Unlocking Value Through Data-Enabled Core Systems

Jim Marous (00:11):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, founder and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:22):

Financial institutions of all sizes face mounting pressure to compete with tech giants, global banks, and nimble FinTech organizations while meeting rising expectations from the customer on a personalized basis.

Jim Marous (00:37):

The key to success lies not in matching their scale, but in leveraging data more effectively through modern core banking solutions. Jeffery Kendall, Chairman and CEO of NYMBUS is joining me today on the Banking Transformed Podcast.

Jim Marous (00:54):

We will discuss how data-enabled core banking is transforming financial institutions and enabling them to deliver personalized solutions that rival the largest banks and most nimble FinTechs. We’ll also explore the intersection of vertical banking strategies, real-time data analytics and the future of community banking.

Jim Marous (01:19):

While large financial institutions invest billions in technology and FinTechs disrupt traditional banking models, community financial institutions are discovering that their path to success lies in vertical banking and contextual, personalized strategies powered by real-time data.

Jim Marous (01:39):

Jeffery, it's been a while since we've had you on the show. First of all, for the people who are not familiar with you, can you share a little bit about your career path, and how NYMBUS has evolved to serve the needs of your customers and their customers?

Jeffery Kendall (01:53):

Yeah, absolutely. So, from a career perspective background, I'm a technologist and a recovering software engineer and developer. But later in life, started learning more about financial services and have had the pleasure of working with companies like NCR, Kony, and now I have the privilege to lead in this tech growth story.

Jim Marous (02:13):

So, the banking industry is talking a lot about finding segments, personalizing banking, using AI to build more personalized financial solutions for consumers. But while the front end of the digital banking experience has been pretty much fixed, we get high ratings across the board from most finance institutions.

Jim Marous (02:36):

I think both of us agree that the under core, the core of the organization, what happens behind the scenes without being updated really creates a problem down the road. How does a data-enabled core system support the transformation toward a more personalized banking solution for consumers?

Jeffery Kendall (02:57):

It's a great question, and I think just the very short answer is from a technology perspective, if you don't have some of the real time connectivity between all the different moving parts of your channels, you're going to hit sort of a brick wall when it comes to wanting to do advanced features, advanced capabilities, and start pushing the envelope.

Jeffery Kendall (03:16):

But I think you talked about this concept of vertical banking and niche banking, and I think it's worth stepping back just kind of at a macro level and really understanding why this is so important to community banking in particular.

Jeffery Kendall (03:29):

And the short version for me is if you just assume at a macro level that the mega banks, the Chases, the Bank of Americas, the Wells Fargo, et cetera – their path to success has really been one that was predicated upon them being able to go anywhere and everywhere within the country, the world, however you want to look at it.

Jeffery Kendall (03:49):

And they can set up a branch and their scale and their reach is pretty unlimited given their resources. They have unlimited war chests of money, and if they want to move into a new community – like I live in Boulder, Colorado, if Chase wanted to come in here tomorrow and put up 15 more branches, they could do it, and they wouldn't even blink an eye.

Jeffery Kendall (04:08):

Well, Flatirons Bank, which is one of our community banks right here at Boulder, it's sort of now sitting in a vulnerable position because they're trying to compete with the same products that Wells Fargo and Bank of America and everybody are bringing to these communities, but there's not a lot of differentiation in banking products.

Jeffery Kendall (04:27):

We would all love to say that there are, but I think deep in our hearts, we all know that a debit account is a debit account, a money market account is a money market account, and it's just rate-differentiated. So, if community banks are going to suffer because the large banks can go anywhere, compete on scale, they have to find something to differentiate themselves.

Jeffery Kendall (04:47):

And that's where we believe that niche banking, vertical banking, different areas where you specialize and go narrow and focus versus trying to compete broadly and generically, is the way that community banks and credit unions can remain relevant.

Jeffery Kendall (05:02):

Without that, if they're just trying to play the same game, they are going to get beaten a B, like me trying to play basketball against LeBron, it’s not going to end well. So, that's the big problem going on right now. We got to find a way to specialize so that you can compete effectively, and that ties into personalization and verticalization.

Jim Marous (05:22):

So, it's more than just putting a name on things, I believe. I think it's more than just the old way of segmenting and trying to find how the exact same products fit with maybe new names for specific marketplaces.

Jim Marous (05:36):

You have customers like Locality Bank, Vantage West Credit Union that have found success with specialized offerings. Can you describe a little bit about what they've done and how important a modern core was to those solutions?

Jeffery Kendall (05:52):

Yeah, absolutely. So, the key for niche banking, for vertical banking for anything, is that you have to be able to truly solve a problem. And you nailed it, which is if it's just a name only, if it's a market segment and a marketing gimmick, it's going to probably have limited success.

