Why Software Is Eating The Banks | Mercury CEO Immad Akhund, Then Lead Bank CEO Jackie Reses

[00:00:00] Hey, it's Eric Newcomer. Welcome to the Newcomer Podcast. We've got two conversations

[00:00:05] from our banking summit. First up is my chat with Amata Kuhn, the CEO of Mercury, followed

[00:00:12] by Jackie Reese's former top square executive and now the CEO of Lead Bank. Both companies

[00:00:19] are competing aggressively where the banking business. Mercury is a little bit more in

[00:00:24] the direct customer facing. It is not itself a bank, it is working with partner banks.

[00:00:31] Meanwhile, Jackie's Lead Bank is a chartered bank and is often sort of behind many of

[00:00:38] the financial technology product that you're familiar with. Give it a listen.

[00:00:42] Can you just start off? Why did you start Mercury? Actually, what is the founding story?

[00:00:48] Yeah, hi everyone. I've been doing startups since 2006 and how many years have I lost

[00:00:55] 2016-17? I was just always really frustrated with the banking experience that I had. In 2006

[00:01:02] as an entrepreneur everything sucked. I remember there was no slack, there was no stripe. I did

[00:01:07] the thing that you did before stripe existed which was impossible. Then I had this idea for

[00:01:12] Mercury in 2013 and basically everything had improved apart from banking and banking

[00:01:17] was the same. Not to be harsh to them. Hundred year old institutions that have the same

[00:01:23] product and maybe they have a mobile app but they're not this product led and frankly

[00:01:30] the expectations had for software and services were just way higher and I didn't think

[00:01:35] the banks were going to build it. How long did it take to have something that people

[00:01:40] could use from this sort of business? Yeah, so I had this idea in 2013 and then I sold

[00:01:45] my previous company in 2016. At the start of 2017 I was like okay you know I think I

[00:01:51] know what to do on the product and how to get customers but no idea how to kind of launch

[00:01:57] a bank account. So basically 2017 I kind of started and at the same time I was having a

[00:02:02] kid and all this who was in like full time and then figured out how to do it and we decided

[00:02:09] to go kind of the route way we partner with existing banks and it took us about a year

[00:02:13] and a half kind of from like starting building it to kind of doing bank partnership and getting

[00:02:18] everything live and launching in April 2019. How transformative or not was the SVB crisis

[00:02:25] for Mercury? Like on the one hand I imagine it's like oh we need a new bank account you're

[00:02:30] easy to open. On the other hand you know if people are running to JPMorgan are they you

[00:02:36] know going to a startup for their banking or how did that play out for them? I thought

[00:02:40] it might be fun to do a little show of hands. I don't know how many entrepreneurs are there

[00:02:44] but how many people use Mercury? How many people from that used it because of March 2023

[00:02:51] versus just before? So everyone there already used Mercury so I think like you know we've

[00:03:00] been doing this since 2019 and we've been growing you know fairly consistently, fairly

[00:03:05] fast we've been you know when from a basically a 9 person it's kind of seed stage company to

[00:03:11] raise the series A and then the series B in 2021. And you know 2023 especially March

[00:03:18] it was definitely significant for us at the time there was a big blip we got about 8,700 kind

[00:03:24] of customers in a short 1,700 you say what a percent increase that was or anything like that?

[00:03:31] So we've said it before we have about 100,000 kind of customers more than 100,000 customers

[00:03:36] live something like that so you know you can get the rough idea. So we were already yeah fairly

[00:03:42] bigger at the time but was definitely like a significant bump and obviously these customers were

[00:03:47] on the bigger side in general what it has done for us is it's really kind of kind of

[00:03:51] been an inflection point in terms of how fast we've been growing so even since then

[00:03:56] you know we've been growing basically twice as fast as we were pre-SVB so like January and February

[00:04:01] this year was where our biggest excluding that one month in March were by far biggest

[00:04:07] at months we've ever had. And I think it's really when I think about product I think about like

[00:04:12] amazing user experience and all these things when you know when banks think about product they mean

[00:04:18] like what kind of loan they can sell you right? So it's like a very different mindset and I think

[00:04:23] tech enable companies and entrepreneurs like you know they're looking for a banking service that

[00:04:30] matches the rest of the expectations of software they use. You've got a banking service or like

[00:04:35] you go to your website you know banking I think is the first word but then you have this like we

[00:04:39] are not a bank you know we work with choice financial group or whatever I think people

[00:04:43] you're savvy enough to understand that probably but the decision not to be a bank is a pretty core one

[00:04:49] why did you decide to be the software platform work with banks and not be a bank yourself?

