April 16, 2025 • 37 mins
The collapse of Synapse shook the fintech world. A year later, have banks, fintechs, and regulators done enough to prevent another disaster? In this episode, we explore the crucial steps to ensure stability—shared responsibility, smarter due diligence, and evolving regulations. Tune in to learn how the industry can avoid repeating history and build a safer, more resilient financial ecosystem.
Host:
Rachel Morrissey, Money20/20 US
Phil Goldfeder, CEO, American Fintech Council
Guest: Peter Hazlehurst, CEO, Synctera
Investors for Synctera include: Lightspeed, Fin Capital, Diagram, SciFi, NA Ventures
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rachel Morrissey (00:03):
Welcome to the Money Pot.
My name is Rachel Morrissey andI am here as the head of
content for Money 2020.
I am here with Phil Goldfeder,who is the CEO of the American
FinTech Council, as part of ourseries with the American FinTech
Council, to try to unravel abit of what's going on.
(00:23):
I mean trying to say we'reunravel of what's going on.
I mean trying to say we'reunraveling what's going on in
Washington.
Sounds like we're biting offmore than anyone could chew at
this point, but trying tounravel a little bit about
what's happening with fintech inWashington and what we can
expect going forward and some ofthe different stories that have
fed into what is happening forthe next little while.
So hello Phil, how are youdoing?
Phil Goldfeder (00:46):
Great.
Thank you so, so much forhaving us, Rachel.
This has been a great seriesand I'm excited for today's
episode.
Rachel Morrissey (00:51):
Me too.
This will be really fun.
We have with us here just atotal unknown, somebody that
you've never, ever heard ofbefore.
If you guys can't hear thesarcasm in my voice, I'm
obviously not laying it on thickenough, but joining us today is
Peter Hazlehurst, who is theCEO of Syncterra.
How are you doing, peter?
Peter Hazelhurst (01:10):
Great Nice to see you, it's so nice to see you
.
Rachel Morrissey (01:13):
We're so glad you could join us today.
So, to get things kicked off,I'm just going to throw it to
Phil and he's going to kind ofput us out and start this
discussion.
But we are going to be talkingabout something that everybody
wants to talk about openly andtalks about in every dark corner
for the last year, which iswhat happened with synapse and
(01:35):
how that has affected the wholesystem, and especially how that
has affected the system in thenature of what we can expect
from regulation or moderation orwhat we think is going to be
coming down the line as far asbehaviors of bank and fintech
partnerships.
So, to kick us off there, we'regoing to go to Phil and why
(01:56):
don't you go ahead?
Phil Goldfeder (01:57):
Thanks, so so much, rachel.
Again, peter, thank you fordoing this and, more importantly
, thank you for not putting anyparameters on the type of
questions we can ask.
You said we can ask him almostanything.
So, as you know, the AmericanFinTech Council is sort of
unique in that we represent asmembers both innovative banks
and FinTech companies of allkinds, and so we think a lot
(02:18):
about bank and tech partnershipsand the regulatory structures.
So let's reflect for a momenton the title of the podcast
Avoiding the Next Synapse.
So how do you think Cigterraand other similarly situated
fintech companies canreestablish the trust from their
bank partners in thepost-synapse world, and maybe
also sort of ask that question,similarly to regulators and how
(02:40):
do you rebuild some of thattrust that may have been lost?
Peter Hazelhurst (02:44):
So I think the challenge that the whole
industry has is the level ofunderstanding of what it takes
to actually do these types ofprograms and successfully run
them.
And in the late sort of 2017 to2020 time period, there was a
bit of a gold rush.
There was a whole bunch ofbanks that said I want to do
(03:04):
banking as a service I don'treally know what it is, but I
want to go do that.
And then there were a wholebunch of people that saw that
demand on the investor side andsaid we'll fund anybody that can
say banking as a service.
Go.
And it was quite frothy.
As many of you remember and Idon't know, 17, 18 startups,
(03:26):
including us, were funded inthat time interval.
We were one of the laterentrants, partly because I had
previously been at Uber and wasrunning payments over there and
we had worked with kind ofeverybody from the Marquettas of
the world to the Green Dotbanks and everybody in between.
And obviously when COVID hitthe payments, part of the
(03:49):
universe of Uber got shrunk interms of complexity and stuff
like that, because there wasless riders and so on, and I
thought it would be aninteresting thing to sort of
capture that knowledge pool ofhow hard it is to build a
digital bank for drivers, turnit into a platform and turn that
(04:12):
into a company, and that's whatwas the origin of Syncterra.
The challenge, though, waseverybody was going really,
really fast, and not everyoneknew what the rules were, and or
, if they did know what therules were, chose not to follow
them, and or, if they did knowwhat the rules were, chose not
to follow them, and I think whenanything is going quickly,
people cut corners and do thatsort of stuff.
We built rather slowly, and sowe've generally weathered the
(04:37):
storm in terms of probably notbeing as aggressive as we could
have.
We could have onboarded a crapton more fintechs and put,
potentially, one of our banks atrisk.
We chose not to do that, andthe general theory is that the
people coming into the businessweren't as educated as to what
they were getting into as theyshould have been both banks and
(04:59):
fintechs and platforms like us.
So if you want to avoid it,obviously hire people to do
these sorts of businesses.
That kind of know what thebusiness is and payments and
banking is a domain-specificskill set.
You can't just say I'm anexpert on text messaging, I'm
going to go and become a bankingsoftware company or I know
(05:21):
everything there is to do withsupply chain.
Banking has.
Supply chains must be the same.
The reality is there's tons ofcomplexity just in the tech
stack and then there's layers ofcomplexity that many companies
have never thought about, like Isaw a person posting on Twitter
say I've been told I need to doa SOC 2 audit.
(05:41):
I got an estimate from Vanta.
It was really expensive.
Is there a cheap free version?
I'm like probably.
But your regulators are probablynot yeah, and I'm like, yeah,
legit, but this is what washappening.
People sort of heard thatthere's a gold rush.
(06:02):
People needed a debit card tospend money.
People sort of heard thatthere's a gold rush, people
needed a debit card to spendmoney.
Or they saw Google Wallet orApple Pay launching payment
services and said I can go dothat.
And on its surface it looks likeit's just a technical problem.
You just code some shit andmagic comes out the other side.
But the reality is it's acomplexity of relationships.
(06:24):
So you've got at least threeplayers.
There's a platform like us,there's the FinTech or the brand
, there's the bank, but inreality there's also a state or
federal regulator.
There's FDIC or OCC or pickyour governance system of the
week.
Then there's the FTC if you dosomething really silly, and
there's a whole bunch ofcommitments and stuff like that,
(06:44):
and just understanding who theparticipants are is a complexity
, and the reality is like backin those days there weren't
organisations like yours, phil,that would make it really
obvious how to do this, and sopeople just made it up.
And the problem with making itup is you go into an ecosystem
(07:05):
of banks, in particular, thatkind of know how to do community
banking, which is great.
So they have branches and theywork with their local small
businesses and consumers.
But if you said, hey, firstNational Bank of Osage, iowa,
are you ready for 10 millionChime users?
And they're like well, we'relike a one branch bank.
(07:25):
You know, I'm not sure if wereally know what to do with
10,000 users, let alone amillion.
How should we deal with that?
And you have relativelyunscrupulous players.
Let's say, come in and say,well, don't worry, we got it,
you just sign this paperwork,it'll be fine, no big deal.
And when they were signing thepaperwork they didn't read the
(07:48):
bits about you can go to jailfor not doing KYC and AML
properly.
And it was really unfortunatebecause if they'd read the
basics, they wouldn't have gotinto the business without
actually creating a plan.
And if you see what's happeningtoday, bank demand is off the
charts again, but they're allasking for what's the plan?
(08:08):
How do I do it?
I don't want to get in troublelike the other guys did.
What should I do differently?
And that's what's transformed.
Phil Goldfeder (08:17):
Rachel, if I can just add on to that question
and sort of Peter as a startupright, and so I appreciate
number one, that you were a bitbehind.
