In this episode of The Purposeful Banker, Dallas Wells sits down with Q2 President Kirk Coleman to get his perspectives on some of the most pressing topics in banking.
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Transcript
Dallas Wells
Hello, and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm Dallas Wells. Today, I'm welcoming a newcomer to our podcast. We'll be talking with Q2 President Kirk Coleman. Kirk has been at the intersection of tech and banking for a long time now, both as a consultant and as a banker. He's actually now seen Q2 from both sides of the table, as a customer and now as an employee. So Kirk, welcome. Glad we could finally get you on the podcast.
Kirk Coleman
Yeah, longtime listener, first-time caller. Glad to be here. Dallas. Really looking forward to this.
Dallas Wells
Yeah, this will be a good one. Kirk, what we wanted to dig into today was you and I both spend quite a bit of time talking to bankers out and about, so we wanted to dig into some of the things we're hearing, some of the common themes, the topics on the minds of everybody. But before we do that, I feel like you've had an interesting journey to this particular seat, so maybe you could share some of the background over your career and how that's landed you sitting at Q2.
Kirk Coleman
Yeah, for a young person just starting their career who thinks they can map out the entirety of their career arc, I am a living example of you just never know where it might take you. So I was an economics major in college. I went to college here in Texas. I'm in Texas today and went to Baylor, got my economics degree.
This is in the early '90s, and I thought I wanted to be a banker. That was what I felt called to do. I don't know why I'm wired that way, that's what I wanted to do. But Texas was still kind of coming out of the turmoil of the '80s, and a lot of the banks headquartered here had been bought by banks elsewhere, and there wasn't that many opportunities in the traditional bank officer training programs.
And so not finding much opportunity there, I had a friend that was already at what was then Anderson Consulting, now Accenture, and he said, "I think you'd really like this. Come check it out." So I did and I thought, OK, this would be a good way to get my career started. I'll do this for a couple of years and figure out what I really want to do with my life.
And I got there and I just said, "I'll tell you what, I'll do anything you want me to do, just let me do it in banking. I want to stay in banking." And little did I know that I was going to be catching two waves of transformation: one in banking and one in consulting. And both of these industries over the next two decades would go through massive change. And I got to work on a lot of the big mergers that happened all throughout the '90s, and that would build some of the biggest brands that we now know today.
Those were all my customers then. And they continued to be my customers into my second decade at Accenture when we had different kinds of things to work on, like the Great Recession and things like that. Wonderful career serving all kinds of different financial institutions, kind of building up my network and learning all about banking from multiple angles. Just felt really privileged to have that.
And after 21 years, I had an opportunity to go work for a bank headquartered here in Texas, a commercially oriented kind of mid-size bank. And boy, I loved that. That was Main Street banking. Again, it was commercially oriented, but commercial means a lot of different things. We could probably talk about this through the podcast, but this is businesses of all different sizes, all different kinds of industries.
Texas was enjoying a lot of economic growth, so there's a lot of different kinds of opportunity and they all needed great bankers and I really loved that. I got to run tech and ops and service and strategy, our digital bank and a bunch of other things that were really interesting to me. And I just loved that experience, that kind of Main Street, very close to the customer kind of experience.
And along the way I got to know this company called Q2, which I had no previous knowledge of. And we did a lot of interesting and wonderful things together. And so when it came time to leave that bank and move on to another opportunity, Matt said, Matt Flake, our CEO here at Q2 said, "Hey, would you think about joining us as chief banking officer?" I said, "Well, what does a chief banking officer do at a software company?"
And he said, nobody knows, so you can kind of make it up as you go. And so that was a lot of fun. And of course that was, as you know, product and strategy and marketing and things like that. That was a great fit. And then a year ago, Matt and the board asked me to take on the role as president. And so here I am, just one year into that role.
It's been fantastic. I love what we're doing as a company. I love the industry we're serving, all the things that they do in the communities that they're serving and just a whole bunch of just wonderful Q2'ers I get to work with every day.
Dallas Wells
So it's an interesting arc and you and I had a, I think, somewhat of a similar one of working in banking and doing consulting and I don't know about you, but to me the thing about consulting that was really interesting is kind of every day, or maybe not every day, but you have these quick turnarounds where you're kind of walking in and you're untangling a new puzzle all the time. But man, the pattern recognition starts to really pick up.