[00:04:55] I think in general you know people want to feel like they're money safe and people want a great

[00:05:01] product and they don't get too much if like Mercury is a bank or not and actually I think we can

[00:05:07] provide a much safer product by not being a bank so by default anyone that signs up to Mercury gets

[00:05:12] a sweep account and we sweep it to kind of 20 20 banks underneath the hood so it's like

[00:05:17] some of the traditional banks like we'll have sweep but it's not default is that sort of the

[00:05:21] 10. Yeah I mean yes you have to jump through a lot of hoops to get these kinds of things

[00:05:26] of banks yes it's possible like they call it ICS but it's not easy and then you know we also

[00:05:31] have kind of US government T-Build product or Mercury Treasury that makes it very easy to put

[00:05:35] your money together and that's something we launched over the weekend when this SVB crisis

[00:05:40] happened we launched something called Mercury Vault which helps you understand where your money is

[00:05:44] and we also extended FDIC insurance from 1 million to kind of 3 and then 5 so overall I think it

[00:05:52] matters a lot more to be kind of a chartered bank if you are doing lending I think there's not

[00:05:59] that many fintechs that have pulled on like at scale lending without being a bank but in terms

[00:06:05] of providing depository services payments kind of all the software that you need to run your business

[00:06:10] you I don't think you need to be a bank are you going to reevaluate the decision

[00:06:14] I mean we look at it every year yeah in the UK actually most of the new banks became banks because

[00:06:21] the UK has like some kind of fintech friendly charter so does Germany and Brazil so yeah the US

[00:06:28] hasn't done that are you in the UK no so that's your way of saying oh if we wanted to go to the UK

[00:06:34] we would have to become a bank no I mean there's also other ways to and you can partner there as well

[00:06:39] I'm just from the UK so I was thinking yes I always think about the UK and like that was part

[00:06:44] actually part of Mercury's inspiration like there's a lot more yeah now actually the US has

[00:06:50] got up to some extent but in 2017 there was a ton more innovation in kind of new banking in

[00:06:55] Europe what are the main ways right now that Mercury generates revenue yeah so we have five or

[00:07:01] several revenue streams we have a lot of deposits and we have a very deposit rich kind of

[00:07:06] customer base so we make money both on on our treasury but we have kind of fees on it and the

[00:07:12] treasury is like you run that yeah and the deposits the bank runs it and pays you some money

[00:07:17] yes exactly so those are two and then we have both credit cards and debit cards and we get

[00:07:21] interchange on those and we also have effects and we also have a venture debt lending book we make

[00:07:26] we get fees but we work with the bank on that and we get fees from that as well you're just like

[00:07:31] funnel to basically well we do all the servicing origination but they do the balance sheet part

[00:07:35] and would you want to do lending yourself well we'll probably we're not a bank so we can't

[00:07:41] do it using our deposits so we always have like some balance sheet provider for it but yeah we're

[00:07:45] going the lending book as well venture debt is our current current kind of product there but we

[00:07:50] are kind of experimenting with others I mean a big theme of the day has been what's the state

[00:07:56] of relationship banking right I mean we've got like several banks or that are basically

[00:08:01] steve or citizens or whether they're premised on you know you like us at this bank you'll love

[00:08:08] us at this bank you know yeah so that's a belief in relationship banking I think Matt's presentation

[00:08:13] was very sort of skeptical of that model if people are able to use like generative AI models

[00:08:19] to price shop and sort of that inertia goes away and people are much more conscious of getting

[00:08:25] the best deal you know you're you're sort of focused on product what do you think of relationships

[00:08:30] when it comes to banking yeah I mean my experience experience with relationship banking was

[00:08:37] I need to send a wire and I literally can't figure out how to do it please help me which like to me

[00:08:43] never felt like a relationship it felt very transactional and like painful and with mercury you don't

[00:08:49] have to do that I think there is an element of like okay things are getting complicated I'm considering

[00:08:55] loan options and things like that and I think for those relationships matter a little bit more I

[00:09:00] would say ideally there is a product that can answer your questions right like as I mean if you take

[00:09:06] lending ideally it's like hey we already have your banking data and like here's a generated loan

[00:09:11] that you just click on to accept right like I think that would be the better customer experience

[00:09:15] but yeah we we have relationship managers now and we do that as well but yeah I don't think

[00:09:20] that's the future I think the future is a product based approach to do banking and I think frankly

[00:09:26] that that's kind of one people want definitely elements where you know you want to make sure

[00:09:31] there's someone there and sometimes that that human can really help you but you know maybe the AI

[00:09:36] can answer what you're going to share okay so I was gonna ask about AI like generative AI yeah I'm

[00:09:41] sure you're experimenting with it where do you think it might be useful to your business yeah

[00:09:47] I mean I think the first part of Matt's presentation on the Gen AI thing is like hey

[00:09:52] increases efficiency I think there's definitely elements of that and we already experimenting you know

[00:09:57] when it comes to fraud and things like that there's always been machine learning anyway and yeah there's

[00:10:02] other I don't know if Gen AI pays a big piece there but customer service understanding you know

[00:10:07] even something like receipts like it's way better to like OCR them using kind of these modern

[00:10:12] techniques so there's lots of like this kind of efficiency things to be had and that's where our

[00:10:17] focus has been on on the regulatory front I mean there's clearly been some push for Finda

[00:10:25] companies have a tighter relationship with the underlying banks or how would you characterize sort

[00:10:31] of the pressure and feedback that you're getting in terms of your banking partners and how much

[00:10:37] they want them to be involved with your business on a high level 2021 saw a ton of innovation

[00:10:45] like a lot of fintechs you know launched but actually a lot of new partner banks came along that

