Welcome to the VUCA Bazooka Economy

HOST – JP Nichols:
Welcome to the new normal. Volatility, uncertainty, complexity, and ambiguity, VUCA, are now the baseline for banking and the global economy

Today’s conversation explores how financial institutions can survive, remain independent, and even thrive when the economic environment changes daily.

GUEST – Tim Mahedy (Founder & Chief Economist, Access Macro; Chief Economist, Alloy Labs):
“We are experiencing the VUCA bazooka blast every day. Tariffs, unpredictable Fed moves, and political turbulence create a world where every prediction is outdated by the time it’s released.”

Why the Economy Has Entered a New Phase

• End of the Great Moderation: The 40-year period of moderate inflation and steady growth (1980–2020) is over.
  
• Fed Independence at Risk: Political maneuvering threatens central bank neutrality, influencing future rate decisions.
  
• Structural Volatility: Climate change, migration, and geopolitical instability will drive bigger, faster economic cycles
  

QUOTE: “This is the new normal. We’re not going to ride this out. We’ve entered a new phase of the economy.” – Tim Mahedy

Federal Reserve Under Pressure

The independence of the Federal Reserve is being tested:

• Allegations against Fed Governor Lisa Cook could give former President Trump an opportunity to appoint a majority of pro-White House governors.
  
• A potential 4–3 Fed Board majority could block the routine reappointment of 12 regional Fed presidents, giving the White House indirect control over rate policy.
  
• Trump has called for rates to return to 1%, despite inflation risks

QUOTE: “If we open the door and allow political control of the Fed, expect more inflation.” – Tim Mahedy

Banking Beyond the 3-6-3 Model

The old formula, pay 3% on deposits, lend at 6%, and golf by 3 p.m., is dead

• Deposit Competition: Fintechs and megabanks can pay higher rates and operate at lower costs.
  
• Need for Non-Rate Value: Banks must differentiate with advisory services, payments innovation, and personalized experiences.
  
• Jobs-to-Be-Done Framework: Customers seek outcomes (buying a house, scaling a business), not just loans or accounts.
  

QUOTE: “Innovation is simply implementing new ideas that create value. It doesn’t have to be AI-powered or blockchain-enabled.” – JP Nichols

Small Business Surge and the Embedded Finance Threat

• Rise of Small Business Formation: New ventures are increasing, especially in tier-2 and tier-3 cities.
  
• Digital Platforms as Competitors: Tools like Square, Ramp, and QuickBooks act as small business operating systems, capturing deposits and payments
  
• Opportunity for Community Banks: By offering trusted advice and embedded services, community banks can become indispensable partners.
  

QUOTE: “If you can solve someone’s problem in a period of volatility, you can win all kinds of trust.” – Tim Mahady

Strategies for Thriving in VUCA

Mahady and Nichols outline a playbook for banks facing a volatile economy:

• Scenario Planning: Develop multiple growth and risk strategies to increase optionality.
  
• Strategic Liquidity: Maintain financial and managerial “dry powder” for sudden opportunities.
  
• Advisory Services: Use financial expertise to guide customers through uncertainty.
  
• Partnerships with Fintechs: Embed banking into customer workflows to compete with digital platforms
  

QUOTE: “If you don’t like change, you’re going to hate irrelevance even more.” – JP Nichols

Raw Transcript:

This is the new normal. Welcome to the new world. This is not like, we’re not gonna ride this out.

By the way, when Trump’s presidency is done, we’re going to not only be left with the effects of this, not all of which is Trump. You know, we’ve got other things in our world that are happening, but we’re gonna be left with those and kind of everything that comes after it. We’ve entered a new phase of the economy.

Unpredictably, on-again and off-again tariffs, large revisions and unemployment and jobless claims, gyrating securities prices, perplexing consumer confidence numbers, that’s VUCA, volatility, uncertainty, complexity, and ambiguity. I’m Jay P. Nichols, and to help us make sense of all this today, I’m joined by Tim Mahedy, founder and chief economist at Access Macro. Tim also serves as the chief economist at Alloy Labs, and his perspective, shaped by time at the IMF, the Federal Reserve, and by advising leaders globally, comes at a critical moment.

Tim and I both just wrapped up teaching at the Pacific Coast Banking School at the University of Washington, and he and I are co-hosting a webinar on October 2nd called Surviving the VUCA Bazooka. We are experiencing the VUCA bazooka blast every day. They’re reshaping our industry and our world.

We’ll put a link to the webinar in the show notes, but you can sign up for free at alloylabs.com slash events. We’re gonna talk today about how financial institutions can not only survive, but maintain independence, and maybe even thrive through these unprecedented times. First of all, I want to call out that we are recording this on September 10th, 2025.

We’re planning for this show to be released on September 25th, 2025, so literally every last thing we talk about may be completely different by the time you hear this, right? So Tim, what’s your ironclad prediction from here? No, why don’t you just catch us up with what is the latest, what’s happening, and then I want to get into some specific questions on some of the things you’ve been talking about lately. Well, first, thanks for having me on, JP. Great to see you again.

