Leaders in Lending
Leaders in Lending

Episode 80 · 1 month ago

Bringing Consumer Tech Innovation to Commercial

ABOUT THIS EPISODE

Innovations in fintech have significantly improved the consumer lending process, but the same hasn’t been true for the commercial banking industry. Lending time for middle market businesses can take up to 100 days,nd that lag time to accessing capital can slow a business down incredibly.

Fintech has invested less in optimizing the lending market for commercial businesses and Allan Rayson, Chief Innonvation Officer and Chief Technology Officer at Encore Bank, is determined to change that. Allan spent the majority of his career in commercial banking and recognizes the need to streamline the process for extending commercial credit.

Join us as Jeff and Allan discuss:

  • Where the inefficiencies are in commercial banking
  • Opportunities for smaller community banks to come together with Fintechs to make innovations in consumer lending more transferable to the commercial space
  • Focusing on data interchange, underwriting and negotiations to level-up middle market lending   

Want to learn more about how Upstart partners with Banks? Check out this case study mentioned in the episode.

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, and more. 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 Alan Rayson, the Chief Innovation Officer Encore Bank and American Bankers Digital Banker of the Year. In a Little Change of Pace, Alan and I talked mostly about commercial banking and how some of the same lessons and efficiencies and optimizations that are being applied to consumer lending really apply in the commercial space and can increase the pace of money. Is b hag of getting that pace of money down to ten days? Is big, Harry and audacious, And the three big buckets he sees is what needs to be improved, data interchange, underwriting and negotiates and some of the back office work. And finally I asked a little bit about his history and fintech is starting a company there and the lessons he was able to take from that experience while working inside of a bank. There's a lot of interesting lessons that apply to lenders of all sorts in this conversation. So please enjoy my conversation with Alan raising. Hey, Alan, thanks for joining us. I appreciate your making the time to join us on the podcast today. Yeah, thanks for having me, having me. Let's do this. Let's do it. Well. I've begun starting all my interviews with the same question, which takes roughly the form of most of us didn't grow up dreaming of being bankers, digital or otherwise. Um, you know, it wasn't on my my list as a ten year old. So I love to just hear people's kind of career paths that led them to where their acts. I find there's a lot of interesting stories in that. Yeah, that's great when that's a great when you can put me in that same category. I did not, did not grow up thinking thinking I would spend my career in banking. Um. Let's see, went to went to graduate school at tex A Tech, was coming out of graduate...

...school, and if I'm if I'm being perfectly honest with you, I needed a job out of graduate graduate school. And then and the banks were hiring. So that's my that's my honest that's my honest path. Um. I came out of grad school and in December of two thousand, right before the right before the dot com bust and right before nine eleven. Um and and honestly I needed a job and the banks were hiring. Well there you go, law of economic rights, supplying demand, my NEETs demand, and there we go. Um. So, you were recently named American Bankers Digital Banker the your congratulationship, Thank you very much. That's a very cool honor. But when we were talking earlier, you kind of mentioned that you spent a lot of your time in commercial bankings. So I love to delve into what you see happening in the commercial side, because I think so often our digital conversation focuses on consumer experiences, the Google or Amazon effect and mobile apps and you know, kind of a very consumer you know user, we're all users of the mobile of the you know, digital banking, and so that's a natural place to go. But I'd love to hear what you see going on and what your objectives are and kind of in the commercial sides. I think it's a fascinating, slightly different topic. Yeah, I appreciate you asking, Um, I did I spent I spent the majority, maybe two thirds of my career in the in the commercial banking space, so you know, either as a as a commercial banker or a corporate banker. Um. You know, you and I were talking about this. I think I added it up one day. And have you know, have worked on in some capacity several hundred commercial or corporate loans over the years, um, you know, probably close to half a billion dollars and commercial commercial debts or kind of grew up as a well, I don't love the term grew up as a as a commercial lender, um, which is which is kind of the term I'm gonna you know that it's a it's a good question. There's always the bankers want...

