Adding financial services to your app for fun and profit with Treasury Prime CEO Chris Dean

For— before I really get into it, let me just give you a little bit of background on myself and Treasury Prime. See the picture of my dog there? There you go. I see more people are coming in. Oh, look who— special guest star. And we just talk a little about Treasury Prime and about, like, you know, I know a lot about banking, and why should you believe me? Well, maybe you shouldn't, but I'll, like, give you some background. We could talk about banking all day long. Treasury, that's what I do here at Treasury Prime. We're a startup, we're a couple of years old. We've raised a good amount of money. We have the best investor around. So thanks, Jason. And we, what we do is we connect banks to fintechs and we automate how bank works and we help fintechs do banking services. Previous life, right before this, I ran the fintech group at Silicon Valley Bank for a couple of years. They had purchased my last company called Standard Treasury. And that was like the aha moment. Like, I can see how the sausage is being made inside a bank. And that really showed us how banks work and how we could like make the economy better for everyone by making banking better for everyone. And as more people join, I want to encourage everyone to stop me, interrupt. Like I said, I can talk about this all day. Day long. I will just go on and on and on about it. So, but they're like, when I talk about banking, there are 3 things that everyone usually gets wrong. And so I want to like get those out of the way before anything else. And, you know, the basic thing is that everyone's banking, their bias is usually It's because of their personal banking account. You know, everything they do about— they think about banking is colored by that, by these retail accounts. And usually that's not what banking is about. The way banks make money is that they sell your deposits as loans to somebody else. So they're in the business of selling money, and they can only do that really if they can get cheap money. So to get your money, they sometimes will offer, you you know, you and me, Lindsay, like free stuff. They'll say like, we're gonna, you put $1,000 in the bank and we'll give you free checking or maybe a toaster or something like that. But really they're doing that to get the cheap deposits. And people are, because they come to a bank and they say, I wanna put some sort of apps, some sort of banking embedded system inside my SaaS product, that should be free, right? It's not free. I hate to tell you this, but there's, there's no such thing as a free lunch. Banks are a business. They're in it to make business. Just because we all saw, you know, the cartoons of the vaults and the gold and, you know, people rolling around it, that's not how banks work. They're just a regular business. The way they work is they sell money and the margin on it is how much they make. So let me just ask a question before I get too far along here. Like, Who banks at one of the trillion-dollar banks? That's like Chase, B of A, Wells Fargo, Citi. Anybody? Um, you know, those places, um, usually they're okay, you know, they're fine for retail banking. They have— they, you know, have ATMs and whatnot all over the place. But their reason that they're big and the reason that they can offer you free stuff, like free ATM sometimes, is because they want your deposits. They don't actually pay you that much in interest. So if you're a SaaS business and want to come to a bank, you have to realize that going in. That's one thing. Not everything in a bank is free. Everything costs money, somebody. Um, here's the second thing that people think about banks. It's kind of not true. It's like, uh, if I bring money to a bank, they should give me this huge pile of interest, right? I'm a SaaS business, I'm going to bring them so much money from my business. I'm going to like give them a million dollars in deposits or probably more likely $10,000 in deposits. Boy, they should give me a lot of interest like that, like 2%, 3%. Well, first of all, we're in the middle of a global crisis, so that's not going to happen. But even back in the day when the Fed rate was 2% or something, it was pretty hard to get a bank to give you that on these bigger accounts. And why is that? It's the reasons I was stating before. The way a bank makes money is that they get cheap deposits and sell expensive loans. If they're giving you all their deposit interest away, their margins are smaller, and they're not making as much money. So they don't want to do that. If you bring them a lot of deposits, you can make a deal for sure. But really, what's going to happen is that they're going to try to like inch you down on that margin because that margin is everything to them. I'll pause for a moment there. Any questions about that yet? I'll give another break in a second. All right, here's the last one. Interchange fees. Who knows here what an interchange fee is? Anybody? Anybody? When you use your card, like here's a nice Amex card, it's a great product. You swipe it, that costs the merchant money. You know, you swipe it, swipe $100, it costs the merchant $2 or $3 depending on what you're doing exactly. That $2 or $3, a little bit goes to MasterCard, at least in this case it's a MasterCard card. Card, and a few bucks go to the banks who are handling the transaction, and the rest goes to somebody. In this case, it goes to Brex. Brex works only because they have such a large volume of fees attached, of interchange. It's not just me who has this. There's thousands, tens of thousands, hundreds of thousands of people who have this card, and they're using it for business expenses. And that's a significant amount of revenue. However, it