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From Europe to the US: Cultural and Market Nuances in FinTech · Leaders in Lending

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  You're listening to Leaders in lending from Upstart, a podcast dedicated to helping consumer
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  lenders grow their programs and improve their product offerings. Each week, here,
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  decision makers in the finance industry offer insights into the future of the lending industry,
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  best practices around digital transformation, and more. Let's get into the show.
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  Welcome everyone, I'm here today with Sarmon Darcis, head of Partnerships Finwise
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  Bank. Simon. Hello, he Ed, how are you. I'm doing
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  great? Thank you for joining me today. Yeah, thank you for having
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  me great. So, you know, the first question that we always like
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  to ask on these podcasts is really, folks journey and financial services, you
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  know, so as we'll talk about your role here in a second, but
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  let's can we start kind of with you giving a summary of your journey in
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  financial services and what got you to the head of partnership's role of Finwise.
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  Yeah. Absolutely, I mean my journey in financial services was somewhat of an
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  accident, and if I'm being perfectly honest, I was born and raised in
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  Friends. I decided to move to Canada when I was sixteen. The reason
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  why I did that is that I really wanted to become a doctor, and
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  I figured that if you finished high school in Quebec, you could go straight
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  into med school right after high school. You didn't have to get a bachelor's
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  degree. So that's what I did. Finish high school in Montreal, ended
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  up getting into the medical program that I wanted, and I really, really
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  really hated it. I was miserable for the first semester of med school.
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  Hated the way it was taught. I felt like I just had to learn
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  everything by heart, didn't have to use my brain. So I kind of
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  had to set down and figure out what it was that I wanted to do
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  for the rest of my life, which is a really tough question to ask
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  a seventeen year old that's thirty five hundred miles away from his family. So
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  kind of figured that. I was always a geek, always really into technology,
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  always loved to learn about the economy and global policies and how it affected
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  the lives of citizens, So economics made a little bit of sense. And
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  then what's economics without financial services? So that's how I kind of decided to
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  study comside finance and economics. Because I decided not to make it easy for
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  myself. Whatsoever did that, and you know, my summer of freshman year
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  it came about really wanted an internship. Didn't feel like doing nothing over the
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  summer. So I ended up getting a summer internship at a bank that no
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  one had ever heard of that was based in New Jersey, in the suburbs
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  of New York that now became an industry name, and that's Cross River,
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  right, So spend the summer there, learned about peer to peer lending because
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  that's what it was called at the time, right, marketplace standing was in
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  terminology that we're using. Spend the summer doing that, and you know,
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  at the end of the internship, I kind of went up to the CEO.
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  It was like, Hey, now that I've started working, kind I
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  want to keep working. Is there anyone that you can introduce metwe in Canada
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  where you know, I could keep working forward during the school year. And
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  that's when he offered to fly me out to New York every year, every
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  actually every week it was, and every year it was every week going back
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  and forth between Montreal and New York. And and that's how I became a
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  full time intern of Cross River and how I saw the industry pop up.
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  Right. We went from marketplace lending or Peter peer lending to what is known
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  now as marketplace lending with institutional investors, to crypto payments, cards, deposit
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  sponsorship. So had a really really fun time looking at this, looking at
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  this industry, kind of be born from nothing. Graduated, decided that I
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  wanted to try the more traditional finance route, so went to Merrill Lynch for
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  a little bit, and honestly, it was boring. I'm not gonna lie,
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  you know. You go from fintech to this multi century all the institution
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  and you kind of feel like you're missing out on the cool stuff. So
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  quickly went back to fintech, and that's when I joined fin Wise. I
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  originally joined fin Wise to help stand up this new business line. I think
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  I was employee number nineteen. When I joined fin Wise, it was a
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  super tiny financial institution. We I think at the time we had thirteen million
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  dollars in capital, barely over one hundred million dollars in originations every year.
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  Now we're one hundred and seventeen million dollars in capital, over a billion dollars
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  in originations every quarter. So really sell tremendous growth that at fin Wise evolved
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  with the company. You know, at first the focus was on marketplace lending.
