Sarah Howell: [00:00:00] Everybody has their own definition. when I have these types of conversations, I like to create some shared meaning, what does it mean to you?

what does it mean to me? And I look at embedded finance as the what. it is embedding financial products into digital, non-financial applications. It’s the what, and then banking as a service is the how. How do we get that done? How do we get financial products into a digital, non-financial application?

[00:01:00] 

Josh Detar: Welcome to another episode of the digital banking podcast. My guest today is Sarah Howell, the [00:02:00] head of partnerships for infinite. Now you all may be sick of hearing this from me, but it is so resoundingly true. The most amazing thing this podcast has done for me personally is bring amazing people into my life that I may not have had an opportunity to interact with otherwise.

And Sarah is absolutely one of those guests. As a native Hawaiian, Sarah exudes the aloha spirit and the beautiful outlook on life that it carries with it. Sarah said she lives by a motto of love fiercely, but hold loosely, meaning pour your all into everything you do, but be capable of detaching your identity from it, which I think is such powerful advice.

Be thoughtful about how and where you pour your energy and the impact that energy could have. Sarah and her husband have been married for the better part of three decades with four children, one of which being a foster child. This is an area she pours all of herself into, but even then says it’s important to not let it completely define you [00:03:00] in a narrow way.

Her ultimate goal in life is to leave a ripple effect legacy that’s far greater than her saying what we do and create for future generations and how we set them up for success should be the purpose and meaning of our existence. So no pressure, right? Sarah said she’s a pretty boring person, although I strongly disagree with that.

and that her day revolves around the cycle of what she’s drinking. coffee in the morning to fire her up, water during the day to keep her moving, and wine at night to pull it all together and relax. And I think many of us can relate to that. So, what does all this background on Sarah mean for banking?

Stay tuned because she’s about to put on a clinic for me on banking as a service and the impacts and trajectory this movement will have. So Sarah, welcome to the show. Thanks for being a guest.

Sarah Howell: Thank you. Thank you, Josh. What a very humbling intro. I hope I can live up to it.

Josh Detar: Oh man, I mean, [00:04:00] it, , you gave me like four years worth of content to try and distill down to that. So, , I have no doubt in my mind you will, you know, I, I didn’t actually ask your permission, , on this before we got started, but I feel like I’m in a place where I can do this. , I want to take a little sidebar and just, you and I were having a conversation about, , , about the fires in Lahaina that had impacted, , your family and friends and the island as a whole.

And I want to give you the opportunity, little, , shameless plug of, , you know, talk a little bit about just some of the work that has been happening there in rebuilding the communities and some of the ways that people can help. , I know there’s been a lot of talk from people on the mainland. , and I always love to see when talk turns into action.

So you’d even talked about some GoFundMes that had been set up. So I wanted to just maybe give you a quick opportunity to talk about that before we even jumped into the actual, , you know, whole reason we jumped on this.

Sarah Howell: Oh, well, thank you. Thank you so much. , yeah, I, I have [00:05:00] about 15. My family’s originally from Hawaii. , unfortunately, my dad moved to the mainland when he was 18 and never moved back. And that’s why I have a southern accent and look the way that, but look the way that I do. , but I have a lot of aunts and uncles and cousins that have remained and have, the Hawaiian lifestyle and, , have, have lived off of tourism and, , you know, have worked multiple jobs in order to stay on the land.

And, , I’m super humbled because I had about 15 family members that were in the fires, , I have four families that lost homes, , and I have one particular cousin, cousin that was in a more of a dire strait that we had a lot of other funding from other families, members for other family members that, , I set up a GoFundMe.

There were people in, you know, in the banking community, , that reached out and just, , began to give, you know, , CEO of my organization gave a lot of money out of his personal, , bank account. And just, it was just beautiful just to see people coming together for people they don’t [00:06:00] even know. , there was a huge list of, of folks and GoFundMes and, , I, I actually said, folks can ping me on LinkedIn and I can share that list with you.

So happy to do that. , I was very cautious about sharing that just because unfortunately there were a lot of land developers that were trying to find  folks native hawaiians or Locals who owned land and even as as early as two days after the fire they were offering. , you know some monetary relief  in exchange for the land, so just trying to be very cautious about who I share that list with but happy to share it

Josh Detar: Oh, that’s awesome. No. And I think, you know, that’s one of the reasons why I also wanted to just touch on it is I think it is actually a really, a really great real world example of just how, you know, people in communities come together. And I think in the banking correlatable,

, connections to the community. Impacts on people’s lives, right? Like as much as [00:07:00] we hate to admit it, sometimes money, money’s kind of the center of a lot of our existence these days. And so, you know, giving people the ability to not necessarily have to worry about it is life changing. It really, and truly is life changing.

So I don’t mean to try and get on a soapbox here, but. A lot of what this industry does is quite heroic. It’s, it’s really and truly like what you were saying, right? Setting up the future generations for success. And so just examples of, you know, people in communities coming together to support each other, to, , you know, use that cooperative movement to help people, you know, buy back land, houses, businesses, , and just, you know, support what was once lost is, is really beautiful to see in such tragedy.

Sarah Howell: Yeah, no, I not quick shout out to checkbook IO and PJ who is a good friend. I called him up that night of the fires and was like, look, I’ve got family. How do I, how can we bring in funds and how can we disperse those funds in a way? Cause you know, as a banker and [00:08:00] somebody in embedded finance, you think about like.

How do you bring funds in on all these funds flows? And he was, , he was super grateful. I mean, he was super supportive of whatever we wanted to do and how we could help. We, we ended up going a different route, but I mean, it was just the kindness, the kindness of people during that season. , it, it means more than than.

Then you would ever know, right? Like, when we’re in a position of vulnerability is when our hearts are most open to, , being loved on and, , and receiving grace. So,

Josh Detar: It is truly a, an absolutely beautiful story to see come out of that. ,   , yeah, kind of, you know, like I said, dovetails us right into what we were really wanting to talk about, which is, , you know, how do we look at the future of the banking industry and set it up for success? And what does that look like as it’s really evolving?

