Mike Cagney has built a reputation as one of the smartest people in all of fintech. His capacity to raise capital is unparalleled in our space but he is also a visionary who is tackling some of the biggest fintech challenges.
Back for the third time on the Lend Academy Podcast, and his first time as the Figure CEO, Mike Cagney describes several different sectors they are attacking. He said we should think of Figure as more of a holding company with multiple divisions: lending, securitization, payments, investment marketplaces, cap table management and more. All with blockchain underpinning everything. This was the most fascinating episode I have recorded in a long time.
In this podcast you will learn:
- How Figure has evolved since starting in lending 2018.
- The different verticals where Figure is operating in today.
- How they have improved Provenance to make it more attractive for third parties.
- Why the biggest opportunity with Provenance 2.0 is with mortgage originators.
- Why it is inevitable that most capital markets transactions will eventually run through the blockchain.
- What Figure Pay is and why they have decided to create it.
- Why Figure Pay will really be a solution for underbanked consumers.
- Why the OCC license will be critical for delivering solutions for the underbanked consumer.
- How the economics will work for Figure Pay.
- What their investor marketplace is and the products they will offer.
- Their plans for Hash, the token for the Provenance blockchain.
- How Mike’s thinking about banks has evolved over the years.
- How it has been helpful to have a head of the OCC who really gets what Figure is trying to do.
- Mike’s vision for Figure and the Provenance blockchain.
This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.
Download a PDF of the transcription of Podcast 276 – Mike Cagney.
PODCAST TRANSCRIPTION SESSION NO. 276-MIKE CAGNEY
Welcome to the Lend Academy Podcast, Episode No. 276, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.
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Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com
Peter Renton: Today on the show, I am delighted to welcome back Mike Cagney, he is the CEO and Co-Founder of Figure. You know, Figure has been around for actually not that long, but as you’ll find out in this show, they’ve accomplished a huge amount and really taking on several different verticals inside fintech and really making a big splash. Now, we talk about the Provenance blockchain and how they’ve moved from really 1.0 to 2.0 and what that means for a lot of the offerings they have.
We also talk about a new initiative that I just found out about today and that is Figure Pay and that’s launching early next year and, again, somewhat revolutionary in how they are rolling out that product. We talk about the securitization space, of course, because that was really sort of the initial kind of use case for the Provenance blockchain. We talk about their bank charter because they just applied for a bank charter very recently, we talk about what the thinking is behind that. Mike also gives his perspective on the vision for what is coming up for Provenance and Figure. It was a truly fascinating interview, we hope you enjoy the show.
Welcome back to the podcast, Mike.
Mike Cagney: Thank you.
Peter: Okay. So, it’s been a while since we’ve had you on. In fact, this is the first time we’ve had you on since you started at Figure so maybe we can just get into some background and it seems like Figure continues to evolve, it’s a lot more than what you originally started out with. So, why don’t you give us a little bit of history of Figure and also of Provenance as well.
Mike: Sure. So, we started Figure back in 2018 with the idea that we could use blockchain technology to really drive some transformational change in financial services. The idea that we could just remediate a lot of intermediation in not just the lending vertical, but the asset management vertical, the banking and payments vertical and so we worked together to build a blockchain technology called Provenance.
One of the initial things we realized was that, you know, in 2018, the banks weren’t ready to run on a blockchain and, you know, a lot of interest, a lot of focus….you know, every bank had a blockchain technology team that they funded, investigate and do projects in blockchain, but no one really wanted to do production applications. So, we ended up creating Figure Lending really as a first mover to de-risk Provenance blockchain and, obviously, in that context having control and being able to manage your own destiny in that regard. And so, given that we’re building a lending business, we said, well, a vertical to a lending business, let’s do something that’s greenfield and interesting and the economics makes sense.
We chose HELOC to start with and we did a lot of innovation around HELOC origination outside of watching, right, so generating a five-minute HELOC has very little to do with blockchain and a lot to do with just better technical processes and so forth. But, effectively, our goal was to take the distributed trustless, immutable nature of blockchain, the function of a ledger registry in exchange and demonstrate whether we could or couldn’t realize savings using the technology for us, origination, financing and securitization. And what we were able to do is show that with the technology on our first securitization, which was done March of this year, soup to nuts from origination through financing, through securitization about 117 basis points of cost savings.
