Show Hosts:

Brett King

Jason Henrichs



Show Guests:

Zachary Warmbrodt

Jill Castilla

Brandon Dewitt

Patrick Davis
=================================================

Brett King (00:06):
Welcome to Breaking Banks. The number one global fintech radio show and podcast. I’m Brett King.
Jason Henrichs (00:13):
And I’m Jason Henrichs. Every week since 2013, we explore the personalities, start-ups, innovators, and industry players, driving disruption in financial services.
JP Nichols (00:23):
From incumbents to unicorns and from cutting edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m JP Nichols and this is Breaking Banks.
Jason Henrichs (00:48):
The novel Coronavirus isn’t just a health pandemic. It’s highlighting critical societal and economic issues. Nowhere is this more apparent than the paycheck protection program. Today on the show, we talk about lessons learned from the last crisis. Some of the lessons we should have learned, but didn’t, and how banks, FinTech’s, and regulators are responding. We have four guests. Zach Warmbrodt, a financial services reporter for Politico, talks to Brett and me about his view from Washington. In the second half of the show, Jill Castilla, CEO of Citizens Bank of Edmond and Brandon Dewitt, CTO of MX, talk about partnership and how tech can help Main Street. And in the last part, Patrick Davis of The Community Reinvestment Fund, a non-profit that acts like a fintech to bring lending to under-served communities. Today’s show is brought to you by Jack Henry Digital, the pioneer and creator of personal digital banking that helps community FIs translate their trust and live local personal service meaningfully into digital channels for the first time. Jack Henry Digital helps community financial institutions strategically differentiate their digital offering from those of the megabanks, big techs, and FinTech’s.

We’re with Zach Warmbrodt, financial service reporter for Politico joining us today to talk about the view from Washington as we enter what feels like month infinity plus two of the COVID pandemic and ensuing economic meltdown.
Brett King (02:17):
It does feel like that.
Jason Henrichs (02:17):
Yeah. It’s, what day is it? What time is it? Is it happy hour yet? So Zach, take us back to 2008. You landed in D.C. to cover a different financial crisis. Does this feel like déjà vu all over again?
Zachary Warmbrodt (02:30):
Yeah. And thanks for having me, by the way. I really appreciate it. I’ve been at Politico covering financial regulation since 2012 specifically here and I feel like this is the moment everyone in Washington has been kind of preparing for who deals with financial policy. It’s been trying to set up the safeguards for the banking industry so there’s not a huge financial calamity like we saw in 2008 and nine. And it’s been pretty interesting so far to see at least on the traditional banking side, things seem to be working okay. I mean, there’s obviously been some fed intervention in the markets, but I mean, I go back to like the last time I was on Capitol Hill, maybe we’re allowed to be out and about, and watching a meeting with President Trump and the banks and Bank of America’s CEO, JP Morgan Executives, they were all there saying we are well-capitalized, we’re liquid, and we’re here to help and that’s kind of how they jumped into this thing. After years of kind of fighting these rules and regulations, it’s now they’re actually in a pretty good spot, I think because of it.
Jason Henrichs (03:37):
What do you think was different this time? Is it actually the rules that were in place? Is it just speed, were we better prepared in other circumstances as a result?
Zachary Warmbrodt (03:48):
Yeah, I think the banks are in a much better position now just because they’ve had to undergo so many layers of new regulations since the United States enacted the Dodd-Frank Act in 2010 and the real focus of that law was to prevent a repeat of 2008. So in some ways it was kind of backward-looking at what led to the last crisis, but you do have banks are required to abide by much higher capital requirements now, there are requirements on what kind of liquid assets they hold in case of a crisis, so they can have access to cash. And there’s just been a general discouragement by the government and the regulators of banks taking the kind of risks they did that led up to 2008. So, I think all that together, that’s why you don’t see a problem right now with the traditional banking system and the stability of it right now. I mean, we’ll see how this thing evolves, but right now, banks have a credible case to make that, hey, we can continue lending. We could agree or disagree about how much they’re actually helping consumers and I get plenty of that on both sides, but it does. It definitely seems like you can’t say that there’s currently any banking crisis.
Brett King (05:06):
Yeah, I’d agree. I think it’s very interesting to see Jamie Diamond came out and said in the last week or so that we’ve got to fix this problem of inequality. I’m a big fan of Will Durant, Lessons of History, lessons from the Lessons of History, lessons from history, where it talked about the fact that if you look at the sort of level of inequality we’re experiencing now in the United States, that whenever we’ve seen that level of inequality, historically, it typically ends up in revolution, either a sort of political revolution or overthrow of the status quo or a self-imposed revolution where you reform things to adjust inequality. And so the financial crisis has really emphasized that but from a policy perspective, even though we’ve been discussing socialism and its impact on the U.S. economy and infrastructure and things like that, we seem to be a long way from really addressing the fundamental causes of inequality. What do you think the feeling is in Washington? Do you think there is a spirit of willingness to address that or is it we’re a long way from that?
Zachary Warmbrodt (06:18):
No, I do think in the last few years there’s been a growing recognition of that. I mean, I would look specifically to the Federal Reserve. Going back to Chair Yellen, I mean, she was one of the first fed chairs to really talk about this issue of inequality. And the fed has been under increasing political pressure to really acknowledge that issue. There was a movement that started a few years ago, it was called FedUp but it was kind of a coalition of labor interests and other advocacy groups that were solely focused on making the feds look at income inequality and how even though there was an economic recovery over the last crisis, it hadn’t really reached everyone in the country and there were still people being left behind. And this really kind of ramped up when the fed was starting to raise interest rates again kind of towards the end of Yellen’s term, but it’s carried over to Chairman Powell. And I think if you look at some of his comments, I think he definitely agrees with that point of view that the economic recovery that we just had was uneven. The feds put out research on how it didn’t reach people of color in particular. And so I think at least in that kind of part of the financial policymaking world, that’s definitely been heard. And obviously, in Congress, I mean, you have so many leaders on this issue, whether it’s Senator Elizabeth Warren or Sherrod Brown, both of whom are on the banking committee. I mean, this is obviously a big issue for them as well. And so, if the white house flips they’ll have a bigger say in economic policy, and so you could see this become even more of a front-burner issue.
Jason Henrichs (07:59):
And we saw that inequality play out at a different level when it comes to the Paycheck Protection Program (PPP) and that’s the inequality within the banking system itself in terms of the level of access the big banks getting a priority and a heads up being able to submit loans faster and electronically and hearing…
Brett King (08:20):
For the biggest clients.
Jason Henrichs (08:22):
Yeah, for the biggest clients. It seems like the system itself propagated some of this I’m curious what the temperature was as it relates to we then saw the SBA comes out and creating a window where only the smallest banks could be submitting and a certain level of agita against the biggest banks who were doling out the millions of dollars to some of their biggest customers. We’re curious about your perspective there.
Zachary Warmbrodt (08:48):
Yeah. I mean, this has really been the big tension at the heart of the paycheck protection program since it started, I was covering it before it even launched on April 3rd. And I have very vivid memories of that morning of immediately getting angry emails from Bank of America customers saying, why can’t I apply for a loan through my bank that had been telling me in the days ahead of time, I could? And I mean, it’s just from the go, there were just immediate problems with people feeling like they were left behind, especially the smaller businesses. And so I think that really kind of took on a life of its own. And then when you added disclosures that Shake Shack or Ruth’s Chris have gotten the loans that added a whole other dimension to it. And so, it really created this sense that the program was doing more to serve bigger companies than mom and pop shops. And I think if you look at the data it’s a more complicated picture. I mean, I think some of the larger companies, it’s not like they got the majority of the money and you can kind of look at the average loan size, which is somewhere around a hundred thousand dollars now, but it really did kind of create that perception. And so the Trump administration obviously immediately, or not immediately, but a ways into that controversy reacted by outright discouraging big companies to take the money, but then that carried with it, its own set of problems.

