Episode #22: Alex Johnson

Episode 22

The digital landscape is changing.

News of the metaverse, NFTs and cryptocurrency floods our newsfeeds as we hear about Web 3’s promise and limitations. So where do banks fit into this equation? Will crypto ever become less volatile? And do financial institutions need to start thinking about their place in virtual reality?

Alex Johnson, the founder of the Fintech Takes newsletter, tackles all these questions and more while also speaking to “hands-on-the-wheel” money and Generation Z’s new outlook on managing their finances.

Featured Guest: Alex Johnson

Alex Johnson is the creator and author of Fintech Takes, a newsletter that analyzes the collision of banking and fintech.

Becca Hoeft

As a marketing, public relations and corporate communications leader, Becca (only her mom calls her Rebecca) started her career in consulting and has been involved with six startups ranging from film, fashion, technology and food, with her first startup being a social enterprise importing leather fashion accessories made by single mothers in Nairobi, Kenya. Speaking across the country, she is known for leading award-winning teams and has received recognition from the Cannes Film Festival for Best Media Campaign, Hermes, MSPBJ Women in Business, and most recently, the Top Women in Communications awards. When the day is done, you’ll find Becca behind a good travel book planning her next adventure, plunking a tune on the piano or laughing with her blended family.

Bryan Toft

Bryan Toft is Sunrise Banks’ Chief Revenue Officer. In this position, Bryan oversees commercial banking/lending, treasury management, mortgage and fintech partnerships. He has been with Sunrise Banks for more than a decade. From 2014-2017, he served as president and CEO of Community Bank Owatonna.

Bryan has held a variety of roles at Sunrise Banks including credit analyst, commercial loan officer and EVP regional manager of commercial lending in Minneapolis.

Bryan received a B.S. in Computer Science from Buena Vista University and an MBA from the University of St. Thomas. He is a board member of the Minneapolis Chamber of Commerce, Twin Cities Metro CDC and Charter School Property, Inc.

Featured Music

The Choir

"Sunshine Girl"

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Episode Transcript

[00:00:00] Alex Johnson: There’s absolutely a need for financial services, products, and activities in the metaverse and among participants in the metaverse, whether it’s lending or deposits or insurance. And so, I would encourage banks to look at it more in terms of how their products and their expertise might be applied to some of the new financial services challenges that are popping up in the members.

[00:00:26] Becca Hoeft: Welcome to the NextGen Banker podcast, where we explore what’s next in banking and talk with the innovators responsible for creating positive change in the financial sector. I’m Becca Hoeft, Chief Brand Officer at Sunrise Banks. And with me today is friend and colleague Bryan Toft, Sunrise Banks, Chief Revenue Officer.

[00:00:47] Bryan Toft: Thank you, Becca. And today we have a special guest. Alex Johnson is the creator and writer of FinTech Takes, which is a publication where he writes about FinTech and the future of banking. And I have to say, I absolutely love this this publication. I learned so much every time I read it. And I’m really looking forward to this discussion.

[00:01:02] Bryan Toft: So, Alex, thanks for being here.

[00:01:04] Alex Johnson: Thanks for having me.

[00:01:05] Becca Hoeft: But before we jump in just a reminder to stick around, to hear our musical feature at the end of the episode, each NextGen Banker episode showcases one new musical artist from somewhere around the globe representing a wide range of different genres. So be sure to check it out.

[00:01:22] Bryan Toft: And before we dive into the interview, let’s take a quick look at Alex’s background. So, as I mentioned, Alex is the creator and writer of FinTech Takes. He also does a monthly podcast, also called FinTech Takes. And previously Alex was the Director of FinTech Research at Cornerstone Advisors, a consulting firm that provides revenue and performance enhancing results for financial institutions.

[00:01:42] Bryan Toft: Alex has more than 15 years of industry experience, market research, product strategy, credit analytics, and worked at FICO for over four years where he started, the FinTech Takes newsletter. And as I mentioned, I do love that newsletter. And if you’re interested in FinTech or crypto or future of banking, I definitely recommend following Alex on Twitter, which is @AlexH_Johnson.

[00:02:05] Bryan Toft: So, Becca let’s get into it.

[00:02:07] Becca Hoeft: All right. Let’s get into some questions here. You know, I have to ask Alex about your you’ve done a ton with FinTech. You’ve done FinTech research. How did you get into FinTech research? Like that, that seems like a very specialty area.

[00:02:24] Alex Johnson: It is. Yeah. And it’s funny I got into it before we had agreed that FinTech was going to be the noun that we used to describe all of this.

