The Rise of Banking-as-a-Service: Exploring Partnerships and Innovation with Seattle Bank’s Josh Williams

The Banking-as-a-Service (BaaS) market is profoundly impacting the financial service industry, with a projected market size of $48.40 Billion by 2030. The rise of BaaS has pushed traditional banks to adapt and digitalize their services, resulting in more partnerships between banks and fintech organizations. This has led to greater innovation and a changing regulatory landscape.

Join our host Rich Alterman, on this episode of The Lending Link as he sits down with Josh Williams, EVP, Chief Banking Officer & Head of Partnerships at Seattle Bank, to explore the impact of BaaS on the financial services industry. Josh and Rich discuss the early days of embedded banking, the trade-offs and pain points involved, and how to identify new partners amidst changing regulations.

Josh and Rich cover a wide range of topics, including:
ūüöÄ The first product that Seattle Bank is bringing to market
ūüė© Common pain points and trade-offs within the BaaS space
ūü§Ě Top considerations for forming successful partnerships in the BaaS market
ūüí° The importance of financial literacy and where to start

So, put on your headphones and tune in for an insightful BaaS-focused conversation!

Show Notes:
‚úÖ Download GDS Link’s new eBook Navigating the BaaS Landscape:¬†https://info.gdslink.com/navigating-the-baas-landscape
‚úÖ Seattle Bank’s Partner Benefits page: https://www.seattlebank.com/fintech
‚úÖ What Fintech’s Should Know About Bank Priorities: https://finxtech.com/what-should-fintechs-know-about-bank-priorities/

About Josh Williams
Josh Williams is Executive Vice President/Chief Banking Officer and Head of Partnerships at Seattle Bank. Josh joined Seattle Bank in 2014 and now leads Partner Banking, collaborating with fintech, marketplaces, and brands to integrate financial services into their customer experience.

Josh leads with an exceptional focus on understanding client needs and surpassing their service expectations. Always aiming to advance his clients’ progress toward their financial and business goals, Josh directed the development of Seattle Bank’s private and commercial banking business lines designed for ultra-high-net-worth families and closely held businesses. He has over 20 years of experience serving as a resource to clients with complex banking needs, building, and leading successful teams, and formulating and executing organizational strategies.

Be sure to follow Josh and our host Rich on LinkedIn, and for the latest GDS Link updates and news, follow us on Twitter and LinkedIn. You can subscribe to the Lending Link on Apple Podcasts, Spotify, Google Play, YouTube, or wherever you prefer to listen to your podcasts!

 

English Transcript

Please note: This transcript was compiled automatically via Otter.AI and may include typos and errors the artificial intelligence did not pick up correctly.

 

Rich Alterman  00:00

Welcome to the show everyone. I'm your host Rich Alterman, and today we're syncing up with Seattle Banks' Josh Williams, Josh holds the title of EVP and chief banking officer and the head of partner banking. Josh has his MBA from the Michael G Foster School of Business at the University of Washington, and a BA in economics and political science from Macalester College in Minnesota. On this episode, Josh and I will delve into banking as a service, commonly referred to as BaaS, and discuss topics such as how BaaS is different from the traditional banking models. Why Seattle Bank implemented a BaaS solution, collaborating with fintechs marketplaces and brands to integrate financial services into their customer experience, and so much more. But before we dive into the interview, please head over to GDS Links LinkedIn, and Twitter pages at GDS Link and hit those like and follow buttons. If you have not done so already, please subscribe to the Lending Link on Apple podcast, Spotify or wherever you prefer to listen to your podcast. And for additional insights around banking as a service GDS Link recently published a comprehensive ebook entitled navigating the BaaS landscape which is filled with best practices for those organizations seeking to acquire and integrate a BaaSsolution into their business. Download a free copy today at info.gdslink.com/navigating- the-baas-landscape. Once again, that's info dot info.gdslink.com/navigating- the-baas-landscape. . You can also access the ebook directly via our show notes in the episode description. All right, now let's get synced with GVS. Welcome, Josh, hope you having a great start to the week. Where are you joining us from today?

 

Josh Williams  02:04

Yeah, hey, thanks, Rich, great to be here a chance to work with your team and recently had a chance to listen in on some of your podcasts. And it's been a great resource. So glad to be here. I'm joining you from Seattle or world headquarters.

 

Rich Alterman  02:16

Thanks for joining us on a Monday afternoon. So Josh, you've been with Seattle Bank now since 2014, almost eight and a half years. How long have you been in your current role as head of partner banking? And what does that role entail?