And, you know, one of the things that I always love is when I get a guest on the podcast that’s an expert in whatever, like the buzzword of the day is, [00:09:00] and that, that is definitely true with you and right now. And, , you know, one of the things that just, I feel like is getting talked about a lot is banking as a service.

You know, I, I’ve had a few other guests that have kind of talked about the topics and we’ve brought it up in, in. You know, episodes that weren’t necessarily directly focused on that topic. , but one of the things that I’ve always found interesting about buzzwords is everybody has a different definition for them, right?

And as you and I have really talked, I really appreciated the kind of the way that you almost like explained BaaS to me almost as if I was a child, which. My wife would probably tell you I am, but, , you know, really simplifying it down and giving us a foundation to work off of. So I’d love to start there.

And so Sarah, would you kind of just talk us through, so what is banking as a service in your eyes? You know, what has it been in the past? Where is it today? And where do you think it’s headed?

Sarah Howell: Sure. Yeah, no, thanks for the opportunity. , I do feel like there are a lot of buzzwords, , [00:10:00] and you have embedded finance and you have banking as a service and yeah, to your point, everybody has their own definition. So, in order, when I have these types of conversations, I like to create some shared meaning, you know, what does it mean to you?

, what does it mean to me? And I look at embedded finance as the what. , it is embedding financial products into digital, non-financial applications. It’s the what, and then banking as a service is the how. How do we get that done? How do we get financial products into a digital, non-financial application?

So you’ve got embedded finances. The what BaaS is the how, but in my opinion, everything, all of it together is simply a disruption in the supply chain of financial services. And I think that is really what’s. That’s what a lot of times in our discussions, we’re missing the mark and of really embracing like, Oh my gosh, this is just a supply chain disruption issue.

Josh Detar: Talk me through that a little bit. So when you say this is just a supply chain disruption issue, like what does that [00:11:00] mean?

Sarah Howell: Well, if you think about a normal supply chain, right? You’ve got your suppliers on the bottom, you’ve got your manufacturers, you’ve got your distributors and your retailers, and then your end customers, right? And in traditional banking, , I look at banks as owning the full supply chain. So, they might have suppliers like their core banking provider, like FIS or Fiserv or TeSys or Global Payments.

, , they’ll have their suppliers, but they own those supplier relationships. And the bank has a bunch of product managers that are… Saying I want this type of financial product with this type of fee and interest calculation, and I’m going to tell my core provider. This is what they need to make, but I’m manufacturing that financial product.

So, the bank owns that right? And then the distribution layer, which is very much like what. The digital banking podcast is about is, you know, how are you distributing those financial products before digital disruption and the internet? You only distributed those financial [00:12:00] products through a branch network, or you’re the natural retailer outlet.

But in digital disruption, when digital disruption happened, you were able to distribute and more than 1 form factor, physical and digital. And so, but in both cases, whether it was your digital banking platform that you bought through Q2 or NCR, or, you know, Zenmonics, which was Infinite’s former, our CEO founded that company and sold that to FIS in, , 2020, it, regardless, it was a digital banking platform that the bank owned.

So they own the full supply chain of the financial services all the way to the end customer. , and then if they wanted to grow, then they would just buy another bank, which is a horizontal integration strategy. You just buy up your competitors. It wasn’t like you were changing necessarily the supply chain.

, but there’s a, there’s something called vertical integration strategy, where you take on more of the different levels within the supply chain. But the bank didn’t have to do that because they [00:13:00] own the whole supply chain. , Embedded finance and banking as a service is a disruption in the supply chain, and it started with prepaid.

, if you look back in the early 90s, you had these folks that recognized gift card and prepaid presented an opportunity to reach the underbanked. , that’s the intercoms, the green dots, the Blackhawks in 2001, they, they started. And they, they began to model deals with my former employer, TSIS. And they went straight to the bank suppliers, but they weren’t a bank.

And then they went to a bank sponsor and said, Hey, I’m going to create this prepaid product. Can you, can you sponsor it and approve it and give sign off on the compliance and all that stuff. But ultimately, Green Dot’s a great example. They started in 99. They were creating the product and then they were distributing it, that prepaid product through Walmarts or Rite Aid or CVS and Walgreens and all of those retail [00:14:00] outlets, but they began to own the supply chain.

And so that’s what, how I, how I look at banking as a service and embedded finance. It’s just a disruption in the supply chain.

Josh Detar: What, , what other examples have you seen of that happening? And, and I use this as an example because, , you know, I had, , Danny Payne from Jack Henry on not long ago, and he talked about all the different ways that you’re interacting with finance through other apps that you’re probably unaware of, right?

And we even asked for kind of a call to action from people after the podcast dropped to, you know, tell us on linkedin, like how many, how many apps do you have that have a financial component people like, oh, three or four, you know, my, my digital banking app for my primary and maybe my credit card and, , you know, and then another one I have a loan product with and they’re like, well, yeah, but what about your Starbucks app?

Did you load payment information into there? So, you know, maybe talk me through how that fat fits into, , the concept that you were talking about.

Sarah Howell: Well, yeah. And I [00:15:00] mean, it is. It’s that distribution layer, which is your Starbucks app. But who owns that app? Is it a bank? No, it’s a Starbucks. And so you’ve disrupted the last mile delivery of financial products and financial services. And it, it can happen in a consumer level. It’s a little bit easier for us to understand sometimes when we’re, you know, I think of the example of sometimes we’re, we’re given money to our, our foster son.

He just had a, a, a baby and , he and his wife had a baby and he, you know, he, He banks through time like, you know, and and so he’s trying to get money. I’m trying to get him money He couldn’t get money on his time up. So we went to Facebook and so now I’m trying I’m giving him money in Facebook But that’s a social media platform and to your point That’s a financial product embedded within you know, a social media platform and that goes back to digital disruption when the internet came to be and you had Cloud compute, you had the internet disruption in 95 to 2001, where you’re starting to embed into society, [00:16:00] the ubiquity of of the internet, it created a distribution opportunity that was not dependent on brick and mortar.

No longer so distribution of anything. I don’t care. What industry you’re in was fundamentally disrupted. And so then you also had cloud computing, which made it so much faster and simpler and easier for the technology companies to stand up. And so what you had was a lot of technologies that would take.

