Lee Wetherington on FinTech and Digital Banking
This week we are excited to bring back one of our most popular guests, Lee Wetherington from Jack Henry. Caleb and Lee discuss open banking, the lasting effects of Covid on digital adoption, and what community banks need to be thinking about for the future.
The views, information, or opinions expressed during this show are solely those of the participants involved and do not necessarily represent those of SouthState Bank and its employees.
[Intro]: Helping community bankers grow themselves, their team, and their profits. This is The Community Bank Podcast.
Caleb Stevens: Well, hey everybody, and welcome back to The Community Bank podcast. Thanks for joining the conversation today. I’m Caleb Stevens, and I sat down recently with Mr. Lee Wetherington. If you don’t know Lee Wetherington, you are missing out. Lee is on the conference speaking circuit all the time. He probably speaks I think I asked him in the show, I think he said, prior to COVID, around 60 times a year, something like that. I think he scaled it back since then. But Lee is the senior director of Corporate Strategy at Jack Henry. Man, this guy, when it comes to FinTech, he knows his stuff. He knows all about open banking, embedded finance, the future of payments Fascinating discussion. In fact, the last episode we did with Lee, which I believe was sometime, last year in 2021 that was our most, downloaded show that we’ve ever had on this podcast. So clearly, Lee is a popular guest he knows what he’s talking about. And if you’re a community banker, he is someone you’re going to want to listen to because he’s going to share some advice and some thoughts on what you need to be thinking about as far as technology, FinTech, and just your overall bank strategy goes in the future. So, I hope you enjoy my conversation with Lee Wetherington.
Caleb Stevens: Well, Lee thanks for hopping on the podcast today. I think it’s been about a year since we last spoke. So how are things? I was going to say, hey, Hira, that’s where you hail from, but you’re up in Smyrna now, is that right?
Lee Wetherington: That’s right, yes. I’m actually in the Atlanta area, well, you know this, I think you would know this natively our issue now is traffic from the Braves games. That’s a good problem to have we seem to be doing well there, but yes, Smyrna is great the weather’s perfect, it’s a beautiful time.
Caleb Stevens: How many speaking gigs would you say you take a year? I feel like you’re one of the staples on the speaking circuit when it comes to banking conventions. How often are you on the road these days?
Lee Wetherington: I have sobered up Caleb, back in the day, I was doing 60, 70 keynotes a year I try to keep that between 20 and 30 these days, we’ve all had our awakenings and reckonings over the course of the pandemic. And so one of my awakenings was I’ve been on the road too much for too long so I’m trying to be a little bit, a little bit more measured about that. But yes, I’m back out on the road and it’s, it is absolutely edifying to be face-to-face with folks again. I think it’s sometimes easy to abstract away just how meaningful those face-to-face interactions are, but I’m glad to be there, there.
Caleb Stevens: Well, one of the things that I think makes you such an effective speaker is your unique ability to combine a high level of knowledge and competence in your field, talking about banking, FinTech, embedded finance, all the areas that you have expertise in. But also deliver it in a way that is accessible, that’s clear, and that’s also pretty funny. Kind of tell me how you kind of broke into the speaking world just in general because you’ve got a unique ability and talent for it. Had you been speaking since you were young, or how did you kind of get into that side of what you do?
Lee Wetherington: That’s interesting. I haven’t been asked that question in a while, but at the very beginning of my career, I was fortunate enough to have a boss in David Peterson, the founder of GoldLeaf. Who forced my hand, which saw me causing a lot of distraction in the office place and said, “Hey, it looks like you enjoy running your mouth. Let’s see how you do on the road.” I was terrified; I’ll spare you the longer version of that story. But he took me on the road and basically fed me to the wolves and it was the most traumatic, productive experience of my life. I think a lot of folks aren’t forced to face some of their most primal fears. I was, David put me in front of a room of 25 bankers, and it was an eight hour full day seminar and just let me fail miserably, for a day in one location, and then another a day in another location.
But eventually, after enough pain, I realized I don’t have to be scared if I choose not to be scared, and I can just speak to people and tell them about the things that I do know with confidence in whatever way it dawns on me to do that. And that was the beginning of a very long speaking career about 30 years ago. So, David saw something in me that I was not aware of about myself and just forced my hand and facing that fear. I punched through that and then it’s been a wonderful path ever since.
Caleb Stevens: Well, I think one lesson I’ve taken just from watching you over the past couple years is a lesson I’ve taken away is that it’s that knowledge is not enough. You have to be able to communicate that knowledge in a way that’s accessible to lay people like me who don’t understand all the sausage making that goes in behind FinTech platforms, but you have a unique ability to communicate it in a way that people can hear it. And I think that’s sort of the other half of the equation. So just kudos to you for the name you’ve established for yourself in the industry I know it’s very well respected and it’s helped a lot of folks.
