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Podcast 280: Thea Mason of PenFed Credit Union

The Head of Consumer Deposits, Digital Payments, and Student Lending at PenFed Credit Union talks digital transformation and what is means for credit unions

January 8, 2021 By Peter Renton Leave a Comment

Views: 133

In 2020 for banks and credit union all roads led to digital. The pandemic caused something of a stress test on digital offerings for financial institutions of all sizes. Pretty much everyone saw digital adoption far exceed expectations in several categories. Today, we are going to look at what it meant for one of the country’s largest credit unions.

My next guest on the Lend Academy Podcast is Thea Mason of PenFed Credit Union. She has quite a portfolio of responsibilities there, she is the Head of Consumer Deposits, Digital Payments, and Student Lending. We talk about each vertical and their approach to innovation in general.

In this episode you will learn:

  • The mission of PenFed and the different niches they operate in.
  • When they started offering membership to anyone.
  • The impact of the pandemic and how they pivoted quickly.
  • What digital transformation means for PenFed.
  • How they are partnering with fintechs today.
  • Their philosophy around building versus partnering.
  • The support they have provided their borrowers.
  • How their entire loan portfolio has performed.
  • What they done to combat fraud.
  • The biggest challenge for the credit union space right now.
  • How they decide which digital experiences are most important.
  • How Thea stays up to date on technology.
  • How much Thea keeps up to date on the digital banking offerings.
  • What they are looking at as far as payments innovation.
  • Their goals for 2021.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking.

Download a PDF of the transcription of Podcast 280 – Thea Mason.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 280-THEA MASON

Welcome to the Lend Academy Podcast, Episode No. 280, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27th to 29th with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’d ever attended. LendIt is setting the bar even higher in 2021 so join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa

Peter Renton: Happy New Year everybody and welcome to the first podcast of 2021. We have a number of fantastic guests planned this year and first off the rank is Thea Mason, she is the Head of Consumer Deposits, Digital Payments and Student Lending at PenFed Credit Union. Now, I wanted to get Thea on the show because I think some of the things that PenFed are doing are really interesting, they’re one of the largest credit unions int he country now, but they’ve got a pretty small branch footprint very much focused on digital initiatives, digitally serving their membership base.

So, we talk about that in some depth, we talk about the different verticals that Thea is responsible for, we talk about partnering with fintechs and what they’re looking for there. We also talk about the pandemic and some of the changes they’ve implemented there and the increase in fraud and how they’re combating that and we talk about what’s going to be coming down the pipe this year. It was a fascinating interview, we hope you enjoy the show.

Welcome to the podcast, Thea!

Thea Mason: Thank you, Peter, great to be here.

Peter: Okay, my pleasure. Let’s just get this started. You’ve had an interesting career working in the traditional banking sector as well as credit unions so why don’t you just give us some of the highlights of your career to date.

Thea: Okay. Well, I got my start in banking at Capital One and I worked with some of the lending businesses there like the auto finance business at Capital One and then I moved over to work with the….running Strategy and Marketing with the original group at Capital One that stood up the direct bank which was, at that time only the second Direct Bank in the US following ING Direct which was the first.

 

I’ve done other types of roles in financial services and now, most recently, I’ve been at PenFed Credit Union for almost five years now and I head up the deposits business for PenFed as well student loan refi business and lastly, I recently took on managing what I call digital payments which is our ACH, wires and bill pay team.

Peter: Okay, interesting. So, maybe just tell us a little bit about PenFed. I mean, it stands for Pentagon Federal Credit Union, I believe so what’s its mission and how are you sort of serving your members?

Thea: Sure. Well, basically, I would say PenFed’s mission is to empower the members of our community to achieve their financial well-being. So, that’s really where the heart of PenFed is and we’re really focused on our membership because like a credit union, as all credit unions, we are owned by our members, we don’t have shareholders.

So, that’s kind of the orientation of PenFed and we are in many, many different consumer lending spaces. We have a mortgage business, home equity, auto finance, credit card and personal lending business as well as a deposits business where we offer savings, checking and CD accounts.

Peter: I was reading that PenFed is really open to anybody today, right, you don’t have to have a military background or anything, tell us a little bit about that, who’s your target audience, I guess.

Thea: Oh, yeah, absolutely. So, PenFed has….you’re absolutely right, we were originally called Pentagon Federal Credit Union and our core membership for many, many years was the military or retired military in the US. Several years ago, we merged with another credit union and they had what’s called an open charter and as part of that merger, we ended up taking over that open charter which really enables us to offer membership to anybody.

We do not have to be part of like a select group of people where most credit unions are really built around like one or two types of organizations or groups that you have to be a part of in order to join a credit union. We are really open to anybody who wants to become a member and I think we are still continuing our focus on military and former military, but now are really able to open up to a broader group of members.

Peter: Right, right, okay. So then, we’re recording this just before Christmas, it’s going to be out in the new year, but I’d love to kind of ….as we’re winding down the year, just get a bit of a sense of how this year has been for PenFed and for the credit union space, in general.

Thea: Well, you know, I think we really have been impacted much the way many financial services institutions are when the pandemic hit. I think, credit unions….one of them were impacted similar to banks. We all had to make a lot of pivot very quickly to make sure that we were providing our members access to services that are very, very important financial services as best we could. So, we really were very fortunate because we already have a pretty solid infrastructure for self-service and we have an online banking capability as well as mobile banking and that really helped us support our membership when, you know, they couldn’t move about freely and go visit our branches.

One of the unique things about PenFed is that we are a nationwide organization so we do have a little over 50 branches spread across the country. As a national organization, it’s relatively a thin branch network so we’ve always been at the forefront of having that technical capability for our members to access us through self-service and we also have a number of call centers throughout the country where members can call-in and get financial support as well. You know, we were very fortunate that we were able to really pivot those employees to move from the service centers they worked in and continue to maintain the security that really is essential in financial services by having them work from home.

Peter: Right, right, interesting, interesting. So then, you mentioned a few of the different categories that you’re responsible for, it’s interesting when you go to your website I see you’re leading off with online savings in bright red on your home page here.

Thea: I think that’s just today (laughs). I literally think that just happened today.

Peter: (laughs) Well, it’s there in bright red talking about 0.6 annual percentage yield, digital access. So, of the different areas, what’s the main focus? Are deposits like a really strong focus for you right now, given this bright red box on your home page?

Thea: You know, that box…switches product all the time (laughs) so I wouldn’t say there’s one product that PenFed focuses on. We really are focused on meeting all our members’ financial services needs so luck of the draw for me, I run the deposits business, every once in a while. The products that I manage get featured on the website for a few days and then it will disappear.

And, you know, come next week it will be credit cards, a lot of wonderful credit card offers, very generous cash back cards. We have very competitive rates really across all our lending products, auto finance, personal lending as well as student loan refinancing so in addition to our very meaningfully-sized mortgage business and home equity business. So, we all, as product owners, hope to have our products featured periodically on the home page to attract more interest.

Peter: Yeah, yeah. I also saw when I was doing some research for this interview, you’ve got sort of like a PenFed personal loan product, was featured as best product for loans up to $20,000 so that’s interesting. Is that part of your portfolio as well, the personal loans?

Thea: Unfortunately, not, I don’t have that, but, you know, we’ve got a couple of people like myself that are kind of product leaders and there’s another individual that runs a particular product set.

Peter: Right. So, maybe we can just talk about…I want to talk about the products that you’re responsible for. I mean, what are some of the things…..you know, it sounds like PenFed is well-positioned better than most credit unions to really take advantage of the fact that people were working from home, people were doing lots of, you know, business online, as far as banking goes. So, did you like…..were there certain projects this year that you fast tracked or what digital initiatives did you kind of roll out this year that maybe you might not have if but for the fact we are in a pandemic?

Thea: That’s a great question. So, Peter, at PenFed, as I said, we’ve always had a strong digital presence, but we are working very hard to continue to develop and evolve that presence so that we can provide more services and better services to our members through self-service, whether it’s on their phones or on their laptop or on their tablet. So, and there’s projects, you know, sort of behind the scenes as well as things that are very obvious to our members.

We have, actually, a multi-year initiative going now that we kicked off in the middle of this year where we are looking to transform our whole user interface, you know, behind the log-in for members so that we can upgrade it, make it much more mobile friendly and still there’s been kind of project little by little moving in that direction this year. The bulk of those things will really start to pick up next year as we continue on digital transformation.

Peter: Okay, that makes sense. So then, I want to talk about partnering with fintechs. I know that PenFed is, obviously, a pretty sizeable organization, how are you partnering with fintechs today and maybe can you give us an example or two, that would be really helpful.

Thea: Oh, yeah. So, we’ve got a whole bunch of different kinds of things we’re doing with fintechs. One thing that we’re doing is like in the personal loan space, also in the student loans refi space, we work with fintechs who are, you know, effectively marketing their specific product in the marketplace and then they function as a kind of….providing us leads…to our website so that’s one relationship. We have a whole bunch of other relationships that are more backend-oriented, for example, we’re trying to create a smoother process for our members and for new members to join PenFed and apply for our products.

As you know, there are lots of processes that banks have to go through to verify identity. If you’re applying for a lending product, maybe you…particularly, if it’s a refinancing, we need to gather information about the loans that you currently have so that we know what your pay-off balances are and so there’s a number of fintechs in that space who have solutions on identity verification or helping us connect to the members’ institutions to get that financial information we need.

We’re working with fintechs…there’s new rules that are recently put in place by NACHA, the National Association of Clearing House for electronic payments, where you have to verify a user’s third party account before you could take money out of that account. We’re working with a fintech right now so that we can enable our members to instantly verify those accounts as opposed to….traditionally, what we’ve done is use kind of a micro service approach. We’ve got a lot of different opportunities and we’re always looking for fintechs who have solutions that are state-of-the-art so that we can implement them as opposed to building our own technology/

Peter: So, what is your approach then, I mean, what’s the philosophy around building your own versus taking on technology and partner with a fintech?

Thea: Well, to be honest, we’re actually working at transforming…..you know, I talked a lot about our digital interfaces, but part of that is also transforming the way our entire tech set is set up so that it can be much more API-enabled. So, we have an all-course system, I think we’re…..no plans to talk that out, but building kind of that middle layer between our forces and fintech solutions is a big part of our transformation and what we’re working on is to be in a place where we can easily connect with fintech technology so that we don’t have to build it ourselves.

You know, PenFed is the second largest federal credit union in the country, but that’s still …so while we’re very large, we’re a credit union and when you compare us to say the top ten banks, we’re relatively small. We don’t have the technology resources and teams to build these solutions, we are very eager to partner with fintechs that are working on solutions to help us better serve our members and really see that as an opportunity that we want to continue to grow and foster.

Peter: Okay, okay, that’s really interesting. So then, can we just talk about the student loan refi business for a second because that’s been in the news a lot lately as far as student loans with people being allowed to postpone payments. How is that loan book going, I mean, firstly, maybe I’d love to hear about your experience with some of your borrowers who are struggling, what are you doing as far as forbearance there and how has that product performed for you guys this year?

Thea: So, the business is 100% focused on refinancing our members’ student loans, not originating student loans while people are in school. So, we have….it’s a relatively smaller asset class for PenFed, but we have provided those borrowers essentially the same support we are providing all of our borrowers which is an opportunity, if they are struggling financially, to ask for a skip pay on their product and continue to ask for skip pay multiple times, if needed, if they are struggling.

In general, I would say, because PenFed has been largely a fairly conservative organization when it comes to lending, we have weathered the storm pretty well on that front when you think about our whole portfolio and, you know, again, because we’re really very focused on members” service, it’s a really core value of ours to work with our borrowers particularly during something like the pandemic who are struggling, to see if we can see them through this difficult period of time and then they can start repaying their loan once they’re back up on their feet.

Peter: Right, that makes sense, that makes sense. So then, one thing I’ve always been curious about is we’ve seen this…we’ve had many people on the show this year and in the various sessions we’ve had at LendIt talking about fraud and there’s been an increase in fraud attempts this year as the fraudsters try to take advantage of everyone being online as well.  I’m just wondering if credit unions are a little bit different to a regular bank because you’re really a membership organization, but has there been an increase in fraud attempts this year at PenFed?

Thea: You know, I think we have seen an increase in fraud attempts across the institution like the rest of the industry have. One of the things that I think all of us are feeling good about is over the last three years, three to four years, as we’ve moved the organization and evolved our technology, we did add a number of solutions, third party solutions, to help us manage those fraud attempts and be far more sophisticated about detecting them so I think that we’re feeling very good about the fact that we have put in some of those solutions prior to this pandemic.

I do think the whole industry has seen an increase in fraud attempts and I think it’s one of the challenges that all financial institutions face. What we found is we put a series of solutions in place and the fraudsters are always kind of one step ahead. Once they realize their regular pattern can be detected, they’re working hard to come up with new ways to, you know, perpetrate, infiltrate our system one way or another, But, I think the good fortune is while we’ve seen an increase in attempts, we’ve been effective at detecting those and have minimized the impact to our members and to PenFed as an institution.

