Acheiving Growth with Personalized Digital Offering

Jim Marous (00:08):

Welcome to another episode of Banking Transformed, the podcast that dives deep into the trends, innovations, and strategies shaping the banking industry. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report, and co-publisher of The Financial Brand.

Jim Marous (00:23):

As competition to credit and lending space intensifies, financial institutions are seeking for ways to differentiate themselves through personalization and unique product offerings. In this special miniseries sponsored by LoanPro, we're looking at the future of lending.

Jim Marous (00:39):

We're joined today by Jonas Ng, Chief Operating Officer of Laurel Road and Colton Pond, Chief Marketing Officer at LoanPro. Now, they will share their insights into how Laurel Road and LoanPro have done collaborations with the organizations to bring innovation to the marketplace.

Jim Marous (00:56):

We'll also emphasize the critical role of modernized infrastructure to enable creation of unique and personalized products. Laurel Road, a digital first banking platform from a KeyBank offers a unique and tailored approach to banking, focused on serving the needs of the healthcare and business professionals.

Jim Marous (01:15):

Their platform now provides a full suite of banking products, including personal checking and savings accounts, mortgages and personal loans. Each of these products is designed with a business professional in mind, considering those unique traits of business professionals and healthcare professionals in their needs in the banking world.

Jim Marous (01:35):

So, to start off, Jonas, let's start with you. Can you discuss a little bit about your background and how Laurel Road fits within the KeyBank family of services?

Jonas Ng (01:44):

Sure. Thanks. So, first off, thank you so much for having me, Jim. Colton, I really appreciate you having me on board and really love being here with you. So, a little bit of my background, I have been in the financial services industry for 27 years.

Colton Pond (01:58):

Don't age yourself, Jonas.

Jonas Ng (02:01):

I don't even like saying it out loud.

Jim Marous (02:02):

Not in this group, you won't age yourself. There's still one guy-

Jonas Ng (02:05):

Totally should not have admitted that, I mask with a lot of younger looking clothing. But I've been in the business for going on three decades. I spent a lot of my career in credit cards. I worked at MBNA, which is now part of Bank of America, and also Discover card.

Jonas Ng (02:21):

And I also had a small stint at Nationwide in their banking division. I also have worked in and out of fintechs and startups, I've done about a half a dozen of them in my career. I joined KeyBank about six years ago, and two years ago I joined the Laurel Road division.

Jonas Ng (02:38):

So, a little bit of background for your audience. About five years ago, KeyBank had been acquiring a number of startups, fintechs, small companies that had specialized capabilities, unique value propositions, a brand that targeted a particular customer base and so on. Laurel was one of those acquisitions.

Jonas Ng (02:59):

But five years ago, it was a little bit of an interesting experiment, KeyBank, unlike in the past, when if you acquire a firm, you bring it into the overall company, you kind of bring it into the mothership a little bit. And sometimes in the past, the danger and the risk there was that you kind of destroy a little bit of whatever made it unique. In fact, actually, you're kind of key banking if you will.

Jim Marous (03:25):

Or any banking.

Jonas Ng (03:26):

Or any banking, exactly. Notoriously guilty for kind of bringing it in and then whatever made it unique. It's kind of like breaking up the Beatles. You bring in and you send Paul to the marketing team, you send John to the finance team, and Ringo is now in accounting.

Jonas Ng (03:44):

So, with Laurel Road, five years ago, the bank decided to leave it largely alone. And whatever it was doing, anything that is touching the customer or the value prop, the products, the pricing, the servicing, et cetera, the technology, we left it intact. It has been, we think, a much, much better path forward and the things that made it special were left alone.

Jonas Ng (04:09):

But now, actually what you're starting to see five years later is that it's the best of both worlds. So, Laurel Road has a very agile technology stack. We've got a brand that really resonates for healthcare professionals and specifically doctors, dentists, nurses, et cetera.

Jonas Ng (04:27):

We also have the benefits of the KeyBank mothership. We've got support. There is a customer base, there is a strong balance sheet. It's a 200-year-old bank. So, you're starting to see that the best of both worlds is very, very, very powerful.

Jim Marous (04:43):

Well, what's interesting about that relationship too, is KeyBank had been serving the medical community, the business, the medical professionals, the doctors, for years before that, which just kind of makes it even more unique that they didn't put their thumb on and say, "Okay, we got this from here. You just give us a technology."

Jim Marous (05:02):

But that's kind of nice because with that transfer of brand to your brand from KeyBank's brand, it is not complete transfer, it's a collaboration that the business professional, medical professional really looks to.

Jim Marous (05:15):

So, Colton, from your perspective at LoanPro, how do you work with organizations like KeyBank to help stimulate innovation, good partnerships, good collaboration? Because one thing you bring to the table is the outside view.

