Fintech Hustle // Trisha Price and Wade Arnold

Welcome to Fintech Hustle. My co-host Ron Shevlin and I are glad to host you today, and thanks for joining us.

We should have a nice, lively discussion here over the next hour or so. I want to cover a few housekeeping items before I introduce our guests and talk a little bit about what we’re going to cover.

For starters, again, welcome. Glad you could join us.

Just so you know, we do record these Fintech Hustle sessions, and you can request the recording at the end of today’s session. There’ll be a little poll that comes up asking if you’re interested in the recording. You can get that, and you’ll also have an opportunity to follow up with Ron, me or somebody from Cornerstone after the session.

Your mics will be muted mainly for background noise. It’s not because we don’t want to hear from you. We do.

You can use the Q&A and chat features at the bottom of your Zoom window to ask questions. Don’t wait until the end. If you have questions for any of the panelists or for us in general, go ahead and put them in during the session.

Don’t shout them out literally because your mic is muted.

It’s a one-hour session today, so we’re going to wrap up before too long. The time will fly by.

On behalf of Ron and me, let me introduce our guests.

Our first guest is Trisha Price, chief product officer of nCino. Trisha and I met several years ago at an nCino conference where she was giving a product roadmap session. Very high energy, lots of insights, and she kept a crowd of a thousand-plus lenders and others in banking entertained as well as informed.

Prior to nCino, Trisha spent some time with Primatics and Fannie Mae and comes with a deep technology and banking background. Welcome, Trisha.

Thanks, Sam. Thanks for having me.

You betcha.

Our other guest is Wade Arnold. Wade is the CEO and co-founder of Moov, which is an open-source infrastructure company.

Prior to Moov, Wade was very well known in the industry. He spent some years at Banno as an investor and technology consultant, was the founder of Banno and went through the Jack Henry Associates acquisition.

I met Wade at an AFT conference. Wade, I know you’ve been very involved in the Association for Financial Technology. I’ve got a personal crush on AFT, so I’ll throw that bias out there right away. I’ve always loved the conversations we’ve had on all kinds of things.

Welcome, Wade.

Hey, thanks, Sam. Appreciate being here.

You betcha.

And of course, our snarker-in-chief and co-host, Ron Shevlin. Hello, Ron. How are things up in Boston?

Rainy, what?

All good. We need the water, so we’ll take it.

Take it indeed.

Let’s jump right in, guys.

We’ve said the things we want to cover on these sessions. First of all, we want it to be informal. This is not scripted. We want it to be very real-time.

One of the things we want to get into is what’s working and what’s not working in the land where fintech, bank tech and all those worlds come together.

What’s the mood out there? What are we hearing from bankers and from your teams working with bankers in the world between fintech and banks? What are they saying about their plans for spending? What’s the overall tone? Is it getting more positive?

Trisha, do you want to kick us off with any thoughts on what you’re hearing from the nCino team and your clients out there in Bankland?

Sure.

For some portion of our customers, when the PPP program came out, they were pretty buried. They didn’t really have time to be happy or sad. They were just overwhelmed with trying to do the right thing for small businesses across America.

I think most of them are still somewhat buried in that as it relates to forgiveness, but most have been able to pick their heads up from that and start thinking about the future.

What we hear most is, Sam, you know there’s been a focus on digital transformation internally at the bank, as well as how banks are able to engage with their customers, for several years now.

But that feels much more timely and important now than maybe it did a few months ago, when it was, “Hey, we’d like to do this. We’ll dabble. Maybe we’ll put a portal up here or there.”

Now it’s, “Oh my gosh, we have to actually have these processes in the cloud. We have to be able to allow all employees to work from home, and we’ve got to be able to do things like open deposit accounts without somebody walking into a branch.”

Themes we’ve all been thinking about and talking about for a while seem more important today.

On the flip side, when you think about credit risk, portfolio management, modifications and forbearance, those are obviously top of mind too.

So my takeaway from that is no more dabbling in banking, right? We can’t, mustn’t, thou shalt not dabble in digital. We have to get real. Is that it?

You’ve got to get real.

Digital transformation light isn’t helpful during a pandemic.

Pandemic light.

Wade, what about you? What are you hearing and seeing? What’s the pulse out there in bank and fintech land?

