Named the 2022 Digital Banker of the Year by American Banker, Allan Rayson has an impressive track record guiding financial institutions to success, sitting at the intersection of fintech and banking. Having most recently built Encore Bank‘s tech stack from the ground up, Allan joins host Joe Welu to share his journey, lessons learned, and how banks can navigate ever-changing markets while building lifetime relationships.
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Technology In Banking & Bridging The Data Gap With Allan RaysonI‘m extremely thrilled to announce our guest from Encore Bank, Mr. Allan Rayson. Welcome to the show. It’s good to be with you.Thank you very much. I appreciate you having me. A little bit about you, an incredible background. You are an accomplished banker and leader with a twenty-year track record as a commercial banker and market executive in the commercial banking specialty finance space. He’s also a former CEO and Cofounder of PaidUp, a financial technology company designed to support youth sports clubs. Allan and his cofounders launched the startup in Austin, Texas, where they supported youth sports clubs across the domestic US. Applying what he has learned in FinTech and banking, he is now Chief Innovation Officer and Chief Technology Officer at Encore Bank. I’ve heard a little bit about the incredible growth story and amazing background. From what I understand and what I’ve read, you were named 2022 Digital Banker of the Year by American Banker. It’s been a great year. It has been a lot of fun. That was all announced in June 2022.
Congratulations. They’re very thoughtful about whom they give those awards. That’s an incredible honor by American Banker. What’s super fascinating about you and the story that you have is that you built Encore Bank’s tech stack from the ground up. Give the audience a little bit of context about Encore Bank. We’d love to have you walk through the journey because you started with a blank canvas from what I understand. I would love to know that as well.
The bank is only a few years old. It’s been quite a journey. Over a relatively short period of time, I joined Encore in October 2020. I’ve been here since pretty much the beginning. We have been on quite a journey. I’ll be happy to give you a little bit of the backstory if that would be interesting.
You started from a standing start a few years ago. What did that look like? For context, how far have you come in a very short amount of time? If I didn’t know your story to be true, I would’ve said, “That’s super unreasonable to think that you’ll be able to get that far in that amount of time.”
It has been a track meet for sure. We’ve been moving pretty quickly from the beginning. We have three cofounders that acquired a charter back in 2019. At that point, we are a very small bank with about $130 million in assets. We are $3 billion now a few years later. When Chris, Phillip, and Burt, our three cofounders, acquired the charter and they knew what their game plan was, ultimately, there weren’t a lot of assets and the game plan was high growth expansion across the broader part of the Southeastern part of the United States.
From a technology and a growth perspective, it’s been a real blessing, in all honesty, to come into a situation where you do have pretty much a completely blank slate. The only major piece of technology in our tech stack was our partnership with our core technology provider and firm out of little rock called Smiley Technologies. Beyond that, we were running the bank off of spreadsheets and Microsoft products for a while.
$130 million to $3 billion is a lot of growth. Knowing your background, technology was a huge factor in enabling that growth. Start out with what was the first couple of things that you focused on and anything that you want to point out that was impactful as far as setting that growth up. I would love to know some detail about that.
Looking back, there are a couple of things several things that we’ve learned, but from a technology perspective, we maybe try to find some things that might be helpful for the readers. One of the big things that we learned is that you have to have the operational technology side of the house pretty well set before anything on the innovation side of the house is going to happen. We were in a position where we needed and had to prioritize the operational side first knowing what we wanted to do on the innovation side. We’re a commercial bank with roughly $3 billion in assets. The vast majority of that is commercial.
Using our balance sheet on behalf of our clients put capital into commercial real estate and operating company finance type of stuff. When you think about how are you going to move your loans through the pipeline, how you are going to manage your portfolio, manage risk and all of those things had to be built from scratch using technology to build out the operational side of the house first before we ever started thinking about innovation.