Then you had smaller companies that were like, well, do I fall into the same bucket as these bigger companies that others had access to financing? Should I be giving the money back? I mean, I did some reporting on companies that were in that position and so, I think Washington is still trying to get its arms around how to deal with that perception and it’s become even more complicated now because there’s plenty of money left. There’s still about more than a hundred billion dollars left to fund loans. And so there’s less of this scarcity problem that I think was really kind of underlying a lot of those concerns before. But when I hear lawmakers talk about this, I mean, it’s increasingly about how do we serve, how do we get to under-served businesses and Chairman Powell and Secretary Mnuchin appeared before the Senate Banking Committee a few days ago and this is a question that they kept getting with regards to the Paycheck Protection Program, as well as the upcoming main street lending program that the fed is going to do, which is targeting more midsize companies. And so policymakers are trying different ways to do it. I mean, you mentioned the SBA at one point shut down the PPP to anybody, but the absolutely smallest banks. So, that’s been the method people have tried the administration and Congress have formerly tried so far is to kind of funnel more loans through smaller lenders because there’s a belief that they’ll be able to reach the under-served communities more, but we’ll see if that was the most effective way to do it. I mean, everyone is just kind of like scrambling in emergency mode and seeing what sticks.
Brett King (11:47):
I want to change tack a little bit here’s Zach and I don’t know how familiar you are with this, but one of the issues we have for financial inclusion in the United States is that basic access to banking. One of the reasons we have a fairly significant percentage of the population and the bank in the U.S. or unbanked in the United States is lack of access to the identification requirements that get them to open a bank account. So one of the big issues here is, and it sort of plays into the whole Fintech piece is that the Community Reinvestment Act, the CRA from 1977 has fairly strict mandates around how branches should be put in place to give access to financial inclusion or give access to banking. And yet today, of course, we see the digital drive being a strong play elsewhere in the world, but the U.S. hasn’t quite caught up to this, and part of the real problem is this CRA. Now, we’ve been talking about CRA reform for years, but when it comes to its role in respect to financial inclusion and the other tools we have to create inclusion today that is sort of frustrated by this. When do you think we’re going to get some real bipartisanship on CRA reform?
Zachary Warmbrodt (13:06):
That’s a great question. And that was obviously in the news this week because you had the office of the controller of the currency come out with it’s, they called it a final rule for reforming the community reinvestment act but there’s kind of an asterisk next to that because the other top banking regulators didn’t go along with it. So you didn’t have the FDIC come out with its rule. The Fed’s not endorsing the plan and coming out with its own rule yet. And I think that speaks to your question, which is, I think it’s just going to be a long time before there are bipartisan agreement and consensus on a real set of changes to that law. I mean, and if you look at the fed, I mean, I think it was easier for the OCC to do it because that’s Controller Otting, Joseph Otting who was running that agency and is now stepping down he could act more unilaterally, but if you look at the Federal Reserve, for example, I mean the board of governors, you have people with different perspectives and you have Governor Brainard who worked at the Obama Administration and has been working on this issue. And so the fed is really kind of a consensus-driven organization. And I think it’s just going to be some time before that’s accomplished, especially if you kind of look at the timeline of where we are in terms of the shift in power in Washington. So it’s a few months before the next election, this is the time when agencies kind of finish up their work and it’s kind of pins down and there are legal reasons for that because if they there, there is another CRA it’s called the Congressional Review Act, which basically during like the last few months of an administration the Congress, the next Congress could nullify those rules within a certain window. So I just think it’s not going to get done anytime soon. I think this will continue to be debated. And we’ll see what happens in November. If Democrats consolidate power across the executive branch and Congress, maybe something could happen if it’s still divided government, I’m a little suspect of that.
Brett King (15:12):
Yeah, I think I agree with you there.
Jason Henrichs (15:14):
Yeah. I think we’re all in violent agreement that we’re kind of in the stuck zone and regardless of where we end up divided or unified in terms of a party, when are we going to see technology take on more of a prominent role? We keep seeing the fits and starts of, hey…
Brett King (15:34):
Fintech charter, yeah, exactly.
Jason Henrichs (15:35):
Fintech charter stop, office of innovation.
Brett King (15:39):
I’d say [unclear 00:15:38] failed, yeah.
Jason Henrichs (15:39):
Yeah. we can’t get unified. When are we going to, or what are you even hearing people rally around it? Because when we talk about efficiency and inclusion and the two seem to go together, quite often, technology has to play a major role.
Zachary Warmbrodt (15:54):
Yeah and I think from my perspective in Washington a lot of these issues get wrapped up in inter-industry squabbles. So I think this is one area where I’ve increasingly seen over the last year, some of the larger banks are kind of looking around the corner and they’re wondering, well, is Google or Amazon going to get into this business, do we need to be maybe put on a little bit more of a defensive posture? I mean, because there have been companies like Rakuten from Japan, the eCommerce company they were seeking an ILC charter through the FDIC and other companies have been doing that increasingly and I just think that part of the dynamic there is you’re going to have some of the traditional banks trying to keep some of these tech companies at bay in terms of getting a foothold in terms of regulatory licenses and things like that. And then they have their allies in Congress so it’s not just the industry itself. And you all maybe could speak to this, but it just seems like there’s a real question now about kind of the future of the Fintech industry itself right now, especially at this point in time with the economy and the shape it’s in. I’ll just be curious to see how many of the players on that the side of the equation will be left standing and kind of driving this discussion.
Brett King (17:12):
Well, Jason and I both run FinTech’s right now, of course. I’ve got a Fintech, which we have fortunately got PPP funding and that’s been very helpful for us. We’re good into next year. Some of the bigger FinTech’s, the challengers that have come into the market, of course, are pretty well funded, like N26 and Monzo and Revolut that are coming in but we saw the shenanigans if you like, with Walmart, when Walmart tried to get into banking there was a lot of efforts by incumbents to slow that and that’s the reason why Walmart couldn’t acquire a bank account, but compared with markets or other financial centers of the world, like Shanghai, Hong Kong, Singapore, London the U.S. is significantly behind the rest of the world on regulatory reform around banking charters and that will ultimately result in the U.S. market falling behind unless the VC effect of Silicon Valley and Silicon Alley, to some extent as well, sort of really pushes these or allows these FinTech’s to compete.

