Welcome to our fourth installment of Mooch's Fintech Founders and Leaders series! Our interviews are now available for listening to on Spotify and Soundcloud, as well as a full written version here on our blog. This month we interviewed Mitchell Lee, a veteran of the financial services industry who spent many years in the private sector working for the Federal Reserve, and has now transitioned to the private sector, working as the Chief Risk Officer for Synctera. Read (or listen) on for Mitchell's takes on the private vs. public sector, changes that are coming to the financial industry as a whole, and how he brings his values to work with him every day.
BE: We're here today with Mitchell Lee who is now the CRO at Synctera. CRO as in Chief Risk Officer. Prior to that you spent seven and a half years at the Federal Reserve Bank of San Francisco and a year and a half as Director of Fintech. So I'd love to ask you some questions about your role there as a director. To start out with, I'd love to hear about some of your favorite programs that you worked on, specifically around promoting inclusivity and innovation in the industry.
ML: So like you said, I spent seven years at the Federal Reserve, quite a bit of time. But the part that I got really excited about was the last year and a half, which I did head up the FinTech group at the San Francisco Fed. And the idea was to really promote innovation and inclusion in the financial system. We were seeing that there was a ton of activity over the past, now 10 years plus, and fintechs that are coming up on the scene, kind of thinking about how we offer financial services in a very different way than your traditional banks. So there are a bunch of different projects out there. I mean, a big part of what I did was a combination of working with policymakers in Washington, DC, who were thinking about what sort of policies, what sort of regulations should be put in place, to both enable innovation, but also make sure that there wasn't so much risk in the system that you have a repeat of like 2008 and global financial crisis.
So that was a part of it. And I had a team of folks that were really focused on doing research in a lot of different categories – think cryptocurrency, think data lending, digital banking, and the effort there was to really understand, okay, what are both the risks in the sort of new FinTech models, but also the benefits the increased inclusivity the ability to get people maybe better credit access that they wouldn't otherwise have, right? And what's that right balance? What's that? Right, because there is a tension there. And then working as well with also our bank examiners. So Federal Reserve Bank of San Francisco covers off the entire west coast of the US in terms of all the banks that are out there that are under the Federal Reserve's scope. And so several of those banks are looking into working and partnering with fintechs to offer some of these services. So how do we think about what banks should be doing? How should they be monitoring that innovation and making sure that again, it's safe, both to the bank, and to the consumers that these products go to?
BE: Definitely, so interesting. I actually grew up in the DC area, so I know that politics at the national level can be a little more dicey, a little more gridlocked. How do you see these differences in FinTech? In the evolution of FinTech at the state level versus at the national level? When you're working with someone who's maybe a little bit more removed from all of this? What are those key differences?
ML: Yeah, that's a great question. One of the things that I think is funny -- anytime I used to ride on a Lyft ride, I'd always get a question, you know, "hey, what do you do?" I work at the Federal Reserve, and you get this kind of look sometimes, right? "Oh, are you controlling the the world in some way? Are you part of the Illuminati or something like that?". And the thing that I always tell people is that the Federal Reserve is actually a lot more decentralized than you might think. And this is from someone who also really loves tracking crypto. And that's always a conversation there as well.
But you're absolutely right. There's a lot of stuff that happens at the national level, where it is embroiled in sort of a lot of the debate and discussions that are happening on that end, versus when you're looking at the Reserve Bank level. A lot of the folks there are actually on the ground doing as an example, bank examinations or engaging with some of these fintechs indirectly. So they're seeing on the ground, what is actually happening, how are these things being implemented? Doing examinations, asking the banks the right questions, very deep questions about how you're constructing these programs and working with your FinTech partners.
I see it as a good actual kind of tension. Because at the policy level, you have folks, they're also out there, they're engaging, they're talking to the big tech companies and the big FinTech companies out there, and trying to understand as well, what they're doing, but it's more from a policy angle, how do we set the rules? How do we set the guidelines that a lot of these bank examiners on their hands have to actually follow? And so it's this sort of policy thinking that has to happen in tension with, Okay, what's actually happening on the ground? What are we seeing and how are people you know, getting around these rules? Where are the rules that are really ambiguous and hard to follow? And it's that constant tension that has to happen. So that hopefully the outcome is that policymaker makers are making the right decisions.
