Paradigm Shift

EP8: Shamir Karkal, founder Bank Simple (first neobank) and Sila, on how fintech has evolved over the last decade, what he's most excited about, and predictions for the next decade

November 14, 2021 Ashish Kundra and Zane Salim Season 1 Episode 8
Paradigm Shift
EP8: Shamir Karkal, founder Bank Simple (first neobank) and Sila, on how fintech has evolved over the last decade, what he's most excited about, and predictions for the next decade
Show Notes Transcript


Conversation with Shamir Karkal, co-founder of Sila. Prior to Sila, he was co-founder of Bank Simple, which was the first US neobank and early fintech pioneer. For many it was one of the most exciting and groundbreaking products of the last decade. We talk about the Bank Simple story, banking and fintech landscape, and his new company Sila. Sila makes it easy for any business to program money through APIs for digital wallets, linked accounts, ACH, money storing, transferring and payouts.

Episode Highlights:

  1. Career path from software engineer to consultant at McKinsey with financial services clients
  2. Founding story and vision for Bank Simple — first US neobank, founded in a Brooklyn basement
  3. Why starting a bank in 2009 was crazy, and how the landscape evolved after the 2008 financial crisis
  4. Inventing the modern fintech bank partnership model and path to market with a simpler bank that replaced retail branches with software and no-fees
  5. Story behind selling to BBVA for $117m after raising only $20m
  6. Getting excited about building fintech platforms to make access to banking infra easier, and founding Sila
  7. How Sila makes it easy for any business to program money through APIs for digital wallets, linked accounts, ACH, money storing, transferring and payouts
  8. History of regulatory landscape around getting a full banking charter — 100s a year before 2008 to just a handful in the following decade, and how its becoming more feasible again
  9. Pros and cons to having a banking charter— ability to lend FDIC insured deposits and fully leverage the "3, 6, 3" business model
  10. How cyclical nature of credit industry and credit crunches makes stable FDIC deposits high-value for the lending business model of banks
  11. Bank Simple's business model, unit economics and strong early growth
  12. Activation and direct deposit as a key product lever for newer neobanks
  13. Looking forward, why global financial services industry is exciting— $17T annual revenue industry, 30x larger than $600b global advertising industry (out of ~$100T global GDP)
  14. Opportunity for fintech to go from 1% market share to 10% this decade
  15. Prediction: fintech and crypto in 2030 could be as big as all of tech in 2020, with few $1T+, few dozen $100B+, and 100s of $1B+ companies
  16. Crypto doesn’t change underlying trends but might accelerate through faster/easier permissionless innovation on a global scale
  17. Regulators can’t control on chain work but can regulate on/off ramps and how Sila enables on/off ramps and connectivity between crypto and traditional banking through flexible APIs


Hello, hello, you're listening to paradigm shift, a podcast about people building the future in pivotal moments in their journey. I'm Ashish. And I'm joined by my co hosts a and in today we're thrilled to speak with Shamir cockle about founding bank simple in 2009, which was the first Neo bank and one of the most inspiring FinTech products, ushering in a decade of FinTech innovation and growth. We'll also talk about his current company Scylla money in the fin Ovation group he runs, which is a group of over 3000, builders and innovators in the space Shamir. Thanks for joining us today.

My pleasure Ashish and Zane.

So you have a long career in FinTech and you've seen it from its early days to where it is now. So maybe we'll start with the early days of your career. Do you mind telling us how you got into startups and software and fintech in particular?

