How Lead Bank’s co-founder transformed a century-old community bank into an innovative fintech company

Listen to the episode or read the transcript below.

Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte who like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.

Michal Lev-Ram: Welcome to Leadership Next, the podcast about the changing world of business leadership. I’m Michal Lev-Ram.

Guess what? Today I am flying solo. Again, shout out to my co-host Alan Murray, who could not join me for this episode. But I’m super excited about this episode today I talk to Jackie Reses. Jackie is probably best known for her career at Square, now known as Block, where she was really instrumental from kind of the early days. But these days she is running a bank called Lead Bank. She actually bought a bank, which is pretty impressive. I don’t think many people do that. And the idea is she’s got this really extensive background both in the world of finance and fintech. So the idea with Lead Bank, which was an existing community bank in Kansas City, was to really add on this layer, this fintech layer, of banking infrastructure that can be sold to other players, to other fintech players. So we get into all of that.

I will not try to explain it right now. I think she does a much better job of explaining it. But we also talked about culture because she’s really combining these two worlds. The kind of traditional banking and this was a family owned bank for many, many years with the fintech world. And so we get into that. We talk about working with Jack Dorsey and what she learned from him and how she’s approaching this current venture really as an entrepreneur, even though it’s a bit of a mix of the old and new. So never boring talking to Jackie, and I will let you all listen to the conversation.

[Interview begins.]

So, you’ve had a lot going on, a lot of changes, I guess a lot of us have over the last few years. But I’m going to start with a super simple question, which is just what is Lead Bank? What is this bank?

Jacqueline Reses: Sure. Lead Bank is an FDIC-insured bank located in Kansas City, where I am sitting today. We build fintech infrastructure for embedded financial products, and we also have a very active and engaged local presence where we support local builders and innovators in the Kansas City region. And so we have two major business lines. Interestingly, the business has been around for almost a hundred years, and I bought it with three co-founders just about two years ago. And so we added the fintech piece to what was a traditional community bank located in Kansas City. So it’s been fun to have this very old institution that’s been in this city for a while combined with a very modern edge of technologists. So it’s been a lot of fun.

Lev-Ram: So people who know you will associate you with fintech and Square in particular, but not necessarily with a nearly hundred year old community bank in Kansas City. So explain the strategy because not every fintech company has a bank.

Reses: In fact, none of them do except for Square. Ironically. It’s very hard to merge the two because the strategy around both of them are almost diametrically opposite in both business lines. So for me, when I was at Square, one of the things I experienced was extreme pain and frustration in working with bank partners. And what most people don’t realize is that financial infrastructure products that they have in their wallets every day, so debit cards, credit cards, loans that they might take out, 100% of them are built in the banking system. There’s always an underlying bank involved with every transaction. With the evolution of fintech, people think of fintech as the front end of that relationship. Like you have a relationship with a firm. You have a relationship with X, Y, Z, fintech company. It could be PayPal, Square, Chime, Ramp, you name it.

And so that’s the way people think about it. But underneath there is the infrastructure that helps build those products. And so that’s what we do. And so at Square, I had this challenging situation where we would connect with banks that were very traditional banks and they weren’t used to dealing with technology partners like us. And so I decided that I would go buy a bank to do this with a technology angle and this substance of compliance knowledge from the environment of what is it like to be a customer? What is it like to be involved and support what regulators are asking of us, but translate it through the lens of understanding both sides of that puzzle so that we could deliver a really unique experience to our clients? Our clients are huge fintech and consumer companies or scaling fintechs where they all want to run highly-compliant programs because they’re highly-successful companies, but they want someone who can operate at the same speed that they can.

And so that’s how I’ve merged the two sides of the business. We have a really strong team that sits in compliance and legal, really strong team in finance, really strong team in engineering and product. And the engineering and product piece is usually the piece that most community banks don’t have. And our engineering team is second to none in the banking industry. They’re fantastic. And they understand how to build primitives to support banking in a way that most banks don’t have. It’s pretty cool, I have to say what we’re doing is pretty unique in the United States.

Lev-Ram: Yeah, it sounds like, I mean, you make it sound simple. I’m sure it’s not. And I’m curious to hear more about bringing these two worlds together. There’s the regulatory, the compliance, all of that stuff. There’s also the culture, right? Was there something about this bank in particular that you thought just made it more open, the culture, to this kind of innovation that you’re bringing in and what’s that been like?

