Ep. 566 w/ Matt Johnner President of Participate
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Kevin Horek:Welcome back to the show. Today, we have Matt Jonner, the president of Participate. Matt, welcome to the show.
Matt Johnner:Thanks, Kevin. Appreciate you having me back. It's been a few years.
Kevin Horek:Yeah. I'm excited to have you back on the show. I was looking before we started chatting. You were on the show October 2017, so lots has happened. I I'm curious to know where you're at now.
Kevin Horek:I'm excited to learn about your new product, participate. But maybe before we get into that, can you give us a little bit of a background on yourself, maybe where you grew up, where you went to school, and then we'll dive into Banklabs and then participate?
Matt Johnner:Yep. Sounds great. Yeah. So, grew up in Upstate New York in the Adirondack Mountains, very remote area on Jo Indian Lake, And, we still go back there every every, summer. Beautiful place, but quite cold, and New York doesn't have a ton of economic opportunity.
Matt Johnner:So went to Texas A&M University, subsequently went over to the Middle East and West Africa as a petroleum engineer for Baroid, a division of Halliburton. And then made my way back to the United States, went to work for Ross Perot senior in 1994 at Perot Systems, and that's how I got here to Dallas and and still here in Dallas.
Kevin Horek:Very cool. So walk us through Banklabs' history participate, and then let's dive into that.
Matt Johnner:Yeah. Sounds good. So Banklabs was created by Mike Montgomery, my partner who's our chairman and CEO. And, he is a long time community banker and bemoaning the lack of technology especially on the commercial side for banks and how, community banks really are the crown jewel of the US financial system. And so he wanted to support them from a strategy and technology perspective and and how do we help those community banks succeed?
Matt Johnner:And we view community banks as a definition of not a matter of size or location, but, a matter of doing business. Do you utilize in market relationship based bankers? If so, then you could be a $600,000,000,000 bank or a $1,000,000,000,000 bank and and really, try to be that community bank. But most of the banks in the US are, you know, 80 plus percent are are not those. They're, truly oriented more around the community.
Matt Johnner:And so we develop at Bank Labs, multiple products and an innovation framework, that help community banks generate more loans, generate more deposits, generate more noninterest fee income, or improve the experience for the borrower.
Kevin Horek:Okay. That's that's really cool. So walk us through coming up with the idea for participate and then what exactly is it.
Matt Johnner:Yeah. Participate is our second product out of the Banklabs franchise. The first product that Banklabs came out with in January of 2000 16 was construction loan automation, a product called construct. We bootstrapped that over 6 and a half years to have 80,000,000,000 in construction loans on the platform and over a 100,000. Yeah.
Matt Johnner:It's it it was a lot of fun, a lot of gray hair, bootstrap. So, as you know, not easy to do, but great team. We're proud of them, learned a lot together and and ultimately sold that product, not the company, but the product construct to Abrigo in August of 2022. Part 2 or product 2 out of the Banklabs Innovation Lab is a product called participate, which is what we're a 100% focused on now. And we launched a new co, a new company in June of 2023, whereby Banc Labs took a minority investment from Jam Fintop, some great investors that raised their money from their limited partners who are, primarily banks that want, research and development labs, wanna be, able to influence new technology products and see what's coming out, but also, you know, make a good financial return like any private equity investment.
Matt Johnner:So June 2023, just to recap, Banklabs spun out a new co called Participate. Bank Labs is a majority owner, and Jamfintop are the minority owners in conjunction with employee ownership.
Kevin Horek:Okay. So let's dive a little bit deeper into participate. And what exactly does it do, and how does it automate kind of loan trading?
Matt Johnner:Yeah. Participate automates the process of loan participation. Meaning, when a bank or nonbank lender wants to do a loan, but it's too big or maybe they have too much concentration risk with that borrower, or they have too many of those loan types, maybe commercial real estate, for example, then, it's been quite common, to manually participate out loans to other buyers, to other downstream participants. And historically, that's been done by you a lender calling your buddies down the street, who you went to banking school with, or you play golf with or whatnot. Pretty much a good old boy network, which inherently is not bad, but it does create a lot of inefficient processes for the lender who in this environment have to call 20 banks before they can get 1 or 2 to agree to buy a piece of that loan.
