Accelerating Innovation for Financial Institutions of All Sizes

Jim Marous:
Hello, and welcome to Banking Transform, the top podcast in retail banking. I'm your host Jim Marous, founder and CEO of The Digital Bank Report and co-publisher of the Financial. Brand. Banks and credit unions are challenged to satisfy consumers with traditional services they have used for decades, while also delivering the latest in digital offerings that are growing proportion of consumers want to use. More than ever, consumers are willing to take their business to other finance institutions to find innovative products and services with more consumers than ever willing to diversify their financial portfolio to get what they want. We are fortunate to have Kris Kovacs, president and CEO of Constellation Digital Partners on the Banking Transform Show today. He discusses how finance institutions can deliver innovations that best satisfy the demand that consumers have, while reducing the likelihood that businesses will go to another financial institution or FinTech.

Jim Marous:
Financial institutions of all sizes are challenged to beat the competitors to market with innovative offerings, because the banking sector's rabbit pace of innovation. As a result, many organizations had diverted investment to adding features to existing products as opposed to building brand new services. This is not the optimal path to success. I'm happy to reconnect with Kris Kovacs, who is our 11th guest on the Banking Transform Podcast back in October of 2019. Kris, can you share with our audience a bit about yourself and Constellation Digital Partners?

Kris Kovacs:
Sure. So my name is Kris Kovacs. I'm the founder and CEO of Constellation Digital Partners. My background is I have 25 years working with large innovative credit unions. So, first half of my credit union career was spent with Navy Federal Credit Union in Washington DC, and the second half was with Coastal Federal Credit Union here in Raleigh, North Carolina. And part of that was... My background is very diverse, between operations, cards, analytics, programming, into IT, and then ultimately IT management for Coastal where I finished up as the CIO. And while we were there, we encountered this problem. And the problem was how do we innovate faster? How do we bring the power of digital innovation to our members and overcome the challenges and the legacy way of how those digital solutions were bought, maintained, managed, extended that we had seen, really for the previous 20 years. We worked on the legacy model of digital for 20 years.

Kris Kovacs:
You go to a provider, you do an RFP, you choose somebody, you sign a five year deal, and then for five years, you argue about the roadmap. And that's what we did repeatedly. And finally, we were looking at this in the early teens of 2000. And we said there's got to be a different way of doing this, and ultimately, we created this concept for an innovation platform that is Constellation. And then we spun that out into a separate company, did some fundraising. And I stepped out and ran and have run that company ever since, really for the last five years. We just had our five year anniversary.

Jim Marous:
Wow. It's interesting. A lot has changed obviously, since we last were together at your organization's annual launch conference. What's the biggest change that you've seen in the last three years, let's take it since the pandemic? And what hasn't changed?

Kris Kovacs:
Yeah, I would say, if you're talking about from an industry perspective, I think from an industry perspective what's changed is the realization that single product solutions are going to be the answer for anybody. I think everybody realizes that a single product from a single provider isn't going to be the solution anymore. That old model of doing the RFP, finding a provider and doing that just isn't going to work. I have to engage with fintechs, and that's where we really, I think have led the way, is we've operated in this horizon between FinTech and community based institutions to help community based institutions understand how to use FinTech in order to create new services and deliver new experiences for their users. And at the same point, we've helped fintechs, for a long time, chased the big whales. They would chase the Wellses and the Chases and the Bank of Americas.

Kris Kovacs:
But the real realization for them was it was many, many years, in most cases, in order to get integrated or to get them to buy or to get them to use it. Community based institutions will move much more quickly, because they are able to be more agile and they're able to do that. So, I think from an industry perspective, I'm heartened to see the acceptance of FinTech, although there still needs to be more broad tools like Constellation that help institutions connect to the FinTech. There's still integration problems across the industry, and that's really where we're finding a lot of the traction now with Constellation.

Jim Marous:
You talk about the importance of speed of innovation. We talk about that a lot, and it's even more important now than before. But from what I understand, Constellation really takes out the element that always took more time than anything else, and that is looking at different vendors, vetting those vendors, determining together what vision you're going to deploy and things of this nature. So, your organization takes that front end and vets these developers on the front end so that your members say, "Geez, now we can pick from a selection of multiple vendors, but they've already... A lot of the vetting that we look for has already been done. We can pick from the best of the best." Since 2019, when we last met, on both sides of the solution developer and the financial services side, what has your growth been? And even more importantly, what challenges have you experienced in the development of Constellation?

