Transcript
Well, hello out there. This is Sam Kilmer, managing director from Cornerstone Advisors, joining you for another in-the-hall, unscripted episode of Fintech Hustle.
I say we’re in the hall. Not quite. We’re fire-pitting here. This is actual, real fire. So if my sport coat sets on fire mid-episode, you’ll know that I didn’t do it right.
I’m here at the JAM FINTOP second annual summit, joined by a rock-star crew to talk a little bit about the industry and what’s going on.
I’m joined by Sarah Howell, who’s the senior vice president of partnership programs at Infinant, Dan O’Malley, CEO and co-founder of Numerated, and the co-host with the most pocket squares, Cornerstone Advisors partner Al Dominick.
We’re glad to be here with you, and I thought maybe I would start off by having everybody tell us a little bit about a day in their life in fintech.
Sarah, I’ll put you on the spot first. Tell us a little bit about what it’s like to be Sarah Howell at Infinant for a day.
You know, it’s pretty busy. I am head of partnerships there, but I get to wear so many different hats. Sometimes I’m doing product, sometimes I’m doing sales, solutions engineering. I think that’s why I love the startup life. Call me crazy, but that’s a day in the life of Sarah Howell.
Okay, so we’re calling her crazy for the rest of the time.
I’m taking this before I get over to my man right here, but Sam and I have had a chance to host the Hustle before. We were in Seattle. No, we were in Vancouver when we did this the first time, and it went so spectacularly well that Sam took a year before inviting me back on.
I did bring the pocket square, not the hat. Obviously, that’s Sam’s thing to do.
But one of the cool things I think we can all agree on is the business of banking really continues to be pretty spectacular. As challenging as the next few months, few quarters, even few years might look, there are so many smart, creative folks who are trying to solve hard problems to help move the industry forward.
I know that I come into this hoping that the different tech companies that have different teams, tools and approaches will help keep the industry vibrant so that we’re not finding ourselves looking at maybe 10 big banks in the future.
Nobody wants three airline options. I don’t think we need 10 JPMorgan-sized institutions. It’s the work of companies like this that are going to keep us with a healthy, vibrant community bank system.
What’s a day in the life of Dan look like?
A day in the life is pretty varied. I like that description.
I think I spend most of my time either talking with customers or working on partnerships. Partnerships are a big area of development for us.
We’ve built a lot of great product, and we can both sell that directly or, increasingly, distribute through partners. I’m spending close to half my time working on that.
Then just leading the team. I get the privilege of leading the 80 people who are at Numerated and helping them understand how to do the best work of their careers. That is incredibly satisfying as well.
Special guest coming through, Sam.
I know. I see. Could it be? Is it? Could it be?
This is what happens when you’re in the hall. There is no unscripting.
We have a former guest right here. We have Cinzia from ConnectOne and BoeFly, and let’s see, what else?
Venture On.
Venture On, coming at you soon.
Oh, okay. Very good. Shameless plug. We don’t allow those, but okay. We’ll let it this once.
I only crashed because Al told me to.
Okay. Thank you for crashing. No, I love it. Thanks. Appreciate that.
Well, that’s great.
Actually, Dan, I love one of the points that you made earlier in the session around how banks, if I’m paraphrasing, and pardon the Indiana kid here paraphrasing because it probably won’t come out as fluently, decide by consensus, and consensus doesn’t quite cut it most of the time.
Could you elaborate a little bit more on that? I thought that was a pretty interesting comment.
Yeah, happy to.
When it comes to trying new things, you’re going to take risk. It’s just the nature of trying something new. You haven’t done it before. It’s therefore risky.
Banks typically manage risk by committee. There are entire committees, multiple ones in banks, devoted to managing risk.
If you are trying to decide whether you should do something new or not with a committee, you’re just not going to do it. Someone’s going to find a way to say no.
My opinion and my approach when I’ve been in financial institutions trying to do new things is you just need to empower a person, or maybe a couple people, who have the authority to decide to take risk.
It’s not unlimited risk. They can’t do whatever they want, and it should be somebody who knows how to box it in and manage the risk.
But you’ve got to make a single person accountable for making the decision because groups of people don’t like to all accept risk. It just doesn’t work.
Yeah.
I should have pointed out when I introduced both of you that you were at Capital One, you were at Eastern Bank. So you’re kind of one of those interesting personalities in that you were the banker and you were the fintecher.
