Up next in digital banking: What to expect

Grasshopper Bank CEO Mike Butler and American Banker Editor-in-Chief Chana Schoenberger discuss what’s on the horizon for fintech, banking-as-a-service, and digital-first finance, direct from Digital Banking 2022 in Austin.

Transcript:
Chana Schoenberger:

I'm Chana Schoenberger, Editor-in-chief of American Banker. And I'm here in Austin, Texas for our Digital Banking conference 2022. I have here with me today on the Leaders Forum Mike Butler, the CEO of Grasshopper Bank. Mike, thanks for joining us today.

Mike Butler:

Pleasure, pleasure talking with you.

Chana Schoenberger:

So let's start by talking about the difference between your last two jobs. So you're a guy who came from a big bank. Then you worked at a medium size bank. Now you worked for a small startup bank.

Mike Butler:

Yeah. Um, so, so not quite that way, but, um, I think the question's interesting. So when I left KeyCorp, there was a, we were a hundred-billion-dollar bank. I'd been there for almost 30 years, enjoyed all the, the opportunities to grow professionally and individually with an organization that went from 2 billion to a hundred billion. Um, but, but when you, you know, when you have this kind of thirst for being involved in change and, and kind of more of a forward thinking person, you, you get stuck in a bigger banks' challenges related to moving a little bit more cautiously. And, and again, I'm not being critical of any size, um, but that's what happens. You run a big bank and you have to be cautious. Maybe you move a little bit slower. Next bank was Radius. And that was a really small bank still that we started up with the idea of being a, a digital consumer bank.

Mike Butler:

And so, so we had a whole bunch of work to do to kind of transform the organization from a, a community bank, with community, with branches and with, um, board, um, that saw the world from where they were versus where they were going. So we had all that work to do associated with it, um, and made some great strides, but really kind of where I am today at Grasshopper. Um, it is, it is a bit more of positioned to be a forward looking bank. So we didn't have to go through the transformation. Um, we had to go through some transformation here, but the objective of the original bank was to be a digital bank, but digital commercial versus digital consumer. So, so those were the three stages I went through and, you know, it, it, it kind of the success we had with Radius of building a digital platform, leveraging partnerships as a way to do that carries over into what we're doing at Grasshopper.

Mike Butler:

I think doing committing to human capital that is more technology oriented and business oriented than traditional banking oriented carries over into what we're doing with, with Grasshopper. And, you know, culture of culture is the same, right? Culture sometimes is what is most important to take from one success to the other or adjust after a, maybe a, a less successful event, you know, is your culture right? Is your culture aligned? And, and most times my view is if the culture is important, discipline to it is critical and alignment to it is most critical. So those are the differences would be, ah, this was a startup that was designed to be digital. Radius was a bank we had to transform. Radius was more consumer, this is more commercial.

Chana Schoenberger:

So how do you inculcate a culture at a new firm? It's very hard to get a group of people, even if they've worked together before and say, okay guys, this is how we're gonna do it. This is how we're gonna feel about it. And this is how our customers are gonna believe us.

Mike Butler:

Yeah. So, um, it's hard, right? So, and everybody has a different recipe for success. But what I like to say is the first thing we do is we make it crystal clear. What are the four or five non-negotiables related to culture?

Chana Schoenberger:

What are yours right now?

Mike Butler:

Well, our non-negotiables start with client first. Okay. So a lot of banks say that they all do yes, but you, you have to be committed to the client. First part of this organization, we have to be about our clients. The second thing I would say is we have to be entrepreneurial in our thinking. We have to almost despise bureaucracy. We have to, we have to in that area, um, be decision makers, um, and push decisions down to lower levels of the organization than most companies are willing to do, and fail fast and fix it. Okay. Because that's what we do for a living we're on the leading edge. So if you think about, and then the third thing I would say is we are absolutely committed to human capital. People are everything, and you've gotta be a great leader inside the company and you've gotta, and we've gotta, my job is to attract, retain and motivate people.

