Podcast 346: Gabe Krajicek of Kasasa

We have seen this stat so many times. If you add up all the community banks and credit unions in the United States their scale would make them a top-five bank. Sure, but that really doesn’t make much sense because all these community institutions are separate companies. But what if you could combine some of the marketing and product offerings and streamline it across hundreds or even thousands of institutions? Then you might see some real advantages.

Our next guest on the Fintech One-on-One podcast is Gabe Krajicek, the CEO of Kasasa. This is exactly what Kasasa is doing. By providing a unified product and marketing program community banks and credit unions can take advantage of their collective scale and have offerings to compete with even the largest of the megabanks.

In this podcast you will learn:

• How Gabe first got involved with Kasasa.
• Kasasa’s initial product and how it has evolved over time.
• The biggest challenges for community banks in 2022.
• How community banks can overcome these challenges.
• Details of their unique cooperative offering.
• Why the FDIC shut them down in 2014 and how they adapted.
• How they are rolling out now the FDIC has made a different determination.
• How their business model works.
• Details of their product quite today.
• Why banks have switched to Kasasa’s checking accounts.
• How the intelligence and research is the key to Kasasa’s success.
• What a “take-back” loan is and how it works.
• How they approach culture at Kasasa.
• Gabe’s perspective on the future of community banking.

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Download a PDF of the Transcription or Read it Below

Welcome to the Fintech One-on-One Podcast, Episode No. 346. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.

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Before we get started, I want to talk about the 10th Annual LendIt Fintech USA event. We are so excited to be back in the financial capital of the world, New York City, in person on May 25th and 26th. It feels like fintech is on fire right now with so much change happening and we’ll be distilling all that for you at New York’s biggest fintech event of the year. We have our best line-up of keynote speakers ever with leaders from many of the most successful fintechs and incumbent banks. This is shaping up to be our biggest event ever as sponsorship support is off the charts. You know, you need to be there so find out more and register at lendit.com.

Peter Renton: Today on the show, I’m delighted to welcome Gabe Krajicek, he is the CEO of Kasasa. Now, Kasasa’s super interesting, they’re focused on helping community banks and credit unions compete in this digital world and they have a pretty unique set of offerings. They have saving accounts, checking accounts, rewards programs, unique lending products which we get into all those in some depth, but really what sets them apart is the intelligence that they actually provide to community banks and credit unions to help them compete, to help them know what’s going to work and they can help them grow their deposit base, grow their loan book, whatever it is that the community bank needs, Kasasa has a program for them. 

So, we talk about all the different ways they do that, we talk about the challenges that community banks have and Gabe ends with really why he’s actually not that optimistic for the traditional community bank model, the future of that model and why community banks need to really be able to have cutting edge technology and cutting edge advice and intelligence to compete in the future. It was a fascinating episode, hope you enjoy the show.

Welcome to the podcast, Gabe!

Gabe Krajicek: Glad to be here.

Peter: Okay. So, let’s get started by giving the listeners a little bit of background. I know you’ve been at Kasasa for a long time, but why don’t you tell us a little bit of what you did before that and how you got involved.

Gabe: Prior to Kasasa, I was CEO of a company called Dealerskins and we were a website development company for about 1,200 car dealerships and we were doing content management stuff before CMS which I know S doesn’t stand for Stuff (Peter laughs). We were doing that before CMS was an acronym.

Peter: Okay. You weren’t there on the actual founding, but tell us a little bit about sort of how you got involved with Kasasa.

Gabe: Well, I knew Dan Schaefer and Stan Guido who were some of the founders and they told me what they were up to and asked if I could join, I was still at Dealerskins and was at that finish line to bring that company to conclusion. So, I worked with them at night, helped write the business plan and then we sold Dealerskins those investors became some of the seed capital to get what was then called Bancvue before we changed our name to Kasasa, get that company off the ground and I joined in October of 2005 so I’ve been here for about 17 years.

Peter: That’s quite a journey. So, tell us a little bit about what was the initial idea and then how’s that sort of evolved over time.

Gabe: It’s definitely been an evolution. We started off with a really simple product called Reward Checking, we had a very, very talented developer, a guy named Paul Barton, he had built this system to power Reward Checking, it took four/five months to build it. He was one guy, but this system allowed us to go into community banks and help them offer a checking account that would pay a high rate of interest if the checking account holder met certain monthly minimum activity criteria so like if you used your debit card ten times, take any statement, log into online banking, if you do that you earn a high rate of interest. If you don’t do that, you have free checking and the FIs that used it were incredibly profitable, they opened tons of accounts. This was at a time when every institution desperately needed deposits and we had created a very, very low cost way for financial institutions to grow deposits and simultaneously grow non-interest fixed income. 

