Getting People on to the Credit Ladder: LendUp CEO Sasha Orloff

Today’s episode is about new ideas about a very old problem in consumer finance -- high-cost lending to high-risk borrowers. My guest is LendUp CEO Sasha Orloff, who is one of a new generation of fintech founders building alternatives to traditional payday lending.

In public policy, there has been a long-standing assumption, sometimes implicit and sometimes explicit, that widespread access to credit -- especially mortgages -- is a good thing. A host of government regulations, programs, and bank supervisory activities aim to promote more credit, because we’ve assumed that wider credit access is, broadly speaking, good.

Is it, though? Most people would agree that up to a point, it’s good, and beyond some point, it becomes bad. It definitely becomes bad at the point where the borrower can’t realistically repay the loan. It can also become bad if the pricing is so high that the person ends up worse off for borrowing, instead of better, especially if the borrower doesn’t understand the terms

We could do many episodes on the tough issues embedded in this question. One is whether it’s better to have high-cost loan options that are legal and subject to regulation, or to outlaw them, knowing that shutting down legal options will drive some desperate people to use illegal ones, which hurt them even more. Another is the philosophical question of how much the government should protect people from themselves. If the price of a high-cost loan is clear, and borrowers understand it, should the government respect their decision on whether to take it, or substitute its judgment for theirs and remove the option?

Again, public policy has been debating these issues for decades --  maybe centuries -- and still is, including through many of the initiatives taken to date by the CFPB.

In this podcast, we won’t tackle those questions, but will instead ask a very different one: What if we didn’t need to resolve them? What if, thanks to technology, we could solve the problems surrounding high-cost credit -- or a big chunk of them -- not through regulation, but in the marketplace.

LendUp.  Sasha Orloff founded LendUp to provide more affordable credit to the 50% of Americans with credit scores below 680. He had worked at a big bank, and at an NGO in the developing world, and had a brother in the technology world who kept telling him that better software could create better products. He finally founded LendUp, to build them.

LendUp offers credit products online -- which means it has, automatically, a lower cost structure than the traditional bank model of branches. As Sasha explains in our discussion, it has also designed its products to offer borrowers a gateway to better credit scores, credit options, and financial health.

LendUp is backed by major investors including Y-Combinator, Google Ventures, QED Investors, Startfund, Kleiner Perkins, A16Z seed fund, Thomvest Ventures, Kapor Capital, Bronze Investments, Founders Co-Op, Data Collective, Susa Ventures, and Radicle Impact.

Sasha and the firm have been featured in the Wall Street Journal, NYTimes, Financial Times, CNN, NBC, TechCrunch, Venturebeat, Inc, Wired, Bloomberg, Fortune, Dow Jones, American Banker, Marketplace and many others. He has presented at TEDx, and LendUp, and they won Finovate Best In Show. FastCompany named the firm as one of the World’s Top 10 Most Innovative Companies in Personal Finance, and it won runner up in Webbys for best website design. They have presented at LendIt, Emerge, Money20/20, The HubSF, NBC News, and Huffington Post Live, and participate in The Clinton Global Initiative on Financial Inclusion. Sasha also serves on the Consumer Lending Advisory Board for TransUnion (one of the three major credit bureaus)

A regulatory note.  After Sasha and I recorded this episode, the CFPB announced an enforcement action against LendUp. The order is, among other things, a warning flag for startups about the importance, and the great challenges, of maintaining complete regulatory compliance in the midst of rapid growth. The company has responded with a massive expansion of compliance staff. Following the announcement of consent order last fall, it issued this statement:

We started LendUp because the traditional banking system wasn’t working for more than half of Americans. From day one, we’ve committed ourselves to offering better, safer and more transparent credit products and to aligning the success of our business with the success of our customers.

We genuinely believed the product features that were identified by the CFPB and the California DBO– like optional expedited funding and a 30 cent per day discount for early repayment—were in the best interests of our customers. But we fell short in the execution and in meeting the expectations of our regulators.  We have since taken action to resolve every issue they’ve raised, including beginning to refund customers prior to entry of the Consent Order and Settlement Agreement.

We’ve also made significant investments to build out our legal and compliance operations. In this respect, we are a different company today, with a completely new legal and compliance team that is larger now than our entire company when we started these exams. Importantly, those teams are brought in at the beginning of the development lifecycle for every new product and feature.

We are proud of the progress we’ve made to expand access to credit, lower borrowing costs and provide credit-building opportunities to our customers. LendUp has:

• Graduated more than 20,000 borrowers to the highest rungs of the LendUp Ladder in more than 11 states

• Saved Californians alone more than $18M in 2016 (and an estimated $40M to date nationwide)

• Delivered over 800,000 free credit education classes; and

• Helped LendUp customers improve their credit scores: according to TransUnion data, 66% of LendUp customers showed a credit score increase – more than those in the control group using similar types of products from other lenders.

We are eager to keep building on this track record, and look forward to continuing our work to put our customers on paths to better financial health.

I have found Sasha to be one of the most thoughtful people in fintech. I think you’ll be fascinated by his overview of the shrinking of the American middle class, the impact of the smartphone revolution; innovation models fort startups versus banks; how making financial education interesting; and how to redesign regulation for the 21st century,

The loans at Lendup cost less than traditional payday options, but more than loans to prime customers, because the borrowers are simply higher risk. If lenders can’t charge enough to cover that risk, they won’t serve these customers. If they can, though, and if they can leverage technology to gain efficiency and underwriting accuracy, and if they can enable high-risk borrowers to build and repair credit records, and if they can educate people about managing their finances, and can also make a great return on capital and then truly scale up…. then seemingly unsolvable problems can, maybe, begin to.get solved.

More links:

• Study on LendUp impact on credit scores.
• LendUp education on credit scores.

More for our listeners:

I'll hope to see you at "LendIt in New York in February, SXSW in March, FinXTech Summit in April and of course CFSI’s Emerge in June.

Remember to review Barefoot Innovation on iTunes, and please sign up to get emails on new podcasts and my newsletter and blog posts at jsbarefoot.com.  My latest post argues for some healthy regulatory disruption as a new administration takes office. Go there too to send in your “buck a show” to keep Barefoot Innovation going. Please also join my Facebook fan page, and follow me on twitter.

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And watch for the next podcast, because we’re going to turn to innovation in small business lending. My guest will be Karen Mills, the former Administrator of the SBA and at Harvard Business School, where she has just issued an updated study on small business lending This one is focused mainly on fintech. We had a fascinating conversation. See you then!

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Remaking the Financial Rails: Ripple CEO Chris Larsen

Welcome to today’s show.

One night last summer I attended a small dinner in New York hosted by the editors of a global financial publication, on financial innovation. We had some of fintech’s brightest stars seated around the table, but I remember offering the view that the person there who was most likely to actually revolutionize the financial system was Chris Larsen, the CEO of Ripple. Most fintech innovators are building new things on the system’s old footings.  Ripple is trying to reshape the foundation itself.

