In this episode
In this conversation, CSTMR’s Rory Holland and Alloy Lab’s Jason Henrichs begin by discussing the Fintech House experience at SXSW, and the importance of attending events like this. Jason then gets into the purpose of Alloy Labs as a consortium of community banks, and highlights their focus on innovation. He shares his insights on the future of banking and fintech: how they are merging, and how financial services will embed into other industries. Jason also discusses the challenges in the fintech space, and points out the need for startups to solve real problems. The conversation ends with a discussion on building trust in the financial system, and the importance of authenticity and consistency in fintech.
Key takeaways
- Attending events like SXSW is important for those in banking and financial services to stay updated on the evolving needs of businesses and customers.
- The future of banking and fintech involves the merging of banking and fintech and the embedding of financial services into other industries.
- Startups in the fintech space face challenges and need to solve real problems in order to succeed.
- Building trust in the financial system requires authenticity, consistency, and transparency.
Transcript
Rory Holland
So, Jason Henrichs with Alloy Labs, it’s awesome to be here with you. Welcome. Welcome to Austin. Welcome back to Austin.
Jason Henrichs
One of my favorite times of the year to be here.
Rory Holland
Oh my gosh. Well, the Fintech House. It’s been quite an experience.
Jason Henrichs
It’s not the usual house experience. We signed to use some of our partners for that. We’re very nervous. Like we hear it’s a big party. It’s like, well, this is not really a party. The folks at Crowe had an awesome explanation. Clayton was like trying to describe it to their team. It’s like a backyard barbecue, but everyone actually knows what FinTech is. So you don’t have to explain it. I think that’s pretty appropriate. Right.
Rory Holland
It’s pretty impressive. Like from the first thing in the morning, people were here. And then at the end of the night. People were here
Jason Henrichs
That we had to kick people out like get out right?
Rory Holland
Yeah, you know it’s something’s going right when you’re kicking people out
Jason Henrichs
Well another one of the partners was asking that question was her first year here but Sunrise has been a sponsor since the inception of Fintech House, which was an addition to the luminaires I looked it up by the way, 13 years you thought, it was five to seven years ago, 13 years ago.
Rory Holland
Time flies.
Jason Henrichs
And she goes so everyone knows each other. You know based on the conversations like no they’re meeting for the first time. She goes Wow. That’s a real testament to like what the house becomes is people show up knowing they’re gonna have these kinds of conversations and it’s game on.
Rory Holland
Yeah, and some of the folks I had at last minute invited a couple of clients, a couple of friends, FinTech friends here in Austin that weren’t on the list that came and they just wandered in and next thing I know they’re talking to everybody and they didn’t want to leave either. So, hey man, that’s perfect. So, tell us a little bit about Alloy Labs.
Jason Henrichs
So, we’re a consortium of community banks. We believe community banking is very important.
nothing against the big banks, they serve one purpose, community banks serve a different purpose, but they’re actually at a severe disadvantage if you think about the power and strength of the biggest banks that no longer need a branch in your backyard in order to serve you. You have the FinTech companies, and then the commerce companies. Think about Starbucks as the largest closed loop payment network in the world. So… they’re getting at a disadvantage to everyone. So how do you help them not just survive but thrive?
And we do that by working together around innovation. And it’s why they show up in places here that they’d never occurred to them. We should be at South By. It’s actually why we started the house. The realization is they’re not gonna be able to navigate a lot of that themselves. So we brought SXSW to them, and that’s Fintech House. And then tonight obviously will be the Luminaire’s bigger reception, where we try and cap this that there’s 30 to 50 people in the house at a given time. that has a wait list of 700 right now and there’ll be 300 people there. So yeah, that’s good stuff.
Rory Holland
Yeah, it’s fun. I remember we were doing it at a second street bar and kitchen and now we’re over at green light. So it’ll be interesting.
Jason Henrichs
Yeah. Well, the problem with second street is you probably remember is the random people that wander.
Rory Holland
Oh yeah. You need security at the door.
Jason Henrichs
We have also beefed up security at the door.
Rory Holland
So a home you’re in live in Minneapolis. Is that right?
Jason Henrichs
Yep.
Rory Holland
But where’s home originally?