Jim Marous (05:28):

It's almost what I bring to the table at times where you can say, "We've seen this before. Here's what we’d recommended.” Sometimes you get more credit, or I get more credit than if an internal person said the same thing.

Jim Marous (05:40):

In fact, we're brought in sometimes for that reason. How does LoanPro work with financial institutions such as KeyBank or other legacy financial institutions?

Colton Pond (05:47):

Jim, you're spot on. One of my favorite things to do is go out and talk to banks, credit unions, executives therein to understand some of the challenges that they're facing. Here at LoanPro, one of the biggest things that we're doing is, if you think about the core infrastructure of banks and credit unions today, many of it is 40, 50, sometimes 60-years-old that we're building on and innovating.

Colton Pond (06:11):

And a lot of the things that have come out within fintech recently on helping banks and credit unions have a bit been appendages to that core. What we're doing on the lending side is modernizing the core infrastructure within loan servicing, management and collections.

Jim Marous (06:27):

So, the post implementation and post integration of the loan, it's already on the books. You're helping with everything post.

Colton Pond (06:33):

Private funding. So, how do you drive greater operational efficiency to service your customers more efficiently? How do you collect more efficiently on your lending or credit portfolio to decrease credit losses?

Colton Pond (06:44):

And then how do you launch new first of their kind credit and lending products that typically on legacy infrastructure would take 12, 18, 24 months in three months and bring those to market and be competitive?

Jim Marous (06:57):

Which is really the timeline that almost every innovation today has to be thinking of. Now, that's not the traditional banking way. We talk about opening new accounts digitally and how that's got to be in three to five minutes, and you take something that really should only take three months to implement.

Jim Marous (07:12):

Because there's a lot of providers out there, and they just can't get it done in time because bankers tend to get in their own way. That's just the way it is. So, for both of you, when you look at lending, it's a legacy product. It goes back to the very beginning of banking. It hasn't really changed much over the years.

Jim Marous (07:27):

In fact, if you went from financial institution, A, B, C, D, E, you're going to get pretty much the same product set. You're going to get personal loans, installment loans, you're going to get mortgage loans, you're going to get secured, unsecured. And even when you talk about the serving aspect, that doesn't vary much.

Jim Marous (07:46):

The only thing that organizations have really varied on is in many cases, price. It's not even been a personalized experience. So, I'm going to start with you Jonas. When you look at Laurel Road, how did you differentiate it so that price didn't matter as much?

Jonas Ng (08:03):

It's a great question and I could not agree with you more. I'm going to kind of throw out a little bit of an academic concept. When I went to school, I learned the four Ps of marketing. Your product, your placement, your promotion, and your price. Well, the reality is, Jim, that the banking industry is a pretty mature one. It's very competitive. So, really and-

Jim Marous (08:27):

And very profitable.

Jonas Ng (08:30):

Yeah. Mostly. Mostly, usually. But every bank has actually gotten really, really good at having loan products, and different promotions and the distribution. We've all gone digital. We have a branch network, and we have a mobile app that really can put our products where our customers are.

Jonas Ng (08:49):

If you're really, really good at the first three, unfortunately, you are only left with that last one, which is price. And the more competitive the industry, you guys know this, it's hand-to-hand combat. We're fighting with several thousand other banking institutions on price and sometimes it’s a race at the bottom.

Jonas Ng (09:07):

Who can cut each other's throat the most. I have heard, I didn't study this, this is dating myself, but when I studied marketing, there was only four Ps of marketing. I have heard that they're now teaching a fifth P.

Colton Pond (09:19):

I didn't even know there was a fifth P. So, you're teaching me.

Jonas Ng (09:21):

There you go.

Colton Pond (09:21):

See, I look younger than I am.

Jonas Ng (09:23):

Apparently the fifth P is people or personalization. I think that is the theme of your podcast for today. And the fifth P is that even in the healthcare world, even in the healthcare segment, there is a hard truth. Not every doctor is the same. Not every doctor is actually at the same stage in life.

Jonas Ng (09:46):

So, for example, a doctor who just came out of med school and is actually a resident, I'm sure-

Jim Marous (09:53):

They're living a different life.

Jonas Ng (09:54):

They are living a very different life. They don't make a whole lot. They are, at that time, they've got two years, maybe three, doing a residency. They may make 40, 50, $60,000. They're about to make $440,000 but for those two years, it's actually very, very difficult. And so, with Laurel Road, it was a chance to … our CEO, Chris Gorman, Chris likes to say that we need to pick our spots.

Jonas Ng (10:20):

He calls it targeted scale. We cannot be everything to everybody, it's impossible at this point. For a doctor, Laurel Road allows us to differentiate, and the Laurel Road brand had a couple of products that went after residents or people who just got out of their residency.