[00:10:50] like previously were not partnering with fintechs that started partnering with it so and then

[00:10:54] you know when there was a crypto crisis of 2022 there's a lot of companies that kind of had issues

[00:11:00] and then obviously the SVB thing the regulators saying those were red flags is like crypto

[00:11:06] yeah from a regulatory perspective it's like hey we need to check out what's happening

[00:11:12] in Silicon Valley and that's fair we will always kind of operate it on like yeah we do business banking

[00:11:19] like we're not doing any weird crypto thing right like I mean I like crypto but no crypto

[00:11:24] from Merck well we're not doing any crypto products but you know we've always done like fairly vanilla

[00:11:30] products but just in from a regulatory perspective but you know obviously packaged in a really nice

[00:11:35] way and we've always felt that compliance and risk is like a very important thing for us to get

[00:11:40] right and we've always invested heavily in it so I think the current regulatory scrutiny

[00:11:46] and both fintechs and these banks having to kind of look at what they're doing and go hey are we

[00:11:53] doing this in like a fully compliant way I think it's healthy and we're going to come out of this

[00:11:58] there'll probably be less fintechs and there'll probably be less kind of banks that work with

[00:12:02] fintechs but the ones that come out on the other side will be in a kind of much healthier position

[00:12:07] and with like you know products that hopefully are in a position where they can scale.

[00:12:12] How does it translate on just cost or you know are you just having to do more work telling your

[00:12:17] banking partners about customers or is it having yet does it change for the cost structure of your

[00:12:23] business? Yeah I don't think it changes the unique economics and costs significantly I think it's

[00:12:28] you know you can still like yeah business as I mercury will always have like a lot more kind

[00:12:35] of automation and even when we have people we can give them a lot of leverage with the tools we

[00:12:39] build so we have our own risk product team and we build yeah we still use third parties but a lot

[00:12:44] of our tools are built internally so we can like do things really fast and with a lot of information

[00:12:49] so overall I don't think it changes the risk and like it doesn't change the

[00:12:54] economics what we've tried to really be careful about is you know how does it change the user

[00:12:59] experience and actually yeah one of the things to think about is like a lot of the time when people

[00:13:05] complain about their banking or financial services experience but the really complaining about

[00:13:10] is like my account froze I couldn't get this thing done over slow to do this and those are all like

[00:13:15] actually like compliance and risk friction so how do we do that in a way that actually like is

[00:13:22] some of the friction is necessary but I don't think it's all necessary right like if you've already

[00:13:26] collected the document on the user like let's make sure that we don't have to ask them again right

[00:13:31] or like pre-emptively if we know something's gonna come up let's try to be ahead of it so that's

[00:13:35] the kind of thing we think about it. You work with two banks right now right? What's complicated

[00:13:40] but yeah we have two main partner banks but we also have kind of two providers on the international

[00:13:45] payment side and we also with my crew treasury will work with apex as a custodian. Is that a good

[00:13:51] equilibrium or is there sort of an ideal you know one bank mini-banks or how do you think about why

[00:13:59] I have to or think two is a good number maybe three slightly better but I don't think I think one

[00:14:05] is bad because you need redundancy and I think it's as a fintech it's responsible to have like

[00:14:10] multiple partners that you can work with I think if you have more than three it's just gonna be a

[00:14:15] lot of work too follow all the rules and make sure everyone is like fully abreast on things so

[00:14:21] I think two is a good number for us it's you know we have a really strong and deep relationship

[00:14:26] with both of the partner banks so you know we talk directly with them both in terms of the technology

[00:14:31] side and the kind of compliance counterparts and things like that so yeah and it's important for

[00:14:36] us to go really deep. You know we heard I think on the rippling panel this idea okay where you

[00:14:40] really need a dig deep with partner banks especially if you're like a big company

[00:14:46] you know I've been hitting on this thing but like you know mercury is the brand but then

[00:14:51] it sort of leads your customer not to do or think about the underlying banks or how much

[00:14:57] I mean I'm dealing with bigger customers are you spending more time educating them on the banks behind

[00:15:02] mercury so I think Matt Harris said this and I completely agree that I don't think our customers

[00:15:09] should be checking the balance sheet of them. I mean also did you see his graphs like who's

[00:15:14] gonna who is who here even and we're banking experts as like you know qualified to look at all

[00:15:20] this data to make an assessment on their on their bank and like you know what people looking

[00:15:24] as VB data and going like oh this might have a bank run so I don't think that's realistic I mean

[00:15:30] I think it's much better to go like hey we have 5 million FDIC insurance and you

[00:15:35] should anything above that you can put into US government tea bills like you know that is something where

[00:15:40] we can help our customers understand how that works and we have a lot of information and we

[00:15:44] have this product called volt where we explain it but I feel like that's the answer I think I

[00:15:49] don't think the answer is everyone's gonna become bank experts. I'm gonna open it up to questions soon

[00:15:54] how is it been living through the Fintech hype cycle or where are we right now you know what's

[00:16:01] your read on the mood in terms of venture capital and and Fintech companies like you're on?