Yet your instinct still toldyou to take it slow and be
thoughtful about what you weredoing.
Was there fear, as you werestarting up, that maybe you were
falling too far behind?
I think I would argue I thinkthere's.
(08:39):
Some people were unscrupulousand nefarious in their
activities and I think we areseeing the remnants of that
today.
You obviously took a muchdifferent approach.
How did you think about thatapproach and was there an
inherent fear just because youthought maybe you'd fall behind?
Peter Hazelhurst (08:56):
There was the latent fear from our investors
why are you treating this like amarketplace?
Marketplaces are harder.
My answer to that is alwaysmarketplaces always be bespoke.
And if you look at taxis in NewYork, uber came in as a
marketplace and said look, we'llstart with the black cab
drivers and we'll help them finda better distribution system,
(09:16):
and so on and so forth.
It's very expensive to do andit takes a lot more effort to
build a marketplace, but oncethe marketplace is in place,
it's much more resilient.
And our investors came back andsaid well, why don't you just do
it like Synapse did?
They just partnered with Evolveand they tell Evolve what to do
.
And I'm like, because I've beenon the other side of that trade
, I've had the calls where abank banker has called me and
(09:39):
I've been moving 15, 30, 50, 100million dollars a day and they
said, well, the regulators arecoming in and said cease and
desist, you have 30 days to moveyour traffic.
And I was determined never tobe in that place again, which
means always having two possiblepartners for any particular
deal, always making sure thatthe people we're working with
(10:00):
understand the risks they'retaking and this risk this is not
a risk-free game and, like allthings in banking, you price
risk and some banks want to takethe risk and want to earn the
higher premiums and other banksdon't, and that's okay.
Rachel Morrissey (10:16):
I mean this is a little off, but you're
obviously pulling very much fromyour experience with Uber.
Did the fact that you had thatexperience, you had that much
under your experience with Uber,did the fact that you had that
experience and you had that muchunder your belt, did that
change the nature of feelingbehind?
Because I think people get thissense that they're behind and,
oh, we're late to the market.
(10:36):
But if you've been in somethingand you've kind of seen the
long game, I wonder aboutwhether that perspective changed
the nature of feeling behindher.
You're like, no, there's plentyof space here, we don't have to
rush.
Peter Hazelhurst (10:53):
So first things first.
The market is huge and there'sno one player that's going to
win Stripe and Addian.
There's at least two.
Don't tell Perentry, there'sprobably three.
There's at least two.
Don't tell Perentry, there'sprobably three.
And my assertion in the marketwas there's no need to rush
unless you've got investors thatare giving you tons of pressure
(11:13):
.
And we were lucky.
We had long bed investors withLightspeed and Finn and Syfy and
others and they basically cameto us and said do it the right
way, we don't want to be introuble six months, 12 months
later.
And if I hadn't had that and wehadn't sort of thought upfront,
how much money is it going tocost to build this stuff?
(11:35):
And in my head I knew it wasgoing to be like a hundred
million dollars.
But it's like saying out, hey,at the seed stage, hey, I need a
hundred million.
You'd be like laughed away.
But you actually have to havesome level of real conversation
and say this isn't a $5 millioninvestment.
You can't get it done.
And by doing so and by beingstraightforward up front, we
(11:59):
knew that it would be a game ofleapfrog and we also knew that a
number of the players thatthought it was a $5 million game
were just never going to win,because they'd go in and bank a
whole bunch of low-fundedstartups that would cause the
problems that inevitablyhappened, and so it was causal.
(12:20):
If you try and do it on thecheap, you'll build something
that's ineffective or notcomplete, which causes you then
to go and hire and get customersthat aren't really ready and
banks that aren't really ready,and that mismatch of technology
to product is where you get introuble in trouble.
Rachel Morrissey (12:48):
So, as you're looking at the landscape now and
we've obviously had this blowup where one of your competitors
at the best acted imprudently,like, at the very most generous
way of putting it they actedvery unwisely.
We'll put it at that, just tosay at our core, whether we
(13:09):
believe it's that way or not,that's the nicest way we can put
it.
It's had this ripple effectabout the way that the whole
industry is seen and, as youjust said, a bank fintech
partnership is actually apartnership between many
entities.
It's not simple, as there's onebank and one fintech and
(13:30):
there's this partnership betweenthe two of them.
It's sort of like you'remarrying into a whole slew of a
family that is all interrelatedand you have to deal with them
if you're going to deal with one.
So what do you think, what doyou see of the future for bank
(13:51):
fintech partnerships and fintechinvolvement with the banking
and the regulators?
How would, if you were todesign it or you were to make it
optimal, how would you do it If?
Peter Hazelhurst (14:02):
you were to design it or you were to make it
optimal, how would you do it?
So I think the best way tothink about it is you've got a
number of incumbents the FISOs,the FISs, the Jack Henrys, the
Finastras of the world that attheir core pun intended are a
ledger.
And look, when I first came tothe US, one of the first parts
(14:27):
of the core banking system Ibuilt was passbooks for tellers,
and a passbook is the prototypeof a distributed ledger,
because literally the piece ofpaper is the ledger and the core
banking system doesn't reallyeven know what your balance is
or any of your transactionhistory.
And we sort of evolved fromthere into modern technology and
so on, running the system.
(14:48):
What we do in fintech bankingis no different to any of that
stuff.
It's just how you think aboutthe organization of the
information, the reporting, thereconciliation, the day-to-day
banking services.
And I think the best thing thatcould happen is whoever sits in
the room at FISA and FIS from aregulatory point of view, says
(15:10):
hey, we think companies likeSingterra are systemic enough
that we're going to place aperson in their office.
Not that we have an office.
They can join an empty WeWorkif they want to, but virtual
office and we'll happily answerand go through how we do
business.
And we've not as a fintechtoday we've never heard anything
(15:35):
from a regulator directly andthey can regulate us.
They have purview over the workwe do under the Services
Companies Act.
They just don't, and I thinkit's a question of systemic
impact.
So how big are these programs?
But China's a big place, right.
(15:56):
There's a lot of users that areinvolved and there's no reason
why their tax stack shouldn't bealso subject to review by
regulators or bankers.
And ultimately, where it getsmost efficient is a combination
of what I'll call public-privatepartnerships.
So the public side is theregulators come in and say we'd
like to do this.
The private side of it is justlike PCI we come up with our own
(16:20):
set of standards of it is justlike PCI we come up with our own
set of standards.
We all suck it up and pay KPMGor Accenture to audit us for the
thing.
We just told them what it was,which they'd never had before,
but they come back andindependently verify.
Does Syncterra do what it saysit's doing?
And that's going to build thetrust.
So you said how do you gettrust Banks?
(16:45):
Don't fear will Fiserv or FISwork?
They don't like the contractand they don't like seven-year
commitments and all that sort ofshit, but they're not afraid
that the tech won't work.
And we need that support comingfrom private and public to
basically bolster people'sconfidence, because
fundamentally, the tech is acore banking system.
That's basically what it is,and bankers in the community
(17:08):
banks in general don't actuallyknow how their core banking
system works.
They use it, but if you saidhow does reconciliation work,
they'd be like I have no idea,but I log onto this screen and
every day it tells me whetherI'm in balance or out of balance
and how to chase it.
We are the same.
We're doing the exact sametechnology lift and all we need
(17:29):
to do now is get people back inthe saddle of feeling confident
that it's moving.
And I can tell youobservationally, the inbound
demand right now is crazy.
We're back.
It's almost pre-2020 typetimeframe and it's made more fun
slash, interesting by all thesort of announcements on crypto,
which I think is reallyinteresting.
(17:51):
I, in fact, hold the one Libracoin that exists and this is a
beautiful.
Oh, you have one too.
Oh, you have a Bitcoin, but Ihave a Libra coin.
Rachel Morrissey (18:00):
Mine's rarer oh you have one too.
Oh, you have a Bitcoin, but Ihave a Libra coin, mine's rarer.
Phil Goldfeder (18:08):
Yours is rarer.
