The Kodak Curse : Is fintech set to have a Kodak Moment? - Fintech Confidential Uncut

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Matt VanHouten - Contributor, Fintech Confidential: sometimes breaking things is helpful

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and then other times breaking things can bring down a bank, right?

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And so it can be difficult to know.

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Um, at, at, at the outset, which of these is happening right now?

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Is this the kind of, uh, disruption that is likely to lead to a

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lot of new value being created?

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Or is this the kind of disruption that that could be, you know,

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putting an entire bank at risk?

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Tedd Huff - Fintech Confidential, Host: Welcome to Fintech Confidential, bringing

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you the people, tech, and companies that change how you pay and get paid.

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Tedd Huff- Founder, Fintech Confidential: Hey there.

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Welcome to the first episode of FinTech Confidential Uncut.

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This is where we keep it a hundred percent real about all things FinTech.

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I'm Ted Huff, and I'm so stoked for today's chat.

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Now let's dive into the main event.

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Let me introduce you to Matt Van Houten.

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This isn't his first rodeo in the FinTech world, and he's hailing

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from the San Francisco Bay Area.

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Matt's been a dynamo in the industry and he's been a driving

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force behind the modern payments as their principal consultant, guiding

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companies on their payment strategies.

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Before that, he was at the helm of Ansible Labs as the head of product,

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steering their ship with his expertise.

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But that's not all.

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Matt's journey also took him to giants like Visa, where he was

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the VP of product for Visa Direct.

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And if you're talking about big players, well, he's also made

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his mark at Wells Fargo and J.

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P.

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Morgan.

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So here's the real deal.

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Matt's not just dropping by.

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He's joining our fintech confidential crew as a contributor.

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So brace yourselves for some real talk, deep dives and unfiltered

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insights about the fintech world.

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We're talking raw, unscripted and straight from the heart.

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So without further ado, it's time to jump right in, explore the world

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of FinTech with Matt Van Houten.

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Matt, let's get started and welcome them to FinTech Confidential Uncut.

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Matt VanHouten - Contributor, Fintech Confidential: Hey Ted.

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Thanks for having me.

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Tedd Huff- Host, Fintech Confidential: Yeah, so, oh man, I'm, I'm so

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glad I finally got you on the mic.

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Uh, you've, you've been writing some very good high quality material that

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people can find on LinkedIn and, and on.

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Oh my gosh.

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I just forgot.

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Is it sub stack?

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Is that where, where

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Matt VanHouten - Contributor, Fintech Confidential: Uh, I do have some sub stack

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and then also a medium.

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Yeah,

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Tedd Huff- Host, Fintech Confidential: Okay.

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I couldn't remember if it was medium or sub.

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So I guess it's both.

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So, I mean, you've been putting out massive amounts of content, really high

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quality stuff, and I'm super happy to, to have you on and to have you join in forces

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to really discuss some of these things at a little bit deeper level into what's

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going on in the realm of, of FinTech.

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Um, and maybe we can bring in a few things that, uh, some people don't

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know and and support the, the FinTech confidential side of the house.

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So I think one of the things that you brought up as we were throwing

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around ideas for, for our discussion today was really Looking at the legacy

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players that are in the FinTech market and, and more pointedly folks like

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Visa that they've been chugging along, they've been been doing really great

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things on the surface, they've been making announcements left and right,

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but it's really starting to feel like, like that Kodak moment where they're,

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they're, they're dominating right now, but are they able to do the pivot?

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Are they willing to take on the digital camera of payments to transition over,

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or are they gonna hold tight to it and just become another instant camera

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company that you can buy it at Best Buy.

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Matt VanHouten - Contributor, Fintech Confidential: Yeah, I love, I love that analogy.

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And, uh, I should say, I grew up in, uh, the city of Rochester, around the

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city of Rochester, which is the, uh, the, the, the ancestral home of Kodak.

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Um, when I, when I lived there, the George Eastman house was right next door.

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Um, we'd, we'd, we'd take a walk through its grounds.

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It's a beautiful, beautiful building.

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Um, and, and it honestly was like one of the most magnificent, uh, elements left

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of that . Legacy at the time, right?

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So when this is in, you know, 2010, 2012, Kodak had gone from dominating, you know,

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film production and, and photography,

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uh, to, to almost being a footnote in, uh, Wikipedia entry.

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And, uh, another, another famous company also, uh, based in, in

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Rochester, uh, is Xerox, right?

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Xerox had its own dominant period and, and owned, you know, digital, or

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not digital, like Xerography, right?

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Even, even, uh, the, the very term that,

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uh, it was all built around, uh, came from the company's name.

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And, and, you know, they, they made a bunch of decisions.

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I think in each case they're slightly different.

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Um, they, they honestly didn't take the competition seriously

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and they didn't take the transitions in society that were happening, uh, seriously

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early enough to make the changes that they needed to make, to stay relevant.

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Yeah, you're right.

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Both of them, uh, have seen in either their, their, their

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market share precipitously drop, uh, or in the case of Kodak is

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basically just a brand now, right?

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Like they, they really don't even make anything anymore.

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Um, and so I, I do think that, that, you know, you look at a company like

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Visa today and you look at how dominant they are in, in the world of card

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payments, and you can see 70% roughly of US cards issued carry the Visa logo.

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Um, they, they continued, as you mentioned, to make announcement

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after announcement about various partnerships, acquisitions, and, and,

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um, they, they undoubtedly are at the, the top of the pile when it comes to

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consumer initiated payments in, in, in, um, in in a number of use cases.

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But, Yes, I do believe that there are, there are some chinks in the

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armor, as it were, and, uh, it is far from certain whether that, uh,

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dominant position that they're in today is, is one that they can sustain.

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Tedd Huff- Host, Fintech Confidential: like, so when I start to think about

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it, for me, if I go back and I start thinking about all the different

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places that, uh, and all the different products and services that they've,

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they've launched over the years.

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For me, the place where I feel like the pivot really happened to where they may

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have Quote, unquote, lost their edge, really was when they decided to offer JP

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Morgan Chase their own instance, per se,

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Matt VanHouten - Contributor, Fintech Confidential: Chase net.

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Yeah.

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Tedd Huff- Host, Fintech Confidential: for ChaseNet.

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And for me, at that point there, it was almost like they, they

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realized that they're, they're, they're, they're, they've jumped the

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shark, for lack of a better term.

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Right?

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And so since then they, they've acquired, um, CyberSource auth.net.

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Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

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Tedd Huff- Host, Fintech Confidential: Um, they've, they've launched their own

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services around transaction security.

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They, they just, they've, all of the things have just kind of

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been like, check boxes, I guess is the way I would describe it.

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Nothing really moving forward, like looking at MasterCard.

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They bought a money movement company in Europe so that they

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could really dive a little bit deeper into that localized method.

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Matt VanHouten - Contributor, Fintech Confidential: You thinking vocal link in this, in

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Tedd Huff- Host, Fintech Confidential: yeah.

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yeah.

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Vocal link.

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Yeah.

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Matt VanHouten - Contributor, Fintech Confidential: Right.

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Tedd Huff- Host, Fintech Confidential: Yeah.

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So like I'm seeing what, what the other brands are doing and hearing

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the conversations from the other brands as if they're like Visa can

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have, can have the card payments.

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Because, because honestly that's, yes, that's important now.

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And yes, we're gonna see still put money into it, but we're really gonna

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focus on what's the next thing And we're gonna spend a lot of time,

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effort, and energy and figuring out how do we participate in the next thing.

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It's it's way beyond announcements.

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The, the level of, of detail and the diving in that frankly discover blows

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my mind what the amount of focus that they've put on, the alternative

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options that are coming to the market.

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MasterCard's not far behind.

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I'll say the only one that may be even further behind from Visa

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is gonna be American Express.

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Matt VanHouten - Contributor, Fintech Confidential: Yeah,

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' Tedd Huff- Host, Fintech Confidential: cause

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there, there's, they're, they're still lifting off of their, their

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t and e stuff that they've had for decades, even the, the

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foundation of the original card.

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So, I, I guess what I'm saying in short is, I love the fact that

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everybody's making announcements.

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I love the fact that they're talking about the ability to

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do stable coin settlement now.

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Who can handle that?

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It's a different story.

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Um, how's it going to work?

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Trying to get a little bit closer to the, to the small businesses of the

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merchants is, is a interesting perspective and a direction, but I don't think

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it's enough to, to sustain over time.

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I'd love to kind of get your perspective on that.

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Matt VanHouten - Contributor, Fintech Confidential: Yeah, I think it's pretty, it's

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pretty interesting to contrast Visa and MasterCard in, in

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this, uh, through this lens.

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And, um, it, when you look at, yes, VOCA link, uh, was, was acquired

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by MasterCard and Mike MEbA, right?

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Is now c who, who was the head of, of OpenLink is now c e o of MasterCard.

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Right?

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And so you have a person that's running the company who comes from

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other payment methodologies that, that are not card based, right?

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If you look at the Visa leadership team, they are.

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Almost all veterans of the card business, and very few of them have

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experience in, in, uh, in any other, in any other, uh, methodology.

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So I think there's, to me, the biggest question is really

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around leadership, right?

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Like, does, does, do each of these companies have leaders who understand

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the nature of the ecosystem as a whole?

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And, um, and are they well positioning, not just simply the betts that they're

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making in terms of buying, you know, assets and, and uh, and, and, and doing

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partnership deals, but also also in like creating a cohesive, you know, platform

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that can, that can, that can offer value?

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Uh, I would say, uh, I don't know that much about like how the, the integration.

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Quality has been at MasterCard, but I can say from my time at, at Visa, the,

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the most of the business units that have been acquired continue to operate

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pretty independently of, of each other and of a lot of Visa's core business.

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So they may carry, you know, the logo, they may say they're a Visa company.

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Um, but when you look under the hood and say like, okay, well what,

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what am I, what am I now getting through this particular partner?

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Uh, that that is better because it's part of the, the Visa ecosystem.

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And, and I think in many cases you'd be hard pressed to find those differences,

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you know, and, and in some cases I think you even would see companies

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that are acquired because they're

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innovative.

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Because they're entrepreneurial after they've been acquired.

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They don't, they don't have those same motives, they don't

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have those same incentives.

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And so you, you could, you could almost have the counter starting to happen,

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which is, it suppresses innovation.

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And, and while you, you can check that box as you mentioned, um, it's, it can also,

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the checkbox could freeze you in time.

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And the, and then the new ideas, the, the, the different ways of thinking

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about and solving problems that are looking at the, uh, the things through

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the lens of the whole customer base,

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not simply those that are existing members of the one

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particular network or the other.

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Uh, you, you, you can lose that.

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Right?

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And so I, I, I do see that MasterCard has moved first in a number of these areas.

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I don't know that vocal link itself was actually that smart of an

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investment in terms of like, Direct contributions to the bottom line,

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but in terms of the, the thought leadership and the, the

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knowledge base of the team that came with the acquisition, I,

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I, do think that, that, that may prove to be the most valuable asset is the people

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that came over from that acquisition.

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Tedd Huff- Host, Fintech Confidential: Yeah.

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And, and that's, I guess that's the biggest piece that you really look at

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if, even if you look at the acquisitions that both companies have made.

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Um,

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another one that comes to mind is that I noticed, like with MasterCard, a lot of

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their acquisitions are around privacy, around security, um, around, around things

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to, to secure, to secure the bag, right?

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They're, They're, protecting the house, um, no matter, no matter what it is.

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Whereas Visa, it's like, how, how can we bring the revenue that

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others are making based off of something that we're doing in-house?

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And like, one that comes to mind really for the visa side of the house,

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and I was actually really excited for this, was when

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Visa decided to buy, verify.

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Because Verify had struggled with, with getting data from Visa

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Verify, had struggled with, uh, optimizing onboarding process.

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I mean, all of these things that verify struggled with.

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I was super excited with the thoughts that, well, maybe now that they have

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the Visa backing, they're going to be able to deliver on all these things

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that they've been talking about,

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only to find out that they have no plans of doing anything new, anything different.

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It's more spreadsheets, it's more emails that have just moved over

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to the visa to ticketing system.

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So I don't know if that's better or worse, but it still feels like more of the same

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and that that to me is more of.

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The way to describe where Visa's been at lately is just more of the same.

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And I'm, I'm, I'm hopeful that they can get out of that mode and really start

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to contribute to them moving forward.

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Um, but unfortunately, you know, they're, they're struggling

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a bit right now with that

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Matt VanHouten - Contributor, Fintech Confidential: Yeah, I, and I, I would say that

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the, um, you know, share a little bit about the, you call it the, the

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confidential side of FinTech Confidential

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that I, I, it, it, it is not, is not anything that I, I would say

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is inappropriate to share as well.

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It's like Visa does take very seriously the threats.

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It is a, I wouldn't say it's a paranoid company, but it's definitely

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not like Kodak in the way of, or Xerox in the way of feeling like

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this is, this is a, you know, uh, a,

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a privilege that we, we've earned and will continue to exist, you

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know, independent of, of, of what happens around the rest of the market.

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Tedd Huff- Host, Fintech Confidential: Mm-hmm.

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Matt VanHouten - Contributor, Fintech Confidential: Um, I, I know from like, as an example

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with, with, um, with Xerox, right?

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I think this is a really good, good counter, uh, story to kind of think about.

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Xerox lost over time because they just didn't value the bottom of the market.

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They, they, they were making these huge machines that were dominating,

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um, at the, the high, high end.

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And, and they, they just stopped really paying attention to the low end.

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So low volume, you know, small business kind of machines.

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And, and then these companies that most people at that time had never

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heard of, like Canon, sharp Rico, they started to make low end machines.

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And, and Xerox looked at them and said, eh, they can have it.

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It's not profitable.

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It's, uh, it's a waste of time.

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Um, and, and then they lost that market, right?

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They, they were, they were fine with it, right?

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They didn't even, it didn't bother them at all.

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Tedd Huff- Host, Fintech Confidential: Mm-hmm.

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Matt VanHouten - Contributor, Fintech Confidential: Then, then those same companies

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start making mid, mid-range, and then it's like, oh, mid-range.

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Sure.

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Yeah.

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Mid range.

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Mid-range.

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We don't want them to take too much market share from midrange, but we

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could just cut our prices a little bit.

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We'll just up our sales kind of incentives and we can we'll be fine.

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Right?

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Um, but the product quality wasn't as good.

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And so they started to lose on capabilities.

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And, And, then, then once it hit the, you know, it's a natural progression,

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you know, like once those same companies started to move up into the, the,

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the higher, um, production, uh, lines they had, they had lost the momentum.

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Right.

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And they couldn't get it back.

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And so I think the real question here is like, is is there, is there a story

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whi which shows any kind of an upstart being able to really significantly

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affect Visa's ability to stay on top?

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And my my belief is that there isn't, I.

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I think their network power is so significant that I don't

Speaker: 00:18:04

actually see a likelihood of another network displacing them.

