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Transcript
Joseph Drambarean
Well, this is exciting. This is our first in-studio guest, none other than Mr. John Philpott, who also happens to be on our board of directors here at Trovata. So we’re really excited about this episode and we’re really thankful that you are willing to join us today, John. And yeah, I’m really excited about this conversation.
This is FinTech Corner and I’m Joseph Drambarean, your host and the Chief Product Officer here at Trovata. I’m joined by Brett Turner, our founder and CEO and fearless leader. And today we’re going to dig into a story that I know I have wanted to hear for a very long time. I think the context here is if you kind of rewind the tape all the way back, I think at this point, when were we kind of talking for the first time, John? Is it like four years ago at this point?
John Philpott
I think it’s almost-
Brett Turner
We just crossed four years when the investment came in, yeah.
Joseph Drambarean
I remember the first time Brett told me the story of some of your background because you’ve had a legendary story pass. Amazing. And one of the pieces of that story is S1.
And I didn’t know anything about S1, and so Brett was kind of telling me a little bit about the early days of internet banking when the internet wasn’t a thing. And so that’s just fascinating and I was hoping that, if you’re open to sharing a little bit about that story, the reason why we love to hear this story is because we feel very much right now at Trovata, we’re living through almost a second or third generation of that very same story, just playing out in a different way. So I don’t know, I thought it might be cool to just kind of reminisce.
Brett Turner
Absolutely.
Joseph Drambarean
Just see what it looked like in that iteration of the story.
Brett Turner
I think maybe a little setup also is just anytime you’re looking for investors and raising capital, I mean, it’s hard. It’s a little bit like a marriage. You’re trying to make sure you get the right fit on both sides and you want to just find an investor you know can really work well together and just having been doing this sport of startups for a long time, for me, just somebody who really understands how to operate a business. Real operator experience.
And one of the things right out of the gate, it was apparent that John had that. And his experience, his background, he can really be helpful in terms of our journey. And then the more we kind of peeled back and the more I was learning his story, the more it’s like, are you kidding me? This is uncanny. It was sort of Trovata 2.0 now. He kind of already did Trovata 1.0 in some ways. A little different, but it was amazing how really the parallels between the stories and your early story with internet banking is amazing.
Joseph Drambarean
So paint the picture for us, John.
John Philpott
Yeah, absolutely.
Joseph Drambarean
Is if we’re going to intro scene into what’s happening during this time, let me see if I have some of the details right. The internet is pretty much brand new in many ways. We have HTML pages, we’re starting to get a little bit more creative in terms of what they can do, but the concepts that we have today, security, APIs, all of those things, cloud, take all of that, put it aside. That doesn’t exist yet.
John Philpott
Right.
Joseph Drambarean
So what did it look like back then? What were some of the conversations that you were having and what did it feel like being in that environment?
John Philpott
Yeah, so first of all, thanks so much for having me. I’m super excited about this and absolutely looking forward to the conversation. But I think it was the Wild West. Just as you mentioned, we started S1 in 1995.
There was a multi-bank holding company based in Kentucky and we converted one of their thrifts, which was a small bank in Pineville, Kentucky. It was actually before Google Maps. You needed an atlas to find it.
Joseph Drambarean
That’s awesome.
John Philpott
And we basically turned that into First Bank on the internet. So we started it in ’95 and launched and did the very first bill payment online and kind of grew it from there. And we started on the retail side and essentially we originally started the bank because we thought without the branch infrastructure, we could use it as a way to get very low cost deposits. We didn’t have the building and things like that, and so we thought we could charge a competitive rate and grow it from there as a cheap way to build deposits to use for the rest of the bank holding company [inaudible 00:04:47].
Joseph Drambarean
So at that point, I’m just assuming there wasn’t a vision yet of, “Holy cow, this could be every bank’s experience.”
John Philpott
Right, which was great. So we launched it and I think pretty soon after we had a big event in New York and we paid the first bill payment to the American Red Cross. It was a donation to the American Red Cross.
Joseph Drambarean
Nice. Very classy.
John Philpott
Right, and then we started realizing that the vast majority of our customers were other bankers. And so we started getting calls from other banks and pretty soon thereafter, probably within kind of the next 24 months, we decided to sell the bank because it was a lot more profitable and certainly a lot more fun to be a software company.