Reses: Yeah, I think I boil it down to how do you run a successful company. And in every successful company there’s elements of culture that really matter, and ours is innovation and openness and client-centricity and having an ownership mentality. And so those are the things that really matter. And I think that translates no matter what business you’re in. I look at innovation and I translate it to banking and I say, how do you make compliance a really good experience? Because it doesn’t just have to be dreadful. You don’t have to dread compliance. You can look at it with as much creativity as you look at any other product and say what complies with both the letter and the spirit of the law, but also takes a modern twist on it and can make it more creative. And I’ll give you an example of that. If our clients have to be audited, banks have to do audits of their clients, and we have all kinds of K.Y.C., which is know your customer, know your business requirements that we have to do.

We can build a detection system to look at anomalies that we see in what’s being built, what comes through our system such that there’s an automatically engineered flag that comes up that says something went wrong, something went wrong, you get an alert. And in our case, we might’ve engineered that alert system for real time. And I compare that to a bank that doesn’t have an engineering team that’s building that system, and maybe they do those checks once a month. And so we were able to take something that’s kind of ordinary course engineer it and make it a better, real time immediate experience that doesn’t require people to intercede. There’s no human error that could get in the way. It’s an algorithmic system that enables notifications to flag the right people. That to me is a great example of how do you apply creativity to stuff that could be incredibly arcane, banal, and legally restrictive. And so we have lots of things like that that make compliance, cool, compliance more innovative, more automated in a way that we think makes us better at our job.

Lev-Ram: Talk a little bit more about the reception internally at the bank to you and your co-founders coming in.

Reses: Yeah. Well, we’re here today and we actually just met with the head of the Missouri Bankers Association, so just doing check-ins with some local leaders in the community. And when we bought Lead, it was owned by a family that was very well known in the community, and the mother was the chairman of the Symphony, and she owns a wonderful horse farm in Kansas City and just like a well-known person in the community, and their clients were actually really well-known individuals in the community. And so we were able to show up and we asked to meet with the largest clients in the bank. And we went one by one and enjoyed meeting ‘em. I mean, one of the most active clients that we have at Lead Bank, we went to the Super Bowl with, he and his wife and his kids. They were six people, and my general counsel and I were there at the Super Bowl with them.

And we had so much fun being a part of the local community. And so I think if you’re open-minded about meeting new people and finding new friends and bridging yourself into a community, a place like Kansas City is really receptive to doing that. Now, I will say one of the things that was more important to me is making sure we didn’t have two distinctive communities in our company. Going back to your prior question, we want to build one unified culture, and I didn’t want one location to feel necessarily different than the other. I wanted us to be unified around what the operating principles are and how we operate, like how customer-centric we are. And it doesn’t matter whether you’re in Sunnyvale, San Francisco, New York City, Lee’s Summit, Mo., or Kansas City, you’re at Lead, and I like that kind of cohesion. I like having an employee population that feels cohesive, feels very client-centric, and it doesn’t matter whether you’re an engineer in New York or an engineer in Kansas City.

And so that was also pretty important from a culture point of view to make sure that we were bringing it all together. And so I do think the clients have felt it here. We have both multinational clients, national clients, and local clients, and I think they all do feel that they can reach us 24/7 getting back to that customer-centricity. We’re always available for them, and we do our best to deploy technology, whether you’re a local restaurant owner in Kansas City, whether you own Made in KC, one of the local shops that’s fun to shop in Kansas City or whether you are one of the biggest fintechs in the world, you get that same interest in building technology. So I think it’s really important for us to bridge that no matter who you are or what channel you come in through.

Lev-Ram: So the fintech clients though, just to clarify, those are new.

Reses: Not completely. The one interesting thing about Lead was that they were in the banking-as-a-service business before we owned the company. They did have some great clients before we showed up. We were lucky to be able to take on some of the partners that they had and continue rolling them forward. I think the difference we’ve had with those partners though is that they were on an analog system and we immediately transitioned them to a more automated engineering built tech-first system, which is different than the way they operated in the past. And so I think those clients feel the benefit of our expertise from a compliance point of view, from a tech point of view. So they were with us before and now they’re really with us now. The fintech clients that are pretty new, they all feel the benefit of our extremely technical engineering product design teams. And so they only know us as being a technical-first team. And so we kind of brought the local and the prior up to the rest of the technology expertise.

