Leaders in Lending
Leaders in Lending

Episode 45 · 9 months ago

From Cultural to Digital Transformation: Aligning Incentives and Exploring New Products

ABOUT THIS EPISODE

For a long time, banks didn't fully understand the value fintechs provide.   

As partnerships with fintechs have grown, banks are experiencing that value firsthand, and they've also discovered an economic model that is a win-win for both.  

In this episode, Matt Deines, President & CEO at First Fed, shares how he vets potential partners and how he ensures that the economics are aligned so that everyone can benefit.  

We discuss: 

-Why digital transformation starts with mindset 

-First Fed’s fintech partnership journey 

-How to align financial incentives in a bank-fintech partnership 

-Ways to better target customers across the credit spectrum 

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.

Who want to create great platforms, great technology experiences, but we also have to understand what the what the primary goals are, what we're trying to accomplish, and just getting better tech or better Ui doesn't do the trick. 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 to leaders and lending. I'm your host, Jeff Keltner. This week's episode features my conversation with Matt Dinas, the CEO of First Fed Bank. First feds a community bank based in Port Angeli's Washington, which Matt tells me is the northwest corner of the northwest region. I though it was really fascinating discussion. Mass starts off by telling me why he thinks digital transformation is really the wrong objective and how you should really think about that, and not not saying digitals not the future, but is saying that thinking about it is digital transformation might lead you astray and how you think about what's really important about that? Not kind of dives into their fintech journey. They've made traditional partnerships with Fintax but also done some interesting approaches, including a joint venture. That I think is a really interesting and can talk about why different approaches may make sense, but also the skills you need to be effective and developing and building fintache partnerships to build better experiences for customers of your bank. And finally, dives into a couple of different opportunities he sees across the credits spectrum. Maybe different ways to add value and it meet the needs of your customer and really take advantage of of missing opportunities in the market the others aren't capturing. Things are really fascinating conversation. Lots of great nuggets for everybody. So please enjoy this conversation with Matt Dinas is, CEO of First Fed Bank. All Right, Matt, I appreciate your taking time today to join us and share your thoughts really really helpful. Jeff, thank you so much for having me. It's truly an honor and looking forward to the conversation. Yeah, I was really struck by something you said earlier because there's probably no topic that comes up more often as a critical thing that every bank needs to be focused on right now than digital transformation. In my understanding is you feel like that focus is misplaced. So tell me a little bit about your thoughts are on digital transformation, because I feel like you can't have the conversation with the bank or the last ten words of less two of the ten or digital transformation. Well, I don't there's any question about that, and I do think that we've all been on a digital transformation journey for a long time. When all the way back to ATM's and and first using computing equipment and then obviously going from green screens, you know, a lot of a lot. I used to sell green screen machines, believe it or not. Yeah, my first intact and the upgrade into, you know, some sort of Gooi interface and whatnot, and all the way along and rolling out online banking. Would that be the end of branches? And and then, of course, into mobile and bill pay and so many the other technologies are to come along and some of the things that are happening today are that are somewhat mind blowing how much our industry is changed. But you know, the reality is, especially for our community financial institutions, it really starts as a cultural transformation and really a way of thinking about our business and really providing an understanding about what we're trying to accomplish here. We're trying...

