Transcription:
Penny Crosman (00:04):
Welcome to the American Banker Podcast, I'm Penny Crosman.
Sarah Biller (01:06):
Thank you, Penny. It's so nice to be with you.
Penny Crosman (01:08):
Sure. So you grew up in Appalachia and you have spoken in the past about how that upbringing shaped your views on access to financial services. What kinds of work do you think still needs to be done on that front, especially given recent events in this country?
Sarah Biller (01:30):
Yeah, Penny, that opportunity, as I look back on being a child of the mountains and being in a very tight community where people helped one another, it was quite a driven community to support each other, which included, if you will, sitting on the second pew every Sunday with our bank president, our little hometown bank. And so observing really this idea that had been posited probably 3000 years ago with the advent of banking in the Babylonian days, and that is to bank people to build a relationship and understand across generations. And I think when we think about today's environment for banks, one of the things of course we see is that you see the contraction in the community bank sector and the larger banks really being the environment in which technology is much more prevalent. The cores have been more rapidly digitized, the ability to sweep deposits and serve customers in a fashion and where you meet them where they are, which is largely in the digital world.
(02:51):
I think that I blend those two life experiences, one, observing the criticality of banking services and credits to a small community in West Virginia with today, seeing the importance of how technology can be the bridge into a new community and doing so and somewhat struggling today, I'll admit, to establish those trusted relationships, that effort we have around using technology to personalize and understand and anticipate the needs of our bank customers. Where is fintech playing there? And then lastly, it is fulfilling the regulatory requirements that go back to community banking. Do you know your customer if you're using or if you're fully operating in the digital world? And so I think it was a great upbringing to want to build a bridge, that natural next nexus of moving from an analog and physical world into an immersive and digital banking environment.
Penny Crosman (04:01):
And it seems like at this point of time, people are being especially financially stressed as we talk today, and this might change in the next few days, but there's a possibility of food stamps simply not being issued next month, which means 42 million people would not get their access to food stamps. How do you think that might affect all the people in this country who are living paycheck to paycheck?
Sarah Biller (04:29):
Yeah. Well, I think the first thing we have to observe is that the household balance sheet in our country, to borrow a term from our Federal Reserve banking system, the household balance sheet is fragile. And in many cases, the 40 million people we're talking about can be tipped very quickly into severe financial distress. We may argue that they already are because they're using food stamps, but this need to actually secure money to actually close the food gap that they would've done through government programs is a clear and present challenge. It's one I think that we look at too. If I just kind had to marry that through, where is fintech for good operating? You have oftentimes these people participate almost in the shadows of our economy. They're not fully embedded yet in our banking system and able to avail themselves of the real power of technology, which is to do micro lending at scale in a cost effective way.
(05:39):
And again, meeting the compliance of Know Your Customer and BSA and otherwise. And so I think we're going to see, just like we did in the credit crisis of the mid-2000s, I think this crisis that's being set up of diminishing people's ability to actually get the fundamental thing they need, which is food, will set us up for another moment of self-reflection in the fintech innovation community and one that opens up the aperture to do good in this period of a crisis. It is not directly answering your question about how to help those individuals, but I see a future for where entrepreneurs who, particularly in the bank tech space, will have a new opportunity to figure out how to touch those lives. And if we don't, it's going to be a difficult moment, I think, for the banks, because I might add and underscore a lot of that economic distribution, those deciles that are actually needing food stamps, they're walking into large retailers like Walmart and they're using the digital wallet and they've been able to have their benefits placed on those wallets and used in those environments. That may create a new opening for organizations like that or firms like that to consider where they fit in the whole banking strata.
Penny Crosman (07:08):
Well, so you mentioned microloans a minute ago. Is that something that you feel has really helped people, because I know consumer advocates tend to have mixed feelings about those with fintechs that offer quick small loans. They often come with some kind of tip or fee that advocates often say is excessive. They'll compare the tip on a short term loan to an APR. And because it's so short term, the A PR ends up being hundreds or thousands of percentage points. Where do you land on that whole idea of these fintechs that offer these quick loans with some kind of fee?
Sarah Biller (07:54):
Yeah, I've looked at them closely because of the power of community to be established in the fintechs that are offering micro loans. As a bank director, I tend to land on the other side though, which is that today, which would not have been the case, I'd say even three years ago, maybe even 18 months ago, we do have the emergence of new capabilities, new fintechs who are enabling, not catering, but enabling the banks themselves to understand with more persistence and more continuous learning about their customer needs and be in a place to deliver those micro loans themselves again in a cost-effective and compliant way. I'm at my home today in Boston, and we have a really interesting fintech company called MFI here that we heard from during Boston FinTech week, talking about their multi-agent platform that begins really with unpacking the needs of the borrower and looking through unstructured data in a more holistic way to deliver credit at quality credit advice to the banker in a matter of seconds, not days, not hours. I can see that being applied in a way in the near future that even bypasses the need for the bank. And maybe actually Penny addresses the concerns that you've just voiced that I think we all have is it's not a physical payday loan environment, it's a digital one in some of these micro lending environments. Let's bring back common sense banking and use the technology that's available to us to meet the needs of the customers where they are.