Jonas Ng (10:36):

And if you focus on that particular segment, a customer at that stage in life, well, their needs are very, very different than a 60-year-old doctor who has-

Jim Marous (10:44):

Who's not paying off loans anymore.

Jonas Ng (10:46):

Who's not paying off loans. They're actually thinking more about retirement, or they're thinking about how to bequeath, or they're turning over the business to another generation. A 28, 32-year-old doctor has probably got upwards of a half million dollars of student loan debt. It is a very, very different set of needs.

Jonas Ng (11:03):

Five years after that, you can actually start saying that they're right about that trajectory, that pivot point where they're starting to ramp, they're getting established, they get out of debt. Now they're starting to think about building wealth, getting into a house, growing their family, and so on.

Jonas Ng (11:17):

But the point there is that, that fifth P even in the medical or the healthcare world, you have to target doctors in very different ways depending on where they are in life. By the way, the different kinds of doctors are out there, some folks are doctors without borders, they are doing it to save lives. And there are others who are going into plastic surgery. They're going to be Doc Hollywood.

Jim Marous (11:41):

Save lives, save lives.

Colton Pond (11:42):

They're saving lives

Jonas Ng (11:43):

Kind of more aesthetically saving their life.

Colton Pond (11:47):

What I love about that is a lot of people talk about personalization in that select a segment. Okay, doctors is my segment. And Laurel Road could easily say, "Go after doctors." But what you're digging into is it's much deeper than that.

Colton Pond (11:58):

If you look at just doctors, segmenting just doctors and understanding their needs are uniquely different. It's not even enough to just say, "I'm going to go personalize this product for doctors or teachers." They're very different.

Jonas Ng (12:11):

The real value that LoanPro unlocks for us is that a nurse, they have a very, very different set of needs if you are a traveling nurse. You might be actually a little bit older; you might be doing it more for money. You might have just recently gotten divorced, who knows?

Jonas Ng (12:26):

Their needs are very, very different than a school nurse. A school nurse who's been doing it in the same elementary school for 30 years, they're both nurses. Very, very, very different lending needs, very different-

Jim Marous (12:36):

Well, it's very much like a doctor who's a psychologist, who's going to have a lot different borrowing needs than a dentist who has continually upgrading their equipment and they're a single unit. So, it's not like they're even getting the support of a hospital. They're upgrading their technology all the time.

Jim Marous (12:51):

Now, it's interesting because when you look at Laurel Road, it's a very unique product line and just like with any innovation in lending or any product service, you have a situation where you have to have top management support.

Jim Marous (13:06):

Supporting unique endeavors in the fintech world, in the product world, is not new to Key, which is important to make note of because it wasn't like he said, "Oh, you guys are successful, we're going to support you." Number one, they were in the market to begin with, and your product really fit well with their customer base.

Jim Marous (13:25):

But more importantly, they have other endeavors at Key that they've backed and have not gotten in the way of, and that's unique, but it shows the importance of top management commitment to not getting in the way. And it makes it so you have a little bit more rope.

Jim Marous (13:43):

Now, from your perspective, as you go from financial institution to financial institution, everybody talks a good game. It's really hard to implement this. What do you see out there? We'll start with the good news first.

Jim Marous (13:55):

From a standpoint of innovation, what are some innovations you've seen? Because you're working with the lending areas of these organizations. What are some lending innovations you've seen that you go, "That's pretty cool."

Colton Pond (14:05):

Great question. So, I think that there's a lot of ways, we were talking about this a little bit, but there's differentiating based on price or rate, there's differentiating based on the actual product, and there's differentiating based on the servicing and the customer experience, what that looks like.

Colton Pond (14:22):

When you look at the product, there's two cool ones that I was thinking about. One is there's credit union out there that services teachers and they offered a personal loan to teachers. And what they found is during the summers, teachers generally don't get paid, and their default rates ticked up. So, they're like, the CEO is like, "Oh, business problem-

Jim Marous (14:42):

Even though they know it's coming. They don't plan for it because we're human.

Colton Pond (14:45):

People aren't good at budgeting, we know that. Even myself, I'm not good at it. My wife knows that we're not very good at it either. But default rates would rise during the summer, and they're like, "How do we fix this? What do we do?"

Colton Pond (14:58):

And they came out with a personal loan product focused on teachers that don't get paid during the summer, where there's a nine-month payment cycle. During the summer, there's no payments, they resume payments September, nine months, and then forget payments. There were larger payments.

Colton Pond (15:13):

But something like that, that's personalized, and teachers can be like, "Man, this is built for me. This is a product that is for me, another great one that-

Jim Marous (15:22):

Introduced by a company that's much smaller than KeyBank. So, innovation and lending services is not determined by the size of the organization, but it's a commitment to their North Star.