Kris Kovacs:
Sure. So, let me start with where the growth has been. When we last met in 2019 and you spoke at our launch conference, at that conference, we were debuting the first look at Constellation Banking services. The reality is when we started Constellation, our goal was to create this innovative infrastructure between institutions and FinTech. It wasn't actually to go out and build a whole digital banking solution on top of it. The reality was that when we went to the other providers, every single one of them, to a T said, "You are a risk to our business model. Because if you make it easier for institutions to choose new providers and integrate new providers at will, that's going to blow up the model that we've got." So, our board at the time looked at us and said, "Well, okay, go build banking then." So, a heady task, no doubt. And that's one of the reasons we've spent a lot of time in [inaudible 00:07:28].

Kris Kovacs:
And that's really kind of how we spent most of Covid. But 2019, we were debuting, here's what banking will look like, right? I'm happy to tell you we are in the finishing strokes now of finishing the conversion of a 5 billion institution to our banking solution. So, they are leaving Q2 and coming to us. Not that there's anything wrong with the Q2 product. It's a stead place cornerstone in the market, but what we are offering is something different. And so from a Constellation perspective, what we've seen is that the use of our banking services, the delivery of our banking services at scale to large institution. And we've actually signed up our next three banking clients already. None of that's been announced yet of who they are, but they're all bill billion dollar and greater institutions that have seen what we did for our first customer and been like, "Yep, we're interested in that. We're going to go ahead and sign with that."

Kris Kovacs:
So, huge move for us. The other thing that's happened is as people have gotten... We've got four clients who are live on the platform now. As those customers started to use the platform, new use cases started to be developed. And those new use cases... Because what we deliver again is an innovation platform that allows you to do lots of things. And as institutions began to interact with that platform, they said, "Well, does that mean I can do this? Does that mean I can deliver a niche banking solution?" Yes, you can. "Does that mean I can deliver a solution that's just servicing this particular type of member or customer that I'm having trouble gaining traction with?" The answer is yes, you can do that. "Does that mean I can build something they operate in my back office?" The answer is yes, you can.

Kris Kovacs:
So, that's the really exciting part for me, is that as as we're getting traction in the kind of traditional banking space, more and more use cases are now surfacing that we're talking with institutions about how to do that. Because from an industry perspective, look what happened in between 2019 and today, right? 2019, it was always about how do I get loans. Now, it's about how do I get deposits.

Jim Marous:
Yeah.

Kris Kovacs:
Change like that. If I were operating on a five year roadmap, the traditional five year roadmap with somebody, I just did 180 degree turn. And if I made my decision and I'm stuck with it for five years based on what that momentary need was, the reality is that I'm going to end up that much further behind when I'm able to start making changes to it. So, that's probably what has been most exciting for me to see, is how our customers have been able to turn on a dime, been able to address new needs with these new use cases that they're developing.

Jim Marous:
So, you're talking about this new platform, this new digital cloud based suite of services that you're able to actually put the whole digital concept together. Now, I know in the beginning a lot of what you did was sold individual solutions that matched well with your partner organizations. Do you still do both? Can somebody buy independent, individual solutions as well as the entire platform?

Kris Kovacs:
Oh, sure, absolutely. And that's actually fueling these new use cases, is to say, "Well, I don't need banking. I don't need these services, but I want to take these group of fintechs and I want to add them to my existing online banking solution." Yes, we can do that. So, we are very much seeing the power of choice actually enabling institutions to look at their options in a new way and be able to move them forward. When we first started talking in 2019, Jim, we probably had... I mean I think we probably had 40 fintechs we were working with at that point. We have more than 200 today.

Jim Marous:
Wow.

Kris Kovacs:
We have a sandbox environment that we make available to our developers. Today, there's more than 900 developers in there creating content for our institutions. That's unheard of, and that's leading to more and more things. We've seen in the last year, we've seen two in particular. We saw FinGoal. I don't know if you've spoken with David Nohe before, but I would recommend him for your podcast. He and his team at FinGoal created platform level account aggregation on our platform for the very first time, a first of its kind solution built on our platform. We've got the team at Ciphertext who built a digital card issuance on our platform, enabling it somebody to get a new credit and debit card pushed all the way to their wallet for the first time on our platform. So, we're not only seeing credit unions and banks be able to look at us and say, "Hey, that's a really unique one off solution. I'm interested in that." We're also seeing fintechs look at us and say, "This is a unique platform that allows me to build entirely new things," and that they haven't been seen before.

Jim Marous:
Well, it's interesting because when we first talked and got to know you, it really is an interesting concept, because many FinTech firms, especially back in 2019, we're looking for that big hit. We're looking to have big sale. And over time, they realized, geez, some of these mid-size organizations were still good business units to try to go after. And you gave the platform that said, "Okay, how about the best of both worlds? How about if we provide enough financial institutions for you to get scale? I will provide speed." And most of the institutions that we have as clients, financial institutions, do not have the capabilities to build this internally, will not have the vision to say what they need next. These financial institutes can now pick off a menu of what they need to solve for and do it at a pace that would be unheard of in the past.

