Listen: FinTech payments trends and innovation

November 2021

Jeremy  Schwartz: You're listening to Behind the Markets, On Business Radio.

Jeremy  Schwartz: Welcome back Behind the Markets here in Business Radio powered by the Wharton. I'm your host, Jeremy Schwartz. My next guest is Ken Gavrity, who is the head of Enterprise Payments for KeyBank interesting topics to talk about Ken. Maybe you could start us off, tell our listeners a little bit about yourself, your background and what you do at KeyBank and the Enterprise Payments world.

Ken Gavrity: Sure. Well, thanks Jeremy for having me. KeyBank for those who don't know is one of the largest banks across the country. We're about 180 billion in assets in total. We have customers in all 50 states. So we have about retail footprint in 15 states, but we really on the business and the institutional side serve customers all the way from Maine to Alaska. So fairly large organization. Then my role, I run the payment side of Key and the way that people should think about that is whether you're paying with a credit card, a debit card, you're using a digital wallet or whether you're a business and you need to be able to take money from customers, pay your suppliers. All of that runs through payment rails and at KeyBank, we see about four and a half trillion dollars of payments that flow through those rails every year. So quite a large business for us.

Jeremy  Schwartz: In terms of the different payment providers, is there a way you would say you can differentiate what KeyBank does differently or how does payment providers in general try to differentiate the services they do, what's the key competing angles?

Ken Gavrity: Well, I'll answer that in a little bit of a roundabout way. So, my background was a little bit of a strategy consulting corporate development, and I came to KeyBank in that role. And shortly thereafter about a year or so in, there was a view that the payment side, we started to see this trend occurring in the marketplace. We saw this blip in FinTech investing, and you can see it pretty pronounced right between about 2013 to 2014. And so, as I was doing a little bit of investigation of that, we had to do an outside in view and spend a lot of time with the venture capital community to say, look, you're compiling pretty significant amounts of money, you're starting to invest in this FinTech or financial technology companies, what's the real investment thesis?


And it was pretty eye opening for us. What the companies were focused on was around solving workflow problems as opposed to on the payment side, we were providing payment options. We were making sure that payment value could get from point A to point B, but these software companies were thinking about the context of that payment. What is an individual trying to do? I think the example that people use quite often is Uber, one side of Uber is I was able to use GPS to find a vehicle to take me somewhere, but the other compelling part of that value proposition was, I no longer had to find cash in my pocket to be able to pay the cabby and wait at the end of that to make sure that transaction was occurring while the folks I was riding with were going on to the restaurant and doing whatever else.

So, being able to embed a payment inside that context was incredibly important. And I think when you see that trend occurring more broadly across the marketplace today, you can't walk into a restaurant and a small business and not see those types of companies being run by software today. So, historically a bank would go in and say, look, we can give you a little bit of lending in order to help you get started. We can give you a bank account so that ultimately you can deposit whatever dollars you get in a given day in our account. But the real problem that restaurant was trying to deal with was, how do I do better table management to get people to the right place and help turn them as fast as possible? How do I get more consistent orders into the kitchen in an efficient way?

How do I make sure I'm able to allow my consumers to pay me in whatever way they want to pay me, whether that's through credit card, debit card, Venmo, PayPal. I just want to make sure I'm getting paid for my services. And then how do I handle things like tips and others in a really efficient way? And so, that's old world of what banking was to now a new world. We're starting to look at ways, how do we use software to power managing that business? And a payment is just embedded as part of that flow.

I think that's the context of the way that Key has differentiated themselves. When we saw that trend occurring back in 2013-2014, that really opened our eyes to widening out the solution set that we were trying to provide. We've partnered with a number of FinTech companies in the ecosystem. We've invested in six, we've partnered with about 10. And we always start with, what's the biggest pain point that we can solve for that customer? Are we the best builder of that capability? If yes, we're going to build some of those software capabilities, if not, if there's a better mouse trap out there, how do we partner with companies like that to solve those problems?

