The Future as Seen at SXSW & Successful Strides in Financial Inclusion
This special episode is live from Fintech House at South By Southwest (SXSW) event from March 2023. Listen as guest host Dara Tarkowski, Managing Partner, Actuate Law and host of Breaking Banks’ sister podcast Tech on Reg speaks with Mike Bechtel, Chief Futurist at Deloitte Consulting and David Reiling, Chairman and CEO, Sunrise Banks; Author, Fintech for Good; and host of Provoke.fm‘s NextGen Banker.
Where are the opportunities in evolving technology; what’s hype and nonsense? At times we are so busy wondering if we can do something, that we don’t always think if we should. Intentionality and mindfulness are good things, and mild chaos is where opportunity lies, where niches and new angles can be discovered.
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.
Transcription – NextGen Banker Episode 45 – SXSW Episode
0:00 – [MUSIC PLAYING]
0:03 – 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. Today, we have a special treat as we recorded an episode live at the Fintech House at South by Southwest. Listen, as guest host, Dara Tarkowski, managing partner at Actuate Law and host of Breaking Banks’ sister podcast Tech on Reg speaks with Mike Bechdel, chief futurist at Deloitte Consulting and David Riley, chairman and CEO of Sunrise Banks, author for Fintech4Good and host of provoke.fm’s NextGen Banker.
0:46 – Becca Hoeft
Before we get started, just a reminder to stick around to hear our musical feature at the end of the episode. Each NextGen Banker episode showcases one new artist from somewhere around the globe representing a wide range of different genres. So be sure to check it out. Now, without further ado, let’s get it rolling.
1:06 – Dara Tarkowski
All right. Good afternoon, everyone. Welcome to the Fintech House. We are recording live at the Alloy Labs Fintech House at South by Southwest. Amazing sponsors. I’m Dara Tarkowski. I’m the managing partner of Actuate Law and the host of the Tech on Reg podcast on provoke.fm. Super jazzed to guest host this very special episode of Breaking Banks. And with me this afternoon we’ve got two fantastic guests, Mike Bechdel, chief futurist at Deloitte Consulting, and David Riley, chairman and CEO of Sunrise Banks and author of Fintech4Good.
1:42 – Dara Tarkowski
And for those of you who don’t know, Sunrise Bank not only is a founding member of Alloy, is a BCorp CDFI, and a member of the Global Alliance for Banking on Values, one of those financial institutions truly committed to promoting financial empowerment for all socially responsible banks. Very excited to be sitting here with you two. You– yes, absolutely. Yay, Sunrise.
2:07 – Dara Tarkowski
Mike, I actually don’t think I have seen you in a very, very long time since back in your lab days as we were hoarding boxes of chocolate out of Mike Redding’s house. So, consider this an official shout out to all of the Accenture Labs alums. Mike, anything you want to say to that crew?
2:24 – Mike Bechtel
Just labs legends represent. Hello to a certain Adam Tarkowski, who I may or may not know is related to certain Dara Tarkowski. And yeah, go Labers.
2:36 – Dara Tarkowski
Go Labers. All right. So, as we have promised the audience today, it has been an absolutely wild time for the financial services industries from so many different angles. Increased regulatory scrutiny. I feel like we’ve gone through 30 new cycles in the past 10 days. We’re here at South by Southwest, which is double down on it’s focus on technology, innovation, and the deployment of the technology in our everyday lives and in our businesses. So, it seems as though we’ve reached an inflection point on the proliferation of technology into our daily lives.
3:13 – Dara Tarkowski
Mike, I would really love to start with you. It seems that every day we’re talking about a new app, a new tech fad. It’s ChatGPT, it’s AI-this, it’s building algorithms. Technology is good. Technology’s bad. And as a woman who generally likes to cut straight to the point and through all of the nonsense, I’d love to hear from you to tell us where you think the real opportunities in these evolving technologies lie, and what’s just hype and nonsense?
3:42 – David Reiling
I’ll clear it up for us.
3:44 – Dara Tarkowski
I’m timing you.