As you’ll hear in our discussion, Chris and I first met about five years ago when the wider world had barely heard of Bitcoin, and blockchains and digital currency were still causing mostly head-scratching (at best). He had an impressive past that included co-founding eLoan and Prosper before Open Coin, which is now Ripple. The company’s mission is to create  interoperable global finance -- easy movement of money, and other forms of value, throughout the world. An analogy (which we also discussed in my earlier podcast with Circle CEO Jeremy Allaire) is to do for money what the internet did for information, enabling it to move instantly, cheaply, and accurately to everyone, everywhere.

I notice that people whose work is hard to explain use lovely, lively language and imagery. It’s certainly true of Chris. He talks about paper mail and rails and siloes and blocked pipes and, my favorite -- shipping containers, which he says boosted global trade by 700%, with the simple step of standardizing containers so they can fit efficiently on any ship, truck or train, anywhere in the world. He discusses a book on how this changed the world -- The Box by Marc Levinson. That inspired me to include the picture below, of a fully-loaded container ship as it passed along beside my apartment, which overlooks Boston Harbor.

In this episode, Chris says interoperability in finance is the last missing link that’s needed for truly efficient global commerce. He discusses the possible “science fiction” of connecting 50 billion devices through the internet of things. He describes how micropayments can transform functions ranging from ocean monitoring to financial access. He talks about people in huge swaths of Africa who have phones and Google but no connected way to pay for things -- and imagines the global growth that would be sparked by adding two billion people into mainstream payments and commerce. He imagines these solutions even helping to solve the problems caused by globalization.

Chris also talks about the crucial roles of banks, which are key partners for Ripple, and of regulators, including the risk that America’s splintered regulatory system could undermine our leading global role in finance which he says will be “up for grabs” as many countries compete.

And he explains, tellingly, how his views on “disruption” have evolved over time.

We recorded this discussion last summer -- before the presidential election, which he mentions -- and also before Chris’ announcement this month that he plans to step down as Ripple CEO at the end of 2016 in order to rebalance his life. He’ll remain active with Ripple and will work closely with its incoming CEO, Brad Garlinghouse.

More links:

• Chris's blog post on stepping down as CEO is HERE
• Ripple video  
• My blog post: The Benefits of Bitcoin

I loved this conversation with Chris Larsen, and I think you will too. Enjoy!

Barefoot Innovation news….

We’re posting this episode during a flurry of activity. Ten days ago I had the fun of doing a fireside chat at Money 2020 with CFPB Director Richard Cordray -- who used the venue to make some big new on big data and data aggregation.  I raced back from that to speak last week at the FTC’s fintech conference, and I’ll be missing the SEC’s first fintech event next week because I’m off to the Singapore fintech/RegTech festival that’s being co-sponsored by the Monetary Authority of Singapore, MAS. Money 2020 drew 11,000 people this year -- the largest financial conference in the world -- and the Singapore conference expects over 10,000, including for the first-ever RegTech conference in Asia.

Meanwhile, our direct subscribers to Barefoot Innovation more than doubled last month. Every week I’m encountering people who tell me they’re fans of the show. Please do send in your “buck a show” to help us keep it going -- I’m having to bring in more helpers for it. And please remember to review us on Itunes. Also come to the new Facebook fan page. And please come to www.jsbarefoot.com  to get onto our mailing list.

Most of all, come back next time, when my very special guest will be Alfred Hannig, the executive director of AFI -- the Alliance for Financial Inclusion. We recorded this one on an idyllic day in beautiful Fiji!  AFI is driving tremendous change in global financial inclusion and I know you’ll find the episode fascinating.

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Fintech for Everyone : Vinay Patel and Max Gasner from Bee

I enjoy all my guests on Barefoot Innovation, but if someone forced me to choose my favorite episodes, this one would be on the list. It’s partly because my guests, the co-founders of Bee, were so fun to talk with, and so thoughtful. And it’s also because they are addressing one of the objections people raise to fintech – the notion that it’s only for millennials.

Bee was founded in June of 2015 by Vinay Patel and brothers Max and Alex Grasner as an outgrowth of One Financial Holdings, a 'venture-backed laboratory for innovation in retail financial services'. In pioneering an innovative capital-light model using pop-up kiosks and street teams to sign up customers in-person, Bee is able to offer top quality financial services at a significantly lower cost than traditional brick-and-mortar bank branches. Bee is specifically targeting the lack of quality services for low-and moderate-income underserved people (although my guests point out that 'underserved' and 'underbanked' are not words people use to describe themselves). The product is intended to function as an alternative to checking accounts, structured as a prepaid card paired with a mobile app. Bee partners with Community Federal Savings Bank to offer alternatives to checking and savings accounts to its customers in New York and California. 

Part of what makes this interesting is Bee’s specific hybrid model of personal touch and high tech. They’re trying to put the human beings where customers need them the most – in explaining and opening the account. And then they’re trying to drive down costs overall by not providing branches and tellers for routine functions. Bee’s team goes in person into underserved neighborhoods in New York and San Francisco, and they set up eye-catching mobile kiosks, which they compare to food trucks. They get people interested and then help them through a thorough process of thinking through their needs; opening an account; setting up and learning to use the app; and then, often, letting the new customer stay on to take advantage of the Bee wifi hotspot.

The in-person signup process also helps guard against money laundering, since people are seen face-to-face. 

I think you’ll be fascinated by Max and Vinay’s insights into these consumers, including their huge financial savvy -- how thoroughly they know their money situations, and how they optimize their spending on their phones (and the challenges of working with such a wide array of phones that may be old or broken). Vinay and Max talk about their customers’ worries about both pricing uncertainties and payment delays (issues that are being tackled by other innovators as well).   

One repeated theme is the company’s commitment to treating these customers with respect by providing a product that is obviously high-quality, right down to the thickness of the card, and providing a truly fantastic user experience on the app. They say customers often take selfies with the Bee team, at the end of setting up an account. 

Bee’s CEO, Vinay Patel, has a joint law degree and MBA from NYU. He spent 5 years teaching at NYU Business school and at Columbia Public Policy Business School. He then moved on to McKinsey and Co. as a consultant to banks and government. 

Max Gasner has a background as an investment stock broker on Wall street from 2007 – part of what motivated this work. He has also worked in the Bay area at an AI company  - Prior Knowledge, and then moved on to a tech company which eventually morphed into Salesforce. 

We recorded this episode several months ago. Since then the company has grown. It also won national recognition in New Orleans in June at the Emerge Conference, as one of the winners of the Financial Solutions Lab competition run by the Center for Financial Services Innovation and funded by JPMorgan Chase.

Max and Vinay are eloquent on the need for regulators to allow space for robust innovation – just one startup might create the 10X breakthrough that can change people’s lives. They’re also thoughtful on their commitment to earning compelling returns for their investors, including Blumberg Capital, Fenway Summer Ventures and AXA Strategy Ventures.  They aim to do this with their unique formula of delivering personal attention and high value to a huge, largely untapped market, at very low cost.

