514 By Popular Demand Hot Takes Fintech on Fire

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.

If you like it hot, you’ll want to watch the next segment on YouTube to see a live taping of Hot Takes at MX’s Money Experience Summit in Snowbird. Three brave wing eaters join me on stage to tackle hot topics and even hotter wings. Mary Winooski of Cornerstone Advisors, Neff Hudson, recently retired from a two-decade tour of duty at USAA, and Wes Hummel, CTO of MX, powered their way through four custom sauces.

The M Extreme, These Data Are Hot, Insights on Fire, and my personal favorite, API Can’t Even. It was some hot conversation covering topics you normally don’t hear said out loud. As we workshopped ideas and thoughts about where the future is headed and what the implications might be for the entire industry.

Well, welcome to the spiciest session that is going to take place here. It also features the hottest sauce and the hottest participants. They paid me to say that, just in case you’re wondering.

If you’ve seen the series Hot Ones, you know exactly where this is going. Now I want to be perfectly clear, they’re not faking it on what’s going on up here. And they also had to sign medical waivers, so I am in the clear.

It is also not a panel. We’re going to workshop some ideas, we’re going to throw some stuff out, we’re going to discuss, but it might not have a clean ending. So hopefully we evoke some emotions, maybe some sweat, maybe bleeding from the nose.

We’ll see where it goes. These are custom hot sauces. Some will be available later.

We’re going to save time for Q&A. Just be warned, if you want to partake in a hot conversation, there’s a price to pay. All right, with that, our first eater, Mary Winooski, longtime friend, editor at large at Cornerstone Advisors, longtime journalist in this space.

Now, Mary and I are both from the upper Midwest, which means we are at a severe disadvantage here. For many reasons. And I asked Mary, I’m like, tell me your engagement with spice.

She goes, my family didn’t use salt. Like, what? It’s like, yeah, I ate cookies. That was what I thought, the flavor profile.

When I went to college, my world was changed when I discovered salt. Mary’s a natural here. It’ll be great.

Now, contrast that with Nef Hudson, joining us, recently retired from USAI. You’ve seen him on this stage before. Now has started a consulting firm.

Castle Hill Partners. Now, Nef, being with USAI, has resided in San Antonio for over 20 years, which then surprised me. He goes, I’m doing this with some trepidation.

He goes, because what I’ve learned in my time in Texas, there are three stages of spice. The first one really hits the mouth, the nose, and the eyes, right? Then the stage two hits the stomach. And well, stage three doesn’t develop for a day or two, depending on the digestive system.

So I’m a little bit nervous about this. It’ll be fine. You’ll be on a plane before it happens.

All right. And last, but not least, the iron stomach himself, Wes Tubble. Now, this is a little bit unfair.

Not only is Wes the CTO of MX, prior to that was it PayPal. When Jessica and Tom said, we have the perfect participant, because it turns out, by the way, Jim Baggett hates wings and hates hot sauce. So they’re like, Wes will do it.

Wes is from New Mexico. Yeah. Not fair.

And so as he describes it, he goes, they start you on spice at an early age, including the rumor they put green chili in your baby bottle. So look for this guy not to sweat at all. All right.

With that, let’s get this party started. And if you all want to look on the far left here. Hold on.

Hold on. Uh-oh. Uh-oh.

This does not look hot enough. Oh. Uh-oh.

This does not look hot enough. I’m sorry, guys. I’m really sorry.

So I’m pleased to introduce you. I had a gin yesterday, gin McGatts. I’m building out my marketing presence.

I now have my own hot sauce, McGatts. That’s spicy. All right.

Is that stage one, stage two, or stage three spicy? We’ll find out. Oh, yeah. Oh, yeah.

All right. Wow. Good luck.

Thank you. Thank you. Good luck to you all who are in the audience afterwards.

So thank you. I kind of feel like that moment in like, you know, wrestling when suddenly out of the audience someone runs down to take you by surprise. I’m like, oh, wasn’t expecting that as everyone drinks and reaches for beverages.

Well, why don’t we start with the insights on fire hot sauce, which is on the lower caliber here. So are we using these bibs or not? Well, they’re going to cover your mic. So maybe the dabbing.

Dab it? Okay. Just want to make sure. All right.

Cool. It was the tension between over ear, how do you eat a wing with, how do you protect your nice white shirt? Got it. Okay.

All right. White shirts going down. Got it.

So I mean, maybe this is a little bit spicy on the AI side, but I’ll start us off and then take a bite of this. Generative AI burst onto the scene and suddenly all of the deals we were seeing were like, we’re AI for this. We’re AI for that.