Mike Butler:

I'm the chief cultural officer. You just talked about it, but people have to be the key, great people create great companies. And so we have to set a tone to be able to attract, retain, and motivate people. And we've gotta have great leaders. Um, it has to be about team. That's the other part of it. So in, in, in this industry, and it's interesting, I've been around for a long time, too long, right? I got a lot of gray air, but, but you know, we, we, we kinda like, we're forced into silos by the regulatory environment, right? You've got sales, you've got credit, you've got your operation guys. And even during the most recent, you know, recession or, uh, depression, we went through in '08, the regulators came in and said, boy, separation of duties is really important, right? Cause it reduces risks in, in their view.

Mike Butler:

But that creates silos and silos are not good places to work. So what we've said is no silos. Everything is about team. And we operate with an incredibly flat organization chart in which we view everybody as peers, you know, no, there there's no, oh, you are a executive vice president. You're a vice president. So you do this and you do that. You know, whatever it is that that's, that's old school. And, and so team is everything. And, and, and that's how, and, and we think of ourselves as a technology company rather than a bank and surely as a business, rather than as a bank. Now, it doesn't mean we avoid regulation. We have an incredible relationship with the regulators. That's really important to us. And that's the fifth one that I would tell you is we have to respect the whole concept of the regulatory environment and learn to operate within it.

Mike Butler:

You know, you can't, I, I mean, you can challenge the regulatory environment to make it better, but you don't wanna fight it. You know, you, you have to accept it and learn to operate within it. So, so those would be, you know, my kind of five, you know, um, non-negotiables, as it relates to culture and, and what you, what I like to do is, is tell people like I didn't make these up. These aren't, these aren't Butler culturalisms. These are lessons from great companies that have done very well in the past. And now the point is what makes those great companies work is that you're disciplined to that in every single way. So every step of the way, when you say you're a client first organization in somebody makes a decision that is more inwardly focused and outwardly focused, you've gotta stop them. We gotta stop the presses, put the flag up and say, that is an inwardly focused decision.

Mike Butler:

It may have helped your life and operations better, but it didn't help the client's world. So bad, bad decision, not bad decision, but outside of our culture and we have to stop. And then the bottom line to this is I always say to people, I love people and people are great, and everybody has a place in the world, and this is our place, and this is our culture. And if you don't like that, that's cool. You can be really successful in somebody else's culture, but go find it. Rest can't work here. But yeah, but don't drag my culture down because you don't agree with it. And I've helped people find employment elsewhere. That's more aligned to what they like to do. I don't mind that. We just need to be all aligned.

Chana Schoenberger: So you mentioned the regulators you're known for having a very congenial, collaborative or relationship with your regulators. How do you cultivate that? I think a lot of bankers find it difficult to talk to the folks in Washington and in their state houses.

Mike Butler:

Yeah. So, so the one thing it's, it's genuine, right? So what we've sort of, it's a, it's a cultural component. And so I tell them when we meet our culture is to have like a great relationship with the regulators. It isn't just a thought. And you know, then I don't go back to the office and say, oh, the regulators are paying the butt. It's like, no, the regulators are really important. And we need to, you know, we need to work with them. The other belief I have is that the regulators have value, right? True value. Right. They, they help you identify areas in which you may be creating undue risk. And I wanna hear that. So, so when I look at the whole spectrum of who helps me run the business, I have my employees, I have my auditors. I may have external people come in to review certain parts of the business.

Mike Butler:

And then I've got the regulators and I've gotta get them to help me run my business better. And so I make that really clear to them upfront. And then we invite them in, we get them to practice. So, so they get to see when, when we first rolled out our first digital account opening at Radius, before we put one client on board, we went to the regulators and said, here's our business plan. Would you review it? Tell me what I'm missing and help me design it better. And they came back with thoughts and ideas, and then we invited them in six months later and said, tell us how we're doing. And so they become a partner with you rather than someone who's trying to, you know, kind of watch you. And, and so through that partnership and everybody in the company has to be that way.

Mike Butler: 

So we all have to view it this way. And if you don't, and if you view the regulators as a problem, and I don't like them, well, it's not gonna work inside this company, cuz I want them to come in and feel like, you know, they're a part of the organization because I believe they are. So that's how we've been. And then the other thing I would say is we do what we say we're gonna do. So when I say to the regulators, this is what we're gonna do. We do it. And they like that. People like to know that you're gonna do what you say you're gonna do. And that helps with the regulators. That

Chana Schoenberger: 

Seems very basic. Do most banks not do what they say they're gonna do?

