Leaders in Lending
Leaders in Lending

Episode · 1 year ago

Looking Towards the Future of Banking w/ Richard Hunt


Banking is changing.

The industry is at a transformation point. Consumers by and large have shown that they are ready to conduct their banking online. And the events of the last year have only accelerated this trend.

In this inaugural episode, we’re joined by Richard Hunt to talk about what all the changes mean for the future of banking. Richard formerly worked for SIFMA, a securities industry trade association. Now, he is the President & CEO of Consumer Bankers Association (CBA), a trade association focused on the consumer side of banking.

Some topics that we covered:

  • How trade associations, like CBA, support the banking industry
  • What the future of banking looks like under the Biden Administration
  • What banks are focusing on as they move to a more digital experience
  • Upcoming priorities for the CBA

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

What has happened in the past year probably exacerbated what would have taken the banking industry probably ten years when it comes to digital transformation and adoption. You're 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 more let's get into the show. Welcome back to the leaders and lending podcasts. I'm your host, Jeff Keltner, and I'm joined today by Richard Hunt, the president and CEO of the Consumer Bankers Association. We talking a little bit about what's going on in Dcee it and how it affects the banking industry. Richard, first of all, thank you for joining us. Yeah, you bet. You listen to your previous speaker. I film will to embarrass that I took the elevator to the eleventh floor. You know, they say some of the old time guys just took the the stairs instead of the elevator. That's how they stayed in shape. So maybe we need to take a que out of the old playbook. You've been CEO of the CBA for twelve years, if I've got that right, and before that you were at Sythma, which I think is a securities industry trade association. For those who are listening who are less familiar with the trade associations in DC and the CBA in particular, can you just give us a little like what is a trade association? In specifically, what do you guys do at CBA and how do you work with the banking industry in general? Yeah, it's when people or companies of like interests come together to form a group in Washington DC to represent them on Capital Hill and with the industry as well. I know there are some ten thousand trade associations in the world and there are probably about twenty with financial services. We've been around since one thousand nine hundred and nineteen. We have a little special niche and that's called the consumer side of banking, not the investment in New York side, not the commercial business side, large business, but the experience of the Retail Bankers Association. Think about any experience you have walking to a branch. That's what we represent. Excellent.

Well, that's who we work with. So we're glad of you having a conversation today. So I know you guys are in DC and we obviously just got through a pretty interesting election cycle and I expect they'll be some changes on the horizon. What do you expect that this election cycle tells us about the future of banking? Well, I think we're at a transformation point and your company's right in the middle of it. Obviously we just had an election. I have been in Washington DC since one thousand nine hundred and ninety three are worked on Capital Hill for some twelve years. I know every nook and cranny of the capital. So it's very interesting, unfortunately, to watch what happened on January six with rioters. So we have a new team in place in Washington DC under their Biden Administration. And this last year with the Kovid situation, which of course we still pray for each and everybody who's lost a family member and help everybody is safe and healthy, but it has taught us quite a bit over the past year about the trends of the consumer themselves. What has happened in the past year probably exacerbated what would have taken the banking industry probably ten years when it comes to digital transformation and adoption. Now I thought this began about a five years ago when grandparents, in order to talk to the grand kids, had a text or learn how to text. Grandkids don't want to talk anymore, they don't want to call anymore, they want to text. They don't need to even facetime anymore. So once grandparents started learning how to text with her grandkids, I knew for banking that could be all good, and I have been a big fan what I call the fin text, the selicon valleys of the world. I thought they taught banking something we could not teach ourselves and that consumers, customers, were ready to go digital. So I said, how we represent the experience of the branch. We represent now the experience of the entire customer expectations, and my have they changed. I now think some of the biggest banks in the country, the...