Lee Wetherington: Well, thank you, Caleb. That’s kind of you. Thank you.
Caleb Stevens: Anything new and exciting at Jack Henry? What have you been up to as you all have kind of coming out of the pandemic, as you’re thinking about what’s next for you guys? Tell us any updates we need to hear about?
Lee Wetherington: Yes, so a lot, actually, this has been a big year for Jack Henry. Back in February, we revealed our tech modernization strategy that I’ve been working on with my colleague Ben Metz for the last six years or so. We’ve started building out on it about well, depending on how you want to qualify when we started building, we’ve been building an earnest for two, three years. But this open banking strategy originated back in 2014 with our acquisition of Banno, which is how Ben actually came to the organization. But we made that entire official in public in February, and then just within the last month, we had our big conference out in San Diego, and we made public there several big things. One is a collaboration with Google Cloud we are excited about building out this cloud native infrastructure kind of from inside out and Google Clouds tooling their assets, their data capabilities, their AI capabilities, of course are the best in the world.
And we negotiated an arrangement with them whereby we will be able to lever all of that world class tooling and bring it into this modern tech stack that we’re continuing to build out as a part of our tech modernization strategy. We’re excited about that. And some other things we also made an announcement about an agreement with Apple to bring tap to pay to our Banno business and auto book embedded FinTech relationship we’re very much excited about that. And then probably the thing that I’m most excited about is a new agreement we have with MasterCard’s. Finicity, Finicity is their financial data exchange platform and network. And so we announced a new a new partnership with Finicity, by and through which we are going to, for the first time make API based outbound aggregation back to the bank available and affordable for the average community bank in the United States. So, those things are, we could spend hours on each of those but that’s my quickest version of a wrap up of what we’ve been up to here in, 2022. It’s been an exciting year,
Caleb Stevens: Not slowing down any time soon. It sounds like always trying to stay on the cutting edge of what’s coming down the pipe.
Lee Wetherington: Absolutely. Yes. This is exciting. I’ll tell you were asking me about sort of, personal career stuff and how the speaking started and all that. This year has been by far the most professionally and personally fulfilling for me to have worked on strategy for all these years. And to see it being executed on and built out, I’ve never been more excited than I am now.
Caleb Stevens: Well, let’s look in the rear view mirror here, just first second. As you look back at the pandemic, I heard stats thrown out like, “Oh, the pandemic, we’ve accelerated 10 years with, within two years we’ve accelerated what was happening, what was going to happen over 10 years, and in six months, we’ve gained five years, and.” I’ve heard all these people say, “Oh, it just accelerated what was already going to happen and what was already changing.” And as we look back, I’m just kind of curious to hear from your perspective, Lee is that true? What do you think the pandemic actually accelerated in terms of digital banking and adoption, and what are some things that maybe were forced upon folks for a time, but now we’re sort of reverting back to old hat and old ways of doing things? What’s your take on the pandemic’s lasting effects in terms of FinTech and digital banking?
Lee Wetherington: Yes, it’s fairly simple. And I saw all of those numbers and stats, and you’re right, they were all over the place, but they were all making the same point that we fast forward it in an unusually short amount of time because of the pandemic and all of that is, is has held up. The behaviors that changed were those who were not already behaving in a digital first way, were forced to behave in a digital first way. They had to manage their money remotely through mobile devices. Businesses had to accept payments without necessarily being face-to-face, or they wanted to set up arrangements whereby you could pay for something in advance and come pick it up curbside later. You go on and on and on, if you want to understand sort of what sticks and what’s going to revert back, what is sticking is driven by what’s called in behavioral psychology, the law of least effort.
If we are ever if we either voluntarily or we are forced to try something in a new and different way, and that new and different way is faster, easier, or better to us, we never go back to the other way. Now, so that’s the thing that changed and is going to stay the ability to self-serve in more robust ways and more convenient ways. Wherever you are in and at the moment of need through mobile apps, that’s not going to change what we are and have been reverting to. However, you are asking about, hey, Lee, are you backing out on the conference circuit? Are you speaking? Are you actually in person again? And yes, we are all clamoring back to any opportunities to engage each other, to connect with each other in ways that simply can’t be accomplished, online or through Zoom or whatever. So, you see people at conferences, I think, a lot of us, especially people like me, kind of get tired of conferences until they’re taken away and you don’t see people, and then man, you go back to your first conference and you see a bunch of people, it’s all about the people. You realize, I really need this I’m a human being we’re all human beings we’re social to our DNA, and that’s never going to change. It doesn’t matter what comes and in fact, the more difficult things that come and challenges, the more desperately we cling to each other in those times of challenge and in those times of need. The interesting thing Caleb is that there’s an area in between, between, hey, what changed and is going to stay that way? What changed but is going to revert back that is we’re just always going to be human.