Matt Johnner:And if that originator can't do that loan, then, they run the risk of losing that borrower to a bigger competitor. And if you if you lose borrowers time after time then you start to lose lending teams. And if you lose lending teams as a bank that's really really bad. So we automate that front office process with a cloud based secure process. We have 2 patents on it already.
Matt Johnner:When the loan closes, what makes us really unique is we do the back office loan participation servicing and automation. So when a loan is sold successfully from 1 originator to 3 or 4 downstream participants, then we give everybody shared real time cloud based balances, transaction history. Our system manages all the email and in app notifications to the buyers when the buyers need to fund that loan or they're getting payments for their pro rata share. We manage all the variable interest rates, etcetera. So from a business strategy perspective, it allows banks to keep lending, keep their lenders lending, generate that non interest fee income, to build a more profitable bank, also allows them to do new loan types if they're the buyers and maybe they've ever done before.
Matt Johnner:So if you're a a bank that has a heavy commercial real estate portfolio, and you know you want some commercial and industrial loans, c and I loans, or maybe ag loans, or maybe fringe loans, then what participate allows you to do as a buyer is to buy into those loans where you don't have lenders that know how to do those loans. So your lenders may know how to do commercial real estate loans, but they may not know, how to do c and I loans or have those relationships. So participate allows the buy side to diversify their loan mix, reduce their concentration rate, and get into high quality loans.
Kevin Horek:Okay. So how do you mitigate people's risk by investing in these types of loans?
Matt Johnner:Yeah. So first of all, we work with banks primarily, also credit unions, some foreign credits, and more, and more private lenders. So we work with high quality originators that are highly regulated for the most part with regard to banks, credit unions. And, so the originator is originating that loan. We're not a broker dealer.
Matt Johnner:We're facilitating the introduction of the originators with potential buyers, and our technology is transacting it. So we're not a broker dealer in that case.
Kevin Horek:Okay. So then how do you monetize the platform?
Matt Johnner:Yeah. Great question. So we charge a software as a service fee for the value of the automation to the originators who are originating in the front end when you're selling off a loan, if it's a new loan or an existing on balance sheet credit, there's no reason you can't use participate to sell off some of your existing loans. Okay. And when it closes, then we automate all the back office work and that can happen for over 7 years.
Matt Johnner:These term loans can last. Okay. So for the value of all that automation and the bank not having to hire new people as they scale their loans or allowing folks to retire or move tasks off folks to more valuable tasks, then participate has a lot of value there. So we charge a software as a service fee for that. Additionally, we charge a, bps fee of, a basis points fee on the portion of loans sold.
Matt Johnner:And we have a couple models that our clients can play with to either have a higher or lower SaaS fee or bips fee based on what their personality is and their their objective is. Okay.
Kevin Horek:So for people that have maybe never done these types of loans before that are looking to get into this, How much time and effort is participate actually saving them? Because that's where your real value is. Correct? Or am I missing the boat on that?
Matt Johnner:No. Absolutely. So there's a ton of efficiency with it, and it's also the second piece of value is we bring we bring buy side clubs. So we curate clubs of new buyers that were never known to those originating banks or credit unions.
Kevin Horek:Right.
Matt Johnner:So that that, curated buy side capital stack is what we're providing, not just the automation. So banks are are are saving hours and hours and hours of lenders calling their buddies down the street trying to find people to buy into this loan. Our, technology allows you to publish a loan in as little as 15 minutes.
Kevin Horek:Oh, wow. Okay.
Matt Johnner:How to digitally transact esignature, integrated legal agreements, integrated subscription management, secure document sharing. So just a tremendous amount of time savings for the lender, the lending assistant, assistant, the credit officer. And then when the loan closes, just a ton hours and hours and hours a week and month of savings for the loan ops staff who no longer have to keep their own spreadsheets of what each of the buyers pro rata share is each time they get a borrower payment for principal and interest. So tons of time on efficiency as you pointed out, you nailed that. And then in addition, for lenders that wanna originate loans and have run out of their typical buyers, We're, introducing them to new buyers.
