Community Banks Form Fintech Alliance: Should You Join?

According to a recent Finextra article:

"A dozen American community and regional banks have formed a consortium, called Alloy Labs Alliance, dedicated to exploring fintech opportunities. The Alliance, which is being managed by Fintech Forge, is designed to help smaller banks pool their resources in the quest to stay relevant in the digital age. The platform will offer a chance to work together on shared areas of opportunity, with smaller working groups focusing on specific areas. The group--which includes Columbia Bank, Inland Bank and nbck Bank--also want to work with fintech startups to help shape their solutions while reducing execution risk."

I had a chance to catch up with Fintech Forge Managing Director and co-founder Jason Henrichs.

RS: What's the objective of the alliance?

JH: To accelerate the adoption and value of working with new fintech providers. It's not simply about "getting in touch" with them. The founding members of the alliance are all banks who are fairly sophisticated, fintech-wise, for their size, and are looking to leverage their scarce resources. As one of them told us, "Today, we do about 20 proofs-of-concept a year, and take one to production--we're joining the alliance so we can do 30 POCs and get 5 to 6 into production."

RS: How does it work?

JH: Members determine what "problems" they want to work on solving. "Small business lending," for example, is not a problem. It has to be more granular than that. If other members of the alliance want to work on solving that problem, they form a working group to pool their resources.

RS: What types of working groups exist so far?

JH: We have working groups focused on p2p payments, digital account opening/onboarding, and small business banking product design. There's some interest in forming a digital identity working group.

RS: What if a bank wants to work on a specific topic that nobody else want to? Are they out of luck?

JH: Not necessarily. If one of the other members has already addressed that problem they can publish what we call an "innovation blueprint" which other members can purchase. For example, one of the founding members evaluated chatbots, so their innovation blueprint includes their problem definition, which vendors they evaluated, the details of their selection process, documentation for risk and vendor management, how they implemented the solution, and the contract itself. It's not only a way for a member with a defined problem to jump start their efforts, it's a way for other members who have already addressed that problem to monetize what they've done.

RS: How do you bring the fintechs and other needed providers to the table?

JH: We've developed partnerships with venture capital firms, accelerators, and incubators who can help identify and bring on fintech providers. We also have a partnership with Crowe Horwath to help with compliance and regulatory and security risk issues. We've also partnered with subject matter experts with expertise in payments, core apps, and digital platforms.

RS: What does it cost to become a member of the Alliance and who can join?

JH: $15,000 to join. There are additional costs depending on what working groups a member participates in. Right now, we're looking to bring on an additional 20 banks, but over time, we plan to expand to more banks, credit unions and other types of participants.

Alloy Labs brings a much-needed set of services to the mid-size bank space. But it's not right for every bank. If your bank hasn't even started evaluating and looking to integrate and/or partner with fintech firms, your bank isn't a good candidate for the consortium. Alloy's members are looking for other banks who can bring something (i.e., experience and resources) to the table to accelerate--not just start--the adoption and value realization of fintech partnerships. 

For more information on the Alloy Labs Alliance, click here.

Ron Shevlin
Director of Research
Cornerstone Advisors