 

Josh Williams  02:28

Yeah, time flies. It has been over eight years with the bank and became head of partnerships over a year ago when we decided to launch our partner banking business working with fintechs marketplaces and brands that want to offer financial services to their clients. And so our as often as described in the business, essentially providing banking as a service to embedded banking.

 

Rich Alterman  02:48

Right. Well, thanks. And what about before you took on this role? What were some of your responsibilities at Seattle Bank and maybe a little history on your background before joining the bank,

 

Josh Williams  02:57

I joined Seattle Bank as chief banking officer and help build out what we've referred to as our boutique bank. So that's providing private mortgage and commercial banking in the greatest Greater Seattle area. So now I'm no longer heading the sales and relationship teams for that group. I continue to be involved with the boutique bank from strategy, product and marketing standpoint. So I guess put another way, we're still a small bank, and so everyone wears a lot of hats. Prior to joining Seattle bank, I was at Wells for 16 years, both working directly with business clients and or leading teams that were serving business and commercial clients actually started with Wells in Minnesota. After school I started with what was then Norwesr Bank. And then within about a year or two of that Norwest acquired Wells Fargo and eventually made my way with the company back out to the Pacific Northwest, which is where I was born and raised. Yeah, so I was with them for about 16 years overall, always working with commercial clients, everything from small business on up to you know, larger corporate clients working both domestically, as well as in their global banking division,

 

Rich Alterman  04:05

you say that you've had a chance to listen to my podcast. You know, one of the things I'd like to do towards the beginning, just get into some personal discussions to get to know you a little better. I see from your LinkedIn account that you devote a lot of your personal time to various nonprofits and outside organizations that you are currently involved with the Martin Luther King Jr. Scholarship Fund. And with Homesite, a Seattle based nonprofit focused on affordable home ownership, business development and community advocacy. Can you please share a little more about these two organizations and maybe what were some of the personal drivers that how'd you get involved?

 

Josh Williams  04:34

The MLK Scholarship Fund is a unique fund nationally in that it's a neighborhood founded and maintained scholarship program. It's been existence for over 30 years and helped over 400 students by providing both financial and non financial support to them. And these are mostly black or historically underrepresented students that are either in the Mount Baker neighborhood of Seattle or some of the surrounding neighborhoods. And so helping them to attend to or For your colleges, and I've been involved with them for probably seven or so years. homesite, as you mentioned, is mostly focused on on housing and homeownership, but also is involved in community development more broadly in the Southeast Seattle area, which is where the Mount Baker neighborhood where I live is a part of I met homesites CEO Darryl Smith years ago when we were on the board of a different community development corporation that was working in that similar area. And he's a thoughtful leader put together a great team at home site and really doing great work. And so when he asked if I'd be willing to help out of the finance committee, I jumped at the chance and relatively recently started that over the last year. But it's a great group and excited to get involved there. And I think, personal drivers, you know, one day I was raised with a pretty strong work ethic, but there was also the expectation that some of that work better be helping other people. You know, I think the issues of education and housing and economic development, these are pretty central issues in terms of you know, historically in our society in terms of who gets access to the benefits of what's happening, and and I think are going to only be more important in the coming years. So those seem to be seemed like the right places to be involved in terms of making an impact. And again, in both cases, just great people working there. I'd say the last thing that I just think in general, I've been fortunate to be in organizations that have supported that type of involvement. And I think that I've really feel like I've learned a lot working with seeing how other organizations are approaching other problems, especially being part of today a relatively small financial institution. Yet, having been a part of one of the largest financial institutions, at least in the US, I have a pretty strong appreciation for the fact that nobody can be all things to all people, we all sort of need to choose a lane or choose an area. And it really is going to take a whole continuum of different types of solutions to the problems that we face. And so I think being involved in organizations like the scholarship fund, or home site is just another great way to stay fresh, think about different ways to solve problems and learn from great people.

