Four years ago, Digital Federal Credit Union (DCU) sought to fill a void: a platform for connecting financial institutions with fintech startups.
Fast forward to summer 2018, and the Marlborough, Mass., credit union's DCU FinTech Innovation Center is ready to welcome its newest cohort of 10 new startup ventures. The not-for-profit center, which is fully funded by the $8.6 billion credit union, is focused exclusively on fostering pre-seed and seed-stage financial technology firms in New England, and is dedicated to accelerating the development of new products and driving the local fintech ecosystem forward — in partnership with financial institutions, instead of competing against them.
Twice a year, the center identifies the most promising financial technology startups in the product market fit stage and provides them with everything they need for go-to-market success: a professional network and community, mentorship, as well as one year of free office space at the center.
According to DCU, alumni of the program have achieved “considerable traction” through the network the center provides. In less than two years, graduates have raised, collectively, in excess of $200 million in capital for their platforms, ICOs, equity crowdfunding and traditional venture capital. They also have launched successful pilots, and have partnered with some of the nation’s leading innovation companies, startups and financial institutions.
The 10 members of the 2018 Summer Cohort are:
- Edmit — Personal Finance: Data-driven advising to help make smarter college choices
- Envel — Financial Health: An AI bank that automates management of finances in real time
- Hound Software — Robotics/Process Automation: AI smart workflows to make customer journeys more efficient
- KingsCrowd — Personal Finance: Startup investment research and analytics for everyone
- Legicash — Blockchain: A scaling protocol to increase efficiency of the blockchain
- PayByCar — In-vehicle Commerce: In-vehicle payment solution using toll transponders
- Posh Development — AI/Emerging tech: enterprise chatbot platform
- Reggora — Residential Lending: A cloud-based real estate appraisal platform
- Token Labs — Blockchain: Enables global peer-to-peer payments using digital currency
- Tunnel — Blockchain: Next-generation cryptocurrency protocol and payment system.
Technology-focused credit union
Originally organized by employees of Digital Equipment Corporation (DEC) in 1979, DCU is no stranger to technology and has had a practice of adopting major tech initiatives as quickly as it could.
In 2013, DCU realized there was no opportunity for financial institutions to connect with fintech startups, so David Araujo, DCU’s SVP, technology and innovation, began researching how the credit union could enter the space, including connecting with colleges and holding internal innovation contests.
Vasilios Roussos, who today serves as managing director of the DCU FinTech Innovation Center, said that earlier this decade the city of Boston had founded an innovation district downtown, and partnered with an organization named WorkBar, which was connecting with a variety fintech companies. The first iteration of the center was known as the “Center of Excellence In Financial Services,” and was a collaboration between DCU and WorkBar.
“I came on board in 2016,” Roussos related. “I was originally recruited by WorkBar and was a contract employee. We rebranded and took on a model closer to an accelerator program.”
Today, fintechs join a cohort for one year, Roussos explained. The center accepts 10 companies every six months.
“Because of this overlap, when joining a cohort the companies have the opportunity to connect with 30 different companies, which maximizes connections,” Roussos said. “We put smart people in the room together and let things happen.”
The center’s mission is “really interesting,” Roussos continued. He described it as a “unique opportunity” due to DCU being nonprofit and community-focused.
“This philosophy has helped develop an opportunity to connect with each other and find better pathways for product-to-market fit,” he said. “We are different from other accelerator programs, which focus on raising capital. We run the center as an agnostic entity. Obviously, we are invested in what goes on, but we invite other credit unions to come in. We do not stand in the way of a company’s success. We take a Hippocratic oath to ‘do no harm.’ The innovation phase starts with collaboration. When that process happens, new and exciting opportunities are created between DCU and the startups.”
DCU does not receive a direct benefit from helping these companies – the credit union does not hold any patents or licenses, or receive royalties or other payments from products/services developed. Roussos said there are no expectations for the various fintechs to give a discount to DCU on initiatives developed at the center, but in practice DCU often acts as a first customer/partner.
“In practice, DCU is a partner and first customer with these startups and works very closely with them. This could lead to 'most-favored nation' pricing, but there is no expectation of that," he noted. “The pricing is inconsequential. What is important is helping create technology that improves member service, either at the front end or the back end.”
One example Roussos offered: DCU currently is piloting a program with an artificial intelligence company the credit union brought in to the center about 12 months ago. “We didn’t even know where DCU would go with AI, but we had conversations about use cases for the technology within a credit union. One example involved credit card charges.”
“When we founded the DCU FinTech Innovation Center four years ago, there was no one central body bringing together fintech startups under one roof,” Araujo said. “This is now the fourth cohort since the relaunch to come through these doors and we are so pleased to see not only the continued success of the center, but also the early successes that these startups have achieved and attribute, in part, to their participation in this program.”
Eight startups that graduated from the center have achieved “significant success,” DCU said: Coalesce.ai, ILA Capital, Keel, MakeCents, MatchUpBox, Skydeo, Tengu and Virtual Cove.
Coalesce.ai, focused on the use of AI in the financial sector, has reached several milestones since joining the program last year, including launching several pilots in the coming months with DCU, the company’s first in the banking industry.
“Being part of the DCU FinTech community has made a fundamental difference to our business,” said Greg Woolf, Coalesce.ai’s founder and CEO. “Not only did we benefit from exposure to a community of entrepreneurs and partners through the center, we were also able to use their network of experts in helping to identify and implement product features that will be valuable to financial service firms.”
Member companies in the space focus on AI/machine learning, bitcoin, blockchain, contextual banking, credit ratings, cryptocurrency, data and analytics, digital currency, financial education, financial health, mobile banking, online lending, P2P lending, payments, personal finance, and robotics/process automation, among other topics, DCU said.
The Innovation Center also plays a role for DCU executive leadership to gain insights into how pioneering minds are creating new technologies and rethinking traditional solutions.
“We look at each cohort that comes through the center as an opportunity to be educated and get exposed to the newer technologies that are out there,” Araujo said. “That kind of education simply cannot be quantified.”
Roussos named three companies as success stories: Coalesce.ai, which he said uses artificial intelligence to automate back office functions, Digital Onboarding, which is working with credit unions on bringing in new members, and Rate Gravity, which provides a better mortgage process that includes a reduced rate that typically is about 25 basis points less.
Now that DCU has done this a few times, Roussos was asked what are the expectations for this summer's cohort?
“Our expectations keep on getting higher and higher as each cohort becomes successful,” he replied. “You never know when innovation is going to happen, but we are really excited about this new cohort. They are talented and are creating new technology to solve real problems.
“We welcome the opportunity to help credit unions,” he added. “The ability to connect other credit unions to our startups is a win-win for everybody.”
For additional information on the center, visit www.dcufintech.org.