Peter: Right, right. And then, would you say…when you look at sort of the credit union space, in general, it’s different to the traditional banking space in many ways, but what do you feel like is the challenge for the credit union space because, obviously, you’re a bit different because you’re the second largest credit union, federal credit union, so a lot of credit unions are small, what do you feel like is the biggest challenge for the credit union space right now?

Thea: Well, I think one challenge in the whole space is there are a lot of much smaller credit unions that were very branch-centric and didn’t have the technology that they really need to support their members in a more remote way. So, I think there has been a number of smaller credit unions that have been challenged by that as their members are visiting branches less frequently.

We ourselves, depending on the location is, you know, all our branches are open, but some have reduced hours, many are pushing as many services as possible to kind of put through the drive-through, again, to make sure everybody stays safe. So, I think that’s really been a big  challenge for the smaller credit unions and then I think one of their challenges going forward is going to be, you know, keeping up with consumer expectations, keeping up with their members’ expectations on the kind of digital experiences, our members are continually setting a higher bar for us and I’m sure that’s happening across the credit union space.

Peter: Yeah. I think that’s one of the stories that hasn’t really been talked about enough this year is the consumer expectations. You know, it feels like to me that they’ve changed….I think people very much want a digital experience and obviously PenFed has been able to provide that even before the pandemic, but it seems like now that there’s mobile that is really becoming bigger and you’ve got a broader cross section.

I know friends of mine who are explaining to their parents how to deposit a check with a mobile phone and you’ve got a whole new segment of the population suddenly has digital expectations as well. I mean, when you’re designing digital products, what sort of population are you trying to focus on or how do you….I guess my real question is this, there’s new people that have come on to digital this year, what are you doing specifically for those kinds of people?

Thea: Yeah, no, absolutely. I think all demographics has become more digital this year when it comes to their financial services and banking, in particular, and we ourselves are seeing higher usage of our digital platforms from our membership as I’m sure other institutions are as well. So, I think there’s a couple of things, as people get more comfortable using…you know, we’ve always had mobile deposits, we’ve had it for a very long time, we have the basics that consumers are looking for, but there are new experiences out there that members are also looking for or going to start looking for.

So we try to focus on what are those going to be and which ones do we think our members will be most interested in and how we do we set ourselves up fast so that we could support those experiences as they come about. So, a lot of what I do and my peers and my team does is try to become a more sophisticated and educated about the tools out there that are evolving, what’s happening in the tech space around financial services so that we can do the groundwork that we need to do and be ready to implement those services when our members are starting to ask for them.

Peter: Right, right, that makes sense. So then, how do you go about educating yourself because, I imagine….obviously, there’s a huge…..I mean, everything to know about what’s going on today is virtually impossible and there’s just so much happening. I see it and try to keep up as much as I can, but it’s a fire hose of new things that are being released and developed today, how do you try and stay up-to-date with what’s needed, what could be useful for PenFed?

Thea: Well, you know, I think of myself, my team, my peers, we try to have a lot of different accounts at different places to see what our competitors are introducing to their users, that’s one way a, of course, there’s….we used to go to conferences where….and there’s many excellent conferences in financial services where there’s many, many fintechs as well as other innovative companies coming to the table talking about new services and capabilities they have.

We already have relationships with a number of third party providers, particularly on the technology front, they’re always talking to us about what they’re looking to introduce and then, of course, there’s a lot, as you’re well aware, there’s a lot of press out there that are covering the innovation in the space and we really work hard to stay on top of that as well. And I think we try to be pretty proactive about reaching out to organizations that are building new technology, whether it’s fintech firms or more established technology providers in the financial services space.

We try to take the initiative and be proactive about learning about their solutions and then talking internally with our own technology team to talk about, you know, what are the challenges, what the hurdles might be if we wanted to implement some of those solutions.

Peter: Right, right. How much do you pay attention to the digital challenger banks that are out there, Chime and SoFi and MoneyLion, Dave, those sort of companies, how much do you …really looking at them as kind of inspiration?

Thea: You know, I think quite a bit, to be honest. You know, SoFi, as you’re well aware, is a very, very significant participant in the student lending space so we do spend a lot of time trying to understand what they’re doing and the innovation they bring to the table. Chime is an innovator in the banking space and has really made a number of activities when it comes to opening an account and getting started with your account, really simple and easy for users.

We do look at those players in the space and see what they are doing and see what we can leverage and apply to PenFed to make PenFed…..you know, we want PenFed to be a great institution for our members, we want it to be user-friendly, we want our members to be able to access state of the art technology so we consider that a big part of what we do.

Peter: Right, right, okay, okay. So, we’re running out of time, but a couple of things I want to get to before we close. We haven’t talked about payments at all yet and I’d love to kind of get your perspective on what’s new, what are you doing there that is new and interesting.

Thea: Yeah. So, what we’re doing now is we’re doing a deep dive into sort of P2P trying to understand the market there, whether bringing our members a solution like Zelle makes sense for PenFed, what roles some of the other P2P solutions like Venmo is playing and how active our members are in a new single kind of solution so we’re spending a good deal of time. I don’t have an answer yet what our strategy is going to be for, you know, person-to-person payments.

We’re also trying to understand the landscape of the future so that we can make sure PenFed is really well positioned for our members in the future. The Clearing House has come out with the RTP payment infrastructure, the Fed is in the process of developing a real-time payment infrastructure as well that they anticipate will come out in the next two years.

What we’re trying to understand is what will it take for PenFed to be able to support those new technologies so that our members can be supported by them and so we’re spending a lot of time learning about them and understanding how they’re evolving and getting a sense of when they’ll start impacting the broader retail consumer population.

Peter: Right, right, okay. So, last question then. Again, this is the first episode for 2021 so I want to ask you what are your goals for this year, what are you focused on?

Thea: Well, okay, I would say number one, one goal on the payment space is setting our strategy in person-to-person payments and how we want to approach that and beginning to execute on our chosen strategy, Number two is really pushing hard for this initiative that we have to re-platform a lot of our self-service activities into a new technology platform that will be a lot more user-friendly. You know, as a product owner, we spend a huge amount of time working with our technology team and partners helping to decide what that user experience should be so that it really meets our members’ expectations.

And then, I think the third area that’s become a big priority for us is we actually are looking to invest in our value propositions in the checking space. We want to introduce at least one, if not more than one, new value proposition in checking that we think will be more attractive to our membership base and really be able to provide that checking service to our members and expand the number of members we have with checking products at PenFed.

Peter: Right, right, okay. Well, that sounds like an admirable slate of products, slate of achievements for 2021 so I wish you all the best, Thea. Thank you very much for coming on the show.

Thea: Oh, well, thank you for having me, Peter, appreciate it,

Peter: Okay, see you.

You know, it’s really interesting to hear Thea about their approach to partnering with fintechs and how they’re really open to doing that and really looking for fintechs who provide really the best-in-breed technology and user experience. I think, sometimes, credit unions….you don’t hear them as much of a focus for many of these Banking-as-a-Service/Lending-as-a-Service type companies.

I was just looking on their website and PenFed has $25 Billion in assets and that is a very sizable organization and to have someone like that actively courting the fintech community is I think a call-to-action for many of us here. We should be putting, I think, a little bit more effort into really working more with credit unions than we do. I know there are fintech companies that are specifically working with credit unions, but I think there could be a lot more effort put in here.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27th to 29th with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’d ever attended. LendIt is setting the bar even higher in 2021 so join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: credit unions, digital banking, PenFed

Views: 133

LendUp Launching Ahead, a New Digital Banking Brand

Ahead Financials will be launching soon providing digital banking services to the underbanked

December 1, 2020 By Peter Renton 1 Comment

Views: 690

LendUp has long been a champion of the non-prime consumer, what is known as the emerging middle class. They have offered small dollar loans since their founding in 2012 and they started a credit card business for this segment that was spun out a couple of years ago.

But like many other fintechs they want to provide more for their customers. And the reality is, for their target market, there are few fintechs offering a full suite of services.

Today, LendUp announced a new initiative called Ahead Financials. This will be a complete digital banking and financial health platform for their core market, the emerging middle class.

I caught up with CEO Anu Shultes last week to discuss Ahead Financials and what they are trying to accomplish. She said their customer base has a bank account but pays too much in fees, making them unable to deal with a $200 emergency expense. So, Ahead’s digital banking offering will have no fees along with $100 overdraft protection, fee free ATM access and early access to paychecks.

Anu was quick to point out that this is just an initial product set, they will be building out a full set of features tailored to their target market after they launch. Speaking of which, they intend to launch in a limited way before the end of the year and then a full launch in Q1 next year.

One of the differences between Ahead and other digital banking offerings is the focus on financial health and financial literacy. Their customers will have access to a Ahead Financial Personal Trainer as well as a gamified approach to building credit scores. They say the key is to make it part of the customer experience, so people don’t know they are learning.

There will be no separate team for Ahead, at least initially. Everything will be run by LendUp executives with Anu calling the shots as CEO. As to why they decided to go with a separate brand rather than use LendUp, Anu said that they wanted to maintain LendUp with a focus on lending.

With nearly one million customers LendUp has a large customer base for Ahead digital bank accounts. Eventually, they want to move beyond their customer base and, in fact, to even move beyond underbanked consumers into the broader market. Everyone wants to get ahead so their brand has potential to move into the mainstream.

Ahead will be partnering with Sutton Bank and Visa to deliver their digital banking services.

My Take

Ahead will be entering into a competitive market. While LendUp’s core customer base is the underbanked there will be some overlap with other digital banking offerings. But this is probably the largest market segment of all so there will be room for multiple winners here.

I am most interested in what they are doing with financial literacy. This is what is most needed and, if you can gamify a financial literacy offering so people learn without have to sit down and watch a video, that could be game changing.

There is so much work to be done here so I applaud LendUp for making this a central part of the introduction of the Ahead Financials brand. Because in the end we want and need people to make choices that help their long-term financial health. In the meantime, getting rid of all the fees that banks charge will make a real difference.

Filed Under: Fintech Tagged With: Ahead Financials, digital banking, financial health, LendUp

Views: 690

Podcast 271: Immad Akhund of Mercury

The CEO and Founder of Mercury talks about what is wrong with business banking today and how his company is creating a new banking experience for entrepreneurs

October 30, 2020 By Peter Renton Leave a Comment

Views: 169

There has been a great deal of innovation in digital banking for consumers with dozens of fintech companies providing digital bank (or bank-like) accounts that are so much better than what was available five or ten years ago. But the same cannot be said for small business bank accounts where there are very few offerings.

Our next guest on the Lend Academy Podcast recognized this problem several years ago and is addressing it head on. Immad Akhund is the CEO and founder of Mercury, a bank that has been created to serve startup businesses. The Mercury app has a user experience reminiscent of some of the best consumer banking apps but it is a full service bank account built on modern rails for startups.

In this podcast you will learn:

  • Where the idea for Mercury came from.
  • How he describes Mercury when talking to startups.
  • The set of banking functions that they offer today.
  • Immad’s thoughts on the recent moves by Intuit and Kabbage.
  • Who he views as their major competitor.
  • Details of their bank partnership with Evolve Bank & Trust.
  • Their approach to user experience and design.
  • How they are getting the word out about Mercury.
  • The challenges Immad is seeing from his startup customers.
  • The idea behind their Mercury Raise initiative.
  • How Immad thinks about offering a lending product.
  • The scale they are at today.
  • How he thinks about their product road map for next year.
  • The vision for Mercury.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

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PODCAST TRANSCRIPTION SESSION NO. 271-IMMAD AKHUND

Welcome to the Lend Academy Podcast, Episode No. 271. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

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Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome Immad Akhund, he is the CEO and Founder of Mercury. Now, Mercury is a super interesting company, they are basically a bank built for startups. You know, Immad saw this from personal experience that…..whereas the banking industry has made considerable strides on the consumer front, there is a lot of neo banks out there that got really great user experiences, compelling offerings, but the same hasn’t happened on the business side, particularly when it comes to startups.

There’s really not many digital first offerings when it comes to banking so Mercury, you know, is building that and we get into that in some depth. We talk about the banking landscape, the new offerings from Kabbage and Intuit and obviously you have Silicon Valley Bank in here that are also doing things, we talk about why Mercury is different. We also talk about a new initiative with Mercury Raise and what it’s doing there and then where he sees…..what is the vision for Mercury going forward. It was a fascinating interview, hope you enjoy the show.

Welcome to the podcast, Immad!

Immad Akhund: Yeah, thanks for having me.

Peter: My pleasure. So, I’d like to get this thing started by giving the listeners a little bit of background about yourself. I know you’ve had an interesting career, this is not your first rodeo, so why don’t you give the listeners some highlights before you started Mercury.

