Episode 19: A Peek Inside FinTech Forge's Alloy Labs Alliance

Hello everybody, welcome to the 19th episode of our Banker Education Series webinar show. This is Eric Cook with WSI, where we work with businesses and organizations primarily in the financial services sector on helping them better understand and leverage the power of the internet as a strategic tool. This Banker Education Series show is designed to help my friends in the banking community get connected with really smart folks that are on the cutting edge of what's going on in the world of banking. You can learn more about our show depending on how you heard about us over at poweredbywsi.com/BES. And as you'll see, we've got today's show listed here with JP and Jason from Alloy Labs, actually from FinTech Forge, talking about Alloy Labs. and their alliance as it relates to innovation. When the webinar recording is complete, it'll be available here, and you can browse other shows from past episodes as well. Kind of keeping on with the fintech discussion, we chatted with Sam over at Cornerstone last month, and now I'm really excited to welcome JP and Jason from FinTech Forge to the show. So if we wanna keep this interactive, those of you that are attending live, Feel free to use the chat functionality for your control panel, probably floating on the right-hand side of your screen, and type in questions, comments, anything that you'd like me to ask on your behalf, and we'll keep it interactive and kind of let the show roll. So with that, I'm going to play some magic with the backend and flip the screens over. While I do that, I'll let you guys rock-paper-scissors with who would like to introduce themselves first. And again, thanks guys for joining me today on Banker Education Series.

Oh, well, thanks, Eric. It's JP Nichols, and I'll, I think I'll start today and you'll hear from my partner, Jason Hendricks, in just a moment here as we talk about the Alloy Labs Alliance. Now, Alloy Labs Alliance is a member-directed shared innovation lab and accelerator that reduces risks, lowers costs, and shortens the time between ideas and results. That's really what it's all about. You're going to hear from me and you're going to hear from Jason. You'll get 2/3 of the brain trust here today. I spent 20 years helping to grow a small regional bank to a global leader from less than a— that's a wrong number there. It's not $1 million, but less than a billion to over $60 billion in market cap and was really part of the team that built that first enterprise innovation team. And I first met Jason when I was a banker attending Finovate, and he was a co-founder of what was then one of the world's first neobanks in 2018. And so Jason, I'll let you give your quick bio and maybe a shout out to Trish before we get started here.

Sure.

And so, you know, it was very fortuitous. You know, I had originally gone to meet JP as, you know, one of the first challenger banks and really looking at how do we explore and redo how financial services are delivered, leveraging the new face of technology. I come to this previously had been a strategy consultant focused on financial services, became an entrepreneur, was recruited to a venture capital firm where I focused on what you know, which in my case was things that sell into the financial service sector, before becoming head of strategic implementation at First Marblehead, at the time one of the fastest-growing public companies in financial services, which is actually where Trish and my paths crossed. So head of strategic implementation was the job of if it is on our strategic plan and we don't do it, my job was to go make that happen. A bit of an intrapreneur and also ran our corporate venture capital group. And as part of that, acquired a small thrift in North Providence, Rhode Island. And we like to joke at the same time, acquired Trish, who had just been brought in to lead operations there. And together we launched an online banking platform, a student-focused debit card. We were one of the first to use Yodlee to do KYC and a series of other things. And so then in 2008, when I left to co-found PerkStreet, what do you do? I immediately went and recruited one of the best operational folks I know, which was Tresh. And post-PerkStreet in 2013, she went on to work for several years at Fiserv before being recruited by my co-founder, Dan O'Malley, to join the group at Eastern Labs that was creating a labs group within Eastern Bank, a $10 billion mutual in New England.

