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Silicon Alley neck-and-neck with Silicon Valley

Fintech investment nearly even as NY lab holds “demo day”

New York City's growing fintech scene has bred some intriguing new players. Meet eight of them in this article, and learn how cooperative fintech lab environment helps bring them along. New York City's growing fintech scene has bred some intriguing new players. Meet eight of them in this article, and learn how cooperative fintech lab environment helps bring them along.

How long before the Big Apple becomes known as “the Big Chip”?

“The gap is closing,” declared Maria Gotsch, president and CEO of the Partnership Fund for New York City. Gotsch told attendees of the June 22 “Demo Day” of the New York Fintech Innovation Lab that in 2012 companies in Silicon Valley were investing four times as much in fintech development as companies in New York City were. In 2017, she continued, the Valley had a much smaller edge, having investments 1.08 times those being made in New York.

“In my book, that’s even,” said Gotsch. The Partnership Fund is the investment arm of the Partnership for New York City, and works to support creation of jobs and new business opportunities in New York, including fintech.

Demo Day, held annually, gives fintech startups taken under the wing of the Innovation Lab a chance to show their stuff and discuss their future plans with an audience of venture capitalists, tech analysts, financial press, and others. The lab is a joint project of the Partnership Fund and Accenture, which also sponsors labs in London, Dublin, and Hong Kong. The NYC lab was founded by Gotsch and Bob Gach, managing director, Accenture Strategy, capital markets.

David Reilly, Bank of America Global Banking & Markets CIO, played host to Demo Day. The event has been held at BofA’s midtown Manhattan tower for several years.

Reilly noted that the megabank has held an annual event of its own in Silicon Valley for eight years to bring fintech players, venture capitalists, and its own technologists together. In May, BofA held its first innovation summit in New York, testimony to the growth that has taken place on the East Coast versus the West, traditional center of technology attention.

“Seven years ago the fintech sector was emerging,” said Reilly, “and it was centered on the West Coast.” Now that center position is being shared.

Learning to sell to large financial companies

The innovation lab picks a class of startups each year and pairs their teams with mentors chosen from among the large financial companies with New York offices to learn more about the financial sector’s needs and how to work with companies to deliver on those needs.

In both his opening speech and a press briefing held beforehand, Reilly described some of the reasons why such mentoring is important to the young firms.

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Ultimately, fintech not adopted by financial companies doesn’t see a sustaining market. Reilly described that fate as becoming “shelfware.”

“If it isn’t adopted, it doesn’t really mean anything to us,” said Reilly.

Learning how to navigate the development and procurement process can be challenging, said Reilly. “We are extremely difficult to sell to,” he said of his own organization, “and everybody who looks like us is the same. Where a large enterprise doesn’t need help to get a hearing, small companies do.”

It’s to the advantage of players like BofA to take part in cooperative efforts like the innovation lab, Reilly said, because if startups don’t learn how to navigate the procurement process, “then the bank doesn’t get those solutions.”

Yet the rewards of linking up with a large buyer like BofA can be significant. “We see technology as a differentiator,” said Reilly. He believes there will always be frictions in financial services processes that are waiting for technological lubrication.

One warning Reilly had for anyone developing fintech in hopes of selling it to established companies is not ignoring the whole that it needs to fit into. He said that entrepreneurs can fall prey to becoming over-enamored with their own software and even hardware. This can distract them from the need to find a customer, ultimately.

“If your stuff doesn’t work with other people’s stuff,” said Reilly, “then you are on your way to failure.” Reilly said he has seen this happen—impressive technologies that BofA could not determine how to connect to the rest of its system.

Looking forward, Reilly noted that a new wrinkle on fintech is regtech—fintech techniques adapted to regulatory compliance and related needs. He said it was encouraging to see this trend beginning. At BofA, he said regtech does not yet represent a significant portion of the company’s tech spending. However, he noted that the key to much of regtech development is data. (Read our three-part report on regtech, beginning with, “Regtech to the rescue?”) 

“We’ve got oceans of information,” he said.

Catchy slogans and fetching ideas

As in past years, Demo Day presentations, short but not with the ending gong of a Finovate conference, were introduced by each startup’s financial company mentor, putting the company’s idea into business context. Unlike in past years, nearly every firm among the eight companies demonstrating seemed to have had counseling that when all is said and done, an old-fashioned well-coined slogan catches on the memory.

Take Cutting Edge C.A., which provides NetAbstraction, cloud-based cybersecurity software that obscures and varies a company’s network path and location to prevent cyber attacks. Barbara Hunt, CEO and formerly with a federal intelligence agency, gave her firm’s slogan: “If they can’t find you, they can’t attack you.”

Then there is Dmetrics, whose product, “Minsky,” is a form of artificial intelligence that reads materials of any kind for the nontechnical user. Minsky is billed as AI for everyone, and CEO and Co-founder Paul Nemirovsky promoted the software with a Star Trekian “Text is the next frontier.” (The firm’s website slogan is even catchier—“Reading is for pleasure. For everything else, there’s Minsky.” The software is promoted as able to read unstructured text to analyze it and bring to the user’s attention points that require action or a response. 

“Think of Minsky when you have too much to read,” said Nemirovsky. “Minsky can be used by anyone in this room.” The software uses a form of AI called “natural language processing.”

Other firms offering demos included:

Nova Credit was founded in response to a challenge immigrants to the U.S. face. They would like to avail themselves of credit in this country, but they lack a credit record with the American credit bureaus. Nova’s product pulls in credit records from other countries, accumulating in one place information that U.S. lenders can access to evaluate potential new borrowers who have recently arrived. “People move. Credit history doesn’t. We’re changing that,” is the company’s motto. 

BehavioSec, which offers biometrics security that confirms user identity on desktops, websites, or mobile devices by analyzing unique patterns for keyboarding, clicking, and swiping. The firm recently partnered with Gemalto to provide financial services digital on-boarding. 

Detectica is a regtech offering that provides various means, including artificial intellience, for “KYE”—that is, know your employee. Employee communications surveillance and other forms of compliance monitoring and investigation are among the company’s offerings. CEO and Head of Product Jennifer Chin noted that companies often refer to the difficulty of finding the “needle in the haystack.” 

Chin suggested Detectica’s offering finds issues before they become needles. Individual data points might not suggest an issue, she said, but correlating multiple points might come together to suggestion a problem, or at least an impropriety.

Alloy is regtech that uses an API (application programming interface) to automate customer onboarding while incorporating AML/Know Your Customer checks. A dashboard approach streamlines the approach by pulling multiple data streams into one place.

DemystData provides software as a service that analyzes many kinds of data and helps institutions pull into decisionmaking processes and to assist with compliance. The firm’s slogan is “Mobilizing the world’s data to unlock financial services.” The intent is to pull many forms of big data onto a single human-friendly platform. 

Modelshop’s slogan is “Put data to work.” The premise of its technology is that much valuable information is isolated in the many spreadsheets used throughout a financial firm.

“Modelshop allows financial institutions to increase collaboration, improve analytic agility, and deliver intelligent on-demand services to their customers,” according to the company.

Steve Cocheo

Steve Cocheo’s 38 years in financial journalism have taken him to all 50 states and nearly every corner of financial services in companies from fintech startups to community banks to regional and national giants. He is executive editor of Banking Exchange and digital content manager of www.bankingexchange.com. Previously he spent 36 years on the staff of ABA Banking Journal and 22 years concurrently as editor of ABA Bank Directors Briefing. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors. A year ago he finally gave up his cherished Blackberry for an iPhone, recently tried Uber, and has made it by Citibike from Battery Park to the Washington Bridge… and back.

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