[00:02:34] Alex Johnson: I remember the very early discussions about like, are we capitalizing the T in the middle? Is it a noun? Is it an adjective? Can it be both? So, I I’ve been writing about the space for a long time. I actually started in a marketing role, writing a blog for a FinTech infrastructure company very early in my career before any of those terms were really used to describe what we did.

[00:02:57] Alex Johnson: And you know what I found at the time, I didn’t know anything I’d never worked in financial services or banking before. It was actually kind of my first job just altogether. And so, I really had to build my knowledge of the space from the ground up. And you know, for me, at least the thing that works really well is, if you’re going to write about something, you have to understand every element of it, right?

[00:03:21] Alex Johnson: You don’t necessarily need to have 20 years of experience to write about it, but you can’t kind of fake your way through writing about something. And so, my first projects were writing these deep, big, long, white papers that were 12, 15 pages on these to me at the time kind of obscure topics within financial services and technology.

[00:03:41] Alex Johnson: And to do that, I had to do a lot of research. I had to interview people. I had to take drafts into people’s office and walk out with a covered all in red and then like completely revamp what I was doing. And so, it was a lot of really hard criticism and just kind of learning block by block as I was going, but eventually settled into a good groove where I was much more efficient at writing about a space and sort of internalizing kind of what’s going on in it.

[00:04:08] Alex Johnson: And that now serves me very well because as we all know, FinTech is moving at a million miles an hour and there’s crypto and there’s DeFi and all these things. And so, the ability to learn quickly, write about it, get feedback on the writing and then kind of iterate from there has been kind of the central skill set that I’ve been focused on over the last 15.

[00:04:29] Becca Hoeft: Wow. And you’re right. The velocity by which FinTech has just taken over our industry has just been phenomenal. Let me ask you this. There’s been a lot of talk about NFTs or non-fungible tokens. So, I was trying to explain it to my husband. He’s a nurse he’s not in banking. And I was trying to explain that it’s, it’s kinda like a digital file, like a photo that could be trade traded or sold.

[00:04:52] Becca Hoeft: Do I have that right?

[00:04:55] Alex Johnson: Yeah, I think that’s exactly right. I mean, I think that the thing that’s hard about NFTs is that they’re sort of what is an NFT from a technology perspective. And then there’s what is an NFT in terms of the current use cases, right? And so, if you were to describe what an NFT is based on what it is today and what it looks like, they’re mostly just silly pictures of monkeys that are certain amounts of money.

[00:05:15] Alex Johnson: But to your point, I think the more important definition of an NFT is that it’s a way to prove ownership over a digital asset. Right. And so far, has been largely used for JPEGs and profile pictures and kind of silly things where, you know, most of this stuff tends to start off somewhat silly.

[00:05:37] Alex Johnson: But I think the reason people are excited about NFTs as a technology is that it gives us the building blocks to demonstrate ownership over a digital good or asset. And that can be anything. Right. And so, I’ve, I’ve seen lots of interesting early use cases around NFTs for slightly less silly things like instead of a profile picture on Twitter, it’s, you know the gear or items that you spent 500 hours in a video game collecting and curating.

[00:06:08] Alex Johnson: It’s like, I guess on a certain level, that’s still somewhat silly, but it’s a little bit more meaningful because it’s a representation of a lot of time that someone has put into something. Well, now you own that as an item, and you can transfer that into other games, and it’s connected directly to you and something that doesn’t belong to the publishing platform that created the game that belongs to the individual user who created it and put the time into it.

[00:06:29] Alex Johnson: So that’s, I think moving in a more meaningful direction. And then if you extend that out, even further, you can start to see really interesting applications of NFTs for things like, you know, the deeds for houses, right. Which if you’ve ever bought or sold a house, you know, that the way we record ownership of homes is straight out of the 18 hundreds, right?

[00:06:50] Alex Johnson: I mean, The, the office that are the clerk and recorder’s office that records all of those, you file a little thing. They update the deed. When I bought a house out here in Montana, I actually had to sign a form saying that I was going to be homesteading in that particular area of town, because that’s the requirements that’s on the books here.

[00:07:08] Alex Johnson: Cause it’s part of like the homesteading act. So, there’s all these sort of antiquated ways that we record ownership. You could do that much more efficiently, digitally, and NFTs are a way that you could theoretically do that.

[00:07:19] Becca Hoeft: Interesting. And I’m so glad because, you know, I was just at South by Southwest earlier in March this year.

[00:07:27] Becca Hoeft: And ripple was there, and they were showing an NFTs, and you could get an avatar made in an NFT and put on the block chain and it was, it was you. Right. And it was something that could be treated or sold. And it just seemed a little weird. So, the, the use cases that you’re talking about, like, you know, deed for a house makes a lot of sense.