Brett Turner
Whoa. So then it’s the digital experience. I mean, that’s really what took really took off from there?
John Philpott
Yeah, and we tried to do some things to make it approachable as we were teaching people about online banking.
So if you look at the Wayback Machine, our first little webpage was the inside of a bank branch. So we had a little teller scene on our webpage-
Brett Turner
That’s awesome.
John Philpott
… And some of our customer service reps. And we had a little security guard in the corner that you could click on to talk about security and what was SSL and some of these.
Joseph Drambarean
I love this.
Brett Turner
That sounds like the Metasphere.
Joseph Drambarean
You know what is cool about this? It reminds me of… Okay, do you remember back when the iPhone first came out? They had this concept of skeuomorphic design. It was basically when you look at the app, it looks like it’s a real piece of leather or it looks like it’s a real calendar that you would see in a daily planner or those types of concepts.
This is reminding me of how far we’ve evolved just from a design experience because when you rewind the tape, people weren’t used to interacting with computers. So you have to create these metaphors that get them comfortable, right? The idea that someone was willing to do bill pay on a computer…
Brett Turner
At that time, yeah.
Joseph Drambarean
… Back then, is kind of like, let me pick up my brains off the floor. I can’t even believe that.
John Philpott
Well, it was kind of interesting because there were two really big hurdles. The first was that it was really difficult to get deposits.
Brett Turner
Right.
John Philpott
So in order to deposit checks, people actually had to mail the check to Pineville, Kentucky. So that was a big hurdle to cross to get folks to basically believe that they were sending their checks somewhere.
The other interesting thing that we saw was the adoption life cycle, to your point.
Brett Turner
Yeah.
John Philpott
Customers getting excited about it. And I can tell you 98% of our customers went through the same journey with online bill payment in that the very first bill payment they would make was to themselves for a dollar.
Joseph Drambarean
To test it.
Brett Turner
Yeah. Is this legit?
John Philpott
Right, is this legit.
Brett Turner
This will this work?
John Philpott
Our cost per transaction was almost $2.
Brett Turner
Oh my goodness.
John Philpott
So much money on all these.
Joseph Drambarean
That’s crazy.
John Philpott
So the customer would basically get the check in the mail and they would say, “Oh, this is great. I’ve got a check for a dollar.” Then the next month what they would do is pick a bill that they didn’t care about. So maybe it was the yard service or something they would-
Brett Turner
Utility bill or something.
John Philpott
Well, not quite yet.
Brett Turner
No? Okay.
Joseph Drambarean
Don’t go too fast.
Brett Turner
The lights are going to go off.
John Philpott
So they would do that, the yard service would show up the next month and they’d say, “This is great.” Then they would pick kind of a non-core utility, so not mortgage or water or power, but maybe it was their cable TV bill or something like that. And then really by that six month they were starting to do things like putting on their mortgage and those things.
Brett Turner
Wow.
John Philpott
But 98% of our customers kind of went through that same journey,
Brett Turner
Six month process of just trust.
John Philpott
Right.
Brett Turner
Wow.
Joseph Drambarean
So let me ask you this. One thing that obviously… And this is from the perspective of technology. I can give this opinion definitively. Nothing keeps me up more at night than dealing with payments. Just the reliability of it, the uptime, the redundancy, it’s a lot of my thought process throughout a day.
How did it feel back then [to deal with payments] knowing that you don’t have scalable cloud infrastructure, you have servers, boxes. You probably could go to your server and kick it.
John Philpott
Right. Oh yeah, it was down the hall.
Brett Turner
Don’t kick it.
Joseph Drambarean
Don’t touch it.
Brett Turner
That’s called the bank failure, right?
John Philpott
Absolutely. Well, I mean it really was a free for all. So there were times I was dating my wife now, at the time, and if the bill payment file didn’t go through, I would have to personally hand write all the checks.
Brett Turner
Oh my goodness.
Joseph Drambarean
What?
John Philpott
So she would come visit, she lived in a different town, and before we could go out to dinner, we would each take a pile of checks and hand write just because we weren’t able to get those booked.
Brett Turner
And she’s still married you?
John Philpott
She’s still married to me. So it was just things like that as the infrastructure was starting to age and that sort of thing.