3:46 – Mike Bechtel
All right. OK. For starters, I don’t think tech’s good or bad. I think it’s a force multiplier. It’s a tool. And that can sound weak, but here’s why I really believe it. I studied anthropology back in undergrad, and we talked about human history prehuman history. And whether people were talking about sticks and stones fashion into tools, the fact was even back then those tools, which for those folks were technology, could be used to get your dinner, could be used to do harm to your neighbor.
4:25 – Mike Bechtel
And so, futurists are low-key secret historians. And when we look at the history of technology, we tend to reject everything being like a revolution, a change of kind, not just degree. And so, there’s a– I’ll give you that concise answer you’re after. Whole history of technology, at least regards business, if interactions are getting simpler it’s probably a path to profitability. If information insights systems are getting smarter, it’s probably a path to profitability.
4:58 – Mike Bechtel
If the number crunching in the basement is getting more capable, it’s a path to profitability. If it ain’t one of those three– simpler interactions, smarter information, more capable computation– it might be snake oil.
5:14 – Dara Tarkowski
Well, you made an interesting comment before because, for example, the tools that we developed to hunt and gather and feed our families, you mentioned also were the same tools that we could use to murder our cave neighbors, right? So we also talk about the ethics and morality of technology, and the way we use it, and the way we deploy it. That is the defining difference. So, David, let’s talk about the ethics of a lot of the technology that the world is experiencing right now. And then specifically in the financial services world, what’s your take on that?
5:48 – David Reiling
Yeah. I think it’s a great place to start in terms of, again, the anthropology in the history. I can tell you from working into low-income communities my entire career. I can tell you what the credit score difference is between a person who lives in a low-income community and one who does not, who lives in the suburbs with the exact same profile. It’ll be at least 40 to 50 basis points or points different. And so, these are just functions of algorithms and so forth in terms of a credit score.
6:19 – David Reiling
But we know that they exist. And so, as we look at the future in my opinion, as we use– all use ChatGPT and OpenAI and so forth, it still needs human interaction. It’s not perfect and I do think AI does need parents. Maybe specifically grandparents to put some wisdom over the layers of the algorithm. Because you just can’t put everything into code or all the perspectives. One of the facial recognition issues of the beginning was for minority communities. It didn’t recognize at the same accuracy rate as it did Caucasians.
6:55 – David Reiling
So that’s an issue, right? They just couldn’t– they just didn’t do it or think about it in its development.
7:01 – Mike Bechtel
Well, and Dave, to your point– one of the things that we’ve been researching– so Deloitte’s been in the business of researching tech trends for the last 15 years. And when you study all things new fangled, you start to see patterns in the patterns. And one of them this year that we’ve really picked up more than ever is that trust trumps tech. Remember that scene from Jurassic Park, Jeff Goldblum. Your scientists were so busy wondering if they could, they didn’t ask if they should.
7:38 – Mike Bechtel
We’re seeing that in boardrooms all over the place where people are saying, man, we’ve got this magical brain in a box. Ask it anything, it’ll blow your mind. And that’s a recipe for a bad time. That’s weapons in the hands of children. That’s mindless harm to your neighbor. And so, I think intentionality to your point, that’s going to make all the difference. Knowing that we’re approaching this stuff like adults with a mind towards mindfulness.
8:05 – David Reiling
8:07 – Dara Tarkowski
I think there’s a lot of concern and this goes broader than just the financial services industry, but we are going to come back to banks and banking and what this all means. But in general, we’ll talk about AI, for example, because I mean, God bless the Open AI team, and the press releases, and the media surrounding the deployment of ChatGPT. The way anyone, my 12-year-old can go create an account and start playing with the technology.
8:37 – Dara Tarkowski
But really truly, there’s aspects of that. And I was reading a piece, and I can’t remember if it was Alex Johnson or one of the other brilliant writers that I follow all the time, that made the observation that this was just the appetizer and not the entree for artificial intelligence. I would love to say that those words are mine, but they belong to someone much smarter than me. David, what are your thoughts on that?
9:02 – David Reiling
I couldn’t agree more. I think ChatGPT is the warm up. It’s the, oh, this is really what AI can do. It can write this letter for me and be 80%-ish, 90% right, and then it can learn from that. I just think we’re at the very tip of what artificial intelligence is going to take us down the road. I think it’s just going to get better and better. That’s a little scary.
