The Future of Business Banking: Fintech Innovation + Human Advice

ConnectOne Bank doubles down on technology by creating an innovation office, creating a new niche vertical, and hiring more tech staff. At the same time management continues to believe that in-person expertise is a business banking edge.

Frank Sorrentino has heard about the “magic” of fintech business lenders for some time now. Conversations he’s had with small business owners usually go something like this:

“Oh, my God, it’s so great. At 1:30 in the morning, I can fill out my application and it’s approved in 90 minutes. And the funding was there the next morning. It’s amazing, it’s amazing.”

Those aspects of fintech lending have been impressive, but not so much the next phase.

“It’s now nine months or a year later, and they are paying 24.9% interest on a small business loan that their bank would have charged 7% or 8% for, with a little more work at the application stage,” says Sorrentino, Chairman and CEO at ConnectOne Bancorp.

For ConnectOne, two things have come out of the attraction of small business owners to the Kabbages and Squares of the world— both positive. One is a nice chunk of business refinancing those quick and easy (and expensive) loans once people get over the pleasure of instant gratification. Sorrentino thinks more of this will be coming as owners become increasingly value-focused in a tougher economy.

The second benefit is more strategic: The confirmation that “creating more frictionless interactions with the bank is something that we need to pay attention to and continue to work on,” Sorrentino says. ConnectOne caught onto this earlier than many, adopting the cloud-based nCino loan production and deposit origination system, among other measures. But the New Jersey-based bank, with assets of $8.3 billion, has been moving further into new channels and methods.

“We were founded as a commercial bank and don’t have a lot of compelling digital consumer products,” says Sorrentino. “Our philosophy is to be an advisor to our clients.” But this is increasingly done hand in hand with relevant technology.

Treating Innovation as a Strategy, Not a Pet Project

Sorrentino remains a firm believer in the factors that set commercial banking apart from fintech commercial lending, a key one being the ability to meet with and obtain guidance from experienced bankers. However, he sees a lot of value to working with fintechs when the right combinations can be found.

“Everything we do here these days is predicated on technology,” says Sorrentino. More and more of the people ConnectOne hires are recruited because they have expertise in both banking and fintech. ConnectOne seeks people who “understand what’s going on in fintech and how our clients are accessing technology differently both in their own businesses and in how they access their financial services.”

Some come from fintechs that ConnectOne has worked with, others are recent graduates of local universities and colleges who hold tech degrees.

“It’s not technology for technology’s sake, but about how to utilize technology in everything the bank does.”

— Frank Sorrentino, ConnectOne Bank

One of the most significance steps Sorrentino has taken is creation of an Office of Innovation. He distinguishes this from the fintech lab approach other institutions have taken.

“It’s not a pure technology role nor is it a pure operations role,” says Sorrentino. “It’s really a strategic role of thinking about what’s possible, what’s available in the marketplace, and how we at ConnectOne can use such relationships to make them work for our clients.”

Beyond partnerships and joint ventures, Sorrentino says the new office will also identify potential fintech acquisitions.

For this post he appointed Siya Vansia, a longtime officer at the bank and now Chief Brand and Innovation Officer.

Read More: What 5 Top Financial Innovation Labs Are Doing

Keeping Innovation on Mission for ConnectOne

Vansia says that a key point she keeps in mind is the importance of balancing digital expansion with the benefits of the bank’s human touch.

This is a fresh area for fintech, in many ways.

“There hasn’t been a whole lot of innovation in the commercial banking space. Fintech people who are starting to get involved in this part of banking want to explore ways we can partner with them to build out robust commercial offerings.”

— Siya Vansia, ConnectOne Bank

The point won’t just be to find new ways to do what the bank is already doing, but to find new functions that sprout from digital roots.

“Those would be whole new products that live outside of what I call ‘the banking orbit’,” says Vansia.

ConnectOne’s headquarters sit just across the Hudson River from Manhattan, a fintech hotbed. Vansia says it is helpful having close access to that fintech community.

But an element of caution is needed because “there is always something shiny and new that’s being written about,” says Vansia. Retaining focus and relevance is critical.

Case in point is banking as a service, a growth area for some banks. It’s not really a logical fit for ConnectOne.

“It’s great to experiment and we could probably build the functionality,” says Vansia, “but you really have to stick to your core clientele. Ultimately we’ve built a successful business being a commercial bank and we need to serve that base.”

Vansia says an example of tech innovation that could work for ConnectOne is its participation in the USDF Consortium. This group is working towards a bank-minted stablecoin. Vansia says one benefit of being part of this joint effort is helping the ConnectOne management team to begin thinking about applications of blockchain technology to its mix of business.

“We believe the blockchain will play a major role in our day-to-day business at some point,” says Vansia. “There’s a lot to do yet.”

Tamping Down Innovation Showmanship

Fintech labs and innovation offices historically face the risks of disconnection from their parent organization, which leads to a good deal of “blue sky” thinking and “innovation theater” that’s impressive but doesn’t go anywhere.

Vansia says blue sky thinking can’t be completely stopped, but that focusing on business banking customers can keep innovation on track.

“You have to ask, ‘What’s the experience the client wants to receive?’,” says Vansia.

Vansia says this comes back to ConnectOne’s perceived role. The bank is not setting out to be a digital commercial bank. Instead, she says “our goal is to be a high-performing commercial bank that’s powered by digital. But we still want our clients to have that person-to-person experience.”

Something that can get lost in the conversations about fintech, adds Vansia, is that not all tech is customer-facing. “Sometimes the innovation is for the banker serving the client, not necessarily directly for the client.”

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Plans for a Niche Banking Expansion

In May 2022 ConnectOne announced that it was going to work with bank technology vendor Nymbus to develop new products for a particular market niche in the business banking space. Sorrentino says he’s not at liberty to discuss specifics yet, but expects to be rolling something out before the end of 2022. The Financial Brand asked if the project would be a national play or oriented to the bank’s branch footprint in New Jersey and New York.

“Today ‘community’ is defined more by the type of business you are in than by metropolitan area,” says Sorrentino. “When we think about our work with Nymbus, there are certain business lines that are more prevalent in particular geographies than others, So we’re going to take advantage of that. If that takes us outside of some of the mileage around our headquarters, that’s okay by us.”

A key reason for using Nymbus is the ability to very quickly stand up the new niche play on a separate platform, rather than working off the bank’s existing core system.

Read More: How the World Has Shifted Forever for Fintechs and Banks

ConnectOne’s Growing Business Finance Arm

The unspecified niche effort is not the bank’s first time expanding into something out of the box yet related to what it was already doing. In mid 2019 ConnectOne acquired BoeFly, a fintech that specializes in working with franchisors to obtain financing for would-be franchisees.

When ConnectOne bought BoeFly — which continues to be managed independently under the acquisition — the company had 30 franchisors. The company now works with over 100 franchisors. BoeFly’s income at this point chiefly comes from referral fees to the lenders who use the platform to link up with potential franchisee borrowers.

How much more the base of franchisors can grow remains to be seen. Sorrentino suspects there is some “sweet spot” of how many can be on the platform at any given time.

“We’ve had good growth over the last couple of years in the number of franchisors,” says Sorrentino. “I don’t think we’re going to be able to maintain that hockey stick growth. But, then again, who knows?”

In the meantime, he adds, ConnectOne and BoeFly are jointly exploring what additional markets and products the fintech can move into.

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