A New York startup believes that its software system will help small Arkansas banks and others nationwide meet growing regulatory requirements at lower costs.
The company, Hexanika, is one of 10 firms involved in a Little Rock financial technology accelerator program. Hexanika also has offices in Pune, India.
The 10 startup companies, which include two international firms and eight firms with headquarters from New York to North Little Rock, are participants in a 12-week program collaborating with Little Rock's Venture Center and FIS Global.
The FinTech Accelerator gives the companies access to some of the top executives at Fidelity National Information Services Inc., better known as FIS Global, which has 1,300 employees in Little Rock and more than 55,000 worldwide.
Hexanika's software can reduce banks' costs of regulatory compliance by up to 40 percent, said Yogesh Pandit, a Hexanika co-founder and its chief executive officer.
"What we want to help them do is reduce costs, reduce dependency on [hiring compliance officers and keeping them up to date] and help them focus on their business rather than regulatory compliance, which is what they want to do," Pandit said.
Pandit got the idea for the business while he was a senior vice president at Citibank, which has more than $1.7 trillion in assets. Citibank had a $2 billion budget for compliance, yet still has paid more than $4 billion in fines for noncompliance in the past five years, Pandit said.
"It's a big problem that banks aren't able to solve by just adding people," Pandit said.
Hexanika has shared its technology with some of the largest banks in Arkansas, as well as smaller banks.
"They are very eager to know more about the solutions," said Huma Usmani, chief marketing officer for Hexanika.
Any banker will include the high cost and difficulty of regulatory reporting as a significant business concern, said Collins Andrews, an FIS Global executive-in-residence for the accelerator and a retired senior executive with former Little Rock firms Systematics Inc. and Alltel Information Services, forerunners of FIS Global.
"Assuming [Hexanika] can do what they say they can do, which is make the reporting more standardized and have less people involved in it, that certainly goes after a direct issue [for banks]," Andrews said.
A goal that FIS Global and the Venture Center set for each company in the program was to help them reach $1 million in continuing annual revenue.
"That is what we'd like for them to have accomplished as they leave [the program next month]," Andrews said.
Four businesses in the accelerator have considered moving their companies to Little Rock or locating an office here, Andrews said.
One of those firms is LumoXchange, based in Atlanta and Geneva, Switzerland. It offers a low-cost payment process to compare exchange rates and send money online.
LumoXchange is creating the world's first localized money-transfer marketplace, said Maf Sonko, the firm's founder and chief executive. Money transfer is a $600 billion industry dominated by three companies, including Western Union, the largest, Sonko said.
Current money transfers can cost as much as 10 percent to 20 percent of the cash being transferred, Sonko said.
When he sends $200, for example, to the West African nation of Gambia, where he's from, Sonko said, Western Union's charge is up to $42, including a $20 fee.
"And I lose $22 in exchange-rate margin, which is how much U.S. dollars get in the local currency," Sonko said. "That's very expensive. [The money most often] is to help support families where they are."
Sonko wants to create a marketplace where people can shop for the best exchange rate in the country where they are sending money.
"You can see what the banks in Gambia are offering for a U.S. dollar, and and then you can pick the service provider you want," Sonko said. "And we can reduce costs 10 to 50 percent versus Western Union depending on which market you're actually sending money to."
He plans to launch LumoXchange this month and is considering moving the company to Little Rock, Sonko said. He also is negotiating with banks in Arkansas to handle the money transfers, Sonko said.
Sonko was an executive with PepsiCo in Atlanta but quit his job when LumoXchange was accepted to the accelerator program.
New York-based Dream Forward Financial is designed to get more middle-income and lower-income employees to save for retirement through 401(k) plans, said Grant Easterbrook, co-founder and chief executive officer of the firm.
The company is designing a 401(k) that helps employees get over reasons why they don't save, Easterbrook said. People put off saving for emotional reasons, such as saving for their children's college education or they plan to begin saving when they're older, Easterbrook said.
"We want to mesh very well [for 401(k) plans] that have human advisers and for 401(k) plans that have no human adviser," Easterbrook said.
Easterbrook is focusing on preparing for demonstrations the companies will make at the close of the accelerator program next month.
He wouldn't rule out locating Dream Forward Financial in Little Rock, Easterbrook said, but it is most important that the company is where early-stage venture capitalists who invest in technology companies are located. And there are more venture capital investors in Boston and San Francisco, where the firm's other founders live, and in New York, where Easterbrook and the company is based.
"We have to be realistic about where we can raise serious venture capital money," Easterbrook said.
Another accelerator program, Public Funds Investment Tracking and Reporting of St. Louis, offers bond and fixed-income pricing and compliance for investing by public entities such as cities or counties, said Jim Koetting, founder and chief executive officer.
Before starting his company, Koetting trained more than 700 treasurers of states, counties and cities on how to invest public money.
"Commissions are built into the price of the bond," Koetting said. "But people don't know how much they are paying [for bonds]."
So Koetting said his firm built the "Kelly Blue Book" of bonds, educating customers about bond commissions and how to meet compliance regulations. His firm, which started in 2013, has customers in about 15 states, Koetting said.
"We're helping the customers make better buying decisions," Koetting said. "And the customers are banks, credit unions or local governments."
Koetting's goal in the 12-week accelerator program is to get a partnership agreement with FIS Global. He needs to raise $1.2 million, Koetting said.
Hexanika's Pandit called his experience in Little Rock "simply amazing."
"One reason is the people," Pandit said. "People generally want to help you. Secondly, this FinTech Accelerator that has been built is extremely holistic. Meaning that they talk about what our firm needs in terms of investment, exposing us to banks, connecting us to the largest [financial technology company]. FIS, and showing us how to take this company to the next level."
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