587 Foiling the Invisible Heist The New Banking Playbook to Land and Expand Commercial Relationships through Digital 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.

There’s something happening beneath the surface of every pizza order, every child care payment, and every invoice sent by businesses across America. A quiet revolution that most people, sometimes even business owners themselves, have barely noticed. Traditional banks are being methodically extracted from the daily financial lives of businesses, replaced by something more streamlined, more embedded, as banking becomes just another node in a business operating system.

We dug into those threats last episode on the invisible heist. This week, Jorge Garcia, founder and CEO of Linker Finance, and Samer Saab, SVP of product for Alloy Labs, join me and co-host Barb McLean as we look at some viable options for banks to foil the heist and create a competitive response. We’ll look at the surprising opportunities sitting right in front of us, and how banks are rewriting the playbook to land and expand commercial customers through digital banking.

Samer, you and I worked together to distill the insights in the latest executive briefing from Alloy Labs, which will be released on April 16th. It’s called Rewriting the Commercial Banking Playbook Landing and Expanding Commercial Relationships Through Digital Banking. It’s a result of two customer discovery co-labs, a half dozen concept lab meetings with Jorge and his team at Linker Finance, and dozens of one-on-one conversations with 15 member banks from around the country.

So just to set the stage for listeners, could you describe how that discovery unfolded and what role the concept lab played in the process? And maybe first of all, how would you describe the concept lab to listeners? Thanks, JP, happy to be here. So starting with the concept lab, we call this our reverse accelerator program. We work with startups to help them accelerate their business specifically with banks.

But the unique thing here is that we bring these startups in, we search for them to address specific needs and opportunities that we identify with our bank members at the Alloy Labs Alliance. And so it’s this pull nature that we use to, you know, therefore get at this term of reverse accelerator. It’s a very involved program.

It’s led by the Alloy Labs team, so we’re intimately involved. And the goal is to build partnerships with banks. We’re not advocating on behalf of the startup.

We’re not advocating on behalf of the bank. We’re advocating on behalf of a sustainable, repeatable, scalable partnership that leads to long-term success for both organizations, because that’s what we’re trying to do, is cross this chasm to build the relationships where there is a lot of risk for both parties. So as far as the discovery process here, discovery is an ongoing pursuit.

And so discovery was achieved, I think, through the concept lab program, but it really began long before that. It’s the result of engagements that we’ve had with banks, both through the co-labs that you referenced, but even before that. So research that we continue to do across the industry, but really just through the conversations and evaluations that we have with banks in our regular Centers of Excellence, in our one-on-one meetings, and these lead to insights that start to craft our perceptions on where those opportunities are.

But every time we get a lean-in, it gives us an opportunity to go deeper. And the concept lab is another opportunity to go to that deepest level with not just that group of banks that wants to solve the current, most specific form of that problem, but to do it with a partner startup that has a firm point of view on the market and also can help us advance our perception and understanding of the opportunities. Well, Jorge, you’ve worked with banks around the country, so I’d like to get your take on the value of the concept lab and the discovery and the insights that came out of this whole process.

But first, can you share a quick overview of Linker Finance and why you started the company in the first place? What problem were you trying to solve? Yeah, well, thank you, JP. I’m really happy to be here. Thank you for inviting me.

Yeah, I’ll share a little bit about my background story, and I think that easily bleeds into why Linker Finance and then our different conversations with banks and the concept lab. So I’ve been a serial entrepreneur, so I’ve founded multiple businesses across my career. I actually sold a company to Disney in 2015 in the marketing technology.

I’m a foreign-born, so actually at that moment, January 2016, I moved to the U.S. and, crazy enough, decided to start another business, initially doing software development consulting in the media entertainment and then actually quickly jumping to the fintech space. But I came to banking not because of that, actually, but as a business owner, especially of a traditional business, we had already about 25 employees at the time. I needed what many businesses need, right? It’s access to capital.

So we were looking for a business line of credit, and we were banking with what I thought was a banking relationship. So I was banking with a large financial institution, one of the top five banks. Long story short, we got denied the business line of credit, something that I couldn’t understand because actually we had good logos, we had good revenue, so I couldn’t really understand why.

By luck and chance, somebody connected me to a local bank, and I was like, okay, well, this is interesting. I don’t know nothing about this local and regional banks, especially like community banks, but I needed the capital. So yeah, we met.

