Featured Guest: Jason Henrichs
Jason is the CEO of Alloy Labs, a consortium of community and midsize banks working together to drive innovation, develop partnerships and make strategic investments. He co-hosts Breaking Banks, the largest fintech podcast in the world. Jason is a frequent speaker on financial innovation, regulation and compliance as competitive advantage. He served on the fintech advisory boards for the City of Chicago, the AARP, the Financial Health Network Innovation Lab, and the SXSW Accelerator. Jason teaches at the Pacific Coast Banking School, University of Wisconsin Graduate School of Banking, the Digital Banking School at the University of Wisconsin and Graduate School of Banking at Louisiana State University.
Jason stumbled into financial services in the early 90’s as a manufacturing engineer for Deluxe Corporation. Since leaving paper checks for the digital world, he’s been an entrepreneur, venture capitalist and head of innovation for a public company. In 2008, he co-founded PerkStreet Financial, one of the first challenger banks, helping pave the way for new partnerships between traditional financial service firms and startups.
Jason and his wife are active angel investors in companies that include mobile savings, B2B payments, international payments, compliance, insurance, investment management, fraud detection, analytics and back office tools.
David Reiling is an innovative social entrepreneur focused on empowering individuals through community banking and financial technology. David is the Chief Executive Officer of Sunrise Banks and has been in the community development banking industry for more than 25 years.
David Reiling: Welcome to the NextGen Banker podcast, where we explore what’s next in banking and talk to the innovators responsible for creating positive change in the financial sector.
I’m your host, David Reiling, and I am super excited today to welcome the one, the only, Jason Henrichs as our guest today. And so, Jason, thanks very much for being with us.
Jason Henrichs: I’m not used to being on the other side of the microphone for something going on Provoke. So this is fun and fascinating.
David Reiling: It’s gonna be great today.
And you know, for our global audience out there who may not know Jason, I know it’s rare, but it could be possible. Jason is an expert in the field of FinTech and all things FinTech. He is an experienced FinTech founder, venture capitalist, executive board member, advisor, angel investor. You know, you name it he’s there.
He also currently serves as the CEO of Alloy Labs Alliance, is the managing director of FinTech Forge and is the chairman of FinTEX in Chicago. And lastly, on top of all those duties, as Jason just referenced, he is the host on Breaking Banks, the number one global FinTech radio show and podcast.
And so, Jason, I’m gonna just kind of dive right in. I’m excited to talk to you. My curiosity is kind of all over the place today. So I’m going to start with somewhat of a softball and then we’ll dig in from there.
FDIC Chairwoman McWilliams testified to the House Financial Services Committee recently and said that rapid changes of the last year have amplified how critical technological innovation in the financial system is empowering people’s lives.
So FinTech, is it changing finance and banking in a good way? What do you see out there?
Jason Henrichs: Oh, I mean, it’s definitely changing it. Can I stick with that one as the definitive? It is definitely changing. Now is it changing for good? I’d say the answer is both yes and no. And to be determined, let me break that down.
Where is it, you know, working for good? One is it creates greater accessibility on an unprecedented scale, right? Everything from, if you look at how technology played such a vital role in the provision of the PPP, right? The global audience that was the U S government bailing out of small business.
And so it really allowed community banks to be able to serve their communities in a way, you know, by using technology, you can’t throw enough bodies at it. It allows the provision of financial advice, sophisticated financial advice that you might not be able to get if you know, you don’t have that high level of investible assets.
Where is it, you know, doing things that might be a little bit murkier? One is, and this is let’s start with the malicious piece of it is one is actually, as we’ve gone more digital, it opens up new vectors for fraud. And a lot of the movement of money in support of everything from terrorism to, illicit activities, you know, and that’s definitely on the bad area.
And then where I’d say we’re entering into like the grayer areas is, you know, sometimes we’re not fully understanding the implications of what’s taking place, what’s going to happen. Let me give an example. California recently ruled that one of the neobanks could not use bank in its name anymore. One might say, well, I mean, what’s the difference for all intents and purposes?