A portion of banking. It’s we looked at it as the unbundling of banking at the time. , but they would say, I’m going to give you better student loans or I, like, I’m so fire. I’m going to give you better fractional investment opportunities. And I’m Robin hood and I’m creating this niche opportunity in the financial services industry, but I’m not a bank and I’m, I’m getting in users adopted to my digital distribution and I’ve got banks.

Behind the scenes that are, kind of powering that experience again. That’s a supply chain mentality. Robin and had was creating the financial [00:17:00] products. So 5 creating the financial product suppliers on the back end, whether that’s a core provider lending, core that’s it’s that’s a sponsor bank underneath the scenes and then.

So if I and Robin Hood and those guys, they own the distribution layer to been in customer, just to. Just just a disruption in the supply chain.

Josh Detar: Yeah. Now that that makes a lot of sense. And I think that’s where, , it’s almost happening so subtly that I don’t think a lot of people are actually realizing just how much disruption is actually happening. Right? And that’s kind of the example of it is you don’t realize just how many apps on your phone.

Just taking that one example of just apps on your phone and then looking at how many examples within that, , are actually keeping. , you know, financial, , payment information and processing transactions. , and so I think it’s, it’s happening more than people actually realize too.

Sarah Howell: Oh, yeah. And then in commercial, like when I was at Visa, I did, I worked with commercial FinTechs and so [00:18:00] B2B payments, the, you know, the opportunities in programmatic payments and, , TNE and, , all these different unique use cases, ERPs that are starting to embed financial products into their applications are, are, , practice management software providers.

, embedding financial products into their, their applications, it’s, it’s becoming a very interconnected world and our financial lives are no different than our, you know, our entertainment lives, whether we’re looking at streaming services, or we’re thinking about what we’re going to have for dinner, and we’re ordering door dash.

That is last mile disruption of the supply chain.

Josh Detar: What are some of the challenges that you see as that’s kind of rapidly evolving?

Sarah Howell: I think that. What, what, I think what concerns me the most is that bankers don’t recognize it and they look at embedded finance in a silo of, okay, this is good for some banks, but it’s not good for every bank. [00:19:00] And if I did not see last mile disruption and digital distribution occurring in other industries, I would say, okay.

You know, maybe so maybe you can double down on owning this whole supply chain Keep your brick and mortar branch network your digital banking networks, maybe stand up a niche bank But you still own the whole, you know supply chain the UI experience everything but I think if I just look at look at what’s disrupting our industry through the lens of the supply chain and I Look at other industries.

And so there’s a talk I’ve given about you know, the whole I don’t know if you were Impacted as much as the Howell household was, but with the ESPN Disney charter spectrum lockout, where you couldn’t see, we couldn’t watch football for for the first few weeks that football season was kicked off and all of that is disruption in the supply chain and its channel conflict at the distribution layer.

That’s the whole reason and so I look [00:20:00] at those types of experiences through the lens of, , you know, digital disruption. And I recognize that it’s not going away in other industries and I don’t see how it’s going to go away in our industry. And so I think those bankers that embrace it now and have a strategy, , we’re going to be the ones that are going to be successful long term.

Josh Detar: Okay, so that leads me to then the question of so why are people maybe embracing it versus not embracing it? And I think you had a very recent example of where there’s also been some problems with kind of moving too fast and not having You know, some ability to understand the regulatory compliance elements of being in the non banking industry, but then trying to do banking things.

Sarah Howell: Yes, yes. And I think it goes back to embedded finance is the what I don’t think that’s going away. BaaS is the how. There are probably about three different ways that you can go to market [00:21:00] with BaaS. I like to look at it. Two of those are supply chain influenced, and when I say supply chain influenced, it means that the bank is kind of acting as a supplier to the embedded finance customer, which some folks call that direct.

They have a direct relationship with the embedded finance customer. That embedded finance customer might say, I want to use this core provider for all of my end customer accounts, but the bank does not have those in customer accounts on their core system. Okay. That’s supply chain influence because what you’re doing is you’re allowing those end customer accounts to exist on a platform that you do not control and you do not own.

, and so that’s, but it’s still a little bit safer than what I think we just saw a fallout this weekend. , of some sponsor banks who’ve been using BaaS middleware providers, BaaS connectors, and those guys have what’s known as an indirect BaaS model and in that model. The, the banks will allow the BaaS middleware provider [00:22:00] to use their technology stack and to model all of the direct deals with the embedded finance customer.

And they’re, essentially the bank is sub delegating all the compliance to that middleware guy and they’ve got to make sure that KYC and disclosures and everything is happening, , on each of those embedded finances. , platforms. So you, you have a manufacturer in the supply chain that is not a financial services institution, , and they are controlling distribution through the embedded finance software provider, , and the bank is further removed.

And that is the indirect model. And that is the model that I think is at risk. And I think that we are seeing the fallout of that model. , yeah.

Josh Detar: What would you say is kind of the, like, how many people have gone that model versus how many people are looking at other models?

Sarah Howell: think most folks when they dip their toe in the water, it go the indirect model and, and, and I will, I will support them in that [00:23:00] decision because if you think about it from a banker standpoint. And their whole bank, their whole bank, their ops product, everybody is focused on owning the whole supply chain.

So it’s a huge organizational change. It’s a cultural change for the bank themselves. And so when I have bankers that come to me and they’re like, Sarah, we’ve never done baths before. I will talk to them about, okay, have you thought about dipping your toe in the water? And because you have to, regardless of what tech you’d use.

You have, there’s a lot of organizational change that has to happen. So, there has been benefits, and I think these BaaS middleware providers have done a lot for the industry, because what they’ve done is they’ve allowed more banks to get into BaaS and banking as a service, without heavy, you know, total cost of ownership investments.

, because they had so much operational change that had to, and cultural change that had to happen. So they get used to it. And then they, ideally, what you want to do is you want to get your [00:24:00] organization used to banking as a service if you are going to use a middleware provider and do that indirect model.

And then you want to graduate your organization to where you are having the direct relationship with the embedded finance customer. And you’re modeling those deals directly. And you’ve got a sales team that knows how to go out there and find the good guys. , because even that is, is a learning curve.

