Transcript
Hey, Mary Wisniewski here, Cornerstone Advisors editor-at-large. Welcome to Money Isn’t Everything.
In today’s episode, I sit down with John Thompson, who’s the vice president of financial services at H&R Block, and we talk about Spruce, the brand’s neobank.
We also get into the misconceptions around financial health, the purpose of having physical locations, and his love-hate relationship with the tax refund.
Here’s our conversation.
John, welcome to the show. It’s great to have you here.
Thank you. I’m really excited to join you today. Looking forward to it.
I know we’re reconnecting, and financial health is something that matters to us both. I think some of our earlier conversations were on tax refunds, so I’m curious to get updates about that now that you’re at Spruce.
But I want to start with the brand mission, which seems so critical. Spruce is a brand aimed at helping people get better at money.
This is something a number of startups certainly want to do, but the reality is messier. In some cases, it’s changing behavior. In some cases, it’s a bigger deal of, “I need more income.” There are other forces at play.
What’s the opportunity here for a digital app to help people improve financial outcomes?
I love that question. It’s the perfect one to start with.
I think it gets at a lot of why I wanted to join H&R Block and work on Spruce and other things after spending the last few years researching and writing about the things that affect people’s financial health and the interconnectivity of the different aspects of financial health: spending, saving, borrowing, planning, and earning.
Trying to turn the theoretical into the practical and the profitable, of course. If there is no margin, then there is no mission.
I think the opportunity that I saw with H&R Block and the role that Spruce can play is that it’s part of the day job of the company to help address the needs that its customers have, especially its middle-income and lower-income customers, its more financially vulnerable and financially coping customers.
The company doesn’t have to stretch, and Spruce doesn’t have to stretch, to find those people. That’s the regular customer.
If we understand their problems deeply, we can start to figure out how mobile solutions and mobile experiences can address those.
H&R Block has physical locations, so that’s an interesting thing.
Are you seeing people signing up through those physical locations? There’s always the debate, do you need a physical location?
Isn’t that a fun dimension to add to a fintech, actually being retail and having humans?
It was such an interesting thing to think about.
I think of it as a real asset, especially if you can think and act long-term to leverage that asset.
In our case with H&R Block, the millions of minutes and hundreds of thousands of hours that we spend with people in an advisory capacity, if you want to think about it that way, centered around potentially the most important financial transaction of the year, provides enormous opportunity to both learn and share with people how to address their challenges.
For us, building Spruce as a product was one thing. We launched the product about two years ago.
For the two years that we’ve been doing that, we’re also engaged in a process to teach our tax professionals about what the product is, teach them about the customer problems we’re trying to solve, and get them to love it.
You don’t just turn a distribution system on like that and tell people what to do. You’ve got to get them to buy in. You’ve got to listen to and learn from them.
As we lay the calendar out in the future, the tax professional is one of the most important advocates for not only the product, but also for the customer.
That is a really important point because I feel like, if I think of the branch employee, there’s a disconnect sometimes in promoting certain things.
How do you help that employee want to promote this kind of product?
This has been a fascinating process to learn.
I personally have, I don’t know, maybe sort of a strange experience with H&R Block.
I’ve worked here for two years, but I also worked here 15 years ago.
Oh.
For about seven years. It was a really wonderful experience.
I knew enough about how the tax professional culture operated that I didn’t have to start from scratch when we came back this time and took another run at it.
If we were to tell our branch staff, that’s not really what we call them, but it’s the functional equivalent, what to do, or put sales quotas out there and have people go push it, not at all.
In our case, we have to invest in teaching the tax professional about the customer problems we’re trying to solve and how the product actually solves those, and then provide some real proof points so they can trust the product.
They’re not going to connect their customers with it until they trust it.
For us, it’s been a couple cycles of investing in teaching, in listening, and really trying to provide, I guess, social proof to our field staff.
That’s a lot better.