Lev-Ram: And what kinds of other products, tech products, fintech products are you currently developing? Where are you focusing your energy?

Reses: It always sounds really silly to say because it’s like master the obvious. I feel like I’m talking about products that have been around for 5,000 years and it’s, first of all, they’re all APIs, so they’re direct connections with our clients through APIs and they’re around core banking primitives in lending, in money movement, in issuing and multinational money movement. And so it sounds kind of funny to say, like, oh, we focus on money movement, but that’s kind of what we do.

Lev-Ram: And just to clarify though when you’re talking about APIs, you’re developing tools that your customers can use to develop their own tools basically?

Reses: Yes,and they embed it into their products. You would never know that we exist except for if you look at the back of a lot of people’s debit cards and credit cards. This is why it’s one of these funny businesses. Everyone uses us, but no one realizes they do. And if you look at the bottom of a debit card or credit card, you’re like, Oh, issued by, huh? There’s some bank on there. And interestingly, a lot of the banks that those cards are issued on are usually small banks located in the middle of the country. And so we’re one of those small banks located in the middle of the country,

Lev-Ram: Literally. Literally. The headquarters are on Main Street in Kansas City. I love it.

Reses: Exactly right. That’s where I am today. We ate a really good, really unhealthy lunch today that was delicious. Lots of barbecue and meat, and I love Kansas City. It’s a really fun community to be a part of. I think we got really lucky in having picked this bank that we ended up in Kansas City because it’s so much fun to be at.

Lev-Ram: That’s great. When you made this transaction and started, I mean didn’t start the bank, but sort of started this new iteration of it, what was the reaction of your peers in the tech industry? How did most people react to what you’re doing?

Reses: Well, I don’t think anybody was surprised. One weird dynamic, I mean, so there’s a weird dynamic in the U.S. around de novo Charters, and so Square is one of the only companies in the last 18 years to have built a bank from the ground up. There are a few of them. And we wrote the first line of code. We wrote every word of every policy from scratch. And when you do that, and it took us five years to get the license, when you do that, you have such a deep understanding of the regulatory structure and the code base of how a bank is built. There are only two teams that have ever done that in recent memory. So having that expertise is so foundationally helpful to then going and buying a bank and understanding at the most first principles granular kind of way, what’s important in building a strong foundational bank to build strong banking products.

And so my team came with me, my three co-founders, [co-founder, chief legal and risk officer] Erica [Khalil], [co-found and CTO] Ronak [Vyas], and [co-founder and chief product & data science officer] Homam [Maalouf], they all worked at Square with me, now Block. And when we went and did this, everybody had the, Of course they did. Of course they did. Because it’s such unusual expertise to have that it really positioned us from an unusual situation to be experts at what we do because of what we spent the prior five years doing. I mean, there’s nothing like it in the United States. And so I think we got lucky that we were able to translate that experience so tangibly into something that our clients feel because we lived their pain. We literally sat in their seat around what we built, every policy we wrote, how we interacted with regulators, and we lived the experience in a way that we knew what we did poorly. We knew what we did well. We knew what we needed to fix. We knew, and so we were able to benefit off of that years of expertise and take it to a foundation like Lead and then catapult it forward with some of the best fintechs and consumer companies as new clients. And so it made it really easy for us for people to say, Of course you did go, you. I’m not surprised.

Lev-Ram: Of course you bought a bank, Jackie.

Reses: Of course you bought. It’s one of those very funny things. If I tell people, they’ll say like, you bought a bank unless you know me from Square. It’s such a weird thing to say like, yes, I own a bank. I went and bought a bank. But when you understand the story of having built one from zero, from an idea that I had, it kind of feels obvious.

[Music begins.]

Murray: Jason Girzadas, the CEO of Deloitte, US, is the sponsor of this podcast and joins me today. Welcome, Jason.

Jason Girzadas:

Thank you, Alan. It’s great to be here.

Murray: Jason, everyone in business is talking about AI. It clearly has the potential to dramatically disrupt almost every industry, but a lot of companies are struggling. What are some of the barriers that companies are facing in creating business value with AI?