We’re the AI of Uber and the Uber of AI. What? I don’t understand. But then it like suddenly everyone went from generative AI is used for everything to like kind of disappeared.

Not disappeared entirely. There’s still good stuff happening, but is this a flash in the pan, call it like the hot burst that goes away or is it just going to take longer to mature? Wes? So it’s not a flash in the pan. I mean, it is here to stay.

But we have to get it to from being basically a parlor trick today, which is like chat GPT. Check this out. What I had chat GPT do to something that’s super powerful.

But the way we get there is by solving a lot of the challenges and problems we have today around the data that goes into it, indirect and direct prompt injection. There’s a lot of things that have to be fixed and solved for this to be incredibly useful. And this could be a long journey before you get there.

So I think it’s here to stay. But the reason it kind of blew up is because it was like nobody knew what to do with it except for punch a bunch of cool stuff in there and read it out to somebody or use it for their essays for school, which they should not be doing. So don’t let your kids do that.

Or their emails. Or their emails to clients. Or their emails to clients.

Mary, build on that because you’ve been covering this extensively for Cornerstone. Well, I guess I wouldn’t, I don’t think it’s disappeared at all. In terms of like companies marketing it, it’s definitely like, yes, we want to talk about this.

We want to push this out. But to your point. Yeah, definitely.

I mean, the speaker earlier, the academic person was talking about how like, you know, we’re only in baby stages. So I think that’s where we are, but I only expect to see ever more of it. I think ever more, but I’m still, the flash I’m struggling with, the really cool AI stuff we were seeing, like the power of some of the chatbots and what people were doing before the flash still seems to have the most actual business impact as opposed to the GPT for everything, right? Maybe it’s because you ended up with a bunch of posers where everyone got in.

Now, USA, you guys have been playing around with AI and chat and AI intersecting chat forever. Yeah, my former employer is still busily working on that. But you know, we deployed our first chatbot probably 10 years back and problem was it’s a dumb chatbot and it’s physically scripted, right? Everything has to be entered in by some poor analyst who went through reams of data to get there.

But there was actually, I would disagree sort of on the premise that there’s been a lull because there was a sneak attack, a signal of fire that went out about two weeks ago that I don’t think anyone’s talked about. I don’t usually name names at a conference, but Intuit announced Gen OS and announced that they have built an intelligent assistant that works across all their products. And that should scare the absolute crap out of everybody in this room because those guys are a really well-run, well-funded technology scale that runs with 100 million or so customers I think across the landscape.

And imagine never having to do your taxes again because you’ve got this TurboTax assistant running underneath compiling everything that you need as the year goes on. Imagine the same power being on Mint. Imagine the same power being on Credit Karma.

And you’ll see the predicament that we’re in. And that was a real act of will by Intuit. They fired 1,000 people two years ago and hired nothing but data engineers and people that literally rewrote the code base.

So they were working on their own operating system that is now a smart operating system. And I don’t know that there’s anyone in this audience that has it, and my former employer was in the stages of building that, but it’s going to take a while, I think, for the industry to catch up with that. These guys have laid down a marker that other people should be, that we should be paying attention to.

So, just… Sure. I don’t know who’s going to want to jump in. I’m going to throw out the question, then I’m trying the Magatz that’s spicy, and you can all gauge whether I fall on the floor, whether you want to open yours or not.

This is really good, by the way. Not spicy at all. Yeah, the first one’s kind of entry-level.

We want to make sure Mary doesn’t flee the stage. Okay, all right. It’d be a shame if, like, we’re down to… And I skipped lunch, so if I pick out… I’m sorry, guys.

Tastes really good. So, we talk about AI really in the front end and the back office, like, sort of the things we were seeing being pitched to us, it’s like that ability to interface and see cash flows or to chat and do things, or on the back end, if you have an LOS for using AI to reach under-reached consumers, don’t send me your deal, I’m done. But where I’m curious, from each of your perspectives, I think AI fundamentally changes how banks need to think.

Banks and all FIs need to think about their strategy. Not just the interface, but the strategy, so from the tactical level to the strategic level. And to let Nav finish his bite, Mary, we start with you, that how does it impact strategy? Well, I mean, everyone’s just like learning how to use it and what to use it for.

So I know, a handful of months ago, I was talking to a credit union that was using a chatbot tool, presumably not to replace people, but saying that they wanted to have been able to hire people. So it was like stepping in for that function. And is that, will that be the case going forward? I would say no, probably not.

I would think that it would be replacing people. So I don’t know, Jason, I don’t know how I feel about this all. The McGats has a nice spice, by the way, a little bit of glisten here, but well done.