...to provide better service and more value, less brain damage for our customers so that they will want to stay with us and that they won't leave us to another bank or Fintech and that they will give word of mouth referrals or be raving fans of ours. And so you know, of course we want to create great platforms, great technology experiences, but we also have to understand what the what the primary goals are, what we're trying to accomplish, and just getting better tech or better Ui doesn't do the trick. We've really got to make sure that we're focused on our ultimate goal of growing business, of creating better brands and better awareness and relationships with our customers, and you can't do that even with the best technology. Is Really got to be a mindset and how we go about running our business. I really like I think it's an interesting point. The starting with the cultural transformation and I like that your third point is less brain damage. I mean usually it's more and better. Is What we all focus on. But less brain damage is good because certainly many financial services involve a lot of brain damage to the customer and acquiring them. Talking about how you approach cultural change and what you think that means, because I think maybe sometimes we focus on the digital transformation because it's such an obvious like did it get executed or not? Did it launch or not? Is it can I open my account on my phone or not? Is like a yes no, and cultural transformations are harder to quantify, harder to drive in some ways, harder to know what's working and not. How do you think about how you how you effectively do that and how you measure your success and and shifting a culture? I think it's a much harder problem. It is, but it's also a lot of fun. You know, I think you have to start out with a vision and and then you have to communicate that vision about what you're trying to accomplish and I think you have to sometimes overcommunicate. I think sometimes executives keep things close to the vest. You know, one of the things that we've done here at first fed as we've talked a lot about what we're trying to do and why we're trying to do it. I think there's a fear, and I think it's largely unfounded, with a lot of legacy or traditional bankers to think, well, they just want to replace me with the machine, they want to replace me with an APP, and that's really not the case. I when we think about this outside of the industry, There's eleven million jobs available in the jolts report and and not enough people to fill those jobs. So that's really not where we're going. You know, what we have set in our organization is a concept called here, which is hire the best people, empower them, hold them accountable and reward them, and we think those are the important things. Good people want to be held accountable, right, but they need to be empowered to make good decisions and do things on behalf of our customers. And of course, if they do those things well and they follow the good guidance that we give them in the best principles that we give them and they bring in great business and we're successful, then we reward them and we all get rewarded together. So you know, that's a big part of it. I think there's so many great ideas from within every single one of organizations and they have to be told. But Hey, I want to hear what you have to say. We talked a lot about inclusion. Well, a big way to provide a higher level of inclusion is to ask people, what do you think? And...

...it seems like a simple question, but it's amazing when you ask the answers that you might that you might hear. Yeah, no, I love you. Got The acronym here here is that's a really nice acronym and one of our executives, I think, is we've grown as I'm sorry, it's interesting. You talked about overcommunication and I think it's easy, particularly in a leadership group, to know what's going on and not communicate enough. And one of our executives uses a praise all the time. Repetition doesn't spoil the prayer, and I can think about that a lot that. You know, to really get the message across, you've got to repeat it constantly. Probably by by the time you're sick of it, they're just starting to understand it and really and really internalize it. So you got to really do that. I did want to talk to you about, you know, execution of digital you know, when you when you see these technologies, how do you think about in the context of cultural where it makes sense to apply digital, where maybe you focus on a more one to one or traditional relationship approach, and how you measure the success of, like a deployment of a technology or the choice to deploy a technology against the solution versus a human powered, you know, operation, which I think is sometimes is the right answer. Yeah, I think it depends on what you're dealing with and who you're marketing to and who your client base is or who you want them to be, and so you know, their technology solutions for so many things, whether or not that be something as simple as accounts payable or whether or not that be an account opening solution. You know, what we're really trying to do is to make things more convenient for our employees and our customers, and I think there tends to be an overemphasis sometimes on business development of new customer acquisition. There also needs to be an opportunity to say, how do we make your jobs easier, how do we take our people and put them in the position to have the bandwidth to add value, because those relationships do matter, and particularly in community banking. A big reason why so many folks come back to their community banks or community financial institutions is because they want that value at whether or that's advice, whether or not it's just a smile or hey, can you explain this to me? You know, sometimes there's things that a that a chat bought or an Faq can't supply, and and maybe the answer is the same. Sometimes it's just the packaging that you give it to them in. They want to know that there's someone there that they can talk to when they when they have a question or concern. Yeah, I think that's so true. That I mean, I certainly find that that I want. There are moments when I want that person and the more you can empower that's your second right empower and power that person to actually add value and be enabled with the right tools do that, the I think, the more happier customers are, but also your employees in to find that more rewarding. Right now, think they don't actually like to do a lot of the things that are being automated in the first place, but right and there, you know. So there's the the fear, you're right, of losing a job. Really it's like, do you want to keep you know, reviewing w two is to see if they match stated incomes. Like I don't think you want to do that, and so you can, you know you can. You can offload that the empower them to really have a more value added discussion with your clients. I think about like Zappos, you know, originally where they have a certain amount that they could spend to deliver happiness or delight their customers, and we have quite figured...