And then we were very pleased when she decided to rejoin us over the summer as the Well, so that's a little bit about the team and we'll tell you about what we've been up to, but let's take a step back first and, and really look at why we are even doing this at all. I mean, it's no secret that over $100 billion has been invested over the last few years in fintech companies, and this dramatically changed the industry and the expectations of your customers. And we think it's really just the tip of the iceberg though, as massive well-funded players from adjacent industries have begun to encroach into financial services. It's no secret that Amazon is already in fintech, as are many of the other players. If you look at payments, you look at merchant-funded deals, there's all kinds of things happening on the edges of the industry, not to mention the digital arms race that's happening within the industry that's been driven by the largest players. They're building their own capabilities internally, they're acquiring new ones. They're partnering with and investing in fintech companies. They're incubating new ideas to build future capabilities. Nobody can afford to sit on the sidelines, but not everybody can or even should do this all on their own. The most innovative organizations in the world know that they can't manage innovation the same way that they manage their core business. Our core business is all about execution and enforcing best practices, while innovation is all about exploration discovering next practices. And that's why the largest banks have been spending upwards of $10 million or more to build their own innovation capacity and things like research and development, incubators and accelerators, their own innovation labs and venture capital arms. And that's why we built the Alloy Labs Alliance exclusively for regional and community banks. Now, we had literally hundreds of conversations with your peers across the country and around the world is we tried to more deeply understand exactly what the challenges were from the banker's perspective. And we thought if we could get 4 or 5 banks to agree to work together, that would be a pretty good start. But the response was actually overwhelming. We ended up having to cap it at 12 founders. So we worked hand in hand with them to build the Alloy Labs Alliance with those founding banks. We were in private beta last summer and early fall, and where we are now is reviewing nominations for just 20 charter members to join them. and we're well on our way to wrapping that up now. We'll talk a little bit more about that later, but let's talk now about how all this works. Well, one of the things that we didn't anticipate was that there were plenty of banks that just wanted to join the club. They told us that having a few research subscriptions and going to a few conferences wasn't tailored enough for their needs. They wanted to be able to talk to their peers and benchmark themselves against them. They wanted to learn the lessons from others, and they wanted to be able to implement those best practices that they learned from their peers. One banker we talked to said that this whole idea was like getting a shared innovation officer, which is really a good way to think about it. It's really not just a chief innovation officer, but a whole innovation team for a fraction of the price. We knew from our work in the industry over the past decade that different banks were starting from different places. We'd been measuring banks' innovation maturity, and we found out most of them were somewhere between what we call engagement and emphasis, And what that means is they know they need to do something to keep up in this rapidly changing world, even if they weren't exactly sure what to do or where to start. So we designed the Alloy Labs Alliance to be able to meet their needs no matter where they are on this curve. So right now we'll talk a little bit about some of the other benefits and beyond the basic membership. Everything is optional and à la carte, so the members only pay for what they need when they need it. We found, though, that every organization from— can benefit from putting in place some foundational frameworks. And we highly recommend that everybody go through what we call our Anvil process to be able to build on that foundation, the tools and the training really for execution. I mentioned that we measure the innovation maturity, and we start by measuring that across 7 key dimensions so that our members know what strengths to leverage, what areas to improve, And this probably doesn't come as any great surprise to anybody on this webinar, but most organizations we work with are pretty good at incorporating risk management into their innovation efforts. But where they were looking to improve tended to be in the 3 areas on the right side of the screen. Experimentation, that's adopting a test and learn approach instead of the paralysis by analysis approach that so many seem to have. Speed, which is highly related to that, they wanted to get faster at moving through the process and moving from ideas to results. And finally, they want to make more data-driven decisions instead of relying on what we like to call the HIPO. That's the highest paid person's opinion. We want to move from our opinions to facts, and the way we're going to do that is through those experiments. So we start by taking that assessment and working with their leadership team to help them create their own custom-tailored declaration of innovation. Now that's the who, what, when, where, and how of their innovation strategy built for their bank and their unique situation in their market. We give them some new strategic lenses that give them the clarity to help them break down that massive list of big projects that they want to do but can't seem to make progress on. And one of our favorite quotes comes from the COO of one of our founding banks who said after one of these sessions that we made more progress here in 24 hours than we typically make in 3 months. And that was music to our ears because that's exactly what we were trying to accomplish. Well, then we actually help those internal teams move from strategy to execution with our FIRE process. FIRE stands for Fast Iterative Responsive Experiments, and our methodologies and tools have now been featured in leading publications and conferences across the country and around the world, and it's being taught at 4 of the 6 leading graduate schools of banking. This is really the fundamental principles that help them get these results. It embeds the best practices of modern agile business methods, but they're custom tailored for banks that work in this highly regulated environment. And the end result is a structure that helps them manage innovation differently than they manage their core business and balances creativity with compliance. Best of all, it gets results fast. So I'll maybe turn it over to Jason now to talk a little bit more about the way that we're bringing banks together to work inside the peer workgroups.

