Wanting to remain on the front lines of developing cutting edge banking technology, UMB Bank joined the Alloy Labs Alliance.
Alloy Labs Alliance is a consortium of community and mid-sized banks who strive to efficiently adopt technology and quicken the pace of innovation to help them better compete against large, national banks. Alloy Labs Alliance was created in 2018 and since then has grown to more than 50 institutions from across the country.
“One of the things that really spurred my team’s interest in Alloy Labs is the fact that they engage with so many fintechs, a lot of them startups, but some of them already established,” said Austin Braithwait, executive director for Institutional & Fintech Banking Services at UMB.
Braithwait described Alloy Labs as a consultant and consolidator, bringing banks together to establish best practices for the fintechs that come to them. The lab wants to set the standard for how banks should work with fintechs.
Fintechs typically are more nimble and technology savvy than community banks. They identify problems quickly and conjure digital solutions that are consumer friendly. But fintechs typically can’t or don’t want to invest the millions of dollars it takes to create all the systems necessary to comply with the hefty regulatory environment in financial services. So they use banks to get services like processing transactions or protecting savings through FDIC insurance. The platform banks create to offer these services is commonly referred to as “banking as a service."
UMB has been offering banking as a service for 40 years, long before fintechs existed. UMB offered cash accounts to broker dealers such as Fidelity or Morgan Stanley, enabling their clients to do transactions and gain FDIC protection on cash balances up to $250,000.
Since those early roots, UMB has continued to adapt and innovate its offerings. Today, UMB is the only bank in the U.S. offering a proprietary FDIC Sweep program. It takes all the cash deposits from an institutional client and breaks them into $250,000 increments — enabling FDIC insurance coverage — with each increment moved into a bank part of a network willing to pay high interest rates for those deposits. The interest from the various banks then is “swept” back into the institutional client accounts. The end result is that a customer’s cash earns far higher rates of return than a typical money market account. That’s attractive for fintechs and a nice generator of fee income for UMB.
Braithwait hopes to continue adding fintechs interested in working with UMB. Opportunity appears to be trending upward, and many fintechs recognize that people were caught off guard during the pandemic without enough savings to weather the economic storm. More fintechs are creating savings and educational programs that encourage people to save more for a rainy day.
“Fintech I see are very involved in not just courting people who have already accumulated wealth,” Braithwait said. “They’re courting individuals who are going to accumulate wealth over time. So if you don’t get ahold of those clients early, they’re going to already be with a different trusted partner.”
Braithwait called it the democratization of wealth. It makes sense for banks to work with fintechs that are proactive in helping people generate wealth and making sure they understand the need for emergency savings.
Banks can help the financial health of clients, so it’s better for the to get on board now to offer services to fintechs, he said.
