Fintech Hustle // Kathleen Craig and Stephen Bohanon

Welcome. I’m Sam Kilmer, senior director at Cornerstone Advisors, where I lead our fintech advisory practice. I’m joined by my co-host, world-famous marketer and our chief research officer, Ron Shevlin.

Today, in addition to both of the Shannon Crandalls, one who has a bar and one who has an interesting bookshelf, we’re joined by our two guests.

Kathleen Craig is the founder and CEO of Plinqit, and I think I have this right, Kathleen, you’re also on the board of the Association for Financial Technology and a former banker.

I was a chief digital officer before we knew what a chief experience officer was. I think you were a chief experience officer and probably had a few other titles in there.

I hope I didn’t completely botch your background, but welcome to Fintech Hustle.

Thank you for having me. You didn’t botch it. You just gave me a promotion. I wasn’t quite a chief at the bank, but I’ll take it.

Right on.

Ron and I are giving away promotions gleefully today, so we’ll go ahead and say that’s retroactive.

Our other guest today is the founder and chief strategy and sales officer of Alchemy, Stephen Bohanon.

Stephen, welcome.

Hey, thank you. I appreciate that.

I was also technically a former banker. My first job out of high school, I worked for Midland Mortgage Company, owned by MidFirst Bank, and I was doing streamline refinances. I was dialing for dollars and processing those refinances.

I think technically that made me a banker. I’m not sure.

Well, yeah, I think it does.

Didn’t I also see in there somewhere, not that we have to jump through acronyms and all kinds of interesting providers, but you were in commercial lending too, right? AFS?

Well, AFS was actually payment processing. There was another AFS that was the former Littlewood chain, but I was part of that one.

I worked for a company called Custom Credit Systems, later bought by Misys. They did commercial-lending automation software.

And you were in that famous run at Metavante too. Metavante had a real run in the market way back when, and you were part of that.

I think the first takeaway from Fintech Hustle that I’ve already noted is, if you name your company an acronym like AFS, and please do not send me hate mail or doggy bags on the doorstep, but if you use an acronym other people have used, that could be a problem for your brand.

That’s true. Mainly because people thought we were the American Floral Service, which was the number one.

Right.

This is your advice from the guy from Cornerstone. How many Cornerstone Advisors are out there?

I think we ought to move to the next topic as quickly as we can.

You’re right. Let’s throw ourselves under the bus here as much as anything else.

Seriously, welcome, guys. We appreciate you taking some time to chat with us.

Over the next 30 or 40 minutes, we’re going to talk about what’s going on.

That’s the first thing Ron and I always like to talk about when we kick these off.

What are you seeing out there that’s working and not working in the big world of fintech, bank tech and banking, that whole sandbox that’s getting jumbled up?

Banks are becoming fintechs, fintechs are becoming banks, everybody’s a provider.

What are you seeing that’s working?

Let’s start with what’s working well out there, and then we’ll come back to what you see as challenged.

Kathleen, any thoughts on what’s working out there in fintech land?

Yeah, sure.

I think there are some banks and credit unions now that are partnering with earlier-stage fintechs, which is exciting.

I think the industry is shifting more toward partnership and B2B versus everybody wanting fintech to make the Uber or Amazon of banking.

Folks have finally settled into the reality that it’s highly regulated and partnership is the way.

On the “what’s not working” side, though, I think a lot of us bankers or former bankers want to be innovative. We say that, we take the demos, we go to the accelerators and all of these things, but we’re not quite ready to buy.

We haven’t figured out how to truly partner with early-stage startups, which is holding things back and really making it a struggle for fintechs because you need those first one to five banks to partner with.

If you don’t have that, and those folks who are willing to take a risk, it makes the job as a founder really hard and really challenging.

Stephen, any thoughts on what’s out there or on what Kathleen said?

Yeah, I think generally what Kathleen said is a great point.

We recently launched a cryptocurrency product with digital banking.

I would say that during probably the three or four months leading up to us launching it, as we were building it, I probably talked to 25 or 30 separate customers.

One hundred percent of them said, “Oh yeah, we’re really interested. Let us know as soon as it comes out. We’re ready to roll.”

Then we said, “All right, guys. It’s out. Who wants to be first?”

Crickets.

There were two or three that did sign up, and the others have all said, “Yeah, when we said we’re excited, we mean we’re excited once a few people do it first. Then we want to do it.”

I agree with Kathleen. There’s a mismatch, almost like your eyes are bigger than your stomach.

“I definitely want to try it, but I’m a little scared,” or, “I’m not sure how I get the rest of my organization there,” or whatever it may be.

The appetite versus the reality sometimes has a little disconnect.

Hey, Sam, I heard an interesting story yesterday.

I was talking with someone who works at one of the banking-as-a-service platform providers, and their perspective was pretty interesting.

They said there obviously aren’t a lot of banks doing this today, but they’ve got a few that work with them.

The banks that have actually been in this longer are starting to get more conservative and move slower, whereas some of the newer ones getting in are eager to jump in, start getting new clients and move into the space.

It’s funny how the early innovators in banking as a service are now getting mature and slowing down a little bit.

The old corporate culture of compliance first and risk first is starting to slow them down a bit, whereas the newer ones are gung-ho.

“Let’s go. Let’s get started. Let’s do all this.”

Interesting maturity pattern there.