...out what that solution is. But you know, I always love that, like what it means to a customer to get flowers from their teller. I mean, you know, that would be amazing. Yeah, and that's that's your point, the cultural piece. I Wass have ever heard the story about and Tony Che started Zappos, but he like called him one time and from somewhere not near the office, didn't tell anybody who he was and like got the Rep as Appos to order him a pizza to as a to his to his hotel, just as a demonstration to people about how how much their team was culturally set up to just your job is to make the customer happy and if they cut called the order shoes, great, and if they call and they need to help fighting a pizza joint in like find what people going to do that leave them happy. I thought that was a fascinating example of what it really means to have a customer service culture that puts the you know that clients happiness and satisfaction at the top of what your objective stack is. What it's a mindset, right. I mean, more than anything else, it's the way you think about serving your customers and what your job is. If your job is just to provide a balance or to make a transfer, then that's probably what you'll be good at. But if you realize that you're really there for service and commitment, you know, those are things that I can get my mobile APP to transfer money between my accounts, no problem, right. But yeah, but if there's something else that's behind that, that's something more. That's where of the I think, the human touch comes into play. I want to talk a little bit about fintext. I know you you've been on a bit of a journey in terms of partnership or engagement with fin text. Tell me a little bit about kind of where you started, where you're going and what that journeys looked like. Sure, so you know I was at the CFO of a community bank in Seattle for sixteen years and I had the opportunity to oversee the finance and accounting group but also operations. It all the core processor and relationships, the mobile banking, Bill pay other types of strategies. Even back then really heavily focused on e statement and some of those things to try to say, save money and costs. I ended up leaving that organization in early two thousand and eighteen and considering starting a digital first bank and and wound up working for a small bank for a short period of time and then coming to first fed. And throughout that imperiod, entire period of time, what I realized was, especially in two thousand and eighteen two thousand and nineteen, you were seeing these tremendous valuations on fin text like Upstar, and community banks were getting valued in a much different way at all banks in general, so that if you earned a dollar for whatever reason, that was valued at a much higher valuation than if a banker and a dollar. And so I said, well, that's interesting. You know, I've seen a lot of companies like the Cross River and others that are that are participating as partners with thin text and at that time they weren't necessarily getting value. Now, as of lay within the last twelve months, you see the coastals and the TBBK's and the silver gates of the world at tremendous valuations because they are being recognized for what they provide. But what I thought was we want to own part of the FINTECH relationship. I want to have the rights to some of that valuation as it goes up. And so, as a result,...

...in late two thousand and twenty, early two thousand and twenty one, we formed a joint venture with a company called Quinn. We have formed the brand and ended up doing a partnership with a startup company called peace of mind to offer a product called lifestyle protection to provide financial wellness to folks who are really needing it. I think there's a huge amount of interest in demand for financial advice, for financial support. Many people feel like they don't know where to go, where to turn, and so we took that on as a way for us to try to help provide support to those folks, but also from a from a business standpoint. You know, we had true skin in the game. We weren't just a sponsor bank for this particular outfit. We are their sponsor bank, but we also have happened to be a significant investor. That's interesting. Tell me a little bit more about what what Quinn does and what peace of mind does. Said, I do think there's this. So much of the advisory area is focused on more well, to do right, like K versus my Wrath II versus my IRA and different investment strategies. I love to understand what those guys you know, what you're tackling with those, with those solutions, targeting the you said, the less affluent, you know population. Yeah, absolutely, and and you know, I mean it could go across the spectrum in terms of affluence, but really folks who are doing like they're living paycheck to paycheck, that they don't have emergency savings and that, you know, given all of the uncertainty over the last twenty four months, many people are very concerned about their job security, even though, you know, unemployment is low and there's lots of jobs available out there. And so what we've done is created a product that is packaged along with a relatively small limit credit card offering, and what it provides is a form of financial support where we will make your most important payments if you lose your job, above and beyond what you might collect from unemployment, will make payments on those most important bills for up to three three months, thousand dollars a month. And what that does is, if you're collecting unemployment perhaps you're able to pay your rent or pay for your food or pay your card payment, hopefully, but you know, people are really worried about paying for their cable bill and their Internet, paying for their cell phone bill, paying for Netflix, those types of subscriptions, which is why we call it lifestyle protection. You know, you've got the hopefully you've got the needs taken care of from your basic unemployment benefit. I know a lot of people did with the supplement them provided by the federal government, but then you've also got these other things that are truly important, that you have come to expect and there are a part of your day to day life that you don't want to give up. Interesting. That's a fascinating product. How did that? Did you find them with a we're did the bank kind of enter into the journey of the FINTECH and development of that product? I'm always you seem to have a more active role in this and let the Dell into that kind of other relations with the context, like where were you guys at in the journey of developing that product or where were they at when you kind of got connected with them? So when I first came to the bank, I mean my goal was to actually start a Fintech from within the bank, so separate brand. So we worked with a great company out of Seattle called turnstyle studios. That actually helped us to...