Well, I started my career as a soft Ridge, right. That's what I studied in undergrad and masters and then worked as a software engineer for a few years, starting in India, but then also in Japan, and then came to the US, kind of almost accidentally, I ended up going to business school in the US. And when I went to business school, I was very clear on what I wanted to do with my life. And I got out of it, I had really no clue. So I ended up becoming a consultant doing strategy consulting at McKinsey, based out of Pittsburgh, and again, accidentally or fortuitously, my first project was for a large, traditional bank processor. And so that no plans of being you know, a financial services guy, but that's what I ended up becoming. And over three years at McKinsey, I spent, I don't know, 90 plus percent of my time doing financial services in the US. And then I transferred it, I was working out of Europe. And then a classmate from business school at good Fred quite stayed in touch with Josh rich, he sent me an email saying, let's start a retail back. And you'll see how crazy I am that in 2009. I thought that that was a good idea. But I mean, like I had more experience like shutting down banks at that point and starting working on like, large country bailouts and like, large bank turnaround projects, because that's what all of 2008 2009 was for in the consulting world. But I got excited about the vision of a simple, easy to use bank that actually helped customers solve their problems using data rather than trying to like have like, gotcha fees, which every time you trip up, there's a fee for that, right. And really, we didn't think of it quite that way. But I think we were stumbling towards the concept of like, helping customers with their financial help, or financial wellness, right. So that was the vision was very compelling. I decided to jump in into it with Josh moved to New York in late 2009. And me and Josh started up simple in his basement in Brooklyn, and quickly realized that we knew nothing about how to start a bank, especially because everything that I thought I knew about financial services in the US had completely changed between Oh, eight, and oh nine. And that was a period I was not in the US, right. So every year between 2002 1008 There were 100 to 300 new banks started in the US, there was a whole cottage industry of did what's called de novo banking, there was consultants, there were websites, there was like a process. And you know, people would start small community banks all across the country and do it in like 18 months, it was a, there was this cottage industry, I think, from 2009. Till now, there's been maybe 10. Right. So and actually, I think, from 2009, to like, 2016, it was zero. And so basically, the, in the aftermath of the financial crisis, the regulator's basically said, No more new banks. And that meant, well, now we're like, hey, we want to start a new bank. How do we do that when it's, you can't apply for a banking license. We thought about it. And we realized, look, we're not really changing banking regulation. And we're definitely not changing anything about balance sheets and lending and all the things that most of regulations focused on. Really what we want to change is the front end experience of banking, the way customers interact with their banks historically. And even now, I would say for the majority of customers has been through the branch. We're like the that is we wanted to change that part of it, not the back end of banking. So we're like, hey, maybe we could do this as a partnership with a bank. And the answer is yes, we could. And in the process, we kind of we kind of invented the model, FinTech bad partnership, bad sponsorship model. We basically took ideas that were in the prepaid industry and in the card industry and kind of melded them together to create this new thing called neobank. And finally launched in 2012. It took three years from first email to launch and I like to say that we figured out how to To do things by doing everything wrong, before we did it, right, but launched in 2012, grew nicely. And then in 2014, it was acquired by BBVA, which is a large Spanish bank, it seemed like a great acquisition at the time. I mean, we raised less than 20 million, and we sold for like 117. So all the investors made money, there was $14 million, which was distributed to employees, excluding the founders. So a lot of employees may I mean, you had customer service, people who went out and bought houses after the acquisition, of course, now it feels like they missed out a couple of zeros, right. But I don't think at least I didn't have any sense of kind of how gigantic this industry would be back then. And 2014, a few months after the acquisition, I was at BBVA headquarters in Madrid. And I heard about this idea of building a platform. And my immediate reaction was like, Yes, please do it. The world needs platforms in banking. And if something like that had existed in 2010, then Josh, and I wouldn't have spent three years building Simple, right? Like we could have launched it in six, nine months. And then who knows what we could have done, right? So I got very excited about it wrote some documents for them became an advisor. So long story short, a year later, I left simple move to BBVA, and spent two years building API platforms for them, one in Europe, and one in the US. And those were internal ventures at DBS. And I mean, we built and launched them, and we even got customer. And I think for a while, it was the biggest quote unquote, bass platform in the US. But the frustrating part of it was that we could never figure out how to truly like grow the business, right. So you could integrate into the open platform sandbox in a week. And it would only take you 15 months to get through compliance, risk legal, and all the internal BBVA processes, right. And so it was, it was super frustrating. And I left in 2017, and didn't really have any plans, I thought I would take some time off and figure out what to do with my life after that. But I was talking to a buddy in a bar in Portland, and I live in Portland. Now, by the way, they moved simple, and like centered in Portland back in 2011. And that's when I moved here. But I was talking to one of my buddies in a bar. And I was pitching to him about kind of the state of global payments and banking and how we really just needed one platform on the internet where anybody could move money and transact with anybody else on the planet, right? And he was like, she may have been talking about this for like years, why don't you just go do it? And I was like, Okay, I am. And that's that was the kind of the genesis of Silla found my co founders put it together, started working on it full time in 2018, and launched in 2019. And the vision mission of Silla is to make it easy to innovate and program with money. If you wake up anywhere on the planet, tomorrow, as a developer, and you want to program that email, or voice over IP, or SMS or any Internet Protocol. It's quick, it's easy. There's API's SDKs. Just go do it right now, the hard part is to compete with Google. But honestly, most people are programming with email or not building superhuman, or hey, they're just embedding some email flow into their app, it's quicker to do it than to talk about it. The moment you come to money, completely different planet, whether you're in San Francisco, or Shanghai matters a lot. There's almost no APIs or SDKs. And even building the simplest financial flow can take like 1218 months right? Now, I would argue that it is much easier to compete with Bank of America than it is to compete with Google. But again, most people who are programming with money are not building a neopac. I mean, there is a market of, like 15 year banks in the US now, maybe 100. And a lot of them are growing nicely, so more power to them. But the vast majority of the market is businesses that need to move money and just want to automate that into their back end workflows, their front end workflows, the customer interactions, their supplier interactions, like which business needs money, now says all of that, as it says intrinsic is probably more intrinsic to business than email. That's where we come in the core of our product is at a store HTTP API platform that allows customers to our customers or developers, people building and shipping apps, it allows them to onboard their customers, individuals or businesses, verify their identities, create digital wallets, linked bank accounts, pull money in via ACH card, transfer, hold it, and you can hold a balance for a second or a decades, the storage of money is intrinsic to the platform, transfer it and then pay somebody else out at the end of some complex workflow, right. And the workflows are the use cases there's more than 100 customers now. I think we have at least 25 different use cases.