Maybe they know something. I’m not sure.

I think part of it is that the new entrants have to do something, or else why are they relevant?

They can’t come along and say, “By the way, we do the same thing the old big guys do, but we just have a lot more risk and we’re smaller.”

They can’t say that.

I think the way they make the splash is with their speed or their attitude toward innovation and adopting it more quickly.

It reminds me a little bit, Stephen, of when I was where you and Kathleen are.

I was never a founder of a company, but I worked as an industry provider. We used to have a saying: revenue solves lots of problems.

When you’re established, the downside is you might not be able to move as fast, but the upside is you’ve got runway.

When you’re young and starting out, one hesitates to use the term desperate, but let’s just go for it. You don’t have the revenue that solves the problem.

So you get a little more creative.

Maybe that’s part of it.

I think you said something like 100 turned into three.

Well, yeah. It wasn’t 100. It was about 30, but it was 100% interest.

Right. Everyone’s still very interested. They just don’t want to be first.

That was my point.

We have the interest and we’re taking the meetings with these founders. We’re doing the demos.

Founders don’t have time to demo with you if you don’t know how to buy.

I love you, banks. I was one of you. I support you. I build software for you.

But it can be a lot of wasted energy if you can’t figure out how to actually partner with a solution you’re interested in.

There’s also, I think, one of the limiters to getting more innovative things out there. There seems to be this fear of failure that the mega banks don’t have.

I’ll use an example because we happened to be talking about this in another meeting today.

Chase came out with its Finn product a few years ago. I don’t know if you remember this. They spent something like $50 million on the thing.

It was going to be a mobile-app-only product aimed at Gen X or Gen Z customers.

Then I think within two years, they shelved it.

They said, “Yeah, it cost us $50 million. Okay.”

Obviously, $50 million to Chase is very different from $50 million to somebody else.

But the point was, “We’re going to try it, and if it doesn’t work, we’ll just shelve it and get rid of it.”

Sometimes there tends to be this mindset in regional and community financial institutions, both credit unions and banks, that, “We’re not going to try because what if we have to pull it back? What if it doesn’t work? Then we’ve gone through all this stuff for nothing.”

If you have that mentality, you’re naturally going to have a slower metabolism than almost everything else.

Whether it’s Plinqit or anything else, the idea is to say, “Yeah, we’re going to try it. We’ll put it out there. We don’t have to stop our whole organization in order to do it.”

Many times it’s, “Let’s put it out there. Let’s make it self-service. Let’s not have to train all of our call-center reps and all of our branch reps and everything else.”

Be able to take chances on little things and be completely okay with it not working and pulling the plug later.

You really have to have that kind of mindset.

That’s not a typical mindset when you think about the typical banker.

A typical banker thinks, “I don’t have that mindset when it comes to loans. I don’t just say, let’s approve them and if they don’t pay, no big deal.”

That actuarial and low-risk mindset creeps over into things having to do with software and technology as well, and I think it can be a real barrier to moving fast.

Absolutely.

It’s budgeting season, so now is the time to have a risk budget for the next year.

If something comes along, or something new comes up and you want to give it a try, you have that ability.

It didn’t have to be approved 18 months ago or 12 months ago in the budgeting cycle.

Have that risk budget and say, “Okay, if we fail, let’s fail fast. If it doesn’t work, let’s give it a try and move on.”

I do see more and more FIs and community FIs doing this, so I’m thankful for that.

But I think we all need to figure that out a little more.

Yeah.

I’m trying to think, Kathleen, of my $2 billion bank.

When I moved to Indianapolis and I’m leading digital for $2 billion, they thought, “Hey, you seem to know a lot about computers. Why don’t you be our leader of digital?”

Okay.

I get in there and I’m thinking to myself, “When am I going to go to the board and ask for my $50 million, Stephen? My $50 million Finn test case at a $2 billion bank?”

I guess you can scale that down and say, “I’m not going to ask for $50 million, but I’m going to ask for a couple million, or maybe $500,000, or maybe $50,000.”

You can do a lot.

There are fintech startups right now that you can purchase for low five figures to try. They’re willing to do a proof of concept with you.

Chase has $50 million. Community FIs can have a much smaller test budget.

A good example for us is ChoiceOne Bank here in Michigan.

At the time, they’re much bigger now, but I think they were only around $500 million in assets.

Adam Greenland, their CTO, and I had lunch at Applebee’s. I’ll never forget.

I said, “Hey, I have this new product. It’s called Plinqit. Would you be willing to try it?”

We sketched it out on a napkin.

He was like, “Yeah, let’s give it a whirl. Let’s see if it works.”

If he hadn’t been willing to do that, and his CEO and board hadn’t been supportive of it, I think it would have never gotten off the ground.

You would have just gotten the chicken fingers and riblet basket, right?

It seems like that’s where everybody gets hung up.

We talk a lot about risk appetites, but don’t you think it’s interesting that at some point you have to make a dollar decision?

Whether it’s $50 million in Chase’s case with Jamie Dimon, he had the currency internally to say, “We can take the risk,” or whoever that group was.

I’m thinking to myself, most risk appetite statements that banks and credit unions have tend to be a little more, I don’t want to say Shakespearean text, but they’re certainly not expressed as, “We’ll take a $50 million hit for innovation.”

You know what I mean?

