Small bank, big decisions

Seattle Bank is a community bank that's big on tech partnerships. At American Banker's Payments Forum, Josh Williams, Seattle Bank's chief banking officer, weighed in on how these partnerships played out and how they inform his view on new payment systems like FedNow and Paze. Williams also discussed cryptocurrency, open banking, buy now/pay later and other topics.


Daniel Wolfe: Good morning everyone, and welcome to Leaders Live from Payments Forum. I am here with Josh Williams from Seattle Bank. And Josh, why don't you introduce yourself and Seattle Bank and tell us a bit about the size of your bank, the markets you serve, and your work with technology companies of all sizes.

Josh Williams: Yeah, sure. Great to be here. I'm Josh Williams, head of partnerships for Seattle Bank. We are a privately held financial institution. We're digitally driven, working with clients both locally through our boutique bank as well as nationally through our partner banking and asset generation businesses. And we have had the opportunity to work with all different types of fintechs and tech companies because we have the advantage of being both small and nimble, but also have made a pretty intentional investment in our technology strategy.

Daniel Wolfe: How big did you say you were? Asset size?

Josh Williams: Yeah, roughly $800 million in assets, so a community bank by convention.

Daniel Wolfe: So there's a lot of new payments technology coming out this year in the near future. You've got Early Warning's Paze wallet, you've got FedNow, central bank digital currencies, other things. What does that mean for a bank of your size and what, based on your experience, should other banks be looking at when it comes to any of these technologies?

Josh Williams: And this is one of the main reasons we're here and happy to be part of this conference. Mostly we're in learning more around that. We're definitely interested in faster payments, especially things like FedNow. Also, we're evaluating options in the card space, so I don't know that I have a whole lot of advice for others, but looking forward to learn from our other peers in the market and seeing where there are opportunities to help our clients.

Daniel Wolfe: So what do you see, how does that compare to what's available today in terms of the needs it serves, instant payments or e-commerce or anything? Any of those in products?

Josh Williams: Yeah, I think for us it's really looking about, where is there a customer need that's not being well met? I think the reality is for many consumers, the card's still a good use case, but often there's cases where it might be a larger ticket where that's not going to be viable. There's issues of access to credit or underwriting where a different solution's going to be necessary. And so just having more options around that makes sense. Also in the embedded banking or banking-as-a-service space, those are areas where particularly FedNow or real-time payments, we think can help enable a lot more of creative solutions to support both small businesses and their customers.

Daniel Wolfe: There was an interesting use case that was discussed in one of the morning sessions for faster payments that I had never thought about. The consumer who may be late on their electric bill needs to get that paid, they pay that and the lights instantly turn back on. Now, I had never thought of that in terms of just the immediacy of that. I always just think of it in terms of the money. Is there anything else you're seeing in terms of these needs where it's not so much how fast you use the money, but how fast something needs to get done and the money is the point of friction?

Josh Williams: Yeah, I mean think, yeah, it's always good to go back to what's helping out the customer and recognizing that for most of us, our sort of customer journey interacting with the bank is not the point. The point is to achieve some other end, and that's a great example of it. I think some of the areas that are more of a B2B setting that we're looking at that essentially realtime payments could help with are ways to get money onto investment platforms more quickly, reduce some of the operating risk around that in terms of some of the concerns on settlements while also keeping the cost and just friction of managing those payments and dealing with the fraud risks more tenable for the businesses and the banks. Okay.

Daniel Wolfe: Let's keep talking about these unmet needs. What are you working on today to solve a need that your customers are coming to you to solve?