I remember the Libra coin and Ididn't know if anybody had one
of those.
Let me ask you and I apologizefor jumping in for a moment you
said something interesting andI've heard you say it before.
I think we were together inPhiladelphia Fed and I heard you
say something interesting and Ithink a lot of people agreed
with you.
We oftentimes sort of at theAmerican FinTech Council.
We oftentimes talk aboutstandards, but how do you think
(18:30):
about core competency?
Right?
The bank comes to therelationship with a certain core
competency.
Syncterra comes to therelationship with a certain core
competency.
The FinTech company comes witha certain core competency.
To the relationship with acertain core competency.
The fintech company comes witha certain core competency.
Do you think by engagingdirectly with the regulator,
changes that strengthens that orin any way kind of upsets the
apple cart, the way theecosystem is currently built?
Peter Hazelhurst (18:54):
I think it can only strengthen things because
if, at your core, you argue thatregulators' job is to keep
consumers safe and the ecosystemsafe, banks and supporting
infrastructure, by definitionthey would want to know how the
system works and who are theparties and how the participants
are.
And you go to basic stuff likewhat is an R10 on an ACH and
(19:21):
everybody agrees that you've got60 days.
In the old school day, if youwanted to really complain, you'd
go down to the local policeoffice and say I file an
affidavit, someone stole mychecking account, I want my
money back.
But we've all agreed that thoseare the rules and they're
designed in ways to helpconsumers and businesses.
The rules aren't differentbecause it's fintech banking.
(19:43):
They're the same rules, andwhat we've sort of tried to do
is pretend that somehow thoserules don't apply or that
they're different.
And then you ended up withvarious agencies saying well,
I'm going to introduce extrarules to possibly create more
controls, because people areavoiding the existing rules, and
(20:04):
the reality is no one wastesting for the existing rules,
so adding new rules on top of itdoesn't help anything.
So I can see I'm not proregulators doing more.
I'm just do what your spacetells you you're supposed to do
that would be great.
And then we in industry cancome by and say, well, that's
really good, but we're going tohold that would be great.
And then we in industry cancome by and say, well, that's
really good, but we're going tohold ourselves to a higher
(20:26):
standard, just like PCI says,I'm not going to let your pin
get sold into the wild.
Or your credit card panshouldn't be shared between
businesses and merchantsdirectly use tokenization and
it's that sort of stuff.
And the trick is for thecommunity, bankers that are
involved in this space, orbankers in general, forget
community or otherwise.
Do they understand what itfeels like to actually operate
(20:50):
these businesses?
And that's where the wholeindustry is now working a lot
better at explaining.
Here's what's going on.
This is how it works.
This is why you need to careabout this.
These are the risks you'retaking and price the risk
appropriately.
Phil Goldfeder (21:08):
So you just spoke about sort of
opportunities that presentthemselves now.
Once again, we think it's notbecause of deregulation, because
we think there's, I think fromat least from the American
FinTech Council's perspective isthat we're going to a time
where we're removing kind ofpolitical ideology from
financial services regulations,go back to more common sense
(21:30):
approach.
You talked a bit about the wayin which you were founded, which
kind of enables you to sort ofset yourself apart and to set
Singtera apart from others.
But the last two years,regardless of who you were, have
been rough right,reputationally, operationally, I
mean, in many ways.
So what's enabled you to sortof weather this storm and be
(21:52):
able to come out today and seizeon the opportunity that exists
and that's presenting itself?
Peter Hazelhurst (21:59):
So I think it's a combination of things.
One is the marketplace is,despite two years of chaos, is
relatively healthy, meaning thatwe have banks that want to take
deals and want to work withpartnerships to expand their
footprint, whether it'sinternational customers,
domestic customers, interestingtypes of credit use cases and so
(22:20):
on customers, interesting typesof credit use cases, and so on.
And I think, at its heart,fundraising has been quite
challenging over the last twoyears.
I'm very grateful for all thosefolks that bet on us because
that, just pragmatically, we hadmoney to pay the bills.
That was a hard part for manyof our players.
(22:43):
We also did a pretty good jobof underwriting and choosing to
partner with certain fintechs.
Like everybody, when we launchedin late 21, early 22, we were
keen to see all the differentpossible use cases and we
onboarded I don't know 20, 25early stage startups who were
(23:03):
relatively poorly funded, butgreat founders, people coming up
with cool ideas.
In my heart of hearts, I knewmost would not survive, but the
reality is, giving them anopportunity to see who would
survive is part of the modelthat we're in, provided they
don't take any risk that'sunnatural in order to get there.
(23:26):
So, out of that cohort.
Three or four of them didawesome and one of them's our
biggest customer now, which iscrazy.
And if we hadn't said yes tothem then when they were really
early, and if we hadn't said yesto them then when they were
really early, who knows whatwould have happened?
And so we got lucky I wouldn'tsay lucky.
We were thoughtful aboutonboarding customers of
(23:47):
different styles and shapes andsizes and we were lucky in terms
of timeline, in the sense thatwhen we launched in 22 or end of
money 2020 in 21 and then firstcustomers in January of 22, we
had that curve of growth thatfacilitated us then being able
to fundraise again.
(24:08):
That would allow us to continuethe momentum and never say
never.
But the nice thing about thelast raise we did is it gets us
to a pretty good place in termsof being able to hit break-even,
and I'm sure we'll raise moremoney after that in order to
(24:29):
continue to grow, becausethere'll be opportunities to do
some M&A and there'll be lots ofreally interesting ideas that
come into the market.
But being able to project toyour customers and to your
sponsor banks hey, I know itwould be nice if we had 300
million in checking.
We don't.
But here's the curve and itstops curving downwards.
(24:50):
At this point in time, let's go.
And so I wouldn't say it wasjust one thing.
I think it was a bit ofconfidence building.
I would say we planned ourproduct offering in a good
strategy.
We got consumers, smallbusiness, we got a nice mix.
I think we were lucky in thesense that the majority of our
(25:10):
customers, early on and to date,are corporate or small business
who have, generally speaking,been beneficiaries of the
downturned economy in terms ofPPP money and all of those sorts
of things as well.
Rachel Morrissey (25:23):
So I had a wicked thought.
As we've been discussing this,we know that this caused a lot
of concern around the entiremodel of banking as a service
and what it would do for theentire industry.
We really worried about thereflection of that.
(25:44):
But I am wondering slightly ifthe very attention because
scandal always brings attentionif the very attention allowed
for people to investigate it andunderstand it more deeply, to
understand it better.
And the actual bounce back fromthat is that companies like
(26:11):
yours might have actually hadextra interest because they
weren't making the mistakes orthey weren't making the choices
that some of the fallout thatcreated the fallout from
Synapse's decisions in the firstplace.
(26:32):
So I had this really wickedthought Was the negative
publicity possibly just a netpositive for the nature of
banking as a service industry asa whole, like that part of the
ecosystem?
Is it better off now?
Peter Hazelhurst (26:53):
So I will say that shining a spotlight on how
this should work and how itshould be done is always good,
and it makes everybodytransparently understand what's
going on.
How does it work, what are therisks, and all that sort of
stuff.
I I can't think of any possiblegoodness that came out of this
(27:16):
for a consumer, though yeah, soI think the real people that
have been impacted by this arethe humans on the other side of
this trade, who basically justgot hosed by Lots hundreds of
thousands of dollars.
Yeah, and I think much of itavoidable, almost all of it
(27:38):
avoidable.
You have a bank that many andI'm not going to pick on a
particular bank, but banks inthis space have a general sort
of purpose which is, at the endof the day, how much money does
Phil have in his checkingaccount?
If I look somewhere digitally,I won't say in the vault,
(27:58):
because it's not in the vault,it's not in Fort Knox because
the gold's not there.
But if it was, someone goesthere and says, yeah, I tick and
tie, I can find Phil's money.
And when Phil goes to the ATMmachine and says, hey, I need
$200, money should come out.
Or it should say sorry, phil,you only have 75 bucks, that's
(28:21):
all you got.
