Joe Maxwell, Managing Director at FINTOP Capital sat down with Clayton Weir to discuss the currents of change in financial services, ERP movement to the cloud and how banks can enable digital transformation. Hear the full episode of If I Ran The Bank podcast through Apple Podcasts, Spotify, Google Podcasts, Amazon Music, or by visiting the If I Ran The Bank website.
Joe Maxwell is a multi-time FinTech entrepreneur, having dedicated FinTech specific venture capital (VC) across various vehicles. Starting out by building applications in the early ‘90’s before SaaS was a word and before the cloud, Joe has seen many rails coalesce over the last 30 years, laying the foundation for a capstone career in FinTech. In 2016, Joe began investing and was one of the first investors in FISPAN. Joe invests in key pillars across multiple vehicles for approximately 40 companies: office of the CFO, Embedded Payments, all things ERP, private and public capital markets, and bank technology. Fitting with the If I Ran The Bank podcast theme, Joe is the first guest who actually does run a bank! Joe is a chairman at Thread Bank, previously known as Civis Bank.
Joe joined FISPAN’s CEO and Co-Founder, Clayton Weir, on Season Two of If I Ran The Bank podcast. In the episode, Joe and Clayton discuss the currents of change in financial services, ERP movement to the cloud, how banks can enable digital transformation, and considerations for compliance and bank regulators.
In order to grow and benefit from digital transformation, banks must surround themselves with modern and nimble suppliers. As Joe explained, “You have to find your point of entry… You can’t be all things to all people in this kind of digital charter business. You have to pick your points of interaction and interchange.”
The Bank’s Bread and Butter
As the bank’s bread and butter, every financial institution’s core business consists of taking deposits and “getting a spread on secure, effectively near-zero risk lending” as explained by Clayton. Through the wave of FinTech evolution, the neobank space is increasingly filled with an array of deposit-taking institutions, so institutions are not actually getting the full slice of the pie.
In search of easy and frictionless experiences, consumers in the Buy Now Pay Later (BNPL) space are willing to pay off-market rates. These expectations can be seen even in the merchant cash advance space, where small business customers demanding fast, quick, and easy money pay the (high) price. “We need to take that same underwriting and credit experience, digitize it, and hang it on a bank, and people would love to hit the go button,” explained Joe.
To better understand Merchant Cash Advance (MCA) and its benefits towards businesses, Joe explained MCAs as a loan off your transactions. For example, through a greater understanding of an individuals’ cash profile, lower rates can be offered in periods of slow activity by advancing a dollar amount to be paid back through credit card processing.
Bringing a quality of underwriting data never before seen in traditional financial institutions, MCAs carry lower underwriting risks through a greater understanding of the businesses’ cash profile. As financial institutions begin to navigate the commercial lending landscape, opportunities for digitization are apparent. In order to accomplish this, Joe pointed to the importance of intelligent platforms, noting “…you have to have intelligent platforms to read the data. Otherwise, you’re shooting in the dark. And you can’t afford to have bankers do it. It’s too expensive.”
Joe Runs The Bank : The Importance of Navigating Compliance
Drawing from his experience running Thread Bank (previously Civis Bank), Joe emphasized understanding the enormity of compliance and regulatory compliance with the bank. From the very start, regulators are integral to business plans and present in meetings - “from comp to everything, they have a say in it and they have to bless it.” Having grown up in the technology space, transparency came naturally to Joe, who added “[Regulators] are very attracted to what we’re building because we’re transparent. We’re open. We’re honest.”
In order to source the KYC, KYB, and AML compliance infrastructure needed to implement and scale platform-based FinTech business within a bank, the importance of doubling-down on and defining operations is emphasized. While FinTechs digitally orient their clients, considerations towards compliance may be put to the side. To mitigate this, Joe recommended starting soon - “If you can get in early with the [FinTech] platform and really educate them and have them be your partner in that, you can have a winning solution.”
Joe drew two key insights when asked about his experience running a bank: “[A.] The ability to engage in operational and compliance discipline and [B.] having the right team” are key to running the bank. “You’ve got to have people hungry for growth, transition, and change. You’ve got to have the anchors that believe this is the future, not fighting you, and I think you can have a really successful infrastructure for growth.”
Is Blockchain FinTech's Next Super Highway?
As innovation continues in FinTech, Joe anticipated that blockchain and the use of cryptocurrencies will “be the biggest new super highway that’s being built right now.” While transactions may enter several sets of legacy ledgers before settling, the technological promises of open ledgers show the viability and sense of implementing blockchain.
Areas with cross border settlement may become the first space to see the emergence of blockchain. Notably, these spaces benefit corporations through their efficiency and the reduced fees alongside your cash. Payment settlements are a second space in which there may be further emergence of blockchain as explained by Joe, adding “You're going to see the banks starting to offer and lean into the use of the concept of stable coin. But I think, just finding an instrument that points to the banks that backs to the creditworthiness so you can use digital payment infrastructure. I mean, we're going to see it start to emerge. It's amazing to see what's being built out there right now.”
USDF and Bank Stable Coins
In partnership with Figure, one of the largest, most capitalized blockchain companies, Thread Bank started a consortium called the USDF Consortium. In doing so, banks would have a single platform to plug into. Joe emphasized the importance of building such a consortium as “if we’re going to have a stable coin or a US dollar-backed crypto, for lack of a better term, so we can drive payments on this, then we’ve got to get something for the banks to join into that’s a consortium that they can agree to the terms and use. From my perspective, that’s why the banks are joining it; because they want to feel part of something that they can be led to the right answer that they can all agree to. It’s a lot easier for the regulators to join in and open on something that has a lot of members”.
“At the end of the day, [crypto] is not a new technology. I mean, it’s a faster, more efficient, more transparent, more secure, more self identifiable way to interact with your money.”