Jason Henrichs
I don’t know. I’m a generic Midwest kid. My parents are in Minneapolis, but it’s my wife’s job that took us there. But I spent 20 plus years bouncing between Boston, New York, London, spent a ton of time in California. We moved to Chicago after Perk Street because met married a Midwestern girl. Yeah, she’s not love Boston. So as soon as Perk Street, my last day was with the acquiring company. She’s like, Hey, we’re moving. I’m like, Oh my God, where are we moving to? She’s like, I don’t know, but we’re not staying here. Yeah. In Minneapolis. That time you went to Minneapolis or was that Chicago first and then Minneapolis just in time to be locked down in my parents basement for COVID. It’s awesome. With the kids too. With kids.
Rory Holland
Yeah. It’s awesome. God bless you. Yeah. My mom describes it. She goes, you guys moved out just in time that we could all forgive each other. Okay. Man, yeah, that was crazy. And it probably took her a year to even be able to say that. But other than that, all good. What’s one thing, folks, you’d like more people to know about Alloy that they might not know?
Jason Henrichs
Well, man, that’s a great question. I would say the one thing to know is you don’t just get to show up. This is not for innovation voyeurs. It is a group that actively does things together, pretty radical things. And so if you’re not committed to rolling up your sleeves and actually doing something, don’t bother joining. You won’t actually get into the club. We’re pretty selective about who we let in. I guess the second bonus thing, as long as I get the mic here, is you’re only half as good as you think you are. The number of banks we come to have big egos, they’re like, oh, we’re super innovative. We do all these innovative things. Like, oh, what are you doing that’s innovative? We’re implementing CRMs. Like, good for you. Yeah, right.
Rory Holland
Yeah, that’s good. I love that. So, you’ve been doing this a long time. Thanks.
Jason Henrichs
You just called me old. Well, the other day, who I can’t recall who I was talking to, but we had to go back to the nineties to start counting. And that was pretty scary.
Rory Holland
But thinking about other individuals, like particularly there’s some startups here. So I’ve seen that you’ve invited some startups that are super integral, like where they’re starting to plug into the fintechs to help the banks. What advice might you give someone that wants to enter this space given all the years of experience you have?
Jason Henrichs
It will take longer and be harder than you expect. Banks can be difficult to work with but they’re not stupid. Every I think looks at banks go like oh, they’re slow moving and risk -averse They need to be more like a startup. Well, no they act that way and move that way Because they are tested for safety and soundness and as a result they move rather methodically. Your last year Silicon Valley Bank and Signature Bank were all blowing up, right? Like that was all of the conversation around here. But if you look at the history in the United States, it’s shocking how many banks and credit unions we have. But you do actually see very few implosions like that. Now I would say even with that, though, like the landscape is under a lot of pressure and will be changing pretty dramatically.
Rory Holland
Yeah. Yeah. And it has with with that’s something I want to get into later. But. you know, starting in this space, like how did you, how did you even begin to get into finance?
Jason Henrichs
Well, I’m actually a manufacturing engineer by background. My first job was working for deluxe, the check printer. Turns out I’m not a good engineer. I don’t like manufacturing and moved to Boston to work for Michael Porter’s firm’s monitor. And they said, do you want to do manufacturing or financial services? And I’m like, I know what a routing number is. That is like, my background in financial services at that point. I’m like, oh yeah, financial services. Have I mentioned I know what a routing number is? Yeah. And so since 97 have done nothing but financial services really. And that’s included a series of startups. When I was in venture capital for the first time in the early 2000s, you do what you know. In my case, it’s microfluidics, so fluids in small spaces. And things that sell to banks. I see how those tie together.
Yeah, the very eclectic portfolio. But then I ran strategic implementation for the time, the fastest growing public company in financial services called First Marblehead, then left and co -founded one of the first challenger banks in the world. We didn’t call it banking as a service back then. It inadvertently kind of created a category. So we’ve been at it for a very long time and I’ve seen an awful lot.
Rory Holland
Oh, I can imagine. Yeah. 97 was the same year I got involved too. So. Quite a time, this is before CanSpan existed, before Search, paid search really, so I was on more of the marketing side and customer acquisition side. Thinking about where we are today and all the conversations, thousands of conversations I feel like has happened the last, just last couple of days, where do you see fintech going? Where do you see it going from here?