What’s interesting in the community banking space is now you can do relationship in digital settings based on all of the new tools that matured and fast forwarded in their maturity over the course of the pandemic. So, you think about the power of the community bank ethos, is the fact that we know you, you know us, we’re your neighbor, we live where you live, bank local, all of that stuff. The ability to provide personal service we can now do that in and at the moment of need through those digital devices and distinguish ourselves as community banks over and against the competitors that should be concerning most community banks, which is direct to consumer, FinTechs, big techs that have made big forays into financial services and the like. Because all of those entities, those disruptors, they’re trying to automate the humanity out of what they offer and design and build, whereas community banks can now do just the opposite. You can design and build to amplify human connection inside digital context, and through that take community banking to a new place that it’s never been before. And in a way that differentiates itself from all of these most concerning disruptors, that kind of combination of humanity being amplified by technology instead of being replaced by it, to me is the most interesting area for community banks right now. The biggest opportunity going forward as well.
Caleb Stevens: You’re telling me you get tired of 20 free stays at Ritz Carlton’s and Breakers and Broadmoor and all the fun conference places you get to go to.
Lee Wetherington: That is such a first world problem, to complain about. Yes, it’s terrible I’m not going to say that you can say that to me, but I won’t repeat that because people would lose whatever little bit of respect they may have ever had for me.
Caleb Stevens: Sounds pretty nice to me, but you’re working, I guess you’re not bringing your family to most of these things, and you’re not lying by the pool with a pina colada.
Lee Wetherington: I am insufferable Caleb to my family whenever we’ve tried to make a work gig, turn it into a vacation, my family finds me insufferable because I can’t think about anything other than what I’m about to say on stage until I get it set on stage and then sometime after that I’m Sufferable. So, we decided years ago to keep vacations separate from these nice little cushy speaking gigs I get to do on every once in a while.
Caleb Stevens: Yes. Well, as the son of a banker growing up, the family vacation what you attack three more days onto wherever, dad is for the conference. So, I definitely understand that world.
Lee Wetherington: You know all about that.
Caleb Stevens: Yes.
Lee Wetherington: Your dad’s probably a better human being than I am. He probably was a great dad while he was in those settings, and you all were having fun and I just never figured that equation out.
Caleb Stevens: It was fun. It was definitely a blessing and definitely a reminder, my parents went out of the way to remind me like, “This is not normal. This is only because dad has to be here for work that we’re going here. We wouldn’t go here otherwise.” So Right.
Lee Wetherington: That’s another pattern that my family picked up on. It’s like, wow, when we’re just traveling on our own dime, we’re not at the Ritz Carlton or any of these nice properties where dad delivers his speeches normally. Why is that?
Caleb Stevens: Right. Funny how that works. Well, when you are on stage open banking is the topic you’ve been preaching about for good while now. We talked about open banking on our last show, and we’ll link to that in the show notes if folks want a deep dive into the open banking conversation. That was actually to this date, we’ve done, I think 105, 110 shows, something like that. That episode is the most listened to downloaded show that we’ve had, and we’ve had a lot of other shows that have done well but that one is number one. Real quick, open banking, what is it? Why should community banks be thinking about it and adopting it?
Lee Wetherington: Yes, so open banking is just the premise that your customers own their bank data, that’s it. And that is established by the way, in section 10 33 of the DOD Frank Act. And all that means, and what that means is practically in the United States, is that since that’s been established, if you acknowledge that yes the data belongs to the account holder, if the account holder or the customer wants to share his or her data with a third party for any reason at any time, then are you going to help enable that or are you going to try to frustrate that? And what are the consequences of either of those strategies? The good news about open banking in the United States is that even though it is still by the way, the CFPB was supposed to take section 10 33 and put some guidance around it, or some teeth into it, that still hasn’t happened. The CFPB is very wary about the different security implications and privacy implications of financial data being exchanged between banks and other banks, and on FinTechs and etcetera. So, they’re being very slow and measured about the process through which we will eventually have guidance on this topic. But what’s happened in the interim is that the market driven forces have seen open banking explode in the United States even when we compare open banking here to open banking in Europe, where it originated by regulatory mandate, by the way close to 15 years ago now. The interesting thing is that open banking is used more in the United States per capita than it is in Europe. And so people hear that and they go, “Wait what? I didn’t even know what open banking was until you just said it, Lee. And now you’re saying it’s proliferated more here than in Europe where it originated.”