But the problem you’ve got in the U.S. versus say, London is the amount of capital you need in the United States to be really successful as a Fintech say, as a challenger bank to compete with the incumbents is a lot more than what you’d need in say Europe because of that Fintech charter and it takes a lot longer. We’ve seen, of course, the guys at Vera just got their first pure-play digital license, and there’s probably going to be some legal challenges to that from incumbents, my guess is, although they’ve got it now but it took two and a half years. Whereas you can do that process in Hong Kong in 90 days. And so that’s a real structural issue, but it’s not just happening in banking licenses. Look at the way we do payments. we haven’t had reform on point of sale and very basic things look at what China’s doing with facial recognition for payments now, which is really relevant in Coronavirus. So there is a sort of broader issue of incumbents that want to protect their business and most of the biggest banks in the U.S. they’ve done some digital stuff, but their primary business model and org chart KPIs is pre-digital and so you’re going to have that gap, but that’s my observation.
Zachary Warmbrodt (19:46):
And there’s one more element too and you brought up payments. I mean, one of the big things I covered last year was the rollout of Libra the Facebook cryptocurrency payments product. And I think that just revealed that in Congress, there is a deep skepticism of some of these technology companies getting involved in finance and especially the larger ones. I mean, it was Facebook’s baggage that just created a huge controversy around that product. And I really do think that will bleed over into other financial technology entrance as well. And yeah, if you look at like the Chairwoman of the Financial Services Committee, Maxine Waters, I mean just deeply skeptical of the risks to consumers by having some technology companies in the space. And so, I think that’s part of the reason why the U.S. might be moving more solely to other countries. It’s just the political dynamics.
Brett King (20:45):
Well, yeah, I think there’s that whole angle of regulatory reform. We’ve got so many regulators in the United States that cover payments banking and so forth just even when it comes to a charter, you’ve got OCC, Fed, FDIC, then you’ve got the state…
Jason Henrichs (21:02):
I was going to say, don’t forget the state level.
Brett King (21:04):
Yeah. And there are no signs of reform of that sort of regulatory structure, which makes it very difficult to move to change. So like the OCC Fed friction there, what’s all of that about? And don’t even get me started with FPB.
Zachary Warmbrodt (21:22):
I mean, there’s just been running jokes since the financial crisis because in the U.S. There’s a Securities and Exchange Commission and a Commodity Futures Trading Commission, they both regulate financial markets and people have thrown around why don’t we just merge these two agencies? They basically look at the capital market.
Brett King (21:38):
I saw a Twitter exchange on this the other day.
Zachary Warmbrodt (21:41):
But it gets to like the reason it doesn’t happen is that there are two different committees in Congress that have jurisdiction over those and it’s actually the agriculture committees that have jurisdiction over the CFTC and they’re just never going to give that up. There’s always these kinds of like political interests that are slowing down these things that may look like they could create efficiency. I mean, it’s just one thing after another, but on the other hand too, I mean, in terms of the multiple banking agencies, I guess you could argue you have multiple eyeballs on things and differences of opinion and maybe it’s better sometimes that things don’t move more quickly in terms of consumer protections, but it’s obviously a trade-off.