Immad: Sure. I’ve been doing startups, starting startups since 2006 so Mercury is actually my fourth company. The first one was in London, I grew up in London, then I moved to San Francisco to the YC Company back in 2007, that went okay, we did have an acquisition and then I did my third company which I spent most of my time from end of 2008 to 2016 when we sold it. It was a development tool around app tech and as for the idea for Mercury, I had….about 2013, when I was going halfway through that startup and I was just kind of very frustrated with the banking options we had as a startup and it just turned out like no one did it (laughs) from 2013 to when I started in 2017 which is good.

Peter: Right, right. So then, what was the it specifically that you were, you know, trying to solve there where you said that, obviously, large banks, actually most banks don’t really cater to startups, they cater to businesses, but what was it specifically that you were looking for?

Immad: Yeah. I mean, throughout that journey, from 2006 onwards, there was this whole kind of concept of consumerization of enterprise, right. Like in 2006, everything kind of stopped, right, like all the enterprise software were really……you know,1995, you couldn’t use that, it was all desktop apps, it was just a very frustrating experience and then over time, you know, payroll improved through Gusto and all of these providers. You know, communications improved like….Slack came out, I could see all of these things improving in my day-to-day entrepreneurial life, but the bank was basically exactly the same. Maybe they’ve launched their mobile app that kind of worked, but apart from that, there had been no innovation and it didn’t seem to be improving while at the same time on the consumer side, banking was improving.

I’m from the UK so, you know, I could see that Monzo was kind of burning up and on the business side that was Tide and Quanto so I could ….yeah, I felt like this way it was coming, kind of challenger banks or neo banks where all of these experiences around banking would also be kind of at the same level as experiences with everything else in running a business. The crazy thing to me was financing was just so important to a business, right, like that’s how you look and buy like looking at your revenue and your cost everyday almost. It’s just a major stress point and you’ve got this bank software where you could just like…really hate logging in, you can’t get any insight out of it.

We wanted to automate banks with our….we were basically at the end of the marketplace where we were paying our developers, 600 developers, we wanted to automate some of that and we ended up just literally spending three days at the end of the month like manually typing the numbers into the bank interface. Yeah, that was the only way to kind of do it then. So, those were some of my frustrations and, you know, no one else was improving it and so I thought I’d do it.

Peter: Right, right. Well, it’s not that simple an undertaking to start a bank, it’s a little bit more complex strictly from the regulatory side. I’d love to sort of get your sort of…..to take a step back and say…. when you are talking to startups today, how do you describe Mercury?

Immad: Yeah, good question. So, partly depends what stage it is, I think if you’re right at the start incorporating your company, you want to get a bank account going…..you know, no startup entrepreneur wants to go walk into a branch, sit there for three hours to set up a bank account, they want to get it from a computer that’s what they’re used to, you know, waiting on line takes time. We try to make it kind of seamless and easy as possible.

At the end of it, you get a bank account that’s kind of suitable for your startup, right, like if you’re a funded startup and you have $2 Million and you want to be able to pay out like $300K to an engineering team in Germany or wherever it is, we enable all of those things from day one. You don’t have to go back to the branch and say hey, why don’t I have…why wasn’t it enabled… and all those kinds of stuff so, you know, by being like made for funded startups and all startups, you know, especially funded startups, we make all of those kind of things seamless and easy.

And then for…here, established companies that want to consider switching, the sell is much more….have a really easy way to send money, takes like a few minutes, it’s seamless, you can search your transactions very easily, we give you virtual cards, we have an API…..you know, all of these things are kind of like this additive, improved experience where instead of thinking that oh, I have to do my bank thing, you know, I’m going to get locked out of my account, it’s going to be so painful, I have to call them up, all of this…these kind of things that go through the back of every entrepreneur’s mind when dealing with their bank. We just want it to be super seamless and easy to do.

Peter: Right, right. So, the core functions that you have….I mean, do you feel like your feature set is relatively complete or you’re going to be continuing to….obviously, I’m sure, you have a product pipeline, but I’m just thinking about…there are certain basics that every small business needs, I mean, do you see the basic feature set…are you missing anything now or you feel like it’s pretty complete for someone to get going?

Immad: Yeah. I mean there’s like core banking and that feature set is very complete we do. Yeah, you can send a check, you can ACH, you can send wires, you can send international wires, obviously, it’s a real bank account with a routing number so money goes through it. But, you know, I think the future of banks is not like there’s a bank account, with an account number, a routing number and you’re done; I think it’s building these kind of additional financial and business tools that really help you run your business in the long term. I think from that part we’re like 5% (cross talking) help entrepreneurs and we….building a bank, one of the tricky things, you have to build all of the features first then you can start innovating (Peter laughs) and we have like a pretty high standard for what we would consider shipping.

Yeah, even after we launched, I mean, April 2019, I don’t think we were 100% done with the features and those core features and we’ve kind of improved them a lot since. In terms of missing things, yeah, there’s a couple of things, I think like mainly cash and checks. If you’re dealing with a lot of cash then you need to go to a bank branch to deposit it, I don’t think…..like we’re really focused on kind of digital first businesses, that’s the term for it, like people that do all of their business online. You know it’s all bits, it’s a little harder if you’re dealing with cash and all, but those types of businesses, I don’t think Mercury is like 100% appropriate for.

Peter: Right, right, right, understood. So, it’s interesting there, you’re talking about using the bank account as a way to kind of provide more intelligence to an entrepreneur because there’s been some movements just recently this year in that area.

Obviously, we’ve got Kabbage who announced a bank account, we’ve got Intuit that announced at a similar time period earlier this year, I’m curious how you view those kinds of moves because these are obviously companies, particularly with Intuit, that have a lot of intelligence already on small business and probably many of your customers are also using QuickBooks to run the accounting side of their business, so what do you make of those moves?

Immad: Yes, I think the places we target and the startups, you know, you kind of want a bank that really like understands what you do and gives you all of these. It’s not just has the features like it’s a bank account with a debit card, you kind of want to be able to give customer service in a really like seamless way where if someone calls you and you know it’s a funded startup and they want to receive $5 Million from like a Series A investor, you don’t want to be like not understanding what they’re talking about which is what happens if you deal with a kind of non-startup bank, So, Intuit, especially, is like much more like a more broad SMB play.

Peter: Right.

Immad: And I think like the long tail of SMB, they can do a reasonable job, they already have the customer and they can give the basic bank accounts. I think where we’re going which is, you know, yes, we serve like smaller companies and as these companies scale we want to be with them. We want the smaller companies to feel like they, whenever you’re ready to scale Mercury is the bank for them. So, over time, we’ve built a bunch of features that are…yeah, if you are two-person company can also be useful like we have kind of a fairly rich user permission management and card management, APIs and all of these things so we want to….and we’re going to continue having those features that kind of scale with companies so that’s one aspect.

I think the other thing that’s kind of interesting about banking and like most fintechs, is a lot of the kind of nuances in customer service and compliance and board infrastructure, you really have to kind of understand your customers and be able to service them as quickly as they expect. And also, yeah, if you don’t have like a compliance or fraud infrastructure, it tends to happen that the compliance and fraud infrastructure kind of suits the lowest common denominator, right, whereas if you have a targeted kind of vertical industry you can really understand what the needs are for the startups and service them accordingly.

So, some examples of that is…I talked about limits earlier, we also deal with a few crypto startups who may have some specific needs that banks don’t want to work with normally. So, it’s a bunch of these things where, you know, because we understand our market, we cater to it and we continue building features for them.

Peter: Right, right. So, obviously you’ve got Silicon Valley Bank that has kind of the venture-backed businesses, you know, they have a pretty good market share, I believe, in that. Are you really going after their customers like trying to get them earlier or do you feel like they’ve been working in your space or not?

Immad: They’re, by far, the primary competitor, let’s say 50% of US startups probably choose SVB, you know, so those are the ones we’re going for. We do go, you know, earlier in the life cycle of a startup like we want to be there from day zero whereas I think SBV probably prefers like later stage companies to some extent. This kind of infrastructure makes it easier for them, but, you know, banking is very sticky getting there too early and kind of sticking with the customer and helping them in order to scale is I think a very good way to kind of……

Peter: I mean, no one really switches their bank unless they’ve got a real reason to be….because they’re dissatisfied. You know, once you get them, they’re not going to leave if they’re satisfied, it’s painful to switch. (laughs)

Immad: Painful and, you know, if we’re serving them directly there’s no reason to leave.

Peter: So, just on the regulatory side, you obviously don’t have a banking license. How are you delivering the actual bank accounts? I presume you’re partnering with an FDIC-insured bank, correct?

Immad: Yes, so we’ve partnered with a US bank called Evolve Bank & Trust, one of the main kind of fintech bank partners that we use nowadays and that’s something that’s a real enabler for kind of fintechs going after depository banking. Even in 2017, there was many less kind of bank options that were available to startups. Now, every like six months I’d say there’s one or two like extra banks that we partner with which is really cool, it’s enabling a lot of innovation.

Peter:  Right, right, yeah. Speaking of innovation, you know, when you look at your user experience I feel like …we’ve had this movement over the last several years for user experience on the phone on the consumer side has really gotten, I would say, very good, there’s gradations of good, but on the small business side it feels like user experience is not something that has been focused on. I look at your app and I’m looking at the way you have designed your website, it feels like a consumer offering, as far as user experience goes so tell us what’s your approach to user experience?

Immad: I mean, it starts mostly by having just like great design, we’re very thoughtful about it and, you know, we place our experience at the forefront of like what we do. It is a bank, obviously, but we want to deliver a great experience and, you know, I think having a culture of like really caring about that, iterating it, improving it over time. That’s kind of I think the core of it. There’s kind of two types of like, you know, on a high level, there’s kind of two types of startups and that happens even more so in fintech. You can have like one kind of core idea and that’s kind of the thing that a startup blossoms from, right, like if you take Robinhood it’s kind of free trading and that’s what the startup blossom is.

But then, there’s this other type of startup which is like, you know, active and current experience kind of sucks, I mean, we can improve it in lots of way which gives you a 10x improvement which is more like Zoom or….. there are other ways to communicate, but they were never great. But, Mercury in the second set of startup…the core thing we do is deliver this great experience that’s has to be end-to-end, seamless and, you know, really upgrade these things.

That’s the core of it, I think the original team, me and Jason, Max, my Co-Founders, we’re just also like, generally speaking, uncompromising when it comes to having to deal with bad experiences and wishing to optimize and improve these things. You know, Mercury is the biggest user of Mercury, by far, so all of our employees are in there, we are also probably the most user of Mercury accounts. So, yeah, we’re using all of the time so these things are frustrating us, they’re frustrating other customers so we can improve them over time.

Peter: Right, right, you eat your own cooking, that is good to see. So, one question, like you say you’re trying to get businesses at day zero, how do you reach those businesses? What are you doing to get the word out about Mercury?

Immad: Yeah, I think it can sound a little lame when people say this, really people just really love Mercury so (inaudible) everyone. I think that is like the core of kind of how we grow. It is tricky to get the business at the exact right point, but they’re thinking about a new bank, right, either they’re incorporating or maybe at some point later they think about like I want to switch banks.

So, it’s not, you know, some other business SaaS as things you can buy, you can try to win the customer at one point so, for us, you know, having those customers are real. I believe in making them not just slightly happy, but really happy and wanting them to the point where they want to share Mercury with their friends and other entrepreneurs. You know, entrepreneurs always have other entrepreneur friends who find it hard to kind of do this by themselves so that’s the core of it.

We also partner with incorporation tools, that’s kind of the second and if there was like one big channel for us, that’s one of the bigger channels that we work with like StripeAtlas, JumpStart, Cafe, there’s a bunch of these and new companies coming up that help people set up their business, sometimes kind of manage it later on as well and we tend to kind of be a really good bank partner for them because, you know, once again, you just set up your business online, from the incorporator’s perspective they don’t want to say to them hey, go to a bank branch instead of this (Peter laughs) like they already have customers they can deliver that experience from Mercury.

Peter: Yeah, right, right, fair enough, okay. So then, I’m curious like this has obviously been a unique year for everybody and certainly for startups. I’m seeing…. from people I’m talking to, there’s a lot more people starting businesses, but there’s also those that are just getting going, that are having challenges, maybe you could just spend a minute or two when…looking at your customer base, what are the biggest challenges that you’re seeing with startups this year?

Immad: Yeah. I think April, May and June were hard in startup-land, you know, there was some financing happening, but it was very like mostly internal investors investing in their portfolio. I think companies were not going to finance, there was a lot of uncertainty and then the market kind of bifurcated at that point between those things that….often things that touched at things like travel, also things like hiring, recruitment kind of really massively slowed down so those startups were really hurt.

But, on the other side like the startups that were kind of, you know, collaboration-focused, efficiency-focused, save money-focused….if you think about a lot of things that the startups are trying to do, they’ve actually aligned pretty well this pandemic, particularly. They were moving offline things online. It turned out that ……actually, the startup world kind of said, okay, at the end of it, it’s good for us as well since we kind of….other macro startup world does, it’s like impacts Mercury quite a bit.