Great, and so if you think about the, you know, the first part, the shared Chief Innovation Officer really gives you an exclusive peer group of like-minded people cutting through the noise that percolates through the industry, but people can talk about these deep issues. And then you've been given, you know, the hands-on tools and you've started to really get things moving if you weren't already working with this, the ANVIL training. But where the rubber meets the road is within the workgroup. And a workgroup is established based on a lot of the research that happens at that top level around education and awareness. One of the things we do a lot of is surveys and benchmarking, and out of that we establish What are the hot pain point areas that the banks want to work on together? And out of that, we establish a workgroup. And a workgroup is 7 to 10 banks that are going to do a deep dive on first, what is the problem in a deeper understanding? Now, one of the things we're very cognizant of, a CIO of one of the banks we work with said, you know, finding customer insights and really understanding the problem is hard. And we have a tendency to just say, hey, let's just go shop for a solution. Well, we know that that actually is really difficult. How can you find the answer if you haven't firmly established what the question is? So we use the tools from Anvil with a group of banks that by working together actually have a very rich understanding of the problem that they're looking to go solve. And so if we go then to the, the next slide, Let's talk in detail about how that works. So within this, we have an established group, the 7 to 10 banks, begin to do a deep dive where they've refined the problem. Then working together, coordinated primarily by Alloy Labs, we curate a list of who are the potential solution providers that actually fit that well-understood specification. And we get these from all over. We keep a very rich database of startups and alternative providers. We get them from the banks themselves because oftentimes banks have looked at a solution, but they're not sure who else is out there. We work with the leading venture capital firms and the accelerators that are out there to have this really rich view, and we curate that down to just a few that we want to do a real deep dive on. Now, again, we use the wisdom of having a group of banks to look at this to get a rich understanding of who is really going to be the partner that we want to select. And then we do a security risk and compliance assessment with our strategic relationship with Crowe. Now, this is one of the benefits because individually, if each bank had to do that themselves, it is both time-intensive, labor-intensive, and expensive if you're going to use that. But by using the same tools and working together, We actually end up with great economies of scale. So from the bank's perspective, we've worked together to create the best quality inputs into your compliance, risk, and security processes, but we leave you then to carry that to the finish line, which leads us to— You get as a bank to still make your own decision if you want to continue. And as you can see on, you know, this last piece, Once we actually decide on a partner, one, we negotiate a preferred relationship with that provider because one of the things we've done is brought a group of banks and a shared set of processes. We're working together with the cores so that there's economies of scale on the integration and shared best practices. And after that, we continue to share best practices of how do you make this work because adopting the technology is only the beginning. How do we actually implement it and accelerate the return on investment by driving learning faster? And so this opens up 2 other opportunities. So if we've accelerated the speed with which we're getting results and the tangible ROI, the other 2 opportunities are we turn this result into an innovation blueprint. Now think of this as the toolkit. If you didn't participate in the workgroup, either because you didn't have time or you were focused on other priorities, perhaps you were in 2 or 3 other workgroups, you get this toolkit that actually is everything you need to go implement. It begins with the deep understanding on what were the insights and the hypotheses that were tested, which partners were looked at, who was selected. Here's the risk compliance and security documentation that you need. Here's even the the signable contract that includes the discount in order for you to go implement all the way up to the best practice with the core. As the CFO of one of our founding banks said, it's like buying the first 9 months of a 12-month project. And that opens the next opportunity, which is the opportunity to actually do richer partnerships by making strategic investments into these. We'll get back to that in just a second. Now, within a work group, there are 2 different roles. One is a leader bank. In the lead bank, this is not actually saying, oh, you're cooler or better, or you get the captain's C on your jersey for playing this role. The leader bank is the one that said, we're willing to roll up our sleeves in order to do, you know, the most amount of work, including the most painful part, We're going to be the first to integrate it into our core, and then we're going to share that knowledge back with the rest. Now participant banks get to actually modulate. They participate in the deep dive in terms of the rich understanding, because we need a lot of perspective in that understanding of the problem or opportunity. They get to give their input along the way, but they also get to leverage the fact that the lead bank is putting incrementally more in that they get the benefit of. And this is important because sometimes a bank will say, hey, I'm gonna be a lead on this, and I'm gonna be a participant in another, and that's how you build out your portfolio in order to accomplish more. One of our founders said, today we do 20 proofs of concept per year with the hope that we get one into production, and we're only getting about that 5% hit rate because we're either, you know, just not getting all of the work done and it extends into the next year, or the results aren't what we expected. By working with Alloy Labs and joining workgroups, we expect that we're going to go from doing 20 POCs to 30 POCs. And because of the impact that working with a group of banks will have, instead of just seeing 50% lift going from 1 to maybe 2 or 3, we think we're going to get 7 to 8 things into production every year. And that's by using this combination of some things we're going to take a lead role on, some things we're going to be a participant, and then in some cases we're going to be a blueprint buyer. And so you get to make this decision around, hey, how do I want to construct this portfolio to have the biggest impact for me? And as JP said, all of this is priced à la carte, so it's up to you if you want to start with the learning and the shared Chief Innovation Officer, if you want to begin as a participant, you get to build your portfolio. And then this brings us to— so what kind of topics are we focused on? Right now we have 3 workgroups that have taken off. Peer-to-peer payments, which is, you know, how do we actually power both consumer and small business payments? Small business lending and digital onboarding were the 3 target areas that the founding banks and the first member charter members decided that should go focus on. The other areas that we see very strong interest are data access and availability, really around, hey, we have all of this rich information that's locked up in our core. How do we actually leverage that better? Everyone looks at and thinks about how Amazon is able to leverage its data. We have even richer data on our customers that we should be able to use for their good and our own in terms of better targeting them, and managing our own internal processes. That also leads to better business processes for compliance. How do we actually break down some of the silos? How do we use automation, analytics, machine learning to make it more efficient and effective in how we manage compliance? And then 2 things that are very core to our business needs: deposit generation strategies and wealth management solutions. Right now, as we see the boundaries within financial services for customers breaking down, we realize we need to do more than hold their deposits and make loans. We need to be very robust in how we view the needs of our customers. So the last part of what Alloy Labs fills in is this idea of how do we make strategic investments. Now we've heard time and time again from banks that they're very interested in making investments But most are very cognizant that they don't have that internal capacity, and they would be doing it at subscale. Now, I can tell you from my time as a VC, the number one thing I wanted to diligence was the customer pipeline. And if you think of what the workgroups are doing, in reality, we are actually the customer pipeline. And that's what makes this not just an investment, but a strategic investment. because we're looking at making investments in the companies we're actually working with, which means we can help manage the risk because we're the customers that are adopting. We're going to be their reference customers, and we'll help drive them forward to develop what their product roadmap looks like. So in the same way that the workgroups bring economies of scale by sharing insights, we aggregate the workloads. So now we've done a lot of the diligence in the workgroup to begin with, and the incremental part of looking at What does the capitalization table look like? What are the economics? How big is the market and the competition and the management team? All of that diligence is done much like a workgroup and shared. And all the bank needs to do is really establish its internal investment committee where you get to see, hey, as a group of banks, we've created this investment opportunity. We've shared our resources in order to finalize the diligence, and you get to decide if you want to participate and at what level. And so think of this, you know, we use the analogy, it's a bit like an angel group, if you're familiar with that term, but in this case, the angels are actually the banks. And what we're using is just a shared team spread out amongst the banks in order to share the load of doing the diligence and managing the ongoing support. Now, as a former VC and corporate VC, one of the things that excites me most about this is the risk-return profile. By being both the adopters of the technology through the workgroup and sharing the strategic upside as an investor, we have the best of both worlds. In many ways, we help shape the destiny of the startup, and that's one of the reasons industry-leading VCs are excited to partner with the consortium of banks to co-invest with us. It opens up tremendous deal flow and economic opportunity that accentuates the value of the workgroups. Now, we have been in very active discussions with a number of partners, and we're excited to be partnering with some of the leading providers out there, including the Digital Banking Report that is included as part of your subscription to be an alliance member. We're working very closely with Cornerstone to do proprietary benchmarking and insights based on this group relative to the broader audience, and working with Fintech Labs, a leading UX provider, on actually doing an analysis of your UX and getting it certified as a best-in-breed relative to others in the industry. So there's multiple ways that you your membership pays back, from the discounts to some of the leading conferences that we work with, to the discounts in the free membership to folks like Digital Banking Reports and the benchmarking, the shared resources that, you know, you're only paying a fraction of but getting the full benefit. And most of all, you're seeing a faster return on investment because you're getting things into production faster through the shared learnings. Now, as JP mentioned, we have been taking nominations for charter memberships. They get first access to the peer workgroups, and this also means you get influence on what topics are we going to pursue next. As I mentioned, we're focused on P2P, small business lending, and digital onboarding right now. You have the opportunity to join those groups To help influence which ones are next, as well as some of the first to adopt the blueprints as they come out. You also receive a 5% discount on the in-house workshops and executive sessions, and you get priority scheduling. So we just announced that the labs were out of private beta towards the end of the year, and already we're over half full for the charter memberships. Now the good news is, because we've so lowered the bar in joining the alliance, what we're finding is for leading banks, this is a pretty straightforward value proposition that we're happy to schedule time with you and your management team where we can very quickly answer any of your questions, or maybe some of them will get answered today, where we can help you decide if this is right for you.