Jim Marous:
It's interesting because a lot of the FinTech, a lot of the solution providers out there are also challenged by working with all the different elements that can come into not just your core system providers, but also other FinTech firms, because they have to integrate with other solution providers that may have already been selected by the financial institution for some other solutions. So, how do you integrate with existing core systems that already exist within your smaller financial institutions or community financial institutions as well as how they work with each other?

Kris Kovacs:
Great question. So, one of the key elements of the Constellation Innovation platform is that we actually front end all of... We front end the core connections, regardless of who the core is. So today, we support Scimitar, XB2 and DNA, which with, if you add correlation in, which is one of the ones that we're working on, cover most of the market that we're talking about. And we then expose a standardized interface for the FinTech to be able to work with. So, no longer does the FinTech need to worry about, "Well I've got to integrate with this provider and then I got to go out separate integration with this provider." We actually provide the integration for all of the cores. And the way we're designed is we can add new core connections to that, standardizing the data and allowing a new core union or a bank using a new core to come on and use those same FinTech services.

Kris Kovacs:
The other thing that we have found, and you're right, there's the real growing trend now of fintech's working together. So, we actually, because of the way our platform is designed, fintech solutions that are built on our platform have the ability to call and integrate with each other as a standard practice inside of our solution. Now, there's coordination that has to happen there. It's not magic. We're not waving wands, but we absolutely have this interoperability that allows them to call each other to pass workflows from one to another, and then receive back something, in that case. If I'm starting a loan application, for example, with an automated chat bot, that could be passed off to a video assistant, which could be passed off to say an e-signature provider to sign the paperwork.

Jim Marous:
Yeah.

Kris Kovacs:
Although that particular workflow is something that's in development, the reality is the platform already supports it. It's already there.

Jim Marous:
So, what's interesting, and I wrote an article, man, close to it two months ago, that said financial services organizations are not buying what solution providers are selling. And it came out of a conference I went to in Austin around digital financial services. And so I went from booth to booth to booth, every one of these solution providers and said, "What do you offer?" You could not tell a difference between what one offered and the other from the way they talked about it. Everybody was talking about the big sale, the big thing they're trying to do. "We're going to integrate this, this, this to bring these all together for everybody." And it was a great message, but it wasn't differentiated. And most finance institutions now, the majority, are really looking for those solutions they can put in place today, get implemented as quickly as possible. I'll call it low hanging fruit, going to have the biggest impact of the lowest cost.

Jim Marous:
Now, that's the ultimate goal for everybody. But you look at digital account opening solutions, that is needed by everybody at a better scale than they're getting today, but they need to bring home the value proposition quicker and better than ever before, and at scale. So as you look at that, and you're looking at what you are providing, what services or components of services are you seeing the smaller in the community based finance institutions really looking for more than ever today than anything before? What are you seeing the biggest desire from an innovation standpoint?

Kris Kovacs:
So, I think there's two ways of looking at that question, Jim. One is to say what is it are they looking at from a fintech services perspective. And you're right, they're looking for really smooth account opening, something that allows them to compete with someone like Chime who does that very, very well.

Jim Marous:
Yep.

Kris Kovacs:
I need a really, really smooth account opening. I need really, really smooth debit card issuance, including digital card issuance from partners like Ciphertext who can get that all the way to the wallet. They're looking for... There's a new burgeoning kind of FinTech solution out there about insights. So, this idea that I need prompting, especially for younger folks. And I have teenage boys, so I'll make some assumptions here, but I'm not painting with a broad brush.

Kris Kovacs:
The next generation wants to be reassured, wants to have a little bit of directions and prompting that they're making the right decisions and encouraging them to use the right decisions. The legacy model of how solutions are delivered or introduced to new consumers and new users doesn't work for the next generation. It absolutely... It doesn't work. They won't go and do Google research to find out what's the best solution to do this. It's going to be a recommendation from their friend. It's going to be a really great user experience that they fall in love with initially, or they feel very comfortable with that's a mobile first design. How many times do we log into legacy systems and we see a table full of accounts? Well, that's the old way of thinking. That is not the way new folks do it.

Jim Marous:
Yep.

Kris Kovacs:
New folks are like, "I need very specific. Don't overload me. Don't overwhelm me with details, but give me the right prompts and the right instructions and motivations to be able to use and explore and find new services." So, when I'm talking to institutions, they're looking for those from a fintech perspective. But the other side of that question that I'll go back to is, I think there're also realizing that... The institutions are realizing that they have a need for a new way of doing those connections, a new way of doing that business. So, you talk about... One of my favorite stories to tell is how we came to the conclusion that we needed to do something like Constellation at Coastal. We were standing in one of those very exhibit halls filled with people selling things. And I said to my team, I looked at them and I said, "Guys, they're all selling the same crap. It literally is just carbon copies of each other selling the same thing. They might look a little different from a UIUX experience, but what the services are is exactly the same."