Mike Butler: 

Well, I think there's this, you know? So, so listen, the, the regulatory banking environment has not always been perfect. Right. So right. As an industry, we have experienced times in which the regulators have been, um, I'll use the word unreasonable 2009, 10 and 11. All right. And maybe an overreaction to ,all banks suffered from some of the issues that were maybe created by a few we've we've had all those stories. So it creates some animosity between the regulators because they force you to do things that you, they, they don't necessarily spend the time to see what you're doing as an individual organization. Um, so it, it kind of forces some bankers to close themselves and not communicate because they're, they they've lost trust. And so when you lose trust, the communication thing breaks down and that's probably where you're, uh, I'm, I'm not sure you don't do what you say you're gonna do, but you're not always proactively communicating with your regulator as to what you're gonna do. Maybe better said that way

Chana Schoenberger:

About mentoring. So who mentored you in your long career and who are you mentoring now? How does that work?

Mike Butler:

Yeah, so, so we're big fans of mentoring and, you know, I would, you know, it's funny, somebody else asked me this question. Um, and I would, I would tell you that the biggest mentors I had in my life were my parents and just flat out life. Right. And it stretched into business. It taught me to take the high road. It taught me to treat people fairly. It taught me to not, um, to not get an ego, an unnecessary ego, confidence is one thing. An ego is maybe a difference. So a lot of things that they taught me that are important and they were my best mentors. And I think along the way in business, we've had a, I've had a great CEO, a guy named Victor Riley at KeyCorp, who was a great mentor to me, spent some time, taught me about, um, how to be an executive.

Mike Butler: 

It was great. Um, and today we kinda like, we use mentoring in a much less formal way than most companies do, but it's real. We do it. And, and so, so what I say to my leaders is it's your job to mentor your people and to have conversations with them about how they can be better. That's what they need. They deserve that. So I'm a big fan of what we call skip levels. And I pick, you know, a, a group of people that I think are, have potential. We use the classic nine block evaluation of performance and potential. And we look at people that we think have potential regardless of where they are in the organization. And, and we take the time to meet with them and talk with them about what's going on and how they can do better.

Mike Butler:

And it's something I get a kick out of. Um, so, you know, I don't care whether you're 23 or 53, people could use some mentoring and, um, you know, so we kind of use that, that potential guide, um, to mentor and everybody is supposed to be, and is doing their mentoring. Um, we're also big fans of diversity. So, so we have a little bit of a, you know, um, most companies do really well at certain levels of their organization with diverse candidates and don't do it very well. You know, the higher you get up. So got a whole bunch of mentoring that goes on with candidates. Well,

Chana Schoenberger:

It seems to be that a lot of companies are very good at hiring a large group of people and the executive levels. They've made an effort to have least in some cases, decently diverse, it's the middle where you lose a lot of people. You don't retain them. Not you, banking as a whole, you know, financial services as a whole really has this as an issue. As that in, in the middle, they all tend to just do something else.

Mike Butler: 

Well, I think I'm gonna kind of go back and tell you, I think banking in general has a challenge attracting talent, whether it's diverse or not. Yeah. Because of what we see in this FinTech environment and all of the other opportunities for people to operate in a much different way than many banks do middle management or banks generally is a very hard place to get through. Um, that's usually where your communication breaks down in big banks. There's a whole, you know, in, in larger organizations where it becomes bureaucratic. So I do think that's the problem and mentoring people, um, is a great way to do that. Um, but creating a organization that allows people to make decisions and to be engaged, regardless of what level they're at in the organization, I think is the ultimate way to keep people and retain people in the organization. People wanna be a part of what's going on. They don't wanna be left out. They wanna be engaged. And so the more people that you can engage in decision making and be a part of the action, as I say, the better retention you're gonna have and the higher quality performing people, I think you're able to retain.

Chana Schoenberger: 

So what do you think is the prognosis for big banks, regional banks and challenger banks?

Mike Butler: 

Well, you know, you're asking an individual opinion, right? So I got, I have a great deal of respect. I surely have a great deal of respect for what Brian Moynihan and Jamie [Dimon] and everybody else is trying to do with banking.