9:29 – Dara Tarkowski
I mean, I hope you can appreciate that as a lawyer how much that terrifies me to hear you say. But as long as it’s only 80% and then I get to OK the last 20%, I feel much better about it.
9:42 – David Reiling
Same fee, shorter time.
9:45 – Mike Bechtel
But one of the conversations that I have with my clients pretty regularly lately is– it’s about the standard that we use to judge AI and specifically generative AI. Nerd alert– the best description, definition I’ve ever heard for AI was from Larry Tesler. He was a researcher at Xerox PARC back when we thought of Xerox for hardcore R&D and that is this thing we used to do. And he said, listen AI’s whatever computers can’t do yet.
10:17 – Mike Bechtel
And I always love that because it worked in 1956. It worked in 1996. Like AI can’t play chess, watch me. Worked in 2011, jeopardy? Not going to happen, happened. What’s different now is it’s making its way into the white collar, journalist class, chattering class, like creativity in silico what. And back to the standard. I’ve got some clients who say, I’ve seen those paintings. It’s no Picasso. The standard isn’t Picasso, the standard’s utility.
10:56 – Mike Bechtel
I bet it’s good enough to make a greeting card. I’ve seen that writing it’s Noah Keats. It’s probably good enough to do some ad copy. And so, I think we got to just remember the standard is utility. And that’s going to free up time for our people to do higher order things I believe.
11:15 – Dara Tarkowski
Well, I may or may not have asked ChatGPT to write a sonnet in Shakespearean voice for me at some point just to see, just to see what it could do. And it might not be Keats, but it’s close to Shakespeare. All right. So again, countless discussions and debates about the ethics of artificial intelligence. And I want to get a little FI-specific and financial services-specific, particularly because I think some of the first headlines, we really saw years ago, and I think this is back in 2019, when they were talking about disparate credit outcomes with the use of AI.
11:56 – Dara Tarkowski
Pretty sure that was surrounding the whole Apple Card debacle several years ago. How much of that do you see as being problematic now with today’s evolution of how those scoring and those credit decisioning issues are being dealt with, CFPBs dipping its toe into the use of alternative data and try and attempting to create some standards around there. So as the chairman and CEO of a bank, particularly a socially responsible bank, what are your thoughts about how we can make sure that we are using AI ethically, specifically around making sure that those consumers and small businesses are getting the right products and services for them and not experiencing those disparate outcomes? It’s a super easy question.
12:48 – David Reiling
Yeah. Super easy question. So let me answer it this way because I am– I mean, it’s really easy to go to the what’s wrong and what’s negative. But how do you use the AI to constantly monitor your origination and underwriting practices such that you can detect the disparate impact on people in real time, as opposed to waiting months and months for data. How can we make sure that as applications are coming in and being approved, that we have some tolerance of ethical boundary that we’re not favoring one over the other.
13:26 – David Reiling
And as we put in new data sets then we can test it. Does this particular new data set create a problem in the algorithm in the outcomes? Is it leaving somebody out? That normally shouldn’t be. Or is it putting somebody in who might shouldn’t be, and then you have, let’s say, a credit risk. So there’s going to be I think a lovely and robust ethical decision, but can we use the power of AI to do good and to get ourselves out of problems that we always looked in the back saying, oh, I already did the lending of the past year, and I did leave this particular class of people out.
14:05 – David Reiling
It’s done. But can we do that now by 2:00 in the afternoon.
14:10 – Dara Tarkowski
Also, please CC your lawyer on all of those communications. So that way I have privilege. Mike, from your perspective and stepping back because you have such an interesting exposure to a cross section of industry, including financial services, but also well beyond– how important is that thought process and analysis at the governance level? What type of resources do you need to be putting at your board level, at your risk committee level to ensure that boots on the ground are doing it right, but buck stops with the board to make sure that the practices of any organization are not going to land them in hot water?
14:54 – Mike Bechtel
So concentric circles from down in the server room all the way up to the boardroom. I think something we’ve seen across industry is that if we train our models and our algorithms and our AI ML on the data we’ve always used, we’re always going to get what we always got. Which is I think a butchered Yogi Bear quote. But you know what I’m saying. One of the frames– you said it so well, Dave. This idea of parentage or grandparenting of this.