Colton Pond (15:32):

100%. My favorite one that we've talked about at LoanPro and have has been a credit card not on the market yet, but will be, and you'll see it that we call the active military duty credit card. So, what this organization does is a financial institution that services military members.

Colton Pond (15:51):

And the problem that they saw is they had a primary relationship with military member, secondary relationship with a family. When military member went on deployment, which is generally a tough time for the family because they didn't have a primary relationship with the family, oftentimes a family would go bank somewhere else.

Colton Pond (16:06):

Like, how do we fix this? How do we make it more sticky? How do we show our commitment to military members? And this credit card, what will happen is when military member goes on deployment for their family back home, it'll do two special things.

Colton Pond (16:19):

It'll geo-fence a five-mile radius around their house and any gas and groceries during that time are to reduce 3% interest rate. And then any emotional wellness purchases are interest abated for the time of deployment. And the hypothesis is-

Jim Marous (16:32):

Very unique service.

Colton Pond (16:33):

Super unique, super personalized-

Jim Marous (16:36):

And not geographically driven. It's customer driven in that case.

Colton Pond (16:40):

Customer driven, and I think that's the biggest thing that I've seen is I've looked at products that are personalized and actually hit the nail on the head is it's personalized to that person. And our CEO often talks about personalized to the level of one, if we can get personalized finance to the level of one or close to that level, that's the direction I think we need to go.

Jim Marous (17:03):

So, it's interesting because when you personalize and you build products around specific segments, you get learnings over time. We always talk about using data and analytics to build a better product. The reality is it's sometimes hard because people differ so much.

Jim Marous (17:16):

But take a little role for instance, you're talking about a medical professional. You're really talking about a situation where in order to provide the lending you need, you've got to break some traditional lending rules.

Jim Marous (17:28):

And I talk about, I was in management training program at a bank that used to be down the street in Cleveland and what was tough was you never could get a B minus loan in certainly not a C loan. The reality is the people that come out of school with massive debt and with limited income, yes, you know their trajectory, but you're still taking the risk on their behalf.

Jim Marous (17:51):

But I would imagine, and help me if you will, that because you know this space, because you know the people you're talking about, because you even know the locations where these people are located, you have a completely different credit adjudication process for your products, your customers, which is part of the market offering. True? And how do you do that?

Jonas Ng (18:11):

It is a hundred percent true. And not to reveal too much of our secret sauce, but you obviously you have to really leverage all the data that you have because you're effectively managing risk and you're managing to probabilities.

Jonas Ng (18:25):

And one of our secret sauces is that we're not just underwriting based upon what you are at that moment in time. What we're trying to underwrite is towards what you are going to be. This is a basic premise, every bank does this in terms of lending.

Jonas Ng (18:40):

We have to assess your ability and your stability and your willingness to pay, pretty basic formula. But the ability and the willingness to pay are very, very different if you are in med school right now, but you're about to be an anesthesiologist.

Jonas Ng (18:55):

And your future projected income and cash flows are going to be very, very different if you're going into say, surgery or if you're going to be, not to pick on them, but a podiatrist. And we had gotten hyper accurate in terms of being able to predict based upon your specialty and actually sometimes a little bit about your school track and where you are getting your education, in terms of what your future cash flows are going to look like.

Jonas Ng (19:19):

So, if you're coming out of one of the top med schools and you're going to be working at the Cleveland Clinic in oncology, you're going to be doing relatively well, we can predict what your future cash flow is going to look like.

Jonas Ng (19:32):

And that is the reality of where I think LoanPro adds a lot of a powerful dimension to the world. Because in the past, the conventional rules will be, if you have X income right now, then I can see from a paycheck or from your tax returns, then I could only make that decision based upon what I can see.

Jonas Ng (19:52):

But the banking world has kind of evolved a little bit. And if I can specialize a little bit and understand, well, what is your future cash flow going to be, then I have an advantage over every other lending institution that is only based upon what they can see in front of them and that's the new-

Jim Marous (20:06):

And trying to sell that internally because I kind of know what that doctor's going to do, but I got to sell it against all the other loans in usually a risk adverse or risk avoidance marketplace. Well, where in your product and other things that KeyBank has done in the past that I know of, they will look at these in the context of where they are, which gives you a little bit more flexibility.

Jim Marous (20:27):

When I went to WeBank in China, they serve millions and millions and millions of people, biggest digital bank in the world. Well, when they look at it, they're making credit decisions based on cell phone usage.

Jim Marous (20:38):

They are not looking to say how good are they going to be? They're trying to say, "How can I avoid the losses?" Not the, I'm not looking to make a lot of money because they have billions of customers just sitting there going, multiplied 25 cents by billions you're going to be doing okay. But you’re not looking at the individuals, you’re looking at the segment.