It feels like Like Fintech is at this moment where like these platforms are just unlocking just so many different workflows. And they tend to be so much deeper than I think people assume at first glance, at least that's what we've seen so far in talking to folks. But let's sort of start at the top, there was so much great stuff there, I kind of just want to rewind a little bit to bank simple, I remember being an early customer. And I just remember it being this magical experience where you get sort of this like card in the mail, it was this really nice unboxing. It had this like nice rubber band around it. And like it was sort of like, as a technologist, it was just like the coolest thing ever. And it just made using a bag kind of fun and cool. And so it's a very, I think, special product. And I just want to go back to that story for a minute. So that the context here was it's 2008, the financial crisis, it just happened to Lehman Brothers had gone under. And that's the moment where you guys decide to start a bank. So walk us through like those first couple of years. So what was the path to market? Like? I'm sure that was like a long and winding road. So what were some of the big sort of like, challenges getting that product out?

Well, the first was just wrapping our head around the idea that we couldn't get a bank license. I mean, there was a McKinsey deck on how to launch a bank and the internal McKinsey knowledge base and it was like, go to Utah get an IOC, it takes you 10 million in 18 months and and you can spin up a bag. And this was true, pre 2008. Right. 2009 onwards, it is not true at

all, what changed, because I know today's squares, trying to spend like hundreds of millions of dollars trying to get a banking license, what was the regulation that made it so hard to get a license, there wasn't one.

So theoretically, the difficulty of getting a bank license today is the same as it was in 2008. There is no actual regulation that changed. No law that was passed. I mean, Dodd Frank was passed in 2010. July, this was 18 months before, right. And what really happened was that in late oh eight, that the entire banking system came close to collapse. And the regulator's had to bail out a bunch of banks. And then they passed off, and then they had to pick winners and losers, right and say, Hey, this bank gets stopped funds. So it gets bailed out. And you know, and that bank doesn't get TARP funds, and then it fails, right. And honestly, for like, I think the FDIC and most regulators is probably the most like, traumatic experience that you can have, right? Like, we've had a couple of customers who closed shop and the business didn't work out. And it's never fun. Watching a whole chunk of the industry. For somebody like the regulators is probably extremely kind of like traumatic. But there was this one report, which came out in late oh, eight or early, probably middle of Oh, nine, early oh nine. And it basically said that banks that were new, were much more likely to fail than banks that were old, which is like, you know, if you were a de novo bank started in I guess, between like 95, and 2008, you are much more likely to fail than the community bank that had been around for like 20 1500 years, right. And that was really the excuse that was used by the regulators to like, say, hey, no more new backs. The thing is, they can't actually just pass that as a law, they can't pass that as a regulation, the way we basically ended up working is like, you start a regulatory process that took 18 months to three years to get a bank license. Now it took seven to 10 years, right? They can't say you're not getting a license, they can just make it infinitely hard, that they're not required to grant your license in any period of time. And why

why is it that new banks are more likely to fail? Are they just less war risk risk than forward?

So I actually don't agree with that study myself, because what it did was it looked at all the banks that survived and the ones that failed. I'm like, wait, you have a problem here, because a lot of the banks that survived were survived because they got TARP funds. And so if you went in and say, What would have been the world if nobody had gotten TARP funds? And would old banks have failed just at the same rate as new one, and I point out just one bank, which is Citibank and which got a huge chunk of TARP money. And honestly, in late oh, eight without tarp, money, Chase, almost certainly would have survived. City almost certainly would have gone bust. And if you take city as just one bank, from the survivor category, to the failure category, you realize that the entire analysis switches, and you're like, No, actually all banks are much more likely to fail. Because it tells is just such a large chunk of the banking industry that it accounts for, like, you know, 1000

Yeah. Do you see that changing? It seems like it has

changed completely. I mean, there is a new chairwoman of the FDIC, Yelena. McWilliams, by the way, she has written blog posts and American Banker, basically saying, yes, the FDIC stopped approving new banks, that's changed. We want to approve new banks, please come and apply right. Now. She can't make the process easy because that will also require a law, legal change. So it's not like you can get a new bank shorter and six months, but we are back to the era of 18 months to three years to get a bank license. Probably. I mean, it used to be, you could probably have done it for 10 million back in 2008. That's probably unrealistic. Now, probably looking at more like 25 As your low end, it depends a lot on which part of the country as a whole parking industry of its own, but it's definitely doable again now.