But I'll be frank, look I came from the public sector for quite a while. There's actually an article out there from the former FDIC Head of Innovation that's pretty harsh in some ways about the pace of innovation that happens in public sector. That is the case that things do move a little bit too slow. And we're in a world where, especially in FinTech, things are moving so fast, definitely moving way ahead of any sort of regulation or policy that's out there. And I think the biggest example, is probably cryptocurrency, right? And you know, tax season is upon us and people are all trying to figure out for the first time, what do my taxes look like with crypto? There's really no precedents for this. So I totally see what you mean, there's kind of like a tension between with policy being developed and things actually happening. But I think that's true across a lot of sectors for sure.
BE: So I know you're in the private sector now. What was that transition like? What have been the biggest differences that you've noticed so far, making that transition?
ML: So one of the reasons I joined private sector was that as I was kind of looking at things happening in the public sector, there were certainly a lot of decisions that were moving really slowly. And for me, I felt a little bit like I was on the sidelines of things, as a bank regulator, as someone who's interacting with policymakers, things are moving a little bit more slowly. And you're sort of on the sidelines observing and trying to construct, you know, the right way to do things. And what I saw across the private sector was like, Okay, I have an opportunity to actually be right in the middle of the action, to be part of the building of what we're seeing. And what we do at Synctera is we're actually banking as a service provider. So what that is, is it's connecting community banks, with fintechs, or non banks that want to offer financial products. So here is an example: if you're starting up a company, you want to offer a debit card or a checking account, you can be a bank, but being a bank is incredibly difficult under the current regulatory environment. And in some cases, rightfully so. Or you can partner with a bank, and you can work with a bank that knows the rules and regulations and will offer you the ability to do all those things, but in this sort of this partnership construct. So that's what Synctera does.
I was excited about that space, because it is really growing a lot of these new innovative ideas that people come up with. It's really again, difficult to get that banking license, but to have the ability to partner and offer up those products in a faster environment, it allows us to, honestly, to innovate in our financial system a lot quicker, right? So that was what excited me about Synctera and the space. And that's sort of why I made that jump. I think the biggest difference is, things are just moving a lot faster and it's on the ground. There are a lot of things that as someone at the Fed, I would ask questions about, get kind of a big picture understanding. And now it's just sort of like: "how do you actually do things? How do you actually make things work on a day to day basis?"
So there's always different problems and challenges that are coming up every single day in my job. And that's also part of the stressful, but it's also the exciting part of the role that I have. Definitely learning so quickly, having new things every day is really what I think can be super motivating about the space.
BE: Now zooming out a little bit for us to look at the financial services industry and the FinTech industry as a whole -- inclusivity is a big topic of discussion for all of us, and what are the ways for those of us in the industry to practice inclusivity -- financially, policy wise, and otherwise?
ML: Yeah, so let's call it the big billion dollar trillion dollar question in lots of ways. But I think, you know, taking a step back, we're kind of in this space right now, because a lot of the innovation is coming out of the fact that traditional financial institutions haven't really served the needs of a lot of different segments of our population. And think about my background. So I am son of immigrants. My parents moved here from from China. They started as small business owners, they started a restaurant in Florida. And when I think about their experience through financial services, they struggled a lot around how to do retirement planning because it's very complex, and they weren't primary English speakers when they moved here. They struggled a lot with getting credit because they were small business owners, again, the application process, not very simple, especially back in those days, and I think also they weren't really the target customer for a lot of banks. When they're making loans they're thinking about -- especially even small business loans -- they're thinking about bigger companies, even within that space to give that loan to, and also whether they have enough data about that person, whether it's their credit score or what have you, to even extend that loan.
And I think today, we're in this world where technology has made it such that data can be pulled together a lot faster. People can be reached out to a lot quicker through our digital applications. And even things like, I see fintechs that work with us now that have multiple languages on their sites, to enable people that may not be primary English speakers to get access to that credit. So that's the piece that that's really exciting. To me, I think that's where there's a lot of innovation right now, is finding those segments of those populations that were not really served very well and saying, "Hey, instead of trying to do a one size fits all kind of approach, let's actually go to where that customer is, and figure out what they really need."