only works at scale. If Brex only had 1,000 clients, they couldn't make any money. You know, if they're only making a dollar or two per swipe at a store or paying their SaaS bills or whatever, that's not enough revenue. It only works at huge scale. Like, we have some partners like Stripe and Marqeta, and their average transaction fee is $100. On average. So if you're going to do— have a $100 million business or even a $10 million business, I think that's a lot of swipes that you have to get through. And so that has to— it only works at very, very large scale. So if you want to base your business on interchange fees, it really has to be very large. And generally, this is not a significant revenue for most companies starting out. It's nice. We have another line of business, it's great, but it's not significant. So which leads me to what I've been saying along— how do banks make money? They get cheap deposits, they sell expensive loans. That's how it works. If you make expensive deposits, that's not as good for them, so they don't like that. They might do it, but they don't like it. If you're not— so if you're not bringing them deposits, what else are they going to do, right? Their main business is writing loans. Their business is not really gathering deposits. They like that, but only because it's cheap money. Um, the reason that they want, um, this money so they can write loans. And if you're not going to give them enough margin, that's when they're going to charge you fees. So generally, if you're going to make an app and have some embedded banking system, or maybe you're going to try to be a neobank, you have to bring the bank something, either deposits or fees. Because their business, it's just a regular business. They have a weird model because they're selling money, but it's still just a business, and they have to make, um, they have to make their margin just like we all do. Um, I'm going to pause for a minute. Going pretty fast. Any questions so far? Anyone want to know anything about interchange or anything like that? All right. I have a prediction that this, this will be a short roundtable. All right, um, so I have a few use cases I'll run through. Feel free to interrupt me with questions. Let's go use case number one. I have two, only two. So here's the first use case. So we have a client, they're a regular SaaS business, just probably like a lot of us. And what is their business? They're an accounting SaaS company. Probably heard of them. I can't tell you their name, unfortunately. And this 10K paying clients, let's say it's significantly more than 10,000 paying clients. And they have an accounting package that they sell to small and medium-sized businesses. You know, you have a muffler shop or whatever, and you can run your business on their accounting platform. This is a great business. It's like a lot of SaaS businesses. Customers are very happy. Customers had a problem though, and that is a common problem in banking. And that problem is, is that the disconnect between the accounting system and the banking system caused problems. You got a payment in, they're like, who the heck got this? Where does payment come from? What's it doing? Nobody knows. So there's a lot of hand reconciliation done, which is that process where you're trying to figure out like on your bills that you get, like, what's this credit card payment for? But if you're a business, the amount of payments you get is much larger. And so it's a bigger problem. So what this partner of ours did is that they embedded a bank account in their accounting system. We provide— we found them a banking partner. We provided them all the software tools. And they said to all their, you know, many thousands, many tens of thousands of clients, we'll let you open a bank account and embed that directly into your accounting software. This is great for everyone. It's great for the client because the reconciliation problems become way easier. It's great for the SaaS business because, you know, they actually charge the clients for that as an extra service. So it's more fees for them. It's a better service overall because frankly, the Treasury Prime, which is our company, our transaction history is better than anyone else in the US is just because we know more about how bank works. And it's finally, it's great for the bank. Like, don't forget the bank in this equation. They love this business because, boy, all these small businesses have pretty good deposits, $10,000, $100,000 in deposits. That's real money. And generally they're very stable, long-term businesses. And for them, that's great. Uh, we started out in day one and we opened a lot of accounts and we started putting a lot of deposits in there. Immediate win for the bank. They immediately love that. The clients are using it immediately like that. Another thing that happened over the next year, which we maybe didn't expect as much, is that the clients use this service so much that the fees that they're paying just in sending money or doing wires or whatever were significant enough that actually is a significant revenue stream for both the bank and the SaaS business. Like, they made a lot of money doing this, and that's like, that's great. So like, think of how you can embed a banking product in your SaaS business that had— if you do it right, everyone can win. It can be a new source of revenue for you. The bank will love you. The bank might actually— like in this case, they pay some deposit interest back to the SaaS business because, you know, they're bringing so many deposits. And of course I want that because that's my main business. Every time you use us, we, uh, you pay us a little, little piece of— you pay us a usage fee. So I'll stop there for a minute and ask any questions about that.