Now, build again for a second on what you were describing, because I think the idea of an OS that crosses everything you do really is a strategic decision, because FIs have not historically done a great job of saying, let’s break down the silos. Yeah, I’m reflecting on something that Microsoft CTO said maybe three, four months ago, and the challenge that’s facing the software industry is that they’ve built all these dumb applications. They don’t learn, right? The applications don’t learn from the user inputs or whatever.

And so the work of the work for the tech industry over the course of the next 10 years is to actually rewrite all these apps and make them smart, right? And what’s really crazy is that’s where generative AI is going to have a huge impact, because it’ll code for you. And I urge you all, try it if you haven’t, because it is incredibly powerful when you can instruct a machine to produce code as opposed to have to do the code yourself. It saves a ton of time.

And so when you think about the advantages that you have or the disadvantages that we have in all our legacy architecture and the problems we’ve already had migrating to the cloud, I think less than 20% of the industry at this point is over 50% in the cloud. So the pace of innovation in the banking industry is glacial compared to the pace of innovation among our competitors. And I don’t worry about the big four so much.

I worry a lot about the big four tech companies, right? Because they have trust, which is the number one thing that you sell as a bank, and they’re going to develop safety, which is the second thing that you sell as a bank, right? And convenience? Forget it. Convenience is gone. Right? Convenience is already sort of out there.

So the main reasons we had, the main competitive advantages we had in the consumer market have already dissipated, and they’re going to actually dissipate even more quickly because of what’s going on. Well, you bring up a really interesting point that I find personally interesting. If you look at the pace with which AI came onto the scene, particularly generative AI and LLMs, like each successive wave of these technologies we’re adopting seems to be going faster and faster.

And to your point, Jeff, about the glacial pace, it doesn’t feel like our glacier is moving any faster. Five-year backlog. How many people have a five-year backlog? I know I left a five-year backlog.

So I think I heard it on another speech. That’s the problem. So Wes, how do you address it? And by the way, while you’re doing that, I’m going to open the AP I can’t even hot sauce.

So is it bad that I got a head start? Nope. Okay. Yeah, I mean, I think you’re going to see a lot of disruption because there are companies that are moving at glacial pace, and there are companies that will come out of nowhere and disrupt those companies.

But I think we can’t ignore the fact that the data is going to be very challenging. This morning I woke up early and I decided to get on ChatGPT with a specific purpose in mind. So there’s a myth out there that the movie Singing in the Rain, that they use milk for the rain.

Okay? And it’s a myth. It’s been debunked that they didn’t actually use milk. But I decided to ask ChatGPT about that.

And so I said, how do they make the rain show up in the film, in the movie Singing in the Rain? And the reason they say there’s milk in it is so you could see it, you actually see it. So ChatGPT says, in the movie Singing in the Rain, the rain was created on film using a mixture of water and milk to make the raindrops more visible on camera. Yes, we have a ranch boy.

Very distracting. Ranch. Ranch.

Matt. Matt, I’m in the middle of reading something. Do you mind? Just keep reading.

These sales guys, they always, any time an engineer talks, a sales guy comes in. I have something to add. I don’t want any ranch.

Okay, so ChatGPT. So here’s ChatGPT saying, and this is a benign thing. Whether they use, I mean, they didn’t use milk.

ChatGPT is saying they use milk. And what’s important about that is, ChatGPT is just basically taking inputs in the data and the prompts that it gets. If that data isn’t correct, and ChatGPT is telling me they use milk, but they didn’t, imagine making lending decisions.

Imagine making, like, any kind of decision you’re going to make in an automated way, that data better be good. And so there will be disruptors in this space, but the challenge is going to be, what do you do about data validation? What do you do about user validation? How do you ensure that the data is secure? And how do you ensure that the answers you’re getting back are accurate? Well, Mary and I talked about this as it relates to content, right? The idea of an LLM kind of gives you this reversion to the mean. So if you want to churn out mediocre blog posts, but it’s the next most expected phrase to come out, ChatGPT and LLMs are great to use.

But if you actually want insightful things, it still requires people like us, at least for the foreseeable future. Yeah, but to that point, like, Theo Lau told me that she had, like, searched something, one of my old articles that I wrote, and ChatGPT was claiming it wrote it, and then it hadn’t. So I find that really, really alarming.

She took that personally. I took it personally. But yeah, right now, yeah, there needs to be, like, creative content people, because everyone’s ending up with, like, the same generic answers, false answers.

One of the spicier pieces you’ve written lately is one of my favorites. Well, not about your dating life. That was also spicy in the LA Times, which I highly recommend.