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  We always had this understanding that we wanted to grow past marketplace standing and
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  started sponsoring payments and cards. But honestly, MPL was pretty successful, right
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  and took up a bunch of our time. So as interest rates started to
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  rise and origination sorry to drop, we decided to take a beat figure out
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  what it was that we wanted to do long term in terms of fintech.
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  And now we're we're growing in all directions, in all fintech directions. So
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  it's it's really fun. No, that's a great story. And I mean
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  definitely that willingness to zigzag. You know, starting with you think you're going
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  to do one thing, and many of us are in that same spot,
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  right, we think where this is what we want to do with our career,
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  and then we get into it, and you know, we pivot and
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  continue to ride that. You have an interesting perspective, as you talked about,
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  you know, you didn't start in the States, and so you have
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  some views I would I would imagine on the differences of how financial services work
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  in Europe as it compares to America. Could you share some of that perspective
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  or some of the differences that kind of stand out to you that occur.
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  Yeah, one hundred percent. And I think most of the differences between the
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  American market and the European markets stem in cultural differences. We always think,
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  you know, Europe and America two regions of the Western world, they're kind
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  of all the same, right, but we we live fairly differently as it
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  pertains to financial services and money management. For instance, the American economy is
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  very much driven on debt, whether it's it's commercial debt or consumer debt.
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  It's a fun little tidbit. But in Europe we have this stereotype that for
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  every dollar than on American earns, he's going to spend three, So the
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  difference has to be made up somewhere. In Europe. You don't have lending
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  as widely available. Credit cards are very unknown. They exist, but they're
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  not very much. They're not very much used. Installment loans same thing.
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  You'll get a personal loan if you want to do home renovation or if you
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  have extremely large expenditures, but you're now going to use a personal loan for
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  a shortfall in budget, you know, And we're very much thought that at
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  an early age, and I can remember my parents selling me, never spend
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  more than your own and make sure that you're building, you know, a
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  nice little piggybank. So coming from those cultural differences, FinTechs just grew in
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  different directions in America and in Europe. And I think that's why when you
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  look at the fintech industry, the first sub sector that really popped in America
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  was a lending space, right, especially that it was right after two thousand
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  and eight. No one was lending anymore, very hard to get alone.
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  In Europe, the sector that really pupped was was neo banks, right.
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  It was transactional tools like cards. It was almost Venmo like companies right to
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  facilitate peer to peer payments. But lending didn't take off and still hasn't.
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  As I said, I think it stems in the cultural difference. I think
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  it stems also in a difference of data being available. You know, in
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  the States, even in Canada, we have the credit bureaus. We can
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  easily make an assessment of the credit quality of a customer and all of that
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  on an automated basis. Most countries in Europe, with the notable exception of
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  Germany and the UK don't have credit agencies, so if you're to apply for
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  a personal loan, you do it at the branch of your bank that you
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  normally go to and you go through manual on the writing. You know,
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  we are starting to see an effort to create open banking in Europe that is
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  actually, in some regards a little bit more successful than it is in Europe
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  because it is created by the financial institutions and not by FinTechs. But that's
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  all you get. It's access to transactional data. You don't get that holistic
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  view of how a customer may have performed on their past debts. And also
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  they don't get a lot of past debts. So you have that friends,
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  and that's why the fintech sector just evolved differently. And then you you also
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  have a difference in terms of how business or fintech business is done in America
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  and in Europe. In America, in order for a business to scale,
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  generally they'll create those famous bank partnerships. Right, It's very hard for a
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  fintech to get a banking license. We've seen a few, right, they've
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  acquired banks, it's gone into nova licenses. In Europe, you don't have
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  that concept of bank partnerships. FinTechs very much become banks. There are simplified
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  banking licenses that are available to FinTechs, or they can get full service licenses.