Jim Marous (20:56):

Colton from your standpoint also making all this happens is more than just development a great product, it's infrastructure. What do financial institutions have to do today on both sides of the lending equation with regard to infrastructure improvement and modernization to even in a composable business where you can say, "I got to fix my lending stuff." What do you see banks having to do right today?

Colton Pond (21:22):

Great question. To Jonas's point, I think that there's an aspect too on step back and answer your question actually.

Jonas Ng (21:36):

You got to be careful.

Colton Pond (21:38):

Yeah, I got it.

Jim Marous (21:39):

Importance of infrastructure for innovation.

Colton Pond (21:42):

Great question. So, as I mentioned in my intro, most banks and credit unions today are on 30, 40, 50-year-old infrastructure. But what we've done and been led to is to rely on these core providers for everything.

Colton Pond (22:01):

And the trend that we're seeing in the industry is these core providers do certain things well. They are ledger source of truth, but we have tried to manipulate and fold them to say, “Can you do loan servicing? Can you do collections? Can you do origination? Can you do these things it wasn't made for?” What we're seeing a lot of financial institutions we work with.

Jim Marous (22:22):

And can you do them well.

Colton Pond (22:23):

And can you do them well?

Jim Marous (22:24):

And I mean, you won't say that, but I'm saying that that's why composable solutions become so popular, because you may be double paying in the grand sense of things, but you're perfecting certain parts of your business that are important to you.

Colton Pond (22:38):

And there's ROI associated with perfecting those certain points of your business and real return. So, across the industry, I am seeing folks say, "Okay, let's relegate our core banking infrastructure to the ledger source of truth, and let's innovate at a layer above that." And let's find best in class vendors that can do things like origination and servicing and collections.

Colton Pond (22:58):

And like I mentioned, there's real ROI to that if you can automate more of your loan servicing actions, and you can take your loan servicing team from 200 people down to 100 people and repurpose the other a hundred people, you now improved your margin really significantly.

Colton Pond (23:15):

You can decrease, improve collections rate or your collections operations and decrease your credit losses by 10%, it's a huge impact. Where previously on the legacy infrastructure being nimble, being able to launch new and unique programs has been challenging.

Jim Marous (23:37):

So, really, when you go into a firm and you're modernizing their back office, you're opening the door to innovation and discussions from you that say, "We only exist if we bring a good ROI to you." Yes, we've installed, we're going to be okay for a while."

Jim Marous (23:53):

But the reality is your ability to bring other examples of what your clients have done to help them on the innovation scale to say, "By the way, this may not be the segment you want to look at, but here's what this product that we've just sold you can do."

Jim Marous (24:07):

And we've talked about this many times at other organizations, it's not just about the implementation, it's about the deployment.

Colton Pond (24:13):

And to Jonas's point, one of those key points, everyone in the industry is focused on origination and what data points can you look at, what's your secret sauce with our customers? What we've seen a lot of, if you operationalize and you improve your loan servicing collections efforts, you can actually reduce your credit losses to where you can expand your credit box more.

Jim Marous (24:34):

So, it ends up, even though it's a back-office solution, the reality is it makes it so the consumer is going to get a better experience.

Colton Pond (24:42):

100%.

Jim Marous (24:42):

Because it's also seamless, and you're not going to have these hiccups along the way. So, from your perspective Jonas, what you've done really well, and I'm not familiar enough with Laurel Road to know, is this expandable beyond borders?

Jim Marous (24:58):

In other words, is this something that has a national impact or does it already have a national impact? Because you do so well in this segment as well as anybody in the business for sure and you have the support.

Jim Marous (25:10):

Is this something that is expandable beyond Cleveland? Beyond, I'm sorry, beyond the KeyBank? I see it as Cleveland beyond. That's right, we already are doing that.

Jonas Ng (25:22):

It is a great question and for the record and for your audience, KeyBank and Laurel Road are only United States based. So, we're not lending, we don't have consumer customers outside of the U.S. Laurel Road does operate in all 50 states, KeyBank actually only operates in a smaller geographic footprint.

Jim Marous (25:41):

Not a whole lot smaller anymore.

Jonas Ng (25:42):

These days, it's getting bigger. Laurel, but it's only the 50 states. I think my answer to your question would be yes and no, because there are some things that I think you said it well. I think Colton was saying it very, very well.

Jonas Ng (25:53):

LoanPro allows us to customize and personalize the places where we think we can. So, for example, maybe it's messaging or servicing constructs or the way that we're communicating with our customer, or in particular the product that meets the needs of particular segments. But there are some things where LoanPro actually can't help us.

