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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Episode 384 Starlight Is Now a CUSO Backed by One Washington Financial
I fancy myself something of a minor expert on Medicare and often have advised friends who are approaching 65 about their best options. Until a man I know approached me and asked for my advice. He added he was dually qualified for Medicare and Medicaid and he thought he probably qualified for food benefits, too.
Huh? I had no idea what he was talking about and had to admit to him I was useless in this case.
Today I advised him to find a credit union he could join that also is a customer of Starlight, a fintech with a focus on unlocking some $100 billion in government benefits that are potentially available to credit unions.
Starlight was on the show a year ago. It’s on again today because it comes with big news: it’s now a CUSO and has won funding from One Washington Financial, a CUSO that is wholly owned by Washington State Employees Credit Union, the same credit union that birthed Q Cash.
Scott Daukas, a principal at One Washington Financial is on the show to talk about the CUSO and, specifically, why it funded Starlight. He also briefly talks about Silvur, a portfolio company that also has been on the show.
And Starlight CEO Shreenath Regunathan s back to talk about how it is helping automate the often bewildering process of applying for government benefits - a process made all the more bewildering by massive changes that several big programs (such as SNAP, the food stamps program) are undergoing as the year ends.
Starlight is deployed at over a dozen credit unions and it is busy signing up more credit unions because frankly the need is there.
Along the way, there’s a discussion about Prizeout, an innovative ad tech company that also has been a podcast guest. In another episode a Prizeout consumer user sings its praises.
There’s rich content in this episode. Listen up.
Welcome to the CU2.0 podcast.
SPEAKER_00:Hi, and welcome to the CU 2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillow, the real-time loan syndication network for credit unions, and by your host, long-time credit union and financial technology journalist Robert McGarvey. And now the CU 2.0 podcast with Robert McGarvey.
SPEAKER_03:I fancy myself something of a minor expert on Medicare and often have advice friends who are approaching 65 about their best options. Until a man I know approached me and asked for my advice, he had to qualify for Medicare and Medicaid. And he thought he'd probably qualify for food benefits too. Wanted to know how he should proceed. I had no idea what he was talking about, and had to admit to him I was clueless and useless. But today I advised him to find a credit union he could join, and also as a customer of Starlight, a FinTech, with a focus on unlocking some$100 billion annually in government benefits that are potentially available to credit union members. Starlight was on the show a year ago. It's on again today because it comes with very big news. It's now a new QZO and has won funding from One Washington Financial. That's a QZO wholly owned by Washington State Employees Credit Union. The same credit union, incidentally, that birthed Qcash. Scott Dawkins, a principal at One Washington Financial, is on the show to talk about the QZO and specifically why it funded Starlight. He also briefly talks about Silver, a portfolio company that has been on the show. And Starlight CEO is back on the show to talk about how Starlight is helping automate the often bewildering process of applying for government benefits. A process made all the more bewildering by massive changes that several big programs, such as Snap, the Food Stamp Program, are undergoing as the year ends. Starlight is deployed at over a dozen credit units presently, and it's busy signing up more because frankly the need is there, and Starlight has the expertise to help. Along the way, there's a discussion about prize out an innovative ad tech company that also has been a podcast, frequent podcast guest. There's rich content in this episode. Listen up. Yeah, I've uh talked with at least one other of your portfolio companies. Um Silver has been on the podcast a couple times.
SPEAKER_01:Oh, wonderful. Yeah, Rian.
SPEAKER_03:I I she has a wonderful product. I hope it's selling well.
SPEAKER_01:But yeah, it's doing she's doing so well. Um, she's got like the opposite problem of like it's everybody wants to now partner with her and and work with her, so she's got to figure out how to scale quickly. Oh, cool, cool. It's a good problem, yeah.
SPEAKER_03:Well, you also have an army of people turning 65 and such like. So I mean the demographics are perfect, really.
SPEAKER_01:That's right. And a lot of uncertainty in the um in the regulatory space, and you know, so she's she's got she's well positioned.
SPEAKER_03:Oh, and of course, I of course I I talked with Qcash many times, at least three times on the show. Oh, nice. I actually did an exit interview. Uh Seth was on, the CEO of the the credit union was on, and the a lawyer, uh, a guy from a lawyer was on.
SPEAKER_01:Cool.
SPEAKER_03:And uh and it was it was it was a very cool Seth put pulled that together. It was very cool. It's uh yeah.