I’m having a memory of when I was a barista as a teenager, and they’d have me answer the phone like, “Come on in and cool off with a blah, blah, blah,” and I was like, “No, I can’t do this.”
But I didn’t quit. Well, I quit at the end of summer.
One of the really fun parts about this is that we’re generally, in our field, dealing with very experienced, capable, knowledgeable professionals.
These are experts, and experts in one dimension of financial life or potentially many dimensions of financial life.
Just like with the customer, with the tax professional you have to meet them where they’re at.
We have a very interesting mix of the way consumers find their way to Spruce.
Sometimes it’s through the website. Sometimes it’s through social media. Sometimes it’s through the tax professional introducing the product and either a customer taking it at that very point or perhaps taking it next year.
Sometimes it’s when they’re doing their taxes with us in a do-it-yourself capacity. It’s actually one of the really successful channels that we’ve had.
Other times, it’s fascinating how the customers just talk to each other.
Oh yeah.
Stuff starts happening in the front lobby. “I tried this. Have you tried this? Have you tried this?”
Obviously, that’s the way a lot of other mobile banking or mobile tech experiences have grown.
John, early in here, I want to lay some of the foundations of misconceptions, perhaps, of consumers.
One segment I do have is “That’s What You Said.”
I’ve been listening to you without you knowing, but in the last couple days, I’ve been listening to some of your other podcasts.
On one of them, and I think this is such an important point, you said, “If you think, if I make a lot of money, then I’m going to be financially healthy, not true. It’s not even the top 10 most predictive indicators of financial health.”
It’s important, and then you said a few other things, but it’s not the only thing that matters.
Let’s unpack that because I feel like this is one of those really confusing areas for people in financial services, and probably even more than that.
Yeah, just people in life.
Okay. I’m now trying to remember where I actually said that, but I do remember it, so that’s a good start.
I think it was on the Alltru Federal Credit Union podcast.
Before I worked at H&R Block, I worked at a nonprofit called the Financial Health Network, which used to be called CFSI, Center for Financial Services Innovation.
At that organization, we were really researching what I thought, and what the people who ran that organization thought, was the future of financial inclusion, which was understanding that it isn’t enough to just get people to buy mainstream, high-quality products and use them.
Part of what matters in all of that is their outcomes.
In the process of using a product or a feature, does it actually help somebody? How would you even know that?
We started to build a mechanism there at the Financial Health Network around how to measure financial health.
We defined indicators of financial health. We did benchmarking studies. We tried to understand that.
For about the last eight years, the Financial Health Network has been measuring the financial health of Americans, how it’s changing and why it’s changing.
In the process, we found, caveat, there are extremes.
If you are hyper-high-income or hyper-low-income, you can kind of earn your way out of problems, or financial health isn’t your main problem.
But we actually found some of the most financially healthy people were lower-income, but their behaviors were really strongly oriented around the things that made them good savers, spenders, borrowers, and planners.
Those behaviors mattered more than purely just income.
That’s obviously a real debate in society around where should we be spending our time, and is it all just about making more money?
At least from a financial health perspective, it isn’t only about that.
I’ve heard this before, and it’s still striking to me because it just points to how big of a problem we’re in.
What was interesting is, as I worked my way into the tax industry, Spruce is not specifically a tax-oriented product, but I did really start to think about earning a lot more than I did when I was working on more of the theoretical or academic constructs around financial health.
I think there were a couple of factors that were important there.
Really understanding the volatility that many people face in incomes and expenses, the difficulty that they have in predicting their income, even though we have a financial system that’s mostly built under the assumption that you have a nine-to-five job, that you make a salary, that you can pay your bills every month, they’re all the same.
It’s not really the way it works for a lot of people.
That is something we’ve really tried to take into account in the way that we were building Spruce because we see that in many of the customers that we work with too.
They’re making money from lots of different places. Some months are good. Some months are not so good.