[00:16:06] Yeah I mean you know 2021 serious hype cycle I've been in the valley since 2007 so I'm like a

[00:16:12] little little immune to these things but you know I much prefer building a company outside a hype

[00:16:19] cycle it's easier to hire people and you know you get less competition like there's a while

[00:16:25] everyone was like every single product is gonna have a bank account attached to it I was skeptical

[00:16:30] but you know obviously as a startup I'm like well maybe all every single company is gonna

[00:16:34] compete against ourselves or something but I think it's it's healthier and yeah overall like

[00:16:41] I just looked this up because I was I was like what percentage of GDP is financial services so

[00:16:47] it's 8.3% according to a quick Google I did earlier so that's huge right and I think the trends

[00:16:54] that are underlying it yeah everyone's interacting with things on their phone as

[00:17:00] Generative AI trend the Matt talked about like it's inevitable that most people will relate

[00:17:06] to financial services via tech products some of that's gonna be from existing banks but I think

[00:17:12] a lot of it is gonna be from fintech so I think these trends are gonna go on for a long time

[00:17:18] you know I'm happier to do it outside a hype cycle though any questions the question was where

[00:17:23] does bass 2.0 go I think you know there's this movement there was a moment in time where a lot

[00:17:31] of banks wanted to work with fintechs but they couldn't do it easily and you know bass kind

[00:17:37] of sprang up as like the middle man in the space I think the next set of things is banks

[00:17:43] either themselves or working with technology providers to have bass internally and that's basically

[00:17:49] what we're seeing so you know column and leader these two kind of bass banks where you know we have

[00:17:55] Silicon Valley people go buy a bank and then apply technology to it the two banks we work with

[00:17:59] choice involved have built all of the tech internally to you know to work with us and to work with

[00:18:06] other fintechs I really think that's the future and not just from a regulatory perspective it's also

[00:18:12] just like you know if you can remove the middle man and there's one less person taking margins like

[00:18:16] it's just kind of in inevitability so that's where I see it going and I think that's yeah if

[00:18:21] you go three years from now I would think most banks will be working directly with fintechs especially

[00:18:27] at scale I think the bit that the middle man do really help with is when you're first starting out

[00:18:33] when mercury launch there was an in nine of our semi-murkery and that would have been

[00:18:36] quite hard to get like a direct bank partnership done and be able to service that fully

[00:18:41] leads next like what have you thought about working with them or leader column or yeah we don't

[00:18:47] work with them currently by my huge fan of Jackie where is she uh hi Jackie and and William over

[00:18:56] columns so I'm sure we will at some point yeah it depends why you're looking for diversification

[00:19:01] I think the way the sweep network works and you know mercury treasury like at least in terms of

[00:19:06] like putting your money somewhere safe I think that we've got that covered and mercury's been profitable

[00:19:12] for the last six I guess almost seven quarters so yeah we feel like we're in a very stable

[00:19:17] place and we think about the long term so I would say you should you'll be happy with mercury

[00:19:23] so just one bank sure I mean we're not a one bank we're a flat uh we're not a bank at all actually

[00:19:30] if if you were to start a Fintech company today with sidron is there an area you're excited about or

[00:19:37] where would you know honestly I'm pretty excited about these Jenny i agents someone's gonna have

[00:19:42] to make those actually invested in a company building like Fintech Jenny i agents I think those

[00:19:46] look really cool what do they do well they know lives uh won't say exactly what they do but the

[00:19:51] it's this exact thing it's like hey if you want to buy car insurer and so mortgage like who wants to

[00:19:58] click those buttons like have it automated find me the best one swap it out whenever something cheaper

[00:20:03] comes you know it's like that kind of thing my final question and you know it's sort of this

[00:20:08] this same take stock question I've been asking like as a founder you know watching like an institution

[00:20:13] like Silicon Valley bank unravel like did you do anything differently afterwards or how did it

[00:20:20] change your perspective as a CEO I mean for us it was a is a weird moment right because yeah they were

[00:20:27] the 800 pound gorilla competitor for us right like when we when we launched yeah people would say like

[00:20:33] oh yeah why would I not use SVB instead of mercury that gives us always a always a thing and then

[00:20:39] you know post march like i don't know if we've been fully reversed but it feels like a very

[00:20:46] different world right like now when i talk to customers yeah i'm sorry mark from SVB but when

[00:20:53] i talk to customers it's mostly like should i use jpmc or should i use mercury like those are

[00:20:57] the conversations now so like the paradigm has shifted quite a bit and yeah I was really sad about

[00:21:03] it like I used SVB in my previous company and you know I think even though we were competing against

[00:21:09] them like I never thought badly of them I think they're like great people the yeah it was a sad moment

[00:21:14] it also gave us this opportunity to grow faster great i'm not thank you very much yeah thanks for

[00:21:20] thank you resist lead bank thank you for joining me of course i'm happy too so yeah you are a bank

[00:21:27] and it's been tech all in one yes i've built one and i've bought one how did you become a bank tell

[00:21:33] us that story i went and bought one having built one as a denovo charter at square it was one of the

[00:21:39] most painful experiences of my life one of my co-founders is here hamam it was probably the most

[00:21:45] painful experience of his life as well because he spent years working with the fd i c teaching