...to be called bankers, not lenders, um. You know, And in the spirit of being an advisor to a you know, to a middle market business owner, you want to you want to be a banker and an advisor and not and not just a lender. So there's a bit of a connotation. Fire right, you want to be a little you want to be a little just the supplier of cash, That's exactly right. So there's a lot to explore in that in that commercial space for sure. UM, you know, a couple of a couple of things that I'm that I'm personally invested in and working on. UM. I think we have a big problem in the in the commercial lending space, specifically with regard to how long it takes for middle market company to access capital. UM. You know, we've we've seen so many just candidly awesome developments on the on the consumer lending side, and then even even at the lower end of the small business space. Consumers and truly kind of micro and small business owners can can access capital in a matter of hours or or a couple of days. But as we think about you know, middle market companies, that fifty million dollar manufacturing company in Austin, Texas, it takes them months to be able to be able to access capital to you know, put five to fifteen twenty million dollars and in capital together. UM, that's a big problem that I see in the commercial space. Why do you see that that that maintaining that length? I mean, it's it's interesting. It's the same thing I hear from people in the helock space, like, you know, they're losing business. That's been a declining business for years overall, and a lot of them see people think two personal loans or other ways to find stuff in large part because it's still days time to money, and they go, we gotta we have to solve that. And I've heard all that reason, but I'm curious, why do you think there's...

...still such a timeline? What is it that takes so long? And what do you see happening that can help us reduce that time span? Yeah, there's three three buckets that I focus on and my you know, one of the things that I want to do with the with the rest of my career, um, is solved for this because I think, you know, on average across the across the commercial ending space and commercial learning industry, it's probably one days. Um. You know that that time to money equation. I personally think we can take it to ten. It's gonna take a lot of work. Um, But that's what's it called a be hag. That's my very Yeah, be hags, that's that's mine. Um. And it really it really kind of falls into three main areas that create a lot of the problems that that that create these inefficiencies that you know, adds days and weeks to the process or um, you know, kind of kind of first first problem is how data gets to banks. It's very very inefficient. Banks are asking for fifteen to twenty pieces of information, much of which gets emailed to the bank and a PDF for an excel file something like that, and then has to be ingested for lack of a better word, which which requires a an analyst or a human to take that information and and put it into the systems that we use. That's that's kind of the first you know, that's the first big bucket of inefficiency that I see in the space, and clearly with you know, open APIs and the ability to pass information pretty freely through freely but securely. Let me say that, um, you know, the ability to pass information is is pretty efficient these days. So I know that we can solve for a lot of things in that first bucket. It's the...

...second and third that that really present problems in my mind. And you know, the second is that underwriting and negotiation process that takes place because as as the bank has received all this data, then you got to underwrite it. And you know, there's a lot of humans involved in that. But even that can be automated at scale. Because while complex, we're still talking about pretty straightforward P and l's balance sheets, cash flow statements, aging inventory reports, things like that. Um and it's just data, it's just numbers and modeling, you know, to be able to decision off of. And there's still a lot of work in that second bucket that can take place. And then and then last, that third bucket is you start thinking about all the work that takes place in the back office of a bank and with you know, with outside legal counsel, um, you know, to be able to be able to document that ten or fifteen million dollar middle market you know, see an I loan. There's a lot of inefficiencies that are that are in that third bucket that can be that can be automated. So at least, I mean that's one person's opinion, right, that's that's a way over simplified explanation of of where those inefficiencies are. But I think it's a first step. Um And and I've even started challenging the fintech community and like, help me solve this, you know, help help was it Jerry McGuire, help me help you? Um, you know, let's let's find a let's find a way to to solve this together, because it is when we do that, we have accelerated the the time that it takes for a middle market company to access capital. And it's a complete game changer for the business owner. Yeah, it's there isn't really interesting buckets, and I think you're right so...

...often, you know, I find in the consumer space it's so helpful to remember why why you do it and the impact and making credit available to consumers can be really impacted buying a home, every financing debt, buying a car. But for businesses it makes a tremendous impact in the local economy. It's the difference between growth and not growth, taking advantage of new opportunities and not being able to. It's um such a tremendous value. If you can do that for the businesses that you're supporting, I couldn't agree more. I mean, if you if you think about the you know, if you think about the middle market, middle market business owner, I mean they're employing good you know, middle market is as defined by a bank is is typically you know, maybe twenty million and grocery revenues on the low side up to so you half a million on the high side. So you're talking about companies that are employing fifty hundred five hundred people. Um, you know in need capital as as you and I talked about capital and people are the lifeblood of of business in the United States around the world, certainly are in the US. So anything we can do to you know, to help them, Uh, is time well spent. And why do you mean you talked about you know, asking the almost imploring the fintech community help me help you. It is true that a lot of fintech innovation has been focused on consumer experiences consumer products. Um, why do you think there's not been more investment from FinTechs into these kinds of opportunities because they don't sound frankly that different from what's going on in many places of the consumer world. Simplifying data interchange, standardizing data format so you can do them through APIs instead of document presentations, automating underwriting process, and then improving upon the accuracy of it. Like why do you feel like do you have an idea of why? And do you see FinTechs moving into the space now, Yeah, I think they're Um, it's certainly not just...