 

Rich Alterman  07:05

It's always nice to see how people pay it forward. So certainly appreciate you investing your time there. Let's get down to business. Now, our discussions today are going to revolve around banking as a service, or BaaS, can you take a few minutes and explain or share what your definition of banking as a service is? And also how embedded finance which is a term we always seem to hear when people talk about banking as a service? And how those two things, you know, really relate? Yeah, I

 

Josh Williams  07:29

tend to think of banking as a service is where essentially the what's happening behind the scenes for primarily fintechs or financial brands that are not banks, for them to be able to provide the solution or service that they want to their end users. So in that sense, the the FinTech is a generally owns the relationship generally is describing and delivering a solution, which is in its essence, a financial service or product, but they're still reliant on a bank for access to whether its payment, Rails, capital, and importantly, sort of the regulatory framework and rights that go along with being a chartered bank. So that's why I tend to think about banking as a service, embedded finance or embedded banking, generally think more of, we're working with a non financial company, right. So this could just be a brand that doesn't want to be a financial services company, they frankly want as little to do if possible, with sort of the various machinations that go along with it. But what they've recognized is, in order for them to provide the most value in their service offering or the best experience to their clients, they want to bring some financial solution closer to the client, whether that's payments, financing, or some other type of solution they're trying to solve. So it that's I think, the embedded finance or versus banking as a service, in both cases, you know, we as a bank are working behind either party as a partner the differences banking, as a service, we generally think of is delivered to or through, you know, a financial company or a financial brand. And whereas embedded is usually a non financial company, or non financial brand,

 

Rich Alterman  09:11

As I was prepping for our session today, thinking about my career, and I kind of went back to my first job out of college. In 1982, when I joined Citicorp retail services, where we provided private label credit cards, companies such as Goodyear, Tiffany's charming shops, thinking about the private label card business, which has now been around for a really long time. Can we consider that one of the first banking as a service models that existed?

 

Josh Williams  09:34

I liked that idea a lot. I'd be curious to know you were Citicorp. At that point, it probably was highly vertically integrated. And so I might say that was sort of the earliest embedded banking, right, because you guys were really doing almost all of it on the Citibank stack, and then bringing in those brands that you mentioned on the front end. So I think that's a great example of sort of the earliest notion of that, but also points to the fact that there really is a long history, in fact of it. or it's actually more than norm than it is the exception that behind banks and financial service companies, there's an ecosystem of partners behind them, they're often delivering the service their Citicorp back then was was pretty rare. And I think I'm guessing today, they've actually, I'm guessing they have a much more of a broader network behind them that's helping provide that. And so I think it's good to see that, in some senses, some of the things that we often talk about as being bank as a service are being these new innovations actually are less of a huge change in structure, I think what's changed now is just that one, actually more software as a service, right has just opened up the types of combinations that can be made, and made it more flexible. And two, it's just created so much more flexibility for differing sizes of companies to to in terms of how they're going to make those connections. Because the third thing around that is obviously technology has changed, right? The ability to work and API's, the ability to work in the cloud is really accelerated how those configurations can come about. But again, I like your sort of analogy, or your sort of observation that that that concept is actually, you know, pretty well tested.

 

Rich Alterman  11:09

And maybe along similar lines, when we think about Prosper and Lending Club, which have now been around for a while. And, you know, there was a lot of talk about, well, it's really just a rent to charter. And there were some concerns brought up by some regulators. You know, when we think about BaaS today, is it kind of chapter two or chapter three of rent to charter in your opinion? Yeah,

 

Josh Williams  11:30

I think so. I mean, I think our view on this has been that the more established players, right, meaning in some ways that was established players, like say, Lending Club, right, which, of course, now it's the bank, once they had size, once they had real enterprise value, I think, and I'm not talking specifically about Lending Club now. But just more broadly, some of the earliest and most successful players from a, from a FinTech standpoint, or from the new banking standpoint, they got a lot of traction, they had huge success with customers. And with that, now, they've recognized you know, the risk calculus changes, right, they don't have, you can't move faster, break things with other people's money, or PII. And so I think, whether it's chapter two or three, we're definitely in a new chapter where the established players are putting on much higher premium on regulatory compliance, you know, redundancy, security, and things like that. Whereas, you know, maybe before it was just, hey, how do we get this one product or feature to market? Right away? I just think that has changed. And to your point, I think there's a different thought process happening, both for those established fintechs. But also, as we start to think more about that embedded banking and non financial brands are saying, Hey, how can we offer more value to customers, they already bring that level of they think a lot about counterparty risk, right? They think a lot about not wanting to add new regulatory frameworks to their enterprise. And so if they if when they start thinking about do we really want to be dealing directly with the CFPB, I think those companies, you know, they're pretty quick to realize they don't, and they want to find financial partners and financial technology companies that bring a real appreciation for that. And sort of a discipline around

 