What we knew as a business was that we had one developer and he had built that system and obviously, other people have one developer and they could build that system and we were charging quite a bit for it as it was so profitable, we knew price compression was going to be inevitable. And so, we, as a company, kind of shifted our thinking away from saying we were going to be a technology company, although at the root of everything we do it’s obviously technology. But, it was really more about being able to go to community financial institutions and say, have you ever had a product failure before and they say, yes, I’ve had a product failure and I say, well, was it because the electrons didn’t do what electrons were supposed to do or was it because people didn’t do what they were supposed to do.

It’s a cheesy sales line, but the point is that there’s a lot of things that can go wrong with a new product launch besides did the software work and so we became obsessed with the top to bottom, end-to-end success of enabling our products, kind of like the mega banks’ product department that you kind of get a time share in. We’ll go in and figure out who’s the target consumer, what’s the right marketing materials that would go to that, how do you train the frontline staff, should there be incentives, what compliance considerations should there be, you know, the full marketing campaign journey for the consumer and then power the product as well. 

Peter: You’ve obviously been working closely with community banks for a long time, what do you see like today, 2022, what are the big challenges? What are community banks saying that they struggle with the most right now?

Gabe: They’re facing the critical point of something that we’ve been saying they’re going to face for every decade. It’s what made us create Kasasa in the first place, the actual brand name Kasasa. We did some research in 2008 and we’ve refreshed the research, it’s still almost exactly the same. If you ask the average American, you can ask the question in many different ways, who takes your best interest to heart, who’s the good guy, who’s the bad guy, who do you think provides better service, things like that. It’s almost always a two thirds/one third tilt for community banks and credit unions as the two thirds, that’s the good guys, and then a third of the people really like mega institutions and that’s not to say that megas are bad, but there’s the kind of like everybody’s seen It’s a Wonderful Life, they all kind of get that like it’s local, it yield good.

Those are the good guys, they’re like trying to make small business loans and give school teachers credit cards and cars that they can drive to work, I mean, America kind of gets that. What’s interesting is despite the fact that they would like to bank there, that’s what the data says, you know, the market share clearly indicates that’s not what’s happening. It’s kind of amazing, if you zoom back just to the mid-90s, it’s like Bill Clinton there, community banks and credit unions were up in the 80% market share range in share of total deposits. Today, that’s dwindled, you know, to full reversal and 80/20 split, now they’re 20%. And so, to have that market share drift occur at the same time the consumers were saying, you know, all in all, I’d rather bank wealthily, it was interesting to us that they didn’t and this is the plight of the community FI. 

Two things live in the consumers’ brain that are “un-pryoutable,” at least in our thinking and that is that one, if you ask a consumer, who do you think’s going to have a good technology, the mega bank or the community FI. It’s overwhelming, I think the mega bank is going to have the better set-up, I think it’s kind of a better digital banking experience, a better mobile banking experience. We actually did a really interesting study where we looked at how recently a new technology feature had been introduced and how likely a consumer thought that a mega bank would have it more than a local institution. What was interesting is like it started off with online banking where people were like I think it’s 10% higher probability that a mega bank’s going to have that and it’s going to be better than a community FI. 

When it gets to the newer things, like with a mobile it’s about 30%, when you go up to like Photo Bill Pay it’s like 100% more likely to go find that at a mega bank, no community FI is going to have. So, there’s this overarching perception of kind of like look, I know how the world works, they’ve got billions of dollars, these local guys have, you know, not that and I don’t think that they’re going to be able to build something like what I saw on TV last night whenever Chase was running their ad or whoever is running their TV commercial and YouTube pre-roll. I think that’s one thing is that the consumers don’t believe that the community FIs have it, it’s not just don’t believe they have it, it’s don’t believe they can have it which is why so many FIs that have done their diligence and bought the right products from all the great vendors that are in the space and shout out to all my peers out there, there are people doing great work to help community FIs match toe-to-toe those digital banking experiences. But, there’s still this pre-conceived notion in the consumer’s brain that that’s not how it works and it takes a lot to get them to change that. 

