583 Fintech Xchange ’25 Hot Takes into BaaS and the Future of Banking

Welcome to Breaking Banks, the number one global fintech radio show and podcast. I’m Brett King. And I’m Jason Henricks.

Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services. 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 J.P. Nichols, and this is Breaking Banks.

This week, we bring you more U.S. bank-powered goodness from Fintech Exchange 25, hosted by the Stennis Center for Financial Technology. Jason Mikula of Fintech Business Weekly joins me to talk with Chris Black, CEO and President of ThreadBank. The conversation is wide-ranging from banking as a service, the new administration and regulation to, well, responsible innovation and what scares and excites each one of us.

In the second segment, LoanPro CEO and co-founder Rhett Roberts, himself an alum of the University of Utah and a driving force in the fintech ecosystem, joins us to talk about our changing ecosystem and APIs, are they coming of age? Naturally, we have to talk about the cores and how banks are in the process of conscious decoupling. So, Jason, you just finished The Hitchhiker’s Guide to the Bass Galaxy, which, by the way, I should be in charge of your titles from now on. I think, yeah.

And hot off the presses, delightful read over Christmas. I’m sorry I did that to your Christmas. It was fantastic.

Although, like, it feels like in the year of our Lord 2025, it is already outdated. And if you think of how something that is, you know, just a month old, if you could go rewrite a section of it, what would you say? You know what? The world has changed so much in this time frame. What would I go back and rewrite? Yeah, I mean, that’s a natural place to plug the newsletter so you can stay up to date.

But yes, if I had to rewrite or I guess add, it would be specifically some of the changing posture, given that we have new administration and with a new administration comes new regulatory leaders. Right. So we’ve already seen statements from now acting FDIC chair Travis Hill emphasizing need for transparency, innovation, et cetera, as well as recent remarks from Fed Governor Bowman also striking similar tones around need for responsible innovation, you know, revisiting things like tailoring Basel three endgame, et cetera.

So when it comes to to Bass specifically, you know, it was a challenge to sort of write something where the story was literally happening while I was in real time, in real time and sort of capture, you know, where did we come from? Where were things at the point in time when I was writing and where are things going? And I’m sure that that’s, you know, what we’ll have a chance to talk about today. So, Chris, I’m curious because, I mean, I would encapsulate, you know, the classic hitchhiker’s guide. I’d say yours is more like it was the best of times, worst of times, right? You know, for Thread, when you got in, you know, and our good friend, he and I kind of talk about there’s three waves.

We’re now in kind of the fourth wave, creative destruction. But you got in of the wave of Bass, right? You had the early pioneers. Yeah.

Ended up in like purgatory, like, you know, Meta now Pathward and Bancorp. Then there was that next wave that said, it’s a good business. And you had to though, actually build some infrastructure.

You can’t just kind of do it like the way Meta and Bancorp did. And you were part of that wave coming in and say, you actually need to industrialize, right? You built an industrial approach to banking as a service. And then the world just went up into the right.

And now we’re here. Describe the ride for a minute. Like how you view the world to have like gotten on, not knowing it was about to become a rocket ship.

You then were on the rocket ship. Then we kind of hit this and where we go next. Yeah, it’s great.

It’s a great question for us. We’ve taken the long-term view really from the beginning, right? When we came in and recapitalized what was Civis Bank. A hundred plus year old bank.

Yeah, a hundred plus year old bank. Headquartered in Rogersville, Tennessee, small. So we still maintain two, you know, Mayberry Main Street community banks completely committed to those communities.

But the bank was in desperate need of capital. And so we put together a group of private equity, you know, FinTech venture capitalists, and then just other connected folks in the network to recapitalize the bank with the express mission of embedded banking, embedded deposits, loans, and payments. To do that and to build it at scale.

So we knew, you know, from the get-go it was going to take to industrialize. We talk a lot about homogeneity. So we want to, you know, homogenize as much as far up the stack as we can, both in terms of enterprise risk management, technology, so that we can then capitalize upon what our partners do really well, which is by definition different for each of them, right? So it’s really industrialization infrastructure on, you know, really, I say, you know, leveraging the similarities, risk managing the differences.

So that’s been on, you know, marketing slides, presented to regulators, in conversation from the very beginning. So nothing has changed, right, in the sense of what we knew had to happen in the commitment to investment. What happened was we hit what I would, you know, liken to the dot-com bubble back in 2000, right? Great promise, great opportunity, great enthusiasm, a ton of capital.

And invariably, this happens with humans. We run out in front, something blows up, bad things happen. But from that, you know, those blowups or those busts come durable solutions.

This has happened from the beginning of time. We can analogize this all the way to, you know, whatever time period you want. I think that’s where we are now peeking our head up from the bottom of that cycle for fintech, partnership banking, however you want to think about that ecosystem.

And just like the technology society worldwide is relying upon today, it largely came, most of it came from the dot-com bust, right? And the way we look at it is every, I heard someone say, in most languages, crisis is opportunity, actually. And that’s where we are. That’s what we look at.

