Ep21: Leaders in Lending w/ Tyler Craft - SVP, Head of VirtualBank & Fintech at First Horizon Bank

You know, I was really interested in this conversation. I know we've had it on the books for a while, but you guys have taken an interesting approach to the digital transition in terms of what you're calling Virtual Bank. I'd love to hear a little bit about the story of what you guys are doing in that vein and why, because I think it's quite different than what others in the space are doing and I think it's a really fascinating approach.

Yeah, I'm happy to talk about that. It is an exciting thing that we're doing. It's a little bit different of an approach, and it's something we're pumped about where it's going to take us as a company potentially. So Virtual Bank, just to set a little bit of groundwork here, is a brand, it's a division of First Horizon Bank, early part of the bank, just a separate brand designed to be an online-only brand. Virtualbank.com is the website for that. It's actually a brand that has been around for over two decades. It started as its own independent bank called Virtual Bank, and through a series of mergers and all sorts of things along the way, eventually landed with Iberia Bank, which is merging with First Horizon. It was legally merged with First Horizon in 2020 and 2021, we were doing the conversion of that merger. So we started off with this opportunity by virtue of a merger. In 2020, around the time that we were finishing up our legal merger and getting ready for the new organization to kick off, we looked at Virtual Bank. I knew that we had some ideas on our roadmaps at First Horizon, and Iberia Bank was also looking at some of these things for the long term around looking at new cores, looking at new capabilities, moving things into the cloud, riding on API-driven rails versus more ETL-type processes. What is that modernization going to look like over time? We kind of had the realization: we can convert Virtual Bank to the same core as everything else, or we can take advantage of the opportunity. It's a narrower scope of products, a specific set of customers who expect to interact with us digitally pretty much only. We don't have branches for Virtual Bank; it's a digital ecosystem. So let's take advantage of that opportunity and the necessity of a conversion and go look at doing some modernization there rapidly. What we did in that process is we assessed the field of players and talked to a lot of different people, and then did a conversion of Virtual Bank that we successfully did in July of 2021. We converted Virtual Bank to a cloud core, which is Finxact. Many people are probably familiar with that, a cloud-based servicing layer called Savannah, which really integrates well with Finxact, and then a new online banking, online account opening website tool called Aperture, which also has interacted with that ecosystem in the past, and converted our clients onto it. There's a litany of other pieces to the puzzle that are also parts of this, helping with everything from item processing to ACH money movement to deposit capture and all of those things. Those are our three core components, and we partnered with Wipro and built this out. One of my favorite parts of this, reflecting back on it, is truly something else. We went 370 days from the first meeting with Finxact to go live, 227 days from contract signatures to go live. We obviously put a really good team together, people were really focused on it. We were able to do a lot of planning, but we really moved fast and efficiently and stayed very focused on what our true objectives were in setting the first steps of what could be a bigger modernization opportunity for First Horizon.

Yeah, this is something we've talked a lot about internally, talked with others that we know are going through some other journeys as well. For us, there were a few factors. One, and it can't be overstated, we knew we had a narrow scope product. We offer consumer money market and CD products. We didn't try to bite off every product in the bank for the first iteration of this. We knew where we were starting and we really focused on that, so that does clarify things a bit. The other reality is we have a conversion in 2021, so there's a little bit of necessity being the mother of getting this done on time and on schedule. That helped stay focused. All that provides clarity along the way when you need to make a decision. Lastly, we have some really good principles that we set out back in 2020 when we were planning all of this that we stuck to and we came back to when you come to a fork in the road: think about simplification. Don't over-engineer something because the odds are we're going to learn a lot of lessons in the first generation and we're going to need to improve over time and add new capabilities. So let's not over-engineer our first processes so that we have to go undo that later when we want to change. Let's focus on simplification if you can, obviously do it correctly first. We really stuck to that and we tried to model that when we made decisions. One of the things that we would do is make decisions for our project team as a team in meetings together and be very transparent about what we're thinking through. Sometimes that means we're not going to roll out with this capability when we go live, we're going to wait and that's going to be phase 1.1 or 1.5 versus 1.0 because that is going to add risk to the testing process. Why would we want to do that when we don't have to? We'd rather put more rigor into testing and test things well versus less rigor to test more things. We did that over and over again. We had a really good line of communication also with the executive management. I think this is the last factor that helped a lot: we structured Virtual Bank under an oversight board that has our CEO, CFO, head of business transformation who's my boss, chief digital officer, and head of regional bank strategy and delivery. So you've got people from all different aspects of the bank asking questions. We also worked really closely with our merger project office because this is part of the merger, so you've got another set of folks in there, chief risk officer, some other folks from both sides of the bank sitting in that. You're getting perspective from a lot of different people, being very transparent, everybody's aligned on what we're trying to accomplish, so you get those critical questions out early, work through them, get clear answers, and keep pushing forward. The last thing, and this is probably most important, is a really strong team. We were very fortunate with the people that we've had working on this project. We've had a mix of legacy Iberia Bank, legacy First Horizon Bank, obviously the Wipro team has been phenomenal, and then our vendor team also has come to the table and rolled up their sleeves and been a partner. The first meeting we had, we said we want to build something that we can all be proud of, and that goes for the people as well as for the bank. It's not just about the vendors giving us a service that we pay for; we want to all be proud of this. By the end of the project, you hear people talk about Virtual Bank as their baby and they're so proud of it. People that don't work for the bank have been so ingrained in the process, speaking through questions and helping solve problems, that they feel connected to it. I think that attitude that everybody bought in on made a big difference when you had to make tough decisions or work extra.