I want to say A2, Brutus. I mean, we’re supposed to be friends. You set me up with this two-week difference, man.

We got a Fed meeting next week. I know, I know. It’s wild, isn’t it? But it’s one of those things where, well, let’s not record till next week because there’s a Fed meeting.

Well, no, but then after that is gonna be the revised unemployment numbers, and then after that, you know, core GDP. So I don’t know. I don’t know if that’s the right order.

I mean, you tell me. No, you’re right. I mean, you know, you said the VUCA bazooka, which, by the way, what a way with words, but the bazooka’s firing every day now.

I mean, that’s the problem, right? Like everything is just, it’s changing rapidly. Last night, and who knows by the time this goes out, but last night, the court said, hey, Lisa Cook can stay on for next week’s Fed meeting. You know, just a random Tuesday night news nugget, right? So let’s run that back for those that maybe aren’t watching the palace intrigue between the White House and the Federal Reserve.

What is going on with Board Governor Lisa Cook and the Trump White House? Well, this is a great example of the volatility in the world we find ourselves in. This was almost completely unthinkable 12 months ago. You know, so the allegation is that Lisa Cook has done something unsavory with two mortgage applications.

Whether that’s true or not, that’s for the courts to decide, but that’s the allegation. Meaning that she has claimed two homes as her primary residence. Yeah.

Which, as it turns out, appears to be quite common by many people in Washington, D.C. But anyway, go ahead. Publifood’s family members, the people that accused Lisa of this, their family members, were also doing the same thing in Michigan, but we’re not gonna point fingers. But yes, that’s where we are, and that allegation is being used as a way to kind of jimmy her off the Fed board and give Trump another appointment before the end of the year.

So the idea is, Miriam is about to join. He’s probably gonna be pushed through the Senate in time to vote for next week’s, or the 17th’s policy decision. They’re trying to get a second with Lisa Cook.

And talk about his background for a quick second. Well, he comes from finance, and he has some really interesting thoughts around the Fed. So he’s someone that has criticized the Fed in the past, and he is very likely to end up being someone that is a yes person to Trump.

I just wanna point out, there’s some real interesting connection here between his likely appointment onto the board. He’s not giving up his CEA job at the White House. There will be a direct link between the Fed and the White House, because his term ends at the end of the year.

He’s gonna have to be re-nominated by Trump. So he’s saying, well, I wanna keep my old job. I’m not gonna get paid.

I’m gonna keep my old job, so that I can go back to it. But I’m not gonna talk about it with anybody. I mean, come on.

His future is dependent on what he does today, right? And what is his old job at the White House? He’s the head of the Council of Economic Advisors for the White House. Yeah, so much for the independence of the Federal Reserve Board. One of the few things that they’re doing, right? And so this is the Lisa Cook thing that you asked.

This is shot number two from the bazooka, right? Number one is put this gentleman on and then keep the link. Number two is to kind of get Cook out. Now, there’s a fun end game in this, is that there are already two Trump appointees on the board, Waller and Bowman.

Now, I’m not saying either of them are Trump loyalists in the same way that this gentleman would be or whoever Trump would put in for Lisa Cook would be, but they were nominated by and appointed by Trump in his first term. If he gets another person on after Miriam, then you would have four out of seven governors, four out of seven, right? That’s a majority for what’s going to be a very important but very technical thing that happens next February, which is the reappointment of all 12 Federal Reserve Board regional presidents, which is usually just a rubber stamp, right? So the presidents of each of the 12 reserve banks are nominated by banks and businesses in their district. And usually the board has to approve this every five years they’re re-nominated, the board has to approve it, they rubber stamp it usually.

Well, if you have four or seven governors on the board, he could essentially, Trump could influence these folks to say, we’re not approving anybody. And that would whittle the FOMC down to seven out of seven voting members, four of which want rate cuts. So this is a backdoor way, it’s a huge fight.

Lisa Cooksey is a huge fight. The backdoor way to completely controlling the FOMC by the start of next year. And it’s a really, really dangerous spot to go back to, hey, just a couple of attacks on the Fed, Fed independence.

This is the whole ball game. So we’re not gonna talk today about, or we’re intending not to talk about politics and the White House and all of that sort of thing. But President Trump has been pretty clear.

He wants interest rate cuts. So first of all, why, in his mind, why are they important? And secondly, isn’t he about to get them anyway? The answer to your question, the second question, I was about to open with, yes, he’s about to get them anyway, potentially a lot of them. He wants them because every, I mean, this is not a Trump thing, every president wants rate cuts.

Like higher rates are not good for the, they’re restrictive on the economy. So every president wants high growth and they’re willing to eat the inflation for the most part. At least that’s what’s been the last couple of decades of administration.

But yeah, he wants rate cuts, he wants to boost economic demand. Some of the recent data has been unfavorable towards his tariffs. Like the job market really slowed down starting in May, which is the month after the first round of tariffs.

So he wants some economic support. He’s about to get it no matter what, because we’re about to get 25, maybe even 50 basis point cut in September. This will now be wrong, of course, because we’ll be posting a week after.