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  And the nice thing about Europe is that it's a conglomerate of countries and
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  if you have a banking license in one of those countries, you can operate
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  throughout the European Union. The market definitely took a little bit of a hit
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  when the UK exited the European Union. The UK was generally the point of
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  entry for FinTechs into the EU. Now that has transitioned to Belgium and a
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  little bit of the Netherlands, but it's very much still the same concept.
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  They get their own banking licenses. No very interesting that and you do,
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  I imagine kind of having that unique perspective just as you're incorporating kind of some
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  of your I wouldn't say necessary day to day decisions, but as you're kind
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  of thinking about the macro and thinking about expansion of just understanding how financial services
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  works across the globe to bring those insights and say how you can maybe leverage
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  best practices or things that you think are working other places. That may may
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  be able to apply here, right, Yeah, no, you one hundred
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  percent to it, right. Especially, I think the best example of this
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  is payments. You know, real time payments have always been a thing in
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  Europe, and when I moved to the States and I was like, wait,
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  I have to wait how long to send money? It creates you bring
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  those use cases, right, those things that you thought you for granted,
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  you bring those things to the United States. And when you're in the position
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  that I am right to looking at fintech strategy and fintech products on a day
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  to day basis, that is a good baggage to have. It's a good
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  knowledge base to have. It. It just brings a different perspective and allows
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  for maybe a little bit more creativity as it pertains to product creation. No
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  good, now, thank you for sharing that. Very interesting. As we
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  transition to your current role, so as the head of partnerships, can you
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  describe what does the day to day look like? What does the kind of
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  the scope of work? So the day to day is very much split into
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  two buckets. On one hand, you're very much a firefighter all day every
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  day. You have to make sure that everything is running smoothly. You have
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  to make sure that everyone is happy, particularly your partners and your regulators.
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  And you know, I've always somewhat described this role as having three main buckets
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  of people that your service. You have the internal people at the bank,
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  because you're you're the point of contact for everyone, right, internal folks,
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  and your your partners. You have your partners. Obviously, they're your bread
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  and butter. They're the ones that are advertising your products and that are bringing
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  your products to market. And then you have your regulators. So it's always
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  a little bit of a juggling act to make sure that everyone stays happy and
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  stays on the same page. And really the second part of the role is
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  is very much focused on strategy, right. It's trying to stay up to
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  date with the current trends, making sure that the bank is not falling behind
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  on the next trends, on the next products that are going to come out,
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  and how we ensure that we're going to be able to service or offer
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  those products. So it's a little bit of everyday management and long term thinking,
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  right, which makes the job super interesting. No, it's never boring,
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  never, So let me I'll pull on kind of two pieces there,
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  and the first is you talked about the working with regulators and the platory environment.
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  Can you expand a little bit more. Obviously, none of these programs
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  are just set and forget it right. There's constant evolution and regulations as things
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  are happening in the environment. So as you're working with your fintech partners and
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  then also managing through the regulatory environment, can you talk about how you're not
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  only staying current what the requirements are, but then making sure that your fintech
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  partners are meeting up to those expectations. Yeah. Absolutely, And I think
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  it's a it's an important question in the context of what's going on at least
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  on the financial institution side right now. How do we make sure that we
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  stay clean and that we run extremely compliant programs. But I do have to
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  say that the recipe for us hasn't really changed at the bank. You know
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  what attracted me to fin Wise even back then in twenty eighteen, when the
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  business language just getting started, was the fact that compliance was put first and
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  foremost. We're not a nonprofit, we are a for profit business. So
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  the you know, the revenue maximization strategy is here. However, it will
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  never come at the cost of compliance, which I think a lot of financial
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  institutions, you know, someone missed the mark on. Yes, there is
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  a ton of business to be had, but you have to be selected and
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  you have to make sure that you're getting into the right kind of partnership.
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  So, you know, yes, when we saw all of these all of
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  these content orders, it prompted the question of are we good with those things?
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  We are we sure that we're squeaky clean, And I think we somewhat
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  came up, you know, with with the decision that we are. But
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  we're always striving for improvements. We're always putting new processes and new systems in
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  place to make sure that we remain best in practice as it pertains to compliance.