Matt Johnner:So we're providing new capital stacks, new capital streams, and we're now layering in more and more intense technology to evaluate lenders balance sheets and make recommendations of what they should consider selling and buying to optimize, you know, their net income, their net interest margin, their noninterest fee income, that type of thing.
Kevin Horek:Interesting. Okay. So do I need to be in a certain geographic region, or how does this kinda work?
Matt Johnner:Yeah. No. We're all we're a 100% across the United States right now. We're speaking to the US for now, but I think we're in 42 states already. Oh, wow.
Matt Johnner:Is acting, for our originating clients or managing their loans. It's been a a very fast process, and we're we're trying to leverage what's called Metcalfe's law, the the value of a network expansion. It's how mobile phone networks and, you know, the Cisco, Internet equipment worked in the in the in that day and age. It's where when we sign one originating financial institution, we automate all their existing loan participations they did before they knew about us. So we load all those in a day, and that allows the back office to immediately begin benefiting from our software on the 30, 40, 50, a 100 deals they had that predated us.
Matt Johnner:And so what we do is we then leverage that network effect. We we give free access to those buyers of our client for those legacy loans who now get real time balances, real time transaction history, email notifications, in app in app notifications. So that's part of the reason we've been able to grow so quickly is leveraging that network effect or what what is called Metcalfe's law.
Kevin Horek:So I I actually think there's really good advice in there. So just for so you basically will go, You you're in 42 states. I wanna get to that in a second. You obviously had to go through a bunch of, like, hurdles just to be live in every state. But I think what's really valuable that you just mentioned is if you spend your own time and resources importing their current and past deals because then they can see how easy to use the system is.
Kevin Horek:They wanna use your system, keep using your system, and then anything new, they're bringing into the system. Is that fair to say?
Matt Johnner:Yep. 100% correct. And it's not just the originator that's seeing the benefit.
Kevin Horek:Right.
Matt Johnner:In the regulatory environment, the buyers are required by the federal, regulators to also keep a balance of what they think they should be paid by the originating institution. So what they think they should get paid for principal and interest. And bear in mind, a lot of these are variable interest rate loans, so it changes every time a payment is made. And the core technologies, do not do much in terms of this functionality. Almost none of them can do notifications.
Matt Johnner:Most of them can do the principal and interest split when a borrower drops off a payment in a bank, but that's it. So 99.5% of a loan participation or loan syndication or club deal is managing our software, and it gives those downstream buy side free access to their balances. So imagine you're a VP of loan ops at a buyer, whether you're a credit union or a bank, and you have to keep your own spreadsheet for all the transactions that your folks have bought from that originating financial institution. It's a it's a lot of work, and there is almost never a scenario where at the end of the loan, everybody's on the same page and balances. So then there has to be forensic accounting, sometimes there's settlement fees or charge offs, Somebody owes somebody money.
Matt Johnner:And then think about the reputational risk if you're constantly having to, negotiate with the balances at the end of a loan. It creates friction. At the end of the day, that's what we're trying to fix. We're trying to democratize loan trading, by reducing friction in the loan trading process both on the front and the back, and you have to have both. You can't just have a bunch of lenders doing more loans than ever before if the back office can't keep up, if they have to rely on spreadsheets.
Matt Johnner:So you have to have both of an office and the back office, and we believe now and we're seeing that more and more loans are happening smaller, not just bigger. So we believe if we take a you know, we're taking a page out of Uber's book where if you reduce friction and improve the experience, then you can encourage thousands of times more loan trades a year than ever before.
Kevin Horek:Yeah. Interesting. That no. That makes a lot of sense. So what advice do you give to people that are looking to do well, because there's a lot of, like, legal stuff that you need to do to go into the different states and, obviously, building software that accommodates all these different conditions is a challenge.
Kevin Horek:So how did you figure that out and sort all that out, and and what advice do you give to people that are maybe looking to do something multistate like this?
Matt Johnner:Yeah. So first, we're not broker dealers. We're technology firm, and that's that's a dramatically different regulatory environment. Right. Broker deal have to be registered.
