In episode number four of the Fintech OG series, we talk with Frank Rotman and Nigel Morris, the founders of QED Investors and two of the architects of what became Capital One.

These two dove into how they got into fintech, their personal ups and downs, advice to founders, what they expect the biggest innovations to be over the next decade, and a fact that no one knows about each of them.

Also, huge thanks to our sponsors at FS Vector and Empire Startups! Go to fsvector.com/headmaster to learn more about their new compliance training platform, and if you still haven't bought your ticket to the Empire Startup Conference in NYC during New York Fintech week, go to empirestartups.com and use code "FintechOG" for a special discount!

‎The This Week in Fintech Podcast: 🎧The Fintech OG Series: Frank Rotman and Nigel Morris on Apple Podcasts

‎Show The This Week in Fintech Podcast, Ep 🎧The Fintech OG Series: Frank Rotman and Nigel Morris - Mar 26, 2024

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Transcript

Nigel: How are you, Frank? Are you cheerful, and optimistic and enthusiastic today.

Frank: That would not [00:04:00] define me any day, so today is not, not the exception.

Nigel: I've got a substantial echo. Now you, it's Frank just needs to mute himself. You're okay. Now you don't hear an echo, right Nigel? 

Frank, are you, you're being disruptive, Frank. 

Julie: Frank's just trying to make our lives complicated over here.

Nigel: Story of my life.

Julie: So this series that we're doing has a bunch of FinTech OGs, as we like to call it in there. And obviously, if we're doing a FinTech OG series, we have to have you guys in here. For those that aren't super familiar with Frank and Nigel, they come from the Capital One background. They helped start Capital One, and now they run QED, which is invested in A lot of fintech names that you have probably heard of Credit Karma, Nubank I could name a slew of other ones that they have invested in as well So i'm really excited to have them on and I haven't gotten a chance to talk to you guys in [00:05:00] like a year probably So we were overdue Frank, I'll start with you. Tell me a little bit about how you and Nigel met and, you know, what's made you stick around in, in FinTech, other than Nigel and his amazing accent, you know, you just want to stick around that, but what's made you stay in this space?

Frank: Yeah, so, Nigel and I have worked together for 30 years, so that does date us a little bit. And Nigel recruited me right out of college, you know, into Signet Bank, which was the precursor of what became Capital One. So, coming out of college, you know, you just interview with a bunch of companies and I resonated and just, just felt like the people at Signet Bank were the type of people that I wanted to work with.

I actually didn't have a background in banking or anything finance oriented, so it was all going to be new for me. So I was relying on just the, the relationships that I had built through the interview process and Nigel was one of the, the central figures in that and he recruited me out of college.

Julie: Nigel, any regrets recruiting him? [00:06:00] No

Nigel: For 30 years, I've been trying to get escape velocity, but wherever I turn, there's Frank Rotman. Now look, I mean, you know, Frank and I have a pretty storied past, and you know I, I'm much, much in his debt in oh so many ways.

But, you know, the if we go right back to the onset, you know Rich Fairbank and I were strategy consultants, we looked at at the credit card business as consultants working with the BCG spinoff out of Washington. And we said, look, this credit card business, a fantastic business and we are not leveling the kind of analytical firepower that you can against this business.

Everybody got the same price. There were, we were not using any kind of. Discrimination in terms of segmentation, et cetera. So this is, this is the so called information based strategy that was at the hallmark of of Capital One's ascendancy, and I think is so much critical to Capital One's you know, [00:07:00] market cap of 40 billion today.

And a critical part of that. And it came out of our consulting background. Julie was we wanted to hire really, really world class problem solvers. You know, I, to this day, I carry around a paradigm that says I want to go long on ambition and energy and verve and intellectual firepower and curiosity, curiosity and short on experience and true rings.

Tree rings and what people know because we found it at Cigna bank. I mean, there were a lot of wonderful people there, but and they taught us the credit card business in the very early days, but six months in we were teaching them because we were pushing the envelope and you know, Frank quintessentially fitted that mold where you had somebody who, you know, had never done anything, never learned, then never studied business came out of a maths and computer science background and AI background, but But wasn't a marvelous first principles problem solver.