Jason Henrichs (22:24):
Except if we’re not moving at all. Consumer Protection also means consumers are being left behind because we’re not seeing new products. You’re right. We’re living in a different century practically. Forget decade, we’re not even changing some of the products into the ways.
Brett King (22:39):
Even credit scoring for access to credit. I mean, there are so many better ways to do that right about now, but it’s just like an embedded feature of the system that’s so difficult to change.
Zachary Warmbrodt (22:50):
Yeah. And we’ll see how things shake out after the pandemic. I mean, I feel like there’s just going to be all kinds of consolidation that could be coming with all these different players. The political ramifications, I still think we’re figuring it out. So it seems like in other parts of life, there’s so many like rapid changes happening about how we operate digitally versus in the physical with physical retailers and such. I’m kind of wondering if there could be some kind of acceleration in the financial space on that too.
Jason Henrichs (23:23):
Meaning a few minutes. Go ahead, Brett.
Brett King (23:24):
Yeah, no, I was just going to give you one quick question. How do you think given that, given the politics of that, one of the things that’s likely to occur coming out of Coronavirus is less bank branch activity so how do you think that’s going to affect the political climate? Because clearly branches are going to decline there’s a digital replacement, but what’s the attitude or inclination towards that?
Zachary Warmbrodt (23:51):
I mean, I still feel like there are people in Washington who would like to support those branches just to kind of like we were getting back to serving communities that may be under-served and so I think that pressure will continue to be there. And I mean, it seemed like, isn’t it right that JP Morgan and Wells Fargo have been expanding their branches? I mean, isn’t there some kind of market interest in doing that as well?
Brett King (24:14):
Yeah. There’s a little bit, but they’re also reducing square footage and replacing branches and stuff like that. So there are a bit of games in terms of…

Jason Henrichs (24:21):
It’s a total shell game…
Brett King (24:23):
Market. Yeah. Whereas on average, they’re down about 15% from 2008, those big guys.
Jason Henrichs (24:31):
Zach, I’m curious, last few minutes here with your crystal ball on where do you see from a policy perspective, the biggest potential for changes coming up in the near future?
Zachary Warmbrodt (24:43):
I think right now the biggest story in banking in terms of Washington policy is just how can we get the banks to support small businesses in particular? I mean, we’ve seen that with the PPP, that’s still a work in progress. And I think more is going to come out. I think the banks are going to face a lot of scrutiny about the decisions they made, about who they served and how, and I think there’ll be more hearings and investigations into that. I mean, the next big thing coming up, like literally in the next couple of weeks is the launch of the main street lending program. That’s the Federal Reserve facility that was trying to encourage banks to serve more of the mid-sized companies. And I’m already hearing concerns from lenders about how that’s going to work and if there’ll even be demand for those loans, which the banks, unlike PPP, the banks will actually have some skin in the game for those loans, even though they’ll still have some government backing. So that could be a whole other set of issues. I think there’s probably going to be more scrutiny about how Fintech companies performed during this as well. I mean, I’ve done a little bit of reporting on a company you probably know called, called [inaudible] and Ready Capital, which kind of rushed to approve tens of thousands of these PPP loans and then left consumers waiting for weeks. And I’m still kind of wondering from a Washington perspective, is this a moment where Fintech companies jumped in, is this gonna help or hurt their cause here? And I think just in general, the health of the financial industry, I mean kind of like we were talking to at the beginning of the conversation, did the rules that were put in place in 2010 to avert the next meltdown, are they actually working? Are the banks in as good a shape as they are saying? Will there have to be any regulatory intervention to prop them up? So, yeah, I think it’s just like with everything it’s a little bit uncertain, but that’s kind of what I think the near term issues are.
Brett King (26:39):
Right. Well, Zach, we really appreciate you joining us on the show today, it’s been very insightful. Can I just ask obviously we can go to politico.com to check out your latest musings, but where else can people find out about yourself?

Zachary Warmbrodt (26:52):
Yeah, just follow me on Twitter. It’s @Zachary – Z A C H A R Y and I’m posting daily about the PPP and other issues that we talked about now so give me a follow.
Brett King (27:03):
Well, that’s great. It also shows you are an early adopter of Twitter, given that you’ve got that great Twitter handle. So we really appreciate it. Make sure you check out politico.com. It’s time for us to go on a break. After the break, we’re going to hear from our friends at MX, but you’re listening to Breaking Banks. Thanks, Zach, for joining us on the show this week.
Zachary Warmbrodt (27:21):
Thank you for having me.
Brett King (27:23):
We’ll be right back after this brief word from our sponsors.
Brett King (27:30):
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Jason Henrichs (31:57):
Welcome back to the second half of Breaking Banks. Now in the first half with Zach, we talked quite a bit about inclusivity and how the paycheck protection program was really having some impact on the have and have-nots. And there’s nowhere the have and have-nots portion of financial services can be felt more, is often in the technological experience that the big banks with big budgets are able to deliver one set of experiences and well, then a lot of times it can be the everyone else if they don’t have that same access. And so we’re very pleased to have Brandon Dewitt. Co-founder and CTO of MX as well as, Jill Castilla from Citizens Bank of Edmond to talk about PPP as well as technologically, how did they approach it. Now, Brandon, at the MX Fintech festival at Sundance this year, you gave a talk on the nobility of banking and the back story is amazing. And I would love if you can share a little bit of the essence of that talk because I’ve got to tell you, this is one of to say a handful of times is an exaggeration that I’ve actually been at a banking conference and see people moved to tears that it hasn’t been out of boredom, but it really did have that impact to hear your story. So can you share a little bit of that with us now?