[00:21:51] and working on algorithmic lending for example and going through how machine learning works

[00:21:58] but in that process you realize when you write the first lines of code and you write

[00:22:02] the first set of policies and procedures that you get to think about banking in a first principles

[00:22:09] mindset of like what should this be and how would i build it and so it really changes the framework

[00:22:15] for how you would think like huh i just started from zero i'm good and build the ultimate bank now in

[00:22:23] that context we were able to think of that but we were only serving one customer and so it became

[00:22:30] that's a square but it made it more obvious that no one had built the bank we wanted to be

[00:22:39] and we had worked across the industry with many of what i would describe is the best banking

[00:22:45] partners even still out there while we were at square and we saw many challenges as a customer

[00:22:51] and so given that we decided that there was a better way to do this and there are four of us who left

[00:23:00] square Erica Calili and Ronik Vias so that my other two co-founders and we searched across the country

[00:23:10] for a certain profile of charter that we were looking for that we thought would maximize the

[00:23:17] opportunity of banking as a service and we went and found the best high quality company we could

[00:23:26] and that's lead bank and lead bank was owned by a very old school family in Kansas City

[00:23:33] that were very well known you know the mom who was the chairman of the bank is the chairman of

[00:23:39] the symphony very philanthropic city the banks are absolutely gorgeous if you walk in you'd be

[00:23:45] amazed are you still operating them absolutely we're a part of the community and are the owners

[00:23:51] involved anymore we are now the owners so they're gone we bought it a hundred percent

[00:23:57] but we thought very methodically about what charter we wanted what company we wanted what kind

[00:24:04] of employees we wanted in what kind of location and in what state and so we ended up with an A-plus

[00:24:13] opportunity because even if everything wasn't perfect at lead before we owned it and there are

[00:24:19] examples where you're like oh that's kind of you know not perfect in their history it had

[00:24:27] the infrastructure and mindset of the team that we could use to go build and continue to grow

[00:24:36] banking as a service how big was the acquisition about $52 million dollars

[00:24:42] and what was the first product that you want to provide or what when it be when you bought it

[00:24:48] you're like okay now we are a FinTech bank like what was the beginning the best part of lead was

[00:24:53] that they already were a FinTech bank and they had wonderful clients and so we were able to take

[00:24:59] what was already there and supplement with some of the world's greatest engineers and so our

[00:25:05] engineering team is amazing we knew almost everybody that we hired right out of the gate they all

[00:25:11] came from square from stripe from Yahoo they'd built some of the largest payment systems in the world

[00:25:17] they built some of the largest banking systems in the world and several of them have accounting

[00:25:23] degrees and CFAs and so they have been through the ringer with us in prior circumstances around

[00:25:30] building out APIs for banking products and so we took what was already a strong banking as a service

[00:25:37] partner bank and then added us added the engineering and product team added a much deeper

[00:25:46] compliance and legal team and with that came extreme product market fit and I will say extreme

[00:25:54] product market fit and so we don't have sales we don't have marketing we have in bounds of people

[00:26:01] who know us who have been credentialized through people we know through compliance teams we know

[00:26:07] and we have an extreme level of inbound interest in working with us your partners like what are they

[00:26:13] getting like what is what services are you providing so four main product areas so lending all kinds

[00:26:21] of lending APIs around any kind of card product any kind of loan product by now pay later accounts

[00:26:28] so either virtual accounts or actual DDAs that you might need payment rails so all kinds of money

[00:26:35] movement things like that and then issuing and so card issuing been sponsorship things like that

[00:26:41] the only thing we don't do and don't have on our roadmap right now is acquiring and it's just

[00:26:48] frankly because of our size we're about a billion one in assets right now and when we're bigger

[00:26:55] in size I think we'd look at doing acquiring in the future it's just not anywhere on our we've

[00:27:00] so much to build with such strong inbound demand come we do you want a customer facing brand

[00:27:06] at all or you want to be facilitating other companies to build those brands so in Kansas City

[00:27:12] our home market we take a really active presence and we have amazing customers we have 3000

[00:27:18] customers in is that a regulatory strategy or it's a strategy to stay active in the market because

[00:27:25] the purpose of community banks in a local market is to serve the community and we are blessed with

[00:27:32] a great group of clients some of whom I've become really good friends with and there's someone

[00:27:38] here from Kansas City where is he where do you go there he is and he knows where we're at in Kansas

[00:27:43] City and likes how we show up thank you very much and you know there's no reason to stop it we have

[00:27:49] an amazing customer base but you were saying that is the public facing part otherwise it is the

[00:27:52] public facing part we have an app it's built by Fieserve it's awful if Frank were here I'd ask

[00:27:59] that he update the design of that app on behalf of community banks across the United States but

[00:28:05] that is a customer facing community bank app and so most of the business locally is real estate

[00:28:12] developers they're not in office they're in mixed use kinds of activities we don't have any

[00:28:18] issues with regard to liquidity deposits bad loans the bank actually operated pretty clean from

[00:28:28] a lending point of view and we diligence that pretty actively and then the the other part of

[00:28:33] the business which is the growth is banking as a service but interestingly even some of our local

[00:28:39] clients want to use like ACH rails because they're a real estate developer and they want to work

[00:28:44] with clients to do ACH and while their volume might be smaller because they're local they love

[00:28:50] the fact that we could bring technology feedback to them to support their own banking needs

[00:28:56] that's not everybody out of the 3000 maybe that's 20 but it feels good to be able to change

[00:29:02] the nature of what we do in a local community and bring technology expertise to Kansas City.