...create the Quinn brand. We had a brand and a concept and somewhat of a preliminary go to market strategy and we were looking for technology partners and folks who were experts at customer acquisition. I mean community banks historically are great at one to one customer acquisition, the one too many piece, you know, we leave a lot to be desired. It's not what we're good at. So we wanted to find partners who were. Yep, the two gentlemen that started Quinn wanted to come from quobo and then other one to come from a company that he had found. It called the vetter, which was an onmin account opening platform that's sold to the small meat the Midsize Corp Dci in early two thousand and twenty. They were looking for a sponsor it. And so we started a conversation and it get and I had known Brian who started better. He had called on me to sell that product several years ago. And the conversation kept getting better and better. And what about this and what about this? And one day the CEO will said to me, Hey, what we guys think about a joint venture? And we said joint venture, like between a bank and a FINTA, and they're like yeah, and so we thought, you know, that's interesting, and so we went back to our board. We had a number of conversations. You know, we ended up making the investment. We're a publicly traded company and we have a bank holding company. We had to go through an approval process with the Federal Reserve of San Francisco, maybe the investment at the Holy Company, and we structured in a really unique way. We actually instead of funny with equity, we've actually are funding it with debt. So we're providing three debt installments to Quinn and to be paid back in the future. And and you know, it's been a really fun and exciting and challenging prospect. I mean you've got a new brand. Yeah, with the new product no one's ever heard of. So you know, it's been fun and exciting and we're in a soft launch right now, but we're really positive and optimistic about where it's going to go. The biggest challenge for us, because we're offering credit, is the demand for the product is down the credit stack right it's people who are or either near Primes of prime, but they need it the most. So so we're working on ways to address that and to hopefully be able to provide a form of Quinn to to those folks who maybe need some help building their credit and their credit score as well. Let me ask you before we dive into that acause I do want to talk about this kind of broadening the credit spectrum that you can serve. But first you've got obviously a very interesting engagement, making a large investment in a fantag more of a joint venture kind of approach. What do you see as the future of the relationships between Fintax and banks? I feel like that's that's maybe on one far into the spectrum. The kind of thin text that are really taking it, a harder kind of a direct attacks that, if you will, on the traditional banking products, is maybe on the far other end. But like, what do you see is where the world's heading in terms of how banks choose to work with FENTEX. I mean, I think if you asked to banks for three or four years ago, it was like the barbarians are at the gate and and we're in trouble. And you know what we found now is, you know, largely three or four different things that have played out. One, you know, you've seen the the radius lending club. We obviously so fars deal. They got approved yesterday. So you're seeing fintex go and get bank charters and they're willing to...