But I think 50’s on. Whatever you say, it’ll be something different. It’s something wrong, right? But then after that, we can see October and December both have cuts as well.

So there’s potentially 100 basis points of cuts, just like last fall in the pipeline. And the president wants even more than that. He said he wants things at 1%, 1% interest rates.

I mean, that’s like, we haven’t seen that in a very long time. So it’s just, this is the world we’re in. He’s causing damage to the economy through immigration policy, which we don’t talk enough about, and tariffs.

And now we’re seeing, we’re doing, well, if the economy’s weakening, we need rate cuts. So that’s where he’s sitting. And he wants them, he wants them yesterday.

So what’s the argument against that? Or do you have an argument against 1% interest rate as an economist? Oh, absolutely. This is a really interesting time to be doing this. Access macro, we’re about what the Fed, we think the Fed will do, not what the Fed should do.

So this is not a, we’re taking a side on whether the economy should have rates or not, but there are arguments on both sides. I mean, clearly the labor market data says the cut needs to be coming, right? We just had yesterday 911,000 jobs that weren’t created last year, essentially. So like, that’s a huge revision, downward revision in jobs that we got yesterday.

The economy’s, the average number of job gains is so, oh, did you not hear that one? That might’ve slipped in through there. Yeah, that’s another new one. And I was gonna say, but wait a minute.

We fired the people who were doing revisions because they obviously weren’t doing their job very well. So every number coming in should be perfectly accurate from now on. I don’t think it- Only in jobs above, we’re gonna gain.

Yeah, I mean, so this is, this is where, like so many things in the administration, there are correct, there are correct prescriptions of problems, right? The BLS has had this issue for a while. They actually had a council that was set up to figure out how they could fix these survey issues. Essentially, their response rate for the surveys is dropping.

And so their initial estimates are constantly wrong and the revisions are getting bigger and bigger. But of course, the policy prescription doesn’t make sense. They got rid of the board.

They moved out someone that, so the people that are investigating how to fix this were fired. And then you’re talking about putting someone in place who is, in my view, worse than the folks that would be put into the Fed. This person is completely outside the bounds of what I think normal economic mainstream on either side of the fence would argue is a good person to put in.

So yeah, we’re gonna have questions about the statistics. I expect the Senate to confirm him and we’ll have questions on the statistics. So going forward, to go back to the VUCA bazooka, we are facing like record amounts of uncertainty that we keep hoping is gonna go away.

But I really wanna encourage people on this podcast, this is the new normal. Welcome to the new world. This is not like, we’re not gonna ride this out.

By the way, when Trump’s presidency is done, we’re going to not only be left with the effects of this, not all of which is Trump, we’ve got other things in our world that are happening, but we’re gonna be left with those and kind of everything that comes after it. We’ve entered a new phase of the economy. We’ve closed the door on what was called the Great Moderation from 1980 to 2020.

And we’ve entered a new phase that looks a lot like what we were seeing in the 60s and 70s, not so much what we saw between 1980 and 2020. So say more about that for those of us that were around, but maybe a little younger in the 60s and 70s. J.P., you had a good day over at 25.

You got way more hair than me. So back, like everyone remembers Paul Volcker. You remember Paul Volcker, right, J.P.? Of course, my good friend, Paul, yeah.

Your good friend, Paul, right? Changed the world, right? He slammed on the brakes of high inflation in the late 70s, and then we got what’s called the Great Moderation, which probably just like you and me, we’ve been working most of our lives in that Great Moderation, pretty low. We’ve had recessions and stuff, but yeah, you know. Effectively starting circa 1980, right? Yeah, let’s call it circa 1980.

Moderate growth, some asset bubbles, nothing crazy. If you go back prior to that, all the economic data did a lot more of this, right? A lot more of this. Up and down, up and down.

GDP was up, then it was down. A lot more rate movements up and then down. Now, things have changed a lot since then, but I think we’re entering a world where climate change, geopolitical strife, domestic political strife, the policies are in place, immigration, all that stuff is leading to a world that structurally looks more like that, where you have to kind of look through more noise, and things are harder to predict and feel less stable.

So I don’t know, maybe I’ll throw this back to you. I mean, that’s what I see as an economist. Are you hearing that in the bank world? Like, this is just me up in the clouds.

What do you see on the ground? Yeah, well, first of all, what I would say is that circa 1980 era, when I think about it in terms of financial institutions, one, that was just about the peak in number of banks, somewhere around there, right? So we’ve had a decline from roughly 14,000 banks to about 4,500 banks. And as I think about it, that arrow is marked by stability, as you just said, for the most part, rising asset prices, and for the most part, falling interest rates, with some exceptions, some cyclicality in there. But coming down from the 20% prime rate in 1981, right, it came down after that.

And so even though we had a declining number of banks, it was really conducive to run the standard bank model, right? We often joke about the old model of 363. You, you know, paid 3% out on deposits, you lend it back out at 6%, and you’re out on the golf course by 3 p.m. So- That was the good old days. Yeah, that model does not work anymore.

