Fintech Hustle // Erica Pilon and Libby Sharman

Welcome, everybody. Thanks a lot for joining us today. I’m Ron Shevlin, director of research at Cornerstone and author of the Fintech Snark Tank blog on Forbes. Of course, I’m joined by my co-host, Sam Kilmer, who runs Cornerstone’s fintech advisory practice.

We’ve got two guests today who are real veterans of the financial technology world, although you’d never know it by looking at them. We’ve got Erica Pilon, GM and head of product for the digital banking group at NCR, and Libby Charman, VP of marketing at Abrigo.

Ladies, thanks a lot for joining us today. We’re really looking forward to hearing from you on what’s going on in financial services, fintech and banking.

If anybody has tuned in to some of our previous podcasts, you know we like to get started at a high level and get a sense for what’s going on out there.

Erica, I’ll ask you to start. What’s working for you? What’s going on out there? What’s not working? How are things going?

I like to think about where we stand as an industry right now in terms of the state of the pandemic.

When I look back on what worked during the pandemic, I think the PPP loan program really worked for financial institutions, especially community financial institutions, and turned into a bit of a boon with respect to opening new relationships.

Now the question is how to capitalize on those new relationships, particularly with small businesses.

What’s not working, though, is the threat coming in from neobanks and fintechs, especially going after cash management and business banking.

I think there’s an opportunity there to see how that’s not working for financial institutions and how we can all help.

You know what I find interesting, and funny probably isn’t the right word, about PPP is how everybody’s taking credit for it.

The fintechs love to talk about how many loans they did and the dollar volume. Of course, the community banks do too.

I was actually at a banking conference recently, and they took the opportunity to knock the credit unions, who were not particularly active in it.

Any thoughts on that, Erica, in terms of the fintech volume?

Oh yeah.

There were a ton of fintechs that pounced on trying to help financial institutions with connectivity to the SBA because that was a bit of a cluster.

We also saw financial institutions that wanted to get in the game working around the clock to process these loans.

Any financial institution I talk to, whether they’re in business banking or not, is very intimately familiar with the process because most banks had their call centers working on these. The president of the bank was helping process loans.

It was a frantic scramble to try to make this happen.

The good side is that they were able to turn a lot of those PPP loans into deposit relationships.

I’ve spoken with a number of banks and credit unions, and credit unions, Ron, who said, “We require you to open a deposit account with us. We’ll get this loan for you, but we want you to bring that deposit relationship into the bank as well.”

Thanks for the mini heart attack. Most people use another word after “cluster” when they talk about that, so I was like, where’s she going with this?

Good pullback on that.

Libby, same question to you. What’s your perspective on what’s working and not working out there?

I think, as Erica said, you can’t talk about commercial lending at this point without referencing the PPP program and the impact it had, especially on community-sized institutions.

We definitely had clients who were in the trenches. They were pulling in staff from across different departments to make it work. Some of them chose to automate, but any chance they had, they tried to service their communities as best they could.

Now they’re on the forgiveness end and still working through forgiveness for round two that really kicked off this year.

It’s still an everyday part of the job for many of our banks.

Going forward, as Erica mentioned, one unique challenge they have, and one they’re trying to be creative around, is how they take some of those initial deposits and turn them into operating accounts for these businesses.

We had a number of clients who were able to turn retail-only customers into business customers as a result of the PPP program.

It takes a lot of work to get that business to invest the time and change all of its billing accounts, payroll and everything else to make that their true operating account.

That’s the hurdle they have to overcome at this point to really secure those relationships for the long haul.

It’s really interesting.

Go ahead.

I was just thinking about some interesting fintechs that are helping with that, turning those payroll relationships into deposit-account switching and things like that.

I think that’s a huge opportunity coming out of the pandemic.

How do we digitize a lot of the traditional in-person interactions that happened in the branch?

Things like onboarding. How do you open an account from a public website, onboard that customer even on the business-banking side, and then also switch someone’s direct deposit immediately?

There are a lot of companies out there right now investing in that type of solution.

We’re seeing neobanks use those a lot and trying to figure out how we can help traditional financial institutions retain those deposit relationships.

It seems like one of the things I’d love to get your perspective on is, set aside PPP and SBA and get all of our acronyms out of the way right at the beginning.

One of the reasons we don’t script this at all, and one of the reasons in this particular episode Ron and I wanted to have on people who know a little something about commercial, is because so many conversations seem to be going on around consumers and neobanks.