And what do you think of the so like, in these last 10 years, like because of the regulatory environment, there's been a number of startups that have partnered with banks to basically expose API's, so people can build on top of existing banking infrastructure and help legacy banks sort of take deposits and be like a layer on top right. And that's kind of what bank simple there too. So given that trend, and sort of that technology now exists, what do you see as like, the advantages to actually getting a banking charter? Or is it actually more advantageous to not have that cost structure? Well,

so there's a pluses and minuses sort of thing. And it comes down very much to kind of your business model. And in some ways, your long term view of the world, I would say, I'm cautiously Pro, getting a bank license, but very much depends on which FinTech you are, what you're doing and how you're building and kind of like it's not a panacea for everybody. It's definitely not an option really, for anybody who's like early stage. So square can go get a bank license Vairo can go get a bank license, they raise like 200 million plus, right, I don't even know how much Collins raise now. And yeah, for big late stage, startup, how companies it's possible, not for early stage ones,

how would you think about the ROI on that 25 million spent? Is it basically like, like, what's the what's the benefit of

talking, talking more like 100 million spent when you when you get all the way through it right? 25 million will probably be the entry ticket for setting up a small one branch Community Bank in like Idaho or someplace. And that's like, Oh, who's doing that? Right? Why?

Why spend the 100 million? While why not just do it?

What are the big things that you get with a bank license is fractional reserve banking, you can take deposits from customers, which are FDIC insured, and then you can lend those out. And that was the traditional business model of like, the joke about community banking was it was a 363. Business, you borrow at 3%, you lend at 6%, and you're on the golf course by three on Friday. But decades, that's that's sort of the business. It was right. Like, you just had to make sure that you didn't lose too much on those loans. And the depositors didn't worry about what whom you were lending to, because they got they were FDIC insured, right, like so they didn't stand to lose money, you could still blow it up. Lots of small banks went bust even before 2008. There's like there were 100 300, new ones started everywhere. There were like 10 to 100 failures every year. But it was a kind of a manageable thing, right? If you're in the lending business, access to insured stable deposits, is hugely valuable. Because the credit industry is highly cyclical. Every three years on average from like I, I saw, like hands models of Nikah did this analysis from like 1971 to 2015. And every three years on average, there was a credit crunch somewhere, maybe it wasn't a industry wide credit crunch, like 2008. But there was an auto credit crunch, there was a Home Equity credit crunch, there was a credit, like some were in some corner of the credit industry, like you know, capital and liquidity just dried up when and so relying on like the debt markets works, you can go borrow money, you don't have to get it from deposits, you can get it from you know, institutional, many, many different everything from like hedge funds to doing your own debt, underwritten through like Goldman Sachs, or whomever. And then you can go out and lend it a lot of which itself is like a multi trillion industries. Of course it happens. It's not it's it's volatile, just some random day, you'll find that in some corner of your auto lending industry, one company went bust, suddenly everybody is freaked out, all your liquidity has dried up and you're like, I can't get capital to lend it out. Now what do I do, and you go sideways for a year or you go bust. That doesn't happen to banks, they have stable deposits, they can always they have the money of their depositors, depositors usually don't pull their money. Now, oh eight was a little bit of an exception. We started seeing the beginnings of a bank run. And then the, you know, tarp and everything else kind of like shut it down. But the sort of bank runs that would wipe out the banking industry have not happened since 33.

That's really interesting. So sort of what I'm hearing is historically banks have made their money lending. And some of these modern fintechs haven't had that in their arsenal, at least not in the way that traditional banks have. And the banking license unlocks that it does

and you look at companies like Lending Club and no surprise that Lending Club went and bought radius Bank, which is now Lending Club Bank, but they went public they had I would say a pretty good business. I was a customer and I was out Be with them. And they didn't want to see 2017 Or maybe 18, there was a credit crunch. And I don't know much about that space, but liquidity for them dried up. Most of their money was not coming from small retail folks like me, most of it was coming from large institutions. It dried up, there was a credit crunch and their their business really suffered and having access to stable deposits would have been massively helpful for them. And now they have gone and gotten it right. So if you're the lending side, I think it is you get to a point and scale, where it is really a question whether a large lending company can be profitable and stable without becoming a bank. So I wonder for companies like a firm, I would say Klarna, as well. But then Cloud is in Europe, and I think in Europe, they are back in Sweden. So it's maybe not in the US. But you know, it's probably eventually a matter of time. So again, square has a massive lending business, no surprise that they are a bank. And for folks like Amazon, the thing changes again, right? Like, Amazon is large enough that it can find its own capital, without worrying about like, you know, there could be a credit crunch and small business lending. And Amazon can still make marketplace lending work, because that just lend to Amazon. So if you can change the rules of the game that maybe you can avoid becoming a bank again. But for a lot of people, I think it's inevitable in the lending side.