And that's what we wanted. That's what we needed. And [00:08:00] it was a real coup to to bring Frank into that organization. You know, when he was in his early twenties and I was probably in my middle or late twenties at the time, we were just children and we grew up together and we've been through many I don't know many cauldrons and many fires and many exciting opportunities over these last 30 years.

Julie: Amazing, I love that. What, you know, on your journey, what have been, other than the decision to hire Frank Rotman, what have been some of the key decisions that you've made in terms of, you know, getting to the level of success that you have today? Both in terms of Capital One as well as QED.

Nigel: Go on, Frank, have a go. 

Frank: Look, I, I think Nigel tells this best where we joke that if someone ever writes a book about, not just Capital One, but about QED. We'll make it seem like there was a grand master strategy that we just executed flawlessly and we knew what we were doing from [00:09:00] day one and that's just not how we're operating.

 We're really figuring this out day by day. And I think the key is, you know, being true to ourselves and saying we want to be working on things that are interesting, but also where we can be helpful. And, you know, that's been a guiding principle for us in building QED. Like when we started QED, what we knew is that, you know, we had built a number of businesses that today would be called FinTech businesses.

And we knew how to manage especially credit oriented and banking oriented businesses, but we had no idea if we would be helpful to the startup community. And we said to ourselves, look, if we're not helpful to the startup community and we don't really serve a purpose, we'll go do something else. But what we found is that the more that we inserted ourselves, the more people we talked to, the more companies we helped.

Like there actually was something there where the skills that we had could actually kink the curve on the outcomes for the founders. And that really was the foundation for QED. And every time we've [00:10:00] expanded, it's because there are opportunities that we see in the market where we have a unique set of skills where we can be helpful and we've been able to assemble a team that kind of lives by that brand where the, we're basically the best advice that a founder can get bar none.

And we're just trying to insert ourselves in places where we can be helpful and then good things happen from there But it's it's not like there's a grandmaster strategy that we're executing It's just finding places where we can be helpful. And then, you know, ultimately good things happen as a result Actually February

Nigel: Julie, in the Capital One days you know we went from a very small group of people doing analytics and pricing and strategy and product market fit to cracking the code on balance transfer and on secured card and risk based pricing and partnerships, and then scaling and an infrastructure over, I don't know from you know, the very early days to the, to the time going public and then.[00:11:00] 

10 years after that, me leaving, you know, from going from a thousand people to over 20, 000 people, a market cap of under a billion to over 20 billion to being in the US to Canada, UK, France, Italy, Spain, South Africa, going from cards to installment loans, deposits to CDs to wealth management, to the full panoply of different products.

We built that out over that period of time. And it was a spectacular. learning experience. Not everything worked. And you know, we learned a tremendous amount how scaling that and that experience base, I think is incredibly rarefied in the world in which we operate. There are some really talented X operators who do venture, but very few of them have been on the journey that we've been on and have gone from tiny and nascent and incohate and a bunch of people running around full of energy and passion to something that's of massive industrial scale.

And I think that experience , has been totally invaluable. And [00:12:00] for me and for Frank going, you know, playing narrow analytical strategy roles in the very early days to learning about how to manage operations and compliance and regulators and fraud and credit risk and asset liability management.

And all these different things really hard in, FinTech, I often say, look at the auto, you know, when we sit opposite a really excited young founder and she's saying, look, I can do this. I said, look, the odds are against you. I mean, and we I, we can't make you successful, but we can increase the odds of you being successful.

One in 20 of you will be successful. We can make those odds one in six, one in seven, one in four, who knows what they can be because we know things that you don't even know that exist. There are the unknowns to you, but known to us because we've been there and we've navigated them. Sometimes we've made mistakes around them.

And now, you know at a scale where we've made nearly, you know, 200 investments, 130 active custom [00:13:00] companies, you know, 28 unicorns, over four billion in management. We're now industrial scale and we have all that pattern recognition, which I think is really super. So, you know I think that that's what we've.

Bring uniquely to the table and to the to the specifically to the question of where do we go? I think we've worked really hard these last 15 years that Frank and I have been doing this together. And when we started off, it was a small family office us exploring to get to the point where we have threshold scale.

Now we can we can start things clear score mission lane caribou. Companies that we've started that have got to some significance. We can go all the way to IPO. We had five companies go public in 21 

so we can we can go to all of the geographies in the world. That really are of significance now. And we can do all the pieces of FinTech. So I think that now we have this team of about 20 investment professionals and just having done a big raise, I think we're in a perfect position to really [00:14:00] prosecute that and leverage what we've spent all these years focused on building.