We’re totally committed. Our commitment has only increased. Our bullishness on the opportunity has only increased through this cycle.

And, you know, those people who remain committed and try to do things the right way, collaborate with regulators, collaborate with partners, with the industry across the board, you know, transparently, fess up when they make mistakes, celebrate when things are done well, they’re going to be the standard setters, the standard bearers that the rest of people who kind of jump on that wagon, which always happens in these cycles, will be, you know, and that’s great. If those people are able to do that and add to the ecosystem and, you know, adhere to those type of standards, it’s all going to be positive. But that’s, that’s how we view this cycle.

I’ve got other analogies that we can, you know, we can jump into. I want to build on something you just said, because it feels like we’re in a weird part of the cycle. It’s almost like when waves kind of catch up to each other when you’re surfing, because simultaneously, do you think we’re at the bottom yet? And at the same time that we have a next wave beginning to build, which is with the current administration, I think there’s an enthusiasm around, oh, this is a great time because there’s going to be less regulation and restriction.

How do you reconcile those two things? So I have a Wall Street background. And one of the old sayings on Wall Street is you can call price or you can call timing. Don’t try to do both.

Right. Okay. And so I don’t know.

And the bottom, like, we’re not, we’re not looking to actually invest and bottom pick and do all that. What we know is what we’ve come through as a company, as an industry, those people who remain committed to it, the opportunity is only increasing and improving. Whether we have to go a little bit more into the cycle or we’re already through that, we’ll only know, right, by definition in hindsight.

So not really focused on whether or not we’re there. It’s about what do we need to do long term to be durable and scalable, whatever that cycle, right, wherever we are. And that’s where the, you know, the analogy I’ve said it before in places about this category five hurricane, which I think is probably the most perfect analogy one could draw, whether it’s this crisis that our industry has gone through or the next crisis that maybe people get through in their personal lives or in their industry is you can always spend so much time if you, if you live in a storm prone area of the world, you’d better build a category five hurricane proof home and spend very little time.

You can, you get a little bit of yelling at the weather and then move on from that because you can’t change the weather. You can only change and control what you can change and control. And, you know, to draw the analogy, you might lose some shingles.

You should expect to lose some shingles if a hurricane comes along. And even if you have a great house built and you lose the roof, make sure you have good insurance so you can sustain and be durable for when the blue skies come. You’ve built something that if it can endure that storm, you’re going to be really well positioned for when the skies are bluer, but it also guards against getting, you know, too locked into, oh, that storm’s never coming back.

No, you live in a, you live in a storm prone, right? It’s like, just because we got through and we’re a blue sky, don’t think no more storms. So we’re going to still keep that house. Right.

And what that means pragmatically is, you know, we’re, I, I talk with our regulators, both state and we try to be really proactive, really upfront, transparent with them, tell them what we believe. And when we think that, that we’ve got it right and try to help, you know, provide information for, for why we think we’re right. And then fess up when we got it wrong and say, nope, we got it wrong.

We’ll fix that. And that’s the only thing you can do. So, so there in building this metaphorical house, there are really tangible, pragmatic, common sense things.

This is not rocket science, right? It’s the same solutions that have been present for all of mankind. Integrity, work hard, tell the truth, fess up, invest, right? Always be worried about the things that you don’t know or don’t understand. Go cautiously.

But then when you do all those things, I’ve got a, my other background is air force world. And so to be a pilot, you inherently are a risk manager and I abhor risks that I cannot understand because it can kill you, it can crash your bank, it can do all kinds of bad things. But to the extent that you can understand risks in a way that other people don’t understand them, the flip side of that coin is the great opportunity where there’s less competition and you can write, seek and realize better rewards.

Along with that comes, um, when other people don’t understand that risk, there can be really important people in that ecosystem that you may have a handle on the risk and they don’t. And so you have to spend a lot of time helping get everybody on the same page, seeing off the same sheet of music about what’s perceived risk and what’s managed risk. And what is that true risk where we had to really focus on? Well, and I would add to that, right? Like the military treats us, it’s like, how do you manage the foreseeable risk, but also how do you have the humility to expect the unexpected, right? To always be monitoring, you know, for a threat or the unexpected and not think you have it all figured out.

Which I think is a natural segue to talk about, you know, a certain situation, um, that I don’t know anyone who’s gone deeper on the evolved synapse debacle, but it asks, you know, do you think they are just the first house to get blown over in this cat five hurricane? You know, we’ve seen a plethora of consent orders in this, where are we in the storm? Like we in the eye of the storm and it’s quiet and we’re not done. Are we like through the storm? How do you think about from an industry? I’m going to try to stick with the storm metaphor. Uh, I mean, I do, I am of the opinion that the evolved synapse situation is an outlier.