That was one side of it, I mean, we do have also quite a few e-commerce companies that use us and that was kind of interesting to watch because in February, China was not like shipping things out because the factories have shut down and there was this major kind of supply issues, but even since then, especially in April, there’s been explosion in e-commerce and that’s kind of been sustained. We’ve seen that in our numbers, in terms of both people starting e-commerce companies also like existing companies we had.

Peter: Right, right. So then, are you seeing like for the brand new startups, have you seen an acceleration this year that was, you know, more than expected?

Immad: We were already like pretty strong growth trajectory, we are only a year and a half in, it’s hard to overlay our growth trajectory was on the underlying market. In the last three months, I would say mostly business as usual again, there’s more difficulty…..I think that sector that may have been hit the worse was people who don’t have too many connections to the Valley like to investors here. I think, you know, if you’re kind of completely out of the network, it’s a little hard to network your way in, there’s no interest in person meetings, there’s no networking events.

Peter: Right.

Immad: You know, a lot of these things that used to facilitate sometimes these initial introductions are gone so that’s probably the sector that’s like….the type of entrepreneur that’s been like most affected. But, on the other side, the surprising thing is like we’ve even seen an emergence in like more emerging kind of seed and pre-seed investors. Rolling funds are just kind of a….normal funds kind of acting so that slightly helped a little bit because there’s more options available to these early stage entrepreneurs.

Peter: Right. And speaking of which you just recently launched, I think it was just early this month, a new initiative called Mercury Raise which I thought was super interesting. Why don’t you tell us about that, what was behind the launch of this new product?

Immad: Yeah. So, the idea with Raise is we had a bunch of startups that started incorporation, they were with us from the start and one of the biggest requests they asked was since Mercury is highly networked and with an investor base like hey, can you introduce us to investors kind of thing. We do it like every now and then, but obviously we wanted to help in a broader way so we decided to launch Mercury Raise.

The idea isyou as an entrepreneur, when you’re ready to raise a seed round, you let us know, it’s a relatively simple form to fill in and then we collect it together basically ….you know, all the good kind of seed investors we can think of and once we launched it we had a bunch of other seed investors that kind of applied and wanted to be part of it.

So, we’re planning to run this, I don’t know, maybe once every two months or so, we haven’t figured out the schedule, but we collect together all these great startups, we send it to investors. If the investor wants to talk to one of them, we make an introduction. So, it’s, actually, relatively lightweight, but, you know, we’ve got this network and I think it’s fairly impactful.

So, we just did a round, we had 460 startups, about 70% of them were already Mercury customers, a few people. We also make it available to new people if they want to be part of it and, yes, we sent it all out, we’ve already made more than a hundred introductions to investors, there’s no… kind of looking through it, it was, obviously, a lot of startups for all the investors to look through.

So, we’re going to iterate that program and I’m really excited about it. We decided before we started Mercury, you know, we really want to be ….not just say we are helpful the kind of tangibles things for people, we can say we helped in driving, but I think it is intangible programs that deliver value, that’s what it’s about.

Peter: Right, right. So, it brings me to another question. You know, a lot of these startups once they get going, and obviously Silicon Valley Bank is renowned for this, is they also provide lending capital, is that on your roadmap? I mean, I presume you’re doing that now, but what are your thoughts about providing loans to Mercury customers?

Immad: Yeah. It’s not something we’re doing now, it’s definitely something we’re thinking about and there’s a couple of ways to do it. Right now, there’s more and more kind of options for lending that is like non-traditional, but kind of, yeah, maybe potentially more aligned with Mercury and our customers like it’s more automated, it’s faster, it’s a great kind of thing. I don’t want to name names, but like Clearbanc, a bunch of these kind of lending. You know, either we’ll do it kind of as like a platform or we work with these appropriate companies or we might do some of these things ourselves. So, it’s still early days as we are thinking about it.

Obviously, as we continue growing, it becomes more and more relevant when the companies get to later stages and also we have more companies that ask for these things. It’s definitely on the radar, yeah, we haven’t done anything yet. Some of our customers do get loans from these people and other even banks and, yeah, we help them where we can and allot the time even if we’re not the loan provider though, they’ll continue using us.

Peter: Well, as you say, there is a thriving fintech ecosystem on the lending side for small business. I mean, you mentioned some of the names, but there’s many, many others that I’m sure would love to partner with a company like yours to be the capital provider so I think that’ll be a “win win.” Okay, so then, you said you’ve been in business 18 months, can you give us some sense of the scale that you’re at today?

Immad: Yeah. We don’t release all of these numbers, but, you know, we have more than  10,000 businesses now using Mercury, still growing 10 to 15% a month so obviously that makes it so we have to think and grow our capability in terms of customer service and all of these backend so we are at the same pace and kind of scale with it.

Peter: So then, what about employees? You’re based in San Francisco, right?

Immad: Yeah, you know, nowadays (laughs). We have about 55 employees, I don’t people love this, but we can in the long term or the medium term we’re going to have a hybrid kind of  approach. We’ve three main offices in San Francisco, Portland, which is mostly all of our compliance and risk people and then Toronto where we have a few engineers and most of our support team, but, really I think we have people in 12 states now, altogether we have 55 employees.

Peter: Right, right. And so, you are going to be growing that like nationally, it sounds like. You’re not planning on keeping everyone, hiring engineers in the Bay Area?

Immad: Yeah. I think it depends partly on the role…with engineering, we’re super distributed, there’s very few engineers in San Francisco, with some other roles, for whatever reason, design BD, and a few other things, support as well, yeah, it’s mostly being kind of concentrated in one of these hubs and …I still like the idea of kind of serendipitous kind of collaboration that happens in person.

The other thing that we quite like is we don’t….one thing that people haven’t talked about too much is I really want the engineering team to be talking to the sales team, to be talking to the support team and like have this kind of cross-connections that I think are harder to organize in a distributed world. Yeah, I think if like people understand what everyone’s roles are like if someone gets stuck on something they can just ask someone about it and it doesn’t have to come through like a top down kind of management there.

I think that really makes for a good culture where things are efficient and people enjoy working there. So, I’m thinking about all of these things, you know, I don’t think anyone has great answers to all of them, but we’re open to both and we’re kind of doing both, basically.

Peter: Right, right. I know you touched on this earlier, but I’m curious about, you know, like a product roadmap, without giving away secrets, but where do you think you will be…like looking at 2021, are there certain milestones that you want to make sure that you have these particular features out next year?

Immad: Yeah. So, I mean, loosely speaking, I kind of think about that roadmap in three pieces like number one, what’s the additional financial services we can add on to a bank account. So, for example, we had our virtual cards in March, gave away the…..but, there’s more we’re adding. We should have a new announcement in November like a major kind of financial feature we’re adding.

And then part two is what are the business tools we can add on to top of the bank accounts, you know, we added an API in October and we’re improving it. We have to launch an Android app, I don’t know which kind of tier that falls into, we have an iOS for our in-house so we’re working on that, that’s going to be a pretty big thing for us. We really want to add more analytics we touched on to help you kind of understand your finances through your bank account, things like that, so that’s part two.

Part three is just kind of incrementally improving the things we have and, you know, we have, I think every company does, but we have like this freaking huge things that we want to do with like additional things. Some of them are small, particularly on our transactions, we want to give you more details like you attach invoices to the transaction, that kind of stuff and, yeah, some of them are a little bigger in terms of….we have a user permission system which we will continue enhancing, making it….. especially as people requested, to be just like, hey….. with ease of permission, people request like almost any feature you can think of, but I have to like, hey, I want to invite a user, but I only want them to do transactions up to $5,000 or something like that so those type of things and stuff. We have some of them, but we want to continue iterating and building them out.

Peter: So then, last question before I let you go. What’s your vision here, do you think one day that Mercury will have a banking license of itself and you’re going to have a national brand. Everyone knows you’re the small business startup bank. I mean, what is the vision for Mercury?

Immad: I think, yeah, looking at it like ten years out, I think it’s inevitable that kind of the top ten banks are going to be technology companies, whether it’s going to be existing banks learning and adapting to technology or completely new players like us kind of being there, so that’s inevitable. I think when that happens….you know, so far a lot of banks that existed is like, you know, regional banks, if that makes sense and the bank in Texas, whatever it is, I think the future is like these banks are going to be kind of verticalized players, it’s going to be people like Mercury that’s…..all of the US not just a particular industry within the US.

So, that’s the future and we want to be in this kind of …..on the business side, at least, we want to be the top kind of bank that serves all of these additional businesses which, again, I think the future is most businesses are going to be like digital first, if that makes sense. I mean, something like restaurants moving to POS systems and all these things digitized. So, yeah, we want to be there, not just be like there with basic bank services. I kind of re-imagine it to be some products, but focused technology companies that are doing those, what are all the things you can build to make this kind of experience around your finances is really great, really empowering the entrepreneur.

Peter: Right, right. Well, well, good luck, it sounds like it’s going to be….there’ll be better experiences from entrepreneurs going forward so that’s a real positive. Anyway, Immad, I really appreciate your coming on the show today.

Immad: Yeah, thanks for having me, Peter.

Peter: Okay, my pleasure, see you.

You know, talking with Immad, it kind of many times, during our conversation, quickly towards the end there in my mind, I was reminded of the podcast I did with Karen Mills back in 2019, Episode 190, we were actually doing a review of her book that she had written. Karen Mills was the former Head of the US Small Business Administration under President Obama and she writes in her book about Small Business Utopia and really talking about how fintech is coming along and providing all these things, all the information, all the sort of tools that a small business needs and as I was reconsidering that during Immad’s conversation, I felt like what’s been missing has really been a bank that was really engaged, really sort of thinking about how they can help small business in a digital way and bringing fintech to small business banking.

I feel like that’s what we’ve got here with Mercury, it’s super interesting. I agree with Immad when he says the biggest banks in the world in ten years time are really going to be tech-enables, tech-oriented banks. Obviously, some of the large banks are doing a pretty good job here, but, you know, where I really appreciate what Immad is doing is just re-thinking what a small business bank account means, what it should do, what a small business bank should do and I think that’s what Karen Mills was talking about in Small Business Utopia where I think Immad is building something that really has tremendous potential and is going to be a great asset for the entrepreneur and for small businesses going forward.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, a new online community for financial services innovators. Today’s challenges are extraordinary with upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.

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Filed Under: Lending and Fintech Podcast Tagged With: digital banking, Mercury, small business banking

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On the Cutting Edge of Digital Banking

The Chief Platform Officer of Banco Santander is interviewed by the CEO of DataStax to discuss how large banks can stay on the cutting edge of digital banking

October 6, 2020 By admin Leave a Comment

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[Editor’s note: This is a guest post from Bryan Kirschner, Vice President of Strategy at DataStax.]

Last year, Accenture released a report which revealed that only half of global banks are making strides in digital transformation, and only 12% of banks globally are fully committed to digital transformation.

At that time, Aiaz Kazi was relatively new in his role as Chief Platform Officer at Banco Santander. A tech industry veteran, Kazi joined the bank from Google Cloud, where he headed up Platform Ecosystem, and prior to that from SAP. When the coronavirus pandemic hit, Kazi and his team hadn’t lost a beat as they worked to accelerate the bank’s transformation to a data driven enterprise. DataStax Chairman and CEO Chet Kapoor recently spoke with Kazi to talk about his experience thus far, and Kazi offered these three tips.

  1. Success comes from indirect paths. Kazi is the first to explain that his career didn’t go as planned. He began as a developer in India, taking his first job as a systems analyst for Tata Consulting Services. Ten years into his career, he took a somewhat unexpected turn to product management, and later to product marketing and product strategy. What he found as a marketer was that his frame of reference was constantly changing in response to external conditions. Every day brought on new challenges and a new set of tasks.Moreover, the definition of success wasn’t the same as in engineering – it constantly morphed based on the competitive landscape. Kazi explains, “If you don’t know how to overcome your own hurdles, you can’t be a good role model to help your team, and they can’t get through their hurdles. There’s always going to be different routes to get there. There’s always going to be temporary setbacks and hurdles. When I was younger, I would worry and sweat the small stuff. And I think — over time — I’ve learned to not do that. It comes with experience.”
  2. Don’t wait, do it now. While at SAP, Kazi learned that there are times when you just have to take a leap of faith. He talks about launching Hana, SAP’s high performance in-memory database. Kazi was not certain the product was ready in time for the target launch, and explained how he was “dragged over the line” by then-CTO Vishal Sikka. The result was an early mover advantage for the company that later paid off.Kazi relates that experience to his work at the bank today, where he is working with his team to move from traditional on premises to cloud-native, mobile first AI enabled platforms.To help his team along, Kazi realized he had to change the conversation and from the normal roster of projects to “platform as a business.” Together with his team, he looks at the big picture: what are we building and who are we building it for? What is the revenue that we will make out of it? And more importantly, what is the revenue for the people who are engaged in the platform, the ecosystem? Kazi has found that this mindset can help his team overcome even the biggest hurdles.
  3. It’s only a platform if others can stand on it. Kazi doesn’t like to talk about IT projects, he wants to talk about IT products. Products create a platform, and mean that Kazi sits at a “vantage point where I’m part of a transformation and helping to drive the transformation” as opposed to delivering discrete, disconnected pieces. His first year at Banco Santander was all about getting the platform in place and beginning to see the first wins.Kazi explained that the bank “recently had our global trade services go live in four countries with a large number of customers” and received a tremendously positive response.Hearing the individual customer reactions drove the platform point home for his team and the broader IT organization; it motivated them to keep charging ahead. Kazi instills in his team that “this journey, as long and as tough and arduous sometimes it can be, is immensely rewarding in being able to understand what it takes to transition and transform a company digitally.”