Matt Johnner:We do not as a technology company. Our tech is just facilitating the transaction. So that's the biggest difference. So when we when we sign a client and they're in 3 states, then immediately we have transactions happening in 3 states. So it's that another example of network effect or or, you know, the the tag along on Metcalfe's law.
Kevin Horek:Right. Okay. Interesting. So walk us through a a little bit more of some other features and functionality of the platform. Like you said, it takes can take, you know, as quick as 15 minutes to get on.
Kevin Horek:You know, what's what is my 3 months, 6 months, 2 year, 3 year, 5 year, 10 year look like in the platform?
Matt Johnner:Yeah. So first, it's cloud based. We're SOC 2 audited. We're in AWS SOC 2 data centers. We undergo third party web penetration tests.
Matt Johnner:So first, security and scalability is always entry fee. It goes live in 1 hour, so it's not a big lift like a core conversion or a a loan origination conversion. We can have all the originating banks legacy loans loaded in a day, 2 days max, which allows for the back office to benefit on deals that were never done with us. When a lender does do a new deal, they can, load essentially the loan data and documents and publish it to whichever banks or non banks they want to look at it. So they decide who it goes to, we don't decide.
Matt Johnner:So the originator is in full control, they then decide and they can do so via in our system clubs. So you build clubs or we'll build clubs for you of like minded buyers. So here's a club of CRE buyers, that don't like construction loans, or here's CRE buyers that like construction, but not hospitality, or here are clubs that want c and I loans or ag loans or franchise loans or equipment finance loans or high FICO consumer loans. So we do any loan type commercial or consumer of any size. So you could put a $1,000 loan on there today or a $100,000,000 or $400,000,000 loan.
Kevin Horek:That's cool.
Matt Johnner:And break it up infinitely, automatically into many pieces. Once that's published to that one or many clubs, those folks on the downside are notified they log into the system via their mobile phone or laptop, they see the details and if they wanna see the full loan package, then they have to sign, integrated electronic NDA and non circumvent, which now allows the prospective buyers to see who the borrower is, see the documents. Until that point until that point of signing the NDA and noncirc event, they can't see the docs or data, which keeps the originator safe from the buyers potentially going around to the borrower directly. Once all that happens, then they the buyer evaluate, the loan, typically take it to underwriting or loan committee. They come back, they subscribe through our system telling how much they want to participate in.
Matt Johnner:Once that's accepted by the originator, then we do all the legal master participation agreements in the software with esignature, and then it's closed. Once it's closed, instantaneously seconds later, the loan ops team at the originating bank gets the back office value, and they can do a funding request from the the downstream buyers to fund that original advance to the borrower or whatnot. And then all the back office stuff happens, all the automated notifications and balances and transaction history and all the stuff we talked about.
Kevin Horek:Okay. Very cool. So you you mentioned you sold a product. What advice do you give to people that, you know, are are going through that, or or what did you wish you know knew now that you're on the other side of that?
Matt Johnner:Oh, boy. I'm not sure how revolutionary this advice is gonna be, but, you know, starting companies is hard. Yep. Bootstrapping is even harder, but very rewarding. If you can bootstrap one piece of advice, do it.
Matt Johnner:If you're in a position to not have a a very expensive cost of living personally or if you have saved money up and you can get away with bootstrapping, then you definitely are gonna be better off if you're successful by retaining equity. So that's probably number 1 is if you can bootstrap, do so. Number 2, you know, product market fit. Is it just a great idea you have, or can you vet it really quickly before investing a lot of money? So, answer, you know, the question, who cares?
Matt Johnner:Who cares about your product enough to pay for it? 3rd, really smart guy here in Dallas gave me some great advice when I asked him his business advice, and he said, get in front of an avalanche. So look for industries that, if you get in front of, we'll sweep you up and carry you forward, whatever that may be. So, you know, things like that. And then on the the sell side when we're selling, we did have an investment banker.
Matt Johnner:They did, get many people looking at it. We were very happy with our partner at Abrigo and, really have just, completed our transition as of the end of 2023. So, that's the last piece of advice is, you know, really try to have consistent, good dialogue throughout the process of not just selling, but when you've sold, supporting that buying entity, having a good relationship with them because you never know if you're gonna do business with them in the future. And I think that applies for the buying entity, not just us as a seller. So, outside of that, probably longer conversation over a beer or coffee or something.