So not only all of the economic backdrop that you’re describing here, and we don’t really even get into FinTech until we start talking about the global financial crisis in 2008, because that coincides with an explosion of technologies, mobility, and battery power, and cloud, and broadband, and apps, and smart devices, right? All of these things, you know, our co-host Brett King coined, I think, in 2006, banking’s no longer somewhere you go, it’s something you do. And so it has been kind of this utility that is fading into the background in certain segments of the economy, and I believe we’ll continue to do that. And so what we’ll still talk about here today is what do bank leaders do if this is the economic backdrop, and this is the industry backdrop in which we have to operate? So I buy what you’re saying, but I also recall, as I’m no economist, but I seem to understand, you know, we’ve talked about the 60s, we’re still tailing off the baby boom, and tailing off the post-war expansion, and we end the 70s in the stagflation Jimmy Carter era.

So what you’re telling me doesn’t sound exciting. Oh, does it? It sounds depressing, but maybe also exciting. No, it’s fair.

I mean, you know, that’s really interesting. I wanna just, that’s a really interesting way to like think about it, because one of the things, to go back to what we started with, that the attack on Fed independence does is it should raise people’s expectations of inflation. Right, because like I said, presidents don’t want high interest rates.

So if we open the door here and we allow Republican, Democrat, whatever, to control the Fed, expect more inflation. Right, just like you saw. Now, I’m not saying we’re gonna say 10, 20%, but expect it to be three, 5% more than it is 2%.

Well, and that’s back to that era, right? People my age, if you think, anytime you’re trying to use a discount rate and figure out what’s gonna be the erosion effect of inflation, we always thought 3%. And I think there’s an era of younger bankers and FinTech founders who went through two rounds of zero interest rate policy who think of inflation as, you know, zero to 1% maybe. I don’t know what it is.

So that just gets baked into everything that we do from here on out, right? Yeah, no, totally. I mean, you’re right. Like, to your point, like, okay, all of this innovation happened in this period of economic stability.

Like, we got a playbook for that. And then, by the way, a long 40 years, right? Like, that’s a long time for people to become accustomed to certain things. And now we’re telling you, no, the world has changed, and it changed kind of overnight.

And so I can imagine bankers, like you said, the industry consolidated. I mean, those are crazy numbers. So, like, who’s left and sitting there going, like, what do we do in this higher inflation environment? How do we address these things? Oh, and by the way, you’ve been banging this drum, and I think you’re right.

Like, how do we innovate in that? Because to your point, like, all of this stuff happened in fintech and all this stuff happened during that period. And now we’re getting crypto and stable coin and all these things bankers are facing. The 363 starts to feel like, you know, are you really going golfing at three? Are we really doing this? So I have a lot of questions around, like, how do you go in that environment? But also a lot of, like, hey, maybe don’t stick your head in the sand, because there are things you can do.

There’s gonna be opportunity. I know, you know, it feels scary to say all of this stuff as an economist. More inflation, more volatility, less Fed independence.

Those are all scary things to say. But as we know throughout human history, there are also gonna be opportunities for people to make money. To those people who are likely forward-thinking, I don’t wanna say early adopters on everything, but have smartly picked and maybe sandboxed things they wanna try out.

I know this is an area you talk a lot about. I’m just gonna tee it up and say, like, does that sound right to you? I’m way, way, way off base here. Yeah, I mean, I think with volatility, you know, if you’re a securities trader, you love volatility, because it means opportunity.

But I think even more broadly, volatility and change means opportunity. It is absolutely scary if you don’t like change. I love quoting General Shinseki, said if you don’t like change, you’re gonna hate irrelevance even more.

And that is the risk that traditional financial institutions face, is that they become irrelevant. And so how do you fight that? Well, you said the word, innovation. We have to try new things.

I always say that innovation is, well, first of all, when we’re in the classroom or we’re in the boardroom, we define innovation very, very simply. It’s just implementing new ideas that create value. Right, that’s all.

It doesn’t necessarily mean technology. It doesn’t mean AI powered, blockchain enabled, omnichannel in the cloud, blah, blah, blah. It might entail those sorts of things because those are a part of the technology backdrop of the environment in which we operate today.

But it’s really just implementing new ideas that can create value for your customer and being able to understand who is your customer and how do we differentiate. That has been true. That’s not anything new.

Well, I’m just full of quotes here today because the other one of my favorites from Warren Buffett, only when the tide goes out, do we see who’s swimming naked. And that’s sort of what’s happening in this economic VUCA, right? Is that those that were able to just kind of get along because the environment wasn’t very rocky, suddenly you’re finding that that doesn’t work anymore. And one of the things maybe to drill down just a little bit is the lifeblood of banks is deposits, right? Kind of the assumption of the beauty of the business model of banking is that we take in low to no cost funds and have the ability to leverage those and lend money and make money on that.

And it is becoming increasingly difficult to compete in that environment. We have FinTech and startup competitors who have a much lower cost to operate and to serve customers. So they’re able to offer higher interest rates.

We have large organizations that have really, really big pockets that can absorb maybe a little bit thinner net interest margin. And so I’ll turn it back to you, but my headline on that is, so we have to find ways of adding non-rate value and non-rate value might mean fee income. It might mean just it’s easier to attract and retain customers at a lower rate, not a premium rate.

