[00:00:00] Becky Reed: Stablecoin is a new payment rail DLT is a new payment rail. Now, certainly there are lots of o other aspects to DLT, but to me the fundamental game changer for financial institutions right now today is stable coins.

[00:00:14] Vince Passione: You listen to part one of our conversation with Becky Reed, COO Bank Social. In this episode, we dive into Becky’s journey through the credit union service organization model, the power of cooperation in the credit union space, and how legacy and FinTech driven CUSOs are shaping the future.

[00:00:29] Vince Passione: Let’s get started.

[00:00:33] Narrator: Welcome to 22 minutes in lending your Go-to podcast for insights on all things lending from lending practices, regulatory updates, how to enhance lending efforts and more. In each episode, Vince Passione connects with industry leaders to discuss the latest trends and happenings around the lending industry.

[00:00:53] Narrator: Let’s dive into the latest in lending.

[00:00:57] Vince Passione: Welcome to 22 Minutes in Lending. I’m your host, Vince Paone. Today we’re joined by Becky Reed. Becky’s been a CEO CUSOFounder, board Chair, and now COO at Bank Social, where she champions blockchain, digital Assets and Collaborative Innovation. In this episode of 22 Minutes in lending, we’ll explore how Becky and Bank Social are helping to shape both the future of credit unions and the defined movement.

[00:01:18] Vince Passione: Becky, thanks for joining us.

[00:01:20] Becky Reed: Thank you.

[00:01:22] Vince Passione: Hey, Becky, we’re talking before the call, obviously, we met a few times, and the last time we met you were the chair in the CUSO, and I know you’re still on the CUSO board, so

[00:01:30] Becky Reed: Yep.

[00:01:31] Vince Passione: You’ve been involved in CUSOs your entire career. I got to hear you talk about it, and you have a tremendous passion for it.

[00:01:37] Vince Passione: So help me understand your view of the CUSO model and why you’re so committed to its success.

[00:01:44] Becky Reed: What I love about this industry is our collaborative nature, because we’re not-for-profit financial institutions. We, we compete, but we don’t compete. Right? So we started out initially with seg groups and even if the credit union across the street, uh, was there.

[00:02:03] Becky Reed: They probably weren’t competing in a field of membership perspective, and so move forward. Now today, many credit unions are community financial institutions, but still we cooperate. We don’t necessarily compete. There’s plenty to go around. So I say all the time that cooperation is our superpower in the credit union industry because it really sets us apart from other financial institution.

[00:02:28] Becky Reed: We are community owned financial institutions. We’re not just community based financial institutions. And so people own the credit union. Well, CUSOs have to serve credit unions. So you become a CUSO by getting an investment from a credit union. If you get an investment from a credit union as a FinTech or any other type of business, whether you’re a hundred percent owned by credit union or credit unions, or you have a dollar of investment from a credit union, if you receive member money, if you receive cooperative ownership money, you become a credit union service organization and a requirement of a credit union service organization is you have to serve other credit union.

[00:03:11] Becky Reed: So that’s the superhero in the equation. There is no other industry like that. Banks can own a bank owned company that doesn’t necessarily have to serve other banks. They can serve a completely different industry if it, if they need to. And so credit unions have that special sauce. I’m going to say that is really the collaborative movement in action.

[00:03:37] Vince Passione: When you look back, if you look atCUSOs and their growth, right? I mean the, the NCA used to publish, uh, their growth path, last time we saw it, I think it was, it moved from about 900 to a thousand. Is that. Too big. Is that too small? Is that just right? Like how do you judge? And when I was out in the CUSO the other thing I noticed going around the show is that there seems to be a lot of overlap.

[00:04:00] Vince Passione: Like you could have multiples in an area, you could have like five CUSOs that are doing member business lending. Does that, does that matter to the CUSO at all? Is, is, should there be a governor on it to avoid overlap?

[00:04:15] Becky Reed: Well, again, we are cooperative. We’re not necessarily competitive, but that doesn’t mean that you shouldn’t have choices.

[00:04:23] Becky Reed: Right? Mm-hmm. If, if we believe that there shouldn’t be choices, then there should just be one massive credit union and everybody should just belong to that one. But there is differentiation and specialization that happens when you have individual credit unions, and it’s no different from a CUSO. So you might have one CUSO that specializes in a, a loan origination system around, you know, auto loans.

[00:04:45] Becky Reed: That that’s its specialty, that’s its niche, you know, or maybe it’s focused on the small credit union market. Maybe you have another one that’s focused more on real estate lending or enterprise commercial lending or something like that. So I, I don’t see it as a, a problem that the number of CUSOs has grown.