Obviously, we don’t need to belabor Chime and some of the other folks getting a lot of traction in consumer markets.

What’s interesting to me is the fintech push into PPP, but also at the same time Silicon Valley hitting business banking pretty hard all at once.

You’ve got Square coming at this, making startup announcements and expanding its product line into lending beyond its classic small-business merchant-services roots.

Then you had SoFi acquiring a commercial bank on the West Coast. Before that, LendingClub acquired Radius.

That predates this a little bit.

Thinking about some of the strategic-planning sessions we facilitate, it seemed like for many commercial banks in the midsize market, the fintech threat seemed very distant or consumer-oriented until more recently.

Maybe it shouldn’t have.

It just seems like the stuff is getting real right now in terms of real competition for the business model of the community-to-midsize banking market.

Erica and Libby, are you seeing bankers and credit unions, especially some of these larger, ambitious urban credit unions that have gone headstrong into not only small business but commercial, take the fintech threat of the Squares of the world more seriously in your interactions?

Erica, any thoughts on that?

I don’t think they’re taking it seriously enough yet.

I think there are a lot of financial institutions that see the threat around Chime for sure. They see the growth there on the consumer side, but they haven’t turned to the very real threat with Square.

Square has a strong corner on the point-of-sale market for that type of business.

If they can immediately turn that into a deposit-account relationship, that’s a really sticky relationship and takes it away from the commercial side of a traditional bank.

On the flip side, I am seeing a lot more banks really attacking the small-business market more than they had in the past.

And credit unions. Credit unions at a very large clip.

I’m seeing them start to invest in business banking, especially as we’re looking at these credit unions buying banks that may be more commercially focused.

They’re looking at how they can offer business-banking capabilities and cash-management capabilities to their communities in a way they’ve never done before.

What do you think, Libby? What are you seeing?

I agree.

We’ve heard from our clients routinely that either because of PPP, or because they now have this client base available to them, they would like to double down on the small-business lending space.

But they don’t have the technology or the processes in place to make those loans as profitable as they would like.

I think that’s why you see a lot of this push toward digitalization extending from the consumer side of the institution into SMB and eventually into the commercial space.

We don’t hear a lot about some of those vendors when we’re talking with clients, and I think that’s probably something that will change in the foreseeable future.

To your point, it’s in the rearview mirror, but getting bigger every day.

I think that’s part of the reason they may continue to carve out that relationship-based banking model that’s gotten them to where they are.

We’ve had a number of clients come out, especially since PPP and during quarantine, when they had to cut back their hours and really take on a more service-oriented model, especially with their commercial clients.

By being that kind of concierge banker, they can set themselves apart from fintechs competing for their business.

But when you’re talking about microloans or very small-business loans, it’s not really cost-effective for these institutions to have a very intensive relationship orientation to win over those businesses.

I see that being a reason why, if it’s not a threat to them today, it will be in the future.

Let me push back on that a little bit.

Whenever I hear someone use a nice term like “concierge banking,” I always feel like I have an obligation to ask what that really means.

Ron, if I remember back when I was running the executive track at the Financial Solutions Conference, I brought you in and I think I said something like concierge banking.

You said, “Tell me what you mean by that, Kilmer.”

So I’ll turn that same Shevlinism around on you.

When you say concierge banking, let’s get a little more specific. What do you mean?

For the institutions we were talking to, they were approaching banking more like a professional service.

A business would employ an accountant or a lawyer. You would have a set time to speak with them. You would have an agenda for the meeting. You would understand going into it what you were going to get.

The banker on the other side would already have your data pulled up and be ready to have that conversation.

It’s also happening at a time that’s convenient for both parties.

It’s not only a virtual meeting. It’s a virtual meeting that has the same inclination you would have when meeting with another professional-services provider.

It’s almost like modeling off another industry.

I’m hearing two things: data, and going to them virtually, but conveniently.

Right.

Very interesting.

I think that’s one of the things we also learned as part of PPP.

Our financial-institution clients didn’t necessarily need to see us.

We didn’t have to have in-person user groups like we always had, but they wanted continuous updates on where the software was or how PPP funding was waning or growing.

I think our institutions now provide the same level of communication to their business clients and commercial clients.

Again, it’s not necessarily in person like maybe it was a few years ago, but it’s frequent and digital.

I totally agree with the concept of concierge banking.

When I look at it, I think about how community financial institutions used to have a strategy of, “I’ve got to out-local the big regional banks.”