Jeffery Kendall (06:10):

But once you can find out that like, "Hey, we did something different for this end user that they can't get somewhere else," that's where stickiness and it's created … we call it a hook. What's the hook? What's the compelling product or service that we're going to be able to deliver this niche market or this vertical that's going to keep them coming back? And so, you’re right, you have to have this sort of capability to create a specialized function or feature.

Jeffery Kendall (06:34):

And that's where a modern tech stack sort of comes in, because we all know that given the legacy sort of pain that goes on in banking and banking architecture, it's really difficult to make new features really quickly because sometimes, you're on a core that's 30, 40 years old, your digital banking platform could be 20, 30 years old at this point. I mean, there are a lot of people out there claiming to be a modern digital banking platform, but their code's 25 years old now, it's pretty impressive.

Jeffery Kendall (07:03):

But if you want to say, come up with, "Hey, we have an idea of how we could help say the truck driving industry or the attorney industry, or physician offices" – if you need to be able to identify something you could do to help, you need to be able to quickly build it. And that's where having a modern core and a modern digital front end can really accelerate the ability to just take advantage of that opportunity.

Jim Marous (07:25):

So, give us a couple examples of your clients that have built very specialized vertical offerings that in a way, go beyond personalization because it's really focusing on the consumer's needs as opposed to just the consumer's place in their journey.

Jeffery Kendall (07:44):

Yeah, there's a really simple example, and hook doesn't have to be incredibly complex. It can be it just has to solve a problem. It's just like find those irritants and fix them. And a great example of that is one of my favorite brands that we've helped bring to market is Roger Bank, and it's sponsored by Citizens Bank of Edmond and Jill Castilla, whom we all know and love.

Jeffery Kendall (08:08):

And she had this vision of being able to solve a problem for newly enrolled military members. And that problem was, it was difficult to get a banking account, especially if you're under 18. It was difficult to get payroll set up so that your direct deposit came to your debit account, and there were other fraud controls and things like that that just weren't convenient and weren't sort of tailored to that.

Jeffery Kendall (08:32):

So, when we launched Roger Bank, we incorporated features that were very specifically there to help that community fix a problem, for example, since Bank of Edmond has actually trademarked, copyrighted the process for an individual military member to get their direct deposit form from the government set up in a very, very easy, direct way to the bank.

Jeffery Kendall (08:55):

So, again, it's a tiny thing, but it's an important thing. And that's where when you start paying attention to these vertical segments or these niches understand their problem, then you can help them.

Jeffery Kendall (09:06):

And that's where, where I think most people are sort of struggling, is they don't really know enough about a particular industry to understand where the pain point is to be able to help. Well, that's the hard work you got to put in and invest in to be able to serve those markets.

Jim Marous (09:21):

So, how does a financial institution look within their customer base or look within their financial institution to, say, "Here's an opportunity for us." I mean, I understand you have clients of all sizes, but you also have all kinds of different focuses, vertical focuses that these organizations have done. How does an organization look within their base or within their marketplace to figure out, "Geez, what's a vertical group that we should be looking at?"

Jeffery Kendall (09:55):

Well, it's funny, I always tell people when they're asking about sort of where are the opportunities lying? And I say, "First off, be true to thyself." This is the number one thing, which is you already have a vertical.

Jeffery Kendall (10:06):

If you're a community bank, I guarantee you if you look at your customer base, you're going to see a segment that you already serve, that you're like, "Why is it that doctors in our town would really like to bank with us versus someone else? Or why is it that school teachers like to bank with us?"

Jeffery Kendall (10:22):

Start with kind of like the, "Hey, we kind of have something here," understand why that's interesting. And then decide like, "Is this something that we can continue to scale in our community? Is it something that we can scale to maybe state or even nationally or internationally?" And that's the first part that we start with.

Jeffery Kendall (10:41):

And then as we look at like maybe, "Hey, these are three or four ideas, we do it, we help people do it, people do it on their own,” it’s really do the market research. Understand, like, "Okay, what's the TAM, what's the available market of these people? Is there a big enough problem here to be solved?" Validate it with data as the backup and that's available.

Jeffery Kendall (11:04):

Public data, there just might be other paid for data, et cetera, but it's so critical to make sure that you've got that right. Because if you don't have a big enough TAM, you're going to really have an expensive cost of acquisition model, which is going to kill any idea of profitability for you, which is obviously what we want to get to.

Jim Marous (11:20):

It's interesting because in my mind, I'm thinking credit unions almost have an advantage here. Because almost every credit union’s built around a certain core in the beginning of their time. They've expanded since then but maybe it's an educational organization, maybe it's a specific corporation, maybe it's a huge corporation, their marketplace that they were the credit union for that, and they've expanded beyond that.

Jim Marous (11:47):

But what's interesting is when they look at that core, what was their legacy? And when they look at that vertical, that gives them the ability also to go beyond their geographic domain to get new customers in areas that they would've never been able to go to before. You serve that group better.

