Getting Back to the Future of Banking with Ron Shevlin

Hey there, Al Dominick here with Plugged In from Cornerstone Advisors. We are rocking and rolling with the very famous Ron Shevlin, a great colleague of mine who runs research for Cornerstone.

Ron has a lot of claims to fame. Probably the most interesting is that Lindsay Lohan continues to follow him on Twitter.

If you don’t know Ron, we’re going to spend about 20 minutes taking some classic rock tracks off the shelf to tee up a conversation about what’s really going on in the world of financial services today.

Ron, good to see you.

Thanks, Al.

We’re calling in from the mothership here in Scottsdale, Arizona. Ron just came from the desert in Las Vegas, where Money20/20 recently wrapped up.

In the spirit of coming from Las Vegas, I thought we should pull some tracks from artists who call Sin City home. I’m going to start with Pitbull and Ne-Yo. I know you are a big Ne-Yo fan.

Oh, absolutely.

You can tell. “Time of Our Lives” comes on the radio, and I’m sure there’s some head bobbing going on.

When it comes to Money20/20, did you have the time of your life? If so, why?

It was a complete zoo, and I mean that in a positive way.

I didn’t make it to the conference last year. I had a bit of FOMO because it seemed like a lot of people were going, but I still wasn’t ready to spend four days indoors in Las Vegas in 2021. They didn’t do anything in 2020, so my last time there was really 2019, which I thought was a pretty good conference.

This year, the attendance was up big time. There were a lot of people there.

They also reoriented the entire exhibition hall. It used to be a grid. You’d have a sign that said, “Here’s the 1100 aisle, the 1200 aisle,” and guess what aisle came after that one? The 1300 aisle. What a surprise.

They completely redesigned it this year, and nobody could find anything. Everybody was walking around kind of lost. There were no overhead signs. There was nothing.

But the energy was super high. It was great.

Again, I wasn’t there last year, so I’m kind of cheating, but from what I heard, last year was very crypto-focused. Big surprise. It was pre-crash.

This year, there wasn’t a lot of crypto at all. You know what was interesting, Al? There was a lot of good old core banking, a lot of digital identity, authentication, account opening and banking stuff.

It was back to the future, back to the core of banking and fintech instead of all the fluffy, fatty stuff.

That’s cool. Evidently, the folks putting Money20/20 together took the classic casino design approach: make it impossible to find anything and impossible to get out.

But that means you were in a pretty interesting little community for a few days.

For the bank executives listening to Plugged In who have heard about Money20/20 but haven’t been, and who are probably a little concerned about getting lost in the maze or spending a little too much at the blackjack table, help parse out some of the key themes or issues that you think a bank CEO, board or executive team would find interesting from this year’s show.

I alluded to it a little bit.

There was a lot of interesting stuff going on around fraud and risk management, especially with the proliferation of crypto, for one, but really more in terms of payment activity and the relative sophistication of the bad actors out there.

To a certain extent, a lot of these vendors are responding to dissatisfaction among traditional financial institutions with their core and digital vendors around some of the fraud and risk management capabilities.

There was a lot of digital identity stuff going on, along with customer experience and digital banking. It was about getting that stuff back up to speed and accelerating new capabilities.

There were also a lot of bankers. In the past, it felt very fintech-heavy. This year, I saw a lot of bankers.

You see some of these digital sidecar concepts there. I noticed that MANTL, which is something that S&P Global is doing, had a pretty nice presence. Other banking-as-a-service providers were certainly planting their flags and doing things.

We don’t have to stick just with the conference. I do want to stick with the artist theme, though.

We talked about Pitbull and Ne-Yo, with Ne-Yo being the Las Vegas resident. The Killers are also known as a great band from the desert. I’m thinking about “Mr. Brightside” as their classic song that we all know and love.

If we look at the bright side of financial services right now, where do you get amped up and excited?

If we look at the evolution of the storyline in banking and fintech for the past 10 years, it has now flip-flopped.

