Payments On Fire

Fintech

Episode 170 – No turning back at the crossroads of embedded finance and the metaverse – Ahon Sarkar, Helix by Q2

In this episode of Payments on Fire®, George and Yvette Bohanan welcome Ahon Sarkar, GM of Helix by Q2. Listen in as they discuss embedded finance, multi-tenancy, participating in the FedNow pilot, and bringing online, physical and financial worlds together into a consistent experience that is meaningful to customers.

 

George Peabody:

Welcome to Payments on Fire podcast from Glenbrook partners, about the payments industry, how it works and trends in this evolution. I’m George Peabody.

Yvette Bohanan:

And I’m Yvette Bohanan.

George Peabody:

And we’re here to talk about …

Yvette Bohanan:

Payments, George. We’re here to talk about payments.

George Peabody:

Payments, of course.

Yvette Bohanan:

We can’t stop talking about payments.

George Peabody:

I just lit myself on fire, so thanks for the rescue, Yvette. Nicely done. Yvette, before we get into today’s interview, I want to hear about what’s happening with the education program. A lot of changes this year already. And of course, new trends are emerging all the time. How’s the education program reflecting that?

Yvette Bohanan:

The education program’s on fire too. We are busy. A lot of it is we just keep writing, rewriting and advancing our understanding of all things digital currency systems, cryptocurrency systems, stable coins and what’s emerging there and what are the economic models around that? And how are people advancing that space? And central bank digital currencies, and what’s going on with that? And then we focused our whole webinar series in Q1 on that material and we’re continuing to evolve it. We’ll be offering an insight workshop probably later this year just to catch everybody up because it’s a super dynamic space. A lot going on, really with fast payments too. Those are the two hot areas right now, I think.

George Peabody:

What was that second one?

Yvette Bohanan:

Oh, fast payment systems.

George Peabody:

Fast payments, yes.

Yvette Bohanan:

The real time or instant payment systems. PIX in Brazil is insane. And there’s this interesting progression now that all these modernization efforts have occurred in so many countries. Now, the countries are trying to connect to each other, right. We’re getting these pilots where the RTP system, hopefully soon the FedNow system, it will be touching on some of this I think in a few minutes, but are starting to connect over to Europe. And the monetary authority of Singapore is doing integration where they’re connecting and making interoperability occur between fast payment systems in APAC, right. This is extraordinary because we always say there’s no global payment system. And there isn’t because regulators don’t like that idea sometimes. They like domestic systems that they manage and control. And they like sovereign currency generally speaking, and safety and soundness.

Yvette Bohanan:

But with these fast payment systems, we’re starting to see a whole new way of doing cross-border payments. And it’s really shaking things up. We’re doing a whole insight workshop this month with Elizabeth McQuerry and Joanna Wisniecka. And they have incredible background here in fast payment, instant payment systems and the fed. And so I’m really looking forward to that. Okay, I’ll stop. That’s enough about education.

George Peabody:

Yvette, I’m going to ask you … Particularly back to CDBC, Stablecoin, is it your sense that the industry, the payments industry, the incumbent payments industry is actually getting how revolutionary these new tools are?

Yvette Bohanan:

Some people. I like to say … And I think our guest today might have an opinion here too, that sometimes when the ground moves beneath your feet, it’s so big, that it’s so subtle, that you don’t realize it’s happening. And then all of a sudden, it happens in a big way and there’s that shake up and everyone says, “How did that happen? What just happened here?”

Yvette Bohanan:

And I think a lot of people, the ground’s moving beneath our feet and we’re between cycles of it actually becoming an earthquake, but we’re getting closer. I think it’s a real interesting time. Why don’t we introduce our guest, because I want to bring him into this conversation George.

George Peabody:

Go for it.

Yvette Bohanan:

With us today is Ahon Sarkar, and Ahon is the GM of Helix. And I am going to just let Ahon say hello.

George Peabody:

No, you’re going to let Ahon do a whole lot more than that.

Yvette Bohanan:

Yeah, yeah.

George Peabody:

Ahon, welcome. Glad to have you here.

Yvette Bohanan:

Welcome to Payments on Fire, Ahon.

Ahon Sarkar:

Yeah, thanks very much. It’s awesome to be on. And I’ll tell you in the first two minutes, I have a sense for how fun this podcast is going to be. I was listening to Yvette talk about those last changes and I’m sitting here like, “Well, we’re all sitting in chairs and the earth is moving at a thousand miles an hour but nobody’s feeling it.”

Yvette Bohanan:

Yeah, exactly.

Ahon Sarkar:

In some ways, it’s a metaphor for how the currency world is evolving, how payments are evolving. And I think there is a ton to dive into today. I appreciate you guys having me on and I’m looking forward to digging into it.

Yvette Bohanan:

Okay, cool. I’ll tell everyone what caught our attention to invite you onto the podcast, was this release, and it says something like, “Helix aspires to be the go to metaverse friendly platform for the biggest retail companies in the world.”

Yvette Bohanan:

That’s all. Why not? But before we go into all things what’s changing in the retail space, what’s changing in the banking space, what’s changing with digital currency systems and fast payments, I’m going to back up the bus completely because you have an interesting origin story about the company that I want to make sure people really clarify because it’s Helix by Q2. How did you fall into this rabbit hole?

Ahon Sarkar:

Yeah, that is quite the story. And maybe we start with, what is Helix? What do we do, right? I’ll talk about it literally and then I’ll talk about what we solve. Literally, Helix is a cloud native core that was built specifically for embedded finance, and embedded finance right, is this multi-tenant world where companies are embedding financial capabilities inside of their application, right.

Yvette Bohanan:

So that they can purpose them at the moment of greatest need for whoever’s in the middle of a transaction, right.

Ahon Sarkar:

To me, that’s part one. They can surface them at the time of most need but then also, they can combine them with what they already do to make something interesting and unique. And maybe if we have time, we can talk about some of the use cases, whether that be Gusto or Acorns, companies that are taking their existing business, be it payroll or investing or personal financial management, and actually combining banking into that to make a whole that is greater than the sum of its parts, right. That to us, is what gets us out of bed. And we talk about building differentiated banking products at scale right, because let’s be honest, there are more than 4,000 banks in the United States. If I came to you tomorrow and I said, “Would you like a bank account and a debit card?”

