Mike Horrocks and Doug Brown

Well, hello out there. This is Sam Kilmer, managing director of Cornerstone Advisors. Welcome to Fintech Hustle.

In this fun episode, I have my co-host, Mary Wisniewski, editor-in-chief here at Cornerstone Advisors.

Hey, Mary.

Hey, good to see you, Sam.

Yeah, and Mary and I also get the opportunity to bring you two rock stars from the halls of fintech and bank tech.

We have Doug Brown, who’s the president of digital for NCR.

Hey, Doug.

Morning, Sam.

And also Mike Horrocks, who’s the vice president of product at Baker Hill.

Hey, Mike.

Hey, good morning, Sam.

Good, good. Glad you guys could join us.

One of the things I love about podcasting, but also just industry connections and industry pals, if you will, is the variety of things going on out there.

Doug, I know you guys are in all kinds of things, digital, payments and origination. Mike, I know you guys are in business lending and areas of origination.

One of the things I love about this is getting lots of different perspectives. Thanks again for indulging my sense of being able to go on tour in this industry.

I thought, let’s just kick off here. I’d love for our audience out there to learn a little bit about the day in the life of Mike and Doug.

Why don’t we kick it off with Mike?

Tell us a little bit about the day in the life of Mike Horrocks.

Like you said, we’re in all things commercial, small business and consumer lending, and around the risk of that.

I would say my day is all about prioritization.

There’s regtech out there, right? The Section 1071 thing that my clients keep talking about. That’s all I hear about right now from my bankers.

How will we address regulatory changes that are out there?

You definitely have to deal with those, but on top of that, there are so many cool partnerships and opportunities to expand what we do.

On any given week, I’m getting multiple calls from different fintech providers. It’s that call between what we can do, what we should do and where we want to be in the future.

It’s all about prioritization, understanding where we should put development dollars and where we should come up with partnerships.

That is really my average day, constantly looking at that landscape and trying to make sure we’re in the right spot five years out, three years out, in terms of where the industry is wanting to go.

Right now, unfortunately, regtech is on everyone’s mind.

Very interesting.

Doug, what about your day in the life? What’s the day in the life of Doug Brown look like?

Never a dull moment, Sam, is what I’ll categorize it as.

As Mike was describing, we’re a big little fintech, if you think about us. We’re connected to hundreds of financial institution clients and millions and millions of consumers and businesses.

So much of what Mike said is very true. It’s a constant prioritization exercise.

For me, the big challenge is to separate the signal from the noise. That’s why talking today with you all is great, but there is so much distortion and distraction, and false positives, if you will.

For us, it’s about breaking through all that, seeing what’s real and helping the industry advance collectively, be it fintech, banking and the like, to help it move ahead in that multi-year horizon.

Good stuff.

Doug, I like what you said about the signal from the noise because some of these partners, I’ll be on calls with them and they’ll be talking about all their AI.

I absolutely believe that you have to be looking at AI in all your solutions, but as we peel back some of the layers on that, we find that it’s this funny thing called math that they’re doing in the background.

My kids do that, right?

It’s not AI. It’s just some algorithms and math.

Again, it’s pulling back the noise.

True. Very true.

Mary, what do you think about that?

Oh my gosh, I don’t know. I’m generally nervous.

I hear what you’re saying about the math behind it because I think people are using it too broadly and they’re not being precise in the meaning. I think it’s getting liberally used.

I’m very nervous about it, but I live in Hollywood and everyone’s on strike right now. Certainly AI is a major part of the conversation.

It’s going after the creative industry first, and I’ll be really fascinated by how this plays out in banking because I know everyone’s testing things, but what are they actually doing?

I don’t know, Sam. Have you heard of any?

I think Mike nailed it when he said there are some semantic differences between what is an algorithm and what is AI.

But when I look at a good chunk of the use cases for AI, I see a lot of consistencies with what has already been deployed.

John Meyer on our team has written up a great synopsis of this, which is this whole notion that most of the fraud-detection companies that have been doing this at scale for community banks and credit unions for years have been using AI and, in many cases, flat-out machine learning to continue to build up patterns to look for.

It reminds me a little bit of an executive I met, and I’m trying to remember her name. It’s been so long, probably five or six years ago. It was at an FIS conference, and there was an executive there from Capital One.

One of the things she told me that was so cool was that she was essentially hired by Capital One to find bad stuff, to find fraud.