The other challenge that community FIs face and this is best illustrated from a focus group we did in Austin, Texas a few years back and there was a bunch of stuff that we were studying, but one of the questions was, can you name a local institution? In two days of asking that question to I think about 100 people, we didn’t get a single community bank name, we did get about four credit union names and it was the same four that came up, it was the ones that advertised a lot. But, it was just amazing that like the average consumer couldn’t name one, but they knew they existed, but they had no instant recognition. 

I know that Austin’s a little bit more of a metro, it’s not representative of every community and there are certainly community FIs that have done a great job getting their brand out there, but when you look at it as a rule of averages of 6,000,7,000,8,000 kind of more meaningful size to community institutions out there, the average consumer doesn’t know who they are. So, if they don’t believe that they have the products and they don’t know who they are, they’re not in the consideration set. And so, you know, when you look at where new accounts get opened, it’s overwhelmingly at the megas and now the fintechs, they can have amazing stuff.

Peter: Right, right. So then, how are you changing that, it sounds like an almost insurmountable challenge.

Gabe: Why am I so happy to work if it’s such that bad (both laugh). The reason why is it’s why we created Kasasa in the first place way back in 2009 when we created that brand name and I’ll tell you the story and I’ll tell you what went wrong in our business progression and what we’ve done to recover. It’s really an interesting story, we were so close to gold and lost it. In 2009, we launched the Kasasa brand and it was based on that research that I just told you. Well, obviously, consumers want to bank there, they don’t think that technology’s any good, well, we can fix that, like we’re thinking we as company can fix that, just make sure that they use good stuff and use our stuff and they don’t have the ability to get the marketing voice out there. 

Well, up until 2009, Bancvue had allowed every institution that licensed Reward Checking or the other checking account variants that we created, they would name it whatever they wanted to name it so yours might be Super Peter’s Checking and mine would be Super Gabe’s Checking and somebody else has whatever they have. Collectively, our clients were spending, in 2008/2009, $50 Million advertising their individual names for all of the products that we powered and I was sitting back there as a CEO looking at it frustrated. I’m like how can they be spending $50 Million, I add up all their branches, it’s like the seventh largest branch network in the country if they were a single bank, you’ve got a massive retail network. You’ve got a $50 Million ad budget which in 2008 was a lot more than it is today, still not a huge national budget, but something that you think like you’d be creating some noise out there, but we just weren’t creating noise. It was because every individual institution, you know, that $50 Million was subdivided into $200,000 budgets that were shouting against other $200,000 budgets, they were all being drowned out by the mega banks and everybody else. 

And so, we got the idea what if they all call it the same thing and before we start scratching our brain why would any FI do that. Well, the one reason that we knew they would be excited about it was they were seeing way back then the writing on the wall that it was going to end up exactly the way that it ended up. The online banks, we didn’t call them fintechs back then like Ally Bank and kind of the old school first round fintechs, those online banks were growing, the mega banks were dominating in digital and the community FIs knew that this was a marketplace that they were not going to be able to win in. And so, we would go to them as Kasasa and say, we’re going to have kasasa.com, we’re a consumer can put in their zip code and we’ll match them to all of our institutions across the country so we’ll be able to shout with a loud marketing voice and we were basically kind of creating a cooperative where the community FIs would give us marketing dollars. We would deploy those marketing dollars, drive traffic into their branches, but also drive a ton of traffic to kasasa.com and then consumers would put in their zip code and find themselves in a local institution with a Kasasa account. 

And we were doing neat stuff like right before 2014 when the FDIC shut us down and I’ll get to that in a minute, we did a deal where we did a national gas station takeover and I think it was like 80 markets across the country where community banks and credit unions were running Kasasa tapes, going over the local gas stations and buying gas for the first 100 or so people that would come in creating traffic jams in all the cities across the country. That created news and that got us on to national news at night where one of our clients was willing to speak with Neil Cavuto about community banks taking back their competitive place in America and you’d see tons of account holders coming out of that kasasa.com channel every time we would get those kind of PR events and things like that so we were kind of viewing ourselves then as a nascent multi-tenet neobank. 

Well, fast forward to 2014, the FDIC made a determination that the way we were operating with that website classified us as a deposit broker. Respect the FDIC immensely and I did disagree with their opinion on that one and so did everything that we could to find different avenues to allow ourselves to get back in into having our flagship property. That was seven years of legal fights, meetings with senators and congressmen and every single agency with an acronym that we thought could be useful to try to make the case that we were out there trying to help community FIs have a viable way of competing to be in the consideration set for the overwhelming majority of consumers that were choosing the digital channel. When you think about 6,000,7,000, 8,000 how many would it be, little bitty like neobanks sprouting up from community FIs, the vision of that being like the new marketplace, like where all of the community FIs have to compete individually in this new digital marketplace.