The building blocks were the first key thing you focused on. You had a partner in the core. From an operational standpoint, what were a couple of those key building blocks that you felt were critical to then set up the next stage of being able to do some of the more innovative things that we get to?
For us, and hopefully, everybody running a business, we figured out and prioritized the key pieces of our business first. I don’t know how much you know about our capital raise model, and I’m happy to talk about that. Our capital raise model skews us commercial versus consumer. What I mean by that is we go out and put about 100 investor partners around us in every market. Now we’re in about twenty markets across the key metropolitan markets across the Southeast, Tampa, Charlotte, Nashville, Dallas, Austin, and Denver. In each of those markets, we have about 100 investor partners, people that have written their own checks into our common equity.
Are a lot of those capital partners or investors also owners that you have as clients?
Two personas are important to us with respect to our investor partners that for the most part, we’re handpicked to be honest because the two personas that we were looking for from a strategic perspective were business owners of an underlying smaller midsize business and/or highly connected people in a market. Fast forward to now, we’ve put about 2,000 investor partners around us across the footprint. That’s our business development function for the most part.
It is fascinating. From my perspective, it feels like it’s unique. I don’t know how unique it is or isn’t, but it feels like it’s unique in terms of the specificity at which it feels like you selected those partners.
Full transparency, it’s a very inefficient way to raise capital. It is a hard way to raise capital. It took us several years to several years to accomplish a lot of conversations across a lot of markets to put those investor partners together. It’s very unique in this space, not common for a bank to raise capital that way.
It did unlock a pretty significant flywheel of growth by going that route because not only were you bringing on capital to the balance sheet but then you were also immediately networked into those communities.
It’s a huge contributor to our growth. I was fortunate to be part of the 2nd and 3rd capital raise. As we are engaged in discussions about an investor partner coming into our capital raise, alongside that, we are oftentimes talking about capital needs that they have for their middle market or small business. One thing helped the other and vice versa. The capital raise helped the business development effort and opportunity to source opportunities, place capital, be able to use our balance sheet and put senior debt into the projects that we spoke of. It’s been a lot of fun.
The success that you’ve had is fascinating. If you had painted that story for a lot of people that are acquired or have a bank that has $200 million in assets, they would tell you that that is incredibly impossible to do what you did. Something I like to talk about is like, “Just remove the obstacles from your mind and consider where the opportunities are.” It feels like you threw the limitations out the window that a lot of people would have and said, “How do we go and do this?” and then just did the work, which is awesome.
That’s what it comes down to. It was a lot of work. We knew that going in, we were committed to it, and it’s been a huge driver for our balance sheet growth.
Getting back to the technology build, certainly, I don’t want you to share any trade secrets or things that are super proprietary that you’re not comfortable with, but anything you are willing to share. Step 1) Building blocks, making sure that you could just do the operations needed to run the bank. Part 2) How do we be innovative and unlock better experiences? How do we unlock strategic advantages by using technology? We would love to know more about what that looked like from the person responsible for it.
The first thing I would comment on is anybody that who’s worked inside of a bank knows that it’s a team game. Not one person is inside of any business, banker, otherwise. Looking back a couple of years, our starting point is to put the right team in place. I start thinking about Karla Dial, Erin Simpson, or Elizabeth Bradley. Those folks are the ones that run risk, ops, audit, compliance, and key functions inside of a bank where we’re trying to manage risk, not get fined and lose money, bad thing, and do the best things for our clients, first and foremost.
Our starting point is to put a team together, which also took work. In everything we do, a lot of people always ask, “How did you do this?” Ultimately, it comes down to the team. What’s important for us inside of an admittedly smallish organization, we have about 320 associates running all of this for us. Virtually everything we do, whether it’s operational technology, transformational technology, or innovation starts with that core disciplinary team.
We talk about it as like cross-functional teams. You have the different functional areas that you’re aligning around the things that you’re building, understanding that many times if the technology and the innovation come from a vacuum or IT silo and you don’t have the other stakeholders in the business, what happens is the change that you’re seeking, the magic that you’re hoping to unlock from the technology doesn’t happen if you don’t have the right stakeholders. It sounds like you were intentional about that.