SPEAKER_01:Seth is a unique, uh, a unique human being. He he's uh he's one of our favorites.
SPEAKER_03:And uh and he's involved in ranks too, which is one of your portfolio companies.
SPEAKER_01:Yeah, he actually left ranks about two months ago, I'd say. But uh I touch base with him on occasion.
SPEAKER_03:Yeah, I also talked a long time ago with the fellow who was the first CEO of uh Qcash.
SPEAKER_01:Uh Ben Morales, yeah.
SPEAKER_03:Yes, yeah, wholly different personality.
SPEAKER_01:Totally I only joined the the the WSCCU team about a year and a half ago, but I worked my whole career in the credit union space next door at Twin Star Credit Union. So I've known those those guys, I've known all of these people from as a um you know a friend in the industry. So I've watched Qcash get started and get sold and all that. So now I'm happy to be on the on this team. It's it's good stuff. Hi, Trini. How's it going?
SPEAKER_02:Hey Scott, hey Rob, good to see you.
SPEAKER_03:Good to see you. Hey, now let's start with you, Starlight. What does Starlight do? And uh how many credit unions are customers of yours?
SPEAKER_02:Yeah, Starlight helps members of credit unions proactively get financial assistance through their trusted credit union by finding them government assistance programs that they're qualified for and helping them navigate how to get it. And when we do that, our credit unions are happy because it accelerates their mission, helps our staff serve the members, and brings longer engaged members to the credit union.
SPEAKER_03:And how many billions of dollars are out there waiting to be taken?
SPEAKER_02:It's over$100 billion that members are leaving on the table. And the complexity of getting it is quite high, and so we're helping solve it for them. And it's 14 credit unions. We reached 700,000 plus members now through our credit unions so far. A couple more diligence, we'll sign in the next week and kind of accelerating how many credit unions you can get to.
SPEAKER_03:Now the complexity is stunning. I I was talking with a uh a fellow I know who's just turning 65. He's getting Medicare, but he also simultaneously qualified for Medicaid and gets some kind of food assistance too. Whole bunch of you know, there's so many moving parts there. And I'm I've fancied myself a Medicare expert. This was way out of my league. I mean, I man, I've never never dealt with this. You know, let's let's let's talk about the problems with advantage plants.
SPEAKER_02:It's crazy.
SPEAKER_03:So, how how does how do you have this automated?
SPEAKER_02:So we have parts of it automated and we're building more and more of it as we build Starlight. So we start with the problem of just that people don't know what they can get and don't know how they can even apply. And so we start with reducing the complexity of finding the right way to navigate it and then giving them assistance as they do it. And then in a few programs, like in New York City, we've actually done it where you don't have to ever go anywhere else. You stay within the credit union starlight experience, and then we help those users get to the finish line on applying for utility assistance. Like in the example of the credit union here, it's like members are hospital workers who, because of like, you know, the challenges of the cost of living, are also qualified for utility assistance, but didn't know about it. They heard about it from the credit union. 70% of them were like, wow, this is great. I'm excited. They got into like trying to apply. Then they came to us and we said, Hey, through our product. And then they were like, hey, we want to like apply for this. And we're like, are you interested in getting assistance in doing it or you want to do it yourself? And they're like, yeah, sure, please do it for me. And so then we just took it over, collected the info from them, ran it through with the nonprofit that administers it, submitted it, confirmed if it works for them, and did a lot of that navigation for them, and then told them, Hey, you got 300 bucks more. Thank your credit union. Don't forget.
SPEAKER_03:And what's the fee structure to a credit union?
SPEAKER_02:Credit unions pay for it essentially as an embedded product. And right now it's very simple. It's a flat fee based on the membership size. We'll take the number of members the credit union has and then discount all their indirect. So they're not really actively engaged, and then make sure we charge for that cohort.
SPEAKER_03:And what's the size range of your credit unions?
SPEAKER_02:Um, our largest ones are in the orders of 200,000 plus members, you know, over 3, 4 billion in assets. Our smallest is like, you know, sub 5,000 kind of like members, really small, like 40 million, 30 million credit unions as well. So we work with credits of all sizes.
SPEAKER_03:And what's the geographic spread?
SPEAKER_02:So far, we're in 13 states without credit unions, and I guess 12. One of them's in two states, but uh 13 states without credit unions. Starlight's available in 35 states, and we'll be in all 50 within the next month. And so we're growing pretty quickly just because some of the larger credit unions were like, hey, how quickly can you be in all 50? And we're like, we're on it.