Julie: You make it sound so easy. Has it really been 15 years, by the way? I feel old.

Frank: 16 years

Julie: Oh my god.

Frank: Is that right Frank? Yep we'll have a party to celebrate. Sweet 16.

Nigel: Yeah, and we should say, Julie, when we started, we, the FinTech label didn't even exist 

We were taking the experience base of Capital One and the heuristics and paradigms that we'd learned and applying them to digital content. You know, start up entities on we, as Frank mentioned earlier, we weren't sure if one we would be any good at it.

I mean, I think we've learned how to be operators and that was something. But were we good investors or not? And were the skills that we would bring to the table unique. The last thing the world needs is another. Another venture capital firm, right? And you know, so would we be any good at it?

Would we like it? Would our customers, both LPs and [00:15:00] portfolio companies say, look, what you're bringing to the table is different and we will fund it and we will support it. And we will let you invest in us and take us Take you on the journey. I'd take, I'd have you come on the journey with us. We weren't sure about those things.

And, you know 15 years ago, you know, I'll speak for myself. I didn't know an LP from a GP. I didn't know, you know, we were not, we did, we're not schooled in how investing works. But we could, I think could recognize real talent and Verve and ambition, and we could recognize opportunity because we had been inside probably in Capital One, probably the first major FinTech of scale.

Now people, you know, it's when you start running the clock, doesn't it? Some people start with PayPal. But I think in our view, you know capital one under, you know, with, with rich fair bank and myself and many, many others who we, we can't mention today, these were the pioneers.

These were the breakthrough thinkers. And they later [00:16:00] laid out a paradigm and approach that I think has been, has been built on many, many times over since those very early heady days,

Julie: I want to touch back on something that you mentioned. You said 1 in 20 of you will be successful, and we can make that maybe like 1 in 6, 1 in 4. Where do you, where is that data coming from? 

Nigel: I just made it up, but but it's direct, it's direct, it's directionally, it's directionally correct. Frank will give us the specifics now, won't you, Frank?

Frank: Sure. no, if you actually look at 10, 20, 30 years worth of venture data vintages are different, but somewhere around 1 percent to 2 percent of companies end up IPOing. You know, that started as a seed stage professionally funded company at some point. You know, so if you actually think about the real odds of a big outcome it's generally pretty low.

Now you have a lot of outcomes that are in the middle. There's a lot of M& A. Not every company has to IPO to be successful. But you know, if your goal is to [00:17:00] help find, build , the, the biggest, most seminal, durable companies in the FinTech space, the odds are really low. You know, so the fact that we have, approaching 30 unicorns out of 200 and some odd companies that we've invested in, we have pretty good odds of helping companies that we've identified as both having the talent and the opportunity turning them into something that's real.

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Nigel: Frank's absolutely right. Look, and every, every entrepreneur that sits opposite your table and pitches their thought and idea, they all believe they're going to be successful. They have to believe it because if they didn't believe it, why would they put their body through the slings and arrows and the uncertainty that they're about to go through?

They all believe that they can build, you know they can be Bill Gates or Steve Jobs or or Bezos. And I think that's fantastic. And I think that what we find in the courtship process that exists in the top of the funnel management is that we're looking for the people that go, Oh, wow. This is harder than I might've thought.

And you know, wow, I still believe I'm going to be successful, but I might want some really specialized, experienced adaptable help alongside me that can bend the curve. And that's what we're looking for. You know, some entrepreneurs don't want that. They, they know how to do it and they're going to be successful.

Good luck. But you know, [00:19:00] I've got scars all over my body. Frank does two of the mistakes that we've made and the mistakes that we've seen happen.

Julie: I want, I want to touch on that a second too. You know, Capital One obviously immensely successful and has done a lot to shape FinTech where it is today. The number of times, I work for some lending as a service companies and the ways that What Capital One did has set them up to do further innovation in the lending space is just like bar none But it wasn't a straight line to success So talk to me a little bit about some of those lows While building Capital One as well as building QED where maybe you thought you weren't gonna make it or things weren't looking good And you really had to dig deep to get up that hill and turn things around

Nigel: and there's a lot, there's a lot in that, in that question. And, you know, you do, you you, you sort of, when you look back nostalgically and Retrospectively, Julia, you're quite right. It feels like there was an idea there was an opportunity and [00:20:00] you, you lit the blue touch paper of the firework and the firework went off and everything worked, but you're quite right.