Brandon Dewitt (33:10):
Yeah, absolutely. I’m certainly glad it wasn’t out of boredom, but we all kind of have our journey that led to where we are and I think, I think oftentimes our journey leads us sometimes to our purpose. And so my journey to where I am started out in banking, but really on the credit side and like helping get credit products into people’s hands working for Baker Hill and then Experian and a couple of other companies like that. So a few years ago, actually four and a half years ago, we were going through our journey at MX, we were a much smaller company, had a much smaller footprint and actually on my 33rd birthday, got diagnosed with stage four cancer and told that I had less than 90 days to live. And so, I think we all have this relationship with mortality that we’re going to live forever and we can push off to tomorrow what we may find important and so it’s one of those moments in your life where everything comes into focus and you get to see what rises to the top of the priority list. And my journey at that time, in fact, just happen to be wearing a Dana Farber jacket this morning, but I went out and got treated at Dana Farber in Boston and that didn’t work and then I got treated at Fred Hutch in Seattle.

Again, continually being told that I’m on death’s door, feeling like I’m on death’s door if you’ve ever been through the cancer journey and even today, I’m on chemotherapy five days a week and get an infusion every three weeks now up at the Huntsman Cancer Institute here in Utah. But one of the things that allowed me to do was just take a collection of where I was in life and what I was doing, and what I was doing it for. And so, it led to a lot of conversations about what’s the purpose of your journey and what are you getting after and how are you spending your time? Because really time is this priceless resource that we all have. And if you’re not focusing on something that is lifting up yourself or lifting up others in some way, then I think that your time is being ill-invested. And so through that journey, I really felt very strongly that what we were doing at MX was the right thing and the purposeful thing for me to be doing but I think that it helped reset the focus of priorities. And so we have these aphorisms that we talk about at MX all the time, but at that point in time, one of the aphorisms that we started circulating around MX was purpose before profit and mission before margin. And you start thinking about how on a daily basis when somebody is thinking about how they’re executing their job and what they’re doing day in and day out and how they’re serving others, how do they bring into focus the idea that we shouldn’t worry about these other things because they are not leaders, they’re followers. So let’s not worry about the margin. Let’s not worry about the profit. Let’s not worry about all those other things. Those are followers. They’re not leaders. And let’s put the right kind of priority at the very top of the stack and that meant that we lived through service and I believe that very strongly.

I think, as I’ve really dug into this space and said, okay, well, if we’re going to lead this way, and if we’re going to talk this way, then like, who else has done this and how has this been done in the past? And how could we choose the right vocabulary and choose the right things to aim for? And I was surprised to find that the first banking organization of the Western world was called the Knights Templar. And we all know the Knights Templar as this kind of like warring organization but the fascinating thing about it is in order for you to actually join the Knights Templar and be a steward of interest-bearing bank accounts, you had to take a vow of poverty. And so they understood the seriousness of what it meant to be a steward over a community and over the finances of a community and over interest-bearing products and said, this is so important that we absolutely know that you have to take a vow of poverty to have this type of stewardship, it’s that important in the community. And as I’ve just been like on this journey in my own life, I have discovered that time and time again, that has come up in our history. I mean, one of my favorite Thomas Jefferson quotes is I am more fearful of interest-bearing bank accounts than I am of any standing army. And, I mean, it’s just incredible to imagine that like these people that we look up to as wonderful founders of our country and things that we believe very strongly in today also knew that the stewardship that we have in the financial community is one of the most powerful things out there.

And I think with this new layer of technology you kind of bring in this idea that technology has been optimizing and automating everything out there. There’s now a new layer of stewardship. Like how does that play into our communities? How do we set the right priorities and have the right types of purposes behind that? A little bit just about the kind of end of that story, I guess, for me I’m still on my journey, but I have substantially outlived any prognosis that I’ve ever had. Almost all of my tumors have disappeared. At one point in time, I had 18 tumors throughout my lungs and my head and my neck, and almost all of my tumors have disappeared. And I am a product of a wonderful set of scientists and doctors who have chosen to pursue solutions to cancer. And that is another stewardship in our society that’s incredible. What I learned is even if you’re not a scientist, a doctor on the cutting lines cutting edge of what’s going on there, your stewardship, your purpose can make a meaningful difference. And I fundamentally believe that like, as we were prepared to like take on that stewardship, something happened in our world, a pandemic happened and all of a sudden PPP was this magnifier of this problem. All of a sudden, we’re going to have this massive disparity, those who have access to these large financial instruments or something like that, and those who are employing the folks in our community across the United States, and don’t have access to that capital and need it desperately. It’s one of those times in which you feel like all the preparation and all the coincidence have come to a point and as a technologist, you just say, yeah, I might be able to help and so like, let’s try and jump in and help as much as possible, and we saw that happen throughout the banking sector in general.
Jason Henrichs (40:23):
I can’t think of a better word to describe Jill than steward. I’m glad you brought that up. Stewardship and steward is not something that often comes on a show around disruption and technology and Fintech, but I can’t think of a better word than like you literally wear that on your shirt. Let me guess. You probably do have one of your main street companies. No? Well, I should have looked at the video first, but Jill is known for like literally wears the tee shirts of the main street businesses up and down because she believes so strongly in the power of community. And yeah, there it is in supporting the companies that surround her, that make up our community and that make up our customer base and it was really evident in PPP. You threw everybody you had against that first wave and was able to watch that kind of by hook and by crook, you were able to get that done. As you’re preparing for the second wave, you partnered with MX, how did that go? This idea of stewardship, but it’s tech-powered stewardships. A pretty powerful one.
Jill Castilla (41:32):
I love what Brandon was saying, is that it wasn’t me throwing everyone at PPP, that’s what our organization is. And so they were all doing this on their own accord, contributing hundreds of hours of their own personal time on the weekend, in the middle of the night, because they knew that we were those economic first responders to these small businesses and that no one else was coming. We were the only ones there to help. We had to, if we didn’t step up no one else is going to do it. And so I love everything about what MX, that sense of purpose, what they were saying and then part of what Citizens is, our mantra is if we do good, we’ll do well. And so PPP really encapsulated all of that as our ability to really prove are we the type of company that steps up even whenever there is an economic benefit for the institution as a result of it. And the forces of this crisis have really brought together like-minded companies in a way that I’ve never seen before. And so I don’t believe it’s an accident that MX and Jason and Alloy Labs and Mark Cuban, and other contexts have come together and to be able to act those stewards to our different communities and to the nation as a whole. So the first round of the Paycheck Protection Program (PPP), I did a call asking for a Fintech partnership, knowing that we could still, and we have proactively, the bank had called all of our business customers to see what their financial condition was, what we could do to help them.

