Building a fintech-focused bank

Transcription:

Catherine Leffert (00:09):
Thanks so much for joining us. I'm Catherine Leffert. I'm a technology reporter at American Banker, and today we have Jackie Reses. She is currently CEO and chair at Lead Bank. She's previously served in roles across the financial industry, including at Goldman Sachs and Apex Partners Worldwide. She had several leadership positions at Yahoo, including including global development officer and as executive chair of Square Financial Services and Head of Square Capital. Jackie and an investor group of ex-Squares bought Kansas City-based Lead Bank in 2021, with plans of ramping up its tech and banking-as-a-service business for fintechs. And today we'll talk about building a community bank for fintechs.

Jackie Reses (00:58):
Sounds great. Happy to be here. Great conference.

Catherine Leffert (01:01):
Thank you. Yeah, really excited to jump in.

Jackie Reses (01:04):
For those of you who aren't here, we're literally sitting in the middle of the American Banker Conference. It's really nice. We've got lots of people all around us. Good vibe, good people. Interesting event.

Catherine Leffert (01:15):
Great. Yeah, and we are really just right in the middle of the floor where everyone is presenting, and it's great time. So jumping right in, tell me a little bit about Lead's services, and your vision for serving fintechs.

Jackie Reses (01:29):
Sure. So as you mentioned, I'm the chairman and CEO of Lead Bank. Lead Bank is essentially building the bank that we wanted to see in the world when we were at Square. And one of the observations we had is that community banks and banks that provide support services and infrastructure services to the fintech and crypto industries really don't have the technology infrastructure in order to serve that community as best they should. And so with a lot of customer empathy, we decided that we would go buy a bank that did banking-as-a-service and transform the infrastructure, build a bank platform so that we could build basic bank products that are built from first-principles point of view with an API technology infrastructure such that our fintech and consumer companies can deploy embedded finance in any one of their applications that they want to use on their website, in their mobile apps or just broadly. And so we went and we built a bank platform around basic bank products like issuing, acquiring, money movement, lending. Those are the types of bank products that we offer to fintechs, consumer companies and crypto companies.

Catherine Leffert (02:49):
So you saw this niche in the banking industry and you really wanted to fill it. Why did you and this group of ex-Squares hop on this opportunity when you did?

Jackie Reses (02:59):
So it's interesting. Why this group? We, at Square, applied for a banking charter. It took us five years to get an ILC bank charter, and one hadn't been issued in 15 years prior to our approval. I think it was 2006, was the last one approved. And then ours in March of 2020. And we were involved in writing the first line of code, the first bank policy, and we really, from an infrastructure point of view, in every element of the infrastructure, built a bottoms-up thought bank. Which means that the team that went and bought Lead, and there are four of us -- Ronak Vyas, Homam, Maalouf, Erica Khalili, and myself. Those are my co-founders. We understood on a first-principles level what we wanted to build and why. And we were able to understand the infrastructure needs, the regulatory needs, the relationship needs because we had already built the bank platform, the technology and the regulatory approach through prior experience.

Now what had occurred to us was how unusual that experience was. And someone had kind of put it to us where it's like, you know, 'You are one of the only teams in the United States who understands how to build a bank from the bottom up. And you've done it at a world-leading technology company.' That's pretty unusual. It almost smacked us in the face. We kind of didn't realize that dynamic until someone said it to us and we said like, 'huh, that's kind of interesting.' I think we do have unusual experience, and an extreme level of customer empathy to understand what the problem was that we wanted to solve. So that combination of background became the catalyst for us wanting to go build the bank we wanted to see in the world.

Catherine Leffert (04:48):
And it's different from group of engineers going and building this tech-based bank. And it's different than a group of traditional bankers going and building this type of bank. I mean, you guys sound like you both have both skill sets that you really were combining.

Jackie Reses (05:03):
We look at it in three main pillars, actually, to speak to that point. We have deep technical infrastructure experience, both product design and engineering. Our entire team comes from the world's best technology companies and fintech companies. They're extraordinary. They have built bank platforms, they've built issuing platforms. They've done it before, they're amazing at it. Our product team is amazing. And so we have that level of experience. The second pillar is that around regulatory and compliance. Erica Khalili, who leads this team, was an incredible legal leader at Square. She was the person who wrote every line of a 4,000-page application that went to the FDIC. She understands the bottoms-up foundation of how to lead compliance and legal teams with an extreme level of depth, and comes at it from a perspective of advising and building compliance systems to help companies scale.