 Enjoy my conversation with Bee.

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More Links and Information

• One Financial Holdings Blog
• Bee card website and access to kiosk locator
• CFSI
• CFSI research on consumer financial health and the financial situations of underserved families
• Blumberg Capital
• Fenway Summer Ventures
• AXA Strategy Ventures
• My blog post on CFSI’s research on underserved consumers, “Underserved and Underestimated” 

More about Vinay

Prior to Bee, Vinay spent five years at McKinsey & Company, where he advised leaders of US banks and public sector organizations on executing large-scale IT modernization programs. Vinay is a faculty member at both NYU Stern School of Business and Columbia School of International and Public Affairs, where he has taught courses on Enterprise Strategy, Game Theory, and Data Visualization. Vinay holds a J.D. and an M.B.A from NYU, and a B.A. with honors in Economics from the University of Chicago. He is happily married and lives in Brooklyn.

LinkedIn

Twitter: @patelpost

More about Max

Prior to Bee, Max built and sold a machine learning company to Salesforce.com and traded equities in NY and London. Max holds a B.A. in South Asian Languages and Civilizations from the University of Chicago, where he graduated after spending two years at Deep Springs College. He lives in West Oakland.

LinkedIn

Twitter: @gasnerpants

More about Bee

Bee is a financial technology startup built on the principle that all Americans deserve convenient, high quality retail financial services. Bee has pioneered an innovative capital-light model using pop-up street teams and kiosks to sign up customers in-person for financial services at significantly lower cost than with traditional brick-and-mortar bank branches. Bee partners with Community Federal Savings Bank to offer alternatives to checking and savings accounts to its customers in New York and California. Bee has ambitious plans to expand its product offering and geographic footprint over the coming years.

Its major investors are Blumberg Capital, AXA Strategic Ventures, T5 Capital, Fenway Summer Ventures, and Western Technology Investment

Websites: www.onefinancialholdings.com and www.beecard.us

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Support the podcasts - A buck a show!

I've decided to distill a lesson from the popular podcast series Hardcore History, by emulating their habit of asking everyone to send them "a buck a show." Some years ago, the show's host Dan Carlin realized the podcast was taking over his life - much as Barefoot Innovation has been doing with mine! He hit on the idea of asking listeners for "a buck a show," and eventually reached the point where he can devote himself to producing the series. Barefoot Innovation is produced part-time by me and two young, very talented helpers. One of them has a day job and the other is a full-time graduate student. If all our listeners will chip in a buck a show, we'll be able to expand our interviews, accelerate our pace (believe it or not, we currently run at a four- to five-month backlog from recording date to posting!), and be able to do some fun new things we have in mind for you. We'll appreciate any and all help to keep the show going, and growing!

And remember to post a review on iTunes.

Support the Podcast

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Cost Cutting with the Blockchain - Blythe Masters, CEO of Digital Asset Holdings

Barefoot Innovation usually explores technology that touches financial consumers - new products and new ways of managing money. Today's episode pivots 180 degrees and looks internally, inside financial companies, at the equally transformative change underway in how financial products are made and delivered.

My conversation is with Blythe Masters, CEO of Digital Asset Holdings, and our topic is the blockchain -- distributed ledger technology, or DLT.

Most of our listeners know that the blockchain, created by the inventors of Bitcoin, is expanding far beyond digital currency and has revolutionary potential for changing how society operates.  Any complex system that keeps records or involves chains of transactions - payments, contracts, titles, tickets, warranties, exchanges of all kinds, government records, medical information, purchasing systems - anything -- can potentially be managed through distributed ledgers that can eliminate most of the current costs as well as errors, uncertainty, and fraud. DLT can also enable trustable transactions among parties who don't know each other, without need for a trusted intermediary. That's because safeguards are built into the technology itself, by making all the records and transactions transparent to all parties and preventing duplication or fabrication of information.

Blythe Masters says she began as a skeptic because, like many people, she equated the blockchain with Bitcoin and, given Bitcoin's colorful developments, dismissed both. However, after leaving her long career as a senior executive at JPMorgan Chase, she took a closer look and became a convert. Today she's leading one of the most exciting and best-financed firms in the field, Digital Asset Holdings in New York.

We had a chance to sit down together at the 2016 Fintech Forum of Women in Housing and Finance in Washington, where she shared her vision for the power of DLT to transform the internal operations of banks.

Note that DLT systems can be either open-access and "permissionless," moving information on the open internet as with digital currency, or can be closed and "permissioned" within a single organization or a gatekeeping group that shares a common need. (For more on open systems and digital currency, see our episode with Jeremy Allaire of Circle.) Large banks are actively exploring use of closed DLT systems to streamline their internal operations to cut out expense, mistakes, and the slowness caused by the need for reconciliation of records. These efforts will bring enormous cost savings, for three reasons. First, the DLT system is simply cheaper to operate. Second, it eliminates many kinds of errors - and preventing, detecting and correcting errors is a massive source of expense in every financial company. And third, reducing delay will also reduce the need to hold capital against the risks that attend pending transactions.

I would add that DLT will, over time, open up the opportunity to modernize and streamline regulation itself, through use of "reg-tech" relies on automated data in many areas that are now subject to expensive traditional examination.

Blythe thinks DLT is coming to banking much faster than people think - that these solutions will be in commercial deployment in just two years! One reason is that banks can modularize them, dropping DLT into functions that need it and then connecting them up with the other, older systems.

She makes another interesting argument, which is that those notoriously outdated old systems are going to have to be replaced soon anyway. Many are about thirty years old use computer languages no longer taught in college. The industry will have to invest in new technology, and DLT solutions will fortunately be ready at just the right time to permit a real leap forward in efficiency and effectiveness. Blythe also says regulators are thinking right about these challenges and have the right tools to manage them.

Her company is focused on banks' non-consumer activities, but think about the impact of these changes for everyone. Smart phones are demolishing the cost structure of delivering financial services, worldwide. Simultaneously, DLT is demolishing the cost of manufacturing and servicing them. The combination will bring vastly more efficient, affordable and accessible services.

Blythe Masters is a fascinating person. She was previously a senior executive at J.P. Morgan, where she started as an intern and spent 27 years. In 2007 she was named head of Global Commodities, and left the firm in 2014 upon the unit's successful sale. She had also been responsible for the Corporate & Investment Bank's Regulatory Affairs, and was a member of the J.P. Morgan Corporate & Investment Bank Operating Committee and previously the firm's Executive Committee.

From 2004 to 2007, she was Chief Financial Officer of the Investment Bank. Previously she headed the Global Credit Portfolio and Credit Policy and Strategy. Earlier positions included head of North American Structured Credit Products, co-head of Asset Backed Securitization and head of Global Credit Derivatives Marketing.