Rich Alterman  13:09

probably touched on this a little bit. But, you know, I was doing a little review of your website, and to the left of the About link, one finds a word FinTech and you go visit other websites, other large banks, and you don't really see that word, FinTech pop up. So predominantly, as it does on your website, maybe give us a little more background on why you've made FinTech, such a focus of your organization, and really have it so predominant on your website on the first page. Yeah,

 

Josh Williams  13:37

I think, you know, at the highest level, you know, we came together as a management team, you know, as we mentioned, you know, eight or so years ago, and I think part of what really drives us, and our vision is the recognition that financial services are changing really rapidly. And there's two big drivers on that there are multiple drivers, but two big ones. One is technology is evolving very, very quickly in terms of what you can do with it. And the ways you can figure and scale and to consumer behavior is also rapidly adapting. And on the one hand, that may seem sort of obvious. And you know, I think financial services has lagged most industries in terms of digital adoption, and not for necessarily always bad reasons. You know, as I said before, there are certainly risk factors around that. But those two things are absolutely driving change in financial services. And our view was the economies of scale still exist. Whereas before they really accrued to physical distribution and consumer banking, let's just say meaning branches. Now they really accrue to digital distribution. And so your ability to have that is critical. But I think initially, there was a sense that, hey, you know, technology is going to make it so banks are it's going to level the playing field and I think that's only partially true right on the one in hand, there are a lot of things that we can do differently. Because of technology today, we have some advantages, because we can be nimble as a smaller bank. But listen, make no mistake about it, right? Like, there are 1000s of engineers working at the biggest banks and much more spend, and they are going to have an advantage, if it's just a street drag race, on a specific search feature from a tech standpoint, therefore, you know, the alternative is to then be very, very good, you have to be very big or very different, right? very niche, be able to offer something, and we recognized early on that, we were going to have to think about technology differently, if we were going to achieve the ability to drive new value through differentiation. So that was at the sort of fundamental view of how we thought about it. And so what we then went about doing was really saying, okay, that really does mean, we need to have a different tech stack, it doesn't necessarily mean we're going to be fully vertically integrated. We don't own every piece of that, but what components and who we partner with upstream to get the technology that we need, how we fit those together, that goes into every major business decision that we make. And when we make those, it's not relegated to sort of the IT department or even the CIO or CTO, our CEO is absolutely involved in those I'm involved in that our CIO, of course, is a critical resource in that, but we really are driving technology into the business decision, the same way that as a bank, you're always driving risk management into the decisions. So I think, at the that's sort of why you see you know, technology, or FinTech being a key part of it. And then what we've been able to do by having that mindset is to now start to drive forward were the changes that we made originally in our technology to take better care of our clients in that boutique bank, you know, the private, the mortgage and the commercial banking clients, we're now able to leverage that technology to go be a partner through banking as a service or embedded banking, as well as starting to develop new consumer facing technologies and services. So we launched late last year, CD valet as an example. That's a really new product in the industry. And those are things we can do because that technology is part and parcel of how we run the business.

 

Rich Alterman  17:15

So when we think about the banking as a service model, there's really four key players, right you have the customer, which can be a consumer or business, to distributors, such as a FinTech or a brand, including companies like affirm chime, the enabler or infrastructure providers, such as a financier, Galileo, and of course, a producer financial institutions, such as Seattle, Bank of all Bank and others, let's kind of like just kind of briefly touch on each of these. So when we think about Seattle bank, you know, outsourcing that customer experience an acquisition to a distributor, is a view that that may be an area where your distributors do a better job? Or is it that it's really just more of a complement to the type of abilities you have to acquire customers?

 

Josh Williams  17:59

I think it could be either, right? I think on the banking as a service side, there could be good examples where some of the earliest players on the lending space, which I know you have a lot of insights into, you know, whether soFi or Lending Club, they really created these highly focused experiences and businesses around originally just single product. And so they really were, I think they did do a better job, or I think if you look at chime and how they have taken on consumer banking, specifically targeting segments who are not focused on savings in their account, they're really focused on how quickly they can get their deposit. And then how effectively and efficiently they can move that around through debit and other use cases. They did some amazing things, right. And so they in those cases, I'd say they were better and they pushed the ball forward. In that regard. I think more on the, if we're thinking more about the embedded banking, or some of the lending opportunities. In that case, the main thing is that the distributor, the distributor has distribution, right? They already have captive customers, they have them at the point of views, or whatever the relevant context is for them to now make a financing decision. And where, you know, most people don't wake up in the morning and say, Hey, I think I want to go shopping for a new bank, they might say, I'm gonna go shop for a new fill in the blank. And when I do, I'm gonna need to pay for that or finance it or whatever that is. And so I think that's where we think the distributor, you know, that compliment to us is they've already got access.