And I find that to be such a common part of now this role sitting in a place like Q2. And again, in any given day you may kind of deep dive on two or three things with a couple of different customers and you're like, I've seen this pattern before. I've seen this puzzle like this. And so to kind of see it from both angles there of that quick hit, help, here's one from the playbook we've seen before versus maybe what's the harder job on the other side of the table, which is all right, I see the playbook but now I've just got to go grind through the execution of it and all the hard friction to work through there.
So in your case at the bank that you were at, you helped start an online bank. So one of the early digital brands. Talk to us a little bit about what that story looked like and from the kind of making that decision to jump into it and then that grinding it into existence.
Kirk Coleman
Yeah, really, really fun story there. Since around 2018 we had, it was myself and the CFO and a guy that was one our CFO's key people and really was doing a lot of strategy work. And then the guy who ran treasury management, the three of, well, me and the other three, we all kind of locked ourselves in a conference room for about two days in the summer of 2018.
And the problem that we were trying to solve for is we were growing really fast. In five years we would go from $18 billion in assets to $36 billion in assets organically. And so we were trying to figure out, well, how do we continue to fund the bank? What are some of the different ... We were doing in a lot of different ways, primarily through commercial and treasury relationships.
And we had some really nice treasury management verticals that we liked a lot. What we lacked, it was that kind of granularity that every bank really likes. And so we were kind of looking at this problem and the size we were kind of like, this can't be like a hundred million dollars, $200 million kind of deposit play. This has to have a B in it, right? It's got to be billions of dollars.
And our financial organization had done a lot of really great modeling on ... We really understood our funding stack really well. We understood all the different costs associated with our funding stack. And so we kind of knew which part of the funding stack we wanted to replace. And so that kind of gave us the, what's the size of the prize? How much is that worth to us?
And then if we kind of projected out some growth, what would that mean to the bank. So we knew that hey, this had to be big enough, had to have some staying power and it had to have this kind of element of flexibility in helping us meet future needs. And so that was all summer of 2018. Kind of fast forward to the end of that year and we already had this little digital brand that we could build off of, but it wasn't anywhere near up to being something much larger.
And so we knew we needed to have a new brand, we needed to think about our technology stack and stuff like that. And so in December of 2018, we proposed that to the board. Part of that is I had called Matt at Q2 and said, "Hey, we're going to launch a new digital bank in nine months. Can you take this ride with us?" We had to do that with a number of partners.
And we did it. And we did it. It's been a great success. It's been very important to the bank and meaningfully contributing, especially during this period over the last few years where deposits are so competitive and so precious and being able to grow that deposit base and really hold onto, it's been really important. A bunch of key lessons there though, Dallas, that you'll recognize.
Again, it's kind of this pattern recognized, pattern recognition. One is that, I don't know if it was because we were lucky or good, but really early on we just recognized this has got to have a very big meet material. We could only focus on a material thing. We can't get to our goal tens and hundreds of millions at a time. It had to be something substantial and every bank would have their own version of that depending on where they are.
But really, no, understanding that explicitly up front and then therefore what the prize was, so to speak, how much was that worth to us, allowed us to make some bets in terms of what would otherwise look like very large spend on technology and marketing and people and stuff like that. So that was really important early on.
The second was that building these kinds of things, especially at that speed, is unpredictable. And so we kind of ring-fenced a dedicated team totally focused on this and part of my job was just sort of keeping the rest of the organization away so the corporate antibodies didn't kind of try to come kill it and steal the resources. So kind of ring-fencing it that way and allowing that team to be totally focused, not task switching and doing a bunch of different things with their days was super important.
And then the last part was that iterative process of really important with some frequency and sort of step back, pan out just a little bit, assess where are we, adjust and act and just doing that over and over and over. And so that experience had been really formative for me in terms of how I think about and when I'm out visiting bankers just like you do and they want to know that story or they want to know, hey, I'm trying to solve for this type of problem or this type of opportunity, that's part of what we talk about is the things that you're focused on, is it material enough to really help you drive your results?
Dallas Wells
Yeah, I think that materiality question is one that it probably gets missed too often and especially on the funding side, and maybe we can talk about that a little bit. You mentioned how important deposit growth is. That's not …
Kirk Coleman
Breaking news.