...one thing. I mean, it's commercial. The commercial space is very, very complex. You know, as as you think about as we think about making a loan to a consumer, we can you know, generally make a make a loan to a consumer um and automated process off of off of fewer you know, a smaller data set or fewer pieces of data, and you can still make a good decision about a consumer loan. On the commercial side, that data set goes from you know, a five you know, a five page application. You know you're you're obviously digitizing all of this goes from five pages to fifty or eighty you know, or a hundred pages of information that that one would need to ing to be able to automate the commercial lending process. I'm only saying that because it's exponentially more complex. You know, every every commercial loan is different in some regard, whether it's you know, the company is is doing doing business a different way or variety of different spaces, um, you know, the business businesses operate. And I think the simple answer to your question is just it's just a lot more complex, um you know, to automate the process of of extending commercial credit than it is that it is consumer credit. I would just say to the fin techs out there that are listening or the possible founders. That complexity is also an advantage when it comes to, you know, building a moote like a harder Remember when we were starting upstart, I cus to ask me sometimes like how hard is this to do? And I'd say, really hard. It goes good, It's gonna be much harder for anybody else to follow. And I think that's a gooder mind of the Complexity is sometimes not a bad thing to tackle because it does build a lot of advantage if you get right. I think...

...you're right. I mean not I happen to be inside of an inside of a community slash small regional bank. Um. I mean, we're relatively small in the in the grand scheme of things, but you know we probably do a hundred and fifty million, two hundred million a month and in commercial lending, which is not bad for you know, not bad for a community bank. But I think it's the opportunity that I see is community banks and fin techs coming together to be able to be able to solve for this much more efficiently than a money center bank that's doing three billion a month in commercial loans. We've got to we've got to kind of start on the you know, maybe smaller side of smaller side of commercial the commercial lending space, to be able to really do this right versus trying to solve it at the at the top end of the space. Super large deals are all like, I mean, however much more complicated your ten million dollars c any loan is, and then a consumer loan your five million is equally more complicated and easily justifies the cost of people in headcount, And I think it's it's harder to make the case that you can really improve the outcomes work. I imagine part of the benefit is not just speed to money, but also the ability to scale the business. For a community bank can actually serve a large number of banks that sorry, large number of businesses and customers. Yeah, I think you're exactly right. I mean, all of us are all of us that are that are running banks are very focused on efficiency, ratios and a you know, a couple other couple of the metrics. But as as we're able to as we're able to automate the commercial lending process, you know, even if we're only doing dred fifty two hundred million a month, as you automate that process, you can you can run You can run the bank with a with a...

...leaner team of credit administration professionals, um, you know, back office professionals, even even commercial bankers. Um, you can you can run off of off of late, off of leaner teams because you've automated so much of the process, you know, and you get such a in in you know, in theory, you get a much better result from an efficiency ratio standpoint. M hm. So do you see anything interesting happening here? Are you seeing the beginnings of movements of interesting technologies or people actually making dents in these three big buckets? Yeah? I am actually, Um, it's exciting to me. Admittedly, we gotta we got a long ways to go, um, and it's going to take the banks and the fin techs coming together to make it happen. But in in that first bucket, you know, what I would what I would come in on is the ability to access and ingest data today for a bank is exponentially easier than it was even five years ago. So you start thinking about the opportunity to a p I into you know, with with all of the right acceptances and US permissioning and all of that. Clearly that those are table stakes, um. But the ability to API into a into the accounting system and be able to be able to ingest data, um. You know, the as you think about accounting firms and the data that lives inside of accounting firms, I mean we make loans off of data that's been validated by by an auditor. Clearly that's you know, a mission critical component to it. But even the accounting firms are moving into the modern API world, which which will only make it to only make it easier to you know, access access data there. So you get the idea and that in that first book, it the ability to access and ingest data, um,...