[00:05:03] Becky Reed: I actually think that is a sign of health in the industry. So you don’t have a market if there’s no competition and if there’s only one that’s offering it, then you’re not gonna be getting the best price. CUSOs are for profit. Just like any other FinTech is, and while they serve not-for-profit financial cooperatives, their model is still profit.

[00:05:26] Becky Reed: And the investors, the credit unions who invest in them are going to expect something in return. So they need to make money. So there, there’s, there’s, uh, a I’m gonna call it collaborative cooperative cooperation. Um, that is, is, yeah. Uh, coopetition maybe.

[00:05:43] Vince Passione: Yeah. Now what’s your advice to, so I, I’ve been around the credit union industry as a, as a partner for over probably 22 years and looked at the CUSO model and obviously they’ve been very familiar.

[00:05:56] Vince Passione: There’s some CUSOs that have been out there very long time. When I think about cuddle right and Origins, do you think that the older CUSOs are at a disadvantage to the newer ones that are being founded by fintechs because they don’t get the same type of capital infusion or No.

[00:06:13] Becky Reed: No, I, I think that there are, to me anyway, and I say this often, there’s kind of the, the legacy.

[00:06:24] Becky Reed: CUSO model, and I don’t mean legacy in a bad way. Right. I mean, they’ve been around for a long time. They’re kind of that traditional CUSO model. And the traditional CUSO models are like the origins, which was formally cuddle. Right? So most of the CUSOs that were formed initially, I say this all the time, necessities, the mother of invention.

[00:06:45] Becky Reed: Mm-hmm. And so credit union said I want to do this and I can’t because of that. So that created a CUSO. So a lot of CUSOs were created in the early days around things that credit unions either couldn’t do themselves or couldn’t do at scale. So things like mortgage lending, things like, um, commercial lending, things like being a financial advisor or having a brokerage.

[00:07:09] Becky Reed: And most of those traditional models were really to serve one credit union. Or to serve a very close knit, maybe geographical group of credit unions. So that’s kind of the traditional model. Now they’ve been around long enough, they are profitable, they are doing well. They, they wouldn’t be around if they weren’t.

[00:07:28] Becky Reed: So they have scale, right? So they have, in some cases, hundreds of customers and hundreds of credit unions. They have a great reputation again, or they wouldn’t be here. And so they’re not out there looking for capital, and if they were, they could get it from a million different sources. It’s not as a, um, a established business to go raise capital if you need to, if you have a plan for what you wanna do with it.

[00:07:53] Becky Reed: I think that the contemporary QO model is more. Not being designed from the ground debt to fulfill a particular need. So a lot of those traditional CUSOs were formed specifically by credit unions to do something. Yes. Fintechs that we’re coming, that are now coming into the space are looking for credit unions to provide them the capital in order to grow and serve the industry at large.

[00:08:21] Becky Reed: And so that’s a little bit of a different model. And certainly fintechs, you know, is more exciting. It kind of feels more like sharp, you know, tank kind of a thing. Um, you know, it, it feels a little more sexy than, you know, a mortgage lending CUSO. But I wouldn’t say that that just because they’re the shiny object, you know, at the, the dinner table right now, as opposed to kind of the boring looking plate, uh, that they might be getting a lot of attention, but I wouldn’t say that they get most of the capital or, or some sort of advantage.

[00:09:00] Becky Reed: Over the, the bigger ones in the space? Not at all.

[00:09:05] Ron Draper: This is Ron Draper, CEO of sums credit Union. So in 2014, we were looking for a turnkey student lending solution. One that was simple and efficient for our members to access, and eventually we chose LendKey because it just integrated seamlessly for quick member mobile access and was easy to remotely review and approve from a loan officer point of view.

[00:09:27] Ron Draper: And I should know because I’m that loan officer, I still recommend LendKey to people whenever I get the chance because after almost a decade, it continues to offer consistent product and service delivery, both to our membership and to our staff.

[00:09:44] Vince Passione: Alright, let’s switch gears, right? Let’s talk about the next chapter. Okay. So bank social. And when I look it up, and I’ve heard you talk about it as a decentralized, autonomous organization, okay, unpack that. What does that mean?

[00:09:56] Becky Reed: All right, so what you’re describing is a dao, a decentralized, autonomous organization, is basically a company that runs itself, okay.

[00:10:07] Becky Reed: It’s autonomous. Well, when you think about a company that’s running itself. It, it wouldn’t have been possible without this blockchain technology thing, right? So blockchain technology is something that is a digitally native environment, and you can do all kinds of things on a blockchain just using code.