Finding what’s really going to be a good fit for your risk tolerance and your organization. That’s a whole separate sales strategy, completely different than your normal sales strategy when you own the supply chain.

Josh Detar: Yeah, you know, that’s a good point. I mean, there’s also just the. The culture within an organization and the types of, you know, skill sets that you have on staff are very, very different at a fintech than at a traditional banking institution. And so asking either one of them to do the other person’s side of this equation is very, very difficult without a huge cultural change as well as a huge, you know, influx of bringing in talent that actually [00:25:00] understands that.

And I think that’s exactly what you were kind of talking about with. You know, some of these BaaS providers are all of a sudden becoming, you know, the manufacturer in this process as well as the distributor and don’t actually realize some of the implications of, Oh, when we used to talk smack about why banks don’t move fast, I guess this is why this, we forgot we didn’t do that thing.

We were supposed to do that thing. Like, oops, is not really okay when we’re talking about people’s money.

Sarah Howell: Exactly. Right. Yeah. It turns out people’s money really means a lot to them. And if you mess it up, then you’re in trouble. Yes. Yeah, they’re the, the failures in our industry are far greater than other industries. And I, I do look at the entertainment industry. I’ve always I’ve looked at the telecom industry because digital disruption, in my opinion, occurred in those industries 1st, before it happened in banking.

So I try and see, okay, what are some things that we can model? What are some frameworks that we can apply in banking? Were, was there an [00:26:00] evolution curve where you’re adopting new technology and creating a new paradigm shift to embrace that technology? And I think that’s what we started to realize is that.

We, they’re just because we can from a technological standpoint, create apis and embed those apis into non banking applications doesn’t mean that we as an industry are ready for that. , and so I think we’re, we’re getting there though. And I, and I think that’s a beautiful thing, but we got to give ourselves grace and, and give those folks that were early adopters grace.

Like, I. Do you not like pointing fingers? I think you and I talked about this earlier. It’s like there’s some really, really brave community banks out there who stepped up and said, I know that I am not going to grow my geographic footprint just with my own, you know, trying to get more business within my community.

And I know I can’t compete in a digital banking platform with the big boys. So how am I going to compete? How am I going to [00:27:00] protect the employees and the community that I serve? , and. You know, they’ve done it through embedded finance and still grow your balance sheet. And so I have a huge amount of respect for those guys.

, Sutton, , Meta, now Pathward, Bancorp. Those guys started out in prepaid 20 years ago. They saw the opportunities and now we’ve got more folks coming in that are seeing the opportunities. We’ve just got more manufacturers who are part of the equation, who maybe got too much funding too soon. , before we had that level of maturity.

So,

Josh Detar: Yeah, you know, there’s, there’s two things in that that I want to get your perspective on, you know, one is, , I think that is, that is an interesting clashing to in the banking industry when we’re talking about fintechs and banking, right? And just the model that a lot of times we expect fintechs. To be put into is, , you know, hockey stick [00:28:00] growth, , Silicon Valley unicorn growth.

You have to go from zero to taking 100 million in investment and going, you know, direct to consumer and selling, , you know, 10 X that and providing a 300 X return in 12 months or you’re a failure. And then you couple that with an industry that historically moves very, very slow for lots of the reasons that we’ve talked about and others, right?

And then you’re trying to bring these two together and then they’re trying to even work on a cooperative business model that works for both of them, right? Like that in and of itself creates a challenge. And so I, I let you kind of touch on that and then I’ll come back to the other thing.

Sarah Howell: No, I love it. I think there are productive tensions that exist in any organization and in any industry. And that is a productive tension. There is risk versus innovation. You are always. You know, especially in banking, you know, [00:29:00] you want to protect the business protection versus innovation. And those 2 tensions, every organization has, but if you step back and realize our industry, to your point, you’ve got fintechs that are pushing for innovation and you’ve got banks that are.

Their whole remit is to protect our financial, , industry, our, you know, our nation’s financial solvency. And so when they don’t get it right, there are, there are implications that are massive, right? I mean, like the regulators are coming down after the whole SVB failure. And, , so I, I definitely think that we’re going to, we are starting, we are already starting to see some.

Reregulation that’s starting to happen. And so even if you look at the, the history of financial services throughout the U. S. , I, I’ve done a talk about everything goes from the polls, like, you know, from de risking and worried about [00:30:00] finances being in the hands of too few. You know, and then you have deregulation, which opens things up and you get more innovation and you have, you know, the financial sector being controlled by more folks than just a few and then things start to break.

And so you go back to the other pole. So, , that productive tension exists in an organization. It exists in an industry and it exists in our financial economy at a national level.

Josh Detar: Well, and that actually brings me right back to the other thing I wanted to talk to you about that you were touching on is. I feel like a lot of times, and I, I think maybe a little bit of a broken record on this podcast about this topic, but, , a lot of times in the, you know, community financial institution space, the word sales and, , revenue is a four letter word, right?

And so, you know, back to what you were saying about some of these early pioneers that have been doing banking as a service and looking at what other [00:31:00] ways can we generate revenue? Right. It’s not just about generating revenue. It’s about generating revenue, coupled with relevancy. And, you know, even if you’re a credit union, for example, not for profit, doesn’t mean that you can lose money quarter after quarter. Right. , If you to exist because your business is not able to sustain itself, then you can no longer do the good in which you do. And, you know, again, you, you also touched on earlier, you know, we, we saw the rise of things like prepaid cards because there’s still a significant number of unbanked and underbanked folks right here in America, believe it or not.

Right. And so there’s opportunity that exists, but we have to get creative about how. We actually generate business models that make us revenue to go and support those because we have to be able to fund the [00:32:00] good work that we do. Does that make sense?

Sarah Howell: Oh, it totally does. Yeah. At the end of the day, we are still a capitalist country that is, is driven on what is the revenue we can create, you know? , And I feel like the 10 X multipliers of a FinTech when investors are coming in and pumping money into them and the expectations that creates, it creates a forward momentum.

That can be dangerous for the, for the, you know, financial services and I think the VC winter that we’re starting to see where the VCs pulling, you know, they’re pulling back. It’s a much harder to get funding now than it was 2 years ago. And I think that’s actually a good thing for the organizations, , or for the industry.

