Transcript
Well, hello out there. This is Sam Kilmer, managing director of Cornerstone Advisors, here with another episode of Fintech Hustle in the Hall at FinovateSpring 2024.
Exciting times.
I literally just whisked in here from the airport coming from The Financial Brand Forum, and I know we’re going to have some other whisking before this is over because at least two of our three guests are in full whisk mode.
One’s going to the airport, one’s going to a session.
So we’re going to get busy on this one and get cooking.
Let me introduce the rock-star crew I’ve brought together for this episode.
On my immediate left, Pam Kaur, head of bank technology at BankTech Ventures.
Exciting times for BankTech Ventures, so I’m looking forward to hearing a little bit about that.
Then Julie Moon from Finovate.
So, we’re at Finovate. Why not have the research analyst who knows what’s going on at Finovate?
We’re also joined by Christian Widhalm from Bloom Credit.
I’ve known Christian for a while, I think from even before you were CEO of Bloom Credit.
It’s been a good relationship.
Actually, I’ve known all these folks for quite a while.
It’s kind of how it is around this business.
You get institutionalized, you get to know lots of pals, and it’s all good stuff.
Why don’t we just jump in?
I would love to hear about a day in your life.
What does a day in the life of Pam look like?
Sounds like you’ve been pretty busy over there at BankTech Ventures.
Give us a little bit of background on that, Pam.
Yeah, sure.
BankTech Ventures, for those who might not know, is a strategic investment fund that invests in bank-enabling technology companies.
Over the last two years since I joined, we’ve made, I think, 20 investments at this point.
So I’ve got 20 founders who have me on speed dial to connect with, one, our limited partners, which are all banks, and then, two, just how to grow within the fintech ecosystem, the bank-tech ecosystem, and how to partner with some of the folks that are here.
I think the first five minutes of me arriving here at Finovate, I met about six people that I knew before I could even sit down.
So that’s a day in the life of Pam.
Everybody is looking to talk to me, looking to talk to the banks that we know.
So I’m very popular today.
You’re like, since you guys invest a lot, “Have money, will travel,” something like that.
Maybe that’s probably not the right motto.
I don’t claim to be a branding expert.
What about a day in the life of Julie with Finovate?
Yeah.
I’ve been with Finovate for 14 years now, and I spend about half my day reading and half my day writing.
So essentially just poring over fintech news, looking at recent reports.
Right now it is all about BaaS, banking as a service.
It’s the BaaS show out there.
So just trying to figure out what’s going on with all the new developments there.
Then, yeah, occasionally come to events like these and pop up on stage, do podcasts and things like that.
What about you, Christian?
Other than whisking off to airports.
Yeah.
Bloom Credit is a venture-backed startup, and we’re focused on expanding access to affordable credit.
Like any good fintech, you start out slow while you’re building your product.
We’re right now in scale mode and looking at going upstream to more banks and credit unions, which is why we’re here.
We launched a new product and made the announcement about an hour ago on stage about what we’re doing to help the 100 million consumers in the United States who are actually underserved because they’re thin-file, no-file or have subprime credit.
So it’s just a lot of conversations, a lot of going through and working through product.
It’s not for the faint of heart when you’re building businesses, but it’s exciting.
Well, I think another thing that you guys are up to is you’re obviously coming out with some pretty solid swag.
I see you’ve got the shirt and you’ve got the trucker hat rocking there.
I’ve got one of your hoodies, and they seem to be quite nice, just like I have one of your tour jerseys from BankTech Ventures.
My wife was actually asking me if I was ever going to plan on wearing my own clothes anytime soon.
But now, in all seriousness, I’d just love to get your perspectives.
Christian, given that you’re going to be whisking imminently, I’d love to start with you.
I’d love to get your take on what you think is maybe not working that well in the industry, or maybe what’s working great.
Kind of the good, the bad and the ugly.
What do you see working well right now?
What do you see as kind of underwhelming, or maybe it just sucks and could be improved by somebody or one of us entrepreneurs out here?
Yeah.
I don’t think that credit data infrastructure, as it exists today, was really designed to meet the needs of this convergence of traditional credit data with alternative credit data.
The rails were never designed to do it.
