- Insider Intelligence spoke with Wendy Cai-Lee, founder and CEO of Piermont Bank, based in New York.
- In the interview, we talk about why she thinks banking as a service is now roughly in its third generation and what lessons banks can learn from working alongside fintechs.
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Wendy Cai Lee is the founder and CEO of the New York company Bank of Piermont. Founded in 2019, Piermont positions itself as an essentially digital B2B institution with a
offer. It also enjoys the reputational benefits of a state-chartered bank. It is an unusual strategy for a small or medium bank: Although these banks are keenly aware that they need to develop value-added digital customer experiences, they often have less to spend on technology than their competitors and are less likely to follow a “build” strategy.
Insider Intelligence told Wendy Cai-Lee why Piermont’s size is more of an asset than a liability, why she thinks banking as a service is now roughly in its third generation, and what lessons banks can learn by working alongside fintechs.
The following has been edited for clarity and brevity.
Insider Intelligence (II): Tell us about your background.
Wendy Cai-Lee (WC-L): I started about 27 years ago at Chase, before JPMorgan and before Chemical Bank. I’m an investment banker by training, but I’ve spent over a decade now in commercial banking. I did turnaround work for East West Bank after it took over United Commercial Bank, the second largest FDIC bank at the time, and worked on loan growth, building new markets and expanding the bank beyond California.
In 2017, I saw the impact fintech and technology in general was having on consumer behavior and the supply chain. My thought was:If we don’t change as a bank, we will be bought out or shut down. It’s time to get our heads out of the sand and understand what a commercial bank should look like in today’s world and how we’re going to stay relevant.”
Piermont is my second startup, my first was during the dot-com wave. But it’s hard to call a bank a start-up because there’s so much capital at stake, and you can’t start a bank without experienced bankers.
II: Why did you create Piermont?
WC-L: For years I have seen the same banking problems and heard the same customer complaints. But the bank has been around for so long and has been so profitable that there is little incentive to change. If you’re making money, who’s going to say, “Let’s spend $10 million to introduce new technology and do things differently”?
Even when an institution recognizes that it needs to change, it happens in bits and pieces. It takes a lot of time to go through the system, convince management to invest, and most importantly, change user behavior so that they actually start following the new process or using the new product.
When I saw the tremendous impact that fintech had on
and how quickly it was taking shape, I thought, “If we think this will have no impact on commercial banks, we are fooling ourselves. It’s just when and how.”
Fintechs have understood user experience, which banks traditionally don’t do well. When fintechs build their technology stacks and interfaces, they always take the user perspective. They have a lot to learn about risk management, compliance and product development, but banks also need to learn from them about building the user experience.
This was the genesis of Piermont. I wondered, “If we start with a blank slate and have no legacy issues, what would that look like?” From there, I asked what types of products are most relevant to small and medium-sized businesses — which make up 82% of the US economy — and what type of delivery would work best for them.
II: What are the challenges of being a small bank?
WC-L: Ten years ago, I would have said the challenge was pretty tough. When you’re small, you don’t have a lot of geographic coverage or capacity to create and launch new products. Each product requires subject matter expertise that you may not have, and as a regulated entity, the bank must meet compliance requirements.
But a decade of technological innovation has actually made it more advantageous to be small. It’s easier to move quickly, pivot and stay relevant reorganizing and refining our products and services. If you change user behavior in a small bank, you don’t change 30,000 or 150,000 people. You’ve just convinced a few dozen people internally that this is what our customers want, and that’s how we’re going to give it to them.
The challenge that small banks still face is how quickly they can scale, create new products and make the necessary investments to serve their customers.
II: What sets Piermont apart from other banks that offer banking as a service, and how does Piermont use marketing to differentiate itself?
WC-L: We differentiate on relevance. With Piermont, we took a step back and thought, “Okay, instead of trying to build another bank, why not take a product company approach, like Apple or P&G?” With a product company, it’s always about identifying a need and creating a product that is relevant and resonates with the audience. Traditional banks generally do not. Their approach is, “These are our products, and this is how we do it. So do you need it? »
In addition, our configuration with fintechs allows them to access the bank without any intermediary. Essentially, we have become their intermediary and their back office. When their end customer misses a payment, it is really essential that the fintech can contact the bank for assistance.
The other thing we differentiate on is speed. Most other banks get into banking as a service as a sideline for additional income from deposits and fees, but it’s not essential for them: their products or processes are still banking services traditional. So there is often a disconnect between how they do it and how the fintech wants to serve the customer. Our back-end processes are built like those of a fintech or technology company. This is a huge advantage and differentiator because the integration is faster, and once we leave, we run as fast as them, even faster in some cases, so they try to follow us.
For example, it normally takes several days or weeks for a bank to open a business account. We can do it in hours. We can close a commercial loan in less than 22 days, from giving the client a term sheet with rates and loan structure to having $5 million in their account. It helps with word of mouth marketing. If you look at our banking as a service business, even though we just launched about a year ago, we’re already one of the go-to banks for that, because it’s been rumored that we can integrate the fintech faster than other banks.
II: What does Piermont’s banking services offer consist of?
WC-L: Banking as a service is probably in its third generation. In the first generation, the bank remained anonymous. He provided FDIC insurance, BIN debit/credit card sponsorship and clearing, but the customer didn’t know who the bank was. If you keep scrolling down the fintech website, you’ll find it at the very bottom, because regulators have caught on and said, “You must disclose that these products are actually offered by a chartered or regulated bank.”
We bank as a third generation service: The bank takes center stage when working with a fintech. We have API partners who provide the technology and we have a direct customer service model. We talk to fintechs, solve problems with them and negotiate contracts directly with them. If the fintech has a customer service issue, they can speak to the bank directly rather than going through two different steps to reach someone who can actually fix the problem.
With banking as a third generation service, fintechs are working with us to co-develop new products. This allows fintechs to thrive and grow and makes them more responsive to their end customer.
II: Who are some of your bank-as-a-service customers?
WC-L: One is Zeta, a household financial management app for couples and families. We also have a fintech that focuses on the trucking industry. It pre-negotiates gas prices, then issues a debit card to truckers driving long-haul 18-wheelers so that when they cross the country, every time they swipe that debit card in n’ any gas station, they pay a pre-negotiated gas price.
We have fintechs managing co-investment in commercial real estate and the private jet sector. We have fintech that focuses on the gaming industry. We have a fintech that focuses on the financial well-being of teenagers and provides a product that allows them to learn how to manage their finances.
The list is quite broad, which is what makes this activity interesting and fun. It also helps us to diversify and avoid any risk of over-concentration of the sector, as banks have always done.
II: Will Piermont enter the embedded finance space and offer banking as a service to non-financial businesses?
WC-L: Yes, because in our opinion, even if it is not a fintech, it remains our partner for customer acquisition. What we have integrated into the products and technology stack can easily and effectively serve non-financial institutions. Fintechs are more technology companies than financial institutions.
The real fundamental question of integrated financing is: how quickly can it get you credit? Currently, banking as a service is basically card processing, a debit or credit card,
, ACH treats your leads, but that’s it. Now we have a pilot program called BancFi, which is the credit and lending component for banking as a service. We just launched this late last year, and we’re only selectively offering it to existing fintech customers. Everyone wants to participate in this program.