/December 2016 - 36
ABA Banking Journal - November/December 2016 - 37
ABA Banking Journal - November/December 2016 - Maintaining a Commitment to Ag Customers
ABA Banking Journal - November/December 2016 - 39
ABA Banking Journal - November/December 2016 - 40
ABA Banking Journal - November/December 2016 - Who You Gonna Call?
ABA Banking Journal - November/December 2016 - 42
ABA Banking Journal - November/December 2016 - 43
ABA Banking Journal - November/December 2016 - Anti-Money Laundering
ABA Banking Journal - November/December 2016 - 45
ABA Banking Journal - November/December 2016 - 46
ABA Banking Journal - November/December 2016 - Power Up Profile
ABA Banking Journal - November/December 2016 - 48
ABA Banking Journal - November/December 2016 - Compliance ‘When Can I Call My Customer?’
ABA Banking Journal - November/December 2016 - 50
ABA Banking Journal - November/December 2016 - Risk Management
ABA Banking Journal - November/December 2016 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2016 - 53
ABA Banking Journal - November/December 2016 - 54
ABA Banking Journal - November/December 2016 - From the States
ABA Banking Journal - November/December 2016 - 56
ABA Banking Journal - November/December 2016 - Corporate Social Responsibility
ABA Banking Journal - November/December 2016 - Index of Advertisers
ABA Banking Journal - November/December 2016 - cover3
ABA Banking Journal - November/December 2016 - cover4
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