They said we’d also understood the business, gave us like five times that line of credit, flex loan, corporate card, amazing banking relationship. I mean, we grew the business and all, but at the same time, I discovered from the business owner and customer perspective, a terrible digital experience, right? And I’ve done that all my life. At the time, I didn’t pay attention.

I was just like, I needed the capital, let’s grow the business. But the more I was banking with them, I was like, okay, is this something about this bank, or is this something across? That’s one thing. And then the second thing was like, what is this thing about community banks? And then I started the research, and then the more I researched, I was like, oh my God.

So there are thousands of community banks across the United States. They fund 50% plus of small and medium business loans, 70% plus, almost 80% of agriculture loans. And the more that I looked into it, the more I saw that it was a common theme, that community banks had a very broken experience from the customer perspective.

And meaning that I have, for example, had like three different logins, had to call to do our transfers. I had to check on different systems. I’ve done a lot of products, so I knew there were different software.

And so the way we started was, okay, let’s just reimagine this. Let’s provide a unified experience for the business owner, and let’s take inspiration in software that is doing things very interestingly, like RAMP, Rex, Mercury, Chime, for example. And why don’t we power these amazing community banks with a unified, powerful experience so they can retain more of the customers and such? So that was my initial thesis.

And then I decided to fund another company. We already are almost two years and a half in from the company. We were already working with banks, already launched a product and such.

And then, well, we got to this opportunity of partnering with Alloy Labs and the Concept Lab to go deeper into our relationship with banks. So you had some insights as a business owner on some of the pain points. You started to then extrapolate those insights on the kind of flip side of the coin for the pains for the banks themselves.

So you started Linker Finance. And so you’re helping them by providing better customer-facing tools. Is that a fair statement? It’s definitely a fair statement.

I think the beauty of… We started from the perspective of the business owner that I’m very experienced, and from the perspective of a user experience, and as a front-end. But I think by talking with banks, but especially by working with Alloy Labs and the Concept Lab, I think we got the opportunity to go deeper in a more trusted environment through multiple weeks. And one of the things that… I mean, we already had the knowledge and kind of like the glimpse of that, but just we went deeper into the same broken experience that we get is actually a broken experience for the banker as well, where they have to go to multiple systems that they need to update, sometimes to manual processes, sometimes remembering, not even having reminders, for example.

So I think we’re going deeper into, yes, we’re providing a unified experience for the customer, but also how do we provide that unified experience for the banker as well. Right. So you started with a baseline understanding of some of the pains.

Maybe just a quick highlight, because I want to ask Barb a couple of questions about this as well. But what was maybe one or two things that you learned in this discovery process that you didn’t know coming into it? Well, a couple of things, right? So I think we got a sense… Normally, when we talk with a bank initially, one of the main questions that they always ask you is like, okay, are you integrated to my core, for example? And that’s an answer that we tried to answer very quickly in Linker, and then we said, okay, yeah, we do that, and we’re Fiserv integrated, for example, and all that. But then actually, I think when we went deeper, we realized that that’s not the only provider.

There are actually multiple provider processes, services, tools that they’re using, and that all disconnected, all have duplicate data, all are very prone to error, are updated many times by different people in the organization, are consumed by different people in the organization. And this all touches the customer relationship, and it touches a lot of the business operation. I think that definitely was one of the key insights, and I think we got to a good point in understanding on how our platform can actually better help the bank operate, even in that fragmented environment, right? Right.

Well, Barb, welcome back to the co-host chair. Last week, you and I had the chance to sit down with Alex Johnson, and he introduced this idea of small business operating systems, these platforms like Square and Shopify, Intuit, and some of the ones that Jorge just mentioned too, Mercury, BrexRamp, et cetera. I want to hear from everybody, but Barb, maybe for you, how aware do you think banks are today of these competitive threats, and how responsive are they being to them? I think they’re very aware.

For years now, we’ve been either attending conferences, and these are the sort of premier organizations that everybody wants to talk to, or engaging their sales teams to understand more. I sometimes worry that the banks don’t understand the complexity of their own internal operating environment, as Jorge is saying. So, even if you’re interested in pursuing one or more of those solutions to help you help your customers, I don’t know that the banks have a very good view on what it’s actually going to mean to integrate it into their operating environment.