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  But if we're being honest, it's always been a little bit challenging to
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  work with FinTechs. You know, in the context of bank partnerships, FinTechs
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  are two things. To a bank partner, they are a client but also
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  an extension of the bank. So if they're a client, you strive to
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  maximize your relationship. You strive to maximize revenue, you strive to maximize growth,
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  and you strive to maximize overall happiness. If you're looking at them as
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  an extension of the bank. Those same principles apply, but you do have
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  more control over them. And I think this is the really critical challenging part
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  of those fintech relationships. How do you force a platform and I'm saying force,
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  you know, loosely, but how do you require platforms to adhere to
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  specific things because of your own risk tolerance when they may not be on the
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  same page. So everything is always a little bit of negotiations, even you
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  know, as it pertains compliance because we may be coming from a different perspective
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  and we have to meet somewhere in the middle. We have to meet some
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  way where the fintech is happy, growth is maximized and compliance is preserved.
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  And you know, as I said, it is it is challenging. I
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  mean, we we are financial institutions. We have stringent requirements that we have
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  to live with and unfortunately those requirements, unfortunately or fortunately, those requirements also
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  apply to the financial to the fintech. So how that translates in practice is,
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  you know, the outer most need for a trust relationship between the fintech
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  and the bank. The fintech has to trust that the bank is not going
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  above and beyond for the reason, and the bank has to trust that the
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  fintech is doing everything as they've presented. Right, So it's but it is
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  still a culture of trust. But verify. We'll make sure that you know
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  processes are being are being respected through reports, through testing that will get done
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  independ and through audits that are done by third party firms. Will get reports
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  on a weekly basis, on a monthly basis, even on a daily basis
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  for some And you know, as part of those reports and all of this
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  data that we get, we look for indicators that something is wrong. I'll
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  give you an example if as part of your complaints or as part of a
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  fintech complaint, we see that a lot of people are complaining that there's an
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  issue with repaying their loans because the servicing platform is not it's not great,
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  it's not used or friendly. Most likely, depending on the kind of volume
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  of complaints that you're getting in that area, it is most likely an area
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  of concern that the bank has to dive into. So we use all of
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  the data is provided to the fintech to make informed decision and to assess the
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  risk of each partnership. And you know, I'll somewhat wrap up my long
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  answer with an advice for the banks that are looking to get into the space.
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  It looks like an extremely attractive business. You know, at face value,
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  it looks like a business with high profit margins, low op X,
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  very little risk, and that couldn't be further from the truth. I have
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  seen banks that are standing up that kind of program with one compliance person in
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  this environment. It definitely does not work, and it did not work ten
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  years ago. You need to put in the right investment. You need to
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  put in the right to risk control and the right infrastructure to make sure that
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  your fintech is being served correctly, your end user is being served correctly,
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  and that you're staying compliant. And I think a lot of banks right now
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  are missing the mark on this. Now, some really good insights you describe.
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  I mean, the kind of what I was listening is that the takeaway
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  on that is, first and foremost, there has to be strong communication with
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  your partners and regulators, because you're making sure is everyone interpreting it the same
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  way as you're describing and having those conversations and how are you discussing. And
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  then the second thing I'm kind of taking away is just making sure that you're
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  investing the resources that if you're going to get into this business, don't understaff
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  it and don't make sure you're setting up with the right amount of resources to
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  manage the risk, assess the risk, and manage the partnership. And then
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  that transit relates to us. Then let me go your second point you talked
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  about earlier, as you said, okay, first on the regulatory and then
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  you said there's a strategy component, right, So it's you have to decide
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  all who am I partnering with because of what you just described. You've said
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  there's a lot of work, there's a lot of investment you need to make,
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  there's time, so finding the right partner. So how do you go
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  about selecting who you work with? And is there a process to that?
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  I mean, how do you guys think about that? There is? And
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  you know the biggest thing is that you you can't be worried about saying no
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  to a partner. You have to be selected. So the first thing that
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  we look at when we you are talking to a prospective platform is market fit.