It used to be, “Wow, look at the fintechs. Look at these valuations.” Bankers were understandably sitting there going, “I have 10 times more profits than any of these companies, and look at my valuation. It doesn’t compare to this stuff.”

Now it’s coming back more toward parity and toward the view that fintech is not here to replace banking. It’s here to strengthen banking.

The idea that these financial institutions are going to fall by the wayside because of fintechs doesn’t really seem to be playing out. The mood in the industry is reflecting that to a large extent.

Maybe a lot of folks would say it was never about replacement, but that was kind of the hype. It really was.

What’s coming out now is much more focused on partnerships and collaboration. How do we use this stuff?

That’s not to say this is all going to be a rocket-ship acceleration.

I’m sorry to go off script on you here a little bit, but if we look out to 2023, with the economy, inflation and uncertainty, I’m a little concerned for the fintechs, banks and credit unions. We’ll call them financial institutions. I think that’s what they call them.

I’m concerned that we may see a little bit of a drop in investment levels and interest in partnerships because we may see some staffing cutbacks from the financial institutions themselves.

In the long run, that’s just a blip. But in the immediate future, this may slack off a little bit.

I think about it this way: when times get tough, people start to hunker down. They’re trying to figure out where they can create savings and how they can seek out efficiencies that allow them to maintain the status quo.

The challenge with maintaining the status quo is that you’re inviting mediocrity into your organization.

Some of the more progressive institutions are saying, “There are certain initiatives we’re going to cut, but on the digital front, we’re not going to.”

As institutions think about becoming more modern organizations, with the efficiency of distribution and how they’re running the business, I think the intersection of technology and banking still has a lot of potential and a long way to go.

But you talk about the market narrative. Sometimes those narratives are cheap, but they stick with us for a while.

If we went back to 2007, 2008 and 2009, there was a lot of bad stuff happening. The whole industry gets painted with a bad brush. You have Occupy Wall Street. You have big players being compared to community banks.

From there, we have LendingClub, Kabbage and all of this fintech 1.0 coming out.

Then you flip ahead and we get COVID. All of a sudden, there’s going to be another wave of companies developed because people have become that much more familiar with the tools and opportunities.

I think it takes a different mindset to run an organization today than it did even five years ago because the opportunities continue to expand.

You mentioned high touch and high tech. This is a wrong construct, Al.

It is not high touch versus high tech. It is high touch with technology.

I was never a believer that a lot of financial institutions should be putting big money into branches. Right now, I would say one of the biggest mistakes they can make is putting money into branches with the idea that it’s “high touch.”

It isn’t.

People want the technology. They want it to be better.

The reason they are going to branches and calling into call centers today, predominantly, especially for anybody under a certain age demographic, is because the digital experience isn’t good enough yet.

My standard line here is: why would I want to go to a branch and talk to somebody who has all of five minutes of experience in financial services and who not only doesn’t know as much as I do about financial services, but doesn’t even know their own products as well as I do?

Okay, tell me I’m not the average guy. That’s fine. I know banking. That doesn’t mean I know how to manage my money.

Banks need to really up their game on digital. They shouldn’t think about this as high touch meaning person-to-person versus high tech. It’s about infusing technology into the experience much better than it is today and improving the high touch with a technology-based experience.

Let me build on your thoughts because I agree.

I also want to make sure none of Ron’s followers, and he’s got a ton of them on social, start coming after me.

When I think high tech and high touch, the high touch isn’t the teller welcoming you with a lollipop or a free pen.

If you’re a small-business owner, your focus could be entirely different from what we would expect within the industry.

People don’t talk about banking. If you’re running a commercial organization, you need money. You need access to capital. You’re looking to hire people. You want to figure out how you create operating leverage.

Financial service providers have an opportunity to teach a little better and help strengthen people’s familiarity with certain financial concepts.

That, to me, is the high-touch opportunity people can start to pursue because you can’t expect your consumer or customer to be as educated as you would like them to be.