Some of that is technical complexity. Some of that is process complexity. Jorge is nailing some of the data complexity issues, right? Unclean data, duplicate data.

How do you know that it’s the same SAMR every time he shows up in your system, for example? So, I think that’s part of the pre-homework that banks need to start looking at, is what’s inside my house, and do I actually know what’s in here that’s going to impact the initiative I’m taking on? SAMR, what’s your take on that? You know, it’s an interesting question, because I think it depends on the bank. I think bankers like Barb clearly know, because she’s dealing with these types of questions every day. But even the less sophisticated bankers, less sophisticated banks, will recognize that the business of banking is more difficult than it was yesterday.

And it’s not just because of what’s happening in the macro environment, or what’s happening with the regulatory, the current regulatory regime. It’s just a recognition that, no, we do things, and we fight, and we’re more competitive, because the environment is changing. And sometimes it is intentional recognition of that fact, and sometimes it’s just, no, we’re going to focus on these consumers, or these types of customers, because we’re probably losing, or we don’t have a competitive offering for everyone like we used to.

Yeah. I mean, frankly, I worry a little bit. And several times Alex last week mentioned small business.

And I think part of our discovery was, it’s not just small business. So we talked about Square moving up market. They’re not the only ones.

They’re seeing growth in the middle market. And I think there’s sometimes this feeling that that’s different, right? That part of the bank is very different. While I agree with both of you that many banks do understand the complexity, or at least have some vague notion that, hey, what we do is complex, has a lot of steps, a lot of pieces, parts to it.

I do think not as many as I would like are recognizing this disruption threat that’s coming from the outside. Jorge, again, you’ve worked with lots of different banks. What do you see as the pattern in the competitive response for banks to these external threats? Yeah.

It’s very interesting because, I mean, I’ll take a very recent example, actually, RAMP, for example. So if you analyze the corporate card space, right? So there’s been RAMP and Brex on the startup side. And that’s something that banks, some banks have done.

Definitely the software hasn’t been there for the banks. So Brex was doing deposits. So banks started to recommend RAMP to their customers as a referral type of agreement.

A few weeks ago, RAMP decided to go through the deposits arena. And not only the business of deposits, right? They’ve opened up consumer savings, a high yield savings account, 4%. Exactly.

So they’re now in the deposits play for retail and for business, right? So just as recent that yesterday, I had two calls and both of them actually had referral agreements with RAMP. And I was like, no, now we’re rethinking this. And we realized that we need to ramp up our corporate card play, right? So I think based on what I’ve seen, I think of course, when you see, okay, this is just a fintech, they just a feature, a nothing is going to happen.

But reality is that those are businesses, right? And they’re out there to actually gain market and grow. And the logical expansion for all of those businesses where RAMP, Brex, Mercury is to start expanding into products that are actually are going to compete with the banks. And I think, at least from the conversation that we’re having, there is a recognition that, oh, we need to do something now.

Otherwise, we’re going to lose business in a portion of the market if we’re not careful. Yeah. Yeah.

Well, in the Alloy Labs executive briefing, three potential strategic responses were outlined for banks. The first one was technology modernization. So each of you have hit on that to some degree.

Consider things like creating middleware layers to overcome some of those core system limitations, building or acquiring API infrastructure, modern onboarding process, focus on the data connectivity to improve that customer intelligence, like Barb was saying. Barb, again, maybe I’ll start with you, but I’d like to hear all of your thoughts. What are the conditions necessary for this strategy to be viable for a bank? I think you need buy-in right from the top levels of your organization and a recognition that it’s not going to happen as fast as you want it to.

Because in order to sort of rewire your entire bank for the era that we’re in or the era that we’re approaching, you should be taking a forward looking view there. Hopefully, you’re future proofing yourself with anything you take on as well. I would be unfortunate to get through this journey five years later and look at yourself and be like, oh, I’m still behind.

But if you don’t have that executive buy-in and support and committed budget and a recognition that you’re going to find yourself probably two years down the road wondering why it’s not done yet, you’re going to have to remind yourself that actually it’s not going to happen as fast as you want. Yeah, good, great points. I certainly agree with that.

But Samer, it’s not just a technology problem, but let’s stick with that for just a moment. I mean, what other kinds of things? Can any bank pursue this as a technology strategy or do you think there are certain banks that are better suited or better positioned for this sort of strategy to pay off as a response? Great question. I don’t know if that’s the perfect answer, but I think that ultimately your ability to execute is determined by your abilities realistically.