It's the bigger merger conversion for Iberia Bank and First Horizon, because this is coming over from Iberia Bank. That conversion is in 2021, so it's got to go somewhere. We wanted Virtual Bank to go first, ahead of the big conversion, so you didn't have co-mingled events where you're converting Virtual Bank at the same time everything else is converting and spreading your resources more thinly. You want to be able to have focus on both. So that was the wall, that was the forcing function.

The way I think about it, and it's probably just a function of my own background in banking and things I've done in the past, I sort of think about it as a regression function of how many variables can I control for. By co-mingling all of this together, I'm introducing new independent variables and I don't know what's causing what. With Virtual Bank, because we are about 95% plus on different tech than the rest of the legacy bank, and limited obviously we've got things like general ledger integrated and some risk and fraud functions we're integrated with tightly because you need that at scale for an $87 billion bank, but within the ecosystem we're really self-contained. That gives us clarity into what we're learning and what it's related to. We're never confused: are we learning something because this client interacts with the branches over here and they use this digital channel and we put them into the new app? We're learning things that are specific to Virtual Bank. As I mentioned earlier, because we have this oversight board that includes leadership from our regional bank, includes our chief digital officer, and is interacting with leadership across the bank, we're able to find ways to learn lessons that are applicable to the rest of the bank. We're learning the core lessons: about cloud cores and real-time 24/7 cores, about new servicing systems, about new online banking platforms. But we're also learning about doing business on those things, about integrating new tools into those things. Some of those tools may have immediate use cases in other business lines, and we can learn them in narrower scope at smaller scale and then say, 'Yeah, we should go do that big project around this based on what we've seen so far, it makes sense,' or 'You know what, actually that just made us less efficient and it was a little bit harder to do than we thought, we might want to keep looking for a better solution.' We can learn it in a narrower scope there. Keeping that open conversation going with leadership across the bank is just as critical as having Virtual Bank built out in its own box.

Yeah, so there are three big strategic buckets for Virtual Bank. One is that it's an online liquidity tool. It's what it's been for the last 21 years, and we didn't give any of that capability up. As with most banks, banks have lots of liquidity these days, so that's less urgent of a strategic thing, but the tool's still there, we didn't reduce our tool set at all. The second piece is what we just talked a lot about, which is this opportunity for us to develop the infrastructure of the future for the rest of the bank or parts of the bank or specific use cases. The third piece is building a true digital-only vertical. There are a segment of clients who expect to interact with a digital bank, who don't go into branches anymore, who have a different expectation for what their interactions are with a bank, and we want to think about what it might mean to deliver services to them. We're doing a lot of work in the second half of 2021 on different versions of how that can play out and in different roadmaps for the products. We've got kind of a green field here: do we do any of the products set in any particular direction to align with specific niche audiences? How broad do we want to appeal out of the gate? What kind of roadmap does that look like for the six-month, eighteen-month, five-year horizon? We're actually doing a lot of work around that right now, so I'm being somewhat circumspect because whatever I say now will be wrong in six months almost certainly. But suffice it to say that third bucket is really thinking about product roadmap. We're already working on new capabilities being introduced in Virtual Bank this year that were not there previously, that don't currently exist at scale across First Horizon, that we'll be introducing later in the year that give us those first glimpses of really doing some unique things because we're digital first, because we have a real-time cloud core, because we're able to integrate so tightly through APIs across our online servicing and core platforms. We're looking at introducing some things that will look like that, not just product services but product everything.

