#7: Fintechs Mainstream Acceptance with Kevin Sandhu

Speaker A: Foreign.

Speaker B: Welcome to this episode of Fintrepreneur. I'm super excited to have Kevin Sandu on the show who I've known for a really long time. Thanks for doing this with us, Kevin. It's gonna be fun. Yeah, great. So tell us a bit about yourself and your career path and how you ended up where you are today.

Speaker A: Yeah, it's a bit of a zigzag. I've now been in I guess the fintech or the financial services startup world for almost a decade, about eight to nine years or so. Uh, now on my second co founded Fintech company. Prior to that I had a career in more traditional financial services and investment banking which is in fact where I met Dave early on and we both started our careers briefly in finance prior to that. I have a deep technology background as a software developer and electrical engineer. So in many ways Fintech is marrying a couple of areas of interest, but also a couple areas of scale. Having worked both in the technology sector as well as financial services. And I think uh, eight years ago I got addicted to the space and here I am still.

Speaker B: I did not know you had the software engineering background. I guess you had a initial thought that you were going to go in that way, in that direction and then switch over into business or what.

Speaker A: Yeah, that's exactly it. I'm probably going to age myself when I have some of these references. But like a lot of folks that were interested in this space, I, I learned to code when I was in my teens. I camp out at the library, take out books on C and Java and so on. When I went to university, actually started off in electrical engineering, I was on an engineering scholarship and I started school right after the dot com boom. And this is where I think I'm aging myself. And it was just a really depressing time that this area of study and topic and technology that I love, but it just seemed like a really bleak place. And around that time is where I sort of stumbled into the world of broader financial services in my mind. Grew up in sort of a small town, blue collar family in a blue collar town. Finance to me was the local bank branch and that was the end of it. I then got a much bigger understanding of how deep and intricate it is. Uh, the areas that are underserved, like small businesses, the areas like capital markets and I discovered the world of Wall Street. I was just really intrigued by this, this new world I was exposed to. And so it's the combination of the fact that I was a little bit beaten up around the, the world of technology that seemed pretty flat after the dot com boom and bust and this interest in finance that was in my sort of third year of university. I actually pivoted over and ended up with a bit of a mishmash of a degree, but started my career in finance.

Speaker B: Interesting. Do you find now as a fintech entrepreneur that having that software background really helps?

Speaker A: So I like it. I don't know that it's always great. I'm sort of a rusty software developer in the sense that like, I know enough to be dangerous. I have an interest, I like to get in. But at times I may be asking more questions and poking my nose around the development team where they would rather I just get out of the way. But I certainly have a very deep interest in it. Yeah, yeah.

Speaker B: It's interesting because I'm kind of jealous I'm in fintech, but I find that the developers just speak a totally different language and I wish I understood a lot more. So it's quite interesting to have that background. Tell us a bit about what you're building now and what's got you excited about it.

