He said technology enabled small banks to compete with regional and national banks, and the increased competition has provided consumers with greater access to credit. “I think it’s an incredible time,” Landvatter said.
For FinWise, Friday (Nov. 19) was particularly exciting because that was the day its initial public offering (IPO) was priced at $10.50 and started trading, ultimately closing its inaugural session up 21% to $12.73.
“I feel that there’s this trajectory that the bank’s been on for a few years, that I think this would be inevitable, just so we don’t artificially constrain growth because of capital issues,” Landvatter said. “We’ve grown capital really well over the last few years, but our CAGR on the asset growth since 2018 has been 55% through the nine months this year, and so it’s something that we’re just very aware of and we don’t want to bump into any restrictions there.”
Monitoring Capital, Compliance and Character
FinWise is a nationwide lender taking deposits from consumers and small businesses and operates a full-service banking location in Utah and a loan production office in New York. Three of its strategic areas are point-of-sale (POS) lending, SBA 7(a) lending and Strategic Program lending.
In Strategic Program lending, FinWise enables FinTechs and other players in the space to have banking relationships that allow them to do things they couldn’t otherwise do because they’re not banks.
Over the last few years, Landvatter said, the banks have had a couple of hundred requests, have done due diligence on 50 and have only 11 on the books right now.
“We’re very selective of who we partner with,” he noted. Landvatter said the bank looks at “three C’s” when considering a partner: capital, compliance mindset and character. In addition, FinWise seeks a diverse set of strategic relationships to reach more customers via the platforms it signs.
Gaining Insights By Analyzing Data
There are fewer than 20 banks in the country competing in this space, and only 10 are focusing on it because it’s a challenge to be regulatorily compliant and socially responsible, Landvatter said.
“When you think of managing a third party on scale, you really have to have robust internal controls to ensure that someone doesn’t go off the rails,” he said. “So, even though in theory it makes a lot of sense, the barriers to entry can be immense for some banks that might be interested but then steer away later.”
In SBA 7(a) lending, FinWise is among the top 50 producers in the country and in the top 10 producers in New York and New Jersey.
In POS lending, the bank provides services to buy now, pay later (BNPL) players, for example. Here, it has built an internal data analytics platform that gives it insights into the types of credits it would like to hold on its books.
“For example, before we ever go into a relationship with a strategic platform, we will always look at the credit side and see if it’s something that we would feel comfortable holding ourselves,” Landvatter said.
Looking ahead, Landvatter said those in the banking industry would keep embracing technology, scaling their operations, providing consistency in how they treat customers and do marketing and a host of other things.
At its one branch, FinWise has found that its customers have a relationship with the bank while also considering high tech to be critical. Landvatter noted that COVID-19 accelerated the need for banks to embrace technology because people got used to banking from home.
“Some of our branch customers are interacting more through digital means,” he reported.