Another transaction, another securitization Saluda Grade did behind us on Provenance where it was about 125 basis points of cost savings. So, these are important proof points for us in the context that this is real, has a real economic impact, a real economic value and we’ve done a lot of work around lending where we use blockchain for participations, we use it for whole loan trades, but within Figure…..Figure has also evolved into several other verticals. So, for example, we have a banking and payments initiative called Figure Pay and it’s launching in Montana in January, in Missoula, Montana.
The whole focus of Figure Pay is it’s using a blockchain ledger to manage the bank accounts, the movement of money and any two entities on that blockchain who transact. So, for example, if I were to pay you and we’re both on Figure Pay, it’s using a blockchain rail not an interchange rail.
Peter: Interesting.
Mike: This is where we think there’s a huge opportunity to go after the interchange market which is…..you know, everyone hates it, it’s enormous, but that’s how you move money today. So, we think, you know, significant opportunity there, but we’re doing other things, fund services so we have a marketplace that hosts funds where our digital funds services business will do a full package of originating your fund, the documents, custody, admin, all on blockchain and we leverage this feature called Passport that does investor accreditation BSA now for raising capital.
So, I could do a 506c through DFS soup to nuts in a couple of weeks and then use the blockchain as a capital raising vehicle for the funds into that. My favorite thing we’re doing is we have a Cap Table Management Platform called Adnales. And in part it has very little to do with us wanting to go after Carta that we are obviously competing with Carta in that context, but it’s more….it acknowledged the equity for a company is now Digital Certificate on a Blockchain.
What that means is that you get all the benefits of bilateral transaction, real-time settlement, etc. and so it’s built in a way that allows a company to turn on a secondary offering, leverage our Passport for investor accreditation BSA/AML and manage their both primary and secondary market exposure in a much more efficient way. This is really how we’re thinking about the opportunity to go out through exchanges so, you know, within Provenance everything is bilateral, T-0 settlement, no counter party risk, no settlement risk, very different from the NASDAQ or the NYSE or any other stock exchange out there and the top seven exchanges….have about $120 Billion in market cap.
So, Adnales is kind of our beachhead into that opportunity set where we start off with startups in private company Cap Table Management and Private Company Secondary Offerings, but when they go public, we hope to have the capital, the resources to say why list on the NASDAQ or the NYSE, why don’t you just stay here, it’s T-0 you’ve got the market. Our hopes are that it’s going to be a successful way to go after that opportunity.
Peter: Okay. Well, man, there’s a lot to unpack there (laughs). You are in a huge number of different, interesting issues there, maybe we could just take a couple to start off with. Maybe let’s just start with the securitization, you know, I read about the first securitization you did and the second. To me, you’re taking away all these costs so, regardless of whether you….all the other advantages that are obvious when you’re doing transactions this way. I mean, why are people….maybe there are people flocking to try and do this, other originators trying to sort of put their assets on Provenance and do transactions the way you’ve done the HELOCs?
Mike: So, there’s a couple of dynamics to it. So, one is they are striving to do that and so Bob Hershey who runs our capital markets effort is working with several originators right now to begin to originate and leverage the capital market benefit of Provenance. I think one of the biggest limitations that we had was when we initially built Provenance, it was what we would describe as a permission private blockchain. You had to go through Provenance Blockchain, Inc. to access it. Provenance Blockchain, Inc. designated who the stakeholders were on that blockchain which are 12 financial institutions, including names like Franklin Templeton and Experian, all well known names.
But, we did it that way because it was the best way to put a bridge between where the banks and the hedge funds and the buy side folks were versus where blockchain was. So, one of the challenges of that is the way the fee structure was set up is it was designated by Provenance Blockchain, Inc, so you originated loans on Provenance, Provenance would come in and say, you’re saving $100, we’re going to charge you $33. And, by and large, that structure works in the sense that it provides a mechanism of economic for the blockchain, it gets distributed out to the Hash holders that’s why Hash is….you know, in Provenance is one of the most valuable blockchains in the marketplace today. But, it created a significant barrier in that we could not open source it and we couldn’t release an SDK, a Software Development Kit, to allow people to onboard themselves because if we did that, you could circumvent Provenance Blockchain Inc. and not pay any fees.