That’s not to say that, you know, anecdotally in speaking with people at other FinTech programs, at other banks, there haven’t been, you know, similar types of reconciliation challenges, but that they’ve not, you know, risen to the level of what I would call a catastrophe that, that we’ve seen here. I mean, uh, as I reported earlier this week, the department of justice SDNY has convened a grand jury that is investigating criminal charges related to this matter. Right.

So clearly has caught attention of, uh, regulators and law enforcement at the highest level. Um, you know, I do hope that industry participants, uh, and not just the banks to be clear, right? Like this, this specific situation, the evolved situation, you know, people often ask me, you know, who’s to blame here. One, we still don’t know all the facts.

So it may be a little bit premature to start assigning blame. Uh, but two, I think there’s enough blame to go around, including for the regulators, uh, who are, you know, supposed to be overseeing these banks, including their third-party service providers to get back to your original question of like, sort of, where are we on this storm? I do tend to think we’re through the eye of it. I mean, there are still, uh, you know, enforcement actions coming out.

Most recently Patriot has disclosed an 8k filing, uh, with the OCC. Uh, but it feels like we’re probably through the eye of the storm. Maybe I’ll look back on this and I’ll be totally wrong.

And there’s going to be 20 more enforcement actions, but, um, you know, it, it seems like this path has been well-trodden, you know, folks are, uh, hopefully paying attention to the recurring themes, BSA, AML, uh, board governance, you know, TPRM of course, and hopefully making the, uh, investments to build the infrastructure, to build the strong house, uh, to, you know, survive the next storm because there will be another one. There always is. Well, let me ask the question for both of you.

Let’s start with you, Jason. If you are a bank, not in banking as a service or partner banking today, is it too late to get in? Uh, I mean, my initial gut response would be no, but that in evaluating that opportunity, you need to have a very clear idea of, of the segment of customers. So in this case, like partner customers, you’re serving, uh, preferably some amount of specialization.

And so like we’ve seen this history, you know, if you go further back with like the web banks and, and Celtics, um, you know, specialization in a specific segment where you can have that expertise and competitive differentiation. And as you know, has been, uh, made clear a bunch of these enforcement actions, understanding how that BAS strategy or partner strategy rolls up to the bank wide strategic plan, right? Is it about sourcing deposits? Is it about generating fee revenue? Is it about, uh, originating loans either to retain, you know, to securitize or to sell like the BAS strategy and those partners need to make sense within the context of the larger bank. Chris, I’m curious because, you know, I think in many ways following to thread story, it was a remaking of the bank that you’re fit for purpose in this idea of, it’s not feeding some other community banking engine.

It’s really like you built the bank around. This is what we do and serve in specialization. Do you think any other bank that wants to get in, do they need to like also do that? I think we may in your note, we may have a couple of waves here.

Like if we were to try to crystal ball this and look out, I think right now where we are, uh, where the environment is, the recency of some of the things that have happened, dabbling does not seem like a good strategy for, for a new bank. So I do think, and I think this will, we’ll have degrees of my statement here into the future. If I had to crystal ball, uh, a full commitment, understanding strategically, this is a priority for us here, the resources and the whole bank in one way or another is, is focused on this or the leadership team.

It’s very clearly identified, right? Of how we’re, of how we’re doing it. So easy for us. We’re kind of like zero one, we’re a zero four and now we’re a one, even though we pay a lot of attention to our, our two branches, they’re a small relative to the overall revenue stream of the bank and operation and strategic plan.

That’s, that’s small. So naturally the lion’s share of our focus is on embedded banking and, and how we address that and how we grow that. I think, uh, if, if industry-wide we’re successful, things like what the university of Utah is doing, I mean, it’s really important things that, you know, acting chair Hill, uh, and all already OCC fed state, like our, our commissioner, uh, Greg Gonzalez, the Tennessee department of financial institutions, his emphasis and his engagement.

He’s also on the SLA board of the FFIC, right? So these are important linkages and the amount of work that we do with his department and the transparency and the two way learning curve. If all these things become even, you know, moderately successful, that a future wave will have where banks can not dabble, but they can, this can be more of an integrated natural way, part of what they do. Right.

So, so I’ve talked numerous times to different banking, community banking groups, like with the Tennessee banker association, very supportive where, you know, say you don’t have to go be thread per se. I mean, who would want to do that? Right. But you don’t, you don’t have to go do that to, to be a part of this.

What I would focus on, but you have to find a way to scale it is what do you do? Well, what’s unique about your bank? Maybe you’re an agricultural focused lending bank or music industry, you know, in Nashville or whatever that is that you do special. So now you’ve got value to bring you’re constrained by the paradigm of your geography. That’s pretty outdated.

And we’re proving right. Many, many banks all over the country are proving that that’s no longer a constraint, but in order to decouple from the geography, you got to build a whole different mindset and strategy around your risk management and how you manage that. So go find, so be committed and provide the resources to build that risk management framework, both process and technology and in, you know, infrastructure wise inside your bank personnel wise, and then go find a technology partner that could help accentuate and would benefit from the expertise you bring.