What they’re providing is a bank like service. Does the consumer really care? Well, you know, the consumer doesn’t care until they actually care and because they believe them to be a bank, but what are the full implications, you know, of that is now we’re getting into the murky area. And so I’d say that’s the area that I wrestled is how do we actually make sure that FinTech is being used for good when the long-term consequences aren’t immediately apparent in terms of what those implications would be. .
David Reiling: Yeah, and that’s a great kind of holistic answer to it. And it’s one of the, I think issues that banks looking to partner with fintechs certainly have to wrestle with. There is the good, and I can give you a statistic from the standpoint of Sunrise Banks. In 2020, we originated over 307,000 credit builder loans to help people save and build their credit history.
That’s more than three X what it was in the previous year in 19, but at the same time, we have the systems both to handle the volume, as well as the compliance oversight that’s necessary. And, that’s where it’s really important to, if you’re thinking about being, if you’re a bank and partnering with fintechs, Hey, the values alignment at the beginning is very important, but have those systems, policies, procedures, and the people to oversee it.
Jason Henrichs: Well, and can I build on that for a second? Here’s one of the, the other beautiful powers of technology related to this as part of Alloy Labs, we’ve partnered with a reg tech company and what the reg tech does several fold, but one of my favorite parts of it is they’ve developed a behavioral based approach to measure and culture of compliance, because you can have the best policies and procedures, you know, the most expensive law firm, making them pristine that sit up on a shelf, but if your culture isn’t right, and that alignment from a principles, right.
And I know you believe strongly at Sunrise and, you know, principles and alignment of vision and values, but how do you actually measure that without it feeling like you know, oh, you just don’t like me or you just don’t feel good about this, but in a quantitative, you know, think of it as it’s almost like a personality test that organizations take and you can break it down across your 13 attributes and seven outcomes, but that’s without technology, you can’t do stuff like that.
Right? The manual process, the digitization is not just about efficiency. It opens up wonderful new opportunities.
David Reiling: Yeah, definitely. And while you mentioned Alloy Labs, I just want to bring this up to the audience as well. What is Alloy Labs? How would you describe it?
Jason Henrichs: We’re a consortium of over 50 community banks and mid-size banks that work together to drive innovation, adopt new technology and make strategic investments.
And part of the reason we’ve come together is these tend to be the more innovative banks that say, Hey, you know, on our own, we cannot move fast enough in a world, say to compete with a challenger bank that just raised $200 million in the heart of Silicon Valley, right. It’s not just about keeping up digitally.
We want to find ways to differentiate and better serve our communities. And to do that without infinite resources, we believe cooperating is the way to go. And so by working together, we can accomplish so much more and drive real outcomes for the customers and the communities, which is what we care most about.
David Reiling: Yeah. And doing a fantastic job. And I love to just riff off of that because you wrote in an email to Alloy Labs members, disclosure, Sunrise is one of them, about Jamie Dimon’s 66 page letter. And there were two things in there that I just want to touch on. And one is the fear, I think, if I could describe it that way, that Jamie Dimon of Chase has of fintechs and of financial technology in that there’s no speed fast enough. So let’s just talk about the speed of FinTech. How do you frame that up for us?
Jason Henrichs: I mean, this goes back to some of the gray area. Part of my fear of the speed of FinTech is going so fast we’re not always aware of the implications, but you know, I’ll call out, and this might be on the bold and crazy side of things, but you know, when we look at what is the next five years going to look like? Which, you know, in FinTech time is almost infinite space, but I think we are going to see a fundamental shift away from banking as we traditionally have thought about it. And I’m not saying banks are going away and they’re all going to be Silicon Valley, New York based FinTechs.
I’m going to say the face of banking is fundamentally going to look more different in the next five years than it has in the previous 500. Maybe even all the way back to the Medici. Right? , But that shift is going to take place. And then before the fintechs, you know, and I started one of the first challenger banks in the world back in 2008, right.
Saying, Hey, we’re about to go you know, destroy banking as we know it, you know, I think its time has coming. But I don’t think they should declare victory just yet, because I’d say in the next five years in the speed of FinTech, you know, Angela Strange and Andreessen Horowitz had wrote this great blog post around, you know, in the future, every company is going to be a FinTech company.