It seems like there may be a divide there where they can almost get away with saying they want to be innovative while not really having the mojo.

Right.

Another common one right now is everything around deposit account opening.

This is a common topic we deal with.

Let’s talk about the workflow and the friction in opening a deposit account.

Obviously, Chime figured it out. They went from zero to something like 13 million users in just a few years.

Robinhood obviously figured it out. Capital One, I think, figured it out.

A lot of them have figured it out.

But you still walk into many regional and community financial institutions and the product and consumer experience is being driven by the compliance department, which says, “Well, the way I read this regulation, you have to prove that all three documents and disclosures were opened and read. They have to sign off on them separately. I need a drop of blood. I need a scanned image of the driver’s license. Then I have to have someone review it. Then they have to do this. They have to make a call.”

You do that and say, “Well, no one’s going to open an account with you when they can walk down the street to five other places that figured this out.”

In five minutes or less, they can have it done. The money’s in there tomorrow, and they can start transacting.

I think that’s probably the next big one where people say, “I want to be really innovative.”

Then when you say, “Okay, here’s an experience that allows you to open an account in five minutes and get a new customer,” they say, “Whoa, whoa. What if it’s a fraudster? No, I’ve got to look at every single one of these. I’ve got to run it through my process.”

Okay.

Then you can look at the ones that are moving, the ones disrupting the market and getting more than their fair share of growth.

If you’re not willing to take some of the same chances they’ve taken, don’t expect the same results.

Can I ask a question on that?

I know, Ron, you’ve done some research on Chime.

The argument I always get from bank CEOs is, “Are they getting the customers we would want?”

Does that make sense?

Chime has opened millions of accounts, but are they the people our bankers want and are going after?

I don’t know the answer, but I was wondering if anyone here knows or has done the research.

The problem with answering that, Kathleen, is you have to go back and ask that bank executive or credit union executive, “Who are the customers or members you want?”

Often they don’t really have a good answer.

I hope they never ask me, because it’ll be my last meeting in that institution when I tell them, “Sorry, but all the 73-year-olds with $7 million in the bank have already been taken.”

If that’s who you want, no, Chime’s not getting them.

But Chime is getting the customers it wants, who are low- to middle-income consumers who meet their product needs and become very loyal to them because they get early access to the paycheck.

They’re going after that customer.

Not the ones you want.

That’s a great point.

Remember when we started online account opening a decade or a couple decades ago? It would mostly be underbanked people or people trying to have a new account because their other one got closed.

It’s always a subject that comes up.

I would look at it very differently.

Whether or not you want the same customers Chime has is really irrelevant to the topic of the user experience of opening an account.

We’ve had this argument with customers for years.

They say, “What about our 60-year-olds? What about our 30-year-olds? What about our 16-year-olds?”

Okay, show me the different experience a 16-year-old versus a 60-year-old has with iTunes, Google or Facebook.

None of them.

The idea that there’s this special demographic out there that really loves to come into the branch and loves a long, multi-day process to open an account, and those are the people we want, those people don’t exist.

Really, what everyone wants is convenience.

All I was using Chime as an example for is how there’s no way any business, and definitely a financial institution, could have grown to 13 million customers in just a couple of years if it depended on the same way to start a relationship that pretty much every financial institution in our country depends on.

It would have been impossible.

All I was saying is that they’ve proven you can grow and get more than your fair share of the market if you create a low-friction, intuitive user experience that makes it easy for people to become your customer.

That’s generally not the mindset most financial institutions have taken.

Regardless of the customer base you want, I would say people who have money want just as much convenience, if not more, than people who don’t have as much money.

I don’t think it’s a demographic thing.

I think it’s a user-experience thing, and we all love great, simple user experiences.

Just look at phones.

Even if it is a little bit of a demographic thing, Kathleen, to your point, Chime might get thrown out by a commercial bank because what they’re not saying when they ask that question is that they’re not really that into consumer.

The answer to that is, what about Square? What about LendingClub?

There may have been a time when this was largely about consumer. I doubt there was, but there may have been.

This is about all sectors now.

Rocket did it in mortgage. Chime’s doing it in consumer. Square. Apple with credit card.

This is pervasive.

I think the bigger problem is, what are the questions you might hear from a bank or organization that tell you the risk appetite or innovation statement is simply not in the same ballpark with what they’re asking?

Or they’ve got somebody chasing partnerships while simultaneously having the attitude, “I don’t know if I even want those customers.”

That seems like a disconnect at the board-strategy level.

When I’m speaking at conferences at ABA or wherever, I always tell that middle-management layer, know who your leadership and board are because you can save yourself a lot of frustration.

Maybe you’re not at the right institution.

If you have a strong passion for fintech and innovation, but you’re never going to be able to move it forward, if you’re just ramming your head into a wall every time you take it to that next level of approval, there’s probably not a right fit.

There’s a bank out there that does want that innovation, and you can go partner with them.

When I was the VP of e-services, my job was to buy the technology.

I helped my compliance officer. She had been with the bank for over 40 years.

I would read the regulations for anything I was trying to do myself.

It was boring. It was hard. I would fall asleep during it and have to restart the next day.

But I read the regulations so I could come to her and say intelligently, “Hey, I’ve read through this. This is how I see it. This is how someone else sees it. I think we can do it.”

She would say, “Thank you. Okay, great. Let’s try it.”