Yep. So, Eric, that's just about it. And we kept it kind of short and sweet to give everybody a pretty thorough but quick overview on what Alloy Labs Alliance is all about. And we're happy to take questions from you or any of the participants.

Awesome. It sounds like you've talked about this a couple of times before. You've got it down very succinctly. I'm impressed.

Very cool. You know, this is the classic overnight success story that's been years in the making.

Yeah, exactly. So as a reminder, if you've got a question, please feel free to use the chat functionality in your control panel and let me know. I do see that there's a couple out there that I'll ask right now. Um, you know, the, uh, as bankers, the 2 things that jump to mind anytime we talk to people is how much does it cost and then vendor management due diligence compliance. And so this question kind of covers both of those. So you had talked a little bit about more of an à la carte pricing strategy and pay as you go. Is there a ballpark the typical bank that would partner would use these services and would be looking at either this amount as an average setup or installation or subscription or membership fee? And then What's any sort of an ongoing cost commitment? Let's talk about that first.

Sure. So the membership is $15,000 a year, and we price that to be extremely attractive relative to some of the things that it's replacing or augmenting. So think about this, for less than the cost of a part-time teller, you know, you're getting something much more tailored and customized than what you might get for way less than you'd pay for a membership in Gartner or Forrester or sending a couple of people to the Finovate conference without any, you know, kind of context and all of that. So that's, that's the only required fee is to be a part of that is to pay the annual membership fee. And that's all around the education and awareness piece that we talked about. And Jason, at the end there, talked about some of the partnerships, and we're bringing other partners on board too, but the Digital Banking Report, the Cornerstone Advisors, the BOK Certified Program, all of that is a part of the value prop there. From there, everything else is where it's, where it's à la carte. And most of the cost for the Workgroup is really replacing internal costs you'd be spending already, right? So if you're working on digital onboarding or small business lending or whatever, you have both hard and soft costs internally, and this is a way of being able to share those costs and reduce the risk and speed up the learning. And we can talk a little bit more detail about kind of how those price out too, if you'd like.