Speaker: 00:18:08

I'm, it's much more likely that other methods of payment, other, other ways

Speaker: 00:18:14

of facilitating the same kinds of transactions will dilute the value.

Speaker: 00:18:19

And that, um, the economics of, of building around interchange

Speaker: 00:18:25

are, are not here for forever.

Speaker: 00:18:27

Like, there will come a point in time when interchange is not nearly as,

Speaker: 00:18:32

as lucrative, uh, as it has been.

Speaker: 00:18:34

You know, we have examples in the UK and in Europe there's a, there's a

Speaker: 00:18:38

credit card competition act that's, that's gonna go in front of congress.

Speaker: 00:18:42

I don't know if this one's gonna pass, but it, it is.

Speaker: 00:18:45

I just see the long term I.

Speaker: 00:18:47

Trends point to lower fees for domestic payments.

Speaker: 00:18:51

And if, if, if at the point in time that those go into effect, the company hasn't

Speaker: 00:18:56

radically diversified how it makes money, I, I do think that they could be in for

Speaker: 00:19:00

a pretty quick and painful, um, decline.

Speaker: 00:19:06

Tedd Huff- Host, Fintech Confidential: Well, I mean, and you also look at,

Speaker: 00:19:08

at other options that are in the marketplace, you you look at a c h, which

Speaker: 00:19:13

is asynchronous, and it's a low cost, but there's no guarantee that that the,

Speaker: 00:19:20

that the end u the, the receiver's going to receive the money.

Speaker: 00:19:23

Right.

Speaker: 00:19:23

So that you have that one.

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We

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have

Speaker: 00:19:26

Matt VanHouten - Contributor, Fintech Confidential: only, not only that they'll

Speaker: 00:19:28

receive the money, but even if they do, if there's a problem, like,

Speaker: 00:19:33

I don't know, the service wasn't really provided.

Speaker: 00:19:35

Um, and, and so like the liability protection that people are accustomed to

Speaker: 00:19:42

with a card network based transaction.

Speaker: 00:19:46

often not off available if you make a payment using a different

Speaker: 00:19:51

method of payment there.

Speaker: 00:19:52

Fraud protections, you know, may be there to some extent.

Speaker: 00:19:56

Um, but all of that's funded by interchange, right?

Speaker: 00:20:00

And so it's like if you don't have interchange, you can't afford

Speaker: 00:20:02

to have a zero liability policy.

Speaker: 00:20:04

And so the, right now, I think there's an advantage of the networks not only

Speaker: 00:20:09

having ease of use and predictability that the transactions will work.

Speaker: 00:20:14

Uh, but also you can, you, you can know that like if somebody uses my card

Speaker: 00:20:18

in a way that I didn't authorize, I, I'm not gonna be responsible for it.

Speaker: 00:20:21

Right?

Speaker: 00:20:21

That's kind of like you don't think about it much as a risk

Speaker: 00:20:25

because you get protection.

Speaker: 00:20:27

But once you, once you start to, to eat into the revenue associated

Speaker: 00:20:33

with inter interchange, if that, if that did happen, that

Speaker: 00:20:37

That buffer isn't there anymore.

Speaker: 00:20:39

Right.

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And so, and so you end up having a much more even playing field when it

Speaker: 00:20:44

comes to where you have protection.

Speaker: 00:20:46

And then it's purely a matter of ease of use and, um, and reliability.

Speaker: 00:20:52

It does need to be reliable.

Speaker: 00:20:54

Tedd Huff- Host, Fintech Confidential: Well, I mean, and, and if you look at,

Speaker: 00:20:57

you know, the Proliferation of account to account push payments that have shown up.

Speaker: 00:21:04

We, we have Venmo and we have Zelle, and we have Cash App.

Speaker: 00:21:08

Um, we have R T P, we have like, uh, fed Now that just got

Speaker: 00:21:13

relaunched.

Speaker: 00:21:14

All of these different things.

Speaker: 00:21:15

Matt VanHouten - Contributor, Fintech Confidential: but we do, you do need

Speaker: 00:21:16

to include push to card in that framework as well,

Speaker: 00:21:18

which both Visa and MasterCard offer and I, I think is an example of, uh,

Speaker: 00:21:23

a space where the networks have seen.

Speaker: 00:21:27

That there's an an another way of thinking about how to do what's

Speaker: 00:21:32

historically been done only one way and, and do it differently.

Speaker: 00:21:35

Is it is, is it enough?

Speaker: 00:21:37

Right.

Speaker: 00:21:37

And are they also participating in all of those other methods Right.

Speaker: 00:21:42

Sufficiently to, to be as dominant a player in the future that's a

Speaker: 00:21:47

lot more fragmented and diverse.

Speaker: 00:21:49

That's where I think it's, it's very debatable

Speaker: 00:21:53

Tedd Huff- Host, Fintech Confidential: well, so.

Speaker: 00:21:54

When you look at, at the push to card that Visa and MasterCard both offer their,

Speaker: 00:22:00

their pricing is significantly less than the, the traditional, uh, acquiring model.

Speaker: 00:22:09

Matt VanHouten - Contributor, Fintech Confidential: purchases.

Speaker: 00:22:10

Yeah.

Speaker: 00:22:10

Right.

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Tedd Huff- Host, Fintech Confidential: So how, from your perspective,

Speaker: 00:22:14

how are they able to do that?

Speaker: 00:22:16

Even though I still feel like the risk is still there?

Speaker: 00:22:20

Matt VanHouten - Contributor, Fintech Confidential: Well, so this is what's

Speaker: 00:22:21

really fascinating.

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Um, I.

Speaker: 00:22:23

For an O C T, which is the original credit transaction with Visa liability

Speaker: 00:22:29

coverage doesn't apply to those.

Speaker: 00:22:32

That's no different than if you were to send a payment through an A C H

Speaker: 00:22:36

or R T P or Zelle or, or anyone else.

Speaker: 00:22:39

It's like, because it's a, we think, we think of it as a,

Speaker: 00:22:43

uh, user originated payment.

Speaker: 00:22:45

So I'm authorizing this payment to be sent to me.

Speaker: 00:22:50

Uh, it is, or sent to another, you know, it could be a business as well.

Speaker: 00:22:55

It is, it is.

Speaker: 00:22:56

It is not something that, uh, that has to comply with those same liability

Speaker: 00:23:00

rules, and so it, it it comes.

Speaker: 00:23:04

And also one other thing to just, to do.

Speaker: 00:23:07

I think is important to know is like the fees that, that the networks

Speaker: 00:23:10

collect for a push payment versus a pull payment, they're pretty similar.

Speaker: 00:23:15

So the, the network makes about the same amount per transaction.

Speaker: 00:23:19

In, in, in either case.

Speaker: 00:23:21

The key difference is that banks make a lot more money when a user is, is,

Speaker: 00:23:27

is requesting authorization to pull funds from an account versus telling

Speaker: 00:23:34

a, you know, a platform to send money.

Speaker: 00:23:37

And, and so that, that's the, there's a huge difference there.

Speaker: 00:23:39

Right?

Speaker: 00:23:40

And so I think it, it really depends on who's authorizing the transaction and,

Speaker: 00:23:45

and over what rail is it, is it settling?

Speaker: 00:23:48

Is, is really I think what we're gonna, what we're gonna have to ask ourselves

Speaker: 00:23:51

like is, is it sufficiently better that it could encourage new behavior?

Speaker: 00:23:57

Uh, it was 'cause it means that you and I, we don't just like give someone

Speaker: 00:24:01

a card number and then say, Hey, go, go ask my bank for the money.

Speaker: 00:24:04

Um, We, we, we may be taking a more active role in, in, in directing where,

Speaker: 00:24:10

where a payment might, might land and, and that could be a better ecosystem in

Speaker: 00:24:14

the future, but it's certainly different.

Speaker: 00:24:16

And anytime you're gonna change behavior, you need to have a really

Speaker: 00:24:18

compelling, you know, value proposition for both, you know, the, the,

Speaker: 00:24:22

the, the payer and the recipient.

Speaker: 00:24:25

Tedd Huff- Host, Fintech Confidential: Well, I know earlier this year,

Speaker: 00:24:27

uh, I was at the M P C conference in Atlanta, and we had a number

Speaker: 00:24:32

of financial institutions there.

Speaker: 00:24:35

Um, really talking about the, the real time payment.

Speaker: 00:24:39

And when I say that, I'm not just talking about R T P, it includes

Speaker: 00:24:43

Fed now, it includes Zelle, it includes the push to card

Speaker: 00:24:47

and how they were talking about the need to approach.

Speaker: 00:24:53

Fraud and risk in a completely different way because now it is

Speaker: 00:25:01

harder to pull the, the money back.

Speaker: 00:25:03

It's harder to

Speaker: 00:25:05

Matt VanHouten - Contributor, Fintech Confidential: Right.

Speaker: 00:25:07

Tedd Huff- Host, Fintech Confidential: the consumer in these types of areas.

Speaker: 00:25:10

And even Zelle had a number of things come out against them because people

Speaker: 00:25:14

were getting quote unquote hacked, I

Speaker: 00:25:16

won't call it hacked.

Speaker: 00:25:17

It was just social engineered,

Speaker: 00:25:19

Matt VanHouten - Contributor, Fintech Confidential: Right.

Speaker: 00:25:20

Mm-hmm.

Speaker: 00:25:20

Tedd Huff- Host, Fintech Confidential: total social engineering,

Speaker: 00:25:22

um, into that.

Speaker: 00:25:24

And now the financial institutions that I've spoken with are like, are

Speaker: 00:25:27

trying to understand how do we help the consumer protect themselves

Speaker: 00:25:33

against social engineering?

Speaker: 00:25:36

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 00:25:36

Tedd Huff- Host, Fintech Confidential: Because with a card, if you get

Speaker: 00:25:38

social engineered into a card,

Speaker: 00:25:39

like you mentioned, it's easy to hop on the app and dispute the charge, right.

Speaker: 00:25:47

Matt VanHouten - Contributor, Fintech Confidential: say it wasn't me.

Speaker: 00:25:48

And then you're, and you could be, at least in my experience, I have

Speaker: 00:25:53

never had a situation where, um, a, some fraudster had access to

Speaker: 00:26:00

a credential of mine and used it.

Speaker: 00:26:02

In a way that was not authorized by me, that that then I, I held the risk, right?

Speaker: 00:26:09

It always was covered by, um, by my bank.

Speaker: 00:26:12

But in this case, it's harder to differentiate that because in,

Speaker: 00:26:16

in, in the, in the, in the, just mechanically speaking, you are

Speaker: 00:26:20

authorizing the funds to be pushed.

Speaker: 00:26:23

And then in, in the UK this is like, they, they're further ahead in, in this kind of

Speaker: 00:26:28

journey than, than we are here in the us.

Speaker: 00:26:31

And so for several years they've, they've been thinking a lot about this

Speaker: 00:26:34

and they call it a p p fraud, right?

Speaker: 00:26:36

Authorized push payments, fraud.

Speaker: 00:26:38

And, And, and, like, one of the typical examples is, Um, you know,

Speaker: 00:26:43

you're doing work on your house and you have a little sign out in

Speaker: 00:26:45

the front yard says your contractor is here, you know, doing the work.

Speaker: 00:26:48

Fraudsters drive up and down the street.

Speaker: 00:26:50

They make note of the contractor working at this house.

Speaker: 00:26:53

They figure out who you are, and then they send you a fake invoice that looks like it

Speaker: 00:26:57

comes from the contractor doing the job.

Speaker: 00:26:58

And they say, oh, you're due to pay the next installment.

Speaker: 00:27:02

And you, you think it's real.

Speaker: 00:27:04

And so you send the money to the account that's listed on the

Speaker: 00:27:07

invoice, and lo and behold, that account is not your contractor.

Speaker: 00:27:11

Right.

Speaker: 00:27:11

And now you go to your bank and say, I want my money back.

Speaker: 00:27:14

And the bank says, well, you authorized this transaction like you sent the money.

Speaker: 00:27:18

I have the proof, I have receipts you sent, uh, on this day you signed in.

Speaker: 00:27:24

I have, I have everything here.

Speaker: 00:27:26

Um, yeah, be more careful next time.

Speaker: 00:27:28

Right.

Speaker: 00:27:29

That's a, this is pretty terrible feeling from, from a

Speaker: 00:27:33

consumer perspective.

Speaker: 00:27:35

and, and and I think you don't have to have that experience too often

Speaker: 00:27:37

before you just say like, I'm, I'm not, I'm not using that service.

Speaker: 00:27:42

Tedd Huff- Host, Fintech Confidential: So do you, do you think that that

Speaker: 00:27:45

there is anything in the account to account payments space that can really

Speaker: 00:27:53

take any sort of hold to displace the batch or card type transactions?

Speaker: 00:27:59

I mean, I struggle to see it.

Speaker: 00:28:01

Um, and, and I, I work with a number of financial institutions and, and businesses

Speaker: 00:28:06

that are wanting to go to the push payment side of the house, but they're scared.

Speaker: 00:28:10

They're scared to go there.

Speaker: 00:28:12

Do you see that there's a, is there gonna be a time when they're not as scared?

Speaker: 00:28:16

You know, what is it, do you see that They might, might go,

Speaker: 00:28:19

okay, I feel comfortable now.

Speaker: 00:28:21

And, and how do you see it transitioning?

Speaker: 00:28:24

I know that's a whole bunch of questions, but like,

Speaker: 00:28:26

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 00:28:26

Yeah.

Speaker: 00:28:26

Yeah.

Speaker: 00:28:27

Tedd Huff- Host, Fintech Confidential: like, I, I'm, let's just

Speaker: 00:28:28

start with the first one.

Speaker: 00:28:29

Like, how do you see them not being scared of it?

Speaker: 00:28:32

Matt VanHouten - Contributor, Fintech Confidential: I think the first thing that has to

Speaker: 00:28:33

happen is people need to trust that the system is on their side and that, and

Speaker: 00:28:38

that if there's a problem, they're, I.

Speaker: 00:28:41

They're gonna, if they didn't do anything wrong, that they're not

Speaker: 00:28:44

gonna be left holding the bag.

Speaker: 00:28:46

and and so for example, in the uk, again, I, I look there just,

Speaker: 00:28:50

I think they're, they've, they've done some good thinking on this.

Speaker: 00:28:53

They've put some rules in place that require banks to support

Speaker: 00:28:57

clients who have a problem.

Speaker: 00:28:59

Right.

Speaker: 00:28:59

And 'cause initially they would literally just tell them

Speaker: 00:29:03

tough, you know, tough luck.

Speaker: 00:29:04

And they wouldn't even assist with determining, you know, where

Speaker: 00:29:08

the money actually went, like how they could possibly get it back.

Speaker: 00:29:10

They, they, they leave it, they leave it to the, to the customer.

Speaker: 00:29:14

Um, and so I think there, there could be rule changes that require

Speaker: 00:29:18

banks to provide material support to clients who have a fraud issue.

Speaker: 00:29:22

This includes with Zelle, by the way, too.

Speaker: 00:29:23

Right.