Now you look at the fintech threat, and they really still have the same opportunity.

Not necessarily to out-local them, but to outserve those fintechs because they want to have that local customer service.

Now they have to do it digitally.

It’s kind of interesting because on the one hand, I totally get the concierge concept.

If you need the data and you’ve got to go to them, there also has to be the expectation that they want you to go to them.

We’ve had so many more strategic-planning conversations around treasury, around getting that full payments relationship so you’re getting the data and have something to go talk to them about.

What are you going to talk to someone about with a classic commercial real-estate loan?

It’s almost like, if you have their data streams and you’re in the middle of their payment streams, merchant activities and commerce, you have more to talk about.

You get invited to the dance.

They want you to come see them as opposed to forcing yourself into a meeting to talk about the next meeting.

Absolutely.

The key with data, though, is because these financial institutions want to be the primary financial institution.

To really understand the full financial relationship a business might have is critical.

When you look at data, you want to understand what other financial relationships they might have and be able to effectively have those conversations.

“Maybe I can give you a better real estate loan or a better commercial loan than what I see you have with someone else.”

I’m looking at fintechs right now creating great aggregation services for businesses to be able to see this.

It’s valuable not only for a small business but also for the financial institution.

A small business gets its complete picture of overall financial health, cash position and so on.

If the financial institution is offering that feature through digital banking and can have access to the data, then they can see every financial relationship that business might have and have a meaningful conversation.

“What are you doing with your money? How can I help you? How can I be your primary financial institution?”

I have a concern with the concierge-banking concept.

I think a lot of bankers interpret that as a human-delivered type of service.

Yes, there’s data that has to feed that, but do you think that’s the case?

Is there not enough focus on technology, and how do you see technology playing into delivering concierge banking?

I’ll ask both of you, but Erica, why don’t you start?

Sure.

Again, the pandemic has really fueled this.

At first, financial institutions were rushing to get out of the branches and start having these conversations virtually.

Now, as we’re seeing staffing shortages across all facets of the economy, financial institutions are struggling with staffing branches and customer support.

They’re asking, “How do I have that concierge-level service but still do it in a way that takes the strain off my call center, my front lines and even the commercial banking relationship?”

I think there’s a lot of opportunity to create a digital ecosystem of support, starting with conversational AI, then going to live chat, video chat and maybe transferring to a phone call or setting up an appointment, whether virtually or in person.

Financial institutions are looking for that complete ecosystem so they can service customers and members in a way that gives them an edge on a fintech that may not have that support staff to show them they understand them and know who they are.

But they still have to do it in a way that relieves some of the strain from their overall resourcing challenges.

I don’t want to lose that thought around the ecosystem.

Who are banks partnering with? Who should they be partnering with?

There are so many players in the market right now offering AI, chatbots and so on.

To have a complete ecosystem, personally, I’m a little biased, I think it starts with digital banking.

We’re building that ecosystem, not only integrating on digital, but also into IVR systems through conversational AI tools.

Then it’s about giving that complete end-to-end experience.

The customer can start with a simple question that maybe a chatbot can answer, but then turn that into an overall relationship conversation if necessary.

Libby, let’s get you back into this.

From a concierge perspective, where does technology play and what should banks be doing from a small-business and commercial perspective?

I think Erica was right when she was talking about staffing shortages.

Nowhere do banks feel that more acutely than their experienced commercial-lending teams.

They’re some of the most difficult staff members to keep and retain given the fluidity of remote work at this point.

With concierge banking, the nice thing is the institution has the opportunity to set them up for success on schedules that meet both the individual banker’s schedule and the client’s.

By arming them with the right tools, they’re going into those meetings prepared and can be more efficient with how they spend their time with clients.

I see this as the ultimate way to optimize how those experienced commercial lenders, who are somewhat expensive to the bank, produce for the organization and benefit their clients at the same time.

You mentioned chatbots, and it’s been sort of a checkered history over the past couple of years.

Do you think we’re at the inflection point because of this staffing issue and the ability to get good human talent, where we’re really going to start seeing an infusion of conversational AI into small-business banking?

I think yes and no.

I think this is how some institutions are going to continue to carve out their relationship orientation with clients.

But if a chatbot can take away some of the noise or questions that can be easily answered, it allows those experienced commercial lenders to focus on relationship building and building ties with clients that allow them to deepen into treasury or other lines of credit over the long haul.

I think it’s going to complement a continued focus on relationships.

Erica, your thoughts?

I totally agree.