We’re seeing a big transformation from a year ago, when financial institutions were assuming interest rates were going to increase. We’re going to be more profitable just staying in business for another year.

I think the budgetary constraints around interest rates going back down and no interest-rate change in the foreseeable future are really driving tons of interest around, “What ways can I have noninterest income?”

How can I do that in a way that doesn’t generate huge fees that may be considered predatory, but still offset some of that revenue on the noninterest-income side?

There’s also a big push into what it’s going to look like to diversify deposits.

As I’m looking at different ways of increasing the deposit side of my balance sheet, how am I going to do that in a way that’s not concentrated on walk-in efforts?

If account creation is always through the branch, how can I distribute that workload to different channels?

Interesting. One of the things I heard you say was noninterest income and just a heightened focus on earnings.

I was talking to a CEO the other day who was talking about the impact of all the money they’ve had to plow into reserves, waiting for bad loans that, in their case, essentially have not materialized.

It’s almost hard to remember this, but we’re at what, 7% or 8% unemployment right now? It was at 15% in April.

We’ve improved, and it’s improved better than I think many of us expected, but we’re nowhere near where we were.

Interesting that you mentioned noninterest income. Ron, I was thinking about some of the conversations we have with Brandy and Tony from our payments practice about interchange impact, because that’s the kind of noninterest income bankers get that doesn’t feel like punishment to the consumer.

You normally see it in treasury management services. You see it in debit or card services. Areas where, if you want noninterest income, it’s not overdraft fees.

Treasury’s been hot. It seems like that was true even before COVID. Everybody was talking about how to become more of a commercial bank.

Trisha, I know you guys are in treasury origination.

We are. We’re in the treasury-management onboarding and origination process.

We started down that path because our origins are in commercial lending. As you start to think about an overall deal and a relationship manager selling a deal, treasury services were a nice bundle in the deal, and it made sense to be in the commercial lending system.

But you’re right. As opposed to just being part of the deal in the commercial lending system, we definitely saw a trend starting a couple of years ago around a bigger focus on treasury-management onboarding.

To Wade’s point, the complexity of product catalogs is really exploding there, and you need better systems to bundle those products the right way, deal with pricing and pro formas, and handle the complexity and workflow of those onboarding processes.

There are still some big hurdles there.

Just to address that point, it was interesting on Twitter about a week or two ago, because I can’t remember anything that happened more than two weeks ago.

There was this discussion about treasury management and getting more revenue from it. A bunch of folks were proposing that banks should essentially force a policy where you couldn’t do a commercial loan unless you had some sort of treasury business along with it.

I just kept thinking, “You go tell the commercial lenders they can’t do business unless they’re bringing in treasury.” That’s not going to fly.

That kind of addresses the cultural aspect.

I wanted to go back to the digital-transformation points because all this talk about how digital transformation has been accelerated in three to four months is, I think, a misperception of what’s really going on.

We saw and are seeing digital adoption acceleration, not necessarily digital transformation.

I surveyed a bunch of financial-services executives last year and asked them what digital transformation was. The most popular answer included the concept of cultural transformation.

There’s just no way cultures have been transformed in four or five months while people are running around like chickens with their heads cut off trying to solve problems.

I think we’re a long way from this notion of digital transformation.

I’d also put out there that I don’t think we’re going to achieve digital transformation until we see broader legacy-core replacements.

Wade, you can talk to some of the challenges associated with that and whether that’s really happening or not.

But I’d put out there that we haven’t really achieved transformation as an industry until we see greater legacy-core replacement.

Nice throwdown.

Wade or Trisha, any reactions to that?

I bet we both have plenty.

Wade, you want to go first? I’ve got a few.

Go ahead. Jump in.

I think, Ron, that’s a nice nuance you pointed out around digital adoption versus digital transformation.

You think about PPP as an example. We saw three years of loan-application volume in the digital channel for a particular customer in a day, sometimes in an hour.

But to your point, those tools didn’t come out of nowhere. We didn’t decide yesterday we were going to deploy these portals and online loan applications, and all of a sudden they were there.

What I have seen, though, is that our customers wanted to head in this direction. Some already were.

Some of the hurdles around when to do it and how fast to do it just quickly went away.

When you had a branch closed, maybe there was still a step in the deposit-account-opening product where we made you walk into the branch and show your driver’s license, even though there were plenty of identity solutions out there.