From 2012 to 2014, Blythe was chair of the Global Financial Markets Association (GFMA). From 2008-2010 she was chair of the Securities Industry and Financial Markets Association (SIFMA). She currently chairs the board of Santander Consumer USA Holdings and serves on the boards the Breast Cancer Research Foundation and the Global Fund for Women. She is an avid amateur equestrian.

Her efforts have long generated interest and buzz, including this feature story in Bloomberg, others in Fortune and CNBC, and a Financial Times story on her company's blockchain test with Chase.

In our discussion I quoted from an invaluable report on DLT by the Bank of England. Here is the quote I cited in our conversation - the report's opening lines:

              "The progress of mankind is marked by the rise of new technologies and the human ingenuity they unlock. In distributed ledger technology, we may be witnessing one of those potential explosions of creative potential that catalyse exceptional levels of innovation....that could prove to have the capacity to deliver a new kind of trust to a wide range of services."

Please enjoy this thought-provoking conversation with Blythe Masters.
 

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Support the podcasts - A buck a show!

I've decided to distill a lesson from the popular podcast series Hardcore History, by emulating their habit of asking everyone to send them "a buck a show." Some years ago, the show's host Dan Carlin realized the podcast was taking over his life - much as Barefoot Innovation has been doing with mine! He hit on the idea of asking listeners for "a buck a show," and eventually reached the point where he can devote himself to producing the series. Barefoot Innovation is produced part-time by me and two young, very talented helpers. One of them has a day job and the other is a full-time graduate student. If all our listeners will chip in a buck a show, we'll be able to expand our interviews, accelerate our pace (believe it or not, we currently run at a four- to five-month backlog from recording date to posting!), and be able to do some fun new things we have in mind for you. We'll appreciate any and all help to keep the show going, and growing!

And remember to post a review on iTunes.

Support the Podcast

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FINANCIAL INCLUSION: RAUL VAZQUEZ OF OPORTUN

In addition to our podcast, please take a look at Raul's keynote at the EMERGE Forum.

I am constantly amazed by the fascinating and unpredictable course of our conversations on Barefoot Innovation - and what a fun one I had with Raul Vazquez, CEO of Oportun. I always like to ask my guests to tell us how they, themselves, keep up with technology. With Raul, I asked this just as I thought we were wrapping up, and the question launched us on a whole new conversation. He's definitely my first guest to bring up potential uses of virtual reality in financial services, not to mention the first to describe virtually interacting with bison.  He thinks we're heading to a "transformative" ability for "anyone, regardless of their incomes" to be able to immerse themselves in a virtual world to try out products and experiences.

As sometimes happens as I get to know great innovators, this is a second podcast with the same company -- click here to listen to our prior discussion with Luz Urrutia, Global Head of Retail. Oportun is based in Silicon Valley and was formerly called Progresso Financiero. It leverages advanced data analytics and technology to provide affordable, credit-building loans to U.S. Hispanics and others with limited or no credit history. The company's proprietary platform risk-scores loan applicants, calculates each one's ability to repay, approves the loans it believes can be paid back, and sets loan amounts and terms to fit individual budgets. Customer accounts are also reported to credit bureaus to help establish credit history. The goal is to combine a highly personal experience with back-office efficiency. Between 2006 and 2015, Oportun helped more than 689,000 customers, disbursing more than $2.2 billion through more than 1.3 million small dollar loans.

Raul joined Oportun in 2012 after nine years in senior leadership roles at Walmart, including as EVP and President of Walmart West, President and CEO of Walmart.com, and EVP of Global eCommerce for developed markets. He also serves on the Board of Directors of Staples, Inc. and is a member of the Federal Reserve Board's Community Advisory Council. He's a graduate of Stanford University with BS and MS degrees in industrial engineering, and also earned an MBA at the University of Pennsylvania.

This is one of those fun episodes where we could have kept talking for hours if we hadn't run out of time. So...enjoy my conversation with Raul Vazquez!

To learn more about Oportun Financial, click here.

Click here to Opor-tune in to Raul's presentation at last year's EMERGE conference about Oportun's four key learnings so far.

To register for this year's indispensable Emerge in June in New Orleans, click here.

And here's my favorite Wired article on voice technology: "We're on the Brink of a Revolution in Crazy-Smart Digital Assistants"

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A note on the podcasts - A buck a show!

I've decided to distill a lesson from the popular podcast series Hardcore History, by emulating their habit of asking everyone to send them "a buck a show." Some years ago, the show's host Dan Carlin realized the podcast was taking over his life - much as Barefoot Innovatoin has been doing with mine! He hit on the idea of asking listeners for "a buck a show," and eventually reached the point where he can devote himself to producing the series. Barefoot Innovation is produced part-time by me and two young, very talented helpers. One of them has a day job and the other is a full-time graduate student. If all our listeners will chip in a buck a show, we'll be able to expand our interviews, accelerate our pace (believe it or not, we currently run at a four- to five-month backlog from recording date to posting!), and be able to do some fun new things we have in mind for you. We'll appreciate any and all help to keep the show going, and growing!

And remember to post a review on ITunes.

Support the Podcast

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A note on my Regulation Innovation videos and the most important writing I've ever done

Also click here to watch the new Regulation Innovation videos we've posted and read the new articles. These are currently a free sample but will soon become limited to subscribers. Every month, I'm creating a short video briefing and then backing it up with a deep article that shares what I've been learning about financial innovation, and also shares my hard-earned secrets about how I've been learning it. The articles are rich with links to resources -- everything from news reports and white papers to statistical trends to my very favorite Ted Talks.

My goal is to use this pairing of videos and deep articles to repackage my consulting advice, so it can reach a wide audience affordably. In essence, I'm searching the fintech world and curating the best insights for you. As a series, it's a journey through this changing landscape, finding the keys to thriving on disruption with me as your guide.

I've done a huge amount of writing over the years - I've published hundreds of articles. These are the most important, valuable writings I've ever done. Again, these are currently free - I hope everyone will try them out.
 

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Upcoming shows

We have terrific shows come up - the amazing Blythe Masters, the very innovative founders of Bee, and much more.  Join me then!

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Effortless Investing : Jon Stein of Betterment

Welcome to Barefoot Innovation and to a new dimension in the topics we explore. We've talked with many startups in lending, payments, and managing personal finance. Today, we're looking at the most exciting change underway in the investment space - "robo-investing." My guest is Jon Stein, the founder and CEO of Betterment.

We met in their fast-growing offices in New York, a converted warehouse steeped in industrial character and with mouth-watering aromas wafting from a very substantial food bar that lined one end of the busy open space, and offering the special charm unique to businesses where people bring their dogs to work.