Kris Kovacs:
And that's where we really decided that we were going to have to figure out a new model, a new way of encouraging engagement with fintechs, a new way of connecting them, of securing them, of deploying them, even of building them in some cases so that it could be wrapped and delivered like downloadable content and no longer be something that they've got to go and find, and they've got to do these six month integration projects that are $500,000 to do. All of that needs to go away if these institutions ultimately are going to be able to compete with those digital elites.

Jim Marous:
So really, you're bringing more than just a plug and play product solution or account level solution. You're now looking at things like financial wellness, personalization on demand, using data and insights to drive decision making. So, you're even getting into, what I'm going to call in a very general sense, the marketing concept and the communications concept and the content concept, which you talk about your son. It's the exact same thing. You ask them... We'll ask them even questions and surveys that are so based in legacy thinking. What accounts your primary financial account? I don't know. What do you use the most? I use Venmo. Okay, now I'm talking. People ask me what's my... I take a broader view of financial service. They say, "Who's your primary financial institute for business?" Well, I have one that holds my funds, which is the way you probably are asking the question, but I have one that manages my relationship, which is really PayPal. And it's not normal. But they also are the first ones that I'm going to go to if I want to loan, because they understand me. They communicate with me.

Jim Marous:
On the personal side, yes, I have a place that I hold my money in. It's certainly my primary finance institution, but what do I use more? What do I hear from more? What do I do more? Acorns. Now, that's crazy but I'm also dealing with SoFi and Robinhood. So, you're really going beyond what I'm going to say the traditional solution set to really look at content, and even more so look at the problem the financial institutions has that processing and getting insight out of data. You're looking at solutions that are saying, "We'll handle that for you." You still may have data in a terrible set of silos at your bank, but we're used to that. We can work with that.

Kris Kovacs:
Yeah. What's happening is, at the elite level, if you're talking about the SoFis and you're talking about those companies, the Capital Ones, the USAAs, the folks who are really doing very, very well. What they have built is an innovation infrastructure that allows them to reconfigure solutions based on their needs as they change and the needs of the consumers and users of their platforms. They're not necessarily new concepts though. Because they already have presence with those young people. A college student might have a SoFi loan, or they might a Greenlight card or something else. Because they're already there, they're going to be the first ones they go to, whether they're their primary financial institution or not. And part of that's because there and it's easy to access. I will use the example that I had to... I have a 15 year old son, and he has many financial relationships. When he cuts the grass... We don't believe in allowance in my house. We do commissions instead.

Kris Kovacs:
So, we haven't agreed upon price when he cuts the grass, but he has to bill me because I want to teach him the value of his time. So, he bills me on Venmo, says, "I cut the grass. Here's the bill," and I'll pay it. But if he asks me for less than the agreed upon price, the message to me is, "Send me the rest in crypto." He's 15. Now, he opened his own crypto wallet, he opened his own Venmo account. But guess what, when we had to add a checking account so that he could get a debit card from his credit union, we had to go into the branch and sit there for 30 minutes while he opened a checking account.

Kris Kovacs:
That's a problem. And it's especially a problem for community based institutions. If you can't attract, with the same level of ease, those young people to open accounts with you and do business with you, if you're not already present as an app on their phone, they're not going to look to you. In fact, they're going to have these very splintered relationships. They're going to have relationships with Greenlight for this, and they're going to have Acorns and they're going to have relationships, maybe with DoorDash. Maybe they run DoorDash on the side as an income producing stream. All of these apps are going to occupy their financial mind space, and traditional institutions won't have room at the table.

Jim Marous:
It's interesting, you, at Constellation and in your team, really work as an advisor to both sides of the equation, and you really... You see what's going on in the marketplace and you have to be the advisor that says, "No, this is just not going to work the way you're looking at it, or this is going to work better." We recently had Eric Fulwiler from Rival on the show, and we discussed the need to be fast and not perfect towards everything that you're doing, Kris. How do you encourage both sides of the equation, financial institution, as well as the fintechs and the solution providers, to really work at a faster speed and the ability to scale up at innovation? Because there needs to be prompting, because even some fintechs start looking more like traditional financial institutions.

Jim Marous:
And a great example is PayPal with the buy now, pay later. They all of a sudden said, "We were caught flatfooted. We weren't encouraging a challenger mindset. And as a result, we had to play catch up." So, how do, as really the advisor in the center of the equation, work with both sides to say, "Guys you're not doing it right"?