Jeremy  Schwartz: With the first half of the program, we were just talking about how the pandemic forces you to do things differently and you could lead to these great productivity enhancements. You're just talking about restaurant examples and I think one of the things I find personally when the restaurants now give you the bill, you can just use your phone and take a screenshot to pay, that to be such a better thing for everybody involved. Doesn't seem expensive yet I don't think most restaurants had done that. A few that I've gone to have been doing that. I think it's just such a better experience. Any commentary on that?

Ken Gavrity: Absolutely. It's better for everybody in that example and I loved hearing Mark talk about the productivity games, because we, we certainly see them in, in all parts of the ecosystem that we touch. And the example you gave is, is just one of them. When you think about the percentage of spend on the retail side that went through eCommerce in, in 2020, it was about 20%, that was a 33% increase. And so what were big components of that? Well, it was things like all of a sudden we were ordering groceries through our apps and getting them delivered. So you had an extraordinary amount of innovation there, both in this supply chain to, in order to, for that to be delivered intraday.

But the fact that now the payment flows were very simply being embedded inside an experience where I could have an order developed, put that into my cart. I could pay for it with my card on file. And not only was that easier for me, but now I have a built in grocery list, that I can just repeat over and over again and modify as I need to. So it's a better consumer experience. It's a better payment experience and it's a better supply chain and not surprising then on the back end of that, cash transactions in 2020 went down by about 25%. And I don't think consumer behaviors are going to snap back.

Jeremy  Schwartz: Yeah, there's all this, this commentary about like central bank, digital currencies. And do we are do we need cash anymore? It's going to all go virtual, but it seems like we're going that way anyways. It's just whether it's a using your credit cards or there solutions like you're talking about any, any commentary on, on that movement to, to digital cash.

Ken Gavrity: Yeah. Look, I think you're thinking about it the right way, whether or not central bank digital currencies are required. And over what time span is something that there's a lot of debate in the industry. And I think it's going to take some time to really sort that through, but in the meantime, exactly the, the point that you were making, we're finding ways to, to digitize commerce in a lot of different ways. And the grocery example is one of them, but I'll, I'll take another example. You know, we look a lot of the B2B side and, and if you were to walk into a dentist office five, seven years ago, that was primarily a paper based experience end to end. So I would come in, I would ask to check in, usually I've got to sign a couple of new papers, update my records, they're hand taking that somebody might be typing that into a system I'd ultimately go through whatever process I was there for in the dental procedure.

Maybe it's a cleaning on the back end of that. They would still ask me for a check or some of them, would've a terminal up where they, I could swipe a card, but that's a very inefficient process end to end. And so I think a lot of the innovation that you've started to see is companies like that, looking again for a workflow solution of how do I digitally check in, how do I use an app to say if I'm the dental office, I want to send the SMS text reminder to the patient, don't forget you've got a 7:30 AM appointment tomorrow. That way I'm making sure I'm engaging the customer. Maybe they organize that or schedule that three months ago. So I'm creating the reminder, I'm creating engagement. I'm making sure that you show up when you come in. I ought to be able to automatically sign in that moment.

And then I ought to have card on file so that when I go through a procedure, if I want to pay for it, as I'm walking out, no different than Uber, I should just be able to pay that way. Or if I want to ultimately expand the service that maybe I want to get a whitening, or I want to schedule something for future, and maybe that's more expensive. I want a payment plan built into that, that whole experience, regardless of whether I was using the currency that we had today and is sitting in my bank account, the process is digitized. And to end, it's much more convenient for me, and it's a better outcome for the dental office as well. And, and I see a lot more of that industry vertical by industry vertical. There's an extraordinary amount of innovation occurring in that space.

Jeremy  Schwartz: Now going digital brings its own set of new challenges, like cyber security related challenges, which has been a very hot top this year. Anything you'd, you'd focus on, on how you're tackling at key bank and how customers should be thinking about it.