If you’re an ag focused lending bank in your area in East Tennessee, go find a technology company who’s really good at doing things for agricultural companies and bring those things together. And now you may, you may have just found a way to not just save, but help your community bank thrive and stay in that community and bring added things and resources and employment and all types of things. So I actually think that’s the successful playbook when this whole thing is passed, right? It is, you need an intentional strategy, right? Like this is where banking is going.

It’s the, the geographic questions at the center of this entire thing. It’s going to be the blurring and the kind of melting away of some of those geographic paradigms that, that in fact is not the most important thing. It should not be the denominator that rules everything that, that occurs within community banking.

But again, the standard setters, the people, you know, this has been going on for 15 years now, right? So it takes a while. It’s accelerated obviously now. I mean, when you’ve got universities like Utah, you know, doing what they’re doing, the acceleration and commitment is, is significant, but it’s got to become part of what, because if, if normal, you know, traditional community banks don’t embrace ways to find new revenue streams, that trend line of, you know, 15,000 to 10,000 to 5,000 community banks.

Yeah. We know where it’s not going to zero, but it’s not going to stop. Yeah.

So, you know, last LA Labs Banking Services Center, in fact, I was working with some students at the Kennedy School of Government at Harvard and partnering with American FinTech Council on this. And they had this model, they were talking about the direct or indirect and kind of the aha amongst this group of 20 banks was, you know, that was a pre-2024 discussion. And it feels like there’s this very like clear kind of BCAD cut between Bezos service, you know, pre-2024, 2024 happens, 2025.

Yeah. As you look to like the 2025 and beyond, what most excites you and what most concerns you? I think it’s, I think it’s that we’ve, the industry, the regulators, right. We’ve all gone through this storm and we’re all still standing, right.

Everybody’s still here. And so I think what, what is exciting is that a lot of the fear, which is always a liar and doesn’t tell the, by definition, doesn’t tell the truth. When it can recede and can be replaced by experience and facts, that’s always an exciting thing, particularly when you are a part of something that has endured that and been a part of that.

Cause now we can deal in reality, right? We can all set that aside, put that boogeyman back in the closet and let’s deal with what we have and let’s focus on the real risks and challenges and solve that. So that’s pretty exciting because we know the demand is there, right? We know the capital is there and we know that it can, it can work really well. So what scares me is that, uh, in euphoric situations, people quickly forget the lessons learned of, of what they may be or, or maybe they weren’t a part of that.

And, uh, that boogeyman can come back out of the closet quickly, you know? What excites you? What scares you? What’s your boogeyman? Um, I mean, excellent question. I mean, as far as what scares me, um, and this may be a little less explicitly, uh, Bass related, but, uh, adjacent, um, is some of the, uh, resurgence of crypto worlds and particularly the, uh, aggressive nature with which they want to sort of push further into the traditional financial system. So, I mean, setting aside any, uh, comment about like the utility or usefulness or practicality of like crypto over at large, I do think that there are, uh, a lot of risks attached to that, that, that do need to your point to be properly understood, like quantified, um, as you sort of go down that path, which we do seem to be going down.

People should remember that one of the reasons why, uh, the American banking financial services ecosystem is, you know, the largest, arguably like most successful in the world is its stability and the trust that that engenders. And that is, you know, maybe less exciting, less sexy to talk about than like blockchain, crypto, stable coin, da da da. Uh, but preserving that stability and trust, uh, you know, is going to be critical to the ongoing success, you know, not only of the American banking system, but of the American economy.

So, I don’t know if that really answered your question. It’s that tension, right? It’s both. This is both the opportunity and the boogie path.

Yeah. It’s the quasi-regulated really drive innovation, right? Because their intention and their mission really is to disrupt, but disruption can threaten the ecosystem writ large, which is, you know, one of our defying characteristics of the U.S. economy. And to Chris’s point, like, ideally, we don’t lose, we don’t forget the lessons we’ve learned, you know, whether it is, you know, some of the past issues in the last couple of years or, you know, the housing mortgage crisis in 08, you know, we are seeing that pendulum swing in real time, you know, and I’m not saying that I certainly did not agree with something like, uh, FDIC chair Grunberg’s sort of very, like, backward looking retrograde approach, whether it was, you know, trying to roll back broker deposits or just, you know, when it called the broker deposits, I have to, uh, or either dismantling the FDI tech office, like this, the way that that, uh, was received tended to be like, we are a closer business, no innovation status quo.

And, you know, going back to the, the chart, uh, Chris mentioned of numbered of chartered banks, community banks, you know, the status quo is going to let that line keep going down. Uh, so, you know, I don’t think innovation is a bad word as a four letter word. Uh, and the cliche is, you know, how do you do that innovation responsibly safely? Well, and I think that is the interesting thing is we all look forward to, you know, avoiding the next storm, building things that are weatherproof, but thank you both for joining me today and for your hot takes.

Thank you. Well, welcome to a lovely day in Utah, where I think we can all agree it is very warm now. Okay.