 

Rich Alterman  19:28

So when you partner with a distributor, and we'll get a little later into, kind of like your first offering that you're rolling out through us and others, is the ability to get that checking and savings relationship part of your long term goal as you bring on other distributors.

 

Josh Williams  19:43

We take that on a case by case basis, I think we're leery of sort of lost leader models. And I think we tend to say hey, a given business really needs to stand alone for us to put something together and then we'll determine to the extent there may be You know, expansion or extension capabilities down the road? So I think from that standpoint, I would say the general answer to that is no, we typically say, let's make sure that for whomever that distributor is, we're providing them the most value for them to go get those customers, right. Because if they already have customers, what we want to do is make sure that they can just sort of, you know, get that flywheel effect, get the next customer do a great job. And that's what's going to drive down cost of acquisition, that's what's going to drive down cost of service through that model, if we can just be really well aligned with what they're trying to do. To the extent that what they're trying to do also has maybe a deposit need in addition to a lending need, well, then, of course, we're going to want to try to solve that. But I think we try to take the sort of case by case and sort of product by product.

 

Rich Alterman  20:46

Since we're talking about the distributor, can you share with the group? What is that first product that you're bringing to the market? If you're allowed to share who the distributor is that be great? And then also, what type of due diligence process do you put your distributors through? I think that'd be some interesting insight to our audience,

 

Josh Williams  21:03

I can definitely share this. So the first one that we're working with with GDS team on, there's a handful of players involved, but really, the distributor in that case is a company called Lone Star and what they've basically built as a business working with merchants, primarily small businesses that want to offer their customers financing at the point of sale for things like home improvement, but it's not limited to that, you know, oftentimes, it's things like power sports, but generally larger ticket items than you might typically want to put on a credit card. Also larger ticket items, but also smaller enough merchants that there may not be sort of the use case for sort of what we saw in terms of BNPL, or the pay and for model. They've built out a really great network of merchants that are looking for access to lenders, and specifically that lenders that can be highly integrated into the experience, that loan starts providing those clients, and that that integration can support real time decision making and real time fulfillment. And so that was really the key there. And ultimately, of course, how we got to work with GDS was really taking for us, we're a bank, we're longtime lenders, we're used to doing our business, historically, boutique bank side is a relatively small number of very large transactions. And this was really shifting to say, how do we build out the technology so that we can originate and service at scale, and do that in a real time fashion. And so that's essentially what we built out to be a partner to them. And so the advantages, you know, they now have customers that, again, at that point of use, they're able to essentially get a real time offer and then decision and move that forward. And we

 

Rich Alterman  22:50

certainly appreciate your decision moving move forward with GDS, I know on a PC or baas, you've selected finastra. And the be interesting to understand what are some of the key components of your overall BaaS offering that you're picking up from Finastra? And what were some of the touch points that went into that decision.

 

Josh Williams  23:08

So Finastra is a key partner to Seattle bank, no doubt about it. So for folks in the banking space, there are a core provider. So probably five years ago, as we really started to formalize a strategic tech plan for the bank, we recognize the need, essentially to make sure that our tech stack was cloud based, real time and could be supported by Open API's, and ultimately was in alignment with the idea of open banking. And Finastra ultimately was the player that we saw being most responsive to those criteria. And so we first moved our digital banking experience over to there. And then, importantly, literally, probably a month before COVID, that COVID. And then the PPP loan program, we completed a core conversion to move over to their core, which again, is unique, and that it's for those reasons that I mentioned, their core is cloud based, open real time, and it has API support. So that was key in in in, in selecting them from a technology standpoint. And then the broader thing we always look for in terms of partners is, hey, we need to work with people that have a sense of urgency around the challenges that especially small banks face, but for the reasons I described before in terms of the rapid changes in technology and consumer behavior, we need to have partners that are willing to be entrepreneurial, and that can be really aligned with our success. So they did that that was critical to us selecting them. And a great example of that is as we started to share with them how we thought about banking as a service, you know, that aligned with their vision on these opportunities as well. And so we were that's the reason that we were brought in as the first bank as they, as they launched their banking as a service lending platform with Lone Star. So in this case, finance Here's really providing the orchestration layer, if you will between, say, Lone Star that's based in the the customer and the merchant, and then connecting to GDS Link, who we're using for real time underwriting, and then other key elements of that value chain and allowing us to then go and book those and fund those an essentially real time. So yeah, they've been a critical critical partner to us, and in part because of technology, but in part because of just worldview and a real commitment to hustle and go out and do some new exciting things. So it's been a good partnership with them. And, you know, to the, I think, to prove that point, they do have a decision engine, and that says, A GDS as a competitor to them. But well, we walked through with them, the use case that we had, and and the real advantages that GDS offered to us and to the ability for that partnership to work, and really, for this lending solution to work, they recognize that that made sense. And again, and consistent with the whole idea of open banking, we were able to integrate and use GDS as the best in class solution for that part of it. You know, finastra is absolutely still benefiting from the overall partnership that we've launched, but in a way that I think we've not historically seen that traditional or the legacy core providers show that sort of commitment to open banking, and that willingness to, even if it means that they're going to bring in another party for a piece of it. And that would essentially is competing with them. They were supportive of us doing that because it was the right thing to do to get to market and drive value forever. Right?