And so that's a pretty important pillar for us as a bank. And then the third pillar is that around finance. And our finance team is absolutely fantastic. It's led by Kris Dickson. Kris came to us. She was actually the ex-CFO of the Lehman Brothers Estate for the last 10 years. Very obscure, unexpected background, but she has managed a balance sheet of hundreds of billions of dollars of assets, and managed dealing with a bank license in her prior role and has such an extreme level of detail and expertise around SPV, capital markets, esoteric financial structures, bank capability, liquidity. And so she leads the finance team. And so those three pillars of expertise are absolutely critical to what we do. And there are three, we have great leaders in all of them. I should have mentioned Ronak and Homam. Ronak Vyas, one of my co-founders, who leads the engineering team. And Hamam Maalouf, who ran data science at Square, leads the data science and product team at Lead.

Catherine Leffert (07:15):
So I mean you have this all-star team. You have all this really valuable rich experience doing this. That said, serving fintechs through banking-as-a-service is not necessarily common, and especially not for community banks, where sometimes access to technology's a little more tenuous. There are 4,000 or 5,000 community banks in the country. Tell me a little bit about what they need to transcend these technology barriers, and how Lead is doing it and what you see for the broader industry.

Jackie Reses (07:51):
I think it's a big issue that community banks have to tackle. And I think it's probably one of the two main things they should be focused on. It's not necessarily how to serve fintechs. I think that's a tangential business line that someone could make a strategic decision as to whether they want to do it. But full stop, community banks have to have technology to support their business. And it falls into two categories. One is customer facing, and one is the infrastructure and how they manage their own institution from a liquidity point of view, from a governance point of view. And on both dimensions, they have to have the capabilities to be able to lean into what customers want from 24/7, 365 banking. And so even from an app that serves community banks, they need to be looking at their apps and their websites and make sure that they are serving their customer needs.

Is it easy to log on or is the language in those apps easy to use? Are you able to click through different products within an app and make it customer intuitive such that the experience is great? And even if you use apps from companies like Fiserv or FIS, those apps are customizable through lots of different design features and elements that community banks can change. And so they absolutely should be thinking about whether they're serving their customers well, listen to feedback on how the technology that they deploy to their front facing customers are actually used and make sure they're always innovating and learning. And if they don't have the skills to do that, they should look to other companies in the ecosystem to provide partnerships in order to do that. That could be ID verification, like Persona, it could be front-facing lending products or even their app. They absolutely need to be providing a customer-facing experience that's great. Customers demand it, they want it and it's super important in order to serve the needs of a consumer or business in 2023.

Catherine Leffert (09:59):
And I mean obviously a lot of community banks are bound by less resources and things like that, but it sounds like this customer experience initiative should really be a priority for their spend.

Jackie Reses (10:15):
Absolutely. We have an app at Lead Bank. And the business banking and the consumer facing app, they're apps that are built by Fiserv and because they touch our community bank clients in Kansas City, we want to make sure that they get upgraded. But that infrastructure is remaining at Fiserv in order to serve that community. But what we did do is go in and look at the design. And I literally worked on this yesterday with Albert Song who leads design for us. And we looked at the tiles, we looked at the language that's used, we look at how we communicate to our customers. Is it easy? How easy is the password to use? All of those things are changeable within the context of Fiserv, which means that every community bank in the United States has the ability to make those changes along with their customer support team.

So they don't need engineers in order to do that. And they don't necessarily need a design lead like Albert who comes from world class institutions like Meta and Yahoo in order to make those changes. They could just intuitively look at their design and say, 'Is that ugly?' I look at our current banking app right now. It's horrific. I mean, I'm embarrassed by it. If you go onto our website, I'm embarrassed by it today. It's going to get changed. But anyone can look at that design and say like, 'Oh my God, I should change it.' Just take a point of view about whether you think it looks good and take the best person's point of view on design. Doesn't matter whether it's your spouse, the receptionist, a teller. Get someone who's got a good eye for color, for design for language, and go get them to change what you do.