[00:07:50] Becca Hoeft: Let me ask you this though. Do you think NFTs do you think it’s; we’re going to see more of it because of the dawning of the metaverse. I mean, this is where I see this application possibly going as well. And I’m curious what your thoughts are on that.

[00:08:06] Alex Johnson: I think the metaverse I wrote about the metaverse recently for, for my newsletter and sort of made the case that banks shouldn’t build branches in the metaverse quite yet, because we’re still a little early, but I did a lot of research on the metaverse for that piece.

[00:08:19] Alex Johnson: And what I found was that, you know, the best definition of the metaverse is simply a more immersive version of the internet that we all have today. Right? And so, I think the, the general prediction is that over time, the technologies that we get just tend to become more immersive and a better experience.

[00:08:39] Alex Johnson: You can think about the way that televisions have improved over the last 20 years, right. They’ve gone from weighing a thousand pounds and having really pretty poor picture quality to these ultra-high definition, super thin screens that we have today. So, technology. Tends to improve. And in the same way, I think the way we experienced the internet will improve and become more immersive.

[00:08:59] Alex Johnson: And will include special elements with virtual reality and augmented reality. So, I think all of that is just the general march of progress. Where the NFTs come into it, I think is that the more immersive the internet is the more, again, we’re going to have digital representations of different parts of our lives that go with us into the metaphors.

[00:09:21] Alex Johnson: Right? So that could be our profile picture. It could be a record of real-world objects that we own. It could be unique, unique, digital objects that we gathered or found or one or earned or at our jobs or whatever. And. NFTs allow us to demonstrate verifiably ownership over all of those assets and make them interoperable across all the different parts of the internet.

[00:09:47] Alex Johnson: Because obviously, you know, all of the companies that sort of dominate the internet today, apple and Google and Facebook and Amazon, they’re trying to dominate this next version of the internet and the metaverse. And one thing that’s really important is being able to move between different corners of the internet or the metaverse and be able to take your stuff with you. And I think that’s where NFTs come into it.

[00:10:09] Bryan Toft: Yeah, I’ve heard that with a, you know, if you were to purchase your own quote unquote property in the metaverse, you could hang your NFV is outside your house in the metaverse and show, hey, this is what I own. And almost like bragging rights in some ways or a billboard in some ways.

[00:10:22] Bryan Toft: You know the other, the other thing is with the metaverse, you know, everybody heard about, you know, Snoop building, Snoop Dogg, building his own piece of the metaverse and someone paying a whole bunch of money to be, you know, next door to Snoop Dogg. And so, you know, with that kind of, you know, the metaverse in your article about the metaverse, although banks shouldn’t build branches there today was your take on it.

[00:10:43] Bryan Toft: How do you see banks interacting with the metaverse if at all?

[00:10:48] Alex Johnson: Yeah, that’s a great question. And actually my colleague from Cornerstone who I worked very closely with Ron Shevlin wrote a really interesting article, addressing that exact question in Forbes and his take, which I generally agree with is that you know, Banks shouldn’t necessarily open branches, meaning like virtual experiences in the metaverse necessarily, although some already are doing that, but you know, there are lots of financial services opportunities within the metaverse.

[00:11:13] Alex Johnson: Right. And one of the ones that Ron pointed out that I think is a good example is commercial. Right. Banks are very, very good at commercial lending as any bank executives that are listening to this know it’s an extremely hard and sort of exacting thing to do. It’s a bit of, a bit of an art and a bit of a science that takes a lot of experience to do well and to do an in a risk-controlled way.

[00:11:36] Alex Johnson: And a lot of the principles of sort of real-life commercial lending apply pretty closely to metaverse commercial lending, right? Where you might want to help someone buy a property, or you might want to invest in a commercial enterprise. That’s going to be developing land or businesses in the metaverse. Lot of the same kind of muscle memory that you’ve built in commercial lending applies there, and there’s absolutely a need for financing and for liquidity and some of these new areas.

[00:12:03] Alex Johnson: And so, I think that banks should look at the, metaverse not so much as a new distribution channel where you want to build branches or try to form communities or, you know, try to be a. You know, the guy who’s, you know, dressing up like a kid, trying to pretend that they’re cool and sort of hiding amongst all the cool kids.

[00:12:21] Alex Johnson: Like that’s probably not a good or sustainable strategy, but there’s absolutely a need for financial services, products, and activities in the metaverse and among participants in the metaverse, whether it’s lending or deposits or insurance. And so, I would encourage banks to look at it more in terms of how their products and their expertise might be applied to some of the new financial services, challenges that are popping up in the.