Speaker: 00:29:23

I had an issue with Zelle personally, where someone sent me money.

Speaker: 00:29:27

They, they claimed it was by mistake and they wanted it back.

Speaker: 00:29:31

I was, some research and asked, asked my friends on LinkedIn as well, like,

Speaker: 00:29:36

Hey, should I send the money back?

Speaker: 00:29:38

And the the crowdsource answer was, do not send it back.

Speaker: 00:29:40

It's probably fake, right?

Speaker: 00:29:42

They probably have funded a, uh, digital wallet on Zelle with a stolen credit card,

Speaker: 00:29:48

and if you send it back to them, you're helping them take the money that they

Speaker: 00:29:53

fraudulently put into that system and, and then put it in a real bank account.

Speaker: 00:29:58

So just don't do it.

Speaker: 00:29:59

So I said, oh, okay.

Speaker: 00:30:01

Well, I called my bank.

Speaker: 00:30:02

My bank had no way to help me.

Speaker: 00:30:04

No way to know where'd the money come from?

Speaker: 00:30:06

Is this a real person?

Speaker: 00:30:07

It was, it was shocking.

Speaker: 00:30:09

And I, and I banked with a big bank, um, uh, the biggest bank

Speaker: 00:30:13

in the us we'll say , um, and,

Speaker: 00:30:18

uh,

Speaker: 00:30:18

Tedd Huff- Host, Fintech Confidential: of a tip of the

Speaker: 00:30:19

Matt VanHouten - Contributor, Fintech Confidential: yeah, .yeah, . Generally their services.

Speaker: 00:30:22

I, I, I don't have many problems with the service when I need it, but in this case

Speaker: 00:30:26

it was, it is not, it's not their fault.

Speaker: 00:30:28

It's the, it's the.

Speaker: 00:30:30

The way Zelle is constructed, it's very much like you're on your own, you know?

Speaker: 00:30:35

So, um, that's not a great feeling.

Speaker: 00:30:37

And I think as long as it stays that way, you'll find that when it, when there's

Speaker: 00:30:43

an alternative that costs the same or similar and that you're used to and,

Speaker: 00:30:49

and trust you just, you're not likely to take that on in terms of additional risk.

Speaker: 00:30:55

So that's the first thing is like, uh, the, the rules kind of

Speaker: 00:30:58

guaranteeing that you will have somebody looking out for you.

Speaker: 00:31:01

The other thing that they've done in the UK is they, they, they also have

Speaker: 00:31:03

this, this service where before you send a payment, you can, can see some

Speaker: 00:31:10

information about the, the, the place where you're trying to send the money.

Speaker: 00:31:14

So it's, in this case, like, I think I'm sending money to my contractor if I

Speaker: 00:31:18

pinging this account number and it comes back with some totally unrelated name.

Speaker: 00:31:24

Well, all right.

Speaker: 00:31:26

I can suspect that this is not legitimate, and then I won't send that payment.

Speaker: 00:31:30

Right.

Speaker: 00:31:30

And, and so I think that's, that's a, that's another fairly basic

Speaker: 00:31:34

step that a person could take.

Speaker: 00:31:35

If you ever do Venmo and you send money to a phone number that you've never sent

Speaker: 00:31:39

money to before, or an email that you've never sent money to before, it'll ask you,

Speaker: 00:31:43

do you know the last four digits of this phone number that's

Speaker: 00:31:46

associated with that, that person.

Speaker: 00:31:49

and, and, or you could see a picture, right?

Speaker: 00:31:51

There's, there's some, it's not great.

Speaker: 00:31:53

Right?

Speaker: 00:31:54

It's still

Speaker: 00:31:55

Tedd Huff- Host, Fintech Confidential: Well, and Zelle Z's pretty

Speaker: 00:31:56

much the same way I've noticed,

Speaker: 00:31:58

like a few, uh, a few months ago, and I was paying, uh, one of, one of the guys

Speaker: 00:32:04

on my team to, to do some additional work, and I went to Zelle him the money

Speaker: 00:32:11

and it failed.

Speaker: 00:32:12

So I tried it again and it failed, and I tried it again and it failed.

Speaker: 00:32:15

But I was not getting any sort of failed message.

Speaker: 00:32:18

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 00:32:19

Tedd Huff- Host, Fintech Confidential: And so you look at my, you look at

Speaker: 00:32:21

the thing and it's like, money, money, money, money, out, out, out, out, out.

Speaker: 00:32:26

I'm like, oh crap.

Speaker: 00:32:27

How many of these just went out?

Speaker: 00:32:30

My oldest daughter had the same issue happen with JP Morgan, where

Speaker: 00:32:33

they sent her rent payment to her

Speaker: 00:32:36

landlord three times

Speaker: 00:32:39

Matt VanHouten - Contributor, Fintech Confidential: Oh man.

Speaker: 00:32:40

Tedd Huff- Host, Fintech Confidential: and completely demolished her account.

Speaker: 00:32:42

Now, mind you,

Speaker: 00:32:43

Matt VanHouten - Contributor, Fintech Confidential: that, that was the, the

Speaker: 00:32:44

public issue, right?

Speaker: 00:32:45

That was the one that, that, that, uh, was like last month or

Speaker: 00:32:48

Tedd Huff- Host, Fintech Confidential: Oh, it's been a, it is been a few months ago.

Speaker: 00:32:50

Yeah, it's been

Speaker: 00:32:51

a few months ago.

Speaker: 00:32:52

They just talked about it like a month ago, but it

Speaker: 00:32:55

happened months and months ago.

Speaker: 00:32:57

And, and so first thing she did is she called the bank.

Speaker: 00:33:01

I mean, she calls me first actually,

Speaker: 00:33:03

she calls me and says, dad, what do I do?

Speaker: 00:33:05

Uh, and I said, how did you pay it?

Speaker: 00:33:07

Matt VanHouten - Contributor, Fintech Confidential: we gotta be good for something, Ted.

Speaker: 00:33:09

You know, once the kids, once the kids get out on their own,

Speaker: 00:33:11

you gotta have a reason to get

Speaker: 00:33:13

Tedd Huff- Host, Fintech Confidential: Yeah.

Speaker: 00:33:14

Uh, so exactly.

Speaker: 00:33:16

So I say, what was it, Zelle?

Speaker: 00:33:17

Yeah, it was Zelle.

Speaker: 00:33:18

Did you, are you sure you didn't hit the button three times?

Speaker: 00:33:21

That's the first question I have to ask.

Speaker: 00:33:23

I.

Speaker: 00:33:24

And she says,

Speaker: 00:33:25

Matt VanHouten - Contributor, Fintech Confidential: All right.

Speaker: 00:33:26

I see what you're saying because you'd had the experience of it

Speaker: 00:33:30

but sometimes a failure is not actually a failure in the back end.

Speaker: 00:33:33

Right.

Speaker: 00:33:33

This, that happened to me at Taco Bell.

Speaker: 00:33:35

The app told me it's failed, and my daughter's like, I'm so hungry.

Speaker: 00:33:39

I said, okay.

Speaker: 00:33:39

She orders it again, we show up and they're both there.

Speaker: 00:33:42

two orders, like,

Speaker: 00:33:43

we didn't need, we didn't need two of these.

Speaker: 00:33:45

You know,

Speaker: 00:33:46

Tedd Huff- Host, Fintech Confidential: But, but Taco Bell.

Speaker: 00:33:47

Taco Bell is not as bad as three months worth of rent.

Speaker: 00:33:51

New York, New York city, rent of all places

Speaker: 00:33:54

Matt VanHouten - Contributor, Fintech Confidential: close, right?

Speaker: 00:33:55

Tedd Huff- Host, Fintech Confidential: nicked out of a bank account.

Speaker: 00:33:57

But you know, the call, then she picks up the phone, she calls, um, and I

Speaker: 00:34:00

have no problem calling out the bank.

Speaker: 00:34:02

I mean, it's JP Morgan.

Speaker: 00:34:03

They called the bank and the person on the other end is

Speaker: 00:34:07

says, we're aware of the issue.

Speaker: 00:34:10

You will not be charged any overdraft fees and the additional payments

Speaker: 00:34:13

will be put back into your account no later than tomorrow morning.

Speaker: 00:34:18

I was completely shocked because that is Not the response that I

Speaker: 00:34:24

had from my financial institution, which supports US veterans

Speaker: 00:34:30

Matt VanHouten - Contributor, Fintech Confidential: Hmm

Speaker: 00:34:31

Tedd Huff- Host, Fintech Confidential: specifically.

Speaker: 00:34:31

Matt VanHouten - Contributor, Fintech Confidential: mm-hmm.

Speaker: 00:34:32

Tedd Huff- Host, Fintech Confidential: So it was really interesting to see

Speaker: 00:34:35

someone who touts, being very friendly,

Speaker: 00:34:38

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 00:34:38

Tedd Huff- Host, Fintech Confidential: helpful, and someone who you

Speaker: 00:34:40

would expect to not be very helpful, being very helpful.

Speaker: 00:34:44

And she feels more comfortable using Zelle than I do now.

Speaker: 00:34:48

Matt VanHouten - Contributor, Fintech Confidential: Hmm.

Speaker: 00:34:48

Tedd Huff- Host, Fintech Confidential: And

Speaker: 00:34:49

it was

Speaker: 00:34:49

Matt VanHouten - Contributor, Fintech Confidential: it is, and, and, and when they,

Speaker: 00:34:50

and that's a great example, right?

Speaker: 00:34:52

Like there's an issue.

Speaker: 00:34:53

They take responsibility for resolving the issue, and then they

Speaker: 00:34:56

assure you that you're, you're, you're, you're gonna be protected.

Speaker: 00:34:59

So to the extent that they stepped in and, and, and took

Speaker: 00:35:02

that posture across the board.

Speaker: 00:35:05

Not just simply when it's one high profile or, you know, thing that,

Speaker: 00:35:08

that they're concerned is probably gonna create some bad press.

Speaker: 00:35:12

Uh, I, I think you would see a lot of those, those alternative

Speaker: 00:35:16

methods being, uh, experimented with and especially by younger people.

Speaker: 00:35:20

Right.

Speaker: 00:35:20

You know, it's, a lot of this stuff changes slowly part in part

Speaker: 00:35:25

because most of the value in our economy still sits with people who

Speaker: 00:35:29

are generally older and, and maybe less likely to try something new.

Speaker: 00:35:34

But, um, over time I do think that, that the younger folks are gonna try different

Speaker: 00:35:39

things, but even they are gonna wanna know that they're, that they're not,

Speaker: 00:35:42

especially I think Gen Z I have Gen Z kids and, um, yeah, they

Speaker: 00:35:47

want to, they wanna know that they're being looked after, right?

Speaker: 00:35:49

They, they, they feel, they feel, they feel like they didn't get

Speaker: 00:35:53

a great deal, you know, in terms

Speaker: 00:35:54

of what the world that they're inheriting.

Speaker: 00:35:56

And, and I think you're gonna see their expectations around,

Speaker: 00:36:00

uh, coverage of, of fraud.

Speaker: 00:36:03

Regardless of whether the, was the transaction was done with a piece

Speaker: 00:36:06

of plastic or some other, some other, you know, form factor that,

Speaker: 00:36:11

that if something goes bump, they won't be responsible if it wasn't their fault.

Speaker: 00:36:16

Tedd Huff- Host, Fintech Confidential: Yeah, and

Speaker: 00:36:17

Matt VanHouten - Contributor, Fintech Confidential: That's the biggest issue.

Speaker: 00:36:18

Yeah, that's definitely the biggest issue with all these alternatives

Speaker: 00:36:21

and, and then you have to ask yourself, well, do the banks have

Speaker: 00:36:25

an incentive to lean in like that?

Speaker: 00:36:28

I think, I think honestly the only way this happens is if the credit

Speaker: 00:36:32

card and debit card interchange rules fully cap interchange to an extent

Speaker: 00:36:40

where banks have to re restructure the way that they think about why

Speaker: 00:36:46

they issue cards in the first place.

Speaker: 00:36:49

Tedd Huff- Host, Fintech Confidential: I mean, the amount of interchange

Speaker: 00:36:50

that is, that is generating revenue, um, in the marketplaces.

Speaker: 00:36:58

Is amazing.

Speaker: 00:36:59

Uh, like I'm blown away.

Speaker: 00:37:01

Um, how much, and I, I, I work with small issuing companies

Speaker: 00:37:07

that and program managers, and

Speaker: 00:37:09

I look at the revenue that's generated off of their small-ish programs.

Speaker: 00:37:14

And when I say small-ish, I'm talking like a hundred thousand

Speaker: 00:37:18

cards in the marketplace.

Speaker: 00:37:20

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 00:37:20

Tedd Huff- Host, Fintech Confidential: And, and you see the, the revenue

Speaker: 00:37:22

that's generated and then you look at the fraud side of the house.

Speaker: 00:37:26

If you deduct that out of there, it's still a pretty substantial

Speaker: 00:37:28

number, uh, that, that they're generating in annual revenue.

Speaker: 00:37:33

But I think the other piece that's gonna come into play is that if, if they cap

Speaker: 00:37:38

interchange, then all of the benefits that we've come, the rewards are gonna

Speaker: 00:37:42

go away.

Speaker: 00:37:43

Heck, the rewards have already started to go away.

Speaker: 00:37:45

I mean, I, I got the Amex, uh, Delta Amex card because I was excited

Speaker: 00:37:51

because I put all my business expenses on that Delta card.

Speaker: 00:37:54

And

Speaker: 00:37:55

man, I was gonna get me a vacation.

Speaker: 00:37:57

Now I, I, I nearly have to spend all, every last penny

Speaker: 00:38:01

that I earn.

Speaker: 00:38:02

Matt VanHouten - Contributor, Fintech Confidential: I didn't, I haven't heard

Speaker: 00:38:02

about their, that program in

Speaker: 00:38:04

Tedd Huff- Host, Fintech Confidential: So, so they, they've just reduced all

Speaker: 00:38:06

of the, the special things that you get, you know, to, to get to that top tier.

Speaker: 00:38:12

When I first got the card, I could spend, um, an amount, uh, I think, I

Speaker: 00:38:18

think it was, uh, a hundred thousand dollars a year, and I went all the

Speaker: 00:38:21

way up to the top tier at Delta.

Speaker: 00:38:24

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 00:38:25

Tedd Huff- Host, Fintech Confidential: to do it, you have to spend nearly $500,000

Speaker: 00:38:29

Matt VanHouten - Contributor, Fintech Confidential: Wow.

Speaker: 00:38:29

Tedd Huff- Host, Fintech Confidential: on the card to get to that tier.

Speaker: 00:38:31

Not only that, but used to get all these benefits by having the card

Speaker: 00:38:35

and paying them $500 a year for the privilege of having the card.

Speaker: 00:38:40

And now if you add up the cost of all the things that they've taken

Speaker: 00:38:43

away, it's no longer worth the $500.