Dallas Wells
... a new revelation, right? But how we go about solving that. So that's a conversation we have probably in every customer meeting we're in is lending as tough as that market is and as tight as spreads have gotten over the last decade plus, you can still grow that side of the balance sheet in big chunks. It's like you're selling money, everybody likes money and likes capital and at a price everyone will take it.
So you can grow that in these big seven-, eight-figure chunks. Funding, it doesn't always work that way. And so you kind of have to make a call and not that you can't do multiple strategies, but you can chase these big corporate deposit accounts and try to get big chunks as well, or you're doing it 5,000 bucks at a time on the retail side.
And to match those big chunks on the loan side is really, really challenging without being intentional to that materiality thing that you mentioned there. So as you're out talking to bankers, are you hearing some things that are working? Are you hearing some techniques that are making some progress there?
Kirk Coleman
Yeah, absolutely. And we get to work with a lot of just great banks and great bankers and credit unions who have really great strategies. And I think it all starts with who are you banking and why? I think that's the crux of it. And why do you have a right to win in the market or geography that you're in or the vertical that you're trying to serve or whatever the case is and having some explicit strategies for that.
I think one challenge is banks get bigger. If you're a billion dollar bank and you're kind of on your way to five, or you're five on your way to 10, or 10 on your way to 50, is that some of what worked for you when you were smaller doesn't help you as much as you get larger. So you want to always take the very best of who you were as where you started. That's what makes banks special.
I think it's why the billion-dollar community bank or the $500 million credit union major market, a secondary market, a tertiary market can really win and make a difference is because they are so dialed into that community, they're very close to what their needs are. But as you get bigger, a lot of times those things that ended up being hobby projects along the way, boy, you just have to have that courage to sort of say that's kind of distracting us from this bigger picture, our ability to be able to serve this community in an even bigger way.
And you have to have that courage to constantly look through your business and say, where am I focusing time, money, and resources on things that just we either can't be the best at, they're not working as well as we want them to, they can't grow with us, whatever the case is. And some of that comes back to who do you have at the bank? What specialties do you have?
But I think one mistake industry outsiders make about when they look at banks and credit unions is that they kind of paint the whole industry with this one broad brush. And what we know is that banking and credit unions are anything but homogenous, that’s it. They're very different in terms of the business strategies, their business models, the communities they serve, the customers they're going after. I think that's wonderful. I think it's one of the strengths of the American financial services industry.
And so the people that are really, I think making the biggest difference and seeing the best results or who are we banking? Why are we banking them? Have we put the specific resources, the investments behind those areas in a really deliberate way and also had the courage to stop doing things which sound good or that were good for us at one time, but no longer really serve our mission and our community in the way that we wanted to.
And those seem to be the ones because that's a moving thing, you're always adjusting and I think that's great. So whether you're a bank that's sort of like, hey, I'm going to really serve this vertical in a very specific way and I understand it really specifically, or it's like, no, there's a customer segment across geographies that I understand, whatever it is, being specific about those strategies. I think those are the banks that, and credit unions that do the best.
Dallas Wells
That kind of being all things to all people. There's about four banks in the U.S. that can pull that off and even those have some kind of distinguishments between them, some specialization. And so it's usually easy when you walk into a room with a financial institution, you can guess at what their performance numbers look like without knowing when they know and own that strategy top to bottom, this is who we are and the kind of business that we're chasing.
So I would say outside of deposit growth, I'm guessing here, but I think it's a safe bet the other topic that comes up in just about every conversation is fraud. Just that surface area has gotten so big, the fraudsters have gotten so sophisticated, as Matt said in the meeting we were in a week or so ago. It's not some guy with pantyhose on his head anymore.
That's not what a bank robbery looks like. But what's the sentiment out there around fraud? I think everybody's come to terms with the fact. It's sort of like credit losses. It is a cost of doing business. If it's zero, you're doing it wrong. But it is challenging to figure out what's an acceptable level of this and how much do we invest to try to fight this in what feels like it can be a little bit of a losing battle. So what are you hearing out there on that?