[00:12:47] Bryan Toft: Yeah, that’s interesting take because you know, commercial lending, as you know, usually takes a historical, you know, financial trend in order to assess future repayment.

[00:12:58] Bryan Toft: And we don’t have that today in the metaverse. So, it’ll take some real forward-thinking banks to jump into that you know, to, to show how that repayment can happen. So that’ll be interesting. Is there anything, you know, just last thing on the metaverse, is there anything or anyone that’s there now that you can think of that might be interesting to listeners, whether it’s banks or people or businesses that they might know.

[00:13:18] Bryan Toft: I mean, is everybody, is there a use case you can think of that might be worth talking about?

[00:13:24] Becca Hoeft: And frankly, how do I get there? Cause I think a lot of us have heard the men rivers, but like, it’s like this big dark secret and I don’t know which door to knock on.

[00:13:33] Alex Johnson: That’s such a good question. Right? So, I’ll, I’ll answer that one first.

[00:13:36] Alex Johnson: So over Christmas this year, I like many, many other people in the U S and around the world got Oculus quest headset made by Facebook for a present, which was great. And so, I entered the metaverse for the first time and Oculus has an app that I guess Facebook built called horizon.

[00:13:55] Alex Johnson: And it’s a virtual world. Right? And so, you put on your headset, and you go to the horizon app for lack of a better word. And it’s pretty interesting cause you have an avatar and you kind of walk around and by walk, I mean, you sort of point the direction you want to go and then your avatar moves forward, and everyone are the kind of these like dis-embodied, floating personas in this kind of virtual space.

[00:14:17] Alex Johnson: And then there are lots of different rooms and experiences that you can go and do. So, for example, one of the ones I did was they have NBA basketball games in the metaverse and go, and you can enter in, and you enter into sort of a virtual stadium, and then you can sit virtually courtside and watch the game.

[00:14:35] Alex Johnson: And it’s. Quite honestly, a pretty immersive experience. It’s not perfect, but it’s also a little bit weird because there are like other virtual advertisers sitting next to you who you don’t know, and you can kind of look at them and they can look at you and you can raise your little disembodied hand and give them like a high five and stuff.

[00:14:52] Alex Johnson: So, it’s really, it’s totally weird. And it reminds me a little bit of like, my son, who’s four, like learning how to socialize at school for the first time. It’s like, I’m relearning how to socialize in the metaverse. So, there’s lots of these little digital worlds that are being built. There are other ones like descent land and the sandbox, and a couple others that are just essentially websites, but they’re, they’re virtual reality or sort of immersive ones where you create a persona.

[00:15:18] Alex Johnson: And then you sort of walk around and some of them are compatible with VR headsets, like Oculus, some you have to access through your computer. So that’s how you enter the metaverse. In terms of like opportunities or examples, you know, quite honestly, I think it’s very, very early still. I think the thing I would give people advice on it.

[00:15:36] Alex Johnson: You know, go to the biggest sort of existing metaverse apps or websites or, or areas of the internet, create an avatar and just go walk around. And I think what you’ll find is that they’re a little bit like Las Vegas a hundred years ago where it’s like, it’s mostly empty space and mostly the desert with like maybe one casino or one little thing over here.

[00:15:58] Alex Johnson: Like they’re, they’re empty for the most part. There’s not a lot of people there yet. And so, I think you’ll see interesting examples of kind of the glimmers of promise there. I think probably the, the most tangible example of something that’s like real in the metaverse today is the gambling and sort of online gaming.

[00:16:16] Alex Johnson: That’s a pretty big established use case within the metaverse. But beyond that, there’s really not a lot there yet. It’s just sort of speculating on what could be there.

[00:16:24] Bryan Toft: Shifting to your most recent article in FinTech takes about hands on the wheel money. I loved this article, and you know, in the world that’s speeding up automation and everything.

[00:16:33] Bryan Toft: You kind of make the case that no, actually in money you know, a lot of people, especially younger generation really want their hands on the wheel. They want to be able to make the decisions themselves as opposed to putting it into an index fund and letting. They want to jump on the next, you know, game stop, wherever it might be.

[00:16:48] Bryan Toft: So, I wanted to just give us a, your summary of hands on the wheel, if you can add to that a little bit. And the second part of that is can hands on the wheel money, that theory, how can we, how can that improve financial wellness, you know, Sunrise Bank, so about improving or innovating financial wellness.

[00:17:05] Bryan Toft: How does hands on the wheel money in that concept play into financial wellness?