It was it was lots and lots of ups and downs. You know, in the very early days, Rich Fairbank and I both lived in Northern Virginia. He lived in McLean, I lived in Alexandria, and we would drive four or five times a week down to Richmond. 106 miles one hour and 46 minutes stopping at the bagel store in Fredericksburg.

And we would do, he and I would drive together, we had these, we had this dreadful old Victoria and we would drive it together every day. And we would at the end of the day, we'd get in the car and I'd go, you know, rich, I'm just not sure if this is going to work. This is too hard. You know I'm not sure if we're going to be able to pull this off.

And he would say, look, Nigel, let's, let's keep the let's keep the band together here. Let's stay focused on what we can pull off. And, and then that would reverse the next day. So what would I point to? I think one, having somebody to come on the journey with you. And that was Rich and I in the Capital One days, and it's been Frank and [00:21:00] I in the QED days.

And I think that that, and as you look at partnerships in with founders, looking for two people who really compliment each other, one more optimistic, one more careful, one more strategic, one more technical, whatever those complimentary kind of bundles are. But I think, that was really important.

It helped us get through it. The second, the the second thing was a, you know, a, a, a belief that let's start with facts and, and not opinion. And let's go to facts first. As we problem solve together, and as companies get bigger, get they get more powerful people put you on pedestals. You know, it's, it's all too easy to, to start to, you know, shoot from the hip too much.

Both Rich and I, and then in the QED days, have this belief, you know, that let's start with the analytics. Let's start with the strategy. Let's start with the facts. What do we really know? So some of the, just a couple of times when there were lows and highs, and , I'll let Frank talk about them a little bit, too.

And there was a board member called Ron Deets. [00:22:00] And I remember Ron once said, it's never as good as you think it is at the best of times, and it's never as bad as you think it is at the worst of times. So we sometimes get caught up in the euphoria and, and in the, in the nadir. But you know, when we cracked the code on balance transfer, when we found that we could attack people who have low risk and had big balances, and we could offer them a teaser rate.

a balance transfer product and they would come to us in droves. Frank will remember what year that was, 1990 maybe, 89, 90.

Frank: it was a little later than that. It was scaling in 92 and 93. And actually, when I showed up in 93 the whole balance transfer machinery was trying to be automated. So things were still being done by hand, writing checks, sending them in, doing three way calls with customers in order to get the balance transfers through.

And we were having so much volume coming in that it was actually blowing up. We were almost out of compliance because we weren't [00:23:00] able to get things out the door quickly enough. And this will sound familiar to startups. I mean, we were a startup. And I remember, again, that same year, 1993, going into the holiday season, we were worried that there was so much volume coming in that the systems couldn't process transactions in real time, and the cards might go dead if we couldn't figure this out, approaching the holiday season.

So every day we would come in, and every single day there would be a war room saying, have we figured out yet how to increase our transaction, you know, capacity? 

Nigel: It was a batch process overnight. We can't clear it fast enough. We're going to have a real meltdown and that's going to lead to all kinds of knock on problems and effects.

Yeah. So look, we, and we, we, you know, we, we were in our naivete. I remember putting things in the mail, Frank, and not knowing operationally how we were going to support them. So we were just, we were testing and learning. We were on this journey. It was really exciting. We're all cool. And we would, we are, our appreciation and I don't know, [00:24:00] sensitivity to things tech technical and things operational were, you know, was, was emerging.

And we were just like, okay, we've got a learning agenda. We're going on that learning agenda and operations and tech and compliance. It'll keep up. Well, we had to learn how to, we learned that the hard way and a lot of leadership there. I think the other, the other breakthroughs, I think when we cracked it for me personally, when we cracked the code in the UK. And we built you know, I think what is now the fourth largest credit card company in the UK at a Nottingham and seeing the business model work in a different geography was a real threshold. That was really exciting. And then I guess the other one Frank was you know, Being able to open up the underserved populations, the near prime, the high street customer, the main street customer, the secure card customer, you know, capital one today, more than any other credit card issuer on the planet, I think has developed the capability to be able to compete at the high volume convenience [00:25:00] user.