And to have banks not do themost basic that, yeah makes all
the rest of it sort ofdownstream derivative, and I I
want all of our partners that wework with as banks, and all the
bankers in the game, to step upto that minimum basic bar.
(28:43):
Do you know where the money is?
And it's hard to know becausethere's all these different
things.
There's credit card swipes,there's charge cards, there's
ATMs and ACHs, and I get it.
But that's why you paytechnology providers like us to
give you those dashboards andtooling and infrastructure,
because if you try to build thisyourself, you'll fail.
And if you look at theecosystem at large, various
(29:07):
folks have said there's 140, 150banks that have done some sort
of fintech banking as aservice-y type of thing, and I
would posit a guess that themajority of those have tried to
do it themselves with oneprogram here or one program
there, thinking I can stick iton my core banking system and
technically you can.
But it doesn't have all thebells and whistles that you need
(29:29):
to do reporting, reconciliation, operational controls and all
that sort of stuff.
There's no third-party KYCtools.
There's no KYB tools.
Like most banks have no idea howtheir debit cards get to their
consumer, they've never thoughtabout mailing delays and they've
never thought about tracking ahigh-risk customer and did they
(29:49):
get their card on time?
And yet that's what's requiredto be in this game, which is to
care about those things and thenassign responsibilities of
who's going to look after whatbits.
If you're a fintech, you'repretty motivated to make sure
the debit card gets there.
So if you want to yell at thecard printer, by all means do
that.
If you want to change policy onKYC, you need to justify it.
(30:12):
What other service qualityaspects have you done to make
sure that this customer is agood customer and they're not
going to be a bad customer?
But if you can't keep track ofthe money, everything else falls
apart it's kind of the name ofthe game yeah, and I think that
was part of our response.
Phil Goldfeder (30:30):
I think sometimes with regulators, with
policymakers and I say this assomeone who served in the state
legislature it's what we callreactionary regulating or
reactionary legislating, where,oh my God, we have to solve for
this issue of reconciliation andthe FDIC.
What was it six months ago?
Sort of put out this newproposal, custodial accounts.
Exactly right when banks sort ofraised their like, sort of
(30:50):
shook their head and said, butthis is what we're supposed to
do, right, like we don't need anew rule for this.
This is our job is to ensurethat we're reconciling at the
end of the day, and so, sadlyfor any bank that woke up and
said, ooh, this is a problem forme, they should really rethink,
kind of what they're doing inthis ecosystem, whereas I think
a lot of our members sort ofreached out to us and said, yeah
(31:11):
, we embrace this, we understandit, this is part of our
responsibility in thisrelationship, and so I think
that's a big part of it comesback down to understanding what
your role is and making sureyou're doing it the best it can
be done.
Peter Hazelhurst (31:25):
That's right.
And look, sinterra is far fromperfect.
Things break all day long.
Every now and then some weirdtransaction gets posted.
There was one this morning andI was like, oh, I've never seen
one of those before and I'vebeen doing this shit for 32
years and you'd think you'd seeneverything by then.
Forget it Like.
It baffles my mind how we'vemodified transactions.
(31:48):
Bear in mind push to card andall of that stuff.
Those were all illegal becausethey were fraud transactions.
They were just an unpurchasedrefund and Visa changed the
rules, chase followed along and,amazingly, we created a new
category of push to car, whichis cool.
But imagine 10,000 systems outthere all expecting refunds to
(32:11):
have a purchase and they allbroke.
And so you saw all theseproblems with AFTs and OCTs of
banks saying, well, it's fraud,but it wasn't fraud.
It was just a new type oftransaction and nobody knew
about it.
And innovation beat thetechnological distribution.
We don't have to operate thatway.
We can operate with integrityabove and beyond that and start
(32:34):
with the first principles of Iwant to know where the money is.
My duty of care is to theperson's money, not to the bank
per se or to Sinkterra.
We owe it to the consumer or tothe business Don't lose their
money, and everything else sortof falls out as a responsibility
after that.
Rachel Morrissey (32:54):
Yeah, that is sort of the basic right.
You should always know wherethe money is.
Yeah, and we're like a year anda half.
Oh, that is sort of the basicright.
Peter Hazelhurst (32:59):
You should always know where the money is.
Yeah, and we're like a year anda half, that's not true.
We're a year and a month or sointo this bankruptcy for Synapse
and we don't know where themoney is.
No Like literally don't know,and it's kind of wild.
Rachel Morrissey (33:12):
No, I know we had this really interesting
discussion with YelenaMcWilliams at the show and and
sense.
And yeah, it's wild, she can't,she can't find where all.
Peter Hazelhurst (33:26):
Yeah, she's super smart.
Rachel Morrissey (33:28):
She's really good at finding where it is.
She can't find where it is, soit's pretty interesting.
Anyway, I think this has been agreat episode.
Our time is up, so we're gonnaend here, but thank you so much,
peter, for joining us today andtalking through all of this.
(33:48):
I think that this is reallyinvaluable for the whole
industry to think about and toknow, and I really appreciate
you being you joining us todaymy pleasure.
Peter Hazelhurst (33:58):
Look, I think the market is definitely on the
upswing.
We've beaten most of the badactors out of the ecosystem now,
which I think is good.
It's not perfect and there willalways be a transaction that
goes bad, or a bad actor or KYCwill fail, someone will be on a
FINRA screen and all that sortof stuff.
But as long as we think aboutit, with expecting that to
(34:25):
happen and build resilience inthe infrastructure whether it's
multiple banks, multiple fintechproviders, all those sorts of
things to move past that, we'regoing to create a thriving
second stage for banking as aservice.
Rachel Morrissey (34:35):
Yeah, and, like you're saying, there's a
vast difference between mistakesthat happen and there's little
things that are almostunavoidable, as you're trying to
do things and you're buildingbasically a new stack that is
attempting to accomplishsomething a lot faster than what
the old stacks did, but there'sa big difference between that
(34:58):
and acting irresponsibly and andleading to something inevitably
difficult.
Um, and I think you're right, Ithink, like, like I was saying,
I, I, uh, it's hard to call ita blessing, but there is
something about having the badactors um, exposed and and um,
and just kind, of laid out whatthe bad behavior will do.
Peter Hazelhurst (35:21):
I believe it was something somewhat
controversial.
I don't think any of the badactors were unknown.
Phil Goldfeder (35:28):
That's fair, it's funny Again, I've heard you
say that and a huge credit, Iwould agree.
I think you know, unfortunatelyit was too easy right and some
people look for the easyopportunity, and I again it goes
back to where you started thisconversation of being extra
cautious, extra thoughtful.
Sort of what we think about allthe time is the longing right.
(35:50):
We're trying to build afoundation.
You can't build a foundation onwobbly standards and practices
and I think, unfortunately, somepeople attempted to do that and
, quite frankly, it's all themore reason why we appreciate
sort of your voice in thisconversation and the ongoing
thoughtfulness to what you bringto the ecosystem.
Peter Hazelhurst (36:10):
Yeah, I mean, this is a game of reputation,
that is banking right, Yep, andI'm sure I've done transactions
that I regret in my past, butI've owned up to them and we've
said, oh, that was a bug or thatwas a mistake, we figured it
out.
And as we go forward, the sumof our good actions obviously we
hope would outweigh things thatwe make mistakes with and we're
(36:33):
tipping over into that reallygood spot now and I think it's
really good.
And what I'm excited by is thatthe market is coming back to a
place where, with controls andwith process, you can actually
run these things effectively,scalably and safely and so much
opportunity for great things tocome to market that in the past
we've sort of said, oh, it's toocomplicated or it's too much
(36:55):
risk or I don't know how tobuild that.
My team's job is to help peopleabsorb those complexities,
absorb the risk and still builda thriving business, and I'm
super bullish it's going reallywell right now.
Rachel Morrissey (37:09):
I'm with you.
I think that that's exactlywhat's happening.
All right, thank you so much.
And Phil, thank you so much forjoining me as co-host.
I really appreciate it.
This has been fun.