[00:17:11] Alex Johnson: Yeah, really good question. So first a definition and you did a good job defining it. It’s basically the opposite of self-driving money, right? And so, if self-driving money is intelligent, automated, hey, tell us where you want to go.

[00:17:24] Alex Johnson: Give us your goals, set your allocations, and then just take your hands off. Don’t look at it. Don’t worry. We’ll drive you in the right place. It might take a while to get there, but we’re going to pick the most optimal path. And when you look up a year from now five years from now, 10 years from now, you’re going to be way better off financially.

[00:17:39] Alex Johnson: Because we’ll have put your money in the exact right places, we’ll have allocated into the right investment opportunities. We’ll have set aside the right portion per savings will have helped you pay down debts that are not productive for you. So on and so forth. And that’s the way that I think we’ve all sort of conceived of the future of financial services.

[00:17:55] Alex Johnson: But what I’ve noticed is recently there’s a whole new class of sort of FinTech apps and features that are coming out that are the exact opposite of that. They’re complicated. They’re sort of difficult to use. They’re really engaging and really fun. They offer the potential for much sort of higher immediate return.

[00:18:16] Alex Johnson: But that comes with a lot of additional risk. So, it’s more speculating than it is investing, so to speak. A lot of it, as you might imagine, sort of revolves around crypto, although certainly there’s like meme stocks and fractional stock investing as well. So, all of these capabilities are kind of getting bundled into these new experiences that really require as, as the name suggests, for consumers to keep their hands glued to the wheel at all times.

[00:18:39] Alex Johnson: And it’s a fun experience. It’s a potentially really rewarding experience, but it’s not one where you can even take your eyes off the road for a second, because there’s a lot of risk and a lot of things that you’re navigating. And I think that the question you ask is exactly the right one, which is how does that square with financial health?

[00:18:54] Alex Johnson: And I think in general, what has been true, sort of axiomatically within financial services for a long time, you want to invest over the long run. Right. And so, whether it’s investing in mutual funds or saving for retirement or setting aside a little money for an emergency fund, or, you know, even like investing in individual stocks, you want to be diversified and you want to try to sort of have a long-term thesis or approach and not touch the money to.

[00:19:22] Alex Johnson: What’s happened. I think recently is that younger consumers, gen Z in particular, have sort of come to feel like the market is not set up for them to succeed long-term. And there’s a number of these sort of macro-economic factors that seem to be sort of influencing younger consumers views of financial services.

[00:19:44] Alex Johnson: Obviously a lot of these consumers were kids or teenagers during the last big recession that we had. They sort of got to see. Adults in their lives or maybe they were dealing with it themselves. And a lot of the sort of stimulus and money printing and now inflation. A lot of these things seem to be sort of coloring their viewpoint, that they can’t just trust that if they put their money in these long-term investments.

[00:20:09] Alex Johnson: The things that are going to go up and they’re going to be in a better place. And so, what that’s caused them to do is be much more sort of risk on within their approach to financial services. And so, the way they view it as I am okay trading my time and being really actively engaged if I can have a set of opportunities laid out in front of me for getting life-changing money quickly.

[00:20:33] Alex Johnson: And I understand that there are risks. I understand that there’s volatility. I understand that cryptocurrency goes up, it goes down. I understand that NFTs are a risky investment category, obviously, but they’re really drawn to that sort of get rich quick element to it partially because it’s fun and their friends are doing it, but also partially, because they view it as the best way to sort of break out of their ladder on the socioeconomic ladder and get to a higher level.

[00:20:59] Alex Johnson: And I don’t know that that’s a hundred percent a valid thing to believe. I think that, you know, younger consumers don’t always have the benefit of sort of the historical perspective that, you know, the, the market moves in cycles and it’s going to change again in the future.

[00:21:13] Alex Johnson: I don’t know that they quite appreciate that, but when it comes to financial health, I think the thing that banks need to recognize is there’s a fine line between being sort of a good steward of someone’s money and trying to steer them towards those long-term investments and ways that consumers can kind of build wealth long-term while also recognizing the anxiety that younger consumers in particular have around maybe not being able to build wealth and trying to present other options.

[00:21:44] Alex Johnson: And, you know, we see at when I was doing research at cornerstone, one of the things that we asked a lot about was, you know, bank executives. Are you going to offer cryptocurrency investing as a capability to your customers? And most of them tended to say, no, and a lot of times, the reasons that they said no, seem to have more to do with their personal attitudes about crypto than it did the relative risks and rewards of it.