And it might mean that we extend the life of those customer relationships much longer because they’re getting value outside of, the headline 4.2% or whatever. So I’m curious your thoughts on, so not only Fed target rates, but how’s this interest rate environment going to affect the world of banks that you know? Oh, so much to bite there. I mean, one, I share your vision.

The thing that I come back to, I’m taking my economist hat off and putting on my citizen hat, my non-econ hat and say like, community banks, community. You’re going to a community bank. I’ve heard this Pacific Coast Banking School.

We talk a lot to banks. You talk a lot to banks. The thing I always hear is, you know what? We’re out there, we’re solving problems for our clients.

They’re already people out there with the mindset, right? It’s not like I’m coming to you because you get the best interest rate. I’m coming to you because I get a competitive interest rate and because you’re gonna make sure everything goes well. Now think about this.

In the volatility of today, that’s what people want. People want security, they want help and the world feels overwhelming. So to the extent that you can go out there and sandbox and you’re saying, you know, innovate and solve problems for your customers.

I agree, I think that’s a competitive landscape that I’m gonna just say as a small business owner is very appealing because it’s like, we’re overwhelmed in a world where there’s tons of new information. And by the way, there are tons of new small businesses were created during the pandemic and afterwards. Business applications, new business applications surged for years.

So there’s tons of people out there starting companies and doing things that are gonna, of course, care about interest rates, but are gonna also want that community touch that kind of helped me through the process and buying a home for the first time and financing my business for the first time. And I think community bankers have a lot to say there that isn’t just, well, I went to Bank of America and filled out a bank or whatever and filled out a mortgage application or whatever. So I think that’s an important piece.

And as you, there’s also an educational component, right? Like bankers, they’re economists at heart, right? They’re financial advisors at heart. They understand the economy. And if there’s more ups and downs in the rate cycle, then the people are gonna look to their bankers for advice on how to not just like what’s coming, but what they should do about that.

Most people don’t trade in equities and bonds. Most people don’t understand the intricacies of all the financing that goes on in our economy. And so this is a knowledge hub that I think bankers can provide and innovate off of and find ways to monetize in this uncertainty that is around relationships.

I mean, that’s my two cents. I don’t know, what do you, does that sound crazy to you? It doesn’t sound crazy to me. And we’re gonna take a little break and I’m gonna come back and give you my view on that.

Hi, this is Rob Teresik from The Futurist Podcast, which is part of the Provoked Media Network. I’m excited to tell you about some news. The Futurist is expanding into the real world.

We’re doing a live event in Dubai. Now, folks who listen to The Futurist Podcast, you’re gonna be familiar with the fact that my co-host, Brett King, has been working very hard in Dubai and other parts of the Middle East for a long time. And for more than a year, he’s been putting together this event.

And now with the help and support of MasterCard and Emirates MBD and many other partners, we are putting together the world’s largest Futurist meeting in Dubai. It will take place at the fabulous Jumeirah Beach Hotel in Dubai. And it’ll be on the September 22nd and 23rd this year.

The speakers are gonna include some of the world’s leading futurists and forecasters and future thinkers, people like Brian Cox and astronaut Scott Kelly. Of course, Brett and I will be there to conduct interviews and introduce some of the other folks. We’ve got speakers from around the world.

And if you’re interested in meeting Futurists in person and participating in an event that attracts the future-minded, please join us on the 22nd and 23rd of September. You can learn more about it at futuristevent.com. That’s futuristsingularevent.com. It’s all one word, futuristevent.com. And that’ll tell you all about the event. I sure hope to see you there in Dubai on the 22nd and 23rd of September.

Thanks. Well, before our break, Tim asked if I thought he was crazy in thinking about this opportunity. I said, dude, just not on this.

Well, I do, right? Not on this. It’s no, on this idea that community banks have a role in this. Absolutely.

And you said the word relationship and absolutely with a big asterisk because merely having a relationship is insufficient, it’s necessary, but insufficient. And in fact, we believe that relationships are actually lagging indicators. So a lot of times I hear things from bankers that are the equivalent of, hey, we’re gonna go talk to this customer and I have an engagement ring in my pocket, right? I’m gonna build a relationship with them.

The customer doesn’t have a need for a relationship. And in fact, if a customer tells you they have a need for a relationship with your bank, there’s a pretty good chance that there’s risk of adverse selection there. I mean, they may not be a great credit risk here.

I think in most cases, a relationship develops when they trust you and trust is a component of credibility plus reliability, plus intimacy divided by self-interest, right? That comes from the book, The Trusted Advisor. And if you can do all of those things, you will build relationships, but you still have to help customers get jobs done, right? And so you mentioned the mortgage example and we’re seeing such consolidation in that space rocket mortgage. Gosh, it wasn’t that many years ago.

We were talking about them as this interesting upstart that was beginning to get market share. They’re the number one mortgage lender in the country right now. And it’s not about coming in and sitting down and talking to your rocket mortgage rep.