I really viewed it as my job, not just hers, to know what I was trying to do and to partner to get things across the finish line.

That really helped in my institution to take those steps forward.

Pushing the envelope is key to any kind of business success, right?

When you go into an established market, that’s why they call them disruptors. You’re disrupting the way it’s always been done.

What we would say is challenging for regional and community financial institutions is, look at the numbers.

Forty years ago, there were 30,000 financial institutions. Twenty years ago, there were 20,000. Now there are about 10,000.

Look at that trend.

It’s not because the rules have changed so much.

It’s just getting harder and harder to be successful, and technology is probably one of the biggest changes.

Whether they’re mega banks or fintechs, they have national reach because as long as you can go to the app store and download their app, you can become a customer.

That is the biggest change in the game.

If you think you can sit back and do things the way you’ve always done them and say, “Well, whoever in compliance says they don’t think the regulation reads that way,” then ask, “Do you have different regulations than the compliance officer at Capital One?”

You have to be willing to push the envelope a little bit as opposed to reading it in the most conservative manner.

You have to say, “Tell me the most I can do without absolutely crossing the line.”

If you’re viewing these things in black and white, you’re probably living on borrowed time as a financial institution.

Absolutely.

Someone asked the question, where do you find folks?

That’s a great question.

We publish a B2B infographic.

Once you figure out who your bank is, where you want to innovate and where you’re going to focus your time, there is a fintech out there, or a legacy provider that’s innovating, in your area.

If you decide account opening is where you’re going to focus and change, there is someone doing that well.

Or several someones.

I’ve seen that too, Kathleen.

One of the things, if I recall correctly, that I saw you talking about was the idea of who’s a friend versus who’s an enemy versus maybe who’s a frenemy.

That’s something people are trying to navigate.

“Yeah, I could go work with these people, but are they going to come after me?”

At a certain point, you just have to get in there, right?

Yep.

That’s why we published it.

Most infographics have the B2C folks, the Chimes of the world, who are doing a great job. I respect what they’re doing.

But as a banker, it’s nice to go, “Wait, how can I mirror that experience? Who’s working with me?”

Folks like Stephen’s team. There are others innovating that you can partner with.

I think there was an old-school mentality.

Our core, who shall remain nameless, started with an F.

We viewed them as the enemy.

They were always annoying, driving us crazy and holding us back.

I think that has to change.

That partnership, being able to call Stephen and say, “Hey, this is what we’re working on. Who do you know? Does Alchemy do this, or does someone partner with Alchemy who can help us in this area?”

Kathleen, that was a pretty obscure reference. You said the core started with an F.

As I went through the four, I was like, “Wow, that was really obscure.”

She didn’t mean the branding started with F. She meant what I called them started with F.

Listen, there was another question that came in since we’re on the topic of fintech, innovation and finding people to partner with.

Grant asked about community development financial institutions, CDFIs, and if you guys had any thoughts on that.

Ron, if you had any.

I really don’t.

Well, sure.

It’s fantastic to be a CDFI. I don’t think it’s necessarily easy to become one.

But I think, especially with things like financial wellness or quite honestly what Ron mentioned earlier with some of the things Chime does, like giving early access to paychecks, those are right up the alley of what CDFIs do.

We believe in them.

The credit union space is almost like honorary CDFIs in terms of their mission, especially the ones designated low income.

I think they obviously provide a service for Americans.

If you’re asking, I’m for them.

Since they have lower regulatory barriers, if you are one, you have more flexibility in underwriting, reserve requirements and things like that.

You can be more flexible about who you bank.

In certain ways, that does allow them to push the envelope a little bit.

Generally, especially if they’re not dealing with a bunch of losses, they’re charging higher interest rates for some of their products.

They’re actually making money on loans, maybe a bit more so, as long as they’re not dealing with defaults.

They can be a great source for innovation.

I know of one in the Northeast doing a lot of really neat things.

You’re familiar with Quontic Bank. They do a lot of neat things.

They were one of the first, I think, to roll out Bitcoin-based savings rewards.

They do a lot of cool things for their community base, focus a lot on mortgages and checking accounts, and I think they can be very innovative.

I would think a lot of CDFIs would be magnets for fintech startups that talk about financial inclusion.

If they’re looking for bank partners, it would seem to me like CDFIs would be places they seek out.

Yeah, there are people at Plinqit for sure.

If nothing else, one of the things that goes back to the boardroom strategy discussion is, you say you’re innovative, but what’s your risk statement really?

What’s your true risk appetite?

The other thing is, you say you’re focused, but if you don’t have a specific mission, target market or niche group, it’s more difficult to stay on mission because you’re chasing financials and lines of business and all this other stuff.

I don’t want to say you lose your soul, but it’s more difficult to keep finding it.

If you’re a CDFI or someone focused on a niche segment, for some reason it seems easier to keep your bearings on what you’re trying to do.

Innovation is basically finding pain points and crushing them.

I don’t know if CDFIs have it easier or harder.

But I do think as an industry, and we talked about this before, there’s a bit of an echo chamber that happens.

We chase the bright, shiny object.

Crypto has kind of taken over the conversation on Twitter and LinkedIn.

We all feed each other on the crypto aspect.

Meanwhile, I tried to add an accountant to my bank account at several different places because I always like to know what tech is going on.

At my large institution, I could add that accountant in two clicks.