In our conversations, Jon told me the story of his personal journey. He graduated from Harvard and - since, as he says, no one was recruiting for jobs with the description of "making people happy" - went into finance. Eventually he went on to Columbia Business School, gained Series 7, 24, 63 certifications, and become a CFA, Chartered Financial Analyst. He expresses respect for traditional financial businesses, but became frustrated by their transactional focus, and also by his own financial life - he had 7 brokerage accounts, invested in Enron, and finally concluded that the industry encourages the wrong investor behaviors, especially in trying to "beat the market." He'd studied both economics and human behavior in college (before behavioral economics caught on) and realized that his interests lie at the intersection of behavior, psychology, and economics. He remembers a professor saying "how crazy people can be, and how very often they would get in their own way, and how even when we wanted to do the right thing, we would do the wrong thing."

He also says he always knew he wanted to do "something big."

So in 2008, he founded Betterment.

Betterment is now the largest independent "robo-advisor," with $4.3 billion in assets under management and 150,000 customers. I've interviewed many founders of startups on Barefoot Innovation, but this is the first one that runs commercials on television.

Betterment aims to optimize investment through automation that produces sound advice for the long term, and that also makes the process both easy and more affordable. It builds around what Jon considers the MOST important advice -- which is too often overlooked, namely -- "How much to save?" The company has also taken on the "behavior gap" in financial advice - Betterment has the lowest in the industry and is trying to drive it to zero.

They are also constantly driving for efficiency gains (his colleagues say if you want to sell Jon on an idea just tell him it will increase efficiency), and for fee transparency. They think this combination of strengths - being advice-centric, transparent, and hyper-efficient -- will revolutionize the investment world. They also think their model, over time, can be applied to a much broader set of financial services. As Jon's biography puts it, "What excites him most about his work is making everyday activities and products more efficient, accessible, and easy to use."

One highlight of our conversation is his insights on the thorny questions of how these innovations should be regulated, including on the advice given, how data should be used to be sure it's helping customers, and how performance should be measured.
 

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Note on upcoming podcasts

Click below to donate your "buck a show" to keep Barefoot Innovation going and growing. (If you didn't hear my explanation on this, it's at the end of the previous episode, with Raul Vazquez of Oportun).

Support the Podcast

Upcoming shows are going to be so interesting. Keying off Jon Stein's thinking on human behavior, we'll have an episode with one of America's top experts in how behavioral economics impacts investment and retirement savings, Harvard Professor Brigitte Madrian. I'm delighted to say Brigitte is also my faculty advisor on the book I'm writing on financial innovation and regulation for my Harvard fellowship this year.

We're also working on a fascinating show on innovation emerging in the insurance sector, dubbed, "insure-tech."

Other guests in the queue include some of the country's most thoughtful bank compliance officers, and the very thoughtful founders of Bee.

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Note on Regulation Innovation Briefing Series

Meanwhile, click here to explore my Regulation Innovation briefings, while you still can for free!  The briefings are short monthly videos, each paired with a deep article about the twin and intertwined challenges of financial innovation and regulation. They are still free for a few more weeks, and then the series will be for subscribers, so please check it out.

As I said last time, these articles are the most important and valuable thing I've ever written. I hope you'll join the journey.

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Its Still Simple : Josh Reich One Year Later

This episode updates one of the very first ones we did in our Barefoot Innovation series, last year. Episode Two featured the two co-founders of Simple, Josh Reich and Shamir Karkal. A year later, we all found ourselves back at the same conference where we'd recorded that program. Shamir has now taken on a new role, leading the open platform innovation of the very innovative bank that bought Simple, BBVA.  Josh, though, is still CEO of Simple (a fact that he says tends to surprise people). So on a very rainy afternoon in Southern California, he and I found a place where we could duck out of the weather (you may hear the deluge in the background), and talked about how Simple has progressed in the year just past.

So...very few people are more fun to talk with than Josh Reich, but I think my favorite thing about this episode might not be the podcast, fascinating as it is, but rather something the podcast led me to. In our conversation, Josh talks about a customer whose dog chewed her debit card - twice! Simple sent her a customer appreciation package with the second card, and she was so grateful that she made a YouTube video about getting it.

Every banker in the world should watch this:  customer appreciation reaction video
 

I won't update the full show notes here - please look at Episode 2 for the basics on Simple which, again, is now part of BBVA bank.  And if you missed it, be sure to listen also to my podcast with Manolo Sanchez, the CEO of BBVA Compass, who I think may be the most innovative bank president anywhere. BBVA is all-in on fintech innovation.

Also, Josh and I did not get to a key update, which is the big move Simple made last year to eliminate ALL its checking account fees. I'm linking to his blog post here explaining what they did and why.  Remember, Barefoot Innovation is a search for better solutions for financial consumers through all kinds of innovation. BBVA and Simple are making this search in a great many interesting ways.

So enjoy hearing Josh's insights, ranging from how to succeed when a big banks buys a small innovator, to the make-or-break power of a bank's culture, to the incredible efficiencies of growing a bank without branches - he shares some numbers -- to his advice for regulators.

And watch for fantastic episodes coming up: Oportun CEO Raul Vazquez; Betterment CEO Jon Stein; two of the country's top compliance officers, together; and Blythe Masters of Digital Asset Holdings - to name a few.

 

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Regulation Innovation Video Series: Briefing One - The Five Tech Trends Driving Financial Transformation

The Five Tech Trends - the latest video in the Regulation Innovation Video series.

Meanwhile be sure to sign up for our new video series, Regulation Innovation - Thriving on Disruption.

These are short briefings - 10 to 15 minutes each - designed to be the single easiest way to understand the huge issues raised by fintech, in both technology and regulation, and how best to address them.

Since fintech is far more about "tech" than "fin," we're starting the series with The Five Tech trends transforming finance.

Plus we have a lighthearted little extra, straight from my own kitchen, on how I was inspired to some thoughts about innovation by a very unusual gadget.

The briefings are designed share in meetings and training sessions, from board rooms to business and compliance teams. They come with access to a subscriber-only website with resources and advice. We have group pricing available - just contact us!

Please sign up for them, and also to get my podcasts by email. And be sure to leave reviews on ITunes.

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A dollar a show is all we ask.

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CFSI's Innovation Contest

We have a very special show today. I realized – rather late – that we should do an episode on the CFSI financial solutions lab competition. It’s belated, because the contest is open, now, for its second year of applications, and the deadline is April 7 – just a few days from now. 

My guests are Ryan Falvey, who heads the lab, plus three of last year’s 9 winners. They are Sheri Atwood of SupportPay; Jerry Nemorin, of LendStreet, and Quinten Farmer of Even. They explain how the competition works, what they are looking for this year, and, from the standpoint of last year’s winners, what they have gotten from participating in the program.

FINLAB:  The FinLab is investing about $5 million each year in the contest winners, who also receive a huge array of expert advice and access to networks and resources. Here’s the information on the competition and how to apply by April 7:  Finlab.cfsinnovation.com. And here is an overview of the full list of last year’s winners.