The very upscale customer and at the same time to be able to deal with a customer that has a very different credit profile. And that speaks to the underlying dexterity of the of the business model. You know, if we look at Chase or Amex or City, they focused very much at one end of the spectrum. And if we look at you know some of the near prime subprime players, they're not going and going to compete anytime soon with the upmarket.

So that flexibility As enabled Capital One to be able to dart and weave and be able to look for the opportunities and play across the spectrum.

Julie: Frank Nigel has taken us on a Capital One look back down memory lane. Why don't you take us on a look back down QED memory lane?

Frank: Yeah. So the the early days of QED, you know, we have to start back at 2008. So there were a few things that were going on in 2008 in the financial world. The main one being the global financial crisis. So talk about a bad time to start a [00:26:00] FinTech focused fund. It probably was, you know, when we started, it might've been the worst time possible.

But the good news about that was there wasn't a lot going on. So by there not being a lot going on, it meant that we could actually touch everything that was interesting that was happening in the U. S. and we were starting to look, you know at some of the other geographies that we knew well, like the U. K. But, you know, in 2008, you know, we just kind of raised our hands and said, we're here. No one was really there to listen, but we were raising our hands saying, we're here. And what we did is we said, look, this thing called FinTech didn't have a name at the time. We thought of it as innovation in financial services and banking.

It's something that's a very unique skill set. You know, it's something that not all the venture capitalists are going to understand, and there isn't going to be necessarily a lot of deal flow. So what we did is we partnered with a bunch of other VC firms and private equity firms and said, look, let us be a second set of eyes for you.

something [00:27:00] comes across your desk in banking or in financial services, give us a call. You know, we'd be happy to actually look at it. We'd go into diligence with you. We'd help you evaluate the company. And you know, if there's room and you decide to invest, let us invest alongside you. So we started by going to school through partnerships.

And the partnerships were firms like General Atlantic and like Excel. And NEA, I mean, there were a lot of interesting top tier VC firms that we really were just a second set of eyes when they saw something in financial services. And what we learned over the first few years is that we actually did have a skill to evaluate these companies and the founders by and large wanted to spend more time with us than with the generalists that had found them.

So building up the discipline to be able to source deals Get out there so people knew who QED was. That was really something that we had to work at because we were an unknown, unknown player in the [00:28:00] space. At the same time, FinTech started to become bigger. You know, it actually got a name. We now know it as FinTech.

 And the first incarnation of FinTech really was in Lending, which was in our sweet spot. So it was really about new UX, You know, mobile and a bunch of other capabilities that made building new lending businesses possible, you know, a, a more frictionless experience for consumers and it was right up our alley and I even remember in, it was either 2012, I think at the peak of this first generation of, of lenders coming about, we were seeing upwards of 300 new businesses a year just in lending.

So we were able to see a lot of what was happening in the ecosystem and little by little, you know, Nigel and myself and a few other people that we surrounded ourselves with got comfortable that we could be lead investors. We understood, you know, this, this thing called investing, [00:29:00] not just in helping companies become better companies.

And we became comfortable with our, with the ability to not just tuck ourselves in with other other VC firms, but really step out and be elite. And at that point we had already established a bit of a track record and some of our early successes were starting to scale. We were investors in Credit Karma.

We were investors in Klarna. We were investors in SoFi, in Avant, in Prosper. You know, there were a lot of really interesting companies that we were invested at the time. And we had started to expand into payments and we were investors in Braintree and Flywire and Remitly. So a lot of the early companies that we invested in started to scale, which gave us the confidence in the market, the confidence that we deserve to, you know, to exist in the market and that we had something that was pretty unique.

And every year it's just been scaling from there taking on the challenge of, of expanding our surface area, not just in [00:30:00] terms of products within banking and financial services, but also within geography. So, you know, we started by being mostly U. S. Focused. We did a little bit in the U. K. We eventually expanded into Latin America with our first investment being Nubank.

 Not a bad first investment for region. But we got comfortable with, you know, Mexico and Brazil and some other areas within in Latin America. And slowly we started to expand from there. We added Southeast Asia with the primary focus on India and This is about a year and a half ago we added Africa, and we have a few investments in Africa.