I think we need to see the maturity of the data out of a chatbot for it to be effective.

We’re seeing a lot of advances with AI technology where, if you have proper integration with the full ecosystem to understand the data, not just data from the core but the complete picture of what that user is doing, then you can give a more meaningful response.

That takes the strain off the people who really need to focus on the relationship and removes all the noise of things a chatbot could answer.

But they have to prove to be effective first.

It’s interesting because one of the challenges we’re seeing out there is that the processes bankers, fintechs and everybody else have equated with sales and the processes they’ve equated with service are all mixed up into the same jumble.

In some cases, it’s the same call center.

It might be different reps or different certification levels, and of course you have the chatbots going on.

Do you think the early use cases and best impact are more in sales and marketing, or more in things like password resets and transactional support once they’re already a client?

Think about it as pre-client versus post-client, or onboarding and then after.

What do you think?

I’m seeing a lot of clients using AI pre-authentication to do just that, the marketing.

But I really believe effective marketing is based on data and knowing who that customer is.

In order for that to be effective, they need to understand what they’re doing today and have that integrated into their holistic relationship picture.

When you say what they’re doing, what do you mean? What kind of data are we talking about?

I’m talking about not just their core data with the financial institution they already have a relationship with, but information about other financial relationships they might have.

Got it.

So you’re mining credit-bureau data, or things they’ve told you, or things you’ve learned from a mortgage application, or other things they may have disclosed or you’ve gotten from third parties.

Right.

Sales and marketing isn’t effective if you’re selling them something they already have or don’t need.

If you understand who they are, what they have and what they might need, then you can more effectively complete that marketing or sales transaction.

I’d argue it goes a lot deeper.

When I look at what Square or Shopify do, they have this broad view of the small business.

Not just a transaction. Not just financial data.

They’re into payroll. They’re into accounting. They can see where the money’s coming and going.

They’re able to be more proactive about offering a loan versus waiting for the request or application.

What I wanted to go back to, Erica, was your comment near the top of the show about many banks not taking the fintech threat seriously enough.

To me, it’s not just about disintermediating the lending relationship.

If you’re a merchant doing business with Square and they say, “We can get you the money immediately if you open up a business-banking account with us,” that’s pretty compelling.

Then they’ve got this relationship where they see all the money coming and going and can make lending offers off that.

Do banks need to fight back on this, or can they really just rely on the lending relationship?

I absolutely think banks need to fight back on this, especially if you look at the example of a small merchant.

Banking is the last thing on their mind.

They may be starting with a Square terminal because they know they need to accept payments.

Then Square comes in and says, “Yeah, I can offer you all these banking features as well.”

That’s a no-brainer for them.

They don’t want to think about banking. They just want to run their business.

Libby, one of the things we chatted about when we were talking about doing this was how treasury and cash-management services are getting more strategic.

It seems to me that’s a way to get deeper into this relationship.

What are your thoughts on that?

What are you seeing? Who’s doing a good job? How are you helping?

Absolutely.

To go back to the Square example, I think they recently announced an integration with TikTok.

Think about all the TikTokers out there starting their own small businesses.

It’s a whole new wave that the average community financial institution may not be equipped to meet, and they’re definitely not going to be seeking out TikTokers anytime soon.

I think it is a real threat, but they may not be seeing it just yet.

In terms of treasury management, it opens up to the institution a wealth of information about what balances look like day to day.

They can use that for servicing and administering commercial loans as well.

They’re not necessarily having to get updated audited financial statements as often as they would, or looking at accounts receivable or accounts payable because they have access to all that information.

As institutions are trying to deepen those PPP relationships, that’s one way to do it, if not just to bring on other loans that business might need.

But a lot of institutions are still trying to figure out how to do it. It’s pretty manual.

It has always seemed ironic to me that commercial lenders in many midsize banks, who are often the biggest revenue producers and probably have the biggest comp plans in the banks, are often the quietest.

They go out and execute.

They’re not really interested in having a strategic-planning conversation or anything big and enterprisey.

Yet what I find interesting is that if you ask most banks, “Are there any industries you’re just really good at? Is there something you guys are really good at?” and then pause, what you tend to find is they usually do have a couple of sectors.

Maybe because of how they started, maybe one of their board members had a connection, maybe they were on some university board together with somebody in manufacturing.

They got into a couple of niche areas, and they know them really well.

Credit unions used to be focused on SEGs and then became more community-oriented.

We’re hearing a lot of talk about niches, but it’s almost back to the future.