...take on the regulatory burden and concerns and they think the benefits will outweigh the costs there and I think if they do it right there they're probably right. That's not a bad assertion. But you're also finding a lot of text the way that a startup works and lay the Fintech works, the Technology Company works. They don't want to deal with all of the challenges of being regulated and for better or worse. As a bank, you know, we have some really valuable things to bring to the table. Right let me understand the compliance and risk management. We have capital, we have extremely low cost of funds for lending out. We know we have abundant deposits to lend out. So I think those partnerships are transformative. I know it's a lot of what upstart does and the reality is they're great symbiotic partnerships as long as the economics are aligned properly. I really think for a period of time banks didn't necessarily appreciate or understand the value that they brought to the table. I think now that they do. The other thing I think banks are learning is that the economics there's enough to go around. I think there's an economic model that works really well for the bank and really well for the FINTAC and in the case of reaching out to the underserved population in terms of banking, it's worthwhile to those consumers to pay maybe a high rate. Maybe I wouldn't think cheese. I'd never pay eighteen percent for a loan, but for them, if they're alternative is, you know, fifty, sixty, seventy percent from a paid a lender or from some other checkashing location or that type of thing, it gets them introduced into the credit world and then hopefully they can start to qualify for lower cost credit in the future. You said something really interesting there, which was the alignment of financial incentives. How do you think about structures that make sense and getting everybody on the same page, where we've got a financial incentives that are aligned and in an economic structure that works between fent text and banks? I feel like there's to your point. I'm well, I've believed for a long time that fintextually have to either partner with banks or become banks. Were now seeing, yes, we're seeing some that are taking to become banks path and I think anybody who's left in the middle, who's neither really working with banks effectively or or becoming a bank, like it's just not really a viable path as a business model. But how do you think about, for those fintax that are working with banks, properly aligning the incentives in the economics that everybody can win? Yeah, I mean, you know, I think the reality is the there are enough economics to go around and I think it's in the best interest to the fintext to make sure that their banks are being properly compensated for what they're doing. But I would tell you I'm sure there's some negotiations where the banks and Fin Tex come together and agreement, the banks walk way like, oh my gosh, I can't believe you got this great deal. And then there's vintex on the other side of the well, my Gosh, I can't believe we got this great deal. So I mean I do think that there are some of those really great win wins. You know, the Banks Bogie. If a bank is going to do a very low risk or, let's say, credit enhanced extension of credit, they're Bogie for yield is not that high right. I mean there it's really not. And and compared to the alternative that they're getting when they're doing a multifamily loan at...

...three and a quarter percent or a wonderful family loan at three percent, where you know some of the creditings to do carlons at two percent, it's like well, you know, that's not very good and there's some credit is there. If you've got a credit enhanced let lending opportunity, there really is a tremendous upside to a bank to say hey, we're on the low single digits and we're absolutely, you know, tickle paint because there's not much creditors here. And then the optics and the economics for the Fintech are also pretty strong. That's a good point. It's last thing you kind of you can alluded to this like ability to use some of these partnerships to access parts of the credit spectrum. I know, with like the piece of mind eye product, you're really aiming at a consumer who's not, you know, a typical prime consumer from a credit score point of view, probably from an income point of view. What do you see as a future of how we enable institutions, banks, credit unions to actually, you know, better target across the credit spectrum where the opportunities that are in the kind of maybe less less appreciative portions of the credit spectrum? I think there's two or three ways to do it. I mean one of the ways, it seems really successful and is getting more and more in vogue these days as a credibuilder product, where you basically provide a secured loan, and I do think that's a very viable product and one that makes a lot of sense if sold and manage responsibly. I think it's, you know, almost zero risk for the issuing institution and I think could be a really good solution for the consumer in an ideal world, you take out a credit builder loan, you pay it back over twelve to twenty four months. You've got emergency savings right, or you have collateral for another form, maybe a credit card. I mean there there's really some great options there. If everybody follows what they said they would do, I think that could be a real win win. I also think there's certain you know, banks are willing to take, as I said, credit enhancement. So if there were companies that came in, almost like in the insurance where you got to reinsure, if you have folks that said Hey, we'll take a pretty significant amount of this yield, then will provide you credit enhancement for that, I do think if handled right, that could really work and could be a great opportunity. I think right now you're seeing that where some fin tex out there are taking the majority of the credit risk, they're not necessarily depointing as much capital because it may be the banks capital. The bank is taking a good yield, but not as much as they could get, and and and some credit enhancement, and I think that option is also working fairly well where the cost of capital to the bank is significantly lower than it is to the fin yeah, obviously fintext on have I always kind of go back the fundamentals of banking and people what Raisa you know. I don't know what you pay on your loan and what you make on your checking account, but those two things are usually pretty different in that delta is where a bank can make their money and certainly we don't have access to funds at anywhere near at least what I get paid on my checking account. Maybe something making better. Until you get a chart until we get a chartered, that's right. Until well, I'm not that's not an announcement for me that we're getting a charted in and let me show. No, no, I understand. Hey, Jeff. One of the things I want to say that I've noticed, and I have a lot of admiration, a lot of fintext are coming in as vendors right there serving the banks, not necessarily in an economic mutually beneficial way. You...