I’m going to go a step further and say 10 years from now, there’s not going to be a FinTech company. Because FinTech is fundamentally going to go away that we’re going to see embedded finance and embedded FinTech in the experiences of what we do. What we used to call financial technology as a transaction layer is going to be gone.
David Reiling: Wow. So taking that line if I can, and right now there’s probably a bunch of bankers who are losing their mind that are there. It’s like, well, how do I even participate in this and be relevant? So one of the things that you wrote in the letter, which I really thought was insightful was really around Darwin’s theory in that fittest didn’t mean the strongest will survive, but it meant that Darwin meant that it was the fittest in terms of the most adaptable. So maybe it’s not the big that eat the small, but it’s the fast that eat the slow or something of that nature. Is that an accurate type of depiction?
Jason Henrichs: It is. I do need to give credit, the best part of that letter was actually written by our Director of Insights, Amber Buker, cause she’s a much better writer and anything you see or hear from me that sounds reasonably intelligent, it came from Amber. And you know, part of what we talk about in this evolution is often we think of evolution as a straight line.
That’s actually not how it works. You know, the famous picture that, you know, like the fish ending up on land and eventually the Neanderthal, you know, and becomes a human, right. It tends to actually, you know, while there is evolution that goes that way, it tends to happen in bursts. Right. So think of what happened when the dinosaurs became extinct, right?
Like there is this theory around, there are big bursts of change. It’s very dramatic change. And it’s those things, not necessarily the ones that were evolving on that straight line that are going to survive. It’s the ones that actually most rapidly adapt to the new situations they find themselves in.
And this is where banks actually, by the way, have a huge opportunity to participate because they have a lot of real benefits to what they have, the first of which is they actually have customers and revenues and profits. But if they stay stuck on this linear version of evolution, can I just get a little bit more efficient, grow a bit more, and maybe I launch a digital bank.
They’re going to become extinct.
David Reiling: Definitely. It’s the difference, really, I think of, you really have to have that abundant mindset. It really doesn’t do you any good to think incrementally thinking exponentially, or just say, what does our bank look like 10 times the size? It makes you erase, everything that you have and reconstruct it.
So it’s like the Indy car of today. If you’re not familiar with Indy car racing, they rebuild the car every year because of technology and design changes. And so to be competitive, you got to keep changing. So with that, in that kind of evolutionary spirit, I want to talk about the next generation of a banker and that might only be in the next three years or five years.
If we used that, you know, evolution of man chart, if you will. So let’s paint a picture for the audience. The next gen banker, who is she? Or he, you could pick a pronoun, you know, what are their characteristics? Maybe where are they? What mindsets do they possess? What rings a bell there?
Jason Henrichs: Well, the number one, and I’ve been beating this drum for a while, and I’m excited that the banking schools that I teach at, first with Louisiana State University is now actually a required class, is the banker of the future, which I’d say bankers, come in one of two flavors to get to the C-suite. They either come up through the lending, which I’d say is the most common, or, you know, somewhere along the side of like the risk, maybe retail risk, but I’d say 85, 90% have come up on the lending side. The banker of the future is actually going to be a strategist.
And they need to first and foremost, be learning about strategy, both classic strategy, and then forward looking and applying it. And you say, oh, you know, we already do strategy. You know, I had to take strategic planning back in, you know, graduate school banking or, you know, we’ve got a strategic plan it’s required by our regulators.
No, no, no. The emphasis is on plan, not strategy and strategy requires understanding where do you compete? What is different about your customers? What are your strengths and weaknesses and how do you actually leverage those to choose what you’re going to do? And equally importantly not do, because if you look at most banks today, regardless of asset size, regardless of geography, right?
Like a bank in Asia for the most part, it looks like a bank in the U. S. Looks like a bank. You know, different regulations maybe different metrics around things, but they take in deposits on one side, they lend on the other and they conduct transactions. And regardless of size we kind of do all things for all customers. That isn’t going to work in the future.
We have to rethink who do I serve? How do I serve them? What’s unique? Emphasis is unique, competitive advantage. And how I do that.
David Reiling: Absolutely. And, you know, I think some of those characteristics in Sunrise really just switched to this. We use a strategic foresight type of scenario plan. So if this happens, if that happens or this other thing happens, you have different views of strategy and they’re always constantly changing.