They got over that hurdle quickly.

There were stumbling blocks in the process that people had to get over quickly to keep doing business and serve their customers.

Is that the end of digital transformation? I sure hope not. I think we’ve got a long way to go in terms of innovation and adoption.

But I do think there was an acceleration of some hurdles that financial institutions forced themselves to get over.

I think the people at MX may disagree with at least one of your points. It took them like a weekend to develop the portal they put out.

Yeah, it wasn’t there yesterday and it was there today, but you make good points.

A lot of them used ours, Ron, and it had been there for a while.

Wade, do you want to jump into the fray there?

Yeah.

Ron’s lit up from the background, so I’m a little intimidated by some of his questions.

It’s like we’re in a chapel or something.

That’s right.

I think what’s really changing is consumer expectation.

When we started doing digital banking at Banno in 2010, you had to walk into a physical branch in order to have that feature enabled on your DDA account.

The state diagram of how that workflow changed for the consumer was that the starting point was assumed to be in a branch for all these ancillary services to be added on.

From a core-modernization or core-transformation perspective, I think only Cornerstone would be able to give the entire list of the RFI for every single core feature. It’s a long list of things to redevelop.

But the impetus for that change is that the majority of consumers want to start that workflow on a digital channel.

Going from doing KYC and KYB on an individual because they walked into a branch, where you have a video camera and can see it’s Wade, he’s 6’4” and maybe has a beard now, is a much different process than Wade addressing a new banking relationship as an anonymous user from the internet.

As we change that start state from an anonymous user who may or may not have additional features and functionality with me, but whose access pattern is through a browser rather than through a branch, that’s really what we’re talking about with core modernization.

The Big Three get a lot of mud thrown at them. If you want a branch-banking operation, they do it extremely well.

But 10 years ago, the minority of people came through the digital channel. Now maybe we’re over 50%. Maybe it becomes the vast majority who only want a digital relationship in the future.

That’s all being driven by a change in consumer behavior and how we service them.

It’s an interesting point. We’re getting some really good questions coming in.

Going back to treasury services for a second, one question was that requiring treasury services may not fly with lenders, but you should see loan-pricing differences with or without treasury.

Do you agree?

I do, actually.

I have some strategic-planning clients and we have others at Cornerstone, often smaller banks, where the CEO really drove the discipline from the beginning that we’ve got to have the operating account, maybe not cash management, but at least the operating account, to do the commercial loan.

They really enforce that.

It has a lot to do with C&I lending as opposed to CRE. If you’re an all-CRE lending shop and then you demand that you have to get cash management, to quote the philosopher Rodney Dangerfield, it’s like shooting pool with a rope. It’s not going to work.

Trisha, have you seen bankers able to get more value on the loan side by being more disciplined about treasury?

I think there’s overall customer profitability and the ability to look at the overall relationship profitability with or without treasury services in different markets and stress-test that.

That’s probably deal-specific, but there’s definitely reason for financial institutions to be looking at overall relationship profitability, with treasury services being a key piece of it.

With the operating account, there are obvious reasons beyond just profitability for the bank to want that.

There’s the need for the deposits themselves.

I also hear a lot of chatter in our customer base around monitoring balances and cash flow as a proactive measure for credit risk, both on consumers and on small-business and commercial accounts.

So there are reasons beyond just profitability there too.

It’s a good discussion. We’re 20 minutes in and still on question number one, which is fine by me.

I wanted to get back to the mood side of it. How do you see that translating into spending?

Wade, you mentioned they’re really earnings-focused, with net interest income and noninterest income.

Are you hearing bankers who are more inclined to spend and partner on fintech, less inclined, or about the same?

I think fintech is a huge opportunity for financial institutions.

Over the last five years, we weren’t sure if they were friend or foe.

Turns out, cheap deposits and noninterest income are pretty attractive things to most CFOs at a financial institution.

Now it’s, “How do I manage that program? How do I manage that risk? How do I pick the right players to do that with?”

Especially in the commercial-banking space, if they can have a fintech practice for cheap deposits, that creates a great opportunity on the lending side.

Where we’re seeing spending in financial institutions is, first, how do I connect to fintech?

The second big area is that I don’t think there’s going to be another Open Solutions DNA, a rip-and-replace where we’re going to replace every single thing and spend a couple billion dollars to reinvent this and solve everyone’s problems.