Speaker: 00:38:46

And, and you know, the, the, the thing behind that is that our expenses

Speaker: 00:38:50

and everything is going up, so we have to cover ourselves somehow some

Speaker: 00:38:53

way, but they continue to increase the interchange at the same time.

Speaker: 00:38:56

So I'm really starting to question is it really that's going on, or are

Speaker: 00:38:59

they trying to increase their margins?

Speaker: 00:39:01

And if the interchange gets capped,

Speaker: 00:39:05

That's only gonna get much worse, which is going to force people to,

Speaker: 00:39:12

to look for alternative methods

Speaker: 00:39:14

Matt VanHouten - Contributor, Fintech Confidential: Yep.

Speaker: 00:39:15

Tedd Huff- Host, Fintech Confidential: for them as a consumer because the

Speaker: 00:39:17

consumer behavior is about how much,

Speaker: 00:39:20

how well can I be treated during the time of acquiring a product or service

Speaker: 00:39:26

and how easy is it for me,

Speaker: 00:39:29

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 00:39:29

And I, I,

Speaker: 00:39:30

Tedd Huff- Host, Fintech Confidential: and service, I

Speaker: 00:39:31

Matt VanHouten - Contributor, Fintech Confidential: right.

Speaker: 00:39:32

right.

Speaker: 00:39:32

And I, I, um, you.

Speaker: 00:39:35

I don't know that many people seem to quite get this connection

Speaker: 00:39:38

between what's being sold as like a,

Speaker: 00:39:41

Hey, we're trying to help small businesses by reduced interchange

Speaker: 00:39:44

and you know, merchant acceptance fees are, are, are unsustainable.

Speaker: 00:39:49

Right?

Speaker: 00:39:49

Like that's the, that's like the headline story beyond

Speaker: 00:39:51

credit card Competition Act.

Speaker: 00:39:53

And, And, and, you get people saying, yeah, I I I agree Mom

Speaker: 00:39:58

and pops should be protected.

Speaker: 00:39:59

Tedd Huff- Host, Fintech Confidential: that

Speaker: 00:39:59

isn't who's gonna get protected.

Speaker: 00:40:01

Matt VanHouten - Contributor, Fintech Confidential: those same Yeah, I know.

Speaker: 00:40:03

And those, but those same people who are, who are, who are uh,

Speaker: 00:40:05

you know, showing their support,

Speaker: 00:40:07

I think don't realize they're, you know, one and a half percent cash back

Speaker: 00:40:13

or their, their, their, their airline miles or whatever, whatever benefits

Speaker: 00:40:17

they're seeing for their card are, are funded from that, that, that, that fee.

Speaker: 00:40:23

Right.

Speaker: 00:40:23

and and I did, I did an analysis, if you're interested in nerding

Speaker: 00:40:26

out on this, anybody that like wants to go look at my, um,

Speaker: 00:40:29

Tedd Huff- Host, Fintech Confidential: We'll, we'll put the

Speaker: 00:40:30

links in the show

Speaker: 00:40:30

notes.

Speaker: 00:40:30

We'll put the link in the show notes.

Speaker: 00:40:32

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 00:40:32

Yeah.

Speaker: 00:40:33

So there's a, I did, I did an example transaction just to try to show like

Speaker: 00:40:36

who's, who's actually getting what.

Speaker: 00:40:38

When you swipe a card, you know, if you look at the total amount that's being

Speaker: 00:40:41

paid by the merchant, who gets, who gets what piece of it overwhelmingly

Speaker: 00:40:45

for most, for, if you're using a credit card as an example, not a debit card.

Speaker: 00:40:49

' cause they don't often, they sometimes have rewards, but it's not, not really

Speaker: 00:40:54

. So a credit card with the rewards program, overwhelmingly the majority of

Speaker: 00:40:59

the fees that are deducted from what the merchant's getting go to the card holder.

Speaker: 00:41:05

The, the second, the second highest number goes to the issuing bank.

Speaker: 00:41:09

The third highest goes to the acquiring entity that processes the

Speaker: 00:41:14

payment on behalf of the merchant.

Speaker: 00:41:15

And the very bottom goes to the network, which is Visa or MasterCard.

Speaker: 00:41:19

So we all like to point to the network and say, they're getting

Speaker: 00:41:23

all this money, they're controlling all this, you know, these fees.

Speaker: 00:41:26

And they, they do set the prices, but.

Speaker: 00:41:30

If you break down

Speaker: 00:41:31

Tedd Huff- Host, Fintech Confidential: Do they really?

Speaker: 00:41:31

Matt VanHouten - Contributor, Fintech Confidential: what they do?

Speaker: 00:41:34

Tedd Huff- Host, Fintech Confidential: You don't, you don't think it's

Speaker: 00:41:35

the, the issuing banks that are, are lobbying for them to

Speaker: 00:41:39

Matt VanHouten - Contributor, Fintech Confidential: Well, there's, they're pushing.

Speaker: 00:41:41

Yes.

Speaker: 00:41:41

Tedd Huff- Host, Fintech Confidential: rewards and they can cover their losses.

Speaker: 00:41:44

And, um, by the way, if you don't do this, I will switch to this network.

Speaker: 00:41:48

Who will do it for me?

Speaker: 00:41:50

Like,

Speaker: 00:41:51

Matt VanHouten - Contributor, Fintech Confidential: yeah, That's true.

Speaker: 00:41:52

Tedd Huff- Host, Fintech Confidential: Costco.

Speaker: 00:41:52

I mean Costco, the main reason they switched over from, from, Amex to Visa

Speaker: 00:41:57

from my understanding

Speaker: 00:41:59

was because Visa was going to cut them a killer deal on their interchange across

Speaker: 00:42:04

the board, but still allow them to give all the benefits to their cardholders.

Speaker: 00:42:09

So they basically were taken on both sides of the table and Visa

Speaker: 00:42:13

wanted it so bad they were willing to lose money on that portfolio just

Speaker: 00:42:17

to say they took it away from Amex.

Speaker: 00:42:21

That's the story that I've gotten.

Speaker: 00:42:23

Matt VanHouten - Contributor, Fintech Confidential: this is one of those

Speaker: 00:42:24

things I cannot comment on.

Speaker: 00:42:26

Um.

Speaker: 00:42:28

I, I would say that's an interesting story and I think, I think

Speaker: 00:42:32

there's, it makes a lot of sense.

Speaker: 00:42:35

Um, what you've

Speaker: 00:42:37

Tedd Huff- Host, Fintech Confidential: enough.

Speaker: 00:42:37

And I, I don't know, I, I know during that time period you were, you were

Speaker: 00:42:41

at an entity that may or may not have made you privy to some information,

Speaker: 00:42:45

and I will disclose that.

Speaker: 00:42:46

I did not hear any of this information from Matt.

Speaker: 00:42:49

Um, but this is from, from others within the industry, so,

Speaker: 00:42:52

Matt VanHouten - Contributor, Fintech Confidential: but it, it does, it does point to kind

Speaker: 00:42:56

of coming back to this question of like, you know, using the Xerox story,

Speaker: 00:43:01

focusing on the big, the big players to the exclusion of everybody else.

Speaker: 00:43:05

You could argue in Visa's case, focusing on the US to the

Speaker: 00:43:09

exclusion of the rest of the world

Speaker: 00:43:11

Tedd Huff- Host, Fintech Confidential: oh,

Speaker: 00:43:11

yes.

Speaker: 00:43:12

Matt VanHouten - Contributor, Fintech Confidential: uh, is another example.

Speaker: 00:43:13

And while it's not quite fair, probably to say that I.

Speaker: 00:43:18

They only are focused on the us, they're inordinately focused on the us.

Speaker: 00:43:22

And if you compare MasterCard in exam, for example, in what

Speaker: 00:43:26

they've done in South America and

Speaker: 00:43:28

Latin America versus, you know, what Visa's done in, in the same

Speaker: 00:43:32

region, uh, or in Asia Pacific,

Speaker: 00:43:34

um, uh, I think the field, the playing field's a little more level in

Speaker: 00:43:39

Africa, but more complicated as well.

Speaker: 00:43:41

But look at ap, look at, look at Latin America, and, you know,

Speaker: 00:43:46

Visa's playing catch up there.

Speaker: 00:43:47

MasterCard has, has taken a much more, uh, aggressive position in doing partnerships

Speaker: 00:43:53

with companies that Visa probably thought were just too small and not

Speaker: 00:43:57

that interesting in, uh, at the moment.

Speaker: 00:44:00

And now, now you're seeing, you're starting to see some momentum

Speaker: 00:44:04

picking up outside of, uh, the US for, for other players.

Speaker: 00:44:07

Tedd Huff- Host, Fintech Confidential: Well, you know, that makes me think of a

Speaker: 00:44:10

project that I got to work with Visa on in India, which was Universal id, which

Speaker: 00:44:15

was leveraging the Visa network and a, and a, a prepaid card in the background,

Speaker: 00:44:20

for a lack of a better phrase, to basically test out whether

Speaker: 00:44:23

or not the country and and the citizens of India would be willing

Speaker: 00:44:30

to participate in a program like this, especially the rural folks.

Speaker: 00:44:35

And that was kind of the precursor to U P I, which I mean,

Speaker: 00:44:40

U P I is blowing up in India.

Speaker: 00:44:43

Everybody is using it.

Speaker: 00:44:46

Um, it is the primary source of all bill payments.

Speaker: 00:44:50

Most transactions fall into U P I.

Speaker: 00:44:53

Um, and the only one that's even doing any better than U P I is Pix outta Brazil.

Speaker: 00:44:58

Like it's, it's uncanny that these guys have done this and these are two

Speaker: 00:45:03

regions that, you know, the traditional card brands have struggled in.

Speaker: 00:45:08

They just, they couldn't get any hold.

Speaker: 00:45:10

And so like, do you think that because the credit debit card

Speaker: 00:45:18

culture was so far removed that

Speaker: 00:45:22

that's why these account to account transfer protocols have really taken off

Speaker: 00:45:28

unlike R T P and Fed now here in the us.

Speaker: 00:45:32

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 00:45:32

Um, I think they, yeah, I think each country has its own ingredients that

Speaker: 00:45:38

drove that crazily rapid adoption of, of the, of the new frameworks.

Speaker: 00:45:45

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Speaker: 00:45:49

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Speaker: 00:45:51

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Speaker: 00:45:55

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Speaker: 00:45:57

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Speaker: 00:46:08

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Speaker: 00:46:13

Matt VanHouten - Contributor, Fintech Confidential: I think in both cases, you saw I

Speaker: 00:46:15

countries that had relatively low penetration of, of cards per banked adult.

Speaker: 00:46:22

So if you looked at like, who, who, who in the country as an adult has a bank

Speaker: 00:46:26

account, first of all, so who's banked?

Speaker: 00:46:28

And then of those who are banked, who have a card, and then of those who.

Speaker: 00:46:33

Where is it a card that's issued by one of the two big brands?

Speaker: 00:46:37

Those numbers were pretty small in both, both India and in Brazil.

Speaker: 00:46:42

And, um, I think Brazil, it's, that's probably like the, the growth there

Speaker: 00:46:48

has just been astronomical with picks, um, unprecedented, frankly.

Speaker: 00:46:52

And, and one thing that I think is really fascinating, I, I just learned this

Speaker: 00:46:56

from another one of, uh, US payments and FinTech nerds very recently, um, is,

Speaker: 00:47:02

is who's done a lot of work down there.

Speaker: 00:47:04

And I, I didn't, I didn't know about this.

Speaker: 00:47:06

So this is fascinating kind of thinking about the eec.

Speaker: 00:47:08

It's a, it's an, it's a, it's an economic piece and it's a mandate piece, right?

Speaker: 00:47:13

And in the case of, and this is also true for India, the government has

Speaker: 00:47:16

taken a very heavy hand in pushing for participation with these schemes.

Speaker: 00:47:22

So the banks in Brazil, the banks in India, they're, they're required to

Speaker: 00:47:26

support the schemes and, um, the fees that they're allowed to charge are.

Speaker: 00:47:33

Either zero or very, very, very low.

Speaker: 00:47:36

Right?

Speaker: 00:47:36

And so there's a, there's a, there's a government mandate that,

Speaker: 00:47:41

that we don't have here, right?

Speaker: 00:47:43

First of all, we don't have the government insisting that banks participate, and

Speaker: 00:47:47

then we, we, we also don't have at least very little government oversight

Speaker: 00:47:52

of what the prices are, right?

Speaker: 00:47:55

So that's just not normal in the, in the US it's, it's, it's bedrock,

Speaker: 00:47:59

uh, in both of these places.

Speaker: 00:48:01

But even more than that, you could have something that's, you know, free.

Speaker: 00:48:05

Um, and, and, that the bank support, that doesn't necessarily mean that

Speaker: 00:48:08

people are gonna go use it when they're out in the world, right?

Speaker: 00:48:11

Um, if they have a better alternative.

Speaker: 00:48:14

And, and so something that, that, um, I, I was just unique, I think

Speaker: 00:48:19

to Brazil more so than India.

Speaker: 00:48:22

Is, this idea of paying with installments.

Speaker: 00:48:24

So you could say like Brazil was doing, you know, buy now,

Speaker: 00:48:28

pay later before buy now.

Speaker: 00:48:29

Pay later was cool, uh, but people would buy like, uh, uh,

Speaker: 00:48:33

a happy meal at McDonald's and pay for it in three installments.

Speaker: 00:48:37

And, and those, those installments came with a financing fee.

Speaker: 00:48:41

And so almost everything was being, that was being purchased using

Speaker: 00:48:45

a card was sort of automatically being billed at a, not just a card

Speaker: 00:48:51

interchange, kind of like level, but a three, four month installment window.

Speaker: 00:48:58

And so everything on the price, on the menu kind of reflected that cost.

Speaker: 00:49:04

And so now that you have this alternative, which is, which is picks.

Speaker: 00:49:08

You can now discount.

Speaker: 00:49:10

So say, Hey, you, you, you pay with, you pay with picks

Speaker: 00:49:13

and we'll give you a discount.

Speaker: 00:49:14

And it's not a teeny discount.

Speaker: 00:49:15

It's not like it's 1%, 2%, it's like 10%, 20%.

Speaker: 00:49:19

Right.

Speaker: 00:49:19

It's, it's, it's a meaningful

Speaker: 00:49:20

Tedd Huff- Host, Fintech Confidential: I've, I've, I mean, 'cause when you look

Speaker: 00:49:22

at the parcels that that happened in, in Brazil, it was not unusual to see

Speaker: 00:49:27

20 to 30% increase in cost to do that

Speaker: 00:49:31

Matt VanHouten - Contributor, Fintech Confidential: right,

Speaker: 00:49:31

Tedd Huff- Host, Fintech Confidential: And, and the longer the turn,

Speaker: 00:49:33

the higher the percentage.

Speaker: 00:49:35

So you could get at double the price of the item if you extended the term

Speaker: 00:49:41

out far enough because they're, they're adjusting for the risk over long term.

Speaker: 00:49:47

Matt VanHouten - Contributor, Fintech Confidential: right, right.