[00:10:27] Becky Reed: And so it creates efficiencies and, and, uh, dynamic capabilities that just were not capable, um, before, prior to blockchain technology. So all a decentralized, autonomous organization is, is an organization that runs autonomously utilizing code smart contracts and things like that for a governance perspective.

[00:10:51] Becky Reed: So bank social itself as a, an, we’re a C corp. Bank social itself is not a dao. There is a DAO called Bank Social that has a governance mechanism that is managed by token holders. So there are bank social token holders out there, which is a separate company. It’s a Wyoming LLC Dow. That company is governed by token holders, so when they have, uh, governance models.

[00:11:20] Becky Reed: The members or the token holders. This is why I think it looks a lot like a digital credit union. The members, the token holders vote for the governance of the organization. So people can actually put ideas out there and say, Hey, I want the company to do X, Y, or Z, and it goes out for a vote. And uh, the token holders vote on that.

[00:11:41] Becky Reed: So, very similar to members voting for a board of directors.

[00:11:47] Vince Passione: And, and that was the original, when, when it was formed, it was formed this way. Did, did the, did the dow, was the Dow formed first or was bank social The C Corp formed first?

[00:11:57] Becky Reed: Nope. The Dow was first. The Dow LLC John Wingate founded the, um, the Dow LLC in, uh, 2021.

[00:12:06] Becky Reed: But again, the Dow is owned by the token holders, very similar to the members. John does not own it. John does not run it. John is a token holder and a member just like everybody else, there is a governing, uh, body that is elected by the members, sort of like a, um, a council. They’re called delegates, and they, um, make assist in, uh, executing the decisions that the token holders vote on.

[00:12:33] Becky Reed: And so, yeah, it, it’s kind of a, it’s a really cool concept and I believe that credit unions will look more like that in the future.

[00:12:42] Vince Passione: That takes me to the next question. So why is that so important and what problems does it solve?

[00:12:48] Becky Reed: Well, credit unions are community owned financial institutions. We talked about this before, right?

[00:12:54] Becky Reed: They’re owned by the people and that’s what makes them unique. And unfortunately, I think that that message has gotten lost over the last. Two or three decades, and people forget that as a member of a credit union, you actually do own the credit union and you do have a vote in governing that financial institution.

[00:13:15] Becky Reed: Well, credit unions are living in an analog world, right? So a lot of the voting mechanisms and the governance model. It goes through sort of a manual vote, right? That votes for a board of directors and the board of the directors hires the CEO and runs the credit union through that particular executive.

[00:13:37] Becky Reed: Well, the technology is available now to get kind of circumvent or replace that analog model with a digital model that really allows for more inclusivity. Allows more people to be involved and have a voice and the members can actually vote on more things instead of just voting for a board of directors and kind of having no insight necessarily other than looking at the financials, what the board of directors is doing.

[00:14:09] Becky Reed: Now you can have a digital model where all of the members will be able to have more transparency, more insight into what’s happening into the organization and more say so I believe it’s important for, uh, financial inclusion. And I think that, that the younger generations in particular are, um, uh, very interested in community benefits.

[00:14:37] Becky Reed: And helping their fellow man. And you can do that much, much easier in a digital way than you can in an analog.

[00:14:45] Vince Passione: Excellent. Excellent. So now let’s start, let’s segue into some products, but I think I need you to gimme some of the backdrop for our listeners. So you know, Bitcoin, stable coin blockchain. You’ve done a great job as I’ve done research and listening to you speak in the past about, hey, let’s talk about some of the distinctions, right?

[00:15:01] Vince Passione: And I think you were a CIO once, right? Did I was so you got, you got technology background. So do I. I was a computer science major as well, and I always tell people when the blockchain came out, I said, it’s a distributed ledger, but it’s just, it’s just dual link list with a write ahead log, which usually impresses people.

[00:15:16] Vince Passione: But you had to take CS 360, which is our architecture class to get that right. But anyway, I, I digress. So some of the jargon, Bitcoin stable coin blockchain.

[00:15:26] Becky Reed: Yeah. Well, a blockchain is a type of distributed ledger. So a distributed ledger is a generic term. Blockchain is a specific term. Blockchain is most notably connected with Bitcoin.

[00:15:41] Becky Reed: Bitcoin actually works on a blockchain, but all distributed ledger technologies are exactly what it sounds like a ledger, which is a database. So from a technology perspective, it’s just a database. It stores information. A blockchain happens to store information in a chain of blocks. That’s why it’s called a blockchain.

[00:16:03] Becky Reed: Now, what’s what’s fascinating about the technology is I spoke earlier about it being digitally native. It lives a hundred percent. In a digital world, there is nothing analog about anything on a distributed ledger network, and it requires the internet in order to function. So that’s a big piece of it. So the Web3 World is removing from web two, which we’re in now into Web3, requires this technology in order to, uh, function, uh, in a higher.