...you know without having to without having to take several weeks to have a client email you pdf and and excel documents getting much easier to get into your own internal version of you knows look like yeah, I mean that that feels like the foundational layer, right Like, if that's there, that's the you know, to to do the automation, to improve the underwriting, to to to simplify the back office. The first thing you need is like the data in a in a readable, manageable process herble format. And if that, if that's happening, it feels like it. It opens the door for lots of innovations farther down that stack, so that you know, that first bucket becomes becomes much easier, and that in that second one, which was you know, the lack of a better word, underwriting and the negotiation peace or bucket. I mean, I'm saying, I'm seeing several firms UM automate the process of small business lending. You know, say say up to I've seen I've seen a couple of different firms just in the in the last few weeks. But you know, say that that small business that's looking for up to two fifty thou dollars in capital, which is not an insignificant amount of capital, but we are you know, I am seeing firms that are solving for that that smaller side UM of the you know, of the business. Over time, I think we see those those models that they have developed evolve and and be able to work in in bigger and bigger loan sizes, you know, more more at scale UM. And then last thing I would come in on is, you know, we we're seeing some really interesting technologies and transformations on the in the back office of banks. UM. I'll reference one if...

...that's okay. A firm called Compliance Systems is helping us UM with the process of digitizing documents in you know, in in the spirit of an integration with our with our l os. You know, if we have if we've got a company in Texas versus a company in North Carolina, you know, that's a you've got you've got a different set of state laws and a different set of dynamics to be able to manage through from a from a legal perspective. So Compliance Systems is helping us automate UM you know, a big component of the documentation process, you know, within within what we're trying to do on the on the commercial side and the consumer side, specifically commercial side. So to answer your question, we're seeing some seeing some really meaningful moves in the you know, in in those three buckets. But well, you know, the industry, even despite those moves, hasn't hasn't really seen that time to money come down in a in a really meaningful way quite yet. I think it's such a great metric for how you're actually you know, measuring success. You know, can we can we reduce the time to money? I always focus on both kind of the in what we call the input metrics, the things I can control, and the ultimate objective, which is often a little harder to like, no one thing is going to solve that, but it is. It's always kind of the true north of like, here's what we're trying to achieve. I love your b hag of ten days time to money for commercial loans out. We can do it. Hey there, I'm David Brand, s VP of Lending Operations a Share and View Federal Credit Union. When we saw our members turning to personal loans to consolidate and pay down their debt, we knew we needed to improve our digital process. We were able to launch with Upstart in just sixty six days without any heavy lifting or hiring...

...any additional staff. Best of all, we've been able to work with our account manager to adjust our loan volume and returns given the current economic environment. If you want to learn more about how we've been able to scale to ten million dollars a month in personal loan volume and acquire over members to expand relationships with, you can check out our case study on Upstart dot com slash Lenders. That's Upstart dot com slash Lenders. Thanks for your time. Now back to the show. I wanted to touch on one area before I before I hit you with the lightning round, which is I know you you founded like a payment spintech company a while ago, um, and we don't have to get into the details of that, but I wanted to know we're there. What what were the best lessons you took from being on kind of the you know, a different and the fintech side of the houses house as you've gone back into the banking side of the house, like, what do you what were the things you learned or saw that you thought were really useful lessons and that you've been able to take and apply within the content xt to the more traditional financial institution. And that's a great question nobody's ever asked me about before. UM. I like to be original. Yeah, well done? What what I learned? And admittedly my background is a little, um, a little funky from from the standpoint that I came from the business side of of banking and and sort of evolved over to the technology side of banking. But I think what it really taught me was you know and and where, and what really helps me is understanding of business outcomes. Four banks have I'm blessed with a lot of a lot of good knowledge around how banks make money. Um, you know, across the twelve to fourteen businesses that were ultimately all trying to run at the same time, got a good understanding of the business side of things and and how banks drive revenue and make money and also have a good understanding because of you. Because of that work in the in the...

...fintech space and the software development side of things and technology side of things, got a good understanding of how to make money in the banking space and a good understanding of tech and can kind of bring those two things together to produce real outcomes versus you know, kind of winging it. I guess, um, you know, on the on the technology side, we tend not to work on a lot of things that we can't turn into revenue in a you know, in a pretty short period of time. I love that answer. I read this interesting book called The Great Game of Business. I want to say is what was called but the having everybody in your entity understand It's one of the things I worked with upstars, like I want everybody to understand, like how we make money, where the advantage the ability to make money comes from, and how what they're doing impact margins, profitability, you know, like, how do you fit into the ultimate economic engine that is the business because it's it's very easy, I think for many people to do their job within within a certain context without really understanding what the flow of value is in the business and how the business really makes money and how you're contributing to that, particularly technologies like just build the thing that they're building, right, without really understanding where it connects to the ultimate value chain in the business and how it how it adds value. That it's such a critical thing for I think everybody that there will be some career advice toel like if if you're ever in a business and you understand how it makes money, like how it really adds value and differentiates and makes money versus competitors, and how you're contributing to that figured out because you never really because when you do, you're gonna crush it. Yeah, and then you're going to really understand what the real priorities for the business are or should be. Um, because that's it's really at the end of the day about that. I like that, But that kind of leads me to my my lightning round, my three final questions I have questions, I say, three last questions, So here they are for you, Alan. Number one, what's the best piece of career advice you've ever gotten? The best piece of career advice I've I've ever gotten came from a guy...