...know, the bank's hiring the Fintech as a vendor, but we've got great partners for mortgage and online account opening and consumer lending, even even commercial lending. That that, I think, is they play a valuable role. There's a lot of red tech companies out there, hutspells are and helping with Kycaml and so, you know, it's kind of fun to see that. But in almost every circumstance the banks or the financestitutions and the fintext are working together and I think that's where the most value gets created. I think that's right. It's fascinating to me that in some ways we think of that as new, like fintext used to be the barbarians at the gate and now we're working together. But really, if you if you think about the the history of the industry, like you know, your core providers are fintext at some level. Like banks have always worked with technology companies to very few banks like at the core, build their own core banking system. Deposit opening its process, like you didn't do check processing on your own eye. There's a lot of things that have always been, you know, using highly specialized technology players to provide capability, and so it's it's interesting to me that we think of this Fintech Bank partnership is a new wave, but I kind of feel like it's back to basics in the original business model, which was technology companies that were really producing technology that was useful for financial institutions and they would work together to provide the best solution to their customers. I I feel like that's going to be the ultimate winning combination. Well, if you think about it, you know, you look at FIS and Jack Henry, I mean those are two of the best performing stocks over the last twenty five years across markets, and so you know there's been a lot of value for those original fin tax, if you will, and a lot of banks who, you know, I've done really well partner with them as yeah, so I'm excited to see, you know, the new waves of fintex. I think we'll go through that same cycle and end up, you know, some of them choosing. If you are, you know, in the so fi camp, will sizes. I guess today they announced that they're they've been got their conditional approval for a charter. You're going to going to take the we're out of becoming a bank. Of Me that's banks are great institutions. A couple more is not a bad thing, and some that are may be digital first. But I think for many fintax the future of hey, we're going to become a partner to banks, that the provides technology capabilities to enhance the customer experiences. A is value for the institution but also value for the FINTAC. To your point that you can you can do pretty well as a business providing those kinds of services. It's a big unmet need. Absolutely and I think the partnership can lead to, you know, add on products and maybe you start out with one set of products and then you see other opportunities. I think the the data analytics that a lot of the fintext bring to bear is superior and saying hey, you could also offer them this product or you know, did you know they have? You think about what plaid has done. It's like so many finance institutions, banks or fintext or otherwise, have a lot of information about the activity in your account and we've willingly shared that. Right, I do it all the time. And so how do we use that data? And I think that, you know, we think about how we might manage that data within the bank. But there's also opportunities with vintech partners to lever into their skills and capabilities that are oftentimes very distinct from attritional ban yeah, I...