SPEAKER_03:Uh did you see a bump in uh interest with the Snap benefits suspended?
SPEAKER_02:Yeah. In fact, it's it's grown a lot in two different ways with what happened with Snap, right? One was I think more and more of the credit unions, actually, gum shutdown is the broader thing that happened. I'd say two things happened. The government shutdown paired with Snap both happening at the same time meant that more people realized their members are in financial stress. Um, we had several credit unions who have a lot of government employees working who are already on their deposit loss. And so they were like, how do we address this? And so immediate address was they were like, oh, well, like not collecting loans that you have with us and so on. But the secondary impact was they're like, what can we do to assist them? And so a couple of our credit unions actually just sent a blast to all of their membership, being like, hey, we actually have a product that actually serves you immediately. Let's bring this to light. On the Snap side, what's interesting is they were like, hey, we want to react to Snap and do something right away, but we don't know what to do. And they were like, we were like, oh, we already have it, because we already indexed all of the food banks, know where they are, know how to guide people. Because one of the things that we realized when we launched Starlight with some credit unions is a member might be in stress, but not qualified for Snap. So we had to have a backstop for them to be like, what can I find for you that's not Snap? If you're not qualified, but you still need food assistance. And so we ended up originally itself adding a lot of these individual sort of nonprofit related benefits, with food banks being a key one for the category of food. So now that piece has become a bigger part of our product, so much so we ended up launching sort of a quick side product really quickly that we delivered to anyone who'd been through Starlight who was qualified for Snap and said, Hey, we found a nearest food banks here where they are. And now, actually, like in the last two weeks, we're building a next version of that, which is a much more rich and easy to use experience. Because if you don't Google food banks, you kind of struggle because you can't tell which ones are open, what the hours are, when they are. So the next iteration, we will actually start being like a bit more proactive on this and like be more targeted on like hours of operations where it looks, it's almost like your experience when you use Yelp or like Google Maps for restaurants, but making it really smooth for the end users. Um, the members, we saw really strong engagement. Our messages got like 35, 40% engagement on our food bank messages because I think people need it and we're like solving a critical need. And then from the sales perspective, several credit unions reached out, being like, hey, we thought about your product because like we saw you talk about this at a conference like X months ago, and now it's highly relevant again. So we've had several folks who reached back out and said, Hey, it's a good time for us to re-engage on this as well.
SPEAKER_03:Well, uh if I remember correctly, a bunch of folks, I mean, millions of folks get bounced off snap at the end of the year.
SPEAKER_02:40 million. It's insane.
SPEAKER_03:And that's gonna create a real panic and flood of what are the alternatives? What are my options?
SPEAKER_02:Some of it is quite sad. Like, I think one of the things one of the criteria members we were helping in our benefit specialist team were talking about how they didn't know that these processes were changing and they were like, they know there's a work requirement and had it submitted it and ignored some messages, and now they lost it. So now we're like helping them re-enroll. So there is a lot of complexity in the system. And I think being the force of guiding and helping people becomes really tuned into the criterion mission naturally. Because I think our staff members already do this. So, like at one of our customers, they had a staff member doing this who went on maternity and they were like, oh, Starlights actually like a good solved because we now have another way to solve this. And now actually we can broadcast this to all our members. Previously, it was only reactive, where if someone came into the branch and asked for help, they would like call this person and then come back. And so they were kind of holding it as an L2 support model. And now they're like, we can actually broadcast this to everyone, bring it to our members, bring it to our customers, and scale it out. So I think it's already a problem that honestly, like a lot of credit unions who are like kind of leaning in have been doing, but they've kind of solved it in their own localized ways. But Scott, actually, Washington State did does some really cool work with warr notices and like layoff notices and how they bring that proactively to members who've lost their job and telling them how to get through the next two months of that process and how to help them. So I feel like a lot of credit unions are doing like really interesting and groundbreaking work, and we're almost learning from them and then digitizing and serving it at scale.
SPEAKER_03:Now, had you heard of Accuso uh before a few months ago? And I I ask because I've been I've been writing about credit unions for a number of years before I even heard of Accuso. I met a guy Kirk Drake who had a CUSO. I and I said, What the hell is this?