Jonas Ng (26:14):

If you don't know how to underwrite in South America because you don't know how to obtain credit data, credit bureau data or if I don't know how to validate or verify information outside of my current infrastructure, then I would love to be able to personalize but I actually don't have foundational fundamentals there.

Jonas Ng (26:32):

And that has been some of the challenge. How do you actually judge a person's credit worthiness in say, Southeast Asia or North Africa? We actually don't do that. So, I personally have no idea.

Jim Marous (26:44):

Actually, to a degree it's even different when you're looking at Montana, Idaho, Iowa, compared to Cleveland, New York, Boston or LA.

Jonas Ng (26:52):

It is. Now, I'd be remiss and if I didn't bring this up, every bank that everyone in your audience does have to contend with regulatory and statutory requirements. We have a half a dozen government regulatory bodies that are in our building on any given day and we have to adhere to the law.

Jonas Ng (27:16):

We have to manage the safety and soundness. We also these days have to manage to disparate impact, disparate treatment. You're not allowed to discriminate against gender, race, even age, background and so on.

Jonas Ng (27:34):

The data scientist in me would say though that if you could use all those different data elements and they are predictive, then I'm in the business to try and give the right loan to the right people at the right time.

Jonas Ng (27:45):

And actually, what you're starting to see with the regulators, is they're actually starting to realize that when you expand beyond and get a little bit more of that personalization, banks are starting to use it not to discriminate, but actually to approve.

Jim Marous (27:58):

Because you can take more risks.

Jonas Ng (27:59):

Because you can take more risk, you can find opportunity. If you are cut off with 720 FICO before I can go down to 660, 680 and find those opportunities to actually get that customer into a loan when before I was actually having to turn them away. And I think the personalization is now actually starting to open up the opportunity.

Jonas Ng (28:18):

Now, don't get me wrong, I have to explain the explainability of personalization is still something that we have to work on. How do I explain that I approved Colton, but not Colton's brother? Not sure how I would explain that, but that's what we have to worry about.

Jonas Ng (28:31):

But the point there is, foundationally, you got to still do the things that make us a bank. The world is now opening up when it comes to technology. It is opening up a world of opportunity to be able to find all those different pockets where you can actually do well. We're waiting for the government; we're waiting for the regulators to catch up. The technology is now moving like lightspeed.

Jim Marous (28:51):

So, with that understood too, because doctors have very specific needs, certainly within what they buy even, how does open banking potentially impact your products that be able to say, "We could make the introduction.” We can make it, I'm not going to call it a dating service, but it's a dating service between your customers and the product that they buy that want to get to know who your customers are.

Jim Marous (29:16):

Because it could change your funding mechanism in a positive way where those relationships could end up help funding the product overall and potentially giving it back to the doctors and professionals and your clients. Is there an open banking potential there?

Jim Marous (29:33):

Because we've seen it with youth accounts where they make partnerships with gaming companies, with other companies that say they can actually bring those markets to this case. Is that possible?

Jonas Ng (29:45):

Yeah. Jim, you were asking, I think the $60 million question, $10 million question, whatever.

Colton Pond (29:51):

The hundred-million-dollar question.

Jonas Ng (29:52):

The a hundred-million-dollar question, whatever that TV show was, this has actually become one of the hardest questions that a bank is struggling with these days. The conventional wisdom used to be that I wanted that customer to have their relationship with me and my brand and everything that they got from me was a KeyBank product. KeyBank auto loan, a KeyBank mortgage, a KeyBank checking account.

Jonas Ng (30:17):

With open banking, it is the corollary argument and that is you need to meet your customers where they are. For example, in a gaming app, do I just want to be the rewards of a gaming app, but I am white labeled behind that?

Jonas Ng (30:31):

Or frankly, by the way, think Uber or Airbnb or your Instacart types of apps, we always kind of forget that when you're taking an Uber or a Lyft, there is a payment mechanism. But I would say that the overwhelming majority of Uber users and Lyft users actually don't even remember which credit cards they loaded up in there. They're getting out of the car and it's paying.

Colton Pond (30:54):

I mean, Uber just introduced pay by bank too.

Jonas Ng (30:56):

It has introduced pay by bank, and so they're not taking out a credit card. They're not looking at your brand on a piece of plastic saying, "Ooh, here's my key bank credit card."

Jim Marous (31:04):

And by the way, you're not getting the data from that transaction either.

Jonas Ng (31:06):

You're not getting that, you are now uncoupled. You are no longer the brand in play. You're not top of mind anymore. It is, quite frankly, upending the conventional wisdom of banking. Because on the one hand, if they're not thinking KeyBank over and over and over again, am I really getting the relationship impression? Am I building that relationship with that transaction?