Ahon Sarkar:

You’d say, “Well, I have one.”

Ahon Sarkar:

Right. In order for companies to build something that is meaningful to users, that solves a real problem but also that cuts through the noise that consumers sign up for, you have to build something that’s differentiated. And really, in embedded banking, the thing that has made it such an opportunity is that, is the ability to now combine it into new contexts and create products that you couldn’t create before because until about six years ago, the only people building banking services were banks, right. And today, it’s FinTechs, it’s technology companies. It’s even retail brands and gaming companies. And that’s really shaking up the face of not just how financial services are built but also how they’re consumed right, because it’s not just about, “How do I help the gaming individual sign up for a bank account when they open their game?”

Ahon Sarkar:

It’s about, “How do I bring together the world of gaming and the physical world and the financial world into a consistent experience that appeals to what that person wants?”

Ahon Sarkar:

Right. With Helix, that’s what we focus on. How do we help innovative companies build differentiated banking products at scale? And more importantly, our tagline, which is I would say our mission, is how do you make finance human? I’ll tell you, when my family immigrated to this country, the financial system threw us for a bit of a loop right, because all the financial products felt the same. If you didn’t have a lot of money, it was really difficult for you to get a good financial product. And unlike all the technology products that we would come to use, they weren’t really built around us. They didn’t really consider our unique context. We would just walk into a financial institution and get option A or option B. And I know that my hands are being cut off, so I apologize. But that was it.

Ahon Sarkar:

And for us, it was this question of, “Well, shouldn’t we have products that are as diverse as we are? Shouldn’t you be able to design these products around each person in their unique context? Especially if you’re a company who has existing context about them? And shouldn’t you be able to make them accessible to anyone, no matter where you live or how much money you have?”

Ahon Sarkar:

And so out of that came this idea for Helix. But to explain how we got here, I feel like we have to rewind the tape to your point all the way back believe it or not, to 2008, in the middle of the financial crisis. And I’ll go quickly because I know it’s 2022 and 14 years will take a lot of time.

Yvette Bohanan:

That’s okay. But yeah, so you’re being born out of the crucible.

Ahon Sarkar:

Right, born out of the crucible. A lot of financial companies are failing. And more importantly, people are asking the question of, “What should financial services be like?”

Ahon Sarkar:

Right. And this is broadly within FinTech, whether that’s in investing or banking or lending or insurance or mortgage, companies started saying, “Maybe there’s a better way of doing this.”

Ahon Sarkar:

And around 2008, there’s this company called SmartyPig that was founded. And it was built with the goal of being a smart piggy bank right, a goal based savings account where effectively, people could start saving for their goals instead of just having one big savings account where they put everything inside.

Yvette Bohanan:

Suddenly, saving had a lot of cache in the middle of a financial crisis.

Ahon Sarkar:

Especially when the average American didn’t even have $500 in savings.

Yvette Bohanan:

Exactly, which is still the case at the moment. Okay, so there you are.

Ahon Sarkar:

Yeah. They launched SmartyPig, grew that business, but then pretty quickly realized that the most interesting thing they had built was not actually the application. In the process of building the application, they realized, “We need a system to build this application on.”

Ahon Sarkar:

Well, as it turned out, all the banks at the time ran their systems off of legacy core systems, which didn’t really allow for much customization. It didn’t really allow for multi-tenancy. It didn’t really allow for personalization or any of that stuff. What the SmartyPig team built at the time was a cloud native core, built for multi-tenancy so that they could build a product on top of it, right. And what we realized looking back was, “This was really hard to build, it took a really long time. If we could make this easier, well, that would go a long way.”

Ahon Sarkar:

The company rebranded as social money and was actually eventually acquired into Q2. That’s part one of the story. And believe it or not, I’m not actually in this part of the story. I’m on the other side of the fence. There’s this other company called StoneCastle, which is what’s called a deposit network. Basically, it takes dollars from people and it distributes them across lots of banks. And I had joined StoneCastle coming out of a hedge fund called Bridgewater, because I wanted to try and improve the financial system. And at the time, Bridgewater was … I’m sorry, StoneCastle was trying to figure out, “How do I get more granular deposits?”

Ahon Sarkar:

Because it was pulling deposits from institutions, and that’s great but you’re getting them in big chunks. And if you want to make things smooth for a bank, you want them in small chunks, right. They had the question, “How do we get retail deposits?”

Ahon Sarkar:

We’re talking about a whole that’s greater than the sum of its parts. Q2 had acquired social money. I had just joined StoneCastle digital solutions. And we were both looking for a way to simplify what it took to build banking. And this is at a time when banking as a service wasn’t a term, when prepaid was the only way that you could launch these white label programs, prepaid our FBO. And so we said, “Why don’t we partner?”

Ahon Sarkar:

And we reached out to Q2 and we decided to pull together what looked a lot like a JV, called Cambr, where StoneCastle did the sales and marketing, Q2 had this core platform, which at the time was called CorePro. And I know I’m throwing a lot of names at you, but at the time it was called CorePro, and we would put all the money into the deposit network. This wrapped solution was called Cambr, and was one of the first banking as a service solutions out in the market. And this was 2017 when we would talk to people and say, “Want to launch banking products?”

Ahon Sarkar:

And they would look at us like we were crazy, like, “Why would I ever launch a banking product? I’m a lending company, I’m a gaming company, I’m a marketplace.”

Ahon Sarkar:

And we would say, “Because you’re sitting on this beautiful customer relationship and you can build something that doesn’t exist.”

Ahon Sarkar:

And they would say, “Why don’t you prove it out and come back to me?”

Ahon Sarkar:

That’s what we did. We said, “Let’s go one degree of separation from core banking.”

Ahon Sarkar:

And we went to payments and we signed a customer in payments. Then we went to investing and we signed a customer in investing. And you fast forward between 2017 and 2020, we grew pretty quickly, adding customers like the Acorns and the Betterments and the Credit Karmas of the world. And then the pandemic hit, right. And then some very interesting things happened. One, StoneCastle’s business surged as people cashed out effectively, and pushed more dollars into the network and wanted to focus on that business. And two, Q2 who had been operating the technology for this whole time, needed to invest in it. And so we collectively decided it probably made sense for one party to own this business. And what was the Cambr business became a part of Q2. And that’s how I joined Q2 basically. After building the StoneCastle digitals business, coming over to Q2 … And effectively, we called it a temporary name, Q2 banking as a service.

