Episode 3: Fresno First Bank | Beating the Big Banks: Is Fintech a Four-Letter Word?
Our guest for this podcast is Steve Miller, president and CEO at Fresno First Bank. We enjoy a wide-ranging conversation covering topics from competing with big banks to the disruption of payments channels to the transparency and resulting strength of an employee-owned company. We also touch on Fresno First’s advantage in having an acquiring license, fintech as a “four-letter word,” and the future of the industry.
Read the full transcript below.
Episode 3: Fresno First Bank | Beating the Big Banks: Is Fintech a Four-Letter Word?
Todd Ablowitz (00:09):
Welcome to It Pays to Know, the Infinicept podcast, where we dive deeply into unexplored areas of payments, embedded finance, and more. My name is Todd Ablowitz. I’m co-founder and co-CEO of Infinicept. And today, my guest is Steve Miller. Steve is president and CEO at Fresno First Bank. Today, we chat about everything from competing with big banks to the disruption of payments channels to the transparency and resulting strength of an employee-owned company. Without further ado, I hope you enjoy our conversation as much as we did.
(00:44):
Welcome, everybody. I’m here today with Steve Miller, the CEO of Fresno First Bank. Very, very excited about this. I’ve been looking forward to this for a long, long time. Steve, your bank has just done incredible things in the market. I hear about them more and more and more. So welcome. Thank you so much for joining the pod today.
Steve Miller (01:06):
Good. Todd, thank you for having me. Happy to be here.
Todd Ablowitz (01:08):
Awesome. Steve, let’s start out, how about a little bit of background about you personally, and then right into Fresno First Bank.
Steve Miller (01:15):
Yeah, so I’m a California kid, born and raised in Orange County. I went to school back east in New York City and my career started actually on the issuing side. I worked for the old MBNA America, doing affinity marketing and issuing for about 12 years. And got married and the bank got sold and we decided to do something different. Ended up spending 10 years in Southeast Asia – supposed to be gone for 18 months and ended up being a 10-year honeymoon with my new bride. And then, ended up going over to the commercial side of banking, and then came back to the States in 15 and came up to Fresno for this role as the CEO. And been here for about six and a half years.
Todd Ablowitz (01:52):
I had an MBNA America credit card in college that said University of Colorado on it, had a big buffalo and I remembered it extremely, extremely well. It worked on me anyway, so you were doing something right.
Steve Miller (02:04):
Yeah, yeah, it’s great. Affinity marketing still works today and nothing like putting college kids in debt at an early age.
Todd Ablowitz (02:14):
I was there with the best of them, I assure you. So Steve, let’s talk a little bit, as we roll into this, let’s talk about the bank, how you joined, and where you’ve taken the bank, and where you’re taking Fresno First Bank.
Steve Miller (02:24):
One of the reasons why I took the role was I’d worked at a lot of different-sized banks, but I really enjoyed the small business space and focusing on the commercial side of the house. And I knew I wanted to be in maybe a smaller platform and I had an opportunity to buy into the bank as a shareholder before I started. So I don’t know, probably the negative side is I was able to have some control and maybe chart my own destiny a little bit differently. So that was appealing. What was unique about the bank was that it was a single-branch operation back then. The founder of the bank knew that, as a business-focused bank, you didn’t need branches on every corner. So dumb luck or great strategy, we’ve really held onto that. And especially during COVID, it really just continued to give us confidence that leveraging technology in the right way and you can be high tech and high touch at the same time. And that’s really what our focus is going forward.
(03:18):
The second thing about the bank is that, when I came here, we were already an acquiring bank, but that asset wasn’t really leveraged that well. So it took me a couple years to get my feet wet, but over the last four years, we’ve really been focusing on expanding our spot in the payment world. And as you guys know, there’s 60 to 70 banks that are acquiring banks and most of them are big OCC banks. So it was a smaller community bank that’s an acquiring bank. Every day, I wake up with a bank charter and acquiring license. And not many people can say that, so it’s a good position to be in.
Todd Ablowitz (03:50):
That takes you such a long way. And I have to say, I really resonate, as a founder and along with my co-founder, Deana, the largest owners of Infinicept, the tie-in between being a significant owner and being a CEO and running an organization. I think it’s incredibly important and it really goes into every part of the decisions and the employee decisions and the relationship with your employees. And these things are just very important in my mind.