A lot of these banks started on niches and credit unions started on niches.

It’s almost like we’re having to redirect the conversation back to that because so many fintechs are coming out guns blazing, going after one little segment.

What was the one, Ron? Nerve?

A neobank laser-focused on musicians and creating a commerce wheel around royalties.

Banks have done royalty-related work too, like City National.

I find that really interesting.

It’s not just treasury as a functional thing.

Treasury allows you to really know and create the data around industries that your bank or credit union already has in its blood.

Maybe it’s a few years back, but are you seeing clients digging into this area, trying to figure out specific sectors from industry data and focusing attention around a couple of use cases or industries?

Or is that just consultancy stuff for me and Ron?

I see it.

When I look at banks that are treasury focused, that’s usually the top 10% of their base.

They’re servicing 90% that may be just broad-based businesses, and the 10% is their treasury business. That’s their biggest business, and it naturally comes from their community.

Maybe they’re an agriculture-based bank traditionally because they’re in the Midwest and have some big farming operations they’re good with.

Maybe they have attorneys or property managers and are focused on deposit escrow-type relationships, and they do that really well.

It’s inherently in their community, the larger businesses they serve.

They get really good at that.

Banks have traditionally struggled to give them the features they need.

But I’m seeing a lot of fintechs out there trying to serve those markets specifically, like deposit-escrow subaccounting relationships.

There are fintechs creating those so they can help serve large property managers or attorney-client relationships.

I would agree.

To your point, a lot of them maybe weren’t intentionally set up that way.

As a matter of who their staff was or where they were located, it happened inherently within their growth.

I do think cannabis might be an exception.

There are people who are very much walled off until there’s safe harbor at the federal level.

They’re not going to touch it.

But there are others embracing it as an opportunity to grow, and they are developing services to help those businesses that might not otherwise have someone in their community to go to with cash and financing needs.

That might be the exception where it’s a bit more intentional.

For most institutions, niches are a result of geography or the teams they’ve had to date.

The exception is kind of an interesting point, though.

Sometimes exceptions are truly outliers, and sometimes they’re a hint of what’s to come.

If you don’t have the federal backing and don’t have the normal metrics you can look to, you almost have to get really creative.

What do we know about this industry or commerce? Who knows about it? Who are the early entrepreneurs in that space? What are the things we can know?

We’re seeing more people now, especially with demand and loan-to-deposit ratios where they are, saying, “Okay, look, if we can be honest, in many ways we’ve probably underserved on credit because we’ve played it safe.”

Maybe we only go after high credit scores. Maybe we only do this or that, which excludes a lot of people.

It seems like banks and certainly fintechs are looking for opportunities to go deeper in the credit file or deeper in other files to get more business.

It’s legitimate business.

They just have to figure out new ways of doing it and finding data.

The systems you guys are around, whether digital banking with NCR, origination systems like Terafina, and Abrigo sitting on fraud and BSA in addition to origination, it seems like that’s where the good stuff is.

It’s not core, is it?

Or is it?

I’ve seen some really creative solutions around cannabis banking.

I’m working with a client trying to offer the ability to accept payments at dispensaries.

They’re using Terafina to open an account that’s not a deposit account because it can’t be, and turning it into basically a prepaid card for a user in the store.

They don’t have to have a relationship with that bank.

They can download our digital-banking app, open an account with Terafina and then scan a QR code in the store to help those cannabis dispensaries accept payments.

That’s a very creative solution to get around all the federal risk associated with not being able to do a deposit account.

It helps protect that business so they don’t have to deal in so much cash and have armed guards take them to the bank every night.

There are a lot of interesting, creative use cases in those areas.

I think, to your point about the ecosystem, it offers up a lot of information.

If banks have their fingers on it, they can use that for credit decision-making or targeting on the marketing side.

You mentioned loan-to-assets ratios.

Everybody needs quality loans.

Maybe they don’t need the very best-quality loans, but they need to grow so they can make some of their ratios a little more acceptable to the board.

By using other types of data, whether it’s CRB watch lists on the fraud side or other payment lists, it’ll help them target those businesses more acutely.

It wouldn’t be a fintech podcast if we didn’t have a question about crypto.

We have a question about crypto.

Is a cryptocurrency custodial relationship similar to cannabis as a niche?

Do you have any thoughts on whether cryptocurrency custodial is a niche that some banks or fintechs should pursue?

I don’t think it’s a niche.

I think we all need to be prepared to deal with crypto.