At my community institution, I had to call like I was a brand-new customer.

I physically had to call.

They called me back the next day and said to add this accountant to my business account, they were going to email me a PDF.

I needed to print it.

It wasn’t even a fillable PDF.

Print it, fill it out, scan it and email it back.

I get that crypto is exciting. I get that it’s something we need to be focused on.

There’s a great audience for it.

But there are things like that happening in our community banks that we could fix tomorrow.

We could digitize that, fix the experience and do those things tomorrow.

We’re just not.

We get so excited about this new thing that’s going to change everything that we’re not looking at simple processes that can create a much better digital experience.

Well, Kathleen, I would just tell you that you need to bank with an Alchemy client and you would have been able to do all that yourself with our shared-access feature.

That would have been no problem.

That’s my only plug there.

I’ll give you a list of about 180 of them you can choose from.

I’ve come around on the crypto thing.

I used to totally not be a believer in it. I thought it was some weird thing for people who had too much money.

What we’ve seen, though, is the interest in it, the actual adoption of it, even as an investment hedge against inflation or as an alternative to gold.

You see third-party countries, I think it was El Salvador, that legalized it as a form of currency for transactions.

Crypto, I believe, is here to stay.

“Here to stay” could be five years or forever.

I think it would be irresponsible for clients not to dip their toe in the water.

Even if the initial offering is something like what Alchemy and others have partnered with NYDIG to offer, which is a custodian service.

When you think about a more global economy and the stabilization of various currencies, I think crypto is something regional and community financial institutions need to become familiar with.

If they don’t, it could leave them in the dust pretty quickly.

It’s amazing when you look at the stats.

I was blown away that when PayPal and Venmo offered this in their app, within 30 days, 17% of their entire user base had bought crypto with it.

That’s pretty big.

I’m one of those 17%, by the way.

I don’t have a lot of crypto, full disclosure, like $200 worth.

I’m not a huge believer for myself, but in the market it is amazing.

Look at some of the transaction volumes.

I’m probably dipping my toe more and more into the water.

But you look at PayPal, Venmo, Robinhood’s financial filings and how much of their revenue comes from that.

Obviously Coinbase is a huge company, all based on crypto.

I think the community-financial-institution market would be foolish not to get involved because if they don’t, it is going to run away from them very quickly.

I think it’s imminent that the mega banks are going to offer this to their customers.

We surveyed consumers at the end of last year and found that about 15% of U.S. consumers said they held some form of cryptocurrency.

I forget the exact percentage, but I think it was close to half or more who said they’d want to get it from their banks.

Yet when we surveyed banks and said, “What are your plans to get into cryptocurrency?” I think it was low single digits.

That was last year.

I’m looking forward to this year when we rerun the What’s Going On survey to see if there’s any change.

But I’ll tell you what kills me about that.

How many bankers do you talk to who say, “We’re customer-centric. We listen to the voice of the customer.”

Well, your customer is saying they want crypto from you.

So where are you on that?

They’ve got many reasons why they don’t want to get into it.

The risk, not their risk, but the customer-risk aspect of it.

Okay, but you allow them to purchase stocks that have dropped 90% in value over the past year.

Why wouldn’t you let them buy cryptocurrency?

The logic and the arguments don’t hold up, but the emotions are there.

The whole crypto argument has become the new big debate.

It used to be, “Are banks dead?”

Now the debate is, “Should we get into crypto?”

I don’t know if you saw this, I think it was PayPal today that announced a high-yield savings account for their customers.

What used to just be what you used to pay each other, then became, “Now you can buy and sell crypto within the solution.”

Now, “You don’t need to transfer that money back into your bank. You can actually have a high-yield savings account here with PayPal.”

If you’re not seeing what they’re doing, they’re leveraging these disruptive products to pique people’s curiosity.

If you don’t offer them, they do a little bit of business with this company.

Then that company is such a great experience, and it was so easy, and, “Boy, this isn’t like my traditional bank or credit union.”

Then all of a sudden, they’re offering me a 3% APR on a savings account.

“Wow, there’s no way I could get that from my bank.”

What they’re doing is they know they can fund part of that with their crypto transaction fees.

You really have to think about it as a continuum.

I’ll use a personal example.

My son, who’s a sophomore in school, uses his Robinhood app. He’s always pinging it.

One of his comments was, “Hey, why doesn’t my bank’s app work like this?”

Then his next question was, “What are we getting paid on this savings account, on my money?”

Of course, I had to tell him it really wasn’t his money, but that’s a different problem.

The point is it starts early.

Then the next question is, if you’re looking to hire young talent into your bank or credit union, if you don’t have that kind of thing as a service, are you even going to seem appealing or relevant to them as a potential employer?

That seems like something a lot of people are struggling with right now.

Does your nephew or niece think that?

That’s always the means test for me.

If my son, nephew or niece came to me and said, “Hey, should I take a job at my bank? Should I do it?”

That’s a tough question.

Should they work for a private-equity firm? Should they work for a fintech firm? Should they work for a bank or credit union?

It always depends.

Think about how hot fintech is.

Over the last few years, something like $30 billion has been invested into fintech.

You would think if the financial institution were viewed as the innovator, as part of the “fin” in fintech, you would have all kinds of tech talent flocking to banks and credit unions because fintech is hot.

Instead, they’re not.