We were very intentional about not operating in those silos, recognizing that each of us, whether it’s me running technology and innovation or Karla running ops, compliance. Everybody is looking through a bit of a different lens. As we evaluate things, it always starts with that core team of people to be able to dissect it.
You got the core team that you had and the right people in the right seats, which was critical. How did you select and prioritize which projects you decided to do? Maybe even give us a few examples of some of those projects and key initiatives.
As we think about FinTech opportunities, you have to be in a place where you’ve got the as best view of the marketplace possible. A big part of that was my role and my responsibility. We have leaned heavily on a handful of FinTech fund investments we’ve made over the last several years. The folks at JAM FINTOP, BankTech Ventures, Coda Capital, and Gilgamesh are great partners for us. Those partnerships allow us to have a lot of visibility into what’s happening inside the FinTech and banktech space.
We have a good sense of the problems that we’re trying to solve for our clients or operational problems that we’re trying to solve internally. Once we got a good grasp of, “We’re trying to optimize these three businesses, our commercial lending program, mortgage or treasury.” Once you got a good sense of the businesses that are mission-critical.
Your lines of business as some organizations refer to them, you would bucket them and what is the outcome that we’re trying to achieve here in terms of optimization for this particular segment.
You’re in the mortgage space. I’ve spent the majority of my career in the commercial banking space. These are not highly complex businesses. They’re pretty straightforward businesses. When you start peeling the in, they do get complex.
The data compliance gets a little complex, but it’s fairly straightforward what you’re trying to accomplish.
Knowing those businesses that we were trying to optimize or the problems that we were trying to solve, plus the visibility that we were able to get into the FinTech and banktech space helped us accelerate timelines to be able to solve certain things. If I could give a concrete example of one of the things that we did on the innovation side beyond LOS, CRM, and operational technologies, one of the things that we did in innovation and transformational side with a firm here in Austin called ZSuite.
We started from a place where we knew we were always going to be challenged by deposit gathering. Our loan growth was fast because of the opportunities that our investor partners were presenting to us. We knew we were going to be able to grow the assets out of the balance sheet. We needed to stay focused on the liability side of the balance sheet, i.e, deposits. ZSuite brought us a great opportunity.
If you know them, we’re talking about subaccounting technology, title companies, law firms, and property managers if you got a property manager that has a pool of $1 million that represents security deposits that someone has given them. There are 200 owners of that million dollars that all get managed on a subaccounting platform. We were able to take technology like that from ZSuite, white label it, deliver it to our client base, and realize the benefit of all of those deposits.
They’re getting an easier way to keep that money accounted for, break it down on you exactly owns which amounts inside that pool of cash. They were getting a benefit. You were getting the benefit of the deposit. That’s a great example of using innovation. You guys didn’t have to build it from the ground up, but you took core tech. Innovation is the way that you executed it in the marketplace.
There are a handful of examples like that. As long as you have visibility into what’s going on in the market from a technology product perspective and the problems that you’re trying to solve for your clients and/or internally with the right people or teams, you can bridge that gap efficiently. That’s been a big part of our story over the last couple of years.
It feels like in deciding what you’re going to spend, time and capita,l in terms of innovation, you were evaluating speed to market as a key component of that.
It’s a hard problem to solve in this business because implementation takes so long. You can talk about tech as long as you want, but it takes a long time to implement.
I can’t help but think there has to be a parallel between the growth that you have had and the way that you looked at projects. You’re were focusing on things that you could see an impact in a fairly short timeline versus if you compare that to a lot of innovation projects that happen in the commercial banking and even in the consumer banking side of things.
They look at things in such an incredibly long period of time, like a couple of year projects. You looked at it very differently and said, “How do we unlock value quickly?” and then decided the types of organizations you partnered with who would give you an advantage in terms of speed to market looks like that was a critical criteria for you.