[00:16:31] Becky Reed: Order, um, which we’re all moving to a more digitally native, uh, world. Anyway, AI certainly, uh, requires it. So, um, Bitcoin or any other token that rides on a distributed ledger is the transaction mechanism, right? That’s how things move on the blockchain. And it could be a cryptocurrency, it could be a NFT, it could be a, um.

[00:16:58] Becky Reed: Any other type of token that represents something. It can also be wrapped into a smart contract I talked about earlier with the Dow, right? Where you can program things into, uh, the code. I’ve heard people, um, talk about cryptocurrency as programmable money, and certainly there are aspects of it that, uh, can be like that, especially as it relates to, uh, stablecoin.

[00:17:22] Becky Reed: But in 2009, blockchain was invented. Bitcoin was created by Satoshi. And, you know, kind of the rest is history. But what’s interesting is if you’re a technology person and, and anybody is, that holds a smartphone, right? Right. We’re all using technology all the time and it moves very, very quickly, very, very quickly.

[00:17:45] Becky Reed: I don’t think any of us have a 10-year-old phone. You know, maybe somebody’s mom has a 10-year-old phone, a flip phone or something maybe. But I mean, even my mom in her eighties has a smart phone. So, so most of us aren’t using 10-year-old, um, technology, but Bitcoin is 15 years old. So,

[00:18:07] Vince Passione: no, it’s, it is fascinating when you think about what’s happened, right?

[00:18:10] Vince Passione: And but the confusion that exists, right, between bitcoin, blockchain as just a structure, right? Bitcoin as a cryptocurrency, and now, you know, we are seeing a lot of focus, right? Especially with this administration, with the Genius Act on stable coin. So, yep.

[00:18:25] Becky Reed: Stablecoin.

[00:18:26] Vince Passione: Let’s, let’s talk about that. ’cause that’s a, that’s a big part of your strategy, right?

[00:18:30] Vince Passione: Moving to payments.

[00:18:31] Becky Reed: Absolutely. I initially, when I learned about blockchain and Bitcoin, I immediately saw the parallels and the disruptive capacity of Bitcoin for payments, for traditional payments. So coming from a financial institution, I understood firsthand. How painful and expensive payments are. And to your point, you mentioned earlier, payments are a, a integral part to what we do as financial institutions.

[00:18:57] Becky Reed: In fact, I would say that everything can be derived back to. A payment of some kind. Even a loan is a a payment, right? They’re getting a loan. They’re paying somebody else with that money, whether it’s to buy a car or a house or use their credit card. So we move money. That’s what we do with financial institutions and well guess what?

[00:19:17] Becky Reed: Stable coins are a US dollar backed or a stable value that is riding on a blockchain or distributed. Ledger, and so I immediately was like, oh my gosh. This is going to make all the difference in the world for payments, especially because a transaction with a digital wallet, a digital wallet is how you hold your digital assets.

[00:19:43] Becky Reed: A digital asset can be all of those things that ride on a blockchain can be cryptocurrency and NFTs, whatever. You hold those in your digital wallet and I can transfer any cryptocurrency, whether it’s a stable coin or another type of cryptocurrency. To you, Vince, instantaneously 24 7 365, without a financial institution intermediary.

[00:20:05] Becky Reed: And it is infinitely less expensive to do that transaction than any other payment rail that is around today. And so because of that capability, even from a P two P perspective, imagine what that means for a business. That is, you know, moving millions or trillions of dollars even, um, at a time, you know, they’re buying inventory.

[00:20:26] Becky Reed: You know, think about how much money Walmart moves and how much it could save them if they didn’t have to do a wire or they didn’t have to send, you know, 25 ACHs. It’s just, it’s infinitely, uh, cheaper. And so I immediately saw that from a payments perspective, and that’s what it is. Stablecoin is a new payment rail.

[00:20:44] Becky Reed: DLT is a new payment rail. Now, certainly there are lots of o other aspects to DLT, but to me the fundamental game changer for financial institutions right now today is stable coins.

[00:20:57] Vince Passione: That’s the end of part one of our conversation with Becky Reed. In part two, we’ll shift gears to the future of lending from smart contracts and tokenized loan portfolios to the role of decentralized autonomous organizations and stable coins in reshaping financial services.

[00:21:13] Vince Passione: Make sure you subscribe so you don’t miss it, and I’ll see you next time for another 22 minutes in lending.

[00:21:18] Narrator: Thank you for listening to the 22 minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, be sure to subscribe and leave us a five star review.