I mean, I work for startups. So, you know, I’m not saying that lightly, , but I do feel like that’s, that’s healthy for the industry because, , sometimes when too much money is flowing, guys, we are not a good steward of the resources we’ve been given.

Josh Detar: [00:33:00] yeah, that’s a good point. I mean, , you also have to be, , You know, again, doing innovation for not just the sake of innovation, but what is, I mean, literally back to your opener, like, are, are you pouring your energy and resources into something that actually has value and is going to create, you know, a lasting legacy versus are we just innovating to do something flashy and, you know, try and shuffle some money around?

Or are we actually doing something that’s providing value?

Sarah Howell: Right? No, exactly. And that’s why I like to go back to the supply chain because it helps me remember every business has to operate in the supply chain. And I think what’s scared me the most or concerned me the most, and I had opportunities to go back to Visa before I came to Infinite and work and manage all the BaaS middleware providers.

They, you know, they were standing up opportunities to support them. And I did not feel good about where they were in the [00:34:00] market. I felt like they were too easily disintermediated. And I think that’s one of the things that as so much chaos and change is happening in our industry is go back to the supply chain, figure out where you’re business model exists within that financial services supply chain and make sure that you’re not easily disintermediated and that what you’re building to your point is going to be sustainable and it’s going to have a market value that is going to increase and not decrease.

Josh Detar: Why do you think so much of that is, , so disintermediable?

Sarah Howell: because When you, when you engage in vertical integration strategies, you are looking to take more control of the supply chain. You are looking to, , to disintermediate anybody that’s in the supply chain. And so all I, if you’re a middleware or connector provider, all you’re really doing is helping with sales.

So, helping with some compliance on the banks part, you’ve got some [00:35:00] technology, but that technology can be replicated. , so then you’re just left with the services aspect, which we all know technology fintechs. We are, we are devalued for all the service. The only thing that really matters in our 10 X multiplier is the technology we create.

And so that’s so, so I think when, when they started creating that, they were that middleware layer, they didn’t realize it, but they had to add on more services in order to make the business model work, which actually brought. , less valuation for them in the market,

Josh Detar: Okay. That’s getting really interesting. So, , so let’s walk through that a little bit more. , so I wholeheartedly agree. I think, you know, we talk about this a lot, , even just internally at our own company. Right. And, and I always, I have a very fun running joke with our CTO, , that, you know, software’s replicatable and anybody can build anything that we’ve built, you know, barring patents, , everything’s replicatable, , to which he [00:36:00] argues, and I correctly agree with him that, you know, , everything is replicatable, but how you do it is what’s unique.

Right. And so, you know, you. Anybody can do it the way that we did it, but do they really want to? Like, are they motivated to? Are they going to do it that way? Or are you going to be the first one to have done it this way that revolutionizes something for a period, you know? So there’s, there’s those elements of it, but at the end of the day, especially in software, it’s literally just a bunch of code.

It’s a very easily replicatable, right? And so if, if the product that you have is a widget that I make and they can make, and so can they, and she can make it and he can make it and they can make it over there. , so that’s kind of off the table and you’ve created it to be kind of this standard middleware layer. And all you’re left with is the services. And then what you were talking about from earlier of, okay, so part of the services is to manage, you know, the sales, the [00:37:00] compliance, the regulation, and then, oh, by the way, oh, crud, you guys don’t actually even understand this industry, so you don’t understand the compliance and the regulations.

And you’re not able to do some of the things you thought you were because of XYZ regulation, or maybe you do do something and don’t realize the ramifications that are going to come of that because you didn’t understand those things. , that creates for a really challenging market for these folks to be successful in.

Sarah Howell: It does. And if you think about it, really, all they’re doing is buying the bank time to build up all those skill sets within their organization to do it themselves. To build up the compliance arm to build up the sales team, the deposit ops team that will manage those embedded finance relationships. So that’s why I go back to say, , I, I think that the BaaSman aware and connector guys have served an incredible use in the market, but, .

It is a business model that’s easily disintermediated and in fact when I joined Infinite I had some friends give me a [00:38:00] hard time about it because they were like, why are you doing that? It’s just another vast provider It’s just you know And I said no these guys are different because we’re selling it to the banks because we think the banks need the dev portal They you know what they need, , you know to be able to own the platform just like they do with their core relationships

Josh Detar: what do you think that’s going to mean for the space of BaaS providers? , I mean, I know you said it earlier, you’re like, I don’t really want to be like the Debbie Downer, but, , I mean, what does that mean for, does it just mean this is going to be like an Apple and Android type of thing where there can really only be two major competitors?

Or do you think that there’s still going to be an ecosystem marketplace play for something like this? And, , and then if you don’t mind kind of expand on, I’m curious what you think that means for. Is this really something that, you know, community financial institutions across the spectrum need to adopt as a part of their strategy going forward?

And if so, how much of it [00:39:00] do they take in house? Or, you know, perfect case in point. I mean, the argument can be made for digital banking to write like this is ultimately the final stage in distribution in the supply chain. , with everybody moving to digital, , you know, consption of their relationship with the financial institution.

So you should probably own that too. You should probably build that in house, but obviously I’m going to argue that’s a terrible idea and you should let somebody who focuses on that do it. So, so in the BaaS world, like how does that, how does that look? Mm

Sarah Howell: I think successful banks long term will have two strategies, one where they own the full supply chain and that digital banking experience and they, they’re in customers know their brand directly. And I think that they’ll also have an embedded finance strategy where they’re offering up an API portal and they’re having.

Some very key embedded finance customers less is more in some of this instance, you know, , code directly to their API so that they can start develop. You know, selling [00:40:00] technology, you know, so it’s a little less than interest income because that’s what most banks make their money off of. Well, all banks make their money off of, and you know, they’re having some interest income and then interchange income, but then also creating a new revenue model for technology where they’re selling the actual tech stack themselves.

, so I think that those guys that see the opportunity. , we’ll, we’ll embrace that quickly and start to, to own the technology stack, , whether that’s through a supplier or they build it themselves, there’s some really smart guys out there that are doing building that themselves and probably around specific key products that they want to bring to market, maybe marketplace lending or payments or some of those types of things.