Ahon Sarkar:

Now, the interesting thing that we were privileged to be dealing with, is our customers were scaling really rapidly, right. And that meant that we needed to scale the business pretty rapidly. Between June of 2020 and let’s call it February of 2022, we did just that. We grew from 35 people to about 120 people. We launched more than a hundred different pieces of functionality. We built out the whole team and we created what today is Helix. Now, you might be asking, “What’s the difference between this CorePro thing that you guys built and what is Helix today?”

Ahon Sarkar:

Well, as our customers were scaling … CorePro originally was a cloud native multi-tenant core, and that was hard enough by itself. But as our customers started scaling, they pointed something out that honestly we had never thought about. They came to us and they said, “You guys and every other core out there builds product based on product IDs right, where you have product ID A and product ID B, and someone comes in and they’re either an A or there a B.”

Ahon Sarkar:

And if you trace that back, what you find is when traditional cores were built, the reason they did that was because it was ludicrously expensive to store data, was because primarily they made money from lending or other services, not from consumers. And consumers were cost of deposit, so it made more sense to just bucket them into these categories.

Yvette Bohanan:

And by the way, banks were completely aligned organizationally that way. If you were in depository products, you didn’t really care too much about credit cards. And if you were in credit cards, lending was over there and they did something else, right. And so literally, the organizational structure of most banks followed those systems. And then they would say, “Well, we want to cross sell, right. We want to cross sell product A to product B to that consumer. We want to cross sell this to that.”

Yvette Bohanan:

But nobody knew who the consumer was, down to you cross sell products and no one could strike the actual ledger balance on some of these systems because the balances were different and they all updated at different times. This goes deep.

Ahon Sarkar:

And there were different systems.

Yvette Bohanan:

What you’re talking about is deep here.

Ahon Sarkar:

I can’t tell you how nice it is to have someone that’s been through the thick of it. Because for most people it’s like, “Well, why do you need to change that? Seems fine, I use my banking account.”

Ahon Sarkar:

“And here’s why you needed to change it.”

Ahon Sarkar:

These companies would come to us and they would say, “I’ve known this user for five years and I’m offering them this product with that knowledge. It’s not like I’m a bank who’s never seen this person, they’re walking into a branch and I’m meeting them for the first time, I have been serving them through getting them their credit score or through doing their payroll or through helping them invest for years, and I want them to benefit from that.”

Ahon Sarkar:

That’s thing on. Thing two was as these programs scaled, it became really important for them to granularly manage fraud. And fraud is this delicate dance right, where you want to let in the good consumers and actually give them advantages, you want to keep out the bad consumers but not hurt the good consumers in doing that. But if you have to apply these blanket rules, blanket limits, blanket controls A or B, well then the only thing determining which one you are is how much money you have. And that’s typically not the biggest predictor of whether you’re a fraudulent user or a non fraudulent user. That was number two. And then number three is the most interesting. When we started in this space, the challenge was, “How do you get to market?”

Ahon Sarkar:

Because it used to take three years. And we brought that timeline down to months. And then for some people it was, “How do you differentiate by combining it with your existing ecosystem?”

Ahon Sarkar:

For others, it was, “How do you differentiate from a branding perspective?”

Ahon Sarkar:

But it was basically, “How do you stand up?”

Ahon Sarkar:

That was the challenge back then. You fast forward three and a half years, and whereas we were the first player out in the space, now there are north of 20 players out in this space from a banking as a service perspective and probably north of 50 players that are out there offering these types of services. What does the challenge become then? Well, the challenge becomes, “How do I not just acquire users but how do I engage users? How do I retain them when someone else is offering additional products? And how do I get organic growth instead of paying for it every single time?”

Ahon Sarkar:

Because paying for growth is fine when you’re going VC round to VC round but if you’re trying to build a sustainable business, you need your product to grow itself. And so these companies were coming to us saying, “I would love to create a way when people engage with our product and use it more, to improve the product for them right, to give them higher limits, to give them new features, to give them better rewards. And to have that happen on a human-centric level as opposed to a program centric level, because all of my people are different.”

Ahon Sarkar:

And so we went back and we realized, “Huh, we are the only provider in the banking as a service space that actually has a cloud native core instead of building middleware.”

Ahon Sarkar:

And that was really hard for the first six years of doing this business because it meant we had to go build reconciliation and back office optimization. And we had to go integrate with all of these different ledgers and integrate with these underlying wire desks and all that stuff. And that was painful but it was actually freeing because it let us look at things that made no sense in the system, and just redesign it. Because that could be something as small as the fact that you don’t actually get wire notifications. When you go and send the wire to buy your house, you have no idea if it’s been paid. Or something as fundamental as these product IDs versus user level controls. Over the last, let’s call it 14 months, what we focused on is, “How do we make Helix the cloud native core for embedded finance and allow people to build products around people?”

Ahon Sarkar:

Because the fundamental difference between how banking products were built then versus now, is a I would say, revenue centric model versus a human-centric model right, going from to your point just a second ago, “How do I optimize my revenues across all of our various portfolios? To how do I start with the problems that I’m trying to solve for the person? And then evolve as I evolve my relationship with them?”

Yvette Bohanan:

Right. And you talk to anyone out there in a FinTech worth their salt right, for years now we’ve been saying, “Well, we start with the customer journey. We start with the customer journey.”

Yvette Bohanan:

And that’s how FinTechs, techfins, whatever you want to call it, modern day programmers and product managers, they start mapping out the customer journey, no matter what business they’re in and what they’re designing for. And what you’ve done here, is you’ve accessed the core capabilities of banks but you’ve created and exposed those poor capabilities across multiple banks in a way that multiple FinTechs can actually tap them and pull the capability they need out of the bank and into the customer journey when and where it’s needed, and design it how …

Ahon Sarkar:

And design it how they want. One core architectural premise for us is I don’t believe in different versions of your platform. I don’t believe in one version for client A and one for client B and one for client C. Even though it’s a more difficult challenge, the right way to do it is build one platform and make it flexible enough for them to design all these different use cases. You’ll notice that Acorns is different from Credit Karma, is different from NYDIG, is different from Gusto. They’re all fundamentally different products but they’re on the same platform, they’re on the same core, there’s no versioning. And so what that required is going and looking at everything, whether it is ACH availability or it is onboarding or it is card controls or it is rewards, and allowing the customer and the bank to be able to control that at a either user level or a transaction level, right.

