How COVID Is Pushing Digital Finance Faster Than Ever
Hi all, Julie here. I’m going to start this off with something Hans Morris of NYCA said in a phone call with me on Saturday:
“I can definitely tell you that no one wants to go back to handwritten applications. Once you do a digital process, you never go back, ever. Once a process is electronic, you never go back to a paper version. You sometimes need motivation to make the initial switch, but after that it’s habitual.”
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Banks have been trying to make more pieces of their business digital for years, some with more gusto than others. But, it wasn’t until about 5 years ago that we were able to deposit checks via a screenshot on our phones, it wasn’t until 2019 that Goldman’s Marcus product had an app, and it wasn’t until just a couple years ago that some challenger banks offered to start paying you early. With bank branches closing on the consumer side, and banks having to suddenly process small business information for PPP loans as quickly as possible in order to get government funds before they run out, everyone has suddenly been thrust into an environment where digital is more important than ever. Hans’ aforementioned quote highlights what the future can look like—one where digital financial services is the norm, not the anomaly. Except this time, the catalyst was a worldwide pandemic that changed our way of life, and is now seeping into our financial lives as well.
NYCA, QED and Bain Capital Ventures hosted a COVID specifics demo day on April 9th where many of their companies made 5 minute pitches to banks with examples of how their software could solve problems immediately and can be installed within days. According to the VCs, more than 300 bank execs showed up. One example of something that came from the event is a partnership between Blend and M&T Bank. Blend put their SBA origination product together within a week and then M&T used it. According to M&T, here are some of the results they had in Phase 1: * M&T received 9,000 applications in the first 90 minutes of opening. * M&T was able to get $6.4 billion in PPP funding approved for 27,711 businesses employing more than 600,000 people before the first round of funding closed. * Total Qualified Applications: 32,478 for $6.98B * Last year M&T approved around 1,400 SBA loans.
Hans believes this is just one of several ways that banks will start ramping up digital offerings. On Monday, the companies are hosting another demo day, this time with banks doing presentations. This time, banks will be the ones doing presentations on what they need during these times.
This time, it looks like a lot of the talk around moving digital is actually garnering some traction. Like Hans said, a number of banks had to put new digital systems in place for PPP. The big question now is how much of the talk turns into a budget.
We’ve seen a rapid rise in the amount of corporate venture capital being invested in fintech firms, accelerator programs being developed, some small M&A and partnerships being formed. Just last week, Visa expanded its Fast Track program, citing the response to Covid as a key reason. Again, a lot of this isn’t new, but I’ve always sensed that things like this haven't been as much of a priority as they’ve sounded like in the press. While some of it will still be a lot of hype, it feels like there will be more action and dollars put behind these types of programs in the future.
Debit cards weren’t initially much of a priority for companies either when people were still paying for groceries with checks. But once the “ATM cards” started to take off, there was a slew of dollars and resources put behind these types of programs. We’ve all been waiting for something to push people to use digital wallets more, to check their bank accounts online rather than at a branch, for banks to take more data and programs digital. While Covid wasn’t the way we imagined or wanted any of these trends to be accelerated, this is what we got. I started with a quote and I’m going to end with a quote, this time from Dan Schulman on PayPal’s earnings call last week.
“There are clearly secular shifts that have accelerated. There is no question about it. E-commerce has accelerated by two, three years. And people may not be at these incredibly elevated levels, but they are going to be at elevated levels coming out of it. You're going to see people doing digital payments truly omni.”
He also pointed out that On May 1st, they had their largest single day of transactions in their history, larger than last year's transactions on Black Friday or Cyber Monday.