[00:29:07] There are some of your bigger customers that you can talk about are there only a few that are

[00:29:12] public and one of our strategies is to not really talk about our customers let them talk about us

[00:29:19] if they want to and so we show up on a few websites like ramp and affirm a few other fintechs

[00:29:26] like flex and credit key but otherwise I don't know that anyone's put us on their website so I won't

[00:29:32] comment our clients are some of the biggest e-commerce fintech big and scaling also fintech e-commerce

[00:29:40] consumer companies we have many public companies on our rails we have many up and

[00:29:46] commerce of people that came through our network that we know that we want to help support

[00:29:50] that we feel like have really good strong teams we know who they are we know who their compliance

[00:29:54] teams are and so we vet all the in-bounds but thankfully we're part of the tech community so we usually

[00:30:03] know these folks and through someone in our network we have pretty good insight into what kind

[00:30:09] of operator they are and what the perspective is on the likely growth of their business and so

[00:30:15] we do have several small small clients on our rails and then we also have some crypto companies

[00:30:23] on our rails and we're one of the only banks in the US that's been through a full three-year exam

[00:30:29] with crypto that has been included in our bank and I think that when we went through those exams

[00:30:38] I think it's because the depth of understanding of the team and the type of enhanced due diligence

[00:30:43] we did with those clients in order to take fiat-only currency I think they believed

[00:30:50] through our behavior or through the understanding of the products that we were able to understand

[00:30:55] how to do enhanced due diligence and what's to look for with red flags outside of the community bank

[00:31:00] do you hold a lot of customer deposits on behalf of these companies or it's mostly money passing through

[00:31:06] so part of the strategy with FinTechs is that in some cases for some of the products there is

[00:31:12] more liquidity that stays on your balance sheet in some cases it's very short duration

[00:31:17] in other cases it's you know holding customer funds on behalf of a FinTech

[00:31:22] because we work with FinTechs to try to be a good partner to them and rate is one component

[00:31:28] of being a good partner to them. Rate is not our strategy though and by any stretch of the

[00:31:32] imagination what we build and how we execute from a technology point of view is the strategy

[00:31:38] and so I'd say they come to us first for the way we build products and the way we operate

[00:31:43] from a compliance point of view and the way we are foundationally strong financially

[00:31:50] how we operate across the balance sheet is just one component of the application. How do you

[00:31:53] substantially substantiate your financially strong or what are the key signals to people?

[00:31:59] Oh so then this was something that came up in the last discussion is people have to do due diligence

[00:32:03] on us and thankfully we report numbers to the FDIC every quarter and so everyone can pull up our

[00:32:10] call report and we advise FinTechs before they choose a bank to go do reverse diligence on us.

[00:32:16] What are the key numbers give us some of what we find? We did about 140 million in sales last year

[00:32:23] 55 million of what I describe as gross profit and 16.4 million a net income

[00:32:30] and so what billion won in assets those numbers are publicly available there's nothing secret

[00:32:36] of about them. You're supposed to position this is a big reveal. The big reveal no but you know

[00:32:41] it's interesting as a size point of view because we're actually a pretty big partner bank size

[00:32:48] you know most people want to partner with someone below the Durban size which is 10 billion dollars

[00:32:53] so that they can make money on interchange? Well you can make money either way it's just a matter of

[00:32:58] how the fees are calculated but it's more that there aren't that many that are actually that

[00:33:04] big in scale there's a handful and then when you look by product they're only handful that are good

[00:33:10] at different kinds of products and so we've already distinguished ourselves you know we bought

[00:33:15] this bank about two years ago we've already distinguished ourselves in size pretty substantially

[00:33:21] and kind of separated ourselves from a you know a pack of smaller players and so when people do

[00:33:28] due diligence on us first of all like our CFO's bio is extraordinary then you talk to her

[00:33:35] and you're like this woman knows what she is doing she was the ex CFO of post bankruptcy

[00:33:40] Lehman Brothers and so she managed the entire dissolution of their $132 billion dollar balance sheet

[00:33:47] and has been had been working there for 10 years and before that ran FPNA it will us

[00:33:53] and so she has an extreme level of detailed understanding of complexity of balance sheet at scale

[00:34:01] and she has a detailed understanding of how to build unusual balance sheet structures in order to

[00:34:09] support the financing needs of clients then I'd make one more point she doesn't come from tech

[00:34:18] so she can look at us and call bullshit and say like yeah I get that yeah we're not going to do

[00:34:24] that and let's figure out why and what makes sense and why you're going to do something and it helped

[00:34:31] makes the conversation better when you're not all coming from a closed ecosystem of understanding

[00:34:38] you want to have divergent perspectives in order to make the conversation smarter and so she's