Kris Kovacs:
It's hard to say you're not doing it right. And I would tell you, Jim, that this has been the hardest part of this job and the hardest part of working with our institutions and Constellation and everything else. And that is that it is very, very important, the consumer experience for hundreds of thousands of users, if I'm a large institution. For hundreds of thousands of users, if I get that wrong, I'm going to get phone calls to my card's call center, they're going to run up my expenses, I'm going to have bad social media. Everybody's really, really afraid from a traditional banking sense. And I think rightly cautious is the word I might use. Afraid it's too strong a word. They're cautious about that user experience and about not wanting to take anything away, because they just don't want to go through that pain.

Jim Marous:
Yep.

Kris Kovacs:
The reality is, and this is where some of those new use cases are coming out, is that you have go, you have to try, you have to try doing something, because you were protected from making mistake in that you made a decision once every five years. The market today is going to require you to make a decision once every five days, and you've got to have solutions that enable you to do that. And the good news is the right solution's going to give you the ability to move things in and move things out if they don't work, but it's going to take a different mindset. If I make a decision once every five years, that's something I hire consultant for. I do that. If I need to make a decision once every five days, I need people. I need someone who is a true product manager who's reading the tea leaves, who's looking at feedback, who's making changes in the system.

Kris Kovacs:
And for a lot of community based institutions, that has been a bridge too far. That's been the part that they're least comfortable with. So, what we encourage them to do is we try to continue to encourage them. And if you look back at things I'm talking about, I'm always talking about be iterative. The path to... I wrote an article a few months ago that said the path to digital transformation isn't Candyland. There isn't one path you work your way down.

Jim Marous:
Oh my gosh, yeah.

Kris Kovacs:
It's like Monopoly. It's round and round and round and round and go, and allows you to change strategy as you go. Don't think of it as some path. I just need the path. If I can just get down my vendor's path, they'll get me there. Not going to happen anymore. You've got to take an iterative approach. So, that's a big part of the thought leadership I've tried to model and the messaging I've tried to give the institutions is that you've got to take an agile approach and you've got to product management. And that is a new thing for you that... Look to not just digital transactions, digital banking, but look to lots of the how things are created and developed today from an application standpoint and try to model that inside your institution. I think that's what's going to differentiate the really successful institutions in the future from those who ultimately become extinct. And that's the ability to change and change quickly.

Jim Marous:
We're going to get back to two of the things you just talked about, the iterative nature of innovation, but also the ability to go quicker and quicker, quicker. So, let's take a short break here and recognize the sponsors of this podcast.

Jim Marous:
Welcome back to Banking Transform. So, I'm joined today by Kris Kovacs, president and CEO of Constellation Digital Partners. We've been discussing how Constellation helps smaller and community based finance institutions gain greater confidence in the difficult banking ecosystem through innovation. So, before our break Chris, we were talking a little bit about the failing faster, the fast movement of technology, as well as iterative innovation, it's interesting, because when I visited Shenzhen, China and saw WeBank, I was amazed that they said they will implement new innovations in 14 days. We take 14 months. We have large financial institutions that are actually announcing the fact they're going to be coming out with a new digital banking platform in eight months and they've worked five months on already.

Jim Marous:
I'm thinking to myself going, all that you've been working on already is already out of date, and you need to this differently. Your organization really provides a benefit, from my understanding, where because you work with so many different financial institutions, so many different iterations of a model of fintech or solution provider plus financial institutions, you can really provide the confidence to your partners that allow them to innovate quicker than they ever would on their own, simply because you've done it for them. You can say, Man, we just came across this solution that is knocking out of the park." You've got to implement it, and you have the ability to implement it quicker-

Kris Kovacs:
That's right.

Jim Marous:
... than any organization would have. What is the pushback you feel and have when you try to push that next best solution, something that really is going to guarantee [inaudible 00:31:15]. What is the pushback you get from the financial institution itself?

Kris Kovacs:
Many institutions at the community based size level want to say, "Okay, well, who's already using it?" So, when everybody says that, the reality is everybody's waiting for somebody to do it, and this was the quintessential problem that fintech's had, right? Fintech would come in and be like, "Hey we've got a really great idea." And people inside the organization... "Man, I love that. That's great. Who are you connected to yet?" So, what we provide them, what we fintechs and how we overcome that challenge is we provide the fintechs the ability to integrate with us before they have their first customer.

Kris Kovacs:
And what that allows them to do then is they get integration into a core, they get real life experience working with us through our sandbox that they're able to build this in, and then we can demonstrate it inside of an institution's application connected to their data, giving them the ability to see it and try it even before... Now, that's obviously with the permission of the fintech. But giving... Before they even say yes to it. So, it used to be that the fintech would say, "Well, as soon as somebody's ready, we'll start building an integration to your core, and we'll start building that service." And then they would say, "Well, as soon as you're integrated, we'll start using your service."