The bureaus weren’t really designed to take it in, and the systems of record on the other side were not really designed to send it that way.
That is something that we’ve been focused on trying to solve and modernize because the more data that comes into the system, the better off everybody is.
I mentioned it before, but about 45% of credit-eligible people in the United States don’t have access to mainstream credit rates or products.
There are various ways to help improve that, whether it’s through proving recurring monthly payment obligations through their checking account and different ways to actually help them build credit.
I think banks and credit unions both face the same problem.
The average age of a customer or member is in their mid-50s.
They have this existential threat to try to figure out how to attract the next generation of customer.
They need to figure out how to engage this giant population that they don’t normally have comfort doing business with, to bridge right into a relationship they can have for a lifelong or long-term relationship with the FI.
Yeah.
I think one thing that’s really interesting about that, my session tomorrow will talk about the overlaps between deposits, loans and payments.
When I think about what you’re talking about, Christian, about the credit data, it’s not just about loans, right?
Because if you can’t underwrite someone or get comfortable with their score, or whatever technique that you’re using to assess risk, that impacts their access to things like checking accounts and cards and different types of payments and deposit activities as much as maybe it does just loans.
To me, it seems like it’s, like you said, not just an existential threat competitively, but also you’re just losing so many opportunities by only using traditional techniques.
Do you have an estimate on this?
If people are only using traditional techniques, what percentage of the market do you think they’re missing?
Let’s say specifically going to that thin-file, no-file area.
The thin-file, no-file folks, think of folks who are 18 to 24 years old entering their early borrowing years and have very limited history on them.
You’ve got folks who are immigrants with limited access to credit in the country because they don’t have that much history.
They’re ITIN holders, whatever.
It’s considerable.
There are only certain institutions, and some credit unions have done it, that really lean into some of that.
Other than that, people are going to fintechs that are popping up and starting to serve this demographic.
The question is, where are those customers going to end up after?
Are they going to end up with that fintech forever?
Are they going to go to somebody else?
I think the biggest problem is probably 50 million people who are thin-file, no-file.
The FIs struggle to figure out, how do we engage them?
How do we engage them in a way that is going to create a lifelong relationship?
Good stuff.
I’ll let you be the judge of when you need to whisk off, okay?
I don’t want to get in a situation.
You need to roll?
Give me some knuckles right there.
Thanks a lot.
I appreciate it, Christian.
We’re going to keep rolling here, but thanks a lot.
Good to see you, man.
Trucker hat on point.
Because I need more hats.
That’s clear.
Pam, I’d love your take on, what do you think is, I hesitate to go too negative, but I’m a consultant, so that’s kind of what we do.
What do you think is most broken or most in need of some TLC in the industry right now?
Or on the flip side, what do you think is just really rocking it?
Maybe a little bit of both.
Yeah.
I think what’s really rocking it is just the amount of very, very cool innovative technology that’s coming out right now, especially as a result of ChatGPT and just generative AI and AI, period.
I think things are coming out that I would never have even expected growing up.
Technology that is blowing my mind that I never thought I could do.
We’re way past red sheets, thankfully.
The rest of the industry is still catching up to that, but the solutions are out there.
That’s really exciting to see, that the next generation of banking and fintech is going to be very different for my children and their children than it was for me and my parents, who I think still get paper statements and reconcile based off that.
That’s something I’m really excited about.
I think one thing that really needs work is, just on the banking side, I think banks need to catch up on that.
Like I said, the spreadsheets.
Separately from that, I’m going to talk about this in my panel this afternoon too, but it’s going to be about deposits and how banks can get more deposits.
I think one of the things the banks are going to need to focus on is actually hiring.
Hiring the right talent to manage some of this new technology that’s out there.
Banks have not been the hot spot of tech and innovation, and that is kind of reflected in the type of hires that come on.
A lot of the folks have been around for 20, 30, 40, 50 years, retiring at the banks, which, kudos to them for their loyalty.
But that’s not always the most innovative and fashionable thing for the banks to do.
So how do we encourage the next generation of bankers, who are going to be the customers of these banks, to come and work there and help kind of build that out and foster the change that’s needed?
That’s a really interesting point.
I think I’ve definitely seen that challenge too.