I see that as a very challenging competitive approach, but if we could take their collective scale and make Kasasa, you know, be a thing that people would notice and everything about our program is designed to drive the consumer to their primary financial institution, not us, we are not the institution, we’re just the product and the marketing machine. If we could create that outcome then we will be giving community FIs a really much more powerful way that they could fight back. 

And so, fast forward to end of 2020, the beginning of 2021, and we’re executing on that change now, the FDIC made a different determination about what constituted a deposit broker and under the new rules what I just described would not be deposit broker so that allows us to put our flagship website back up. That’s going to happen in a few months, this year and what’s really exciting is we’ve added lending since the last time that we were really in a correct consumer kind of posture and so we’re going to be able to support our community FIs by getting consumers that, you know, need lending products as well as deposit products.

Peter: Right, right. It’s interesting, when I was doing research and you Google Kasasa, obviously the first page is mainly about you guys and different places to find out more about you, but once you go to page 2, 3 or 4 on Google, it’s all still these credit unions and banks with the Kasasa brand. It seems like it’s still very much out there as far as…your checking account still got the Kasasa brand.

Gabe: Oh, yeah. Just because we lost our website for seven years didn’t mean we went away. We, as a company, shifted all of our investments, we weren’t able to do national gas station takeovers and things that (Peter laughs), instead, we went into a big, massive software development effort to upgrade all of our technology now completely in AWS, it is on cloud and also putting a lot of investment into our data warehouse and really fancy pants omni channel martech stock that can run off of that data. The idea that we were doing there is like the branded idea of Kasasa was using Kasasa to kind of harness the scale that these community FIs naturally had, but didn’t have a way to organize it so it kind of harnessed that scale on a brand sense. 

The same metaphor is true from a data perspective, we currently pulled out 37 million accounts and all their transactional activity every night whenever we pull our data from our clients, we put that into our data warehouse and that also allows us to be able to run marketing in a way that we can kind of simulate mega banks scale in our AB testing because every FI is calling their product Kasasa and that means we’re using a common marketing set. You can start testing Kasasa marketing messages across bigger pools of consumers or, you know, different test pools of consumers across multiple institutions and be able to end up with better performing marketing and it’s a result of being able to do that kind of AB testing to get your market performing better, but it would be tough if you were a single institution with a very small base.

Peter: Right, got it. So then, are you like a SaaS company now, what’s the business model?

Gabe: I guess it’s Saas, I think that’s probably the right word to use, I mean, it’s a recurring monthly revenue model. A community FI would sign up with us, they would pay a monthly fee on a per account basis so we win when they have a lot of our accounts basically.

Peter: Right. So, let’s just dig into the different offerings you have. I mean, you go to your website and you see you’ve got checking, savings, rewards, can you just go through what you’re offering community banks today?

Gabe: On the checking side, we’ve got Kasasa Cash which is a very high yield checking account, base interest rates 2.5 or 3 are pretty common, with free ATMs nationwide. We also have Kasasa Cash Back which is a cash back account, we have Kasasa Tunes which gives credits at iTunes, Amazon Prime and Google Play, we have Kasasa Play in each which provides credits at grocery stores and online video game kind of rewards and we’ve got the Saver account which is a savings account that is also high yield, but the high yield on that account is only activated if the consumer is active in their checking account. So, it’s a way for a community FI to not end up paying a lot of money to single deposit relationships that don’t use them as a primary institution and so it’s relatively straightforward stuff. 

I don’t think that the magic in our offering is that we have the best rewards, you know, that are unique to some other people’s rewards. Cash Back is effective and it works and credits at Amazon, everybody’s on Amazon, they like it. The magic that we know how to do is with $20 Billion in deposits across all of our clients and all of the different product designs that all of them have and all of the different strategic objectives that all of them have like some institutions like to grow deposits, some institutions want to grow non-interest income, some want to get younger consumers and we’ve been able to look at what are the different marketing methods and product design criteria when combined can achieve those goals. 

