Leaders in Lending
Leaders in Lending

Episode · 9 months ago

BNPL, eCommerce, and Crypto: Leading Trends Driving Consumer Preferences

ABOUT THIS EPISODE

Customer needs are changing, and along with them, borrowing behaviors.

How does this impact consumer lending and banking?

Rich Longo, Investor and Growth Advisor at Nxtsoft, joins the show to share his insights into the trends that are reshaping the financial landscape.

We discuss:

- Where younger generations are getting financial advice

- How Buy Now Pay Later (BNPL) and eCommerce are changing the landscape

- Crypto initiatives poised to upend traditional practices

- How traditional institutions should adapt to these trends

To hear more from Leaders in Lending, check us out on Apple Podcasts, Spotify, or on our website.

Listening on a desktop & can’t see the links? Just search for Leaders in Lending on your favorite podcast player.

So you seeing a generation that's willing to take risks, but they don't want to do it in the traditional way and they're learning from each other, which is super helpful. You are listening to leaders and lending from upstart, a podcast dedicated to helping consumer lenders grow their programs and improve their product offerings. Each week here, decision makers in the finance industry offer insights into the future of the lending industry best practices around digital transformation. In one let's get into the show. Welcome to leaders and lending. I'm your host, Jeff Keltner. This week's episode features my conversation with Rich Longo. Rich has had a lot of time and FINTAG and banking tech. He's spent time working with Momboo Robin Hood spend some time in our partner next soft. We really delve into a lot of different areas in this conversation. He starts off by telling you about some advice that his daughter was getting through ticktock on financial services and how that kind of points the way to how younger consumers are getting their financial knowledge and new and different ways. We talk a lot about how you can use those mechanisms digital ways to engage with consumers, but also to try and serve them better, to try and find those consumers who maybe a different kinds of incomes and what it takes to really effectively reach and then serve with the right products for those customers. We delve into how an integration of commerce and finance into other digital experiences, think buying on facebook or Instagram, is shifting not only consumer behavior but financing and lending behavior and opportunities and how it fives can take advantage of that. And then, finally, we touched up quite a bit on cryptocurrency at the end and his thoughts around the state of both kind of true cryptocurrencies, stable coins, a kind of bridge, and then the possibility that central banks get into real kind of official Central Bank digital currencies and what that future might look like. So it's a really fascinating conversation, pretty wide ranging and really thinking about kind of future trends and what's coming in, particularly the trends that younger consumers are driving towards what the future of banking might look like. So I hope you enjoyed this conversation with rich Longo. Rich thanks for joining me on the podcast to day. I appreciate you're making the time appreciate death. You know, one of the themes that comes up in...

...this podcast a lot is kind of starting with the needs of our users and I think it's a really interesting conversation about how we take the consumer and put them at the center of our product design. But I also think there's this question of how consumers approach to financial services are shifting, how their the way they educate themselves, they learn about products and services as shifting. So I wanted to kind of ask you if you see interesting trends or what you see going on. So I think it's a space that you've got a lot of insight into based on your background. I'd love your thoughts on how our consumers approaching the space differently, not just kind of interacting with, you know, their traditional financial players in a different way. Yeah, I you know, great question. I've learned a lot about especially the emerging space, from my kids, right, if you're fortunate, aren't? Yeah, that you know some of the things they either text you or bring up and sometimes you have to kind of fake and go yeah, sure, but but you know, case and point my daughter. So you know, I've spent a bit of time the brokerage side of technology and business. And so my daughter texts me one day and it's around Hey, Dad, I've learned how to access march margin and use margin, and I'm going, Huh, you couldn't even spell margin, and so she's like seriously, and so I said okay, so a few words and I thought she was like hopying it from a site or something. Yeah, and then she proceeds to send a link on Tick Tock, and I'm embarrassed to sause. Yeah, Tick Tock. All right, I'm embarrassed to say this. I did not have a tick tock account, so I had to download one to access they got to get on the tick tock. Just understand what your kids sending you. Okay, exactly. I was just getting used to snapchat. So you're behind, man, you got to catch up. Heck. Yeah. So she sends me this video. It's like the six part video and yeah, I literally explained everything about margin...