They’re looking for insights and an ability to deal with that volatility.
Yeah, and when you don’t know how much you’ll earn, or when, what a big problematic mystery that is.
I’m in Los Angeles, so all kinds of people here are living that life. I know it’s much outside of L.A. too, but especially here.
This kind of lends itself to, on one hand, you could say Spruce came into the neobanking game a little bit late.
But on the other hand, you’re talking about this big working cash flow challenge, and that’s how you’re cornering the market.
I know H&R Block has this history of exploring financial services and, I think, went after a charter or had a charter or something?
Had a charter. Seven years.
Wow. Okay. So, see, not its first rodeo in this world.
Why launch this brand in the last couple years?
I think a couple of things.
With the current leadership, which started maybe about six years ago, as we reimagined what the strategy of the company might be around improving confidence of customers and reducing financial hardship for customers, it made us start to think about the overall business a little bit differently.
It was important to be very effective, efficient, and exceptional at tax preparation, but we also needed to start to deal with some of the other challenges our customers were facing if we were going to meet that mission centered on improving confidence.
We really set forth an imperative in financial services.
We needed to attack some of the key challenges that customers would face.
If we could do that, we could drive growth for the company, but we could also engender the kind of brand loyalty and retention that are important for the enterprise.
When we looked around at the time, I guess this was maybe about three years ago, right before I joined, we said, “You know what? We just don’t have the platforms and the technology to deliver those kinds of experiences.”
At the time, we were actually running one of the largest prepaid debit card programs in the country, a product called Emerald Card, which we still have.
It’s still a very successful product, but it’s built on technology that’s about 16 or 17 years old.
We just weren’t going to be able to meet customers’ expectations in terms of engagement and solutions around their financial life building on that kind of technology.
We looked around. We decided that we wanted to build instead of partner.
So we did that, and it was actually a fascinating process to observe.
I joined right at the end, right before we launched.
Oh, right before you launched. What a moment to join.
We built it. Okay, amazing. Let’s go.
The company did some really amazing things.
It went from first line of code to launch product in less than six months, which is really fast.
I think one of the funnest parts was taking, as a leadership challenge, that team and turning it from a build mode to really figuring out how to make the product great and figure out how to grow it.
Let’s talk about the tax refund.
I know this blurs into, hey, this is one of the few opportunities for a lot of people to have more money.
Perhaps it’s already been spent, but at least then it’s money that can be used to pay off the bills.
How do you see the tax refund? Do you see it as helping improve people’s financial outcomes, or is it just a Band-Aid?
I love it and I hate it at the same time.
Let me see if I can explain what both of those things mean and maybe how they come together in this work.
I’ll start with, I hate it.
I hate it because it’s so lumpy.
For many low-income families, this is 15%, 20%, 25% of their net income, and here it is stuck until March.
I can’t get to it until March, so it forces me as a provider to do all sorts of interesting things between about Halloween and the beginning of March, when I get my tax refund, to sort of make it all work.
Tax time is kind of the one period where I can catch up and get steady, get right, get confident.
Then it’s back into the craziness.
I really do wish we could find some ways to smooth that out.
We saw that in COVID with the advanced child tax credit delivery. It helped people a lot to be able to receive that money regularly instead of in a lump sum.
That’s the hate part of it.
The love part of it is it’s such a unique moment in somebody’s annual financial life.
They have money. They’re thinking about money. They’ve got all their documentation together. They’re trying to make good decisions with this money.
It’s a massive opportunity to help.
One of the coolest things that we’ve done in Spruce, I think, is facilitate the process of saving at tax time.
If you were to stack-rank the things that I think Spruce is good at, it’s probably the best in the short-term savings portfolio.
One of the things that we always do is give the customer a chance to pre-commit a portion of their tax refund into their savings account.
Siphon it off before it actually arrives.
We pop up this little scroll bar, and the person can dial it up or dial it down.