Ahon Sarkar:

To make a very specific example, if I’m a payroll provider and my product A used to have an ACH limit of a thousand dollars because I want to limit my risk that’s coming in, but I’ve been paying this person for four years and I know they are in $1,700, I should be able to raise just that limit for that one person because I know them, right. Or if I see a huge transaction come in from one person and I’m worried, even though they’re a trusted customer, I should be able to increase the ACH availability on just that transaction so I can go look into that one but not affect their others. And you start to get into this nuance of a conversation, it’s almost like scaling the community banker interaction that’s in person where they know you, they understand you, they can go make exceptions, how do you scale that to a multimillion user program that’s completely digital?

George Peabody:

Are you building the capability for that FinTech to automate that growth around each individual so you can predictively say, “Yeah, this cadre here or this individual should be here. I can schedule delivery of that new capability to them at such and such a time.”

Ahon Sarkar:

Great question. What’s funny is on the Q2 side … And Q2 by the way, is the leading provider for digital banks and credit unions. On the non Helix side of the fence. They serve north of a thousand banks and credit unions with digital banking tooling. And so one of the things that they had built was called Andy, which was basically a coach, right. As people went through this process, they would pose to them, “Hey, try this, try that.”

Ahon Sarkar:

And that worked great for those models because Q2 is helping them with UYUX, the business logic, they’re integrating to a legacy core, that’s out of the business. And so we asked a similar question, which is, “Okay, if we’re going to let you control this at a core user level, we also need to know what’s happening so that we can help you know when to do what.”

Ahon Sarkar:

But the nuance is in a multi-tenant program where every program is different, you’re going to want different workflows. And if you exist in a world where you want one platform, you can’t go customize workflows for every single client because then you’ll be maintaining that for the rest of your life and half your roadmap will be workflow maintenance. And so instead, what we did is we designed the platform to be extensible so you could design your own workflows. And then we partnered with each client to help them build their business logic, to design their workflow so that they could ingest the data, do exactly their recommendations that they wanted to do based off of not just their banking product but their other products, right. You might want to recommend something else that you do because you learned something about the individual in your relationship with them.

Ahon Sarkar:

And so the short of it is on the embedded side, we created a platform such that it could be extensible and people could design that business logic on top of it, but that it would be simple to identify these trends through our real time events or through those communications that we’re having with our clients.

Yvette Bohanan:

Okay. We got the lay of the land here. Now George, we have to put on our thinking cap. We have to start volleying some things over to Ahon here.

Ahon Sarkar:

Love it.

Yvette Bohanan:

He’s stretching his neck, he’s getting ready for us. Okay. I’m going to start with the mundane. Well, first of all, one very basic question. How many banks are connected in? If I’m designing a solution and I turn to this and I create the workflows and I’ve incorporated this into my product, how many banks am I reaching through Helix? In the US, how many banks in the US?

Ahon Sarkar:

There’s layers to that answer. The first layer is when a FinTech program comes in, you only want one issuing bank for that FinTech program but you want that issuing bank to be completely aligned on the product direction, on how this is going to operate on the existing business, on the risks, so that two years down the line, you don’t find yourself saying, “Hey, I want to go launch this thing.”

Ahon Sarkar:

And they’re saying, “Ah, we don’t do that.”

Ahon Sarkar:

And now, you’re stuck.

Yvette Bohanan:

Time out, risk manager said, no. Yeah.

Ahon Sarkar:

One of the unique parts of our model in the very early days, is we would get a select cohort of banks of record that each had different specializations and we would actually match FinTechs to those banks of record, based off of all this information that we gathered about them in the early part of the process. And so the reason that’s important is you don’t want one FinTech to be running its program across multiple banks because that’s an operational headache. And each bank has different risk controls, different ways of looking at things with their auditor and you need to make sure your program fits those things. But the second layer was you needed multiple banks of record, both from a throughput perspective as an infrastructure provider but also from a specialization perspective because the quality of that match is so critical to the success of the program, it can’t be understated, which is a material departure from 2017 where everyone told us, “Oh, this means the bank is going to become a utility.”

Ahon Sarkar:

And turns out, that’s not quite the case. Today, we have about five banks that are live in market that we match with each of these underlying programs. And remember Q2, who serves banks and credit unions, has a thousand plus. In many cases, these deposits are getting pushed out to local community banks all over the country, hundreds of those community banks. But we today with these five banks of record don’t look to add a hundred more of these because each one should provide discreet value right, to our customers. And we should be able to send them underlying volume as N increases. And being a number of banks, complexity increases, operational workflow increases, all that stuff. And so there is this delicate dance. That’s the tangible answer to your question. The additional thing that I would say though, is something has started happening in the last six months. Even in the last one month, we’ve probably had seven of the top bass banks reach out to us and say, “We’d be interested in exploring using your technology to go do banking as a service.”

Ahon Sarkar:

Because people realize that in delivering a holistic banking program, it’s not just the core technology, it’s also program management. It’s also app design, it’s also compliance assistance, it’s also all these other things. And those are things that banks are really good at. But what some banks are realizing, is they’re not really built as a tech and product shop. They’re built as a bank. And so they need to find a tech and product shop that can help them offer these custom solutions to these large clients who they want to serve but not have to grow, maintain and iterate that platform. And so it may be a year from now when we’re having this conversation, that that number is larger than we initially intended because the strategy is evolving as the market evolves. And ultimately, if we want to make finance human, that means trying to serve as many people as possible through as many channels as possible. And that means creating these different products. It may be in the future that we start expanding that more than we initially anticipated but today, we partner with five banks and we match them with these container programs.

Yvette Bohanan:

Right, okay. And they’re all in the US.