For today’s show, we’re featuring these guests:

RYAN FALVEY

As a Managing Director at the Center for Financial Services Innovation, Ryan oversees the Financial Solutions Lab, bringing together innovators from the fields of technology, behavioral economics, nonprofit services and design to provide guidance, share best practices and develop scalable financial products. He loves to help organizations solve hard problems. Prior to joining CFSI, Ryan was at Silicon Valley Bank, working with leading technology firms to develop innovative payment products and solutions. He also served as the Strategy Group Lead at Enclude Solutions, overseeing its global strategy consulting work in over 30 countries and supporting the development of several of the world’s most successful mobile-enabled financial products. Ryan has a graduate degree from Yale and an undergraduate degree from UCLA. 

Twitter: @TheFinLab, @CFSInnovation

Personal Twitter: @Ryan_Falvey

SHERI ATWOOD

Sheri Atwood, Founder and CEO of SupportPay by Ittavi (acronym for “it takes a village"), is a former Silicon Valley executive, single mom and child of a bitter divorce. Atwood, who was raised by a single mother and was the only person in her family to attend college, married at 19, completed her undergraduate degree in less than 4 years and completed her MBA 10 days before her daughter was born. When Atwood herself divorced at 25, she was the youngest Vice President at Symantec. Before SupportPay, there was no easy way for parents to exchange child support -- and Atwood was so determined to create a solution that she taught herself to code and is today an expert in front-end development. Atwood was named “#5 of 50 Women in Tech Dominating Silicon Valley” and a "Top 40 Under 40 Executive in Silicon Valley." 

Website: www.supportpay.com

Twitter: @SupportPayApp

Personal Twitter: @SheriAtwood

JERRY NEMORIN

Jerry is founder and CEO of LendStreet. He previously worked at Bank of America Merrill Lynch in its Global Corporate & Investing Banking division, helping major companies restructure their debt during the financial crisis and raise money from the high yield debt market. Jerry is now putting that expertise to use in a way that helps consumers in financial distress deal with their debt and rebuild their credit.

Jerry has been a speaker, guest, and advocate for responsible lending and sustainable financial services on Capitol Hill and industry events such as Finovate, SWIFT Innotribe Competition, Experian's Vision Conference and Credit Suisse Impact Investing Conference.

Jerry recently served as Entrepreneur-in-Residence at the Darden School of Business Incubator. He began his career in Tyco's Treasury group and received a B.S. in Finance and Exercise & Sports Science from the University of Florida and an M.B.A. from the Darden Graduate School of BusinessAdministration at the University of Virginia.

Website: www.lendstreet.com

Twitter: @LendStreet

Personal Twitter: @JNemorin

QUINTEN FARMER

Quinten Farmer is Co-Founder at Even. Previously, Quinten ran Client Operations at Taykey, a venture-backed advertising technology company, and was Vice President of Operations at Onswipe, a New York-based startup. Quinten studied Computer Science at Columbia University, and also founded the Open Loans Project, a nonprofit working to bring transparency to the student loans industry. He founded Even to help employers enable workers to even out timing mismatches between paychecks and expenses, especially in volatile or disruptive situations.

Website: https://even.com

Personal Twitter: @Quintendf

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Also, be sure to come to the CFSI Emerge Forum on Consumer Financial Health, in New Orleans, June 14-17. The new contest winners will be announced, and there will be an amazing lineup of speakers and events focused on technology solutions to building consumer financial health and well being.

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Transforming Payments: Circle CEO Jeremy Allaire

Welcome to our first episode focused on Bitcoin, digital currency, and the blockchain. My guest is one of the most thoughtful people anywhere on this topic and on payments overall: Circle CEO and Founder Jeremy Allaire.

I met with Jeremy at his office in south Boston's "Innovation District," a few blocks from where I live myself. They have quintessential startup space in an old brick warehouse, and we sat down on a New England winter day for a really fascinating conversation.

I often talk about the five huge technology trends that are revolutionizing financial services. Number 4 on my list is digital currency. Not long ago, even senior leaders in banks and regulatory agencies dismissed Bitcoin as insignificant and weird at best, and dangerous at worst. Today, many people still think it's weird and dangerous, but no one thinks it's unimportant. I'm going to assume our listeners know the basics - that Bitcoin invented the "blockchain," which is an open "distributed ledger" of transactions, visible on the internet, and that being on the internet makes it (like everything else there) instant and free. Most people also understand that this can transform our slow, high-cost payments system, and also any other system that is, in effect, a chain of transactions or records. Most people also know the blockchain record is unfakeable, unbreakable, and again, visible - attributes that can fundamentally change how we organize things from money and contracts and legal titles to operational systems and markets of all kinds.

I once wrote a blog post called "The Benefits of Bitcoin", arguing that the cheap and instant movement of money can bring incredible upside potential for financial consumers, as well as new risks. It will eventually change everything from remittance services to the struggles facing people on tight budgets who now rely on cash, since it's the only way to be sure a bill gets paid exactly when it's due.

As understanding of Bitcoin has spread, a new conventional wisdom has emerged - the notion that the crucial innovation here is not digital currency, but rather the blockchain, including closed chains inside companies and closed networks. In our conversation, Jeremy challenges that idea head-on. He argues passionately that the big power in this technology is its openness.

He reminds us, for one thing, that the internet initially spurred hot debate over how to secure the unprecedented free-flow of information. In a widely-circulated article on re/code.com last November Jeremy wrote,  "Remember, the Internet was unreliable, insecure, and filled with creeps and hackers. People wanted safe, secure, trusted and proprietary networks. That was the future...(yet) We all know what happened. Smart creators and engineers from all around the world got inspired by the open Internet...Permissionless innovation took hold, and we changed the world." He thinks we now need to take the basic DNA of the Internet - open protocols and distributed and decentralized networks - and apply them not just to sharing data and information, but to the sharing of value.

He also emphasizes a core power of this - the fact that if you don't have to trust a single centralized institution to facilitate value exchange, amazing things become possible. Jeremy refers to bitcoin as a distributor of trust, one that "provides a highly secure ledger to exchange value around the world." He believes that just as the early Internet disrupted media and communications, this wave of innovation will transform the "trust and assurance" industries - "which includes government, law, accounting, insurance and, last but not least, finance."

Entering into a global economy in which everything from social identities to commerce flow instantly and freely is discomfiting to some. Even though today's closed and proprietary technology and networks create frustration and high costs for consumers, Bitcoin critics still doubt the soundness and resilience of the model. For innovators like Jeremy, though, it is creating a whole new set of solutions that use financial technology to build "smart rules" and business logic that can eventually shape the new laws of global commercial and legal governance.

Jeremy's "aha" moment on this came in 2012, and inspired him to start a company that would use blockchain technology, which he calls the "global trust and transaction ledger," to change the way we store and use money. That company is Circle, a provider of mobile apps "aimed at enabling greater ease-of-use in online and in-person payments, enhanced security and privacy for customers, and the convenience of free, instant, global digital money transfers." A revolutionary idea. As I say in our conversation, I'm a Circle customer myself.  Every time I use it, it amazes me.