She was using some of these techniques, and now she’s using some of those same techniques, but instead of in the risk category, she was deploying them in the opportunity-finding or revenue-generating category.

If you’re a credit card lender like Capital One, I think, as you guys have all seen, if you’re going to be a solid credit card lender, you have to be able to use data analytics in a very strong way or you’re going to be out of business because of either fraud or taking excessive credit risks that you didn’t calculate well.

I think what’s happening now is we’re starting to see some of the techniques that the fraud fintechs, bank techs, whatever you want to call them, and some of the credit techniques on the consumer side, whether it’s credit card or consumer at scale, being deployed in other situations.

In some cases, business lending and small business lending may be more appropriate than commercial because there’s just not enough volume in the data sets in a lot of commercial lending to be able to use some of it.

I like it.

I’m also wondering, at some point, will we be able to just AI this whole podcast?

Mary, you and I are bots. We’re asking Mike and Doug’s bot agents.

And, by the way, I don’t want us to diminish the notion of distortion because I’ve got a new Black Crowes live record back here that’ll tell you distortion can sound really amazing.

Let’s just not knock distortion entirely here.

But I think it’s a great point.

I’m glad you guys brought up AI.

Doug, I’d love to hear anything you’re seeing inside NCR or with any of your partners. Any promise you’re seeing there?

Yes, Sam, we are.

Let me start by addressing Mary’s concern. She said she was scared by it.

I would suggest to Mary that’s why guys like Mike and I are out there testing and experimenting with this, so we can put it to good use.

The one thing we have seen is that if we don’t use it, the bad actors will.

Let’s understand it, know it and put it through its paces together.

What I’m seeing is pretty interesting.

You have to break AI into two categories. There’s AI and machine learning, which have been around for years. Now we’re talking about generative AI and large language models.

With large language models, what we’re finding are some pretty interesting use cases where, if you contain the data set that it has access to, you get a much higher predictability of quality for a lending decision, mortgage processing and other financial wellness and advisory types of functions.

What we’re seeing is when you apply the technology to those types of use cases, that’s where we’re starting to see some early breakthroughs.

We’re pretty excited about the promise this will lend to the industry.

Doug, I’m also hopeful. I’m not totally on the scared bandwagon.

One thing, I don’t know if everyone knows Theodora Lau, but she had used the tool to look me up for something I wrote, and it was crediting ChatGPT as the author.

I’m like, damn, this is not great.

But you mentioned financial wellness and financial health, and Sam, I have to change the conversation to Apple because it just announced it had $10 billion in its savings, which to me is shocking.

They keep touting this as being for your financial health. Of course, they mean the Daily Cash from the credit card is just being pushed into savings, which raises questions about whether that’s great for financial health.

It is if you pay off the balance, right?

But I’m curious.

I feel like just because it’s Apple bringing up financial health, this is going to have broader implications and bring pressure back to banks in a way that maybe hasn’t been true in the past.

I’m also curious about this $10 billion in deposits.

Did it shock anybody else?

I know there’s another plotline of savers saying they can’t move money quickly out of the account.

Right.

Well, let me start on that one, Mary.

I would say Apple can sneeze and make $1 billion, so I’m not that impressed that their deposit draw was that great, especially on the rate they were using to do it.

One other thing, I don’t know if everyone on this panel has used it yet, but when you put the money in, it’s like the Roach Motel. You can check it in, but you can’t check it out.

I have been waiting 75 days for $1,000 to come back to me because I was just experimenting with it.

Apple’s the master of UX and brand, and like you’re saying, the deposit draw.

However, you’ve got to follow through. You’ve got to make it real.

That’s something Mike and I understand with our customers, and they’ve kind of failed on that score.

Back to the Roach Motel, have you called their customer service? That’s a long time for just $1,000 to be moved.

If I can find a phone number, Mary, I’d be happy to call them.

But guess what?

That’s suppressed too.

I can tell you right now, the older Horrocks children are big Apple fans. They took it hook, line and sinker.

Apple definitely caters to that user experience.

Every time you open anything of theirs, be it an account or a phone, it’s pleasant.

That’s why they’re there.

But I go back to Doug’s point. Is it real?

I’m not sure they’re at the same point where Wells, BofA or anyone else is offering services as seamlessly as they should for a consumer.

Doug, you had a point too. Sorry, I followed up with you, but what else were you smack-talking about everyone’s favorite brand?

I think industry-wide, Mary, they have very good timing.