Joseph Drambarean
The ultimate redundancy.
John Philpott
It was the ultimate redundancy.
Brett Turner
That is awesome.
Joseph Drambarean
So then people, I’m assuming, are loving how convenient it is because you said six months, but over those six months probably light bulbs are going off of like, “Oh man, this is so much better. I don’t have to write checks? Are you kidding me? This is amazing.”
So what is happening with the banks that you’re talking to at this point? Are the light bulbs going off as well?
John Philpott
Yeah, very quickly the light bulbs went off. I kind of mentioned we had the bank, it did prove very difficult and costly to try and establish a new brand in financial services.
Joseph Drambarean
Yeah.
John Philpott
And at the time, this was in the late ’90s with the internet craze, we went public three weeks before Netscape did, and it became really apparent that it was going to be a great transition for us to just be a software provider selling the software to other banks.
Joseph Drambarean
Yeah.
John Philpott
And so we divested the actual internet bank, the banking part of our business, and became S1 to just focus on selling the technology to-
Brett Turner
That’s cool. In some ways, maybe the bank initially was your big sandbox.
John Philpott
It totally was.
Brett Turner
To get it right, and then you’ve got this digital experience now. So are there banks of all sizes clamoring because they want the experience?
John Philpott
Yeah, so we did something that was probably risky at the time in that we started working with really big banks. And part of this was probably driven by Wells Fargo went live pretty shortly thereafter. And so-
Brett Turner
With you or their own?
John Philpott
With something that they had built.
Brett Turner
Okay, okay.
John Philpott
And so there was then a big wave of folks that wanted to start internet banking. And we also realized too that we kind of started on the retail side, but we were starting to get engagement from small business. We were starting to get engagement on the corporate side. And so at that point we started to expand our product offering to start to release small business features, to start to release corporate banking features. And at the end we ended up having a full suite that could take you all the way from a retail customer all the way up to the very, very large corporate customers.
Brett Turner
Amazing.
Joseph Drambarean
How did it feel to be in that pressure cooker at the time? Because it kind of sounds like it was everything all at once. Pretty much opportunity-rich corporates reaching out, big banks reaching out, retail banks reaching out, small business, and which one do we do?
Brett Turner
Four legs of the stool. Our last night dinner conversation around our focus areas, right?
John Philpott
So we again did not follow that advice. We were spinning a lot of plates, but I think one of the things that was just fascinating is that the banks were learning how to adopt the technology while the consumers were as well. So I think it was a learning experience for everybody. That was also, if you think about it, the late ’90s. It was a really dynamic time in terms of a lot of innovation across all industries. You had things like Pets.com sock puppet, and some of those things where it was almost the-
Joseph Drambarean
Sorry, I don’t know what that is.
Brett Turner
I live through that, so this is my language. I started my career in ’95, so that part of it, it just was fascinating compared to where things are at now.
John Philpott
Oh, it’s amazing.
Brett Turner
But yeah, doing what you’re doing with what we had then was crazy ambitious. So if you look at the experience then, you’re now starting to sell to other banks and maybe fast-forward a little bit where we are today, it’s like, how much really has it changed?
In a lot of ways, the legacy of what you had built and where that carried on, you see so many aspects of that still today with the small banks, but even some of the bigger banks too.
John Philpott
Oh, or sure. And actually one of the reasons we were excited about the investment in Trovata is that I kind of saw it as the next generation of what we had built with S1. One of the things that was amazing was there were still banks that had our old S1 technology as their front end on the internet side.
Joseph Drambarean
It’s so satisfying. That’s amazing.
John Philpott
That’s the point we were excited to kind of say, “Okay, what’s this next generation of cash?” And I think one of the things that we got super excited about was just with your background and living in the trenches and understanding the cash flow forecasting and the analytics and the needs and how they’ve evolved, it got us super excited about working with the Trovata crew.
Joseph Drambarean
So as you’re going through the tail end of the ride, the middle sounds wild, it just sounds as if all a blur and the internet is happening. It’s coming to life.
It sounds like it started to really take a hold in terms of sales revenue and exploding. What happened next? Did you guys end up staying just here in the US or did this go like gangbusters?
John Philpott
No, actually it ended up being international.
Joseph Drambarean
Wow.