Girzadas: Yeah, Alan, AI is on every client’s agenda. I think every CEO and board interaction and conversation that I’m a part of proves the fact that the promise of AI is widely held and the hope is far and deep that it creates business value. But there’s challenges, to be sure. What we’ve seen is that the probability of success increases dramatically with strong executive sponsorship and leadership. There has to be a portfolio of investments around AI as well as to link the business ownership with technology leadership to see the value of AI-related investments over time. We’re optimistic and confident that the value will result, but it will be a portfolio where other short term opportunities for automation improvements around productivity and cost takeout, and then longer-term, medium-term opportunities for business model innovation that are truly transformational. So this is a classic case where it won’t be a single approach that realizes value for AI.

Murray: It sounds like you take it a step at a time.

Girzadas: I think a step at a time and also a portfolio recognizing that some investments will have short-term benefit where you can see immediate use cases creating financial and business impact, but longer-term opportunities to really invent different customer experiences, different business models, and ultimately create longer-term benefit that we can’t even fully appreciate at this point in time.

Murray: Jason, thanks for your perspective and thanks for sponsoring Leadership Next.

Girzadas: Thank you.

[Music ends.]

Lev-Ram: So I’m curious, going back to your days at Square, and I know you’ve had plenty of experiences elsewhere as well before, including Yahoo and of course on Wall Street. I’m curious to hear what did you take away from working for and with Jack Dorsey? What are the main takeaways to today?

Reses: He’s a very special person, and I think there are two places where his creativity is able to shine through and translate from kind of brilliant creative thinker to execution around funding and building multiple multi-billion dollar businesses, even subsidiaries that he’s responsible for building or products he’s responsible for building. I mean, he’s got a really unique creative mind. But I think the two things that I took away were first, and I referenced it before, he is fantastic at first principles thinking. There’s always a why. And you always have to boil it down to like, why should we be doing this? Does it make sense? Is that the right answer for right now? And I think in something like banking, that’s incredibly important because you can get stuck in, as I said, 5,000 years of products that have existed around just the way they’ve operated before. But someone who really thinks through first principles thinking will reevaluate everything and question particularly today in a modern context that operates so digitally-first and digitally-native for most of our customers, that it allows us to make sure that we’re questioning everything we do and how we do it.

And I think that’s really helpful and something I’ve really taken away from him as a leader. And then second, he’s a tremendous listener. He’s one of the best listeners I’ve ever worked with, and I think he made me a better listener. You could be in meetings with him where he says nothing. And oftentimes there’s a bias for executives to feel like they need to say something, they need to be a voice in the room. And I think there’s a much stronger power to the power of listening and making sure conversations stay directed, almost like synthesizing and directing, conducting, if you will, rather than feeling the need to lead first with your voice. And so I loved working with Jack. I think he’s a truly special person. He’s fun too. He’s super fun.

Lev-Ram: I’m sure it wasn’t boring. You have entrepreneurs in your family, right? Talk a little bit about that, just your upbringing and also what you take away from the, it’s in your DNA I guess. So how has that formed you?

Reses: I think I’m one of the only people in my family to work for someone. Everyone just started their own business. And so I grew up living in a 24/7/365 family, mother, father, grandparents, and I didn’t know any better. My mother owned a chain of retail pharmacies. My father owned a medical supply and my grandparents were pharmacists. And so I grew up behind the counter of a retail pharmacy. And so it could be counting change out of the Coke machine and putting it into quarter sleeves or penny sleeves or whatever those little things are that you then bring to the bank. I could wrap presents behind the cosmetics counter. It sounds very trivial, but in that environment, you learn about customer service and how the customer is right, and how sometimes they want to be heard and they need to give you feedback. And sometimes you screw stuff up and you have to fix it.

And I think those dynamics around growing up in a retail environment were really powerful. I also have memories of going out with my father on Christmas and doing a liquid oxygen delivery to someone whose health was in peril. And my father saying, Don’t worry. I’m glad you got me at home. No big deal. I’ll come and make sure you’re okay. And so my father didn’t care that it was Christmas and made sure that he was there for people who relied on him. And so I think we’re the same way. A few weeks ago, there’ve been a few banks in the bank as a service industry that have faced consent orders, enforcement actions, clients have had to come off, they’ve had growth restrictions. Like everywhere in our industry, banks have had trouble. And someone pinged me, it was probably five in the morning California time, and they pinged me through an email alias on our website, and I saw what was happening and they were having a little bit of stress, but I knew who they were and they didn’t know how to get to me directly.