Of course, you were JAM FINTOP, so we’re all in the investor world too.
Sarah, I know prior to Infinant, you were at Visa and TSYS. The backgrounds here are varied.
As you’re bringing up Dan’s point and you guys are talking about all the different experiences, I heard the same thing and it jogged my memory.
I was down in Austin maybe three or four years ago with USAA. I was invited into their design lab, and I took a few photos. I actually found them.
They have signs on their walls that say, “Stop talking and make something. Focus on problems worth solving. Do it again. Empathy and understanding are not the same thing. Make fun of everything. Ask why. Ideas are free. Try it as a natural dialogue. Have an opinion. Close your laptop and show me.”
I’m just pulling this out because I think Dan’s mindset and his message to everyone is empowering your team and trusting them to make smart, educated decisions.
They’ll never be perfect, but it’s much better to act with some purpose.
I think that’s one of the big themes that I picked up today. You’ve got to be faster in the way you do things. You cannot just sit and wait for things to be commercially available. Get after it. Try some stuff.
The AI session that came up this morning, I don’t know if you thought that was pretty cool, but maybe you could talk about that real fast.
Well, I don’t know about the AI part. I have really enjoyed just speaking to some amazing people here.
I did ask the guy who was so eloquent about AI what he thought Biden’s executive order would mean for AI and the watermark capabilities of the government, but not allowing other companies or institutions, or not mandating that they use a watermark.
At what point do you know what’s been human-created versus AI-created?
I think that opens up a whole other can of worms.
But I would like to piggyback on what you were saying, Dan. That’s what I told you earlier. I really appreciated what you had to say about having that main person in the organization with the decision-making power.
What I do think that requires is an enormous amount of personal courage.
I think what’s been hard as an innovator who lived in these big organizations is that you were always forcing the organization or seeing things ahead of where other people saw them.
Then you had to have the personal courage, regardless of where you were in the organization, to say, “This is what we should do because that’s where the market’s headed.”
Sometimes I’ve done that, and it’s kind of at great personal risk.
I would love to get your thoughts on what you think being a change agent in an organization means to you personally and what you have to do from a personal perspective to have the courage to make that decision.
Yeah, man. I have many stories here.
I kind of feel like if you’re doing change right and you want to do it fast, because if change can take 10 years, then okay, great, it’s not that hard, actually.
But if you need to do it fast, people are not going to like you. They’re just not going to like you.
You’re going to cause them problems. They’re going to think you’re wrong. They’re going to think you’re stupid.
Let me see. All the names I got called. This could go not safe for work.
Yeah, okay. Maybe I will.
I was told by the chief credit officer of the bank that the test I wanted to run was amoral. It was wrong.
I was told by a board member of the bank that I was a heretic, which I thought was kind of cool, actually. I was like, “That’s a good one.”
They’re going to take you out to Plymouth Rock and be like, “I’m going to show you what we do with folks like you.”
That’s right.
Da Vinci and Dan.
The most tense situation was a meeting with basically the six most senior people at the bank. We were talking about the first credit test we were going to run, and we were going to do loans that we thought might probably go bad.
The chief lender of the bank, who’s a great guy, and I’ll tell a story at the end that’ll make this all okay, I promise, was getting visibly irritated in the meeting.
He wasn’t speaking. His face was turning red.
Finally, he exploded and smashed his fist on the table.
Again, it’s the six most senior people in the bank sitting around talking.
He said, “This is the stupidest idea I’ve ever heard,” and he’s staring at me while he’s saying it.
I was like, “I’m just going to sit here and take it. I’m not even going to say a thing. I’m just going to sit here and kind of smile.”
We sat like that for 30 full seconds of silence.
Finally, the CEO of the bank said, “Well, I think we’re done.”
He stood up and walked out of the room. We all left.
That was a real senior meeting at the bank because we were trying to drive change.
He hated me.
But we did the test. It was very successful. We didn’t lose any money on the test. Actually, we made money on the loans we made.
That same guy referred the sixth customer of Numerated to us. I bought him a nice bottle of wine, and he’s a wonderful human.
One thing that you bring up a good extreme example of is that when I’ve been doing strategic planning with clients over the years, including in banks, not just in tech firms, if you’re not having any conflict, if you’re not having any good, hearty debate with people who are passionate about it, I think you’re doing it wrong.