John Philpott
So I think the company kind of grew and scaled and we ended up selling the technology. One of the other things that S1 did is we made a lot of acquisitions, so we started adding additional channels.
One of the things we recognized when we started rolling out all these internet bank was that customers would call the call center and have a question about what was going on at the internet.
Joseph Drambarean
I was wondering about this.
John Philpott
Or they’d walked into the branch and say, “Hey, my water bill didn’t get paid this month,” And the teller would kind of look at them and say, “Gosh, I don’t know what’s going on there.” So the company evolved to be…
It was kind of a multi-channel play where the goal was to basically say, “Could we build a platform that could manage all of the front end interactions with the bank?” So we did call center, we did teller, we did VRU for voice response units. So if you called and wanted to talk to an automated attendant, those sorts of things.
Joseph Drambarean
Wow. So-
Joseph Drambarean
Was this same playbook working in every market internationally or did you guys have to tweak the distribution of each market because of local regulations and all of that?
John Philpott
Yeah, so we definitely had to customize. They were different payment types, obviously multi-language and currency and those sorts of things. Different rules and regulations. All of that played into it. It actually was a little bit easier to go international because in the US we had thousands and thousands of banks. So we had to service everything from community and regional banks all the way up to Bank of America. In the international markets it’s a little bit easier because there are four big banks in Thailand and there are three big banks in Jordan. So there weren’t as many banks, but the banks were bigger, for sure.
Joseph Drambarean
Right. What was your favorite city traveling internationally?
John Philpott
I think Singapore was probably my favorite.
Joseph Drambarean
Nice. And this was in the go-go era of Singapore, because right now, if you compare Singapore today to then, it’s probably a night and day difference I’m assuming.
John Philpott
Yeah.
Joseph Drambarean
So everything was getting built in the same way back then as what was happening domestically with the internet kind of growing. And I love this story because I know that you understate it, but when I kind of soak in it, I just think to myself, “What an epic ride.”
Taking something that started as a bank, no intention of it being a global platform, and then one opportunity after another knocking at your door and having to react, having to solve problems, having to grow, acquire companies. I mean, is there anything better? It just sounds amazing.
John Philpott
It was, and we had a fantastic team, right?
Joseph Drambarean
Yeah.
John Philpott
So I think one of the things that that’s fun about the start, and I think now being on the investor side, the team makes such a difference. The folks that you go into battle with and the expertise that you pick up along the way and those sorts of things make all the difference in the world in terms of trying to build a good, really robust company.
And I think one of the things that’s fun as we watch companies like Trovata grow is as you scale, you have different issues. So when you hit different revenue milestones or you have a certain number of customers on the system, as the water flows through the pipes, you start to see where the leaks are and it’s like, “Okay, well we’re going to fix this one,” and inadvertently that breaks something downstream and so you have to run over to the next one.
Joseph Drambarean
Absolutely.
Brett Turner
So all those, I mean, Herculean challenges at that time, you’re dealing with in some ways versus what we have today, almost like caveman tools to achieve it, which is remarkable.
You fast forward where we are and now we’re creating this new digital experience and sort of traversing the gap, really between the bank and ERP system and this growing chasm and void of all these things. But building a company regardless is never easy.
John Philpott
Right.
Brett Turner
We just face different kind of obstacles. My wife would probably shoot me if this is the case where she’s having to write a check. It might have not fared so well. But if you look at now where everything is so well established, and now even where banking is at and how to then change some of their behaviors and migrate into these next gen experiences even beyond that.
John Philpott
Right.
Brett Turner
What do you maybe see some of the bigger challenges? Are they easier? Are they harder? Are they just different?
John Philpott
I think it’s kind of different. It’s interesting because you have things like regulatory. So in the early days we had to spend an enormous amount of time with the regulators to basically say, “This is what we’re going to be doing, this is how it’s going to work,” so we had to do a lot of training from a regulatory standpoint.
But I think as these new products and services and waves of innovation take, it does take time to scale and change customer behavior. One of the things that is… Actually, think about the decade of kind of 2000 to 2010, the number one financial services technology innovation that had the most impact on the banking business was remote deposit capture.
Brett Turner
Oh yeah.