Speaker: 00:49:48

Of, of not getting the full value paid back.

Speaker: 00:49:51

Tedd Huff- Host, Fintech Confidential: Exactly.

Speaker: 00:49:52

So the ability to, to be able to, and I think this, the other piece

Speaker: 00:49:56

in this too is that that discount for those who have the means,

Speaker: 00:50:01

um, it really does do that.

Speaker: 00:50:03

But that also starts to do the, the, the widening of the gap between

Speaker: 00:50:07

with means and without means.

Speaker: 00:50:10

And so what's going to tend to happen is that now that

Speaker: 00:50:12

everybody's, this is my perspective,

Speaker: 00:50:15

um, I'm speculating completely on this, but I think what you'll see is the, the,

Speaker: 00:50:21

the cost to those who have to use pars, uh, versus being able to use picks.

Speaker: 00:50:27

Matt VanHouten - Contributor, Fintech Confidential: Oh, even widening, you

Speaker: 00:50:29

think, you think you're getting bigger?

Speaker: 00:50:30

Tedd Huff- Host, Fintech Confidential: I I think, I think the cost for

Speaker: 00:50:32

those that are doing in installments is gonna continue to go up because

Speaker: 00:50:35

it's the lower end of the market.

Speaker: 00:50:37

Think subprime here in the us, if all you're doing is serving

Speaker: 00:50:40

subprime, think payday loans,

Speaker: 00:50:43

it's, it's gonna be extremely high cost.

Speaker: 00:50:46

Versus someone who's got a million bucks in the bank and wants to borrow

Speaker: 00:50:49

$50,000, they're gonna get it literally pretty close to no, no cost, um,

Speaker: 00:50:56

to

Speaker: 00:50:56

Matt VanHouten - Contributor, Fintech Confidential: makes it, it makes a lot,

Speaker: 00:50:57

the logic makes sense.

Speaker: 00:50:58

It's

Speaker: 00:50:59

regrettable.

Speaker: 00:51:00

Tedd Huff- Host, Fintech Confidential: that's a different story.

Speaker: 00:51:01

,who knows?

Speaker: 00:51:02

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 00:51:02

Yeah.

Speaker: 00:51:03

I, I could see, I could see that being the case.

Speaker: 00:51:06

And I guess the other thing is like, you would hope as well that on the,

Speaker: 00:51:11

call it the micro payment, you know, a single, a single item at a convenience

Speaker: 00:51:15

store,

Speaker: 00:51:16

um, that, that these things would be within the reach

Speaker: 00:51:18

of, uh, of, of more people.

Speaker: 00:51:21

Um, but yeah, to the extent that you really need that additional

Speaker: 00:51:25

help, you maybe built the habit of always having time to kind of

Speaker: 00:51:29

like pay, pay for your purchases.

Speaker: 00:51:31

Yeah.

Speaker: 00:51:31

That, that could, yeah, that gap could widen.

Speaker: 00:51:34

Uh, and it'd be really unfortunate.

Speaker: 00:51:36

And I think, I think to sticking with Brazil for a sec, um, so Visa, I, I

Speaker: 00:51:41

do think in this case, visa has done something like, it's really, really smart.

Speaker: 00:51:45

And, and that is that they have entered into an agreement to

Speaker: 00:51:49

acquire a company called Pismo.

Speaker: 00:51:51

And so Pismo is, is headquartered in Sao Paulo.

Speaker: 00:51:55

Um, they have customers all around the world and . What Pismo is, and this is

Speaker: 00:52:01

sort of probably closer to what you've alluded to with, uh, MasterCard doing

Speaker: 00:52:06

with when they purchase Foca link,

Speaker: 00:52:09

um, is they, they've bought a technology company, or at least

Speaker: 00:52:12

they're assuming it closes, they will be purchasing a technology company.

Speaker: 00:52:17

And, and what Pismo does is, is build core banking, issuer processing, uh,

Speaker: 00:52:24

and, and pretty basic, but they do have some payments, uh, capabilities as well.

Speaker: 00:52:30

Um, they have secured a deal with Citi to replace c um, corporate

Speaker: 00:52:37

banking account backbone, which is honestly, I was stunned when I heard

Speaker: 00:52:43

that Citi would be partnering with a, what effectively is a startup, right?

Speaker: 00:52:47

I think it's like a seven or eight year old company.

Speaker: 00:52:49

It's, it's, it's not a, doesn't have a long track record.

Speaker: 00:52:52

Um, and so.

Speaker: 00:52:55

If, if here's . Here's the asterisk though.

Speaker: 00:52:59

If they allow Pismo to continue to do what they do, this is one case where I would

Speaker: 00:53:03

argue for buy the company and leave them alone and let them just do their thing.

Speaker: 00:53:11

Right.

Speaker: 00:53:12

That would be smart in this case because then they're incentivized

Speaker: 00:53:17

to continue to innovate.

Speaker: 00:53:18

They're incentivized to solve for client, um, problems first and

Speaker: 00:53:23

foremost, not how you support other existing like visa lines of business.

Speaker: 00:53:29

And, um, and, and then it gives Visa access to a whole bunch of

Speaker: 00:53:35

different revenue streams that are, that are not connected to any

Speaker: 00:53:38

particular way of moving money.

Speaker: 00:53:41

'cause it's in the core.

Speaker: 00:53:42

And, um, you know, history would suggest that the.

Speaker: 00:53:48

If you look at the way that many of the other acquisitions have been handled, that

Speaker: 00:53:51

they would be left to do their own thing.

Speaker: 00:53:53

Um, however, if you look at the, the fact that, uh, Pismo does have an issuer

Speaker: 00:53:58

processing capability and that Visa has very limited issuer processing services

Speaker: 00:54:04

that they offer outside of the us I am sure the temptation is that they would

Speaker: 00:54:10

continue, they would use the service primarily to feed their issuing business.

Speaker: 00:54:15

And I think that'd be a mistake.

Speaker: 00:54:17

So they have the potential to, to now participate in a lot of different

Speaker: 00:54:21

schemes in a lot of different countries if, if that deal goes through.

Speaker: 00:54:25

Uh, but will they, will they do the right thing with it?

Speaker: 00:54:29

I don't know.

Speaker: 00:54:30

I fear this is the time when they meddle, they meddle, with

Speaker: 00:54:32

it and then, uh, fuck it up.

Speaker: 00:54:37

Tedd Huff- Host, Fintech Confidential: Well, and I, I will say that, you

Speaker: 00:54:39

know, talking to the other card networks that are out there, they.

Speaker: 00:54:46

They look at how the Visa Europe Visa US coming together and how

Speaker: 00:54:52

that all turned out outside the us The overarching fear that they're

Speaker: 00:55:00

going to be able to pick up in other regions of the world, um, is nascent.

Speaker: 00:55:06

It, it's, it's one of those things where like, okay, that's cool.

Speaker: 00:55:11

Um, they're more worried about the, the treasury capabilities that Visa is

Speaker: 00:55:17

picking up, um, with that acquisition.

Speaker: 00:55:20

The ability to do that.

Speaker: 00:55:21

Matt VanHouten - Contributor, Fintech Confidential: With Pismo, you mean?

Speaker: 00:55:22

Tedd Huff- Host, Fintech Confidential: Yes.

Speaker: 00:55:23

Matt VanHouten - Contributor, Fintech Confidential: Yeah, well, they should because I think,

Speaker: 00:55:26

I think I, this is a super smart purchase.

Speaker: 00:55:28

If it, if it goes through, um, I've looked very closely at the capabilities

Speaker: 00:55:34

that the, that the platform has and, and the team that, uh, is there.

Speaker: 00:55:39

Um, this, this, is a shrewd one.

Speaker: 00:55:41

It's a good one.

Speaker: 00:55:42

It, but.

Speaker: 00:55:44

It's only going to stay that way if it's allowed to.

Speaker: 00:55:48

And that's where I fear is maybe the wrong word, but that's why I

Speaker: 00:55:53

think there's the, there's going to be a temptation to try to use it.

Speaker: 00:55:57

Like everyone's gonna wanna get their pause on it.

Speaker: 00:55:59

And, uh,

Speaker: 00:56:00

Tedd Huff- Host, Fintech Confidential: yeah.

Speaker: 00:56:00

Matt VanHouten - Contributor, Fintech Confidential: you know, uh, you know, every region and

Speaker: 00:56:02

Visa is a very territorial organization, region by region, country by country,

Speaker: 00:56:06

product team, by product team.

Speaker: 00:56:08

Uh, it'll be, you'll, you can learn a lot from what's likely to happen

Speaker: 00:56:12

based on like where, like when the announcement goes through, how much

Speaker: 00:56:16

regional, um, influence is there versus global platform kind of play.

Speaker: 00:56:23

and and sort of like where it lands within the product organization

Speaker: 00:56:26

I think is gonna tell you a lot around, um, what you can expect from

Speaker: 00:56:31

the, the deal after it's closed.

Speaker: 00:56:34

Tedd Huff- Host, Fintech Confidential: Yeah.

Speaker: 00:56:34

And you know, I start to look at that, that direction and it, it makes

Speaker: 00:56:38

me think of a lot of the other cross border plays that had been going on.

Speaker: 00:56:43

Uh, folks and I, I'll bring it up, but like, folks like Ripple, um, have

Speaker: 00:56:49

had, had started the cross border quick, quick piece that's leveraging

Speaker: 00:56:55

a, a tokenized asset, uh, to move the value that that has a solid value.

Speaker: 00:57:01

It's not, it's not a stable coin, but it has a solid value.

Speaker: 00:57:05

Um, they've, they've started to, they've expanded across the globe and now that

Speaker: 00:57:10

they've come out of, or coming out of, I should say, coming out of the

Speaker: 00:57:14

s e c Hell hole, um, legal battle,

Speaker: 00:57:19

um, they're, they're gonna be picking up some additional steam.

Speaker: 00:57:23

Then you start to look at other organizations that are trying to figure

Speaker: 00:57:26

out how can we also leverage this.

Speaker: 00:57:29

And as you and I have talked about, um, previous to, to recording today, you know,

Speaker: 00:57:34

there are other financial institutions and one that's been very public about

Speaker: 00:57:38

this has been JP Morgan with the JP M coin and using that and they've made

Speaker: 00:57:42

payments to other countries cross border and have skipped over all the

Speaker: 00:57:47

swift fees and skipped over the FX conversions and all these fun things.

Speaker: 00:57:52

I, I think that they're gonna be a lot of different things

Speaker: 00:57:54

that could play in that space.

Speaker: 00:57:55

And if Visa can figure out how to tie those two together, they'll be

Speaker: 00:58:01

extremely successful in that space.

Speaker: 00:58:02

And they may just make that leap to the next Generation payments company.

Speaker: 00:58:07

Matt VanHouten - Contributor, Fintech Confidential: right?

Speaker: 00:58:08

Yeah.

Speaker: 00:58:08

I, I, I came to the same conclusion, um, after, after being there for five years,

Speaker: 00:58:14

which is that cross border is, is likely to be the future for, for a company like

Speaker: 00:58:22

Visa and even to some extent for, for, for any large, um, Financial institution.

Speaker: 00:58:27

Uh, it's, it's, it's the world.

Speaker: 00:58:30

The world, you know, it sounds like a cliche.

Speaker: 00:58:32

The world is becoming more interconnected, right?

Speaker: 00:58:34

Like, um, but it's also true, uh, . Some cliches are cliches because they're real.

Speaker: 00:58:41

Uh, and, and, and I think in this case, commerce is more connected.

Speaker: 00:58:45

People are want to be more connected.

Speaker: 00:58:47

Um, there's, there's just a, the movement of, of value, both, both,

Speaker: 00:58:53

um, entertainment and commercial and financial around the world with

Speaker: 00:59:00

less and less friction, uh, is, is is only gonna increase, right?

Speaker: 00:59:04

The demand for that is, is, is only, is only increasing.

Speaker: 00:59:08

And, and so I, I definitely see this as the, where I would argue Visa today has

Speaker: 00:59:16

actually even a better, uh, starting point than they do with their domestic business.

Speaker: 00:59:21

And, um, And, and what I mean by that is that Visa is a, if you just

Speaker: 00:59:27

look at the assets that the company has, um, they can, they can, they can

Speaker: 00:59:31

settle in more than 200 countries.

Speaker: 00:59:34

Um, something like 30 currencies that are kind of like primary

Speaker: 00:59:38

settlement currencies.

Speaker: 00:59:39

And then they, they, they, have this sort of, if you ever

Speaker: 00:59:42

wanna talk about settlement

Speaker: 00:59:44

in

Speaker: 00:59:45

Tedd Huff- Host, Fintech Confidential: Uh,

Speaker: 00:59:45

Matt VanHouten - Contributor, Fintech Confidential: there, there's some details in

Speaker: 00:59:46

there that are pretty interesting.

Speaker: 00:59:48

Um, and, and, and that I think could be an opportunity for, for some, uh,

Speaker: 00:59:52

innovators in, in, in to go, especially after the long tail of, uh, of currencies.

Speaker: 00:59:57

But just setting that aside for a second, you have Currency Cloud, you

Speaker: 01:00:00

have the earth port acquisition that got integrated into Visa Direct, which

Speaker: 01:00:04

is the business that I, that I, that I managed, uh, the product that I managed.

Speaker: 01:00:08

I didn't manage the whole business.

Speaker: 01:00:09

Um, and, um, the core business, right, the card card business for purchases like

Speaker: 01:00:16

People when they travel.

Speaker: 01:00:17

The easiest way to make sure that you're gonna be able to buy stuff

Speaker: 01:00:20

when you leave your home country is to take your card with you that has

Speaker: 01:00:23

a Visa or MasterCard logo on it.

Speaker: 01:00:25

You usually do that now, and you don't think about it.

Speaker: 01:00:27

You don't wonder, oh, am I gonna need to get local currency?

Speaker: 01:00:30

You just kind of like, you just trust that everyone's gone and put the terminals

Speaker: 01:00:33

in place and it's gonna work, you know?

Speaker: 01:00:36

Um, and that, that is, that is took 60 years and massive

Speaker: 01:00:40

amounts of investment and,

Speaker: 01:00:41

and I think is, if you talk about a moat for a business model,

Speaker: 01:00:45

that is an incredible moat.

Speaker: 01:00:47

Now,

Speaker: 01:00:47

Tedd Huff- Host, Fintech Confidential: huge.

Speaker: 01:00:48

Matt VanHouten - Contributor, Fintech Confidential: the, the domestic use of those same

Speaker: 01:00:50

cards is, is, is very, very different.

Speaker: 01:00:54

And so if you look at a country like France that has like an alternative for

Speaker: 01:00:59

local purchases with card bon care, then.

Speaker: 01:01:03

That is, that is very common.

Speaker: 01:01:04

You'll see a local player that's, uh, that's used in country, uh,

Speaker: 01:01:08

interact, for example, in Canada.

Speaker: 01:01:10

But if you, if you take the same card, it's gotta have a co-brand or coba, right?