Jim Marous (12:07):

And I think there’s a lot of groups. I mean, I look at myself, a small business person, and I have so many individual problems that my financial institution didn't have an idea about. And then it gets to the point of asking the questions as to what are those problems.

Jim Marous (12:23):

But as you said with your example of Citizens Bank that what they had to do is reconstruct and rethink some ways they solve some of the old problems but that took, again, a more modernized core.

Jim Marous (12:38):

So, when you get to that point and you say you have to build something differently, why is it so important then to look within your organization to find out how you rebuild something rather than just continually adjusting the old core to try to fit the model you're trying to do?

Jeffery Kendall (12:58):

Yeah, no, that's a great question. And I think there is a narrative in the market that wants to minimize the importance or the role of core in banking, and I understand why that reaction is there. Cores have been really notoriously expensive, difficult, career-limiting like all sorts of things.

Jeffery Kendall (13:17):

The first thing when I actually started leading NYMBUS, I told my wife, I said, "The good news is I got my first CEO job, the bad news is it's selling a product that people are very hesitant to buy and sort of don't want to go through the pain.” But when you really look deeply about what a modern core can do for you in terms of really getting fine market data and focused data to be able to help you solve these segments, what we see are kind of some key things.

Jeffery Kendall (13:44):

Modern cores, if you're talking about a modern core, you should be talking about something that is event-driven from its very basic bare bones of an architecture. Well, why is that important? Event-driven means that when I do X, I can have the system do Z.

Jeffery Kendall (14:00):

And that's important because you think about features and functionality that are very common with some of the big tech players that we know like Amex. When I get a suspected fraud on my Amex card, I get a text message immediately, and I can hit one to confirm that I actually made the transaction.

Jeffery Kendall (14:18):

Okay, all of that has to have an event driven architecture behind it to be able to make that real time interaction between the channel work. And most cores that are legacy for community banks and regional banks aren't event-driven. So, you have to really do a lot of workarounds, a lot of really hard work to try to emulate that kind of key functionality that's required for these experiences.

Jeffery Kendall (14:40):

And that's where having a modern lightweight core can accelerate your ability to innovate and get to market, get to these segments faster than, say, trying to just build a new digital experience on top of your legacy core and disrupt everything that you're doing. So, that's one of the big reasons we advocate for separate architectures when you're trying to go fast.

Jim Marous (15:01):

So, when you look at the core overall, you just mentioned a major fault or gap between what you need and what you have today. The other component of that is real time data access and avoiding all the silos that exist in the old core.

Jim Marous (15:19):

How important is that real time data access and the ability to distribute the data across an organization compared to a core that exists in the past? What differentiator does that give you in the marketplace?

Jeffery Kendall (15:36):

I'll give you a really great clear example. So, most modern cores, if you've been around them or most legacy cores, if you've been around them, you know that batch files rule the world. Which is every night at 11:00 PM, you pull a bunch of data, you put it in a CSV file, and you put it over on some shared drive and somebody picks it up. And if you've been around it, you know that it's slow, it's difficult, it often breaks. It's just not a reliable way of trading data, but that is the banking world that we live in.

Jeffery Kendall (16:06):

I mean, if you ask any banker, technologist, they're going to be like, "Yeah, we have thousands of nightly extracts and things like that that happen." But in a modern core, and again, we're one of the few cores that are out there that have built on a concept of immediate data replication via data streaming.

Jeffery Kendall (16:24):

So, data streaming is a fairly new method of integrating, it's probably 10, 15 years old in terms of its market acceptance. But when you send something in our core, in the NYMBUS core, we can push out that same data to any amount of systems real time.

Jeffery Kendall (16:43):

And so, you sort of eliminate that need to have these big batch file jobs at night, and the data can go right then. Well, this becomes important because if you're doing everything in batch and you got to wait 24 hours to send somebody a notification of fraud, well, you didn't really help them. You need to send that data right now that somebody's trying to commit fraud and there's something to be done, not wait 16 hours until the next batch file runs.

Jeffery Kendall (17:08):

That's a really clear example of just where these limitations are. And you think about these batch files and all the different systems consuming them, it becomes a real spaghetti mess of people trading files back and forth, and there are modern ways to do it better, and that's why you should be looking for the modern core.

Jim Marous (17:28):

So, when you're replacing a core, there's nothing that sounds more like nails on a blackboard than replacing a core. How do you see most organizations today modernizing their core to be able to build a vertical solution or be able to build a better personalized solution?

Jim Marous (17:46):

Are they doing it all at once? Are they ripping and replace? Are they doing components of it at once? Are they replicating across the board? And I'm not a tech person, so I may be even using the wrong terminology. But when you're working with organizations, what is the most likely way an organization's going to want to replace a core?

Jeffery Kendall (18:06):

I think that if you'd ask that question 10 years ago versus today, you'd get two totally different answers. But I think what's relevant today and what has happened is the cost of technology has come down so much that there's a viable option now of running multiple cores.