It’s about the job to be done is I’m acquiring a new home or I’m moving or I need to expand or whatever it is. And if you can get that done without be talking to somebody, that’s probably okay. Now, if there are plenty of exceptions, my sister-in-law being one of them, right? She loves going in and talking to her bank tellers and all that sort of thing.

But I think the macro trend is that we’re expecting technology to take care of all this. So where does the relationship come in? It’s in understanding exactly those jobs to be done. It’s not buying a house.

It’s expanding the house because our family’s expanding, right? So if we understand that, we can talk about other kinds of things. Oh, what about college savings and other sorts of needs? And I don’t just mean crassly cross-selling, but I mean truly understanding the jobs to be done from the customer. And the banks that are winning today, and I believe will continue to win in the future, are those that are really good at that.

They understand jobs to be done and customers don’t articulate them directly. One of the examples I use a lot is, if you can think back, wasn’t that long ago, but to the days before Uber and Lyft and when ride sharing was ubiquitous. And we didn’t complain so much about taxis, right? That we talk about the pain points.

In retrospect, we can talk about, gee, why were the credit card machines always broken? It was loud. It was smelly. I did this thing on TV.

Yeah, yeah. Yeah, exactly. If I’m in New York City, they’re supposed to take me whenever and wherever I want, but he tells me, no, he’s only going uptown and I’m trying to go downtown, right? All of those things that aren’t, customers aren’t saying, boy, you know what I wish we had is a network of drivers that I could push a button on my phone.

I mean, it’s a great example of innovation. The other classic one is the Swiffer, right? Procter & Gamble did tons of ethnographic research and no customer said, you know what we need is an aluminum handle with a pad at the bottom and a little bit of spray liquid, right? It was understanding the job to be done is get the floor clean enough without making a mess of myself. So a couple of non-bank examples, but the banks that are really understanding that and unfortunately where we’re seeing this done the best for the most part is from the fintechs, right? Now, the good news is most of these fintechs want to work with you.

You’ve got a set of embedded customers with jobs to be done and they can bring those tools and those capabilities to you, but at the end of the day, I think our industry’s heading towards a barbell. It’s gonna be tough in the middle. We have the handful of big banks like most developed economies, but I think uniquely American is we still have an opportunity for true community banks that are serving their community very, very well because they understand that community and can serve it in a way.

And it doesn’t mean without technology, right? It means with technology, but adding that relationship. So sorry, you got me on a little box there. No, get your soapbox out, Frank.

Get it out. Oh, I love it. I got a couple over here that we’re gonna jump on later.

No, this is really, I wanna come back to this. I wanna use what you just said and come back to the small business thing. So I’ll have to say before January 20, 2025, the time before, the before times, I was going around and talking to bankers and doing presentations because the economy was doing, it looked like it was doing pretty well.

Yesterday’s data said the labor market wasn’t so hot, but we had pretty high growth in 2024. We had very high interest rates even before the Fed dropped it. So the question was like, how are we doing this, right? Like rates are at the highest level, most restrictive they’ve been.

They’re actually more restrictive than they were before the global financial crisis. So how is the economy weathering this? And one of the big storylines was the new business formation. But I wanna come back to this.

It’s never been easier to create a services business. Think about this. You used to have to hire accountants.

You used to actually have to Google stuff. Now you’re gonna chat GPT, right? Or cloud or whoever it is. That needed to buy a bunch of servers.

Buy a bunch of servers. And you can get all this stuff for $50, right? I mean, it’s crazy. And so today people are doing that.

There’s a stagnant job market, which will likely stay that way. Other companies are adopting it. Other people are gonna lose their jobs.

This is a period in which people are gonna have to kill what they, you know, eat what they kill. And so in that world, they will move to small businesses. We’re gonna see, I think, a continued increase in the number of small businesses that are created over the next couple of decades.

And the question is, where do you go for expansion, right? Every small business hits a point at which they say, you know what? I’ve made a bunch of money, but now I need to grow. And I may not have enough money yet to grow, but I need to go somewhere to get to the next level. That’s a risky endeavor, right? For some of these places.

A lot of these companies that go private equity, they get VC funding, all that kind of stuff. There’s lots of money floating around. What if the community bank already knew where this was going on? There’s data on where in the country these businesses are being formed.

They’re not in your tier one cities, actually. A lot of the relative to what was going on before, they’re in your tier two, tier three cities in every state. So go out- Much better cost of living and cost of labor.

Yeah, I’m gonna pick my family up and move to Provo. Right, I’m gonna move out of Boise. Or I move out of Portland, right? Because I wanna go to Salem.

I wanna go down to these other spots and have better quality of life. My business is on the internet, or it’s a food truck or whatever. So who’s banking them? Who’s taking their deposits? Who’s making them feel warm and fuzzy at night? It is hard running a small business.

You still have lots of things you have to do and say. And so to your point about getting things done, if you can solve someone’s problem in a period of volatility, you can win over all kinds of trust. And so I really do agree with you and wanna lean into, the macro environment is setting up, not just for bankers, but for the whole world, just a lot of uncertainty and exhaustion.