We suggest 15%, but more than half the customers that we present that opportunity to dial it up to 30%.
Oh wow.
What we see when we talk to them is that they’re still spending that money, but it means they’re spending that money more closely aligned to the way that they wanted to because they set some of it aside.
That’s really encouraging to me.
That’s a way we’re going to turn short-term savings into long-term savings, into asset building, retirement, some of these kinds of things where we’re going to start to go next.
You have some interesting features that I want to get into, but first I’m curious.
Are you finding Spruce customers are asking for the tax refund early? Is that happening?
The short answer to that question is yes.
It is a speed issue, but it’s also a confidence issue.
One of the real challenges with tax refunds, especially if you claim the Earned Income Tax Credit, is that you have to wait a long time for it from the IRS, and you don’t know when it’s coming.
Anything you can do to establish certainty or confidence.
Imagine you have a big payday coming, but you don’t actually know when the payday is going to be.
How do you plan for it?
It’s a really challenging experience.
For people to say, “I can get this thing three, four, five, six days early,” it’s helpful.
It is helpful.
But I’m curious because banking is such a complicated beast.
It’s one thing if they’re keeping their money in the Spruce account, but if they’re trying to transfer it, chances are it’s still going to take a few more days.
How do we deal with this tension of, on one hand, you can make it faster, but on the other hand, there are broader complications that would make it hard to move it around?
How do you think about this tension?
I wish for a day soon where we’re dealing in an open banking, real-time funds delivery model.
Even though the challenging parts of the American payments system do provide some specific opportunities to help clients do something better, the future is so much brighter than where we’re at.
We’ve just got to get to where we can see the information that we want, and we can move money instantly.
But we don’t have that. We don’t have that.
John, you gave me a flashback.
Someone once told me a couple years ago, “Checking accounts can’t get worse.”
I mean, they always can, frankly. They always can.
I like the opinion.
Start draft again.
One of the really interesting and unique challenges at tax time is that, in a traditional banking sense, everything can look like fraud because you’re moving so much money so fast.
Yes.
It isn’t normal day-to-day stuff or payroll deposits or something like that.
It does put, I think, a fair amount of unique pressure on the work that you do to know your customer, to really validate their identity, and to monitor their transaction behavior.
Some of that, all of that, is actually required from a regulatory perspective, but you’ve got to go a little farther when it comes to tax time because of the risks that consumers face.
If you lose that money, or you lose access to it for some portion of time, now it really hurts.
It’s different than a paycheck.
Everybody who’s worked around in this space understands that the pressure to do it right, especially when it comes to money movement, just can’t be much higher.
No. There’s always such a big tension there between experience and trying to get in front of fraud.
There’s a neobank called Charlie that is slowing down money transfers up to six hours in case someone’s being attacked by a fraudster, which I find really interesting.
That opens it up, John, to some more of the atypical features Spruce does.
I’m so glad you mentioned that commitment to saving a percentage of the tax refund. That’s one that was on my mind.
But another is spending limits. Are people setting spending limits?
Yes and no.
I’ll try to break down what I mean by that.
For us, this feature, which in our model is one of our strongest planning tools, we see a couple of different kinds of behavior.
We see people who are simply monitoring their spending by category.
We can see them observing it.
Then there’s a sort of step up where they’re actually starting to set limits and track their progress against those limits and be notified if they’re touching those limits.
When we talk to those customers, they’re the ones that have the highest level of confidence.
We were a little worried. Is this just the people who have the most money or who are the most financially healthy, and is that what’s driving their confidence?
No.
We think the access to information is actually helping that confidence.
We think of that, at least at the moment, as kind of one of the pinnacle behaviors of Spruce when we think about engagement, deposits, and then ultimately financial outcomes.
Each of the features of Spruce, the savings ones, the credit score monitoring ones, some of the other things that it does, each of those, when we get a customer to try those things, their engagement goes up.
Deposit levels typically go up.