Josh Williams: Yeah. Well, the biggest thing that we're doing right now at Seattle Bank, we actually recently launched our own fintech, which is a new digital consumer marketplace, allowing CD customers to see more rates online, but also giving fis the opportunity to essentially convert digital leads and help with origination solutions. So critical in the market as we see so much pressure on banks and particularly community banks or those banks engaged in community banking to compete on the deposit origination side. So that's the main area that we're working on. But also just looking at as rates go up, as challenges increase across the market, we've worked on some small business lending opportunities, increasing access to credit for small businesses through just new underwriting solutions. We're partnering with a vertical services provider that helps people start and fund businesses using their separately managed like 401(k) or investment accounts. So things like that that are finding you creative ways to get capital into the market, into the community at a time when money is no longer free, the liquidity is just not as easily flowing as it once was. So how do we help drive more options for end of the market?

Daniel Wolfe: Okay. So we're seeing in the market right now a different level of confidence in banks. We've seen runs on banks, we've seen funds move to digital banks to credit card issuing banks where the branch presence might not be as important to the client, consumer or business. How are these factors affecting what you're looking at in the customer behaviors you're seeing?

Josh Williams: Yeah, I think the good news is in the short run, I do think that the issue around bank runs is going to be essentially passing. What we had is a handful of banks with concentrations of customers who did have over the FDIC insured amount, but also that were not corporate clients for whom that was an insignificant amount. And what I mean by that is it's always been the case that large corporates have had deposits in banks well over the FDIC insurance amount, but those don't rec represent significant risks for those corporate clients. The banks that had runs are all banks that had concentrations in customers, startups, high net worth families or family offices and other unique businesses where their deposits were above the limit. And at the same time, those are banks that also had significant interest rate risk that they hadn't managed properly.

So as essentially those individual cases essentially are resolved, I think we're going to see a general reverting to the norm. There isn't contagion, there isn't systemic risk around that, but that doesn't mean that customers don't now have a heightened awareness around what their coverage is. And clearly customers are now having to look for rate in an up rate environment. So for those reasons, that's one of the reasons that we have launched CD valet that gives banks an opportunity to go compete differently around that. And we really think that in the way in the last decade, it has all been about loan origination technology. If you think about companies like nCino, that and other business models around that, we think this is going to be the decade of deposit generation and how businesses can, banks essentially, and credit unions can get visibility on their offerings and can convert those digitally in a way that's going to compete with otherwise this handful of very small banks that have a more advanced investment in their deposit origination technology.

Daniel Wolfe: When did CD valet launch?

Josh Williams: We launched it at the end of last year, and in March it started covering all 50 states.

Daniel Wolfe: Okay. What feedback have you gotten from your customers on that so far?

Josh Williams: It's been very good. Right now we would be showing over 250 rates, over 5% the sort of leading list sites in the market maybe show five rates. So one customers just like that, they can see more rates, they can see rates in geographies or types of institutions that's relevant to them. And then importantly, we've had a lot of outreach from fis that are asking how they can get on the site, how they can use that to their advantage. So we think it's solving a really important problem, not just for customers but for community banks. And then from there really the economy and our community that depend on community banks to do so much of the investment in lending into those communities.

Daniel Wolfe: Have you seen any impact on the demand for this or the use of this in response to either the banking crisis or inflation or other factors that are pressuring your customers?

Josh Williams: Yeah, I think number one, for the most part, it's been rate driven. More people are starting to seek yield and they're starting to see where their options are to do that. On top of that though, there certainly have been customers who are looking to diversify funds that they've had. And so are, there's just, again, back to that awareness of CDs are safe, they're tax efficient, they're fee efficient, how can I just get access to where other options are, maybe beyond the one bank that I've already had some CDs at to spread those out.

Daniel Wolfe: Okay. Let's talk a bit about open banking. What do you see as the potential for open banking in the U.S. and how do you see that evolving in the next five years?