...and it's talking in a way that's raw and honest, but and then giving up perspective on different companies. And what was interesting about it after watching in the content in the present presentation was definitely unique. Right. It wasn't like using powerpoint. Yeah, what what was interesting is, I said, so what made you think like what they were saying was like super valid, like like you had, yeah, a trend that she said. You know, it had, you know, over you know, a million hits or something. Yeah, so that tells you it's a valid source of truth. Well, he posts a lot of other things too, and I'm like, okay, let play with accurate. But and then after that she sends me another video after we had that discussion on options. Now, why this one was really interesting was because the person it was clear that they were marketing a certain solution, but it was giving like super like valid information on comparison and terms of options, creating and and looking at it and shorting a sock and and so but at the same time the guy was trying to upsell his solution. So I'm sure he was getting paid. Point being is, this is how they're getting their information right. And I'm looking at the millions of users in the hundreds of thousands of comments and, you know, sharing and all that stuff from you know, the sites that you know, social media, that it's just like, okay, take a step back. The other part was, and I forgot to mention this on the margin side, but he referred to read it, and so did the option. So interesting, so go and to read it. Yeah, tick, Tock, read it, and so this kind of hones into something many of your listeners probably are aware of. But you know, for example, Robin Hood, you know, you had this whole shift and am see and hurt stock and and it wasn't done by like any particular like market watch or CNBC saying hey, invest in this,...

...because, quite honestly a lot of these younger investors don't believe them. They feel like their own by corporations and that they're lying, and so they're getting their information from reddit. And so in that case you saw this micro investor, a bunch of them, like hundreds of thousands of micro investors, having the same by power as an institutional investor. Yeah, and bringing stocks, you know, high and people that had different positions, institutional investors add different positions, lost a lot of money. And so I think your daughter now creating options on the margin as a side Gig to pay for college. She's making money, and so is you know, and then our oldest sons, she ended up telling him about it and so he's he's obviously doing the same thing. So, yeah, I'm happy to say they're making some money. Hopefully, one day I can completely take them off the payroll. I'm looking for it to on margin trading. That's a risk a way to get him off the payroll. Hey, a lot of things we do are risky, right, especially a lot of your list that started up businesses and whatnot, and I think they're learning that right. They they don't want to take the safe approach, and so you're seeing a generation that's willing to take risks, but they don't want to do it in the traditional way and and they're learning from each other, which is super helpful. And in a lot of cases, like crypto and, you know, like AMC stock, they're all making money from each other because collectively they're driving the market demand or driving markets man. Yeah, I mean that the stocks, the meme stocks that have hit read it and had huge swings or supportive and sometimes just because they want to screw the shorts who are out there, the institutional guy shorting a stock that they like, the company whatever. It's a fascinating space where they've actually aggregated enough market power to have real influence the market, despite being individually quite small investors. It's a that's a form musk and and and Doge to the moon and see. My son's younger than your children, but he because he...

...likes Elon Musk He. Now you know he has two stocks and his stock APP one is upstart stock and the others dogecoin. There you ask me what drives dogecoin price and I never have a great answer for it. So it's true, true, free market there, but I think that's really interesting. there. To Jeff, that was a subset that didn't get addressed in the news or anything else. Is because of this massive demand, Doge got more access to more exchanges. So there were so much pressure from other exchanges like we bull and others that didn't have access a doche to provide that access to your users. So I mean the markets really driving in terms of preferential usage and access and product development. So I was going to ask you know, when it comes to more traditional financial institutions, like how do they respond to the few have advice or thoughts on? If I'm a community bank, if I'm a regional bank, I mean it's probably a brand in general that's about us. Far from a traditional ticktock personality is one could get. But in that world, how do you engage in that dialog or at least, you know, build some credibility for being cognizant of what's happening and how users are engaging? What? How does how does it, an institution like that, respond to the trends you're talking about. We, I think you know, it's it's offering different products and services that might not be in their portfolio today, for example, getting into the buy now, pay later, area, offering, if they have an insurance division, really focusing on insurance products for renders and people that aren't necessarily buying homes or have no interest in buying homes. You know, folks that you know are people that are in gig businesses. So you know they're looking at you know, doing some work with Amazon, or you know they're doing door and Uber and and so. They got a finance a car, right, and so you know they're different requirements now,...