What we’re seeing is people using technologies like MuleSoft and Confluent with Kafka and really doing core modernization.

I’ve got seven different platforms. How do I route all those payments through one area so I have one fraud solution, one review solution and one data-warehouse solution?

It’s picking off those pieces and really creating more of an unbundling of the core-banking solution.

We predominantly work in top-25 banks, so maybe that’s a little different than the average community bank out there.

But there’s lots of effort to decouple, have a centralized way of doing that and make it so I’m not managing 400 different point solutions.

Trisha, what are you hearing in terms of appetite for tech spend and fintech spend from banks?

There were customers of ours where we were the reason they were able to work from home.

Prior to the digital transformation they did with us, their employees really struggled.

Everyone wants to talk about digital as the customer engaging with the bank, but what about just the bank being able to work without taking the credit files home with them?

It wasn’t that long ago that I was in financial institutions, and this still exists in some places, where literally the credit guy has to put the box in his car to be able to do the annual review from home.

Digital transformation is not only a customer-facing, customer-experience concept.

There are a lot of pieces to that where there’s strong interest and demand continuing.

Whether that’s portfolio management and being able to really monitor a financial institution’s portfolio, do loan modifications when needed, make sure they’ve structured the right deal for their customer base in varying economic times and COVID, or still looking at loan growth and better understanding the right loan price and how to make a deal profitable.

I just don’t see those things going away from a bank perspective.

My takeaway from that is no more credit files in trunks.

Credit files in trunks seem a little ’90s.

Eighties, maybe even ’70s. Let’s go vintage all the way back.

You mentioned some examples. Wade, you were talking about some of the top-20 banks.

It seems like there’s been a morphing of the landscape between big banks, traditional fintech providers and challenger fintechs.

You had people like OnDeck, who started out as a challenger and essentially became a provider for Chase and others. You could call that an enabler or provider.

Then that didn’t really pan out too much and they sold.

We saw Kabbage sell to American Express last quarter.

Yet there are others like Square and some challengers getting real traction and charters.

It’s getting increasingly hard to tell the difference between a bank, a fintech, a challenger and all these different categories.

Does it really matter?

Wade, what do you see happening there in that morphing landscape? Does any of that have your attention?

That’s honestly why we made Moov.

Their needs are drastically different from those of a branch-banking network.

It’s really about unit economics.

How do I decrease my cost per customer so I can open an account at $50 or $100 and still be profitable? How do I do that at massive scale?

When I was at Jack Henry six years ago, one of our premier cores had 3,500 different DDA accounts.

You know how many different DDA accounts MoneyLion or Chime have?

All those accounts existed because a customer requested them. It’s not like it’s a bad idea. It’s a real use case.

But to me, what the challenger banks have done well is carve off a segment they can repeat at scale, the same process over and over, rather than trying to be all things to everybody.

One of the questions in the chat was whether omnichannel is an outdated word.

Being on the corner of First and Main is a really hard competitive differentiator in 2020.

Offer everything, and the only reason you get the business is you’re the only option in town.

To me, the challenger banks are the ones doing omnichannel well in the sense that they’re getting a demographic that only has certain needs and finding that scale point to go after that customer.

Unfortunately, they’re carving off very profitable customers in order to make that happen.

We can argue back and forth whether Chime is supposed to be worth $14 billion.

If we’ve got a bunch of bankers here, we’re all going to agree that’s insane.

If we have a bunch of technologists here, we’re all going to agree it may be undervalued.

Somebody put the money in, so it’s probably worth something.

I want to go back to something you just said. You made the point that they’re carving off profitable customers.

Profitable maybe because these are folks who are overdrawing on their accounts and the banks are losing overdraft revenue.

These are not necessarily prospectively profitable customers from a product-growth and loan perspective.

I literally just completed a survey, and I can tell you there are 24 million Americans who have an account with a challenger digital bank.

When I publish the numbers, you’ll see the individual numbers.

Chime has an absolutely huge market share of the challenger-bank market. It’s ridiculous how much.

But here’s the interesting thing. Of those 24 million Americans, it’s about a two-thirds to one-third split. Around nine million use it as a secondary account, not their primary account.