Chris, we do have a few questions that have come in. First question that came in is, what is the typical interchange fee?

Sure, so it depends. My example before, let's see if I— yeah, the Brex card, it's like, it's— this is the best one. They have the best interchange. They— this is Mastercard WorldPay or World something, and it's a commercial card. Generally, commercial is like on the order about 3%, and retail, like the the personal accounts, cards that we all carry, is about 1%. That's the total. Everyone takes a little piece of it along the way— the banks, the MasterCard, Visa, whoever. So you can end up with, you know, for the retail stuff, maybe close to 1%, but not, not super— not, not a lot over that. And, you know, high 2, 2-point-something percent, or as I said, about 280 bps. Basis points for a card. Um, credit card's a different thing. And, um, most credit card fees are actually— credit card's very good also. This is actually not a credit card, it's a charge card, um, which is a similar but different thing. And that— those are good fees too. It's a harder deal to make because you have to float someone the money.

Okay. A few more questions. Um, what do you see as the biggest trends now having lived in the fintech space? Do you feel like the big banks are evolving or just finding new ways to do the same thing?

The biggest trend, it's like this case study and the next one, it's people figuring out that banking is an important part of business and figuring out a way to embed banking inside of their SaaS business. It's happening everywhere. There's barbershops, SaaS businesses doing this. And this example is landlords, this accounting firm, that's what you see. Frankly, the trillion-dollar banks, like I wouldn't wait on them. It's like waiting on these giant, you know, giant enterprise companies. They don't move quickly. You gotta go into this knowing that banks are slow. And if you can move faster than a bank, you can easily do better than they can. That's what I see. Okay.

Regarding case 1 that you just walked us through, the question is, what is your company's role in that case study?

Sure. I glossed over that because that's interesting to me, but maybe not as much to everybody else. The— it turns out it's really hard to talk to a bank. Like, we all can talk to each other. You know, we're all like sassy techie people, and it's easy for us to say, how would this work? A bank's a different beast. They're slow moving, they're bureaucratic, they have a lot of regulatory constraints on them. What Treasury Prime does is provide a technology platform, an API, to connect you to a bank. And we have 4 banks that we're in connection with right now. And we take care of all the regulatory constraints. We make sure no one's doing money laundering. We make sure that we're connected to these backend banking systems, which are, you know, some of them were built in the '80s, not a joke. And, you know, there's some mainframe running somewhere and you don't want to connect to them. It's terrible. But for whatever reason, we like it. So we do that and we have an API around that. So that's what we do. So for this accounting firm, they said they wanted to embed a bank account and we said, great, here's our API, which you can go to dashboard.treasuryprime.com and just see our public API. And they like, oh, that's easy. And it was a very quick sale. And from like first call to production, I think it was 6 weeks. So that was, that was fast. Usually for a bank, it's usually without us, it's usually a year plus.

Another question, a very specific question regarding CX for banks embracing technology. In such cases, how do banks tend to tackle customer communications for these new customers coming through the SaaS avenues?

Yeah, it's all over the map. It depends really what you want. The best banks to partner with will have a you know, a customer team that you, that you could offload work onto. Brex, for example, we are their client of ours, and they, um, their position is they handle almost everything themselves. You know, they have a great team, they're just really well, they execute super well. They deal with most of the banking concerns directly. They have to escalate things, they do, and they escalate to the bank. We have tooling we provide so that whoever the fintech is can handle the things that they're allowed to handle. There's certain regulatory things you're not allowed to do, but those, other than that, they can use our tools and we have communication tools so they can talk to each other. Frankly, I can just tell you that most of the ignore our tools and they talk to each other in Slack. They have a shared Slack channel. And I, we run that for them because I don't know why, but that I can see the traffic all day, every day.