Jeffery Kendall (18:24):

So, it used to be sort of common wisdom that like you would be stupid to have more than one core, because you had to have your own data center, you had to have an army of people to support it. It was very expensive.

Jeffery Kendall (18:34):

Now that modern cores can be kind of spun up, like I can turn on an instance of our core in 10 minutes in Amazon and spin it up and there, it's ready to go, and there's no really expensive infrastructure and things behind it.

Jeffery Kendall (18:47):

Why that's super relevant in this piece of it is this allows people to do sort of A/B testing, if you will, or sidecar. You hear this term “sidecar core,” and the whole idea is that you want to keep the bank running and you don't want to put that at risk. So, you can have your legacy systems continue to run, but you want to start experimenting with different markets, with different features, with different products.

Jeffery Kendall (19:11):

If you have a sidecar core and a digital bank sort of structure, what we see with our customers is they will start there and start experimenting with what they think works better and make quick and rapid changes to the sidecar core, and then over time, migrate that same kind of feature or functionality over to the legacy thing.

Jeffery Kendall (19:30):

Eventually though, they'll say, "Well, we're just going to migrate to the entire, new modern stack as it is." And so, it gives this way of being able to test technology at an affordable price without having to go to the risk of saying, "We're going to put the whole bank at risk and swap overnight."

Jeffery Kendall (19:47):

So, we're going through a conversion process right now with one of our largest conversions to date. And they started out with sidecar core, and they ran that for a couple years and said, "Look, we've really believed in this technology, this makes sense."

Jeffery Kendall (20:02):

And then at that point they said, "Okay, now we're going to make the commitment to move the entire bank to the core." And that becomes kind of the journey as a sidecar, as step one, identify what the really key things are, you want to do with it, and then migrate over entirely to a modern core.

Jim Marous (20:18):

So, we've talked about the vertical option, and when you look at personalization, when you look at individual personalization, when you look at real time, event-driven communication and dialogue and actions as far as offering of services, what do you see the best financial institutions that you are working with doing?

Jim Marous (20:40):

Because from an outsider's point of view, I get so frustrated because I hear a lot of talk about personalization, about using AI to drive new, better engagements with the consumer, but the reality is it's not happening, I'm sorry. I'm working with two of the biggest, top five, top six banks in the country, and neither one seems to do a thing that feels to me like it's any more personal than it was 20 years ago.

Jim Marous (21:05):

What are organizations doing now, the best ones that you work with to make personalization a reality rather than just a talking point in an annual report?

Jeffery Kendall (21:16):

Yeah, that's great. And I think it's important you touched on this, it's like what do we mean by personalization, first off? Because I think that's the biggest question is-

Jim Marous (21:24):

Very good point. Yeah, we use it very loosely.

Jeffery Kendall (21:29):

Yeah. And if you were in 2005, personalization meant when I logged into a website, it said, "Good morning, Jeffery." That was the like, "Ooh, it knew my name. That was interesting." Of course.

Jim Marous (21:38):

Happy birthday, Jeffery. Yeah, exactly.

Jeffery Kendall (21:41):

Yeah, and that's pretty low value personalization when it just reflects back, "Oh, I know who you are." And I was sort of thinking about that as self-service banking and mobile banking, that was all there in terms of check your balance, move money, do those things. And that's where digital banking honestly has sort of remained for the past 15 years.

Jeffery Kendall (22:06):

I mean, are there really that many new groundbreaking features that you've seen in any digital banking app in the past five years? I haven't seen anything that was earth-shattering to me.

Jim Marous (22:17):

And in fact, I'm sorry, but I don't even see the basics. I'm using Acorns on an ongoing basis, and yet neither one of my major financial institutions I work with has any program to automatically build savings on my behalf. And I go, in my mind, that's like the old Christmas club.

Jim Marous (22:37):

This seems to be logical, seems to be something you could easily implement for me, and it would have resonance with me and would maybe even make me close a relationship that I built because nobody else did it. It's frustrating.

Jim Marous (22:50):

And it's basic, or having credit instantly available in my mobile platform where I can say, "Geez, I'm running on something, I'm going to tap this and get an immediate flow of funds into my account on a very short-term cashflow basis. These seem to be basic, but they're not existent right now.

Jeffery Kendall (23:10):

That's right. And I think too, so I'll give you two examples where I think it's like personalization that I have seen that wasn't directly from a bank per se, but it was tied into what we're talking here. One of my favorite FinTechs I've seen come out to market recently is Sequence, I think it's getsequence.io is the name of the website.

Jeffery Kendall (23:32):

And the value proposition of Sequence is very simple. It's a rules engine for your money. This maybe the easiest way that I can explain it, and it's not a bank and they're independent. But basically, what they've done is used open banking to be able to say, "If you connect your accounts through Sequence, you can set up rules and processes, procedures, triggers, events that are going to automate your money movement the way that you want it."