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  Is this a long term product that is creating a need or that is
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  solving for a need in the market. There is a lot of startups,
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  and it's not just valid for the fintech industries. It's valid for a lot
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  of various industries that are a gimmick candidatey. So you want to make sure
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  that the market fit is there. Then the second thing is the culture of
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  the company and the leadership of that company. Did they run you know,
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  I'll throw out a couple of things such as, did they ever run into
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  issues with regulators or law enforcement authorities? Did one of the previous ventures that
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  they work at got into that kind of issues? So you look at the
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  past of the founding team, the past of the past experience of the key
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  staff, just to get a sense of who they are and what is the
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  culture that they're looking to create in the venture that is looking to partner with
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  you. Then, finally, expanding on that culture, you want to make
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  sure that they have a culture of compliance and that they have the right compliance
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  staff in place, which is sometimes challenging with very new startups. Right,
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  they may not have made the investment in the compliance staff, so maybe they're
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  utilizing a law firm to fulfill that need. So and if that's the case,
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  you want to make sure that they have a plan in place to create
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  that compliance environment in house. They can leverage law firms if they want to,
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  but they should have the staff internally. Once we're kind of pass this
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  first hurdle, we have a pretty extensive due diligence process, right. We
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  want to make sure that you have strong financial backing. We want to make
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  sure that if you're playing on the lending side of the of the space,
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  that you have access to debt and you have access to equity. If you're
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  going to be financing everything yourself, we want to make sure that depending on
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  the stage that you're in in the life of your company, which you have
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  put in place, matches that If you're a very established player like upsord wise,
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  when fin partnered with upstart, you're expecting to see quite a bit of
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  policies and procedures, right, You're expecting to see that compliance environment authorities to
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  that. If it's a newly established startup, maybe not, so those requirements
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  will depend on where the company is that in their life cycle. And then
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  finally, the most critical piece is the onboarding process. This is when we
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  work hand in hand with the fintech to make sure that all the right pieces
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  have been put in place to stand up a fin wise product. You know,
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  there was recently updated guidance that was issued by the FDIC as it pertains
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  to third party relationships or bank partnerships fell into this where the FDIC is now
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  asking the bank to have the right process in place to assess the risk of
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  a relationship to entering into that relationship. That's a process that we've always followed
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  that fina wise. So we feel very confident in the recipe that we've developed
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  to select the right fintech partners No, it's good and it's you have to
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  be thorough. It is any partnership you get into as a representation of your
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  brand and an extension of your organization. So everything you described, you know
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  definitely makes sense of why you want to make sure you're doing the amount of
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  diligence that you describe. So let me wrap. I always like to as
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  we come to the end kind of three quick quick questions. The first is,
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  tell me, is there a tech or an app that you just right
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  now? You can't live without that it is just part of your kind of
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  day to day that is kind of your go to right now. I mean,
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  look, it's going to sound various, stereotypical, but I don't think
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  I could live without my phone. Right. This is where I conduct business.
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  This is how I talk to my family, that's abroad, It's how
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  I manage my finances, it's how I I you know, even now,
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  it's how I pay right. I honestly can't remember the last time I walked
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  out with my wallet. I have my phone. It's enough to do everything,
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  so that that piece of technology, unfortunately, has become pretty critical to
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  my life. Yeah, you'll walk out of the house without a not bring
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  a driver's license or a wallet or anything like that. But if you walk
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  out without your phone, you're heading back yet one hundred percent you feel naked
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  without it. Yeah. Now, so my second question is, you know,
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  we're financial services. It's a risk based business. We all have to
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  manage risk if you're in financial services and so and sometimes you have to make
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  internal risks for career or just kind of business decisions. Can you share an
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  instance where you think you had to make a risk or a bold decision and
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  what did you learn? What was the outcome of doing that? Yeah,
• 24:48
  so, you know, I think the biggest risk that I took in my
• 24:52
  career was to switch over to finwise, right, When I started at cross
• 24:57
  River, I didn't have that consideration of is the bank small, is it
• 25:03
  big? It was an internship and I was very young, so I didn't
• 25:07
  have to consider those things. But by the time I left cross River,
• 25:12
  it was a very established player in the space right And so when that opportunity
• 25:18
  came up at finn Wise, it would have been or it was to go
• 25:22
  back to very much being in the trenches. A lot of it has not
• 25:26
  been stood up yet. It's recreating a business line from scratch, and that
• 25:32
  was a risk, but I think it's somewhat of what keeps me going in
• 25:37
  my career. I love being the guy that is standing up new stuff that
• 25:41
  you know, is trying to figure it out, that that is deep in
• 25:45
  the trenches. It's truly what I enjoy. So the switch to finn Wise
• 25:51
  definitely solidified that I'm this guy that is super happy with new established company and
• 25:57
  you know, being a jack of all trade as opposed to as being an
• 26:02
  employee number at a company as big as Bank of America, for instance.
