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power of loans and deposits on their side; fintech doesn't. costs to create a new dollar of income (the efficiency ratio).
However, fintech can reduce friction and create a better Fintechs are not great at profitability because, up to now,
customer experience. they haven't had to be, which is why 90 percent of them
will not be around in five years.
As Larry Summers, former U.S. Treasury Secretary
and Chief Economist for the World Bank, wrote in The Summers believes fintech is likely to contribute
Washington Post, "Some examples of frictions that are kind substantially by removing friction in the banking system.
of shocking are the huge premiums people pay for title For example, we know the work involved in lending money,
insurance when they refinance, the inability of major underwriting, pricing loans, hedging and so forth is tricky.
banks to enable clients to automatically pay down their A bank cannot have more than 1 percent of outstanding
credit line, and the $40 billion plus in credit and debit loans on non-accrual or it will incur regulatory scrutiny.
card interchange each year." A revolution is occurring in Fintech companies don't have to worry about all that, but
payments, with innovations occurring independently in they can provide a solution with big data and artificial
several areas, including data warehousing, omnichannel intelligence.
commerce, the cloud, big data, artificial intelligence,
machine learning, data analytics and open sourcing. On the other hand, Amazon can loan money to clients
Banks will ultimately offer aspects of these to your because it has a comprehensive record of its clients' sales.
merchants, but the banks are not going to develop these Amazon is their landlord and also has a large deposit
areas themselves. from their daily settlements. The bank is no longer the
only depository account for a merchant. There are other
Removing friction intermediaries who can hold "deposits," such as Square,
As payments expert Chris Skinner put it, "It's just not Intuit, and PayPal. Now Wal-Mart is developing a mobile
in a bank's DNA to do this." But banks are outsourcing prepaid card that would act as an electronic checking
development in these areas to fintech providers. This account. There are numerous exaggerations about the
frees up the banks to address regulatory and compliance fintechs. For instance, just today I read a comment by
issues and other best practices, such as managing return someone at Trinity Ventures that "80% of the cars on the
on assets, return on expense, and how much in expense it road in San Francisco are used for rideshare by drivers
for Uber and Lyft." Since CrossCheck is
located in Sonoma County, just north of
the Golden Gate Bridge, I can say with
confidence that this comment is absolute
nonsense, along the lines of another
absurd comment, "Cash and checks are
going away, and pretty quickly too,"
stated last year by a senior executive at
the ETA.

In addition to the 10 or 20 largest banks
in the country, there are hundreds of
new players with almost unlimited
capital in the payments space, with
dozens and dozens of new product
ideas. The trick is to align with one that
will succeed. Listen for the bright, clear
voice with a compelling message, rising
above the din, rumors, muddled and
wishful thinking, and innuendo that is
I
inevitable in a period of rap d change.
That is not an easy task.
Brandes Elitch, Director of Partner Acquisition for
CrossCheck Inc., has been a cash management
practitioner for several Fortune 500 companies,
sold cash management services for major banks
and served as a consultant to bankcard acquirers.
A Certified Cash Manager and Accredited ACH
Professional, Brandes has a Master's in Business
Administration from New York University and a
Juris Doctor from Santa Clara University. He can
be reached at brandese@cross-check.com.
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