Jim Marous:
[inaudible 00:32:34] Yep. Yep.

Kris Kovacs:
We help overcome that because we give them a marketplace they can integrate with us once, and then we can help them deliver that solution to every institution that's running Constellation. And I think that's going to have to be more of the model in the future, but what that allows them to do then is... Let's say gone through their, as you described there, a 13 month implementation for their mobile banking solution. They go through and they do their 13 month solution, but the next month they want to add something else. Traditional model says six month integration project, couple hundred thousand dollars, or wait till your next RFP. In our world it's like, "Well, okay, what's the group inside your organization that you want to start testing on this tomorrow?" So, it's a very different model that we can help them overcome, partially because the fintechs have already integrated to us. We provide enough value to them to do that integration in advance, and then we help them integrate that and sell that to the institutions.

Jim Marous:
It's interesting, during the break, we were talking about my visit to Shenzhen and WeBank, and not only the 14 day innovation cycle, but the fact that parallel cloud platforms going at once. Two of them are real, and two of them are test platforms. So, it allows them to work with real customers in the sandbox. That's what's going on, but it also lets them to get in and out of an innovation quickly, if it's not working as planned, or if it's broken a little bit. Also, their customer service people are developers. So, what happens when a customer calls up and says, "I'm having problem with X"? That developer can actually change the product on site. It's a completely different mind blowing experience as to how innovation, digital transformation and all this can happen.

Jim Marous:
We're, right now, at a point where everybody's saying, "We're going through digital transformation," and they see it as an end point, when really, you're never going to reach it because it's an ongoing process. Can you share a couple success stories of how your organization, how Constellation has moved the needle where organizations may have been stuck or where you just have seen the perfect mindset put in place by the financial institutions, you go, man, anytime they pick up the phone or they text me and they say, "I need some help X," you're dropping everything, because that they're going to work really quick to get this implemented?

Kris Kovacs:
Yeah. So, I'll call out one in particular. We have a customer that, when their digital banking provider said we can do card controls, and they, at the time, were their digital banking provider's largest credit union. They said we're interested, sign us up as the beta. We want to do what we want to do. We want to do it. Four years later, they still never had it. That institution, as they went live on our platform, went live with 15 third party services, including card controls. So, it's the ability for them to realize all of this pent up need. They had a similar situation. They had a product, a debit rebate. They had a debit rebate product that they'd never really been able to quantify, for the customer who was using it, the member who was using it, they'd never been able to quantify what the value of that product was.

Kris Kovacs:
Well, when they went live, they went live with a new tool that actually allows them to see here's how much you've earned, here's how much you're away from your next payout, and here's what the total lifetime value that you've had of using this solution is, that reassurance, that prompting that, yeah, you are using the right card, you are using the right partner in those kinds of cases. So, we've definitely seen the opportunity to bridge the gaps of the legacy solutions. And in these cases, they're pulling in FinTech to do those services. Those aren't things necessarily that Constellation provided. We didn't build either of those services. Those were pulled in through partners that enabled that to happen, which allows them to move faster. If Constellation has to build all of that, then we're no good as anybody else, right, because we're the choke point at this point.

Kris Kovacs:
And what we've tried to do, what we've tried to say, there are no choke points, and there is no exclusivity in our platform. So for example, and this is one of the things that really helps speed innovation, if you go to a legacy provider and you say, "I want to do automated chat bot," an integrated, authenticated chat bot experience, they're going to say, "Great, here's our partner blank AI. And blank AI's our partner. You should sign up with them." And you're like, "Yeah, well, I like one of these other AI groups." And they're like, "Yeah, well, you should sign up for this partner because that's going to be a long term integration that you don't want to do. This is our partner." In our world, we have seven AI engines connected to us already, and probably by the end of the month, more, as popular as artificial intelligence services are becoming.

Kris Kovacs:
So, it's the ability to deliver, it's the ability to not lock institutions into a solution, either ours or someone else's, and give them the flexibility that encourages them to start thinking about, "Well, then I could try something else." And that's where we're seeing a lot... As I've said before, I said where we're seeing a lot of the new value and excitement around what we're delivering for institutions.

Jim Marous:
So [inaudible 00:37:58], I mentioned that you were the 11th guest we had in the podcast. Since then, we've had 250 plus more organizations we've had on the podcast. We're doing two a week instead of one week, but there's some overarching thoughts that we have as we've done these interviews, and it's been enlightening because you start to see trends. Probably the biggest trend, and listeners to the podcast here all the time is, that the biggest hindrance to innovation, speed of innovation is legacy leadership, that you can almost tell, a solution provider can almost tell, within three minutes of meeting with top leaders, if this is going to move fast or this is going to move slow, because you can see, do they have one foot in the water, or they got their bathing suit on, they're ready to jump in? Do they stand on the beach, watch other people swimming, as opposed to swimming themselves?