Jason Henrichs
I see fintech going away. This artificial category of banking versus fintech. It is all just around financial services. I’ll go even further. I see, I see banking going away and yeah, I shouldn’t say that. So I’ll lose some banks right below us, right? But the idea of needing a bank, people need banking services. Bill Gates said this, I’m not making it up, but they don’t necessarily need banks and everyone nods. They’re like, yeah, but banks have existed since the time of Medici. It’s like, no, they need a few things. They need a safe place to store money. They need the way to transact. They need to manage risk, right? Like those are the categories. Nothing says you need to get that from an institution dedicated to doing those things. And I think you’re going to see banking and fintech merge first, and then those things go away and they become embedded into the other things you’re looking to do. Right?
If you think of the prevalence of, you know, Uber or Lyft, right? What’s the best part about the Uber Lyft experience around the payment is it’s a nonexperience. Yeah, but you don’t even think about it. Like you get out, it was paid for. And so I think all of our financial services are going to be embedded into other things.
Rory Holland
Provocative statement to say that’s why I get paid the big bucks, right? No, you do. But makes a ton of sense. So like that embedded finance is where we’re headed.
And if you if you listen to Rogan or have heard of his stuff, he’s thinking he’s talking about us all being cyborgs where the tech is going to be embedded under your skin and you just walk around.
You’re the payment system. Yeah. Right. Or you’re the payment.
So what do you see in thinking about whether it’s Alloy, your consortium banks, or even in the industry, like some of the biggest challenges?
Jason Henrichs
Well, within banking specifically, so we have close to 10 ,000 banks and credit unions in this country, very different than any other country. We are about to see a mass extinction event because there’s no reason many of them should exist. We’re also about to see a mass extinction event within the startup community. A lot of things were funded that have no fundamental business models. Shamir Karkol, who is one of the co -founders of Bank Simple, eventually rebranded as Simple.
was following behind us and this idea of pioneering banking as a service. He and I were talking about this a couple of years ago. He goes, it’s really disappointing. If you think about Perk Street, we were started in 2008. They were started in 2011. He goes, if you look at how the industry’s evolved, what do you get from the neobanks? I can get my paycheck two days early. It’s like, that’s it? That’s all we could come up with over this time period, right? It’s prettier interfaces.
I think all of those startups that got funded to be a prettier interface and don’t fundamentally fix new problems, they’re going away. Right.
Rory Holland
So either they’re doing something fundamentally different or better and it can’t be just faster.
Jason Henrichs
What is faster? No one wakes up and says, you know, give me faster. Unless you have a problem that requires faster.
Rory Holland
And so are you seeing, thinking about your consortium, there’s some of those guys and people in the mix. Are they… Are you guys, is Alloy Labs helping them innovate to solve some of those problems in meaningful ways?
Jason Henrichs
And that’s kind of some of your purpose. That’s part of your purpose. That’s a big part of our purpose is you need to more efficiently do the commodity parts of the business, but you need to also rethink your business. And banks and even fintech startups are really good about thinking about being at the center of money, right? Money flows in, money flows out, or I store it. We as consumers, whether it’s a consumer as a business or a consumer consumer of these services, right?
Like someone who’s using them. We’re not thinking about money in a paycheck, right? No one wakes up. Well, very few people wake up and go, you know, it’d be awesome. I want to go get a mortgage today. Like, can we do an excruciating process? You know, no, it’s I’m moving, right? Like, so we talk a lot about this edge of money, right? It’s like.
A house is about, we’re getting married, we’re having kids, the kids have left, we’re retiring, it’s a new job. The mortgage is ancillary towards that edge of money experience. And so, for banks, what do they have? They have customers that trust them. And so we focus a lot on how do they leverage trust of existing consumers and they have your money into take that trust into other areas that we can help you solve real problems you have.
Rory Holland
Yeah, so it doesn’t just have to be about banking. It could be. No. We’ve seen some banks and worked with a few clients ourselves in trying to provide services into banks like insurance, for example. That’s coming. I was going to ask you kind of an outside question, something you and I talked a little bit about. And we’re seeing it all through society across the globe now. When you think about the systems that govern our world, our country, and when the financial system is part of that. And there’s been…I don’t I don’t recall in my lifetime less trust in the systems that govern the country, much less financial systems. And because we’re in this space, I want to ask you the question, just how do we go about building trust and restoring faith in the system?