Thank you. Is it a bank? Yes. Give us the too-long, couldn’t-chat-GPT-it-later version of what it, what does it mean? What was your thesis around is it a bank? Well, is it a, you mean the NPR? Yeah.

Okay, so I was on an NPR podcast where the premise was, like, is it a bank? And so, you know, it’s throwing out Starbucks, throwing out, like, I don’t think, was Apple mentioned? I can’t even remember. But, like, the names you would think of, you know, the everyday consumer, like, thinking is this a bank? But, like, my premise is people don’t think about it that way, especially, like, younger people. Like, you have, your money is put in something like Venmo, and, like, you’re not thinking is this a bank? You’re just like, oh, thank goodness, I put something somewhere.

Well, I’m curious in the audience, how many of you care if it’s actually a bank? As every bank raises its hand. I mean, Wes, do you care? Like, walk us through kind of your stack. You know, I don’t, but I’m also, I tend to be less risk averse.

I mean, I won’t put, like, you know, a bunch of money in something that isn’t a bank. And so, but I’m willing to take a chance on things that aren’t necessarily a bank. But I don’t think that’s necessarily the case.

I mean, our data shows that it was, like, something 64% of individuals believe more than just the trust. They care more about the trust of the institution that they’re banking with than any of the features and functionality that they get. So, they really do care that it’s a bank or an institution at this point, because that’s essentially the core of where people have their finances.

I guess, personally, who banks at Amazon a lot, because of the number of returns we do, we probably have an average higher balance in Amazon than we do in our checking account. I do trust Amazon, right? It’s not just about the startup. The heat is working up for now.

I got a little bit ahead. By the way, the API, I can’t, the API can’t even. I definitely over-sauced it.

Anyone in the front row can see I’m steaming up my glasses at the moment. It’s quite nice. My sinuses are clear.

I’ll hold off on the fourth, though. You know, when we think about, you know, what is the value proposition of a bank, you know, and we need to become fast and easy. Well, guess who’s fast and easy at things is Amazon, right? Go to the UPS store, go return something, shows up in my balance.

I go re-spend the money a little bit later. You know, I think one of the biggest challenges I have is, as FIs, we think of the world in this lens of what it’s meant to be an incumbent. In the future, especially as we lean towards embeddedness, fast and easy means the transaction is part of a bigger story.

Yeah, it is. And then, you know, Cornerstone had research from Ron earlier this year that it was showing that a lot of the new checking accounts were being opened up on, like, Chime, PayPal, that sort of thing, and not at traditional banks. Like at a pace of, I think, 64% were skewing away from traditional FIs? Something high.

I don’t remember the exact number. I think it was probably 64. Yeah, it was high.

So it’s like, but then on the other hand, you have the other side of, like, people who signed up with an account because that was their parents’ account, or it was nearby their college, and then you just don’t drop it. You just add on. You’re like, here’s this, and then here’s, like, seven more.

Nefty, in your new consultancy, you get a call from a big brand, trusted brand, solving for Wes’s idea here. Would you advise them to become a bank? I think we have to rethink what being a bank means. I remember 10 years ago, it was very popular and provocative to say that, you know, banks were going to become dumb pipes.

Fast forward 10 years, we’ve made some progress on the data side. We’re still sort of dumb pipes, right? And the vision seems to be to make the pipes smart. We’re going to compete because we’re going to have smart pipes.

Well, I think that reflects the regulatory overhang and the safety aspect that we bring to the table, which is we ensure compliance, whether that be with federal laws, state laws, and we protect your assets, right? Those are different than just dumb pipes. And the threats that we’re facing now in those two areas are very different than what a smart pipe would be able to accomplish. So I think the only thing that a bank is to a consumer is, is it insured or not? Does it have the FDIC coverage? And I think that’s more recent.

Yeah, especially, right? And if you read the survey data, half of us are worried about the safety of our banks. 50%. That was a Gallup poll that I saw.

Very similar to the 2000, which I’ll get my crisis years screwed up. 2008? Yeah. Right around that same level.

So your customers are very worried about the safety of their money, right? And we all sort of, you know, poo-pooed the SVB collapse. That was the best bank in the business, guys. For small business and startups? Best bank in the business.

Did they have any customer loyalty when they were getting kicked? What happened there? So we’re thinking, okay, we’ve got a whole bunch of granular deposits, you know? We can’t have a run like that because we’ve got such a broad consumer base. Whistling in the graveyard, guys. We have to really double down on safety.

We have to double down on convenience. But more importantly, we’ve got to care about our customers more, right? And maybe care about our profits a little bit less. And that’s why credit unions, I think, will probably compete pretty well in what I’m sure is going to be another contraction in our market over the next five to ten years.