They’re launching in the midst of a melee of deposit flow across institutions, and everyone’s paying attention more than they normally do.

They’re brilliant, don’t get me wrong, Mary.

But in our true snarking style of things, we have to call out when they’re not doing it perfectly well.

I think they captured a moment too, when balances were moving quite substantially.

I may be wrong on this, but it seems like Reuters or someone had reported, and maybe, Mary, you picked up on this, that the other dimension going on here is the back-end enablement of what Apple’s doing may be in the process of switching out, or potentially switching out, from Goldman Sachs to American Express.

Does that sound right?

That is the rumor, especially with the credit card.

I feel like there’s still a question mark about the savings. There are question marks about all these questions.

But yes, in theory, they want to sell their credit card possibly to American Express, and maybe savings.

But I think it’s nebulous at best.

I don’t know, Doug or Mike, if you have a different understanding, but that was my read of it.

No, that’s exactly how I understand it right now.

I think there are still a lot of questions about where they want to take it.

I’ve got to tell you, one of the interesting things to me on this is that execution is so important.

What we’ve seen, at least in those announcements, is that Goldman Sachs, speaking of nothing to sneeze at, has lots of resources.

Doug, back to your earlier point around Apple using a pretty aggressive rate to get to that level, I think this is one of the big topics that keeps coming up.

Where does the industry, whether it’s banks, credit unions or fintechs, build up the chops and skills to provide value that doesn’t constantly take rate juicing to create scale?

What are the digital marketing skills?

Doug, one of the things you identified there was, we can argue about the Roach Motel problem of not being able to get the money out. I hear you on that.

I do think it’s interesting, though, that even if you develop the skills of the Roach Motel of getting people in, whatever that honeypot is, I’m mixing metaphors now, what is the skill set it takes to draw people in that isn’t simply juicing rate all the time?

To me, that is the sauce the industry is seeking right now.

I don’t know if you would call it digital marketing skills, but it’s a combination of the product offering itself being different enough to grab attention and using a new way of reaching people that’s not just, “Buy our stuff at buyourstuff.com.”

There’s got to be a better hook.

I don’t know if you guys have any thoughts on that from your client work.

We have a client of ours that’s in the Southeast.

I remember when they first signed on with us, they were a startup bank for all practical purposes.

They are now a dominant player in the Nashville market, and that’s going to make it really easy for anyone to figure out who they are.

When we did start working with Pinnacle Bank, I’ll just make the Google search easy for everybody, their entire approach was white glove.

Were they offering the same products as the guy down the street at that point?

Yeah, they were.

They knew it was white-glove treatment that would make people want to come and bank with them.

Now they’ve gone beyond that. They’ve gone into a different product mix, expanded beyond traditional banking and continued to go down different channels of engaging with the people in their markets.

They’re constantly looking at how to interact with that customer and what value they bring to it.

They are just killing it in that regard.

It doesn’t matter if it’s a standard checking account, a standard line of credit, a business loan or whatever.

People know there’s a difference in the relationship they’ll have there versus some other bank down the street.

They do have some really interesting competitors there.

There’s one bank that is catering to up-and-coming country music stars.

You’d feel really stupid if Garth Brooks walked into your bank 30 years ago and said, “Hey, I’d like to open up a checking account,” and you said, “Garth who?” and he left.

They’re catering to a different crowd.

Again, I think that’s how they’re going to grow.

That’s how you find that niche and run with it, and you’re constantly testing and experimenting to see what else you can do differently.

Interesting.

Doug?

Sam, if you break that down for a minute, it takes a lot to attract them and onboard them successfully.

That’s what we do well. It’s what Mike does well.

We have a number of shared clients that do this.

Getting them in starts there, and then what is the bank or credit union about at that point?

It’s the relationship.

That’s what they’re driving, and they’re looking to expand it.

In order to do that, Mike alluded to white-glove service.

We have a number of customers applying the data in a meaningful way.

The theme that Mary was excited about, wellness, if I can coach you, advise you and guide you, I move from just being a place to park money at a high rate to being the trusted partner.

You’ve got my back.

I’m going to buy more stuff from you.

I’m going to move my whole household relationship to you.

I think that’s the name of the game now.

That’s easily said, but it gets back to whether you really know the customer.

Whether it was Garth or anybody, do you know me when I come in?

Are you making me start over when I’ve already been interacting with you on digital channels, in the banking center or wherever it is?