So now we're covering most of the major geography, and as Nigel said, we can do anything in banking and financial services. 

Nigel: Look, in the early days, Julie, back to what I mentioned earlier, we didn't know if we were any good at it and we didn't know if Would like it. So we're going to school was really important through relationships. General Atlantic has as Frank mentioned and Excel [00:31:00] and they were teaching us investing and we brought specialist skills in.

Lending and in and in payments and in regulatory and compliance. So could we grown up with those things and that that synergy that symbiosis worked really well and it gave us confidence that we could do this. We're, you know, as an organization, as QED, we don't big bang our way into things. We learn, we test, we probe, we figure things out and we're patient and meticulous about that.

So that was the first, a lot of compatriots of ours that start venture firms, they start with, I've got a big pile of money that people will give me, what shall I do with it? We started with you know, do we have a reason to exist, a raison d'etre? And so that learning process and you know, in a sense testing into different spaces with smaller checks, learning about how things, what things happen.

And of course the gestation period in venture is very long. [00:32:00] You know, it doesn't take a, you know, you, it takes many years to get an answer to the investment that you made. Today, the other thing that helped us terrifically was the capital one diaspora. Both in terms of hiring who we brought in you know, Bill Hostelder and Lauren Morton and many, many, and Mike Packer, many others who were top decile people at Capital One that has Capital One slowed and people, some people were looking for a different experience, they came knocking on our door and still do. We're based in Northern Virginia and in Richmond. So being able to tap into that diaspora to build the early scaffolding of QED was really important. And, as you mentioned earlier, these people are now spread all over the planet in key roles and know us and reach out to us. And when they want to do something different or something innovative, we're often front and center.

Getting positive selection is key. In this business is really crucial. And you know, nobody rides their bike to come and present to us in [00:33:00] Alexandria, Virginia, unlike people on Sand Hill road. So we have to be out there. We have to build that brand so that we can you know, be, be a first on people's list when they have a great idea.

And we've worked really hard at that. The only final thing I'll say, as you look from the bridge, from the capital one to QED was capital one was in, in, in its sense. a precursor to digital. It was starting to do digital when we left but it had become masters of direct mail and other distribution channels of origination.

And it was, and the basic frameworks that existed at Capital One of net present value of CAC to LTV had been massively ingrained for decades or more at the time that we were beginning to put together QED. So we already had the frameworks that, you know, people seem to have tripped across over the last few years.

They were It's so much about the way we think you know, unit economics being a good example of it. So the bridge from the processors at Capital One to the, to helping smaller companies [00:34:00] was actually we, we found to be easier than we thought and very, very relevant.

Julie: I want to switch gears a little bit and ask you both, I'll start with Frank, what is something you thought would have been accomplished by today that hasn't happened yet in the FinTech space?

Frank: A slightly different question and then get to your question, but when we first started, our view of what the opportunity set was was about snapping out a single product or service that a bank did and having a focus team with a basically blank sheet of paper do it better. Right? With better technology, better teams, better processes, because the banks, by and large, had processes with lots of friction and archaic systems in place.

And, you know, a new founding team should be able to snap out a single product or service and just do it better than the bank. And, [00:35:00] you know, when we thought about that, we said, okay, we're going to be helping these teams build, you know, products that eventually are going to compete with the banks or the banks are going to want. 

And the majority of the outcomes, you're going to build this product and then a bank is going to want it and a bank is going to buy it. So we thought it was about, you know, in some ways unbundling products from the bank and then re bundling them, you know, when it was at scale by selling it back to the banks, you know, that you were competing against.

And I think the art of the possible was discovered over the past, you know, 15 or 16 years where much larger outcomes were possible than we ever thought. So the idea of a Nubank being created was an interesting concept, but seeing a 40 billion public print like happen in a business that now is serving one and two customers in Brazil and competing with, you know, the main street banks in Brazil, like it's just an amazing thing to see.

And you've seen companies like PayPal emerge and square, you know, and look at [00:36:00] Stripe as another example. Like there are some gigantic companies that have been built so now that the art of the possible has been found and seen, you can't unsee it. And I think there's a lot of ambition in the fintech space now that you've discovered that you can build real, very, very large businesses.

So when you ask, like, what hasn't been solved that I thought would have been solved? You know, you can really just look at every single product and service in the bank and say, Is there a fintech competitor that's hit scale that's competing directly with the banks or helping the banks? Be better. And in some of the categories, the answer is yes.