And if you can make people less tired so they can go out and make more money, that right there, you’re a consultant. You’ve just solved someone’s problem and they’ll pay you for it. They’ll pay you for that peace of mind.

And I think to your point, we have to get out of just the rates. So obviously bankers have to bank, but what other things can you provide those clients? And I would say that’s a spot that I hear when I, when I give that talk to some bankers, those are risky loans. I don’t know if I wanna go down that road.

There’s a high default rate. Sure. Don’t risk anything, don’t make anything, right? So I think there’s an opportunity here to change mindsets around where it is, not just what we can do, but who we can do it with.

To your point, who are your customers? Who’s that future? We did a fair amount of research on this. Actually did a show, a couple of shows on this earlier this year. Alex Johnson from FinTech Takes coined the small business operating system.

And we like that phrase, haven’t come up with a better one on our own, but it’s the, the, the Berkereys, the ramps, the squares, even the QuickBooks, right? So these are companies that are providing a high utility function for small businesses and increasingly the small is not even necessary to say because they’re growing. In the fourth quarter earnings release, Jack Dorsey of Square, of Block, the parent company, said that Square is seeing most growth in companies over half a million dollars in revenue. It’s growing 24% year over year.

And they are continuing to invest in larger enterprises. They’re seeing $35,000 average balances in their banking partners. And I said this to a bank CEO recently and he kind of scoffed and said, well, yeah, but that’s not them.

There’s the, that’s a bank that’s doing that. I said, yes, but it’s not your bank. And the light bulb kind of went off, right? That, that he got it.

But when we were doing this research, we talked to 15 different banks throughout the Alloy Labs Alliance. And one of the CFOs said something very simple, but, but really impactful. And that is that, you know, not all of my customers need to borrow at any given time, but they all need to hold money and move money.

And we have to invest in payments and treasury management and partner with some of the companies here. And to your point about, okay, so what’s the credit risk of these newly formed businesses? Not all of them even need credit. Some of them will and it’s not a new thing to underwrite micro businesses based on the individual behind that.

So underwrite on their credit score or whatever. But secondly, one of the other trends that we’re watching and trying to help accelerate is I was just with another bank leadership team recently and with their head of, well, one of the team leaders for their commercial banking. And I asked him for a specific job title and it says commercial lender.

And I said, okay, so, you know, that says everything about, you know, to you and to your customers about my job is to extend credit. And of course that’s a part of your job, you’re a banker, but they’re in the middle of making a transition as many banks already have, calling commercial bankers or commercial relationship managers, right? Different sorts of approach. And I think that’s gonna be really critical both to go back to what we talked about earlier, of gathering deposits, because that’s a key part of the business model, but also to have that intimacy to be able to actually solve the needs of those customers.

If we just say, oh, you don’t need to borrow, well, then you’re not that interesting to me. This is exactly why the companies are going to these other, you know, so-called small business operating systems. And so the challenge is how do we get embedded in those customers’ workflows so that we’re not just this secondary thing.

Another example I’ve been using, Tim, you’ll appreciate this. I’ve been asking bankers, are you in the direct auto lending business? And less than 10% ever say yes, you know, we do that business. And if they do say yes, I say, well, how’s that going for you? Well, not really well, right? Margins aren’t too good, it’s hard to get volume.

Why? Well, because that’s all gone to the dealers, right? So the indirect auto business. In fact, most dealerships make more money on providing the financing than they do selling the metal. And so it’s an important, the business model’s completely shifted.

My wife, when she first got her first auto loan, she went to her dad’s credit union and got some papers and went around to car dealerships and said, hey, I’m pre-approved for this amount, right? That has changed. And so think about that. And project that onto the small businesses, right? It’s the same thing is that, you know, it’s being embedded.

Are they still borrowing? Sure. Are they coming to the bank as a separate discrete step? Not as much. And I think the trend, you know, continues in that way.

Well, but this is where there’s a knowledge gap too. And I think this does what we’re saying, right? Bankers know a lot. They’re educated group of people who track the economy, track financial conditions, who know about specific businesses, you know? And so, and I just noticed in this discussion, right? Like around, I had no idea that financing was how these dealerships, you know, were making their money.

There’s all that kind of knowledge sits there. And so as a small business owner, who’s focused on what their life is like and what they’re doing, having a relationship with somebody that you can say, hey, I want to do this thing. I kind of bounce some ideas off you, hosting a conference, doing those kinds of things.

I know this has already been done and it continues to get done, but there’s other ways to talk about this and just like come in and we’ll tell you about the economy and then, you know, see you later. It’s like, hey, here’s what you can do about this. Here’s something you should think about.

Those are trust building components, especially for us millennials. I’m an old millennial who’ve been getting told their whole lives, like you don’t know anything. Like, you know, I had a Gen Xer tell me recently, like, you know, millennials just have to have their hands up.

It wasn’t even said derogatorily. It was just said, you know, you guys need your hands up. I’m like, okay, well, sure.

