KeyBank, Truist executives share their approaches to fintech partnerships
As a growing number of technology startups and fintechs offer financial services outside the traditional banking system, institutions are increasing their technology investments and launching strategic partnerships with fintechs to remain competitive.
But like fintech sector is growing, some banks have emerged as buyers, seizing opportunities to acquire technology and talent to differentiate themselves from other institutions.
For banks with funds, acquiring a startup can be a quick way to keep up with consumer demand for new products, reach new customers and compete with non-bank units.
KeyBank’s bid for doctors
KeyBank has made a number of acquisitions in recent years which have helped the bank improve its offerings to existing customers, as well as reach new customers in new markets.
The $187 billion bank entered the healthcare sector when it launched Laurel Road for Doctors last year, a niche digital banking platform that offers specialized services for healthcare professionals.
The launch marked the realization of a two-year vision for the Cleveland-based bank, which bought Laurel Road for an undisclosed sum in 2019.
Laurel Road’s existing partnerships with some of the nation’s largest medical societies and hospitals have brought high-quality loans to KeyBank’s portfolio.
During the bank’s first-quarter earnings report, CEO Chris Gorman said the subsidiary had a record quarter, with originations reaching $820 million.
With a recent addition of a rewards-based checking account aimed at nursesGorman said he expects Laurel Road’s reach to continue to grow, promising analysts the bank plans to reveal in September the number of households served by the platform.
“We’re growing the number of physicians we serve, and a good percentage of those physicians have decided to do more than one product,” said Jamie Warder, KeyBank’s executive vice president and head of digital banking. “We’re seeing doctors use Laurel Road as their primary day-to-day bank, which is hard to do if you’re branch-based. I think it’s even harder to do if you’re a digital bank.”
In evaluating whether to bring Laurel Road under KeyBank’s umbrella, Warder said the bank identified several elements that made it an attractive acquisition target.
“They were targeted and they knew who they were focused on,” Warder said of fintech, which led to KeyBank’s relationships with the American Medical Association and the American Dental Association.
Laurel Road’s origins also stem from traditional banking, having been created and spun out of a small Connecticut bank.
“They were a fintech within the bank’s regulatory framework,” Warder said. “We could always teach that, but we liked them being there.”
Warder said KeyBank has no plans to spin off Laurel Road, as that is not part of the bank’s strategy when it acquires a startup.
“We’re not thinking about building a stand-alone business,” he said. “While we don’t want to spin them out, we’re thinking about scaling them.”
KeyBank gave Laurel Road more balance sheet space, invested in marketing and doubled its engineering team, Warder said, adding he expects Laurel Road to have 250,000 health services by 2025.
Supplementary agreements
KeyBank has partners with dozens of fintechs — relationships the bank continually evaluates, Warder said.
“We get to know them, we get to know their capabilities and we bring that capability to our clients,” Warder said, adding that the bank will also make strategic investments in fintech as it looks to help shape its roadmap .
KeyBank will make an acquisition if it feels it’s the best route to bring tailored services to existing customers, Warder said.
The bank bought lending platform for small businesses Bolstr for an undisclosed sum in 2018.
“We made hundreds of small business loans every single month, and Bolstr made it easier for our customers to apply for small business loans,” said Warder. “It made our core business better.”
KeyBank’s acquisition of Bolstr became a “critical ingredient” in the bank’s participation in the Small Business Administration’s Paycheck Protection Program (PPP).
“If we hadn’t bought Bolstr, I don’t think we would have had the success we had in PPP,” Warder said. KeyBank processed about 70,000 PPP loans totaling $11 billion.
KeyBank also acquired public service loan forgiveness advisory provider GradFin in Maya deal it says complements the services it offers through professional-focused Laurel Road.
Truist and Long Game
While banks are often the ones seeking investment and acquisition targets, sometimes fintechs approach a bank with a proposal.
In the case of Truist’s purchase of gamified financial savings app Long Game, it was the fintech’s CEO who suggested turning the bank’s planned investment into an acquisition.
“They were looking for a banking platform to scale,” said Vanessa Vreeland, head of corporate development at Truist Ventures. “But they got really frustrated because it cost them more money to scale and reach as many people as possible.”
The $545 billion venture had initially planned to invest in the San Francisco-based startup, but after a lead investor fell through, the startup approached Truist about the possibility of pursuing a different type of structure.
“Lindsay Holden, CEO, felt that being part of a broader banking platform and being able to scale technology to as many households and customers as possible was something she wanted to focus on and the next iteration of the Long Game,” said Vreeland.
Truest bought the startup for an undisclosed amount in May, a deal the Charlotte, North Carolina-based bank hopes will help it reach a younger demographic.
“We are always looking for opportunities to acquire new clients and to deepen relationships with existing clients, which is one of the reasons we were so attracted to Long Game,” said Vreeland.
Long Game’s average consumer spends seven to 10 minutes a day on the app, Vreeland said.
“We don’t come close to that kind of commitment,” she said.
As part of the acquisition, Long Games’ engineers, designers and business leaders joined Truist’s innovation team. The startup is still headquartered in San Francisco, but Holden and her team make frequent trips to Truist’s headquarters in Charlotte, Vreeland said.
“We’re excited because they brought in a different type of talent than banks typically attract,” Vreeland said.
Maintain the startup culture
Truist focuses on providing transparency and access to the startups it buys, Vreeland said.
“The fact that we can have our CEO come and spend 20 or 30 minutes with a team of 10 people and talk to them about what it’s like to be at Truist is really powerful,” she said.
However, Warder warned that banks need to be thoughtful about how they run the companies they acquire.
“We’ll generally run them as startups in our scaled company. We won’t try to integrate all that in KeyBank and make them look exactly like the rest of Key,” he said. “We really embrace the fact that they’re fast and nimble.”
Ultimately, a successful bank-fintech relationship — whether through partnerships, investments or acquisitions — is one that helps both parties accelerate their growth goals, Warder said.
“Building the national digital bank in a short period of time would be difficult to do if Laurel Road tried to do it without KeyBank. And it would also be very difficult for KeyBank to try to do it without Laurel Road,” he said.