Well, two things on that. One of the best quotes I’ve ever heard, former president of a bank went on to become CEO of a credit union. This is how he described it.

If you talk to the CEO of a credit union, they will not shut up about their members. If you talk to the CEO of a community bank, they will not shut up about their balance sheet, which I think is actually pretty accurate in terms of how you think about community banks in particular. And by community, I mean from the very small, even up to the super regionals, is they tend to be profit first in both what their shareholders, what their balance sheets are going to look like.

And I think that’s going to be a harder place. In a rising interest rate environment with compression of, you know, right now they need to think about new ways to compete. I just realized we should have toothpicks.

Next year, toothpicks. You won’t sit in the front row then. But randomly one out of every ten toothpicks has something really spicy on it.

A little bit of a hunger game. I’ve interviewed Paxos on this podcast over the last couple of years, and I’m very excited about the pace of which they’re changing the digital asset landscape for financial institutions, payment companies, and fintechs around the world. Their clients include Mastercard, PayPal, MercadoLibre, and Nubank, and they’ve quickly become one of the most trusted global infrastructure providers for digital asset tokenization, licensing, custody, and trading services.

And of course, they’re fully compliant with regulations from the NYDFS and MAS. Tune into last week’s episode as I dive in further with them and the EVP of crypto and security at Mastercard on how the future of blockchain is much clearer today than it has ever been. If you’re a financial services leader looking to accelerate your digital wallet, tokenization, or blockchain efforts to better serve your customers, learn more by visiting Paxos.com slash breaking banks.

That’s P-A-X-O-S dot com forward slash breaking banks. 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. Let me throw this out, not to be Debbie Downer on it.

Are we going to face a mass extinction event of financial institutions? 4,000 today, 2,000 in 10 years. That’s the, you know, isn’t that the Brett King prognosis? 50% drop. I think it’s going to happen faster.

Really? But I think there’s also, back to is it a bank, I think what we’re going to need to see is banks are going to need to become very different things and become intentional about what they choose to be. So I can think of one bank has already chosen, they’re not going to be dumb pipes, they’re going to be smart pipes with really good compliance as a service on top of it, but they’re not going to be cut. Which one did you have? I went to the final.

Uh-oh. The M Extreme. Which one’s the final? M Extreme.

Oh no. Wait, I already had that one. I already had that one? You’re like I already did the hardest? You’re going the wrong direction.

I didn’t actually. But what, you’re going to have to, you can’t just use bank as one size fits all. In the same way that I think, you know, from a regulatory stance, we need to get away from saying FinTech.

What do we mean? Like I do origination or I’m doing baths, right? We just say it’s FinTech or it’s credit union or it’s bank, right? So there are going to be some banks that choose to be rails and service providers. There are going to be some that choose to be community banks but redefine what it means. What’s Ron’s term about the community bank thing, the hot sauce taking over? Community driven bank something, right? Where community doesn’t mean geography.

Is there a special niche that I can serve, right? So disclosure and investor. Totem is a bank for Native Americans. Why? Turns out an astounding percentage of Native Americans don’t access the benefits that they should be able to because their bank knows nothing about how do I actually go get a mortgage leveraging, you know, that service, right? It just doesn’t exist, right? So there’s those kinds of banks.

If I think of the big banks, they’re going to become the Costco Walmarts of the world, right? Since someone’s going to have to choose what does it mean to be the target of the banking world? Am I far off? Well, I challenge you on that because especially it happening faster. I mean, if you look at the piles and piles of regulation that happen, those don’t just come from nowhere. Those come from usually events that occur where there was something that was not regulated and the consumers ended up getting impacted because of that.

And so if you strip away all of that, and now you can argue whether it’s overregulated or not, but if you strip that all away and there aren’t banks anymore, then you’re swinging the pendulum all the way to the other side and saying there’s no consumer protection whatsoever. So I think it just comes down to, as you said, what do you define as a bank? I think most people would say, how do you define a bank? Yeah. I mean, because I know at PayPal the whole time we were like, should we be a bank? Should we not be a bank? And then everybody’s like, no, we should not be a bank.

Oh, my gosh, are you crazy? But that’s the niche that I think some banks should go choose, which is we’re going to be a bank that for a PayPal of the world or a big brand, if you want to get in and provide banking services, we’re really good at that compliance level, but we’re done with actually being a commercial lender and having branches you walk into or anything consumer. So you’re saying a bank in the traditional form of like there’s, okay, I got you. The regulation’s still there because when I think of a bank, I first think of, okay, there’s regulations, there’s compliance aspects of it.