...think that's right. It's very hard to build a technology and organization inside a bank that's at the same scale and depth for those kinds of capabilities and it's it's not to your points, not the core competency and it's those are the best kinds of partnerships where you have different core competencies that are complementary and in the you know, one plus one is greater than to kind of result. Absolutely well, Matt, those are the main topics I had on my list. was there anything else you felt like you wanted to talk about or you expected to get asked and I didn't bring up? You know, I think there's going to be a lot more banks that are coming into this space. I mean there's some there's some great trailblazers out there. We're somewhat of a fast follower. We're looking really hard at what we're doing with partner, with fintext for payments, looking at some marketplace lending, looking at some other ways to provide services in communities and industries that are underserved and you know, it's a fun time. It's probably the most exciting time of my career. It's a little bit harrowing as well, I thinks, like how fast things are changing. Yep, but it's great and you know, I believe in the power of man. You know, we've got a great community bank. We really believe that we could continue to be a strong and viable community bank for a long time, but by adding in some of these fintech partnerships and relationships, we can do both and we think we can do both very well and that one compliments the other. And you know that without the basis of the community bank, the infrastructure, of the capital, of the board, the governance, we wouldn't have been able to go into to the FENTAIC endeavor the way that we have and ultimately we hope to, you know, to reap the benefits of these investments. Yeah, now, I think that makes a ton of sense. Do you have advice? As you, you know, think about how you go into those places and make those investments, how you do it effectivate this something lasts a lot of, I think, bankers that had on here. But I feel like figuring out how to make those partnerships effective, both in terms of, you know, maybe all three, in terms of finding the right partners, executing your getting on board, making a decision process which, for a bank, can be, you know, very bureaucratic. Many instances and then kind of, you know, actually getting into market and successfully managing a program and ongoing basis. I feel like all three of those are skill sets that banks need to develop and I'm curious if you've have any key lessons from your experience doing these things on how you can be effective at any of those phases, because I feel like for a bank to make the most out of those opportunities, I have to be good at, ultimately, all three of these things. I think you have to create an infrastructure and a process but not be too bureaucratic. You've got to be entrepreneurial but also keep in mind, you know, the compliance challenges that we face. You know we've our we found we're getting tons of it bad. So you know, even though we're relatively new into the FINTEX space, because we are are a fin tex sponsor bank, now we're getting lots of looks and opportunity. So then it's really coming up with a proper betting process and really not knowing and trusting who you pick and also understanding that early on it's easy to walk away. I mean it's the if you don't feel good about a partnership opportunity early on, it's easy to walk away. I think it's something that is critically important for for for banks to do they need to know who they're partnering with and, as you said, for fin text, knowing the...

...bank that you partner with is going to be hugely successful, because it's easy to paint all banks with the broad brush, but the reality is there are a number of us who are innovative, who are looking to do things a little bit differently, who do have the expertise in the compliance and the risk management and the and the little cost of capital that I think it's important on both sides to really understand and make a good go through a very thorough wetting process before you make a decision of who you might want to partner with. I certainly been through a few of those wetting processes. They're quite thorough. Well, now, I appreciate your time. I have the same three questions I like to to ask everybody at the end of this podcast, so I'm going to throw them at you now and it would love your thoughts. Number One, what's the best piece of career advice you've ever gotten? Well, I'm going to I'm going to paraphrase because I think it sounds better, but my I work for an accounting firm out of school and the partner there when I worked in the office, is very small office and I'd be out leading jobs and wondering, you know, Mike, what do I do? Like I you know, I'm talking to boards and CEOS and CFOs and I'm a twenty four year old kid, and he's like make me look good, and I thought, you know, I think he actually said don't make me look bad, but may make me look good to him around or positive, and it's true. I mean, you know, you think about it, like who do you work for? If it's me, it's the board, but somebody else, they have a manager or whatever, like what would they want you to do? You know, how do you make them look good? Maybe you're doing something they could never have thought of on their own, but if it ends up being a successful story and you're there and you're their employee, like you're going to make them look good. So that gave me a lot of confidence and I thought, you know what, I can do that and and I think for for the most part that's been that's been a good piece of advice to follow throughout my career. Make me. That's what I tell the PODCAST team every time I record one of thays. Before they get around, I mean make me look good, they tell me there's only so much they can do with what I that's her that's a heavy lift. Is a high it's a high, high order task for them to do. So my second question is, what's the best piece of advice you've ever gotten about consumer banking or consumer lending? You know, I think that you've you've got a really think about the fact that you got people on the other side and you know when you're dealing with someone who's applying for a loan, they're putting themselves out there to be rejected and I think that's really hard for a lot of people and I think that's partly the reason why online applications might be easier for someone to fill out than an in person application, because it's much easier if you just get the rejection notice on your ipad yeah, as a pole, as opposed to someone you know telling you know yeah, and so I think there's a lot of pride and a lot of also some insecurity for people as it pertains the financial decision. So I think really understanding, having the empathy that you've got a person there, maybe finding a way to help them out if you turn them down for a loan, is there an alternative product I might work for them, and really helping them to understand a lot of times people want to borrow money and they don't realize that you could qualify them for the loan, but that might not make it a good thing for them. Yeah, and they might feel good at the moment the lone closes. But but I think it's also important to understand, you know, that whole notion of ability to repay. What's good for them to the understand what they're getting into. And so just understanding it's not just you know, Zeros and...