Jim Marous:
And you meet with some fintech providers and some solution providers and you're amazed the difference in mindset about being a challenger, as opposed to a legacy financial institution in most cases. When you're looking at the ability to change, how important is continuous incremental innovation that's less painful as opposed to trying to build the next big thing?

Kris Kovacs:
Oh, it's everything. I mean, the next big thing, if you're constantly shooting for the stars, for a pun for Constellation, the market is changing so fast. I mentioned before how in 2019, everybody was talking about how we get loans. [inaudible 00:39:35] loans super easy. Let's make loans super easy, and the market changes like that on you. A new service can come out of and be like, buy now, pay later. Think about... Buy now, pay later came out of nowhere. It was something that credit unions and banks in the past were like, "We have credit cards. What's the problem?" And all of a sudden, boom, buy now, pay later comes out of nowhere. If I'm constantly just trying to build the next big thing, the reality is I'm chasing a dream. I'm chasing a set of functionality that by the time I get there from a market perspective, if I'm not iterating on it, if I'm not testing the solution against the consumers who are going to use it, then by the time I get there, it's passed and I've missed my opportunity.

Kris Kovacs:
And that's the concept of the minimally viable product. Get the minimally viable product out there, get users using it, get institutions using it, get consumers using it, get feedback and start making changes to make it more and more valuable. The problem is, as you pointed out in the very beginning of that question, it's about leadership. Is the right leadership in place to be able to take that approach? Who understands the real value of that approach? Arguably for a lot of institutions, I'm afraid it's not. And for those institutions, I think it's have severely detrimental results. But in other ones, I'm so encouraged. I talked to a bank when I was at Jack Henry Connect, and I talked to a bank who one of the folks who I spoke with is leading their digital transformation. He came from a fintech. He was the founder of a FinTech and sold it.

Kris Kovacs:
And now they went to him and said, "Hey, help us look at digital transformation differently." Think about that. That's the power of taking somebody who understands the methodology, not the layout of a webpage or which app components were used. It's about the methodology of developing that solution that's so important. And the ones who get it are going to be tapping markets like that and being able to find the talent to lead them through those processes, and then give them enough room to make mistakes sometimes and try some things out. That's the reality of it. The other thing that you can do is about splitting it. So, there's great work out of Stanford that talks about institutional and organizational change and how to manage that change and how to encourage that change. And part of that is to actually, of what I've read is, being able to split that out as almost like a separate mini organization or a separate mini solution, or a separate mini app.

Kris Kovacs:
Let's innovate there where we're safely taking care of the masses with our legacy stuff. Let's innovate there. And then when we're ready, boom, we fold it back in, and then we go out again, and we create another challenger scenario. I hate the challenger bank model in particular, because we're not talking about starting a new brand. It doesn't have to be a new brand in order to do this. You can do this within a single app, with a single solution, with a single fintech, you can do this work. If you go to the Challenger bank model, the problem with that is that an institution loses all of the value that they've put into tens of years or maybe hundred years into their brand. There is value there. You just have to translate how people think about it, which is what you can do through these kind of new scenarios, new applications, new fintech partnerships to be able to create that. That's where I think we're going to see the leadership. We've seen people tinker with the Challenger bank.

Kris Kovacs:
I think you're going to see more people creating specific onboarding solutions for Gen Z, specific solutions for borrowers, specific solutions for this, where they can innovate, and then ultimately fold that back into the larger organization.

Jim Marous:
Your target audience, the financial institution that's community based, is smaller in many cases.... We find in our research around innovation that the most innovative companies tend to fall into two categories of assets, the very big ones that can spend money, it's coming out of the air and the smaller ones that, as an organization, they were developed as a disruptor. In many cases, they're community based. They have leadership that's really based on trying to build a good organization that's going to serve the community best. Does this work your advantage, the fact that, yeah, they may not have the funding and may not have all the personnel, but almost to a degree, it helps you, because you have less static in the operations, and they're more agile? They're like the pickup truck in a group full of semis.

Kris Kovacs:
Yeah, that's a good analogy, except there's a lot more pickup trucks than semis. That's the other part.

Jim Marous:
Exactly.

Kris Kovacs:
[inaudible 00:44:43] Number. There's semis in masses of pickup trucks. The reality is it's about who's driving. It's about leadership. It's about, do you have a leader in that organization who understands and is willing to push that envelope? There are leaders in institutions who are focused around, "Hey, I've got five years and then I got to retire, so the best thing I can do is protect my retirement," and do that. And there's other leaders who I've worked with and have been mentored by who are very much about, "I am planting seeds that the next generation of credit union leaders will only begin to understand the value of." And from that perspective, you need more of those leaders who are looking long term and who understand the threat to the industry, not just the status of my retirement package.