Phil Goldfeder (37:22):
Thank you.
Thank you so much, Rachel.
Rachel Morrissey (37:25):
And I just want to say thank you to all of
our listeners.
Please feel free to leave us areview or to send us ideas for
episodes that you think would begood on the Money Pot, at
podcast at money2020.com, and wewill be seeing you at the shows
.
Have a great day.
Welcome to the Money Pot.
My name is Rachel Morrissey andI am here as the head of
content for Money 2020.
I am here with Phil Goldfeder,who is the CEO of the American
FinTech Council, as part of ourseries with the American FinTech
Council, to try to unravel abit of what's going on.
(00:23):
I mean trying to say we'reunravel of what's going on.
I mean trying to say we'reunraveling what's going on in
Washington.
Sounds like we're biting offmore than anyone could chew at
this point, but trying tounravel a little bit about
what's happening with fintech inWashington and what we can
expect going forward and some ofthe different stories that have
fed into what is happening forthe next little while.
So hello Phil, how are youdoing?
Phil Goldfeder (00:46):
Great.
Thank you so, so much forhaving us, Rachel.
This has been a great seriesand I'm excited for today's
episode.
Rachel Morrissey (00:51):
Me too.
This will be really fun.
We have with us here just atotal unknown, somebody that
you've never, ever heard ofbefore.
If you guys can't hear thesarcasm in my voice, I'm
obviously not laying it on thickenough, but joining us today is
Peter Hazlehurst, who is theCEO of Syncterra.
How are you doing, peter?
Peter Hazelhurst (01:10):
Great Nice to see you, it's so nice to see you
.
Rachel Morrissey (01:13):
We're so glad you could join us today.
So, to get things kicked off,I'm just going to throw it to
Phil and he's going to kind ofput us out and start this
discussion.
But we are going to be talkingabout something that everybody
wants to talk about openly andtalks about in every dark corner
for the last year, which iswhat happened with synapse and
(01:35):
how that has affected the wholesystem, and especially how that
has affected the system in thenature of what we can expect
from regulation or moderation orwhat we think is going to be
coming down the line as far asbehaviors of bank and fintech
partnerships.
So, to kick us off there, we'regoing to go to Phil and why
(01:56):
don't you go ahead?
Phil Goldfeder (01:57):
Thanks, so so much, rachel.
Again, peter, thank you fordoing this and, more importantly
, thank you for not putting anyparameters on the type of
questions we can ask.
You said we can ask him almostanything.
So, as you know, the AmericanFinTech Council is sort of
unique in that we represent asmembers both innovative banks
and FinTech companies of allkinds, and so we think a lot
(02:18):
about bank and tech partnershipsand the regulatory structures.
So let's reflect for a momenton the title of the podcast
Avoiding the Next Synapse.
So how do you think Cigterraand other similarly situated
fintech companies canreestablish the trust from their
bank partners in thepost-synapse world, and maybe
also sort of ask that question,similarly to regulators and how
(02:40):
do you rebuild some of thattrust that may have been lost?
Peter Hazelhurst (02:44):
So I think the challenge that the whole
industry has is the level ofunderstanding of what it takes
to actually do these types ofprograms and successfully run
them.
And in the late sort of 2017 to2020 time period, there was a
bit of a gold rush.
There was a whole bunch ofbanks that said I want to do
(03:04):
banking as a service I don'treally know what it is, but I
want to go do that.
And then there were a wholebunch of people that saw that
demand on the investor side andsaid we'll fund anybody that can
say banking as a service.
Go.
And it was quite frothy.
As many of you remember and Idon't know, 17, 18 startups,
(03:26):
including us, were funded inthat time interval.
We were one of the laterentrants, partly because I had
previously been at Uber and wasrunning payments over there and
we had worked with kind ofeverybody from the Marquettas of
the world to the Green Dotbanks and everybody in between.
And obviously when COVID hitthe payments, part of the
(03:49):
universe of Uber got shrunk interms of complexity and stuff
like that, because there wasless riders and so on, and I
thought it would be aninteresting thing to sort of
capture that knowledge pool ofhow hard it is to build a
digital bank for drivers, turnit into a platform and turn that
(04:12):
into a company, and that's whatwas the origin of Syncterra.
The challenge, though, waseverybody was going really,
really fast, and not everyoneknew what the rules were, and or
, if they did know what therules were, chose not to follow
them, and or, if they did knowwhat the rules were, chose not
to follow them, and I think whenanything is going quickly,
people cut corners and do thatsort of stuff.
We built rather slowly, and sowe've generally weathered the
(04:37):
storm in terms of probably notbeing as aggressive as we could
have.
We could have onboarded a crapton more fintechs and put,
potentially, one of our banks atrisk.
We chose not to do that, andthe general theory is that the
people coming into the businessweren't as educated as to what
they were getting into as theyshould have been both banks and
(04:59):
fintechs and platforms like us.
So if you want to avoid it,obviously hire people to do
these sorts of businesses.
That kind of know what thebusiness is and payments and
banking is a domain-specificskill set.
You can't just say I'm anexpert on text messaging, I'm
going to go and become a bankingsoftware company or I know
(05:21):
everything there is to do withsupply chain.
Banking has.
Supply chains must be the same.
The reality is there's tons ofcomplexity just in the tech
stack and then there's layers ofcomplexity that many companies
have never thought about, like Isaw a person posting on Twitter
say I've been told I need to doa SOC 2 audit.
(05:41):
I got an estimate from Vanta.
It was really expensive.
Is there a cheap free version?
I'm like probably.
But your regulators are probablynot yeah, and I'm like, yeah,
legit, but this is what washappening.
People sort of heard thatthere's a gold rush.
(06:02):
People needed a debit card tospend money.
People sort of heard thatthere's a gold rush, people
needed a debit card to spendmoney.
Or they saw Google Wallet orApple Pay launching payment
services and said I can go dothat.
And on its surface it looks likeit's just a technical problem.
You just code some shit andmagic comes out the other side.
But the reality is it's acomplexity of relationships.
(06:24):
So you've got at least threeplayers.
There's a platform like us,there's the FinTech or the brand
, there's the bank, but inreality there's also a state or
federal regulator.
There's FDIC or OCC or pickyour governance system of the
week.
Then there's the FTC if you dosomething really silly, and
there's a whole bunch ofcommitments and stuff like that,
(06:44):
and just understanding who theparticipants are is a complexity
, and the reality is like backin those days there weren't
organisations like yours, phil,that would make it really
obvious how to do this, and sopeople just made it up.
And the problem with making itup is you go into an ecosystem
(07:05):
of banks, in particular, thatkind of know how to do community
banking, which is great.
So they have branches and theywork with their local small
businesses and consumers.
But if you said, hey, firstNational Bank of Osage, iowa,
are you ready for 10 millionChime users?
And they're like well, we'relike a one branch bank.
(07:25):
You know, I'm not sure if wereally know what to do with
10,000 users, let alone amillion.
How should we deal with that?
And you have relativelyunscrupulous players.
Let's say, come in and say,well, don't worry, we got it,
you just sign this paperwork,it'll be fine, no big deal.
And when they were signing thepaperwork they didn't read the
(07:48):
bits about you can go to jailfor not doing KYC and AML
properly.
And it was really unfortunatebecause if they'd read the
basics, they wouldn't have gotinto the business without
actually creating a plan.
And if you see what's happeningtoday, bank demand is off the
charts again, but they're allasking for what's the plan?
(08:08):
How do I do it?
I don't want to get in troublelike the other guys did.
What should I do differently?
And that's what's transformed.
Phil Goldfeder (08:17):
Rachel, if I can just add on to that question
and sort of Peter as a startupright, and so I appreciate
number one, that you were a bitbehind.
Yet your instinct still toldyou to take it slow and be
thoughtful about what you weredoing.
Was there fear, as you werestarting up, that maybe you were
falling too far behind?
I think I would argue I thinkthere's.
(08:39):
Some people were unscrupulousand nefarious in their
activities and I think we areseeing the remnants of that
today.
