One of the best parts of working in the fintech industry is the privilege of working with regional banks. I have always admired these banks and their oversized impact on the U.S. economy. According to the Bank Policy Institute, regional banks provide one third of the lending to small and medium sized businesses. SMBs account for 43% of U.S. GDP, employing almost half of the U.S. labor force. Without them, the U.S. economy simply can’t thrive.
Too commonly, the market overlooks the importance of regional banks. A recent Bloomberg article titled “Too Small to Succeed Is the Problem Facing Regional Banks” exemplifies this. While it is true that most of these regional banks are small and under competitive threat from large banks, many made investments to capture the growth opportunity of partnering with technology companies to power the fintech and Embedded Finance market. On the other hand, many more banks saw Embedded Finance as potential competition, and lacked the tech investment to participate.
The fintech and embedded finance market took off, lifting these regional banks with it, with new revenue streams and strengthened balance sheets. Through this growth, regional banks reinvested in local communities, sparking job growth and spending, which then fueled the embedded finance market in a virtuous cycle. The only problem is the majority of banks have been left out of this new economy as they lack the technical investment to support tech-like resilience and potential for rapid scale that some fintech and embedded finance offerings achieve. The tech industry took decades to build for internet scale. Banks in general, and regional ones in particular, can't replicate that overnight. But their participation is crucial for continued industry growth.
This situation reminds me of McDonald’s 1984 “When the U.S. Wins, You Win” campaign from my childhood, which was launched in support of the US Olympic team. In that campaign, consumers would get a free scratch lottery ticket from McDonald with a specific Olympic competition. If the US won, that ticket would be exchanged for a Big Mac, fries or a drink depending on whether the US wins the Gold, Silver or Bronze medal. Well, in that year, the former Soviet Union and most Eastern Europe athletes boycotted the Olympics and the US won significantly more medals than anticipated, sending a vast majority of McDonald branches scrambling for inventory and staff. Well what does a Big Mac have to do with banks? It is simple. The recent explosion in fintech and embedded finance is like the Olympic medals for best financial services products. The large banks didn’t play, leaving the fintechs to take home the gold medals along with the regional banks behind them.
For the burgeoning fintech and embedded finance industry to continue to thrive, we need the symbiotic relationship between fintechs and banks to be strengthened and the burden is on us to make it happen. Fortunately, many more banks are modernizing their technology infrastructure. At the same time, Marqeta is expanding the number of banking partners on the Marqeta platform and making investments to help our customers utilize multiple banks without burdening them with increased operational and technical expenses. Our goal is to increase the regional banking participation rate in the fast growing fintech industry as well as matching specific client use cases to the most aligned banking partner. This will be a journey over the coming years and one we will share with all the banks.
The journey to mass adoption of modern issuing will be long, but we have already taken meaningful steps and are definitely enjoying the ride while thanking McDonald's "win-win" campaign (30 years later) for inspiration. Our aim is to get a lot more banks to play in the next embedded finance olympics and give consumers a great “gold-medal worthy” experience.