Peter: Right.
Mike: And so, there was a significant limitation on your ability as a third party to access and….you know, just as we created Figure to de-risk the blockchain, it creates a competitive dynamic whereby going to another QR originator, for example. They’re going to say, whoa, I don’t want Figure looking at my stuff and we couldn’t say, well, then just take this SDK and do it yourself. And so, what we’ve done very recently is we’ve migrated from what we would call 1.0 to 2.0 and 1.0 being permission private, 2.0 being decentralized public and we moved off of a very heavily customized version of Hyperledger onto Cosmos Tendermint as the underlying infrastructure where we have moved all these applications like marketplace that sit on top of it.
Now, we have the ability to charge gas fees, very analogous to Ethereum, where you pay for processing, it allows us to open source the blockchain, publish the SDK out and that’s going to be a huge catalyst to drive adaption because we no longer have to be involved.
Peter: Right.
Mike: Up until now, Figure had to be part of your process to onboard. And so, I think the combination of that plus just people wanting to see some demonstrated economics, I think we’ve de-risked it and now with public accessibility, I expect that we’re going to get significant adoption onto it. The economics are too meaningful to avoid.
Peter: Yeah, yeah, I mean, I can understand that. So, has there been a securitization….it doesn’t sound like there has been on the 2.0 blockchain. Are you…..add another figure, HELOC deals sort of in the pipe?
Mike: Yeah. So, we do, but what we’re really interested in is we’ve got a prime jumbo first lien deal and, you know, what we’re trying to do is demonstrate the efficacy of this beyond HELOC. We’re doing some work on unsecured consumer, we’ve done some work on student loan refi, but the real one we’re targeting is mortgage and we think there’s such an opportunity for mortgage originators and such an opportunity for the GSCs and the FHA to leverage this technology. Much like we did with HELOC, we think we need to do a couple of transactions to de-risk it and demonstrate the economic benefit.
But, the dynamic here is if you think about a mortgage originator today, let’s say I’m selling to Fannie Mae, one of the fastest times from closing the loan to delivering to Fannie Mae is 21 days, usually it takes longer than that. If I’m an originator, I’m eating up my equity capital in my warehouse to aggregate those assets for 21 days. I’m taking market risk in terms of what happens to the price of those assets by the time they’re delivered through. And the agencies, when Fannie buys those loans, they’re creating a 55-day mortgage pass-throughs, the cash flow you get today, was from 55 days ago and they’re paying for the drop on that.
Blockchain solves all of that in the sense that you can deliver the asset the day you fund it because of the immutability and trustless aspects, truth aspect of blockchain…you know exactly what the loan is and because of the real-time cash flows and real-time remittance, you can actually do a one-day pass-through not a 55-day pass-through. So, we think there’s enormous opportunity here and we’re going about de-risking that by doing a prime jumbo securitization, not a conforming mortgage securitization.
Peter: Right.
Mike: But, directionally, it’s the same thing and so that’s one of the big focuses that we have for Q1, is to get that transaction done and use that as a way that kind of crowd in broader adaption from the non-bank mortgage originators and the bank mortgage originators.
Peter: Right, right. Obviously, that’s the biggest market of all so if you can get some traction there, you are well on the way. Do you foresee a time, is this your goal, you think that what…most…half the securitizations in multiple asset classes running through the Provenance blockchain?
Mike: We hope it’s Provenance, but whether it’s Provenance or something, everything is going to end up running through the blockchain as a realistic capital markets because the value……if you think about the impediments to markets today, it’s do I trust you, do I know what you’re selling me is real, do you really have a…and in that context, you’ve got equity trading, for example, there’s actually five parties involved in an equity trade and each take a little bit of that transaction and it’s because, you know, I can’t trust you and you can’t trust me.
The whole benefit of blockchain is you know exactly what the asset is and I don’t have counter party or settlement risk and that provides a huge amount of opportunity in terms of making mortgage more efficient. So, whether it’s securitization, whether it’s whole loan trades, whether it’s equity trades, I think everything is going to end up moving to blockchain and the issue is, is it going to be Provenance, is it going to be an Ethereum derivative, will it be Bitcoin?