Yeah, well, you know, correct me if I'm wrong, but the digital banking report just by itself, I think I've looked at that a couple of times and It's still a little bit much for me, but, you know, when you look at what you're getting, you know, for 15, you knock a couple thousand off here, a couple thousand off there, that actually becomes super affordable. And a part-time teller is not gonna come anywhere close to what you guys are doing. So.

Yeah, we're also— we haven't talked a lot about this, but we're getting Discounts for things like Finovate, Money 2020, you know, some of the big conferences and being able to pass that on. And then, Jason, you can talk about this. One of the couple of members you were just with yesterday talked about, hey, if you're going to go to that, why don't we run a meeting in, in portion of that? We can kind of have somebody in the room taking the notes, curating all that for us. But even more importantly, we can spend our time then thinking about what's this mean for us? Not just, you know, seeing the demos, but understanding how this fits into our strategic priorities.

Wow, yeah, that sounds great. Jason, any other comments on that?

Yeah, well, let me quickly talk to the cost of the workgroups, because as JP said, while you can think of the $15K if you're a bank that's over $300 million in assets, or $7,500 if you're under $300 million, really is kind of the only new expense to budget for. Everything else should more than pay for itself. You might say, well, how much do workgroups cost? And the answer is, well, it depends. And the reason it is it depends is one of the things we found through the beta is that banks had realized, wait a second, we can't just put one price because some things are relatively fast and easy and some, you know, like things like the data availability and how we work with our cores, that's probably the workgroup that never ends. And so, you know, part of the reason this is an alliance is we're run like a cooperative. where when we establish a workgroup, the workgroups themselves have a very heavy influence on how we price and say, okay, in order for us to get an ROI on this, what do we think the benefit in the future is? What costs are we taking out of this upfront expense management cost replacement? Let's make sure it's structured in a way we get an ROI. Now the general rubric, however, is leader banks pay less, about half of what a participant bank does. And someone who buys the blueprint not only doesn't have the level of influence on the problem and the solution, but they also pay a premium to what a participant bank pays.

And let me add just one more thing. We don't take any revenue from any fintech provider at all. This is all by the members, for the members. And so I often think about it as We're kind of your outboard innovation department. Outboard meaning you still steer the ship. You're deciding where your ship is going and what ports you're stopping at. But we just provide some outboard, outboard power in a way that you just couldn't do on your own, whether that's on the investing side, the workgroups, or, you know, just the internal capacity building. And so, you know, something we probably aren't as explicit about as we should be, You know, that's the— all that pays for the, you know, kind of keeping all that going, and there's no outside fees coming from any vendors, so they can't influence. We're completely agnostic about who we work with, and it's all around finding the best solutions for our members' needs.

Very cool. Good. So the second part of that, in addition to what's it cost and how do you deal with compliance and vendor management, let's talk about that compliance and vendor management question. What sort of vetting do you guys do when these fintechs are brought in? What information do you provide to the members? And has that process gone well? Because while most of the vendor management requests that we get are pretty similar, there are unique things every once in a while that an institution will ask for. So how does that get handled through this process?

Yeah, so one of the parts of having a peer group that was a bit unexpected was the level of excitement that comes actually from the compliance groups within banks to say, I have a group of other compliance people who are feeling the same pressure I am because our bank is striving to be a leader and to do new things. And we want to keep up, but we're also responsible for remaining compliant and managing risk. They have a peer group they can work with, and CRO works all the way through the process of the both workgroup, and they even do a lot within the conversations that take place in our Slack channels. And, you know, as part of the alliance-level membership, you know, we do both monthly and quarterly deep dives on topics of interest. One of those actually at the end of this month is a member-only deep dive that Crowe is leading on the innovation R&D tax incentive that, you know, you get access to that kind of information and discussion. So part of this is actually working as a group. While you may have a series of one-off questions, the compliance and risk professionals themselves are finding participating actually has a huge benefit for them as well. Now, even though doing this as a shared group and we have a standard set of topical areas that CRO goes through and does the assessment, there are always a series of one-off things, you know, that go above and beyond. And so the objective is really, can we get it to 85-90% is done? Then if needed, you know, small incremental that either the bank wants to do itself or Or if it's saying, hey, we don't even have this internal capacity, one of the benefits is Crowe also offers a significant discount since they're already up to speed. If you need help actually doing the compliance and risk management as a service, they're available for that. And they've actually been very helpful to a number of our members who've said, hey, you know, we want to take this to the next level and extend our capacity. They're a great partner for that.

JP, anything else to add to that?