That will always have to be there. That will always be there. And I think if you say that is my unique competitive advantage instead of my relationship with my customer, I’m really good at compliance, I’m going to actually develop a new muscle, which is extending that compliance to others.

Note, the three of us are all sweating and nary a glisten over with Wes. Could be the life. Well, I mean, I want to leave time for Q&A.

So why don’t we go to spiciest take for everyone? And I’m going to upgrade. I just finished the, these data are hot, which I highly recommend. It’s the right level of hot without overwhelming.

I think the API was actually hotter. I’m dreading the M extreme a little bit. It’s not bad at all.

It’s pretty tasty, actually. Is it? Okay. Yeah, not too bad.

Mary, you want to start since you just got to wash down the spice. What’s the spiciest take you want to leave people with before Q&A? I’m changing my mind right now. The themes of this conference to me, standing out, financial health, empathy.

And, you know, also, there’s always a focus on getting the younger customer. But I think, you know, I blogged on this a little bit ago, but like, I think older adults are next gen type of customer. And I think, you know, a lot of banks, credit unions, have them as customers, but there’s even a new neobank called Charlie that’s focused on the over 62.

And I find it super interesting as an idea, and it’s very early stage, so not all the features are quite there yet. But like, you know, a lot of older people are like overdrafting to pay for their like prescriptions. And so it’s just like this massive problem, which means there’s a massive opportunity.

Yeah, I think we’re, I think as an industry, we’re in a lot of trouble. And I think that I’m a little bit, I suffer from some PTSD, because I was a journalist in a previous life. And I thought I would wind up as a columnist somewhere, like we all did.

And, you know, thank God I got interested in technology when I did. Because it led to a much more interesting and great career. But that said, there are some similarities.

When the first thing that really hit the newspaper industry was the loss of classified ad revenue. And that was enough to really wipe out the profit margin for most of the industry right off the bat. And so that was followed by predictable rounds of cost cutting and reinvention.

And then it became fodder for private equity. And, you know, essentially, as journalists, we all thought that, you know, we were indispensable, that our information was critical, that people would always pay for it, and that there was nothing more reliable than a newspaper hitting your doorstep. Okay? So how many of us are still banking on that tradition? And if you were going to start a bank today, would you start it with the apparatus that you have? With the infrastructure that you have? With the organizations that you have? Really, we’re in the risk management business.

And the amount of risk that we’re managing is shrinking, right? Payments, that pool of risk that we’re shrinking, is shrinking there. The loans, lending and loans are going to be probably a really hard target for a lot of folks. So banks will have an advantage there for a while.

But I can see centers of gravity starting to disappear in this industry. And when you lose two or three of them, okay, then you got real problems. So I really hope, and I hope to be part of a change that, you know, continues this incredible banking tradition we have in the U.S., which I think has been a cornerstone, you know, to our ability to develop as a nation.

And, you know, when I think of small business being, you know, the kind of entities that typically bring us out of really poor economic times, you know, I think there’s a real opportunity to double down on that in the banking industry. We still have, we’ve neglected the small business segment, you know, brutally over the years. That should be completely digital at this point for those guys.

And who’s closest to providing that solution? The guys I talked about at the beginning, Intuit, right? So there’s an awful lot, and if we’re just going to make money off credit cards, and we’re just going to make money off loaning money to rich people, okay, there’s not going to be many of us, right? And credit cards, what? That’s all about points and spend. So what’s great about this conference, and I’ll wrap, is there’s a deeper philosophy here. Ryan Caldwell, probably one of the best examples of that, Brandon DeWitt, who I still think about pretty much every week, who challenged us all to eliminate the number one stress in people’s lives.

So go back and do that, and you’re going to find value that you didn’t think, you know, didn’t even dream of. You couldn’t brainstorm it, right? Because you’re connecting with your customers on an intimate level, and you’re building for them. But watch the tech companies.

Don’t watch the other banks, because those are the guys that are coming for your lunch. All right? So I want to build on that, Wes. You’re going to bring us home before Q&A, because I might be choking by then.

Although I agree with you, the MX stream was maybe my favorite of the group. Alex Johnson published something this week where he said, you know, maybe doing nothing is the safest strategy, which I think ties into what you were just saying, Nef, and he and I are going to be debating this next week. I think doing nothing is the most profitable strategy if you don’t plan to be an ongoing entity.

Right. It’s profitable right up until it’s not, and you drive off the cliff, and it ends dramatically. And I contrast that with a bank conversation I had, and not a small institution, not a community bank, but someone you’d consider further on the chain.