Bank of Americas, the JP morgans, the wells, they're now just as much as of a Fintech company as a true fin tech because all three of them individually spend about ten billion dollars per year. Just don't technology ten billion per year. Most banks in this country do not have ten billion dollars in assets. So I see a major transformation, major branch consolidation finally, finally happening in this world, in this country especially. I hear the same thing from bankers that you do, which is kind of this digital transformation was on the mind, but it was going to be a ten year transformation and now they're trying to get it done into where do you see him focusing on what's most important from that transformation? I mean it's a little bit of the branch. I hope covid exacerbated this with no branches are available, so things that used to be in the branch can't be in the branching more. Where do you really see them focusing on? You know, getting to first in terms of moving things into a more digital experience? Yeah, I think it has to go in a couple of different steps that all happen simultaneously. One, they have to get rid of branches and I would not be surprised if we had thirty percent less branches over the next three years. Now usually average about two percent consolidation of branches, but think about the recent mergers. Sound trust and it was now trust. So trust and BB andt consolidating branches. There Bbva and PNC. So you're seeing those for major banks becoming to and with consolidation they're going to get rid of branches. So I think you see that first and foremost. And then, I think finally and you see the rest of the banks being able to offer checking accounts online, I think, mortgage applications across the board online and small businesses online as well. So I know to you that's the dinosaur era, but you have to keep in mind we are the most heavily regulated industry in the country outside of probably nuclear industry.

So every time we take a step we have to be in full compliance with the fair lending laws. Can we reinvestment laws? Some of the laws that, quite frankly, you don't have to partake in like we do. So some fan text have a head start on us, but many of our banks have now caught up. Many of you, like you guys did, are partnering with Banks. So I don't think it's either are I think it's a combination of fin text learning with banks how to think about the twenty one century customer. That's a great point. I'm curious your thoughts. You know, as you mentioned, the very largest banks have huge technology buzzets and kind of a build here mentality. But I'm curious how you see banks think about the fintach ecosystem and you know, are are they competitors? Are they friends? Are we kind of doing a build by partner and how that might have evolved as are looking at accelerated timelines to get to the digital future that they see. Yeah, so about eight years ago I kept on here and how the Finn Text were taken out the bank and the bank was a dinosaur and all the action was in Silicon Valley and California and Utah and Austin taxes and how the banks are about to come up obsolete. So, sorry, I find fair. I want to have to San Francisco and I visited three fin tech companies and then I went by Visa and I visit with the guy named Ryan Backanerny, who was the time away as president of visa. He had been head of retail banking at chase and I sat down with Ryan and I said, Ryan, I got to tell you I just don't see how fin text were going to be profitable over a long term because you need the deposit base to make all these loans and I said ninety nine percepti ninety percent of Sel kind of valley. I don't think we're going will make it. Ryan looks at me and goes richer, you're part of the swamp. You've been in Washington too long. You're just dead wrong. But the nineteen percent, he thought ninety nine percent of fintext would not be in existence ten years from now,...

...but the one percent that still would be in existence would complete and change the entire banking landscape. He just didn't know who the one percent was going to be. And you have seen of the last six years many of the fan text go under or partnership with banks, and I think that's where we are today. You're seeing fin text partner with banks. Look, bankers do not have the wherewithal of fintech companies to think outside the box. Most bankers don't. So I think now we're entering into the pure partnership stage. You seen some of our banks by technology and some invested internally and do it themselves. A lot because of the compliance factor, we have to know our partners as if they are a true member of the bank. Because of the ruggortor arena. We have so I think we started off as pure competitors envious of each other. Actually, banks were envious of you because you guys were doing things that we could not think of doing. How dare you talk to a customer talk over a chat or doing everything with ai or doing everything go on a computer? Now, that's not the way you do it. You're supposed to sit down with your banker, I to eye, and talk. So we're envious what you guys were doing, but now I think it's much more of a partnership. Now there are some people pent texts or true competitors or trying to become a national bank charter. We're trying to make sure it's a level playing field. That's all we ask for. We will love to compete with the new socalled non banks, as long as it is a level playing field. Yeah, it's it's a great point. I'm curious to you know, when we look at some of the fentax and upstart in particular, looking at not just digitizing but bringing more advanced analytics, things like machine learning at Ai, into various parts of the bank, whether it's the marketing space, where I think banks have done this more traditionally, or are credit underwriting is...