 

Rich Alterman  26:29

Great. Well, I know Finastra and GDS Link, both appreciate your business and the nice words. So in the back end of the service model, when we talk about enablers like a Finastra They often refer to someone as a program manager who will actually maybe help banks like yourself, go out and identify other partners like a lone star and your bottom model. Josh, are you going to have a team that goes out and identifies other distributors? Or will you work through the, you know, through the financial model or combination?

 

Josh Williams  26:59

I would say in general, we are driving that ourselves, meaning we're directly reaching out to those partners that we see a good fit with. Of course, then this case, financier brought someone to us. And we, we thought that that made a lot of sense, I think you may be asked before which and I forgot to cover it. But essentially, a key piece to that idea of them bringing somebody to us is we really need to make sure that there's good alignment from from any partnership that we're looking at. And we generally tend to say, hey, the first thing is, are they solving a problem for the client? Right? Can we all look at this and say this is this is a solution? That's, that's good for the client? And it's gonna make sense. Assuming the kids answer to that. That is yes, then it's really one technically, can we do this to from a compliance standpoint? Is it legal? And three, can we all make money? I think particularly in the case of lodestar, what we really liked about them as, as a partner, and especially as the sort of inaugural partner for the program that Vanessa was putting together, as they brought a really strong compliance mindset to that. And so they absolutely anticipated the types of questions that we were going to ask and the diligence that we needed to do. And so in that sense, you know, we're open to, of course, anybody suggesting potential partners to us, but it definitely we take much more of an active model than I think, is sometimes the case where there are what I would describe as non bank banking as a service providers in the market. And they may have a cadre of banks that have said, yes, let's sign up. But a part of their value proposition often is to the banks, hey, we'll do a lot of this selection for you. And I think that has some intuitive value to it. To us. Our our sense is that it's difficult to have any middleman when it comes down to those real brass tacks around the compliance and the risk structure. And so that was part of why it worked well with the Masters is they were going to make the introduction. But Seattle Bank, you're going to do all the diligence from a vendor a counter party standpoint, as well as on the overall product and delivery framework.

 

Rich Alterman  29:07

When we think about your relationship with Lonestar then I think about things like marketing, credit policy, compliance, customer service collections, can you kind of touch on how that structure is set up? And how much for example, influence or participation? Does a lone star have, let's say and credit policy?

 

Josh Williams  29:26

Well, in terms of credit policy, we want to represent all in the credit policy. And so I would say, you know, we certainly might say to them, what are you seeing in the market? Where are you seeing sort of pain points? Or what are some of the trade offs as we just think about, you know, as you would do it anytime you're looking at risk management, but we're 100% deciding this is the product framework, geography, product type, and then all of the credit terms that we're we're going to be making these decisions on we're entirely making the decision which is why we're using GDS, right because By the time what happens is, we essentially get an application. Oftentimes, there's some degree of pre qualification that's gone into that to try to just figure out which are the right banks to get involved. But once we get that we're absolutely doing the underwriting making the decision. And that's entirely on us from from that side. Yeah, so I guess more high level, generally, in that in that scenario, they're doing all the advertising and they're not advertising Seattle bank, right. And in most cases, this is a merchant advertising a, you know, here's, here's a home improvement solution. And then if you would like financing, essentially, here's an option for it. And it works that way through to the bank. That user interface from a lending standpoint is provided by Lonestar so they invested in that technology. And they're the ones that are making that available, both to the merchant and to the actual consumer who's who's applying. And then really, once an application comes through that system, and we've worked with them. And as I said, they had a really strong program already, there were a handful of things where we worked with them to say, you know, hey, can we get we'd like to have this disclosure, this language or things like that, to make sure it was consistent with our view on that, and they've been great to work with there. But otherwise, they're really collecting the application, and then needed material that are the information that we need, they're delivering that all to us via API, some of that is getting pulled out from our, you know, PSA, or your customer things that we might be doing, some of that's being an app, but the majority of it, as your team, well knows, is then getting pushed into GDS, where we're doing the decisioning on that. So that's and then at that point, once it's, you know, once Doc's are pushed out, and the customer is able to complete that via e sign, you know, they're now our customer, they're getting a welcome from us. And at that point, we service them from, from there on out in terms of any questions or issues that they have providing statements, online access, payoffs, etc.