So the ability to check and adjust and adapt as you go really becomes that strategic lens in, in a quick one. It’s it’s a little, I always , phrase it for our leadership team here. The say, listen, you’re now in the fashion industry. And it changes every quarter. We need a new strategic plan,
Jason Henrichs: Except during COVID, in which case, like no one changed clothes. So, you know, a little static.
David Reiling: Just changed the top part. So anyway, yeah. So a dynamic banker of the future, that’s a strategist. Love it. So now let’s maybe step back just a little bit and talk about, I want to talk about the trends happening in FinTech, but I want to steer you, a little bit because FinTech, from maybe my lens really exacerbated some of the socioeconomic disparities out there, both on the health side, as well as financially.
Where do you see FinTech kind of weighing in on the, maybe the social justice or the equality side and or diversity equity inclusion? Is there enough activism there? Is there enough, maybe mindfulness?
Jason Henrichs: We did a Breaking Banks episode on this last summer. Kind of in the heart of this is should banks and FinTech companies have to have a social mission?
And it was an interesting debate because, you know, some took the view that said, well, no, you know, that’s really the customer’s responsibility, not ours, but I would say if you boil it back all the way to the first principles , you have to have that view because at the end of the day, whether you’re the bank behind the FinTech or the FinTech, when you were dealing with people’s money, you’re dealing with people’s lives.
And so that might not mean everyone needs to be involved in Black Lives Matter. But they do need to be involved in, if I have someone who is Black, their life matters in how I manage their money and create accessibility. And I make sure that there is no inherent bias in our processes. That that is part of my responsibilities.
So you might not want to wave it and flags, but at the end of the day, you can’t do away with this idea that we are a driving force in people’s lives and we need to bear that responsibility.
David Reiling: Yeah, definitely. And it is coming from all sorts of angles as being a CEO of a bank. It’s not only coming from our customers and community, but also our employees.
And so looking at every facet, every policy that we have to making sure that it is equal and fair, just as a start, as a minimum is really what we’re being held to.
So now, Jason, I’m gonna take a left turn on you because you know, there’s no conversation in FinTech that’s complete without a crypto question.
So, it’s a basic one today. Crypto, FinTech, are they the same? Are they uniquely different? Separate and distinct. Where do you put crypto in FinTech?
Jason Henrichs: I mean today, they kind of run in parallel paths. Right? If we look at crypto first, as, you know, something people invest in that is a thing unto itself right? And you know, that crypto’s arrived when, back when we could travel, you know, the end of 20 19 two Uber drivers in a row asked me if I was buying Bitcoin. Right? And I’m like, and they don’t even know that, like, this is like the world I live and swim in, right? It’s like, what is going on here?
So I think as an investible asset yeah, it’s an interesting place. We’ll see where it goes. I think it’s actually done itself a disservice because the hype around investing in dogecoin and Ethereum versus Bitcoin debates. And what’s Elon said lately, that hype has kind of distracted from the underlying potential for what it can do.
But I think where crypto and FinTech begin to merge is when we look at crypto as a means, not an end to what can it accomplish? And I think a lot of that is less as a currency and more, as you know, using it as a means of transaction, both on the blockchain and smart contracts and distributed ledger. I don’t think everything needs to be on the blockchain, but it is certainly the hype of the blockchain has made people more aware of, Hey, this idea of distributed ledger has been around for a while.
How come we’re not using it more? But the ability then to use, you know, crypto to extend the boundaries of things and invent new things, I think is interesting, but we’re still in its infancy. And as long as we’re still debating is Bitcoin overvalued or undervalued, it’s distracting from the true potential.
David Reiling: Yeah. And there was a recent development, I think this morning that the US Treasury came out with much like currency restrictions. Like you would file a currency transaction report at 10,000 US. You’d have to do the same now with Bitcoin. So if your transactions in Bitcoin, total 10,000 or more, there’s known what as a CTR, that’s going to be required.
So it’s interesting how it’s being framed in the currency space, at this point in time, you know, to be continued I think.
Jason Henrichs: Well, but you know, if you look at some of the, you know, what makes it good, good currency, right? Well, one is it’s accessible ubiquitously. Well, so that’s not any one of the crypto’s yet.