It isn’t about just Banco Santander and what they are delivering, but rather the larger financial services industry and the banking sector as a whole. With a strong Silicon Valley background and a team of financial industry veterans, Kazi is positioning Banco Santander to lead the way into the future.

Filed Under: Fintech Tagged With: DataStax, digital banking, Santander

Views: 183

Digital Banks Hit Bump in the Road, But Pandemic Has Silver Lining

The Covid-19 crisis has put unprecedented pressure on all manner of businesses; yet even against that backdrop, UK digital banks have been particularly hard hit.

September 21, 2020 By admin 1 Comment

Views: 226

[Editor’s note: This is a guest post from Ryan Weeks, formerly with Dow Jones and AltFi, covering fintech. This is part two of a four part series (part one is here) he is writing for us on the UK fintech market in the run-up to LendIt Fintech Europe.]

Lockdowns in the UK and overseas have put a significant dent in their revenues, external investment suddenly looks far harder to come by, and, to top it all off, recent financial results painted an ugly picture of their financial position even before the pandemic.

To recap: in 2019 Starling lost £52m, Revolut lost £107.4m and Monzo lost £113.8m.

Yet optimism remains within the sector, with many hoping for a silver lining in the longer-term impact of the crisis on digitisation.

Take Zopa, for example. The UK’s oldest peer-to-peer lender officially became its newest bank in June, after finally being granted a full banking licence by regulators.

During times of uncertainty, the company tightens its lending criteria to focus only on borrowers with “a very high likelihood of being able to manage the debt and not suffer financial detriment”, and thus expects lower revenues, according to chief executive Jaidev Janardana.

“However, in the longer term we expect the events of 2020 to be an accelerator for Zopa as more customers embrace digital channels and providers,” he added.

This is typical of attitudes within the digital banking sector at present.

The long-term impact of the pandemic, however, is unclear; what is clear is that in the short-term it has wrought havoc on fintech firms.

[Read more…]

Filed Under: Fintech Tagged With: digital banking, Monzo, Revolut, Starling Bank, Zopa

Views: 226

Recent White Papers Covering Lending and Risk During the Crisis

We recently published two white papers to help lenders navigate the current crisis.

September 3, 2020 By Todd Anderson Leave a Comment

Views: 119

Coming out of the crisis will be hard work for lenders of all stripes. We recently featured two white papers that will help act as a guide on how to prepare for the future and ensure your lending operation is on solid footing.

Operational Efficiency in a Growing and Uncertain digital world – sponsored by Urjanet

What is this paper about?

Financial institutions face unprecedented business challenges as a result of the COVID-19 pandemic. It is expected that profit before taxes in the banking industry will drop from 50-100% as a result of misalignment of short-term revenue and expenses resulting from the fallout. According to TransUnion, over 100 million accounts showed signs of financial distress as borrowers deferred debt payments from March to June.

Between an increase in delinquencies, the abrupt shift to digital transactions, and unexpected surges in demand for credit, it is critical for lenders to incorporate data sources beyond traditional credit data.

This paper will explore the process of incorporating and expanding the use of alternative data to promote growth, minimize risk, and improve operational efficiency as banks and lenders recover during and after the COVID-19 pandemic.

Download

A Banking and Lending Guide to Crisis Recovery – sponsored by Salesforce

What is this paper about?

Banks and lenders have had to quickly adapt to changing regulations, work environments, and market conditions during the COVID-19 pandemic. In this white paper, learn how to build resilience, adapt to new regulations, and accelerate your bank’s growth in changing times.

Key Points:

  • Pursue growth by responding strategically to opportunity
  • Adopt an agile decision-making process
  • Reimagine office life
  • Adapt to your customers’ changing needs
  • Create lasting impact through community service

Download

Filed Under: Fintech Tagged With: credit risk, digital banking, lending, Salesforce, Urjanet

Views: 119

Podcast 260: Andy Rachleff of Wealthfront

The CEO and Co-Founder of Weathfront discusses their expansion to a next generation banking service and why he is most excited about implementing his vision for self-driving money

August 14, 2020 By Peter Renton 1 Comment

Views: 452

In fintech today many companies are expanding beyond their core product as they seek to serve their target market with more and better products. What we are seeing is companies embracing all forms of digital banking as they expand their focus.

Our next guest on the Lend Academy Podcast is Andy Rachleff, the CEO and Co-Founder of Wealthfront. Wealthfront began life as a robo-advisor for millennials and in the last year they have added many banking capabilities, so Andy describes the company now as a next generation banking service.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

  • The aha moment that led to the founding of Wealthfront.
  • Their very specific target market.
  • Why they decided to go all-in on their digital bank account offering.
  • How they can support 400,000 customers with just 12 people.
  • The three things that differentiate the Wealthfront checking account called Wealthfront Cash.
  • How they earn money on their digital banking offering.
  • Details of their portfolio line of credit product.
  • The banks they partner with on Wealthfront Cash.
  • How they are starting their Self-Driving Money initiative.
  • Why it’s important to iterate on the market and not so much on the product.
  • Andy’s criticism of the other digital banking players today.
  • Where Wealthfront is on the journey to profitability.
  • How he thinks about the money being thrown at other digital banks.
  • What they are focused on for the next 12 months.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2020. The world’s largest fintech event dedicated to lending and digital banking is going virtual in 2020.

Download a PDF of the transcription of Podcast 260 – Andy Rachleff.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 260-ANDY RACHLEFF

Welcome to the Lend Academy Podcast, Episode No. 260. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show ever. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa

Peter Renton: Today on the show, I am delighted to welcome Andy Rachleff, he is the President & CEO of Wealthfront. Now, he’s also somewhat of a Silicon Valley legend, he co-founded Benchmark Capital, one of the most successful VC firms in the Valley back in mid-90’s, but he has since moved on from there and he co-founded Wealthfront just over a decade ago. I wanted to get him on the show because I feel like they have such an interesting story to tell and the movement from just offering wealth management services to becoming more of a fully-fledged fintech platform with digital banking offerings is interesting and he’s very passionate which you’ll see in this interview.

We talk about their new checking account offering called Wealthfront Cash, we talk also about what his vision means when he says Self-Driving Money, how that’s actually going to work. He doesn’t share everything about it, but he gives us certainly some insight there, we talk about their fascinating credit product for their portfolio line of credit, we talk about the fintech space more generally as far as other digital banks and what the future holds for Wealthfront. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Andy!

Andy Rachleff: Thank you for having me.

Peter: My pleasure. So, you have quite an interesting background and one I know is familiar to many of us in fintech, but why don’t you just get started by just giving some of the highlights of your career to-date.

Andy: Well, I was a career venture capitalist, I spent almost 25 years in the venture business, the last ten of which I co-founded and was a partner at Benchmark Capital. I retired 15 years ago from the venture business with the intent of focusing my time on social good. So, I started teaching at Stanford Graduate School of Business where I’ve been teaching for the past 15 years. I became a Trustee at the University of Pennsylvania.

My wife and I started an innovative cancer research funding initiative and in partnership with a foundation called the Damon Runyon Cancer Research Foundation and as part of my work at Penn, sitting on the Endowment Investment Board which I now Chair, I came up with the idea for Wealthfront so it was quite an accident.

Peter: Okay. So then, just tell us a little bit about that. The story in Wealthfront has been around for some time now, over a decade, I believe or about a decade, so what was the Aha moment or what was the impetus to start Wealthfront?

Andy: Well as I said, it was an accident. I was sitting in a Penn endowment meeting and I think that the premiere university endowments were the best managed pools of capital in the world. Most people don’t know how they invest because they don’t have access to manage or to invest like they are more financial advisors.

When I saw what they did, a lot of it was manual and spreadsheet-based and I thought, God, if you automated this, you could democratize access to it and bring it to the masses and this was something that was….that it hit me because over my years as a venture capitalist many of the people that I have recruited to my portfolio companies who went on to financial success by virtue of their companies being acquired or having gone public would come to me for investment advice. I could never tell them to do what I do because they couldn’t afford the minimums. So, that’s how we got started, it took a little while before we found product market fit and fortunately, we did.

Peter: Okay. So, why don’t you tell us a little bit about that journey because you started off really as a wealth manager, Robo-Advisor and you’ve pivoted or you’ve moved into a broader area. Now I see you talking about digital banking a lot, maybe we’ll talk about that here so, was it always the plan to move into a broader kind of offering or how did you….tell us about that pivot.

Andy: Well, I wouldn’t call that a pivot. To me, a pivot is when you don’t have product market fit and you iterate on the market in order to find… what I would call it an expansion of the vision or an expansion of what we do. Now, we happen to jump all over that change because we seemed to have hit a nerve. So, let me go back for a moment and just give you a little bit of background.

Peter: Okay.

Andy: I would describe Wealthfront as a next generation banking service, it helps young professionals manage their money. We’re specifically focused on millennials who save, people who are 25 to 40 years old, that’s for whom we have built our service. We do this by providing a high interest checking and low-fee investment management service all through a five-star rated mobile app. Now, the vision for the business is to automate all of your finances, we call this Self-Driving Money and so what I mean by that is we intend to make that possible for you to direct deposit your paycheck with us, we’ll pay your bills and then route the remaining money to the most appropriate financial destination, depending on your situation and goals.

So, we started with investing, we thought there was a lot to be done there. As the vision became more and more clear about automating all of your finances, we realized that we needed to have a base account into which you could direct deposit, but we needed to offer bill pay and checking and all sorts of other services on that account. But, to get to market more quickly, we just launched the high interest cash account last year and it took off so quickly that we decided to go all-in on that and focus on that first and use investment management as an add-on service versus banking as the add-on service.

Peter: Okay. Yes, because I noticed when….I travel around the Web and I’ve been on your website a bit in the last week. I see the ads coming up and the ads are all about the bank account, it’s all about……

Andy: Because that hits more of a nerve, people hate their banks. You know, it’s funny, banking is only one of two industries that a negative net promoter score.

Peter: Right.

Andy: The other one is cable. (both laugh) People don’t hate their investment service nearly as much, but what we find is if you join us as a banking client, the odds are you’re going to get, just on your own, use our investment service as well.

Peter: Okay, okay. So, I want to talk about Self-Driving Money in a bit. I want to dig in into something you said the other day which really surprised me and we were talking on our LendIt Fintech Digital community and you said that you had roughly, I think it was 400,000 customers, but just to service those customers, you have, you said, 12, I don’t know what you call them, you didn’t call them customer service people.

Andy: We call them product specialists.

Peter: Product specialists, okay, so you have 12. Now I think any bank out there that have 400,000 customers would have a multiple of 12, certainly would be probably in the hundreds. So, how is it that you can offer…now, let’s face it, a banking product, it has some complexities so, how were you able to offer that sort of service with just 12 people?

Andy: Well, first of all, if we can’t automate a service, we don’t offer it. We think long and hard about what features we’re going to deliver and make sure that we don’t deliver them until it’s fully automated and it’s simple and easy to understand and convenient. So, once you do that, that eliminated a lot of the problems. And then, we’ve taken a very, very different approach to customer support. Rather than hire low cost people in the Philippines, we hire very, very capable people.

As a matter of fact, because we started in investment management, all the people that we hired are licensed as financial advisors. Now, they don’t give financial advice, but they’re very, very capable people; we have chartered financial analysts, we have CPA’s, we have licensed financial advisors. So, these are very capable people and we ask them to spend half of their time focused on providing technical support and the other half trying to figure out what is it about the product that needs improvement in order to avoid getting that phone call again. So, their job is to design themselves out of a job.

Peter: Interesting.

Andy: Now, the nice thing is we never have to fire anyone because we grow so quickly that all we do is we keep adding the number of clients each one serves, but it’s not a burden. As a matter of fact,  we believe we offer rather radically better customer service than anyone else with that really low ratio of reps to clients and we offer radically faster access. So, at the height of Shelter-in-Place, if you called us you would get a rep in ten seconds. Now, I tried calling Wells Fargo Bank to close an account and every time I call, I was given a message that it was going to be three hours.