So yeah, I want to hear your thoughts on on how this intersects with crypto a little bit. But I want to jump back to one more facet of the bank simple story, which is around unit economics. I assume that was like a challenge for you back then I know it's been for a lot of new banks today, you referenced how growth was hard. Can you help us understand like, what were some of the growth levers back then? I know a lot of change, similar perception has changed. But what was sort of like the early traction like and what were some tailwind and headwinds back in the early days of, of building neobank,

what was growth like? And then unit economics, let's talk about unit economics. And unit economics are not like fixed or set in stone, right? They changed over the kind of two and a half ish years that I was there at simple after it launched. And eventually I left, right. But the kind of the basic economics of a bank, that there's two sources broadly of revenue, which is net interest margin and non interest income. So net interest margin is that the six minus the three, you're making loans, you earn X, you pay why that margin and that interest net net of what you pay out, that's your revenue, right? Historically, that has been the main source of revenue in the banking industry, right. The other is non interest income, which is basically fees, right? Like if you charge a fee, whether it's like, you know, closing costs on a mortgage, or it's an overdraft fee and a checking account, that all adds up as well, from sort of the from like the early 80s. Till now, kind of the holy grail in banking has been to increase non interest income, right? Like the the thing about non interest income is that it is not sensitive to interest rates, right, like the closing costs of a mortgage are the same, whether you're making it at 6%, or making it at 3%. So it's fixed. But interest rates on interest margins are heavily dependent on interest rates, the interest margin 363 is great. But can you lend at six? And can you raise money at three right now, the problem is like the whole industry is awash with money. But you making loans at scale is still hard, especially for banks doing it the traditional way, right. So the whole industry has been trying to move towards more non interest income the net and if you go look at like bank analyst reports, and all of this, this is this is the kind of the holy grail that they always look on how much is an AI versus nem. Right. Which also means that banks have been on this trend of trying to feed their customers to death. So it's like, Hey, if you can overdraft fees, and the 80s used to be 10 bucks. And if you looked at most banks, overdraft revenue was non existent, right, because the service offered to customers. In the occasional case, remember, everything was checked based. Nobody was using debit cards, basically didn't exist till the mid 80s. And so to prevent somebody from bouncing a check, which was illegal, it still is, and it could get them into trouble. You gave them an overdraft as was a very small part of the business. Now it's massive, right? So unit economics in for kind of a neobank are the same, right? Like you're kind of in the same business, it's just you're doing it in a different way. Are you making your money from net interest margin or non interest income? The answer is well, net interest margin is not really accessible unless you're lending. If you raise a bunch of deposits, there are banks who will pay you some money on those deposits, but it's very much dependent on the Fed funds rate. So take the Fed funds rate and say half of that, that's probably what you can get from your bank partner. The Fed funds rate is like 20 basis points. And it has been for most of them last decade, there was a moment where it went up to like, what it got close to 3% in like 1617. And then we were back in the, so it's not reliable. And it's not enough for most startups to in the last 20 years. Non interest income is the question like, are you going to fear customers to death? That's kind of what they hate about traditional banks. But if you go with a no fee model, then where is your revenue? The answer for most see for a lot of neobanks has been interchange. Interchange is when you swipe your card, the bank on the other side gets filled on debit cards, roughly about 1.5% of it. This was massively changed in 2010. With the passage of Dodd Frank, Dodd Frank's regulated debit card interchange and kept it at like 23 cents for any bank with assets over 10 billion. So if you go look at like Chase and Bopha, they make point 5.8% on their debit card volume as interchange, it barely covers their costs, because they have a huge cost basis, you know, when you're using 1980s, technology costs, right, 1980s. So if we don't get the value of like AWS, right, we look at somebody like a chime, they partner with only banks who are smaller than 10 billion in assets. So they do get the Durbin exempt interchange, which means that they're they're probably making I guess, around 1.4% of card swipes. And for chime and most new banks, that is the biggest source of revenue.

So intuitively, it kind of makes sense to me that, you know, like for banks, like Publix that publicly traded banks to grow revenue, like non interest, revenue is probably where they have like the most the most sort of flexibility and levers because people can only push lending so much. Right?

That's what analysts like. And that's what will drive up their shift. Yes,

yeah. And it seems like the lower income segment was was hurt the most by it. And that created sort of this opening in the market. I think when when bank simple was in market, it was almost like too early. But But chime and a couple others sort of like were able to do go through the doors, you open to some extent and go after this, like heavily, you know, feed to that kind of segment of the market, which was sort of like the lower end of the market. In some ways. It's almost but and it seems like the interchange regulation helped them a little bit too. So that's, that's really interesting how all of that comes together. And so that's really helpful to to understand. If you could look back, if you could go back, what would you kind of like maybe think about differently or do differently in the in the bank simple days or? And yeah, I'm curious to hear how you how you think about that?

Well, first of all, I wouldn't sell and I mean, we had options, we had a term sheet from like, for the CDC around that, what does what was a good valuation back then, probably missing a couple of zeros now, in 2014. And we it was just that we, we were deep in the sale process, we had so much momentum behind it. It's hard once you once you have an offer, and you know, everybody starts counting their dollars to like to actually back out of it. But then we thought about it, me and Josh, but we eventually decided it just wasn't the right thing to do. Now, I second guessed myself on that decision. But the the other thing I the only other thing, I think which we thought about doing and I never managed to get it done while I was there and and simple actually I think never did it was the two day early direct deposit. That's a feature that I know exactly how it works. I designed it. And I was like talking to Bancorp about it and 2013. And they just weren't open to it. And it required a change in the way that they processed Ach, which is tricky. But the like chime on Bancorp figured out how to make it work. And I think that has been their killer app to get people to sign up. Because it's not just sign up, right? It's like simple. I mean, every you want

that you want that paycheck direct deposited, because that's the key interchange, right?