Jonas Ng (31:28):

On the other hand, especially with younger folks, if this is where they're going to be and I just need to be part of their Venmo wallet, if I just need to be part of their Uber payment mechanisms, then open banking is about trying to cover all of those different worlds. The reality is, mathematically I have to be both.

Colton Pond (31:46):

You do. And if you think about embedded finance and embedded lending and what these organizations are doing, they're embedding financial products where the consumers are and spend their time.

Colton Pond (31:57):

And my view is the banks that, or the banks and credit unions that are shortsighted and say, “Nope, it has to be our brand. It has to be our way," eventually, will miss out on that market share because the consumer today is there and that's where they want to engage and have their experience in aggregate, financial included.

Jim Marous (32:19):

So, two quick rapid-fire questions to end this conversation. Number one, for both of you, organizations need to differentiate in the marketplace. Everybody looks the same and it's getting worse and worse because there's other players that are just … they're taking off the middleman and they're able to go digital, so their cost structure's different.

Jim Marous (32:37):

What's the one primary recommendation you give financial service, financial executives around innovation, but more importantly, lending innovation. What's the one recommendation?

Colton Pond (32:50):

Understand your customer. If you understand your customer, the customers you want to go after, understand what they want, understand the jobs to be done that they are trying to solve in their life and how do you more efficiently create and launch a product, whether it's lending credit or deposit or wealth for that customer to fix their problem and their need.

Jim Marous (33:10):

So, really focus on a segment or a customer in a way that's not being done today, differentiate.

Colton Pond (33:15):

Differentiate based on its specific segment. And per what Jonas said, the segment can't even be doctors, it's go deeper than that. Go so deep to the point to where you're like, "I don't know if I can go deeper," while making sure that there's a total addressable market there and you can drive profitability.

Colton Pond (33:34):

But I think oftentimes the products we're launching are way too vague, way too broad. You said at the beginning I can go to, sorry, Jonas, probably KeyBank, Bank of America and JP Morgan and Credit Union of Cleveland, if there is one and get a personal loan.

Jim Marous (33:53):

At the end as a small business owner, what's interesting is you do want that personalized attention. You want somebody to understand your business and that's the thing that's missing. So, from your perspective, what's the one thing you recommend to any financial institution out there?

Jonas Ng (34:07):

It's hard for me to pin it down to one thing. I think Colton said it really, really well, know your customer. Know who you are going after. I couldn't agree more.

Jim Marous (34:14):

And double down.

Jonas Ng (34:15):

And double down, I couldn't agree more. I would say the other thing is that the nature of the business is one that is going through very, very scary, rapid, frequent, and iterative change. And so, you have to try and remember to stick to the fundamentals. You still have to be foundationally a bank.

Jonas Ng (34:37):

But you have to innovate, or you die because the world is changing so much. Technology is advancing so quickly that if you aren't able to just try and stay with that, then you will get left behind. So, for example, if you didn't embrace online and mobile technologies 20 and 30 years ago, you got left behind.

Jim Marous (34:59):

You did.

Jonas Ng (35:00):

There are a lot of things that don't even exist anymore.

Jim Marous (35:02):

Everything's working so fast now too. You have a situation that to stay up with it, you got to get ahead of it to become resilient. You have to put in things because you didn't see instant rates changing the way they did today or certainly we didn't get the timing right, but you have to have it in your plan what ifs.

Jim Marous (35:18):

A lot of what ifs and technology allows you that, focus allows you that because you don't have to look at all key banks, you got to look at Laurel Road and say, "What do I have to do with my customer base to protect that?"

Jonas Ng (35:28):

To me, I think the one thing that kind of encapsulates to me in my previous life, we used to say that any customer interaction regardless, if you're selling or you're giving them a loan, you're servicing their phone call.

Jonas Ng (35:40):

Every interaction is know me, hear me, and help me. The world is a very, very basic one. It doesn't matter if you're Amazon or you're a McDonald's or you're Home Depot, every interaction is like, "Do you understand who I am? I live here, I have a house. Are you listening to me? I don't know how to fix my sink, help me out. Do you have something that can help me?"

Jonas Ng (36:03):

The challenge is in the know me, hear me, help me model that customers these days are starting to judge banks and financial institutions across industries. So, they have an experience with say, Starbucks and they think, I don't understand if Starbucks knows my double with chai and latte with two pumps of soy milk and I happen to like three equals but not sugar, why can't my bank know that all about me as well? You have all-

Colton Pond (36:29):

When your bank has more data on you-

Jonas Ng (36:31):

I have the best data about you.

Jim Marous (36:33):

Yes. That's what you're being compared to.

Jonas Ng (36:35):

You are being compared to other experiences and people are asking a very, very basic question, "How do you not know me? I have given you my money. I have been banking with you for 20 years. How do you not know I have this house? I live in East Cleveland, I have two children and so on."