[00:22:07] Alex Johnson: And obviously that’s a fine line to walk, but I think it’s really important to understand what’s motivating these younger consumers to take these risks and to kind of go towards hands on the wheel money and away from this self-driving money comes up. So

[00:22:20] Becca Hoeft: I’m really glad that you brought up crypto because during the pandemic, I used it as an opportunity to learn more about digital currencies.

[00:22:28] Becca Hoeft: I didn’t take up crocheting. I took up crypto instead.

[00:22:33] Becca Hoeft: So, I signed up on Coinbase, you know, how they have those little videos that you can watch to do the little education piece. And I started buying, I bought a therian, polka dot, one inch, you know, some winners and losers. And I saw what a lot of early Bitcoin users also saw in that I’m rich one minute, and guess what? The next minute I’m not.

[00:22:55] Becca Hoeft: And so, with. So, this is a couple of layered question here for you, Alex. But with crypto being a component of this hands on the wheel money concept, number one, do you think digital currencies will ever be less volatile? What do you think regulators need to do and how are banks reacting to digital currencies?

[00:23:16] Alex Johnson: Yeah, really good questions. So, I think on the volatility front, I think that it’s ultimately going to sort of get split out into two categories, right? So, there’s going to be cryptocurrencies that are designed to provide other functions besides acting as a currency. Right. And so, you know, Bitcoin is kind of digital gold.

[00:23:37] Alex Johnson: There’s a fixed supply. There’s a lot of institutional investment in it. It’s probably over the very, very, long-term going to go up the way that gold has. But even if you like zoom in on gold, In shorter periods of time. Gold is very volatile, too, right? Like over the course of human history, gold goes up and it goes down gold doesn’t tend to be a particularly good hedge for inflation in the short term, even though long-term, it tends to sort of track.

[00:24:00] Alex Johnson: And so, you know, Bitcoin is going to sort of always function that way. Ethereum is going to sort of function as the native currency, that a lot of these apps and other experiences are built on top of. There are a number of other sorts of DeFi currencies and protocols that you know, might try to supplant or replace or augment Ethereum.

[00:24:20] Alex Johnson: So, I think there’s going to be different currencies that provide different functions. All of them, I think will be volatile to an extent based on the activities that are happening around them. And then separate from all of those digital currencies will be stable coins, right. And stable coins, I think already are fairly stable and not volatile because of obviously their nature, which is that they’re backed one-to-one against some type of farg real-world asset.

[00:24:45] Alex Johnson: Usually a dollar that’s sitting in a bank account somewhere, although not always. And. You know, stable coins, I think because of the function they’re meant to provide, which is a stable place to keep your money before you go into those other more volatile currencies. Stable coins, I think will become a very, very stable, not very volatile place to keep your money.

[00:25:05] Alex Johnson: Some of them may be continued to offer by private companies. I do think it’s very likely that the different central banks around the world will also be issuing a digital currency that will kind of play in that game as well. So, I, I think you’ll end up with sort of two different camps.

[00:25:20] Alex Johnson: One that’s very volatile and one that’s not. As it relates to regulation, I think that, you know, there’s a whole bunch of different potential angles to look at it. And I think regulation sort of needs to attack it from all angles. Right. I think generally speaking there hasn’t been nearly enough regulation and regulatory clarity in crypto.

[00:25:38] Alex Johnson: And I think even if you talk to, you know, companies or founders that are building in the crypto space, they’re just begging for more regulatory clarity so that they can know what they can and can’t do. And I think clarity needs to come from an investor perspective. So that’s everything that the SEC is doing and will continue to do.

[00:25:55] Alex Johnson: I think it needs to come from a sort of banking perspective, whether it’s the OCC and the CFPB and whoever else so that they can kind of help consumers understand, you know, here are the here’s what a bank account is. Here’s what, something that looks like a bank account, but it’s not the same thing.

[00:26:11] Alex Johnson: Here are the different consumer protections that apply to each one. You know, providing more consumer education and helping, you know, crypto companies that want to offer bank like products, know what regulations they have to adhere to. And then I think from a sort of larger macro perspective, like I was saying before, central banks need to get into it and start figuring out how they want to deal with stable coins how they want to approach questions around money laundering and KYC.

[00:26:38] Alex Johnson: Yeah, which is a huge area of concern, especially now with all the sanctions that have been placed on Russia. So, I think there are a number of different avenues where regulations need to sort of converge and eventually, I think they will, but you know, we have to remember that, you know, in crypto, you know, crypto makes FinTech looks slow by comparison, right.

[00:26:58] Alex Johnson: It moves incredibly fast, and she has a tough time keeping up with FinTech, let alone crypto. And so, it’s going to take a while for regulators to fully wrap their arms around everything that’s happening and that that’s going to be a struggle that plays out for a while.