And so it starts at who is on your team, what you’ve done to build human capital to support the business that you’re trying to build. And if you are willing to do what it takes to have a technology organization that can support or that can execute and support the fintechs or become an API first bank, then you also need the people in place that can actually execute that. And so I think that it’s as much about like what Barb said, starting with the executive team and then the goals for building out the sub teams and orienting the entire organization and the human capital to support what your goals are.

Jorge, what’s getting in the way for most banks to be more tech forward and be able to respond to these competitive threats more quickly? I mean, I think in the past it was more just acknowledging that something was happening. I think now we’ve changed that. I think and I’ve been learning more in communication and I think there are too many fintechs, too many products that becomes too overwhelming for the bank to understand.

It’s like, OK, if I want to do this because the tech stack that they have right now is so fragmented, there is the perception that, hey, I’ll need to engage like 10 companies in order to compete with one of these fintechs or modernize myself. And I think that’s, again, one of our learnings on even on our communication strategies, at least what we are doing is let’s just actually simplify that for the bank. Some of the technologies and partners that we use, you don’t even need to see them.

These are the capabilities that you can easily enable. And the more we do that, I think the more bankers will have the certainty that it’s not going to necessarily going to be as complex as it feels. I compare it to like if you think about cars and Teslas, one of the things like a lot of the manufacturers that was trying to do either electric cars or hybrid parts were using the same engines.

So then you had to put a lot of technology inside the same car. And I think one of the things that Tesla kind of like figured out was, what if we don’t put anything that is gas fuel? So I actually have a lot of space to put a big battery so I can get the range. So when you kind of like, it’s still a car.

It still has the same purpose. But if you rethink a little bit of the tech stack and of those preconceptions of complexity, I think that’s when banks are going to start getting a little bit more confident on maybe it’s not going to take five years. It’s still going to be a process, but it’s going to be faster than it can be faster than it’s believed.

Yeah, it’s the first principles thinking and not being caught up on the legacy that’s already there. Yet that is the reality, right? There are a few stories of banks that have launched kind of a sidecar, a digital core or middleware on top of the core as a so-called sidecar to build additional technology. But the reality is they do have what they have, not only in terms of technology, but in terms of the human capital as Barb talked about and just the roles that we’re expecting out of people.

I think we’re going to come back to that a little bit later. But just as we talk about the technology, we said two things there, and I think both things can be true. One is it can be quite complex.

And on the other hand, it doesn’t always have to be. I think you don’t have to have a $5 million big data lake set up to be able to take advantage of data. You don’t have to have a pure built from scratch digital core to be able to provide some of these things.

And in fact, all of that leads us perfectly into the second strategy, which is around partnership model. I think we’ll get into that after we take a short break. This show is brought to you by Alloy Labs.

As much as we love talking on the show, we believe that action is more valuable than talk. Alloy Labs is the industry leader in helping fearless bankers drive exponential growth through collaboration, exclusive partnerships, and powerful network effects that give them an unfair advantage. Learn more at AlloyLabs.com. Alloy Labs, banking unbound.

Well, we were talking about bank responses to the so-called small business operating system that we talked about last week with Alex Johnson. These are these large technology platforms that are increasingly working their way into the daily financial lives of businesses of all size. We talked about the technology orientation or model for a competitive response.

The second one that was identified is the partnership model. It’s about establishing strategic relationships with some of those providers, perhaps even offering banking as service to embedded applications, leveraging the strengths of being a bank with a regulatory compliance expertise and balance sheet capability, those sorts of things. Samer, similar to the question I asked you last time, what conditions are necessary for banks to be effective partners to be able to win at this particular game? Actually, before I answer that, I wanted to go back and make one comment about what you and related to the first principles thinking of technology.

One of the things that we observe is that a lot of technology improvements, implementation projects often fail because they end up taking a defined process or technology and focus on trying to automate or improve that system. But the result is, what ends up happening is we never see banks take that holistic first principles approach to the entire technology stack or experience. And so you just continue to perpetuate this Frankenstein combination of all these different systems and create those issues for your customers and for the bankers.

Now, there’s an understandable reason why banks work in very difficult environment. There’s a lot of technology that you’re dealing with. These are regulated institutions, and so that creates complexity across the board, not to mention resource availability.