Steve Miller (04:20):
And we’re set up, Todd, as an ESOP, so not just myself and the board are big shareholders of the company. But we do a really large contribution each year to buy company stock for all of our staff. So currently, 10% of their salaries goes into buying a hundred percent company stock. So every person in here, from the newest teller up to me, is a shareholder of the bank. And that is the core part of our culture, that ownership culture, making the right decisions for each other and more importantly, for the customer. That’s the basis of everything we do.
Todd Ablowitz (04:53):
Wow, that’s incredible. We have really broad ownership. We have, really, those values matter so much. What have you seen? I’m going to go way off the schedule here. What have you seen that’s done in your relationship with your employees? The employees’ relationship with the customer? Tell me more about that. I find that super interesting.
Steve Miller (05:12):
Yeah, I’m not going to lie to you and tell you that every single staff is completely switched on and understands how the markets work and all that stuff. But I always use the example on the credit side. When you’re talking to an RM that works for us and they’re doing a loan, you can ask them, “Hey, would you lend this guy your money? Because technically, you’re a shareholder, so this is your money.” And I think there’s just a different attitude, overall, when everybody knows that they have a little stake in the game and a stake in the outcome. So we’re listed on the OTC, but we talk about our share price a lot. Because that’s the end result of everyone’s job.
(05:50):
But along the way, we practice open book management, so we talk about our financials and our results on a weekly basis. And everyone knows where they stand, in the good times and the bad times, but we just think it’s a different level of awareness, I think, able to delegate authority differently to more junior people. So they can make decisions. And it’s a big differentiator for us and it helps attract talent as well, because a lot of people really want to be a part of that. If you’re looking for purpose, what better purpose than to be a young person who can say they own part of a bank?
Todd Ablowitz (06:22):
I look up to that, Steve. We are a private company, but we talk about, if we take care of our employees, they’ll take care of our customers and if we have happy customers, everything just works out for the shareholders. And that’s sort of how we think about it and definitely resonate with the transparency of which you speak. Transparency is so important, and it’s worked for us too. So it’s great to hear that the additional size growth that you’ve put together, that it continues to work for you. That’s very exciting, as a founder, I have to tell you. So why don’t we move into some of the topical areas, Steve? Let’s double click on your main product. You mentioned having an acquiring bank license being so important, which I couldn’t agree with more, something that’s very scarce and very rare and very precious. So let’s start there. Talk about that a little bit, and then we’ll move into technology.
Steve Miller (07:18):
We just see that fintech has become a dirty, four-letter word. So we’ve spent a lot of time in that world over the last couple years. And a lot of fintech, up until recently, is more geared around consumer lending or very small-ticket lending. And I’ve been doing scored small-ticket lending since the mid-nineties. So a lot of that is kind of lipstick on a pig, as far as I’m concerned. Where we feel the big shifts in financial services are happening, at least in our space, it really is all around payments. And if you think about a bank, a bank’s job is to move money from point A to point B. And payments is that. That’s the epicenter of all payments. Now, there’s different rails that we all use. And some of the older rails are still very prevalent and then, there’s some new things that are coming out. But we just see the future of everything at the point of sale or what’s happening on your mobile phone device, as where the real technology is taking shape.
(08:17):
And that’s kind of locally now in the United States, but how do you do that across borders and for B2C? And then, I think the biggest opportunity, which is still pretty fragmented, is B2B. There’s still more checks written in this country and ACH has grown at 6% or 7%. So B2B market is massive for payments and we just like the fact that we can play in that space and we get to compete with banks our size, but more importantly, with bigger banks. They have a lot more to lose than I do, in where some of this disruption is happening. And that’s kind of where we’re at for payments now.
(08:53):
The biggest opportunity for us is, yes, there’s a lot of money to be made, it’s great fee income, it’s good annuity fee income, which banks are always searching for. But we see it as, because of software’s impact on technology and payments, you’re basically creating all these little ecosystems. So I refer to it as the payment ecosystem. How can we leverage the payment ecosystem to get more customers and to get more deposits, so I can do my main job, which is to take deposits and lend money? And that’s really how we kind of view the payments ecosystem going forward for us.
Todd Ablowitz (09:27):
Fascinating. You mentioned B2B, I was just talking with a colleague, a software company CEO, about the massive opportunity in B2B. It’s one of the top three things that I pay attention to. If we weren’t doing embedded payments and embedded finance, we’d either be doing B2B or network tokens, because those are the hot, hot, hot areas, as I see them. One’s a business model, one’s a vertical, and one’s attack or on the business model focus right now with embedded payments. But that’s incredible. So let’s just double click. Do you have any B2B focus today? Is this a future area you expect? I think it’s a 30 trillion-dollar market in the U.S., if I remember correctly.