 

Rich Alterman  31:55

At a high level, can you share the economic model that exists between you and the distributor, and you and the enabler? Don't give us details? But just like high level?

 

Josh Williams  32:05

Yeah, I think the simplest way to think about it is we're paying some version of a commission on loans in this case that are actually originated. So we're essentially saying, Hey, here's a percentage of that, that's then shared out between those players.

 

Rich Alterman  32:18

And it's written report 2021, report by CCG insights. And it said in 2020, in the US, there were 42, bank partners involved with bass, and they forecast that number to grow to 75 and 2025. And 110, by 2030, as other financial institutions stepped into the best model, you know, what do you feel might be some of the key factors that will drive success for banks? And what are some of the things that you think can impact them negatively?

 

Josh Williams  32:45

In terms of on the success side, it's about the banks that really have a clear vision going in of where they see their value proposition? What are the strengths that they have to play to, so then where they're going to focus at approach, right, there's thinking as a service could be on the lending side, the positive side could be on the payment side. And each brings its own challenges. And so I think one having clarity around just where the area of focus is to it's taking an assessment of a bank's existing capabilities. And some of that is technical in terms of as I was talking about our tech stack, and some of the things that we've worked towards, and literally over a number of years to build out. But now that we have, we really do have a configurable, scalable technology infrastructure that allows us to be really responsive to different types of opportunities. You know, we were fortunate to be in that place today. But it took years to get there and a high degree of commitment by the bank, as I said, from CEO on down, and I should say, if that matters, support from the board to make those types of decisions, and then finding the right partners. So there's the tech side of that. There's the cultural side of that. And I think the other element of that cultural or talent side of that is having people on the team that, you know, I'm not a technologist, but I know enough to be able to think through what are the implications of one model over another as an example. Another piece of it, though, is it as we do become more configurable, and we can become more configurable, because there are more options out there. Our ability to manage third parties is critical. We seem to that a lot of our addition to the boutique bank that I described, we have an asset generation business where we're less originating but more buying assets and we're one of the largest players in the reverse mortgage space. The critical piece of that business is, you know, our team is one of the leading teams and managing sub servicers. So that's all about understanding the clearly understanding the client what they're trying to do with the reverse mortgage, understanding the idiosyncrasies of reverse mortgages because they are unique, right? Everything's backwards. And then really Understanding, you know, the roles and responsibilities with our servicers who are having that day to day contact relative to, you know, the regulatory requirements. So we were fortunate to bring a really high degree of competency around how you manage third parties and what to manage them to. And that's been critical to, you know, to the success and building out this banking as a service model. I think the failures are going to be the reverse of that, right. And we've seen some of this already. But essentially, you know, under indexing on the importance of regulatory compliance and consumer protection, you know, it's easy to want to run and with with the fintechs, or run with the Silicon Valley, sort of like pace, but the reality is, we just have a different set of criteria and grounding as chartered banks. And I think the banks that don't commit to that don't manage expectations of their partners effectively, and then ultimately, don't build programs that have alignment and accountability around that. They're going to be the banks that find this to just not be productive and worse, you know, to be a potentially very risky venture.

 

Rich Alterman  36:07

So for our potential distributors that are listening to this podcast, what would be the top three things that you would tell them, they need to think about? If they want to come to you and talk about a partnership?