[00:27:11] Alex Johnson: And then from a banking perspective, I think that you know as I was alluding to before, first thing for banks, I think is they need to get over themselves as it relates to crypto. And just explain that this is a thing it’s a risky investment. You know, banks already enabled their customers to invest in lots of risky assets. Crypto is just another risky volatile asset.

[00:27:30] Alex Johnson: And so, you want to provide appropriate safeguards. I think you want to make sure that you’re going into it for the right reasons. I think sometimes you see FinTech companies that go into crypto more so because they want to have another engaging, fun part of their app that keeps customers coming back.

[00:27:47] Alex Johnson: That’s a bad reason to get into cryptos. I think you want to make sure you’re doing it for the right reasons, wrapping the right safeguards around it. Customers are asking for crypto investing, according to surveys, I’ve seen, they want to get it from their banks. That’s where they’d prefer to get it from, but they will go elsewhere if they can’t.

[00:28:02] Alex Johnson: And so, at a minimum, I think you need to start with enabling crypto investing and then starting to feel out what other use cases might make sense. You know, for example, there are a lot of younger people who are sort of cash, poor, but crypto rich and those people want to buy houses. They want to buy all kinds of other assets.

[00:28:22] Alex Johnson: They don’t necessarily want to sell their crypto in order to do that. And so, can you have a crypto backed mortgage or a crypto back installment loan of some kind that enables those customers to get some cash without necessarily liquidating their assets upfront? There’s lots of products that you can build in this space.

[00:28:38] Alex Johnson: It’s just a question of, you know, which one’s sort of overlap the most with what your customer is

[00:28:44] Becca Hoeft: So, it’s interesting. You mentioned buying a home with crypto. I have a friend of mine out in DC, who he was literally the first person in the country to buy his house with crypto. It was really cool to hear that story from him.

[00:29:00] Becca Hoeft: But you said a word that I don’t want to, I don’t want to not talk about you said DeFi or decentralized finance. Can you explain a little bit what that is for our listeners?

[00:29:11] Alex Johnson: Yeah, absolutely. So decentralized finance, which you in the crypto world tends to get contrasted with traditional finance or TRAD5, which is a terrible acronym and we should never use it, but you hear it.

[00:29:22] Alex Johnson: And basically what, what DeFi or decentralized finances is the answer to the question: how would you build bank products or financial services products if you built it natively on crypto infrastructure, rather than building it on kind of traditional bank rails and bank infrastructure. So, FinTech, I think in, in sort of this lens is seen as a nice front-end but built on top of sort of traditional banking infrastructure and regulations and all that kind of stuff.

[00:29:54] Alex Johnson: And in the world of sort of decentralized finance, there are a lot of people who think FinTech is great, but it didn’t go far enough because it’s still stuck us with this sort of infrastructure under the surface. And as we all know, working in banking, there’s a lot of stuff under there and not all of it is new.

[00:30:11] Alex Johnson: Obviously ACH has an incredibly old system for money movement. The credit bureaus are these large legacy organizations that are really good at some things, but not so good at other things. And so, the question in decentralized finance. If we just built all of that brand new from the ground up, what could we do with that?

[00:30:27] Alex Johnson: And you know, it’s interesting because there are definitely pros to building it brand new. So for example, you know, one of the things that’s very common in decentralized finance is the ability as a consumer to basically loan out your cryptocurrency for others in the ecosystem to use, to go off and invest or speculate and sort of the cryptocurrency markets and in exchange for providing that liquidity, for staking that liquidity, you can get interest back from those investors.

[00:31:01] Alex Johnson: And those interest rates dwarf, what you can get as a consumer in the banking space. Right? So instead of getting maybe half a percent, probably less, you can go out and get 4%, 6%, 8%, 12%, 20% interest by sort of lending out your cryptocurrency or staking your cryptocurrency in these different liquidity pools.

[00:31:23] Alex Johnson: The challenge, of course and this is why traditional banking infrastructure is good and building on top of traditional banking infrastructure, as good as all of that stuff, I just described where you might go out and get those interest rates. None of that is FDIC insured. None of it sits in a real bank account. And so, you’re running a lot of risk there as well.

[00:31:40] Alex Johnson: And there’s no recourse. So, if you make a mistake or if you accidentally send cryptocurrency to someone who shouldn’t have had it, or who was pretending to be someone else, which happens all the time, there’s no recourse to get it back. It’s just gone. And so, you know, the, I think what we’re learning with all these experiments and decentralized finances, what are the things that crypto technology, blockchain technology might enable us to do better or more efficiently?