Ahon Sarkar:

Yes, we’re domestic.

Yvette Bohanan:

But there’s really nothing that would stop you necessarily from taking this model and doing it in Canada or Europe or …

Ahon Sarkar:

Not at all. The main thing, honestly Yvette, that’s stopping us is focus. There is a benefit to being inside of a company like Q2 and not having to constantly raise the tam and constantly spread out the focus in order to get the next round. And what we’ve realized is if we can do this really, really, really well, well then when we go into the next one, we will have learned all of these lessons. And I think a lot of players have wanted to expand internationally and realized pretty quickly that especially in certain countries, the entire regime is completely different. The entire system is completely different.

Yvette Bohanan:

Oh, yeah. It’s in name only, right. It’s in name only most of the time. Okay. Now, we have the lay of the land. Thank you.

Ahon Sarkar:

Of course.

Yvette Bohanan:

You recently announced that you’re in the pilot from FedNow. And given what we’ve just heard …

Ahon Sarkar:

Inquiring minds want to know.

Yvette Bohanan:

I’m just really curious because you have this capability and it’s built for purpose, right. You’re not at the fringes trying to tap into things. You actually have built a core if you will, in the cloud. And there are a lot of people in the FedNow pilot, I think there’s at least 300 is what I’ve heard.

Ahon Sarkar:

I think it’s 120 today.

Yvette Bohanan:

120 today, okay. There’s probably 300 aspiring but 120 sitting here today on May 6th, 2022.

Ahon Sarkar:

Probably, yeah.

Yvette Bohanan:

And when we think about that, I find it very interesting. What use cases are you thinking about enabling where being in the FedNow pilot makes sense for Helix?

Ahon Sarkar:

That’s a really good question. And I think it starts with our strategy. A few years ago, someone I respect a lot, his name’s Carl Ridine, he gave me a piece of advice, which was, “Don’t be the best, be the only.”

Ahon Sarkar:

Right. And so we started to ask ourselves, “Okay, the only what?”

Ahon Sarkar:

Right. And as we dove into the rest of the competition, here’s what we realized. We aren’t the only player solving for embedded finance. There’s tons of those now. We also aren’t the only cloud native core in this space, you’ve probably seen the Technisys acquisition, the recent Finxact acquisition, et cetera, right. Those are cloud native cores. Where does Helix stand in this? Well, the beauty is we are both and something that neither is, which is to say that we are a cloud native core that enables embedded findings. But the thing that we do that the other cloud native cores don’t do, is we were built from multi-tenant to multi-tenant systems. What does that mean? Well, a traditional cloud native core is built for a bank to offer digital banking services to its customers, typically at a lower cost, right. Because traditional systems are fairly expensive. And those cores, respect them a lot, they do that really well. But it is a different beast entirely to have a world where one company might be partnering with multiple banks and need to run a program across multiple banks.

Ahon Sarkar:

One bank might be partnering with 50 different programs who all do completely different things. And the core is the API. Let me give you a really specific example about where multi-tenancy becomes important. And then I’ll tie that to the FedNow discussion. About a year and a half ago, some of our large customers were coming to us saying, “Hey, we heard you guys use Visa DPS for debit processing. Visa DPS is the largest debit processor in the US, and you guys are the most integrated core for Visa DPS. Can we use some of the fraud tooling that DPS has gone and built out for the banks?”

Ahon Sarkar:

We’re like, “That’s a good question.”

Ahon Sarkar:

We went to visa and we said, “Hey, could we use that?”

Ahon Sarkar:

And there were a couple of problems. Problem one is none of these FinTechs were PCI compliant, and banks were. And so they couldn’t see the card information, which is what all of these tools were built on top of. But problem two was, let’s say you had bank A and programs one, two, and three, if program one wanted to go see the data for their program, because of the way … And I’m going to get into the weeds here. Because of the way that PRCs were built at Visa, they would see all of the programs. And that’s a no go, you can’t do that right, because that data belongs to those companies.

Yvette Bohanan:

PRC, for those that don’t know what PRC is, what is PRC?

Ahon Sarkar:

Oh, it’s basically how Visa assigns identity to individual set of programs. If you have a bank, your PRC is how you access DPS. And when you view your tooling, you will see what’s inside of your PRC. Well, if your PRC is then used for all of these other programs, the programs can’t use your tooling because first of all, they can’t see the data because they’re not Visa compliant. But then second of all, you can’t show them all their programs data. What you start to realize is there’s all this nuance around permissioning, around data access, around abstraction that needs to happen for multi-tenancy to be seamless. And so we spent literally nine months with the Visa team designing a way for our clients to go through our admin without becoming PCI compliant and see just their slice of the program and be able to action on it. Because if they’re going to run a profitable program, if they’re going to drive engagement, they need to be able to granularly apply fraud controls.

Ahon Sarkar:

How does that have any relationship with FedNow? Well, what is FedNow? FedNow is a way of sending money from one person to another person. Now, those people can both be yourself, those people can be different people. Those people will eventually be able to be businesses but you’re getting money from one place to another. As FedNow looks at which partners to add to its pilot program, what it’s looking for is not dissimilar from what we’re looking for in a new bank of record, which is you bring something unique to the table that will let us test something that we can’t test somewhere else, and you’re willing to invest in figuring that out. And so what that was for us, the only, is that we are the only multi-tenant to multi-tenant cloud native core. And that makes us purpose built for not just embedded finance but also things like these realtime payments right, because we are a realtime, we’re not a batch pour which you probably know is pretty unique and pretty hard.

Ahon Sarkar:

And so here’s what the Fed learned when they dug in with us, there was an assumption that … Let’s say there’s Ahon, and I want to onboard Ahon into FedNow. There was a view that if I just onboarded Ahon as @Ahon and I added his phone number, well, there was Ahon, and I know where he is now and I can send money to him. But there’s a piece of complexity. Ahon might use Acorns and be paid through Gusto and check his credit through Credit Karma. While Ahon exists, Ahon has three instantiations of Ahon that he wants to be able to receive money differently, right. If you send money to me, I don’t want it to show up in the wrong account because now I have to go transfer it over to the right one. And so without divulging too many of the details, what we’re helping them with is this multi-tenant directory. How do you create that specialization by program and acknowledge both the centralized ID and the sharded identities that exist at these different institutions, to enable someone to pay anywhere seamlessly, right?