Jonas Ng (36:51):

And if you don't know me, then how can you possibly help me? How do you not realize that I don't have to worry about my college? I don't have to worry about paying for college for my two kids. They're going to be probably pumping your gas in New Jersey.

Jonas Ng (37:07):

My kids, they're not going to make it in professional sports. I think they're probably going to end up maybe cutting my tree branches at some point. They're going to be working for the town and they're going to be vacuuming up the leaves.

Jonas Ng (37:21):

I don't need to worry about college. So, you keep pitching me a college financing, "Hey, let's help you with student loans and so on and so forth." I tried to tell you, explain to you, I don't need to worry about that. My kids are kind of dancers.

Jonas Ng (37:33):

So, my point there would be that like, know me, help me hear me, or he know me, hear me, help me rather. It's a fairly basic formula, but the way that you do that has to kind of keep up. And that's what I tell our leadership at Key and Laurel Road.

Jonas Ng (37:44):

Fundamentally, it is no different, but the manner in which you know people, the manner in which you are hearing them and the manner in which we try to help them, that is what's evolving.

Colton Pond (37:53):

There's one other thing I do want to bring up and I talked about it a little bit, but I had a conversation yesterday actually Alex Johnson at Fintech Takes, we're riffing back and forth on stuff and we're like, "Hey, how do you differentiate in lending and credit?"

Colton Pond (38:09):

And we broke it up into three categories and I was like, man, "This is perfect. And really sums up our conversation." One is the origination category where I think most banks and credit unions have spent the most time. Rates, what data do you look at? How do you look at and they focus there.

Colton Pond (38:23):

But the other two that have been missed and talk about what you're talking about building products and launching products that are personalized and not just generic. And then what is your customer experience servicing experience like?

Colton Pond (38:36):

Best Egg or Marlette Funding, one of our customers, has really differentiated based on their servicing experience and they see folks come back to Best Egg to apply for a loan because it was a great experience, not because they have the best rate. And you know your customer, what they want, what they're doing, and you service those needs in the right way, man, you're going to be way better off.

Jonas Ng (38:59):

I have a funny anecdotal example. So, for Laurel Road customers, I personally just learned this somewhat recently, but we don't answer the phone, “Mr. Pond.” The folks that have gotten their medical degree, they take it very, very, very seriously.

Colton Pond (39:13):

I love that.

Jonas Ng (39:13):

They want to be called Dr. Pond.

Jim Marous (39:16):

Let's put it this way, if you make a mistake that way, you're not going to get in trouble, if they weren't doctors yet.

Jonas Ng (39:21):

Correct. But I'm a believer in the theory that little friction points or little microscopic ways, minuscule ways where you're not treating people as an individual, you're just treating them as any other customer, it adds up.

Jim Marous (39:34):

Death by a thousand cuts.

Jonas Ng (39:36):

Death by a thousand cuts. So, if that particular customer calls us 15 times and each time, we mess it up, we call them Mr. Pond, what we have learned, doctors really do want to be treated in a professional matter. They have worked for a very long time, a lot of schooling to kind of achieve that.

Jonas Ng (39:51):

We acknowledge that. It's relatively simple, but we have it on the screen, "Call the customer Dr. Pond." And it's a prompt there, but there's those kinds of things where like, if you can reinforce it, I know who you are. I know you're my customer. I know something about you because the converse it makes the customer feel like the opposite, "You really don't know me. I have a medical degree."

Colton Pond (40:11):

And I trust you with my money.

Jim Marous (40:13):

And that could be true no matter what profession, what type of person it is find that little key that makes a difference. Gentlemen, wow, we are going to have to come back again because we left a lot of things on the table.

Jim Marous (40:23):

We could talk about generative AI, but I knew that would be another 20, 30 minutes. So, but I do want to thank you for your time.

Jim Marous (40:29):

Great story. I was familiar with it in the past. It's great to get a great update on that, congratulations. Because it really is showing the commitment of senior management to make something happen, be committed, and continually look for partners that will make it so your product gets better.

[Music Playing]

Jim Marous (40:44):

Colton, it's always great to talk to you and be able to talk to you and find out what you're doing and how you're doing it. Because you do more road trips than I have ever done so you have an idea of what's going on in the pulse of the marketplace. So, thank you both.

Colton Pond (40:55):

Thanks Jim.

Jim Marous (41:03):

Thanks for listening to Banking Transformed, the top podcast in retail banking and winner of three international awards for podcast excellence. We appreciate your support. If you enjoy what you're doing, please be sure to give our podcast a review on either YouTube or on your podcast channel.

Jim Marous (41:17):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, our video producer and audio engineer Kae Holmberg and our video producer Will Pritts.

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