When an FI’s thinking about running a program, we can say well, let’s see how that worked before for the 20 or 30 other FIs we have in the database that are on the same program and we’ll see if that’s going to give you an outcome that you’re going to like. So, there’s a lot of analysis and help with our clients because we might end up powering a material fraction of their balance sheet, you know. I mean, you want to make sure that everything is priced correctly, that you’re not paying too much for rewards and optimizing all of that along with the marketing and consumer engagement component is what we do.

Peter: And all community banks pretty much everywhere have a deposit account might have some sort of lending operation, but do you come in and they say, right, we still have our deposit account, but we want to add this new deposit account and so they have two of them going side by side because obviously the existing deposit account where they’re probably paying like a very little or no interest and then you’ve got the higher interest one that are going to cost them more money, do they run both or how does it work?

Gabe: Well, the Kasasa accounts are more profitable than traditional free checking accounts and that’s part of the design. The average free checking account uses the debit card 11 or 12 times a month. Our Kasasa accounts, depending on what the account is and the product design, you know, it’s low 30, 30 swipes to 40 swipes a month, with an institution $40 average purchase interchange rate comes out to about 31/32 cents per swipe on average. That’s a really massive difference in the non-interest income creation on a per account basis, especially when overdraft protection is going the way of the dodo. So, you know, what we do is try to dial-in what are the rewards that are in the money with the increases in consumer behaviors that we can anticipate. Knowing those answers, like, you know, for example, if you require someone to use their debit card ten times, will you get more or less swipes than if you ask them to use it 20 times. Surprisingly, I don’t know if 20 is the point where it flips, it’s right up around there where we’ve gone to the point where we ask for too much and we saw volumes drop. 

Well, that’s a nice thing to know if you’re trying to drive the maximum amount, where’s the sweet spot in what you ask someone to do versus their actual behavior because if you ask someone to swipe ten times what actually happens is it comes out the wallet card and they’ll swipe it for more than that, but if you ask them to swipe it 20 times they’ll think they can’t do it and they won’t even try. So, finding the sweet spots and knowing what works and knowing what works in different products in the different consumer segments, you know, like on our marketing side all the way down to if you’re a community institution and you say you want to grow by a certain number of accounts over the course of a year, we can say well, here are the 100,000 consumers in your market that are the highest propensity to move into the different accounts that you want.

We determine that those accounts are the types of accounts that drive the type of profit that is also connected to your strategic objective so we go all the way from type of consumer to product to strategic objective and then execute an omni channel marketing campaign where we can show a total attribution on every dollar spent, where that consumer comes in and we can then, you know, follow them down into behavioral performances and say yeah, they actually are generating the right amount of profit per account. So, based on all that, back to your question, will they use our product and maybe have their old free checking still on the line-up, ours becomes the flagship account and it’s the one that they’ll advertise and it’s the one that when people come in that’s the main one that they’re going to recommend. Sometimes somebody says, I refuse to use my debit card, I just don’t do it, okay, maybe you don’t want a Kasasa account that does hinge on that, maybe you want this regular old free checking.

Peter: Right, got it, okay. So, what you’re really providing the community banks is not just the feature set which, you know, let’s face it, it’s available from a lot of places, it’s the intelligence that goes behind like the marketing technology, the consumer behavior technology, the way that you kind of built it is you’ve tried this so many times that they want a certain outcome, you’ve got the research that can back it up and say this is how you get that outcome. Is that fair to say?

Gabe: It’s exactly right. One of the things I will tell an FI is, please notice all the things that we’re doing for you that we’re asking you to do that are not related to the software, you know, that we want to meet with your frontline team ideally once a week, at least once a month to talk about frontline training, best practices or side training. We want to check out all the compliance, we want to run all of these cross sell campaigns to get consumers to be engaged, we want to make sure that we have life cycle marketing campaigns that are related to keep people engaged and use their debit card, all of those type of things, having a consultant that can do kind of asset liability management analysis of their balance sheet relative to the cost of our funds, ask the FI, like we don’t charge for any of that, we did pay it on how many accounts you get. 

So, if I could save money by not doing these things and you would still be successful, I would not have all these departments to do all these things. The reason that we have them is we have a profitability guarantee and we know that it’s a lot cheaper to pay for these people to do the things right, that is for you to end up saying, I want my money back because it didn’t work and that really is the truth, like there’s a lot that goes in to truly launch a new product. Most of our institutions. you know, that billion dollar kind of average asset size has creeped up, it used to be like $450, kind of crept up more as consolidation has occurred. You still are talking about relatively small teams that when you say, you know, where’s your product department, how are you going to launch this whole thing. it’s a handful of folks and we can come and bring a complete augmentation to their ability to do it in a world class way.