That’s where the real-time data has to be equipped.

We’ve got customers like our Wintrust client out in Chicago. There are 15 community banks under one big brand, but they make you feel like this is deep community stuff.

They know you for lending. They know you for everything.

You’ve really got to get deep into knowing them and being real and credible about it.

The people who try to do it, Sam and Mary, and again I’m going to take another swing at somebody, the trillionaires, they pretend to know you, but it’s not relatable.

It’s not credible.

It’s like a fat guy in an Elvis suit.

It just does not look or sound good, and people see through that.

You’ve got to be credible. You’ve got to be relatable.

That’s what I think Mike and I are describing to you today.

Fat guy in the Elvis suit.

I’m all about that.

That’s a new hashtag.

I think we’ve got Roach Motel, fat guy in an Elvis suit.

Man, we’re hashtagging.

We’ve got some good stuff here.

Mary, you were going to say something?

We are, and I’m also having strange visuals in my mind right now.

But I wanted to add on to that because, you know, rate chasers, I used to work for Bankrate, but I still feel like it’s just a niche part of the world that’s chasing rates.

I think another part of the story, especially with Apple, is that it’s crunching all this data it has.

I think I read that it’s looking at your iTunes history, so it can KYC you in ways that perhaps a normal bank can’t.

Just how quick it is certainly is an advantage.

I think they set a new precedent of how fast you can open something.

As another aside, a couple of years ago, I was supposed to make a video showing how long it took to open an account at a branch, and my colleague was doing it online.

Plot twist, I got it open quicker than the person doing it online.

That just shows you, and I know this is a problem the industry is still up against.

For her, she was out of state, so I think that was part of the complicated fraud check.

But speed to opening is certainly something the industry has needed to get better at for years and still needs to improve.

Speed to opening, Mary, helps facilitate coming on board.

It also facilitates going right out the door.

You’ve got to keep them there and cater to them.

What Mike was describing is important, knowing what white-glove service means to different customer segments and offering that.

Don’t offer me stuff I don’t care about.

Time is precious.

I think that’s a key part of what we’re describing here today.

You’ve got to put the whole formula together, the recipe.

Yeah, because you can touch me just a little too much with that white glove.

It’s like when the Horrocks kids go on a road trip.

“He’s touching me. He’s touching me.”

I do not want to be called by my banker every day as well.

My life’s just not that interesting.

You don’t want to be called by your banker and referred to as Garth Brooks or Garth from Wayne’s World or whatever else.

Exactly.

Part of this is the execution.

I think, Mary, one of the things that’s interesting about what you were offering up too is that it’s not just about the rate.

Although, in terms of building up that deposit base to $10 billion, that was a major factor.

I think the other thing is how you tie together the convenience of some of these things.

While niche markets have been a struggling area because of concentration risk over the last year, I’m still a huge fan of going to market with niches.

I love how you can tie together the execution of the delivery so you start there and then go get the data.

It becomes, okay, what are some of the things we want to assemble around musicians or whatever that niche is?

I love that as a starting point for thinking about delivery, as opposed to just, “Let’s go get some data and see what we can finagle.”

I think that’s been an interesting part of what Apple has done.

Well, let’s take it one step further.

On the niche, SVB, okay, great.

They understood who they were servicing.

They just had other issues.

It wasn’t that they had bad customers.

It was a combination of timing and circumstances that caused the issues.

It wasn’t their customer base.

Hey, Mike, maybe they needed to hire your kid to work the math for them.

Yeah, who knows?

We’ve talked a little bit about some things we’ve seen work well.

I love your examples too, guys, of Pinnacle and Wintrust, not to mention the Elvis reference.

Those are always welcome on this podcast.

Even grotesque Elvis references are always welcome.

But I was wondering, what are you seeing that’s just not working very well?

When you guys are out there in the halls and listening to the back-channel stuff, elbow twisting with clients and prospects, or even at some of the industry trade shows, what are you hearing that’s disappointing or underwhelming, or that could use some more TLC right now?

Anybody want to take a shot at that?

Mike?

Two things come to mind.

They’re both interesting for us from a Baker Hill point of view specifically.

One is the merger and acquisition activity that could be or should be happening in fintech.

Like I said, there are a lot of opportunities that we see or hear where people want to partner or maybe even take it one step further.

But, Sam, we’ve been talking about a recession just around the corner for the past two years.

That recession that’s six months away is eventually going to get here.

I don’t know when.

