On this episode of Expert Insights, our host Joe Welu is joined by Jason Henrichs, founder and CEO of Alloy Labs, a consortium driving exponential growth for banks by leveraging network effects. Jason is recognized across the banking and FinTech industries as an innovator across financial services, creating new business models, and using technology to drive change. He co-hosts the podcast “Breaking Banks,” the No. 1 global FinTech radio show and podcast, as well as “FinTech5” on Provoke.fm.
In this episode, Jason shares his view on the current state of the financial services market, how traditional banks need a cultural growth mindset, and how Alloy Labs has helped many firms evolve into new business models.
State of the Industry
As tempting as it is to attribute today’s market conditions to macro trends – the pandemic, fears of inflation, global conflict, and the like – that’s not what Jason views as the cause of recent market turbulence. He cites a “trickle-down effect,” from the flow of venture capital into the FinTech space during recent years. “There was a bit of a Ponzi scheme in funding, where how fast can I go raise and raise more in this idea of bubbling valuations,” Jason says, adding that some founders felt pressure to continually raise round after round, seeking higher valuations and, potentially, unicorn status.
“What we’re seeing now,” he says, “is the ‘A-ha!’ moment of ‘Oh, I actually have to go solve a differentiated problem’.” Jason singled out neobanks as an example, citing their extreme specialization. “The neobank for people who use their left hand when it’s a full moon,” he joked, asking “is that different? Is that a need that’s actionable?” Then, traditional banks see the softening and come to the false conclusion that the FinTech sector was overblown. A fad.
FinTechs and traditional banks alike are under pressure to rethink how they deliver value, Jason says. He finds it disappointing that the best neobanks have to offer is the ability to get you your paycheck two days earlier.
Shifting to a Growth Mindset
Alloy Labs is currently evaluating several deals that “fundamentally rethink” the business models for both neobanks and traditional ones and are reworking the value proposition on both sides. But what’s truly needed, Jason says, is a cultural change; banks need to adopt a growth mindset. This is a huge shift for banks who traditionally focused on managing risk. Safety and soundness still matter, he says, but there needs to be experimentation at the edges of the business. “We need to be comfortable taking some risks, understanding that the risk is for the purpose of learning,” Jason says. “That’s what its true value is.”
Jason and Joe agree that FinTechs and traditional banks should conduct more proof of concepts – 90-180-day type scenarios to test new use cases. For example, Alloy Labs is working with a startup, Carefull, which helps adult children and caregivers manage the financials of aging parents. Carefull developed an algorithm that can detect potential cognitive decline based on financial activity such as missed payments, double payments, unusual donations and the like. Rather than simply giving the caregiver full access to the parent’s accounts outright, Carefull has developed a smooth transition where more access is given as a parent’s cognitive status declines.
One of the smaller banks Alloy Labs works with that operates in an area with an aging population base heard about Carefull and wanted to conduct a paid pilot program. It was a perfect match, Jason says. Though that pilot program has ended, the bank continues to work with Carefull on new iterations of the offering, which has been a success for the bank’s aging customers.
Formula for Success
While every company’s path is unique, Jason had some advice based on Alloy Labs’ work over the years. Two common points of failure? Focusing too much on cost savings and not figuring out how to best use data. For traditional banks, a third point would be overthinking the need for a complete digital transformation strategy before getting started.
“They spend so much time planning; the world’s going to move so much further before they can catch up,” Jason says. Jason stresses not to go for the changes that will have the most significant impact on the organization but instead on smaller projects that can result in “quick wins.” Joe agrees, stating, “you can make tremendous progress on various projects when you just take that mindset of ‘let’s find some quick wins, low-hanging fruit.” And, then, repeat the process in a new area that grows on the initial success.
For more of Jason Heinrichs’ insights, listen to the full Experts Insights episode.