It very much is about sharing the learnings. That is core to what we're doing. The other thing I should say is we are a sharp end of the spear, not the sharpened, because with our products being narrow, we can't cover everything. You can't build a whole second bank within the day, so you've got a pretty strong function set there but you don't have everything. We've got teams that are doing things on the treasury management front with API banking, our mortgage team has done some really front-footed things in digital interaction, our digital team across the bank are doing things that are very front-footed as well that don't always have an overlap with what we're doing. I want to say that because this is a company ethos of how we can all learn from each other and stay in contact with each other as much as it is a Virtual Bank thing. So the answer to your question is it's very much about that communication back and forth. When we went live, we've had not zero complaints. Some people don't like change, and that is probably the least surprising thing I've said the whole time. Until you get an email saying 'I liked the way this used to be in online banking,' very common thing. One of the emails that we got, I could tell the way it was written, I thought this person works in software development because they're using words that only people that work in software development would use. So I just called her and we had a really interesting conversation about her CX experience. I kind of told her here's what we're working on, here's what the future looks like for Virtual Bank, your account is basically unchanged, but let's talk about where we're headed. I would love to include you in some CX labs that we're doing. She had a really positive conversation and was very appreciative. She reached out immediately to our head of CX for First Horizon and said, 'I would love to make sure that we have this on the roadmap and let's include this client in those conversations.' So Jeff is like, 'Yeah, here's a set of ideas I have that we've learned from other areas that are doing CX labs or doing equipment monitoring or whatever else, and we can apply this to Virtual Bank because we've already learned some lessons. And also, by the way, I've been really thinking about this: can we start to look at some of that in Virtual Bank for the first time and see if it applies for other parts of the company?' That was a really good microcosm of we had a customer that had a question, we talked through it, I went to our CX lead, we got learnings from CX, CX has some ideas that they want to start with Virtual Bank, and that's the kind of model that we'll have. There are others that are more technical that we want to try to build as well.

Yeah, the first one is our oversight board and who's on that oversight board, because you have cross-functional people there. A lot of what that group does is 'Hey, have you talked to this person about this? Have you talked to this person about this?' And then it's also that next round outside the board of stakeholders that I just stay in regular contact with. The other half of my job, I think Virtual Bank, but I also lead tech strategy for the company. That half of my job is really about having those conversations with leaders and executives across the company to know where our opportunities are, know where we want to look for fintech solutions that we don't have today, and spending time there. That's a lot of time with our CRO, our CMO, Jeff in CX, other teams like that from the commercial bank, specialty bank, whatever the case may be. Those conversations also lead to conversations about the Virtual Bank things. So there's a little bit of a natural connection, but because of the role both that I sit in and the way our board is structured, it's opening those doors in a very formal way. You need to talk to the CMO about this, and you guys work together on how you might both try some new marketing things and think about the niche targeting for Virtual Bank long term as we do product development. Also, are there things the marketing team wants to learn from Virtual Bank? You know, do an A/B test of what we're doing with digital marketing for First Horizon and then do a B with the things? There are lots of opportunities there. So you open the door to a whole other area of conversation.