Ken Gavrity: Yeah, look this is the number one threat to the financial services industry is cyber security and, and all of us that spend our lives thinking about it every day, know that the stats cyber attacks are up 29% so far in the first half of 2021. And ransomware in that same period is up 93%. So these are just extraordinary increases. And why is that happening? You know, it's, it's a multitude of factors, but the two macro ones that, that I point to is when you digitize, I mean, no different than the point I think you were making the more that we digitize our lives and, and allow for these better, more convenient experiences, the more access points that that we're providing for some of the bad actors in the system. So that's a, a natural downside or negative consequence of, of the upside of the convenience that, that we're building in our economy these days.

And top of that, the, the bad actors are getting much more sophisticated, much more targeted in the places of, of vulnerability. So our advice is certainly it takes an entire ecosystem being educated. So as a consumer, you need to be educated on what the risks are as a business leader, you need to be educated and what their risks are. And that's really important. There are a lot of places that you can get that information. I'll use this as a bit of a plug moment to say that being cybersecurity month of course, we've got a webinar key bank on October 26th, that will be hosting for those that are interested. And we bring in experts, we bring in private companies that focus on cybersecurity. We bring in FBI experts to really just make sure that we're staying on top of what are the most recent trends.

And how do you do the two things, particularly if you're a business owner that you should be thinking about one is educate your workforce. So you got to get yourself educated, and then you got to make sure that you're providing that education to your team, whether you're running a three person company or 3000 person company education is where it starts, because all fraud starts with the vulnerabilities inside the business, whether it's social engineering and getting you to click on a link in an email that seems fairly innocent, knowing what to look for in those moments, that one click creates the opportunity for a threat actor to be able to access your systems. So it's just incredibly important to know where those points of vulnerability are. And then the second thing is you got to get a playbook. And that means knowing that if you were to have an incident, what do you do?

And if you're a small business, who do you call, you're calling your bank? Who else are you calling in that moment? And if you're a larger company, it's how do I make sure that I'm thinking about in my systems, how do I ring fence on my, how do I diagnose? What's been accessed? and I think those are all the things that you've got to make sure that you're interacting with experts that know this space well, and, and why we put on webinars like we're doing at the end of the month, which are incredibly important for businesses.

Jeremy  Schwartz: Yeah we do a lot of work with teammate, which is an Israeli venture capital firm out in focus on the cybersecurity space. If you don't know them we'll have to do some introductions later, but it's very interesting topic on, on cybersecurity and all the different experts that they bring. We're talking with Ken Gavrity who's the head of Enterprise Payments at key bank. Ken, one of the things you talked about how you were focused on the FinTech solutions is sometimes you build sometimes by, as I was just talking about teammate and the venture capital side you talk about the valuations in this space, anything as, as you're looking at opportunities, what you're seeing in the venture capital world and how you're thinking about the valuations.

Ken Gavrity: Yeah. What I'd say? Well, first off I was fortunate enough to, to be in Charlotte this week. One of our FinTech partners, a company called Avid Exchange had their listing day NASDAQ came in and, and actually hosted the, the morning opening bell from their headquarter office. AVID's been a huge partner of ours. So I was there for the event with CEO, Mike Crager, but it's a great that company is trading at about a $5 billion valuation today. It's a great example of why these types of companies are so valuable in the marketplace because of the, the sticky, recurring nature that's created inside the solutions that, that they provide. So the, the example I'd take with Abbot is, if you're a mid-market company and, and you're paying your suppliers historically about 50% of those payments were still being made by check last year, which for a lot of us in our consumer world, who don't use the check at all, that's a mind boggling stat that 50% of, of middle market payments would still be made that way.