Speaker: 01:01:15

Which is one of the other networks.

Speaker: 01:01:16

So that when the, the, the same person leaves the country, they can

Speaker: 01:01:20

still use the card, but they're not riding on interact at that point.

Speaker: 01:01:23

They're using one of the, you know, the other, the other big guys.

Speaker: 01:01:26

And so that, that is, uh, I think that is a really compelling and if f is

Speaker: 01:01:32

still there and I would just say like, double down, triple down, quadruple

Speaker: 01:01:36

down, dominate, dominate, cross border, that would be, that'd, that'd be,

Speaker: 01:01:40

that'd be my recommendations, you know, one, two, and three.

Speaker: 01:01:44

Tedd Huff- Host, Fintech Confidential: So we've covered a bunch of stuff today,

Speaker: 01:01:46

but I'm super curious, uh, to understand what you are looking forward to.

Speaker: 01:01:53

Talking about seeing, finding, uh, new things while at money 2020 next week.

Speaker: 01:01:59

What is it you're looking for when you, when you head out there?

Speaker: 01:02:03

Matt VanHouten - Contributor, Fintech Confidential: Yeah, so I think my, I, I've had

Speaker: 01:02:05

this hypothesis that's been stewing in, in my brain for like the

Speaker: 01:02:09

last call it year, which is about the era of FinTech versus banks

Speaker: 01:02:19

and whether, whether that's a useful framing for, for the industry.

Speaker: 01:02:24

Uh, and, and you know, I, my, my gut kind of tells me, you know,

Speaker: 01:02:29

every bank wants to be a FinTech, every FinTech wants to be a bank.

Speaker: 01:02:31

Eventually, you know, if you carry them out to the logical conclusion and

Speaker: 01:02:36

you see, you see increasing, uh, um, concerns, I would say from a regulatory

Speaker: 01:02:41

perspective about how some banks are sponsoring certain technology companies.

Speaker: 01:02:48

Perhaps with sufficient oversight, uh, as well as technology companies

Speaker: 01:02:53

who want to offer banking services, finding it very difficult to obtain

Speaker: 01:02:57

licenses, uh, and have, uh, a path to be able to, to operate services

Speaker: 01:03:03

that makes sense for their customers.

Speaker: 01:03:06

And so I'm, I'm really interested to see is like, is is this the year

Speaker: 01:03:09

where this us versus them framing is, is it, is it still, is it still

Speaker: 01:03:17

feeling like that because I, I, I feel like it's time to move past it.

Speaker: 01:03:19

I think it's time to, to start looking at problem solving and who,

Speaker: 01:03:25

who and how is the ist, you know,

Speaker: 01:03:27

who's in the best position to solve a problem?

Speaker: 01:03:29

How, and looking at ways to better work, uh, with customers at the core, uh,

Speaker: 01:03:35

versus, you know, your own companies.

Speaker: 01:03:39

Best interests as you see them in, in the short term.

Speaker: 01:03:42

Uh, I, I, I just, I saw that a lot at Visa as not, not to

Speaker: 01:03:45

beat up on Visa too much, um,

Speaker: 01:03:47

Tedd Huff- Host, Fintech Confidential: I was

Speaker: 01:03:48

Matt VanHouten - Contributor, Fintech Confidential: focused on

Speaker: 01:03:48

Tedd Huff- Host, Fintech Confidential: we're, we're, we're, we're.

Speaker: 01:03:49

We'll have to pick on, pick somebody else next episode because we, we've, we've,

Speaker: 01:03:55

uh, we've, we've unfortunately had had a little bit of a, a beat down on Visa.

Speaker: 01:03:59

They're not all bad.

Speaker: 01:04:00

It's just

Speaker: 01:04:01

Matt VanHouten - Contributor, Fintech Confidential: not all bad.

Speaker: 01:04:01

Tedd Huff- Host, Fintech Confidential: bunch of, we found a bunch of

Speaker: 01:04:02

things that just kind of coalesced together in, into a, we think they

Speaker: 01:04:07

could do better in these areas.

Speaker: 01:04:09

But you brought up a bunch of things that they did well with, with the cross-border

Speaker: 01:04:12

stuff, with, with the treasury management.

Speaker: 01:04:15

It's just, it's in places that don't get a lot of exposure, um, in the world.

Speaker: 01:04:20

And I think a lot of that has to do with what you were just talking about

Speaker: 01:04:22

is like the FinTech versus the bank.

Speaker: 01:04:25

Um, you know, a lot of the products that you were talking about that they've

Speaker: 01:04:28

had success with are traditionally seen as a banking function.

Speaker: 01:04:32

Matt VanHouten - Contributor, Fintech Confidential: Right.

Speaker: 01:04:33

Tedd Huff- Host, Fintech Confidential: And the places that we hear most about them

Speaker: 01:04:35

are on the Fintechy side of the house.

Speaker: 01:04:38

And

Speaker: 01:04:39

so

Speaker: 01:04:39

Matt VanHouten - Contributor, Fintech Confidential: where, where, where anybody

Speaker: 01:04:40

is like trying to like take, take accounts payable, right.

Speaker: 01:04:43

As a, as an area B two B receivables.

Speaker: 01:04:47

Right.

Speaker: 01:04:48

These, these are things that have traditionally been supported by

Speaker: 01:04:51

banks and, um, you know, technology companies have, have not been very

Speaker: 01:04:57

interested in, in, um, in, in solving.

Speaker: 01:05:01

I, I, it is that is, I think that is shifting.

Speaker: 01:05:04

So I'll be very interested to see like, you know, does B two B take a

Speaker: 01:05:08

bigger, uh, portion of the collective consciousness at this year's money?

Speaker: 01:05:13

2020, um, 2020.

Speaker: 01:05:16

It's, it's, is, is, is, is are we moving past like the consumer, um,

Speaker: 01:05:21

as the darling of, of kind of like where we're trying to solve problems?

Speaker: 01:05:25

Not like we exclude, forget about consumers, but I, I do think

Speaker: 01:05:28

businesses, you know, setting aside like commercial card, which is a.

Speaker: 01:05:32

Pretty well trodden space.

Speaker: 01:05:35

Um, but businesses, especially small businesses, medium sized businesses,

Speaker: 01:05:39

haven't really had any, any, any significant investment in technology

Speaker: 01:05:43

to try to solve their problems.

Speaker: 01:05:45

And, and I think that's an opportunity, right?

Speaker: 01:05:48

There's a, there's a lot there to be solved, and I'll be very interested to

Speaker: 01:05:51

see is that, is it gonna be, you know, something that we're hearing about.

Speaker: 01:05:55

Right.

Speaker: 01:05:56

Um, and then global payments, I think is the other piece,

Speaker: 01:05:58

uh, global, um, money movement.

Speaker: 01:06:01

Um, I, I would love to, I'd love to, you know, ripple is probably

Speaker: 01:06:06

a, a a a, you mentioned them, um, earlier, you know, tokenization and,

Speaker: 01:06:11

and just new ways of facilitating,

Speaker: 01:06:14

uh, money movement that don't necessarily rely on the correspondent

Speaker: 01:06:20

bank, Noss, Ostro and all of the infrastructure that goes around with it.

Speaker: 01:06:25

Like, it, it does, it does a job.

Speaker: 01:06:27

It, there, there are aspects of what it does that I think are . Essential.

Speaker: 01:06:33

Um, but it's good to see experimentation and so I'll be very interested to see if

Speaker: 01:06:37

there are any, any, any kind of like new models kind of coming out that are worthy

Speaker: 01:06:42

of, uh, you know, further exploration.

Speaker: 01:06:45

Tedd Huff- Host, Fintech Confidential: Well, and I, you know,

Speaker: 01:06:46

it's really interesting.

Speaker: 01:06:47

So next week there's a bank FinTech fusion conference here in Phoenix,

Speaker: 01:06:53

and I'll be attending that from the 18th to the 20th, just in time to

Speaker: 01:06:56

head up to, to Vegas for money 2020.

Speaker: 01:06:59

And, and I'm, I'm really looking forward to seeing how the context of, of the

Speaker: 01:07:06

banks fussing with FinTech comes out of that event and, and contrasting

Speaker: 01:07:11

or comparing it to the discussions at Money 2020 because, like yourself, I,

Speaker: 01:07:18

I believe these things are starting to come together.

Speaker: 01:07:20

And I'm not meaning to put words into your, into your mouth,

Speaker: 01:07:22

but, but I I believe what you're

Speaker: 01:07:24

saying is that these two worlds are coming together and, you know, with,

Speaker: 01:07:28

with My, my company, Voalyre, we spend a lot of time, most of my week,

Speaker: 01:07:32

is spent educating fintechs on the expectations of the regulators, of

Speaker: 01:07:38

the banking partners, of these things, of what they're gonna be expected

Speaker: 01:07:42

to do, how they're expected to act.

Speaker: 01:07:44

The, the protocols and procedures are expected to have the liabilities that

Speaker: 01:07:50

they fall into, explaining that to them.

Speaker: 01:07:52

But then I have to hop to the other side of the table and sit with the

Speaker: 01:07:56

bank and say, here's how you can excite these financial technology

Speaker: 01:08:01

companies to want to work with you under these very strict guidelines.

Speaker: 01:08:07

And so I spend a lot of time going back and forth, so I totally agree

Speaker: 01:08:11

that you're going to, you're going to see emerging in some cases, but even

Speaker: 01:08:17

in some cases where you completely see them separated depending on the types of

Speaker: 01:08:22

data and or the function they provide.

Speaker: 01:08:25

If you're just looking at like a An app that tells you your spending habits.

Speaker: 01:08:32

Yeah.

Speaker: 01:08:33

I, I think that's gonna stay, that's gonna stay completely separated and

Speaker: 01:08:37

just benefit from access to data.

Speaker: 01:08:39

Leveraging something like a, a, Platt or authenticity or an MX or one of

Speaker: 01:08:45

those players in the marketplace,

Speaker: 01:08:47

Matt VanHouten - Contributor, Fintech Confidential: Mm-hmm.

Speaker: 01:08:48

Tedd Huff- Host, Fintech Confidential: um, that, that may be one of

Speaker: 01:08:50

the ways that they do that.

Speaker: 01:08:51

But when you start to get into moving in the money custody, um, the, the

Speaker: 01:08:57

interest fees, anything that, that, that truly generates revenue off of

Speaker: 01:09:02

the holding or movement of money,

Speaker: 01:09:05

I think you're gonna see that leaning a lot heavier into the banking institutions.

Speaker: 01:09:09

That's

Speaker: 01:09:10

Matt VanHouten - Contributor, Fintech Confidential: makes a lot, I think.

Speaker: 01:09:11

I think, um, yeah, and I think I would, I would generally agree.

Speaker: 01:09:16

I would say, however, that banks increasingly are offering access

Speaker: 01:09:20

to some of those same like insight.

Speaker: 01:09:23

Capabilities within their own customer experience, right?

Speaker: 01:09:27

They're not necessarily building them themselves.

Speaker: 01:09:29

I think this is the piece that, that where, where I think it's like, is a bank

Speaker: 01:09:33

gonna build its own, uh, plaid, right?

Speaker: 01:09:36

No, probably not.

Speaker: 01:09:37

Um, I mean, a lot of them do use Yodlee, for example.

Speaker: 01:09:40

Uh, even, even, uh, so they do actually pull in, so they wanna get

Speaker: 01:09:44

a view of all of your accounts from inside of, let's say chase.com.

Speaker: 01:09:48

Um, there are, there are some banks that do that.

Speaker: 01:09:52

Uh, and, and so in the case of like, you know, making recommendations around

Speaker: 01:09:56

spending habits and whatnot, like banks, banks are, but like I, I'd say it's close

Speaker: 01:10:01

to that check the box exercise, right?

Speaker: 01:10:03

They just, they just, they do just enough to show that they have a capability.

Speaker: 01:10:07

But are they the ones that are really driving the thinking and the change?

Speaker: 01:10:12

No, they're not.

Speaker: 01:10:14

And, and so I think there's an opportunity to really push that and

Speaker: 01:10:17

then sell it to the banks, right?

Speaker: 01:10:18

And so it's like banks should be a channel.

Speaker: 01:10:21

Is my, is my, when I talk to customers of, of, uh, of, of my consulting

Speaker: 01:10:26

practice, I, I do say like, banks should, they're hard to sell to, right?

Speaker: 01:10:31

They're a long sales cycle.

Speaker: 01:10:33

Um, but that doesn't mean you should exclude them from your,

Speaker: 01:10:36

from your thinking and try to go direct to consumer on everything.

Speaker: 01:10:39

I think they, the direct to consumer strategy is it's, it's

Speaker: 01:10:42

very difficult to, um, to succeed.

Speaker: 01:10:45

And so having the ability to sell through a channel that already has

Speaker: 01:10:49

the customer in it is, is I think, you know, it's one that, uh, makes a lot of

Speaker: 01:10:53

sense for, for companies to think about.

Speaker: 01:10:55

And then for the banks, I think what you mentioned is brilliant around helping

Speaker: 01:11:00

them look attractive to the financial technology company, but that's already

Speaker: 01:11:09

Assuming that that bank wants them as a customer, right?

Speaker: 01:11:11

And so I think there's a ton of opportunity for banks to

Speaker: 01:11:15

just simply decide, we wanna bank technology companies.

Speaker: 01:11:20

And, and some you'll see that more and more, like you said, Jamie Diamond after,

Speaker: 01:11:25

uh, you know, the SS v B collapse and then the acquisition of First Republic.

Speaker: 01:11:29

I think it was mostly what happened with First Republic.

Speaker: 01:11:31

Um, this is another one

Speaker: 01:11:33

Tedd Huff- Host, Fintech Confidential: a ton of bonds in First Republic

Speaker: 01:11:34

right before that happened.

Speaker: 01:11:36

So

Speaker: 01:11:37

Matt VanHouten - Contributor, Fintech Confidential: well, yeah, so, so, so let's

Speaker: 01:11:40

set, I'll set that aside.

Speaker: 01:11:41

I don't know, I don't know much about that.

Speaker: 01:11:43

But what I can tell you is that JP Morgan's been very impressed with what

Speaker: 01:11:47

they acquired when they got the people and the clients of First Republic.

Speaker: 01:11:52

And, and, and partly what that means, they did, first Republic

Speaker: 01:11:55

had a lot of technology.

Speaker: 01:11:56

Um, Founders, like successful founders ended up, they would kind of graduate.

Speaker: 01:12:01

They, they maybe would be an S B V client and many of them would

Speaker: 01:12:04

move to First Republic 'cause their service was like incredible.

Speaker: 01:12:07

And, um, and so what they've now seen is like, oh, there's

Speaker: 01:12:11

actually really good quality here.

Speaker: 01:12:12

And, and so you're seeing, you're seeing now they want startups as clients,

Speaker: 01:12:15

which is a, which is a change for them.

Speaker: 01:12:17

They haven't really been like that in the past.