But the one around budgeting is the one that really unlocks somebody.
When they can do that, it’s interesting to watch them. They really fully commit to Spruce.
That’s awesome to see.
We still think of this as a very MVP feature, though.
This is the basic entry point of what this feature can do. There’s so much more to come here.
I bet.
I have some ideas of the direction it might take.
But even now, just as an expression of a budgeting hack, I’ve been reviewing some videos from Gen Z who are still stuffing money in a glass jar to force a behavior pattern.
In theory, digital could be better at doing that.
We haven’t quite got the market position to really be able to narrow in and say one particular segment is our only focus, because we work with Block, who works with all of America.
The demographic of the H&R Block customer is the demographic of America.
Young, old, wealthy, not wealthy, financially healthy, not financially healthy.
Since we’re connected to a large brand, we do see all sorts of different kinds of behavior as opposed to massive concentration.
Generally speaking, we’ve had to push ourselves to say, “Okay, we’ve got to build for the next generation, though.”
When we’re thinking about bill pay, we’re not thinking about the way my parents paid bills.
We’re thinking about the way Millennials, Gen Z, and even the next generation are starting to think about, “How am I going to pay my bills?”
We’re trying to listen to them while not ignoring the whole customer set.
Which is so hard to do among many challenges.
John, two questions left for you.
One, you’ve been the researcher, and now you’re in the wild seeing what’s happening with the product.
What do you think banks and credit unions get wrong about this audience, either within their digital banking experiences or maybe just stereotypes?
What’s lacking? There’s probably so much, but one or two things.
I say it as someone who worked really closely with banks and credit unions for most of the last decade and loves them. There are really interesting, cool things that are happening there.
I think one of the things that I see is you have this weird challenge around scale when you work at a bank or a credit union, especially a larger one.
Here’s what I mean by that.
When you’re starting a company, you have a chance to be small.
You have a chance to care about every single customer.
You have a chance to care about every single experience and focus in on it.
When you’re small, you get all of these little experiences right because you’re dealing with a scope and a scale that you can manage within the team, even a small team.
You go build Spruce at H&R Block and you want to launch it, it’s big fast.
You never got a chance to be small and really study and improve the individual customer experiences.
I think it’s just really hard to do at a bank.
The ones who can do that, focus on continuous improvement, experience improvement, you’ve got to force yourself to do that because the natural rhythm of a business that’s operating at scale kind of draws you away from that.
Yeah. That’s such a really helpful reminder of such an important issue.
John, one last question for you.
But before that, where should people find you or learn more about Spruce?
SpruceMoney.com.
The best way to follow me and the team that is building Spruce is on LinkedIn.
You can start with me.
The two leaders of the product are Helen Robb and Melissa Alattar, fantastic leaders that are really showing the way of a small but mighty group of product managers and designers on our team.
All right.
John, what’s the photo on your phone’s lock screen?
It is a painting called Saudade.
It’s a Portuguese word that doesn’t really have an English translation.
Probably the closest that you can get is sort of this purgatory between happy and sad.
Oh.
I just thought it was really an emotion that spoke to me about balancing the great and the terrible in your life.
I don’t know. I just like that it reminds me every day, it’s going to be okay.
Well, John, you have ended the show on something beautiful.
Thank you, and thank you for being on Money Isn’t Everything.
Wonderful. Thank you.
If there is one thing I learned, it’s that the industry still has tons to figure out about really understanding the volatility that many people face in their incomes and in their expenses.
In two weeks’ time, I sit down with Rodrigo Suarez, the chief banking and innovation officer at Piermont Bank.
What a youngster bank. Piermont Bank is only five years old.
We talk about fintech-bank partnerships in the year of the consent order, and we also talk about innovations in small business banking.
If you are into written words, follow the fintech trends I’m loving on LinkedIn.
I have a newsletter that comes out at the end of every month, and it’s called Finteching with Mary.
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