But I don’t see banks taking on the custodial relationship.

That’s not something they want to do.

They have to get certified in every state to be able to offer that.

We’re partnering with a company that offers that custodial relationship to allow our banks to let customers buy and sell Bitcoin within a closed-loop system.

I think that’s the easiest way for banks to get into crypto, to offer it more like an investment.

I’m buying crypto and watching that value go up or down as a user.

I’m not having to offer the whole wallet integration and custodial relationship.

I think that’s better served in the fintech space with businesses focusing on creating that relationship across all 50 states.

But Erica, bankers bring up the volatility argument over and over again as a reason they shouldn’t offer it.

My argument to them has always been, there are stocks that have dropped by 90%. You didn’t stop customers from buying them.

You certainly didn’t stop customers from using debit cards to purchase alcohol and cigarettes.

How do you counter that argument about volatility?

I had a question about this yesterday.

It was so interesting.

Someone said, “We’re going to offer the ability to buy Bitcoin.”

Someone else said, “Well, what if Bitcoin tanks? What are you going to do?”

The answer is, that’s like saying, “What if Apple stock tanks?”

Then you own nothing.

That’s the risk you take with an investment.

It’s the same thing with purchasing cryptocurrency.

The ability for banks to get into that space and control the funds in a closed-loop environment is huge because otherwise their customers are going to buy cryptocurrency through a wallet or third party.

If they can have a stake in that game with the transfer of funds from their accounts to purchase Bitcoin and only go back into their accounts, that keeps a really sticky relationship with customers.

It offers banks and credit unions the ability to get into a space that is very forward-thinking and not traditionally offered by community financial institutions.

What are you telling banks?

Sorry, Sam.

I was just going to say, Libby, what are your thoughts on this?

The majority of our customers are trying not to touch it.

To Erica’s point, that’s not going to be a long-term solution.

But in their minds, it’s still a very risky business.

It makes me think about the taxi-medallion industry that tanked how many credit unions and institutions in the Northeast.

They’re just being cautious with it.

As long as they can, they’re going to continue to withhold relationships with cryptocurrencies.

Before we leave the cryptocurrency topic, Bushan asks, why would a consumer go to a bank to buy crypto when you could buy it from Robinhood?

I just sent a link to an article I published a couple months ago based on a recent consumer study we conducted.

We asked people first, “Do you have crypto? Are you holding any form of crypto?”

About 15% of Americans said they do.

Obviously, the majority are getting it from crypto exchanges like Coinbase.

Then we asked how interested they would be in getting crypto from their bank.

There’s huge interest in getting crypto from banks because they want a trusted source.

I don’t care what statistics say about fintechs being more trusted than banks. It’s nonsense.

Banks are definitely more trusted.

Consumers want to be able to see their money in a single place and move it freely.

If you put your money in Coinbase, there are huge fees.

I published another article a couple weeks ago about how you’d be crazy to use Coinbase to pay for things because of all the fees.

So to Bushan and everybody else asking that question, there’s huge interest among consumers in getting crypto from their banks.

I’ll add that if you think about who the traditional Bitcoin or crypto players have been, I think about my nephew, who’s a gamer with his hoodie, plays in tech and wanted to buy crypto early on.

But when I think about offering crypto via a bank, that’s my mom.

My mom said to me the other day, “Are you doing anything with cryptocurrency today, Erica?”

Yes.

In fact, if I offered it through your bank, I’m sure you might actually be willing to invest in it and dabble a little.

I call myself a crypto mom when we look at the different demographics of people who use crypto.

I actually have a crypto balance as well, and I’m not your traditional demographic for that.

If you open that up through a trusted source, that’s going to have a huge impact on the total addressable market.

Love it.

So you’re crypto mom and I’m fintech dad, apparently.

This is fascinating too because one of the other things Bushan was asking is, why would we do this with a bank when we can do it with Robinhood?

To Robinhood’s credit, and I think Ron and I would both point to some of the things they’ve done that have not been so great, they were pretty early at this.

When my son is checking his Dogecoin position and he’s 19, Robinhood’s got a leg up.

It’s not just that they have the functionality. They have a really interesting, sizzling UI.

People love it.

It’s a real threat.

If you’re a wealth-management bank and you don’t have something to say to a customer about when and where they should or shouldn’t use Robinhood versus your own assets at the bank, that seems like a problem.

Don’t you think that’s a problem for the bank if too many customers are interacting with Robinhood and the bank isn’t coming up with at least some answer in its own world?