...but you don't see community banks and crediting. He's really focusing around. Okay, I want to go after my market and people that drive uber full time, right and then at Uber and or right. So there are cars, the primary they need insurance for it might need to float some capital at sometimes on down times. So they might have spikes in the business. So everything that you've seen in more traditional businesses. You don't see creativity from lenders to figure out, okay, this is this is how the generation now wants to kind of work, to have more flexibility in their schedule, pop in their car, you know, or do other gig jobs, and that's I think part of that has been what's driven some of the neo bank growth has been the willingness to engage in the you know, providing the kinds of products or services or access to paychecks early, for instance. That of that have been attractive to those younger users who are are maybe not well served by the current market. I'm curious if you see, I know you've been involved with Robin Hood, and if watched a lot of the trends the NEO banks, you know how some of them have taken advantage of these trends to really offer services and in capture mind share among that younger consumer. Yeah, I mean I recently looked at a stat around the growth of chime and crazy time is just crazy growth right. So if you think about Derman in the CAP. They don't have one sponsor bank. They did not only have two, but I think they're on their third sponsor bank now. And and so collectively, not just, you know, going to another sponsor bank, they need multiple sponsor bank and and so chime. I. The last out I saw was the fourth largest provider of checking accounts, and I I'm careful not to say institution because they aren't an institution. Fact, they had to take bank off the word. I'm Yep, but it's amazing that collectively they're larger than all the credit checking accounts combined in the nation. That's by count right, not...

...by I'm assuming that by assets, but by account yes, well, about a number of accounts. There's like a huge number of Americans. But you brought you brought up the good point, like their growth, was an area that people didn't focus on, which was providing earlier access to people's paychecks. And what existed for years, like probably Jeff, when you got in this business, when I got into this business many years ago, is that, you know, you had ech warehousing and so typically you need two three days before what someone was going to get paid, and so time said Hey, we can kind of use this tool to do some underwriting and a way they don't consider it like a loan. They say hey, we know how much you're getting paid and we're just going to provide early access to it. Yeah, and so in that that is a cat right. There's a cat customer acquisition cost and and they see a ton of value and they're monetizing and many other different ways. But that led to a lot of stickiness, especially in the covid days when cash was really tight if you're to punt depending on public assistance or some other things, and I'm sure that drove a lot of growth for people. As you know, they tightened to budgets and neat really needed that cash as early as possible. Yeah, I wanted to shift and talk about some Transu and I discussed around the the more lending side of what consumers are doing, and it seems like, I don't know, you can't if you if you follow the FINTEX space, you can't go anywhere that here Ab bnpl but this question of the kind of consumers ship and I think it's often driven by some of these same consumers, the younger consumers who have grown up during the financial crisis and you know, kind of the trends driving towards different kinds of finance versus what you know, I got a handful of credit cards in my wallet and felt pretty well served by the market. So maybe miss the boat a little bit on how big this space was going to be. But what do you see driving that and where do you see that space going, because this idea of consumers kind of engaging differently with financial decisions, younger consumers and than older consumers have is a really interesting kind of general trend that...

...maybe B INPL is just an example of. Yeah, I think. I think you have to go look at the younger generation again, let's say the eighteen to thirty year olds, and what evolved into their their buying behaviors right, especially when it's connected to borrowing. You know, this generation of all of them were around when and saw their parents, whether they were in high school, elementary and middle school or whatever. But in like two thousand and eight, when, you know, the financial crisis hit, a lot of people lost homes, people lost jobs. It was, you know, very impactful. You had social media, so they're more keenly aware what was happening to their friends on a real time basis, and so I think it just had a very emotional tight impact on them and they said, basically, we don't want that to happen us. So how do we prevent that? Right? So you don't have a foreclosure, if you rent, you don't have to worry about bankruptcy, if you don't have, you know, Fiftyzero on credit card bills and you're not paying your credit card bill and over extending yourself. And so suddenly you know it's more of micro handling of debt. And then you think about the way they're buying right. So obviously Meta, which it was facebook, and other social medium platforms, said Hey, we want to make more money and ads are going to do it alone, so let's connect it right into e commerce platforms. So they opened up a pot. And so now a lot of these consumers are on their feeds, snapchat, you know, instagram, whatever, and they're clicking within the APP, they're seeing an outfit, they're clicking it and they're buying it and they're financing it. So maybe they'll say, okay, I have a hundred dollars in my bank account. The the dress costs fifty bucks and I only want to take ten bucks out on my account. So I'll pay with ten bucks and I'll...