Jeffery Kendall (23:57):

Not just within one bank, but maybe I want to move this amount of money from this bank to another bank that they don't even know who each other are – Sequence kind of becomes that glue or that sort of connector between all those things.

Jeffery Kendall (24:09):

And I think it's really interesting for this reason; number one is when you think about true personalization, if I'm an end user and I go in and set up what I want my sequencing to do, what my logic I want on every Friday, move this amount of money from here to there, or if it's colder than 50 degrees outside, move a hundred dollars over here – what I've done is I've just now allowed the consumer to express their intent and what matters to them by looking at the rules they've designed for their money movement.

Jeffery Kendall (24:41):

And what an incredible way to understand the personal needs of that person. Because now, as a bank, if I'm looking at that sort of how they've architected their rules, I could get a lot of insights about what's important to them.

Jeffery Kendall (24:54):

I know that they're trying to not run out of cash over in this account, I know that this trigger does something to this person that makes it important to move money. And that's where you can start getting really interesting from a personalization because the customer has already told you what they want to do.

Jeffery Kendall (25:09):

They've told you more about themselves individually, and now, if you pay attention, that's the opportunity to sort of … exploit sounds bad, but take advantage of the fact that it's like, "Okay, now I can help you better because I understand you better."

Jim Marous (25:23):

So, it's interesting because it almost sounds like, and we've talked about this in a couple podcasts recently – when you talk about agentech banking or agentech personalization or dynamics around AI, who's going to own that agent dynamic?

Jim Marous (25:40):

Is the financial institution going to build sequence and intelligence where they're going to help me do my banking? Or as you've just brought up, and I was not familiar with Sequence, is that does a consumer build this on their own?

Jim Marous (25:53):

We talk about open banking quite a bit. I keep on kidding about the fact that I don't care if my financial institution does open banking or not anymore because I built my own open banking experience.

Jim Marous (26:02):

I have the solutions that I want right now, I have an investment company over here, I have my Acorns over here, I have my Robinhood and my SoFi over here. I have Ally for a consumer loan, and I built this myself and that’s because my financial institutions never listened.

Jim Marous (26:21):

PayPal probably does the best job of listening on the financial side for things I have, but Sequence almost seems like it's building an agent type relationship on my behalf that can make my financial institutions work better together. Which is an ongoing challenge because it's not just what's going on with my X, Y, Z financial relationship, it's what's going on with all my financial relationships that's so difficult.

Jeffery Kendall (26:48):

And that's exactly where … this is the challenge for community banks, which is they don't have the resources, money, talent, et cetera to build quickly, and to come up with solutions like this. So, there's sort of they're very, very dependent on suppliers, partners, software companies like ours, because they have to rely on, "Hey, I need you to help me build this thing. I don't want to hand build a Ferrari, I need a BMW off the lot."

Jeffery Kendall (27:15):

And sometimes, that means that you're going to go slower than those Ferraris. You might not win the race for three years, but you'll catch up eventually because it trickles down into the common availability. But what you're going to see are companies like Sequence and things like that, I think to start continuing to gain traction because they can move a little bit faster out there.

Jeffery Kendall (27:37):

Now, I'm not a believer in that banks and credit unions should be thinking about shuttering themselves because FinTechs are going to rule the world. I think that narrative is far, far behind us, and hopefully, for good.

Jeffery Kendall (27:53):

But over time, it matters and it's going to change the perspective of how your members and customers work with you. So, it's probably the biggest conversation Jim, I have with bank CEOs is, “Are you a builder or a buyer?” And if you understand who you are, that'll really tell you who you need to work with and they might be different.

Jim Marous (28:11):

We've seen it just in the time we've known each other, the ability to find independent in individual solutions to solve your problems has never been easier. I've referenced seeing you in the audience as I was doing a podcast with Michigan State University Credit Union and Federal Credit Union, realizing that we saw a number of their partners in the audience sitting together, yourself included.

Jim Marous (28:41):

And they're all working together to say, "Together, we're going to build a better financial institution where they're not going to have to build internally, but that through their partnership, they're going to have a better digital new account opening experience, they're going to have a better investment services experience, they're going to have a better lending platform because they have found the bits and bytes outside of their traditional core that's going to allow them to do this." And virtually, everybody works extraordinarily well together and knows how to integrate.

Jim Marous (29:14):

So, you're sitting in the same room as a competitor in a normal way of looking at things, but knowing that you work together, you know your piece of the pie, everybody's happy and you're making your financial institution partners stronger.

Jim Marous (29:27):

When we talk about the personalization, when we're talking about the flow of data, when we're talking about what we're doing with data on instantaneous basis, you referenced it already, you can't ignore security and compliance, and these are big time concerns because it's evolving every day. Every day we make a step forward, somebody on the opposite side makes a step forward.

Jim Marous (29:48):

How does your company approach data governance while still maintaining accessibility for the financial institution across the organization?