But that is a challenge, and we do see it a lot. To your question about partnership model and especially partnership criteria, I love this question, and I think that there’s a big opportunity to improve the way partnerships are done. And this is not just a issue for banks to think about.

This is something for startups to get right. I think one of the most understated things to be aware of as partnerships are developed is first the question of, is this actually a partnership? And is this a partnership, or is this just a vendor relationship? And if I do hire Linker Finance to come in, what am I hiring them to do? What am I building the capability for us to do as a bank? And are we capable of taking that technology and utilizing it to whatever the full capacity that it offers? And a lot of times, there’s that gap. Linker, or I’m not going to say Winker, but a startup comes in, there’s a successful implementation, there’s a successful rollout, but then there’s a gap.

No one owns that product. No one is continuing to focus on how to drive growth, how to further embed that into the experience. And the bank doesn’t have that operating model to care for technology that way.

The startup doesn’t have that attention on that customer to ensure that they’re continuing to maximize and go beyond. And so as we think about partners, we should think more about how do we continue to build upon these technology implementations to deliver these compounding benefits for our customers and ourselves? And do we have the right people in place, whether it’s from the startup side or the bank side to actually execute that? Yeah, I couldn’t agree more with what you’re saying there, Samer. I think banks and probably most teams are really bad at this operationalization step.

You get to the end of the project, and everybody celebrates, and the project team disbands, and then what happens? You know, what happens when the call center needs to answer a question, but they weren’t actually involved in the project, as an example? And I really support your comments as well on what is this relationship exactly? I think we use the word partnership all the time to describe everything, and so it’s become a bit nonsensical. It’s okay to have a vendor-customer relationship, and actually that’s one of the sort of tip-of-the-spear tactics that you can use when you’re thinking about all of this, and you know, how do I modernize my estate is, you know, have a relationship that’s here for a good time, but not a long time. Maybe you need something that’s short-term just to get sort of that muscle memory going with your teams on how is this going to work anyways, and be cognizant of the fact that probably these relationships could be way shorter than you’ve ever experienced before as a bank.

Typically, you’ve been locked into 10-year contracts and other things, so I actually think there’s going to be a blend in this model of the actual strategic partnerships that would be, you know, capital P partnerships, where there’s shared skin in the game there, and you know, the win on both sides the bank and whoever the other organization is, and then there’s going to be these sort of flighty things that come along, and it allows your team to experiment, or it allows you to solve the problem of the day quickly, and it’s one of the mechanisms that you can layer on against a longer-term strategy of what you’re doing, and quick wins along the way. Well, Barb, Samra brought up something else interesting, is nobody owns this. It leads to another paradox, in that many banks are on one hand not focused enough on product, product being, right, some bundle of value that you’re able to put together for customers if they recognize and buy and are willing to pay for.

On the other hand, they are maybe too oriented towards product. Product means something that we have in-house, made with our own materials, i.e. it’s a deposit account or some form of lending or a loan product. I mean, who should own this, given like all those things that you just talked about? Do we need a different role? Yeah, I think it ends up being a completely new role for banks, and that makes everybody really uncomfortable.

So this is definitely diving into that area of uncertainty and discomfort, which is probably the only place that new growth is going to come from, actually, and find a way to define it that makes sense for your team. You don’t have to call them product people, necessarily, but it has to be clear that they and their team are the ones that are responsible for this initiative long-term, and it’s their responsibility to embed themselves with the rest of the organization as that happens along the way. And then back to what I was saying earlier, if the rest of your executive teams aren’t supportive of this idea, they’re just going to knock their heads against cement walls all day long as they attempt to do that across the organization.

So they need that executive support to help them as they’re trying to navigate this new space and this new kind of role and team that the bank has never had before. So Jorge, in the Alloy Labs executive briefing, one of the provocative questions posed to leaders is what sacred cow in your current business banking approach would you be willing to sacrifice? What do you think they must be willing to sacrifice, given what Barb just described and what you’ve seen and you’re working with them? I don’t know exactly if this is a sacred cow, but actually, I’m going to come to the partnership piece because I think that’s kind of like one of the traditional ways and potentially sacred cows. When we talk about partners, there is one thing that must be established for a true partnership, right, which is trust.

