Transcript
Well, welcome everyone to Fintech Hustle. I’m your host, Sam Kilmer, with Cornerstone Advisors, where I lead Fintech Advisory.
Man, I’m glad to be with you here today. We’re all getting geared up and ready for the Association for Financial Technology, AFT, Conference in Vancouver, Canada. While I’m sitting here packing up my AFT socks and getting ready, I thought I’d have on a few industry-insider guests who also happen to be joining me at the AFT conference. I’ll tell you about them in just a moment.
Real quickly, for my folks at AFT, I just want to shout out: We’re doing this during the break. We’re going to be showing this live at AFT, but during a break, so I promise I’m not interrupting any sessions.
That’s my dog back there. Sorry about that.
Let me interrupt the interruption to tell you a little bit about our guests today.
We have Cheryl Kardos from Numerated. Numerated is a lending-solutions provider. Cheryl, I think you guys started out in small-business and commercial origination and have expanded from there. I’ve gotten to know Cheryl and Dan O’Malley and the whole team there over the years. Welcome, Cheryl.
Thank you. Super excited to be here. A little humbled. Also, not sure what I signed up for, so I’m excited. When they say it’s unscripted, they mean there’s not prep.
I don’t even know what I’m going to ask, so it’s that unscripted. You did sign up for it, but it’s going to be fun. We’ll be gentle, we promise.
Also, Tom Shen, serial entrepreneur and board member extraordinaire. Let’s see, Tom. You founded TSI, you founded Malauzai, you’re on probably half a dozen boards, chairman of one or two. We’re really happy to have you. I’ve always loved your energy level and passion. Thanks for joining us on the Hustle.
Well, thanks, Sam. Just absolutely delighted and humbled to be here as well, and great to be on a panel with Cheryl and Matt. I feel like my fintech career is now complete.
Well, maybe it is. What is that behind you? Are you in Bali or something back there? What are you doing?
It’s actually Bora Bora.
Okay, very good. You can tell I don’t have my islands down yet, so I need to work on that. Thanks for joining us.
We also have Matt Dean, who I’ve known for years. My dogs back here seem to like Matt quite a bit too. Matt, you and I met when we sat down for barbecue over here when you were leading Trabian, which you’re still doing, as I understand it.
More recently, due to what I think was a deal last year, you joined the MVB organization, leading up their ventures and doing a lot of other fun things there too, right?
Yeah, that’s right. A little over a year ago, I had my first experience with a boss in 20 years after founding Trabian out of college.
We’re now part of the MVB organization. MVB is a bank doing some very interesting work as a sponsor bank for banking as a service. We’re an acquirer, we’re an issuer, and we do a lot of work with fintech.
I’m very happy to be part of that organization now. I’m actually calling in from the Cornerstone office here in sunny Scottsdale. Glad to be here and really looking forward to Vancouver and seeing my friends at AFT as well.
I noticed you’ve got a plant back there in the corner. I understand that’s Al’s office. Is this a new cannabis-banking project we’ve got going on at Cornerstone, or what are we doing back there?
Well, I’ll experiment after the call and we’ll see what we have here.
Very nice. We’re keeping it fast and loose.
Let’s jump in, guys. Like I told you before when I invited you on, we don’t really come into this with a list of predetermined topics. We just want to get perspectives on what you’re seeing personally and professionally, mostly personally. What’s working and not working in fintech?
Tom, you’ve never been shy. Why don’t we start with you? What are the big topics? What’s going on out there that you’re hearing from entrepreneurs and bankers in fintech land?
Well, Sam, I’m never afraid to be controversial, so let me jump in. This may not be what you’re asking for, but here it is.
One of the things I get involved in a lot is fundraising. A great topic for fintech entrepreneurs is thinking about the possibility of a recession around the corner. Investors are writing fewer checks and sometimes smaller checks.
But fintech is still the number-one investable field. What’s working? What’s not working?
What we’re seeing is the continued bifurcation of fundraising, a continued flight to quality. The good companies, the ones growing 80%, 150% or 300%, are still getting incredibly frothy valuations, in the mid-20x range.
On the other end, companies that are doing well but are more middle of the road, or not doing as well, are seeing lower valuations or at times being shut out of fundraising.
So there’s a bifurcation of the fundraising space. That’s a good thing, and it’s a challenge as well.
That’s a really good point. One investor at Finovate put it to me last week like this: There’s still interest in the space. The cost of capital is just going up, and people are scrutinizing the underwriting more carefully.
