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FF.ED.05 - Jason Henrichs_1.vtt

{{00:00:05}}
Hi, I'm William Mills, and I'm
here at Finovate Fall, and I'm

{{00:00:07}}
pleased to be joined by Jason
Henrichs, the CEO of Alloy Labs.

{{00:00:10}}
How are you doing today?

{{00:00:11}}
Thanks for having me.

{{00:00:12}}
Ah, it's terrific seeing you.

{{00:00:14}}
Well first, tell us a little
bit about Alloy Labs and your

{{00:00:17}}
organization's primary mission.

{{00:00:19}}
Yeah, so Alloy Labs is a consortium
of community banks that work together

{{00:00:23}}
to ensure community banks, which are
essential in their communities and local

{{00:00:26}}
economies, not only survive, but thrive.

{{00:00:29}}
And after it exited my last company,
it was approached by a bunch of banks,

{{00:00:32}}
particularly community banks, saying
can you help us be more innovative?

{{00:00:36}}
And it's well that's great, but
how are you going to compete with

{{00:00:38}}
Chase and Capital One, right?

{{00:00:41}}
How are you going to compete with
Chime and Silicon Valley with the

{{00:00:43}}
talent and the amount they can raise?

{{00:00:45}}
No, by the way, Walmart and Amazon
are all getting into your business.

{{00:00:49}}
And, early in my career as a consultant
working for Michael Porter, and the first

{{00:00:53}}
thing you do is say, what other industries
have gone through something like this?

{{00:00:56}}
And interestingly, this is what
family farms went through at the

{{00:01:01}}
advent of commercial agriculture.

{{00:01:03}}
And specifically, the dairy
industry and the cranberry industry.

{{00:01:08}}
And so today you would know
the two largest cooperatives,

{{00:01:11}}
Land O Lakes and Ocean Spray.

{{00:01:13}}
But back in the day, those were family
farms that started to make investments

{{00:01:18}}
together, to do work together, to make
sure they could remain competitive.

{{00:01:23}}
And so that's what Alloy Labs
is actually modeled after.

{{00:01:25}}
So we make investments both
through a fund and directly.

{{00:01:28}}
We've spent out a payments industry that's
owned by 17 of the banks led by Peter

{{00:01:32}}
Davey, who we recruit from the clearing
house, which is by working together, we

{{00:01:36}}
not only get network knowledge, but we
can do things with economies of scale,

{{00:01:41}}
like partnerships with startups where
we provide them a scaling path, right?

{{00:01:45}}
Especially things that are
adjacent to banking that expand.

{{00:01:48}}
What is it we think of as a bank?

{{00:01:51}}
We can do partnerships with the Microsofts
of the world and the Amazon Web Services,

{{00:01:54}}
who are, hey, these banks are really
interesting to us, but individually, us

{{00:01:59}}
serving, the 2 to 20 billion is hard.

{{00:02:02}}
But if you look at us as a
single bank, we're the 10th

{{00:02:04}}
largest bank in the country.

{{00:02:05}}
That's amazing.

{{00:02:06}}
It's a real collective and I
guess that raises the next issue

{{00:02:09}}
that I wanted to ask about you.

{{00:02:11}}
Can you tell us a snapshot of what you
think the biggest challenge is Fintechs?

{{00:02:16}}
What are entrepreneurs
specifically are facing today?

{{00:02:20}}
I think it's going to matter by stage that
if you are a mid stage company, you've

{{00:02:27}}
probably raised a significant amount
of money and at a pretty high price.

{{00:02:32}}
The race to justify your valuation
or to reach profitability is a

{{00:02:36}}
hard one because the sales cycle
in financial services is hard.

{{00:02:40}}
Whether it is to consumers,
small businesses, or via banks.

{{00:02:44}}
It is under pressure and is
only getting harder with the

{{00:02:46}}
current regulatory actions.

{{00:02:48}}
If you're an early stage
company, the challenge is the

{{00:02:52}}
capital markets are completely
different than they were before.