No, I think Jason covered it well. I will just add that one of the things our members have been really excited about is the last part that Jason mentioned. They're anxious to influence their own internal groups to accept the standards. I mean, you think about our industry, right? We all are 95% of the same, offering 95% of the same products and services that Followed by 95% of the same policies and procedures. And yet we want to bake everything from scratch inside our own kitchens. And they're very excited about, hey, if we can agree that this is the due diligence report, like Jason said, if we can get even 85%, 90% of the way there, knowing that that covers most of it, and then just that little extra that we have to do on top of it, that's a massive productivity gain. And, and without—

Yeah.

without any gained heartache because they're very comfortable in knowing that the work has been done, but they're gonna rely on their peers.

Yep. Another question that came through, and I've got a couple of additions to this that I'm gonna add 'cause I'm curious, but what's the ideal bank look like that would become a member? And I think what I'm interested in that is, Is there a typical asset size? And I guess maybe the culture that needs to exist and maybe anything else that would define what an ideal member of this alliance would look like to take full advantage of what you guys are doing?

Yeah, we're completely agnostic about asset size, but the reality is very few are under $300 million, and that's— we do have a price break for them. That's one of the sensitivities for Once you get below that, I mean, every incremental dollar is, you know, really difficult to justify. And we don't see too many over $30 billion, although we've done work with some of the largest banks in the world. But way more important than asset size is, you kind of hit it, that mentality. I would tell you of the groups that we're— of banks that we're working with today, they have 2 things in common. Number one, they all tend to hit above their weight class. And that's highly related to No. 2, which is they're much more doers rather than, you know, just talkers. They are actually already working on things, and they get it, that the ability to work together to reduce the risk and share the costs and share the learnings is a massive improvement of both their efficacy and their efficiency. As we continue to grow, if you think about you know, that adoption curve that, you know, we've all seen from Everett Rogers, right? These are the innovators and the early adopters way out on the left of the bell curve. As we continue to grow and add members, we're, we're already starting to see a little bit of those that are a little bit more mainstream. They're a little bit more of the followers who, who want to learn from the others. And so I would say for our charter members, it's definitely those that are interested in paying attention to the workgroups, but we're also happy we're beginning to get members that are wanting to take more of a wait-and-see, and they just want to participate and be a part of the group, and that's fine too.

Yeah, I'm, I'm looking, I flipped through your slides that you sent to me. I flipped back to slide number 6 that's got the logos and locations of some of the founding members, and I recognize a couple of those. Some of them have been guests on the Banker Education Series show, which is kind of cool. But those are some very progressive-minded banks that are thinking outside of the box and doing things that might make other bankers of the traditional sense very uncomfortable. And it doesn't surprise me, but I can see where culture is probably a bigger issue in embracing, you know, being comfortable with facing the change and whatnot than necessarily just asset size.

So Yeah, we can give you a little color, right? I saw that you had Chris Nichols on your program recently. He's the Chief Strategy Officer of CenterState Bank in Florida. He's been a very active member. Mercantile Bank of Michigan, John Schulte is the CIO.

Yep.

That's a $4 billion bank that was the first bank in the country to partner with PayPal. Not Chase, not Bank of America, Mercantile. So the smallest bank of this group is Citizens Bank of Edmond. Many of you probably know Jill Castilla. She's a very active CEO and she's been very influential. NBKC, just north of them, they're running their own accelerator and incubator program as a $500 million bank. So it really is a great group of banks.

Excellent. Yeah, some good folks there.

So we're going to have another 10 names that we're announcing pretty soon here and then another 10 after that that That the first 10 is just about all wrapped up, and then the next 10 to finalize the group of 20 charter members is more than half full already. So there's just a few spots left. If anybody here is interested in joining us, we'd love to talk to you about it, but I would say let's do that sooner rather than later because they're going fast.

Right. I feel like I should have some sort of a drum roll audio effect that I could play right now as an audio over or something. I think to add dramatic effect to that. Um, one, uh, another question is, do you have an example of a specific fintech company that has been selected or is part, just to kind of give a tangible example, uh, if, or is it too early in the process to be able to do that?

Um, less that it's too Early, but I can give an example for you in terms of how this works, but we haven't been public on who the partner— partnership discussions are moving with, and that's part of because those first blueprints are just now being written and we're trying to keep that within the group. But, you know, one of the places that we found some of the most traction and The need from banks was really around this idea of how do we actually rethink the way payments works? Because there's everything from Zelle, which doesn't always fit well for a community bank, and from pricing and ability to get access. There's the direct-to-consumer and small business from Venmo and Square. Now it's only Apple to Apple, but you can use Apple Pay to be sending money. You have Facebook getting into payments, all sorts of players where that's traditionally been a core piece of functionality that's provided by the bank. So what is one of the non-major banks to do if you don't have access to that, if part of your core value proposition is being eroded? And what we found is as the banks dug in, a couple of key insights came out of it, which unfortunately you have to join in order to understand. That helped the banks rethink their approach in terms of what does payments mean to them. And we're actually in very active discussions right now in the payment space of, hey, this is a unique way to solve it, probably not one that people would have thought of on their own had they not gone through a process of doing a deep dive because it's It's not the partner when you think of, hey, I'm gonna adopt technology to do payments. It's not the partner that you immediately would have thought of.