Jeffery Kendall (30:00):

That's a really great question and I think this is where a lot of tech companies sort of stub their toe, especially when they're early on in their journey, is that they don't have an appreciation for when you work in banking and you're in the space.

Jeffery Kendall (30:14):

Like compliance and regulatory are not something to ignore, not something to think about fifth on the list, this better be first on your list, and you better lead with why you're investing in this to make it right and good for your end clients.

Jeffery Kendall (30:29):

So, when I came to NYMBUS several years ago, that was an area for me I wanted to mature really, really quickly. So, I'm a big believer in when a lot of people avoid a problem, that probably means there's value in it, and if you lean in, you might be able to figure it out and that was exactly what I wanted to do with that.

Jeffery Kendall (30:46):

So, we leaned in and I said, "Look, I don't want to just be okay or good enough at this, I want to be great at this." I want people to look at us and be like, "No, if NYMBUS tells you something, it's going to be rock solid when it comes to approaching that.”

Jeffery Kendall (31:00):

So, that was the first piece, which is just establishing credibility with your clients and building that relationship, but also dedicating resources and hiring the right people to come in and say, "Look, even though this is sort of the housekeeping side of data and not the fun part that everybody likes to talk about, it's super important, super critical." So, now, that's one thing, you just have to have the mindset and the policies and the appetite to invest to do it.

Jeffery Kendall (31:27):

But the second is also, there are a lot of modern tools out there and approaches that will allow you to have better data governance than some of the solutions that you have in here. So, for example, when you have data streaming and some of these modern tools, there's a lot of technology components to these platforms that allow you to have observability or making sure that security rights and things like that apply to anybody accessing the data. Those are all really, really critical things.

Jeffery Kendall (31:55):

So, finding partners that align with … they believe that that's important, I think that's like the first thing that a banker should ask a partner: “Tell me your philosophy on this, tell me how you guys approach data governments.” And then finally, I think there's a new, I'll call it forefront to explore here, which is AI governance.

Jeffery Kendall (32:17):

I think this is probably one of the things that I'm most interested in seeing what's going to happen in the banking space over the next 10 years as people are just embedding AI sort of features or functions into their product and then rolling it out to the bank.

Jeffery Kendall (32:32):

I'm sure there's a lot of AI things that have been embedded in software that maybe the procurement teams and the risk management teams don't know in banks that now they have AI and LLMs running in their software, in their houses, and that's a little terrifying.

Jim Marous (32:47):

Yeah. You got to peel back layers and unfortunately, you don't find out that those are embedded until something goes wrong.

Jeffery Kendall (32:55):

That's right. That's a hundred percent right.

Jim Marous (32:57):

So, let's take a short break here and recognize the sponsors of this podcast.

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Jim Marous (33:04):

Welcome back to Banking Transformed. I'm joined today by Jeffery Kendall, Chairman and CEO of NYMBUS. We've been discussing how financial institutions must evolve their core banking and data strategies as well as their priorities for 2025.

Jim Marous (33:19):

So, Jeffery, we mentioned it a little bit before the break, the concept of open banking, and obviously, it continues to gain more and more traction in another one of these things that depends on how you define it. But how does your platform API-first approach prepare banks for an open banking future?

Jeffery Kendall (33:41):

I think it comes down to this, number one, I love and hate the term API because it's so easy to throw around, but a lot of non-technology people will be like, "Oh, it must be easy to integrate because there's an API."

Jeffery Kendall (33:55):

So, one of the big myths in banking is when a vendor says, “We have APIs,” that somehow, it's going to magically be easy to connect to everything, and nothing could be further from the truth. It's like, “No, you have the elements here,” but there's a lot to build around it to make it work right and to make it work securely.

Jeffery Kendall (34:11):

And so, I think that there's a lot of vendor created noise, if you will, around the importance of APIs that is very surface level. I think one of the things that does make it sort of easy though is that modern platforms like ours are generally built so they're more modular. They're not monolithic, and they're not sort of self-contained.

Jeffery Kendall (34:33):

So, for example, our core was built from scratch off of everything with APIs. Our developers use the same APIs that are available to end customers, to be able to extend and build and manipulate the product. That is a huge advantage when you can just build from the ground up with modern technology.

Jeffery Kendall (34:52):

But I think the biggest things that people have to look when they're doing APIs is just saying like, "What is the appropriate use case? And what are the technology adapters that are going to allow you to get data in and out?"

Jeffery Kendall (35:02):

And the one thing I think that I am excited about for open banking, you look at companies like Plaid, Finicity, MX, et cetera, one thing that they've done that I don't know if they intentionally set out to do it or not, is they've actually simplified not just the get data from this bank to this bank, they've actually simplified the access for non-bank software to access banking software.

Jeffery Kendall (35:26):

So, for example, NetSuite, which is probably one of the biggest ERP accounting systems that are out there for tech companies, they have built in adapters that leverage things like Envestnet Yodlee to be able to connect to your bank account and get data into NetSuite. Well, without the aggregators sort of existing in this world, that wouldn't have happened the way that it did and made it easy to do that.