{{00:02:55}}
They need to find, I think in my mind,
it's the challenge, but it is the

{{00:02:59}}
beauty of the moment we're in, is you
can't be, Oh, I'm going to go raise

{{00:03:03}}
3 billion to go grow this business.

{{00:03:05}}
I need to find a more valuable
wedge that allows me to scale.

{{00:03:09}}
So as Frank Rotman from QED says,
we're in the great reckoning

{{00:03:12}}
within the FinTech ecosystem.

{{00:03:14}}
I think ultimately that is better for
the industry than money is free, lots of

{{00:03:19}}
copycat companies all chasing each other,
but spending too much money inefficiently.

{{00:03:25}}
I don't need to tell you that regulatory
compliance is a gigantic issue for FIs

{{00:03:29}}
and with some of the recent consent orders
related to banking as a service, how does

{{00:03:34}}
that impact third party risk management?

{{00:03:39}}
Unfortunately, I think the regulators
view FinTech as a blunt instrument.

{{00:03:45}}
They don't recognize that there
are many different flavors, each

{{00:03:48}}
with a very different risk profile.

{{00:03:50}}
So partnering, say, in our portfolio with
Careful, which is a platform for adult

{{00:03:54}}
children to help have better insights
into aging parents money, to find

{{00:03:59}}
fraud, double payments, miss payments.

{{00:04:01}}
They don't move money.

{{00:04:01}}
There is no KYC, KYB risk
associated with this.

{{00:04:05}}
There's no AM hours.

{{00:04:06}}
That's very different.

{{00:04:08}}
than say, a neobank focused on a
specific segment, which is very

{{00:04:12}}
different than a lender, right?

{{00:04:14}}
That it's doing, lending with a bank
of record, which is very different

{{00:04:18}}
than say, our portfolio company,
Savvy, which is a no code, low code

{{00:04:23}}
approach to analytics won best of
show this spring at Finovate, right?

{{00:04:27}}
They're an internal tool.

{{00:04:29}}
Your data doesn't even
leave, your laptop, right?

{{00:04:31}}
Each of those is a different risk profile.

{{00:04:34}}
But when you just say FinTech and
third party risk and don't look at

{{00:04:39}}
the actual scope of the risk involved,
it really does slow things down.

{{00:04:44}}
I can imagine.

{{00:04:44}}
Well, the CrowdStrike incident
was eye opening to all of us.

{{00:04:49}}
So what can FinTechs and
banks learn from that event to

{{00:04:53}}
better improve their defenses?

{{00:04:54}}
You mean that your business
continuity plan really does matter?

{{00:04:57}}
Yes, it does.

{{00:04:58}}
I would even broaden it and share.

{{00:05:01}}
If you look at the evolving, pun
intended, evolved Synapse debacle and

{{00:05:07}}
the CEO of Yotta saying, Oh, we never
expected that this could happen, right?

{{00:05:11}}
That a major provider to us could go down.

{{00:05:13}}
It's like, how could you not actually
somewhere in your risk profile say, One

{{00:05:17}}
of the primary risks is we lose, a primary
vendor and what are we going to do?

{{00:05:21}}
Now you can't control
for all risks, right?

{{00:05:23}}
You can't say, every single vendor, but
your major ones, you need to be able to

{{00:05:28}}
say, what would happen, if that went down?

{{00:05:31}}
Look at Banks faced that
with Hurricane Sandy, right?

{{00:05:34}}
Remember, showing our age, when it
turns out that two of the processing

{{00:05:39}}
centers for one of the major cores
were within the same strike zone of

{{00:05:42}}
a hurricane, well, someone had to
have thought through that, right?

{{00:05:46}}
And so I think the takeaway is,
you can't solve for every risk.

{{00:05:50}}
But you better map them out and
put them in order of priority.

{{00:05:53}}
What would I do if that happened?