If anything, they’re leaving.

Why is the perception that if you want to be in innovation, you have to work for a fintech software company, but you don’t go work for the bank or credit union because they’re not really innovative?

That shouldn’t be the way it is.

We’re seeing this even more.

In major metropolitan areas, where you have lots of big-tech headquarters, it made more sense.

If you live in Silicon Valley, it may be tough for a credit union or bank to attract a lot of talent when Apple, Google, Facebook and everyone else is right down the street.

But what we saw, especially in the Midwest and other parts of the country, if you were in Kansas, Iowa, Alabama or wherever, you could bring in some pretty great IT talent, cybersecurity talent and development talent because there weren’t as many other options.

Now, with this work-from-anywhere mindset, people in Alabama, Tennessee, Kansas, wherever, are working for Apple, Google and Facebook from their house.

What we’re seeing from even some of our clients is that the development team they put together is starting to leave because they’re getting these really lucrative jobs with high-tech companies.

I think it’s incumbent upon the financial institution, to your point, Sam, to develop a brand of, “This is where innovation happens. You’re going to want to come and be here, and you can be an innovative technology professional working at a financial institution because the two are synonymous.”

I agree with you, Stephen.

I do own crypto, so I’m not anti-crypto or not into it.

But I do think you have to be innovative from front to back.

You can’t go out and offer crypto and say, “We’re innovative,” and attract talent.

You can’t just do that one checkbox because the industry says it’s easy to turn on, so let’s turn it on.

Those same folks who want crypto also want to be able to bring their own device, and we have not figured that out.

They want to use Apple computers in a bank.

They want to not have something that’s one step above a DOS system that they’re using to do transactions at the teller window.

There are a lot of things regional and community institutions need to do to make the work experience better from front to back.

Then crypto makes sense.

Then it’s, “Okay, yeah, that’s a piece of the strategy to become innovative.”

I just don’t like when we focus on the bright and shiny, something we can switch on easily, that doesn’t match anything else we’re doing.

That’s a good point.

Generally speaking, and we have some really innovative clients doing the things we’re describing, they’re the exception, not the rule.

Most financial institutions are not considered progressive, high-tech companies.

That’s what doesn’t match.

You’ll hear them say things like, “We’re really a technology company that sells financial products.”

But if you were to walk through the halls and talk about some of their rules or processes, you’d say, “You’re not a technology company. You’re a bank or credit union that dabbles in technology.”

What we see happening is that the ones winning are the ones that have adopted that mindset.

Absolutely.

And they can do it.

There’s this misnomer that because of regulations and compliance, you can’t be that way.

You actually can if you dive into what’s truly required versus the myths and stories we’ve been telling ourselves for the last 30 years.

You can actually get there.

Great.

I got a question I want to throw out to you guys.

Stephen, I’ll start with you because you referenced the amount of investment going into fintech.

Two-part question.

Number one, do you see that continuing?

Do you see that continuing especially into neobanks, challenger banks or what I like to call community fintechs?

Where do you see that money continuing to grow, and where do you see it going?

Those are two different investments.

I’m glad you made that separation because we deal a lot with private equity, growth equity, VC and institutional investors.

There are people who look at various theses or have their target investment vehicle.

I’ll talk about neobanks first.

I would say there’s a little bit of a pause that we’ve heard.

Most of this is anecdotal. It’s not like I’ve polled a hundred investors and asked them.

It’s just the ones we deal with.

When you look at Chime, probably the most successful one out there, at least in the United States, people are saying, “Okay, it almost couldn’t have gone any better in terms of their growth.”

Now they’re starting to say, “Okay, now show me the money and where this actually plays.”

Especially now that they’re getting some attention from people saying, “Wait a minute, you can’t be under the $10 billion threshold forever here.”

They’re starting to question that.

I think there is a little bit of a pause saying, “I don’t know that I’m looking for the next Chime because I’m not even sure if Chime is really going to be long-term successful.”

That doesn’t mean there aren’t people doing some of those things.

When it comes to companies like Alchemy and others, or earlier-stage firms like Plaid or a really cool company called Atomic doing neat things around tying into payroll systems, I think what you’re seeing is that some of the valuations are getting so heady that there’s been a little bit of a pause.

It’s not that there isn’t a huge appetite to invest, but they’re saying, “Not at any price.”

For a while, it was almost at any price.

They were chasing the valuation multiples as far up as they would go.

We’re starting to get to the point where people are saying, “The problem is you’d have to grow this thing 400% over the next three years for me to break even if you want me to invest at that valuation.”

What we’re hearing from some of our investors and others, as Alchemy looks to acquire as well, is that current investors or owners in companies that would be acquisition or investment targets are really proud of their company.

They’re sure all the growth is going to happen over the next two years, so they want you to pay the price as though it’s guaranteed.

We do see a bit of a slowdown.

I think of an auction.

At the beginning, everyone’s raising their paddles.

Then you get to a price where there are only one or two left, and eventually somebody says, “Enough. No more. I’m not going any higher.”

I think we’re approaching some of that with fintech valuations.

Yeah, absolutely.

What do you think, Kathleen?

I think it’s still bananas.

Money20/20 felt insane. It felt like money was pouring from the sky.

With that said, I would be remiss not to mention my friend Brandon Dewitt from MX, who passed this week.

On this topic, I can’t not quote him.