We’re deferring payments for the vast majority of those small businesses before PPP was launched, we were also in the frontline so the cares act to try and get that developed, and we knew the challenges the access we were going to have because the SBA has it, where if you don’t use their portal for 30 days, then they restrict your authorization. So we knew we could see all these compounding problems and knew that we needed some type of partner to help us through it. In the first round of PPP, we didn’t have that partnership with MX. We actually had another Fintech that helped us and continues to help us through both rounds, which was invaluable to us, but we still couldn’t help everyone. And what we found was that the most sophisticated borrowers were at the front of the line, and maybe those that maybe didn’t need PPP as badly, but those that needed the tourniquet apply that really needed that triaging to ensure their survivability, they needed a lot of handholding through the process and the money was out before they were able to get a completed application done and because this free documentation required, things like that.
So once the money was gone, we had these reserves of struggling businesses that were desperate for money and whenever we saw that PPP was going to be underway, fortunately, we had this partnership with MX where they basically said, let us help you. We can get what we were struggling with is we only have 55 team members in our entire bank, which some FinTech’s are like, man, that’s a lot of people, 55 people that throw at PPP, but we’re also running a drive-through and a branch operation and our normal course of business as a bank and so we’ve probably had about 14, 15 people that were truly dedicated to the paycheck protection program. And we still, because of the limited access available to the — Yay, we’re struggling to get those. Once we had a completed application, getting it uploaded to the SBA was our point of contention. MX allowed us to take all those files that were completed and to be able to use one single access and that access is very precious to us because we only had like three or four available for our entire bank there for a while, and that they could really maximize the utilization, that one access to the SBA to submit applications. And it freed up our team to then focus on the customer to be able to then usher them serve as an advisor to them to get these completed applications done so that they could get accessibility to the liquidity that they desperately needed.
Jason Henrichs (45:35):
Well, and you bring up a really good point there because technology is so often seen as the enemy of this idea of having a personal relationship with your banker. But what you just described is it actually technology empowered them to do what technology couldn’t, which is usher them through in an insurance and some parts even act as their emotional counselors. They’re worried about their business going away if they don’t get this money because they don’t have that level of sophistication.
Jill Castilla (46:02):
Right. We believe that technology, financial technology shouldn’t be a replacement for what we do, but it should elevate and be able to be something that we leverage to be even a better community bank or to provide a more intimate relationship with a customer because you’ve got the technology that’s allowing for greater efficiency and greater effectiveness and sometimes greater council.
Jason Henrichs (46:22):
So, Brandon, inclusivity has become one of like the arch stones within MX, how it has like, your personal journey I think has been a big part of that razor-sharp focus on inclusivity. What’s your vision about how technology fits in both with people in this broader theme of inclusivity?

Brandon Dewitt (46:44):
I mean like to what Jill was just saying, technology can be used in many different ways. So it can be used to automate or take away jobs, or it can be used to magnify and make opportunities more and more clear and make them more and more pertinent and it can empower a connection with the community. And it all just depends on to what you were saying, Jason is like, where are you actually going to focus and what are you going to press on? And I think that’s probably the big thing that is the differentiator is whatever you put out there as your charge as an organization, the people in your organization will pursue. And so, like something that I find very unique and refreshing about what we did during the PPP portal time was we went out and we said, hey, we can host this for you. We can help you with this process. We can do all this other stuff, but also, all of the source code is going to be open source. Anybody can have it, anybody can leverage it for anything that they want. They can change it, they can edit it, they can do anything they want with the source code. And so, there is this thing that’s manifesting, I think, and even in our space of financial technology that is largely kind of issued open-source software of how do we begin to have a more collaborative approach and how do we begin to have a more collaborative approach that enables those interactions and that enables those opportunities to support and build our communities. And if we don’t do that, then we are not going to have the communities that we want, and we’re not going to have the industry that we want, and we have to be the creators of that industry. And so like I think it is all of these things coming together, both the desire of an institution to take a risk, because quite frankly for Jill and her team, we are not a business lending company.