Chana Schoenberger:

That's a hard job.

Mike Butler:

That is it's, it's incredibly challenging. You, probably, most people have no idea what they're challenged with every day from global financial issues.

Chana Schoenberger: 

It's like running a small country.

Mike Butler: 

Yeah. And, and, um, making some of the changes, turning that ship. Um, and I think, um, the, uh, so everybody has their challenges, um, and, and, and how they're trying to be a part of the world. But, you know, my view would be, it's like kind of drawing the, the chart that most, uh, consultants like to draw as to how industries evolve. Right. And so you're gonna have, um, the big banks, they're not, they're not going away. Right.

Chana Schoenberger: 

They are in fact too big to fail, so they're not gonna fail.

Mike Butler: 

Yeah. And so, and there's a great, there's a great need for them in the world economy, the global economy. Um, and then you usually have the boutiques that take market share in a variety of different niche ways and where the pressure usually falls is in the middle, in what you would call the regional banks as to which direction they really need to go. Um, so, so I would take a step back and say, we surely believe that digital banking is here for good. And the data would suggest. And just kind of the evolution of, um, aging of the population suggests that as we talked about on the panel today, the 15 year old would never know what a bank branch looks like. So over time, that's just real numbers. You can't avoid that the digital world is gonna take over and banks are gonna have to adapt.

Mike Butler: 

And, um, I think that's therein lies, you know, the big banks aren't gonna have to adapt as much because they are who they are. Um, but surely the regional banks and the smaller, the larger community banks are gonna have to adapt to, how am I gonna transition to that? And I think that'll be the challenging part of the industry, but it, um, then the only other thing I'd say about challenger banks, um, versus challenger fintechs, there has to be a path to profitability, right? So that's the one thing we say a lot inside our company. Um, and the other, you know, you know, we used to say, cool, doesn't pay the bills. Right. So, so it's nice to have some

Chana Schoenberger:

You can't eat prestige.

Mike Butler: 

Yeah. Right. So it's, you know, it's nice that we're cool, but if it's not paying the bills, it's not gonna work. So, so we always think about a path to profitability and I think on the lower end. So, so I would say larger banks always gonna be there. The middle banks are gonna be challenged with how they're gonna transform themselves. And then the smaller challenger banks have to decide, can they find a path to profitability in the niches or boutique world that they've been operating in?

Chana Schoenberger: 

Yeah. And that's, the question is, where is this all going?

Mike Butler: 

Sort of, yeah.

Chana Schoenberger: 

I wonder also about credit unions. We write a ton about credit unions. We have a whole dedicated team that does that, and their value proposition is so completely different than banks, you'd think they would attract a lot more consumers than they do.

Mike Butler:

Yeah. I think that, um, changing banks, right. This is, this is what we kid about a little bit, and I hope I'm answering your question a little, but, you know, um, inertia was the biggest retention of clients that you had in, uh, before the digital world came about. Right. It's like very hard to change banks, very hard to go close your account. Very hard to go open a new one and is the, is the grass really greener across the street than it was here? And so you, we, we used to kind of say, despite ourselves, we retained a whole bunch of clients because the options were down. So, but, but today you have this, I, I think where the growth is coming from is this inertia is coming from, it's easier for me to open an account. You know, we also kind of kid ourselves we're our own worst enemy because we make it easy to open an account.

Mike Butler: 

Um, but it makes it easier to go someplace else too. Right. So, right. So, so you're gonna have a more churn of accounts, um, and you gotta do a great job on customer service and all the other things that, you know, we talk about in the industry. But I think the techno file, that's wanting to move into a more digital space. Um, that's where the credit unions, um, and, and we've seen some of them move forward in the digital space, but I think if the credit unions are gonna be like the rest of the smaller community banks, you gotta take on a digital face to be able to attract clients.

Chana Schoenberger: 

You have a reputation as an executive who moves quickly. How do you get stuff done?