Yeah.

Let’s keep the funds at the bank.

If you start at the bank to purchase the crypto and can only sell the crypto balance back into your bank account, that keeps those funds there.

That’s the answer.

Well, Ron, I’m seeing research.

I think we’ve got three research reports in the thread now, which is great.

What do you think about this?

Executive summary on maybe all three?

I think you see three links because I’ve sent them all to the wrong people.

Just keeping up my complete idiocy for the day.

But I did want to get to Shirley’s question about how banks can value crypto as an asset when evaluating a customer’s balance sheet.

Libby, any thoughts on that?

I think that still has to be figured out by the majority of community financial institutions.

My guess is as we see tighter integrations with some of these ecosystems, it’ll get a lot easier.

Today, it’s not being used much for collateral or anything of that sort.

But circling back to business banking, when businesses can start using crypto on their balance sheet, I think that’s going to open a huge new world for how we think about moving money with crypto.

This goes back to the treasury and cash-management piece.

PayPal is out there telling its 26 million merchants, “We’re going to take payments from consumers in crypto and we’ll pay you in whatever you want.”

Should they want to be paid in crypto?

This becomes a real cash-management issue, which banks are putting themselves forward as experts in helping with.

Absolutely.

At some point, businesses are going to want to be paid in crypto.

We’ve got ATMs where you can buy crypto, or you can go to Walgreens and buy crypto through a Cardtronics ATM.

There’s a whole e-commerce ecosystem going on with cryptocurrency that people don’t realize.

Financial institutions need to be prepared to at least have an answer for it.

One thing you brought up there ties back to another question from Lisa Wilhelm.

This is about commerce.

What so many of us have gotten away with for years is keeping our conversations and thinking about banking inside a banking bubble, and there’s this commerce bubble over here.

But there’s overlap.

With all these people going after specific niches, Lisa pointed to Brex becoming a unicorn by focusing on startups, e-commerce and life sciences.

What I find interesting is there are three or four neobanks or challengers in any category.

You might pick physicians, and then there’s one that hatches up around new physicians or specific types of physicians.

Even in the bank sector, I was talking with someone the other day who reminded me that Live Oak is a great story in SBA lending, but when they started out, I believe they focused on veterinarians.

They landed and expanded.

They got very good at that, then moved to dentists, then others, then into SBA.

The point is, you don’t always have to stay in one niche. You can land and expand.

Do we see more of that trend happening?

Do we think more of the banks we all work with are trying to refocus on niches?

Do we think there will continue to be a proliferation of startups like Nerve focused on musicians?

Next week it’ll be taxi drivers, but not medallion loans.

Do you think that will continue to hockey-stick, or settle down and the general-purpose bank of the ’90s and 2000s will come back into vogue?

I think we’re seeing, in general, with the economy, a shift toward focus on niche businesses as opposed to general businesses.

If you look at retail, there used to be department stores where you could buy everything.

Now you’re buying very specific things from a certain vendor that’s only online and focuses on that niche.

Banking has an opportunity to do the same thing.

Nerve is a great example.

I’m seeing fintechs created that are taking away from that general banking space, specifically on the treasury-management side.

I’ve been doing business banking for a long time.

I would build out very complicated business-banking treasury services for customers who represented 1% of our market.

Now I’m seeing fintechs building those features and doing them really well.

They’re focusing on that and that alone.

Having the ability to integrate those from a bank’s perspective and not necessarily have to focus only on that one vertical, but still be able to offer it really well through a fintech, is a really good strategy.

Anything on that?

I think it’s an opportunity for them to grow, especially if they already have a foothold in one of those niche groups or affinity groups.

They can go deeper and expand beyond their existing footprint.

But I still think for a lot of community institutions, their affinity group principally is going to be their neighborhood and community.

That’s what their charters are set out to be.

Until they figure out which lane they want to be in, they’re going to try to straddle both and see how they can continue to grow.

I’m seeing another question from Lisa.

After all, isn’t embedded finance serving niches?

My argument would be absolutely.

If nothing else, it’s absolutely embedded into commerce.

That’s what I was getting at earlier.

If you were an all-purpose e-commerce, eBay-type business, you could say that’s not really a niche.

But I hear what you’re saying, Lisa, and I agree.

That’s a great example of being in the middle of all that commerce and learning a lot about it.

Ron, I don’t know. Do you have any thoughts about embedded finance?

Seriously, you’re asking me if I have thoughts on this?