Steve Miller (10:15):
Obviously, as a bank, we’re technically already involved in B2B, because you’re using traditional rails for your business customers to move money back and forth. But that’s on things like ACH and check and wires and all that. We have several partners through our ISO relationships or through processors that we work with, that have some really interesting software applications. And you mentioned embedded finance. So when I say B2B, I mean all things embedded payments and all the activities that’s going on.
(10:48):
So we have several partners that are building their own software that allows small businesses or commercial entities to kind of link up with their QuickBooks, for instance, or whatever their accounting software is. And it’s all about moving data and making that process easier for the client, sending out invoices with embedded payment links, so they can pick and choose how they want to pay. There’s some really unique applications out there and we want to obviously support our partners that are building those things and then, I can take and resell that stuff to my own customer base or white-label it for them. There’s a lot of different use cases for it, but yeah, that’s relatively new for us. But there’s some interesting things happening via our different partners.
Todd Ablowitz (11:32):
Yeah, it is. It’s fascinating. And to your point, it’s not about the mode of payment from the money going from one business to the other business. It’s about all of the surrounding issues that come up. What does it cost, a hundred dollars to pay an invoice at a large company? And it’s absolutely all these things that make the process better, that make the experience better, that create new revenue, or generate business activities. So great opportunities. And I love the way you think about the bank’s role, not only to provide an entry point to a variety of rails and oversight that they’re doing it, but also a sales channel and an opportunity for you to better enhance the experience that your bank customers. So tell me. You mentioned there sort of endemic to what you were just saying is technology and those who aren’t as close to it as you and I may look at it and say, “Hey, big banks, they have billions of dollars that they can put on tech investment. Literally billions of dollars.” How do you look at technology helping you? And how do you compete with the big guys?
Steve Miller (12:45):
It’s a great question. I was at a conference a couple weeks ago, so I’m going to steal a comment that someone made to me, which we had kind of been struggling with. And he helped clarify it and you always hear, “Oh, such and such big four bank is going to spend 10 billion next year. How do I compete with that?” And he made a simple comment. He said, “Why do you think they need to spend 10 billion?” He goes, “They have so many old archaic layers of bad technology, that every time they do something, it costs them a fortune to relayer things and to get everyone involved.” So he said, “Don’t be as scared of the number. The number’s big, because they’re so bureaucratic and the technology’s so old.” And I was like, “Okay, that’s a fair point. I get it.” I just think that banks have always, especially community banks, we outsource everything.
(13:34):
So we’ve already been involved in fintech for years, and I think where a lot of people make mistakes and where I would encourage a smaller bank is, you don’t use all the bells and whistles that you currently pay for. Whether you dislike or love your core processor, are you using all the things available? Are you leveraging basic technology? Everyone thinks that they need to go spend a million dollars to improve this or improve that. If you go to our website today and you use our chatbot, which is basically more for marketing and getting someone in and responding to an ad and coming into the bank and getting them engaged with someone here. That chatbot is basically off-the-shelf Intercom that costs us $900 a month and my chief revenue officer knows how to program it. So it’s not rocket science, so it’s Intercom’s… Yeah, Intercom’s an industry global standard that’s SOC compliant and I spend a thousand bucks a month on it. It’s amazing.
(14:36):
So we’ve really just tried to do all the low-hanging fruit first, when it comes to technology. And I still think it’s the true democratization of all banking. It allows a progressive bank like us to compete and to do it in a very cost-effective way. I think the big banks have a lot more to lose than we do, with all the stuff that’s going on. You think about especially payments. Think about cross-border payments. I’ve worked for the big banks, the big global banks. That’s where they make all their money. They make all their money on gouging people for sending wires to Europe and across borders and then, on their exorbitant foreign exchange rates. Well, shoot. Visa can send money on the Visa wire from here to Europe for a fraction of the cost. And they’ll do it quicker than SWIFT. I don’t make any money on foreign payments right now anyway.
(15:25):
So the big banks, I think, tend to have the biggest thing at risk from what’s going on in cross-border payments, just as an example. So we try to look at technology as, “Hey, let’s focus on the basic things.” What does a bank do? We open accounts, we do loans, and for us, we’re involved in payments. Those three things take up like 95% of my time. So if I can use technology to create a great user experience, both for the customer and then, internally, then that’s really what we want to focus on. And I think the internal piece is what people forget. You can give your customer a pretty good table-stakes experience, but if you have a really good technology process inside, where your people are happy and they’re not dealing, it’s technology for the outside customer and once it comes into the bank, it’s a bunch of paper. That’s a nightmare. So try to solve both ends of it and you can do all of that stuff for relatively inexpensive, if you really think about it.