{{00:05:55}}
And have, that SWAT team ready to
go and say, Hey, if this happens,

{{00:05:59}}
who are we going to assemble?

{{00:06:01}}
We can't know exactly what the
risk will be, but we know who we're

{{00:06:04}}
going to go deploy in the broad
scenarios to go deal with that.

{{00:06:08}}
I can imagine.

{{00:06:09}}
Well, what innovations are you
most excited about that you think

{{00:06:13}}
we're going to be seeing in 2025?

{{00:06:16}}
I'm excited about some of the
applications of AI behind the

{{00:06:21}}
scenes to give better insights.

{{00:06:23}}
So in our panel yesterday
we talked about this.

{{00:06:26}}
I don't think we're ready for, the
machines to take over to run your

{{00:06:29}}
personal finance or your business finance.

{{00:06:32}}
But I'm really looking forward to
the augmentation for The relationship

{{00:06:37}}
managers within banking, right?

{{00:06:39}}
If you ask any community bank, they'll
say their competitive advantage

{{00:06:42}}
is their relationship, right?

{{00:06:43}}
Well, there's a real opportunity to make
it more than relational, but to say,

{{00:06:48}}
hey, we have access to a lot of your
data and we can use machine learning

{{00:06:51}}
and AI to generate insights that you
as a business owner might not have.

{{00:06:56}}
We did a deep dive a couple
years ago after PPP around small

{{00:07:00}}
businesses, our consortium.

{{00:07:02}}
And one of the ahas when, you know, what
we'll do is split up and banks will each

{{00:07:06}}
do a couple customer interviews, right?

{{00:07:08}}
We pool, all have the same survey.

{{00:07:10}}
We pool the results across the board.

{{00:07:13}}
Small business owners said finance was not
a strategic function for them because for

{{00:07:18}}
most of them left to their own devices,
they don't understand the balance sheet

{{00:07:22}}
and the cashflow optimization, right?

{{00:07:25}}
They've got a tax person, right?

{{00:07:26}}
And they probably got
a bookkeeper in there.

{{00:07:28}}
But given their choice, they
would rather go sell another major

{{00:07:31}}
contract, close another piece of
business, because that was something

{{00:07:34}}
that was under their control.

{{00:07:36}}
Well, we can take their data and
AI and begin to show them things in

{{00:07:41}}
language they understand about how
they can better run their business.

{{00:07:44}}
That's what gets me excited.

{{00:07:45}}
It does sound exciting, and I haven't
heard a lot of that, and I think

{{00:07:49}}
we're going to be hearing more.

{{00:07:50}}
So in closing, what is the one most
important point you'd like viewers

{{00:07:54}}
to take away from our time today?

{{00:07:56}}
Innovation is hard.

{{00:07:58}}
Whether you're a bank or you're a
FinTech, it's supposed to be hard.

{{00:08:01}}
The Zerp era when it was easy, and too
easy to raise money and everyone's FinTech

{{00:08:06}}
and innovation and partnership rah.

{{00:08:09}}
It made it, I don't know, it
was a false sense of optimism.

{{00:08:13}}
Doing hard things is hard.

{{00:08:15}}
It's supposed to be hard.

{{00:08:16}}
We need to do it in a safe way, as
much as you can pick on the regulators,

{{00:08:20}}
they're responsible for both consumer
protection, safety, and soundness.

{{00:08:24}}
You have to play within the bounds,
but there's no excuse to not do it.

{{00:08:28}}
That makes a lot of sense.

{{00:08:29}}
Well, Jason, I really
appreciate the time today.

{{00:08:31}}
And again, this is William Mills
in New York at Finovate Fall.

Hi, I'm William Mills, and I'm
here at Finovate Fall, and I'm

pleased to be joined by Jason
Henrichs, the CEO of Alloy Labs.

Well first, tell us a little
bit about Alloy Labs and your

Yeah, so Alloy Labs is a consortium
of community banks that work together

to ensure community banks, which are
essential in their communities and local

And after it exited my last company,
it was approached by a bunch of banks,

particularly community banks, saying
can you help us be more innovative?