And so what Avid did with this workflow mentality was say, look, there's, there's a reason why checks are still being used. And these processes that were built 20, 25 years ago, and the back office operations really haven't been looked at in a way where you're solving the primary pain point for a treasurer CFO. So they started back to say, okay, first we got to figure out how we get purchase orders inside a company. How do we get them digitized? How do we make them really easy? So that all different people in my organization, I don't have 25 different office supply providers because I have different locations and everyone's using their own local partner. How do I centralize that? How do I put some governance around that process? So that that clearly is the type of situation where you're looking for software, but then there's an approval process inside the company.

And historically, and then a lot of companies still that approval process was routing an invoice for signatures across an organization. I can't tell you how many companies I still walk into that have a process like that. Even if they have an invoicing center where it's emailed, it all comes into a central place, they'll print it out. They'll route it to a bunch of different departments, and everybody is signing off to make sure that it's okay for that payment. What ad did was say no, no, clearly this is a simple hierarchy that can be built. We're going to work with you as a customer, so that it's digitally routed. You'll get a ping on your cell phone. You'll be able to one click. Yes. I approve that. And at the end of that is a payment and frankly, a CFO doesn't care. What type of payments made, whether it's a check ACH, a card payment, whatever is next in, in the payment ecosystem.

All they care is that my supplier got paid on time in the most economically beneficial manner. And so when you think about that whole process, I described end to end if I can solve that for you as a software provider, when I solve that, I make it easy, I provide productivity gains for you. And I start giving you much more visibility into the analytics of what you're spending money on and how to make it more efficient.

Now I've made that really sticky because it's going to be really hard for you to replace that I'm a core part of how you operate your business. And when I can get sticky, recurring revenue like that, the valuation that are occurring in this space, Avid Exchange is now trading around 15 to 16 times, the revenue that they reported. And similarly, companies like that, that focused on smaller companies, and other partner of ours. They trade north of that around 30 times, revenue COPA, another one in the space. They, they are more of an enterprise solution and, and work with larger companies. They're also trading north of 30 times. So, the market is highly valuing solutions like this because they're solving real problems with antiquated solutions that are existing in a lot of these companies today. And they're doing it in a way where it's going to be hard to replace.

Jeremy  Schwartz: As you think about the cost reductions that you can provide people. I was looking at one of the videos you guys had online about the Enterprise Payments, you know, cost reductions, final closing thoughts. How do you think about that cost reduction you can provide people if they do get to these more efficient platforms?


Ken Gavrity: Yeah. It all depends on the size of your business and, and ultimately the starting point. So, so where, where are you in your, your journey around digitization? But the way I generally like to think about it is if you're paying somebody with a check today, it's ballpark costing you about $6. And the reason for that about half of that is hard cost because there's the cost, the actual check itself, the paper that it's printed on, there's a clearing cost associated with that. There's an envelope and a stamp. And so all of that paper based part of the process is a hard cash cost that you're paying for.

And then there's the soft cost of all the people that are routing that. So when you can digitize just that part of the process alone, you can usually cut that in half, both the soft cost and the hard cost. So those are real savings. And while that usual music to the ears of the CFO, I would say longer term, the bigger benefit is going to be around the intelligence that you get from workflows like that. We've talked about the payable side, but when you solve that on the receivable side as well, you're getting a lot of data that is rich about your end customer engagement and how you utilize that data is going to be how you propel the solutions of the future for your business.

Jeremy  Schwartz: The saying the data is the new oil I think is true everywhere, and you need to be able to see a person. Then on a personal level and at level anything you get into a dashboard it's much better. Thanks for joining us. Ken Gavrity head of Enterprise Payments at KeyBank. I'm Jeremy Schwarz. You've been listening to behind the markets and Sirius 132 have a great week everybody.

FinTech trends, specifically within payments innovation, are constantly evolving around solving process flows for a more streamlined experience for companies and individuals alike. Hear how the KeyBank Enterprise Payments team has differentiated digital advancements in automation and cybersecurity to better serve our clients and propel solutions for the future of business. To learn more on how to mitigate risks and prevent fraud, visit

As originally heard on SiriusXM’s Business Radio, Friday, October 15th.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

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