You obviously took a muchdifferent approach.
How did you think about thatapproach and was there an
inherent fear just because youthought maybe you'd fall behind?
Peter Hazelhurst (08:56):
There was the latent fear from our investors
why are you treating this like amarketplace?
Marketplaces are harder.
My answer to that is alwaysmarketplaces always be bespoke.
And if you look at taxis in NewYork, uber came in as a
marketplace and said look, we'llstart with the black cab
drivers and we'll help them finda better distribution system,
(09:16):
and so on and so forth.
It's very expensive to do andit takes a lot more effort to
build a marketplace, but oncethe marketplace is in place,
it's much more resilient.
And our investors came back andsaid well, why don't you just do
it like Synapse did?
They just partnered with Evolveand they tell Evolve what to do
.
And I'm like, because I've beenon the other side of that trade
, I've had the calls where abank banker has called me and
(09:39):
I've been moving 15, 30, 50, 100million dollars a day and they
said, well, the regulators arecoming in and said cease and
desist, you have 30 days to moveyour traffic.
And I was determined never tobe in that place again, which
means always having two possiblepartners for any particular
deal, always making sure thatthe people we're working with
(10:00):
understand the risks they'retaking and this risk this is not
a risk-free game and, like allthings in banking, you price
risk and some banks want to takethe risk and want to earn the
higher premiums and other banksdon't, and that's okay.
Rachel Morrissey (10:16):
I mean this is a little off, but you're
obviously pulling very much fromyour experience with Uber.
Did the fact that you had thatexperience, you had that much
under your experience with Uber,did the fact that you had that
experience and you had that muchunder your belt, did that
change the nature of feelingbehind?
Because I think people get thissense that they're behind and,
oh, we're late to the market.
(10:36):
But if you've been in somethingand you've kind of seen the
long game, I wonder aboutwhether that perspective changed
the nature of feeling behindher.
You're like, no, there's plentyof space here, we don't have to
rush.
Peter Hazelhurst (10:53):
So first things first.
The market is huge and there'sno one player that's going to
win Stripe and Addian.
There's at least two.
Don't tell Perentry, there'sprobably three.
There's at least two.
Don't tell Perentry, there'sprobably three.
And my assertion in the marketwas there's no need to rush
unless you've got investors thatare giving you tons of pressure
(11:13):
.
And we were lucky.
We had long bed investors withLightspeed and Finn and Syfy and
others and they basically cameto us and said do it the right
way, we don't want to be introuble six months, 12 months
later.
And if I hadn't had that and wehadn't sort of thought upfront,
how much money is it going tocost to build this stuff?
(11:35):
And in my head I knew it wasgoing to be like a hundred
million dollars.
But it's like saying out, hey,at the seed stage, hey, I need a
hundred million.
You'd be like laughed away.
But you actually have to havesome level of real conversation
and say this isn't a $5 millioninvestment.
You can't get it done.
And by doing so and by beingstraightforward up front, we
(11:59):
knew that it would be a game ofleapfrog and we also knew that a
number of the players thatthought it was a $5 million game
were just never going to win,because they'd go in and bank a
whole bunch of low-fundedstartups that would cause the
problems that inevitablyhappened, and so it was causal.
(12:20):
If you try and do it on thecheap, you'll build something
that's ineffective or notcomplete, which causes you then
to go and hire and get customersthat aren't really ready and
banks that aren't really ready,and that mismatch of technology
to product is where you get introuble in trouble.
Rachel Morrissey (12:48):
So, as you're looking at the landscape now and
we've obviously had this blowup where one of your competitors
at the best acted imprudently,like, at the very most generous
way of putting it they actedvery unwisely.
We'll put it at that, just tosay at our core, whether we
(13:09):
believe it's that way or not,that's the nicest way we can put
it.
It's had this ripple effectabout the way that the whole
industry is seen and, as youjust said, a bank fintech
partnership is actually apartnership between many
entities.
It's not simple, as there's onebank and one fintech and
(13:30):
there's this partnership betweenthe two of them.
It's sort of like you'remarrying into a whole slew of a
family that is all interrelatedand you have to deal with them
if you're going to deal with one.
So what do you think, what doyou see of the future for bank
(13:51):
fintech partnerships and fintechinvolvement with the banking
and the regulators?
How would, if you were todesign it or you were to make it
optimal, how would you do it If?
Peter Hazelhurst (14:02):
you were to design it or you were to make it
optimal, how would you do it?
So I think the best way tothink about it is you've got a
number of incumbents the FISOs,the FISs, the Jack Henrys, the
Finastras of the world that attheir core pun intended are a
ledger.
And look, when I first came tothe US, one of the first parts
(14:27):
of the core banking system Ibuilt was passbooks for tellers,
and a passbook is the prototypeof a distributed ledger,
because literally the piece ofpaper is the ledger and the core
banking system doesn't reallyeven know what your balance is
or any of your transactionhistory.
And we sort of evolved fromthere into modern technology and
so on, running the system.
(14:48):
What we do in fintech bankingis no different to any of that
stuff.
It's just how you think aboutthe organization of the
information, the reporting, thereconciliation, the day-to-day
banking services.
And I think the best thing thatcould happen is whoever sits in
the room at FISA and FIS from aregulatory point of view, says
(15:10):
hey, we think companies likeSingterra are systemic enough
that we're going to place aperson in their office.
Not that we have an office.
They can join an empty WeWorkif they want to, but virtual
office and we'll happily answerand go through how we do
business.
And we've not as a fintechtoday we've never heard anything
(15:35):
from a regulator directly andthey can regulate us.
They have purview over the workwe do under the Services
Companies Act.
They just don't, and I thinkit's a question of systemic
impact.
So how big are these programs?
But China's a big place, right.
(15:56):
There's a lot of users that areinvolved and there's no reason
why their tax stack shouldn't bealso subject to review by
regulators or bankers.
And ultimately, where it getsmost efficient is a combination
of what I'll call public-privatepartnerships.
So the public side is theregulators come in and say we'd
like to do this.
The private side of it is justlike PCI we come up with our own
(16:20):
set of standards of it is justlike PCI we come up with our own
set of standards.
We all suck it up and pay KPMGor Accenture to audit us for the
thing.
We just told them what it was,which they'd never had before,
but they come back andindependently verify.
Does Syncterra do what it saysit's doing?
And that's going to build thetrust.
So you said how do you gettrust Banks?
(16:45):
Don't fear will Fiserv or FISwork?
They don't like the contractand they don't like seven-year
commitments and all that sort ofshit, but they're not afraid
that the tech won't work.
And we need that support comingfrom private and public to
basically bolster people'sconfidence, because
fundamentally, the tech is acore banking system.
That's basically what it is,and bankers in the community
(17:08):
banks in general don't actuallyknow how their core banking
system works.
They use it, but if you saidhow does reconciliation work,
they'd be like I have no idea,but I log onto this screen and
every day it tells me whetherI'm in balance or out of balance
and how to chase it.
We are the same.
We're doing the exact sametechnology lift and all we need
(17:29):
to do now is get people back inthe saddle of feeling confident
that it's moving.
And I can tell youobservationally, the inbound
demand right now is crazy.
We're back.
It's almost pre-2020 typetimeframe and it's made more fun
slash, interesting by all thesort of announcements on crypto,
which I think is reallyinteresting.
(17:51):
I, in fact, hold the one Libracoin that exists and this is a
beautiful.
Oh, you have one too.
Oh, you have a Bitcoin, but Ihave a Libra coin.
Rachel Morrissey (18:00):
Mine's rarer oh you have one too.
Oh, you have a Bitcoin, but Ihave a Libra coin, mine's rarer.
Phil Goldfeder (18:08):
Yours is rarer.
I remember the Libra coin and Ididn't know if anybody had one
of those.
Let me ask you and I apologizefor jumping in for a moment you
said something interesting andI've heard you say it before.
I think we were together inPhiladelphia Fed and I heard you
say something interesting and Ithink a lot of people agreed
with you.
We oftentimes sort of at theAmerican FinTech Council.