The challenge with Bitcoin and Ethereum is the scalability and that’s the biggest hindrance that we’ve had and, you know, there are certain aspects and benefits of Cosmos Tendermint, in terms of being over in peril instances, to deal with that, and we’ve spent a lot of time addressing the scalability of blockchain where you can pull a 10,000-loan tape off of Provenance right now and it’s just as fast as pulling it from a database. There’s no difference and that was an important aspect to us.
But, you know, one of the things I’ll build on in what you just said, we’re very focused on scale and so we’re constantly looking at situations and opportunities where we can take our technology and partner with scale to demonstrate blockchain in a bigger, more meaningful way. We actually came very close…you know, in the last four weeks, of doing a transaction with one of the very large non-bank mortgage originators where we were going to contribute our technology into that entity and build something that we felt was very differentiated where, you know, we were going to build reduced origination cost and then have this downstream potential for blockchain.
Given the nature of Figure, it is effectively a holding company across all these verticals, you know, I think what you’ll see in 2021……our pursuing certain circumstances where we can either contribute our technology on a merger basis. We’re going to do a SPAC so we’ll have that vehicle on a public company basis and look to take some of this tech and some of this de-risking that we’ve done and rather than organically build it out, merge it with scale and get there faster to prove a proof point.
Peter: Interesting, interesting. So then, you’re imagining Figure and being almost like a SaaS provider of the technology, is that where you’re moving?
Mike: Well, I see we have….Figure has a relatively large SaaS business, and that business is one of the things I’ll probably spin out.
Peter: Okay.
Mike: So, you can think of Figure as a hold-co where we have a large amount of the economic of the blockchain and each of these individual businesses….it’s really the proverbial….the parts are greater than the sum, right. You know, why do you have Cap Table Management Company in the same business that does lending, in the same business that does SaaS, these things are better off broken out. You know, as we start getting maturity with the technology, we’ll start breaking these up in 2021, you’ll start seeing that happen, you know, through M&A, through SPAC, through other types of activities in the marketplace.
Peter: Okay. I want to talk about Figure Pay which I didn’t actually know about until you just told me a few minutes ago. So, who are you trying to go up against there? Are you trying to do …is this like a merchant sort of offering, is this person-to-person, what is the market?
Mike: Sure. So, I’ll give you a little bit of history on it and then what we’re doing right now and how this ties into the OCC Charter as well that we filed at the beginning of the month. So, basically, when we built SoFi Money, what we did is we had an omnibus bank, in that case it was WSFS. It made a good source license profile and we built our own banking ledger, we built our own integration into the ATM and ACH and Wire, etc. and what WSFS was, was really the repository in the integration and the Fed-settle. And so, you know, in the context of Provenance we have this omnibus banks and these are banks that act as a bridge between blockchain and fiat.
So, for example, you were buying $50 Million of loans from me, you would push $50 Million into Silvergate, they will create a $50 Million entry in your digital wallet and you and I would face-off in a blockchain that you have the StableCoin, I have the loans and it will just register the ownership of one or the other, hence, the real-time transaction without counterparty or settlement risk. As we are looking at this, we said, look, why couldn’t we do something where we build a blockchain banking ledger, similar to what we did before, build all the off-ground interfaces into the ATM, ACH, etc., leverage one of our omnibus banks as an omnibus bank, right, integrating into Fed-settle, holding the cash, Fiat, so forth.
We can do some interesting things with this along the lines of, you know, small dollar credit, for example for thin file consumers because we get certain information, transactional history, geo location that allows us to underwrite in a way that we can make up for the fact that we don’t have a thick file. But, it has this really interesting advantage in that because it’s blockchain, it has it’s bilateral transaction capability, whether it’s a loan, whether it’s me paying a merchant or me paying another consumer where it allows us to bypass interchange.
And so, the benefit being that if you’re a merchant and I’m transacting with you on Figure Pay and we’re both on Figure Pay’s backend rails…you don’t necessarily have to be a Figure Pay customer because we private label it for other institutions so, you know, XYZ could offer this solution as well, but it’s the same backend rail. Rather than going through interchange, it’s going to go through the blockchain rail and it benefits the merchant obviously, one, the cost.