It’s not a perfect process.
Innovation can be messy.
You got to try to streamline and take some chances where you can. We tend to think about things in days and weeks, not months and years. The opportunity that we have is inside of a relatively small bank and small organization, peers of mine at money center banks or large regional banks are playing a completely different game. I appreciate and respect that. We have very little interest in building things on our own. It takes a lot of time, capital, and risk. I love this about community banking, but community banks are the sandbox for FinTechs. It is such a cool dynamic.
The FinTech community is symbiotic with the banks. The banks need the FinTechs and conversely, the FinTechs need the banks. For community banks, especially like us that have an innovation culture, we’re such a great sandbox to be able to stand up technologies in weeks and start generating revenue in ROI almost instantaneously versus me going out and staffing up a technical team and trying to build a solution over two years. I’m trying to do it in two months and generate revenue quickly.
It’s a great context and that makes total sense to me. I want to ask you a little bit about the environment we’re in now. Before I do that, that’s a fantastic example on the innovation side, but are any other examples that you feel were fantastic decisions that you made looking back on some of the FinTech partnerships that you put in place that unlocked opportunity?
I never want to lose sight of operational technology. We try to keep those things balanced between transformational stuff. With respect to examples on the operational side, a firm called Compliance Systems helped our ability from the documentation. You think about the docs that have to get delivered and the disclosures that have to get delivered. It’s a heavy lift.
The docs are oftentimes very static. They don’t match the differences between states or legal entities, things like that. Compliance Systems and some integrations that we’ve worked on with them help us get to a place where we can deliver a much better set of documents that match the state that someone’s in or the type of legal entity with a lot less manual work. That’s a huge deal for us.
You take the friction out of it. You’re removing friction from the process, which is another great example. One more technology question and then want to talk a little bit about the environment. When we talk about the intersection of all the rich data that you have on the customers and businesses that you serve and then technology, we talk a lot about, spend a lot of time and our peers spend a lot of time figuring out how do you unlock value by being able to take action on your data and proactively serve the customer or how have you guys found ways or have you found ways to bridge that gap between data and analytics, and then taking action on it? Any comments there?
When you talk about a journey, that’s a journey. That never ends. Some key takeaways for us were starting with use cases. We can talk all day long about data lakes, structuring data, and the right way to put the technology architecture together. What is it that you are trying to solve for your client or internally starting with some use cases? For us, a great example is that we want to be able to run our bank at a lower level of FTEs than banks have run out in the past.
If you’ve heard the term efficiency ratios, which is an important KPI in this business, we want to be able to run at a much lower efficiency ratio than is standard in this business. To do that, you got to understand the use case. We’re trying to eliminate manual processes in every way possible and being able to structure our data around that outcome is helpful for us versus the sky data objectives. We’re trying to take some bite-size chunks as we think about what we’re doing.
What you’re describing to me is that you’re very focused on specific outcomes that you’re trying to accomplish from the data and from the analytics. You’re knocking off those slices which make practical sense. We see the opposite of that in some organizations that invest pretty heavily in big data projects, analytics projects, and lots of software, technology, and architecture work. If you go into the business and you talk to relationship managers or loan officers and find out if there’s value being created and there are efficiencies happening, they’re a real disconnect a lot of times if you’re boiling the ocean with these projects versus staying focused on outcomes. I’m starting to see why you’ve accomplished so much. I love your approach.
Another reason why community banks are the sandbox is that in contrast to money center banks, our data sets are so much smaller and more manageable. Being able to accomplish objectives is easier to do when you’re talking about a much smaller group of clients or data sets. You can innovate and iterate faster. I’m sure it comes across, but I love the community bank space for a lot of reasons.