Another big example, I see now is gig workers, like our economy is working toward people that are having part time jobs, side hustles things of that nature. Well, they all have different type of financial needs than someone that might have a full time job. Their income might not be as smooth as a typical full time salaried worker. And so they have different kinds of things that they need, whether it's tax filings, whether it's getting loans that are different, and now we're seeing that fintechs that have the data, have the ability to understand those customers, are really working with those populations, specifically to help them figure out what they need to do. So I think that's where the future of FinTech is right now. It's like tackling these segments that otherwise, traditional finance and financial institutions would have said, maybe not worth our time. And now you're seeing all these companies really trying to tackle that that big problem.
BE: Definitely, it's funny that you bring freelancing up. A lot of the feedback that we've gotten from partners at Mooch is that they want to have more agency over their allowance or their freelance income, like over the information that they put into our app. So one of the biggest changes we just made was one, we allow people who are freelancers to use the app, which is actually a big difference from some budgeting services like Mint and Monarch, I just wrote a blog post on this so it's all fresh in my mind! But a lot of these financial services that aren't even traditional, they're "the new wave" of FinTech, they don't offer services for people who are freelancers. So we got a ton of feedback saying, "hey, I'm getting a new job, like once or twice a year, I need to be able to adjust my income." So you know, that took a couple months of coding, but we were able to make that switch, because it seems like especially now with the Great Resignation, the state of employment is so fluid that you really have to be able to address these niche needs of people. And I think that's going to be a big challenge for the industry moving forward, making sure that all of these groups are recognized in their own right. So now, if you had a magic wand, and you could guide the whole industry on one thing to make a change for the better, what what would it be?
ML: That's a really good question. You know, I think as someone who is in risk, and has been in risk and regulation for a really long time, I think the biggest change that we need to make is in some way, rethink the way we think about risk in lots of ways. Because when you think about banking and financial services, the very foundation of it is risk management, right? It's, hey, we're gonna lend out money, or we're gonna give money and we're gonna move money on different people's behalf. But there's always a risk to that. And so how much risk are we willing to take in order to do all these other things that hopefully are greasing the wheels of our economy? And the classic ways of thinking about risk is why we're in the space where we are, where we're saying, Okay, well, smaller businesses, are riskier, folks that don't have social security number are another example. We're seeing a lot of fintechs now that are tackling, for instance, students that are on foreign visas, and may not have social security numbers, helping them open up bank accounts, like that segment of population or other recently immigrated immigrant type populations. Traditional ways of thinking might say, "Oh, those are higher risks of money laundering, those are higher risks of credit risk, because they're smaller businesses." And now we're in a space where, again, there's more data and there's more information that's flowing, that helps us understand that risk a lot better. But it also requires us to also do away with those traditional ways of thinking about risk, and to think about this in a completely new light as a result, and I think that's one of the biggest challenges actually. Traditional financial institutions, all of them recognize things are changing and need to need to move into the future on this. I think if they can change that sort of framework, and that way of thinking to this new way of measuring and analyzing identifying risk, I think it will make our financial services in our system a lot more innovative.
BE: Wow, super interesting. That's a huge challenge, I think on a lot of different levels, not just for traditional banks, but also for FinTech. For example, we have a very set KYC (know your customer) flow. And if someone faills it multiple times, we need a couple forms of verification. But some people, they don't have a driver's license, or they don't have bills in their name, they can't even prove KYC, even though they have all of the other necessary documents, they have their social security number, everything laid out in front of them. So on the topic of risk here, if you were going to improve one thing with your company in terms of risk, what would that be? Or if you could guide Synctera on one aspect of risk taking, what would that be?
ML: Wow you turned out a lot of really good questions. One of the challenges that we are constantly focused on these days is how do you automate some of this, as much as possible? One of the concerns that typically, from a risk standpoint that banks have is, the more riskier certain transactions, certain types of customers are, the more people they have to add to it, the more reviews, the more manual processes that might have to be incorporated to ensure that they're not doing something that they're not supposed to do, right. But I think we're in a space right now, where there's tons of work around machine learning, around AI, around just basic automation that's occurring. You know, the example you just gave on KYC, like 10-15 years ago, wouldn't have even been possible to even have the ability to just be able to upload a selfie or pictures of your driver's license, and for them to still be able to scan it automatically and be able to say, "okay, is this real or not?" That's pretty scary, right? Pretty crazy to think about, right? Because that really would make account opening really difficult for certain people. So I think that's one thing we're constantly thinking about, not to say that humans don't have a place in this. Absolutely, there's some things that I don't think are going to be replaceable. But there's also lots of technology out there that can make a lot of this stuff more smoother, a lot more efficient, and at the same time, safer, as well, for both the bank and the customer. So that's the big challenge that I think we're continually trying to address and build upon. And I think as an industry, there's so much there's so much work happening in this space. And this is an area of for sure, a lot of growth.