Just a shout-out and thinking about the MX family.

I loved what he said when he was participating in AFT.

What he liked to tell banks is, “What’s so great is this VC money is pouring into the industry, innovating for us, testing things, and then as banks, you’re in place to take it and adopt what works.”

We can basically use it as a big fintech lab.

Then banks can take the things that actually get through, get through regulation, actually work and change the way things function.

I do think that’s exciting, and that’s where we’re getting.

Robinhood, Plaid and others are getting into trouble because they didn’t operate like a bank, and there are fines and things happening that those of us in the industry knew would happen.

I do think there’s a bit of a pullback of, “Oh, wait. We didn’t think about those things.”

But a lot of good came out of it.

A lot of innovation and pushing the envelope came out of it.

Now banks can take those vetted pieces and implement them within their organizations, which I think is really exciting, as long as we move quickly.

As long as we do it more quickly than maybe we are right now.

I’ll second that on Brandon Dewitt.

I don’t think I speak on behalf of everybody, but I really appreciate the shout-out, Kathleen.

One of the things Brandon used to talk about, I read somewhere in an interview with him, was the idea of five-year chunks.

When you’re looking at your career or accomplishing something in this space, it’s productive to look at things in five-year increments.

You only have so many.

Time is precious.

You only have so many increments to get this stuff done.

I think what you just said is interesting too because this stuff happens so fast that there’s no sense in even looking out too far.

There used to be a time in our strategic planning, Ron, when banking clients would look out five or 10 years.

Now the typical span is maybe three years.

The point is, what can we get done?

The question that came in here from David was, is there a specific area of crypto?

Do we really think community banks can serve a crypto need, or will people gravitate toward fintechs?

I would come back to, I think, Ron, you use the term “community fintech.”

Is there a niche?

Is there a specific commercial segment or type of customer, not just broad consumer, that within a five-year window, or a very short period, you could build a use case around helping that small group with crypto as opposed to everybody in our zip code?

I don’t know.

Any sense for what David’s saying here?

Do you really think a community bank has a shot?

I hear what David’s saying.

Here’s how I feel about it.

I think something like 80% or 90% of people still pick their primary financial institution, especially as they get older and their needs become more complex, based on location.

I’m not saying we need branches.

Do I think fintechs will always win when they’re pushing the envelope into NFTs or different things? Yes.

I think fintechs are going to win because they’re able to move faster there.

With that said, my primary relationship, the more complex and deeper relationship, I still really believe community banks can win.

I need a small-business loan. I need things that one fintech isn’t going to do.

If a community bank can also house my crypto for me, even if it’s in a simple FBO, I may use the fintech to push the envelope and go after the new.

Once it’s more established, I do think that relationship with the community bank, or whatever bank it is, is important and is a piece of it.

If you’re talking about the stats based on location, if you segmented those responses by people under 30, you would see a radical difference between those who care about location versus those who are 50-plus.

If you went below 25, you might hardly hear anyone say location.

My daughters are 21 and 22. Their primary financial institution is Venmo.

That’s their primary institution.

Well, no.

I mean, they work full-time and everything else.

They’re like, “Oh yeah, I’ve got this account at Wells Fargo. I never log into it. I just log into Mint and Venmo.”

That’s just the way they think.

They don’t even know where the branch is.

It was funny showing a 20-year-old what a check was and how to write it because they’d never seen it.

So I do think it’s a little different.

But to the question, yes, I do think they’ll go to community banks.

What you have right now in crypto, we’re right on the edge where we’re starting to get into the early majority.

You had the early adopters and innovators, and they went where they could get it, to companies like Coinbase or whatever.

What’s happening now, though, is it’s becoming more mainstream.

Other people are lifting up their heads and saying, “Yeah, that should probably be part of a diverse portfolio. I should probably have something in crypto.”

Quite honestly, especially with where savings rates are, what good does it do me to have money sitting there in a savings account?

Convenience drives so much of consumer behavior.

If you’re a financial institution, I’ve already got my checking account there. I’ve got my direct deposit. I’ve got $100 a month automatically going into my savings account when I get paid.

I’m going to put another $50 into some crypto as well.

That’s very convenient.

I don’t have to go open a relationship with Coinbase. I don’t have to open one with Robinhood.

If you don’t offer it, what happens is the exact opposite.

Now crypto is the foot in the door for the competitor.

They say, “Hey, you know how easy that was to do crypto? It’s just as easy to do a checking account with us.”

Quite honestly, you go, “Oh, that’s a good point. Let me just move over there.”

Even if you don’t look at it as a growth play, if you look at it strictly as a defensive move, you need to do it.

The more it gains mainstream adoption, people say, “Where can I get it?”

If they say, “My ABC Bank doesn’t offer it. I guess I have to go somewhere else,” and then when they go somewhere else, they see how easy it was to become a customer, they’re going to start saying, “Why aren’t all my accounts this easy?”

It’ll be quick.

Blockbuster thought they had time. They thought they had time because they were making a lot of money.

It was amazing how fast Netflix took the revenue.

In the spirit of that, you mentioned young people getting lured away and then they’re gone.

Let’s follow that.

We were talking earlier about talent and getting people into the community bank.

Let me ask you guys, hard segue here.

We’ve been reading a lot about the Great Resignation and the war for talent.

We’ve talked a lot about the banks, but let’s talk about you guys.