Jason Henrichs
We shut down social media. I mean, short of that, I don’t know what we do. The stats around the amount of financial advice, air quotes around advice is really bad information that consumers are getting from TikTok.
And it is people promoting brands and ideas and theories that have eroded in the trust that existed for good reason. Right. For stability and safety, soundness. But now everyone has a platform and they can push ideas that are unvetted. And so I don’t know how you put the genie back in the bottle for that, because once you still remember, you know, my mom lecturing me on this when you lie as a kid, right.
It takes years to build trust, but all it takes is a moment to break trust and to rebuild that. So I think a big part of this that will be hard to rebuild that trust is the fact that so much is marketing driven and you don’t know who’s behind it and what they’re doing.
And one of my favorite fintech writers, Jason McCullough, wrote this interesting poster and he’s like, if you want to see who’s doing something bad, look at how much money they’re spending in advertising. If you see it everywhere. And what he was talking about with sports betting is his latest thing to pick on. If you look at how much they can afford to spend.
Almost always you can pull back and say, okay, there is unfortunately for you as a consumer of those things means they’re making money on you. Right. It is not a fair exchange.
Rory Holland
Yeah. Yeah. And we think about from, from my lens, because the, the fintech marketing, the branding that we do to help build great and successful brands. One theme that we hear a lot and that I’ve heard a lot just this weekend is authenticity, consistency.
Following through on promises like those are the things that that I heard a lot from the founders and leaders of these companies And I’m just curious what you think about and like some of the things you might hear from them in Your day -to -day. I mean those are so important in terms of trust and transparency, but it’s also very interesting how Quickly people are to turn on you when you can’t deliver on the promises you’ve made right, but let’s face it things happen.
Jason Henrichs
Right. Like no system is perfect, especially when you’re trying to do something new. And so I think being able to say you’re sorry and to make it right is one of the most important things for every startup. You know, having empathy for the customer experience is so important. Yeah. But it also is so hard because as soon as something like that does happen, like one of my favorite startups from the mission they launched with Digit was around helping people manage their money better. and automating based on your past transactions to put more money away. Except inadvertently, their algorithm wasn’t working properly and over 10 ,000 consumers were impacted by having overdrafts take place because they had moved money away that you could actually afford put away. And they were well -meaning. But they stumbled. And that became a huge challenge for them. And I don’t know how they rebuild that trust even if they are transparent.
Rory Holland
Yeah, it’s so difficult. Like one thing I’ve… I’ve really picked up on here, particularly talking to the bigger bank sponsors, is there’s no room for error. Like there’s just no room. So the stability of the financial system, particularly the stability of the banks, while we as consumers ask them to do more and better services faster, it’s a dichotomy. It’s a tough, I’m sure it’s a tough thing that they face.
Jason Henrichs
Well, I think U .S. bank does particularly well at this. The idea of the base bank. Right. They work on the five nines in terms of how they deliver those services. But they have the group that’s here. Their job is to peer over the horizon and look at the future and say, how do we actually do new and better things? But let’s do that outside of the main bank. Right. Until we’re ready to grow it up and roll it out.
Rory Holland
Yeah. And so he was saying David Ness, I spoke with yesterday and I speak with Megan today. Three hundred and sixty some odd partners. Yeah. And the pipeline of vetting is thousand because so many are coming online all the time. I can only imagine what all the bigger banks and then what the banks in your consortium have to deal with and just looking at opportunities, vetting opportunities, and then due diligence and then testing it without disrupting the core business.
Jason Henrichs
I mean it very much is you have to be flying the plane while you’re building a new plane on top of it.
Rory Holland
Yeah, not easy. Anything else you want to talk about?
Jason Henrichs
If you are in banking or financial services, you need to go to places like SXSW. Yeah, and we get asked all the time like oh is that a FinTech conference like no, it’s not That’s the reason is again people don’t need FinTech they don’t need banking but it’s embedded in what they do and coming to something like SXSW or the CES right it’s around seeing how the world is evolving in the services and the needs that Businesses and customers are gonna need. Yeah. Yeah.
Rory Holland
Well, it’s been awesome. I always love chatting with you. Thanks for being here.