And yes, that’s the case. If you use Venmo, you’re on open banking rails because Venmo is using plaid, which is a financial data exchange platform to connect Venmo back to your bank account, to check your balance, to see if you’re good for a P2P transaction, you’re about to originate out of the Venmo app. It’s been invisible and sort of under the surface for most of us, but it’s been growing like gangbusters for the last five years in earnest, and it’s now bigger here, some argue than it is anywhere else in the world. That basically brings to banks basically two options, there’s lots of things you can do with open banking rails, but in fact, I’m not going to give you the two options. Here’s what I’m going to say open banking rails the ability to share information across in between transaction accounts at banks, other banks, other financial institutions in FinTechs, has now led to what is one of the biggest challenges in financial services, and that is financial fragmentation. And that’s something that I’d like to talk about if we could just take a minute to talk about that.
Caleb Stevens: Yes, let’s go there. And I think it’s a good kind of part B to my question, and maybe this is more of an Alco question, but all of these online digital banks paying 3% rates right now, how do you see that putting pressure in terms of younger generations, maybe moving away, from their primary financial institution to using their online savings account, sort of seeing that as their primary bank, even though they may do day-to-day checking with another bank, or maybe they’re going to a personal capital or a mint, or one of these aggregate sort of FinTechs that aggregate all your accounts together. I’ll kind of give you the Floor to go wherever you want to go on that.
Lee Wetherington: Yes, it’s a big problem and it didn’t begin just when rates started to rise, right? The allure of these neobanks digital only banks direct to consumer FinTechs has always been convenience and simplicity, immediacy and simplicity. And now they have an additional lure, which is higher rates as we see rates begin to bump up and we already know that just over the last 12 months, the growth rate of deposits at the average bank has been cut in half. And that’s going to continue to come down and I would hazard that when we see these official third quarter numbers, we will see that have coming down really precipitously. So, there’s a big difference between the first half of 2022 and the second half of 2022, it’s a pivot, it’s a turning point. We’ll see that in deposits and I would tell you that probably within the six to eight month frame, you’re going to have banks who are suddenly realizing, Wait a minute, we’ve got to actively attract deposits now. We’ve been awash in them for the last two and a half, three years, and now we’ve actually got to chase deposits or we’ve got to make sure that we are being strategic about how to keep deposits that we have on hand from leaving the bank. And I want to talk to that a little bit because this gets back to this issue of financial fragmentation. The average consumer in the United States has somewhere between 15 and 20 different relationships with different financial service providers. Think about all the different apps you have on your phone today.
Think about your P2P apps think about your, maybe you have a Coinbase app. Where is your 529? Where is your 401k? How many different credit cards do you have? Do you use the Starbucks app? Do you use other merchant apps where you’ve got to load them with value before you can actually use them to buy stuff? You start thinking about all of those things, you realize that your money is scattered all over the place and you’ve gotten there. I’m an English major, so this is a beautiful irony I love to pause and just take in things like I’m about to describe, but the reason why we have all of those different apps and all of those different financial service provider relationships is because in a given moment, those apps or that particular provider was the easiest way to solve for a particular need in a particular moment, situation, or circumstance.
And so in that moment, it makes a lot of sense. It seems to make our, that particular thing we need to do with our money faster, easier, better, maybe cheaper, maybe all of the above. But in aggregate, over time, as you’re adding more apps and more financial service providers, what you’re actually doing is you’re complicating your financial life to an extent and to a degree that has never been in the history of banking in the United States. We’re suffering now for more financial fragmentation with the average consumer and the average business by the way, we can talk about that a little later as well, and then it’s ever been the case in history. Now, here’s the good news, going back to open banking, we have the most mature open banking rails in the world. And by the way, what is the plumbing of open banking in the United States? It’s basically four companies. It’s plaid, it’s MasterCard’s Finicity, it’s the big bank’s financial data platform called Acoa and it’s Investnet Yieldly. Those four big financial data exchange platforms are the defacto open banking plumbing in the United States. They’re behind all the biggest FinTechs that you know and by the way, the beautiful thing about them is that those financial data exchange platforms are now primarily using secure, standardized APIs to move financial data between one account and another, or to gather it from one place based on the permission of the account holder or the owner of that financial data. So, here’s this beautiful situation in which everybody’s suffering from financial fragmentation. By the way, if you look at the average Gen Z couple or Gen Y couple, their total number of financial service provider relationships is between 30 and 40. Just think about that 30 to 40 different financial service provider relationship.