I think things like that, you shouldn't feel powerless if you're a community bank because you don't have an engineering team with expertise. You should feel empowered by your own skill as someone who could just change something if it doesn't seem intuitive to you from a language point of view. And so that's what I would hope for community banks. Now, in addition to that, we have been pretty vocal with Fiserv about what they need to change in their app. And we wrote a letter to Frank [Bisignano], their CEO, who immediately called and said like, 'Oh my God, I'm on it.' And I think we sent him the letter. It was changes we wanted to see in the app and the way their system works. All that feedback came from our tellers and our front-end bankers and our Ops team. And we sent that feedback to Fiserv.

I didn't feel powerless in my position. And he is the CEO of a responsive company that works with 5,000 banks in the country. He immediately responded and took the feedback. Now, some of it they can't change, some of it they can, but I feel like at least we did everything we could to try to change the app and the way it connects to community banks in the United States. And I was appreciative of the way that they interacted with us to change that app. It's very different from what we're building on a bottoms-up basis, from a technology point of view, that our engineers are building for fintechs, consumer companies and crypto companies. It's equally important to us that our community bank customers in Kansas City are served well.

Catherine Leffert (13:24):
Yeah, I mean it's interesting that you've really taken on this role as a champion for community banks when your career has really spanned these multi-billion-dollar public companies, giant technology companies, Square, Yahoo. I'm really interested in how you view community banking, and how that became important to you. I mean, maybe talk about your work on with the Fed, and how you balance building up this bank for national businesses, Lead bank in Kansas City, while still serving Kansas City businesses.

Jackie Reses (14:00):
I think banking is in an interesting spot right now. On one hand, everybody has a bank in their pocket and there are widespread business and consumer apps that have proliferated over the past 10 years that have absolutely made an impact in people's lives and the way they think about banking in a 24/7-365 perspective. What those apps have done, and I'll use Cash App as an example, is shown the way that banking can be intuitive for people. It could be Cash App, it could be a firm. These are places where banking has been put in your pocket to create an experience that is usable, it's understandable, it's available. Products are available in ways, like lending and credit, in a way that prior to those apps didn't exist. Small dollar loans didn't really exist for customers in the way that Square Capital innovated, or the way that a firm innovates from a consumer point of view, or a company like Ramp innovates from an expense management point of view. It didn't exist.

And so these companies are really transcending a customer experience and opening up customer's eyes. Now, having said that, in every community across the United States, 5,000 banks underpin the ability of an economy to thrive. Those community banks are the backbone of industry in those communities and they're absolutely critical to the health of communities around the world. They provide credit, they provide banking services to the smallest companies in every community, and they're almost like a backbone for civic activity to participate in an economy. We absolutely need to keep the banking industry healthy. It's a national imperative that, from a liquidity point of view, from a depository point of view, that these banks exist across the United States. Doesn't mean that 5,000 of them need to exist, but it does mean that banks need to operate in communities and provide the backbone for credit to support the growth of local businesses across that economy. That, I am absolutely passionate about and would do whatever I could to support the community in helping to have those businesses thrive. I wrote a book about it. It's called 'Self-Made Boss.' I co-wrote it with Lauren Weinberg, who is the chief marketing officer of Square. And we wrote this book in order to see these small businesses start, run and grow. And I see it from a banking point of view, in order to help those businesses just have infrastructure needs in a community to support the expansion of those businesses, to support the community.

Catherine Leffert (16:46):
Well, Jackie, I mean like Lead Bank and its mission to serve fintech through providing infrastructure services -- I'm really interested to see where that goes from here. I mean, I know it's a newer initiative. You only bought it in 2021 and I think that there's a long runway ahead there. I really appreciate you sharing some insights about how community banks can really take agency and ownership of their technology strategy, and their customer experience strategy. This was great and I really appreciate it. That's all from me.

Jackie Reses (17:18):
My pleasure. Thanks for having me.

Catherine Leffert (17:20):
Alright, thank you.