So we were just talking about how cold it is in Chicago, but this is going to be a hot conversation about some of the changes in the ecosystem. I really want to talk about, it feels like APIs are really coming of age and that we are reaching the point where the incumbents that used to be grumbling about the cores have moved to, Hey, we actually need to do is Julie, uh, Thurlow writing cooperatives calls it the conscious decoupling to actually taking action. Right.

I guess the first question for you, like you guys have what, 600 customers. That’s right. Um, but they seem to skew very much on the FinTech or the non-bank lender with a handful of the cross rivers, the threads that are the really the tech savvy banks.

I’m curious how you see the evolution of the market. Is it becoming mainstream now? Yeah, it’s a great question. So we really serve three markets, right? A private credit, as you identified the non-depository, um, FIs, banks and credit unions, and also card issuers.

So it’s a little bit of a nuanced answer for each one of them, but from the API side of it, absolutely. Right. We’re finding that what was the original reasons people wanted to connect to data was the first pieces are like, Oh, for better underwriting or feedback and underwriting model and so forth.

But now they want it to, uh, to connect to data for live information. What’s happening. So that decoupling of the core that what we’re always seeing is like the, the, the traditional banking core generally comprised of three big rocks, right? A deposit platform, yep.

A, uh, wealth management platform and a lending platform. Our playbook is to be everything in the lane of the loan side. So what we’re seeing like in the adoption rate, uh, sort of a slightly more FinTechie we’ll call hyper focus on like NPS customer experience kinds of folks.

They could be in the private credit space working with sponsor bank or a state license model, but we’re also starting to see more and more. There’s a, uh, a group of, uh, financial institutions that are now jumping into that space of connecting in. And it’s the, the experience that they’re, or the problem they’re trying to solve is providing the right experience to their customers and having live access to the data is a piece of that.

Jason, I’m curious, you know, global view from you, but especially a European one with more modern cores available in Europe, say than the stranglehold in the U S by the big three, does that make it more of a move towards APIs or because they’re getting native APIs from their cores? Do they not need, you know, to call it the loan pros or the tech first experiences that they’re getting and moving to in the U S? I certainly think that’s a piece of it. I mean, on, on the lending side, the market is just radically different in the sense there’s much less demand for consumer credit versus the United States or the UK, but as far as how that demand is met and the ability of the cores to provide those capabilities without the need for third parties, I certainly think that that is a fair assessment. So in this, we’re moving from conscious decoupling to the actually taking action on it, right? In the question for both of you, for the institutions you see actually making the leap, how are they actually building the business case? Because we talked to a lot of boards, right? And it feels like the, the risk of doing nothing, the benefit is just like a little bit too out there.

It’s really easy to say, Hey, can we just put this off for another year, should be another two years, right? I’m curious for those institutions jumping in, how are they thinking about it? Yeah, there’s really a couple of things you can only punt so many times. And, uh, and so it kind of culminates in as part of the reason we’re in the shoes we’re in today is a series of prior punts that happens, right? And it gets like, that’s what happened, right? So some of the challenges there. So the business case is, there’s a couple that are really, really easy ones.

And then others that are maybe a little bit of a bet, but the super easy one is compliance. Huge thing about compliance. We see the velocity of the rules changing last administration just went out, but had like a rapid fire of all kinds of things happening the last number of months and weeks.

Well, some of the challenges is several of the themes that changed. Um, although the objective of the, uh, of the regulators are kind of the same, right? They want to have safety and soundness and stuff. The methodology to achieve that are pretty different.

And so, uh, the compliance pieces, some compliance rules that are changing, if it’s at the federal level or the state level, or even like portfolio rules for credit facilities and so forth, um, if they require loan servicing, loan rules and stuff to manage in a compliant way. Uh, one example, if you’re a publicly traded, uh, bank, there’s a, so there’s all these alphabet soups of different government agencies that, and one of them is the FFIEC and their objective is to make sure it as a, as a citizen, if you invest like your 401k or something into a stock of a bank, and then you start to look at that bank, there has to be some standards and the standards of like, Hey, how much of their portfolio is performant or how much is delinquent? What’s the definition of performance or delinquent? So imagine one of the borrowers of that bank calls into their lender and they say, Hey, I need to skip a payment. Can they? Well, it turns out the FFIEC has a pretty strong opinion about that.

There’s like these hoops you have to jump through has to qualify in a certain way. And, and before you can do that. So we view that as like a regulation or a compliance piece.

Now, if they change the rules of what that looks like, you need a system for compliance. So the compliance could be on one end with the stick, but it can be on the other, a variety of different alphabets that you have to comply with. The other piece on compliance is this year, 2025 is a super interesting year in that, uh, over 70 in the private credit space, over 70% of credit facilities are up for renewal.

And that’s unusual. The reason that’s happened is the last number of years, interest rates were climbing because when everybody shortened the duration of the credit facility that they got. So they all just happened to be this like timing that they’re all renewing this year.