And so for us to get on the phone and say, hey, we think we can help you. We’re helping others and we have this tool and you can have the source code and you can use it all you want, and you can do whatever you want with it, but we think we can help you. It’s still a risk calculation that they have to do to say is this the right thing, the right people the right time? And I think when you have the right mission, that sets that goal out there that you can all align to, to say, yes, this is the right thing, the right people at the right time. And if we can align to, we want to empower, enable these types of interactions, then we can align on everything else that we need to do but by no means is MX coming in and saying, we have a full-blown solution. We were day in and day out, actively contributing. And the folks that tons and tons of banks took the source code and have built and used it internally and like powered their SBA portals with it and contributed code back to the central repository that we pulled in and better the solution for everyone. And when you watch that happen at scale, like that’s when I feel honored to sit in the seat that I sit in because I got to watch hundreds and thousands of people say, yeah I’m going to be up on nights and weekends, and I’m going to tweak this source code a little bit so it handles one more edge case. So it handles more edge cases, so we can do something else. And I mean, it was an incredible privilege to just observe all that happening, but I hope that happens more and more in our industry. I think there’s a massive opportunity for it that doesn’t differentiate between the largest of the large, with the most capital and those that are serving their community but rather says, there can be one solution that everyone can have access to that can help everybody.
Jason Henrichs (50:54):
So Jill, Citizens Bank of Edmond is looking forward and thinking about inclusivity, especially in the wake of the COVID outbreak and just the heavy emphasis you have on the community. What else are your plans and your vision for what you can do more for the heard-unheard crowd?
Jill Castilla (51:14):
Well, we’ve been really focused, especially as PPP, there’s the funding still available, the rush is done as much there are. Customers have been cared for to now try to get into the sense of the Senate to ensure that those that were under-served, that really were included in that since the Senate from the Cares Act is served through PPP and that they understand that there are odd barriers getting access to that credit. So really proud that our team is, we are near 50% of the businesses that we funded being female-owned businesses and we’re well above 50% when you combine that with minority-owned businesses. It’s showed us that that perceived barrier of access to credit is something that is a reality in a lot of communities, even just in our metropolitan area. So seeing that in action was something that I knew about that intellectually, that we heard those stories after stories about those potential barriers entering now are made a call of action for our team to ensure that we are consistent now going forward, that we can be a trusted advisor, not to just those that look like us and that we have intimate conversations and relationships with as we’ve walked down Main Street, but that we’re able to go into the neighborhoods and small business communities that maybe don’t have a bank in them. So that’s been an unfortunate reality that’s been expressed to us that we really feel called to step up and serve.