Now, what does that mean for the, the community bank? Well, it’s a big problem to your point, yes, they continue to add and be lured by neobanks and digital banks and different direct to consumer FinTech offerings for different reasons and different situations with different benefits. The question is, Lee, how do we then…Sometimes I’ll tell you, I’m in boardroom and I lay this out, I lay all the data out, and I’ll have a board member say, “Well, how do we get them to quit all those 39 other financial service provider out there and bring it all home back to the community bank? How do we do that?” Okay, first of all, that’s never going to happen, you are delusional. Let’s just go ahead and just say that out loud that’s a delusion that that will never happen. The opportunity is how you achieve first app status in the context of all that financial fragmentation. Is there a way for the community bank’s app to make sense of what is otherwise hopelessly fragmented and scattered across, 20, 30, 40 different financial service providers? And the good news is you can do that now. You can lever these open banking rails so that your customers at the bank can aggregate back to the bank and to their view through the bank’s digital apps, mobile apps, whatever the case may be. They can see where they are across all of those disparate relationships and therefore know where they are with their money.
And if they know where they are with their money, now the community bank is in a prime position to say, okay, we’ve aggregated your full picture. By the way, we’ve done this securely through APIs, not screen scraping we’ve eliminated all inbound screen scraping, that’s the other big benefit there and now you have a full picture. Now, we’re going to nudge you with the right message at the right time to tell you what to do next or how to do better, next bet’s product or service, etcetera. And you think about what that means as soon as you do that, the community bank has achieved first app status in this otherwise hopelessly fragmented ecosystem. In other words, it’s taken the biggest challenge, by the way, financial fragmentation according to javelin, is the biggest challenge in 2022 and 2023. And you’ve inverted that challenge into the biggest blue ocean opportunity, which is to achieve first app status. And you do that by not only bringing everything home, but then making yourself your superpower. You bring that fully into the picture by saying, we’re here to talk to you and help you make sense of everything that’s now we’ve made coherent to you in one view. We’re here to talk to you at the top of a button inside your mobile app or inside your online banking whenever you want to talk or something doesn’t make sense we’re here for you to advise you what to do next, how to do better, solve problems, etcetera. This is why I’m more excited and bullish about what progressive community banks can, can get done this year, next year and the years to come.
Caleb Stevens: It reminds me of a story I heard you share. You were on the phone or you were waiting in a chat bot queue or something with some big company or FinTech, and they told you were 40th in line and you were like “40th in line. That does not make me feel better about you at all. That actually makes me feel worse about you. I’m just thinking you combine high tech first, have status with the high relational, high touch, personal availability of a community bank, and that’s a winning formula versus, your 40th in line when you’re trying to talk to somebody.”
Lee Wetherington: Yes, That’s exactly right. And it’s important to make clear; a lot of chat bot technology is not ready for primetime that’s the bottom line on that. But here’s the thing, Chatbot’s and that kind of AI based technology are absolutely crucial for improving the quality of self-service across the board. If somebody just needs right, a balance or something simple, those very straightforward questions, they shouldn’t have to talk to another human being if they want to. They should have that option without you forcing them to jump through hoops or forcing them to wrangle with a Chatbot. But Chabot’s, as long as they are disclosed, and presented as not human with all of the attendant limitations that implies, they’re absolutely necessary for doing what is the biggest volume of inquiries coming into a bank at any given day, which is what’s my balance? What’s this transaction for, etcetera, that kind of thing? So, I’m not making the case that we should keep those kinds of mundane inquiries to force a converse human conversation to resolve those. No, those should be handled by technology and buy automation and buy AI to free up time for the things that absolutely require personal conversation and human to human connection. And we can do that more efficiently we can do that at a lower cost point than we’ve ever been able to do that in the history of technology and banking. And so you can have your cake and eat it too and those two things together, I really, it’s a blue ocean opportunity for community banks to differentiate over and against everything else that’s going on that we read a lot about in the FinTech space.
Caleb Stevens: So, not too long ago, I imagine a lot of our listeners were shopping online one day, maybe they were trying to buy a shirt or something, and they’re checking out, they put the shirt in their cart and they’re checking out and it says, You can either pay $70 for this shirt or you can pay 30 something dollars or 20 something dollars over four or five payments and pay that way. And that was probably their first introduction to the whole by now pay later craze with all of the affirm and the after pays Banno talk about the, buy now, pay later trends that you’re saying among Gen Z and tell us what does it mean for community banks? Does it mean anything for community banks? Should they be paying attention to it? Where do community banks and the BNLP or BNPL where does that intersect?