[00:32:07] Alex Johnson: And what are the things in traditional banking? That we maybe undervalue that work really well. And the consumers really like. That we need to figure out some way to carry forward into this new future, because I don’t know about you guys, but for me, the job number one of my checking accounts is the money needs to be there tomorrow.

[00:32:24] Alex Johnson: And if it’s not doing its job and so, like, that’s a pretty foundational element to a checking account and I’m not going to put my money into a decentralized finance checking account until it can do that job. And then we can talk about interest rates and other things. So, there’s lots of interesting kind of collisions between those two worlds happening right now.

[00:32:42] Bryan Toft: Yeah, it’s, it is interesting the way that you talk about the younger generation wanting hands on the wheel money. Yeah. Accepting risk, accepting volatility. And yet most cryptocurrency purchasers would like to buy it from their bank, which is known as a trusted source, you know, and sort of somewhere you can rely on your money being there the next day. And so, there’s two things at play here. It seems like in that is going to be interesting to see how that plays out the volatility, and yet we also want the safety.

[00:33:13] Alex Johnson: Yeah, no, exactly. I mean, I think those that’s, that’s the constant struggle. Right. And I think that the, the X factor, the thing that we don’t talk about enough is time.

[00:33:22] Alex Johnson: Right. So, you know, the, the analogy I sort of go back to for my own personal life is in my family, I used to be the person, this is when I was a teenager and a young adult, I used to be the person who knew everything about consumer electronics. Right? So, like, if you were buying a new TV or a computer or anything, I could tell you what model to get.

[00:33:42] Alex Johnson: I could advise you on the pros and cons. And so, in my family, I sort of became the person that everyone turned to for that. And you know, the other day, someone in my family asked me to recommend some product. I can’t remember what it was. And I was like, honestly, I don’t know. I have no idea. And what I realized was the thing that had changed in my life is I didn’t have any time.

[00:34:01] Alex Johnson: Right. I used to spend all this time reading technology reviews and keeping up with what apple and Samsung and all these different companies were doing and experimenting with all those technologies. Now I have two kids. Right. And I have, like, I swear I have a half hour of free time, a day, right. To like allocate to all the things I’m interested in.

[00:34:18] Alex Johnson: And so, I, I just can’t do that anymore. And I think that in financial services time plays a really important role. If you have a lot of free time, you can afford to go figure out. Okay, I’m going to buy this crypto over here. I’m going to stake it over here. I’m going to get this interest rate. I’m going to monitor this discord channel to make sure that nothing funny is happening.

[00:34:38] Alex Johnson: If I see any risks, I’ll pull my money out immediately. Like you can really have your hands on the wheel to people who have kids or to adults who are busy in other aspects of their lives. You don’t have that. Right. And so, then that’s where trust comes in because now, I want to outsource that to someone who I can trust.

[00:34:54] Alex Johnson: Now, maybe I won’t get quite as good a return. Maybe I won’t be the person people can turn to for advice on which cryptocurrency token to, to buy this week. Like I’m not going to be that guy. But I can trust that my money is safe. It’ll be there. And it’ll slowly kind of inch up over time. If I put it in the right places and invest with the right people.

[00:35:11] Alex Johnson: And as an adult who is a very, very, very busy, suddenly, that’s not what I want. So I think that’s one thing that gen Z is going to discover about themselves as they get older is the amount of free time you have changes in your life and when it does, what you care about and what you choose to spend time on changes to and money usually doesn’t stay at the top of that list.

[00:35:32] Becca Hoeft: That was part one of our podcast with Alex Johnson stay tuned for part two in the coming weeks. Alex had some really insightful thoughts on crypto, NFTs and the metaverse in this episode. And what a great conversation. In part two, we’ll focus on banking as a service, the future of brick-and-mortar branches and more. Be sure to check it out.

[00:35:57] Becca Hoeft: For this episode’s musical feature we’re showcasing The Choir. The Choir is a Nashville based Grammy nominated alternative rock band whose music has been described by the Los Angeles times as magical songs that combine strains of murky psychedelia with pure pop. Here’s one of my favorites, Sunshine Girl by The Choir.

(song plays)

[00:36:19] Becca Hoeft: That was Sunshine Girl, by The Choir. You can find the choirs music on Spotify, apple music, and most other streaming platforms. If you would like your music featured on the NextGen Banker podcast, email David@nexgen-banker.com with the link to your music and website.

[00:37:24] Becca Hoeft: Thanks for listening to the NextGen Banker podcast. We’ll see you next time.