The ability to maintain those connections and have that high level of engagement, even as a bank, but even, especially when you start getting into the community and ensuring that you’re still an influencer and where a city is going and the welfare of those that populate it as more and more difficult as everything becomes more virtual and that we’re not physically interacting with someone in a large grocery store aisles. And so we’ve launched a virtual heard-unheard so that we could have like at least an online engagement. And so our team is really fortunate to be able to do that heard-unheard as our monthly street festival. We usually bring about 50,000 people to downtown Edmond. The bank puts it on our 55 team members. It celebrates small business, local music, and food trucks, and just as a kind of an old-fashioned neighborhood party. But how do we expand that reach to beyond just Edmonds downtown and to some areas that maybe don’t have a community bank that’s able to lead that, that sense of engagement. And then we’re all in this together so, that virtual heard-unheard really helped us, I think, go beyond some barriers that we really didn’t know were there and something that we’ll likely continue to leverage on and do more of going into the future.
Jason Henrichs (53:56):
Well excited to see the results that great community bank was strong leadership and a tech company with strong mission and ideals were able to rally to help the smallest of the businesses. For those who have listened to Breaking Banks for a while, Jane Barrett, the Chief Advocacy Officer from MX is on quite a bit. In fact, I don’t know many software companies that have a Chief Advocacy Officer talking about the mission and how they can use technology to help all sorts of people, the under-served to the biggest of companies and users of data, but there’s something for everyone there. So excited about this partnership check out mx.com and Jill Castilla is best found on Twitter, it’s my favorite place to see what she has to say. So thank you both for what you did for our communities and for taking part in the show.
Brett King (54:49):
The SBA issued final guidance on the PPP loan forgiveness, but now there are more questions and answers. Like what if the loan forgiveness process is such a pain that borrowers don’t complete the forgiveness and the lender’s stuck with a bunch of low-interest loans? How do banks make sure they’re a hundred percent compliant when the feds come looking to review? Alpharank helps answer all these questions by automating the entire process. It’s sort of like a Turbo Tax for PPP loan forgiveness. There is no integration required. You just sign paperwork and start using Alpharank’s tools in less than 48 hours. And they’re trusted by major financial institutions. And they’ve got partnerships with numerous state banking associations and the likes of Meridian link. How do you get to check it out? Visit alpharank.io/brettking to learn more. That’s alpharanka.io/brettking. Mention you heard this ad on the Breaking Banks podcast and get a 20% discount.
Jason Henrichs (55:54):
When we talk about diversity and inclusivity it’s easy to think about the un and underbanked that are common themes and we think of those as individuals, but the same trend exists within a small business. And those two things the consumer impact and the small business impact was really felt when the paycheck protection program was first launched and some of the response. I’m excited to have Patrick Davis, VP of Program and Strategy Development at the Community Reinvestment Fund USA also known as CRF on the show today. And they were founded in 1988 with a fund. It’s a national non-profit with a mission to empower people, to improve their lives and strengthen their communities through innovative financial solutions. Patrick, can you tell us a little bit more specifically, what does that mean? How do you actually have this positive impact on communities and small businesses with the CRF fund?
Patrick Davis (56:47):
Yeah, absolutely. And thanks so much for having me. So for our 30 plus year history, bringing access to capital to historically under-invested communities and people is really what we’re all about. That’s the ethos of the organization. We are structured as a supporting organization, non-profit, and we’re also a certified community development financial institution under the U.S. Treasury. And there are about a thousand organizations like CRF around the country that are really focused on serving the needs, the financial needs with products and services of the, un and underbanked across the board, not just in small business, certainly in consumer as well and certainly in affordable housing project finance, like childcare, clinics, community facilities, like healthcare centers, et cetera. And so this is really sort of a shadow financial system without the negative connotation of shadow that serves the needs of those who are sometimes overlooked by other financial institutions and plays a really vital role in bringing access to capital to communities around the country.
Jason Henrichs (57:54):
Well, let’s call it a spotlight, not a shadow organization.
Patrick Davis (57:57):
I like it.
Jason Henrichs (57:57):
Which means to dispel the shadows. So what did you do with Goldman Sachs when it came to the 10,000 small business initiative and your response with the Paycheck Protection Program?
Patrick Davis (58:09):
Yeah, so what we recognized was early on, we felt like the PPP program was really going to be a resource grab from the largest banks who were going to go down their client books and start to serve those largest small business customers of theirs, as you would expect them to do. The incentives were there for the banks to look after their own books and to take care of their largest customers. And so very quickly on, we mounted a response to that by mobilizing some of our peer organizations around the country who are also mission-driven non-profit lending organizations, many of whom though were not SBA lenders, so they didn’t have the authorization to put out these PPP loans. And so we said to them, look, if you can work with your small business customers and help them package up, these loans help provide that pre-loan technical assistance, and then bring them to CRF we can fund these loans and originate them on our paper. And what we’re looking for in particular is really important and critical community non-profit organizations, as well as, again, those small businesses, 20 and under employees a million and less in revenues that are really the lifeblood of main street economies in communities across America. And so we had a network of over a hundred organizations around the country seeking these deals for us and bringing them to CRF so that we could originate the PPP loans to the folks who were least likely to get them through the traditional financial system and through some of the larger banks.
Jason Henrichs (59:47):
So you use both a combination of technical assistance, meaning actual people helping these small businesses get ready because most, I think it was Ron Shevlin on the show joked that no one went into business because they secretly wanted to be an accountant or a CFO. So they’re ill-prepared to put some of these pieces together, but then what did you use technologically behind the scenes to make this happen?
Patrick Davis (59:09):
Yeah, so it’s a great question. So for the past six-plus years, CRF has quietly been building a one origination platform known as Spark and Spark was really something developed internally at CRF. We do have a full software development team that’s a part of our non-profit organization. And as we became an SBA 7(a) lender, we realized this was an extremely difficult program to understand. And so we started building some technology around the program to try to more efficiently expedite our deployment of these SBA loans. Now, for quite a while, folks out on externally didn’t have a ton of interest in SBA lending and so, our platform, that we did commercialize about four years ago, again, sort of operated under the radar when PPP hit and we had an automated process for validating these PPP loan packages, sending them off to the SBA, getting a loan number back through E-Tran automatically that became enormously valuable to us. We like to call that our secret weapon, and how we were able to put through the volume of PPP loans that we did in the context of all of the other much, much larger lending institutions, putting out these loans as well. So, we’re pleased to say we did about 5 billion in PPP loans, primarily focused on non-profit organizations and very, very small businesses.
Jason Henrichs (1:01:36):
Wow. Do you know off the top of your head, what your average loan size was to do that?
Patrick Davis (1:01:41):
Yeah. For the non-profits, it was a little bit bigger because these were established non-profit organizations, employers, non-profits, et cetera. So for the non-profits, it was around 200,000. For the for-profit businesses, it was around $27,000.
Jason Henrichs (1:01:54):
Wow. So you really did get deep down into the sack of those small businesses that needed that help.
Patrick Davis (1:02:00):
Absolutely.
Jason Henrichs (1:02:02):
So you’re not just a non-profit, which is amazing, but you act more like a fintech. Technologically, what else has CRF developed and how do you support these small businesses and individuals, technologically?
Patrick Davis (1:02:14):
Yeah, so that Spark platform is one of our core tech products. We also have another platform called Connect2Capital, which is a marketplace platform for responsible small business loans offered by non-profit organizations. So Connect2Capital, really our core insight was that again, there’s a thousand or more of these community lending organizations around the country, but they’re extremely difficult to find. The market is extremely fragmented and these organizations don’t really have any skills, technical skills, or resources to put towards. So what we did was essentially aggregate all of the products offered by these non-profit lending organizations in one spot and then offer a single front door for small businesses to apply and get matched to these non-profit loans that meet their needs for their specific financing needs and business needs. And so again, I think the core insight and value proposition there is bringing a whole new class of products particularly to under-served businesses in a way that hadn’t been available to them before because there are a thousand individual organizations seeking these customers and not really having a strong foundation in customer acquisition. So I think that Connect2Capital marketplace is another real core innovation of CRFs that we expect to grow significantly in years to come
Jason Henrichs (1:03:43):
Fantastic. If people want to learn more about CRF and what it is you do, and maybe join in and help support the mission, where can our listeners find out more?
Patrick Davis (1:03:54):
Yeah, absolutely. Thanks for asking. So you can check us out at crfusa.com and you can also check out Connect2Capital directly on its own website, which is connect2capital.com. And then for those interested in the spark lending platform, that’s out there at lendwithspark.com.
Jason Henrichs (1:04:16):
Fantastic. Well, thank you for taking the time to join us today. Really pleased that there are people like CRF fund out there taking care of the lifeblood of America and main street small businesses.
Patrick Davis (1:04:26):
You bet. Thank you so much for having us.

Jason Henrichs (1:04:29):
That’s it for this week’s show and a special thanks again to Jack Henry Digital, the pioneer and creator of personal digital banking that helps community financial institutions translate their trust and live local personal service meaningfully into digital channels. For the first time, Jack Henry Digital helps community financial institutions strategically differentiate their digital offering from the megabanks, the big techs, and the FinTech’s. Thanks to our sponsors who make this show possible, especially the ones who are making such an important difference in the vital communities across the United States. Hey, if you liked the show, share it @Breakingbanks1 on Twitter or give us a five-star rating or a share in any of the places that you get your podcast. Again, that’s a wrap for this week tune in next week for more Breaking Banks.
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JP Nichols (1:05:45):
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