And I think, I don’t know if it’s like a sacred cow or similar, but it’s because we have this vendor relationship, there’s always this tension where the startup is, like, this is what I have, this solves all your problems kind of situation, and the bank is, this is my pain, this is what I’m sharing, this is what we’re going to solve, but I don’t reveal that much information. I think the concept lab, in my perspective, was so fundamental for us because we were able to establish trust with the banks that we’re working with and the role of labs kind of like connecting us to the point that I think both sides opened the kitchen to each other. And I think when we opened the kitchen to each other, we were honest on, like, this is what we have, this is what we think, and then the other was like, this is, well, this is my pain, this is how we’re doing things, this I don’t like, this I do.

Over the weeks, we kind of started to build a lot of trust and kind of, like, understand each other better. So I believe, honestly, in the spirit of partnership, that one of the sacred cows that we need to kind of, like, either establish, like, maybe establish, or at least, like, is that part of, like, we need for a true new technology bank partnership to exist, we need to be open to establish trust among the organizations. And I think that’s how, in my perspective, we’re going to come with the, what’s a community bank of the future, right? Like, in this digital era, how should a community bank operate? And that’s how we’re going to really question and start to build the foundations of technology for the next community bank.

And again, I think it all starts with establishing trust and being able to work together in a journey. Well, I agree with that heartily. And maybe to reframe the question back to myself, the sacred cow sometimes is believing that trust only happens through one-on-one relationships.

And one of the things that we actually heard from banks in this process is, we love our relationships, we love our good relationship managers who create and cultivate and maintain those relationships. But if we’re honest, that value doesn’t always translate to the enterprise, right, to the bank itself. And bankers know this.

They talk about hiring a new relationship manager from a competitor, hoping that they bring a book of business over with them. And conversely, when somebody leaves, they hope they don’t take that book of business with them. So I totally agree that focus is a very important part, whether we’re talking about the customer-facing part or the partnership piece.

And I think that we can build trust a lot of different ways, and it’s not just through personal relationships. A big part of trust is doing what you said you’re going to do, and technology can help you do what you said you were going to do. The third strategy that was outlined here was a vertical focus strategy.

And we already talked about this from the perspective of these tech platforms last week. We talked about horizontal platforms that are industry agnostic. Those would be the QuickBooks and Shopify and Square, right? They serve a lot of different businesses, even though they’re beginning to create some special offerings and focus on some of those niches.

But we also talked about those that are much more narrowly focused, for instance, toast in the restaurants and food service space, and they go beyond just the point-of-sale terminal now. They really are helping restaurants manage the entire business. So this is a strategy that doesn’t necessarily have to depend on technology.

Sam, you learned of some interesting focuses there. What are some examples that you heard from how banks are already beginning to create focus around this, and how do you think that leveraging specialized technology can help even further that? Yeah, we’ve heard from our members about focuses in commercial real estate and in construction and some other areas, but we were also impressed by one of our banks that has created an IOLTA account, specifically focusing on law firms. And we talked earlier in this recording about Discovery.

Their Discovery was so inspiring to see a bank just, no, we had a lot of customers. We understood just these are the accounts that they’re using. These are these situations.

So we just packaged this together. And now we go out to market with our relationship managers and with marketing, and we’re able to just push that. And does it come with a significant technology upgrade or service to support those customers? No, but it creates a distinct point of differentiation for us in our market, and we’re able to serve them better than any bank in our region.

That’s a really optimistic view of what banks can execute, because banks do still have inherent advantages with their local geographic positioning, with their cost of capital, with the depth and breadth of financial services that they can provide. But it’s not enough just to rest on those. Creating a defined bank experience, one that’s tailored to those customers, but then also creating the digital experience that maps to that is a required step to execute and really win in this category moving forward.

And internally, we’ve marveled at what Square has been able to do. The proliferation of all the different niches they serve is incredible. And I don’t mean that banks can get to that point, but they don’t necessarily have to to win.

But they have to create an experience that couples well with a collection of financial services. And that may be all that’s needed to actually win in this space moving forward. Yeah, I think at the end of the day, and the executive briefing comes to the same conclusion, the most successful strategy is probably a little bit of each, right? Some vertical focus, some partnership, and some technology modernization.

So let’s get tactical, practical here. So if banks or bankers are convinced that we need to respond to this growing competitive threat, what are the first couple of steps they need to take? And Barb, maybe you tackle that one first. Well, I think it’s some understanding of your current customer base, right? As Samer was saying, the bank identifies that if we could just repackage everything we can do around serving the community of lawyers that we have as customers, we can make their lives easier and make it better for them.