You’re blast radius on what you can impact. You can make bets that you can move quickly on and iterate on. Some of the money center banks have more complexity. The size of those data sets is massive. That lines up. Everyone’s navigating this choppy market out there in terms of rising rates and inflations out of control. Under these conditions, how are you thinking about your strategy, changing how you’re prioritizing or what you’re prioritizing in terms of technology and anything you want to comment on? The general landscape in banking would be helpful.
You and I have been around long enough to see a few cycles, whether we choose to admit it or not. Going back to the dot-com bust and the early 2000s, the financial crisis in ‘08 and ‘09 and now what we’re seeing on the back-end of the pandemic, inflation is certainly higher than I’ve ever seen it. We’re in a rapidly rising rate environment. It looks like we’re looking at another rate increase in the not-too-distant future. It is choppy. One of the interesting things that bankers tend to look at over the years is the inverted yield curve. The yield on the 2-year versus the 10 is inverted at about by about 45 basis points. I can’t read the future, but that has been a pretty good indicator of an upcoming recession, whether we like it or not.
It’s been pretty consistent that dictates recession. Are you guys adjusting strategy or any major shifts you’re doing to anticipate more of a downturn in the economy? Are you managing risk more tightly? What is the cadence or change in strategy look like? Maybe it keeps executing.
We are all owners of Encore. We’ve got a culture of ownership. Our risk culture has always been very tight. From that standpoint, we continue to execute. We’ve got the right employees and processes in place to be able to continue to execute well. Being more cautious about how we deploy our balance sheet is always a go-to for bankers, being able to lean into the needs of our existing clients and evaluate the needs of the new clients that were onboarding. I wouldn’t suggest to you that we’re doing anything different than we’ve done, other than evaluating the fixed floating component of our balance sheet, for example. That’s a big deal in periods of time like this, but it’s an execution game for all of us.
What is clear to me from you describing the story is that you’re an incredible leader. Reputationally, you’re known as a great leader in the space. Any nuggets for the audience on your secret sauce to building that world-class team? You referenced how important the team around you is. The quality of your team around you in this environment matters more than it ever has. Any secrets that you’re willing to share from a leadership standpoint?
Take care of your people. That is key. We have all been through a lot over the last couple of years with the pandemic. We’re all still trying to figure out how we are going to work going forward. Are we remote, in-person, or hybrid? What are we? We both agree that taking care of your people and making sure that you’re in tune with their needs, especially in an environment where we are still growing very fast is first and foremost. There are going to be opportunities that present themselves even in choppy periods of time. Lean into those opportunities.
A good example is that in the mortgage business, we have a great mortgage team. That’s a very tough business. Lean into the needs that they have, being able to identify technologies. We were talking earlier about identifying technologies that will make that business better and create opportunities for new business in the mortgage space or whatever it may be. There are going to be some interesting opportunities that present themselves. Be prepared to capitalize.
In turbulent times and big market cycles, there are equal parts destruction and chaos and equal parts opportunity. You are clearly positioning for the opportunity. Kudos to you and your entire team for all you’ve accomplished. We appreciate the time. I know you’ve got a great channel on YouTube. You’re active on social media like LinkedIn. Tell the audience how they can get in touch with you.
I happen to love music and film production. As a result, I launched Finov8r Channel on YouTube. It’s got a great reception, and it’s a lot of fun to be able to collaborate with an audience like that. Check it out on YouTube. Don’t forget to subscribe.
Thanks a million. We’ll enjoy reflecting back on this conversation. Congrats on all your success.
Thank you very much. I appreciate it.
About Allan Rayson
Allan is an accomplished banker and leader with a twenty-year track record as a commercial banker and market executive in the commercial banking and specialty finance space. Allan is also former CEO and Co-Founder of PaidUp, a financial technology company designed to support youth sports clubs. Allan and his co-founders launched the startup in Austin, TX where they supported youth sports clubs across the domestic U.S. Applying what he has learned in FinTech and banking, Allan is now Chief Innovation Officer and Chief Technology Officer at Encore Bank.