...maybe the most interesting area of fraud prevention. You know ky se AML stuff, but I know that there's lack of guidance or clarity in some instances around the regulatory regime or are rules of the road, so to speak, and I'm curious if you see any emotion towards helping banks better understand how they can't, can and in the guard rails. I need to take advantage of those technologies. Yeah, I think we're getting there, but you're not going to have an answer by the end of this year. You have a brand new team in Washington at the CFDB, at the OCC, soon to be at the FBIIC and the Fed. KIMRESS doesn't move too fast and neither do regulators. They usually like to got to throw the things on their books too. If they gotta do things going to do, but they also have to understand the world moves much faster than it used to and everything is at warp speed. So I think we're going to get there very soon. Ai is very interesting because of fair lending, because it's CRA even that could be very subjective. How do you underwrite through Ai? So it's a brand new territory and brand new frontier for us all, but we're hoping the CFPB and the OCC especially, they a lot more attention to this. So you know what the rules of the road are. I'm glad to hear that you're optimistic, because we certainly been engaged with those regulators and it seems to me they all see the possibility and just want to make sure we've got the right guard rails in place to make sure these things are doing a good job and not a bad job. Yeah, and if you died, you guys here we get bored in the FINTECH industry and want to come to WASHINGTONC and work with the regulator. We would love to have you, because the one thing the regulators don't understand very few bankers and very few of what I call it tech savvy individuals. So I know you all would like to be a government bureaucrat in Washington the place. Come and help us. Richard, you may not believe this, but I get linkedin that's to become an OCC examiner all the time and I'm not quite sure how they're targeting me, but I always find it pretty musing. At the SEC thinks I would be a good examiner. I'm not. I'm not convinced I have the skill set for that. They have great benefits, yeah, but they do. Yeah. So outside of that, what are the key policy changes that you see maybe on the horizon? I know there's a lot of talk about, you know, where the new team may shift, what the focus would be. What are the things you're kind of looking at as the most likely places for for changes in the construct right...

...now? Yeah, I would store with the Consumer Financial Protection Bureau, the CFPB, at something Senator Elizabeth Warren Massachusetts started. I think it's started with good intentions, but it got overrun by people who I think are anti banking and anti banking products. One of the several things were looking at a small dollar liquidity needs. We all know that some fifty percent of all Americans don't have enough money. They're checking account to take care of a five hundred dollar financial emergency. Now think about that and this country, half the population don't have enough money and they're checking account and that's where we stepped up in the banking industry. You guys are doing that with your unsecured products. They have people meet that need. I wish that product did not have to be in existence. I wish everybody had enough money to pay their bills each and every month. That's not reality. That's fantasy land, and so we're hoping that our banks, some tenzero banks, can get it back in here and help people with short turn a quidity needs. I remembered DIG Bova, stock analyst, who grow up in the New York Brons area. When he was growing up, his parents needed money and they couldn't go to a bank, they couldn't go to credit he and they went to the mafia, literally the mafia, so the Mafia is really not that ancient, and he had to get money. and He's thinking today, where do you go for short term money? If you can't go to a bank or a FINTAC and you've exhausted your credit card, you're going to go to a paid a lender or even worse than online lender, and that's going to be very, very high interest rates and you get into this mount of dead in a debt trap and everything else. So that's one of the things we're going to be trying to get the Bion administration to understand the plight of every day America and make sure the banks or a heavily regulated entity have the ability to offer these products. The government...

...got rid of this product in two thousand and fourteen and so many people were mad at us because it was a very popular product, had a lot of safeguard safe for els to it as well, and we're hoping we can get back into that one. Excellent. And what are your other priorities? Is a CBA for this year. I'm I'm curious what your members are asking you to focus on up now. That's what the government's going to going to do, which is kind of the external side, but what are your priorities in terms of the areas and things are pushing on outside of that? The small dollar and kind of short term liquidity needs? Yeah, we got a short several initiatives. One is something you may have heard of, the paycheck protection program that PPP. Our CBA membership has been front and center since the last March up and some five million small businesses get back on their feet. Our banks move heaven and earth to help get these programs out. Our brand new government program that was created our by eight days. We're back in the middle of another draw now to help people out. That's one. I tell you. Another initiative that we're not going to just talk about it, but do something about it, and that's racial equality. Obviously, you know what all happened during the summer. Banking Industry is has been historically made up of white guys and we have to double down on our efforts to encourage those with diverse backgrounds to be part of the banking system, because they are America as well. As you see, the demographics continue to change, but it's time to stop talking about it and time to start acting about it. I would tell you this. I think the banking industry has done an extremely good job recruiting promoting women, but we missed the boat, I think, on people of Color, and shame on us. So that's going to be a major priority for us, also helping get this economy moving. So with the PPP, racial diversity as well. We know that once all the vaccines are distributed, to keep your fingers cross. We're doing better. I hope that there's going to be a pent up demand, which means a lot of people are going...