Really interesting point. Follow the money, huh?
Yeah. Flight to quality, rotation. We’re seeing some rotation from the sexier side to the less sexy, more meat-and-potatoes kinds of things. That’s my observation. I’d love to hear what you’re seeing.
Cheryl, thinking about what Numerated does, it’s hard to get more meat and potatoes than commercial and business lending in the banking space. It seems like you guys have had a pretty good run.
Everybody needs loans right now. Loan-to-deposit ratios are easing back up, though they’re not really as high as they once were. What are you guys seeing in lending tech? What’s hot and what’s not?
It’s interesting the way you put it as meat and potatoes because there’s so much of that part of lending where there’s still a tremendous amount of efficiency and convenience that can be added, including early automation layered into the traditional process.
Then you’re seeing things like what Matt talked about earlier around BaaS and banking as a service. That’s also happening in lending, where a lot of these transactions are moving from the branch to the point of sale. There are really interesting things happening in that space as well.
Then you have the next wave, which Tom’s probably more focused on than we are here at Numerated, which is Web3 and how that opens up a tremendous amount of other types of lending and fundraising, not only on the crypto side but through what blockchain can do with a decentralized ledger.
I think there’s a tremendous amount happening in lending.
What’s really exciting right now is that, while there’s a lot of fragmentation in the space, you’re starting to see companies come together and put together really big visions.
People aren’t just integrating for the sake of integrating. They’re integrating for really big market opportunities. I think that’s fascinating in terms of what’s happening in lending right now.
The meat and potatoes are still there. There’s so much efficiency to be gained in small business for the back office, the banker and the business owner.
But there’s a tremendous amount of other innovation, with the near-term opportunity being banking as a service. Even after that, there’s way more coming.
The meat and potatoes framing is a really good way to talk about it, but you can’t forget all these buzzwords and a lot of the creative destruction that’s happening even farther down the road. We know it’s going to come to this industry in a major way too.
By the way, I’m instituting right at this minute, I’m going to go ahead and put on my hat. We’re going to do a no-buzzword session here.
I love what you said, though, Cheryl. You can’t forget the buzzwords.
Oh, you’ve got yours too. He’s got his monkey hat on.
That was not planned.
Good stuff. One of the things I like, looking back at Numerated, is that Dan and the team hatched many of the ideas from banking itself.
Matt, thinking about what you’re doing, you’ve kind of come from the tech space and are now coming into a bank. It’s almost the other direction, tech hatching into bank.
What are you seeing? It’s a really interesting role to be injected inside of a banking organization at MVB Ventures. Coming out of tech, what are you seeing?
Speaking to less sexy and meat and potatoes, one of the reasons the deal made a lot of sense for me was that MVB is working at the intersection of banks and fintechs. We’ve worked a lot with banks and a lot with fintechs.
What we saw quite often was that technology was not necessarily the limiting factor. It was the integration of compliance and risk and the ability to actually compose the operations of the various organizations.
We’d have an issue where we were very concerned about getting the tech done in time. You’d get the tech done fairly quickly, and then it could be months before you had sign-off from risk or compliance to actually launch the program or put forward that innovation.
One of the projects we started working on very early at the bank, actually prior to even joining together, was integrated risk management. It was building the tools to support both initial onboarding of fintech partners and continual oversight, and to automate that in ways that allowed us to move forward in a trustworthy way.
One thing Cheryl brought up that I thought was interesting was efficiency. While efficiency has been timeless, when I first got into banking we were always talking about doing things better, faster and cheaper.
What I think is interesting is that the conversation seems to have changed from efficiency as a way to cut costs in a process to efficiency as a way to make a process go faster.
It’s more about making a loan decision happen faster, getting a loan booked faster or making a payment go through faster.
Would you guys agree with that or take issue with it?
Absolutely, Sam.
I’ll jump in. It’s going to sound like a commercial because I’ve got a few companies I’m trying to monetize.
One of the boards I sit on is a small, early-stage company called Shastic. We’re in the RPA space, robotic process automation. We call it intelligent process automation, sort of the next iteration of RPA.
What we’ve been able to do with one of our credit union customers is take a process that takes three days to originate and fund a loan and automate it so we can do it in three hours.
Shastic can produce that kind of magic by reaching out to customers. If there’s a document missing, it automates that process. You don’t need a knowledge worker to reach out to Sam to get a copy of his driver’s license.