Lee Wetherington: Well, first of all, yes across the board. So, is buy now, pay later a prevalent behavior in Gen Z? Yes, it’s a preferred way to buy a higher ticket item in any number of retail settings now online and in store. So, now I want to map that back to what we were just talking about with financial fragmentation. These are things that are compelling and make sense in the moment that you need the high dollar appliance or whatever it is that you’re buying and are going to do a pay for in a pay in four arrangements whether you’re Best Buy or wherever you are. It makes a lot of sense in the moment for that one transaction but here’s the problem. What happens when you do your next BNPL? Or what happens when you do your third one or your fourth one? Now you’re looking at, wait a minute, where am I in payment number two of BNPL purchase number three in relation to the pay in fours that I’m doing on BNPL transaction number one, and BNPL transaction number two. You’re now creating a cascading complexity of payment plans on top of payment plans, on top of payment plans. So, when you zoom out what makes sense in the moment in one situation or for one particular purchase aggregated over 3, 4, 5 purchases is a nightmare of complexity. And if you don’t navigate that complexity well, which the statistics also show us that a lot of consumers don’t, they miss a payment. Suddenly Clara’s like, Okay, we’re not going to allow you to do another BNPL with us.
Well, how meaningful is that? Because you can do a BNPL with Afterpay, and you can still stack them and stack them, and then you get into a debt spiral and things get out of hand. So, I think BNPL is absolutely compelling it is not yet been reigned in and given by regulatory sort of guidance and limits. And I think what you’re seeing now is the result of just the complexity it is added already to this ecosystem of financial fragmentation that consumers are suffering from. Think about this think about BNPL doing more than one and that complexity. Now think about all the different ways that you can pay for anything. Okay, that’s more complexity. Now, think about all the different financial service provider relationships that you have, that are more complexity. If you zoom out, the opportunity is clear the opportunity is who can abstract away complexity? Who can simplify this otherwise impossible to navigate landscape and make me feel good about my money? This is the bottom line. This is the question I ask banks a lot of times, and I get blank stares I get deer in the headlights looking back, it’s like, how do you make money feel? Do you make it feel more complex and overwhelming, or do you make it feel safer and simpler to understand? And if you do the latter, by the way, guess what a consumer’s willing to do? They’re willing to take a next step they’re willing to engage in a next product, a next service or whatever.
And so, I also want to point this out to you. If you look at financial health gauged in the United States, as of the end of the second quarter of this year, we had 10% of the population go from the financially healthy category to the financially coping category. And we had 5% of the American population go from the financially coping category, which is basically living paycheck to paycheck down to the financially unhealthy category, which is, I can’t pay my bills the wolves are gathering, and I don’t know what I’m going to do to take care of myself and my family. And all of that is doing what? Well, first of all, you see it in the deposits. The deposits are coming out of banks. Why? It’s being burned up to buy things at an inflated rate that’s what the inflation is all about. And so, the question quickly becomes like, what can we do as a community bank to actually concretely improve financial health for the average consumer? And I’m going to tell you, it boils down to two things. How easy are you making it for people to understand where they are, by the way, whether they’re financially healthy, financially coping, or financially unhealthy? And then based off of that, making recommendations for them to go up the ladder, either from unhealthy to coping or coping to healthy. And that is typically a function of whether or not they can know where they are and number two, whether they have access to automated savings and investing capabilities. By the way, that’s it automated savings and automated investing is the only material concrete way in which average consumers build wealth over time.
And what’s amazing to me is that a lot of banks still don’t offer, a lot of them don’t offer automated savings more do than offer any kind of form of automated investing. Most banks don’t offer any form of automated investing at all unless it’s stuck over in a wealth category of the bank that only serves a super micro niche sort of subset of their population. And that I think, by the way, we’ve learned something on that if we can talk about crypto, I’d love to talk about what crypto has taught us about the need for wealth tech in community banks.
Caleb Stevens: Yes. Let’s go there. And just one point on that too, the theme I’m hearing you say is removing friction, which I think that’s a valuable, a business principle with whatever you’re selling, whether it’s your marketing or your products, the more you can do to eliminate friction to make it simple and easy. Donald Miller, he always says, “People don’t necessarily buy the best product to buy the one they can understand the fastest.” And I think to your point, in this world of fragmentation, the more you can become first app status, the more friction you can eliminate, the more you can help people feel, to your point, good and safe about their money you’re going to win as a community bank, you combine that with your superpower of relationships. That could be one [cross-talking 39:03].