Peter: Wow! (laughs)

Andy: So, by A-automating and by B-focusing on what created, what was the root cause of the outreach from the client and designing that away, you can offer radically better service and with much more talented and capable people and you need a lot of fewer reps.

Peter: Right, right, that’s super interesting. So then, can you give me an example of something that was a pain point for customers that you sort of automated away or you added some kind of offering to make sure they didn’t call in?

Andy: Well, it happens every single day, but I would say that the most common theme is speed.

Peter: Right.

Andy: Every time we make something faster, we get rid of customer e-mails and phone calls. So, for example, a few years back when you electronically transfer money, the client has the right to pull back that money and say that they made a mistake. Now, as a result, most brokerage firms require a three-day wait or longer before they release the funds because they want to make sure that the client doesn’t transfer the money to you, the money gets invested and they pull it back. That would create a risk.

So, most brokerage firms will not invest that money right away. We relied on it, used to rely on a third-party brokerage firm to act as the broker for our clients. We ended up bringing that in-house and by doing so, we were able to reduce that time from three days to one day. That probably got rid of 30% of our tickets.

Peter: Wow!

Andy: Isn’t that amazing? When you transfer securities, it used to take ten days on average to electronically transfer securities from one account to another, we reduced that to five. Again, the number of tickets went down. So, whenever there’s confusing language in the product making sure that we simplify it even if that means taking away functionality, simplicity usually wins.

Peter: Right, right. So, I want to go back to Wealthfront Cash, your bank account, and the big challenge I always see is there’s obviously many offerings now from fintech companies offering bank accounts obviously in partnership, for the most part, with existing banks, but the big challenge is getting your customer to direct deposit their payroll in there. How have you been able to get your customers to make that switch?

Andy: Well, number one, you have to provide differentiation and we’re by no means done. We shipped our first checking features on top of the high interest cash account on June 29th so that included direct deposit where you can actually get paid two days early. Number two is we allow you to pay your bills and friends from the account so you can use things like Venmo and Cash Up and we give you a debit card so you can immediately withdraw cash from an ATM or spend via the debit feature.

In another couple of weeks, we’ll have mobile check deposits, every few weeks we’ll keep adding more features. We’ll very shortly, thereafter, offer the ability to send checks. So, by the end of the first quarter, we will have a super set of the features of all of the other online checking accounts so, no one will have more features than us. And, I would say the major differentiation, so all the basics…..the major differentiation will be number one, we can pay interest on our checking account.

Other people require you to have a savings account on which you get paid interest, we pay .35% on your checking balance. That required extra development which is why it took a little longer for us to bring out those services. Now, taking a little longer to get paid in your checking account was important for convenience and it also set up our Self-Driving Money functionality which is now in beta and which will start to roll out at the beginning of September.

So, the two things that will differentiate us are number one…actually, three things that will differentiate us will be number one, that we pay interest on your checking balance, others do not; number two, we can automate your finances by routing the money around from that account and get it to where you need it to go immediately where there’s typically latency at the system, in the banking system, that’s how banks make money is on float, and number three, a delightful experience. You know, our mobile app is the highest rated app in the Apple App Store, the highest rated financial app so there is a difference in functionality or usability on all these apps.

Peter: Right, right, for sure. So then, I’m curious….you talk about making money and Wealthfront….obviously with investing, you make a few basis points on assets under management, I guess for the bank account, are you looking at this as a separate business line where you intend it to be profitable or is this more of a like a way to sort of maintain a closeness with your customers?

Andy: Well, we don’t think of these as separate businesses. It’s funny, the number of investors who have talked to us seem to think of it that way. We think of it as a relationship with our clients and we look at the profitability of the relationship overall, we earn money in a number of different ways. We earn a little spread on the interest rate that we pay to our clients so we earn more than .35%, we keep that spread.

If our clients use their debit cards for purchases, we make interchange revenue on that, that’s the way all the other challenger banks make money. We lend money, we have the fastest, simplest and cheapest way to borrow with our portfolio line of credit so we make a net interest margin on that, we earn an advisory fee on our investment services. Over time, you’ll see us offer more and more financial services. In each case, because we only deliver products that we can automate, we have a much lower cost to deliver those services and we always share the savings with our clients.

Peter: Right.

Andy: So, that’s something that….you always get more value from Wealthfront accounts than you will from anyone else.

Peter: I want to talk about this portfolio line of credit because I was looking into it and it’s super interesting because it seems to me you’ve got one of the lowest cost credit products on the market. I mean, I think it was like two and three quarters percent of what……

Andy: 2.6% is the lowest.

Peter: 2.6, yeah 2.6, so that really…..for people who have…obviously, it’s an asset-backed loan because you’ve got the deposits there, so I guess I’m curious about that product. Are people using this for margin lending to increase their investments, so how are they using it?

Andy: They’re using it for short-term cash needs so people pay them off incredibly quickly. So, you can’t use it to leverage your Wealthfront portfolio, we put in place some limits to keep them from doing that. So, it’s most often used for things like I need to make a down payment on something, I need to exercise my stock options, I need to buy a house and I need the cash quickly, but I don’t want to recognize gains in my investment portfolio or I want to pay taxes.

So, we always see a big surge around quarterly estimated tax times and people pay them off, generally, in less than a month so that’s good and bad. It’s really good for our clients that they pay it off, we make a lot less money because they pay it off so quickly.

Peter: Right, right, for sure, okay. What bank are you working with on this, on Wealthfront Cash?

Andy: We work with Green Dot as the enabler of the checking features, but we also broker our deposits to ten different banks that pay the high interest rate. So, we have to work with multiple parties in coordinating the settlement of all that is where the secret sauce is and making it a more capable and enjoyable service.

Peter: Right, right, okay. So, I want to talk about Self-Driving Money because this is something that I’m fascinated about and I believe this decade we’re going to see some really major advances in automation of financial services. So, you’ve touched on it, I guess the question, what’s the barrier, do you think it really is a thrust with the customer, is it technological, what’s the barrier for really wide adoption of, you know, Self-Driving Money right now?

Andy: Well, I think that you have to figure out which market wants it first. You know, this is the challenge of product market fit, something that I have spent a lot of my career focused on, the last 11 years I’ve taught a course at Stanford. I was actually the guy who coined the term.

Peter: Okay. (laughs)

Andy: And so I’ve taught a course on it for 11 years and what most people don’t realize is that you don’t iterate on the product, you iterate on the market so figuring out who wants it first and using that as the beachhead into which you launch into adjacent markets is the challenge. So, part of our intellectual property is figuring out who needs that first and marketing to them and then over time, broadening the market for it. That I’m not willing to share because I don’t want to tell my competitors where they should start, it’s taken us a long time to figure all of these out.

Peter: Fair enough, we’ll be watching carefully, (both laugh) because to me…I mean, I look at it and think it’s just data, it’s just a data play, all the information is out there, but whether it’s investing for a savings account, whether it’s paying down your credit card debt, whether it’s asset allocation, I feel like all the information is out there.

Andy: Hey, it’s a simple matter of software.

Peter: Right.

Andy: Making it all work.

Peter: It is.

Andy: There’s certain people who are more inclined to be early adaptors than others and so what we’ve figured out, what we believe we figured out is who they are and we served them first and then over time, what we find is the more sources and destinations for that money that we can support and the faster that we can make those transfers, the more people will like us, the more they’ll tell their friends and we’ll grow organically.

Peter: So, do you think then, let’s just say by the end of decade, we will have a substantial number of people whose financial lives are automated for the most part and an AI engine in the background is making good decisions for them.

Andy: Well, it doesn’t necessarily have to be AI, you can just automate what you’re already doing. The number of people, I think that’s part of how you solve this, is you don’t have to apply fancy techniques. If I can just automate the mundane tasks you currently go through to move your money around to the most appropriate place…..this is why I’ve said over and over again that we serve millennials who save which we think represents maybe 20% of the 90 million millennials in the United States, we’re not going after all millennials.

For example, I think Chime has done a superb job serving the unbanked and people living paycheck to paycheck. Now, they don’t have multiple accounts, they don’t have this problem so they will find absolutely no value in Self-Driving Money. You can think about having an electronic assistant that takes care of those mundane tasks of moving your money around, but someone who’s saving money typically has an investment account and they have a bank account, they might have a mortgage, they may have some student debt that they need to pay off. So, taking that off of their hands so that somebody is doing that for them, there’s tremendous value on that.

Peter: Right, right, and would also extend to the potential, say that they could refinance, say that student loan, interest rates have gone down, refinance the house, refinance the student loan and those sorts of things will also…….

Andy: Of course. but we wouldn’t just do it, we would ask you.

Peter: Right.

Andy: And so that’s how we build trust. First, you have to show someone what’s possible and then ask them if you would like us to do it for you.

Peter: Right.

Andy: Think of us as an assistant.

Peter: Yeah, got it, okay. So, we’re running out of time….

Andy: But an assistant that can do things that your assistant can’t do (Peter laughs) like moving money immediately.

Peter: Right, right, got it. So then, you mentioned Chime already and obviously there’s a lot of companies in the digital banking space…..

Andy: None of whom are differentiated. What amazes me is they all offer the same thing, they all appear to offer the same thing which is a very thin layer of software on top of an infrastructure provider. They haven’t really done much. That’s why I refer to most fintech companies as “big fin, little tech.”

Peter: Okay. So, you feel like you’re differentiated then really is the technology that you’ve put in place.

Andy: It’s the investment we’ve made in product. Over half of our employees are engineers, that’s not true of any other fintech companies.

Peter: Right, right. So, like how many employees do you have?

Andy: Two hundred and twenty.

Peter: 220,okay. And then, what about…do you share your AUM number that you’ve….the total amount….

Andy: The last time we published it, it was something in the order of $19 Billion.

Peter: Okay, it’s up dramatically than last…..

Andy: Excuse me, it was in the order of $15 Billion.

Peter: Okay, okay. It’s still up dramatically……

Andy: But that doesn’t include the cash deposits and we don’t yet share that.

Peter: Sure, yeah, yeah, okay. So then, where are you on the journey to profitability?

Andy: That’s always a choice. I think we were on a path that we could have gotten there this year and we chose to prioritize growth over profitability. So, I think that that’s probably been pushed out until next year.

Peter: Right, right. And do you feel like….I’m curious about the profitability metric because it seems like we’re in this stage where, you know, you’ve got a background on the VC community where there’s still large amounts of money being thrown around to some of these fast growing digital bank or fintech offerings, do you see that….. putting on your VC hat for a second, do you think that’s a mistake to really focus on growth so much. Some of these companies really have a long, long way it seems like from a pathway to profitability.

Andy: You know, it’s funny, Peter, this is question that comes up every time there is a financial crisis or every time there is a recession. We once did an analysis for a blog post that we wrote a number of years ago to determine what’s the primary driver of the valuation of a company and it was really clear that, by far, the number one driver of the valuation of a growth company is it’s growth rate, actually, the rate of change of it’s growth rate. Is the growth rate increasing, staying steady or decreasing.

Number two was whether or not the margins were increasing and everything else was a distant third. So, as long as companies that have declining growth rates, generally, aren’t worth very much. Now, you have to pair that with a steadily increasing margin.

Peter: Right, okay, because that’s, I think, the knack on many of these digital banks is the margins are not increasing there.

Andy: Well, I think a number of them are just trying to prove whether or not they can get a direct deposit and then they’ll figure it out from there.

Peter: Right, right, okay. So then, looking over the next 12 months, what are you and Wealthfront mostly focused on?

Andy: Well, what we’re focused on is building out the Self-Driving Money functionality. Number one, completing the checking features and, by the way, checking features are a commodity so by the end of the first quarter or so, as I said, we’ll have a super set of whatever everybody else has. There’s not much more that one can do in that regard. What we can do is pay higher and higher interest rates and that’s’……we’re working hard to try to be able to do that.

Think about it, you’re more likely to trust us and leave your money with us if you know we can immediately get it to another financial institution immediately whereas if it’s going to take us three day, which is more the norm, then you’re going to be less likely to move your money over to this new institution. So, there’s a long way we have to go in terms of enhancing our ability to automate your financial life.

Peter: Okay, Andy, we’ll have to leave it there. It’s fascinating, I’ll be following along your progress with great interest. I appreciate you coming on the show today.

Andy: Thank you very much for having me.

Peter: Okay, see you.

You know, Andy and I were chatting after we stopped hitting record there and he was lamenting the fact that so many fintech companies today are not producing new products, not producing enhancement to products in a quick enough fashion. It feels like there isn’t enough emphasis on the technology side of things in fintech. I thought that was an interesting take because I think if you talk to many of the CEOs, they would argue that they focus tremendously on tech so, obviously, that matter’s up for debate.