Yeah, so I'll get a couple things on this. First of all, the way we approach this question is sort of three broad buckets around fintech. One is venture. We're part of the Fintech Ventures Alliance as well as doing some venture investment of our own, what we've done in some one-off deals. We also look at fintech partnerships as a tool for solving problems. I always tell them my thesis here is probably we're not encountering problems for the first time, and I'll go a step further and say probably somebody built a company around solving this problem. Let's go find them and talk to them. So when we have something that we're working on, whether it's infrastructure, client experience, or anything in between, if there's somebody that's built a company around this, and in the best cases it's somebody that we're invested in or thinking about investing in, we sit at the table from that point of view. We sit at the table from 'we need your services and we'd love to have a contract' and 'oh by the way, we would love to sit down with you and think about how you're developing your roadmap and spend time talking about that.' So we try to get that more amplified value. Then the last piece is we do a little bit of banking as a service as well. We have some bankers that really specialize in that and have been able to have a few fintech clients that need that. So we also have that as a partner. Those are three broad buckets of stuff that we do. The third bucket there, we have this banker team that really focuses on that, so that's certainly more outside of my scope. The second one, we really have a group of people across the bank that are working together and looking at the CX, the customer sales side, whatever the case may be, and talking about what we need from fintech. In the first one, we stood up a venture subsidiary and have an investment board and that kind of thing as well. So it's a collaborative process with a lot of people. From your initial question of the big trend, for me it's sort of taking the next step on what we get from a lot of things. The last few years there's been a lot of work around data, a lot of work around insights. Now I think we're getting increasingly, and maybe this is happening faster than I realized, to actionable insights. Whether it's citizen scientists or products that are really built out with really sharp AI, but then turning that into actionable things on the ground, whether for bankers meeting with clients or bankers in the back office knowing where to put their energy in reviews, or for clients actually. I've seen several companies come up lately that are doing a lot of work around driving insights to clients that imply an action that can help a client really do what they're trying to do, which is have better management of their money and understand their financial situations. It's foundational, but because we have these data layers now that a lot of people have put in place over the last several years and understanding around the modeling of that data, you're now getting into this next phase. The other space that I think is really interesting, and there are a couple of companies I'm really excited about that are doing great things here, is in the risk space. I think there's a lot of opportunity there. What we all know is every time we get smarter, the bad guys also get smarter. Fraud or something negative to our clients or to banks, there's so much opportunity there for companies to help solve that problem, identify issues before they're issues, help clients. It kind of goes into that actionable insight thing that helps people understand what's happening and what matters the most, but really focusing on bringing data together from outside sources that can be used to make better decisions on the front end or identify things more quickly. There are a couple companies that are doing smart things that I'm excited about, but I think there's going to be a lot more. And then the last one is broadly in the commercial space of really solving for big commercial relationship type things. My old boss used to say that if you look at car companies, they tend to start building the E-Class or the 7 Series first, and they get everything bolted out there and they're like 'okay, we can scale this part down' and that will eventually make its way down to the C-Class or the 3 Series. Tesla started with the Roadster, went to the Model S, started at the high end and worked its way down. In some ways, if you think about what fintech has done, it's the opposite. Fintech in a lot of places started with basic mass market things that are simple use cases and didn't really get into when somebody has a really complex treasury management relationship. You're starting to see more companies think about that. The more fintechs think about that, obviously banks that are in the space are looking for technology opportunities. I mentioned earlier our treasury management team is doing some really cool things with their technology stack. I think we're going to continue to see more of that as we see people solve problems. Once a problem is solved, once we understand how to create better tools within tech for large corporate and treasury management type companies, you're going to see that get pushed to market quickly, really huge value back from it. That may take the form of process automation and orchestration all the way through the lending process, all the way through to how people actually handle their cash flow, which is really interesting. So I think that's one that we're not quite really in yet, but I've seen some really early stage companies doing some cool stuff there on the money movement front for a large corporate to help speed things up for understanding so they can take advantage of having the money where they want it and integrating that all together into really tight solutions.

Yeah, so I'm going to pull a weird analogy. I like weird analogies. The timing is funny: talking to somebody the other day that didn't realize 'Margaritaville' was a song, they knew it was a restaurant. So explaining that the idea of Margaritaville is a state of mind more than anything. Partnership is a state of mind. That's where I'm going with that. It's not like there's a magic sauce in talking to Jack Henry or FIS or First Data or Finxact or Savannah or anybody specific. There isn't just a magic to the fact that they're a certain type of company. It has to start there; it's an attitude and a mindset that you have to be in. I have in the past worked very closely with FIS, First Data, Jack Henry, and all of those companies on projects and done some cool things there. When we look at our partnership and all the part of the fintech strategy, we're saying we see that there are new capabilities emerging, we see people getting to market really quickly with things, we see that customers are very delighted by some of the new things that come to market. What should we be learning from that? What should we be taking back into the bank that we need to be able to provide as a reliable, long-term, 160-year-old company? We need to be able to think in a very long-term way about providing stability and security and structure, and also we want you to be happy about what you're being provided. There are companies that seem to be very good at that, and they seem to typically be companies that are more in the fintech bucket of emerging fintech than maybe established. So is there a mindset there that we can work with them both to internalize the mindset in our own company and also to take some of those capabilities to market to both solve our problems internally, whether it's just making something run more smoothly or in a more modern way or be up 24/7 because it's not on a batch process, and then also take and give them the advantage of it and think in new ways on behalf of our clients and in partnership with our clients? So I think it's a mindset, it has to start there. I think in some ways there's a reality that a company that is five years old has a different set of priorities than a company that is $800 million in revenue or something like that, and they're going to approach things differently. So when you say, 'Hey, we'd love to be in your next cap table in your next round, and we'd also be interested in taking your product and solving this specific problem, would you sit down with us for the next three months and think about what the architecture of that would be?' There's a different idea of what that can look like with companies that are a little bit younger, especially when you combine the venture investment. There are a lot of smart people working on these things, and getting more smart people engaged in the process that care a lot about the well-being of our clients and the industry, that's really valuable.