Like in payments, there's been a lot of innovation in payments. But if you look at some of the core products that banks offer, things like mortgage, mortgage still hasn't been solved. It's one of the worst processes. It's almost like a six to eight week proctology exam that at the end, you're just happy that you ended up signing the paperwork and now you have a house.

Like it's, it's, it's absolutely crazy. Like how much [00:37:00] work there is in order to get a mortgage. And, and the same is true for a lot of other categories within banking. You scratch your head and you say, why hasn't this been solved yet? And there still are a lot of problems to solve. And if you look at the footprint that we have, you know, it's not just the U. S., it's international. And if you look internationally, there are a ton of problems that haven't been solved yet. In fact, we use the language, are we in chapter two or chapter eight of FinTech, it's, it's a very important question to ask about. Are you at the early stages? of innovation happening, or the late stages of innovation happening.

And in some countries, we might not even be in Chapter 1. Right, so, there's a lot of problems to solve. It really depends on your aperture and which geographies you're looking at, but there are a lot of problems that haven't been solved yet.

Nigel: For the sake of argument, there were two schools of thought. Five years ago, one school of thought said, look Fintech is going to take over the banks. They have the technology and the talent they're fueled by [00:38:00] adventurous venture capital and PE firms.

And the banks are going to really, really struggle to be able to compete. That's when we saw, you know Klarna and Credit Karma, Affirm, Plaid begin to, you know, really get in escape velocity. There's another school of thought. We spend a lot of time with the C suite of the banks. He said, look, this is all twaddle.

There's a bunch of children running around who don't really understand the complexity of the business. And I can give you loads of examples of companies that forgot about asset liability management. Silicon Valley Bank. Or people that forgot about fraud management. Or people that forgot about unit economics, got lots of customers, but they never made any money.

Both of those schools of thought are fundamentally wrong in our, in our judgment. You know, the I always said that in the end fintechs, some of the fintechs will get escape velocity and go public. Some will be bought by progressive banks. And most of them Frank uses a term that Darwin is back.

Natural selection is back in the fintech space. Most of them [00:39:00] will fail. And that's just how it is. And there'll be a new cohort, a new breakout, a new Opportunity set that will emerge each coming each coming year for the longest time. Why? Because fundamentally financial services are broken. They are massive friction, lack of transparency, terrible financial education, the financial service business worldwide.

We did a study with Last year financial services. This is banking and insurance is 12. 5 trillion in revenue. And that profitability is 2. 3 trillion. 2. 3 trillion is bigger than the GDP of Italy. Two point it would be basically the eighth largest economy in the world. And FinTech added up after all this talk, 15 years, Ascension so many breakouts is 245 billion in revenue.

So it's precisely 2 percent penetrated into banking and insurance worldwide. And you say, wow, so we're only 2%. [00:40:00] I thought it was bigger. I thought it was bigger, but it's 2%. And the other thing is, if you look at the banks, you look at their net promoter scores, they're in single digit, you look at the net promoter score of Nubank.

They publish it. It's in the eighties and nineties. Look at SoFi, look at these companies. They so fanatically focused on customer and making the, empowering the customer. So when, when I, what allows me to be able to sleep at night, taking money from our wonderful LPs and looking to deploy it, it's just, there's so much opportunity because financial service is so big and candidly so broken.

And it was, it's part of the experience go flashback. Again, we went through this pain and suffering of converting Cigna bank, a wonderful sleepy, but you know, highly authentic bank enrichment into capital on this direct mail analytical juggernaut, and it almost broke us now to take B of a or Wells or a very traditional company and turn that into a new [00:41:00] back will take years and borderline impossible.

So I think there's just so much opportunity out there. So much opportunity.

Julie: Uh, quick fire round if you could have dinner with anyone dead or alive who would it be, and why?

Nigel: would I like to have dinner with dead or alive? Karl Marx because I think he was a, a massive revolutionary and much maligned.

Julie: Alright, Frank.

Frank: Quentin Tarantino, because I think he's a great storyteller, and he's probably a lot of fun around dinner. Yeah.

Nigel: I bet Karl Marx is not much fun around dinner, by the way. 

 What has been a personal, so not QED or anything work related highlight from the past year?