[00:34:43] a very can do person I think she's an incredible approach but when a client goes and

[00:34:49] you know asks her questions about how we manage risk how we manage interj money flows because I

[00:34:55] do think that's going to be the challenge of banks for the next few years because of the complexity

[00:35:02] of money moving soon 24 7 365 there's not enough volume yet but it's coming and all the flows

[00:35:09] amongst all the counter parties are still not aligned yet and so you know I wanted someone who

[00:35:15] was going to understand that complexity. So you're saying just the speed of money movement is going

[00:35:20] to become the core issue or I just want to speed of money movement velocity of what flows

[00:35:25] intraday because most of the metrics that are looked at are measured at ends of periods ends of

[00:35:34] are not a distinctive moment for liquidity challenges and in some cases there's mismatches

[00:35:41] of windows that operate between all different kinds of counter parties that might be fine where

[00:35:47] you have closed fed windows and I think that touched on this a little bit but when you are in a

[00:35:52] world with Fed now and 24 7 money movement you have to make sure that every counterparty can pull

[00:35:59] to the same moment in time and today that's not the case. Big question but what is your broad read

[00:36:08] on regulatory friendliness to fintechs right now or how much has sort of regulatory scrutiny changed

[00:36:14] how you operate. Where are you operate within the guidelines and confines of the regulation I

[00:36:20] haven't seen issues. Full stop where are you able to actually answer questions and substantively

[00:36:27] step back with a framework of understanding around how your clients operate KYC KYB red flags

[00:36:35] I haven't seen any issues full stop now that doesn't mean that regulators are necessarily

[00:36:41] forward looking to take proactive views of how the market's moving and they're not on their

[00:36:49] forefront or their their their forward foot trying to change the way banking operates to experiment

[00:36:55] but last I checked when the American taxpayer is ensuring banks I don't know that we all as taxpayers

[00:37:05] want banking regulators to be flippant about risks that banks are taking and so you know you hope

[00:37:13] that where there's innovation and features of what people are doing around the edges

[00:37:19] that regulators who operate and understand them but I think they need to see data first

[00:37:24] and you know I'm pretty thankful that they're pretty detailed in their analysis and so where

[00:37:32] you have very high profile high class very strong compliant customers I think they operate

[00:37:41] you know quite safely within the context of banks that they work with. Do you have to say no to

[00:37:46] your clients a lot or it's more just building the product in a way that they can. It's definitely not

[00:37:51] a no it's most of our clients are super high quality they want to scale and they want to scale safely

[00:37:58] having a mistake from a banking point of view is existential no one wants to do something stupid

[00:38:03] and so the situation I am more likely to see is not understanding something

[00:38:11] and when you explain it with a strong rationale I rarely see instances of debate but if you're

[00:38:22] taking a position on something you I'll give you an example used to drive me crazy

[00:38:26] that a bank I worked with in Utah would not let us do CBD loans and it used to drive me crazy because

[00:38:34] I would say like okay but now so when I go into whole foods let's see I mapped it out on Google

[00:38:40] and I think there are half mile from you when I go into whole foods and I buy CBD bubble bath

[00:38:46] and I put it on my Visa card and then that runs through Stripe you're telling me

[00:38:52] that those products aren't banked you know in however yeah I know I know I know and you'd get like an

[00:39:01] answer of like yeah that seems kind of ridiculous but let me just shrug my shoulders and say like

[00:39:07] yeah I don't get it but we're not changing those answers are illogical and if in fact you

[00:39:14] and the way we try to respond to clients respond with a better answer better advice a

[00:39:20] can do approach to solving their problems we usually get pretty thankful people who are happy

[00:39:25] we've got their back open open to questions while people think about it well when you started

[00:39:33] lead or now managing it what was the main sort of leadership lesson you learned from your time at

[00:39:39] square what what did you take from square or what did you reject when you started it so when I

[00:39:44] was at square I oversaw hundreds of licenses so I ran a very heavy heavily regulated part of square

[00:39:52] I was shot not just a tech executive or you know an engineer or a product manager I sat on top

[00:39:59] of lending and banking and I started a bank first principles and the thing I saw at square which

[00:40:05] I consider to be a very strong innovative fintech was that owning a bank and operating a bank

[00:40:14] is a 10x delta in understanding compliance to working in a tech company and the language you use

[00:40:22] and the mode of operation and the way that you run a company is night and day different and even

[00:40:28] if you think because you sit on licenses like mtls which is often what I hear oh we have mtls we know

[00:40:35] what we're doing oh this is a different world and and so my learning I got to learn thankfully in

[00:40:43] the context of square and living it every day was to appreciate the complexity of what it takes to do

[00:40:51] this so that we could learn how to serve our clients better and help them scale but make sure we

[00:40:59] never put ourselves in a position to risk the relationship that we have operating with our regulators

[00:41:08] question one of the questions I had was around this trend towards like real-time payments

[00:41:14] kind of money being moved instantly 24-7 and kind of gearing up towards you know a world where we

[00:41:21] do have instant money movement like what are the things that you're thinking about for lead bank

[00:41:26] that you need to have to be prepared to be able to facilitate you know this huge volume