The way he says it, it should be acceleration of new enhancements coming out on your products on a regular basis and that’s what they’re committed to do at Wealthfront and really, it’s going to be so fascinating to see the traction they get. It’s early days with their checking account, the traction they get with Self-Driving Money, as I said, whether they call it autonomous finance which is what some people call it, Self-Driving Money, this is a decade where it’s going to happen and that is going to be fascinating to see who the first movers here that actually get adoption into this more automated way of managing your finances.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: autonomous finance, digital banking, self driving money, Wealthfront

Views: 452

Awards Re-Launch: Nominations for the 4th Annual LendIt Fintech Industry Awards Open Until August 14th

The annual LendIt Fintech Industry Awards recognizes the leaders in fintech and digital banking.

July 30, 2020 By Todd Anderson Leave a Comment

Views: 117

In its fourth year, the LendIt Fintech Industry Awards highlights the great accomplishments of the people and companies that are driving the fintech industry forward. It is a celebration of the industry, for the industry, by the industry. Please note the awards are for activities that cover all of 2019. Obviously, there will no Awards Dinner this year, unfortunately, but we still intend to honor those companies and people who our judges deem worthy of an award.

We are currently accepting award applications on the LendIt website. It is important to note, because we continue to get questions about this, there is no cost to apply and you are supposed to nominate yourself and/or your company. So don’t be shy, let us hear from you. You have until August 14th to get your entries in and the more complete your entry the better your chances are of winning.

The LendIt team will be selecting the finalists for each category and then a team of independent industry experts will select the winners.

Winner will be announced the week before our Virtual USA 2020 conference on September 29 through October 1. We encourage fintech companies from around the world to apply for the categories that are the best fit. You can apply for multiple categories.

To date we have received more than 500 applications, don’t miss out on your chance to apply today.

  • Executive of the Year
  • Fintech Innovator of the Year
  • Fintech Woman of the Year
  • Innovation in Digital Banking
  • Most Promising Partnership
  • Top Technology Service Provider
  • Most Promising Fintech Region
  • Top Service Provider
  • Top Small Business Lending Platform
  • Top Real Estate Lending Platform
  • Top Law Firm
  • Excellence in Financial Inclusion
  • Top Accounting Firm
  • Top Consumer Lending Platform
  • Emerging Lending Platform of the Year

We have already confirmed thought leaders from the industry who will be judging the various awards categories. We look forward to reviewing your applications soon.

Filed Under: Fintech Tagged With: digital banking, financial inclusion, fintech, fintech partnerships, LendIt Fintech Industry Awards, online lending

Views: 117

Upcoming Webinar: Banking: How to Alleviate Financial Stress for Businesses & Families

Salesforce and TCF Bank discuss how banks can act as a bridge towards financial recovery

July 20, 2020 By Todd Anderson Leave a Comment

Views: 56

July 22 at 2:00 PM ET

Banking: How to Alleviate Financial Stress for Businesses & Families

The economic downturn has caused financial hardship to businesses and individuals everywhere triggering impacts to cashflow and credit delinquencies. As a result, banks will have to immediately shift focus to remediation strategies in order to help customers who are in financial distress and act as a bridge towards financial recovery.

Join us for a conversation with TCF Bank to learn how to leverage insights and analytics to proactively educate customers, determine restructuring strategies and provide the support they need to reintegrate

Register Today.

Filed Under: Fintech Tagged With: digital banking, Salesforce, TCF Bank

Views: 56

Podcast 254: Clay Wilkes of Galileo

The CEO and Founder of Galileo Financial Technologies talks powering digital banking, embedded finance and what the SoFi acquisition means for the future of fintech

July 2, 2020 By Peter Renton Leave a Comment

Views: 368

In fintech today there is one company powering payments behind the scenes that few people had heard of until this past year. But they are the backbone behind 95% of digital banking activity today in this country.

Our next guest on the Lend Academy Podcast is Clay Wilkes, the CEO of Galileo Financial Technologies. Through their APIs Galileo is powering not just payment processing but digital banking, the gig economy, investing and lending today. Theirs was already a fascinating story and then they were acquired by SoFi just a few weeks ago.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

  • The problem that Galileo was trying to solve when they started.
  • The companies that are Galileo clients today.
  • How they have been able to take advantage of the explosion in fintech in the last five years.
  • How they are working to create a reliable and scalable backbone with close to 100% uptime.
  • How the changing consumer behavior in the last 3-4 months has impacted Galileo.
  • What Galileo Instant is and the use cases for it.
  • The trend of embedded finance and how financial functions are moving to all companies.
  • The history of their partnership with SoFi.
  • Why the SoFi acquisition is mostly about lending.
  • The timing of when the deal came together.
  • Why he looks at Amazon as a model for how Galileo can work,
  • How SoFi’s competitors, who are Galileo clients, have greeted this deal.
  • Why the opportunity for international expansion is so great.
  • Galileo’s focus for the next 12 months.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2020. The world’s largest fintech event dedicated to lending and digital banking is going virtual in 2020.

Download a PDF of the transcription of Podcast 254 – Clay Wilkes.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 254-CLAY WILKES

Welcome to the Lend Academy Podcast, Episode No. 254. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show ever. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa

Peter Renton: Today on the show, I’m delighted to welcome Clay Wilkes, he is the CEO and Founder of Galileo Financial Technologies. Now, Galileo is a fascinating company, they’ve been around since the early 2000’s, they’ve kind of aged in the last few years and they are powering some of the biggest names in fintech, you know, companies like Chime, SoFi, BlueVine, Current Aspiration and many more.

According to Clay, they do like….. 95% of fintech companies are using Galileo in some way and what they’ve created is a very simple API-driven system where any company can add a payments functionality very quickly and easily, you don’t even have to be a fintech company or a bank. They’ve worked out a way to do this in a really streamlined fashion, we talk about that in some depth and how they were able to do that.

We also talk about, of course, the acquisition by SoFi, that has been in the news a few weeks back and we go into some depth about the thinking behind that and what this might mean for SoFi and for Galileo going forward. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Clay!

Clay Wilkes: Thanks so much, Peter, nice to be here, thanks for having me.

Peter:  Of course, my pleasure. So, I know you’ve been working at Galileo for many, many years, but I’d like to, at least, give the listeners some background about yourself, sort of what you did before that time and maybe even leading into why you decided to start Galileo.

Clay: Yeah. My background is in operating systems and technology, communications. I had taken a prior company public, been retired for about six years before starting Galileo and that was 20 years ago so, that’s my background as in technology. Galileo really started to solve a problem that I saw in financial systems and transformation that I felt like was badly needed to match the Internet age. In the last, you know, call it five to seven years, we’ve really seen a boom in fintech and Galileo has been in an integrated position to benefit from that.

Peter: Okay, okay. So then, when you started it…..because, obviously, 18 years is an eternity in fintech, I mean, fintech didn’t really exist as a term. Obviously, it was companies like PayPal and a handful of others that were trying to do some things in financial technology, but why don’t you just take us back to that time, what was the problem you were trying to solve when you started?

Clay: What we saw was systems that were, you know, large, rigid, monolithic, difficult to work with, not that really API-based at all, not created in a way that would be flexible, scalable, architected in a way that can solve many diverse problems, just not well suited to solving that problems that we felt like needed to be solved in payments. Many of the card platforms were architected to handle the inputs and outputs of a card transaction, we don’t do that. We organize information very similar to the way it might occur, for example, on the file system on your computer, or something such as that just happens to be financial information.

Peter: Okay, So, maybe you could just sort of fast forward us through the last 18 years really quickly in just a minute or so, and talk about how the company has evolved really up until this year.

Clay: You know, if you go back in payments and banking, what you find is credit initially starting in the general store, then into gas stations and department stores, eventually banks, Visa, Bank of America had an idea that they could invite other banks to extend the brand, get merchants on board. That really was all focused on credit, consumer credit, in particular, and revolving credit, bank-issued. Sometime after that, debit came along, again, it was a bank product, access to your DDA funds so you had traditional credit, traditional debit and anything that wasn’t that was sort of thrown into this other bucket and that bucket was about the same time that Galileo started and came about.

So, that was the problem that we were trying to solve….was many different business applications and diverse types of situations. So, it’s our ability to be able to solve that has lent itself to being able to be kind of in the right place at the right time for fintech. Now, we see companies like TransferWise, Chime, Aspiration, Greenlight, Robinhood, Monzo, SoFi, Revolut, Remitly, Paysafe, just to name a few.

You know, Galileo clients by one count, recent count, Galileo was powering 95% of all digital banking in North America. We have five out of the top five UK firms as clients….the top application in Canada is on our platform, the number one in the US, number one in Mexico, we’ve just been in Latin America for two months, but of the top 20 down there, we’ve already signed five. I think we must sign all 20 as clients so, you know, Galileo has done extremely well in API-based payments and banking.

Peter: Yeah. So, that is a pretty impressive track record. You know, it’s interesting because a lot of the companies that you mentioned there and the ones you’re powering, they didn’t exist certainly ten years ago and some of them didn’t exist five years ago. I’m curious about the…..you’ve had this front row seat to this explosion in fintech where you’ve been able to see, basically, a banking industry or a …. there’s been new products that have come out in financial services consistently over the last, I guess, 50 years, but really we have this kind of explosion in the last five years where things are really changing.

I’d love to kind of get your take on how you sort of …….. you had your business for about 18 years or so, but in the last five years things have really taken off, give us your take on how that’s happened and how you’ve been able to take advantage of that.

Clay: Yeah. Somebody mentioned to me that we were an overnight success 18 years in the making so it’s been a ride, it’s been interesting to watch. My own personal belief about this is that we’re still in the early days of fintech. So, a lot of people are thinking, wow, you’ve seen a lot of progress in the last five years and that’s true, we really have, but my own personal belief is that we’re going to see a lot of change in the next five years.

And so, we saw this with the Internet, you know, the Internet exploded, took off, it’s a big deal and Internet 2.0 kind of came along and we saw a bunch of new leaders emerge. In my personal belief, we’re going to see that again in the world of fintech over the next five to ten years, there’s still a lot of stories to be told. I think they have companies like Jio in India and, you know, this global phenomenon that are…..TikTok, just a lot of the world that are still yet to be defined so, I believe, we’re still very early.

We are going to see a response focused largely on consumer by the incumbents, I believe that way it’s coming. Galileo has already seen it, many of them are reaching out to Galileo to trans-solve these types of problems. We’re also going to see and have seen that we’re going to see much more of the emergence of Big Tech in the world of payments. So, we’re by no means done, in fact, we’re just, just, just barely beginning.

Peter: Right. On that, we feel like we’ve only just begun, but there are certainly some digital banks that have reached really impressive scale, several million customers here in the US, same internationally… I mean, you look at Latin America, you’ve got Neobank with more than ten million, I don’t know what the latest  is, it’s way more than ten million, I think, as far as customers there.

So, as we grow, I mean, there’s going to be…..and as these companies mature, we have the need for really bank-like reliability, bank-like dependability where you go to the ATM or you load up your mobile app and it always is working, it’s 100% of the time. So, what are you doing at Galileo to really ensure that you can provide that kind of …..the level of uptime, that dependability that some of the largest banks have really made us all accustomed to.

Clay: Well, that’s a great question. There’s a lot that we’re doing there. I want to take this slight exception with your point which is the big banks have made us accustomed to. Actually, you know, if you look back over 2019, Wells Fargo had an outage that lasted ten days, Bank of America had an outage that affected 60 million customers, Capital One had an outage that affected 106 million customers. So, the big banks aren’t immune from this, you know, Amazon, the king of data centers, had an outage that have affected 2.3 million businesses, I’ve personally, been stranded by Delta Airlines three times and not for flight shortages, but for IT outages and Apple who spends trillions or billions, at least, on IT infrastructure has outages almost continually.

So, outages are a phenomenon and the same that goes along with technology despite some of their biggest and best and most diligent efforts on the part of the big banks and other technology firms and Galileo is a part of that. Despite that, I agree with the thesis which is Galileo has done and is doing a lot and we’ve had a very, very good track record related to uptime, fortunately. One of the things that Galileo play was the incident in October and one of the things we’ve done since then, just to give you a sense, we had a project after that called 10X and what 10X enabled us to do was to scale to ten times our largest client.

So, in short, what this was essentially 140 million active accounts representing somewhere in the order of 10 billion transactions and rating scale of about 5,000 transactions per second. So, we’re doing all that we can to ensure there that we’ve got massive scale and capability. The good news is that the architecture is fully horizontally scalable, you know, very much like any well architected cloud-based solution today.

Peter: Right, right. And so, given the changing environment here over the last three months where there’s been certainly lots of pockets of activity that has scaled dramatically, we’re seeing digital banks adding new customers, banks adding new deposits at record rates, how has this changing consumer behavior really impacted Galileo? Have you been ramping up along with this increase in demand?

Clay: Galileo is seeing a massive growth since the beginning of the pandemic, just as an example. I think about the infrastructure we’re using right now, Zoom, and the growth that they have gone through and the growth at Amazon. Quite honestly, we always hear that Amazon was built for the pandemic, and fortunately, for many of us it was in place, but I would say that’s true, digital banking as well. Our clients have seen just incredible growth over the last three months.