Kirk Coleman
Yeah, whatever the acceptable level is, it's lower than where we are right now. We have an unacceptable amount of fraud industrywide. And it's a really interesting and challenging topic. I mean, good old-fashioned check washing is a major issue. And, I mean, who would've thunk it? I mean A, that we're still writing checks and that that's still one of the most significant contributors to fraud as an example.
And just kind of the surface area of just that problem alone, let alone business email compromise and all kinds of other of fraud that exists. So yes, absolutely, Dallas, this is a major topic. I think every institution is spending a lot of time just trying to work through, whether it's fraud cases or thinking about what are the new tactics and techniques that we could kind of put in place? How do we educate our members or our customers? Boy, that's an important one.
I mean just like in cybersecurity most of the time the weakest link is a human being somewhere is to humans. So trying to solve for all the variety of humanity that causes us to ... for fraud. And so what we used to want to have in terms of this really easy, frictionless customer experience turns out doesn't always lend itself to the best fraud posture. And so how do you find that happy medium where the customer doesn't feel put out and actually they feel like, hey, this is good?
I'm OK with this amount of friction in this process because I know that it's protecting me in a really particular way. And lots and lots of people have been affected by fraud. It's one way or another at this point. So it feels like there's a little bit of momentum on that front in terms of, yeah, we're all in this together, but boy, the fraudsters are crafty. So I think this is something that requires a very holistic approach with lots of specific investments to combat this.
Dallas Wells
That human element to it and kind of the social engineering aspect, that's the big gaping hole in these, frankly pretty impressive perimeter defenses that we can put up all over the place. But that's the gate where these losses go through. And so you mentioned training and one of the, I think, related aspects that we've been paying attention to here that I think matters is that user experience on the other end of that.
So you can flag a transaction as risky or potentially fraudulent, but there's lots of different ways you can go about doing that. So just like we turned off your card and didn't tell you why, and now you're stuck on vacation in Italy, that's a really bad, ugly experience. And I think people are OK with, hey, we texted and called and emailed you all at once while you were standing at the checkout line. We just want to make sure this is you so you don't get stuck with something that's not really yours. People are OK with that kind of friction if there's some kind of a little bit of a human touch to that experience. And I think particularly for the community and regional institutions, that's so important to make sure that when we add friction, we at least do it and instill a kind of relationship-based way.
Kirk Coleman
Boy, yeah, I think you nailed it, Dallas. I think this is, and actually this is I think something where on the one hand you might say, well, smaller institutions, this just seems like an area that's beyond their level of ability to invest in and stuff like that. I'm not so sure that's true. I think there is a counterpoint there, which is that exactly what you're pointing to, which is that human touch.
It's the human in the middle of the process, the middle of the technology, whether that's literally a human or it's that human touch in terms of the way you communicate is something that everyone can do well.
And you just have to think about the fact that I think inside institutions, we have to deal with fraud all the time. It feels a little frothy. You have all these processes and systems and dashboards and monitoring and reports and stuff like that. For the person standing, to your point, at the cash register or on vacation or whatever the case is, this is something they deal with, they hear about, but they don't deal with that, that frequently.
And so it's scary, it's unfamiliar. They're immediately worried, is this impacting me in some broader way that I don't understand? I think those are all areas that an institution of any size frankly, can really focus on well, what's, to your point, that human touch in the midst of all that, that can both put the customer at ease, I think it really anchors that relationship well with the financial institution, right?
“All right, you've got my back, right? You're explaining this to me in a way that makes sense and I'm OK with that friction to make sure that something bad's not happening.” But also having that training element like, “Dear Customer, right here are the things that you could do to help us.” You have to just do that over and over and over all the time. But I think you're right, Dallas, I think that's a good way to think about it.
Dallas Wells
And I think the other aspect that we're seeing pretty often is what we're seeing institutions take a new look at where maybe the thresholds or fits are. So for something that's been around as long as positive pay is something that used to, that was a kind of special kind of customer that did a certain kind of volume, a certain kind of business, but positive pay works.
Kirk Coleman
Positive pay works.
Dallas Wells
It's a very functional way to slow down fraud and it kind of puts the control back in the hands of your customers to they know the transactions they're doing and can, yeah, I know that one looks weird because it was out of our normal pattern, but I did that. I authorized that payment. But we still see a lot of institutions that are like, yeah, this is the little box that we put positive pay in.