BE: Definitely. And so I know earlier, you mentioned you are super interested in crypto as well. And you know that there's a lot of risk there, and a lot of people who are super risk averse, who had never even touch crypto, what what would you say to them? If you had your two minute elevator pitch, what would you tell people who are super risk averse towards crypto and the blockchain space?
ML: Yes, I mean, my big thing is education. I think learning as much as you can about that space, I am both incredibly excited about what's happening crypto, and also really scared. Scared, because look, there is tons of speculation. There are like scams, there are tokens and coins that should probably be regulated and shut down. But there's also like a lot of really cool, cool things that are happening in that space. I mean, just Bitcoin by itself, this ability for me to send you money digitally, and hire a bank in the middle. I don't think a lot of people actually appreciate how like kind of crazy that is, because our entire financial system is built upon trusted banks that are regulated in any sort of digital transaction, including PayPal or Venmo. I don't think some people realize this. Banks are actually on the backbone of those types of transactions. But Bitcoin and crypto is a good example where you're not doing that. And you can do this cross border and overseas, right? So there's a lot of really cool things that are coming in at that decentralized finance being one of the big areas that I'm really excited about a lot of things that our traditional financial system has been built upon, that is being reimagined now. Right? And so my advice to people is like, learn as much as you can in this space. I would definitely not give any sort of investment advice in terms of what what type of types of coins you get, but I do always encourage my friends to say, hey, just buy a little bit of Ethereum or you know, something that is not going to be something, if you lose it all, you're gonna, you know, it's gonna hurt you. But you can play around with it, you can go and test out an NF T or go to an exchange and move it there and just see what you can do with it. And there's a lot of really interesting use cases are starting to arise. And I think that for our next generation, people are already engaging in this stuff. So for folks in my generation, I would say just try it out, test it out, because this is sort of some element of this will be the future of money, for sure.
BE: Do you have any books or newsletters or podcast to recommend?
ML: So I listen to a lot of podcasts nowadays. I really like Ben Thompson, a podcast where he talks about sort of the future of technology, and that space. So I love listening to that. I just recommended this actually, to a couple of colleagues. And this is very on brand for me, coming from the Fed. But there's a book called The Man Who Knew, and it's about Alan Greenspan. He was a former chair at the Fed had a huge influence on interest rates and our economy for a really long time. And there's a lot of really interesting stories in there about financial crises, financial stability, blow ups have happened during that time. A lot of things are happening in crypto today, and a lot of potential lessons learned. So if you're into crypto, you like economics, that's a book I highly recommend reading.
BE: Wow, that sounds super interesting. And definitely relevant, you know, because the Fed is playing such a big role right now in interest rates, and figuring out how to work on all of these inflation issues we're facing. So getting a little close here on time, we have about five minutes left. But this is my favorite question to ask. And I always save it for the end. But I think the personal values that we carry with us are some of the biggest motivators towards how we operate in our spaces. So infusing those personal values is the hard part. How do you go about embedding the values that you carry personally into your work in the space?
ML: Yeah, so this is something that I have given some thought to in the past before, you know, a lot of it to me is almost like knowing yourself. I have actually sat down and done this exercise (it was recommended to me) of writing down the stories about yourself, and how did you grow up, why did you become who you are? And I mentioned earlier about my parents growing up in Florida, them being immigrants, a lot of those experiences I still carry to this day, and being able to write down those values is really important to me, because it helps kind of reinforce who are you as a person. I think the values are like to your point, it's like values you live, and it's values that are kind of inside you. It's not something that's sort of externally driven in lots of ways. So I think about that quite a bit in terms of how that translates to what I do at work.
And for me, you know, one of the biggest things as a chief risk officer is being able to kind of stand your ground when there's something that's important that has to be said or done. And a lot of that comes to a lot of the experiences that I had growing up, and a lot of the things that have happened to my parents as well, that they've told me about whether it's facing discrimination, racism, what have you during their time, that still kind of lives with me right now. So those are the things that I find really important to me. And I think it's knowing those stories, knowing what you believe, it kind of then naturally comes out in the work that you do.
BE: Definitely, those are the types of values that really ground who you are as a person and they're so important to have in the work that you do every day.
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