They’re opening these accounts to get better interest rates, better debit-card rewards or better personal-financial-management tools.

In another survey, I asked consumers why they opened an account with one of these digital banks.

Half of Chime customers said, “Because I just wanted to try them out.”

This is not a really compelling growth story, Wade, if it’s just “trying you out.”

The demographics of these consumers are heavily skewed toward low- and middle-income consumers. These are mostly consumers who don’t have college degrees.

The unemployment rate among challenger-bank customers is significantly higher than the unemployment rate among other consumers.

That’s why my belief is this is not worth $14 billion because I don’t see the growth opportunity.

Now, I’ll give Chime credit. Their customers are, I didn’t actually ask about satisfaction, I asked two questions: “How much do you like these companies you do business with?” and “How much value do you get from them?”

Chime’s customers outscored everybody else, not just the challenger banks, but even the credit unions and community banks, on likability and value.

So I do give them credit for that.

I’ll bite.

In my opinion, Square is a great example of an unserved marketplace in financial services.

Being able to quickly underwrite an SMB in order to accept a credit card at a time when banks needed three months of bank statements faxed in to underwrite your merchant-acquirer agreement and make that happen.

The tip of the spear for Square to serve SMBs was this little cute Square dongle.

Now look at where Square is. They are everything Intuit ever wanted to be, plus some.

I totally agree with who Chime is today or who MoneyLion is today.

But we already know MoneyLion is going to be offering business banking inside of the next year.

Those additional products and services compounded upon the customer stores you’re talking about right now have to be the long-term play.

Otherwise, that valuation is totally impossible.

The question is, can a Chime, MoneyLion or Acorns convert these really low customer-acquisition costs and this fantastic customer empathy through digital channels into additional products and services?

Are we going to see that become the rebundling of banking inside of that bigger brand or not?

If it’s not, they’re not worth $14 billion.

If it is, and they get to trade at 350 times earnings like Square, they’re probably worth a heck of a lot more.

Really interesting.

It also seems like if you look at Kabbage’s process that American Express apparently liked so much, one of the things many of these companies are tackling behind the surface, beyond all the talk about UX and customer experience, is how they bring the data together.

They figure out how to knock down the barriers between historic silos of data that you might find inside a traditional bank.

There are some questions coming in from people in the audience around core modernization.

It strikes me that a lot of what’s been discussed around the modern core is an ability for a bank to take charge of its own data and knock down the walls to get things to work together.

Maybe you guys would disagree with that.

But as you think about the integration challenges banks have versus someone like Square, who I’m sure has integration challenges of their own, are the integration challenges pretty much the same old problem?

I was doing core conversions a long time ago as a banker. Plugging in my digital-banking system with my core and trying to figure out my data warehouse was a problem 25 years ago.

Is it the same old problem, or do we have a new set of challenges around integration that is driving some of this?

Look, I think to your point on core conversion, that has always been very difficult. Systems conversions are hard, and systems conversions are still hard.

I think the integration problem has become more pronounced.

As more and more companies realize the need for an open ecosystem of partners and our financial institutions move to a best-of-breed approach and want to connect different solutions, nobody wants a swivel-chair integration where they have information here and turn around and type it there.

That need for integrations is definitely more pronounced.

I think modern technology, and those of us who’ve built these systems in the last few years versus a couple decades ago, have pretty much all built on a microservices concept, which allows for real-time connectivity in a different way.

That has changed the game.

But a core conversion is still a core conversion. I don’t think that has gotten any easier.

It’s more the ongoing ecosystem of integrated products where people have built businesses around that.

People realize their software is stickier with the more integrations it has and the more value you can bring to your customer.

People are willing to integrate even if it requires a little coopetition, as I call it.

Wade, do you have any thoughts on that?

Yeah. I’ll add on.

Mark Forbis, my brother from another mother, asked a question in here about what a modern core is. I think that lines up with what we’re addressing here.

To me, it’s just this new access pattern.

The access pattern that was optimized for a branch-banking core is walking up to a teller line with a line of people behind that.

You can’t argue with somebody who had all the F commands memorized with the teller-line system. They could fly through that green screen faster than a mouse.

They could triage an entire line of people in the branch.

But if you take the new access pattern, where it’s digital first, and you mentioned UX and UI earlier, one is a fashion statement and one is an experience.