I had mentioned I was so excited, headed to Money Experience, MX. They’re like, that’s some cutting-edge stuff. And I’m like, not that MX doesn’t do cutting-edge stuff, but if I think back to the long history I have with MX, MX is becoming, whether it’s with MX or someone else, this is table stakes to be playing in data and personalization and insights.

This is not cutting-edge SHIT. This is what you need to be doing if you want to be an ongoing entity. And so I worry those who look at the safest thing to do is to do nothing is what’s going to drive that mass extinction event.

I think it’s nuts, and I think some of it comes from probably, you have to make some big bets sometimes, and if you make the wrong big bets, I think that’s where that’s coming from, is like, well, we don’t know where the industry’s going to go. But I’m with you. I think if you’re not figuring out and actually making some moves, and that goes back to our conversation about the glacial pace of some institutions.

Like, speed is going to matter a ton. Speed and agility, right? 100%. The velocity with which you go in a direction, agility is the speed with which you change direction.

Yeah, 100%. And so companies have to be in a position to be able to pivot, to move the yardstick, to actually move the North Star on a whim. And so I think that the companies that are entrenched with a lot of legacy, tech debt, legacy code, et cetera, like, they’re going to be at a huge disadvantage because there are going to be, you know, companies that come out of nowhere, a couple folks in a garage, come up with a great solution that can move much, much faster.

And even if the institutions have tens or hundreds of millions of dollars to go put behind that, they still can’t move at the pace they need to. All right, so if you agree with us, disagree with us, want to ask a question, make a point. Change your mind.

The microphone in the hot, yeah, change my mind. The hot sauce is yours. We have some fresh wings coming out.

Any takers? Shamir, I’m looking right at you, right dead center. Oh, wow. What kind of sauce would you like, Jillian? I’m going to wait for him to ask me a question.

Give me the hottest one. The hottest one. Yeah.

All right. You guys agree? I can’t even. I think the spiciest.

Yeah, I don’t know. When you talk about the downward spiral or extinction, future elimination of banks, do you see banking as a service being a means or a way for banks to thrive with those tech companies that need the banks to back them behind the scenes? Like Goldman Sachs with Apple, for example. Profitable pipes.

But you lose the consumer relationship, right? Respond. Go ahead. I mean, you had a good… Well, I mean, banking as a service is a great way to think of a new revenue source, right? And we’ve talked about it.

Got to flip the switch there. My former employer talked about it quite a bit. But, you know, I think it’s much easier said than done.

I mean, it puts you in a different kind of business where you’re managing external relationships instead of managing, you know, your customers, right? The relationship with your customers. So it’s a whole new industry. And I thought, in general, I thought we were lousy at being a tech company.

I think we were really good at being a customer-centric financial services company, but the regulators make it really difficult to be an integrated financial services company. So if I was starting a play from scratch, I’d go over the top, and I’d look for the banks to provide, you know, the regulatory and compliance kind of piece through bank as a service. But that’s just going to be, you know, that’s just sort of buying your time.

I don’t know that that’s reinventing yourself. Get over there for him. Hey, disagree.

You know, it’s supposed to be hot, so hopefully I’m wrong. Which sauce am I getting? The API can’t even. Okay, that’s the perfect one.

So what I’m struggling with here is like the regulators, right? It feels like, especially in the last two years, the regulators have become more anti-crypto for sure, and maybe anti-Fintech as well. And the regulatory burden on banks has just continued to increase, and it’s probably also increased. So I’m like, well, if we don’t get new bank charters, and existing banks kind of are forced to increase their compliance load and stick closer to their netting, how do we get from here to there? Because it feels obvious like we’re going to get to that future world where everything is Fintech and without a charter.

But I just don’t see how we get from here to there. Yeah, I mean, it’s a great point. And as we talked about unilateralized banking as a service, I think if there is a way for Fintechs to specialize in certain areas and for the compliance to narrow down into like specific areas and specific Fintechs versus being super broad and banks having to cover so much, there might be a chance there.

But I think you’re right. I mean, that’s what I said earlier. I think saying it’s going to happen fast, I don’t believe it.

I think we should try to make it happen fast, but I don’t think it’s going to happen fast because there’s so much entrenched in that. How do you pull yourself out of that? And then how do you move beyond that? And to me, the only way you can really do that is to start to narrow down focuses of companies that have solutions. But then when you do that, you run into the risk of like, you don’t want the few big ones to control all of it.

And so I think it’s just a conundrum that you have to like, how do you address that? And I don’t know how you can do that without just starting from scratch on the compliance front, which will never happen. So I want to double click on that. How do you see open banking or open data playing a role in creating that distributed experiences across institutions, fintechs, you name the party? He’s a hot wing.