John Philpott
Because if you think about just the sheer infrastructure that banks used to have to have manage checks, you had to basically take the check, you had to image the check, you had to store the check, to get the check to the fed. And just the sheer amount of cost and efficiency that remote deposit capture added to the system had a meaningful impact to kind of the PnL of these banks. And so I think it’s very similar when you think about some of the technology initiatives that we’re looking at today.
So if you think about kind of ChatGPT and some of the things that are going to come when you think about some of this innovation, certainly blockchain. Forget all the coin stuff, but blockchain in and of itself and smart contracts. These are really, really compelling innovations that are going to have a major impact on how banks do business. And inevitably, new issues will crop up in terms of how we handle and deploy these technologies, and we’re going to realize that we’re going to break things in other areas of the bank when we stand it up here.
But again, I think that’s what makes fintech and financial services technology such a fun place to invest and do business in because these innovations have a dramatic impact on the way that these organizations are doing business. If you think about some of the initiatives you all have at Trovata in terms of being able to do cash flow forecasting and planning, the ability to help a small business manage their cash, which is the lifeblood of what they’re doing every day, and providing real, actionable insights has a dramatic impact on these businesses and their ability to grow and scale, which I think is super exciting.
Joseph Drambarean
I know we are getting close on time, but I wanted to ask this question because we talk about this all the time. In the moment, we never really get a chance to process what’s happening. It just feels like a giant blur, right?
We went through COVID, we went through the economic situation that we’re going through right now. Silicon Valley Bank deciding to go, all these things just happen and hindsight is 2020, right? You look back at it and you go like, “Well, we could’ve done things this way, that way.”
I know this is putting you on the spot a little bit, so I’m sorry. Is there anything you would’ve changed about the experience? Is there anything that you would take back that now looking back all that time, seeing everything how it played out?
John Philpott
Yeah, I think the answer is no. I think in any experience, part of the fun is the journey.
Joseph Drambarean
Yeah.
John Philpott
It’s skinning your knee. It’s going down a certain path. It’s the pivot. I don’t think I would change a thing.
Joseph Drambarean
I love that.
Brett Turner
Cool.
John Philpott
I think that it’s just so exciting and dynamic to be… And again, I loved the scaling part. I loved the growth part. I think that’s one of the reasons why I was excited to move to the venture side because it’s a small part of me being able to live vicariously through other teams to relive those glory days of having things not work or having a programmer come in and say that they had stayed up all night trying to get the debit card to access the CD and having to tell them, “You can’t have a debit card access a CD.”
Joseph Drambarean
Oh, dear God.
John Philpott
And so just things like that where you just kind of say basically… Yeah, I wouldn’t change a thing. I think everybody kind of wears their scars proudly.
Brett Turner
So that whole rise was really dependent on the banks to embrace what you’re doing, and they did. And you look at where they’re at now and they need to embrace a lot of things. I mean, fintech is going crazy just because in some ways the banks maybe aren’t embracing things or maybe aren’t doing it as fast.
Where do you see things play out? Especially our journey, we work with banks. Everybody knows the banks are a little slower. They’ve got a lot more to contend with, maybe even then they did back then. Especially in the light of the last couple of months that’s brought at least some new uncertainties a little bit, where do you see the banks traversing from here and where do they embrace a Trovata or other things like they did back to in your days?
John Philpott
Yeah, so I think it’s really important. So obviously they need a commitment to innovation and it is difficult because they do operate in a regulatory-driven environment, and so they do have a lot of demands on their business and how they scale. But I think the best banks that we see are very proactive. They have a learning mindset. They love R&D, they’re doing pilots, they’re going out into the ecosystem and engaging with companies and those sorts of things.
And I think part of the deal now in banking is you have to have a commitment to innovation. You have to at least have a toe in terms of how some of these new technologies are growing and scaling, and you need to keep an eye on the horizon as to how these things are going to impact your business, because these innovations are amazing and they can have a meaningful impact in terms of how they do their business and how they serve their customers.
Brett Turner
Cool.
Joseph Drambarean
Well, John.
Brett Turner
Yeah.
Joseph Drambarean
You’re a really busy man and really appreciate you taking some time out of your day to record a pod with us. This has been amazing. I’ve loved the stories. So appreciate you coming on. Appreciate you sharing. This was great. And this has been FinTech Corner and we’ll see you next time.