So you need to start with some customer understanding to identify, I think, this more high potential grouping of customers. But I think it comes with the tradeoff on, we are then going to choose not to serve other verticals of customers in the same way, and making peace with that. So those decisions, I think, are actually going to drive everything that comes.

And what Samer is describing then is a relatively low five packaging of, you know, people and processes that help serve them is a great place to start, actually. But you’re 100% right. It probably needs to come with some digitization of that to follow, because you can’t scale that in the way that you want it, the cost basis that you want.

Yeah, one of the things, sorry, JP, one of the things we discovered in this process is that even banks that don’t have a vertical approach, or a strategy, they still create prepackaged accounts. And so one example was one bank that had their basic business checking account versus what they called their analysis account. And what were the specifics of the analysis account? Well, it came with a whole bunch of services, and it was prepackaged so that the legals were taken care of.

And they’d understood the costs and the required pricing to actually make that work. Now, that’s a prepackaged offering, but it’s just prepackaged in a way that you’ve oriented your business to date, not necessarily one that is customer-centric, certainly not vertical specific. Yeah, you know, that reminds me of one of the other great insights of the CFO of a $3.8 billion bank said, one of the things they’re doing is, even forget the vertical concentration, they’re just reducing the reliance of credit.

They said, you know, we came to the realization that we have been very credit-centric, and not all of our customers need to borrow money, or not at any given time anyway, but every one of our customers needs to hold money and move money. And so we heard from a number of banks that are orienting more around treasury, around payments, around deposits, and deposits for the commercial side of the bank, in many cases, have long been an afterthought. Maybe a requirement along with a loan balance to keep the balance sheet in check, but it really is becoming more of the tip of the spear, and frankly, I think it gives you a lot more opportunity.

Well, Jorge, if a banker asked you advice for, you know, what’s the next thing I should do to try to respond to this growing change in the business market, what would you suggest? I mean, staying in the topic of the verticalization, the way that I see it is, the beauty of banks is that the concept of specialty banking has been there for a while. Like every bank, if you go to their website, they have a section of specialty banking. It may be ag, it may be legal, it may be not-for-profits and such.

I think that this new era is just take that step further, besides just having landing pages, what are all those products and services that you can provide to provide a whole, a more holistic service to that business, right? And I think that’s one thing. Definitely in our perspective, it’s the combination of that with the digital experience that make it easy, more efficient for the business to operate. But I think the bigger thing is that once you do that, then you’re not necessarily limited by your local territory.

Because once you do those two things, you go deeper into a specialty offering, a vertical offering, you combine it with the right digital experience that will help you scale, then you can grow beyond your community. You could go all state, you can go national, because most probably the needs are going to be the same. So then I think that’s probably a good strategy for banks to just go beyond to what they’re used to.

Again, it all depends on the level of comfort and strategy of the bank, but I think it just opens up a lot of possibilities. And then you start to see, okay, let’s start with one of those vertical offerings. But then, okay, what other specialties do I have? I know how to do it well, what prevents me to go beyond my territory to just start offering the same services to other businesses, right? Yeah, I think that’s a really good point.

And that becomes another third rail maybe that some banks don’t want to touch this idea of we would step outside of the 12 counties we currently operate in. And you don’t necessarily have to do that, but to your point, that at least gives you another option. It’s all on how you define your market.

And if your market is this kind of business versus people who live in these counties, that’s a pretty major difference or these states or whatever it might be. Well, I think to wrap it up, what I’ll say here is that the window for repositioning is narrowing. Banks that fail to enhance their commercial capabilities and offerings, whether those are through digital enhancements or additional focus on verticals, they’re going to really face significant risk of franchise value deterioration over the next 24 to 36 months.

So whatever of this that sounds like it might work for your bank, I’ll just leave you on the note of go try something. So with that, Jorge, Samer, thanks for joining Barb and me this week. We’ll be back next week with more Breaking Banks.

That’s it for another week of the world’s number one fintech podcast and radio show, Breaking Banks. This episode was produced by our US-based production team, including producer Elizabeth Severance, audio engineer Kevin Hirsham, with social media support from Sylvie Johnson. If you liked this episode, don’t forget to tweet it out or post it on your favorite social media.

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