Peter: Right. I want to talk about your lending offering. I noticed when I went to your website, you have this Kasasa loan, you say the only loan with takebacks so tell us what you mean by that and what makes it unique.

Gabe: I love Kasasa loans, I’m excited to talk about it, it’s my favorite product that we’ve ever had and I’ve ever had a part of as an entrepreneur, it’s such a cool product. We went through the last recession, the Great Recession 2007, 2008, 2009, and every FI was just in a total glut for deposits and we wished we had a lending product. So, we started thinking way back then, what’s a real great lending product that we could build so if market ever returns we have a solution to that. When we surveyed the marketplace it was like every vendor that was serving the lending problem was trying to get people to get approved more quickly and some version of that, approve a higher number, you know, better AI, better scoring models, things along these lines and it’s awesome stuff, but when we went and pooled the consumer not a single one of them said that one of their biggest debt goals is to get in debt more quickly, it was exactly the opposite, they wanted to get out of debt. 

When you talk about debt to a consumer, the pain point is man, I want out and so we started thinking how could you build a loan that scratches that itch because it’s pretty counter intuitive problem, like how do you create a loan that makes people get out of debt. We found out that about, you know, 15% of people pay extra on their loans. Fifty five percent of people say that they have the money to pay extra, but they choose not to and they want to, by the way, they feel like that’s the good thing to do, but when you ask them, why don’t you just go ahead and do it, they say liquidity concerns. They don’t say liquidity concerns, that’s what we would call it, I might need that money later and so, you know, imagine you’re trying to do the right thing, pay off your car early and then you crash that car, that’s the only way to get to work, now you’re going to your credit card or whatever else alternative lending which might not be very attractive. 

So, with the Kasasa loan what we did is basically took what looks like a loan calculator, put in a web version and a mobile version and that loan calculator is actually the servicing engine for the loan so it’s not a hypothetical loan calculator like you would look at to see what if scenarios, it’s your actual loan so when you see that amortization curve on the loan calculator, that’s your car. And we can go in there and say, what if I pay a little bit extra or what if I make a one-time payment and it will model out what the differences are just like a normal loan calculator, but because it’s also the servicing engine if they want to commit to that, you know, new monthly payment that’s greater than their minimum, they can commit to it inside of the user interface. What’s unique about a Kasasa loan is if let’s say their monthly payment is $450 and they choose to pay $650, that incremental $200 above the $450 will be saved in a take back balance for them to be able to take back anytime they want, no penalties, no fees and the consumers absolutely love it. 

The net promoter scores off the charts up in the 70s/80s, we did a survey from consumers asking them how do they use their take back feature and the stories that you got were just awesome, like it was….one was a dad, he said he was able to buy fireworks on the 4th of July for his kids and that’s a pretty touching story, others were like really big, touching stories where, you know, I’m not going to share them because they’re private. Now, I’m realizing I can’t share those testimonials because they were private, but they were very meaningful, like people in really tough situations where they didn’t know where else to turn and they were able to turn to that take back loan and be able to find themselves in a much better spot. 

It’s a pretty heartwarming thing for me because we want to build products that take the consumers’ best interest to heart and to see that they’re using it this way and it really is helping them out for people that need that support is an amazing blessing as an entrepreneur to be part of something like that and it’s not just for people in need, you know, we finance airplanes and all kinds of other stuff. The reason a rich person would like to pay ahead and have that option taken out later is the reason that a less advantaged person needs it.

Peter: Right. We’re almost out of time, but I want a couple of more things I really want to get to here. I want to talk about culture, company culture because it’s something that …..when I was doing research on you guys I kept on coming up with these articles that talks about the unique culture that you have inside Kasasa. So, can you tell us a little bit about that, how you approach it.

Gabe: Well, we’ve got a Kasasa Patch, it’s an emblem that has four elements and it represents our four values. Will tell the whole story, it’s a long one, but my Dad passed away when I was a young man, 21 years old and I became a CEO at 22 in my first business and I wanted to try to be a great culture leader like him. The first business was a financial success, but the culture fell apart right after I left so I wanted to try to do something that would make it more tangible. I realized that, like in my first business the culture mistake I made was it was too much about me being the like great leader, I’m going to show up and ask people questions, I’ll connect them all, talk about values, but I did nothing to operationalize it.