Kevin Horek:Fair enough. How did you come up with the idea for participate and and then validate that idea then?
Matt Johnner:Yeah. So Mike Montgomery, who's our founder, chairman, and CEO, long time banker. He's on a bank board. His grandfather, was heavily involved in banking advisory for the Federal Reserve out of Boise. His, dad started 3 banks in Idaho and Utah and sold them.
Kevin Horek:Oh,
Matt Johnner:wow. So, you know, heavyweight community banking family. He's on the board of Southern Bancorp, which is a one of the original community development financial institutions started by then governor Clinton and the Walton family. And so he has a good pulse on what's going on, not just today, but historically. And he always bemoaned the lack of, speed and flexibility that banks had to adjust their balance sheet.
Matt Johnner:What if you have to sell off 3 or 400,000,000 SCRE? Do you have an automated process and a network of buyers to go to in minutes, not use spreadsheets and smiling for dollars? Likewise, if you're a bank that only does commercial real estate loans, that's really, a risk for you because it highly concentrates you in one loan class where you really should be diversifying. But, you know, if you're a CRE Bank, CRE lenders don't know a lot of CNI borrowers. So, you know, we needed a way, and he had the vision not only to make a spreadsheet based process more efficient, but also to provide alternative capital stacks and allow for educational, components to help, banks that really should have other loan types, but don't have the lending skill set or those credit skill set or the ops skill set of that loan type to be able to buy into those loans, easily and and with high quality.
Kevin Horek:Interesting. Yeah. You actually said something that that's actually really interesting that I think people don't really think about and, is like, if you can automate something as simple as, like, a spreadsheet process, there some of those industries are 1,000,000,000 of dollars. And, like, it's interesting because I'm I'm working on a product right now that it's doing that in the dental space, which could easily be applied to the eye care space and, like, a bunch of other medical spaces. But when you think about it, you're just like, well, they just use spreadsheets.
Kevin Horek:We'll just put but if you actually take you look way back and you look kind of high level at it, it's like, well, what is the spreadsheet really doing? And if you can automate that and you can save people tens of 1,000 a month and, you know, you charge them, you know, 100 or a few $1,000 a month for that, it's a no brainer. Right? And it's kind of like that avalanche that you're talking about, and and I think some people don't think about things like that. They're like, I need to build the the next sexiest app.
Kevin Horek:It's like, well, sure, maybe, but that's really challenging. But if you can really automate or really speed up a process that's very manual in, like, a simple piece of software. Well, I guess spreadsheets can be very complicated, but I think you know where I'm going there. It's like Purpose. That's could potentially where a lot of the big money is, right, and actually getting acquired.
Matt Johnner:Yep. Yeah. And, you know, the other back to that other piece of advice is build a company to last. Build a company that can be profitable and scale, and you may never be profitable, to a certain extent on purpose. If you see your operating metrics, your key performance indicators growing, whether it's demos that have a conversion rate to sales or whether it's number of loans transacted on our platform, as long as you're seeing the growth Yeah.
Matt Johnner:It's okay to keep spending money, but only as long as you feel like you can turn off the spigot at some point and and turn to profitability to be in control of your own destiny. And, obviously, that doesn't happen in a couple years. It takes generally 7 to 10 years to build a company that is qualified to sell or keep in cash flow in a meaningful way. So, you know, it's a journey.
Kevin Horek:No. Fair enough. How did you start making relationships with the companies that you potentially wanted to buy the product?
Matt Johnner:Yeah. We were in discussions with Abrigo about a potential partnership.
Kevin Horek:Okay.
Matt Johnner:In addition to them, we were talking to various others, in some cases, potential competitors. We're talking to, investment groups, you know, private equity firms. So it was it was building relationships over time. You know, a lot of these folks call us. We get called by private equity and venture capital quite a bit.