Speaker A: Yeah, so what I'm building right now is effectively a direct to consumer fintech company. We're operating, uh, servicing U.S. customers and the upshot of it is we. I'm going to sound like a lot of cliches here, but I think that the way that knowledge workers work is going to be materially changing. I think it has for the last few years exacerbated by some, some changes in the, during the pandemic as many people started to work remotely, often asynchronously, often moving out of traditional jobs and taking on a couple of clients as contractors. So rather than work as a software developer for Facebook or as a designer or marketer for Fortune 500, maybe I choose to hang on my own shingle. I'm a little entrepreneurial. I like the rush of deciding what kind of clients and what kind of having more control over my destiny and my career. I think this has been a trend for a while. I think the pandemic massively accelerated and I think that this is just the tip of the iceberg. So really think this is great. I think it's a great social outcome. I think this is diversity Equity Inclusion 101. Right. It's a, uh, fit for a wider group of people to live and work in a way that they want to that isn't necessarily constrained by Monday to Friday 9 to 5. You know, a bunch of us are entrepreneurs here. I think this probably resonates with us is what gets us excited. The ability to have more control over your destiny, to feel like you have real control over what you do, work on, what you don't, who you work with, so on and so forth. So I think it's a great outcome. But I think one of the maybe unforeseen or negative implications is the world is not set up for folks like us. It's not set up for entrepreneurs, it's not set up for small businesses. You know, if I used to have a job at a Fortune 500, I went out, hung up my own shingle, now I'm doing as a contractor and now realize getting a mortgage is either prohibitively expensive or just simply not available to me. If I'm in the US I used to have employer sponsored health care. Now I'm out trying to procure my own health care. Without the economies of scale, self employed taxes are a pain. Like there's just this long list of things that make this style of work really, really challenging because it's historically been a niche, it's been not something that most knowledge workers would be engaging in. But to me as both a, um, finance background as well as the technologists, these are highly tractable, highly solvable problems, I think. And so we're building these set of tools, starting with essentially some forms of flexible credit that smooth out your cash flow. So if you got some busy months and some slow months, lumpy throughout the year, this effectively smooths it out. We like to say that the lumpiness of your income is a feature, not a bug. It's often you exercising that flexibility. I've decided, look, I'm taking two weeks off for mental health, for rest, relaxation, time with family, whatever it might be. And normally that used to be paid time off like cash ins and vacation days. Self employed, nobody's paid me. I'm responsible for my, myself. And so I think absolutely the lumpiness of income is in fact a feature, not a bug of this lifestyle. But you still got mortgage payments, you still got car payments, you still got groceries. Those things still continue to be on a relatively fixed schedule. So we're building these tools that smooth out your cash flow. We've now built tools to entirely automate the calculation and remittance of your taxes on a quarterly basis, identify tax deductions that maybe you missed. So save some money, save some time. And we hope to continue to expand to help people get mortgages. If you're self employed that don't cost a bunch and aren't treating you like a second class citizen, get you health insurance that's cost effective and takes care of your life, so on and so forth.

Speaker B: That's awesome. Yeah, that really resonates with me. That mission like you've focused on self employed contractors. But throughout my fintech career doing merchant growth and small business credit, I've always thought about our mission as in a big way, sort of evening the playing field. Small businesses have a tougher time doing a whole bunch of things cause they don't have the resources of large businesses. And so it's sort of a similar mission in that regard.

Speaker A: I love that language of level the playing field. That's literally our mission is to level the playing field between traditional work and flexible work. When I started to lean into this thing, like I love this way of working. I'm an entrepreneur at heart and anytime there's somebody that wants to be entrepreneurial and I can do anything to contribute and empower them to do it, I feel great about it.

Speaker B: Yeah.

Speaker A: But then you start to really lean in and you start to realize like it's kind of crazy to be an entrepreneur, right? Like life is so much harder. You get treated like a second class citizen from the banks, it's hard to get a mortgage, you can't get health insurance, getting a credit card is even challenging. You go buy a car and all of a sudden you know, you don't know if they're going to get approved because your personal credit card just happens to be maxed out because you bought a bunch of inventory a couple of days ago. It's a really difficult way to live. I think that as companies like us do these great things to hopefully help empower small businesses and self employed contractors and so on. When you do truly level the playing field, I think we're going to see a lot of people move out of those traditional jobs, work in a 9 to 5 corporate job for Fortune 500 in favor of entrepreneurship through small businesses, through self employment. When the playing field is leveled, I think we're going to see just a sea change of people moving over to this more I think flexible, enjoyable, empowered way of living.

Speaker B: I love that vision of the future. I think having a lot of entrepreneurs, a lot of small businesses is a more vibrant and interesting future than one dominated by a few companies for sure.

Speaker C: Kevin, A lot of people think uh, when they hear the word entrepreneur or contractors, they think about people that you may get it, go get their services on, you know, fiverr upwork or people that are copywriters. But you know, you're also referring to, you know, mortgage Brokers, real, uh, estate agents, uh, you know, more traditionally insurance brokers, things like that. More traditional people who are still working for themselves essentially. Right. They're working on commission or whatever it is. And that thing that you explained sort of with the ups and downs in the months, that applies to those kind of professions as well, correct?

Speaker A: Yeah, absolutely. You know, to us it's if you feel like one, you have lumpiness of income, that needs to be addressed and two, if you feel like traditional financial services don't do service to you, you know, you deal with the retail bank and they don't quite know what to make of you because you look a little bit funny relative to they're asking for pay stubs and you don't have pay stubs. You talk to the small business or the commercial bank and they don't really get you because they don't see the typical business profile that they're looking for. If you're in that gap, then, yeah, we're keen to find ways to try to help making your life a little easier, save you time and automate, but also literally just get access to banking and credit that I think you deserve. Awesome.