Exactly. And we I mean, simple over periods of time that we were adding 30 35,000 customers a month. So growth was never really a problem at simple. What was hard was getting those customers to actively actually become active and stay active and, and switch to using simple as their core like transactional account. And that's where you got the most benefit out of it as well. And one of the biggest indicators for that is when people switch their direct deposit over to the early direct deposit is a killer feature for that because it's it's something that customers really Yeah, and value. And to do it they have to get the value they have to make you their core account. Right. And so it's it's powerful. I think it's become standard across the industry now to the point where NACHA is beginning to make noise about trying to trying to clamp down on it. And I think that's something that the industry needs to keep an eye on and try and clamp down on because it's not one of those things with the traditional banks still struggle with it is almost every event doesn't know.

It's like when people talk about like CAC and fintech products in neobanks. The CAC is high, right? That's sort of like the common wisdom. But sounds like what you're saying is getting people to sign up is not that hard. It's the activate That's hard. So why is it that Signups are not that hard?

Well, I mean, signups weren't that hard for simple back in 2014. Remember, there was zero competition, basically. Yeah,

right now, it's

really different, right? Like, I remember when we started doing like, Facebook marketing in 2013. And we still had a wait list of people. So we haven't even like shared out the wages. But we started experimenting with Facebook, like our first month, our cost of acquisition was like $2,000. A person. But it wasn't like 10k of sprint, right? By our ninth month, we were, it was like down to 30 bucks. Wow. And 30 bucks as a CAC was very, very workable business model for simple, even with all the challenges we had back then. Right? That was because I mean, there was a point where Facebook assigned us to account managers, right. And we were just like, spending anywhere close, which we are not spending enough to justify a quarter of an accountant. Why would we get to? And they basically told us look, there's nobody in the whole financial services space, which is doing the sort of stuff you guys are doing. And so we want to learn from you. And so they they assigned us those two to learn from us. But then of course, once they learn from us, they went and sold all that to everybody else in the industry. So now of course, everybody from Chase to chime is on his advertising on Facebook, every channel is saturated, it is not easy. Now to get customers. I mean, if you can keep cat at a tip below $100 a customer at scale. Now cat is very dependent on scale. If you're onboarding 1000 end users a month, it's very different than trying to onboard 100,000 end users. But at scale, if you can keep it below 100. That is actually very, very good. Right?

How do you think about so sort of like the future? In a world where Neo banks have these accumulating advantages, like with historical banking, each community needed its own, like retail branches and ATMs. And so you had like, sort of like hundreds and 1000s, maybe not 1000s. But you had like hundreds of these banks.

There's about 4800 registered banks in the US, and I believe over 6000 credit unions. So the somehow, unions and banks is probably over 10,000. It's shrinking. In the early 80s. It was over 20,000 banks, and I think over 20,000 credit unions. So in my lifetime, it's gone from like 40,000 to 10,000. A lot.

I think that's a good segue into maybe some future looking stuff. So looking forward, so we have like a couple of big Neo banks, right, let's say like part of the FinTech landscape in the in the US anywhere, probably a similar story in other countries, too. How do you see this playing out going forward? Do you see a few players starting to dominate sort of like the the Neo banking kind of space? Or do you see continued opportunity for like, a lot of different Neo banks? And how do you see sort of like ongoing FinTech trends in the context of Neo banks and also otherwise?