15:31 – Mike Bechtel
We’ve got to take this mindset of teach your digital children well. Now we’re bringing Crosby, Stills, Nash, and Young.
15:39 – Dara Tarkowski
Keep them coming.
15:40 – Mike Bechtel
All right. I have an inexhaustible supply–
15:42 – [INTERPOSING VOICES]
15:43 – Mike Bechtel
But here’s the idea. To do that– an old colleague of mine, a fellow by the name of Ray Donny works at Carnegie Mellon now for their center for data science and social good. He said step one is the uncomfortable act. He testified before Congress on this. The uncomfortable act of making tacit biases explicit, which is fancy talk for naming these things we’ve done wrong. Because the machine to be trained needs to see it in zeros and ones, not whispers and winks.
16:17 – David Reiling
Great point. Yes, exactly.
16:19 – Dara Tarkowski
So, the first step is admitting you have a problem?
16:21 – [INTERPOSING VOICES]
16:23 – David Reiling
Everything begins with the truth.
16:24 – Mike Bechtel
Amen. And yeah. And then step two, right? And this is still down here a little bit, but two, three, four, five years ago, it was all about using the best machine learning model. Like deep adversarial generative networks, yada, yada, yada. Here’s the thing. Those things tend to be black boxes. And if you have kids, there’s a reason math teachers say show your work. Because it’s not enough to get an answer. How did you get your answer?
16:59 – Mike Bechtel
Those black box models don’t do it. You can’t audit, you can’t govern. What you need is a glass box and so what we’re seeing a lot of our clients do is they’re willing to trade off a little bit of performance on the robo mind, so that they can get a show-your-work model. With those two, the left hook and the right jab, then you can get the DevOps folks, the tech folks, the c-suite folks to govern and audit and then show that work to your board and say, here’s what we decided. Here’s how we trained it. Now you can govern.
17:33 – Dara Tarkowski
Well, you not only have to show that work to your board. Ultimately, you’re going to have to show that work to your examiners, and your regulators, and the CFPB. Because we’re all still fallible, right? Mistakes are going to happen and it’s really how we manage and react to those situations. And it’s a lot easier to do with a glass box than it is a black box.
17:56 – Mike Bechtel
17:58 – Dara Tarkowski
So, we have a few minutes left. And I know that several people would literally kick me if we did not talk about the absolute circus that has been the financial services and the banking world for fintech in the past week or so. So, we’re going to spend just a little bit of time talking about Silicon Valley Bank, SVB. And for the bankers and fintechs that are listening, it has certainly been a wild few months in general. Regulatory scrutiny had already been at really an all-time high.
18:30 – Dara Tarkowski
And then several months ago we all got SBF’d, and now we are getting SVB’d. So, David, can you give us just a real quick update as to what SVB really means for those banking fintech right now and the fintechs who are caught in the middle of it?
18:47 – David Reiling
Yeah. I mean, it is an unfortunate place to be and that is certainly understated. And on both sides of this FinTech equation. If you’re a fintech and your money is stuck in the process, obviously there’s payroll, there’s payments to be made. There’s all sorts of things going on there. And your business and your livelihood is at risk at the moment. And you’re looking for solutions and I’m sure there’s real fear out there as to what is going to happen.
19:16 – David Reiling
We will see things happen and I think my opinion of the FDIC and so forth is they will likely move things along quickly because it’s in everybody’s best interest. And so hopefully, that freeze on deposits will thaw awfully quick and things will start to come back to normal, and people get access hopefully to all their money. Now, I don’t work for the FDIC, but I think in my own opinion, it would be a huge mistake if the depositors were shorted even one penny.
19:47 – David Reiling
That confidence in the financial system needs to continue otherwise you may have a systemic issue here in terms of confidence. On the banker side, while I’m sure I’ll receive a phone call from my regulator as to what my liquidity position is and so forth as to the real reason of why SVB failed. There’s going to be more, I think, long term scrutiny in terms of how banks oversee their fintech clients or that whole value chain down to the customer.