If that access pattern has migrated from the branch to digital, all of a sudden what part of that is the core system?

Typical core systems have access really designed around an admin teller. They were never designed for the internet.

There are no entitlements, rights and permissions, which are the fundamental building blocks of anything online.

Now, if you have a new vendor that comes into your core, do they have to reinvent entitlements, rights and permissions because they have access to everything?

All of a sudden, vendor due diligence is much higher. The barrier to entry is much higher.

As we get to this modern, disgusting word of banking as a service or open banking, it’s really around how we get access to this data and do it in a way where new verticals can segment off some consumers in order to do interesting things without affecting the rest of the consumers or creating more risk for the financial institution.

Hey, Ron, any thoughts on that? You’re usually not this shy. What are you doing over there, working on a report or something?

This is what happens when Ron gets around me. He gets real quiet real quick.

No, I don’t think so.

Actually, what I was doing, to be honest, is there’s somebody from Chime listening in to this and giving me grief on Twitter for having just gotten burned by Wade, so I have to defend myself on this one.

I actually agree with a lot of what Wade was saying.

I do think, though, that you have to watch the terminology because specifically with things like open banking, that means so many different things.

The thing I would say to your original question, Sam, is that there is something very different about today than 20 or 25 years ago.

Twenty-five years ago, the nature of the integration was internal.

Today, the nature of the integration is external.

You had plenty of political and cultural problems to deal with when you were doing stuff internally. It’s even more compounded when you’re trying to do it externally, and then you start getting into regulatory issues.

So yes, I do think it’s a hell of a lot more complicated today than it was 20 or 25 years ago.

Here’s one for you.

When you think about banks or fintech providers, which types of organizations are most prepared for what’s going on right now?

The challenges, to your point, Ron, are very different now. They’re external. You have to be way more nimble.

Who do you think is more prepared to survive and thrive right now versus not?

What jumps out at you when you look at an organization and say, “These guys get it. They’re going to be fine”?

I think when you can ask a financial institution how they differentiate in the marketplace and they can say, “I serve this market super well.”

One of the examples I like to use is IncredibleBank.

Before they transformed their brand to IncredibleBank, when they were just River Valley Bank, they looked like the same community bank you’d find everywhere.

Yet how they differentiated in the market is that they are world-class, if not the best, at underwriting RV contracts.

Taking that out of Wisconsin, taking it nationally and being able to really hone in on that very unique service is a great example of differentiation.

If we’re all things to all people, now you’re just competing on price.

How are you differentiating?

If the answer is, “Service. We have superior service. We’ve got the best coffee in our branches. We fix our problems faster than everybody else,” that’s not enough.

What you mentioned there is kind of getting to niche.

How do you define community?

Probably 80% or more of community banks right now define community by zip code as opposed to, “We focus on veterinarians,” or some niche around a product, type of business or something like that.

Trisha, in lending, I know we spend a lot of time in our strategic-planning sessions helping commercial-lending shops get a handle on whether there are specific nooks and crannies of commercial lending they can get into, where they can tie treasury with it and really own a slice of the market instead of being genericbank.com.

I don’t know if you have any thoughts on that.

Yeah, certainly.

You even see some community banks organized not by commercial, small business, consumer and mortgage, but by storage units versus veterinarians.

People who work in those verticals actually have experience in those verticals.

When they go out and talk to a veterinarian, they understand how a veterinarian makes money or doesn’t make money.

So yes, I definitely see that happening.

There’s specialty, there’s organizing by niche, and then there’s organizing by customer.

One of the things, and I’m not just talking about some far-off universal-banker concept, is that if I’m a relationship manager and Sam, I’m having conversations with you about your business, and then you want to have a private-wealth conversation, are you really going to bring in another guy?

What does that look like?

Do I even have insight into that experience with you?

You’ve already shared all this information with me and banked with me for years, but then somebody else shows up and says, “Who are you, Sarah? What do you need?”

I do think there are many more banks trying to specialize in niches and have that knowledge.

I think there are plenty of institutions trying to focus on the customer experience and ask, “How do we maximize our interactions with you?”

Meaning not your business, this loan or this deposit account, but you.

Plenty of financial institutions I talk to every day are making changes that are helping their business better serve their customers that way.

I like how you tied together Wade’s point about differentiation and whether you can actually craft a narrative that is believable and different.