And I got that email and picked up the phone and just I typed them out a message. It was like, Hey, it’s actually Jackie. Can you just call me? Here’s my mobile, and I’m up. I happened to be up sitting on my couch. I was probably online doing terrible stuff at the time, reading gossip or whatever. And I got on the phone with them and I realized that there were a lot of people who had questions about how to transition off of their current bank partner into another bank. So I wrote a blog out for ’em and just posted it to our website, to LinkedIn, because I knew that I was getting these questions already. I could feel them that weekend. I was just going to be hit by all these questions. Sure enough, I answered questions all weekend long, and I was happy to help people.

Their products were at risk for being turned off by the banks that they were working in, and they were stressing out. So even if they weren’t right for us, if I was able to help ’em, I was happy to help ’em just get ’em to the right spot. I mean, I refer people to a lot of our competitors all the time because I don’t think we’re the right team for them. And we have a lot of good competitors that I really respect. And so if we’re not the right bank for them, I will send them elsewhere and see whether they want me to help get them to the CEO of that bank.

Lev-Ram: Going back to entrepreneurial roots for a second, I heard that you started or tried to start a watermelon-flavored soda company at some point. Did that not work out?

Reses: Isn’t that funny? No, it sounds so silly now, but this is pre-Snapple. So now in grocery aisles, it seems so obvious, right? My college roommate lived in Curaçao, and she came up with this idea for a watermelon soft drink that they sold it in Latin America that was very hard to find anywhere outside of the A BC Islands, Aruba Bonaire Curaçao. And so we decided we would take it to the Wharton Small Business Center. We wrote a business plan for it. And so we had this business plan for a soft drink that we called Kolita. And so this is 1989. This is not in the grocery store world that we have today. And we won a grant through the Wharton Small Business Development Center and I decided that it wasn’t right for me to go do this. I ended up working at Goldman Sachs right out of Wharton, and I did it largely because of a lesson that I felt like my parents taught me, which is I didn’t know anything.

I didn’t know enough to know what I didn’t know. And I decided that if I went and took a job on Wall Street, I could then apply it later in life to whatever I do that’s entrepreneurial. And so I took this business plan idea, I put it on hold. Maybe I could have been a soda mogul. I don’t know. We’ll never know because I do think we were ahead of our time, but we probably would’ve completely screwed stuff up. We wouldn’t have gotten proper licensing or paid taxes, something that 20 year olds wouldn’t have known they were supposed to do back then.

Lev-Ram: And now you’re in fintech.

Reses: Maybe we ended up better off anyway.

Lev-Ram: That’s really funny.

Reses: No, I love that kind of stuff. When I was in college, I mean, I was really lucky because I went to Wharton and my peers, I mean now so many of ’em run incredible Wall Street firms, but we grew up at a time where the hedge fund industry grew up, the private equity industry grew up, and my peers from Wharton from around the world are just truly remarkable. I mean, every day I remark how incredible they are. And I was in Italy this week at a Rivet, one of my investors conferences, and I was there with Roberto Sallouti, who runs BTG Pactual, college classmate, Ross Stevens, college classmate. It was one of these incredible moments where I was at this very small group of people, and here I was with college classmates of mine in Italy at a fintech event, thirty-something years later. And I think it speaks to the quality of expertise that was developed or the people that were a part of the Wharton community. Frankly, I hope we keep it that way because I do think it’s truly special. And it certainly, Wharton saved my life.

Lev-Ram: In what way?

Reses: I was a scrappy Atlantic City kid, and I really only saw small business through the lens of my family. Wharton changed my world. I mean, my college roommate was from Curaçao. My other friends were from Saudi Arabia, Tunisia, London, Monaco, and I had never met anyone like this. And so if you could put yourself in an environment where your friends and classmates come from all over the world and grew up in environments that were so different from yours, it really pushes you from a foundational point of view to just open your mindset to different ways of operating. And it had never occurred to me to think of business in the way that my friends from around the world had lived in. And so the scrappy kid from Atlantic City, N.J., my world changed. My world totally changed. And even now, as I mentioned, I have dear friends from Wharton that I love having in my orbit. And so I feel very lucky to have that. One of my kids goes to Penn, maybe my second will get her graduate degree there. We’ll see. Maybe my third will go there. We’ll have to see, which depends on what they want to do.