Lee Wetherington: Yes. I’m going to push back on you a bit the idea of removing; we don’t want to remove all friction. Sometimes you want friction introduced if it’s in the best interest of the consumer, if you want them to actually slow down somewhere to think about the decision they’re about to make. So, there are a lot of apps there that totally get law least effort and remove all friction and just make this an easy button for a consumer to buy. The question is, is that in the consumer’s best interest? Or is that in your best interest to sell the thing that you’re trying to sell? So, my point is that I think the community bank ethos is about more about transparency and simplifying what is otherwise complex so that consumers have a realistic understanding of where they are with their money. And then once you’ve established that, make it easy, remove the friction for the options that would be in their best interest for building their own financial health and long-term financial security, which is automated savings, automated investments. Now we’re coming into an eight month window in which community banks are suddenly going to be chasing deposits again. So, what would be something that would serve the customer and also help you protect and retain the deposits that you have on hand at the bank? Well, automated savings checks both of those boxes. And moreover, if you’re looking for non-interest revenue opportunities or rev sharing opportunities with FinTechs that you can embed inside of your bank that help your customers, that also help your bottom line, we’re looking at pressure on overdraft income. We’re looking at pressure across the board just on revenues generally, especially if you project on through to the next couple of quarters.
Well, why not embed a wealth tech capability that democratizes access by your average customers to buy and hold and or sell all types of asset classes. You can embed a FinTech like unified money and does that, not only that, not only can they buy, hold and sell any type of asset class stocks, ETFs, index funds, etcetera, but they can also buy, hold and sell crypto if they’re so inclined. Now, this is the thing that I wanted to get across. Here’s what we’ve learned over the course of this crypto winter that we’ve been in over the last five months. And that is that if you are a community bank and you have a high level of trust, which almost all community banks do with their customers, it is a reputational risk to offer buy, sell of a crypto asset in the absence of allowing them to buy, sell any other type of asset. Why? It’s a tacit endorsement of an asset class that carries more risk than other traditional asset classes. And I can tell you anecdotally that the FDIC and other regulators have been coming into some banks and questioning that path. Like, wait, you’re just going to offer buy, sell of Bitcoin or buy sell of Ether, and you’re not going to offer buy sell of an ETF or an Index Fund or a stock, or a Blue Chip stock or whatever. Oh, yes. No. Well, what does that do? It tacitly endorses that riskier asset class, which is going to put you in a reputational risk. And by the way, there have been institutions burned by this, over this crypto crash in this crypto winter. Now, back to your earlier question the amazing thing is demand for crypto has not waned in the aftermath of the crypto crash.
Demand for crypto has not waned I want to make sure we’re all clear about that. But if you’re going to offer the ability for your consumers to buy and sell crypto, you want to do that replete with all other asset classes. So, that you can serve that customer in good conscience, but also set them up to succeed for the long term. The only way they build long term wealth is by investing regularly that is automatically over long stretches of time into relatively stable asset classes, that’s it. So, I’m going to throw a gauntlet down. Why would community banks not want to go ahead and make personal finance 1 0 1 possible for every customer they serve and do so at a time when they’re trying to retain deposits? And will need to gain deposits over the next 12 months and be able to compete with these other players that are otherwise luring those younger generations you mentioned Gen Z earlier away to these one off apps that do these very narrow things, it’s a big opportunity, I think for community banks.
Caleb Stevens: Yes. That makes all kinds of sense. And I think going back to your point about friction, that’s an important distinction that I didn’t make I use the term way too broadly. I was just thinking about, there’s a reason why people and myself included, try to find ways to make it harder to access, social media while you’re trying to be productive. There’s a reason we try to figure out how do I delete my Facebook account, or how do I limit it just during these hours to where I can’t even access it and it’s not even a temptation to waste my time. There are areas where we need healthy friction. And so I think that you’re hitting on, it’s important.
Lee Wetherington: The three most powerful words today for self-care and for maintaining mental health is do not disturb. The focus settings, the do not disturb settings on your smartphone are, are the most important settings in the average person’s life and you’re exactly right to point that out. That is friction by design, that is purposeful friction, I will tell you it’s only been Caleb I feel like an idiot. I only just about four weeks ago, I would automate my do not disturbed settings to come on around bedtime, and then they would turn off around the time I would start to work, and then I realized, wait a minute. No, I want my do not disturb time to start at 5:00 PM. 5:00 PM on the dot. So, I’ve got that set now, and the only people who can reach me after 5:00 PM are the people that I’ve put in the little carve out section there. My family, my mom and dad, people that I care and love most, but I can’t tell you the piece that’s brought me just in first four weeks. So yes, you’re exactly right sometimes we need friction. Friction is healthy. Do we want to live our whole lives by giving our kids the ability to press the easy button on everything that catches our fancy or in a store or otherwise? No, it’s not healthy to do that it’s not responsible to do that.