20:16 – David Reiling
And so, if we thought there was a lot of compliance before, I think you’re going to have more and more scrutiny into it, and the need for more transparency across the whole value chain.
20:28 – Dara Tarkowski
And Mike, again, as someone with that cross-industry knowledge, what are your thoughts on the implications that exist for the broader tech community?
20:38 – Mike Bechtel
Well, I was in Denmark last week, which you don’t hear every day. And I had this fascinating discussion with some business leaders there who were marveling about the United States’ ability to innovate, to take big risks and do big things. And several of these very successful Danish leaders just called it as they saw it. They said, we don’t take those risks. And it got me thinking that having been a VC, I was a VC for eight years.
21:20 – Mike Bechtel
Entrepreneurs, they tend to feel like they have nothing to lose, like they need to feel like they have nothing to lose. Either because they’re definitionally broke and they don’t, or they’re sufficiently banked. And so, what’s a mill, right? That 85% in the middle as discussed in maybe different countries where it’s not the extremes– they’re playing not to lose as opposed to playing to win. And so, I just think that as I’ve seen it, I would never wish broke on anybody.
21:58 – Mike Bechtel
But without sufficient access to liquidity and capital I don’t think we’re going to have people shooting for the stars. So, let’s hope that this gets resolved and expeditiously.
22:08 – David Reiling
It’s a great point and it’s one that as an entrepreneur that is frightening that there’s no opportunity to start a business, to try something, to fail. And I mean, you can criticize America for a lot of different things, but one is, it is a land of opportunity. And if you can get access to the capital to try an idea, it’s how we move forward.
22:36 – Dara Tarkowski
We go big or we go home, or the FDIC sends us home.
22:41 – David Reiling
The penalty box. You know well.
22:43 – Dara Tarkowski
No more delicate way to put that.
22:45 – David Reiling
22:46 – Dara Tarkowski
So, I think we’re close to the end of our time given where we’re sitting right now. We’re in the middle of a conference that I’m very happy is back probably stronger than ever post-pandemic. It’s been absolutely fantastic getting to meet everyone here at South By. Any final thoughts or words for our listeners?
23:06 – Mike Bechtel
Oh, boy. I would just say, well, first gratitude. Thanks for spending some time with us all and for having us. And then secondly, all these discontinuities feel like explosions that we’ve never seen before. And I think if we just pull back, you realize that it doesn’t always have to feel unprecedented all the time. You see patterns, you see signals. A little bit of measured response resisting the hyperbole, I think is good for the heart, the head, the soul. And I think we’ll get through this. I think we’ll get through this.
23:52 – David Reiling
I was in a conversation earlier today and I was talking about I love mild chaos because mild chaos is where the opportunity lies. It’s not extreme chaos that’s too much to handle, and it’s not little chaos because there’s really nothing there. It’s that middle ground where it’s uncomfortable. And I think we are in a very– we’re in an uncomfortable spot right now with what’s happening in the fintech world on all levels. But I think there’s great opportunity in there.
24:24 – David Reiling
And it’s really coming to South By and having conversations with people, you start to discover what is possible and where are the niches and the angles are. And again, it goes back to that entrepreneurial mindset of, we got a business idea here that could maybe work. And so, I don’t know. I think the human ingenuity and spirit by getting together, even in troubled times, I think there’s good that can come out of it. And so, it’s fun to be here.
24:52 – [MUSIC PLAYING]
24:54 – Becca Hoeft
For this episode’s musical feature, we’re showcasing Holly Hamill. Hamill is a Nashville based singer-songwriter, producer, and touring background vocalist. She has had the opportunity to perform and record with the likes of Joss Stone, Hans Zimmer, Carrie Underwood, and Brandi Carlile. Here is “A Holiday with Me” by Holly Hammel.
25:17 – [HOLLY HAMMEL, “A HOLIDAY WITH ME”]
26:22 – Becca Hoeft
That was “A Holiday with Me” by Hollie Hammel. You can find more of Hamill’s music on Spotify. If you would like your music featured on the NextGen Banker podcast, email firstname.lastname@example.org with a link to your music and website. Thanks for listening to the NextGen Banker podcast. We’ll see you next time.