And so, when I came to Kasasa, we created this patch and made it a personification of our values, it’s a simple little tweak to say make your values a symbol, but it’s massively different in kind and how people react to it because like 40/50 people have tattooed it on their body, got T-shirts, you know, 20 something T-shirts that you see people wearing all the time and you see them now on Zoom as we’re a virtual company, but there’s just a much deeper connection. I would sum up the values without getting into all of the actual names and stuff, but I find that most individuals in life, most humans, kind of have this mindset where I can be nice and I can be kind and soft or I can be hard and aggressive and, you know, our vision for culture is one that’s a lot higher than that.

It’s like well, if I really love you a lot, I care a ton about your success then, of course, I’m going to hold you high and expect great things from you and when you don’t achieve those things I’m going to try to support you and call them out, but it doesn’t mean I’m going to go and be mean this instant and be nice this instant. It’s a constant state about caring for the person enough to care for them in the soft way, but also in the way that says, I believe we can do better here, what we call flames of bad “assitude” which should be emerging. If you really love something enough and it needs your support then there should be like a really powerful courageous way that you show up for that thing and we try to create that energy in our organization the best we can.

Peter: Interesting, interesting. You know, it sounds like you’ve been around the community banks space for a long time, we’ve seen a lot of consolidation, we’ve seen the challenges we’ve already talked about, I presume that you’re optimistic about the future of the community banking model, but, you know, tell me why and tell me what’s your vision for how community banks are going to compete long term.

Gabe: I am not optimistic about the community banking model other than the Kasasa strategy for and not to be too blunt, but, I mean, like I don’t see any way. There are nearly 10,000 versions of neobanks that all go digital and I don’t see any way that consumers don’t eventually manage all their money in a digital fashion. The convergence of those two truths make it very difficult for me to see kind of a traditional model in a way that we’ve historically digitalized what that means and I also see a tremendous threat from the fintechs. Fifty three percent of consumer lending occurred in fintechs in 2021, I believe, I guess it’s 2020 because we got the statistics in 2021, a massive reduction in loan creation capacity in these small FIs and what’s happening is the fintechs need a place to park all those loans so they sell them back to the community FIs and it’s like at the same time you’re doing that you’re just literally hollowing yourself out. 

You’re going to become a zombie like with the metaphor “relent of the electricity utility now,” you’re selling FDIC insurance and the fact that you’ve got a bank charter, right, it’s not actually creating true economic value and that vision of a partnership with fintechs, if I was a community FI, would scare the bejesus out of me because I don’t see any long term economic strategic value creation in it. 

The Kasasa model does excite me because we’ve always been, you know, for almost 20 years now, saying our mission is to help community financial institutions win the war and that’s real street creed. We actually do mean it and we’ve created the structure that allows us to move in a Banking-as-a-Service kind of fashion, like our Kasasa loan runs top to bottom from our own system, we can advertise it on kasasa.com to open a loan in all 50 states, we can bring our network of half a trillion dollars worth of collective client balance sheet to large enterprise lenders and create pipelines of billions of dollars of loans back down to these community FIs. 

The key difference is we wouldn’t just be selling the loan, we would also be enabling that FI to achieve the primary financial institution status with all of the borrowers that we will bring to them. So, from our point of view, it’s not to get you a loan, it’s get you a consumer who has a loan and then let’s get them to get a checking account and ask them, don’t you wish all your loans worked this way and get them to really make a home in a community FI that is indeed in their community.

Peter: Right, that’s really interesting. Gabe, it’s been great chatting with you, best of luck. I feel like it’s important work you’re doing, we do want to have the community bank model survive and it sounds like you’ve hit on a really great way to help them do that. Thanks for coming on the show, Gabe.

Gabe: Thank you very much.

Peter: You know, it’s an interesting idea that Gabe just put forward there about the fact that we’re not going to have eight thousand community banks and credit unions that are all digital and all competing with each other. This geographical history of community banks, that will still be important to some extent, what’s going to be more important than that and that’s really what Kasasa is sort of really focused on is the quality of the products, the quality of the digital experience, that’s what’s really going to be crucial for all banks and credit unions going forward. For community banks who think they can do that on their own, I mean, that’s probably possible, but I can see the appeal of something like a Kasasa which has tremendous intelligence and scope of services and products that they offer. I can see how that’s appealing.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

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Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.