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

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 talked 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 can talk about banking all day long. That's what I do here at Treasury Prime. We're a startup, we're a couple years old, we've raised a good amount of money, we have the best investor around. So thanks Jason. 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 years. They had purchased my last company called Standard treasury and that was like the aha moment. Like you can see how the sausage is being made inside a bank. And that really showed us how banks work. And now 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 long. I will just go on and on and on about it. So but they're like, when I talk about banking there are three 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. Everything they do 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 know you and me and Lindsey like free stuff. They'll say like we're gonna you put $1,000 in the bank and you will 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 want to put some sort of app, 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 no such thing as A free lunch. Banks are a business. They're in it to make business. Just because we all saw the cartoons of the vaults and the gold and people rolling around, that's not how banks work. They're just 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. Who banks at one of the trillion dollar banks that's like Chase, B of A, Wells, Citi, anybody? You know those places? Usually they're okay. You know, they're fine for retail banking. They 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 and 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 here's the second thing that people think about banks. It's kind of not true. It's like 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 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 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. 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 you 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 bucks card. It's a great product. You swipe it, that costs the merchant money. You know, you swipe it, swipe 100 bucks. It costs the merchant two or three dollars, 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 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 interchanges. It's not just me who has this. There's thousands, tens of thousands, Hundreds of thousands of people 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 a thousand clients, they couldn't make any money. 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. We have some partners like Stripe and Marketa, and their average transaction fee is $100 on average. So if you're going to do have $100 million business or even a $10 million business, think that's a lot of swipes that you have to get through. 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. The reason that they want 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 Neo bank 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, they have to make their margin just like we all do. 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, 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 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 that the disconnect between the accounting system and the banking system caused problems. You got a payment in, they're like, who in the heck got this? Where this 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 found them a banking partner, we provided them all the software tools and they said to all their 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 they actually charge the clients for that. It's 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 a bank works. And finally it's great for the bank. 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. 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 loved 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 great. So think of how you can embed a banking product in your SaaS business that 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 they bring in so many deposits. And of course I want that because that's my main business. Every time you use this you pay us a little piece of 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 have the Brex card. This is the best one. They have the best interchange. This is MasterCard, WorldPay or World Something and it's a commercial card. Generally commercial is on the order about 3% in retail. 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 for the retail stuff maybe close to 1% but not a lot over that and high 2 point something percenters like so about 280bps basis points for a card. Credit card's a different thing and most credit card fees are actually credit card's very good. Also this is actually not a credit card, it's a charge card which is a similar 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. 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, 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 the example is landlords, this accounting firm. That's what you see, frankly, the trillion dollar banks, I wouldn't wait on them. It's like waiting on these giant, giant enterprise companies. They don't move quickly. You got to 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 one 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. It turns out it's really hard to talk to a bank. Like we all can talk to each other. 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 that to connect you to a bank. And we have four 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. But you can go to dashboard.treasuryprime.com and just see our public API and they go, oh, that's easy. And it was a very quick sale. And from like first call to production, I think it was six weeks. So 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. You know, it depends really what you want. The best banks to partner with will have a, a customer team that you can offload work onto. Brex for example, we are their client of ours and their position is they handle almost everything themselves. 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, the certain regulatory things you're not allowed to do. But 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 mostly they ignore our tools and they talk to each other in Slack. They have a shared Slack chip and we run that for them because I don't know why, but 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 want to say what they mean about alternative investments? Yeah, just like 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 as a human, I see a startup trying to fix this problem about every month and they all seem to struggle. Partly it's that if you look at the US economy, it's the best economy, 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. Here in the US it's still. Some of our systems are still basically set up to work like a paper check would work. 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 people need on their apps. 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 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 gonna go on 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, Zebo, I can't say their name. And they are a company that has a SaaS product for landlords. So if you're going to 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 my with Post IT Notes, spreadsheet, if you're lucky, maybe QuickBooks, probably not. And so all the Zebo 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 Zebo 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 three buildings, they'll open up three 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 and you pay your deposit on your rental property. This sits there for a couple 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 going to start a bank for landlords, someone's going to take a SaaS business for landlords and add a bank to it, or at least add a bank account. And this embedded banking, that's how it's really going to work. And we can see this all over. If you think about it, banking is still barely into the 21st century. It's still like it's 1999. You might have a mobile app on your phone that's good. But most of banking is really old and creaky. If we could just move this all into the 21st century, think of all the innovation that would happen. And that's basically what treasury prime is trying to do. I love this business, Zebo. They just open and close 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. Sitting in the landlord's seat, that's all they care about. They want to run their business. They don't want 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 Xebo. The deposit interest that gets 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 cards just like Rex does and 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 five 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. Bank 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 side effect way to charge people, but it has to be only a pretty huge scale while at work. That's all I have. I Would. I'm happy to sit here for hours probably. Let me sit here for five minutes. I'll have to take anything.

Chris, another question here that says what are the biggest competitors in this space.

Like to us, there's two, there's Galileo, which just got bought the other couple months ago. That's a great product. Comes it from the card side. It's kind of old, but it's a good product. The other one is 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 finzact. F I N X A C T is the other one. The competitors people talk about are not really competitors. Like as soon as you start to talk to a fintech they can realize their margins are all wrong and that they're too expensive and all that. And those companies are like Synapse is the one people talk about. 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. 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 U.S. 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 want to talk to them every day, God loves you, go right ahead. If you want to 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 because 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 mystery? Have to click on the wall until like the magic door opens. It's like that, like there's no real manuals or when there are, they're wrong. So it's constant experimentation because of just our background. Our last company got bought by Silicon Valley bank and we did all the integration at scb. We probably done this more than anyone else in the world. It's just like all these puzzles and it's layered systems on top of layered systems. The text 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 have to 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 form field there. Just email us at helpreasuryprime and we can tell you more and we're happy to help. Like you can tell I will talk about banks all day long.

All day, all day.

It's great. Thanks everybody.

Thanks for joining everyone. Have a good rest of semester.

Thank you very much. Thank you.