SPEAKER_02:Um, I'll tell you the funny way I learned about it, right? I was at VentureTech, which is probably like our first meeting with Scott and the teams of like Fintex plus credit unions that we learned. At that time, I remember someone asked us, like, are you guys a QCO? And we're like, What's a QSO? And so it started the peak of the interest, right? We were like, what does this mean? And how does this work? And we've like over time learned that it's sort of like one, it's a really important way to like have the credit unions who are partnering with you be part of your journey as you grow. And I think the history from like ATM networks being like kind of the original sort of QSO model or like fair check branching and like branching locations, like QSO's histories. I got into the rabbit hole of learning about it because I just nerd out on stuff. And then I started seeing like who were like some of the early QSOs and how did they spin up? What were their goals? How did they form? How did they spin out QSOs from like other institutions, whether it's like MDC or Filene doing work and like kind of leading into like shared services? So the shared services leading to QSO model was really interesting. FinTech's doing QSOs is fairly new, and it's kind of like something that we've been learning about from other fintechs. And to us, it was a very interesting model. And like it allows us to align the incentives in a very meaningful way. Like Starlight's already a public benefit corporation because I don't want to have investors or shareholders push us to do things that are against the goals of the households we seek to serve. So QSL is almost like an extension of that into the cooperative model of doing the same goal, of like aligning incentives between households we serve, how the partners we work with benefit from it, and how Starlight and its shareholders also benefit at the same time.
SPEAKER_03:And and the funding environment on Sandhill Road for FinTechs is not as robust as it was some years ago. And uh Qzo's provided an alternative funding vehicle for fintechs. True, false?
SPEAKER_02:Um I think true, and I think there's even a more baseline argument here, which is like customers becoming investors is a much stronger signal of your company's thriving than investors who are only investing, just because it signals sort of long-term viability of your business. So to me, there's like a huge positive correlation, and like we've seen this when we talk to even our current investors. They're like, oh, that's amazing. Like Scott coming on and one Washington coming in is a really good signal for us because it tells us your business has long-term survival, and you're not just selling a mess to the investors, you're selling reality of like what the credit unions would want to buy. So in that sense, I think it's a positive. The other thing about alternative funding, I think that's more practical, is I think credit unions also like buying from TISOs in a natural way because you're helping grow the ecosystem together. And like in a practical sense, it gives not interest income if you succeed and do well with them for them, right? So I think there's like a realistic alignment of like their goals as well.
SPEAKER_03:I've said a number of times, although many in the credit union world would throw bricks at me after hear it, is that I think Hugh Z are vastly more important to the credit union industry than is the tax exemption. I I think it's it's the secret, uh secret weapon, not so secret, that really helps credit unions beat community banks, for instance, on a lot of fronts, a tech being one of them.
SPEAKER_01:Yeah, it's definitely an extension of the cooperative model of credit unions, which is why it makes sense. Um and I I think that there's to all the things that Shrini said, those are things are important too, but people want to, in the credit union space, they they want to um, you know, there's there's a high trust factor with with a credit union neighbor, right? Your credit union neighbor, we we reach out to each other, we we collaborate on a lot of things. And so if there's somebody that we respect and we say, what are you doing to help solve this problem? And they've got a solution like a starlight, it's it's a um it's a much easier sell than if they should go to a conference and they're being sold to by a third party that's being perceived as a third party. So even if you think of it as there's definitely like mission alignment, um, mission enablement, but if you think of it as just the the uh a really specific go-to-market strategy for a fintech, it's I think it's a really, really powerful tool tool. So I I don't know, I haven't thought about it in comparison to the tax exemption, but that's an interesting point you're raising. Well, part of my logic there is just numeric.
SPEAKER_03:Only a small percentage of credit unions would actually be hurt by losing the federal tax exemption. Many, many, many thousands of credit unions would be hurt if CUSOs went away. Fair. Now, how did you get interested in how do you pick a portfolio company? Number one, there must be many more hand with hands out, uh, hoping to meet you at meetings than you can fund. So, how do you pick one?