The reason I mentioned that is most credit facilities that are, the capital is used to give loans, have different kinds of strings attached to that money. So for example, the, uh, a lot of credit facilities say in consumer lending, if the end user who borrows the money makes a partial payment of pick a number 95% of the then you advance their next due date. And so you don’t forgive the Delta that they missed, but you’re not, you don’t want to keep tracking them be past due for three bucks.

So you sort of move that the bag, but those rules are different from one credit facility to another credit facility. So that’s a type of compliance thing. So that’s a really big business cases.

What are the rule sets you need to comply with? And the visual I like to think about is when I say this analogy all the time, when I was in elementary school, they had the overhead projectors. Oh yeah. But I think we all remember those.

So you kind of slide those papers on there. Each, each sheet you slide on, create some Venn diagram shape up on the wall. Those are all the guard rails and controls of the different compliance things to do.

So I think that’s the first business case. There’s a few others. There’s modernization.

There’s the, the concept of hunted long enough. They realize we are now on the five yard line and we can’t punt any further. Yes, there there.

That’s a piece of it, but it’s also modernization as a differentiator. Hey, let me like, hurry up and do this thing. I mean, I think another piece of it is the increasing maturity of the kinds of platforms like LoanPro that are, that are now available.

I mean, I think we’ve all been around long enough and have built enough in the space. I mean, if I think about when I was at Inova or at LendUp, a lot of the kinds of platforms that exist now, whether it’s loan origination, loan management, servicing, collections, whatever, those capabilities, you know, either didn’t exist or were not fit for purpose, certainly didn’t exist in an API delivered format. And, you know, to, to get back to your question about like the business case, especially for incumbent institutions, you know, perhaps we’re not at a level of sophistication and stability that they could reasonably serve like a large regional bank, like a fifth third or regions.

Is that where Tactile’s finding its greatest kind of entree is the more mature and ready to digest, or is it on the early stage that really values the experience? I think like many companies building in the infrastructure space serving these types of use cases, Tactile, like others before, is starting at the earlier sort of early adopter segment. So clients like Mercury that are more technology forward, rapid adoption, and then moving upscale and upmarket from there, which is what we’re in the process of doing now. And I think that’s really interesting.

If you think about the examples you’d mentioned to the different customers who use that, loan pro in our earlier days, we had the primary systems we were displacing were homegrown platforms. Okay. And you think about, well, that’s kind of weird.

Why? Well, there’s a little bit of a selection bias in there because somebody who wanted to do a lending product that they couldn’t really find a system out there to do it. They said, hey, I really have some conviction about this. I still want to do this.

I think I’m solving a certain problem. I’m matching a customer set well. So they ended up building something.

And then they get down the road and they realize, oh, I built it very rigidly. And if I can’t like dial and change it, I think burn it down and start over. Or they recognize and say, hey, I’m not, my core differentiator isn’t the tech stack to manage the loans.

It’s like my delivery or it’s the shape of the product that they offer. So those are a lot of the deals we win. So I think you’re right.

The early adopter piece of it. Now what we’re finding is there’s becoming an increased perspective that the future of finance is highly personalized. Instead of do you fit my box? It’s maybe I ought to have a variety of different shaped boxes that meet your need.

So that brings up a really interesting question. I’ll start with you. Too bad we don’t have Alex Johnson.

This is the Alex Johnson question is, you know, open banking is brought up all of this talk about cashflow underwriting, right? Like he read to your point. It’s like, instead of fitting in my box, fit in your box. And I think cashflow underwriting is kind of the penultimate version of that hype fantasy with what is your take? You’ve been in lending an awfully long time.

I mean, I don’t think it’s hyper fantasy. Does it solve, you know, every challenge, every use case, every customer? But the, you know, the data that is historically used from the credit bureaus, I know that both of you know this very well, you know, is one speaks primarily to the liability side of the balance sheet, certainly not the asset side, not the cashflow side. And it’s backward looking.

And the ability to have something. And stale. You stay and stale.

So the ability to have something that is either real time or near real time and incorporates both income and assets is going to paint a much more fulsome picture of somebody’s ability to borrow and willingness to repay. And it’s not just the way I like to think about underwriting is zoom a couple layers out. And instead of underwriting being the event of, hey, am I approved for something? Or again, can I borrow more money? Zoom out and say, in the shoes I’m in today, what should I do next? So that includes apply for a loan and you get the loan.

But it also includes after you got the loan, there’s like continual underwriting that would happen that would be, can they do, you know, increase that line management of what their line is? Or can you change due dates? Or can you lower the interest rate? Or all of this continual underwriting. Cashflow is useful in the same ways for the servicing ongoing. In that monitoring.

Right. Like one of the things we found at first, Marblehead with the private student loan business was the earlier you intervene, the more likely you are that they’re not going to end up in collection. The whole idea moved from reactive to proactive and open banking is a piece of visibility for that.