Penny Crosman (09:51):
Are there any other innovations that you've seen among fintechs or of banks in the past three years that you think have really been significant or made a difference in people's lives?
Sarah Biller (10:03):
Yeah, I think I have. There's actually quite a few I think themes that you can pick up on that have made a difference in people's lives. I think they can largely be, again, bucketed in that concept of the infrastructure. It's not the pretty front end that I think matters for these fintechs, but it's the middle and back office. Again, just kind of drawing on our work at FinTech Sandbox. We just have an extraordinary lens globally in our support of these entrepreneurs. And we have a company PHI, who is actually helping the Latinx community in the U.S. establish identity. And when I think about those types of things, the increasing need to know your customer really, again, I'm a huge fan of digitization and everything we're doing, but it does increase the aperture of risk when you're not face-to-face with who you're banking. When I think about companies that have done something great, there's one example about helping banks more efficiently meet the needs, automate their KYC, meet their tech needs that we're working with. It's a discreet population, but it's not limited to that. So that might be one example beyond the one that we just talked about, about how you can actually develop a continuous learning in your credit modeling and anticipate the needs of your banking customers like Eva NFI has the capability to do.
Penny Crosman (11:42):
And have you seen any bank fintech partnerships bear fruit or really do something useful?
Sarah Biller (11:52):
I laugh we can't see one another. It's almost like a gut punch, but I'll say for all intents and purposes, I still marvel at the relationship that formed between Plaid and JP Morgan, even the ups and downs in that. But it really serves as a proof point for all of us around the secure data connectivity between a fintech and a bank can be established. Not withstanding the current involvement, actually outcome of the Plaid- JP Morgan relationship, but that's one that we look to in this next generation of need for the infrastructure to be improved for data to feed the AI agents and models that we know can enable the next generation of banking.
Penny Crosman (12:46):
Well, yeah. I know giving fintech's data is a focus for you at FinTech Sandbox. Can you just explain why is that so needed, so important?
Sarah Biller (12:57):
Yeah. Well, first off, it's very personal. Like most entrepreneurs, you have your greatest success when you solve a problem that you yourself had. And for me, I had a predictive analytics platform for institutional debt investors and was unable to get the data I needed to price my credit spreads and anticipate if you will predict the widening or contracting of those spreads. And so I knew what it was like to have to fight for the data to feed the models that would allow you to have the proof point that our customers who were interested in this idea, they were interested. We were analyzing quite crudely, by the way, non-financial factors and using a lot of natural language processing and machine learning to build those models. And we needed the data to of course prove that we could demonstrate outcomes. Fast forward to today, all innovation and financial services by and large, that makes a meaningful difference, whether it's payments, whether it's lending, most certainly I know it firsthand in the institutional and retail investing space in banking.
(14:13):
Again, all of those are data-centric challenges. And if we can't figure out how to help these innovators move faster to the procurement of the data, they need the demonstration of that data. We will quickly hit a stall point in this cycle of innovation that is by and large being completely, completely kind of AI is eating the innovation landscape. And if they don't have the data to train the models, it won't work. I'm sorry, so many words to tell, it's personal, but it's also not possible to advance innovation in banking without having a representative data set of what you're trying to build.
Penny Crosman (15:00):
And just in case people are familiar, how do you get the fintechs the data they need?
Sarah Biller (15:06):
We have worked over the past decade with an extraordinary group of data partners from the market data community. We work with over 40 of them to make their data sets available today. It's quite frictionless through an API key on an unlimited basis for six months to the entrepreneurs. The expectation is those entrepreneurs are at a place where they can actually ingest the data. They have an ingestion layer and a capability to analyze it and demonstrate how that data is being used, not only back to the data partners who themselves are in a discovery mode about what is the next level generation of innovation innovators thinking about how to use these data sets, but we share it with our industry partners who sponsor our work. It's the only way we can do this for free for the entrepreneurs and then also build up a global community. Data knows no boundaries in this world, but it does come our source of truth does come for the major data partners.
Penny Crosman (16:21):
And these data partners, are they banks? Are they like LexisNexis or market data providers?
Sarah Biller (16:28):
Yeah, thank you. Good question. They are unstructured data like LexisNexis and mining through the information on legal filings. Dow Jones is a tremendous partner of ours, but it goes all the way through to plaid. I mentioned earlier Marvel, what they've been able to do, but they have stepped forward to give back to the next generation of entrepreneurs. They are the major, the FactSets, the Equifaxses and S&P Globals, there's six in Europe. Our entrepreneurs today that we help support through providing them this access to data are in 19 countries across five continents.