...finance forty bucks and I'll pay it over three months and I know exactly what my payment is. There is no late payment, there's no interest, it's a flat fee and I'm done. You know, there's none of this Gotcha's, whether it's Gotcha has with nsvs, whether it's Gotcha's with these late fees, there's no gotchas. And so again that goes back to this whole behavior that they saw with their parents. They learned a lot. Plus, in combination of how they buy right. They took the fricune out of it, made it simple. You create profiles that you know on the the social media channels they have. So if you think about it today, you know if I'm going is said apple pay and I click Apple Bay and Bam, it enters in all the information. One button verifies my face and transactions done. And so that's what I think a lot of and where these companies are hurting. Whether it's credit cards or if people traditionally did overdraft type of loans and said, okay, I can pay for it all draft the account, but I have two thousand dollar, you know, credit line or whatever, they're not doing that anymore, and that's predominantly the reasons I think of it as a I think it's a really good summary and I think of it as kind of a increased intentionality around when I'm borrowing. You know, I feel like so many people had the credit card, it was like it was kind of sort of a debit, which a lot of these folks do just use debit and they don't use credit for things for which they can afford. And then it was kind of sort of credit and it was never totally clear to the consumer when it was a and when it was b right, and it was never clear if it was going to be credit, what the terms of the credit were really going to end up being in the end. And I think that clarity up front of if I'm I borrowing or not to pay for my dress, and if I'm borrowing to pay for my dress, what's it going to cost me and how long is it going to take me to pay it back? They want clarity around that. They want to understand it at the time of transaction, and so part of me wondered, like why didn't apple pay just put credit cards in make everything simple, like the friction list can be there with the old mechanism, but I don't think most of them brought...

...that clarity around the terms and in the decision to borrow versus not, and I think that the new consumers want that Clariday, want that specificity around this is, these are the terms, and in the ability to insent, to bring the merchant incentives to have basically zero cost financing is really compelling as well. Right at the point of sale, we go yeah, that merchants want to pay a bit more. You can pay it over four months and know it no cost, right. Not, not just like there's no late for there's no fee at all if you pay these things off and in a couple of months. And that's a pretty compelling, I think, value proposition. And and you've even seen it with the traditional players going from interest to feats. So Chase was one of the first out there and saying, Hey, you can do this ammx. On amx all the time I sign in and it's like, you know, pay it button on individual transactions and I can convert it. And that was a charge card, right. So they're trying to figure out creative ways, but they're also seeing a lot more value. It's it's interesting too on the lending side, especially when we're talking about credit cards. There's this massive benefit increase and I'm at most between chase, Sapphire and mx right now and they're going after this this again. The the more emerging wealth generation were eventually this generation. They're younger, but there's going to be a transference of wealth and they want to be well position right. Yeah, and so the benefits, I mean the winners there are the chase, Sapphire and the MX users. Right, they're increasing the feet slightly, but not a lot, but the value you're getting it. I think once that was on mx, you had about twenty seven hundred dollars and potential rewards that you could get on a five hundred ninety five dollar fee. Now it's almost four thousand dollars, right. Yeah, it's crazy. I mean I've got that annex. It's just like will pay for your M will pay for Your Not New York Times, will pay for your Hulu. Just just put it on our car. You have to do anything. It's just like if it gets charged on here, we'll just every liked twenty bucks a month for Uber whatever it is. It's very well, I mean it's like that was the...