...ones and credits cores and ai and and ml on all these things, it's also human beings on either side of the transaction. Yeah, I think it's a true there was a really fascinating article about Comorrow, somebody from one of the large credit card banks and they how they kind of like their game, ended up feeling their job, end up feeling a video game, twisting knobs and playing in Excel spreadsheet to make this number go up and that number go down, and and not stopping to ask the question sometimes like is what I'm doing, helping the person who's it's not just a game and numbers and an optimization function. It is ultimately like people. and Are we doing right by those people? And I that's only think anywhere, anytime, you can keep those people at the center of your your perspective and you're you know what you're doing. That's probably pretty helpful. All right, last question. What's one bold prediction for the future? Well, I don't think buy now, pay later as a fat I mean I think that it's kind of falling out of favor recently and some of those stocks and have gotten beaten up. But you know, we've been in the buy now, pay later business in this industry for hundreds of years. And you know what do we do? We trade cash flows, right, that's all we do. So, if you're saving money for a purchase later, save now by later. If you're borrowing money, it's almost always to buy something and it's to buy it now and to pay it back over a term or period of time. Yep, so that's what we do. We facilitate payments, whether or not to be in real time or whether or not a beb know, helping you say for something in the future or not. You know, I think that that's an important way of thinking about what we do and how we do it. And and you know, everything that is is old as new again, right. It's lay away with with a different name and a different time in your cash flows, but that's about it. Do you think that the the new players by integrating into the merchant check out and making things available at that moment? And also, I think the other thing I see is this shift towards a little two shifts, one from kind of the revolving credit card style credit to an installment credit for a time of purchase, which has been not maybe the norm for the past twenty years, and the easy integration of merchant signed incentives. Right, so a lot of those are like zero dollars, zero interest offers. Do you think that they're doing something fundamentally new or innovative in that space, because it feels like a part of me thinks everything old is new again. We've been doing layaway for decade. Leader's not actually new, and part of that does feel like a set of capabilities that have been brought to bear that are that are at least in some way meaningfully different than what was available for consumers beforehand. I don't think there's any question about that. I mean it's really a new payment rail right, and so using the master cards. So to me the beauty of it is and granted of eastern Massacar is typically extension of credit. But you know, you've got this notion of a different payment alternative. Maybe the merchants willing to pay for that, both as a cost of sales but as an alternative to paying for interchange and and to the consumer. Yeah, maybe they do think it's better and maybe, if done properly, maybe that is in certain cases better for the consumer. They know like, okay, these eight weeks or whatever, I'm going to have this extra money coming out and then it's paid for. And I think that notion of embedded finance with the merchants, I mean it's coming. You know, it's going to be interesting to see how that continues to evolve. I think that's a little bit of an overused term, but I do think it's a real...

...thing and and it's impressive of nothing else. I mean you look at the affirms in the afterpays in the cars and it's like wow, how did they do that? I mean they are all the way in some of these huge merchants. Yeah, and really, you know, the lead form of payment for many transactions today. Yeah, it's a pretty impressive execution on their part. All right, I like it, Matt. Thank you so much for your time. I appreciate your making it today and joining us and sharing your perspective. Upstart partners with banks and credit unions to help grow their consumer loan port folios and deliver a modern, all digital lending experiments. As the average consumer becomes more digitally savvy, it only makes sense that their bank does too. Up Starts ailanding platform uses sophisticated machine learning models two 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 lending programs or you're just getting started, upstart can help. Upstart offers an into end 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 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 as 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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