Okay, one last one and then we'll move to your next case study. Question is, do you have any opinions about alternative investments and what they might mean for the overall fintech space?

You wanna say what they mean by alternative investments? That's Phil. Yeah, just like, you know, if a person has some mix of like a portfolio and then their accounts and they have all these different types of things they've invested in, maybe they have hedge funds, private equity, all this stuff. Like, it seems like these all are kind of like built in silos today. I don't know if you have any opinions or thoughts about kind of how these things might merge or whatever in the future. I'm not hopeful that they'll merge anytime soon. I want them to, it's just, you know, as a human. I see a startup trying to fix this problem about every month and, you know, they all seem to struggle. Partly it's that if you look at the US economy, it's the best economy, it's so good. If you look at our banking system, it's almost like a third world country compared to some of the other banking systems. Like you go to London, you go to Singapore, it's fantastic. Like here in the US, it's still like some of our systems are still basically set up to work like a paper check would work. You know, it's a thing, paper checks, people still use them. Part of our app, we have an API so you can take a picture of a check and deposit it because that's what, you know, people need on their apps. And so we built that. But who uses paper checks? Apparently the US. I'm not hopeful about this. You can see people trying to do things, and the ones that might work are people who can do this at a large enough bank that— where they can have all the services at once. But generally, the margins here are pretty hard to get right because the bank will take a piece. I'm going to go on to the next question. Here we go. Or next case study, rather. This is my favorite client. I mean, they're all my favorite, but this is my favorite. So this is a company, Zibo, I can't say their name. And they are a company that has a SaaS product for landlords. So if you're gonna build a SaaS product for landlords, what would you need? Well, you'd need to go and talk to a landlord and find out that what they actually do is they run their rental properties like with Post-it notes, spreadsheet if you're lucky, Maybe QuickBooks, probably not. And so all Zibo did is they said, "Great, we're gonna build a good SaaS app for that." And they did. And they said, "Okay, when someone wants to apply for a rental property, we'll help you with that and we'll manage that. When someone has a leaky faucet, we'll make a ticket so that you can fix that. When someone's leaving, we can handle that too." And there's another thing that landlords do is that they take rent. And they have security deposits. And boy, wouldn't it be great if there's a bank account attached to that? So what Zibo does is they use our software and our technology, one of our partner banks, to open up a new bank account for every building. So if you're a landlord who has 3 buildings, you know, they'll open up 3 separate bank accounts. They'll manage security deposits for you, they'll manage the rental payments, they'll manage all that for you. This is a great, great problem for everyone. Like The deposits on this are fantastic because you go in, you pay your deposit on your rental property, just sits there for a couple of years until you move. No one can touch it really, except the bank can use it. They can use it to write loans and that's great. So the deposits on those are fantastic. They're long-term, super stable. The bank loves it. The landlord loves it because it's a great SaaS product. To them, it's not a bank. And this is like when someone was asking before what's going to happen next in fintechs. This is what's happening. It's not that someone's gonna start a bank for landlords. Someone's gonna take a SaaS business for landlords and add a bank to it, or at least add a bank account. And this embedded banking, like, that's how it's really gonna work. And we can see this all over the, all over. If you think about it, like, banking is still barely into the 21st century. It's still like it's 1999, you know, you might have a mobile app on your phone and that's good. But most of banking is really old and creaky. If we could just move this on to the 21st century, like, think of all the innovation that would happen. And that's basically what Treasury Prime is trying to do. I love this business, Zibo. They just opened and closed beta. They're super, super successful. The clients love it. And they love it because it's an all-in-one solution, which is all they really want. Sit in the landlord's seat. That's all they care about. They want to run their business. They don't want to like, oh, there's a bank over here and this other thing over there. They just want it all in one spot. To me, this is the real thing that's going to happen. It's interesting. This is a huge revenue stream for Zivo. The deposit interest they get is great. The fees they get, the SaaS fees they get are great. Everything's wonderful about this. We'll see what their interchange