I might be a little bit off on the numbers, but I think Walmart had $6 Billion of profit last year, paid $2 Billion in interchange expenses, so massive number. But also from a merchant standpoint, it eliminates charge back because it’s StableCoin, it’s cash and eliminates the settlement time, right, it’s instant. The whole aspect is the consumer doesn’t need to know, nor do they even care, that they’re on a blockchain ledger, right, it’s just cash and they transact the same way that they always do.
And so, we see this, initially, as a really interesting solution for underbanked consumers and we would have all the bells and whistles like payday advance, etc. that some of the other folks have out there, but we see this as an interesting solution for underbanked consumers. It’s a much better viable alternative than prepaid debit and because it’s not relying on a bank on the backend as a lot of the “US Challenger Banks” are…..you know, very few of them have banking licenses, there’s a significant economy of scale that’s there that we think we can take advantage of.
And so, the challenge we have on this is, you know, we’re looking at our business and next year, we’re going to need over 200 licenses, we already have well over 100. We have to continue add them for money transfer licenses and so forth. We have mortgage licenses, we have lending licenses, we have servicing licenses, money transmitter licenses and the challenge with having over 200 licenses is, you know, not only is it the cost, the consistency of the product, right.
What we deliver in Colorado is different from what we can deliver in California and we had optimism that the states would build some kind of reciprocity, they just haven’t done it. So, we made the decision in early November to apply for a national bank license through the OCC. It’s novel in the sense that we’re not doing FDIC insured deposits directly, we’re partnering with a bank to do that. We are taking institutional deposits toward deposit-taking, but not FDIC insured deposit-taking. We see this as a way to ….it’s sort of ironic that we built this technology, we massively lowered the cost to deliver solutions to consumers.
You can now deliver solutions into that underbanked segment in a profitable way, in a way that’s better than what they have today and then you layer in all the regulatory complexity with 200 state licenses and you start to lose the ability to do that. (Peter laughs) So, this OCC license, we think, is really critical for our ability to deliver solutions to our underbanked consumers and drive real financial inclusion which, you know, there’s been a lot of talk around financial inclusion and around fintech, but not huge amounts has been done there.
Peter: Right.
Mike: And so, we see this as really a meaningful way to do that. You know, obviously, what we’re trying to do on the blockchain side is go after interchange, you know, Visa, Mastercard, market cap… the top three interchange providers, their market cap is somewhere around $750 Billion so there’s a huge opportunity there. This is the first thing that……I’ve been in financial services since the late 90’s, this is the first thing I’ve ever seen that’s a viable way to go after that interchange.
Peter: Many have tried and no one’s really got anything going there. So, like for Figure Pay, are you taking basis points from the transactions similar to an interchange and just making it a lot lower or what’s the economics?
Mike: Yeah. So, that’s right. Look, we still have a Visa debit card on Figure Pay because you can’t be reliant just on the blockchain rail because you’re going to have the chicken and egg problem. And so, it’s completely inter-operable between interchange and between Provenance and we’re just taking on Provenance transactions a much smaller cut because, you know, an interchange transaction has seven parties that are dipping into that and pulling economics out, this is bilateral, just me and you, right, and so we can take a much smaller cut to make it very economical for everyone involved.
Peter: So then, like on the merchant side, who…really you have a chicken and egg problem is, you know, are you going after some big merchants to really….you know, they can benefit as well. They don’t want to be beholden to Visa or Mastercard.
Mike: One hundred percent, so, we’re taking a barbell approach which is we’re having some conversations with very, very large merchants and then when we pilot this in Missoula, Montana in January, we’re doing it with a bunch of farmer market participants (Peter laughs) and getting them set up. So, Figure Pay will work, you know, bluetooth through NFC or work through QR code scanning and we’re setting them up.
We actually think it’s going to be a really important proof point and then go to the big merchants and say, look, this is how it worked. There’s, obviously, a lot of enthusiasm because of the local aspect of doing this, you know, around the signing up and participating. But, it’s a barbell approach and, absolutely, there are big merchants that are going to want to adopt into this because of the amount they pay on the interchange today.