...named Craig Coddle. This is this was many many years ago. Um, you know, as I was coming out of grad school and you know, as as I told you needed a job, but you know, um, Craig's Craig's advice was advised to me. It was, no matter what you want to do in your career and in business, you know, he said, Alan, you've you've got an opportunity to go, um, you know, ultimately work for a bank that's going to pay you to train you as an as an analyst. And I always look back on that. I didn't necessarily understand it at the time, but his advice was, you know, go learn, learn and learn as much as you as much as you can inside of that bank because it will inform, you know, basically whatever you want to do in your in your career. So I owe I owe Craig Coddle if he's out there a lot, because that that one piece of advice has stuck with me for you know a lot of yours interesting. I like that, and I certainly always advise people. One of my favorite piece of Cruperrice is like optimized for learning. Don't optimize particularly early in your career. Don't optimize for money or title or you know, brand name of company, but optimize for the opportunities that will And some of those things are not bad. But like whatever, whatever you learn the most from is typically going to give you the most value for an opportunity. So I love that. Uh. Second piece of second questions, what's the best advice you've heard about the commercial banking sector? What's the what's the advice when you got into the industry, the thing you learned and said, hey, this is the thing is stuck with me. Oh goodness. Best advice in the in the commercial sector is is never stop paying attention to what the client needs and what those you know, what those what those middle market clients are are looking for, um, and what they need. You know, sometimes they'll tell you straight out, sometimes they'll tell you, um, you gotta you gotta read between the lines. But I think the point is don't ever stop to talk into your...

...client because ultimately, you know Ultimately that's you know, those are the those are the folks that are that are making things happen at and the you know, the entrepreneurs and the innovators and people like that that are making things happen in the business world. Um, so don't ever, you know, don't ever stop talking to them. I that's that resonates with so many people come on say that, don't forget like focus on the customer, like provide value to your customer, be that consumer or small business for a large business or bank or whatever like like that. It's not the easiest thing to do either. I mean, we all kind of evolve in our evolve on our career and end up end up taking on you know, bigger and bigger roles, and we sort of when that happens, we get farther and farther away from the client, you know, trying to run businesses and things like that. So you've got to be very purposeful about it and very thoughtful about it. But you know, even as you even as you rise into the into the c suite of a bank or otherwise, you know, don't ever stop talking to your old to your old clients. Always talk to your clients all right, last question, you've made one that we're gonna ask you. These are good. What's one bold prediction for the future. You've already got your ten data money be hacks, and we're not gonna let yougether bold prediction for the future. Um, you know, I think I think it goes back to what I'm what I'm most excited about, and that is the evolution of fintech into the into the commercial side. I mean, I think I think we all have the ability to to really change the game, um, in the in the commercial side of fintech. As we think about you know, the opportunities that exist in in commercial lending, certainly the opportunities that exist in business payments. I mean, the more we can speed up money, whether it's lending money or you know, the time that it takes for a for a company to get paid and actually get you know, get money in their account...

...two to three days, and you know, in the US is is kind of ridiculous at this point, you know, getting getting to real time payments, getting to a place where we can extend capital, um, you know, to those to those business owners and meaningful amounts. I guess my bullet prediction is we're going to get there, and it's gonna happen. It's gonna happen sooner, sooner than we all think. I like that so often technology like we're waiting for it forever and then all of a sudden, like happens very rapidly. When it comes right, it kind of caches you by surprise, like that's two to three days to get money. That's still shocked me. Sometimes still it's changes coming. All right, Well, thanks so much for making time to This was a fascinating conversation. I appreciate your sharing your perspective and insights with the audience. Absolutely thanks for having me. I appreciate it. Up Start partners with banks and credit unions to help grow their consumer loan portfolios 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 lending platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional credit models. With fraud rates near zero, up Starts 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 learning programs, or you're just getting started, Upstart can help. Upstart offers an end too 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 quarter. Learn more about finding new borrowers, enhancing your credit decisioning process, and growing your business by visiting upstart dot com Slash four dash banks. That's upstart dot com Slash four dash 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 Podcasts. Leave us a quick rating by tapping the number of stars you think the show deserves. Thanks for listening until next time.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (86)