Jeffery Kendall (35:54):

So, I think there's this really exciting thing about open banking. People, I think the first thought is about how do I move money from one bank account to the other? Now I think it's about how do I move it into like my business systems, my other systems of productivity, how I run my business, I think that's the power there, but that’s where I think it’s going now.

Jeffery Kendall (36:15):

Now, I'm not a politician and I'm not a political animal, but I feel like the CFPB 1033 ruling might get some revisions or maybe lose some of the teeth in it with the new administration. But that's another lens that I think we all need to be looking at, is what's the regulatory and legal system going to enforce there?

Jim Marous (36:36):

Well, yeah, there's a podcast by itself just looking at the fact that our regulatory systems still are driven by the oldest bankers in the industry, therefore, they're usually behind the curve. And the gap, certainly in the open banking space between the UK and the United States is getting more and more massive every day.

Jim Marous (36:54):

And it puts us at a disadvantage because right now, I still believe that the term or the concept of woven banking is having to be driven by the consumer themselves to find the solutions that can get them to where they want to go as opposed to their financial institution really offering those solutions for them, but it's the risk adverse nature of the banking industry.

Jim Marous (37:16):

So, every time you look at a great solution, you say, "Well, but you're putting your neck a little bit out there either from a standpoint of risk or regulation." It hasn't been regulated yet, so I don't want to do it. And we can go right into this next topic because it's the whole concept that is in everybody's conference, everybody's podcast where everything else is AI and generative AI.

Jim Marous (37:39):

Many banks talk about being interested in AI and generative AI and machine learning and large models and all this, and the reality is it's a whole lot more talk than it is action. I think the AI and use of AI is being used most in the risk and fraud areas which has been for decades actually.

Jim Marous (38:01):

And that's great, but when you start looking at it from the perspective of personalized, real-time solutions, solving for what I need when I need it, we really get into a whole complex world and a dynamic of risk and reward where yeah, it may sound good to have you come out and tell me, "Hey, this would be a good service for you," but does a financial institution feel like they have a risk in putting their neck out there?

Jim Marous (38:28):

And they may be wrong, which I believe Amazon does that every day with me, Uber does that every day with me. They don't worry about every once in a while, they're going to miss mark, but I think it's a trust issue.

Jim Marous (38:41):

So, how should financial institutions be when they're looking at a data-enabled core banking solution, be looking at AI, generative AI, large learning model, things of this nature as they move forward?

Jeffery Kendall (38:57):

Yeah, no, it's such a great question and I think you've kind of nailed one of the things I feel really, really passionately about with AI, which is in banking, if you decide whether or not you're going to use AI in a particular feature or capability, the first thing you need to ask is, “Is precision required?”

Jeffery Kendall (39:14):

If precision is required, it's not a good approach. If it's, hey, good enough, if it's horseshoes and hand grenades, then there's probably some value there. And I think one of the things that we see people sort of leaning towards is when you start talking about AI and gen AI, I think we tend to think about big, big things.

Jeffery Kendall (39:36):

But what I kind of see is that the use of AI in an assisted way is probably the first way that you can get productivity out of leveraging AI for your end customer. So, it's not telling the customer, for example, "What's the next best action or next best product?" It's telling digital service agents or your staff members what Jeffery's next best action might be, using AI to suggest it but not deliver it if it's not going to be sort of validated or that a professional will be able to sort of understand it. So, I think that's a big one where we can see that lift.

Jeffery Kendall (40:12):

The other thing that we're using it for honestly, is being able to more rapidly do things like write reports or understand a data model. So, we have a massive data model as you can appreciate in our core with literally hundreds of thousands of fields and relational tables and everything, and it takes more than a mere mortal to understand it and get in and start using it.

Jeffery Kendall (40:36):

We've started doing things like leveraging AI to take natural language requests and converting them into queries that are tailored to our database. So, it's not writing new data or giving us inaccurate data, it's sort of saying, "Here's the right way to ask the question and I'll query the data and bring it back to you, and you do the analysis." So, I think that's another way that people are going to get value out of it.

Jim Marous (40:58):

And it sounds easy. Heck, I've not been in the banking side of the industry for quite some time, but if a consumer, if you look at flow of funds, you can learn a lot about how a consumer manages their finances, and I think it is surprising to me how few organizations look at flow of funds.

Jim Marous (41:17):

The fact that I transfer money twice a month from my business account to my personal account should be a sign to one or either of the banks that I transferred among that says, "We got to make this easier for them. And why is he doing this? Why is Jim moving maybe money from my business account to my personal or maybe from my personal to my investment services account?”

Jim Marous (41:39):

Maybe we can make this an automatic, and you can ask me that question without making it look like you're a big brother. You can also say, "Geez, the amount of funds in your X account are higher than you normally have it. Have you considered putting any of this into a high interest yielding financial institution instrument that we offer?"