The bank is headquartered in Memphis. We've got, we're Memphis. Iberia was Lafayette, Louisiana and New Orleans team, so there's a lot of people still there. A lot of the Virtual Bank team is in South Florida.

Yeah, absolutely. I think we were somewhat set up successfully for that because we were bringing companies together where people were distributed. Iberia Bank has a long tradition of bringing banks together and having people all over the place, so that was helpful. And then PPP, speaking of forcing functions, the PPP process where we were all working from home, I worked a lot on that and we had a lot of people that really put a lot of effort into solving problems really quickly and thinking well about technology and virtual solutions and people working from home and just interacting like we were sitting next to each other for a few weeks, especially early on in the PPP process. That was a great example of how people were like, 'Okay, well, this is how we're going to work now.' It steepened the learning curve, I imagine, PPP, but also in somewhat of a positive way because forcing functions, you had to figure out how to make it work, and then you kind of built some processes and muscles that were good for the longer term.

So I'm going to break the rules here. No rules, there's no rules here. One, the first one is my great aunt when I was nine years old. One time I was nervous about talking to someone that we saw in a museum, and she got down eye level with me and said, 'Tyler, everyone puts on their pants the same way every morning, you and the Queen of England.' I took away from that treating people always, no matter what they're doing, as important by virtue of being a person, and their individuality matters, and they are important as a human first and foremost. That's really where it stops, and you treat everybody else the same based on that reality. That's been really important to me in my career because I try to live that out. The second piece is my mom when she dropped me off at school every single day. Because I'm a bit of a talker, as you've seen in the last 40 minutes, every single day when my mom dropped me off at school, she would look at me in the eye and kind of begging me more than telling me, she'd say, 'Please be a listener today' because I talk so much. She still says that to me when we hang up the phone. But I think being a listener is another one because you learn a lot more when your mouth is shut and your ears are open.

Yeah, I think that's actually a harder question. It is a hard question. I kind of think I don't know what I would say if I were asked, so I feel bad for asking, but I get good answers. I think it kind of goes back to something so fundamental that it's borderline cliche, but it's listen to your customers. There are two implications that I've always taken away with that. I've worked a lot on strategy planning in the past, and where you oftentimes start with the strategy plan is know what you mean for your customers to be. So if you're hearing from people that your products don't make sense to them or it's not aligned with them, are you even talking to the people you meant to talk to? Have you built products for a whole different set of customers than the customers you have? You really need to understand who your customers are, what you want to be when you grow up, and what they're telling you about that, and be open to that. That applies in consumer lending and deposits in any kind of consumer interaction, especially because consumers are not monolithic. There are segments on segments on segments of how people expect to interact with their bank, what they're looking for, what problems they're trying to solve. You have to really present clearly what we are and here's what we're not, and here's what we're trying to do, set the right expectations, deliver on that, and when you learn a lesson, learn it and go apply those learnings. It's probably much more broadly, I think, very impression from somebody coming from strategy, because strategies in my experience where that often goes upside down is you say, 'This is what we would like everyone to want because this is what strategically would fit in the bank's long plan,' and it turns out maybe your customers don't want that, don't need that. Flipping that around I think is really important.

I think that a bold prediction for the future of consumer lending, I'll start with just consumer funding, is that consumer lending will be even more point-of-sale oriented into the future. A long-term bet on this would be that in a few decades, people buy their house by scanning a QR code and everything else takes care of itself, shortening the timelines significantly. The other part of the bold prediction is I don't think it goes to people just going willy-nilly. My real bold prediction for consumer products in general is that actually people don't want all the speed that we give them sometimes. We give it because we can, because we can press the pedal to the metal, but sometimes people want a little friction. People just don't want the friction where it is today. They don't want the friction in the approval process, which means somebody else goes and pays all cash for the house and they lose out on it. What they want is a process that helps them make the decision when they go to buy the house, it's the house that they wanted. So how do you introduce time into that versus time into getting through the process of a mortgage loan? Or how do you introduce time into planning for your future, what you want to do, where you want to go on vacation next year, and building the financial plan around that versus having to spend a bunch of time moving money back and forth and looking for micro deposits and all those little tactical pieces? Where we can speed up the tactical, we should, so that we can add time into the strategic, in line with the customers' shift from the tactical to the strategic.

Yeah, Jeff, I enjoyed it.