Speaker B: Uh, maybe rewinding a little bit. Given that you've been in fintech for 10 years, how would you describe the shift in the industry in that 10 years? Like, what was the industry really focused on? Has it kind of mission accomplished on its initial focus and now it's onto new things or how do you kind of see the evolution of the industry?

Speaker A: Yeah, that's a really good point. And maybe I look at this the wrong way. Certainly different than others is, I think early on there were like two parallel dreams of the fintech revolution. One was that this was going to digitize the entire world, so that way banking would be more convenient. You're no longer constrained to physical presence, branches, nine to five, these sorts of things. You know, if you're a small business owner, often Monday to Friday, 9 to 5 are the most precious hours you have. It's when you're out building your business, servicing your customers. I can't take time out to go do my banking for an hour, hour and a half a day, something like that. And that the promise of digitizing through FinTech would allow us 24,7 access to banking, save us time, convenience and all these sorts of things. I think in peril there was a second dream and that was really about more access and more inclusivity. It was that groups that are historically underserved by traditional banks and traditional financial services, small businesses and contractors being two examples we're talking about would hopefully have opportunities for more inclusion. There would be products and services available and it wasn't entirely cookie cutter. I believe that over the last decade or so the first dream has been largely realized or we've made material progress. I think it is actually quite convenient now to avoid bank branches. The pandemic, while full of a lot of negative consequences from a health and social perspective it did rip a band aid that for that couple of years very few people were stepping into banks. Whether it was for personal banking, business banking, commercial, whatever it might be. A lot of banks, like it or not were forced to find ways to get their talent, their team, their resources, their bankers, the um, associates and so on. Working from home like it just had to work, right? Like it or not. I had spent a bunch of time on the phone with the CRA and it shocked me. I'm talking to people sitting in their living room working for the CRA and like what a different world. Never would the cra, never would the government, never would banks have voluntarily run that experiment. But the pandemic forced us to do it. So I'm actually really heartened to see how much progress towards digitization, convenience and non bankers hours that real the uh realization of the dream. I have also been very disappointed to see how little of the inclusion metrics. At the end of the day I bank with a bunch of banks, maybe RBC more than anybody else. I don't think the services are different, I don't think they service me. My pain points are as under service as they ever were. It's still really difficult. As an entrepreneur who's been a business owner who's also been a contractor, it's really hard for me to get a mortgage and it's just as hard as it was 10 years ago. I get declined through email instead of in person. Fantastic. I can read the decline email at 8pm on a Tuesday but the convenience is certainly there. But I've been disappointed at how little inclusion and expansion we've seen. The underservice markets are still under service even 10 years, you know I'm picking 10 years but 10 years for me into the fintech world.

Speaker B: Would you say that specifically for the self contractor type of person? Like I like to think that some progress has been made, you know on the small business side where merchant growth and now you know as we're building tabit is servicing uh I think some progress has been made there. Still a ton of progress left to be made but uh, it sounds like you feel like no progress has been made or little to know.

Speaker A: Yeah, I should clarify. I guess my criticism here is of um, the legacy providers, the banks. I think that excluding new entrants, new startups, new fintech providers, uh, like my experience at RBC is more convenient and digital but the products and services are the same. And so you're absolutely right. I think that that's my criticism of the existing industry. I believe that yes, the inclusion side has almost exclusively been as a result of new business like merchant growth, like Cabot, like a lot of other, like newish startups I think are responsible for 90 plus percent of improvement. In conclusion, it hasn't been the banks, it's all been new entrants. Whereas I think the digitization is where maybe startups, I think as a table stakes provide a lot of convenience, entirely digital experience. Actually think the banks have done a pretty good job matching that. Uh, I think thanks to all the fintech startups, RBC has become more digital. I think uh, their hand was forced. So that's why I said I think the entire industry, whether startups or otherwise, know the convenience piece. But I still am um, critical of uh, legacy providers, banks and otherwise. On the inclusion side, do you think

Speaker B: that over time as more startups build that convenience piece that you're going to see banks buy some of those companies?