We can have an argument about whether or not there should be F-bombs dropped in the boardroom, but I think the main thing is that if there’s not good debate, you’re doing it wrong.
I like the fact that it did come full circle, but even if it didn’t come full circle, I tend to think that the pressure and that back and forth still creates a good outcome.
I’m glad that you let it breathe for 30 seconds. I’d love to believe that I would have been able to do that. I think that’s an incredibly strong thing to do.
I heard some really promising things today, but I would also love your perspectives, whether it’s inside the walls of the JAM FINTOP Summit here or not, on what you see in the industry right now.
What do you think might be working well or not well?
I guess we can start on the positive side.
What do you guys see that you think is working really well right now in fintech?
Anything jump out at you as something that you see working really well, whether it’s on the business or technical side?
I don’t know if I’d say it’s in fintech.
What I’m really encouraged by is some of the collaboration that I’m seeing among the banks, especially relative to driving and affecting change, coming together to lobby for change that’s going to help community banks and drive them forward, and even sharing information.
I’m seeing this with AFC and with Alloy Labs and some of these guys who are taking problems that community banks have, sharing those problems and trying to solve them together.
The greater the collaboration that we can see in the community banking space, the greater the chance for us to have a strong community banking sector moving forward and not the 12 banks that you talked about earlier.
Well, it’s interesting, Sam, when you think about just the nature of fintech and how, in some ways, the bloom is off the rose for a lot of the conversations.
If you go back to 2015, 2016, people were still trying to wrestle with, “Is this friend? Is this foe?”
I think there’s a little bit of fatigue that’s set in. People have heard the stories.
Even here, there are some great companies, but they, like Numerated, have to acknowledge, “Hey, look, we’ve been in this portfolio. You’ve heard what we’ve done, but there’s some really interesting stuff that we’ve been able to iterate off of and continue to present to grow.”
It’s not living on past success.
I love that nobody talked about the PPP rollouts because that was three years ago.
Yeah, that was massively successful, but we are not finding a lot of companies living in the past.
They’re trying to look ahead and help people pre-position themselves for things.
It’s not to be a fortune teller.
I think there’s a lot more pragmatism that I can see from tech executives who understand we’re going to go a lot further together than we can as individuals.
When I take a step back, it’s not about the technology because that is a tool that helps drive an outcome.
It’s the business approach that so many executives are now taking around a fire pit like this, where it’s, “Hey, we’ve got to do something a lot more creative. We’ve got to differentiate. We’ve got to distinguish ourselves.”
Fintechs are known as great marketers, but there are some really smart banks.
You see ConnectOne just popping in. They’ve done some great stuff.
It takes a village.
That’s where events like this are so important because people can be reminded that there’s opportunity.
Even in bad times, there’s opportunity.
You just keep pressing and keep looking at how you do it together.
I’ll go ultra-specific on one thing that I heard today that was really positive.
You see a lot of bad headlines about BaaS in the news. You hear about imminent consent orders about to happen, so you think, “Oh man, BaaS is dead.”
It ain’t dead.
Holy cow.
I heard some numbers today about billions of dollars of funding coming into banks.
I’m like, “Whoa, that’s with a B. That’s a lot.”
The ability for nimble, smart, well-managed, compliance-savvy banks to pull in a lot of deposits, which is incredibly important, is happening.
Think about a BaaS provider.
Without going into names, there are, what, 80 or so that are doing things? Maybe 20 or 25 would be considered really professional in their stance.
Think about how much money folks like JPMorgan are spending.
Those BaaS banks, essentially with all the different tech companies, are able to match their marketing muscle.
If you’re like a Coastal, who is the bank behind One, which is the Walmart stuff, that marketing cloud translates back to the bank.
To your point, I think there are some really positive things.
I love the consortiums that are being developed and how people are saying, “Hey, we’ve got to tell our side of the story. We can’t let the narrative be taken from us.”
That’s a change from previous years.
There have been groups that have been trying this, but I think there’s a better coordinated effort that will reflect well on the entire industry.
You’re right, some of the BaaS folks who are being written off, take that victory lap at your own risk.
I might just piggyback, since you did mention BaaS, and that’s really where we focus at Infinant.
Just in this space, there are so many different business models of BaaS.
There’s the indirect and the direct, where the system of record does not belong to the bank. It’s outside of the bank’s ecosystem.