And I mean, of course, this data is consumer permission, right? And there are, you know, I could imagine a business case where you incentivize a user to give that permission. I mean, I sadly remember paying my student loans and you got, I think it was a 25 bit discount on the interest rates if you enrolled in auto. And obviously why that’s de-risking me as making that payment.

And you could imagine, oh, like I’m willing to give you a discount on the interest rate if you opt in to share your cashflow data on an ongoing basis so that I can use that for continuous portfolio monitoring. That’s right. Or other creative ones to try to fit lumpy cashflow.

There’s a whole bunch of like, so cashflow underwriting primary use case upfront is going to be like small, medium businesses, right? Lumpy, lumpy cashflow. And if you could have a product that meets their needs, it’s not just like straight line amortized due on the 15th of every month, but would like ebb and flow based off of the balances of their account. And you can maybe have a product that shifts plus or minus 10 days based off of the balances in their account.

And you have much more flexible options when you have more information. I mean, it makes me think of back to the private student loan world, right? It’s almost like an income share agreement in that regard. Does ebb and flow, right? Like I haven’t used that analogy before, but if I could morph with your cashflow to the payment and make that work.

In a flexibility type way. Yeah. Yeah.

I mean, like the idea, obviously the mechanics of it are quite different, but in the concept of, Hey, let’s design a product that works for you. That will be flexible and adjust. And so I think that’s just the beginning of it, but there’s lots of things that there’s just the beginning.

I mean, this conversation is reminding me of, of when we were building Marcus at Goldman, may he rest in peace. Yeah. And the approach we took on the UX was instead of asking somebody, you know, how much do you want to borrow? We asked like, what is the monthly payment that you can afford? And then like surfaced loan options with, with that as sort of like the guiding input.

I think that’s a great point. That’s one of the whole ideas of FinTech is increased user experience and meeting them where they’re at and figuring out all the complexities in the backend that they don’t need to know it’s complex, make it appear simple in that journey. And that’s one of those examples, speak the language of the audience.

That’s your, that’s your target. And if that is, what is your payment going to be? Great. You should be completely transparent and tell them all the terms as well, but not everybody can speak in.

I want this loan amount for every use case. Maybe they’re going to say, maybe they know a loan amount because they’re buying a car, right? But maybe they’re doing something else to trying to figure out like a restructuring debt or other things that they’re trying to figure out. How does that fit within their overall picture? So as we wrap up here for all of the promise of more data, better use of analytics, better experience, what would you say, right? Let’s start with you eyes wide open for any institution that’s making this leap.

What is the one thing you’d like? You need to be aware of this upfront in the interest of transparency, be aware, like this is either the hard thing or like the climb out that don’t be surprised by it. Like I almost think of it as the weight loss journey. It’s like, you need to be warned.

It is going to be hard, but the end is worth it. What is that hard thing they need to be prepared for? Yeah. The difficulty, obviously probably the most difficult on anything is data migration.

Okay. Mostly understanding what your current data is. So the mapping.

The mapping process. But we see the outcomes are sizable. We see significant optimization, much more efficiency where they bring costs down post migrating, increased portfolio performance because you can have that live visibility of the data and not separate systems and so forth.

So making portfolios more performant. So we absolutely see that the benefits are, and it’s also future-proofing, right? It provides significant benefits and opportunities of that modernization. But you do need to go into eyes wide open.

This is a partnership. It’s a journey and a process. And the data migration is always the most difficult.

So we find the inflection points, like the jobs to be done, Clinton Christensen. Then what is the job? If the job is I want to launch a net new product. Awesome.

Those are pretty straightforward and fairly, I’ll call them simple to do. If the job is I need to reduce my risk because I am on a on-prem server in the basement at the bank. Well, that’s actually not the safest thing to be doing, right? There’s some challenges that happen with that.

So there’s some risk mitigation, also future-proofing what products would happen. So I think the idea of just making sure you’re having a great conversation and relationship. Well, I normally like to pick on this idea of we’re a partner, not a vendor.

It’s just a sexier way of saying it. But this iterative process, the data migration, it really is a partnership because there’s no two institutions that look and feel the same way in terms of how you’re doing. In the private wealth management space, they have a saying, if you’ve worked with one family office, you’ve worked with one family office.

So the idea is kind of the same within banking institutions, in part because how we started the conversation, the continual technology punting has resulted in so many of them have built things around or encasing the enabling systems. And so they’re all fairly unique or bespoke. Yeah.

Jason, what words of wisdom would you, from a macro level and from a tactile, what eyes wide open would you give? I mean, I think the end state or the goals that Rhett mentioned absolutely resonate as far as being able to respond to a operating environment that is changing more rapidly than ever, right? Whether it’s like the compliance stuff, which we’ve seen a flurry of activity out of the CFPB. And then we’ll see what happens this next week too. Or whether it’s something like the growth of AI and how that is changing, like the operating environment, having the flexibility to respond quickly, which to your point about legacy cores and then how many institutions have tried to, let’s say, mitigate the limitations by, you know, building around, building add-ons.