So one thing to kind of like, understand is just like we're talking about, like the global financial services industry, right? It's a 17 trillion annual revenue, industrial, by comparison, global advertising is like 600 billion. So it means Financial Services is 30 times larger than advertising now, and you could make a strong case that like everything that the internet has done in its first three years, is really just completely revolutionize advertising. But advertising is just like a very minor part of global GDP, global GDP is like over 100 trillion, and no surprise, it's built off, like financial services and manufacturing, and logistics and travel agriculture. That's what the real world is about. It's not really about advertising. You know, advertising is like the scum on the top of the thing, right? The Internet hasn't really revolutionized those sectors yet. And I mean, things like logistics, and you know, there's massive companies now, Uber and all of these, it's all really in the last 10 years in financial services. Out of that 17 trillion. I think it look at everybody from PayPal to Scylla, the entire FinTech industry of the last 2025 years is about 1% market share. And that's because 99% of it is still with 30,000 or more banks, wealth managers and, and traditional financial services companies across the world, are we talking about the whole globe, not just the US, I think in this decade, we're going to go from one to 10. So there is going to be massive change. The pandemic has just kind of sped up all the underlying trends. And you know, even Even your grandma probably had to figure out how to do banking on her mobile app in April of last year, because none of the bank bank branches were open. You couldn't go to them if you want it. And no surprise that folks like chime saw their biggest year ever last year. So my one of my predictions is that Financial Services and 2030 Sorry, I should say FinTech and crypto into crypto as part of FinTech in 2030 will be as big as all of tech was, and 2020. So we'll see a handful of trillion dollar FinTech companies will say a few dozen 100 billion dollar FinTech companies, and probably 100 Plus unicorns, right. And, and that's across the globe, I don't see FinTech going from like, one to 50. This is just too large, an industry to change that rapidly. But it is going to feel like just like whiplash, because one to 10 is, you know, crazy. One to 10 is crazy. Yeah. And it's not a small industry at the moment, either, right? I think by market cap, like FinTech companies are like 2% of all financial services by revenue, they're probably 1%. No surprise that they're valued more, right. Yeah. So that's just kind of one trend. I feel like we will eventually see consolidation, right? Like there's, there's really honestly no need for there is no reason the years should have like 10,000 banks and credit unions. Fast forward to the future, which is not 2030, I don't know when it is maybe 2050. It's a while off, still, I would guess that we will consolidate to less than 1000, financial institutions, core kind of transactional banking providers, whatever they look like, in the future will look very different. And they'll probably look more like a child, but they look then like your community bank. There's a whole debate of like universal banking, I don't know, I honestly don't know which way to go. But I feel like we have a long way off before we get to consolidation.

How do you think crypto fits into this forward looking picture?

It's kind of hard to say, right? Like, crypto is basically like a new technology. And it doesn't change the underlying trends, right? We would get from one to 10. This decade, kind of with or without crypto, what crypto does is it enables to one thing it does enable is sort of like permissionless innovation, right? If you wanted to set up an international lending company, and you started today, and you want out and bought all the licenses and everything else, it will take you like at least two to three years, right? I mean, it is not a trivial to say, Hey, I am raising money from individuals in the US and Europe and lending it to individuals and businesses in like Southeast Asia. But if you decide to do that as a crypto project, you can probably knock it out over the weekend, right? Now, arguably, it's illegal. And you know, you might get into trouble for it. And there's a lot of like, you know, the fire protocols. And then there's COVID getting into trouble with like, state and SEC regulators in the US. But reality is they are large and growing. So before you didn't get to customer number one without permission. Now, the regulators have to come after you and figure out how to shut you down. And they typically only invest that time and effort if you get large enough, so you can get large enough and then solve your regulatory problems versus having to do you know, having to have everything buttoned up on day one. So I see the potential for a lot more rapid innovation happening in the crypto space, a lot more innovation that is even kind of hard to imagine. And I think it will actually speed this up, right? Crypto is moving towards that vision of like one word, right? Like whether you're in Vietnam, whether in the US don't not don't care. Do you have an Aetherium? Address? Sure. You got some tokens? Sure. You know, don't Madonna Madhavi got them right. Now you can plug it into a defined protocol. And you're in business. Right? So that has never existed in financial services before, right. Like most people on the world can't even get access to dollars. Was it Kissinger or somebody who said that the dollar is our currency but your problem? So yeah, I see crypto speeding up innovation and speeding up the underlying trends. But in a highly volatile fashion and the whole regulatory status and how the regulator's deal with it is going to move and like fix and starts.

Shamir. This is a particularly good time to transition to Scylla. Since you're kind of straddling both of these worlds, do you mind talking a bit about the products you're building and the problems that you're trying to solve?

I think the vision for Silla really came from like watching the FinTech and, and crypto industries grow over the last like decade, right? I mean, you see all this like, promise in the crypto space of like, man, there's of course lots of scams and all sorts of things happening. Those that that was happening, the traditional financial services will do. But the you see so many like innovative ideas and and people who would never think of themselves as bankers, but who want to solve problems in the crypto space, right. But the two big problems that kind of endemic to all of crypto is one is just connectivity to the traditional financial system. Like when email got launched in the US 90s email did not have to integrate into the Postal Service, right? Like nobody expected that, hey, I have all these letters, I need some way of like emailing my letters and going back and forth. People just were like, whatever, we'll send fewer letters, we'll send more emails and emails, because that doesn't work with money. Because people already have it, and they care about it. And so you can't like just say, Hey, I'm going to ignore the traditional financial system and build a new one from whole cloth with no connectivity. And it's that connectivity. It's like, Hey, I have dollars or pounds or yen or whatever, I want to convert them into some crypto token, and then convert back and do that seamlessly. Those on and off rails, as they're called, tend to be one of the biggest problems for crypto because that's where regulation bites. And that's the other big problem, which is that, hey, the regulatory status of crypto is completely unclear, depending on where you are. I mean, some parts of it have become a lot more clear that regulators mostly don't understand it, they struggle with the pace and change rate of innovation, right? They're used to seeing new business models in financial services emerge, like every other decade, in crypto, it's like every other week, and they just can't wrap their heads around it. And they can't mostly control it, or stop it or bad it either, because it's on chain, but they can block it and ban it at the point of ingress and egress those on and off. So that's the biggest problem in the crypto space. And it's actually analogues to problems in the FinTech space and give you say, Hey, you want to build a Fintech startup? What's your biggest problem, it's like, well, I need to get access to the payment systems, I need to get access to like ACH and cards and checks and wire and, and I need to store money somehow. And then I need to program that and build an app, right. And I think that's what we view it as it's like, the problem is programming with money. Now, you might want to program that in a backend server with all your code and Node js, or Java or Python, or whatever. Or you may want to program that in a blockchain, right? And use that distributed model. And it enables a lot of things. Whichever way you want to do it, we want to support it, because we are here to help people programming. So we have, of course, our API's, but we also have a stable coin on Aetherium. And we have customers doing like crypto exchanges, and NF Ts, who leverage that we do offer quote unquote, or and offers both to FinTech and crypto. If you're honestly we're like 5050 in our customer base right now. And our goal is to just make it easy for you to build those applications. We never really viewed it as as two separate things, right. And I think it's beginning to become clearer as more and more FinTech companies are like, Hey, can I get some yield by from, like, being in the crypto space? Or can I like get access to lending or do all these other cool things? I mean, you look at like Robin Hood and square Kryptos a huge chunk of business for them, right? On the flip side, you see a lot of crypto companies being like, Hey, can I build really cool, easy to use consumer style apps, which are like a joy to use, like FinTech apps and make all this like, on an off chain stuff? MANISH they're like, we're here for both of