And so maybe it's much smaller businesses, maybe it's different kinds of payment patterns that now fit and are worth adding those services with the added benefit that you can charge for that, that actually can generate some fee income. And fraud is pervasive enough now that I think consumers and business owners are willing to invest some time and attention and even some money in helping fight that battle.
Kirk Coleman
I totally agree, Dallas. Positive pay should be mandatory for every business and every business relationship. It's well worth it. It works. And to your point, I think every bank can make their own decision about how they want to charge for it, and they can do all the analysis and everything like that and kind of figure out their fee structures. I agree with you. It is an area where they can at least cover the cost.
I've talked to a lot of people about this. I'm not hearing anybody say, yeah, our customers are really mad about that. In fact, the opposite. It's giving them an opportunity to really have a broader conversation about fraud. But that's a good example of a technology, a capability that's been around for a while.
So the old saying … I've got a cousin who's a police officer a little bit further south of Dallas, and he used to always say, if you have the door locked and the alarm system sign out in your yard or something, they're looking for the easy way here.
Dallas Wells
That's right.
Kirk Coleman
And fraud is not that different, it's just they're doing it at scale.
Dallas Wells
Yeah, it's a little bit of deterrence.
Kirk Coleman
Yeah, they're looking for the easy path and they're looking for the easy path at scale. And so you've just got to put enough friction into that process to not make it easy, they'll go elsewhere.
Dallas Wells
Yeah. So one more topic to jump into. This is one you've talked about quite a bit over the last couple of years here at Q2, and I think again, an element that you saw as a banker and then you certainly see now, which is just the challenge around talent inside the financial industry. And that's not just at the C-suite level, that is deep through the organization.
There's real struggles with finding the right kind of talent and talent that sticks around and learns this sort of complicated business and how to serve customers well and do these fairly sophisticated things. So let's talk a little bit about some of those things that you're hearing and some of the challenges and maybe some of the good and bad that you're hearing from folks that are trying to work their way through that.
Kirk Coleman
Thanks, Dallas. I think this is the number one priority and topic for the industry to address. And I put complexity right below that. We'll save that for another podcast. As an industry, we're just more complex than we need to be by, I don't know if it's 20 or 30 or 40%. But a lot of that circles right back to talent, though. There's a lot of great talent in the industry and all different kinds of positions, departments, there's just not enough.
And we're not kind of regenerating the talent, kind of bringing it up through the organization at a rate that we used to in order to make sure that we have the skilled, really skilled individual contributors or we have the excellent deposit operations leader or the commercial banker that really understands the business, the chief credit officer ... go on and on and on.
And so for a lot of C suites, they're kind of looking behind them and sort of saying, “Well, who's coming up behind us?” And they might have a couple of superstars that are coming up behind them that's going to be able to take their seats, but they don't maybe have every variety. And so there's a lot of trading and talent between institutions to try to fill those gaps, but there's just not enough in industry. And I've tested that idea hundreds of times with CEOs and COOs over the last couple of years, and they all agree this is a major issue.
So what can we say about that? One is let's just understand that dynamic as an industry because I think for those of us who serve the industry, we need to be really aware of that and play our role in terms of helping them solve for that. Part of the way we could do that is by providing great capabilities and being great partners because the institutions that have great partners, they have great technology, they're making a lot of the, back to where we started this podcast making great decisions about who am I banking and why.
They're going to be able to win more talent than average in terms of whether no matter what level. I know I'm talking in my own book just a little bit here, but a lot of times if you're hiring a treasury management officer, one of the first things they want to know after they get past the basics is, what's your platform? What am I selling to my customers? So these decisions I think are really important and I think that what we are going to see is a little bit of the haves and have nots from a talent perspective kind of emerge.
I think we can already see that driving some of the M&A that we've seen here. We're recording this in May of 2024, and I think we've already seen a little bit of that this year where the institutions are kind of getting together and that's part of that is solving for a talent gap that they see. So this is a really important topic. I don't think there's a silver bullet.