[00:41:32] to make sure that there's you know you're covered in terms of like anti-fraud just curious high

[00:41:38] level like how are you thinking about that transition yeah for us around real-time payments I don't

[00:41:43] think there's anything from a technology point of view that we need to do today to be prepared for

[00:41:50] that we actually haven't connected to Fed now yet even though Mark Gold who runs it I know very

[00:41:57] well from the Fed I have the world's most like unbelievable respect for him we worked at the San Francisco

[00:42:03] Fed together I would was an advisor to them for nine years and he's amazing and he's methodically

[00:42:11] going through the roadmap but we didn't have client demand for it and so we just decided not

[00:42:15] to hook it up until we're ready but our APIs and the way that we operate as a platform as soon

[00:42:25] as we're ready we're going to connect to Fed now and I don't think there's anything we need to

[00:42:29] change we're kind of we are ready and I think that's because of the sophistication of the systems

[00:42:35] we built thus far and so whether it be any of the core money movement APIs or even our anomaly

[00:42:42] detection system I think we're prepared for it from a fraud point of view I do think they need

[00:42:48] more volume going through the system and you know up to now they've only had a few hundred banks

[00:42:55] involved and at some point they have enough functionality they open up the dollar value of each

[00:43:03] transaction you're allowed to send and the functionality grows enough that it actually can be

[00:43:10] an unbelievable platform and that's when I think you're going to see

[00:43:14] unbelievable growth do you think that lead bank is a model for community banking in general

[00:43:21] given there are lots of questions about the future of community banking

[00:43:24] you know I don't in a sense one of the things that I think is problematic about

[00:43:30] many of the banks that have operated in banking as a service is that they've done it opportunistically

[00:43:35] they've fallen into a client because of a lawyer an accountant an advisor or it came through their

[00:43:41] local area by fluke but they're working with people who I don't think truly understand the

[00:43:47] products and that's when I think banks get into trouble if they're not able to explain the

[00:43:52] products to regulators all of a sudden you get a very squishy feeling that it's unclear that

[00:43:59] they've done the appropriate amount of compliance KYB KYC checks that they need to be doing or even

[00:44:04] red flags SARS you name it and so I do I'm very weary of banks trying to be opportunistic

[00:44:12] of doing that having said that I do think there are models for banks to deploy technology

[00:44:18] in a better way than they do and I think that would help community banking if their apps were

[00:44:25] better if they were able to use applications that other fintechs who serve banks

[00:44:34] sell into that channel and so I do think there's a market for them to deploy third party technology

[00:44:41] in order to offer different kinds of services I see a need for community banking I see what we do

[00:44:47] at a local level even though I'm the biggest advocate for lending and context of where transactions

[00:44:54] happen I think there's an and not an or and the end is being part of a local community and

[00:45:01] lending to people that a fintech might not reach or supporting part of the community at the most

[00:45:09] local level with entrepreneurs who come in you know and hang out in your office on a Tuesday and

[00:45:15] you know learn different financial skills I just there's so many things that happen in order to make

[00:45:21] the texture of a community better and so I don't know that we need 4,000 banks but we certainly

[00:45:26] need community banking across the United States to thrive and so I do hope technology more integrates

[00:45:33] into the banks as opposed to banks deciding that they can necessarily go build for you know the

[00:45:41] most sophisticated technology companies in the world just just get the last word like a zoom out

[00:45:47] sort of question you know it feels like sort of coming out of the wilderness or hopefully if

[00:45:52] there are more bank crises you know it's like Silicon Valley went through this svb crisis frb

[00:45:59] there were the crypto banks and then fintech overall is retrenched you know would you tell somebody

[00:46:06] to start a fintech company today or what message would you give people about what they should do going

[00:46:12] forward reacting to sort of all these I don't know traumas yeah absolutely I think you heard in our

[00:46:18] last presentation it's you know a huge part of the economy 25 trillion dollars of assets sitting

[00:46:25] the banking system and the one thing I think is amazing about fintech is that it provides real

[00:46:34] functionality that everybody uses every day and so I do think they're such an incredible market

[00:46:40] opportunity you know it's really just open to creativity now I think it's actually harder

[00:46:47] to build fintechs than it is many other kinds of companies because precision and regulation

[00:46:55] are two components of the ecosystem and value chain that have to be built where in some cases you

[00:47:01] don't need precision and so I think there's incredible utility that fintechs provide and because

[00:47:08] it's such an important part of the u.s. economy and because banking is such an old industry where more

[00:47:14] than 50 percent of the market cap is over 50 years old there's an incredible room for invention

[00:47:20] everywhere along financial services including in consumer companies and this idea of having

[00:47:29] banking and financial transactions happen in context of where you are it doesn't have to look like a

[00:47:34] bank app in order to be banking great Jackie thank you so much thanks everybody for coming

[00:47:41] that's our episode on Eric Newcomer thanks so much for listening shout out to Giko and

[00:47:46] being capital ventures for sponsoring the Newcomer banking summit you can follow along with more

[00:47:51] coverage of the summit at nucomer.co and check out our youtube channel where we'll be posting

[00:47:57] conversations from the summit thanks so much