Josh Williams: Yeah, we see huge opportunity in open banking. We made the investment over five years ago to start really a strategic shift to an open banking platform. And what I mean by that is we converted from a legacy core provider, which was Fiserv to Finastra. And the reason that we did was finastra has a open core that's built in the cloud, it's real time, so that means it's scalable. And there was a commitment to open banking in terms of making it possible for us to integrate creative solutions to the core. Having done that, we now have the ability to drive new, sorry products to our existing customers as well as starting to reach new segments of customers through new digitally led products. And that really has been the platform from which we've been able to go out and start partner banking or banking as a service embedded banking where we can work with fintech's, marketplaces, or brands who need to integrate back to a FI so that they can provide services to their clients. So for us, it's sort of, I guess the proof in the pudding, in the sense that what open banking can do in terms of starting to open up new ways to go to market and new ways to innovate, which I think are going to be increasingly important as we think about how to evolve and given all the changes in the market.

Daniel Wolfe: Okay. What is your take on, there was some discussion of earned wage access, buy now/pay later, different ways that consumers are managing their money or their cash flow. What is your take on that and how does that affect your approach to market?

Josh Williams: Yeah, I think clearly ways to give customers faster access to their money, better visibility into their financial circumstances are always going to be positive. I think in terms of buy now/pay later, what I think it's a good example of is really demonstrating the commitment in this case to merchants and retailers to rethinking about how they wanted to support their customers. My read on it in general is that we're not seeing that being a highly sustainable model from an economic standpoint, and most of the use cases that are there, unless you have merchants that are willing to step up to carry that capital cost, which includes all the credit risks. And I think they're really unanswered questions in terms of how we manage ability to pay, how we manage credit reporting and other things that really the rest of consumer credit relies upon. So I think what it's a helpful use case then is to think through other ways that we can make credit available to consumers at the point of use. And in that sense, I think it's a good example from in terms of how it shaped our behavior or what we're working on. We've essentially looked at other opportunities to provide credit, usually a larger ticket, but always fully underwritten at those points of use. And I think in that sense, it's a helpful way to think through how we can go solve those problems. Okay.

Daniel Wolfe: Another topic I wanted your thoughts on is crypto. What should somebody at a bank your size be thinking about crypto?

Josh Williams: Honestly, we haven't. I can't tell you the last time a customer asked us about crypto, it's just not on the radar for us. We had evaluated it, we looked at options. If it becomes meaningful, again, we will continue to be responsive to customers, but it's not thinking about it.

Daniel Wolfe: That's fair. So you have a panel discussion you'll be on later today, the power of customer narratives, new ways to get ahead of regulatory concerns. What can you tell us to expect from that?

Josh Williams: Yeah, I think really, and I'm looking forward to the conversation and hearing from others on it in general, I think it's talking about how even, or I guess especially at times when we have so much disruption in the economy and the market now in banking that we just keep our customers' needs and our customers stories first and foremost in informing our decision. So looking forward to it.

Daniel Wolfe: And now if I may plug my own session, I've got one coming up about the state of small-business financing, and that's something you and I were talking about before they handed us microphones. What would you like to see come out of that discussion?

Josh Williams: Yeah, I think small business, by the way, most of my career has been working directly with businesses and business owners, so I have a lot of firsthand experience having done that. The sticky wicket of small business is it's too complex to solve with technology and it's not big enough to be really profitable to solve manually. So that's what we're all trying to work towards is progress on either side. We recently launched a pilot with a company called I, and essentially what it's doing is leveraging open banking data to add on to traditional underwriting fund underwriting fundamentals. And that model allows us to basically make loans in days, not weeks. We're in the test stages of seeing how that goes. And our hope is that that's something that's going to be scalable both in our local market, but also something that we could roll out on a platform basis.

So I'm looking forward to your event on that. And I think anything that can help us solve for truly those are the fundamental challenges. It's difficult and it's the tickets are not big enough. And I think too often people get distracted by a shiny object or by a narrative that doesn't really solve for those. So anybody that's spending time saying, how can we make this more economical because we're getting leads for less cost or we can underwrite more cheaply or more effectively allocate risk, those are things that will help. And anybody that's helping solve those problems, we're excited to learn more about.

Daniel Wolfe: All right. Any final thoughts?

Josh Williams: Glad to be here. Thanks so much for having us.

Daniel Wolfe: Well, thank you for joining us and thank you for our audience as well.