That might be that pun, that like point in time solution to a, you know, a screaming problem that they’re experiencing in that moment, but in the medium to long-term reduces the flexibility as they have all of these bespoke solutions that one day they need to figure out how, you know, how to migrate. I mean, I think the, the, the warning, and I guess we both basically said this, but it’s like that, that building up of the technical debt, like that debt will come due eventually. And as bankers, we should, you know, understand that the longer you defer it’s going to grow and become harder to tackle.

Well, and I think there’s one piece to tease out on this. We did at Alloy Labs did a big retro post PPP, right. In terms of what did we learn in Chris Nichols at South state bank made this really important point is in our ROI calculations, we never actually put in what flexibility it meant from an ROI, because like, how do you measure? It’s a future state.

He goes, but what we learned in PPP was we were so inflexible in our systems to adapt to changing environments. Why don’t we make this the last question for real this time around the importance of adaptability? How do you start to measure that? I mean, like off the top of my head, I would think things like speed to market, right? So you’re talking about launching a new product. Fundamentally, that’s what PPP was, right? Protection program loans were like, Oh, like all of a sudden tomorrow, we want to start offering like loans of this size with these criteria.

You know, some companies some banks, depending on their systems were able to much more rapidly implement that, including to net new customers, while other banks responded much more slowly and in a much more limited fashion. So how do you, what is the KPI? I would look to things like there was like, Oh, you know, we want to experiment with a new data source, a new fraud vendor, how easy and how quickly can you integrate an onboard and start testing and using that information? Obviously, a lot goes into that as you know, InfoSec review, legal review, not just like the technology piece, but that really speaks to the need for it to be a whole of organization effort to improve that velocity while doing so in a responsible way. Yeah, right.

Do you have any real world examples of that in the client base in terms of that flexibility? Yeah, I think it’s important also to remember we’re not positioning to like replace the core, right? That is a very risky decision for like a board to make and stuff. What everybody’s looking for, what they want to buy is what is my modernization journey and path? Yes. And so that concept that I mentioned about breaking it into different rocks, the idea is most core platforms view themselves as a deposit platform with other things attached to it.

That’s their staple is the deposit space, right? LonePro doesn’t do deposits. So we’ve actually done a number of deals with banks that you know that they use LonePro for all of their loan management and a deposit platform that we integrate with and it plays nice together. And so instead of it being like a Boolean choice, one or the other, this really risk rip doesn’t replace basically a ton of modern cores.

It’s a graveyard of trying to do that in many cases because of that risk that it introduces. So we’ve approached this in a very, very different way of saying how do we de-risk that journey in that process and how do we help give them the flexibility? And back to your question, the flexibility. So one example was I’ll use PPP again.

During that period of time, customer advised that this is public, Best Egg, right? They work with Grass River. They had COVID happening, crazy, like nobody knew what was going on. The rules were changing by the minute and they had all of their employees, they had to send them home.

So that was the first problem of like, how do we manage now employees are working from home and they got a still service, but they also experienced like record, like 10x record call volume. Because all the news that everybody was saying, call your lender and they’re going to do something for you. Nobody knew what something was.

But they’re going to do something for you. So they’re getting these massive phone calls and they’re like, ah. So in real world, what we did with them, they called us, really close friends with them and they said, hey, what are we doing? And we said, well, first of all, one of the values is we have 600 plus customers.

We won’t tell you who’s doing what, but we have general trends of what is something. So step one, you need to identify the population set you want to serve. So they write a rule in the system, it uses attribution for those particular loans.

Within minutes, we now have a flag on a whole bunch of accounts that say, oh, this fits within your population set that you’re targeting. And then the rule, step two is what is it you want to do for them? Are you offering for them to skip a payment, defer a payment, reset delinquency, lower an interest rate? What does helping them mean? Define that. And maybe there’s different cohorts.

So you define that process, call it a loan life cycle process or event. And then we’d get ahead of you getting crushed on all of your phone calls. Let’s go ahead and expose that flag in the IVR system and intercept.

So they call in, authenticate, it intercepts and says, hi, Jason, I see that you, are you calling about how we can help you with COVID relief? I see your account qualifies for fill in the blank and they can self-serve. We did that beginning to end, launched live in production. No code release, config in three days.

The number of institutions I think about that had people working, you know, like dying on their couches in the work from home because they had to be fielding calls. But you were taking all of that off of the manual side. And if you looked what happened the very next time, Best Egg super climbed on the customer satisfaction, right? They were top five on list.

They right up there with really big global names. And so serving them. So that’s a future, like your concept of how do you have portability, future proofing and having access to the data? Well, that’s a real world.

Then we have dozens of those, but that’s a real world, like one it’s easy to relate with. I love that. Well, thank you both for coming to talk about the age of APIs this morning and enjoy some hot sauce.

Awesome. Thank you. Appreciate it.

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