We oftentimes talk aboutstandards, but how do you think
(18:30):
about core competency?
Right?
The bank comes to therelationship with a certain core
competency.
Syncterra comes to therelationship with a certain core
competency.
The FinTech company comes witha certain core competency.
To the relationship with acertain core competency.
The fintech company comes witha certain core competency.
Do you think by engagingdirectly with the regulator,
changes that strengthens that orin any way kind of upsets the
apple cart, the way theecosystem is currently built?
Peter Hazelhurst (18:54):
I think it can only strengthen things because
if, at your core, you argue thatregulators' job is to keep
consumers safe and the ecosystemsafe, banks and supporting
infrastructure, by definitionthey would want to know how the
system works and who are theparties and how the participants
are.
And you go to basic stuff likewhat is an R10 on an ACH and
(19:21):
everybody agrees that you've got60 days.
In the old school day, if youwanted to really complain, you'd
go down to the local policeoffice and say I file an
affidavit, someone stole mychecking account, I want my
money back.
But we've all agreed that thoseare the rules and they're
designed in ways to helpconsumers and businesses.
The rules aren't differentbecause it's fintech banking.
(19:43):
They're the same rules, andwhat we've sort of tried to do
is pretend that somehow thoserules don't apply or that
they're different.
And then you ended up withvarious agencies saying well,
I'm going to introduce extrarules to possibly create more
controls, because people areavoiding the existing rules, and
(20:04):
the reality is no one wastesting for the existing rules,
so adding new rules on top of itdoesn't help anything.
So I can see I'm not proregulators doing more.
I'm just do what your spacetells you you're supposed to do
that would be great.
And then we in industry cancome by and say, well, that's
really good, but we're going tohold that would be great.
And then we in industry cancome by and say, well, that's
really good, but we're going tohold ourselves to a higher
(20:26):
standard, just like PCI says,I'm not going to let your pin
get sold into the wild.
Or your credit card panshouldn't be shared between
businesses and merchantsdirectly use tokenization and
it's that sort of stuff.
And the trick is for thecommunity, bankers that are
involved in this space, orbankers in general, forget
community or otherwise.
Do they understand what itfeels like to actually operate
(20:50):
these businesses?
And that's where the wholeindustry is now working a lot
better at explaining.
Here's what's going on.
This is how it works.
This is why you need to careabout this.
These are the risks you'retaking and price the risk
appropriately.
Phil Goldfeder (21:08):
So you just spoke about sort of
opportunities that presentthemselves now.
Once again, we think it's notbecause of deregulation, because
we think there's, I think fromat least from the American
FinTech Council's perspective isthat we're going to a time
where we're removing kind ofpolitical ideology from
financial services regulations,go back to more common sense
(21:30):
approach.
You talked a bit about the wayin which you were founded, which
kind of enables you to sort ofset yourself apart and to set
Singtera apart from others.
But the last two years,regardless of who you were, have
been rough right,reputationally, operationally, I
mean, in many ways.
So what's enabled you to sortof weather this storm and be
(21:52):
able to come out today and seizeon the opportunity that exists
and that's presenting itself?
Peter Hazelhurst (21:59):
So I think it's a combination of things.
One is the marketplace is,despite two years of chaos, is
relatively healthy, meaning thatwe have banks that want to take
deals and want to work withpartnerships to expand their
footprint, whether it'sinternational customers,
domestic customers, interestingtypes of credit use cases and so
(22:20):
on customers, interesting typesof credit use cases, and so on.
And I think, at its heart,fundraising has been quite
challenging over the last twoyears.
I'm very grateful for all thosefolks that bet on us because
that, just pragmatically, we hadmoney to pay the bills.
That was a hard part for manyof our players.
(22:43):
We also did a pretty good jobof underwriting and choosing to
partner with certain fintechs.
Like everybody, when we launchedin late 21, early 22, we were
keen to see all the differentpossible use cases and we
onboarded I don't know 20, 25early stage startups who were
(23:03):
relatively poorly funded, butgreat founders, people coming up
with cool ideas.
In my heart of hearts, I knewmost would not survive, but the
reality is, giving them anopportunity to see who would
survive is part of the modelthat we're in, provided they
don't take any risk that'sunnatural in order to get there.
(23:26):
So, out of that cohort.
Three or four of them didawesome and one of them's our
biggest customer now, which iscrazy.
And if we hadn't said yes tothem then when they were really
early, and if we hadn't said yesto them then when they were
really early, who knows whatwould have happened?
And so we got lucky I wouldn'tsay lucky.
We were thoughtful aboutonboarding customers of
(23:47):
different styles and shapes andsizes and we were lucky in terms
of timeline, in the sense thatwhen we launched in 22 or end of
money 2020 in 21 and then firstcustomers in January of 22, we
had that curve of growth thatfacilitated us then being able
to fundraise again.
(24:08):
That would allow us to continuethe momentum and never say
never.
But the nice thing about thelast raise we did is it gets us
to a pretty good place in termsof being able to hit break-even,
and I'm sure we'll raise moremoney after that in order to
(24:29):
continue to grow, becausethere'll be opportunities to do
some M&A and there'll be lots ofreally interesting ideas that
come into the market.
But being able to project toyour customers and to your
sponsor banks hey, I know itwould be nice if we had 300
million in checking.
We don't.
But here's the curve and itstops curving downwards.
(24:50):
At this point in time, let's go.
And so I wouldn't say it wasjust one thing.
I think it was a bit ofconfidence building.
I would say we planned ourproduct offering in a good
strategy.
We got consumers, smallbusiness, we got a nice mix.
I think we were lucky in thesense that the majority of our
(25:10):
customers, early on and to date,are corporate or small business
who have, generally speaking,been beneficiaries of the
downturned economy in terms ofPPP money and all of those sorts
of things as well.
Rachel Morrissey (25:23):
So I had a wicked thought.
As we've been discussing this,we know that this caused a lot
of concern around the entiremodel of banking as a service
and what it would do for theentire industry.
We really worried about thereflection of that.
(25:44):
But I am wondering slightly ifthe very attention because
scandal always brings attentionif the very attention allowed
for people to investigate it andunderstand it more deeply, to
understand it better.
And the actual bounce back fromthat is that companies like
(26:11):
yours might have actually hadextra interest because they
weren't making the mistakes orthey weren't making the choices
that some of the fallout thatcreated the fallout from
Synapse's decisions in the firstplace.
(26:32):
So I had this really wickedthought Was the negative
publicity possibly just a netpositive for the nature of
banking as a service industry asa whole, like that part of the
ecosystem?
Is it better off now?
Peter Hazelhurst (26:53):
So I will say that shining a spotlight on how
this should work and how itshould be done is always good,
and it makes everybodytransparently understand what's
going on.
How does it work, what are therisks, and all that sort of
stuff.
I I can't think of any possiblegoodness that came out of this
(27:16):
for a consumer, though yeah, soI think the real people that
have been impacted by this arethe humans on the other side of
this trade, who basically justgot hosed by Lots hundreds of
thousands of dollars.
Yeah, and I think much of itavoidable, almost all of it
(27:38):
avoidable.
You have a bank that many andI'm not going to pick on a
particular bank, but banks inthis space have a general sort
of purpose which is, at the endof the day, how much money does
Phil have in his checkingaccount?
If I look somewhere digitally,I won't say in the vault,
(27:58):
because it's not in the vault,it's not in Fort Knox because
the gold's not there.
But if it was, someone goesthere and says, yeah, I tick and
tie, I can find Phil's money.
And when Phil goes to the ATMmachine and says, hey, I need
$200, money should come out.
Or it should say sorry, phil,you only have 75 bucks, that's
(28:21):
all you got.
And to have banks not do themost basic that, yeah makes all
the rest of it sort ofdownstream derivative, and I I
want all of our partners that wework with as banks, and all the
bankers in the game, to step upto that minimum basic bar.
(28:43):
Do you know where the money is?
And it's hard to know becausethere's all these different
things.
There's credit card swipes,there's charge cards, there's
ATMs and ACHs, and I get it.