SPEAKER_01:And how why did you pick Starlight? So I've been I've been doing QSO investment um in some form or another for over 15 years now. Um and and now at a dedicated at a dedicated you know role inside of a holding company, it's really my my main focus. So you're right, there are probably more opportunities than what we have um money to give and time to evaluate, which is interesting because I thought that that was going to be the big problem when uh when you know coming aboard a new holding company was how are we gonna get into the middle of deal flow? And that's not the problem at all. Uh, there's there is our plenty of really, really smart, passionate technologists that are trying to solve real human-centered problems um for credit unions and their members. How do we how do we go about it? We everybody kind of does it a little bit differently, but for us at One Washington Financial, we've got three different pillars that we look at. We look at first from just from a strategic fit standpoint, we look at does the fintech increase the um equitable access to consumers as a general rule, not necessarily WSECU's members. Because and maybe just to kind of back up, I might have said this already, but but we are the a wholly owned subsidiary of WSECU. So we look for equitable access, we look for financial um wellness for our members and our communities specifically, and then we're also looking for anything that can increase operational efficiencies. Those three pillars really drive all of our investments, and then from there, we've got um you know a wonderful board that that decides on the actual investments. We we as the management bring the recommendations to them. We're looking for balance across not just the um the topics, but we're looking for balance on risk, we're looking for balance on um check sizes and so on. And uh I met when I met Shrini, because our back. As a my parent company uh credit union's background is the Washington State Employees Credit Union, is the is what WSECU stands for. Obviously, government benefits is like, you know, it's it's near and dear to our hearts, is to make sure that the citizens of our state are are taken care of and have access to the the different types of of uh programs that we've that are put out there for them. It's just such a simple simple is the wrong word, Trini, because you're probably gonna say it's not simple at all. It's conceptually, it's just simple to say, like, wow, this is the problem with the bureaucracy that exists and the lack of sort of technology that helps people figure it out. If you've ever had to go through any state uh or local, probably federal to program, you know, to try to try to navigate those fields and figure out you do you need a master's degree in that particular area in order to figure that out. So Shrini and his company, you know, it just made perfect sense for us to want to be involved. And then we started looking at the business model, and and the business model works for us. So it's a it's a great it's a great partnership.
SPEAKER_03:And and Washington State Employees Credit Union, as you as you know, I mean, birth Qcash, which clientele of Qcash is not a clientele, JP Morgan Chase, Jamie Diamond sitting there plotting how to get them. You know, it's it's just not not high priority for him. Whereas it became a high priority for Washington State Employees Credit Union. That's right. And and that's I I've always I uh to me, Qcash is one of the great wonders of the credit union world.
SPEAKER_01:No, you're absolutely right. If it fits this general thesis of of um financial wellness and and and and well-being, and we are looking for novel solutions to solve like the real problems that people, particularly in Washington, because that's where our core member base is, but but but we we invest in companies that serve the credit union industry. So really we're looking for solutions that help real people with the problems that they have, particularly around financial wellness. What's your investment range? We will make we'll make invest we typically say that our our check, normal check size is 250,000 to a million dollars, and that's obviously dependent upon a lot of different factors. We've made smaller investments, we've made larger investments. So it it really does sort of depend, but that's generally the range we're looking at. And we're generally look looking at the the seed, the seed level. We're looking for early stage companies that we can help help accelerate those companies, but also we want to have a role in in the you know the product development and the roadmap. So we we want to give we want to give Starlight as much feedback as we can and others so that they can build the thing that's gonna work the best for credit unions. So that's really where we like to play. And there's plenty of other credit unions that want to be a little bit later in in the game. And of course, many of us are investors in other funds like uh like the circle fund, etc. But um, but as a direct investor, that's where we play.
SPEAKER_03:And do you help a portfolio company do you make introductions to credit unions, for instance, potential customers?
SPEAKER_01:Yes, we make as many as we can, you know, at the risk of also, you know, people understand that I'm I'm very passionate about the job that I do and then the companies that we represent. So I hope it doesn't come off as uh, you know, I'm shilling for for the for the companies. Um, I hope people and I think that they do understand that we've invested in something because we absolutely 100% believe in them. And so when you believe in something, you want to tell everybody about it.
SPEAKER_03:And you're not, yeah, I've I've talked with fintech CEOs. Uh I remember a painful conversation I had with a guy I knew pretty well who was uh selling his company to to a much bigger entity. And I I said, in effect, why the hell are you selling it to them? They're just gonna ruin it. And he said, I didn't have a choice. My investors wanted to cash out. And that's that's not a unique story to him. That's that's that's a story. You you don't seem to have that short fuse of patience since you only you've only had one exit strat one exit case, which is Qcash.