Frank: Highlight. My wife has gotten back into songwriting, and she is releasing some really fun stuff. It's just fun to see someone so close to you get their passion back [00:42:00] and be really good at it.

Julie: I love that.

Nigel: And she's really good. Listen to her songs.

Julie: Send them to me, I'll listen.

Frank: Jodi Lynn.

Nigel: Jody Lynn. 

Mine is look, my, my, my younger son what did business undergrad and then I went into venture capital for three years and he was rather following his in daddy's footsteps a little bit. And he came to me and said, dad, I don't think I really want to do venture for the rest of my life.

I don't want to go to, I'm not sure if I want to go to business school. I have a, I have a passion for the history and he's always had it. So he left his venture firm and he's now at King's college, London doing. history, and I'm so proud of him that he didn't follow the path, easily traveled and went on his own journey.

And I think that following your own passion in life is just so important and I'm just really made up that he did that.

Julie: I love that. When you're having a hard time, who's someone that you call? Who's on your 911 list?

Nigel: You've got one of them in front of me, in front of you now, Frank, I'm [00:43:00] really wrestling and struggling with this issue. I see this side, I see this side. What do you think? And Frank has a, a way of reducing it's first off taking the emotion out of big bigger companies. Problems and then being able to break it down and think in terms of first principles.

And we, we joke about Frank and first principles all the time. And then my, my wife of now 40 years, , Laurie who really is my best friend and we've been through so much together, but in times of despair and times of darkness Laurie's always there for me.

Julie: Love it. Frank? Love it. 

Frank: Well, my, my wife is there to give me a little bit of balance and kind of pull me out of the black hole that I, I get into every once in a while when I'm deeply thinking about problems. The other thing that isn't necessarily a, it's, in fact, not a person, but it's something that I do. I actually do like to exercise when I'm thinking about a really, really tough problem and it pulls me out of my head.

And so many times I end up [00:44:00] with much clearer thinking when I come out of exercising. So it's, I'm going to answer it without, you know, the traditional answer of a person. But I'll say my Peloton. 

Julie: Okay, back to Frank as a start for the final question here. This, this might be the hardest one too, so I'm sorry that it landed on you first, Frank. What's something that no one could find out about you online?

Frank: The background too. I have a, a pretty public presence. So most things about me you would be able to find. You'd be able to find that I was a high stakes poker player for a while. You probably could find out about my comic book collection, which is quite extensive. So I'm not sure what in my life isn't public.

Maybe the fact that I like whiskey. How about that?

Julie: There you go. I'll take it. And I don't know that people would have been able to easily find out that your wife was a songwriter, too. I didn't know that about you. And I feel like I know quite a bit of what is about you online. That wasn't in one of your [00:45:00] Twitter threads. Nigel, what about you? You've had time to think, so.

Nigel: a time. Yeah. So the some of the things that are out there that embarrass me from time to time, you know, people talk about that. I have a lot of love for cycling and riding my bike up big hills. I'm a big Tottenham Hotspur fan. I just made an investment in Swansea City. My family's Welsh. Those things that I've talked about a little bit.

One thing I don't talk about very much it was a different life that I tried to build in, you know, the late seventies and early eighties of being a singer in a, in various new wave, progressive punk bands. So you know, I, I was, I wasn't much of a singer. I certainly wasn't much of a songwriter, but getting up there in front of in on a, with a microphone was just glorious.

And I realized, I realized halfway through my undergrad that I was never going to be. Simon Lebon from Duran Duran. I was never going to be you know, never be able to make a good living from it. So then I had to take my studies seriously, but what, and I've been threatening with Jody Frank's [00:46:00] wife playing some of her songs that I go back to songs that I'd written and performed.

Oh, you know 40 years ago and get into a studio and get some proper musicians and put them down onto onto digital one day.

Julie: I love it. Well, thank you so much, you guys. I really appreciate it. I've had so much fun doing this series. . So many of these people that, to me, have been the reason that I've stayed in this space.

Cause one, y'all are just like fun, good people. And two, I always feel like I learn something from any of these conversations. And y'all motivate me to be better. So I really appreciate you guys taking time today. It means a lot.

Nigel: It's great to have done this and I love the idea of of pulling together various people that have worked together in twosomes and have this kind of conversation. There's a certain richness that comes from it. Good work.