Then we’re seeing a new move toward a BaaS model where you have the direct relationship with the tech provider or the embedded-finance provider, and then you are the system of record.
When I’m talking to banks about their BaaS strategy, have all three of them and pivot.
Use a good tech stack that allows you to do it in a safe and sound manner.
There are some banks out there, some of the guys who have been in it for a very long time.
I met with one of them last week at Money20/20.
One hundred sixty million accounts on file through their BaaS platform.
It’s staggering.
There is a lot of opportunity, but this is a time for community banks to come together and protect the space because BaaS is moving upmarket.
We want to make sure that community banks have what they need to power their BaaS strategies, regardless of which business model they choose, so they can compete for the business if it does move upmarket.
Yeah.
Sam, you’re usually the one asking questions.
Can we turn it around on you and say, what had you falling out of your chair today?
Okay.
I can’t remember her name, but she was so smart from FISPAN.
Lisa.
Yeah.
I just loved how detailed, how gritty and into it she was on how ERP systems connect through to cash management.
It’s kind of like Dan and our earlier conversations a couple years ago about the connection between a loan origination system and spreading.
To some, that might seem like a very arcane thing.
It turns out that’s really important.
There’s a lot of breakdown in that.
If there’s any connection at all, there’s a lot of breakdown between things like ERP systems and treasury systems.
I think treasury in general is an area that just does not get nearly as much coverage as maybe it should in terms of the ultimate power play of the banking industry.
There’s so much commercial banking going on, so many people needing strong, loyal deposits to go with those loans.
Treasury is right in the middle of that equation and solving for very specific use cases.
Whenever I hear the examples and storytelling, like you said, it was Lisa from FISPAN, Lisa Shields, fantastic.
I was just blown away by that.
There were several things I heard today.
There was a gentleman from a compliance software company who was giving very specific examples around pass rates and things of that nature.
Sarah, in some of our conversations before, compliance isn’t always the sexiest topic.
So if you can be very specific, that makes a difference.
I’m going to come back and ask a negative question now.
What could be working better in the industry?
I’ll give you one straight from the stage today.
I thought easily two-thirds of the company pitches were needlessly boring.
You’re stealing my thunder.
Well, this is what we do.
That’s right.
We’re cooperating here, Al. Come on.
That’s my take.
Great products are coming out, people are putting sprints into their product development, and then needlessly not sprinting their 60-second pitch so that it’s an interesting example right out of the gate.
Instead it’s, “Hi, I’m blah blah blah from blah blah blah, and here’s what we blah blah blah.”
I just think that could be so much better and more inspirational.
Maybe I’m too harsh of a critic because I came from that world.
But anyway, anybody have any takes?
Sarah?
I would echo that comment.
But what I think it’s showing is that selling into banks is much more nuanced and much more sophisticated than it was previously.
A lot of fintechs were trying to compete with the bank, and they’re realizing you can’t.
Now they’re shifting their business model to selling to banks.
What I’m realizing is that it’s very hard to sell into banks.
You have to know their problems at a granular level.
Just like you said, Lisa knew that in those treasury experiences, when you are actually trying to integrate and keep that commercial client happy by integrating into their ERP system, you better know all of those problems that exist.
Conversely, expose an API that FISPAN can pick up and integrate into the ERP.
But if the bank has two or three accounts and that ERP system has broken up the commercial client’s accounting into several subaccounts, then it’s a reconciliation nightmare.
So now, banker, let us help you solve that problem and create subaccounts on a side ledger.
Again, you have to really understand the banker’s problem in order to sell.
I think that’s why you saw what you saw.
Again, watching the growth of Numerated has been pretty cool over the years.
I remember Dan getting on stage when everyone else was trying to sell their wares, and he was like, “Hey, look, I’ve just got some playbooks that work, and I’m just going to put them up and let you walk yourself through.”
It’s not so much about working with Numerated.
It’s more, “We’ve got to show you how these outcomes are achieved.”
The tech is one part, but it’s culture, it’s people, it’s the investment of creativity.
Sitting there listening to some of these presentations, I think there’s a missed opportunity for some.
Especially, you mentioned the AI stuff.
The reason I love presentations like that is you’re able to essentially look at what’s now and what’s next.
I had a conversation with Sarah Hinkfuss with Bain Capital Ventures, and she basically says you can look at the hype, you can look at the hope and you can look at the happening.