And it's well that's great, but
how are you going to compete with

How are you going to compete with
Chime and Silicon Valley with the

No, by the way, Walmart and Amazon
are all getting into your business.

And, early in my career as a consultant
working for Michael Porter, and the first

thing you do is say, what other industries
have gone through something like this?

And interestingly, this is what
family farms went through at the

And specifically, the dairy
industry and the cranberry industry.

And so today you would know
the two largest cooperatives,

But back in the day, those were family
farms that started to make investments

together, to do work together, to make
sure they could remain competitive.

And so that's what Alloy Labs
is actually modeled after.

So we make investments both
through a fund and directly.

We've spent out a payments industry that's
owned by 17 of the banks led by Peter

Davey, who we recruit from the clearing
house, which is by working together, we

not only get network knowledge, but we
can do things with economies of scale,

like partnerships with startups where
we provide them a scaling path, right?

Especially things that are
adjacent to banking that expand.

We can do partnerships with the Microsofts
of the world and the Amazon Web Services,

who are, hey, these banks are really
interesting to us, but individually, us

But if you look at us as a
single bank, we're the 10th

It's a real collective and I
guess that raises the next issue

Can you tell us a snapshot of what you
think the biggest challenge is Fintechs?

What are entrepreneurs
specifically are facing today?

I think it's going to matter by stage that
if you are a mid stage company, you've

probably raised a significant amount
of money and at a pretty high price.

The race to justify your valuation
or to reach profitability is a

hard one because the sales cycle
in financial services is hard.

Whether it is to consumers,
small businesses, or via banks.

It is under pressure and is
only getting harder with the

If you're an early stage
company, the challenge is the

capital markets are completely
different than they were before.

They need to find, I think in my mind,
it's the challenge, but it is the

beauty of the moment we're in, is you
can't be, Oh, I'm going to go raise

I need to find a more valuable
wedge that allows me to scale.

So as Frank Rotman from QED says,
we're in the great reckoning

I think ultimately that is better for
the industry than money is free, lots of

copycat companies all chasing each other,
but spending too much money inefficiently.

I don't need to tell you that regulatory
compliance is a gigantic issue for FIs

and with some of the recent consent orders
related to banking as a service, how does

Unfortunately, I think the regulators
view FinTech as a blunt instrument.

They don't recognize that there
are many different flavors, each

So partnering, say, in our portfolio with
Careful, which is a platform for adult

children to help have better insights
into aging parents money, to find

There is no KYC, KYB risk
associated with this.

than say, a neobank focused on a
specific segment, which is very

That it's doing, lending with a bank
of record, which is very different

than say, our portfolio company,
Savvy, which is a no code, low code

approach to analytics won best of
show this spring at Finovate, right?

Your data doesn't even
leave, your laptop, right?

Each of those is a different risk profile.

But when you just say FinTech and
third party risk and don't look at

the actual scope of the risk involved,
it really does slow things down.

Well, the CrowdStrike incident
was eye opening to all of us.

So what can FinTechs and
banks learn from that event to

You mean that your business
continuity plan really does matter?

If you look at the evolving, pun
intended, evolved Synapse debacle and

the CEO of Yotta saying, Oh, we never
expected that this could happen, right?

That a major provider to us could go down.

It's like, how could you not actually
somewhere in your risk profile say, One

of the primary risks is we lose, a primary
vendor and what are we going to do?

Now you can't control
for all risks, right?

You can't say, every single vendor, but
your major ones, you need to be able to

say, what would happen, if that went down?

Look at Banks faced that
with Hurricane Sandy, right?

Learn about the biggest challenges facing FinTech entrepreneurs today, the impact of regulatory compliance on third-party risk management, and the evolving landscape of FinTech with Jason Henrichs, CEO of Alloy Labs. He also shares insights on improving defenses against cyber threats and the exciting potential of AI in banking. 