Peter: Right, okay. So, I want to just talk about the investor side. I was on your website on the weekend and I signed up for Hash and I went through the accreditation process, it’s all using Plaid and very simple. I mean, I feel like there’s so many ways you can take that, but are you planning on having a platform of different assets for individual investors or what are you doing with that?
Mike: Yeah. So, that’s really what marketplace is and the idea is that as an investor, a retail investor, an institutional investor, an institution, you can go in and basically go through the marketplace and find what you want. So, for example Figure World Equity Fund is on the marketplace and you want to subscribe, you can do the whole thing without any human intervention, right, and that’s the point, is we’re trying to make it easy for people to be able to access alternative product.
One of the things that we do with Passport is that Passport moves with you so when you go from one investment to another, you don’t re-accredit it, you don’t re-establish so it makes it a much more seamless process. Literally, part of why we built this is I stopped doing private investments about a year and a half ago because I couldn’t stand filling one more accreditation (Peter laughs). You know, they’re all different, they all ask you stupid stuff, you know, they never handle my trust, right, etc. etc.
So, the intent is to have a general marketplace centralized on this whole aspect of trustless bilateral settlement where individuals can come in, they could search what they want so loan buyers can come in and search for, you know, sub-680 loans over 8% coupon in California and they can go to three different marketplaces that have that and participate in.
You could come in and say I’m looking for, you know, venture capital, early stage fintech and be able to find funds listed on the marketplace. The other interesting thing about a marketplace is because it’s built on an exchange, it allows for the secondary trading of those fund interest, right, so, you know, if you own a private equity fund and it’s five years into a ten-year life cycle, you could market that on marketplace and sell on a secondary basis.
Peter: That’s super interesting. I tell you, I’m excited to kind of explore that, but I want to move on to Hash. Hash is the token for the Provenance blockchain and you said that you were intending to do an IPO of that at some point. What are the plans for Hash now?
Mike: So, I’m glad you asked. Provenance, at one point and as I talked about earlier, it was very clear that Hash was a security and so what we wanted to do is we wanted to do a public offering of that. That meant we needed an exchange you could trade on and so we have been working with the SEC and gotten what we needed there. Now, we’re working with FINRA to get approval to operate an alternative trading system on Provenance that will allow us to run marketplace just for securities.
We were very optimistic that we’re close to getting approval for that. It’ll be the first one that’s been approved for a blockchain to trade digital assets, but what happened along the way is we said, you know what, we’re moving from 1.0 to 2.0 and, you know, somewhat analogous to Ethereum where the SEC said, it probably started off as a security, it probably is not a security now. In 2.0, with the blockchain being decentralized, open-sourced, no central control, third party contribution into it, we think 2.0 Hash is really utility token.
And so, what we anticipate is we would swap the 1.0 investors into the 2.0 utility token and that token would list on some of the popular crypto exchanges. So, relatively big transformation, but really underpinned by the evolution of the blockchain and our ability to go to a decentralized public network given that the industry has gotten comfortable with the technology and comfortable with how the process works.
Peter: Hash will underpin everything, right. It underpins Figure Pay, is that like everything gets put into….like all the transactions go through….they are transferred from Fiat currency into Hash, is that correct?
Mike: So, you can think of Figure Pay…..I mean, two things are underlying it. One is, effectively StableCoin, right, because that’s reflecting what’s in the omnibus bank account. Where Hash plays a role is, effectively, every time you’re writing or every time you’re processing on the blockchain, you’re paying gas fees and let’s see I incur $100 of gas fees. I, basically, have to buy $100 of Hash on the exchange to then distribute out to the ecosystem, right, so think of Hash as still the underlying mechanism to distribute the economics of the blockchain, but in a slightly different way that we did with 1.0.
Peter: Right, right, okay, that makes sense. So then, I’m interested to sort of hear the evolution of your thinking here, because…….I mean, obviously, when you were at SoFi, you famously did that, Superbowl ad, with anti-bank like don’t bank SoFi and, obviously, you had that sort of …..you know, there was a position that you were taking and I’m curious to see how your thinking has evolved from that time period.