Penny Crosman (17:15):
Wow. And how many fintechs have used the platform?
Sarah Biller (17:21):
We go through a very positive but rigorous interview process. And so we're just over 410 that have used it. And just a little proof point that I think makes this labor of love even more important: 84% of the companies we've accepted across that decade are either still in business or have been acquired and they go on and they've raised just shy of 3 billion of capital. And what I want to know is how many whys have been changed by these fintechs? And that's our next data point, penny. So I'll give it to you once we figure it out.
Penny Crosman (18:04):
So just going back to the bank-fintech partnership concept, we've seen a lot of strain on bank-fintech relationships the last few years. We've seen a lot of consent orders on banks because their fintechs didn't handle AML/BSA compliance properly. We've seen the Synapse mess where the banks and fintech's ledgers were not maintained properly and there's still millions of dollars missing for the end users. What do you think we might see in this evolution of bank fintech partnerships and what do you think it takes to have a really strong bank-fintech partnership that works and where nothing gets lost or falls through the cracks or goes awry, but where things go smoothly to everybody's benefit?
Sarah Biller (19:04):
Yeah, I think what we're seeing is the moment of maturing in the fintech entrepreneurial community. When I started building my companies over a decade ago, I don't think we had that. There was a lot of hubris and maybe modest if any regard for the regulatory guardrails that had been put in place and well learned. I think that has changed, and it hasn't been an overnight outcome. It has been building, but certainly what happened with Evolve really prompted that. So I do think that there is an expectation on both sides today or an understanding that transparency and accountability on the part of the fintech that's working with the bank in particular matters to the success of both organizations. And it's more than a trust compact. It actually takes work. So I think that's one thing.
(20:11):
I feel like we have an expectation at Thread as an example, as a board member, a director, that we will be presented with fintech programs, which we are. And there's a lot of rigor that goes behind it that the fintechs that are working with us come with a level of enterprise readiness and understand the conforming conventions that are necessary to meet our regulatory requirements. And I feel like that's a service that we need to be offering as bankers back to a fintech community that's extraordinarily capable and innovative and hardworking. I think we need to give them sort of the rules. So I do think it's a maturing moment, as I mentioned. And the other thing, I think Penny that's happening because I've seen it now, my inbox is a bit overwhelmed with companies that are building for the next sort of explosion of finops companies. They're using AI to improve the environment, the operating and regulatory requirements that banks are facing across the entire continuum of activities. So I get it in that silver lining moment out of the really challenging times that we see with Synapse comes a cycle of innovation of individuals and oftentimes more mature banking executives who have stepped out and said, I can build what the banks need to have the bridging moment that creates the transparency and accountability between the bank and the FinTech.
Penny Crosman (21:50):
I love your optimism. I'm going to call you the next time I'm having a bad day.
Sarah Biller (21:55):
Please do.
Penny Crosman (21:55):
So when you think about the year ahead, what are some things you expect or hope might happen in this whole ecosystem of fintech and bank innovation?
Sarah Biller (22:09):
Yeah, I definitely hope that we continue down this path of learning about how AI enables a much more personalized experience that we return back in a digital form to that which we saw, as I mentioned to you as a young girl in a small community with a banker that I knew intimately. I think that we'll continue to see the application of AI moving that direction, but in a way that also needs to be in a place where it can develop the trust compact. I do foresee a time when Penny, you'll be an avatar and I'll be an avatar and our avatars will talk to one another, right? They're already, in many ways, the AI agents are already doing that. There's a permission layer that's possible that allows the training of AI models to know me, to know you well, and to know me as a banker well, and you give it permission to act on your behalf.
(23:18):
That's both a blessing and a curse, right? Because you think about the potential for profitability compression that exists in a fully thematic and frictionless world like I just talked about, or AI agents are working on behalf of individuals on the banks. So I do see some of that technology beginning to take shape in the coming months and year. And one that will also require, again, to take a step back and evaluate how technology doesn't do harm to the resilience of the banking sector, but also to the individual it represents. And I think that's underscored by the idea that we'll probably see new and differentiated business models began to be created in the banking sector and in their partnerships with fintechs. I could see a much more fluid way, for instance, that interchange fees get fractionalized and shared among many parties as opposed to the way that it's done today in the banking sector. So those are some of the things on my mind and what we're watching for as we work with fintechs.
Penny Crosman (24:27):
Alright. Well, Sarah Biller, thanks so much for joining us today and to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Adnan Khan. Special thanks this week to Sarah Biller at Fintech Sandbox. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.