One of the things that I found that many small to midsize bank CEOs really struggle with is they’re used to treating data and tech generally as a cost.
They’re not used to associating it with revenue.
They’re used to associating a facility like a branch, or a lending area, or a lender or a branch manager with revenue.
So they’ve got a person or facility attached to revenue, but they have tech attached to cost.
Just getting their brain around, okay, if I want to hire, let’s say, the equivalent of a branch of five people who are going to be just doing data analysis to find opportunities, those five people are going to be handsomely compensated.
It’s sometimes a little staggering because they might have paid that amount of money to lift out a group of commercial lenders from another bank, but getting their brain around starting de novo with a data operation or a digital operation, they’re just not used to doing that kind of thing.
I just think that’s really a challenge.
To your point, it’s mainly just, what do you think?
Is it just getting comfortable with it?
Yeah.
Definitely getting comfortable with it.
This is going to be a hot take, but I think a lot of the aging CEOs of banks, a lot of them are, “I don’t want to bring on these new large projects. I’m going to retire in five years. Why should I invest my time and money into this project that’s going to take 10 years when I’m going to peace out in a few years and it’s the next person’s problem?”
But now we’re seeing that younger CEOs are coming in, more innovative CEOs are coming in.
They’re hiring boards that have entrepreneurs.
One of our limited partners and general partners, Coastal, has a thriving board of entrepreneurs.
Look at all the tech and cool things that they’re doing.
I think a lot of it is just who is on the management team and who is on the board.
As those are changing out from just your typical local businessmen and being more diverse and becoming more innovative and diverse there, that’s kind of reflecting on the bank’s culture as well.
Really interesting.
If nothing else, one of my takeaways is that on our GonzoBanker Awards at Cornerstone every year, we usually have some lifetime achievement awards, typically for retiring CEOs.
Could be CIOs or others.
But maybe we should call that the Peace Out Award.
You said they’re going to kind of like, I kind of like that.
Julie, what do you think could be working better in the business right now?
What do you think is just kind of screaming for some TLC out there?
I love this question.
First of all, I love asking this question to people across the industry because you always get different answers because people sit in different places.
My answer to this would be regulation.
Obviously, right now in the banking-as-a-service world, there is concern there.
But not only that, just thinking about AI, generative AI, and how fast it’s moving.
The regulators can’t keep up with it.
There’s no way they can keep up with it.
They’re working with blunt tools.
They’re going to have to start creating blanket regulations to cover these.
There’s so much potential when you think about AI and embedded finance and combining the two.
Where can we go from there?
We can go really far, but it’s also terrifying.
I think we’re going to see a little bit of a slowdown.
I’m surprised that we haven’t seen more of an uptick in the number of regtechs that are out there.
I expected to see this year a lot of regtechs pop up.
We haven’t seen a ton in fintech over the past 10 years.
They’re out there, but they’re not as cool and sexy and like the fun tech that you like seeing demoed on stage.
I’m hoping to see that regulation will be more structured.
It’ll be more clear, especially for these smaller community financial institutions that are looking to play and play well within the industry, and looking to add that technology and serve their clients better, but who are struggling to do so because they’re not sure what the rules are.
The rules obviously are clearly stated within the regulations, but just trying to figure out how to operate in this new world is difficult, especially for the smaller FIs.
The Chases of the world have those digital marketing services launched and they figured out how to leverage their data and make money off of their data.
They’re there.
But what’s going to happen to the smaller ones?
So that’s one thing I think we could definitely do better.
Defining regulations, opening up that clear communication there, is key.
Well, I think if nothing else, a strong, and I don’t mean Dr. No, but a strong regulatory compliance officer is certainly not going out of style at a bank.
They’re going to need more and more and more of this kind of thing just to get their brain around some of the risks.
That’s kind of interesting, Julie.
Listen, I want to also be mindful of the fact that you’ve got a panel session coming up and you and Jason and the team need to get ready for that.
But just one more question, unless there’s something else you guys want to talk about, because I could sit here and gift of gab all day.
When you think about this event, we just got here, right?
You just said you’ve been here for an hour or so.
Same here.
I was running into Matt L’Heureux from COCC in the hallway and going, “Yeah, I just landed.”