SPEAKER_01:We had a partial exit earlier this year with one of our portfolio companies. We actually rolled um a good portion of our initial investment over. But but you're right, I think we describe it as patient capital, and we think that's one of the advantages to staying inside the credit union space. We're not an impact fund, we're not uh we're not a VC, we're not private equity, we're more of a strategic fund to help improve the lives of the credit union members. And so for us, we can afford to take a longer-term view on a on a what's typically perceived as a shorter-term bet. But we feel like that's like, you know, we we know that that companies need time to make sure that they've got product market fit, that they've made all the credit unions are are notoriously slow decision makers across the board in terms of their uh their partners, which is is understandable and fine, but it's a reality that that uh a lot of fintech um founders have to deal with, particularly when they've got that pressure of funding. So we have a three to five year portfolio horizon. That's what we have at One Washington Financial, and so we're we're okay to sit and uh and and watch and help and and curate and and work with you know side by side with our founders for that time.
SPEAKER_03:Talking about the length of time it takes credit unions to decide things. I've often talked with fintech CEOs to say, Hey, I just had a great, great meeting with blah blah credit union. I'm I'm hoping we can get them on board fast. And I said, they'll probably make a decision in about a year. Which and the fintech guys get, no, it's not possible. I say, Well, it's it's reality of credit unions, man.
SPEAKER_02:It's uh yeah, I mean, I would just say just on that one, it's pretty funny. Like sometimes I've had people come back to you where I thought they went cold, I thought they forgot about us, and they reach back up being like, Hey, we got approval to talk to you and get into deal mode. And I'm like, we were gone for six months and you haven't found any.
SPEAKER_03:I've talked to fintech executives who get a con get are contacted by somebody saying, Hey, we really well, okay, let's activate this deal. It was so long ago that they talked that the fintech executive doesn't even remember who they are.
SPEAKER_01:Right. And there's a lot, there's a number of us on the direct investing side, um, be it out of holding companies or out of credit unions directly that are working together to try and accelerate this process, particularly on the investing side. But you know, along with that, if we're going to be owner users, we've got to figure out a way as an industry to have the parent credit unions, you know, come along at, you know, at the same pace or somewhat close to the pace that we're that we're looking at in terms of our investment. So it's a challenge, but it's a fun challenge, and we're we're working together to figure that out.
SPEAKER_03:Well, and as I'm sure you you see, AI is bumping so many things off the stage at credit unions because the the executives only have so much bandwidth to contemplate new things, and they feel they must contemplate AI. They have to. So that's bouncing a lot of things out. On the other hand, something like Starlight or Silver, for that matter, there's a kind of pressing urgency there. So, and it's it's it feels good. It sounds good. It's, you know, it's we're helping our members get more government benefits that they deserve, but they just can't figure out how to apply for them. And so I think that could pound stuff that could still get some, you just need somebody on the executive team who becomes like a cheerleader for it.
SPEAKER_02:Yeah. And that's that's that's a nice thing about the work we do, is we meet folks like Scott and others in the credit union movement who just been like, hey, I really like what you're doing. I'm gonna help you actually bring this to more folks. Like we've had folks reach out to us being like, hey, can I advise you as you think about credit unions and learn about it? I had a lending officer who taught me how to read a call report. Because he's like, I just like what you're building. I like our credit unions not a good fit for you, where like income is different or we have a priority that's different, but I want to dive in. And so I think the movement alignment is very strong, which helps because I think it helps me learn and accelerate from being like a tech guy to understanding credit unions quickly.
SPEAKER_03:Now, do you have and this is I've I've talked to other companies who do this, they have two companies. They have company A, then company B. Company B is a Q Zo. Company A sells to Chase or whoever. It's not a Q so. Are you set up that way or are you more monogamous credit union?
SPEAKER_02:Um, no, we're set up as Starlight as a parent, which is a public benefit corporation, which is gonna serve low-income households through whatever channels they reach their end goal of like helping them get benefits. And then Starlight QSO is the subsidiary of Starlight the Parent. The reason is also twofold, right? One is like, yeah, we want to be wherever 60 million households need help, and how do we find them? And the second reason is more practical is we'll have to start partnering with like utilities, civic institutions, and so on. And so actually being a standalone entity that does that separate from the QSO helps us on the deal making for talking to governments and being like, hey, we've got this setup, here's why it works. And it makes it a lot easier for that secondary conversation with I call it like source of funds and working with them as well.
SPEAKER_03:Are you looking for more investors?