...to be asking for loans and we have to be a safeguard that we do not go back to two thousand and five, two thousand and six and seven and provide mortgages to people who do not deserve it. When I say don't deserve it, then't have the credit quality to do it. So we see a big boom happening in this country sometime after this summer and sometimes in the banking industry it's better to make sure we protect people instead of just pushing loans and products their away and making sure they can actually afford to pay their bills. And I go back to the wild wild west of the early yeah, that's certainly a thing we focus on as well. I think an area where we see a lot of opportunity for improvements an underwriting around real affordability, kind of looking at cash flow and different kinds of metrics that they can help lenders understand better what the real capability to repay is for borrowers, which is really a kind of a critical thing to make sure you're lending not just a lot but lending safely into people who can really afford it. So my last question for you and then we can see if anybody else as questions. But it's a Fintech that has chosen the partner with bank route and not the compete or become a bank through the OCC charter other ways. You know, what's your advice on what we can do to be a good partner to the banks that are that are members of the CBS? I think that's we'd like to do that, but we definitely come from the technology background. We're not bankers for the most part. Gear it upstart and we'd love to understand a little bit your advice for fintext look into partner with banks. How do you go about it? What are they looking for from a partner and what can we do to set ourselves up to be a good partner to banks? So I'll say they're two items I would look at. First and foremost, the boring one. Compliance. We are scared to death of our regulators in Washington DC. So before a bank wants to partner with the FINTECH, they have to make sure the FINTECH has one hell of a compliance department and cares about compliance. That has to be in your DNA. And I don't like lawyers. I'll be the first to tell you. I've never seen a group of people say no so many times on a daily basis. But you need them, Yep, they have to keep you out of trouble. So you better double down...

...on your compliance, because if we sniff anything out of order, we're gone. Banks are gone and a herd beating. Quite frank there a lot of you out there right now, so the competition is pretty fierce. Number two, you got to tell banks something. They don't know. Where is the consumer going? We're going to have our conference up here pretty soon and we're going to have a bunch of Penelius. We're going to tell us what is real and what is not, what habits have changed from the customer since last March eleven and what is going to go back, what will revert and what is permanent and a systemic change. So that's the great value. I think you can add, and I if you think this is true, is the technicological divide over? Is there a difference in the acceptance of technology among teenagers to boomers to the older generation? I think it's pretty well done. Keep in mind from birth to death, from birth to death, you can have the same telephone number and same bank with a rote deposit capture and everything else. And yes, I'll be the first one to tell you I banks were slow out of the gate when it came to technology, but you guys had an advantage and took advantage of an our plaise you for that. We had our head down after the two thousand and nine crisis fixing our ship. We had a lot of cracks in our show and we had to catch up. So anything you do can do to help banks catch up to your world would be most helpful. Richard, I I agreed. I'll just say I think one thing that was under appreciate in Silicon Valley was the advantages and benefits and actually capabilities at banks had. I think there was a lack of appreciation for what banks would bring it to the table and we think the best future is kind of bringing the best of the world's together and take advantage of banks to wholen retail banking isn't easy. If it was, everybody would be doing it. It's hard a scraping pennies out of Alan and complying with the regulatory burden. Biman sacks is now trying to get into a retail bank and they just...

...made an announcement they're not going to make money for years and everybody think Biman sacks the greatest thing since sliced bread and they know how to make money. Total be you know what else? It's hard. It's tough. It's tough. ISS Well, I appreciate your conversation. This was a great conversation. We appreciate your joining us and thanks so much for your time. Yeah, look again. You guys want to become a regulator, come on a washing DC. We got a place for you, all right. So we'll in with a call for applications for up starters. Another listeners the podcast who like to be come regulators. That's thanks for time. Thank you. You. Bet. Upstart 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 to upstarts. Ai Landing Platform uses sophisticated machine learning models to more 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 lenning 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 forward banks. That's upstartcom forward 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,.

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