, I think we will see banks that are specialized in certain financial embeddable financial products and I look forward to kind of seeing that. , yeah, I think we’ll see a growth of deposit networks as well as capital markets and secondary networks for loan distribution, , for some of these financial embedded financial products [00:41:00] during the heyday of VC funding.

, a lot of those fintechs were managing all of that lending on their own balance sheet. And so I think our community bankers have a choice. They can say, okay, we’re going to still let you manage it off the balance sheet. Knowing that there’s no credit suisse out there to buy off those receivables and which will , if we’re not careful, move BaaS up market to some of the bigger banks that have a better balance sheet and can support that need, , which is why I think there’s a perfect opportunity for platforms that are focused on helping banks own their own BaaS platform to develop a capital markets opportunities to sell off some of those receivables, , while servicing those loans, , and retaining that embedded finance customer, , So I don’t know if I answered your question.

That was probably a long, long rant. But, , yeah, I think there’s new opportunities, but we got to look in new ways. And I think there’s some banks that are going to really embrace it and others that are going to have a hard time.

Josh Detar: so yeah, so I, I [00:42:00] mean, the problem is I threw like 700 questions at you in one. , I, I, I’m curious. So. Do you think that that leads itself more to an ecosystem of BaaS providers, or do you think it’s going to be just a couple of big ones that own a large share of the market?

Sarah Howell: No, I would love to see more of a bank network, and that’s what I’ve been kind of talking to some folks in the industry about. Okay, what does a bank network look like where you might sign this one huge embedded finance customer into a certain degree deposit networks like Entrify and R& T are already operating like this to move those deposits around, right?

So it’s already a bank network play. I think we’ll just start to see it more on the lending side as well for the community bankers, which community bankers have always been very good at. Really trying to come together to to figure out how they can solve problems together in the industry. And so, , I, I think the more collaboration we can have through, , you know, consortiums like [00:43:00] LA labs or the association, , different folks in the industry.

, I think the better it will be, and the more we’ll be able to keep those BaaS banks. As fast banks, instead of a moving up market.

Josh Detar: yeah, what do you think you’ll see in terms of kind of long term, how many community financial institutions have a BaaS strategy as a part of their strategy?

Sarah Howell: That’s a great question. , I think there’s, you know, I’ve heard different, different, , you know, numbers out there, maybe 100, 150, no more than 300. You know, there’s different numbers out there, but I think a lot of folks, a lot of banks are doing BaaS and they don’t realize it’s BaaS. So if you’re doing marketplace lending, , if you are, , I had some fintechs, they were on some of the big banks and they were just using their payments hub to embed commercial credit cards into an ERP system or an accounts payable system.

And so that’s really BaaS if you think [00:44:00] about it. And so when I think we start to pull back the layers and people start to realize, Oh, I’m moving money for this digital wallet or for this gaming platform. , you know, there’s just wires that hit us and then we send them out, but the wallets exist on their platform.

That that’s still a form of BaaS. And so I think creativity and understanding what really are opportunities for flows. , I think, I think that will provide, I think we’ll realize that there’s more banks that are in it than, than we, we first assumed. Mm hmm.

Josh Detar: But that leads me to believe too, that there, you’re probably right. There’s got to be at least at some point, some saturation of that too, right? Because there’s only so many different services that need this embedded. They’re going to get it from multiple places. And like, if you’re a small credit union in, , you know, Wyoming, and you have an opportunity to do one small thing in Baz, is it really worth creating an entire strategy and [00:45:00] doing this?

And then… , you know, what’s, what’s the actual ROI out of that for you? And again, what’s the value you’re actually adding by doing that? And does that align with your strategic objectives? , but yeah, I mean, at a certain point, like somebody is the, just, you know, if you’re a gaming platform, these guys are the ones you go to, to be your BaaS provider.

Right.

Sarah Howell: Yeah, and they know, trust me, like, there was, you know, in embedded these SAS platforms that we’re looking for banks. They knew him, you know, because sometimes banks would be like, well, how do you know? I’m like, they find you trust me, especially if the other sponsor banks are getting super selective about what they are taking.

And I think that’s what we’re also seeing is we’re seeing a lot of sponsor banks that are moving from this indirect model where they have an intermediary, both for tech and for services and for sales. And now they’re. They’re, they’re going out and doing their own thing. They’re modeling deals directly.

They’re being far more selective, which allows, you know, more banks to get [00:46:00] into the model. , in the indirect model and, , the indirect model where you’ve got that middleware provider, although you are definitely at risk of, , Being disintermediated what it really has done for the industry. It’s allowed banks to get into it with you know I think we talked about it earlier right and allowed banks to get into it and allowed new fintechs and new Sass platforms to test it out.

But as those those embedded finance and saas platform start to grow, they want to take in control of that whole embedded financial experience because it could become a really good revenue driver for them. they start to focus on that, and then they want to own the banking relationship because they understand that below the underneath everything.

The manufacturing layer that supplier who’s really the bank. They are the ones calling the shots because you can abstract the core, but you cannot abstract the charter and banking and so they own ultimate authority. And so these guys start to realize that, and they go straight to the [00:47:00] bank. So. It’s a perfect opportunity for the bank.

, one of the things too, is that I think about the extensibility of the platform. You have to think about, will the bank be able to retain that customer as long as they are growing? Because what if the bank has a. And they code to it. And then all of a sudden that finance, that embedded finance customer wants to roll out loans.

And this bank only does card payments and they don’t have an appetite for loans. So having a way for your FinTech and your benefit finance customer to graduate off or expand their product set without. , you know, losing them without a trading for the sponsor bank is also a strategy that, , yeah, I’m very focused on in the market to make sure that there’s no churn that happens when that sponsor bank begins to own the deck.

Josh Detar: what would you say has kind of been the biggest evolution you’ve seen in the last couple of years in terms of, of, of that, [00:48:00] like how much different business models have, , have kind of expanded past their initial starting point, , and realized, oh, maybe my provider doesn’t actually have the ability to support my next phase and growth.