Speaker: 01:12:19

And so I think there's a, there's a window of opportunity here for forward-thinking.

Speaker: 01:12:26

Me medium, even small-ish, but like, you know, well-capitalized banks to

Speaker: 01:12:31

lean in and say like, we actually want technology companies as customers.

Speaker: 01:12:37

And then once they've . I've gotten that far.

Speaker: 01:12:41

I think they'll be open to some of the things that you're probably working

Speaker: 01:12:43

to help them understand around.

Speaker: 01:12:45

Okay.

Speaker: 01:12:45

How do you make yourself appealing to them?

Speaker: 01:12:47

How do you attract them?

Speaker: 01:12:48

How do you keep them as clients?

Speaker: 01:12:50

How do you make sure you can operate at a, at a pace that's tolerable?

Speaker: 01:12:54

, I'm not gonna say it's like meets the technology companies expectations,

Speaker: 01:12:58

but at least isn't so slow and cumbersome that they just go elsewhere.

Speaker: 01:13:04

Tedd Huff- Host, Fintech Confidential: Yeah.

Speaker: 01:13:04

Well, and it's funny you mentioned the size because the, the inquiries that we

Speaker: 01:13:11

are getting right now are banks that are like at the one and a half billion dollar

Speaker: 01:13:16

and, and and tier one out level assets, um, up to about seven.

Speaker: 01:13:22

Those are the ones that are like, Hey, we're doing really good with, with

Speaker: 01:13:27

X, y, and Z products in our market.

Speaker: 01:13:30

We've been able to build to the size without acquisition.

Speaker: 01:13:34

Now we're ready to start to look at how can we magnify, how can we

Speaker: 01:13:40

multiply this to another level?

Speaker: 01:13:43

How do we.

Speaker: 01:13:44

How do we get to a $30 billion bank?

Speaker: 01:13:47

How do we get to a $50 billion bank?

Speaker: 01:13:50

How do we get to this place?

Speaker: 01:13:52

And they're coming well, and they're coming to us to say, how do we set up

Speaker: 01:13:57

Matt VanHouten - Contributor, Fintech Confidential: Hmm.

Speaker: 01:13:58

Tedd Huff- Host, Fintech Confidential: our organization?

Speaker: 01:13:59

Who do we need to hire?

Speaker: 01:14:00

Or what do we need to do for policies?

Speaker: 01:14:02

How do we make sure that we get through the re regulatory side of the house?

Speaker: 01:14:06

How do we make sure that we don't make the same missteps as name a bank that's

Speaker: 01:14:11

done a misstep in the last couple years?

Speaker: 01:14:13

Right.

Speaker: 01:14:13

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 01:14:13

Not

Speaker: 01:14:14

Tedd Huff- Host, Fintech Confidential: And

Speaker: 01:14:14

Matt VanHouten - Contributor, Fintech Confidential: to find one.

Speaker: 01:14:15

Tedd Huff- Host, Fintech Confidential: Right.

Speaker: 01:14:16

That's why I said just name one.

Speaker: 01:14:17

Um,

Speaker: 01:14:18

Matt VanHouten - Contributor, Fintech Confidential: Uhhuh.

Speaker: 01:14:19

Tedd Huff- Host, Fintech Confidential: and, and so they're really looking

Speaker: 01:14:20

into those things and coming to us for that, which has been really cool

Speaker: 01:14:24

to see that the interest is there,

Speaker: 01:14:26

that people see that this is a short-term blip on the radar of

Speaker: 01:14:31

the things that have happened.

Speaker: 01:14:35

And, and I will just say this, really the F T X snafu.

Speaker: 01:14:39

Or the snafu that is F T X, they're realizing that that

Speaker: 01:14:42

was a blip on the radar.

Speaker: 01:14:43

That isn't everybody, that's not every company, and they realize

Speaker: 01:14:48

that they can really support the overarching ecosystem of technology,

Speaker: 01:14:53

even if it is just for deposits.

Speaker: 01:14:56

There's a lot that can be done in that space too.

Speaker: 01:14:58

So we're seeing a lot of that, and I'm really excited to start seeing

Speaker: 01:15:01

that happen because it was pretty dead for the last 12 to 18 months.

Speaker: 01:15:06

Um, well, almost 24 months now.

Speaker: 01:15:09

Wow.

Speaker: 01:15:10

Um, that, that it, they got really strict on it.

Speaker: 01:15:13

But that's the piece that I, I then seeing, seeing that desire to figure

Speaker: 01:15:18

out how do we support them, and then after we figured out how to

Speaker: 01:15:21

support them, how do we draw them in?

Speaker: 01:15:23

Those have, those have been really, really interesting things to see.

Speaker: 01:15:26

And they're not wanting to build the technology.

Speaker: 01:15:28

None of 'em want to build this tech.

Speaker: 01:15:30

They,

Speaker: 01:15:31

Matt VanHouten - Contributor, Fintech Confidential: know.

Speaker: 01:15:31

Yeah.

Speaker: 01:15:31

they know they can't.

Speaker: 01:15:32

Tedd Huff- Host, Fintech Confidential: If they wanna partner.

Speaker: 01:15:33

And, and I had a recent, uh, guest that I had on FinTech Confidentials

Speaker: 01:15:38

one-on-one interview series.

Speaker: 01:15:40

I had Landon Glenn on, who's the founder of aa.

Speaker: 01:15:44

And their whole plan is to build basically an app store for,

Speaker: 01:15:49

for local and community banks.

Speaker: 01:15:52

Local community banks, sorry, not and, but local community banks so

Speaker: 01:15:57

that they can plug and play products and services without having to worry

Speaker: 01:16:01

about have these guys been vetted?

Speaker: 01:16:03

Do I share this information with them?

Speaker: 01:16:06

What do we like?

Speaker: 01:16:07

They provide that architecture.

Speaker: 01:16:09

And I've just been blown away with the, the level of sophistication

Speaker: 01:16:14

that the banks are willing to accept, um, with a product like that.

Speaker: 01:16:17

And I think you're gonna see more of that actually happening where it's

Speaker: 01:16:22

coco like co-opetition, uh, type stuff

Speaker: 01:16:25

going on.

Speaker: 01:16:26

Matt VanHouten - Contributor, Fintech Confidential: Yeah, yeah, yeah, That's,

Speaker: 01:16:28

that's like the name of,

Speaker: 01:16:29

I

Speaker: 01:16:29

don't know.

Speaker: 01:16:30

I, I only know the financial services space, uh, at, at, to the extent that I

Speaker: 01:16:34

can say that co-opetition is like that, it's, that is our daily life, right?

Speaker: 01:16:40

Like you,

Speaker: 01:16:40

you know, banks, even huge banks that compete on one side also support each

Speaker: 01:16:48

other in terms of, you know, in interbank settlement and, and setting rules and

Speaker: 01:16:53

policies and like, so that you, you have to be able to both on one hand

Speaker: 01:16:57

just go compete for customers and on the other hand, work with those other I.

Speaker: 01:17:02

Members of the community that are like collectively kind of like delivering

Speaker: 01:17:05

what, what, what people need.

Speaker: 01:17:07

And I, and I think, I think yeah, you hit it right on the head.

Speaker: 01:17:10

The, the, the bank that comes to mind, I, I, I love as an example of, of a

Speaker: 01:17:15

bank that's kind of been doing this for a long time, like well before it

Speaker: 01:17:18

was cool, is, um, is KeyBank right?

Speaker: 01:17:21

I I look at Key Bank and they're a bit bigger than some of the ones that you

Speaker: 01:17:25

mentioned, but they're, you know, a very, very capable Midwest, um, Ohio

Speaker: 01:17:30

based bank that, that had a, you don't think of them, at least historically.

Speaker: 01:17:35

They, they were, they were as boring as you could think of as a

Speaker: 01:17:39

bank to be, you know, uh, they do take deposits, they make loans.

Speaker: 01:17:44

Like it's very, very normal.

Speaker: 01:17:46

Kind of

Speaker: 01:17:46

Tedd Huff- Host, Fintech Confidential: They even got out of acquiring

Speaker: 01:17:48

for a number of years, and I remember being at Heartland Payment

Speaker: 01:17:51

Systems when KeyBank said, yeah, we're getting out of acquiring.

Speaker: 01:17:55

And

Speaker: 01:17:55

you're like,

Speaker: 01:17:56

Matt VanHouten - Contributor, Fintech Confidential: risky.

Speaker: 01:17:56

Yeah.

Speaker: 01:17:56

You're like,

Speaker: 01:17:57

what?

Speaker: 01:17:57

Okay,

Speaker: 01:17:58

Tedd Huff- Host, Fintech Confidential: yeah.

Speaker: 01:17:58

Matt VanHouten - Contributor, Fintech Confidential: so so for them.

Speaker: 01:18:00

Yeah.

Speaker: 01:18:00

And they, they, they, they took on a, a very different approach,

Speaker: 01:18:03

uh, about 10 ish years ago,

Speaker: 01:18:06

maybe a little bit less even where they said to your point like, we, we can't

Speaker: 01:18:11

compete with JP Morgan City B of a wells on the amount of money that we can

Speaker: 01:18:18

invest in building our own technology.

Speaker: 01:18:21

And yet we do wanna make sure that our customers, in their case, in

Speaker: 01:18:25

this case, their corporate customers had access to like best in class

Speaker: 01:18:29

services, whether it's for payables, receivables, liquidity, whatever.

Speaker: 01:18:32

Right?

Speaker: 01:18:32

Like fraud.

Speaker: 01:18:33

And so they started to, to, to take on this whole campaign around.

Speaker: 01:18:37

We are gonna give the experience to those customers that they might

Speaker: 01:18:41

otherwise only be able to see from a much larger institution by being

Speaker: 01:18:45

really clever about who we work with.

Speaker: 01:18:47

And so we're gonna bring in partners that are, um, actually integrated

Speaker: 01:18:51

with the bank's core, but then offer customer facing experience.

Speaker: 01:18:54

That's, um, like, uh, AVID exchange I think is one of their

Speaker: 01:18:58

initial big investments that they made for like a payables, um, integration.

Speaker: 01:19:02

And they've done, they've done a number of really smart deals, either

Speaker: 01:19:05

buying equity in some of those partners or commercial relationships

Speaker: 01:19:09

and a couple of acquisitions.

Speaker: 01:19:11

And I think, I think you could, you could take that same playbook.

Speaker: 01:19:15

And now the technology as you, as you've mentioned, is, is even more, I'm not

Speaker: 01:19:20

gonna say plug and play necessarily, but it's more self-serve, right?

Speaker: 01:19:25

Yeah.

Speaker: 01:19:25

Tedd Huff- Host, Fintech Confidential: Well, and know what's interesting is you

Speaker: 01:19:27

bring up Key Bank and, um, I've had a longstanding relationship with, with the

Speaker: 01:19:31

folks at Key Bank and with the pivot over and realizing there's opportunity there.

Speaker: 01:19:37

The one thing that they, they, they didn't do, at least from my perspective, is

Speaker: 01:19:43

they didn't expect it to be successful.

Speaker: 01:19:46

And because they didn't expect it to be successful, they hoped

Speaker: 01:19:48

it would be successful, but they didn't expect it to be.

Speaker: 01:19:52

So now what has happened is they've got more business than they can handle

Speaker: 01:19:55

and they've got this huge backlog.

Speaker: 01:19:58

To get clients alive.

Speaker: 01:20:01

So if, if you're wanting something in less than in three

Speaker: 01:20:05

months or six months, good luck.

Speaker: 01:20:09

If you're wanting

Speaker: 01:20:09

something that's in 12 months to 18 months, yeah, you've

Speaker: 01:20:13

got a pretty good chance.

Speaker: 01:20:14

And so, and, and that they're

Speaker: 01:20:16

Matt VanHouten - Contributor, Fintech Confidential: say it's a good problem to have.

Speaker: 01:20:17

The only one who says it's a good problem to have is someone

Speaker: 01:20:20

who's never had that problem.

Speaker: 01:20:21

'cause there's, to me, there's like nothing worse than having clients

Speaker: 01:20:25

ready to go and you can't support them.

Speaker: 01:20:26

Right.

Speaker: 01:20:27

It's, it is, is

Speaker: 01:20:28

Tedd Huff- Host, Fintech Confidential: That's the fastest way to lose clients.

Speaker: 01:20:30

Matt VanHouten - Contributor, Fintech Confidential: customer.

Speaker: 01:20:30

Yeah.

Speaker: 01:20:30

Yeah.

Speaker: 01:20:31

It's a really, it's a really, really rough place to be.

Speaker: 01:20:34

Tedd Huff- Host, Fintech Confidential: existing and new clients.

Speaker: 01:20:35

You're gonna lose both of 'em because you can't support your existing

Speaker: 01:20:38

clients the way they were used to.

Speaker: 01:20:40

So they're gonna get fed up and they're gonna find someone

Speaker: 01:20:42

who will support 'em that way.

Speaker: 01:20:43

Then these new clients are like, you're taking forever.

Speaker: 01:20:46

The implementation was crappy.

Speaker: 01:20:48

The, the you're, you have, like, everybody's doing 50 different jobs.

Speaker: 01:20:54

I can't get done what I need to get done.

Speaker: 01:20:55

I'm gonna go find somebody else.

Speaker: 01:20:57

And so now you've just utilized all these resources and you end

Speaker: 01:21:02

up with less money in your pocket.

Speaker: 01:21:04

And that's one of the things that we talk to the banks a lot about is

Speaker: 01:21:07

be prepared for a fast acceleration.

Speaker: 01:21:10

Because once you prove you can do it, once you prove you can do it and you can

Speaker: 01:21:15

do it well, then you it, it is a build it and they will come type scenario.

Speaker: 01:21:20

But you have to build it, show that it works, show that you

Speaker: 01:21:23

can support it and it will come.

Speaker: 01:21:26

But you have to be ready for when it'll come.

Speaker: 01:21:28

Matt VanHouten - Contributor, Fintech Confidential: What, what, what do you, what

Speaker: 01:21:29

do you attribute the backlog coming from in their case?

Speaker: 01:21:32

Is it, is it the partners that they selected?

Speaker: 01:21:35

You know, they're too dependent on the third parties.

Speaker: 01:21:37

Is it actually showing that the, the model is, uh, has some risk in it?

Speaker: 01:21:41

Or like, what, what's, what's, what's behind the delays?

Speaker: 01:21:44

Tedd Huff- Host, Fintech Confidential: Typically speaking, it's the internal

Speaker: 01:21:46

processes and procedures around risk assessment around IM and implementation.

Speaker: 01:21:52

So it gets stuck in there and no matter

Speaker: 01:21:56

Matt VanHouten - Contributor, Fintech Confidential: that doesn't scale very quickly.

Speaker: 01:21:57

Yeah, that's like a very, it takes a lot of time.

Speaker: 01:22:01

cause they can't change the processes typically.

Speaker: 01:22:03

And it takes, it's very difficult because those are covered

Speaker: 01:22:07

by regulatory oversight and

Speaker: 01:22:09

then you can't also staff them up that quickly because they're, they're

Speaker: 01:22:14

dependent on a lot of knowledge.