 

Josh Williams  36:18

I talked about the kind of the big questions we ask as we look at one. So I think that's back to that, hey, assuming that it's a good solution for the client, can we do it is illegal? Is it? Can we all make money? Right? I don't think that the distributors or partners need to know the answers to all those. I think the question is one really being clear. From their standpoint? What are they trying to achieve in their business? Where's the strategic value in their mind of bringing in either a partner to help them with some embedded financial solution? Or if this is a FinTech, they're looking at either a new partner, or a new product, you know, what's the strategic value that they're trying to achieve? Because, as I think that then helps put into a much more stark contrast, what trade offs are going to make sense? I think having that first is important. And then I think it's looking at as the partner that you start to talk to, you know, do you feel like there is an appreciation of those factors, too often, what we see is players that have gone out and optimized for one variable, and that's we just don't have that option, right? You can't just offer up optimize for technology and how slick it is. And you can't just optimize for compliance. Right? And I think, as I know, you're a career lender. And I know you had a lot of background in collections in monitoring and managing collections teams. A, the reality is, we have to optimize for more than one variable in Rankin risk management. And so I think it's thinking it's making sure that you're talking to partners, who show that appreciation, and, you know, oftentimes the people that are saying, Hey, we can do it and, you know, weeks, not months or days, not weeks, you know, that's probably a little bit of a red flag, depending on the complexity of what's involved.

 

Rich Alterman  38:00

Well, maybe the B and BaaS also stands for balance, as well as banking, right? To find that right balance. So in 2019, Angelea Strain said that every company will be a FinTech company driving home the point that banking isn't just for banks anymore. What are your thoughts on the statement? And do you think maybe it's an overreach?

 

Josh Williams  38:19

I have a lot of respect for Angela's Strange. I enjoy her work. And and of course, their firm has a great track record. I don't agree with the statement. I mean, I think probably the gist of it is probably right, in that every company should be thinking about how they make their experience evolve with the evolution. And that's made possible by fintech. But I actually don't think this makes sense. You know, literally, I think the point is, many companies, just they don't want to be financial services companies. They don't want to have to worry about what is you DAP? Or what is fair lending or disparate impact or disparate treatment. We're a bank, we have people that literally wake up in the morning wanting to go solve you dad, right, unfair, deceptive act of some practices, right, or fair lending concerns. So I think I actually I think it's sort of the other way around is that it really the the general, and I think direction she was referring to is that he is going to be more integrated in more and more customer experiences. But the way to do that is for non financial companies to partner and to partner well with companies that can help deliver really durable solutions into that experience.

 

Rich Alterman  39:30

Oh, great. This has been extremely informative. Josh, I'm gonna throw one more out on you. If you had to write a book tomorrow, what would you write about? Yeah, that's

 

Josh Williams  39:39

a good question. I honestly, I think that being if I can, if I can start by first going back Rich to go to do more graduate work. And then then it can lead to a book I think the most interesting to me is to really look at how do communities and economies effectively build well All four people, right? And especially that it not be, ideally better be more equitably distributed. And I think, you know, my kids probably would make fun of me and say, I'm a neoliberal. But I am a student of economics. Right. I do think markets work. But I also think, you know, Adam Smith said, it's our enlightened self interest that's going to drive the outcome. So I do think I've worked with businesses, pretty much my whole career, you know, well over 20, 25 years of companies that are, you know, providing value to our communities, providing jobs doing all these things. And so what are the structures? And what are the resources that we could put together to drive for better outcomes? Right, and I do think if you get down to it, how do communities whether that's geographically but also if you look at, you know, other types of communities? How did they build wealth? And I don't mean well, so they can just go have ostentatious spending, but well, so they can invest in education, invest in their Yeah, in their families and do good things. I think that's one of the more interesting questions out there. And that's probably what I do. If I if I could do anything else, I'd go try to figure out that,

 

Rich Alterman  41:06

well, that's a pretty admirable, certainly one place we could start is financial literacy. Right? It's nice to see that some states are finally adopting a policy that you have to have financial literacy to graduate from high school, but it's few and far between. And I think that's a big problem we're facing today is that a lot of the younger population, even some of our peers are not really educated financially. And I think that's a place we can start. But Josh, I want to thank you for your time today. This is Rich Alterman. And we've been syncing up with Josh Williams, head of banking partnerships for Seattle bank. We hope you've all enjoyed the podcast. Please stay connected with genius link and the winning link to listen to future podcasts. Catch up once you've missed. Thank you. And that's a wrap. Thanks for listening. If you've enjoyed today's episode, please be sure to subscribe on Apple, Spotify, Google, or wherever you listen to your podcast. And be sure to leave us a review. Follow us on LinkedIn and connect with us on Twitter at GDS Link that's at GDSLINK have a question for the show or have a specific topic you want us to cover. Hit the link in the description to drop us a note. Thank you for lending us part of your day. Make it a great one.

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