Mike: Yeah. You know, it’s funny because I’ve been asked about this a lot recently and a lot of times people bring up the comment I made about banks are dinosaurs and I’m the meteor (Peter laughs) which I’ll never live down. Look, a lot of that was from a marketing context, right, it wasn’t that the function of banking was a problem, it was the way that banks delivered service into their customers that we felt we could improve on. I think SoFi has done that and continues to do that.
I think in the context of Provenance, I will say with Figure I’ve created a lending business, I’ve created a banking payments business, we’ve created a Cap Table Management company, all these things, but not because we want to compete with these traditional inline institutions. It’s actually to crowd them in to de-risk the blockchain and crowd in adaption. These businesses have to exist on their own, right, they’ve got to run positive contribution margins to be profitable and so forth.
Effectively, if you think about all the different verticals that we have, in 2021 every one of them is profitable except for one which will take us to early 2022 before we hit that, but, you know, they need to exist on their own, right, but they’re really there to show how to use it, how to access the blockchain, how to unlock value. And so, we’re in a very synergistic relationship with the banks from a partnership standpoint, we actually had some very encouraging support from the banking community related to our OCC application. Whereas, you know, the last time we did a national bank application, we did not get very positive….(both laugh).
Peter: Right, yes.
Mike: And so, I feel like what we’re doing is we’re creating value and even the institutions that you think would be concerned about disintermediation so like a custody bank, for example. We have a huge amount of activity with some of the custodians on Provenance right now, they’re looking at the technology and saying, this is coming, how do I reinvent my business to take advantage of this. So, I’m not trying to eliminate any of these folks, I’m trying to give them a better way to deliver solutions.
Peter: Right, right, okay. So, obviously, the OCC….I mean, you’ve got someone…many of the regulators would not be able to understand exactly what you do, but, I imagine, the current Head of the OCC, with his background, would probably get what you are trying to do pretty well. Is that being helpful in this process?
Mike: I think it’s been extremely helpful. I think, you know, Brian not only gets what we are trying to do, he actually sometimes thinks like two steps ahead of us in terms of the business evolution. So, I’d say, he’s very steeped in blockchain and the benefit as to the financial system so it’s been extremely helpful to have someone like Brian in that seat.
I think he’s really trying to drive situations and one of the things he likes about what we’re doing with Figure Pay is, you know, it really is really around financial inclusion in a sustainable way and I think that’s a big thing for Brian which is blockchain technology to level the playing field rather than further delineate the haves and the have nots.
Peter: Yeah, now he’s got the whole Project REACh thing he talked about….I mean, he’s very big on that. Okay, so we’re just about out of time, but before I let you go, I mean, you’ve got a lot on your plate here, you’ve got a lot of different, you know, things that could really…..each one of these could be a revolutionary company, but what’s your vision for Figure when you look down the road?
Mike: So, I think our vision is that Provenance is the preeminent blockchain for financial services. You know, I think what you’ll see with Figure is it will break apart into four, five, six different companies along the verticals that we have and, you know, as I said, each of them will be viable and hopefully a market leader in what they compete in. I think when we get to that point, it will have succeeded in what we set out to do.
Peter: Okay. Well, it’s going to be fascinating. I wish you all the best, I’m always inspired when we chat, Mike, it’s fascinating to see what you’ve accomplished in a very short amount of time. So, thanks so much for coming on the show.
Mike: Thank you for having me.
Peter: Okay, see you.
Wow. You know, as I said, I come away from my conversations with Mike inspired, but also somewhat in awe in all of the different things he’s doing and how quickly that Figure and Provenance is moving. As he says, any one of these initiatives really could be groundbreaking for fintech and he said five, six of these things that can really change the world. You know, I am really looking forward to seeing how these things play out, I mean, securitization, payments, capital markets, cap tables, all these things, I said they’re fascinating in their own right.
You know, the fact that he’s wanting to go and get a banking license at this time is telling and I think it’s a very different approach than really doing it inside the banking system, inside the industry rather than trying to come out from an outsider perspective. I think that’s important. As he said, he’s getting a much better reception now than he did initially.
Anyway, before I sign off, if you enjoyed this show, please go to iTunes, Stitcher or whoever you listen to the show and please give us an honest review. I read every single one, we appreciate that you’re doing that.
Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.
Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.[/expand]
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