Ahon Sarkar:

And so that’s where I think our participation in FedNow becomes really interesting. We’re helping design that system alongside them. We have folks way smarter than me on our team that are working through that, but with the goal of as more and more companies launch these services, as individuals try more and more different things, to your point, how do you make … First, how do you make the financial system seamless within the United States? But then how do you make it seamless across the world? Because at the end of the day, so many of these products that we use are just trying to find some way to either arbitrage or solve for time delay in payments and cost in payments. And if you can solve for those two problems at once, you open up a whole new world of pretty interesting possibilities.

Yvette Bohanan:

Arbitrage and asymmetric risks, right. Okay. You’re involved in FedNow. That’s really interesting, that’s solving probably one of the hardest problems out there for any directory service on any fast payment system, because these are by definition real time. And if you can actually do that connection, aren’t you solving, I’m going out on a limb here, a notion of traceability?

Ahon Sarkar:

Oh, yeah. Oh, yeah.

Yvette Bohanan:

Because Fincen’s got to love this, right. Because if you can actually do this, what they’re saying and what you’re saying is money is coming in and out, you have all of these applications that are like the Gusto and the Acorns and all of that, cool products, right. But it’s really hard for a centralized agency to monitor what’s going on across there. All they see are the transfers through the systemic systems right now between those two products

Ahon Sarkar:

Yeah.

Yvette Bohanan:

They don’t see the whole loop cycle of where all this stuff’s actually trying to get to and they have to piece it all together if they were actually going to follow.

Ahon Sarkar:

That’s true. And that becomes a colossal challenge. And as you expand the ecosystem … At the opening of this call, you were talking about the metaverse, right. Let’s look at a parallel for the metaverse, which is online gaming, right. You look at MMO RPGs right, World of Warcraft or any of those kinds of games where you have millions of people who are participating in a digital economy and making constant transactions between each other, that it’s in a black box, right. You have no idea, right. And in a lot of these games, you can … And this is what I find funny about these discussions around the metaverse today, because it’s just playing off a concept that has existed for a long time and just waiting for technology to get there, right. I remember …

Yvette Bohanan:

If you’re old enough, you remember second life, you remember all this stuff, right. Second life …

Ahon Sarkar:

Team Fortress 2, you could buy a hat, you could sell a hat to somebody else, take that money, buy a different hat. I remember using that to try and literally make money inside of this game. And what does anyone who’s looking at the fun flow see, “Well, this man transferred in a dollar and transferred out $1,500. And I have no idea how that happened over the course of five months, right.”

Yvette Bohanan:

How dis this occur? Yeah.

Ahon Sarkar:

It’s by trading hats. But that’s all to say as you start to get an easier way for people to instantly transfer money to each other and you start to have a little bit of this centralized ledger … All my blockchain fans are going to tell me that we’re completely wrong and we shouldn’t do this, and we can have that debate if you’d like.

George Peabody:

Another time.

Yvette Bohanan:

Another time.

Ahon Sarkar:

Yeah, for sure. But long story short, yeah I think that’s something that’s going to get improved as we build this out. And then the challenge is going to be as scale increases, how do you actually programmatically look at all those things? And that’s where you might see AI and ML enter regulation, as crazy as that sounds.

Yvette Bohanan:

Yeah. No, I think that’s really important.

George Peabody:

I know we need to talk about crypto.

Ahon Sarkar:

Sure.

Yvette Bohanan:

I know. Well, you announced a partnership with NYDIG, and employees are being paid in crypto. And so I don’t know how many gajillion dollar questions this is, but what are you seeing in terms of real demand for crypto, for Stablecoin, for CBDC? Where are these use cases headed, right? You can think of CBDC being used like a central bank digital currency in theory on paper, I’m not advocating this. A currency that could be incorporated in any of the six systemically important systems out there, right. Stablecoins are creating a whole new way of doing closed loop systems. They’re mixing and matching players, providers, partners, use cases, but you’re in right now … Well, they’re starting to try to figure this out with this bridging but if you’re in Paxos and on that, you’re not in something else right, and then you have digital asset categories and Bitcoin and everything’s viewed as a risk investment, da, da, da, da, da.

Yvette Bohanan:

In your environment, in what you’re doing, NYDIG partnership’s interesting. Do people really want to be paid in crypto? Is there uptake here? Are they being asked to be paid in anything else? Because we’re just talking about the US and we’re not talking about El Salvador and Bitcoin as tender. What are you seeing from your vantage point right now?

Ahon Sarkar:

Right, that’s a great question. First of all, I’d say obviously there are a ton of cryptocurrencies and people tend to generalize them. I really appreciate you breaking them out because in many cases, newer cryptocurrencies can be a solution looking for a problem, right. And so what I’ll do is I’ll separate just into two of them, just as you said, those that are focused on cryptocurrency as an asset and then those that are using cryptocurrency as a means of transfer because I think those are fundamentally different. In the context of cryptocurrency as an asset, and I think Bitcoin is a great example of this, we have seen a surprising amount of interest, I’ll tell you. We launched NYDIG just a few months ago. And the interesting thing about that partnership is … It’s actually in two ways, one is they’re using Helix to offer this product but two is they actually integrated into Q2’s innovation studio, which lets any of these banks plug in Bitcoin payroll as a feature in weeks, right.

Ahon Sarkar:

And so we’ve had, I kid you not, north of 50 banks go and sign up for this underlying product because of how much demand they’re getting from their constituents to actually get some amount of their payroll in Bitcoin. And I think it’s important to note that we’re not paying the whole payroll in Bitcoin, you’re carving off some slice of it. And the reason that people prefer this product over something like buying it on an exchange is not just time delay but also fees, right. We don’t really charge any fees for you to go and translate that currency. From an interest perspective, to your point, globally it’s even more than the US. We saw total crypto ownership globally in the last three months of 2020 go from 10% to 15%. The US was a small, small fraction of that. But even within the US, in terms of cryptocurrency as an asset, we are seeing interest. Now, as a somewhat skeptical person, I would say that some of that interest comes from people seeing something go up in value and wanting a slice of it.