Kris Kovacs:
And the more of those that you see... And maybe some of those are younger, I'm not saying it's an age thing. Some of the folks I know who are going to retire are some of the most innovative people and belong on the Mount Rushmore for community based institutions. But the reality is, coming in with a little different mindset, coming out from outside of industry, many times, having some exposure at least to other ways of doing business, I think are all going to be very... They're going to be good measures of the types of leaders we have to have in the future, driving the pickup trucks who are able to make those agile decisions.

Jim Marous:
You recently announced the very exciting acquisition of WalletFi. What was the strategy there to actually acquire a provider, and what kind of providers do you see possibly being good partners in the future that you may also be in the acquisition mode around, without giving away any secrets?

Kris Kovacs:
Without giving you away any secrets. Well, here's what... We've known WalletFi for a while. So, we've known them for more than four years. They've been great partners on our platform, so we've seen what they've built. What WalletFi really brings, and what we were so excited about, is their ability to enhance transactional data, banking transactions with additional metadata.

Jim Marous:
Yep.

Kris Kovacs:
And then with that metadata, being able to create experiences for users of the platform. And they started out initially as a subscription management service that could look through transactions, identify subscriptions, give members the ability to manage those subscriptions, manage customers and members the ability to manage those subscriptions as a way of saving money and financial health and everything else. Well, since then, they've developed a pretty robust and very impressive transactions analytics service that they've been selling directly back to institutions. And what I'm really encouraged by is the ability to integrate those insights, that transactional metadata, take those insights that are there, and then create experiences that delight the users of Constellation.

Kris Kovacs:
I believe you cannot have delightful experiences that don't start with the insight of something. Disney is great at this. Disney has the insight to understand the size of the families that typically come to visit them. And then using that insight, they create delightful experiences. So for us, this is very much around a data strategy. How do we take the data that we have, the transactional data that our credit unions and banks have, and how do we create delightful experiences out of that insight? And I think that's going to really differentiate, say Constellation Banking Services in the future, is built around those moments of insight that give you the opportunity for nudges and suggestions and opportunities and things like that that are really going to drive usage and penetration of the platform and the usage of it. As for-

Jim Marous:
That's exciting, Kris, because really, we talked about this a little bit earlier, that really, what you're doing is you're realizing that just because you build it doesn't mean the consumer's going to come. And now, you're helping finance institutions actually build a marketing platform or a communications or a content platform to actually get these services out in the marketplace. That's tremendous.

Kris Kovacs:
That's right. Yeah, there's so much now around... My background, when I started, Jim, was in cards. And I always believe that there was so much value in transactional data and there's so much you could tell about the health of an organization, the health of a customer or a member, the potential next solutions based on what they were doing that I've always been fascinated by transactional data. So, the idea those can be the tea leaves and new set of tools that allow you to read those tea leaves and read them for the benefits of the institution, but also for the benefits of the user to be able to give them those insights, I think is where the real future in banking's going to be, right?

Jim Marous:
Yeah.

Kris Kovacs:
Anybody can show a balance in a transaction. It really is around now what do you do with it? What's the experience you create around it? And that's what we're excited to be working on now.

Jim Marous:
So Kris, how do organizations discuss how Constellation can help them with their innovation process? Where do they start? And what should they do next?

Kris Kovacs:
The easiest way to start is to go to www.constellation.coop, C-O-O-P, and that's where they can certainly go in and see information about our offerings. They also have the ability to reach out to us to sign up for a demo of the system. They're certainly welcome to be able to do that. You can reach out to me on LinkedIn, so [email protected], or [email protected] is my actual email address. But the reality is that you reach out through there and we'll be happy to share with you what we're doing and how we might be able to help your institution.

Jim Marous:
Kris, it's been too long. It will not be this long again. It's amazing what you've done and on helping finance institutions be better, but also giving many solution providers a marketplace for their services in a really nice package that can help. We talk about speed and scale all the time, and you're providing both to the marketplace. So again, thank you so much for being on the show.

Kris Kovacs:
Jim, thank you for the opportunity, and I look forward to following your adventures on your bike.

Jim Marous:
Thank you very much.

Jim Marous:
Thanks for listening to Banking Transform, the winner of three international awards for podcast excellence. If you enjoyed today's show, please take some time to give our show a five star rating on your favorite podcast app. Also, be sure to read my recent articles on The Financial Brand and see our research we're doing for The Digital Bank Report. There's been a production of Evergreen Podcasts. A special thank you to our producer, Leah Haslage, audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time, remember, it's often easier to collaborate with innovation leaders as opposed to building it all yourself.