Speaker A: Yeah, this was a lot of the theory, you know, over the last decade. Right. You know, these fintech startups were either going to take down the banks or they were going to be bought by the banks again. I've been surprised to see less of that than has been the case. Maybe we will in 10 years. I hope not because I am skeptical that attitude. Servicing entrepreneurs from an entrepreneurial company feels like the only way to really understand your customer. And I'm skeptical that if the RBCs or the TDs or any big banks, I don't mean to pick on any one or two. If they go and buy these smaller, more innovative companies who are servicing entrepreneurial people, I'm skeptical that they're going to continue to innovate and really understand the plight of their customer.

Speaker B: Yeah, well that's fair enough.

Speaker C: Do you think that there's a difference, Kevin, and how aggressive the big banks have been when it comes to fintech services for consumer users as opposed to business to business users?

Speaker A: Absolutely. I think it's the startups that were trying to eat the lunch of the big banks definitely got their attention and there was a lot of copying. Right. It was, look, if this works for this Startup on a small scale, how do we reverse engineer it? How do we do a lot of the same experience but attach it to our brand and our distribution and got 10 million customers. But you know, I think that if it wasn't in their purview, if we ignore small businesses, I'm going to continue to ignore small businesses even if I see, you know, new innovative companies servicing them. That's where the piece why again I'm disheartened is I would have liked to see an entire industry take notice and services better than just the startups to carrying the entire workload.

Speaker C: All right, a little biased but that's exciting for all of us in the fintech world. More opportunity, right?

Speaker A: Yeah, absolutely, 100%.

Speaker B: I'd be curious to hear your thoughts on what we're building at tabit. For those who don't know, Kevin Sandhu is also on our company's board and has had some uh, valuable input over the years and how we execute our strategy. What do you see as the biggest uh, opportunities and potentially challenges for our B2B buy now, pay later product? Tabit.

Speaker A: Yeah, I've always been um, pretty intrigued by the concept of buy now, pay later. Like it's one of those things that in hindsight seems so obvious that just the typical consumer side I'm going to go make a purchase often I need credit. I don't necessarily have or want to put down cash to buy it. I put it on my credit card. Not only are there high interest rates but it's difficult to budget for. Hopefully I pay my credit card down. Hopefully I do it on a regular basis, but there's nothing really forcing that. And the idea of uh, for example four equal quarterly installments is just a responsible way to manage my expenditures and continue to pay down my debt. It's just such a logical outcome that I think in hindsight it's no surprise the popularity and the growth of the BNPL sector and then you look at the B2B side of it or the small business borrower or creditor and true to history continue to be under serviced. Right. So I think BNPL makes a lot of sense for these sort of chunky purchases. Break it down into credit based purchases, but credit based purchases with a responsible repayment mechanism, not just on a perpetual credit card accruing interest and you might or may not pay, but four easy installments, two year amortization, whatever it might be. And nowhere is credit more starved than small businesses. Right. So great innovation. Here you go consumers, you can have this great BNPL Financial innovation. But small businesses, true to form, not for you. You continue to be locked out of financial innovation and credit. And so that's why I think I'm really excited to going back to that point about inclusion is yet again, I think, I think through tabit, we're bringing those things that we take for granted as consumers now available to small businesses that rightly deserve it.

Speaker B: Yeah, it's been quite, ah, a wild ride for consumer BNPL companies as of late. In particular, I don't know if you saw that Klarna recently raised money at a tenth of the valuation of their previous round and you've seen a significant reprice in the equities that are publicly traded. It seems to me that it's a fundamentally great business model. There's tons of demand, obviously a lot of loan origination happening through that type of business. I think that maybe where it falls short is that the consumer BNPL model was very reliant on offering 0% financing to the customer and getting all of the economics from a transaction fee from the seller. And that worked when interest rates were near zero, but became a, uh, more challenged business model as interest rates have been rising as of late. I think in the case of B2B transactions, businesses understand the power of access to credit and being able to buy more inventory through that access and maybe paying a little bit for that. In the case of B2B, you also have thinner margins, usually on the seller side, so you can't just rely on the seller fee. So it's more of a hybrid economic model where the seller is seeing some conversion benefit and you can charge the seller something for that, but you're also charging the buyer for the access to that credit. And I think that business model is more viable in fluctuating interest rate environments. But it'll be interesting to see how it all plays out. We've seen a lot of new B2BNPL companies come out, a lot of money raised as of late. It's still a very new space. It's going to be very interesting to see how it evolves.