Jim Marous (41:58):

These are basic things that’ll be able to take the credit bureau and look for hits when a person does a test drive of a car. You don't have to go out there and say, "Hey, we can finance cars," but you can also say, "We have new rates on cars, maybe this will be of interest to you," knowing full well that it is of interest to them.

Jim Marous (42:17):

You don't have to go way out on a limb to try to help a consumer, yet financial institutions in my mind, simply ignore those because of the risk of that one or two customers that say, "What are you doing?"

Jim Marous (42:32):

And I used to remember that in the teller world that if five branches complained about something I implemented on the marketing side, I didn't get worried about because I have 45 branches at that time I was running, and I go, "There's 40 of them that didn't say anything." So, it's not the biggest problem but we tend to react, overreact, I should say, to these type of things.

Jim Marous (42:52):

There's so much opportunity out there right now, Jeffery, and you've been in the banking world for quite some time. You continue to create solutions to make banking better, which is a key element of what I try to do on the podcast as well.

Jim Marous (43:05):

But as you look in the future, short-term, midterm, either one, how do you see banking evolving in a way that really your organization is helping financial institution prepare for? What are you excited about?

Jeffery Kendall (43:21):

I think the biggest thing that I see is, I love the fact that about technology is that there's this natural progression of being able … the cost comes down. When something new comes out that's great and powerful, the very first one is always super expensive, but then the next 10 years gets more accessible and more affordable.

Jeffery Kendall (43:40):

And I think what we're seeing right now is such a rapid amount of technology coming out, and at the same time, it's also getting more affordable and easier to put into place. Whereas 5, 10 years ago, you still had to do a lot of heavy lifting to bring some of the solutions together.

Jeffery Kendall (43:55):

And it's still that way today, but I think in another 5 to 10 years, you're going to see more just auto magic type integration versus I got to go pay a hundred thousand dollars to have a systems integrator wire these two systems up. I think that's going to be the power is going to be more predictable cost of technology and leveraging it to be able to serve the business. That's it, full stop.

Jeffery Kendall (44:19):

And I think if community banks and regional banks figure out the courage to say, "We can't try to fight the fight with the big banks on the playing field that they're on," then they'll have a chance of success, but a lot of them are stuck in that mindset still.

Jeffery Kendall (44:35):

A lot of them are in the just like, "Hey, I got six years left to go, as the CEO of this bank, I just want to get through it." And then growth will be someone else's problem after I retire. And unfortunately, it's still pretty prevalent in the market, but I think that the next generation of bankers, the next generation of technology is super bright and super powerful, so excited for that.

Jim Marous (44:57):

I love the same thing, the fact that any size of organization can today do what the biggest organizations do. They can't do it the same way but the reality is not only can you find the partners that can get you over the finish line, but as I mentioned earlier, you also have partners that work with other partners and have vetted each other to the point where when Silicon Valley Bank happened and everybody's worried to death about, "Geez, how many other FinTech firms are going to fail?"

Jim Marous (45:26):

The reality is in the banking world, number one, the government protected some of them so they didn't fail. I mean, the reality is they made it so that nobody had to wake up in the morning and say, "Geez, my big finance institution I thought had everything figured out isn't failing because of this underlying organization they worked with." But the reality is you all were vetting each other.

Jim Marous (45:51):

So, I wasn't just partnering with you, I was partnering with you who had been vetted by this other firm, or I partnered with somebody that you support because you've worked with them in the past, but they've been vetted, so I don’t have to do all the vetting process the same way I used to have to do from the beginning to end.

Jim Marous (46:07):

And I look at the community banks right now, and some of them are just fantastic. I'm a big fan of Michigan State University and Federal Credit Union, the way they build so many things without building, they invest in them. I mean, they go a step further, they invest in these companies and that mindset. And you look at Locality Bank, they built from scratch and have served a small business community in Florida.

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Jim Marous (46:31):

And you look at so many of your clients and other clients that have built because they didn't have to build it all themselves. They didn’t build a new bank, they just had to build a new platform that brought these elements together and they're not too expensive, they work well together, their partners are not going after each other's throat, and it provides great opportunity.

Jim Marous (46:51):

Jeffery, it is always a pleasure to talk to you and catch up. I really appreciate you being on the podcast today.

Jeffery Kendall (46:58):

Jim, thanks so much. Yeah, it's always great to talk to you. I always learn a lot from you and so I appreciate it. Thank you so much.

Jim Marous (47:08):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's interview, please take some time to give our show a five-star rating. Also, be sure to catch my recent articles on The Financial Brand and check out the research we're doing at the Digital Banking Report.

Jim Marous (47:27):

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

Jim Marous (47:37):

I'm your host, Jim Marous. Until next time remember, success in banking will not be determined by the size of your organization, but by how responsive your solutions are to the consumer's financial needs.