Are you finding it more difficult to recruit and retain talent right now?

Are you seeing that on a personal level?

I think salaries and everything are insane right now with the VC money, the flood that’s come in and the fact that we have to compete nationally.

I just had a team member get poached for literally double everything.

Again, it’s an interesting market.

It’s an interesting time with all the money flooding into our industry.

It is competitive.

But I don’t feel the same as my husband, who’s in the restaurant business and literally cannot get anyone.

I don’t quite feel like that.

But I definitely think fintechs and banks need to be aware of what compensation looks like today and stop thinking about what they made at 35 or 30 or 22.

Just know what the market is and compete where the market is, which is a bit bananas right now.

You know, Kathleen, it’s funny you brought up your husband in the restaurant business.

I remember what the chairman of our board said years ago.

He made some statement that stuck with me.

He said, “You can tell how well the economy is doing by the quality of the waitstaff.”

He said, if your waiter or waitress is really good, the economy is probably not doing really well.

Because when it’s doing really well, those people who are sharp, good socially and on it have much higher-paying jobs.

It’s kind of a funny way to measure the strength of the economy and job market by your waitstaff and how good the service is.

Yeah. Here in Michigan, it is rough.

For sure, Sam.

We’ve got around 680 Alchemists.

We were used to a total turnover rate, voluntary and involuntary, somewhere in the low single digits, around 6% to 8%.

We put a lot of time into our employer brand and making it a great place to work.

We have a ton of great benefits.

We have benefits of companies 10 times our size, so we always pride ourselves on what we offer to Alchemists in terms of benefits and being a good place to work.

I think ours is around 14% to 15% this year, and we were feeling really bad.

“What are we doing wrong?”

Then we started seeing industry reports that in the high-tech sector, 24% is the average turnover rate.

It still didn’t make us like it, but it made us feel better about our relative position.

We can just imagine what companies are dealing with when you have 100 employees and 25 of them leave in a year.

That’s huge.

To Kathleen’s point, certain companies can’t afford to match a 50% or 100% counteroffer.

They just have to say, “I don’t know what to do. Maybe I can’t fill that position.”

For us, it’s a little different because we map to certain compensation levels and use third parties to level these things and make sure they’re appropriate.

But we have seen exactly what Kathleen has seen.

There are certain jobs, maybe an AWS security engineer or software architect, where compensation has doubled over the last couple of years.

There are certain jobs where you’ve seen an incredible rise in what you have to pay to get or retain these people.

The other byproduct is that it used to be we could count on, if we had a requisition to fill, within three weeks we’d have that position filled.

We’re in Dallas. We have a huge potential employee resource base. We constantly have candidate flow.

Now that timeline has doubled and in some cases tripled.

When someone leaves, what you thought would take 30 days to replace might now take 60.

You have to factor that into all your capacity models because it’s just harder to get them.

It’s an incremental forecasting issue.

Yeah.

I’m noticing, Ron, that we’re about four minutes until the top of the hour.

We want to be mindful of everybody’s schedules.

This is the first Fintech Hustle we’ve had where I believe both of our guests are founders.

One quick question.

Any lessons learned, good, bad or ugly, from being a founder?

I’ll echo what Stephen said earlier.

The same experience he had with the NYDIG launch is the experience I see a lot of fintech founders, including myself, have.

You go around to your banker friends and say, “I’m going to do this thing. Would you buy it?”

They all say yes anecdotally.

That is very different from them actually buying it and you getting your first revenue and first contract.

Anecdotal support for you founding a company is very different from the grit it takes once you’re inside of it.

I would share two things from a founder’s perspective for other potential founders out there.

There’s a saying in the investment community, if you’re an angel or venture investor, that whatever they tell you they need in terms of finances, triple it because that’s what they’re really going to need.

They’ll always underestimate how much money they need.

I would take that same statement and say, if you are a founder, whatever you think it’s going to take to be successful in your company, however many hours, however much time away from your family, however much travel, sorrow and failure, triple it.

Then decide whether or not you’re really ready to sign up for that journey.

Just like an investor needs to triple their estimate, you need to triple your estimate of the commitment and sacrifice you’re going to make.

The second thing I would say to everyone, and this could be for any company, founder or not, especially from a leadership perspective, is as tempting as it may be, especially with this backdrop of the Great Resignation, employee turnover and it being harder to get talent, whatever you do, do not fall into the temptation of compromising your culture.

It will always be better to leave that seat empty for longer than to put people in it who are not aligned with your culture.

They can become a toxic, corrosive force within your organization.

They set the wrong example for what you actually value.

They send a message to everyone else in the organization about how important culture really is.

It’s so easy to do, and I’ve seen companies do it.

We’re tempted to do it at times because, gosh, we could just hire them so quickly, get them in the seat and be productive.

But I’ll tell you, we’ve learned that lesson the hard way in the past when we were trying to solve for a timeline.

It takes some of those hard lessons before you say, “Never again.”

If anyone is dealing with those struggles right now and thinking, “I like them. They’d be good, but I don’t know if they’d fit here. I don’t think they’d be good for our culture,” don’t do it.

You’ll always regret it later.

I appreciate it, guys.

Thanks again, Kathleen and Stephen, for joining Ron and me on Fintech Hustle.

It’s been a pleasure.

Thank you.

Thanks for having us.