SPEAKER_02:Yeah, I think we're always looking for more aligned investors, right? Everyone, and you know, Scott knows this, and we've talked about this in the start. We want to bring in credit unions, we're gonna teach us how to build the right solution for them, right? We have a core product and a core intent to build the right thing, but the product is evolving. And so if we get aligned investors who are gonna be partner, owner, customer investors, that's exactly what we want. So, you know, we are even like, you know, and everyone who's we brought on, like most of the folks we have around our cap table are folks that Scott's met and known. And like some of them are like adding a lot of insights for us to guiding us on how to build the product correctly. And both on go-to-market, both on like member experience, some are guiding us on how to even, like, for example, like one of the insights from Washington State was how do you make sure this works for recently laid off folks for unemployment guidance? It's like, okay, if you have a little bit of a product there, you've already been working on it. Now, how can we make unemployment insurance really good? Because some of our credit unions with SEG focuses need this desperately urgently. Because they're like, they just had a layoff for 10% of their workforce at one of their SEGs. How can we show up tomorrow and say the credit union's here for your SEG? So we built that out and now we're like improving it. And those are the kinds of things where like having investor partners guiding us is really helpful. So we would love to get more aligned credit unions coming in. Um, we're talking about that right now.
SPEAKER_01:I've I've seen and I've seen um recently, even in the last two or three months, several times where where the fintech founder has is has to make a choice because they've got they've got offers from for much larger dollars from BCs at higher valuations, and or to go with uh more of a strategic round with credit unions. And it seems like, and again, it's a very small sample size here, but but there's been more that have come back to the credit union side and said, like, there's just so much value to us having the the patient capital, the strategic investment that that this is where we want to play. And we and we're we're we're gonna turn down the VCs that want that want to uh invest in us. And that's a cool feeling because it because you know we we want really smart fintechs, we're solving real problems, to think of the credit union space as a space they can, you know, win, win in, and not just uh it's not um yeah, that I'll just leave it at that full stop. We want them to win.
SPEAKER_03:Well, I think many credit unions recognize that they need fintechs, they can't grow this stuff in-house. I don't maybe Navy Federal grows a little bit in-house, but very few others do. JP Morgan just does everything in-house, that's just the way it works. It's uh because they'll hire everybody they need and have the money to do that. No, I I think it's it's a wonderful thing. So how many how many companies do you look at and reject for everyone that you accept?
SPEAKER_01:Oh, that's an interesting way of phrasing that. I'm I talk to founders, I would say almost every single day I have at least one call with a founder, right? So a lot of calls. A lot of them are just introductory calls, and and we're I'm making that assessment up front about the strategic fit with our with our holding company. Um, many of those don't go past that first conversation because they don't align. But but but also I would say that like there's just a ton of value in meeting those folks. They're gonna be in our industry. Um, if I can help them in some way, I'm always I'm always happy to do that with with whatever I can do. In terms of the ones that actually start to move through our pipeline, I would say um it's probably about two-thirds that that come in that make it out to the other side, because we are we are doing a good job on the front end of of I think assessing you know where that fit is. And then I think the way that we do it is we look at it first from strategic fit, and then we do due diligence, like a lot more due diligence around the business model. Because if if the strategic fit isn't there, then there's no real reason to spend the time and effort to do any of the other work. So I think that one-third of it usually is where something pops in due diligence that maybe you know is enough of a factor where we it overrides our desire from a strategic standpoint to want a partner. Um doesn't happen very often, but it but it it does happen. And um, yeah, so I would say maybe about two-thirds go all the way through, and then about a third kind of drop off somewhere in that cycle.
SPEAKER_03:And uh and a cool thing about credit unions is that I've I've written a bit, I've done a couple of shows on Prize App, which is a pretty well-funded uh Q. And uh how are they growing? Well, some of their uh credit union investors are evangelists for them, calling up other credit unions saying, Hey, you have to become part of this, you have to become part of this. You really need this, it's great stuff. And I can't see too many bankers doing that. You know, it's so true.
SPEAKER_02:And by the way, I talked to Matt from Prize Loud just to get advice because I was like, hey, you guys have done this, you're like, you know, an experienced fintech in the space, teach me what you did. And they were like, Hey, you're doing the right thing asking. And investors who are gonna be customers and be advocates, and like, here's how we learned, here's what we did in the early days, here's how we've grown, because they're like a perfect example of someone who's kind of teaching the ways for like other folks like me to follow.
SPEAKER_03:No, they they've told me on the record on the show, didn't know a damn thing about a Q zone until we found out about it and said, Hey, we got to do more with this.
SPEAKER_01:Yeah, they're they're a really great, they're they're a great team, they've got a great idea, great business model. Yeah, that's cool that you've had them on a few times.