Sarah Howell: Yeah, no, I, , I actually managed a couple of clients when I was at embedded finance customers at, at Visa and they had a sponsor bank who had said, Hey, go. They had a direct model with their sponsor bank, but their sponsor bank didn’t own the technology. They just said, use this processor and code to this processor because we, we use them for our, for our brick and mortar business.

And so they’re a good processor. You code to them. And then that sponsor bank decided to move their brick and mortar business to a new card processor. And they wanted their embedded finance FinTech customers to move to that new processor too. And it created. in the relationship because they’d already coded to that processor.

[00:49:00] It was much easier stay connected to that processor and find a new sponsor bank than it was for them to, , you know, to unwire everything that they’d coded to and then go to the sponsor bank’s new preferred partner. And so, , that’s one of the things it’s made a huge impact on the way that I view the market, because I do want, if a sponsor bank does choose to own their tech stack, You gotta, you gotta make sure that you are building your strategy with that in mind, is if they start to expand their, their financial products beyond my balance sheet risk appetite, how am I going to help them do that without a treating from the financial products from, that I can power?

So,

Josh Detar: I can’t remember, I, I’ve used this example in a, like an internal meeting recently, and I can’t remember if I’ve used it on the podcast, if I have, sorry, but, , I think it’s, it, it really rings true in this sense, right? Is that you remember the old UPS commercial where the company launches their, , you know, online retail shop and they’re all sitting [00:50:00] around their one computer, like watching to see if any orders come in and.

, all of a sudden one order comes in, they’re like, yeah, we got our first order. And then like nothing. And they were like, Oh, and then one more comes in. They’re like, Oh, this is so cool. And then nothing. And then all of a sudden it just starts going through the roof. Right. And then next thing they know they have like 10 million orders and they all look around and they’re like, what do we do?

We weren’t prepared for that. Right. And then it’s ups coming in and saying, Hey, we take care of shipping logistics. We’ve got you, you know, but I think I’ve always loved that example of a commercial as, , you know, think through what is the failure of too much success.

Sarah Howell: Mm

Josh Detar: do you prepare for that? So how is a part of your strategy?

Okay. What happens if this thing goes total gangbusters? What happens if that, , you know, , FinTech that we decide to, , supply our, , You know, BaaS offering to goes absolutely haywire. , what happens [00:51:00] if this gaming platform all of a sudden expands? Yeah. And outgrows us. Like, how are we prepared to pivot or to your point, maybe help transition that out, or, you know, how do you identify, you know, your ideal customer profile?

And again, I think this comes back down to such a change in just the culture, like that’s not typically the way you talk and think in a financial institution, , but it’s got to be a part of how you talk and think if you’re going to have a bad strategy.

Sarah Howell: It is. Yeah, it is exactly that. And I like that. I have not seen that UPS commercial, but I like, I like what it means. And I like the premise and you’re right. If it’s you want these guys to grow as a, as a BaaS provider, a sponsor bank, you want them to grow, but you don’t want to be an impediment to that growth and you don’t want their growth to impact your, , you know, Your growth as a bank, and so finding a [00:52:00] tech provider that is extensible that can plug in another bank and keep them keep your product separate.

And I think that’s what the middle where guys were doing. They were just managing all of that, right? Like, the technology allowed for more than 1 sponsor bank to power. , 1 embedded finance customers, financial products. It makes total sense from a tech perspective. It is a absolute. unbelievable risk to the financial services industry when that happens.

Because what happens when that program unwinds is what happens if that if that BaaSment where provider goes down? Who do those customers belong to? You got a half of them sitting on one bank and the other half sitting on the other bank. What’s that experience look like? And so if you If you have somebody that’s doing that on your behalf as a bank, you’ve got a middleware provider making those choices on behalf of that embedded finance customer, there is risk, but if you are the [00:53:00] bank and all you need is extensible technology and a good risk appetite to know what you can handle and what you can handle, and you build in your commercial model with that embedded finance customer, and you have a graduation strategy where they can, where you can say, look, these are the financial products I’m going to manage.

Thank you. I’m gonna sell you the technology. If you need additional technology that expands beyond my risk appetite, you can use the same platform like that to me is a win win because it keeps that relationship sticky and it helps that that embedded finance customer know that this sponsor bank is really committed to my growth.

Josh Detar: you know, I started with kind of my first question, you just tell me a little bit about where been? Where are we now? Where do you think we’re headed? Like, what do you think? I think you have some pretty strong predictions on what’s going to work and what’s not going work. So where do you think, where do you think realistically we were really are headed?

Like, what is our actual trajectory? And do you think it’s the right one? And do you think it needs to pivot?

Sarah Howell: I look a lot at the [00:54:00] at the EU where open banking has been mandated through PSD 2. It’s not been super embraced, but it has been mandated. And what. Has occurred is a lot of the banks are are also API providers. They got their own dev portals. They’ve got their API So it doesn’t matter if you’re an end customer that knows my bank name or you are an embedded finance customer that wants to code To my embedded financial products either way I’m pivoting and I think banks in the US will have a similar mindset now.

Will it be forced through? regulatory mandate It’s like, you know, some what happened in the UK. I don’t think so. , we’re too much of a capitalist environment. , but I, I think that the next battleground will be over open banking. And I think those banks that are going to really be, , forward thinking are, are gonna, gonna have both a brick and mortar strategy and an embedded finance strategy.

And SAS platforms because that’s. That’s, that’s [00:55:00] that digital distribution that’s happening and that’s not going away. You know, I, I wish we could put the genie back in the bottle, but it’s not. So how do you roll with the times and make sure your, your bank is meaningful and

Josh Detar: Yeah, I think that’s a really good point. I mean, it is true, right? Like once you let the genie out of the bottle, a lot of times it picks up the moment and you’re not putting it back in. And I think, , you know, from my limited, , experience in this, it’s, that’s very much the case here, right? Is this, this train’s already left the station.

So now the question just becomes if. When, how, what, right? , and I think that’s going to come down to individual decisions that each institution has to make. And like you were saying earlier, I mean, there’s, there’s only so much room for so many institutions to really aggressively take part in this model and strategy.