Automate it right from the desktop. When documents are ready, they automatically go out to you. You e-sign it, it reloads into the system without a knowledge worker ever touching it.
So we’re moving from three days to three hours.
It seems like a lot of the fundraises and activity around companies like Notarize, and of course DocuSign over the years, have been focused on exactly that.
We got used to skipping past all this stuff on the iPhone, while the banking world seemed stuck reviewing faxed or photocopied documents and saying, “Maybe we’ll get back to you.”
I remember my son came home from the bank a couple of years ago and said, “Dad, they said my credit card decision was pending.”
He’s like, “What the heck does pending mean?”
I know what pending means. I’m an old crusty banker. But I realized right away that the word “pending” to most people now might as well mean no, get lost. It’s unacceptable.
Matt, what were you going to say about efficiency?
What I’m seeing, and it may just be the role that I’m playing, is that we spend a lot of time focusing on customer experience.
What we’re finding is that the team member or employee experience and bringing efficiencies to process and automating those things is just as important.
It’s important to provide that level of tooling and capability to the team, particularly if you’re looking to build an adaptable team, a team that’s willing to go in a new direction.
If they’ve had to spend months or years getting good at a particular system just to be effective with it because the system was hard to deal with, it’s really hard to get excited about doing something new.
But if you’ve focused from the beginning on taking care of them and making sure they’re able to do knowledge work and not just deal with cruft, then I think you build up the trust that you can do new things and harder things.
It also helps with talent acquisition.
I love the idea of efficiency across both the consumer and the team members, and reducing friction throughout.
Cheryl, we were just talking about one of your points, which was efficiency. We were talking about how a lot of the conversation has shifted away from cost cutting and taking heads out, and more toward efficiency of process.
Any thoughts you’d add?
I think it’s spot on.
The other thing I’d say is that a lot of the software in the lending space has only focused on the back office.
Obviously, this is different for consumer lending than it is for commercial.
But I think what you’re also seeing is that the segment of the bank is probably a little different as well.
If we’re talking about consumer, there’s been so much innovation already and so much focus from the big banks ushering that in, and then the communities and regionals trying to keep up.
Small business and commercial are on a different trend.
We’re still getting RFPs that don’t have anything in them about, “How are you making this easier for a borrower?” That’s a little concerning.
I don’t disagree with what’s been said, but I’d layer that in. It’s different by segment.
I also don’t think we’re done making things easier for the end consumer. Maybe the consumer consumer, but certainly not the business owner. There’s so much more we can do for them.
I would hate for people to think that just because SoFi stock, Upstart stock, LendingClub or whatever fintech you pick might be getting hammered right now, the ship hasn’t sailed on the need to get better at the point of sale.
I sometimes call it the point of influence, what happens before the sale. How do you get someone interested in buying something in the first place?
It does seem to me, whether you look at acquisitions like SimpleNexus or Terafina, there’s a huge focus on the shopping and buying cycle of financial services, whether embedded or coming directly from the bank.
It seems like those companies are still every bit as hot, even if their valuations might be a little suppressed right now.
Tom, any thoughts on that?
Absolutely.
It’s the old adage: Meet the customer where they’re at instead of saying, “Come on into my branch.”
I remember the old TSI days of building branch automation. But in those days, that’s where customers were going. That’s where the coffee and donuts were.
Today they want to do banking at Starbucks with their iPhone.
You need to meet the customer where they are. This notion of banking everywhere, banking anywhere.
Even this notion of “I’m going to do banking” is going away. The idea is, “I need to pay for something. I need to get paid for something.”
More and more, the next generation is moving in that direction.
This whole idea of FI versus fintech, friend or foe, all of that is blurring.
One of the things I talk a lot about with my friends in the business and on the boards I sit on is being partnership ready.
Great example, and I was reminded of that talking with Matt here, is that Trabian is now partnered with MVB.
We saw our friend Mark Nelson of Horicon acquiring Christian Ruppel’s company, Monetize.
I now, for the first time, sit on the board of a bank.
This idea of being partnership ready means that FIs need to sync up with fintechs and move at the speed of fintech, while fintechs, on the other hand, need to embrace the security, risk and compliance requirements of the FI.
Both ends need to be partnership ready.
I love the partnership-ready theme.
Cheryl, partnerships are part of what you spend your time doing all the time, and AFT is obviously a perfect place to do some of that work.
I was also thinking, Matt, that being deal ready and partner ready often comes down to the industry niches you choose to be in.