I got it. You’re an actual hot wing. Jason needs that.

He’s from San Antonio, too. Give him something hot. Yeah, I mean, I can start.

I think the great thing about open banking is it gives consumers the power and the ability to take their data wherever they want with them, and it ensures that you don’t have the really large banks kind of holding that and using that for their own purposes. And so I think it actually creates a lot of extra flexibility and innovation and puts the power in the consumer’s hands. Doug.

Okay, so let’s spin this the other way around. What’s the fintech extinction event that we should all be looking at? Nobody’s going to get funded this year. It’s brutal out there.

It’s brutal out there. No one’s going to get funded. Series Bs run out of cash, no revenue.

Good luck. Well, I’m going to drill one step deeper. Unit economics.

Who knew that unit economics mattered? Because it was growth, right? It was growth at all costs. And then there’s the pivot, right? Because we hit the cash crunch. But you’re going to see a lot of good companies go for just bargain basement prices.

So if you’ve got an M&A unit, get them fired up. M&A is really hard because the people that you’re going to acquire are a lot smarter than a lot of your folks. But they don’t have any idea how to be compliant probably or follow regs.

So there’s going to be a culture clash. Half of all acquisitions fail, right? But I think it’s a big opportunity for folks to leap forward here on some of these companies that are going to run out of fuel. Because there’s $100 billion that was invested in fintech in the U.S. alone over 10 years.

$50 billion in Bitcoin and distributed ledger technologies. All right? What happened to that? I mean, best minds of a generation working on that stuff. So at some point, there’s some real interesting distributed networks that have been built underneath there.

Probably some interesting identity stuff that’s underneath the covers there. But it could be a really good time if you’ve got some money in your pocket. See, I think the problem was the bull market actually masked a lot of opportunities to go actually solve really hard stuff because it was that growth at all costs.

I mean, Shamir made this point at Fintech DevCon. We were doing a panel on neobanks. He and I were the OG, is the old guard, versus the neobanks.

And Shamir made the point, he was like, you know, Perks Review was 2010. You were, what, 2011? Right? And he’s like, so we can get our paycheck two days faster? Like, that’s what we’ve come up with, you know, in all this time period? But it was growth at all costs. Is there another question out there? I see anyone.

Stacey? Minnesotan. Where’s the ranch for her? Ranch is a must. So fast forward five years.

Will we still be talking about fintechs? Or do you think this is all going to meld together? Bass, banks, fintech. Because I think as we go through this down cycle, the fintechs, and yeah, a lot of good businesses are going to be gone, they’re going to get snapped up by maybe larger fintechs or banks. So will we say fintech in five years? I think so.

I think so because I remember like five years ago, people were like, when will we just drop fintech? It’s just banking. And we’re still definitely like team fintech, team bank. And I think that will stick because it’s also sort of like entrepreneur versus tried and true, the stereotype.

I think someone will invent some kind of new clever buzzword. But I think fintech will still be here because of regtech. I think regtech is our hidden salvation underneath there.

And that’s actually a pretty interesting little vertical that’ll persist, I think. And that might be really the vision of the dumb pipe, smart pipe kind of vision there. But the whole reason to build these open APIs and to adopt this, which we didn’t really get over, that we haven’t crossed that final threshold at my former employer.

The whole reason to do that was so that we could keep pace with the innovation outside of our walls. It wasn’t necessarily to expose. It was to be able to sell on the edge, to be able to actually meet our customers where they are.

That’s where that vision was going. And that’s not a vision that drives people back to a website. All right, maybe do that to give them some documentation.

My daughters are 24 and 27. I should know this, right? They’ve been in a bank lobby twice in their life. And I worked in the banking industry.

Boy, did I do a lousy job of that, right? I should have. We don’t have a lot of branches, in fairness. But they don’t have any sense of physical presence to a bank.

And go ahead and do your own survey. Check with the cool kids. See how many of them actually go into banks and think of banks as places.

It’s really just a service. And that service should be wherever they want it. All right, so we are at time.

If you were one of those walking in late, this will be rebroadcast on Breaking Banks. There’s also going to be an ongoing MX-driven series of hot takes with a number of the speakers here. If you’d like to be one of those after trying some of this delicious sauce, hit us up.

But thank you guys for enduring the hot sauce. Nobody died. I’ll see you all in the back buying Pepto-Bismol right after this.

And thank you for being part of a different format. Thank you. Thank you.

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

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Thanks again for joining us. We’ll see you on Breaking Banks next week.