Going back to your observations around identification and authentication, we know so much as an industry about trends, patterns, who is making smart bets and who might be taking on a little too much.

Why are we not helping explain to people, before they make a bad decision, that something has greater risk than they may realize?

When I say high tech and high touch, it’s about blending the data and analytics, taking the understanding of the industry as a whole and helping people be successful.

We agree. I just didn’t want people to think high touch meant human touch versus a technology touch because there are a lot of opportunities to use the tech to pump up and amp up the touch.

So my social clip of Ron Shevlin encouraging everyone to go back into the branch isn’t going to carry any water today?

Well, not with my followers, that’s for sure.

I mentioned Imagine Dragons. They have some cool songs. Panic! at the Disco has some, too.

The Panic! at the Disco mindset that I wanted to bring to you is this idea that what was hot nine months ago isn’t necessarily hot anymore.

Think about what was hot to start the year. We had buy now, pay later. In August of last year, Square paid something like $29 billion to acquire Afterpay, the Australian company that got everyone talking.

We can talk about buy now, pay later. We can talk about buy now, pay never as a concept.

Crypto was obviously king. Now we’ve had the crypto winter, where everyone is looking at each other saying, “How much did you lose?”

Then there are things we have to remember were cool, like AI and machine learning. Those still have great promise and potential, but I think it’s more about the data that goes in, the patterns you’re looking for and what you’re trying to get out of it than the sophistication of the technology itself.

Certain things have changed, but at the same time, other things are starting to emerge.

Should we get worried about crypto disappearing? Should we be thinking more about blockchain applications, smart contracts and the ways we can leave crypto aside without losing sight of blockchain?

How do you look at some of the things that have lost their luster over the last few months?

In all cases, I think of these as blips. They’re negative dips. They’re not off the radar and never coming back.

Things go up. Things go down. They don’t always go up in a straight line. That’s where we’re at.

I’m still very bullish on buy now, pay later as a concept for a couple of different reasons.

Did you know I write a blog on Forbes called The Fintech Snark Tank?

I was going to let you pitch and hype your stuff at the end of this, but I guess we can get into it right now.

You’ve got to get it in there.

I’ve had a title for an article in my head for months: “Don’t Call Klarna a Buy Now, Pay Later Company.”

Yes, they do buy now, pay later, but what they really are is a retail and merchant enablement company.

I was in New York last week for a product launch they were announcing, and they’ve got some really cool stuff they’re doing.

They’ve developed a whole search engine that is shopping-oriented versus a Google search engine, which is all about pushing whoever will bid the price highest for that particular search.

They’re creating creator and influencer management tools for brands to interact with their creators and influencers. They’re all about helping merchants.

It was a great event. You had the CEO of 1-800-Flowers.com, the president of Bed Bath & Beyond, the president of Canada Goose, and then me and some other fintech guy.

It was like, wow.

They’re very retail-focused. The buy now, pay later piece is a little piece of their world.

But I still think it’s important because buy now, pay later is probably the best credit card acquisition tool that’s out there.

Instead of trying to figure out, “Should we give Al a $1,000 credit limit or $2,000?” put an offer in front of him and say, “Hey, you’ve got a purchase you want to make. We’ll float you the money now. You pay it back over time.”

Then you give him another one that’s a little bit more. He pays that one back.

Eventually you say, “Hey, you’re getting to the point where you’ve got a lot of purchases. How about a credit card? How about a permanent line of credit?”

I think buy now, pay later has a lot of legs as a space, but also as a tool for credit acquisition.

On the crypto side, what caused the crash was really about price arbitrage and the fact that people were throwing a lot of money into this with the idea that they were going to get rich quickly.

Did some? I’m sure. Most didn’t.

For banks to overlook this, though, I think they’re making two big mistakes.

The first big mistake is assuming it won’t come back. It will come back.

What I’ve always told our banking and credit union clients is that I don’t care if you think it’s risky. Your customers and members want this, so give them a safer way of acquiring it. Give them advice and education.

