Call it one more unpredictable turn in an unpredictable year.
As the convergence of financial technology gets closer to consumers and businesses, the focus on money movement takes a twist toward an area where money is usually at rest: deposits.
“If you think about where financial services is going, which is more tech-enabled and more software-enabled, it’s creating these new platforms and these new ecosystems,” Jon Briggs, executive vice president of commercial products and innovation at KeyBank, told Karen Webster in an interview. “You need to be in that game to attract, grow and retain deposits because money is becoming more mobile and will be living in different ecosystems. You need to be in the game to be able to have a share of that.”
What if traditional banks could access that share? The excitement around deposit accounts stems from some what-if scenarios and discussions in many areas of the payments and banking sector. It was the topic of discussion among Webster, Briggs and Ingo Payments CEO Drew Edwards.
Technology and the rise of FinTechs have made account opening easier and the movement of money in and out of those accounts more streamlined and secure. For example, virtual issuing turns a payment from the sender’s account into a digital account for the receiver. Think Starbucks and its loyalty program featuring mobile payments.
FinTechs have become important intermediaries in helping traditional banks attract and retain those deposits when their legacy infrastructure might make it difficult. What if an outbound payment into a new account created the foundation for a new closed-loop ecosystem? What if banks and their commercial clients could offer incentives for senders and receivers to store and spend money? What if issuers had new opportunities to monetize those accounts?
“That’s why we bought [cloud-based banking platform] Deposits because it’s that piece in the middle where you need to be able to create accounts on the fly, access ledger accounts and facilitate modern money movement,” Edwards said. “It takes money mobility and enables it to be embedded in these software experiences and in these treasury experiences.”
Edwards referred to this process and experience as “embedded money mobility.”
While you could make an argument that consumers and businesses might not need to open another account, the reality is that new thinking around account opening and deposits means viewing the account as something that runs in the background of the embedded experience, Briggs said. For example, KeyBank has commercial clients that use ledgers and sub-ledgers to better define their payments activities and make it easier to track payments and reconciliation.
“They’re thinking less about opening new accounts to enable this process and more about streamlining their back office to drive a better client experience or employee experience,” Briggs said.
As traditional banks like Key and FinTechs like Ingo innovate and monetize deposits, regulators are taking a close look. Rule 1033 issuance from the Consumer Financial Protection Bureau, for instance, mandates account portability for businesses and consumers but leaves the data access standardization issue open. Mix in the Synapse bankruptcy and its tangled trail of account reconciliation, and the possibility exists that deposit accounts will be further regulated.
Briggs suggested that we’re only beginning to see the impact of regulatory changes in the banking and FinTech sectors, especially concerning deposit accounts. He said he anticipates that over the next year or two, banks and FinTechs will start to understand how these shifts reshape the industry.
Companies with strong compliance practices will have an edge in this evolving market, he said. This advantage will come from working with banks that recognize and value their commitment to compliance. Additionally, many enterprises, some with consumer-facing financial products like Starbucks, will influence these trends and could influence regulators.
“We’ve already started to feel it ourselves,” he said. “These large, sophisticated enterprises want to know who it is that’s powering their strategy. They want to know where that money is, who’s standing behind it, and they want to understand the risk wrapper and apparatus that’s around it. It is an interesting inflection point. I think those FinTechs that have robust risk policies, procedures and apparatuses that they use to run their business will be differentiated as we go forward.”
Key and Ingo are among those moving forward. Briggs said KeyBank has been investing heavily in what it calls “embedded banking” for the past four years and plans to continue doing so. This approach acknowledges the merging of technology and financial services, which requires a new way of thinking about banking and specialized technology to keep up.
When done right, embedded banking opens opportunities for new business models, revenue streams and customer engagement, he said. The industry is still in the early stages, but institutions investing now will see growth benefits.
Demand for better deposit account creation and access is also growing, with many of KeyBank’s commercial clients upgrading their technology and wanting to integrate banking directly into their enterprise resource planning (ERP) systems, download plugins and use APIs to make transactions smoother — something Briggs said he expects will speed up going forward.
When asked by Webster what it would take to turn the “what ifs” into operational reality, both executives landed on partnerships and regulatory compliance as the primary areas of focus. Edwards said effective use cases and incentives will play a role in moving deposit account innovation forward.
“To actually drive adoption, to me it comes down to choices and incentives,” he told Webster. “And the incentives can be financial, they can be the speed of money, they can be rewards, they can be any number of things. And as these things become reality, and we start to see some more of these hallmark use cases, we will see banks like KeyBank really press the envelope of what I would call batch-based treasury banking.”
“We firmly believe in having a FinTech strategy,” Briggs added. “This is a complex space that requires technology and embracing FinTech partners because I think they need to be part of the equation to be able to advance your roadmap and capability set fast enough to be able to compete. And then lastly, it’s be prepared to educate, educate, educate. Internally, we have a lot of work we have to do in the industry in terms of educating ourselves and our regulators about these business models that are being created and the risks associated with them.”
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