I love that kind of mental model when thinking about some of these emerging concepts because the hype is really important.
We’ve got to understand what’s getting people’s attention.
Instead of saying, “Well, the hype, don’t pay attention to it,” it’s the exact opposite.
Why are people getting so interested in some of these potential applications?
Then let’s segment out the hope so that we’re not wasting time on things that are not practical.
But what’s happening right now?
That’s almost the key takeaway because, if I’m in a bank or if I’m at a tech company, I want to know what’s actually getting done.
Who’s integrating?
Who’s implementing?
I think that’s where, again, your observation, Sam, was a good one.
A lot of companies are trying to say, “Hey, look, we’ve got a great team. We’ve got a great story.”
Everyone’s got a great something.
But if you could say, “Here’s some hype. Pay attention to it. Here’s the hope. We’re going to remove it. But what’s happening right now that’s material to your business is X, Y and Z,” that’s a pretty strong presentation.
I’ll maybe talk a little bit about solving actual problems and really understanding what they are.
That really resonated with me.
I think it can be hard because when hype happens in an industry and everyone’s like, “Oh, I need a platform for X,” it’s very easy to show up and have a conversation with a bank and be like, “Oh, we’re a platform for X.”
Honestly, you can waste a bunch of time for both the bank and, as a technology company, your team, and not get to a deal because it wasn’t really a problem that anybody needed to solve.
I’m just going to pick one little example and maybe double-click on it a couple times and dig in.
This is a problem that doesn’t actually need to be solved. It’s going to be controversial. I’m going to warn you in advance.
Everybody knows they need more deposits, right?
That has to happen.
Great.
So I need a business deposit account-opening solution, right? So I can open up business deposit accounts online.
Okay, great.
We’ve had a lot of conversations about business deposit accounts. We provide it at Numerated. I was very excited about it.
But here’s the problem.
How many business deposit accounts does a typical $2.5 billion bank open in a year?
I don’t know, a couple hundred, maybe a hundred.
How many of those would actually open up online?
I don’t know, maybe 10%.
Ten, 20.
If you put an online application up for any product at the bank, you’re going to get at least a thousand fraudulent applications.
So a thousand pieces of fraud to get 10 accounts.
That is not a problem that is worth solving with technology.
But everybody thinks that they should buy a solution.
The answer is, well, you need a strategy to actually drive volume in good applications of people who want to come and apply for business deposit accounts at your bank.
But you do not have those today.
If you’re not talking about that problem, technology is worthless.
Nobody’s going to buy it.
There have been a number of frustrating conversations over the years we’ve had at Numerated where we’re like, “We have great technology, and it does great, and we have a great team.”
But it doesn’t matter sometimes if the problem is not actually one that should be solved.
I’ll also mention, Sarah, you mentioned Money20/20.
I’ll give a shout-out to Chris Nichols, who had a great write-up on LinkedIn.
I think it was his eight, nine or 10 takeaways from Money20/20.
Right there in the middle, like number five, it never seems to be number one on most lists, but number five was fraud and how that was a big topic.
To me, it seems like it’s not even the elephant in the room.
It’s the reason why there’s a holdup on FedNow adoption.
There’s always the reason, which is...
That guy doesn’t like fraud either, apparently, in that raging pickup back there.
Welcome to NashVegas, right?
We’re here.
That’s right.
Shout-out to Chris Nichols on that. It was a great write-up.
I also want to say for the record, if anybody thinks that we’re only dealing in high-level buzzwords and niceties here, let it be known that we used the words “recon nightmare.”
What was it that prefaced that?
We have subaccounts and a recon nightmare.
You’re accused of dropping the F-bomb on here.
I’m thinking to myself, hashtag subaccounts, hashtag recon nightmare.
This is the kind of stuff I love talking about.
Yeah, I love this stuff.
You guys, thank you so much for joining us for a chat today.
We had so much fun. I know I did, but I’m a banking nerd.
This is all I know.
I guess you could say I’m institutionalized after this.
I started as a floating teller in college and I just never got out.
I love it so much.
I love hearing about all the specific stories and takeaways.
So, almost live from the JAM FINTOP Summit, here’s another unscripted, in-the-hall, kind-of-sort-of episode of Fintech Hustle.
Thanks again, and we’ll see you hopefully on the next episode.
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