Ultimately, people are still going to do what they want to do. Who are you to tell them they shouldn’t be investing in crypto? Help them do these things more safely and provide more education.

The other big thing is the longer-term trend toward what’s called DeFi or Web3.

DeFi is a horrible term because it really isn’t about decentralization. It’s about blockchainification.

The idea is that things will move more toward a blockchain-based infrastructure that enables things like smart contracts, where the money that gets moved is in cryptocurrency because that’s easier.

A central bank digital currency may potentially help replace that.

But that’s a trend banks should be thinking about. How and when do they need to participate in that movement?

Obviously, there are a whole bunch already doing it with digital currency now, USDF and others. There are some smart, forward-looking banks getting into this already.

When we put together this idea for Plugged In, we wanted to shine a light on things that are being invested in, developed and considered. They don’t have to be fully mature.

I wrote for GonzoBanker, which, shameless plug, is the Cornerstone newsletter that we try to put out in a provocative fashion.

I’ve heard of it. It’s a little-known thing in the industry.

Oh, wait. Everyone knows GonzoBanker. That’s why we’ve got the logos.

But I wrote about Nubank down in Brazil. This week, I think they introduced Nucoin, their crypto asset.

I look at companies like N26 that have been in the news for good and bad reasons, but they’re doing some pretty interesting things as well, where you can buy or sell up to 100 tokens.

When you think about the interest in and maturity of opportunities, I don’t want to sleep on the crypto side.

I also don’t want to make it this DeFi fairy-tale land where everyone is going to get rich quickly again at some point in the future.

I do think there are opportunities for bankers, in particular, to get a little more sophisticated with the underlying technologies and think about how that could create some separation between you and your competitors.

Thinking about competition, diversification and creating space, I made a little note.

Imagine Dragons has a lyric about being a young gun with a quick fuse, dreaming of bigger things and wanting to leave your old life behind.

When you think about that, it’s about how you avoid simply fitting into the mold. How do you do something compelling and different?

Revolut launched a holiday home rental service designed to compete with Airbnb. They’re going to grant cash back to users who book through their app.

Think about the cross-sell opportunities people are starting to explore again. Cross-sell was a dirty word based on Wells Fargo years ago.

Now it seems like some of these tech companies are figuring it out really fast: get one product out, do it really well, and then cross-sell and find opportunities to build.

I think that’s right, but I look at it from a slightly different perspective.

I think what they’re doing is diversifying their product and service set with the recognition that simply being a financial institution isn’t enough.

They’ve struggled in the U.S. big time. I’m not even sure N26 is here anymore.

Revolut is.

Right.

They’re inviting an incredible amount of competition. Even JPMorgan Chase announced it’s going to get into the travel agency business.

Why? Because it drives credit card purchases.

You have to go back to the DNA of these companies.

I’m not even sure there’s a strong DNA in the Revoluts and N26s yet. That’s not a bad thing. It’s just where they are in their evolution.

For Chase, it’s about driving cards and payments.

I would hardly recommend that a bank start its own travel agency or service, but financial institutions should think about diversifying the products and services they offer.

They need to move away from the perspective of, “We just do banking, so let’s push these banking products and services.”

Who do they serve? What’s their market?

This is the tough part for a lot of our clients who are community-based financial institutions.

I’ll go a little far out and put a stake in the ground: community geography is dead.

Community is more about affinity than geography today.

That’s not true in all cases. I’m sure you could go out to West Texas, where it’s very oil- and gas-based, and there’s more of a common need with a geographic base.

But for the most part, especially in big cities and suburban areas, geography is dead.

A lot of financial institutions have to rethink who they’re serving, who they’ve been successful at serving and attracting, and then figure out how they can provide more money-related services, not simply financial accounts, to that segment.

They need to rethink the distribution strategy.

That’s why banking as a service is getting big. It’s a new form of distribution channel.

Really well said.