What I like about what you’re saying, Trisha, is that you’re talking about putting it into action.

One of the things in consulting, particularly around John Meyer, who is Cornerstone’s practice leader for business intelligence and data analytics, is that data analytics today is kind of where commercial lending was five or six years ago, or in many cases where credit files are still in the trunk.

You go into banks right now around data analytics and it’s pretty messy.

One of the things I’ve found interesting to look for is, do they have five or six use cases?

Are they just looking for data to pop up and grab them, or do they have five or six use cases that tie back to how they’re trying to be different?

“We’re trying to be different in a certain way, and this is how we want to use data to create a different UX.”

There’s an alarming number of institutions, and I say this with no insult because I’ve been in banks where we didn’t have great use cases either.

It seems like there’s a lot of technology chasing a lack of definition around what we’re trying to accomplish.

I guess I have one from experience.

We work a lot with the Square Capital team, and how they use data for underwriting is brilliant.

I can’t really get into everything, but they take everything from card swipes to payroll services to invoicing.

They’ve really automated a way for underwriting lending that is very similar to what Silicon Valley Bank has done with cash-flow analysis and underwriting around that.

That’s a critical way of being able to give a very large loan based on data to these SMBs that maybe would need some sort of asset-backed loan from a traditional community bank.

Now these are cash-flow-backed loans.

Seeing that as a tool where there’s no loan committee, it’s just algorithms, and they can run the algorithm against new data sets and see how the outcome would have happened.

That, to me, is a wonderful user experience for that SMB.

And a wonderful efficiency for the FI.

And it takes the bias out of the problem.

Exactly.

Now it’s a one-click offer.

If you want this line of credit extended to you, just click here inside the thing you interact with on a daily basis.

The future’s here. It’s just unevenly distributed.

It’s happening, and it’s brilliant.

The team we work with at Goldman Sachs is doing brilliant things around data analytics and forecasting around cash flows.

But cash-flow-based lending isn’t a typical type of loan most financial institutions want to do. They want to do an asset-based loan.

Just to jump in, Sam, I think Wade is spot on, and I go back again to the cultural differences.

You think about what Square and Goldman Sachs are doing. Yes, they’re making great use of data.

But we just surveyed a bunch of financial institutions about their credit-modeling process, and the percentage that manually review their auto-decisioned loans is sky-high.

Why bother to do auto-decisioning if you’re going to manually review it?

I’m guessing Square and Goldman don’t do that.

It’s a totally different culture and approach to the process when you trust the data and trust the processes because you’ve built them up over time.

I’m sure banks have their defense for why they do what they do, but it really shows how, even with the use case, there are differences in the culture, underlying business processes and decisioning mechanisms they’re using.

I was wondering, you bring up some of the people like Goldman and others disrupting the finance, lending and credit space.

One of the questions that came in was around embedded finance.

Is there an emerging trend with embedded finance with businesses, or do you think it’s a consumer-banking trend only?

Ron, normally I’d go to our guests first, but you’ve been writing a little bit about embedded finance, haven’t you?

Yeah.

Just quickly, because the question was more from the business perspective than the consumer perspective.

From a retail perspective, there’s real proof of the trends.

On the business side, I’m optimistic and bullish that we’ll see a lot of that from companies like Square and Gusto, which create platforms to enable it.

I can really see small businesses wanting to support other small businesses and do their lending, borrowing and insurance through those platforms.

Typically, the retail world leads the small-business world, which then leads the big corporate world.

I see a similar pattern here with embedded finance.

Wade or Trisha, any reactions to that?

I think the more tools a financial institution can help give its customer base and the more ways for them to engage, probably the better for both parties.

I was just thinking about another question that came in.

Talent has been a big issue, whether it’s talent you’re able to attract or not.

My LinkedIn feed has been full of industry providers looking for entire digital-marketing teams, development talent and other types of people right now.

Tom McIll here asked how community banks build out the correct staff and skill sets to navigate the fintech space.

We can talk about community banks, but we can also talk about your companies.

What challenges are going on with building out the right staff, teams and skill sets right now?

Are we all just looking for data scientists, digital-marketing people and developers? Is the whole world looking for the same people, or are there some unique challenges here?