Speaker A: Yeah, absolutely. And you know, even on the consumer BNPL space, like taking the Klarna example, and a lot of the publicly traded groups that, you know, affirm and others that play in the space that have seen a pretty significant reduction in their market cap, you know, I think we need to separate valuation from the viability of the product or the attractiveness of the product. I think that for a period of time it's a great innovation and I think it's High demand and it'll continue to be. And for a period of time, maybe we got a little bit carried away with the value or the price we assign to this. I don't think these things, I don't think Klarna went from a $46 billion valuation to a 6 billion on the way to zero. I think that's a correction in the value ascribed to it. But I think the underlying fundamentals, the growth, the customer growth, the margins and so on, are still very, very strong. We just have a different view of what we value a business at.

Speaker B: Yeah, I think that's a big part of it as well. Absolutely.

Speaker A: Yeah.

Speaker C: And another thing, you know, to kind of stay on topic, when we were comparing small businesses as opposed to large enterprise, you know, a lot of companies say we offer net terms already, you know, that's already something we offer. But the reality of it is that it's often offered to companies that are enterprise level or large enough, where it's a very easy credit assessment.

Speaker B: Right.

Speaker C: And so what we're really trying to do on this side, which is kind of on the topic of making accessible to small business, is really make that same benefit that these sellers are offering to the large companies available to the small businesses. And the exciting part is, you know, you can't always blame the sellers. It's easy to say, oh, you don't offer it to small businesses. But we gotta also take a step back and realize it's hard to underwrite small business credit. And a company that's selling, you know, tires or something, their expertise is not an underwriting credit. And so they can't be spending days upon days trying to underwrite a credit, uh, for a small business for $5,000, for example. And so that's what that is also a barrier that they faced. And so really excited about what we're doing because of that, it will really make things available like you guys are doing for the entrepreneur that's just getting off, off the ground and kind of leveling the playing field there. I think this will make it easier for small businesses to make the right purchases.

Speaker B: Right.

Speaker C: We're not giving them money to go buy a Ferrari or do something crazy like that. They're buying inventory for growth. So the purpose of the funds is, is also the right purchase. So we're excited about all that kind of stuff.

Speaker A: Yeah, it's leveling the playing field. Right. I think that's such a great mission.

Speaker B: We were talking about banks buying fintechs and how they kind of haven't done that as of Late as much as people thought they would. But it's interesting that the first fintech you founded was effectively sold to a bank. So curious to hear how that bank thought about it and just tell us more about how that came to be.

Speaker A: Yeah, it was a really uh, I think surprising outcome. The upshot it was the last business I built was a B2B business. We license our platform to, for lack of a better description, I'd say tier two and tier three financial services companies. So in Canada, anybody outside of the big five banks, national bank was a customer of ours. A lot of the insurance companies and credit unions and smaller and regional banks were groups that knew that they course had to digitize to keep up with consumer demands that you had to offer not just online banking but the ability to apply for credit and open up bank accounts and 10 without ever stepping into a branch, but didn't necessarily have the size and scale of the big banks. They didn't have the capital, didn't have the budget, didn't have the expertise to build themselves. We offered this white label platform, uh, digital banking platform that they could use this to originate all sorts of things they could bank accounts, credit products, RSPs, whatever it might be. And so we were actually talking this one bank as a potential customer. We're bringing them on as a customer. And over the years we'd had a couple of instances where a couple of the banks that we were pitching as potential customers had poked around and said hey, we really like this, we're really aligned with your strategy. So much so in fact that we'd