Mike Butler:

Well, um, okay. So we're gonna go back to some of the things I talked about earlier is, um, you're gonna have a culture in which people are all aligned. There is, there is nothing that slows down an organization, more than people who aren't aligned and to be able to get things done. So in cultures that aren't aligned, you make a decision and then somewhere down the line, someone doesn't agree with that decision. And because there's not alignment, it doesn't go anywhere and it doesn't go fast enough. So cultural alignment is number one, um, on, um, the second biggest part would be empowering people to make decisions. What we say is that the worst decision is no decision. Okay. And we follow the Colin Powell rule of 70% of the information you get is surely enough to make a decision. And we, we, we, we force people to make decisions, right?

Mike Butler:

So we say, before you come in the organization, if you don't like to make decisions, you shouldn't be here. You just shouldn't. Cause we're gonna ask you to make decisions. And then with that decision, we also ask you to fail fast and fix it. So that's a big model that we have is like, it's okay if you fail. Right. It's, it's just like the old adage of, you know, when I was playing hockey, it's like, if you're not falling down, you're not probably going hard enough. So it's about getting back up and then fixing it so that you don't fall again. And so we like to say, don't make the same mistake twice. Right. But, um, other than that, it's okay to make mistakes. And we encourage people to do that. And, and that gets people to work faster. Then the other key, I would tell you is something that we call our crossfunctional teams.

Mike Butler: 

And this is where this, the anti-silo thing comes into play. So we're not really organized around silos. We're organized around events. So we have a digital banking team and that's, that's designed to deploy a opportunity for small businesses to open up a, a checking account in less than 10 minutes. And so how do you get that done? Well, I need the guy who is, I use the word guy too often, the person who runs the small business world, we need the, the, um, modeler, who's making decisions. We need the technology person. We need the customer service person, and we needed all those people. And in traditional banks, those people are located in operations, credit, sales, marketing, or whatever.

Chana Schoenberger: 

Risk.

Mike Butler:

I don't have that. I mean, we might have those organizations, but we haven't. We have a small business team that we call the cross functional team that meets every week, talks about what's going on with their project, what's going on with their business and our incentive appropriately to say, my job is not to be a risk guy. My job is to produce small business deposits in a safe and sound way and do my job related to that team. And we have five cross functional teams across the organization that are related to our key initiatives and our key businesses. And they operate as a team, get incentive as a team. And so that's, and then they make decisions. So they have to make decisions every day in that organization, but everybody is there in the room constantly. So think about the companies that sometimes are siloed and say, well, I gotta go see if the credit guys will allow us to do this. I'm gonna schedule a meeting in two weeks. Oh my God.

Chana Schoenberger:

I've worked in companies like that. Sure.

Mike Butler:

Two weeks, we're talking two hours. Right. So somebody get in the room, bring the cross functional team together and make a decision. Um, and, and none of these decisions are bet the farm. We're not, we're not, we're not betting the, and, and you know, we're not rocket scientists either. We're not, we're not developing a cure for COVID right. We're, we're bankers. We're trying to bring clients on board. And so it's okay. Make those decisions and make 'em as a group, be empowered and then, you know, hold yourself accountable to making sure the decision works or to change it and fix it. And nobody cares about a bad decision, unless it was a repeat. So the cross-functional notion of how we run the company, I would say is the key to our ability to move fast.

Chana Schoenberger: 

Well, this is, I'm sure you've seen the, the famous study that was done about NASA in the sixties. And they said, how did NASA get a man to the moon? They went back and, and asked all of these people who had worked there at the time. And obviously the ones who were directly involved in mission control are plotting the trajectory of the rockets. They could tell you exactly what they did. They were getting a man to the moon. But if you talked to anyone who worked for NASA down to the janitors, the guy mopping the floor in the cafeteria, what do you do here? We are putting a man on the moon.

Mike Butler:

Right.

Chana Schoenberger: 

Because they had so much bought into the organization's mission that they saw their own contribution as being completely central to moving the organization forward.

Mike Butler: 

And, you know, I love what you said there, cause that's what goes back to our conversation earlier about engaging people at every part of the organization to be a part of the mission of what you're trying to accomplish and, and then to celebrate it. Right. Um, but their, their engagement and their, um, kind of, um, being a part of the whole bigger process is really important to everybody. So well said,

Chana Schoenberger: 

Well, thank you so much for joining me here. This has really interesting and I appreciate you coming to Digital Banking 2022.

Mike Butler: 

Pleasure to be here. Hope I could be of some help and the conference is outstanding so thanks for that.