Kosta Ligris: Fintech Partnerships Can Empower Community Banks, Credit Unions to Thrive

Kosta Ligris is a lifelong entrepreneur and cofounder of real estate startup Stavvy, a fully integrated digital mortgage platform. Previously, he was founder of the Ligris Companies, a collection of professional services, real estate and consulting firms headquartered in Boston. He now serves Ligris as chairman, and he continues to advise startups and founders, particularly in fintech and proptech verticals, both as an active angel investor and as Entrepreneur in Residence at the Martin Trust Center for MIT Entrepreneurship. He is a lecturer at his alma mater, the MIT Sloan School of Management, and a Trustee at Suffolk University, where he earned his law degree.

The COVID-19 pandemic has created financial stress and adverse impact on multiple industries and individuals alike. But as we enter an endemic and a return to some sense of normalcy, the world will resume its trajectory toward a more global economy. This means that banking, financial services, and the institutions that provide these services are at a very relevant inflection point. Digital transformation is no longer a question. Not only is it inevitable, but it is imperative for banks to compete and thrive. In fact, most of the largest banks have not only survived the pandemic, but have done extraordinarily well. This is arguably because of the existence of technology that has empowered them to allow bankers to work remotely and customers to leverage technology to keep business moving as usual.  

Consumers expect more, because mobile is not an option, it is a necessity. As Wayne Gretzky put it, “You have to skate to where the puck is going.” In mortgage lending, this requires a deep understanding of the persona of the consumer that mortgage banking will serve. The data is clear: mobile and digital experiences are not just for Millennials— they are becoming an expected platform for all generations. 

For decades, we got our news from print, radio, and television. What does that look like today? It is not just digital, it is moving to overwhelmingly digital. This chart shows the trend by age groups. To think that transactions such as banking, lending, and investing can remain paper-based is just reckless. So what does this mean for banking, and specifically for community banks? The general answer I hear is that a bank has a robust mobile banking app, allowing for transfers, check deposits, push notifications, and the like. While this technology is impressive for community banks that are not in a position to develop and build their own platforms, is this truly innovative? How do you engage with your customers in the lending space? Community banks need to focus on partnerships with fintechs to deliver exceptional experiences and solve some of their most fragmented challenges. Fragmentation is expensive and riddled with risk and inefficiencies—and the lending and banking industries are full of fragmentation. 

I speak with banks and credit unions on a regular basis, and many are fully aware of the gaps in technology that exist, especially in the lending space. Several have initiatives to leverage technology, but execution and adoption remains low. Fintechs are taking over in the personal loan market. Why? Frankly, traditional banks and credit unions turned away from personal loans—and fintechs leveraged the lack of attention to capture this business. They lend more than banks and credit unions do, and this trend will likely continue to grow. Why is mortgage lending safe from fintechs? It’s not—in fact, banks and credit unions need to revisit their entire technology stack and strategy in order to maintain this market. Early stage technology companies are agile, they can pivot and develop quickly, responding to customer requests and demands. Partnering with early stage fintech companies gives banks a competitive advantage. Not just within the general market, but with large bank competitors. To add more context, even the largest banks are worried about the impact that fintechs can have to their core businesses. The bottom line is that software and technology are at the core of innovation, security, and customer experience. Banks, traditional lending institutions, and credit unions rely on legacy platforms that are not easy to integrate with. That’s not a critique, but a factual observation. As a result, fintechs have capacity and resources but also lack the reliance on that technical debt and weight to slow them down. 

Asked about whether banks should be worried about fintechs, Jamie Dimon, CEO of JP Morgan stated: “We should be scared sh–less.” 

There have been instances of lenders, banks, and insurance companies acquiring technology startups. More often than not, these acquisitions cause innovation to slow or stall. Banks and insurance companies are not technology companies; I argue that the solution is not to buy and shelve innovation, it is to strategically partner with fintechs and find ways to leverage respective strengths. Fintechs don’t have bank charters, and although there have been some acquisitions of banks by technology companies, the trend still remains that fintechs are the acquisition targets. 

Great partnerships are the result of partners flexing their strengths and experience, and together accomplishing more than they could alone. Sometimes, smaller lenders can view mortgage lending as a necessary credit product, instead of leveraging technology to increase margins and drive customer retention and deposits. By partnering with fintechs, banks and credit unions position themselves to have the best of both worlds and compete with larger incumbents and non-bank lenders. In a survey of over 1000 consumers in 2019, 54% indicated that they were fully satisfied with their bank, in contrast to over 90% of respondents in a 2020 McKinsey study who stated they were satisfied or very satisfied with fintech companies during the COVID-19 pandemic in the United States. 

The pandemic has forced everyone, including banks, to imagine a world without offices. To be clear, the office culture will return for most industries in financial and professional services, even if the new normal changes the environment. However, a quick drive through Manhattan in the evening highlights the magnitude of brick and mortar exposure that banks have. Large branches, on prime corner locations with bright lights shining through the night, illuminating the city that never sleeps—this is costly real estate that rarely, if ever, has a line running around the corner. Technology is more convenient, more efficient, and more secure. Now is the time to invest in fintech initiatives for deposits and for lending. 

Mortgage lending continues to be fragmented, with lots of manual data entry, legacy platforms, and overuse of email. The experience for customers is far from ideal, and fintechs are leading the charge in better experiences for mortgage applications, document collection, processing tracking, scheduling, and closing using eSign and remote notary tools. 

Here are some tips for banks and credit unions looking to work with fintechs to advance their digital transformation:

Where do I start?

• Have a plan. Look at areas that could use improvement and engage the entire team to provide ideas or question practices or systems that create inefficiencies.
• Look for value creation. Value creation can come in different forms, some examples include: (a) cost savings and improved margins; (b) better customer experience and retention; (c) greater security; and (d) redundancy.
• Talk to other similar banks or credit unions. See what they are using—there is strength in the industry coming together.
• Ask an executive to own engagement with startups, fintechs, academic institutions and other relevant innovation stakeholders. Empower them to look for opportunities and test products or solutions within the organization.
• Have an open mind. Consider the impact and open the aperture. You can engage as a design partner and get resources to solve problems that you may have thought impossible to solve.

Common misconceptions: 

• “Technology is going to replace people, so my people will resist adoption.” Technology may replace tasks, increase efficiency, and automate processes that are traditionally very manual—arguably taking stress off the team and allowing them to focus on more important projects and tasks.
• “Startups and fintechs are not secure.” Most fintechs are based on cloud infrastructure hosted by organizations that have some of the best security—namely AWS, Google, and Microsoft. Smaller organizations are actually less of a target. Additionally, smaller teams are easier to manage and oversee.
• “The timing is tough—we simply cannot allocate the resources to deploy new technology.” The timing will never be right—in fact, the best time to give your team better tools was yesterday. You need to make the time to explore options and look for partnerships to help you solve some of the more pressing problems and execute your plan. 

The best time to plant a tree was 20 years ago. The second best time is now. – Chinese Proverb

• “We can’t afford it or didn’t budget for it.” Fintechs know your business and have spent time learning where the value is. In many instances, their products can save you money and/or decrease risks and exposure. 

Questions to ask: 

• What does an implementation plan look like? 
• Do you have training and support resources? What do they look like?
• How much input can we have in future features and product development?
• Do you have case studies or references that can help us analyze the opportunity?
• What does your source of funding and financial landscape look like?
• How do you plan to manage and handle security and data? 

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)