Caleb Stevens: Well, I appreciate the way you’re trying to carve a middle ground here where it’s, how can we leverage these tools, this tech, in a way that actually benefits consumers, long term benefits, small businesses, benefits community banks, doesn’t take over our lives, but actually enriches them, it benefits them if they’re used in ways that are productive. Implementing healthy friction, helping community banks become first app status, what I hear you saying is, hey guys, don’t ignore any of this stuff. It’s coming it’s an unstoppable wave you there got to get on it, or you’re going to get run over. But be purposeful and intentional with how you use it, because long term that’s going to be to your benefit. Is that kind of, if I could recap your sort of message, is that about on the nose?
Lee Wetherington: Yes, that’s exactly it. So, let me give your community bank listeners, some peer stats. We did some research in February, March of CEOs of Community Banks. 85% of your community bank peers are pursuing a niche strategy of one kind or another. A lot of them it’s small business it may be mid-size business, it may be businesses in a particular vertical. They may be, some of them, a smaller percentage, like 15% are thinking about renting their regulated rails out and embedding it into third parties, banking as a service plays. But 85% of your peers are looking to execute on a niche strategy of some kind. Some of them take something that they do well, and they want to take it outside of the bounds of their geographic market, local market. And maybe they establish a digital brand to do that maybe they don’t. But the most progressive community banks are thinking in terms of niche, niche strategies, how to execute, how to focus, how to do a thing, one thing, or a few things better than any other bank or financial service provider or FinTech can do it. Back it up with our superpower of personal service in a digital context go to market. 90% of your community bank peers have an embedded FinTech strategy in place for the next two years. Meaning they’ve identified a particular type of FinTech or maybe two FinTechs that they’re looking to embed into their digital experience for what reason to round out a set of feature service or product capabilities that are uniquely relevant to a particular niche or, and or their market that they’re serving.
Those two numbers are interrelated 85% niche strategy, 90% embedded FinTech strategy and those two things are absolutely related. The ones who are doing and will continue to do the best job of executing on those strategies are ones who see themselves and who are evolving their technology capabilities such that they can act as an active matchmaker in any given moment between the most relevant FinTech or FinTechs out there matching them back to their customer by embedding those FinTechs into their digital experience capabilities and being able to do that in a very short amount of time and meaningful timeframe, that goes to agility, that goes to optionality. So, I want community banks to think about themselves as platforms, as matchmakers between the best FinTech innovations are at least the most relevant ones and their customers, and being able to do that better and faster than anybody else for a particular niche. It focuses your decisions, it reduces your costs, it increases your chances for performance, profitability, maxing out your KPIs, and one of the best ensures paths forward for the average community bank in the United States.
Caleb Stevens: Well, Lee, I feel like we could go for another hour here, but if folks are listening and they’re saying well, man, I think I might be in that 10% that you mentioned there, Lee, how can they get in touch with you if they want more clarity about a roadmap forward? How can they learn more about what you’re doing to serve community banks through Jack Henry?
Lee Wetherington: It’s pretty easy to find me just Google my name, Lee Wetherington and you will find me online, find a site where you can kind of see some of the things I’m thinking about writing about speaking about. Always happy to have conversations with folks and maybe the next time Caleb will actually have to look further out and talk about what the 5 to 10 year future off banking looks like. There’s a constellation of technologies and innovations that are converging public cloud AI as a service where AI becomes like electricity that you can subscribe to in the cloud. AI chip sets on device like we see now on MacBook’s that are being produced with the M1 chip set where you can run AI models locally on device without access to the internet. Cryptographic monetary networks coming into full contact with our own fiat centralized monetary systems. On and on the bottom line there is that the velocity of money itself is about to fundamentally increase. And you have to think very thoughtfully and deeply about what that means for your future, 5 to 10 years out. And I think for community banks, it’s going to be a positive picture. I think their charter is going to entitle them to be the privileged sort of settlement layer between decentralized and centralized monetary networks. And there’s going to be a whole new set of needs and capabilities that will be sort of become a province of their charter going forward. It’s exciting.
Caleb Stevens: Well, we’ll love to have you back and for that episode I may ask Chris Nichols or Bruce Davidson who runs our payments group to do that one, because I think a lot of that would go straight over my head. But I definitely think that’s a topic we need to we need to dive into here real soon. So yes, maybe early next year we’ll have you back and we’ll pair you up with Chris or somebody who knows what they’re talking about.
Lee Wetherington: Sounds good. This has been fun, Caleb. Thank you.
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