November 22

The LGBTQ+ community has a range of needs, including specific challenges around chosen names and family planning, that most traditional banks aren’t serving. 

Daylight, a digital bank aimed at LGBTQ+ people, has raised $15 million to promote and expand features including debit cards with customers’ chosen names, increased cash back for spending at queer and allied businesses, guided financial goals for gender-affirming procedures (like top surgery or facial feminization), and family-planning resources, including a marketplace of IVF and surrogacy clinics.  

Citi Ventures is a minority investor in the round, and its participation follows the bank’s efforts earlier this year to allow its transgender and nonbinary customers to assign a preferred first name to their debit cards. Many LGBTQ+ individuals say their legal identity doesn’t match their current chosen name, but most banks don’t offer an easy solution for switching out what’s on a user’s card. Helping customers avoid their deadnames is a relatively easy way many incumbents could appeal to their LGBTQ+ customers.    

Daylight is one of a spate of neobanks to emerge recently to provide niche features aimed at specific demographics or causes, including immigrants, Black Americans, Asian Americans, and battling climate change. These challengers endeavor to build more loyalty and connection with customers than a traditional bank by deeply catering to their needs. And while incumbents may not be able to launch hyper-specific features like neobanks do, they should take note of the messaging, marketing, and types of programs.  

Daylight’s fresh funding also comes at an intense moment for LGBTQ+ issues: The US Senate just took a crucial step in legally protecting same-sex marriages, while another horrific and deadly shooting took place at a queer nightclub over the weekend.   

While banks and fintechs have primarily been either rivals or behind-the-scenes partners, recent valuation slashes – which show no signs of letting up – could allow banks to beef up their own offerings at a discount through acquisitions.   

Big banks could be primed for some Black Friday deals of their own: Fintech valuations have plunged 70% in 2022, according to a new analysis from Jefferies – and incumbents would be wise to swoop in.  

Areas such as payments, wealth management, financial education, or travel are all potentially attractive technology segments. With M&A, banks stand to gain historical data and new customer and merchant relationships, as well as fresh talent with expertise in areas like machine learning and open banking.  

It’s an “opportune moment” for banks to “spread the net as wide as possible,” according to McKinsey analysts, who point out that even setting up “get-acquainted” meetings with interesting fintech firms can have an impact: “Not only are doors open much more in these times, but even if this cultivation does not end in an M&A transaction, it often can lead to partnerships that enhance the bank’s understanding of growth sectors and put stakes in the ground.” 

Leaders at big financial firms know that they need a process for continually “disrupting themselves,” but it’s hard to pick suitable experiments to focus on. The former CIO of Credit Suisse explains why her go-to criteria for choosing an experiment worth pursuing is whether it’s risky, creative, and scalable. 

During her five years at Credit Suisse, Radhika Venkatraman built a “well-oiled machine” for scaling innovation across the investment bank, she told Insights Distilled. She built out an innovation pipeline that included a “Shark Tank”-esque experience for selecting projects, and, through that, honed her process for filtering winning technology ideas. Ultimately, she recommends asking three key questions when evaluating a potential innovation experiment: 

First, what’s the probability of success versus failure? It would be best if you found an idea that has the right amount of risk. “If the idea is going to succeed, you should just be funding it,” she said. Those types of ideas should flow through the typical business process versus the innovation pipeline. “And if it has absolutely no chance of success and scaling, then why bother?” 

Next, you should ask whether an idea is focused on incremental efficiency gains or something more ambitious. “When you’re creating small amounts of efficiency through your experiments, I’m not interested in that,” she told us. “I always tell people to go for a new market opportunity or a new pool of revenue, something that indulges and engages your creativity.” 

Finally, leaders need to ask: What’s the scale of this experiment if it succeeds? “If your experiment is outlandishly successful, but your output is tantamount to giving birth to a mouse, that’s not an experiment you want to spend your precious money on,” she said.  

During her time at Credit Suisse, Venkatraman’s innovation pipeline received over 400 ideas and funded about 18 different experiments. Ultimately, 10 went to production and three became new business ideas – including a so-called “Netflix for bonds” project, a recommendation engine for bond traders.  

Read more of Venkatram’s insights here. 

Letting consumers pay-by-bank reduces risk and costs for merchants. While banks may be wary of losing card revenue, supporting the feature could help them win business customers.  

Businesses are excited by an open banking-powered experience called pay-by-bank because it nixes credit card swipe fees and reduces their risk of fraud or chargebacks.  

“This is a product that merchants are asking for,” according to Brad Goodall, the CEO of Banked, a fintech platform that just raised a $15 million Series A from Insight Partners, Citi Ventures, and others.  

Regulation has pushed the feature forward in Europe, but it’s still uncommon in the US. While the service reduces banks’ revenue from credit card swipe fees, it gives those that offer card or treasury services an edge over their competitors: “Merchants are putting it on their RFP list,” Goodall told Insights Distilled. “Even if you’re not thinking explicitly about the space, your customers are, so you should be out there.” 

Although pay-by-bank offers perks to consumers (including ease, security, and the satisfaction of instant payments), Goodall believes that merchants will be the strongest drivers of adoption. To avoid swipe fees, they may offer consumers incentives to use pay-by-bank (like discounts or free digital goods), he predicts: “2023 will be the year of pay-by-bank.” 

Banked has 90% bank coverage across the UK and Europe, and is expanding to the US, where it’s currently building out relationships with Bank of America and Citi. Meanwhile, JPMorgan and Mastercard just announced their own pay-by-bank pilot.  

Banks can go the JPMorgan route and create their own end-user experience, or they can work with a provider like Banked, Goodall said: “Either you build the whole thing, end-to-end, or you leverage a partner with a global network.” 

TikTok is for more than just entertainment: Young people use it to shop and find money management advice, making it a key platform for financial services firms.   

American Express has partnered with TikTok to offer guidance and advertising credit to small businesses that want to reach younger audiences. The promotion marks Amex’s first foray onto TikTok and is centered on “Small Business Saturday,” a marketing initiative that encourages holiday shopping the weekend after Thanksgiving.  

Amex’s own research found that 44% of TikTok users have bought something they discovered on the platform, while a separate recent survey found that 34% of Gen Z consumers obtain financial advice from TikTok (versus 24% that seek advice from financial advisors).  

That creates a huge opportunity for traditional financial institutions to get in front of younger audiences. Experts say that banks should create the types of videos that will resonate most with their desired audiences and outcomes, which could mean spotlighting their business customers – like Amex – or providing reliable financial education and explanations, or even sharing recruiting info. Alongside Amex, other financial firms that already have active TikTok accounts include Fidelity, Blackrock, NatWest, and FNB.