Speaker: 01:22:15

Yeah, yeah.

Speaker: 01:22:16

Yeah.

Speaker: 01:22:17

So that's one of those things that I've, um, as kind of the part of the

Speaker: 01:22:20

thinking on like, well, . Assuming that this all happens, right?

Speaker: 01:22:23

Assuming that banks and fintechs really decide that they wanna

Speaker: 01:22:26

hold hands and, and, and join,

Speaker: 01:22:28

join together,

Speaker: 01:22:28

Tedd Huff- Host, Fintech Confidential: for how many years?

Speaker: 01:22:31

Yes.

Speaker: 01:22:31

Matt VanHouten - Contributor, Fintech Confidential: then then like, okay, you tell, you

Speaker: 01:22:33

talk to a bank and to your point like, okay, you gotta be attractive.

Speaker: 01:22:37

Um, you, and now you're saying as well, you,

Speaker: 01:22:40

you have to be more flexible, right?

Speaker: 01:22:42

And, and you have to be able to understand like how do you do underwriting of,

Speaker: 01:22:45

of a company that's brand new, right?

Speaker: 01:22:47

If it's a startup as an example.

Speaker: 01:22:49

Um, or how do you do a partner assessment of of someone that you wanna work

Speaker: 01:22:54

with in this app store environment?

Speaker: 01:22:56

You know, it's like, how do you tell your procurement guys like, no, it's fine.

Speaker: 01:22:59

The apps are vetted.

Speaker: 01:23:00

Um, and the procurement guy's like, well, no, no, we vetted

Speaker: 01:23:04

the platform, but we have to also vet every app in the app store.

Speaker: 01:23:07

And it's like, well wait a minute, you know, have I actually solved the problem?

Speaker: 01:23:10

Right?

Speaker: 01:23:10

And so I think that is a really, really interesting, it's all solvable, right?

Speaker: 01:23:15

Uh, but it's not easy 'cause those processes are.

Speaker: 01:23:19

Ossified, right?

Speaker: 01:23:20

They are, they've been, they've been the way they are for a very long time.

Speaker: 01:23:24

And the changing those often requires going back to a regulator and saying,

Speaker: 01:23:29

um, I'm gonna, I'm gonna change this thing that I just got you to approve.

Speaker: 01:23:33

You know, that took me a decade and, and, and it's been, you know, clean

Speaker: 01:23:37

bill of health for 18 months, and now I'm gonna, I'm gonna go open

Speaker: 01:23:40

up the, the hood and change it.

Speaker: 01:23:43

It's hard, hard, hard to get the, the momentum behind that.

Speaker: 01:23:46

So you really need senior leadership buying into, we're gonna do it,

Speaker: 01:23:50

we're gonna do what we have to do to, to make it, to make it work.

Speaker: 01:23:53

Tedd Huff- Host, Fintech Confidential: The other place that there, there's a

Speaker: 01:23:55

opportunity to speed up that process is one of the things that I've noticed is

Speaker: 01:24:00

where fintechs or the startups or what have you go into it with the ideas.

Speaker: 01:24:06

The bank's going to tell me what I need to do.

Speaker: 01:24:08

The bank's going to tell me the things that I have to do and what I

Speaker: 01:24:12

need to do, which only extends the period of, of the diligence cycle.

Speaker: 01:24:18

And what we found is that when you bring in a package that the

Speaker: 01:24:23

bank already understands that the bank is already approved.

Speaker: 01:24:26

That another,

Speaker: 01:24:29

Matt VanHouten - Contributor, Fintech Confidential: So, so it fits in this bucket.

Speaker: 01:24:31

Like, are you what It's almost like a program, you know, we kind of do this

Speaker: 01:24:34

a lot in, in, you know, both when I was at Visa and then JP Morgan, you know,

Speaker: 01:24:39

we just, it's like a commercialization model where you, you say,

Speaker: 01:24:42

okay, there's a program.

Speaker: 01:24:44

We have a program for this kind of thing.

Speaker: 01:24:45

We have a program for this.

Speaker: 01:24:46

And you, and you, and you either fit in it and then it's, you know, relatively

Speaker: 01:24:50

predictable or you don't, and the, and if you don't, doesn't mean No, necessarily.

Speaker: 01:24:54

It just means it might take a while.

Speaker: 01:24:57

'cause like it's, it doesn't fit the model.

Speaker: 01:24:59

Right.

Speaker: 01:24:59

And so we have to, we have to kind

Speaker: 01:25:01

Tedd Huff- Host, Fintech Confidential: But you know that ahead of but you know

Speaker: 01:25:02

that ahead of time, you know, when you're dealing with what is a science project

Speaker: 01:25:08

versus a, a developed and design plan and

Speaker: 01:25:12

program.

Speaker: 01:25:12

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 01:25:12

Mm-hmm.

Speaker: 01:25:13

Tedd Huff- Host, Fintech Confidential: And, and so that's the piece that that

Speaker: 01:25:16

has been really helpful in having these discussions with, with the financial

Speaker: 01:25:19

institutions is what is your process?

Speaker: 01:25:22

How are you going through, who's responsible for it?

Speaker: 01:25:25

What are the things that they need?

Speaker: 01:25:27

And I'm overgeneralizing it, but you know, I've, I've got a checklist

Speaker: 01:25:31

when I go to set up, uh, an acquire an a, an ISO to be a full service

Speaker: 01:25:38

provider with an acquiring bank.

Speaker: 01:25:41

And my full checklist, if I count everything in my full

Speaker: 01:25:45

checklist, it's about 1100 lines,

Speaker: 01:25:48

Matt VanHouten - Contributor, Fintech Confidential: Wow.

Speaker: 01:25:50

Tedd Huff- Host, Fintech Confidential: but because it's extremely granular,

Speaker: 01:25:52

and so I know that if I go through that checklist with the ISO and they

Speaker: 01:25:58

meet all the criteria that I can pretty much go to just about any bank and get

Speaker: 01:26:03

them approved for a bin sponsorship, that's, that's the benefit to that.

Speaker: 01:26:09

And instead of it taking six, 12 months, it may be four to eight weeks.

Speaker: 01:26:15

Matt VanHouten - Contributor, Fintech Confidential: Um, to just be able to say like,

Speaker: 01:26:17

look, we can help you, we can help you get onboarded fast.

Speaker: 01:26:19

You know, we can get you through the KeyBank implementation process.

Speaker: 01:26:23

'cause we know what it is, we know how it works.

Speaker: 01:26:25

Um, we pre, we pre-check everything and we take you in with a,

Speaker: 01:26:29

with a, with a, with a file.

Speaker: 01:26:30

And then that goes through a validation process, right?

Speaker: 01:26:34

It's just, it seems like this is something that you've, you've shown some examples,

Speaker: 01:26:37

I think where that, that could become like a new, a new just service, right?

Speaker: 01:26:43

The banks don't even have to offer it necessarily.

Speaker: 01:26:46

Um, it could come from third party service providers

Speaker: 01:26:50

as well.

Speaker: 01:26:50

Tedd Huff- Host, Fintech Confidential: I, I think what the, the part that

Speaker: 01:26:53

was really difficult for this is that the individuals that are doing

Speaker: 01:26:57

this have to have a robust hands-on understanding of all aspects of banks.

Speaker: 01:27:09

And fintechs.

Speaker: 01:27:11

And that's what's really hard is that there aren't many people in the ecosystem

Speaker: 01:27:16

that have done everything from building an a c h program from scratch, building an

Speaker: 01:27:22

acquiring program from scratch, building a, a bank's FinTech program from scratch.

Speaker: 01:27:29

And that's the key piece is where the success comes into play, is that

Speaker: 01:27:33

you have to have the knowledge from scratch to a functioning product.

Speaker: 01:27:39

And that's why it makes it really difficult.

Speaker: 01:27:42

And honestly, a lot of banks are skeptical that you're actually going to

Speaker: 01:27:46

be able to do this until you actually do, because they have been sold on this

Speaker: 01:27:50

so many times before by somebody who was a consultant at, you know, name

Speaker: 01:27:57

a, name, a top, top six place, right?

Speaker: 01:28:00

Um, or, or name.

Speaker: 01:28:02

Somebody who worked at one company for, for five years

Speaker: 01:28:05

and their job was X, Y, and z.

Speaker: 01:28:08

Well, yeah, but they had a team of support and they had all these different

Speaker: 01:28:11

things, but you have to have relationships with regulators, ex regulators.

Speaker: 01:28:17

You have to have relationships with practitioners.

Speaker: 01:28:19

You have, like, there's so many different things that go into it that

Speaker: 01:28:22

it, that it sounds really fricking easy, but it is so complicated.

Speaker: 01:28:29

And, uh, I, I think I've got a few extra gray hairs just from the last few weeks,

Speaker: 01:28:33

Matt VanHouten - Contributor, Fintech Confidential: at least you still have some?

Speaker: 01:28:35

I'm, uh, I'll swap you.

Speaker: 01:28:38

I'll take, I'll take some grays.

Speaker: 01:28:40

Tedd Huff- Host, Fintech Confidential: But, you know, there's so many things

Speaker: 01:28:42

that could be happening out there.

Speaker: 01:28:43

And I think that kind of goes into the piece that you were talking about with the

Speaker: 01:28:46

fintechs and the banks coming together.

Speaker: 01:28:48

I, I, I think there has to be more understanding and communication

Speaker: 01:28:53

back and forth between them.

Speaker: 01:28:55

And, you know, this sounds crazy, but the ultimate success would be me

Speaker: 01:29:02

not having to get involved in that.

Speaker: 01:29:05

Matt VanHouten - Contributor, Fintech Confidential: Oh, totally.

Speaker: 01:29:05

Yeah.

Speaker: 01:29:06

Yeah.

Speaker: 01:29:06

I wouldn't see this as something that would be necessary in the long run.

Speaker: 01:29:11

Um,

Speaker: 01:29:12

Tedd Huff- Host, Fintech Confidential: I hope it's not,

Speaker: 01:29:12

Matt VanHouten - Contributor, Fintech Confidential: just until, just until, but there is a

Speaker: 01:29:15

lack of understanding and I think there's also been some bad behavior on both

Speaker: 01:29:19

Tedd Huff- Host, Fintech Confidential: been a lot of bad behavior.

Speaker: 01:29:21

Matt VanHouten - Contributor, Fintech Confidential: some banks doing things that are very

Speaker: 01:29:23

inappropriate, some, um, technology companies also doing the same.

Speaker: 01:29:27

And, um, you know, when, when you come from a, a, a place in the world like I

Speaker: 01:29:32

am currently based, where the motto is build fast and break things or whatever,

Speaker: 01:29:37

go fast and break things, and that's the ethos of the, of the culture.

Speaker: 01:29:43

Tedd Huff- Host, Fintech Confidential: Mm-hmm.

Speaker: 01:29:43

Matt VanHouten - Contributor, Fintech Confidential: then you try to take

Speaker: 01:29:44

that into money movement.

Speaker: 01:29:47

Tedd Huff- Host, Fintech Confidential: Mm-hmm.

Speaker: 01:29:47

Matt VanHouten - Contributor, Fintech Confidential: Some people have done that, right?

Speaker: 01:29:49

Um,

Speaker: 01:29:49

Tedd Huff- Host, Fintech Confidential: got, I mean, plaid got lucky with that.

Speaker: 01:29:52

Matt VanHouten - Contributor, Fintech Confidential: yeah.

Speaker: 01:29:53

And, and, and then, um, I'll, I'll give you another example that's, uh,

Speaker: 01:29:57

that, that ended up being, and this is sort of, I think, feeds into the

Speaker: 01:30:01

belief that it's like acceptable.

Speaker: 01:30:04

Um, visa Direct, very near and dear to, uh, to, to my heart.

Speaker: 01:30:08

Um, I, I would argue Visa Direct became a viable commercial business

Speaker: 01:30:14

unit because Square Cash in that case, um, was breaking the rules.

Speaker: 01:30:23

They, they, they, they came up with a way to move money using unlinked

Speaker: 01:30:27

merchandise returns, which is not allowed.

Speaker: 01:30:30

And, and, and so they reversed the flow of funds back into a bank account

Speaker: 01:30:33

using a tech, a transaction that they weren't supposed to be using.

Speaker: 01:30:37

And, and, but because it was so interesting as, as, as far as like

Speaker: 01:30:41

the user experience and um, and the opportunity that it pre, that was then

Speaker: 01:30:46

presented by codifying a set of like standards and rules around it that

Speaker: 01:30:52

Yeah, I mean, we kind of are like, okay, this is actually pretty incredible.

Speaker: 01:30:56

And, and so sometimes breaking things is helpful and then other times breaking

Speaker: 01:31:01

things can bring down a bank, right?

Speaker: 01:31:03

And so it can be difficult to know.

Speaker: 01:31:05

Um, at, at, at the outset, which of these is happening right now?

Speaker: 01:31:09

Is this the kind of, uh, disruption that is likely to lead to a

Speaker: 01:31:14

lot of new value being created?

Speaker: 01:31:15

Or is this the kind of disruption that that could be, you know,

Speaker: 01:31:19

putting an entire bank at risk?

Speaker: 01:31:23

Tedd Huff- Host, Fintech Confidential: Well, you know, I, I will, I will

Speaker: 01:31:25

attribute that to, um, The commercial as I was growing up about the

Speaker: 01:31:30

Tootsie Roll, Tootsie Pop and the Owl

Speaker: 01:31:33

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 01:31:34

Classic

Speaker: 01:31:37

Tedd Huff- Host, Fintech Confidential: one, two and Crunch the

Speaker: 01:31:40

World will never know.

Speaker: 01:31:42

So with that being said, Matt, I have had so much fun talking.

Speaker: 01:31:46

I can't believe so much time has gone gone by how many

Speaker: 01:31:49

fantastic subjects we've covered.

Speaker: 01:31:52

I look forward to us coming back together and talking about all

Speaker: 01:31:55

the great things that we saw at Money 2020 and and how we see that

Speaker: 01:32:00

impacting what's going on in banking and FinTech coming up in the future.

Speaker: 01:32:05

So thanks again for, for taking the time out of your day to sit down and, and

Speaker: 01:32:09

talk about these fantastic subjects.

Speaker: 01:32:11

Matt VanHouten - Contributor, Fintech Confidential: Yeah.

Speaker: 01:32:11

Thanks for having me, Ted.

Speaker: 01:32:12

I look forward to meeting up in person in Vegas and uh, chatting

Speaker: 01:32:16

with you again when we get back.

Speaker: 01:32:18

Tedd Huff- Host, Fintech Confidential: Sounds great.

Speaker: 01:32:19

Thanks Matt.

Speaker: 01:32:20

Matt VanHouten - Contributor, Fintech Confidential: Okay.

Speaker: 01:32:20

Thank you.

Speaker: 01:32:24

Tedd Huff, Host - Fintech Confidential: Support provided by sky flow.

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