Matt Johnner:So that's with regard to the past. Going forward with this new company participate, Jamfintop are great partners. They've they're, our minority partners, and they're they're way more than just capital. They we talk to them almost every day, with, they're making introductions to their limited partners, or they're making introductions to potential hires. We hired, like, one person just recently that they introduced.
Matt Johnner:So, likewise, those folks get called on a lot by larger private equity firms that wanna do recapitalizations. They're developing relationships with strategics. I think Fiserv is one of their limited partners. Q two is one of their limited partners. So big industry players.
Matt Johnner:So I think what we'll see is, you know, a lot of interest from our own relationships that we developed, a lot of relationships, that will come out of Jamfintop, and then I think there'll be always those new folks that reach out to us that we hadn't really thought of in a serious way that that like our story and feel like, you know, combined, we would be better.
Kevin Horek:Okay. Makes sense. So you bootstrapped a company. You took on an investment partner or participate. What were the pros and cons, and what made you do you didn't bootstrap participate?
Matt Johnner:Yeah. No. Great question. So Construct, we bootstrapped and, you know, if you looked at our burn rate per month, back then I thought it was a ton, you know, we didn't pay ourselves much and writing capital call checks and, that's always a nervous time, especially when you have to explain this to your wife. Right?
Matt Johnner:But, you know, the what we realized on construct is maybe we moved a little too slow. Maybe we should have invested more whether that was our own money or taking outside capital. When it came to participate, we had that experience and that history, both good and what could we have done faster or better, you know, always being introspective. But participate itself is a completely different animal, because of the network effect, because of how fast this can go, because it doesn't have to be just loans. It could be debt.
Matt Johnner:It could be deposits, because it doesn't have to be just the United States. It can be, you know, international. We realized that this was just a much bigger opportunity and that we are gonna need some help to grow it to the level of success that we believe we can and that the deserves and that our team members deserve. So, we realized that it was time. And, incidentally, Jamf and Top had called us.
Matt Johnner:They had heard about construct and had heard about participate. They wanted to get into this space. They had researched some of our early competitors, and so, it was just really perfect timing. We were thinking we probably needed a good partner, and at the same time, they reached out to us because they wanted to be in this space. So good timing.
Kevin Horek:Yeah. No. That's that's interesting. It is interesting if you can get either your first clients or a partner to help you build this thing whether they put in cash or not, but if they can help even just in the connection space or beta testing or being one of the first users, that is almost like more valuable than the cash in a lot of cases. Right?
Matt Johnner:Absolutely. I'm you nailed it. The concept of preselling, I mentioned product market fit when you ask, you know, what nuggets of advice or whatever would I have. Preselling is really what I was trying to say there, which is what you were just saying. It's before you get too far in a product, really, you could be in prototype, know, build a prototype in a week.
Matt Johnner:Right? You should be showing that prototype of your, friendly prospective clients and ask them, is this enough for you to pay for? And if not, what are the 3 things? And I always say 3 things because you don't wanna let clients go nuts.
Kevin Horek:Yeah.
Matt Johnner:Because they may or may not have the right vision for the industry because they've been doing the same thing that they've always done. Right? So, you know, presale a prospective couple clients, get them to pay something. Even if it's of, you know, $500 a month, it doesn't matter. As long as they're willing to pay for it and go through the the purchase process and, you know, send you an ACH, then that's gold.
Kevin Horek:So how do you manage your product road map with some of that feedback? And, you know, obviously, you have clients of different sizes and some of the bigger ones might even offer to pay you to add some features. How do you manage that road map with feature requests?
Matt Johnner:Yeah. So in an in a new white space product like participate, it's it's very new in terms of front office, back office, cloud, as well as capital stacks. You know, these clubs we're curating of new capital. It's very new. There's very little out there, and almost all the banks, including the the big boys, do this on spreadsheets or legacy technology that only does a part and then they have to use spreadsheets for the rest, depending upon whether you're talking front or back.
Matt Johnner:So when you're in an environment like ours and participate, you have to really drive the vision for the product. You know, you have to drive 80% of the the architecture and the feature functionality. So, with the remaining 20% roughly coming from our clients that may have requests. So we get requests all the time, advice from our clients, which is gold. We love that.