MVB has some very specific niches. You mentioned fintech, but even within that, there’s been gaming and other areas where compliance requirements are unique.
You guys are almost helping invent the rules as much as you’re adhering to them. I have to believe you’re right out there on the frontier of helping regulators get their brains around how some of this should work.
Am I overthinking that?
I don’t think any of us are overthinking it.
That’s something you have to spend a lot of time working on and thinking about, and understanding the difference between inherent and residual risk.
There are things that may seem riskier, but there are controls you can put in place that can get you and your regulators comfortable with the activities you’re performing.
What that requires is the ability to adapt and understand what’s actually happening.
It’s easy to say, “We’re just never going to do this type of activity. We’re never going to work with gaming or crypto or various groups that we do work with.”
It’s different to go in and understand, “What are they actually doing? What are the actual activities they’re performing? How are they planning to use what we’re doing as a bank to support those activities?”
The mental switch that flipped for me was going from gatekeeper, which is what it always felt like banks were, or maybe regulators, but banks as proxies of the regulators, to charter protectors.
When you think about partnerships in the micro, if decentralized finance were just code-based, spread out in these individual nodes, there has to be trust. Somebody has to be responsible for saying, “This thing is true.”
Banks are spending a lot of time on exactly that. That’s what they have permission from the government to do, say, “This is true. We have looked at this. We can prove it.”
Whether it’s this person’s identity, that they are who they say they are, or whether this partner has validated that they are handling compliance needs.
It’s really going from one mindset to the other and then realizing what it takes to protect the charter.
You can get comfortable with risk if you understand what’s actually happening and make sure you have controls.
Those controls are not set-it-and-forget-it kinds of things. You have to have active monitoring.
Set it and forget it. I think I’ve heard that three times over the last two weeks. We can’t do that all the time. We have to keep pushing in.
By the way, I love what MVB is doing with acquisitions.
It reminds me of City National Bank many years ago when it was acquiring in the entertainment space and bought residual and royalty tech firms.
You looked at their strategy and market niche around entertainers and thought, “Of course.”
The acquisitions MVB has made, including Trabian, are the same way. You look at them and say, “Of course they did that.”
Cheryl, any thoughts on the risk space or anything else you’d like to add?
I’d love to pull on a thread Tom mentioned, but from a different angle.
VC valuations are down. There’s a bunch of technology talent out there, and banks are saying, “It’s really hard for us to get talent. We can’t prioritize these projects because we don’t have the right talent internally.”
I’m wondering if you’re seeing anything else, because this seems like a moment for the banking industry to maybe look in some diverse pools to pull talent into the industry.
I’d love to get everyone’s perspective on that.
I’ll start.
I was just in Austin for a conference. I was talking with a head of digital for a $1 billion bank.
They have two people working in the digital area right now, and they’re going to be at 12 by the end of the year.
That gives you an idea of what their ramp-up is.
Tom and Matt, what are you hearing?
Yeah. Cheryl, you’re absolutely spot on.
I’ll pick on Axiom Bank again.
Axiom Bank is moving forward toward a tech-forward banking-as-a-service offering, and we have pulled close to a dozen people from one of the largest financial-services companies in the world in the Orlando area.
Right. That narrows it down.
Anything on talent?
We’re looking for talent all the time in our role.
I am optimistic that some of the softening in some of the fintechs that were just throwing crazy money around is going to help us.
The numbers got so high that even if they’re going flat or going down, it’s still going to be really hard for a lot of financial institutions to pull the trigger on some of those salaries.
But I’m optimistic that we’re going to see the benefits of that.
It goes back to what Tom was saying before, that there’s this bifurcation.
It’s the companies that have revenue in mind and have an actual expectation of running a good business versus those where it was a land grab, so you throw crazy money at teams and the number of team members becomes a vanity metric.
As some sanity returns, I hope that trickles across to financial institutions’ ability to build that capacity.
I do think it’s important to have that level of control and influence over your destiny by having the development talent to support it.
I think it’s trickle up.
Trickle up. There you go. I like that.
A couple of key takeaways for me: more talent, more competence, which leads to more funding.
I’m also hearing, easy on the buzzwords. Easy on the compliance, folks.
Risk and compliance continue to be important. Point of sale matters. Efficiency never goes out of style, but we’re focusing on efficient process.
I look forward to seeing Cheryl, you, Matt and Tom, all of you in Vancouver at AFT.
Safe travels to all of you. Thank you for joining us on the Fintech Hustle. I raise my coffee to all of you.
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