Speaker B: actually like to buy the business and

Speaker A: bring it in house. And generally the answer was typically no. We're really, you know, we're excited about what we're building but what ended up happening with um, maybe an unlikely buyer. ATB Financial. So Alberta government backed, only Alberta focused, regionally restricted bank there just a really strong cultural alignment and strategic alignment. The way we thought about the world and what our roadmap was and the areas that we thought that you know, had to improve data analytics to be able to not only service somebody digitally but predict when they needed it. To understand when a new parent who isn't probably thinking about an resp and saving for their child's education because they're brand new parents, sleepless nights and dirty diapers, the last thing you might be thinking about is your kid's college fund in 18 years, you know, there's an opportunity for the bank to programmatically identify these life events and say, you know, here's some Something we suggest you probably haven't thought about. But an RSP is this benefit. By the way, looking at your spend behavior, you know, we would suggest $30 a month is a great automated savings program. That's an amount that you have excess cash flow, you're going to continue to meet your existing savings, you know, based on. So what would I do if someone said, do you want an rsp? I don't know my bank account. Look at the last few months and say I think I could probably swing 30 bucks in a very crude rule of thumb way of looking at my transactions. Why wouldn't the massive databases attached to incredibly smart analytics be able to predict that for me? So these are things we really aligned with this bank. And uh, ultimately what ended up happening is that hey, we really love this. Our roadmap's totally aligned and could we buy the business? And ultimately that's ended up being the outcome that came about. The challenge that they often had was separating the innovation from the rest of the bank culture, including the very heavily regulated and traditional bank. And so it's a matter of recruiting talent that thought about it in a more innovative way and then maintaining sort of almost a subculture around try stuff, build new things, think about this differently than the existing businesses do. And ultimately for them, buying existing business helped them do that. And uh, even today they've continued to manage it as a separate pod. There is like, you know, the legal entity is now part of the bank, but the team still has, they're still called Grow. Like they, they kept a lot of the culture and the identity there, which as I understand worked out great. The other thing that was I think maybe prescient timing for them is they bought this business at the very end of 2019. The integration sort of happened early 2020 and then Covid hit and so they bought a platform that would allow you to digitize the entire offering three months before the world shut down and went fully remote. So I think in hindsight they ended up being very, very happy buyers.

Speaker B: That's wild.

Speaker C: That's perfect timing. Yeah, yeah.

Speaker B: For those who don't know what uh, Kevin was just referring to is his first uh, fintech startup called Grow Technologies focused on really it was about onboarding all sorts of consumer financial services products.

Speaker C: So Kevin, when a company like that buys a small businesses like ro, do they then keep the services to the other banks, the other credit unions and so on that are using it or is it they buy it for their own purpose. Uh, what ends up happening after an acquisition like this?

Speaker A: Yeah, in this case it was pretty clearly the latter. They had to use the services for themselves. And some of it is, look, they bought this, they really think it's exciting and they don't. If they view it as a competitive advantage, they certainly don't want to be selling it to third parties. This bank's case, there's also regulatory concerns. They're in the business of banking. They have licenses and regulators accordingly. And to be now licensing software might create some issues. Um, so it was a bit of actually an issue. There was like a period of sort of working out the existing customer. So I had a round of like very awkward phone calls to say, you know, would love working with you, an existing contract, but I'm sorry, we're gonna, we're not gonna be able to renew it. So that was, it was a wonderful outcome. But there was about two days of awkward phone calls.

Speaker B: Interesting. So that's kind of one of the stumbling blocks, I'd say, to a lot of fintech acquisitions by traditional financial services is you're kind of, in many cases strategically, you're going to end up having to sort of cut some business off.

Speaker A: Yeah, absolutely.

Speaker B: Interesting.

Speaker C: So Kevin, we're talking to you ten years from now. What do you hope has happened between now and then, whether it's in your space here in Fintech or just in general?

Speaker A: Yeah, I think it's a recurring theme around inclusivity. I hope that 10 years from now somebody wakes up in the morning and wants to be entrepreneurial, they want to work self employed or they want to start their own business. Is not running at a handicap, that the world is truly level. You want a 9 to 5 job, great. The world's set up for you. You want to run a business, you want to be entrepreneurial, you want to be self employed. Absolutely. You can still get a mortgage, you can still get credit, you can still run your life and it's truly level playing field.

Speaker B: Love um, it, love it. That's perfect. Well, it's been great having you on, Kevin. Learned a ton about your views on fintech and what you're building. Appreciate your involvement in our business and thanks for taking the time.

Speaker A: Yeah, thanks for having me on. This is great.

Speaker B: Thanks again Kevin for joining us and appreciate you guys listening to fintrepreneur.