them. So it sounds like if I have like a crypto wallet or a crypto product, and I want to help customers move some money into it, or you know, somebody's got some USD coin or some dollars in a wallet that they want to move in into the traditional rails Scylla makes that possible so that among some of the use cases that your API enables, in a composable way,

I'll give you guys an example of like, two use cases, right, we have a customer called Fabrika, which does NF T's but NF T's for land. So if you buy a NFT from fabrica, you are legally entitled to a piece of land somewhere we I mean, it depends on which piece of land right, and then as these all have different prices, and depending on the land, it's really the underlying land value. And you can go to fabric, and they put your name on the title at the county office, and you can go build something on that land if you want, right. So they built that whole NFT infrastructure, and there's a legal, like trust structure backing all of that, but then they also need to move money because if they sell you the NFT, they need dollars from you, right? And they do all of that through seller. We also have a customer called constitution lending, which does commercial real estate mezzanine lending, they don't have any thing in crypto right now. I mean, it's, it's a traditional FinTech company. But again, they taking money from investors mostly accredited, or, you know, businesses, pooling it, and then lending it to commercial real estate projects. All of that goes to Silla as well.

So in the fabrica case, so I've actually played around with the product, I think it's really cool. So you can buy a piece of land on open sea as an NFT. And so you pay in Aetherium, right, so like they receive Aetherium. And then what happens? How does how does that then end up in a bank account through Scylla Ach,

most of the customers are actually buying the land from them with dollars in a bank account. Right. Many more customers have dollars in a bank account. Have a tedium even today. Yep, the usual flow is a customer will find a fabrica like piece of land, which is really through some other website that there's a whole industry of land trading websites, right. And then they'll go to fabrica, they'll onboard, when there's public has an onboarding process, they link a bank account, and then they'll pay via ACH from their bank account to Fabrika. Right. Now, on the back end, that onboarding is going to Silla. They're being KYC. And there's OFAC checks and all the normal things that a bank would do as happening all through Zillow. And then the ACH process is happening to Silla. And then we generate an Arthurian stable coin, when we get the dollars. And then fabricar does what's called an atomic swap. And they say, Hey, we're exchanging on chain Scylla USD for Fabrika NFT. And it happens atomically. Now, they've actually gone the next step and said, hey, what if you want to do seller financing where the seller of the land wants to finance this, you don't pay 20,000 bucks today, you pay 200 bucks a month for 10 months. And they do that all through smart contracts on the blockchain as well. And it's all automated, it's all on chain. You can and then it's it's pretty automatic, right? Like it will keep working even if fabric went out of business. So it's pretty cool. And it's I think it's the next step for the whole crypto space is to just like become part of the ecosystem and and be at the background technology. I like no who understands how AWS works, or how the internet works, but everybody uses it,

Shamir. Are there any products that you're surprised, you know, that haven't been built already?

I'm actually more than the other and I keep getting surprised that the products that I see customers building, right, like NFT is for land PFM apps, lending apps, b2b, b2c apps, sneaker apps. I'm just like, the kind of what is fintech? Or even crypto is like a totally, you know, open question with I'd say, people joke that everything has fintech. I think that is true, right? Like, but this because everything is about money. And once you can program that money, you can let your imagination run wild and intertwine it into your app and in ways that honestly, I can't even imagine. And this is just talking about customers in our customer base that we have seen and it's super cool.

Thank you so much for coming on and talking about your story. It was really fascinating conversation and we'd love to keep in touch and hopefully have you back sometime in the future.

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