Matt Johnner:We love our clients. We want more and more requests from them. And then our product team, they take all these different requests, whether it's from clients or our customer success team or our sales team or our marketing folks or our engineering team, and they build, basically, business requirements, user stories. We follow an agile method of development, constantly pushing out code. Engineers always get our head of engineering always gets what he wants when it comes to infrastructure, scalability, security.
Matt Johnner:That's always entry fees, so that's always part of our product road map. And, you know, our head of product and his team just takes all that input from all of our stakeholder leads, and we figure out what is gonna add the most value. Generally, I always supply, you know, security and scalability, number 1. After that, that's implied. The number 1 is revenue.
Matt Johnner:Does this generate more revenue? Is this a module that can generate more revenue from our installed client base, or is this a set of features functions that would allow us to price our product more? So revenue is always number 1. Number 2 is efficiency would allow us to drive efficiency and thereby win more and more clients with a more demonstrable return on investment. And then 3rd is kind of like a mystery.
Matt Johnner:You know, it's always a little different, and it it could vary by product. But revenue and efficiency are always, you know, 1 and 2 with after the entry fee stuff.
Kevin Horek:No. That that makes a lot of sense. So I'm curious because a lot of people that you said have been doing this in spreadsheets and kind of maybe some older technology, how do you get them to actually switch and use this modern way of doing things? Because that can be really, really challenging. Like because everybody's like, well, this is quicker and faster.
Kevin Horek:Everybody's just gonna use it. And it's like, maybe, but sometimes that can take a lot of, you know, coaching and to get them to actually switch and see the value. So how have you managed that?
Matt Johnner:Yeah. Not easy. So change is hard. Getting people to change is hard as everybody knows, especially in banking. Bankers are known to be even more change resistant than other industries.
Matt Johnner:So the way I look at the world is it's like being a little bat flying around a cave. You're looking for resin. Right? So I'm flying around the cave, messaging, pinging prospective clients when we're first coming out with a new product. Hey.
Matt Johnner:This is gonna make you more efficient. It's gonna allow you to do more loans. And early on, we got good resonance, you know, pings back on efficiency. But what we learned was with our lending message, we scared some of the loan syndications leaders and lenders that thought, oh gosh. This is gonna disaggregate me.
Matt Johnner:This is a marketplace where it doesn't need me as a human lender, and that's not the case whatsoever.
Kevin Horek:Right.
Matt Johnner:But when we pinged and we got residents back, that message wasn't being delivered the way we intended or wasn't being received the way we intended. So we like a good bat, when you see, you know, resistance and resonance, you adjust your message a little bit. So we kept going with the efficiency on the back office, and we made more of a play on efficiency on the front office and said, hey, mister loan syndications guy or gal. Now you can do 10 times more loans and make 10 times more profit for the bank and 3 times more profit for you and your team in terms of incentive comp for doing more loans, bigger loan book, more noninterest fee income. So in terms of getting, the industry to change, it's having a great vision.
Matt Johnner:It's having a valid product market fit. But be a little bat, fly around the cave, ping and look for resonance and adjust as fast as you can.
Kevin Horek:Yeah. You actually touched on something that's actually really important is if you can prove to them that they can make more money, their the chances of them trying it and adopting it are gonna be a lot higher than just saying, well, it speeds up your job. Right? Like, sure, that's a byproduct of that, but let's be honest. Most people are like, if you can make me more money, I'm interested right away.
Kevin Horek:Right?
Matt Johnner:Yep. Yeah. So we we focus on the institution and the individual. So we have a return on investment calculator that shows for every about 50,000,000 of loans that you sell off, you make about 2,400,000 in additional income for the bank or credit union.
Kevin Horek:Right.
Matt Johnner:And if you apply your own incentive comp metric, Sally or Jimmy, of what you as a lead lender get, in terms of your incentive comp on your loan book you originate, then you're looking at this type of comp increase for you and your team. So we try to apply it at the institutional level and the individual level of compensation.
Kevin Horek:Smart. Interesting. So you touched on something throughout our conversation so far about security and and scalability, which I think is arguably just as important. But how do you actually practice that? Because security is becoming very, very important, especially in certain industries, but I think for everybody.