Todd Ablowitz (16:23):
That’s awesome. And certainly, that’s the reason we exist, right? Is we play our own little role, in a tiny part. Like you, I think we try to go really deep on a relatively narrow set of things and that kind of focus has been really successful for us. I noticed two things you said, that were kind of profound around big banks. And it made me think, you were talking about their technology, the cost of technology. I believe that they still hire programmers in COBOL at big banks. They have to, because there are still mainframes that need to make important functions or roles. They’re still needed. Second thing I thought of was the portion, the percentage of those billions of dollars from big banks that are going to McKinsey and Accenture and consulting companies to tell them how to do digital transformation. Just getting them to tell them how to do it is a big chunk of it, I think.
Steve Miller (17:22):
Yeah, I think there’s a lot of truth to what you said. And again, on the core side, we work with one of the big four or five cores and they work really well. They’re very secure. Data security and cybersecurity are extremely important in a world where trust is all that matters. You don’t want to rock the boat too much, when it comes to banking customer data. So there’s still a lot of value in the existing technology, but to your point, you got to be able to… The language that it’s written in is 50 years old, so I don’t even know if there are any younger people that know how to do that anymore. Yeah, you’re kind of in an interesting transition. But yeah, there’s a huge cost there. And then, consultants exist, because in a big organization, sometimes you need help making the decision. And you know what you need to do, but sometimes you’ve got to pay someone to force you to do it.
(18:13):
So I would agree there. I think, for us, and we struggle with some of the same things, but banking’s a wonderful business. It’s a huge barrier of entry to get in. The regulators aren’t allowing new banks to start, but once you’re a bank, the barrier to be a really good bank is not that high. And the beauty of it is you don’t have to run and do anything crazy to be a good bank. You can crawl and walk and still be far ahead of most of your competition. And we’re in the business of time, so you have time and patience and that usually pays off still pretty well in this industry.
Todd Ablowitz (18:48):
Well, I’ve certainly seen, in payments, the bar is quite low and it gives innovative companies an opportunity to first succeed at all stages of our lives. But then, really set a new bar and that’s what we’re starting to see. We don’t deal as much with the core banking players today. We deal with the legacy processors and we see the same things, where if you really boil down to the core, core, core of it, authorizing and settling a card transaction, they do that at scale really, really well. When you start getting further from that, we think about payops, the operational details, opening merchant accounts, and dealing with fees and dealing with disputes and dealing with risk and all these kinds of things. Those are the things that we just relish. They’re boring and they’re ugly, but we love them. So Steve, let’s, as we sort of work towards wrapping up, let’s talk about what you see in the future. What’s the role of payments in the future of financial services? And how is Fresno First Bank going to take advantage of that?
Steve Miller (19:55):
I think, in banking and in payments especially, there’s a lot of rent seekers in the supply chain. And I was talking to someone yesterday about distributed ledger and all things crypto. Distributed ledger eliminates a lot of middlemen and the bank is the ultimate middleman. So we’ll probably be the last one to go away. But there’s a lot of people in the middle of these transactions that don’t necessarily need to be there, because they create inefficiencies or they cause the price to be higher. So the best thing about the U.S. payment market is that all payments have to come through an FDIC-insured acquiring bank. So until that rule changes, I think the acquiring banks will continue and you could argue we’ll play a more important role going forward. Because I think it’ll be very difficult for your traditional sales-focused ISO and the old traditional setup to survive just the burden of technology and the costs and talent and all that stuff.
(20:55):
So we see continued consolidation, because of just some of the shifts and the competitive nature of what technology’s doing. But I will say that, just like we run our bank, we talk about high tech and high touch. The reason I think we’ve done a really nice job in the payment space is that, you mentioned earlier, some of the larger processors and the larger players that have been around for a while, it’s difficult to work with them. Because you can’t always have a conversation with the right person. And we offer our partners access to the decision makers, like myself and other people in the bank, and there’s still extreme value there, especially when you’re talking about much more complicated transactions and complicated deals. Being able to spend an extra 20 or 30 minutes. I was on a call yesterday with a really great partner of ours and they had a crypto opportunity in a specific payment rail. And I know for a fact that most banks would be terrified of that, but we got to spend a few extra minutes with them and it’s not that big of a deal, right?