Ahon Sarkar:

But some of that interest also comes from people wanting to hedge against internal risks, whether that be political risks or that be geopolitical risks or that be even market risk. I think it’s still pretty early as to how that will evolve as an asset. If you talk to someone who owns a ton of that cryptocurrency, they’ll say it’s going to a million. If you talk to someone who owns none of it, they’ll say it’s a fake thing that doesn’t really exist, right. I’d say while there is interest, I think that interest will mature as the understanding of the solutions actually matures and also as the accessibility and usability of that currency increases. Now, the commerce side. You look at Ethereum, you look at some of the USDC Stablecoins et cetera, that’s where our previous discussion comes into play because what is the problem they’re trying to solve? The problem they’re trying to solve is it takes forever to move money. It’s very expensive to move money. And there isn’t one list of all the money that’s moved in and out. And so they want to decentralize it so it’s not concentrated in one place.

Ahon Sarkar:

Well, if you separate the decentralization piece, and I don’t think we’ll have time to talk about centralized versus decentralized, but if you separate that for a second, in a world where FedNow worked across more than just the US, doesn’t FedNow do that in a far more economically efficient way than a Stablecoin does? Potentially, right. If it costs pennies to transfer via FedNow and it costs dollars to transfer via cryptocurrency, even as Ethereum 2.0 comes out, gas fees come down, well, are you solving the problem? Because today, when you look at things like Ripple, you look at things like Ethereum and you compare them against wires and international ACH and the like, yeah they provide a material solution.

Yvette Bohanan:

Sure, definitely looks way more efficient.

Ahon Sarkar:

For sure. But when you’re creating a USDC Stablecoin, you’re backing dollars, right. And when you are transferring them back and forth, well you’re eventually going to translate that out into whatever currency. It’s going to be indexed against the dollar, so you’ll get paid dollar to your local currency. And so I think you have these two trends that are happening simultaneously. And how fast adoption on the USDC and Stablecoin piece happens is partially dependent on how fast RTP and FedNow are able to go global because once they go global, then it’s an economics and functionality description. And then the value of decentralized versus centralized becomes a lot more to question I believe, because then you start to ask, “Well, if I’m paying 10 X to go put it onto this decentralized exchange, is that really worth it if I’m running billions or trillions of dollars over these networks?”

Ahon Sarkar:

I would say on the commerce side, it remains to be seen, especially because you have some people on the commerce side buying currencies like Ethereum as assets, right. But you’re buying something with the fundamental principle that it will go up in value. The additional fundamental principle that you will use it as a store of value for trading, well these two things are contradictory typically, right. If something is volatile, then using it as a means of transaction is fairly difficult. Zooming, out as an asset, it’s increasing, US less so than other places but still interest in the United States, especially as retail players like Square and others push it out into the market. Still maturing in terms of why people are holding it, whether it’s a, “I’m going to get rich quick.”

Ahon Sarkar:

Or they’re actually trying to hedge against some perceived risk or diversify their portfolio. But then on the currency transfer side, I think that’s the race that we’re all going to have to keep our eyes on because that’ll determine adoption and future use cases.

George Peabody:

We need to wrap it up about here but Ahon, I have one question for you. I’m very curious about what you’re finding from the banking community’s point of view, as multiplayer FinTech has come along where different providers are now exposing traditional banking capabilities at the point of need into more and more context, how does an existing bank which in the past has been, “You come to me, I’m the supermarket of financial services.”

George Peabody:

How do you help them enter into this new world to be competitive in this new world?

Ahon Sarkar:

I’ll answer in a sentence and then I’ll expand. Focus on what you’re good at. It turns out that different banks are good at different things, right. And there are a wide diversity of roles that banks can play in this ecosystem. And I’ll paint five of them for you. One is, a bank of record for these types of FinTech programs. That is super involved. You are basically running these programs alongside these FinTechs, investing in compliance, operations, all that stuff. That’s not for everyone. That’s why we have five of them out in the market today. We may add more but that’s not something that we would recommend to most banks. The second one is saying, “Hey, I’m really good at lending but what I actually want is the deposits that come from these kinds of programs. I don’t want to be involved in the transactions and the fraud and the other stuff. I just want the deposit so I can go lend.”

Ahon Sarkar:

Well, great. Then participate in a deposit network and get the deposits that way and call it a day. The next one would be, “Hey, I am a locally focused community bank. I really build on my relationships, etcetera.”

Ahon Sarkar:

Great, capitalize on that. There are probably no Chase branches where you live, right. There are probably no targeted campaigns to the people that live there. Show them the value of that local relationship over the digital offerings. There are banks who say, “The problem I’m trying to solve is I want to offer that functionality to my consumers because otherwise they’re going to go to this FinTech application.”

Ahon Sarkar:

Well, that’s why we created innovation studio, where now these banks are just plug and playing in these different FinTech providers and it’s a win, win, win, right, the FinTech gets distribution, the bank solves the product gap and they share inside of those economics, as do we. And then there are other banks still that want to play on the payment side and will really be more payment facilitators, whether that’s as merchant acquirer, whether that’s as a wire bank, whether that’s as an ACH bank, what have you, right. There is no right answer. All of these are right answers and they’re also all wrong answers. The advice that we give to banks is first look inwards. Why are you successful? It’s the same advice that we give to our FinTechs when you want to build a banking product. Forget about banking, why are you successful? Why do people come to you? Because if whatever you do capitalizes on that, you will probably succeed. If whatever you do is a tangent from that, you will probably fail and it will probably ruin your existing business.

Ahon Sarkar:

And that typically unlocks it right, where you realize, “Oh, these ones should be deposit taking banks. These ones should be bank of record. These ones should just embed functionality. These ones should invest multimillion dollars and compete.”

Ahon Sarkar:

Right. But I think on net, when banks ask us, “Is this a big threat for us? What is FinTech going to do?”

Ahon Sarkar:

What we say is, “It’s actually more of an opportunity, it’s a distribution opportunity.”