Before Circle, Jeremy was an entrepreneur who'd already spent two decades building and leading global technology companies. His first startup, Allaire Corp, pioneered the use of the Web as a platform for commerce and business applications, and grew to serve over 1 million customers around the world. In 2000, Allaire Corp was acquired by Macromedia, where Jeremy became Chief Technology Officer and helped transform Flash into a platform for rich applications and video that became the most widely adopted piece of software in the history of computing.

He then founded Brightcove, the first Internet video publishing platform for websites, smartphones, tablets and connected-TVs. The company has customers in more than 100 countries and powers video operations for 25 percent of the top 10,000 websites in the world. From 2003 to 2014, Jeremy also served as a Director at Ping Identity Corporation, an industry-leading software and online service provider for securing identity on the Internet whose clients include many of the largest financial institutions in the world.

 

In our conversation, Jeremy explains his vision, his long background in technology, how Circle works, their business model and plans, and his thoughts about regulation of finance and fintech.  The regulatory challenges are obviously huge. Circle sought and received the first-ever (and at this writing, still only) New York State "bit-license." Jeremy talks about the challenges of becoming licensed as a money transmitter in the U. S. state-by-state regulatory patchwork. He also recognizes that, importantly, governments throughout the country and the world see potential as well as risk in these innovations. An example is that Jennifer Shasky Calvery, Director of the Financial Crimes Enforcement Network, has testified before Congress that FinCENrecognizes the "potential for abuse by illicit actors," and that the agency has for almost five years worked with its regulatory partners on designing rules that provide the "needed flexibility to accommodate innovation in the payment systems space under our preexisting regulatory framework."

Jeremy Allaire has an exceptional gift for making mind-bending technology and regulatory challenges easy to understand - and for provoking thought. This is, without a doubt, one of the most fascinating episodes we've had.

Enjoy it, and please be sure to click the "Donate" button HERE, and to write a review on ITunes, to keep supporting the show.

And.....Introducing my video series: Regulation Innovation

Meanwhile, I have a video for you -- two of them, actually.

Many listeners know I have long been a consultant to the financial industry, first on regulatory matters and more recently on fintech. A couple of years ago, someone suggested that I take the kind of advice people pay me for as a consultant, and distill it into video briefings that are accessible and affordable for a much wider market. It was a great idea, and so I began building a video series offering my advice.

I've focused the videos on the most important question facing consumer financial services -- How to survive, and actually thrive, through the twin disruptions that are hitting the industry:  technology innovation, and regulation.

I think everyone in fintech will enjoy them, but the series is specifically designed as a guide for financial companies - it's informative, thought-provoking, and practical. It's for both traditional companies and innovators. And it's for the people working on innovation, regulation, and building the business.

I am very confident in saying there is nothing else remotely like it.  Please check it out!

And while you're there, check out my little bonus video because it answers, at long last, this burning question: "Why does Jo Ann Barefoot have an Xbox, since she's never played a videogame in her entire life, and what the heck does this have to do with financial innovation?"

www.regulationinnovation.com. See you there!

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Effortless Saving: Digit CEO Ethan Bloch

This is one of my favorite episodes we've ever done - my conversation with Digit founder and CEO, Ethan Bloch.

Digit has set out to solve one of the core problems in consumers' financial lives - how to save. Their solution is to make savings effortless, using an intelligent algorithm that analyzes your spending and income patterns and automatically moves funds into savings. I had dinner with Ethan last summer and suddenly realized he was describing an "Uberization" of savings, paralleling the financial industry's efforts to "uberize" payments, in the sense of making the mechanics disappear, like the non-exchange of money at the end of an Uber ride.  Out of sight, out of mind. With Digit, you sign up, and you automatically start to save.

I had always assumed that getting people to save requires fostering mindfulness - getting people to think long term instead of short term. Digit is going in the opposite direction - not mindfulness, but mindlessness. Again, effortlessness. Instead of hoping people will form habits that keep them focused all the time, on saving Digit just lets them decide to save one time. After that, they save. He's trying to drive the "minutes per year" spent on saving to nearly zero. No more budgets, expense tracking, figuring how much you should save and can save and did save. They're breaking all those practical barriers that keep most people stuck.

I know it bothers some people to have consumers saving without thinking. We wish, instead, that everyone would become financially educated and focus on their life goals - you could call it developing the financial virtues. There are innovators working on that approach, too, using behavioral economics to get people motivated. Still, if the eat-your-spinach approach was going to work, it probably would have by now. It's time to try new tools. I know other companies working from the same logic.

And here's an interesting twist. After Digit gets people started on effortless saving, they actually do switch over to mindfulness. They start texting their customers about daily savings progress. And they do it with humor which, as I've been saying, is a secret weapons of many fintech innovators. They are blowing up the boredom factor that keeps so many people from focusing on their finances. I asked Ethan for examples of this. Unfortunately I didn't get the jokes because they're aimed at millennials, but if you -- unlike me -- happen to know what's cooler than cool, Digit will send you this fun GIF.

 

Speaking of millennials, Digit's average user is 27 years old. Some people want to dismiss fintech solutions for this group, because so many other consumers need tools too My answer to that is, the millennials are the early adopters of new technology. It makes sense to start with them. As these products get traction, they will broaden.  Listen to Ethan, and many of our other guests, and you hear a big vision about remaking the financial lives of everyone. (And by the way, we do have a show coming up with Bee, which is reaching for a very different market.)

At the age of 30, Ethan is at the forefront of the fintech revolution. Digit is a winner of the Financial Solutions Lab competition sponsored by CFSI and JPMorgan Chase, which focused its first year on solutions for the more than one-third of Americans who struggle with managing cash flow management. (Recall that another winner was Ascend - we talked with its founder, Steve Carlson, in Episode 9).

Ethan explains how much money Digit has saved people so far (by the way, we recorded this discussion late last year, so his progress data are for 2015, not 2016). He explains how customers are using the savings they build up. He describes their investors and business model and plans.

And he talks about how to design great financial tools, that are like smart phones - that people can just pick up and use, without needing manuals, much less lengthy federal disclosure documents.

Speaking of those, Ethan really calls out the failures of disclosures. He also discusses the shift underway toward a more principles-based approach (echoing our episodes with other guests, including Thomas Curry). He describes, too, the huge obstacles to innovation that arise from well-intentioned government efforts, including the difficulties innovators face in working with banks.

Ethan also had the most surprising answer I've gotten yet to my standard question on how he keeps up with technology change.

Finally, for our many listeners who play Barefoot Innovation while you're carpooling to school in hopes it will inspire your kids to grow up and found the next PayPal, I should say I'm rating this episode PG-13, for language. Ethan uses a few words in our conversation that...let's put this way, you hardly ever hear them on National Public Radio.

Learn more at www.digit.co and @hellodigit and @ebloch and find further links below:

• On banks opening up their APIs
• The book "Rainbow's End"
• CFSI's research on the U.S. Financial Diaries

Note to Our Listeners:

If you're enjoying Barefoot Innovation, please be sure write a review on ITunes and also click the Donate button, to help us can keep it growing!