SPEAKER_03:Oh, they're I mean well, they've also gotten great credit union people to come on with them to sing their praises. I mean, these these are wonderful people to talk to. Yeah. And uh uh and yes, they are all part owners of it, but they're they also are true believers. They wouldn't be doing this if they weren't true believers.
SPEAKER_01:It's it's funny. We put our money where our mouth is. We really do. Like it's it's it's it's a real it's it's really fun to to put an investment in a company that you believe in with you know wholeheartedly. And frankly, you know, to Shrine and to to Dave and Matt at Prize Out or Rian at Silver, any of them, we're making investments, we're betting on founders, right? There's this idea and this concept and this problem they're solving, but it's up to them to figure it out how to execute it, how to make it scale. And we want to we want to make bets on people who we believe in can can do that work effectively. And uh so we we have we are privileged, I think, to to have this collaboration uh across mission-aligned uh people on the credit union side and on the technology side.
SPEAKER_03:I'll tell you one thing prize out did with me recently is they they wanted to do another show with me, and I needed a new hook, and they said, Okay, fine, we'll give you a credit union member who uses prize out. And she and this is a woman working in a factory in Indiana, and she's talking about how she got like 20 bucks so she could buy some article of clothing for one of her kids. I mean, it brings tears to your eyes, really, basically. And I couldn't, there's no way in hell I could have reached out to this person independently. You know, so those guys are really smart about what they're doing.
SPEAKER_02:They are I mean, we've we've now found over$10 million for members so far, right, of credit unions. And like we're accelerating in each story, right? You know, we get the transcripts. There's sometimes we'll look at like some of the like storylines of what happens, and you're like, people didn't know, they got assistance, this hospital worker got$300 more right in Christmas, and you're like, this is the real work that we can do, right? And I think there's an opportunity to kind of scale that really effectively and bring that storyline to life. And then the credit unions at the center of it.
SPEAKER_01:You know, Sharine, you say that, and and I remember our one of our first conversations that we had, which was at Finovate. Um, and well, through CU 2.0, we met originally, but then we we met in person at Finovate in 2024. And I remember us, I remember us talking about like you were trying to work on the ROI model related to like to help help credit unions see kind of a financial return to this, right? And and there are ways to do that, but I remember telling you that like at the end of the day, the person who gets that help in that moment, and and you know, Robert, the story you just shared about the woman in the factory, like those are like these super meaningful events that like they might be a public speaker someday talking and relaying the story about when their credit union did this thing for them, right? Um, being a part of the dinner time conversation that people have uh about how we help them, it is emotional and it creates a sense of loyalty. Uh, it's the mission for why credit unions exist. And so, yes, we have to focus on um from an investment perspective and where we put our our energy on um returns, but man, you this there's some real powerful marketing forces that come along with solving some of these problems for people. That's hard to pinpoint what the exact return is, but we feel pretty good about it.
SPEAKER_03:I think I got what I wanted from you, gentlemen. Anything you want to say that I didn't think to ask you?
SPEAKER_02:Oh, I would just say just that you know, I'm we're just really excited because I think this is a question that we've heard a lot about. Like, hey, are you guys thinking about any of you so what's gonna happen? So Scott coming in is just the start. We're gonna grow and bring a lot more credit in and use those to come partner with us and grow with us. So that's kind of like our journey is gonna be just this is just the start of it.
SPEAKER_03:Yeah, and you these are the Qcash guys, man. Yeah, I mean you're starting you're starting with a good team.
SPEAKER_01:So I I would I would need to in my my my like last like thought or closing on that would be you asked if there's other investors, uh if he's taking other investments. I'd say like there's plenty of room in in this in this area, but for Starlight in particular, for passionate mission-focused credit unions who want to be on board, right? If if if you're if they're someone listening to that and and that resonates with them, like talk talk to Shrini about how you could get involved, because this is not an exclusive you know club.
SPEAKER_03:We want we want to help everybody, and there's plenty of before we go, think hard about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we're trying to figure out here in these podcasts is what's next for credit unions. What can they do to really, really, really make a difference in the financial scene? Can't all be mega banks, can it? It's my hope it won't all be mega banks. It'll always be a place for credit unions. That's what we're discussing here. So figure out how you can help. Get in touch with me. This is RJ McGarvey at gmail.com, Robert McGarvey again. That's rjmegarvey at gmail.com. Get in touch, we'll figure out a way that you can help. We need your support. The Cu Two Dot O podcast.