When have you not had a thought on any of this stuff?

I’m a big proponent.

Embedded finance and niches are related, but I think they’re very separate things.

If we look at the niche aspect, I totally agree with what Erica and Libby are saying.

I think it’s going to be difficult for a lot of community-based financial institutions.

My mantra has been, affinity is the new community.

I forget if it was Libby or Erica who talked about a bank in the Midwest.

That’s a niche.

It’s a segment.

It’s an affinity.

There are specific products and needs, and that’s what it really comes down to.

Can you identify the unique products and needs of a niche?

I remember 20 years ago, when the online channel was getting popular, we were working at Forrester and somebody came into our office and said, “I’m going to open up a bank for women.”

Really?

What are women’s unique banking needs?

“Well, we don’t like the way we’re being treated in banks.”

That isn’t sustainable or supportable.

But if you look at what’s happening now, it’s an explosion.

Nerve is a great example.

I like to point out a company called Panacea Financial, which doesn’t just serve doctors.

They serve young physicians who are getting out of residency, about to make $150,000 a year, need to buy into the practices they’re involved with and go to banks asking for loans only to be told they have no credit history and need mommy and daddy to co-sign the loan.

That’s ridiculous.

So they identify these unique needs.

For the typical community bank, I think it’s going to be tough unless you’re in a geography that is an affinity, like if you’re out in West Texas serving the oil and gas industry.

What has happened in the past 20 years with credit unions is many moved away from the SEG to the community charter.

I think we’re going to see a lot move back.

What they’ll do is focus on the niche they can serve well and find adjacent segments that have somewhat similar product needs, plus those who come along as members because they get a good reputation.

Don’t you think this isn’t just an organic-growth strategy question?

This gets into mergers and acquisitions too.

To your point about the medical industry, Fifth Third’s acquisition of Provide was a fintech-specific move.

They’re specifically trying to do some one-upmanship on maybe KeyBank or PNC’s medical work in some of the same markets.

Horicon Bank, a community bank in Wisconsin, acquired a fintech company in Atlanta.

We’re starting to see even some community banks make these kinds of moves.

A bank in Wisconsin acquiring a tech shop in Atlanta, in your market, Erica, where NCR has operations.

That’s intriguing.

Those may be exceptions, but back to your point, Ron, about affinity being the new community, I think the other thing we’re seeing some banks wrestle with is that affinity can cut both ways.

There’s the term affinity bias, which was talked about at a recent AFT meeting.

Let’s be sure we’re not getting so narrow that one person’s specialty becomes another person’s concentration risk.

It’s the good and bad of affinity.

Does affinity get us away from some kind of diversity?

It may be one of the few times risk managers and strategic planning are really welded together.

If banks don’t get a keen sense of their risk appetite on this, which they should have anyway, I don’t understand how they get to some of the sacrifices that have to be made in planning or in a merger-type deal like Provide for Fifth Third.

I don’t know if you guys are seeing that with conversations around what types of loans people want to originate or what segments they want to go after.

One interesting merger that was just in the news was Valley Bank and Bank Leumi.

I think they serve very different niche markets.

Seeing how that plays out will be interesting.

How will Valley Bank handle those very high-net-worth international customers that Bank Leumi serves?

Anytime there’s a merger or acquisition where you’re taking over a niche that maybe you didn’t serve well before, there’s a lot of inherent risk.

How are you going to continue that and give that same customer service?

I think M&A in the past was always focused around some of the geographic footprints institutions wanted to expand into.

If they saw a market they thought they could do well in, but there was an institution already serving it, that was a prime acquisition target.

I think that will continue.

But I also think, Sam, to your point, it’s about their origination strategy.

The types of loans they’re going to make aren’t the same today as they were pre-pandemic or pre-quarantine.

Some of that is going to be around risk diversification in addition to aligning with some of the affinity groups the institution may already have a foothold in.

Great.

Looking at the clock, we’re just about at the top of the hour.

I want to make sure we give everybody time to get to their next meetings, which probably just means clicking another Zoom link.

Maybe somebody needs to go get lunch before that meeting.

Erica Pilon from NCR, Libby Charman from Abrigo, thank you very much on behalf of Sam and the rest of Cornerstone.

Thanks a lot for joining us.

Great discussion. Great job, guys.

Everybody who joined us today, thanks for doing that.

We hope to see you at the next episode of Fintech Hustle.

We’re going to do the hustle now.

Somebody kill this podcast now, please.

Thanks, guys.