Lev-Ram: Well, you kind of talk about Wharton opening your eyes, building these bridges globally and across industries, of course. And the connections you made. Before I let you go, I want to go back to what we talked about earlier with Lead Bank and with this bringing together of kind of old and new different cultures, different geographies, and different industries that are coming together. And I wonder if you can just share a bit more about what you’re doing in tangible terms to make that as smooth as possible and as fruitful as possible. Because I think a lot of leaders obviously deal with this in different ways, with that kind of an integration culturally, product, in many different ways. So, just wondering if you have any tips.

Reses: Well, first it starts with our leadership team and as a group of leaders, we talk weekly on issues that are top of mind, and we share mistakes Like this last week I screwed something up with our investors, in communicating something to our investors that I feel like they personally don’t think I did a good job with. And my general counsel called me on it. And we basically said we have to do a retro about what we did and how we communicated whether it was as good as it could have been. And the fact that I don’t feel threatened by someone who works for me, basically calling me out on something that she perceived I should have done better I think is central to building a really strong cohesive leadership team. And it’s the only way that you can make things better. I truly believe that you have to shine light on things that are weaknesses and talk about them and try to figure out what you didn’t do well so that you can only go forward and make it better.

And so, I do think that requires a level of trust. And so I start at the leadership level and making sure that we have that level of trust. Second, I don’t consider us a family. We are a high performing team and we’re high performance based. People can come and go based on their performance, and I think we have to hold each other accountable to making sure we uphold the highest level of standards. And so we are not a team that believes everyone needs to be treated equally. We’re a team that believes in performance, and we want high performing culture and high performing team. And so that’s really important. And I think that makes A players feel like they’re in an A player type of team. And so I think that continues to build out the type of team that we are all proud of because we don’t feel like we’re bringing anyone along with us.

And frankly, sometimes if you don’t have the right people for a team, they’re better off somewhere else where they’d feel more comfortable in a better environment for them. And so I think it does everybody a service to have that kind of environment and to treat people with dignity and respect. And then we also are very open and transparent as a culture. If someone asks me a question, I’m very willing to answer it. We all are. As an executive team, we share our monthly numbers with everybody in the company. We share board updates with everybody in the company. We share product launches and everything that we’re doing with everyone in the company. And so we’re very open about how we operate. And then lastly, I’d say we’re a very learned culture. And I think in an environment where you have type A players, we want everyone to feel like they’re learning all the time.

And so we try to build in areas where people can learn from each other. And that might be a manager doing a lunch and learn where they talk about something they think they’re good at. It could be all hands meetings where we bring in unbelievable speakers. We just had Leopoldo López, anyone who wants look up someone who’s got an incredible life, look up Leopoldo, he’s from Venezuela. He was jailed. He lives in exile in Spain. And so he built the defensive democracy banking program to move money to people on the ground in areas that are challenged or countries that are challenged. And so we had him speak, which was very cool. And so if you’re someone who’s never had exposure to him, you’re kind of like your eyes are wide open. Sigal Mandelker, who was the deputy treasury secretary just spoke. We’ve had these incredible groups of speakers come. And so it makes people realize we care about them getting smarter. And so that’s the way we try to give back to people in terms of their learning and their experience, either with the quality of people that they work with or the quality of things that they could learn. And so that’s the kind of culture we’re trying to build, and we think we’ll build an incredibly cool, innovative company for the future.

Lev-Ram: Well, Jackie, congrats on buying a bank, and thank you so much for talking with us.

Reses: Oh, thank you. Thank you.

Murray: Leadership Next is edited by Nicole Vergalla.

Lev-Ram: Our executive producer is Chris Joslin.

Murray: Our theme is by Jason Snell.

Lev-Ram: Leadership Next is a production of Fortune Media.

Murray: Leadership Next episodes are produced by Fortune’s editorial team. The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.