I think the M&A environment probably isn’t as good as it should be right now because a lot of valuations and situations are based on an economy that people aren’t quite sure what’s happening with.

Depending on who you talk to, it’s great, or stagnation is right around the corner.

The other day someone said “slugflation.”

What does that mean?

It’s not stagflation. It’s not inflation. It’s just sluggish, I guess.

I don’t know.

That’s part of it.

The other thing I’d say doesn’t necessarily work now, but I’m really hopeful and excited to see what will come out of it, is all this FedNow activity.

Again, we’re not even in payments, so I shouldn’t even be talking about it.

But I love how we are finally seeing, within the domestic U.S. market, something that brings us back up to the level of the U.K., Brazil and all these other countries that have done it.

Our last big move was what, ACH in the ’60s?

I can’t remember. I wasn’t around then.

It’s good to see that we have some innovation there.

Unfortunately, I think there are only 40 or 44 banks using it right now.

You’re looking at around 1%, so we’re going to have to have some adoption there.

But I’m very, very hopeful about that.

We’ll see where that goes.

What I like about it is, and I’m not the one to say that classic Reagan line, “I’m from the government and I’m here to help,” but if we could get some standards that would help fintechs, banks and everyone participate in a more level playing field, that would be great.

Then we can get back to the point we brought up earlier.

There’s a reason why I’m servicing the people of Keokuk County, Iowa, right now.

I will never have the tech or the spend of a BofA, but if I’m a small community bank servicing that county in Iowa, let me do it so that the people there have all the things we’ve talked about.

Financial inclusivity, access to funds, the ability to bank like a big-bank customer or however they want to bank and deal with their finances.

That’s what I’m looking forward to.

I think it’ll be exciting to see what happens, but it’s just not quite there yet.

What do you think, Doug?

What’s not working well right now?

I think we are constantly threatened and challenged by various cyber scenarios and fraud, Sam.

This is a problem where we’re trying to reduce friction, enhance the convenience you were speaking of and get to white-glove service.

At the same time, though, that introduces a new risk to the system.

That risk comes in the form of people getting duped.

The biggest fraud scenario we see and hear from our banks isn’t a hard takeover of the accounts as much as friendly or Tinder fraud.

“I gave Mary my credentials because I trusted her because we had a social media connection,” as an example.

That’s the problem too.

You’ve got to bring the whole ecosystem, which includes the human end users, along for the ride.

Mike’s absolutely right. Standards, efficacy and regulatory standards would help a lot.

But at the same time, we’ve got to educate and bring everybody along because this is very powerful, but it has downside implications as we think about it.

We have to have a really broad strategy to tackle this for a mass market at scale.

Mary, any thoughts on that?

Okay, those were both meaty ideas.

This one’s less meaty, but still, I think, has merit.

During the pandemic, Regulation D was changed so banks do not have to charge people if they go over, I think it’s six, convenient transfers.

I feel like banks haven’t really thought through how this could change a lot of different things.

Certainly, it changes things for people who have over $250,000 and how they’re managing their money.

But also, for people on Chime or presumably Apple, you can move your money all around, and that kind of changes the bank account.

What was a savings account might not necessarily be used as a savings account in time.

I feel like that’s a looming thing that might be needing more attention.

It’s top of mind, Mary.

We hear that now, where people are getting unlimited inbound questions about FDIC insurance and credit union standards.

These are topics we weren’t even discussing 18 months ago.

What can we say to that?

Next podcast, Mary.

I think this may be the first podcast in fintech that opened and closed with regtech or regulatory.

Mike, you opened up with 1071, hardcore, and we’re closing over here with Regulation D.

I think it goes back to something Tom Shen, when he was on the podcast, referred to as meat-and-potatoes fintech.

One of the things that’s really interesting about not just NCR and Baker Hill, but the careers of Doug Brown and Mike Horrocks, is stuff that actually gets things done.

It’s not necessarily always at the very front of what people sometimes would call the bleeding edge, but I like the conversation we’ve had.

I think we’ve covered a lot of ground here with a lot of specific examples.

I’m really thankful.

I know we all have some other things to do over the next day or so, so I want to be mindful of time and let you guys go.

But I wanted to say thank you for joining us on the podcast, and I hope to see you guys out there at some of the events coming up.

Yeah, absolutely.

It’s going to be a busy fall.

Sounds good.

It was fun.

You bet.

And thank you, Mary, as well.

Appreciate it.