...latest one mess the twelve dollars in ninety five cents. But here's the thing. You know, mx is not paying all of it. It also gives mx the ability to market on their platform and say, you know, here's the data of our users. And you know, Amex is thinking, okay, we can't let chase win this market segment. We still have to be dominant and we can give more because we'll make more on the marketing of giving them free stuff and then eventually, like all you know Hulu or a Walmart will end their promotion after a year or two whatever, and then you'll hopefully have some sticky users. Right. So it's changing the paradigm of how business was done a little bit in creating greater value for the customer. Fascinating Times. Now I don't think we could properly delve into, you know, changing the paradigm for emerging wealth users and not talk about crypto and what's going on with, you know, various cryptocurrencies. That that I think, the banking institutions getting into the game. What are your thoughts on what's coming there and how it's going to merge or live alongside? I feel like there's going to be a maturation into some sort of more traditional approaches or adoption of this and not just the kind of wild west version of what's out there on a lot of the blockchains today. What do you see coming on the Crypto side? That, you know is what this generation is kind of moving towards. So I kind of break out crypto into three levels. Right, so you have your Crypto, like what I'll say, you're training Crypto, right, your changes, your point of the world, your stable coin and then or of Central Bank digital currency, right, and those layers. There was a lot of news out this week around stable coin. act. American Bank or published an article where there were twelve, I think twelve institutions that are getting into a consortium to provide an alternative to Ach and wire through stable coin because they're...

...absolutely sick of the Fed taking years to implement our TP. So yeah, you know, the real time payments thing is just we're getting super old and obviously not being address. So you're having consorting not to form to if you think about in the early s when the Fed one to implement check twenty one, right, and the banks were saying, Hey, we want to lower our cost because of what fed charging US per check, but they're taking too long to make it happen. So you saw through the clearinghouse, SB pecup, and you have the top, you know, fifteen institutions and nation get together as a consortium and said we're going to do it, and very easily it was done bypassing the Fed, because you had seventy percent of the volume of checks from these fifteen. Yeah, and so I think you know, in the world of Prypto, you know it's accepted. We knew it was accepted the day the irs started saying we're going to start taxing this and this is the legitimid type of income. And then can you have organizations to now like Anchorage, where you know they got an agreement, for example, from the Department of justice to seize crypto acids. Right, so they're being more of legitimized. And now you're seeing the consortiums coming around and saying, Hey, we can leverage stable coin to do real time payments and bypass a h right, and and expensive wires. And then finally, you have this thing that's not really talked about a lot, but if you google it it's there. About a year ago, called Project Hamilton, through the Federal Reserve, which is, come on group. Yeah, Google it and you'll see the Federal Reserve is working with MIT on the fundamentals of the base system of what would be a central bank digital currency. And you know, I've talked to a few people in government and it's not if it's one and and I know...

...some bankers will be gone. Yeah, well, need that that. The issue here is a national security issue and that's just how it's been commonly explained to me. And it's because China has already issued a digital wand, is already doing cross border payments with that digital wand with seven other countries and they're inten is to destabilize us in the world, as this the world's world, excuse me, the world's will reserve currency, and so we simply cannot let that happen. And so it goes back to this point and again another great article and the American banker this week talked about community banks. This is your chance. It's going to happen here the three models that that's considering. So you can either be part of the conversation or not part of the conversation, and so I would encourage your listeners to kind of look at those articles do some research on their own, but get more serious about it, because I think it has massive implications to banking and and and the business models of thanks. And it feels to be like, you know, not that it's a of Achnology, but so many technology revolutions start with the toy like use case. It doesn't feel like it's ever going to be real but is better in some way, in this case, faster, cheaper, right, if you compare it to payments rails today in many cases. And then it, you know, it becomes more mainstream as it gets adopted's I love your three layers of kind of like that. The pure cryptocurrencies, the stable coins, which are kind of a bridge between a Bitcoin etherium Solana world and at a USD world, and then eventually, you know, the the Central Bank currency, digital currency Initiaes, where they we're actually going to see real digital currencies. But that feels like a nice layering of it. And the innovation, of course. So the fastest stuff always happen on the edges, but a lot of the real impact of consumers will come as it gets gets more to the...