Gotcha. Okay. And as you say that, one of the things— and I'll let you— first off, I wasn't trying to scoop the members and ask you to divulge something. I appreciate your response there. You are both very active in the podcast and information sharing space. And as a precursor to this, feel free to share where folks can learn more about some of the things that you also talk about on an ongoing basis. But in a lot of those podcasts, there's discussion and inclusion of the European and outside of the United States market on how they're already doing a lot of this stuff. To what extent is the European or non-US-based fintech world making an impact in some of these outside of the box? And when you say payments, you know, the ability for my friends and colleagues in the UK to send money to each other, they chuckle at how difficult it is if I wanted to send either one of you $10, and they just laugh at that because they're like, can't you guys figure this out? We've been doing this for years.

Yeah.

So how is the European or non-US influence coming into all of this?

Yeah, I'll start, and I know Jason has a lot to add around that. Jason and I are both partners and co-hosts of Breaking Banks. That's the number one global fintech radio show and podcast. It was founded by Brett in 2013.

Love it.

Yep. And so that gives us the opportunity to talk to people across the country and around the world, and we bring a lot of different perspectives to this. And one of the things that's really major is open banking, and it's, you know, the law of the land in Europe. They're looking at it in Australia and New Zealand, and parts of the law are in effect already. And, you know, our basic view is we don't see any regulator forcing any US banks into open banking anytime soon, but that doesn't mean you shouldn't be paying attention to it because Your biggest competitors are already looking at that. We have a very active Slack discussion group. We have a private Slack channel for our members. And, you know, one of our members— I was pleasantly surprised at how open they are. They exceeded our own high expectations of how we really wanted this to be an open group. And he actually shared a couple slides of his digital architecture and said, Here's how I'm thinking about how private banking, open banking is going to play out here in the US and how we want to get ahead of it. And what do you think about it? And one of the CIOs of the other bank weighed in on it. And Jason, I'll let you pick it up from there on open banking and anything else that you're seeing from outside of our borders.

Yeah, and I like how you took it, JP, in the direction that what we're learning isn't just about the air quotes fintech, which is too often just slang for startup. There's a lot to be learned from those largest competitors that JP was just talking about, where, you know, if you think about some of the banks that might be in a different geography but have major presences in the US, they actually are not going to rest on their heels if they've already adopted open banking. And if you think your friends in the UK have an advantage over you in sending $10, Eric, ask your Asian friends, especially from China, on how easy it is to send money back and forth and access to financial services from non-banks. And they look at our system and see how broken it is. Those are a lot of the areas where we can help both curate the conversations, bringing in the expertise, both by our work there and actually bringing the experts into the conversations themselves. And then the banks themselves saying, okay, no, hey, we're not Barclays or BBVA. What does that mean for us? How do we make that relevant to a bank of our asset size? And that's where the importance and value of having a peer group that are doers, not just talkers, that are oriented to the— let's have the discussion, but with the end in mind and an actual outcome, as opposed to just waving our arms and saying PSD2 and GDPR and things like that, and then never doing anything about it.

Right. Probably one of the last questions, just looking at the time and being respectful for everyone. You had mentioned the openness and sharing and the CIO kind of You know, putting his slides out there for everybody else. To what extent is competitive pressure present in this, or maybe will be present down the road? And if I'm a bank in Michigan but I don't necessarily want John knowing what I'm doing, how do you address that? Or is that something that you just have to be comfortable with, and that goes back to the culture? Realizing that, you know, there's lots of fish in the sea, and just because, you know, the two of you are in the same state, that doesn't mean that you should worry about that. You know, competition, I think, is probably the last item to maybe talk about.

Oh, it's a great question and one that comes up all the time. And part of the beauty of that is understanding then the difference between being an alliance member and being a work member, first of all. So there's a pretty good chance that your competitors are going to at least join the alliance, but that doesn't mean you have to be in a workgroup with them. And even those that are within the workgroups, we're organizing them around very specific needs. And some of our members told us, actually, I don't care if my competitors are in on this particular workgroup, because I'm going to benefit from us all working together. There are certain things that I'm addressing that having a bigger pile of data is actually going to be more helpful. Now, there's some other things over here that I'm going to be more sensitive about it, and maybe I even do that internally, but the ability for the workgroups to give me capacity so that I can do those more proprietary or strategic things one-off or in more of a private workgroup. And then finally, just the ability To be able to, as this is growing, you know, you see some of the states filled in here. You know, we will announce new members from Texas and Oregon and Minnesota and Virginia and Maryland. I don't even remember all the states. And I had a conversation yesterday with somebody from Alaska and somebody today from Hawaii. So, you know, the ability to partner with somebody who's a peer, but yet not a competitor, is a really massive advantage. And Jason, any color commentary on that?