And so if you’re going to be one of [00:56:00] those, what does that look like? And if you’re not, then yeah. I mean, to be honest, like how do you hedge your bets against that, right? And how do you, , kind of maintain relevance in the core services that you do provide as let’s face it again, things are changing the way people consume financial services.

Content is changing. It has changed and it is going to keep changing.

Sarah Howell: Yes. And we’re not, we’re not going to go back. I wish we could. Like trust me. Yeah.

Josh Detar: Well, let’s say my wife and I were, What’s that?

Sarah Howell: As a change is inevitable, but, know, I think when, when you are living in the information age where technology is king, the pace of change is so much faster that it it’s, it’s happening faster than we as humans can process it. , so it’s, it’s inevitable, but we’ve got to, we’ve got to jump on board and do what we can to move our industry and our organizations forward.

Josh Detar: Well, and I [00:57:00] think that, , that’s kind of a cool shout out, like what you did earlier, right? Of just some of the, the early community banks, , and, , you know, BaaS banks that kind of jumped on that and were willing to be some of the pioneers. I mean, that is a really, really scary concept. I think for the vast majority of us is, you know, the concept of failing fast.

, and I think a lot of people have some different definitions of what failure looks like, what fast looks like, and then, you know, what’s acceptable failure, what’s not acceptable failure, and that’s going to change BaaSed on organizations, culture, personalities, et cetera. But ultimately, just that overarching concept of, you know, don’t be afraid to try something

Sarah Howell: Yeah.

Josh Detar: and be okay with it not working out.

Or not working out like, like the UPS example, right? Like maybe it doesn’t work out like you thought. Maybe you thought you were just going to be a small mom and pop who was going to sell five of your trinkets online. And you know, now you’re Walmart cause you sold 500 million of them. , you know, is that failure or is that success?

And so how [00:58:00] do you, how do you look at, okay, we’re just, we’re going to make decisions. We’re going to quickly, objectively look for metrics to decide, is this a successor of a failure? Is this aligned to our strategic objectives? Should it? Do we need to change our strategic objectives or do we need to change what we’re doing to align to our strategic objectives?

I mean, it’s just a, it’s a much bigger conversation than I think we’re ever going to have on a podcast.

Sarah Howell: It is, but at least that we’re asking the right questions, I think, and there’s really smart people in this industry that can come up with a creative answer. , but I definitely think it’s about asking the right questions and understanding the science of the times.

Josh Detar: Yeah, I mean, I think, yeah, again, kind of the sign of the times, right? Things are changing around us. How do we evolve? How do we adapt? And, , yeah, I’m, I’m really excited to see the way people are tackling those problems.

Sarah Howell: Exactly. I mean, yeah, I think that it, it’s inevitable. There is, , there’s a [00:59:00] quote that I like to see. It’s by P. K. Bernard. Not sure who he is, but a person without a vision is a person without a future and a person without a future will always return to their past. And so I think if we can paint a picture of what future state will look like when the bank doesn’t own.

, doesn’t always own last mile delivery, there’s distribution disruption in the supply chain and paint a vision and leaders at banks painting a vision for their people to be able to see this is where we’re headed. If not, the organizational pool, the cultural pool will be always to go back to what we know and what is familiar.

Josh Detar: Hmm. That’s a good way of looking at it. , well, Sarah, I’ve had an absolute blast kind of talking through this with you, but before I let you go, I have two final questions for you. So for starters, where do you go to stay up to date on what’s changing in our industry? Like, how do you stay informed, especially in a space that’s, you know, really [01:00:00] rapidly evolving and changing like BaaSes.

Sarah Howell: Yeah, yeah, there’s a, , there’s a this week in Fintech Slack channel that I’m always on. I’ll look at, , I don’t always comment. Sometimes I do. , but I, I look at that and can ping folks in the industry that are kind of trying to solve for some of the same things I am. And so it gets some. Some good 1 on 1 conversations there.

, I get this week in Fintech, , newsletter, Jason McCullough’s, , Fintech Business Weekly, Simon Taylor’s, , you know, newsletter. I, I really try and immerse myself in what’s happening. Because it’s so much to keep up with and then I really I’m also pay very close attention to what’s happening with CBDC.

So I look a lot watch a lot from Richard Turin who lives in China talks a lot about their CBDC. I do think coming. And what does it mean to us? , you know, as. As, as a, as an American society, what does it mean to our banking system the way that it will be rolled out or might not be? There’s a lot of legislation occurring right now, , to, to stop the feds efforts for [01:01:00] CBDCs and, , any change that occurs is happens technological, social, political, you know, environmental, economic, all of those, those aspects come in whenever there’s any type of change effort.

So, , so I’m just watching that and, and I think it helps and also open banking regs and CFPB and 1033 and all that stuff. So it’s interesting times.

Josh Detar: Oh my gosh. Well, if, , people want to maybe short circuit all the research and just come straight you, how can people connect with you or how can they learn a little bit more about what you and what infinite are doing? Awesome. Well,

Sarah Howell: Yeah. , I please pinging me on LinkedIn. Would love to get to know anybody. , and then, , also you can, you can visit me at ww dot infinite i n f i a n t.com. , I do write a blog there. I am not always as good at keeping up with it as I should be, but a lot of the concepts that I talked about today, , are fodder that I’ve used in the blog.

So,[01:02:00] ,

Josh Detar: thank you so much for coming and chatting with me. It’s just, it is, it’s really a pleasure to meet people that are just kind of Both in our space, but just in something a little bit outside of, you know, our direct day to day, I feel like it gives me such a cool opportunity to understand others, unique perspectives into the challenges and opportunities of our industry that maybe aren’t the ones directly in front of me.

So this has been really enlightening for me. And, and two, you’ve just been an amazing person to talk to. So thank you so much for coming and being a guest. Oh,

Sarah Howell: you and getting to know you personally. And, , thanks for all you’re doing for the industry and helping move the industry forward. That’s what we’re, you know, we’re kind of called to do. So, , thanks for, for being that.

Josh Detar: knucklehead asking questions. That’s all.

Sarah Howell: now on technology on fit tech technology. Love that too.

Josh Detar: Well, seriously, thank you again for coming and being a guest on the digital [01:03:00] banking podcast, Sarah.

Sarah Howell: Thanks. Enjoyed it.