Last but not least, I am finally launching my long-in-the-making video series, Regulation Innovation. It's for people in the financial world contending with the top two disruptive challenges - regulation and technology innovation. It for both business and regulatory people, and for both traditional companies and innovators. I'll have much more information coming on this, but please come to www.jsbarefoot.com in March, and check it out!  I promise, there is nothing else remotely like it.

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Steve Carlson, Founder & CEO of Ascend, Winner of the CFSI Financial Solutions Lab Competition

Episode 9 finds us at the 2015 EMERGE conference in Austin with the winners of the first Financial Solutions Lab competition.

The contest is a $30 million, five-year initiative funded by JPMorgan Chase and run by the Center for Financial Services Innovation, or CFSI, the conference sponsor (note -- I serve on CFSI's board). It challenges entrepreneurs to create solutions for the cash flow difficulties facing millions of American middle and lower income-households.

Two hundred ninety-eight innovators applied. Nine were chosen. And  -- drum roll - one was Steve Carlson of Ascend Consumer Finance, our guest for this episode.

Ascend was recognized for its unique approach to broadening credit access and affordability for non-prime borrowers.  The company wants to drive a new generation of lending with its Adaptive Risk Pricing tool, which actively monitors and rewards customers for positive financial actions throughout the span of their loan, sharply cutting interest costs.

I've known Ascend's Co-Founder and CEO Steve Carlson since we both joined the Consumer Advisory Board of the Consumer Financial Protection Bureau (CFPB) when it first was formed in 2012. Ascend has benefited - and so does our podcast - from Steve's double background in banking and technology. He has held senior executive roles at HSBC and Washington Mutual and advised global financial services firms as a co-founder of Sung Carlson Associates. He was also the head of marketing and business development at Intuit Financial Services (Mint.com and Quicken).

(A side-note on Intuit:  in the recording, Steve  relates its history and I ask if its founder, Scott Cook, got started by making calls from a phone book. Afterwards, I looked up the story and found it in The Lean Startup, by  Eric Ries (pages 88-89). He writes that in 1982 Cook "picked up two phone books: one for Palo Alto, California, where he was living at the time, and the other for Winnetka, Illinois." He randomly called people to gauge interest in his idea, and a company was born. For any listeners who haven't read The Lean Startup, do!)

In our conversation, Steve describes the impetus behind Ascend, their current status (including their partnership with Lending Tree), and why he believes banking should be a value-driven proposition. He thinks both consumers and the industry can benefit by improving the financial health of consumers. The company's pioneering product, RateRewards, enables borrowers to earn up to 50% off their interest expense by making responsible financial choices throughout the life of their loan. With Adaptive Risk Pricing, Ascend is able to offer loans at rates that reflect real-time performance instead of past behavior. This, Steve says, is reinventing "the whole concept of underwriting and risk assessment."

Indeed, many "non-prime borrowers" - a group that actually represents about a third of the U.S. population - are better candidates than their credit scores would indicate. One-time financial shocks and "thin" files can greatly diminish a consumer's chance of getting a reasonable rate on a loan, or even a loan at all at a traditional institution. Ascend is encouraging borrowers to bet on themselves and prove -- through their actions, rather than their credit history -- that they are creditworthy. As Steve says in the episode: "Everyone today [is] going to be in a different stage in terms of their financial health ... I might be in great shape today; tomorrow could be totally different."  Ascend is trying to make the road to financial wellness smoother -- something Steve says he feels good about.

This episode of Barefoot Innovation became a brainstorming session, as Steve and I tried to think through how innovators, banks and regulators can move toward better ideas for financial consumers -- including musings on how innovators should interact with the world of bank charters and regulation.

Enjoy it!  And check out more information on Ascend, and on the Innovation Lab winners.

You can subscribe to the podcast on iTunes HERE or by opening your favorite podcast app and searching for "Jo Ann Barefoot".

Episode 2 - "The Cheerful Disruptors" with Josh Reich and Shamir Karkal from Simple.com

Episode 2 is my lively conversation with the irreverent co-founders of Simple – CEO, Josh Reich, and Shamir Karkal, the company’s CFO.

Simple is a Portland, Oregon start-up offering a simplified, consumer-friendly account for saving and making payments.  Last year it was acquired by the global Spanish bank, BBVA, which has been making bold moves in tech innovation.

Our discussion captures the clear voice of the disruptors who are challenging traditional banking. Josh and Shamir describe the famous email that led to their venture, including why Josh’s friends thought he’d gone crazy (hint: it has to do with regulation). They explain their own very unbankerly backgrounds, and talk with passion about what they think is wrong with mainstream banking, including why it’s so hard for banks to change. 

They made me laugh throughout -- there’s a moment where Josh is explaining the company’s funny style and says, “she had this wicked, wicked sense of humor.”

I think my favorite thing in our talk is how they tell their customers’ stories about Simple making their lives better.  The key is helping people save, including by highlighting a number labeled “Safe to Spend,” rather than the account balance.  Simple idea, isn't it? And powerful.

I feel like Simple might be on track to crack the code on the core problem that bedevils financial consumers: how to get regular people actively engaged. Most people are very interested in what they use their money for, but bored by the money itself -- a fact that leads them into mistakes. Simple is trying to change that.

After we turned off the microphone, Josh said one more thing that has stayed in my mind ever since.  I’ll share it in my postscript at the end of the podcast.

You can subscribe to the podcast in iTunes HERE

Show Notes

The companies:

You can find full information on Simple here, and on BBVA here.

My guests:

Josh Reich, CEO & Co-Founder  — Josh’s career has spanned marketing analytics and quantitative finance, including running a data mining consulting firm, a quantitative strategy group at a $10 billion fund, and core components at the mortgage lead market, Root Exchange. Four years ago, Josh founded Simple, formerly BankSimple, a company that is working to radically redesign banking by using modern technology to help people worry less about money. Josh has a BSc. in mathematics and statistics from the University of Melbourne, most of a medical degree, and an MBA from Carnegie Mellon University.

Follow him on Twitter at @i2pi 

Shamir Karkal, CFO & Co-Founder  — Shamir is a software engineer turned finance and banking expert. Prior to Simple, Shamir was a consultant with McKinsey & Co. specializing in strategy consulting for financial institutions in Europe, the Middle East, and the US. Prior to McKinsey, Shamir was a software engineer. He has a bachelor’s in computer science, a master’s in information technology, and an MBA from Carnegie Mellon University.

Follow him on Twitter at @shamir_k

FAQ’s about Simple:  https://www.simple.com/faq

 Here are the two firm’s announcements about BBVA acquiring Simple:

Here and Here

Please note that the views expressed by guests on Barefoot Innovation are their own and do not reflect the opinions of Jo Ann Barefoot or Jo Ann Barefoot Group LLC, nor do we endorse any product, service, or company discussed.