(21:54):
But you have to ask the right questions and you’ve got to be able to trust that your partner’s going to follow all the guidelines and all that stuff. So I still think there’s value in that relationship. And as a smaller bank, we recognize that and I think that’s a competitive advantage. I think technology is… What does Bill Gates say? That we tend to overestimate the short term and underestimate the long term. There’s a lot of noise right now in the market. I still think there’s tons of opportunities for community banks to really get their technology in line over the next couple years. Or else, it will be too late to compete. So I think there’s still a good window of opportunity for banks our size to make some good decisions and to pick their spots on where they want to work. And then, when they’re prepared, there could be some amazing revenue opportunities in payments or just in normal banking to really, not just survive, which is what a lot of people are worried about, but truly thriving.
(22:52):
I made a comment at an investor conference last year. I was like, “The next couple years are going to be terrifying for banks. Interest rate changes and now, the pandemic and credit issues.” I go, “Man, if you can lean into that, I just think there’s a wonderful opportunity, because I would hate to be a big bank that has 250,000 people and 5,000 branches to deal with.” I have one. I have one branch and an amazing team of talent that’s spread across the country. And I would take my position over most banks, just because we don’t have to worry about legacy issues. We get to focus on what’s going to make us better and that’s still going to be the same thing. It’s going to be people. There’s a war for talent. I’m fighting the same war. And then, how do you use technology? Whatever the technology is, how do you use it efficiently? And how do you avoid getting talked into spending too much money on the shiny object? Because there’s a lot of shiny objects out there right now.
Todd Ablowitz (23:49):
Boy oh boy, Steve. That is just so insightful. You started that part with the channels in payments and thinking about the changes in how payments will be divvied up. We see that – we actually own the domain “isoisdead” – and we see that the old version of what an ISO was is just not going to survive past these technological changes between software companies that are taking part of the value chain, the ISOs that are evolving to have more technology or to have something unique at the very least, unique expertise, unique touch. You mentioned the crypto opportunity. It takes listening. It takes a deep knowledge of the rules and the processes to keep everyone safe and to, by the way, care about it beyond just the very basic letter of the law.
(24:42):
And it takes a bank partner. As you said, in the U.S. market, there must be a bank. And I don’t see that changing. I’ve been all over the world, 40 countries with the card brands. We’ve seen lots of examples of direct acquirers and worked with them, but the U.S. market is different, and I do not see that changing with the importance of interchange to the U.S. banking economy. I just don’t see that that will change in the near future. You can look back at this, it’s on record. So I could be wrong, but I think you’re in a good spot.
Steve Miller (25:18):
I think, Todd, the other thing is you forget about all the incumbents in banking, whether it’s technology, the banks themselves, or the payment players, and the card brands. There’s some really smart people that work at all those entities. And that’s why, I think, the short term, we tend to overestimate the short term. Because you’re like, “Oh well, Visa’s going to get replaced by so and so.” And Visa’s going to fight tooth and nail to maintain their dominance and they’re going to do what they need to do. And you see that. I think it’s great. Competition’s amazing. So the value of the fintechs kind of rising up and pushing everybody, ultimately, makes the whole thing better for the consumer. And if you can keep up with it and pay attention and pick the winners, I think you’ll be very surprised to see who’s still, to your point, who’s around in the next 10 years and what’s going on. So yeah, I’m excited about it. I’m not going to lie, it is kind of frightening at certain points. But I like our shot.
Todd Ablowitz (26:16):
That’s awesome. Well, we see banks, in general, ascendant, as we see software companies ascendant in the financial services realm. We’re seeing things with banks. The pendulum has swung a few times in my 25-year career. The pendulum’s swung a few times between insourcing and outsourcing and how banks lean into electronic payments. And we think that your sector has a really good set of opportunities. So Steve, thank you so much. This conversation was so much fun. I could do an hour more in a heartbeat, and I would love to have the opportunity to do it again sometime.
Steve Miller (26:54):
Good. Todd, thank you for your time. I appreciate it. Have a great day.
Todd Ablowitz (26:57):
You too. Thank you so much to Steve Miller from Fresno First Bank for joining us on today’s super-interesting conversation. And many thanks to our awesome listeners for tuning in to the It Pays to Know podcast once again. We hope you enjoyed it as much as we did. To hear more from us, go to Infinicept.com, where you’ll also be able to learn more about our PayOps platform and how we get payments going your way. For Infinicept, this is Todd Ablowitz. Thanks again for tuning in and we’ll pay you another visit next time.