As we’re talking about all these different companies, Revolut, N26 and Nubank, they’re familiar if you’re in the fintech space. These are mature brands.

If you’re in the banking world, you may not be as familiar with what they’re doing, the investments they’re making and the types of talent they’re bringing in.

Can I underscore that for a second?

My son-in-law works for a big Wall Street firm. My middle daughter works for a huge insurance company. That’s both financial services, right?

We were at Christmas dinner around 2020 or 2021, and I had written something about Chime.

Both of them were like, “Who’s Chime?”

I’m like, “Seriously? You guys are millennials, you’re in the industry and you don’t know who Chime is?”

You’re dead on.

We know about them because we follow this stuff, but the general consumer, and even people in financial services, don’t necessarily have a lot of familiarity with the Revoluts, Chimes and Varos of the world.

Somebody everyone would recognize if they saw him on a billboard, whether he’s alive or dead, which is apparently still an open conversation, is Elvis.

Elvis played Vegas, and his “Viva Las Vegas” is a great way for us to bring this conversation to a close.

In 90 seconds or less, talk to me about the proverbial fork in the road when it comes to embedded finance and embedded fintech.

Can you pick up the fork and take both, or do you have to pick one?

The fork in the road you’re referring to, Al, is what I’ve been pitching in a lot of my presentations.

I think banks have to make a decision between two paths from a real strategic perspective: embedded finance versus embedded fintech.

Embedded finance is banking as a service. It’s distribution. It’s getting your products out through other fintechs and, ultimately, through non-financial brands that want to offer financial services to their customer base.

It’s a great opportunity because everybody wins.

The brands win because they drive a lot of loyalty. It’s not necessarily about generating a ton of revenue directly from the financial product.

Here’s the thing, though. While this whole banking-as-a-service concept is really hot, I may be very wrong about this, but I don’t see every bank in the market doing it.

By 2025, I’d be very surprised to see more than 300 or 400 banks doing it. That’s a relatively small percentage.

If you’re not pursuing the BaaS or embedded finance path, then what do you do?

I think there’s a mirror image on the other side of the coin, which is embedded fintech.

That goes back to this notion of expanding your set of products and services and incorporating fintech products into your platforms.

Most bankers probably sit there and go, “I can’t do that today.”

They’re right.

But look at some of the leading vendors in the market. They’re really moving in this direction. You’ve got a lot of integration-layer companies, the sidecar cores.

I hate that term. I can’t believe I said that. I can’t believe I even said that. I hate that term.

But there are a lot of vendors and providers in the market who recognize this as an opportunity.

I think we’re kind of early in that from a strategy perspective.

Can banks do both?

I think you’re biting off too much.

You talk about these decisions. I’ve spent time with different CEOs, some of whom are all in.

I look at my friend Eric Sprink up at Coastal Community Bank, who’s doing an awesome job building things. Metropolitan Commercial, Mark DeFazio, MVB, The Bancorp. There are some great examples of businesses that have been developed.

The challenge for other institutions thinking about this is that those banks already exist, and they’re already doing stuff. They’ve got a lead, and they’re not going to simply give it up because you’ve decided this is an interesting place to play.

But the same thinking would have applied if you went back 100 years or so and said, “We have three banks in the market. Why do we need another one?”

There are always segments you can carve out.

I’m not taking anything away from the companies you mentioned. Think of them as BaaS platform providers who are helping accelerate entrance into the market for a lot of other banks.

You don’t go into this saying, “Well, gee, I’m just going to be a BaaS player.”

You go in saying, “I know I have a set of products that I can really deliver on. I know there’s a market, and I’ve got to find the partners who can help me bring those products to market.”

Companies like Bond, Unit, Nymbus and Treasury Prime are out there doing some really cool stuff.

I think this is a great way to thank Ron for his time because the world of technology continues to spin in ways that are both interesting and unexpected. To be able to get Plugged In with this gentleman really is an awesome thing.

I’m Al Dominick. We look forward to you listening to our next Plugged In.

Thanks, man.