But like, why don’t you give me some knowledge on this? So for those of us who are coming up in our late 30s, you know, early 40s and we’re starting businesses, we’re buying homes that are happening. And by the way, the economy is becoming more uneven. Correct, you know, policy, morality aside, the economy is a haves and have not situation and the haves are doing fine with the money.

And so those are the folks who are going to do these things. Or how do you get into that circle? How do you express that knowledge? How do you show off your skills? And then listen and hear problems. Like you’re saying, okay, I’m going around and hearing these problems from folks.

Is there a creative outside the box solution? I had no idea that I have 10 customers all say the same thing, or potential people all say the same thing, right? I mean, I think it’s, there’s, you know, you got to turn, you have a, to your point, a mindset shift to hear that, to even know where there’s an opportunity. You don’t have to, I think there’s this idea that you have to sit in a boardroom and you have to see the future and come up with the idea. No, go out into the world and talk to people and let them tell you what their problem is and then go solve that solution.

You know, that’s how I think about it. Yeah, absolutely. The great Steve Blanks is the answers aren’t in the building, right? We’ve got to get out there.

So we jumped so quickly from the macro to the micro and it’s been great, but while I have you here, I’ve got to pull you back to the micro because one of the things that you’ve been talking about is you have a chart that shows that climate change, political strife, and geopolitics are all colliding and those are macroeconomic forces too, not just interest rates and unemployment and that sort of thing. And so talk about that for a minute and how should bank leaders think about that in a FUCA world? Yeah, I alluded to it, I think a little bit earlier, but I want to press on it now. You’re right, I open up with a chart a lot of times, two flow charts.

One is like, hey, this is your world in Venn diagram and then, hey, this is what this means with boxes, right? A flow chart. And really, there are a lot of forces out there that have these massive structural movements in the economy that we cannot control. So you’ve mentioned a bunch of them, climate change, geopolitical instability.

We have people flying drones into Poland now. We have nuclear powers at risk. We have China wants to get Taiwan.

There’s all these things we can’t control. One of the big ones, we’re really in the U.S. right now, but it happened after the Syrian war into Europe is migration. As climate change and all of these things cause places to be unstable or insecure, you’re gonna see massive movements of people.

All of this has huge economic implications here and abroad, right? And so when we’re thinking about this, that means the economies are gonna have more ups, more downs. The Fed’s gonna have more supply chain things that they have to think about, more policy implications. So what do you do as a banker? I think the general human nature for some, I think it’s like a fight or flight response.

People hear that, they go, oh my gosh, that sounds entirely overwhelming. We’ve got all kinds of stuff that we can’t control that’s gonna drive our economy and drive all these policy changes, more inflation, more ups and downs in rates, more maybe financial movements and maybe even more recessions in the future because we have bigger cycles that aren’t as long, it’s less stable. So what do I do with that? I can hide in the sand or I can acknowledge in the boardroom this is coming and work on strategically thinking about this, right? So if I’m telling you that there’s volatility coming, you should have scenarios that you can think about.

It doesn’t mean you’re gonna get them right, but it’s the thought that matters, right? This goes into this question about AI and how to use AI. It’s the same analysis. You of course want the right answer, but you have to acknowledge that the world is very uncertain and becoming more uncertain.

So you’re not gonna probably end up exactly what you thought, but you want your leadership team, you want your teams below, you want everyone at the bank thinking, hey, I need a growth mindset and I need to be prepared for a couple of different things. There are different ways you can do that. There you could get people from the outside to help you work on building a team inside the bank, but there’s an agility to it that comes from acknowledging this world that you’ve laid out, which is an uncertain world.

I wish it wasn’t so, it will be so. So how do you as a bank think about strategically from top to bottom, where to direct your capital and where to direct your time and energy? In the word I use talking about this is optionality, right? How do we increase our optionality? We’ve got to keep our powder dry and maybe that means a little bit of capital and cash, but I think more importantly, our mindset, our managerial time and attention, these other resources that are also finite and limited. And how do we think about creating viable options for the future, even as we’re trying to ride out and get the most out of this business model that we’ve been committed to forever? Because the reality is, and I alluded to this earlier, we have a fragile core business model.

If 90 to 95% of the industry’s revenue comes from that spread income, that net interest margin, there are only so many lovers to pull. And so the beauty of it is the world is your oyster. You’ve got lots of different ways that you can maintain at your core.

Yes, we’re a bank, we gather deposits, we make loans, we serve customers, but if we can get really crystal clear about the kinds of customers that are ideal for us, we’ve got a million different ways that we can serve them and partner with others and pull things together and specialize. And that is really what’s important when we think about the VUCA bazooka. I love it.

I just love that how it rhymes, VUCA bazooka. What a great phrase. It turned into a phrase.

Well, you’re gonna get to hear more about this. Or if you want to hear more about this, you wanna hear from Tim and you wanna be able to ask him questions, we are doing a live webinar October 2nd on surviving the VUCA bazooka. And you’ll get to see Tim’s charts and a few of my own on how we see this opportunity and the challenges as we go forward.

And again, we’ll put a link in the show notes, but you can find more at alloylabs.com slash events. So Tim, thanks for joining us today. And always a pleasure to get to talk to you.

See you soon, buddy.