Ahon Sarkar:

In some cases, it’s a deposit opportunity. And it’s a partnership opportunity in some cases. But it’s actually freeing you up as a local community bank because chances are, you didn’t really want to spend a whole bunch of time and money building UIUX. You’re not a tech and product shop in all cases. Or you didn’t really want to go spend a whole bunch of time and money building out a unique crypto offering and competing against people who had $50 million budgets. You’d much rather just plug them in and be like, “Hey, solved your problem. Let’s move on.”

Ahon Sarkar:

Right. And so answer is, it varies. There’s a right solution for everyone but you got to look inward first.

George Peabody:

Sounds to me like you put together the sorting hat for your customers.

Ahon Sarkar:

Yeah. Gryffindor for you, Slytherin for you. Needs more discussion.

George Peabody:

Exactly.

Yvette Bohanan:

But a big question of what business are you in is actually such a simple question but so critical. And people have such a hard time answering it because they have tried to be all things to all people, and you’re hitting on this … It’s the same notion of what central banks in other parts of the world are doing with public private partnership of building the core and then letting people innovate on top of it. And you just happen to be building a core but you’re not governed specifically by the central bank.

Ahon Sarkar:

Hey, if the US government wants to partner and make finance even with us, give me a call, I’m all for it.

Yvette Bohanan:

Well hey, the fed now thing could be your ticket.

Ahon Sarkar:

Very possible, yeah. For sure.

George Peabody:

Ahon, thanks very, very much. Really appreciate your time.

Ahon Sarkar:

Yeah, this was wonderful.

George Peabody:

Great discussion.

Ahon Sarkar:

Yeah. Really, really appreciate the time as well. I learned some stuff, so yeah. I appreciate you guys having me on and look forward to continuing the discussion.

Yvette Bohanan:

Likewise, take care.

Ahon Sarkar:

Thanks.

George Peabody:

Wow.

Yvette Bohanan:

Wow, indeed.

George Peabody:

So much to cover and we’re already at max time. Just a couple of quick things. First, if you’re a payments professional, if this conversation and even how we begin it doesn’t make it glaringly obvious, as a payments professional, you really need to be paying attention to crypto and instant payments and fast payments. And I’m saying that not as, “Oh, you should be investing in Bitcoin or something else.”

George Peabody:

This is about the velocity and the cost of moving money. And so what we heard now is that, “Hey, here’s a whole new generation of bank core that’s now available, is connecting up to these rails with fundamentally different economics, fundamentally different performance.”

George Peabody:

That’s really important

Yvette Bohanan:

And fundamentally different risks that are more controllable in this environment, and new risks that we have to figure out how to control but overall, have a potential of transparency and traceability and lower asymmetric timing risk, right. Really, really interesting implications here. And if you’re in payments and you’re not paying attention to digital currency systems and the nuance, as you’re saying George, the nuance of crypto, Stablecoin and central bank digital currencies, because they’re very different things with very different economic implications and system implications, and these fast payment systems because they’ve been … Just like Ahon said, he started this in 2008. Modernization efforts of fast payment systems across the globe started back then, right. I say back then like that was forever ago, back then in the 2000 odds.

George Peabody:

We say event, these are once in a generation events when whole new payment systems become systemic in an economy.

Yvette Bohanan:

Exactly.

George Peabody:

And we’re here, this is literally happening right now.

Yvette Bohanan:

Right. Everyone needs to figure out where they are and where they’re going. And I loved the conversation and how you brought out banks, because we’re always being asked this question from our friends in the banking space of the industry, right. As the bank stakeholders, the financial institutions, what do we do about all of this change? And I loved his answer, which basically, “What business are you in? What are you doing really, really well? Do more of that and then the other things you want to do, figure out these partnerships.”

Yvette Bohanan:

Because it just makes sense, right. And you’re in a world where you can’t be all things to all people anymore and do everything in house, it just isn’t sustainable.

George Peabody:

Right. You pointed out to me, look at your P&L. P&L’s going to tell you where you’re making money. That’s probably what you’re really good at. Now, find a partner to digitally enable that capability.

Yvette Bohanan:

That capability, and then look at the rest of the panel. You don’t have to give up, you just maybe have to do it differently. And that could actually be a good thing, right. But as he was saying, the risk management aspect of a bank being a regulated institution, there’s a lot of thinking and thought process that has to change, right. And that’s really hard to do. Diversity of thought can be the most difficult thing to achieve, right.

George Peabody:

I know I’m going to even regret saying this but there’s this old consultants saw, which says, “The only person who looks forward to change is a wet baby.”

George Peabody:

And banks have really got … They’re at that moment.

Yvette Bohanan:

Well, the banks, the processors, right.

George Peabody:

Exactly right.

Yvette Bohanan:

And you look at the payment service provider serving the merchant, and as you were saying, this reinvention of service going deeper, sub-vertical specialization, what you’ve called multiplayer FinTech on that side in commerce enablement, all of these things that are customer, merchant capability facing have been undergoing tremendous transformation. We had a saying when I was in 500 startups as a mentor, one of the sayings of 500 was the unsexy startup right, and how critical the unsexy startup is. And here we have Helix, I would categorize them in a way as that unsexy startup. They’re rebuilding core in a cloud native environment, “Oh, my goodness. Yawn. Why do I need that?”

Yvette Bohanan:

And they get a hard time translating that to me. And now, they’re seeing all these things where they were with the product, the maturity, their thought process, COVID, digitization importance, all of these things aligning for them now, right. And they’re probably finding more need than they have time to develop, right. That to me, is a pivotal moment, right. And if that’s happening, processors as well as banks really need to be thinking about, “What does this mean? What does this mean [inaudible 00:51:05] great.”

Yvette Bohanan:

Yeah.

George Peabody:

We’re going to have to leave it there, one of our longest podcasts. Hope you found it worthwhile to listen to this. As you can tell Yvette, I think a lot of the material we talked about today is really important for your consideration. With that, thanks so much for listening. If you have a topic you’d like us to cover, a certain question you’d like us to ask, drop us a line at paymentsonfire@glenbrook.com. We’d love to get your input, help us steer the programming going forward. Yvette, any last words?

Yvette Bohanan:

It’s always a pleasure George, thank you. I look forward for our next one.

George Peabody:

All right, I do too. Well, in the meantime then, hope all’s well with you. I’ll do good work, and we’ll see you the next time.

Yvette Bohanan:

Take care, everybody.

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