What else makes it a good currency is stable value. I hate it when the price of the pizza I ordered a half hour ago doubles by the time it arrives at my door, right? Even worse with Amazon. You know, and 48 hours later, that just became a very expensive toothbrush. So we’re going to have to solve for some of those things.
And when we do, I think crypto as a currency will enter more of the mainstream.
David Reiling: Yeah, I agree. And again, in its infancy, finding its way. So now time flies. I got one last question for you and I want you to, and you don’t even have to zoom out. You kind of started here with the lifecyle of FinTech and, but it seems like I’ll take your 10 year horizon.
Where are we in the FinTech life cycle? If you had to look down from the planets, onto FinTech today, are we at the beginning, a dawn of a revolution? How would you describe it?
Jason Henrichs: You know, so. Had the benefit of taking a course on punctuated equilibrium with Stephen Jay Gould, jeez, hate to admit 25 years ago.
Maybe well, longer than that, but this idea of evolution being in fits and starts. I would say, if you look back, you know, this is only the beginning of a phase of punctuated equilibrium. If you look at the challenger banks, let’s talk about, you know, just the banking side of it since this is NextGen Banker.
If you look at the challenger banks of today, they’re actually relatively disappointing in my view, because 2008, you had PerkStreet, you had Bank Simple later, simple followed by Moven. We were standing on the shoulders of the folks at Higher One and SmartyPig that were solving different problems.
Are they better you know, user interfaces? Yes. Have they solved fundamentally different problems over that, you know, nearly a decade? Well, actually over a decade, the next 13 years. It’s disappointing that like we’re still at the surface layer around UI and UX and what you can do with it. But I think that’s changing, like from the puncture that was actually just revving up the engine to where we can go next.
David Reiling: Yeah. And I hear you loud and clear on this. And, in your letter to the Alloy Labs members, that the function around speed is we’re just starting. You can’t really think about whether you’re ahead or behind. You just need to keep going and moving forward and strategically what niche you might play the best in and be differentiated in, but you got to keep moving and you got to keep progressing, and it’s not linear.
I don’t know for my audience how we can get that through, but it is fits and starts more exponential and more lumpy than you think.
Jason Henrichs: There’s an important part related to this. So I would say there’s 90% of banks when we talk to them about their strategy, technology or innovation or otherwise, and they say we’re more of a fast follower.
There is no successful strategy as a fast follower if you don’t actually have momentum. Momentum requires movement, right, and experience because by the time something becomes ubiquitous enough that it’s obvious that that is the winning strategy to follow if you’re only pumping up the tires of your bike to go join the breakaway, it’s too late, the Peloton is so far past you, and it’s only getting faster that you need to be moving and experienced because it’s as much that muscle, culturally compliance technologically, that needs to be built up to be adaptable. The strategic muscle of adaptability, because if you’re still following the strategic plan, you wrote five years ago, like the regulators might be happy that, Hey, you’re right on the plan that you prognosticated, you know, all those years ago, except you probably become irrelevant because the world has zigged and zagged 10 times over.
David Reiling: Exactly. So Jason, I’m gonna say thank you on that standpoint. We’ll leave our audience with, in my opinion, really take a look at your strategic risk in your organization. And maybe personally, as you look at your career in banking and in FinTech. That strategic lens is super important. So Jason, thanks so much for being on the NextGen Banker. As always great to talk to you and get your insights, really appreciate you being with us today.
Jason Henrichs: Thanks.
David Reiling: For this episode’s musical feature, we’re showcasing Benjamin Tucker.
Benjamin is a St. Paul-based artist originally from Iowa City, Iowa, in the vein of Michael Kiwanuka, Jason Isbell, John Prine, and James Taylor. His latest release is “Such is Love.”
Here is the title track from that release, “Such is Love.”
That was “Such is Love,” by Benjamin Tucker. Find more of Benjamin’s music on Spotify and on https://benjamintuckermusic.com/. If you would like your music featured on the NextGen Banker podcast, email Nextgenbankerpodcast@gmail.com with a link to your music and website.
Thanks for listening to the NextGen Banker podcast. We’ll see you next time.