• 26:07
  Now you're looking at it, it sounds like you thrive in that fast paced
• 26:11
  environment. Now good to hear. And then the last is is we think
• 26:14
  about twenty twenty four, any bold predictions of what you think might happen over
• 26:19
  the next eighteen to twenty four months. I think we'll start to see an
• 26:25
  even more dramatic rise in the use of artificial intelligence. Lending has somewhat embraced
• 26:32
  it already, I mean, a lot of marketplace lenders now use artificial intelligence
• 26:37
  based proprietary models, but I think we'll see it even more in other areas.
• 26:42
  I could see a tremendous rise in the use of neural nets for anti
• 26:48
  fraud solutions, for instance, for KYC solutions that use extremely non traditional data
• 26:56
  sources. Right now, if you're looking at fraud you know, or transaction
• 27:00
  monitoring, it is using financial service data. I could see, you know,
• 27:06
  neural nets being created that are pulling from news or pulling from social media,
• 27:11
  that are pulling from past usage across various financial institutions. So I think
• 27:18
  we'll see that, And of course we'll see the rise of artificial intelligence for
• 27:22
  more operational efficiency and for improving the accuracy of the models that we already have
• 27:29
  in place today. And you know, I'll wrap up with with this,
• 27:32
  I could, you know, give your predictions all day long but I'll wrap
• 27:36
  up with this. I think big tech will eat at the market shares even
• 27:41
  more than they are right now as it pertains to fintech. You know,
• 27:45
  if we look at Apple, I think it's a great use case of how
• 27:51
  big tech can can, you know, try to penetrate that fintech industry.
• 27:56
  They started with an Apple card. It was a partnership with owned sacs.
• 28:00
  We knew that Golden Sax wanted to penetrate the consumer market. And at first
• 28:04
  it was like this is a natural evolution for Apple, but then it was
• 28:08
  by now, pay later. Now it's payment processing. Right. iPhones and
• 28:12
  iPads for the past six months have been able to process card payments on device.
• 28:18
  So I think big tech have seen that fintech is extremely interesting and that
• 28:26
  there is a play for them. Right. Amazon is another great use case.
• 28:30
  I mean, Amazon has been an extremely vocal adversary of interchange fees in
• 28:37
  the States. We could see a world where Amazon is creating their own payments
• 28:42
  hub. They may be creating their own neo bank, you know, I
• 28:47
  think this will happen sooner rather than later. I don't think this is a
• 28:51
  multi decade opportunity for those big techs I think this is something that they're actively
• 28:56
  working on right now. Yeah, you're seeing just different organizations cross traditional boundaries
• 29:03
  of where you wouldn't think that they would be doing business, but it just
• 29:06
  does. Financial services is kind of ingrained in a lot of those components.
• 29:11
  So we'll look forward to checking back in and seeing and some of your predictions.
• 29:15
  Simon, thank you so much for taking the time today. I've enjoyed
• 29:18
  the conversation, learning a little bit more about your background and your journey and
• 29:22
  appreciate the insights today. Perfect. Thank you so much, Ed, I
• 29:26
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