Since we can’t really talk about what all has happened here yet because it’s not all over yet, I guess maybe one thing is, what one or two things were you really looking to take away from this event?
What are you really looking to learn more about?
Obviously, other than potential investments and potential partners and that kind of thing.
Is there anything that is on your short list for things you’d love to walk away from Finovate with?
Pam, any thoughts?
Yeah.
Considering my bank-tech background, one thing that’s really important for me coming here is to see what is piquing the interest of the banks.
Us as a VC are going to have our own, “Oh, this is cool. We want to invest in this because it’s fun and exciting and sexy.”
But that’s not always the technology that’s actually implemented by the bank.
So really looking forward to talking to some of the banks here that we know, and hopefully get to know some new ones as well.
But also kind of watching the audience reactions when some demos are going on.
You can kind of tell when people are checking out or really interested or writing down stuff.
So looking forward to seeing what’s actually piquing the interest of the banks.
Yeah.
One thing, I mean, I always just am here to ask questions and have questions answered.
Some of those questions now, obviously, revolve around banking as a service.
Where is it going next?
Are we stymied?
Is there a future?
What is that future?
What do FBO accounts look like?
Are they good?
Are they bad?
Honestly, everybody who I’ve talked to who I would consider an expert in the field, they all have different answers.
I’m like, “Oh, maybe there isn’t a right answer. Maybe we’re still navigating this together.”
It’ll be so interesting to see how it all plays out.
Then between that and, obviously, just looking at where Gen AI is.
What is the next step there?
That’s what everybody’s talking about.
If people are talking about it, I need to know about it.
So that’s always really important.
There have been some very dystopian conversations around Gen AI, which is why I have my fingers crossed for regulation when it comes to Gen AI.
Somebody commented, I think it was yesterday, and they said, “Well, what’s going to happen when AI replaces the lower-level analysts and mid-level managers? Who will rise up and become the next CEO?”
It’s like, ooh.
A speaker yesterday was talking about how AI is being built into org charts, very necessarily so, because if we’re replacing my job as a content person with AI, it’s like, well, who’s going to be the next person?
We can’t just let it drive itself.
How do you choose that person if they don’t have that lower-level job?
Those issues are there.
Obviously, that’s across all industries and not just fintech, but it’s certainly something that fintechs and banks need to be thinking about.
Really interesting.
Hashtag banking dystopia.
But I think something that’s really interesting about this is both of you have come back to talking about talent and people issues.
We come to something like this and we tend to think about the tech, but really, I mean, a big part of this is, to use the transformation buzzword, figuring out how are the people different?
When I started out in the business, which as you might know is not recently, the typical path to the CEO suite was you were the CFO or chief lending officer.
That was it.
In the occasional shop, you might get a really strong head of retail or just an exceptional person, but really it wasn’t much else.
That was probably 80 or 90% of the CEOs.
I think I’ve seen some over the last several years, people who were CIOs who actually then went to the C-suite.
You can almost see now where someone who starts off, like my son, who’s a software developer, if he were to go in and be a data scientist, now if he’s chief data officer in maybe five years or something, that could be the path to a bank, or whatever we’ll call all this stuff.
That could be a path to the C-suite.
It’s really interesting.
I guess I’ll just ask you guys, anything else that we didn’t talk about that you’re just dying to get out there on what you’re seeing happen in the industry?
Anything you’re excited about in the business right now that you want to get out there in Fintech Hustle land?
I don’t know about excited, but I would say scared of all the fraud and how we’re going to mitigate that, especially as technology gets more and more sophisticated.
The fraud technology also gets more and more sophisticated.
So we’ve definitely been keeping an eye on that.
Yeah.
I’ve been really excited to see tools on stage that are helping firms more effectively manage their data.
I think that’s been an issue, especially for smaller FIs.
It’s there.
It’s disorganized.
But how do you clean it up?
How do you leverage it?
Then, in the case again of Chase Media Solutions, how do you potentially turn that into a value stream for your FI?
Very good.
Well, Pam Kaur and Julie Moon, thanks for joining us today.
We’re here at FinovateSpring in the hall.
Thank you for joining us on Fintech Hustle.
We’ll see you out there on the road and talk to you soon.
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