But that's why you paytechnology providers like us to
give you those dashboards andtooling and infrastructure,
because if you try to build thisyourself, you'll fail.
And if you look at theecosystem at large, various
(29:07):
folks have said there's 140, 150banks that have done some sort
of fintech banking as aservice-y type of thing, and I
would posit a guess that themajority of those have tried to
do it themselves with oneprogram here or one program
there, thinking I can stick iton my core banking system and
technically you can.
But it doesn't have all thebells and whistles that you need
(29:29):
to do reporting, reconciliation, operational controls and all
that sort of stuff.
There's no third-party KYCtools.
There's no KYB tools.
Like most banks have no idea howtheir debit cards get to their
consumer, they've never thoughtabout mailing delays and they've
never thought about tracking ahigh-risk customer and did they
(29:49):
get their card on time?
And yet that's what's requiredto be in this game, which is to
care about those things and thenassign responsibilities of
who's going to look after whatbits.
If you're a fintech, you'repretty motivated to make sure
the debit card gets there.
So if you want to yell at thecard printer, by all means do
that.
If you want to change policy onKYC, you need to justify it.
(30:12):
What other service qualityaspects have you done to make
sure that this customer is agood customer and they're not
going to be a bad customer?
But if you can't keep track ofthe money, everything else falls
apart it's kind of the name ofthe game yeah, and I think that
was part of our response.
Phil Goldfeder (30:30):
I think sometimes with regulators, with
policymakers and I say this assomeone who served in the state
legislature it's what we callreactionary regulating or
reactionary legislating, where,oh my God, we have to solve for
this issue of reconciliation andthe FDIC.
What was it six months ago?
Sort of put out this newproposal, custodial accounts.
Exactly right when banks sort ofraised their like, sort of
(30:50):
shook their head and said, butthis is what we're supposed to
do, right, like we don't need anew rule for this.
This is our job is to ensurethat we're reconciling at the
end of the day, and so, sadlyfor any bank that woke up and
said, ooh, this is a problem forme, they should really rethink,
kind of what they're doing inthis ecosystem, whereas I think
a lot of our members sort ofreached out to us and said, yeah
(31:11):
, we embrace this, we understandit, this is part of our
responsibility in thisrelationship, and so I think
that's a big part of it comesback down to understanding what
your role is and making sureyou're doing it the best it can
be done.
Peter Hazelhurst (31:25):
That's right.
And look, sinterra is far fromperfect.
Things break all day long.
Every now and then some weirdtransaction gets posted.
There was one this morning andI was like, oh, I've never seen
one of those before and I'vebeen doing this shit for 32
years and you'd think you'd seeneverything by then.
Forget it Like.
It baffles my mind how we'vemodified transactions.
(31:48):
Bear in mind push to card andall of that stuff.
Those were all illegal becausethey were fraud transactions.
They were just an unpurchasedrefund and Visa changed the
rules, chase followed along and,amazingly, we created a new
category of push to car, whichis cool.
But imagine 10,000 systems outthere all expecting refunds to
(32:11):
have a purchase and they allbroke.
And so you saw all theseproblems with AFTs and OCTs of
banks saying, well, it's fraud,but it wasn't fraud.
It was just a new type oftransaction and nobody knew
about it.
And innovation beat thetechnological distribution.
We don't have to operate thatway.
We can operate with integrityabove and beyond that and start
(32:34):
with the first principles of Iwant to know where the money is.
My duty of care is to theperson's money, not to the bank
per se or to Sinkterra.
We owe it to the consumer or tothe business Don't lose their
money, and everything else sortof falls out as a responsibility
after that.
Rachel Morrissey (32:54):
Yeah, that is sort of the basic right.
You should always know wherethe money is.
Yeah, and we're like a year anda half.
Oh, that is sort of the basicright.
Peter Hazelhurst (32:59):
You should always know where the money is.
Yeah, and we're like a year anda half, that's not true.
We're a year and a month or sointo this bankruptcy for Synapse
and we don't know where themoney is.
No Like literally don't know,and it's kind of wild.
Rachel Morrissey (33:12):
No, I know we had this really interesting
discussion with YelenaMcWilliams at the show and and
sense.
And yeah, it's wild, she can't,she can't find where all.
Peter Hazelhurst (33:26):
Yeah, she's super smart.
Rachel Morrissey (33:28):
She's really good at finding where it is.
She can't find where it is, soit's pretty interesting.
Anyway, I think this has been agreat episode.
Our time is up, so we're gonnaend here, but thank you so much,
peter, for joining us today andtalking through all of this.
(33:48):
I think that this is reallyinvaluable for the whole
industry to think about and toknow, and I really appreciate
you being you joining us todaymy pleasure.
Peter Hazelhurst (33:58):
Look, I think the market is definitely on the
upswing.
We've beaten most of the badactors out of the ecosystem now,
which I think is good.
It's not perfect and there willalways be a transaction that
goes bad, or a bad actor or KYCwill fail, someone will be on a
FINRA screen and all that sortof stuff.
But as long as we think aboutit, with expecting that to
(34:25):
happen and build resilience inthe infrastructure whether it's
multiple banks, multiple fintechproviders, all those sorts of
things to move past that, we'regoing to create a thriving
second stage for banking as aservice.
Rachel Morrissey (34:35):
Yeah, and, like you're saying, there's a
vast difference between mistakesthat happen and there's little
things that are almostunavoidable, as you're trying to
do things and you're buildingbasically a new stack that is
attempting to accomplishsomething a lot faster than what
the old stacks did, but there'sa big difference between that
(34:58):
and acting irresponsibly and andleading to something inevitably
difficult.
Um, and I think you're right, Ithink, like, like I was saying,
I, I, uh, it's hard to call ita blessing, but there is
something about having the badactors um, exposed and and um,
and just kind, of laid out whatthe bad behavior will do.
Peter Hazelhurst (35:21):
I believe it was something somewhat
controversial.
I don't think any of the badactors were unknown.
Phil Goldfeder (35:28):
That's fair, it's funny Again, I've heard you
say that and a huge credit, Iwould agree.
I think you know, unfortunatelyit was too easy right and some
people look for the easyopportunity, and I again it goes
back to where you started thisconversation of being extra
cautious, extra thoughtful.
Sort of what we think about allthe time is the longing right.
(35:50):
We're trying to build afoundation.
You can't build a foundation onwobbly standards and practices
and I think, unfortunately, somepeople attempted to do that and
, quite frankly, it's all themore reason why we appreciate
sort of your voice in thisconversation and the ongoing
thoughtfulness to what you bringto the ecosystem.
Peter Hazelhurst (36:10):
Yeah, I mean, this is a game of reputation,
that is banking right, Yep, andI'm sure I've done transactions
that I regret in my past, butI've owned up to them and we've
said, oh, that was a bug or thatwas a mistake, we figured it
out.
And as we go forward, the sumof our good actions obviously we
hope would outweigh things thatwe make mistakes with and we're
(36:33):
tipping over into that reallygood spot now and I think it's
really good.
And what I'm excited by is thatthe market is coming back to a
place where, with controls andwith process, you can actually
run these things effectively,scalably and safely and so much
opportunity for great things tocome to market that in the past
we've sort of said, oh, it's toocomplicated or it's too much
(36:55):
risk or I don't know how tobuild that.
My team's job is to help peopleabsorb those complexities,
absorb the risk and still builda thriving business, and I'm
super bullish it's going reallywell right now.
Rachel Morrissey (37:09):
I'm with you.
I think that that's exactlywhat's happening.
All right, thank you so much.
And Phil, thank you so much forjoining me as co-host.
I really appreciate it.
This has been fun.
Phil Goldfeder (37:22):
Thank you.
Thank you so much, Rachel.
Rachel Morrissey (37:25):
And I just want to say thank you to all of
our listeners.
Please feel free to leave us areview or to send us ideas for
episodes that you think would begood on the Money Pot, at
podcast at money2020.com, and wewill be seeing you at the shows
.
Have a great day.
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