Just to give you a sense of that, for existing business, Galileo is up month over year…..last month, 165% which is just absolutely incredible growth. So, we’re doing all that we can and fortunately things are working extremely well right now and the growth has been incredible. We’ve got clients that are adding, in some cases, 50,000 new accounts a day, many of them have got a waiting list of over a million/a million and a half accounts that are waiting to get on. It’s really a function of card production not a function of scalability press so there’s a lot that is going on. Many of these companies like a Chime, a Robinhood, we just saw recent numbers coming out on Current, you know, these companies, Dave.com, they’ve all scaled incredibly well. Galileo’s powering all of that.

Peter: Right, okay. So, one of things that….. I presume you might have seen the column by Matt Harris last year about embedded finance because as you’re talking and as I look at Galileo, I feel like, you know, you’re really part of this movement toward embedded finance where….you know, maybe we’ll step back and talk about Galileo Instant which from my understanding of it is sort of a way….it’s like a plug and play for different kinds of financial services and it seems like this is a trend that’s really going to get…it’s getting going and it’s got legs, as far as I see. We’d love to sort of get your….firstly, explain what Galileo Instant is and then talk maybe more broadly about the trends toward embedded finance.

Clay: Galileo has got an incredible platform for it’s digital banks that we’ve been talking about here this morning. If you look at those digital banks and new digital banks coming along that wants to go, like great consumer experience, they’ve got some ideas around what they feel that data will like, Galileo tries to provide the services that would enable all of that, but the process to do it is expensive and it takes time.

So, you know, for example, you would have needed to raise several million dollars, you need to know something about banking, and about fraud and about disputes, compliance & regulation, all of the rest of it. It’s expensive and it’s not easy, it’s difficult to get into, but there are many businesses that just simply want to make a payment, they don’t want to be a payments company, they just want to make a payment. So, that’s that thing that we’re trying to do with Galileo Instant. It’s a product that we announced late last year, we’ve been in beta over the last several months, the product is going live this month and we’ve had 450 companies with inbound interest to sign up for and gain access to the API’s that power Galileo Instant.

To answer your question, the problem that Galileo Instant is trying to solve here is …..you know, I have a client, excuse me, a neighbor that is a ….he owns a steel manufacturing company that uses welders to assemble the steel, 10,000 welders and he asked me, do you have a product that will allow me to pay my welders by the weld. I said, wait, you give me about two months, the answer to that is, yes, and so that’s one application. Google has 23 million YouTube influencers that need to be paid every month so if you think about that and that particular portion of Google, I could imagine, doesn’t necessarily want to be a payments company although Google itself might be, they just simply want to make a payment.

So, whether you’re talking about a welding company or Google, we see thousands of these applications and we’ve done some engineering and recent testing around what does it take to get into this type of business and we’ve reduced it from many, many months, you know, the sales process could be months, the integration could be months, the marketing ramp behind all of that on the part of our client can be many months. So, you can see one of these digital banks take anywhere from 12 to 24 months to really get started and begin to market their product.

Whereas, on Galileo Instant we’ve reduced that to a number of minutes. So, somebody can come to the Galileo Instant product and gain access to it’s all API-driven and within a matter of minutes we’ve eliminated all of the friction that goes into needing to make a payment and you can begin to do it. You can do it in a co-branded way so Google could do it, co-brand with YouTube, etc. and it’s pretty powerful. We’ve seen this on the acquiring side, but not really much innovation here at all on the issuing side so I’m pretty excited about it. These are the types of products that I was talking about, I mentioned it earlier, around Fintech 2.0. We still have got a lot of headroom, another 20 years work, at least.

Peter: Right. So, you think then that we’re going to…..the companies you just mentioned there, the welder, Google, these are not financial firms, but, obviously every single company on the planet has a financial function because, otherwise, they’re just there by definition….

Clay: Right.

Peter: ….so you think what you’re going to see is, you know, a range of companies, it sounds like from what you’re saying, even down to the reasonably small companies that can offer their sort of co-branded financial services, is that what where we’re moving?

Clay: Yeah. We’ve seen….in a law firm that needs to pay folks that are running satchels around town, bicycles….we’ve seen a restaurant firm that is paying millions of restaurant workers and they want to do it on an inter-roll that doesn’t necessarily match to what is available and traditional applications. Again, it’s not easy to find these types of applications or enabling technologies, and to my knowledge they’re not out there today at all so I can see this range in from big to small.

Peter: So, I want to talk about SoFi. Obviously, we know the company really well, we had Anthony Noto on the show last year and you have a partnership with them for quite some time. If you could give some sense of the history of your partnership with SoFi and when you sort of started to think that it could be more than just a commercial relationship.

Clay: You know, my first meeting with Anthony Noto, I was impressed with him, he’s a great leader, he’s got incredible skills, he’s an analyst, but as a CEO, he is driven, he’s great, he’s smart, he’s quick on his feet, he’s great in front of a group of analysts. So, if you’ve had him on the show you’ve seen probably some of those skills come through. You know, he and I hit it off, we share a vision. SoFi is in my view, has been fairly quiet although they raised an incredible amount of money. They, at one point, have raised more money than all of the fintechs combined, you know, $2.5 Billion so, very, very impressive.

On the lending side, they have products available through consumer packaged type of approach and the idea was, could we take those products, wrap Galileo’s enterprise grade API’s around them and make them available out to our clients where we’ve done really well with the clients on that debit and banking side and provide these lending products in such a way that it’s easy to integrate, easy to gain access. That’s an exciting opportunity. I think this gives Galileo, you know, several years, a three-year or a five-year head start over anybody that’s even thinking about doing anything similar. It takes a long time to build what SoFi has built, it’s a really incredible business and very capital intensive.

Peter: Yeah, I know and I think…..I mean, it’s been running for years and, obviously, Anthony hasn’t been there since the beginning, but SoFi had built up a machine, particularly when it comes to consumer lending, student loans, student loans re-financing.

Clay: Home mortgages.

Peter: They invented student loan re-financing, basically, and they’re a very impressive company. What you just said there sound like….what you’re saying is that a company like Chime, a company like Dave, a company like Revolut may offer lending and it could be powered by SoFi, is that kind of what you’re saying?

Clay: Right. So, the lending products….the way that I think about SoFi is really as a,,,,yes, they’ve got a great consumer frontend and a great consumer experience. Galileo powers SoFi Money side of that, but they really have….on the backend they have this…I refer to it as a digital securitization pipeline and it’s an incredible business. Anybody that wants to try and rebuild or compete, as you say, has got a lot of work to do to put all of that in place. What we want to do is make that available through our API’s.

Peter: Right, right. That could be super interesting because, as you say, SoFi….I mean, when you look at sort of the securitization volume in the consumer loan space, in the student loan space, they really have dominated that and it’s been really interesting, it will be interesting to see how that really expands. So, I take it then from what you’re saying, you didn’t run like a full-like acquisition process where you wanted to hear from a bunch of different potential acquirors, is this something that you really just…you started talking with Anthony and the team at SoFi and wow, we really should so something more together.

Clay: Right. It was more that latter. There was, definitely, not a process that we ran, timing of the deal was interesting, it all happened from mid-March on, think back to mid-March we were accelerating in the deepest financial trough we’ve been in, even deeper than the changes immediately preceding the Great Depression. You know, 35% correction in whatever it was, 28 days, beat the Great Depression by two days, in terms of that acceleration, that deceleration, I should say. So, that was kind of the backdrop to all of these.

It takes tremendous fortitude on the part really of Anthony and that board to finish the deal. Forbes wrote it up as the first all-virtual deal in history, all of the diligence was done virtually because of the pandemic so there’s a lot of notoriety to it in that regard, but, yeah, we were just feeling like we had a shared mission and a shared opportunity here and I’m a big believer in that.

There’s a role model for this in the industry, you know, you look at Amazon, they’ve got this great consumer business, right, and AWS is just a tremendous infrastructure business, but one of AWS’ biggest clients is actually Netflix which is a big competitor to Amazon on the video on demand side. So, that interesting dynamic is there and we believe will play out and play out well and the receptivity to the combination of SoFi and Galileo has been tremendous. Our clients all greeted this with eagerness because it really provides them opportunity.

Peter: So even though, you know SoFi has a number of different products which are directly competitive with many of your clients….obviously, you talked about the Amazon, Netflix example which are obviously directly competitive, so just like that….there hasn’t been anyone who’s sort of getting nervous about what’s this going to mean for us when you’re owned by SoFi….it sounds like what you’re saying is there’s no one that’s expressed some hesitation with continuing to do business with you guys?

Clay: Yeah, largely what we’re seeing is meeting the deal with, you know, open arms, embracing the opportunity. Galileo is committed to be in an independent business, we’re ring-fencing the data and data sharing, you know, we’re doing that not only from a policy perspective, it’s actually….we’re putting in place the things that are needed to make sure that our clients…..protecting our clients’ information, our client information roadmap, strategies, etc. is key to what we do.

We already power…I mentioned a few of our clients, but we power competitors today, if you will. So, we’re not in the business of sharing that information between one client and other clients, that doesn’t serve our or their purpose. SoFi is really no different, we’ll, as I’ve said earlier, make available these products and that’s the overall strategy, but having Galileo remain independent, serving the broader financial services industry, serving fintech specifically is absolutely the directive and the mission.

Peter: Right, right. So, because obviously SoFi has a range of different products, but is this…..what your clients are most interested in, is it the lending access to sort of the lending machine that SoFi has done, or is there something more?

Clay: Well, we’ve got a number of products that are on the roadmap if you think about the SoFi Invest product which is a fee-free fractional share kind of capability of market. You know, Galileo….we intend to make that product available also through our API’s. Our expansion, we haven’t talked much our expansion into Latin America, we’re also expanding into Asia Pacific.

We recently purchased a broker dealer there and we will drive, we will power the cash management solution for that, but, in the meanwhile, we’ll also go into Hong Kong and provide capabilities to the other 160 fintechs that are there. We’re moving into Singapore and into Japan as well and we’ve had a lot of inbound interest from that region over the last several months and really since the announcement of the SoFi acquisition, so there’s a lot that we’re doing there and it isn’t limited to US lending. We’re seeing opportunity that’s more global and more expansive than that.

Peter: Right. For sure. And so, it sounds like from what you’re saying, in a lot of these regions there really isn’t a Galileo equivalent, is that what you’re finding when you go around the world?

Clay: Yeah, very true. We’ve seen this in Latin America and our move into Latin America. You mentioned Neobank earlier, they had to solve the problem themselves, but as they look to expand outside of Brazil they’re looking beyond that. Same thing with Uala as they’ve looked to expand in Mexico and Colombia, beyond Argentina. If you look at Asia Pacific, there’s really no capability there. That’s true, let’s be honest, despite the success in the UK, I mean look at the infrastructure providers there, they’re somewhat limited as well. So, there really is a global opportunity to take these services international.

Peter: Okay. So, last question as we wrap up, you talked about international, you talked about Galileo Instant, what’s sort of the focus for the next 12 months? Maybe just answer that question open-ended.

Clay: Yeah. I think it’s two of three things. So, it’s focusing on the integration of the lending products, API-based, (garbled) lending products, it’s continuing the expansion into Latin America, we’ve identified beyond Mexico, we’ve identified six countries, we’re moving very quickly right now into Brazil and Colombia, but, right behind that, we’ll be in four of these top countries in Latin America.

We’re also expanding into Asia Pacific now, as I mentioned earlier, Hong Kong, Japan and Singapore. So, that’s a big part of what we’re doing over the next 12 months. In the meanwhile, Galileo Instant will have launched and we’ve had a lot of interest and excitement around that. Lots of clients have actually already integrated to it and a big launch will come here in the next, call it 30 days, and it’s going to be exciting to watch that product begin to emerge as a kind of new way of doing business in fintech.

Peter: Well, that’ll be interesting to see, we’ll be following along. Clay, I very much appreciate your coming on the show today.

Clay: Peter, thanks for having me. I really appreciate it.

Peter: Okay, see you.

Clay: Thank you.

Peter: One of the trends that I think is probably the most fascinating right now, and that is this movement towards embedded finance which is…. I mentioned that Matt Harris, Bain Capital had those two articles about it late last year and I find it fascinating because really what it comes down to is that Galileo Instant is going to help facilitate this. Any company can offer financial services and any company can offer really pretty customized, exactly to their needs like whether it’s 10,000 welders that want to be paid by the weld or whether it’s some sort of a bank that has a very specific need.

A lot of these things can now happen and so we’re going to see fintech continue to expand out into non-finance companies. I think that’s going to be the most interesting thing of all where finance will become invisible and I think that’s really where we’re going, it’s going to be all happening this decade. I think it’s going to be very exciting and Galileo is certainly going to be a company that is going to help facilitate all that.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.

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Filed Under: Lending and Fintech Podcast Tagged With: digital banking, embedded finance, Galileo Financial Technologies, payments, SoFi

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