Kevin Horek:So how do you make sure that's a focus and that you don't kind of sidestep that just to rush out a feature or or or something? Because that can be really challenging in itself.
Matt Johnner:Yeah. So culture, setting a consistent culture of how important security is, especially in banking Sure. Having the right leadership, being consistent in our messaging with that leadership. So our our head of engineering and our chief technology officer and our head of dev ops and our head of product and our our our chief architect. So all those are individual guys and gals on our team.
Matt Johnner:And being consistent in our support of their leadership towards building a highly secure, environment technically, but also a culture. Being paranoid, you know, there's always gonna be somebody better, faster, stronger out there pinging away. We got, like, 23,000 hack attempts, I think. Oh, wow. You know, penetration attempts last month alone.
Matt Johnner:Oh, wow. You know, we we have to be on our toes. We build most of our own stuff. We almost never use, well, we've never used open source outside of, you know, a web server type of deal. So we try to build as much as we can to control our environments.
Matt Johnner:We're very wary of third party APIs or middleware APIs because of our, reliance on them, to be defending against many hack attempts that could get to many endpoints. You know, 3rd party web penetration tests, We voluntarily do those. It's not required, but, certainly, we think it makes sense to have our own teams, testing themselves through 3rd parties. So, we have a great third party, web penetration firm that tests us. SOC 2 audits.
Matt Johnner:Again, we sign up our own SOC 2 audits, not just out of the data center, yadayada yada. So culture, leadership, consistent support for that leadership to really execute and test constantly.
Kevin Horek:Yeah. No. I think that's actually really good advice because, yeah, like, it's interesting, especially at early stages in a start up. Security can be, like, one of the last things on people's mind where in a lot of cases, it should almost be the first thing in certain cases.
Matt Johnner:Yeah. No. It's look, building something from scratch is not easy and there's, you know, there's, scope, schedule, and resources. Pick 2, you can't get all 3. So what's most important to you when you start a company, you grow a company, or you have a mature company with regard to new products?
Matt Johnner:You can choose scope to be the most important and schedule to be second and resources third, or you can choose resources, scope, and schedule. But inevitably, you can't have all 3 at the same time. So you have to you have to decide, is it speed to market that you want? Is it you only have 2 developers or an architect and a developer? Or you have lots of resources and schedules most important, then maybe scope gets trimmed down.
Matt Johnner:So, you know, we're constantly balancing those.
Kevin Horek:Sure. The one thing and I'm curious to get your thoughts on is just because you throw more designers, developers, people at a problem, doesn't necessarily mean you're gonna be rolling out software and features a lot quicker. Has that been your experience, or what are your thoughts around that?
Matt Johnner:Yeah. It's true a lot of the time, and some of the times more resources do make sense. So if you look at our technology, it's, you know, core architecture, you have feature functions. We have a lot of integration to loan origination systems and core banking systems. We have, the opportunity to build out new revenue generating modules, so completely kinda, well, not completely, very very self contained modules that still have to interact with the mothership, but can be done is is a little bit more isolated.
Matt Johnner:You know, but, yes, for sure, there is a limit to how effective you can be, if you're talking about a set of features or functions. I mean, you can only get so many things done with a with a a bigger team. It gets in the way after a while.
Kevin Horek:No. That that makes a lot of sense. But, Matt, we're kinda coming to the end of the show. So how about we close with mentioning where people can get more information about yourself, participate, and any other links you wanna mention?
Matt Johnner:Yeah. Absolutely. So participate, you can learn more at participate loan dot com. That's participate loan dot com. And that is the latest innovation from Bank Labs, which you can learn more at banklabs.com.
Matt Johnner:And if you wanna reach out to me directly, feel free. My mobile is 214-208-0436. 214-208-0436. My email is matt.chaunnerjohnnerat banklabs.com. Matt.chonner@banklabs.com.
Kevin Horek:Perfect, Matt. Well, again, I appreciate you taking the time of your day to be on the show, and I look forward to keeping touch
Matt Johnner:with you and have a good rest of your day. Great to see you again, Kevin. Really appreciate it.
Kevin Horek:You as well. Thank you. K. Bye.
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