I do think that every institution needs to think about how am I going to grow my own people, my own capabilities. We talk often about like, boy, wouldn't it be great if we can bring experience from another industry into my bank, into my credit union because we want to build that strength that way. We do that alarmingly infrequently. And then when we do, we don't often give that enough time and effort and training and kind of time for that to come along and open enough to incorporating their ideas and thinking about our business differently. But full stop, we're going to have to do that as a way as kind of addressing this talent cap that exists. And so yeah, this is an important one.
Dallas Wells
And I think you mentioned it's kind of up and down the organization. And so we see it as we interact with our customers at making the strategic decisions. And you can see we will occasionally run into an institution that we'll be talking to as a prospective customer and they're like, yeah, it looks great, but why do I need to go through the pain of changing a bunch of stuff? I'm out of here in five years. They don't say that out loud, but they say it.
And so those are the institutions that are kind of doomed, right? If you're going to sit on your laurels for five years, at the pace things go now, those are the institutions that are typically for sale. And then kind of deeper in the organization, we see a lot of the doers, the ones that are managing the day-to-day stuff in the organization.
And the interesting twist on it now is, yeah, there's still the moving of money and the interaction with customers and the understanding the regulations, but it's all that in a technology wrapper. And so it's understanding kind of how technology works in general, and also the ability to just get technology baked into an organization, which is a whole different skill set and one that we talked about on a recent podcast of technology's become this great equalizer.
There's pretty much any size institution it can go and buy really world-class solutions for whatever their strategy might be, but the ability to actually get it on the ground properly implemented with both their staff and their customers, that's really hit or miss. And I think that that has become the kind of differentiator in performance. And again, it's one that you can kind of see and feel really early in a conversation with an institution.
Kirk Coleman
I totally agree, Dallas. So just to build off that, I'll make this quick. I was with a customer just a few weeks ago, and there was a person in the meeting who was probably just maybe six or seven years into their career, so they're relatively new in their career, but they were at this meeting, we were talking about digital strategy and things like that.
And the reason this person was in the room is because they had this person who was of the generation who's more digital native, who was working at frankly a fairly low-level job in a banking center, somewhat had the smarts and gumption to sort of recognize this person's talent and sort of say, “You have the kind of talent that we need over here as we drive our digital transformation forward.” By resume, this person had no qualifications for that, or very few maybe.
Because I asked him, I was very intrigued by this. I was asking questions. They had no degree program that would've let you to believe this, right? They were not particularly in a job that would've been obvious, right? The old bank officer training program where it's kind of like, are you going to rotate through departments? Now you're going to underwriting, and you're going to credit, and you're going to be a partial banker, you're going to mortgage whatever.
There is no reason that every institution can't replicate what I just described in terms of who do you have already in your institution who you just have to make a little bit of extra investment. You have to be OK with sort of saying, “Hey, I knew you really need this person in that banking center or this job,” and plucking them out and sort of saying, “Hey, you're going to go do different things and we're going to really move your skills along.”
They're grateful for the opportunity. They're highly motivated, super fast learners and can make a difference. So I think you could start to solve that, but it goes right back to your point, which is that that is what's going to make the difference over the next five to 10 years because they're, that's going to be the type of person that's going to say, I want to help run this place for decades.
And we need to get on with this change. We need to be more courageous in some of the things that we're doing because my future self is going to be really disappointed in my present self for not making more courageous decisions about the things we need to do. So I think that's a great mindset. By the way, it's one of my favorite Jedi mind tricks, which is like, what is your future self going to wish you had done today?
Dallas Wells
Just trying to plant a tree kind of concept is 20 years ago, the next best time is today. And I think I love that idea, talent identification program, and maybe in some unexpected places there's some very smart folks that have some real potential.
Well, Kirk, let's wrap it there for this time. Really enjoyed this and hopefully we can make the schedules work to get you back on again sometime soon. But thanks for joining today.
Kirk Coleman
Thanks Dallas. I really enjoyed our conversation.
Dallas Wells
All right, and thanks to all of you for listening to this week's episode of the Purposeful Banker. If you want to catch more episodes, please subscribe to the show wherever you like to listen to podcasts, including Apple Podcasts, Spotify, Stitcher, and iHeart Radio. As always, we'd love to hear what you think in the comments and you can learn more about the company behind the content by visiting q2.com. Until next time, this is Dallas Wells and you've been listening to The Purposeful Banker.