is like because they have card just like WEX does. We'll see if anyone uses that. I think they're doubtful, but they want to try it. So they have these very pretty cards they're sending out, but we'll see. That's all I have. I'll just leave you with this so we can ask some questions in the remaining 5 minutes or so. If you want to do— if you want to have a business, a fintech business, think about how banks work because it's how you have to work. Banks, banks, banks. Banks bring deposits so they can write loans, and banks get fees paid to them to offset whatever operational costs they have. That's pretty much how people make money. You have to charge them something, or you have to take amazing deposits. The interchange is good. It's kind of a, it's kind of a side effect way to charge people, but it has to be only a pretty huge scale while it works. That's all I have. I would I'm happy to stay here for hours. Emilio will probably let me sit here for 5 minutes. I'm happy to take any questions. Chris, we have another question here that says, what are the biggest competitors in this space? Like to ask? There's two. There's Galileo, which just got bought the other couple months ago. That's a great product, comes up from the card side, kind of It's kind of old, but it's a good product. The other one is no one— one that no one's heard of because it's a banking company. No one in Silicon Valley knows what a bank is. It's Finxact. F-I-N-X-A-C-T is the other— the other one. The competitors people talk about are not really competitors. Like, as soon as you start to talk to a fintech, you can realize their margins are all wrong and that they're too expensive and all that. And those companies are like— Synapse is the— is the one people talk about. You know, their product may or may not be great. I have skin in the game, so you can't believe me, right? But it's a terrible product. The— but their margins are wrong because it's hard to be a bank. You have to have the bank in the equation. Banks are the only one who have a charter in the US. They're the only ones who can access the financial system. If you're not doing it in a way that helps the bank, they're going to kick you out eventually, which happens all the time to other people. Yeah, the follow-up to that question is, Why should they choose Treasury Prime over your competitors? I mean, A, I'm gonna say, 'cause I really like Chris and his team, but you answer. Our team's so good. It's because like, if you're a fintech or at least have a part of your product which has a financial focus on it, your most important partner is your bank. Like they could turn you off in a second, that'll ruin your business. If you don't have a direct relationship with your banker, you're doing it wrong, in my opinion. Besides our best-of-breed technology, besides our great API that everyone loves, that's the thing that we do that other people don't. Talk to your banker. Like, if you wanna talk to them every day, God love you, go right ahead. If you wanna talk to them once a year, that's also good, which we have some clients do. But you need that opportunity. You want that behind a wall where you're not allowed to talk to the banker, 'cause they hold the keys to the kingdom. You have to be a good partner. Yeah, good answer. Follow-up question from Phil, which is, what was your biggest challenge trying to integrate with some of the antiquated systems that you mentioned earlier? It's like a puzzle every time. Do you remember that old-fashioned video game Myst where you have to click on the wall until like the magic door opens? It's like that. Like there's no real manuals, or there— when there are, they're wrong. So it's constant experimentation. Because of just our background, you know, our last company got bought by Silicon Valley Bank and we did all the integration at SVB. We've probably done this more than anyone else in the world. And it's just like all these puzzles and it's layered systems on top of layered systems. And for the techs of techie among you, I'll give you a quick example is that some of them are just SOAP interfaces, but they're SOAP interfaces which wrap other systems which get sent to a mainframe. So you end up having to encode the fields you're sending in binary coded decimal for some fields but not others depending upon where they're getting sent. And there's no one who tells you that. You just have to try it. You try 100 things. We literally write programs to try 100 things and then just look at which one works. It's super fun if you like that sort of thing or terrible if you don't. All right, well, we are right at time. So, Chris, Thanks for hosting your roundtable. You know I'm a fan of yours and your team. How can folks get in touch with you if they want to learn more or pick your brain? Sure, so go to treasuryprime.com and click on our other form field there, or just email us at help@treasuryprime.com, and we can tell you more, and we're happy to help. Like you can tell, I will talk about banks like all day long. All day. All day. It's great. Thanks, everybody. Thanks for joining, everyone. Have a good rest of the semester. Bye-bye. Thank you very much. Thank you.