I’m not going to minimize skill sets and backgrounds, but I’m going to give an example of why, if you want top talent, it comes down to culture and investing in your people, not an exact resume and exact degree.

I’m proud to think we have a pretty well-adopted and well-received product that our customers appreciate.

On my team, Dory Weiss, who’s our VP of engineering, came from an English background.

She was working at the University of Texas as a professor, left that and went to a learn-to-code program there.

She moved to Wilmington because her now-wife was in a creative-writing program here. We found her working from home, still for the university, coding.

She came here, grew with us and is now our VP of engineering over however many hundreds of developers are on that team at this point.

I say that because obviously Dory had a technical aptitude or she wouldn’t be able to do what she does.

But when you think about a head of engineering, education, mentorship and onboarding of new people are equally important to technical skill sets.

There is a war for talent. There will always be a war for top talent.

To build a great team comes down to culture, teamwork, respect and having a winning attitude.

Sometimes it does require looking beyond simply worrying about finding a data scientist.

I was a math major coming out of college, had no development experience and began COBOL programming on the mainframe. I’ll date myself a little bit.

But you can learn these things if you have the right aptitude and attitude.

It’s important for all institutions today in the war for talent to look outside the box a little bit.

Wade, any thoughts on talent and getting the right people?

I totally agree with Trisha.

I think we have a moment of rebalancing of talent right now.

The pandemic has created a unique opportunity in hiring.

You’ve got certain industries on hiring freezes, which makes individuals nervous about their future.

We just have the unemployment rate going again and again and again all the way up through the end of the year.

We’ll be back in a full-employment spot, call it January or February.

So we are very consciously, aggressively hiring at this moment, as there’s a little bit of turmoil, fully focused on people who are happy to work remotely.

I think that has a window of opportunity.

Then some of the more traditional benefits and strategy planning come in sometime next year.

But there’s a huge opportunity right now to get the best of the best onto your team.

Good stuff, you guys.

This is Ron’s and my show, so we get to ask a closing question.

In the last few minutes we have here, I want to go around the horn.

You guys may recall the late James Lipton, who was the head of Inside the Actors Studio. He used to ask every person on his show what their favorite curse word was.

Good news, I’m not going to ask you what your favorite curse word is.

Although maybe we’ll do that in the future.

I was actually going to go the opposite way.

What is your least favorite buzzword?

What is a buzzword you’re hearing that should die a violent death in the industry right now because it’s either misleading, annoying or otherwise not helpful?

Trisha, do you have a least-favorite buzzword that needs to go away?

I don’t know. I just ignore most of those things.

But I will say, in joking, obviously, from my earlier comments, I think building an open architecture and connectivity to an ecosystem is incredibly important, so APIs are obviously an important part of that.

But I swear, every time I look on LinkedIn or at a marketing campaign, it’s like, “APIs. How many APIs do you have?”

My question back is always, “What are the business processes and systems we’re trying to connect?”

I do think it’s a little overused and overthought right now.

It’s just a technology and a how-you-do-something, not the what-you-do.

Excellent.

Wade, least favorite buzzword?

I freaking hate the term open banking.

That is the most, that’s like big data, cloud, mobile-first. That is a total garbage word.

PSD2 really created that word.

I think the United States is trying to keep it so we aren’t regulated under a PSD2 mandate, which we should all hope for.

But that terminology means absolutely nothing and everything.

When I hear, “I have an open-banking strategy,” I try to hold the puke in the back of my throat for a little bit.

Excellent. Very vivid.

Mine, back to something Scott Mills had asked on our last session, would be omnichannel.

That one’s got to go in the worst-hits record.

Ron, I don’t know if you have one.

I’m on the verge of getting violent if I hear “new normal” again.

No more new normal.

We’re coming up on time here.

There’s going to be a little bit of a poll.

I want to say thanks to you guys, Trisha and Wade, from Ron and me both.

I also want to give a shout-out to the creators, like this guy right here, Eddie Van Halen.

Love that guy.

Shout-out to him.

We appreciate all you guys out in fintech land who are creating, whether you’re writing code or building companies.

Ron, Wade, Trisha, any other closing thoughts before we let our folks go off to their merry days?

Can’t wait until I see all of you in person again.

Just happy that I could keep Ron speechless today and well lit. He also has excellent lighting.

With that, everyone, we’ll see you on the next Fintech Hustle.