...core, right, and those things will get some Supoo when you're providing a better experience to the consumer. Ultimately it's going to be impossible to stand in the way of that right and we've I mean you're right, like it's when I first got into space as technology as I went. It takes how long to send money, like I can send lots of stuff real instantaneously and I can't, like just it's hard to send money and like that. It's kind of mindboggling to people and it makes sense in certain cases, I understand. But like, I think when you can, when you can make that fast, just like you know, try and make getting your paycheck fast. When you can make that faster, that's going to have real value to consumers and that's ultimately going to be unstoppable. It's a question of how it gets implemented, not not if couldn't agree with you more. Well, rich, I appreciate your time today. It was there anything else you wanted to delve into? And then I got three questions I ask everybody at the end of this. I'll ask you those, but but first I was like to kind of say, is there anything you wanted to delve into or you think we missed it was worth covering? Or did I that? I do my job. What did your job well? I love it that. I appreciate the POSITI fast say. I give you good, good answers both sides. So my final three questions are always these. Number One, what's the best piece of career advice you've ever gotten? Follow the person that's failed the most and follower. That's not a common piece of advice I've heard on this podcast. Over, give me a little bit more on that, because they learned a lot as as much as they failed, and that way you can avoid failing as much as they did. So yeah, a lot of learnings from people's failures. But I also have learned the most successful entrepreneurs have failed a lot too. So yeah, if you're fraid to failure, you never do anything truly interesting and innovative. If you got to be open to it, and you will, you Agari at it. So I always prefer to think of it as learning quickly. I thought I say, I tell my I try to tell my kids like it's not a failure if you learn something from the only failure is if you screw it up and you don't learn. But if you learn then you got some value out of it either way. Second Question. What's the best piece of advice you've gotten about the consumer banking or consumer lending industry. It will be nothing like what we're looking at in the next twenty years. That's it's a very prussing piece of advice. Given the conversation in...

...my last question, what's one bold prediction for what's coming down the pipe? Talking about a lot of things that are kind of coming, but but give me something specific here. Is a bold prediction you think, because something I can bring you back in a year and and I'll hold your feet to the fire on whether I got a right or not. Or a couple of years maybe. I think you're going to see two to three of the major banks build their own consortium around internal payments, like real time payments. So the ten or eleven banks that you are were all smaller midsize institutions. I see a bank of America's city, a US bank, stepping up to the plate and doing it and really the legitimizing it and legitimizing and just pulling out the big broad network and saying hey, we can, we can get it here, we can, we can make it, and then all our our tp becomes the thing that you know isn't relevant anymore from the Fed. Right, and starts leading to more questions about why do we have to wait for the Fed to change underlying technology? Right? Why can't we have internal loops within our financial system across, you know, between stitions? Yeah, that's a pretty specific and pulled predictions. I think you met all the criteria. I like it or it. Thanks again for make the time today. This was a fascinating dive into a whole bunch of topics, but I really appreciate your insights. Yeah, same here, Jeff. Thank you, it was great talking with you. Up Start Partners with banks and credit unions to help grow their consumer loan port folios and deliver a modern, all digital lending experience. As the average consumer becomes more digitally savvy, it only makes sense that their bank does too. Up Starts AI landing platform uses sophisticated machine learning models to or accurately identify risk and approve more applicants than traditional credit models, with fraud rates near zero. Upstarts all digital experience reduces manual processing for banks and offers a simple and convenient experience for consumers. Whether you're looking to grow and enhance your existing personal and auto lending programs or you're just getting started, upstart can...

...help. Upstart offers an into in solution that can help you find more credit worthy borrowers within your risk profile, with all digital underwriting, onboarding, loan closing and servicing. It's all possible with upstart in your corner. Learn more about finding new borrowers, enhancing your credit decisioning process and growing your business by visiting UPSTARTCOM Ford Banks. That's upstartcom Ford Banks. You've been listening to leaders and lending from upstart. Make sure you never miss an episode. Subscribe to leaders and lending in your favorite podcast player using apple podcast. Leave us a quick rating by tapping the number of stars you think the show deserves. Thanks for listening. Until next time. The views and opinions expressed by the host and guests on the leaders and lending podcast are their own and their participation in this podcast does not imply an endorsement of such views by their organization or themselves. The content provided is for informational purposes only and the discussion between the host and guests should not be taken as financial advice by companies or individuals.

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