Yeah, 2 points accentuate. I'd say by nature of the banks that have joined, and I think the ones you were getting, the innovators were the founders, and a lot of either innovators we didn't reach or early adopters are joining as the charter members. They recognize the competition is not the bank across the street. One of our founders commented that one of the major banks has been increasingly competitive in their market, even though they don't have a branch within over 100 miles, because they're attacking them digitally. And they have a competitive advantage in the robust digital suite that they provide. And they're stealing some of the best parts of, you know, in the heart of their business, their commercial business, they're stealing some of the most profitable aspects. And the other thing is, the other part is, Starbucks and Amazon might not be saying, I'm coming to compete with you, except how many of us on the phone have balances sitting on our Starbucks cards and in our Amazon accounts that historically would have been sitting in our checking account, would be part of our core deposit structure?

Right.

And even though they're not trying to compete with us, our checking account, as Ron Shovlin says, is becoming a little bit more like a motel where the money checks in and checks out pretty quickly. And so, the banks that participate say the competition isn't just the bank across the street. The competition is, how do I evolve to maintain relevance and even thrive in the way the world is changing? And then the last part is—

Absolutely.

Even if it is, you know, the bank across the street, adopting the technology is actually just the first part. What you do with the technology strategically is where the bank is going to differentiate itself. And we've seen this several times with banks that we've worked with that have adopted one-on-one where they've adopted the same technology provider, but they use it for very different things because most of the modern tech providers allow you a great level of flexibility in how you configure or customize things, very different than the historical your core comes to you or your online banking provider and you get to choose the color You don't even get to choose where the logo goes. It's just your logo's there, right? You get to choose, like, what do you want, you know, your menu bar to say? You have these 5 options, right? That's not differentiation. Yeah, that's not leading to a different experience. When it comes to products, it's like, how different do our checking accounts really look? It's like, well, what are your fee schedules? What are your terms? What are your balance requirements? You know, and, you know, what do you pay? Do you have ATM fees? That's about it. It's a few number of variables that are not very differentiated. But with this new technology, you know, 2 players could adopt the same SMB. And let me give a very specific example. Adopted the same small business lending business process management platform, and for one bank, they took that platform and they said, "We don't do small business." loans, like the very small, so call it underlying small. We really actually struggle to do things that are less than $1 million. And if we're being honest with ourselves, we don't even like doing things that are less than $3 million because our process is so manual. Anything under $3 million, it only takes 1 or 2 losses in the portfolio and it begins to wipe us out. And so why do a $1 million loan if I can do a $3 million loan? Well, they're taking this technology and saying, hey, with this, because of it doing a lot of automation and self-serve for the data collection, and then it streamlines our workflow, it's still our same decision-making process, we can start making $250,000, $500,000 loans and do it profitably. Now, for another bank adopted the exact same provider, they actually are very active in that space, But what they're looking to do is they said, hey, in the environment we operate, we want to be a consolidator of the other banks. And what we see is if we can go acquire these other banks and take over in their geographies, this is going to be part of the engine how we grow profitably, is we're going to achieve a ton of synergies when we start putting their loan volume onto this platform. Same technology, different strategies, solving for different ends.

Perfect. JP, you read my mind. I was going to suggest that you bring it back to the end slide so people knew how to get in touch with you if they wanted to learn more. In closing, you've mentioned your podcast. Any other places people could go to keep in touch with the two of you, or any closing thoughts?

Oh, we're both on, uh, all the major social media outlets, easy to find. Just Nichols with no H and Henriques with no X.

Not Jimmy.

Yeah, yeah, not Jimmy. Uh, let's see, I think it's, uh, this slide here. Uh, so as long as you spell our names right, we're pretty easy to find. And yeah, Breaking Banks at breakingbanks.com or your favorite podcast provider. You know, we've got quite a few episodes out there, and even if we're not hosting, there's still some pretty good content on the show. But yeah, we'd love for people to reach out if we can be helpful in any way, or if you're interested in talking more about how the Alloy Labs Alliance might be a fit for your bank. We'd love to talk with you.

Cool. Good. Well, I for one am very excited to listen to the replay because I was taking notes, but I know that there's still stuff that I missed. And I think what you're doing to help the community banking space and to help ensure that those that don't want to become irrelevant don't, and pushing forward is, is much needed. And I'm so glad that you guys decided to take the reins and make an impact. So thank you for that. And I appreciate you taking time this afternoon and sharing your thoughts and this whole program with us here on the Banker Education Series.

Well, our pleasure. Thanks for having us. Cool.

Good. Well, that wraps today's show. Thanks again to JP and Jason for joining us, and feel free to pop out to Banker Education Series on our Powered by WSI site for future shows. We will make sure that everybody that registered for this gets a notification of when the recording is available, because I suspect, like me, you're going to want to listen to it and hopefully share it with many other folks within the organization and say, this is what we need to be doing, and don't miss an opportunity to come on board in the ally process. So with that, I'll go ahead and close the show. Thanks again for joining us, and we'll look forward to seeing you on future episodes of the Banker Education Series. Bye-bye.