About this episode:

Keith Taylor, Executive Director of the DUCA Impact Lab chats with Anna Niemira about consumer-centric and fair banking.  They discuss how a group of underbanked Canadian newcomers back in 1954 focused on solving a real problem in financial services.  Fast forward 65 years later, DUCA’s mission has never been stronger.  From innovative escalator-loans to digging deeper into retail financial literacy gaps, and their commitment to improving the financial well-being of its customers.  As a registered B-corporation, learn how DUCA is innovating and living up to their motto of not only being ‘the best in the world but the best FOR the world’.

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Fintech Friday Transcript of Episode 45:  DUCA Impact Lab

Intro: Welcome to fintech Friday's a weekly podcast brought to you by the National Crowdfunding and Fintech Association of Canada and partners. Covering all things fintech, blockchain, AI and alternative finance.

Anna Niemira: [00:00:21] Hello and welcome to FinTech Friday's podcast, brought to you by the NCFA Canada, a leading fintech and crowdfunding association. This is Anna Niemira and I am your today's podcast host. Time Flies! We are already in the third season of our podcast. You can always refer to the past episodes by visiting ncfacanada.org, which is our website, to connect with incredible people and their stories. Thank you so much for tuning in. Let me introduce our today's guest. We have the pleasure of speaking with Keith Taylor, Executive Director at Duca Impact Lab a non-profit project, which is channeled by Duca Financial Services Credit Union. Keith, thanks so much for sitting down with me today. I'm very excited to speak with you about Duca Impact Lab and its innovation through social finance. Great to have you here.

Keith Taylor: [00:01:28] It's great to be here. Thanks for having me.

Anna Niemira: [00:01:30] Well, fantastic that we have a chance to speak once again. You presented about Duca Impact Lab at FFCON20 during summertime, and now we are going to tap into this again. So let us know a little bit about yourself. Like, what was the beginning of your fintech adventure? How did all start for you?

Keith Taylor: [00:01:58] As opposed to the beginning of my fintech adventure and interest in the fintech world was when we were thinking about pilots and the Impact Lab and we had a sense of what we wanted to do, but needed to create some partnerships with like-minded organizations and companies. And a key part of the partnership was, how exactly, the technology piece is going to work and help us facilitate these transactions in a way that meets the goals of the partnership. So it was really I'd say accelerated once we started launching the Impact Lab and needed to actually make our pilots work and figure out how to, what resources and partners we could draw on to meet. Those needs and fintechs have been a natural partner. They've been a crucial part of all the pilots we've done in the Impact Lab so far.

Anna Niemira: [00:02:57] Yes. So this is actually something interesting because Duca Credit Union's founding year was 1954, so a few decades ago. And, Duca Impact Lab is a new, over a year old project. So what was happening that the members of the organization decided to leap forward and create Impact? What was the pivotal moment when they said, OK, those financial services, the future of the financial services needs a relationship, a marriage between tradition and innovation.

Keith Taylor: [00:03:35] So it is really rooted in, the Impact Lab is really just an extension of the history of Duca. Duca itself was kind of an experiment in financial inclusion. We started it, like you said, in 1954. But to dig a little deeper, it was actually started by a group of people that were newcomers to Canada and didn't have access to banking services at the time. We found it very difficult to begin services and access to things like loans and accounts at banks in Canada, but they still need to bank and they created their own bank. And what was interesting about that story is like it's a good growth story over such a long period of time. I think our annualized growth rate is something like 20 percent a year for 65 years. So, you know, certainly a successful business story. But what's always intrigued me and has been a part of the Duca culture since our inception was that you know, the reason people didn't have access, was the realization that the people didn't have access to banking because they weren't able to send the right signals to banks that you could be bank customers. That growth trajectory is really impressive, considering it happened on, you know, based on the business of people who are on paper, not supposed to be very good banking customers. So we wanted to figure out, OK, well, if that was the case, then how is it materially different now and if the signals that we were using then are imperfect? Are there some better signals that we can use now? And we want to create some space to figure out how we could develop some better signals and how we could carry forward that history of providing access to people that didn't have great access to banking with better access to banking. So that's what the Impact Lab is. And it's very much rooted in where we came from. So I wouldn't say it's a new trajectory or a departure from our history. It's really like a natural evolution of where we've been and where we intend to go.

Anna Niemira: [00:05:54] So you mentioned about those signals. So what has been missing thus far in the traditional lending system? Because you are talking about people not really being good on paper and banks rejecting those customers. What was actually that pivotal moment that you decided, OK, we need to form, we need to create everything but there's something missing. And it seems to me, from what you're saying, that it's still missing in this traditional banking system. So what is that signal? What what is actually missing here?

Keith Taylor: [00:06:37] Well, I think the capacity to evaluate nuance and the importance of relationships has largely been in, phased out as we become increasingly reliant on automation, and decision-making processes are more and more centralized. I think the value of relationships and history with an institution from a credit risk perspective has started to become fuzzy. And what we're seeing, what we're seeing, is, you know, that and what our history proves is that that value is still very relevant. I would add to that, you know, there're some missing transparency pieces in mainstream banking that I think people have just come to accept. There was like, this is the terminal. It's almost like the difference between an applicant and a supplicant. OK, but it's there and it carries forward at a hangover from the banking power dynamic that you saw in the old days. And I think it's still true. You see, the partner and the impact lobbyist like to use the example of buying laundry detergent as opposed to getting a mortgage. And I'm going to steal maybe some of your thunder because I always really loved that example. And it's in, it's very, very true. It's what what is different about banking that makes you kind of leave your meeting with a banker, you know, grateful, grateful that they were actually willing to sell you their product, whereas, you know, you would never, you would never have that level of gratitude leaving  Wal-Mart with your laundry detergent and sitting here. Isn't it great that Wal-Mart sold me this laundry detergent? I'm so grateful for them. They're so lucky to be dealing with Wal-Mart.

Anna Niemira: [00:08:39] Yes, it's funny and it's tragic at the same time.

Keith Taylor: [00:08:44] Yeah. So I think that there's a lot of unpacking to do when it comes to power dynamics and transparency in banking. And it's one of the things that I think has a real impact on the experiences of people when they deal with institutions and they know it when they deal with institutions that still prioritize that relationship. I think that's something that you guys long prioritized. And it's that, in the way, that we've operated for quite some time and it's still very much part of the experience when we make business decisions and lending decisions. So I think there's an interesting culture in banking as you move through the ranks, and I'm not quite sure if I can synthesize it all in a in a soundbite. But as you move from client-facing service type roles to senior executives an interesting thing happens. You know, you move from a role that prioritizes relationships and thinks there's flexibility in decision making and that things are dealt with on a case by case basis, too, like the opposite end of the spectrum, where we do a fair banking study every year that you get in and through the impact lab. And we examine perceptions of fair banking on a number of different metrics between borrowers and lenders and the borrower side. We had a question about perceived levels of gratitude for your customer. So essentially, like how grateful should your customers be for doing business with you? And at the frontline level, that the number of people that said, oh, yeah, customer should be grateful for doing business with us was very marginal. But as you move up the ranks and especially going into the executive ranks, it actually becomes quite a significant chunk of the respondents that work in financial institutions, said that, yes, customers should be grateful. And I think there's an interesting opportunity somewhere in there for fintech, but also for smaller institutions to really reconnect with that relationship piece and to start using that as a lens for creating value for their customer base.

Anna Niemira: [00:11:19] Well, from what you're saying, I'm finding this fascinating because we are moving into the twenty-first century right now and we are talking about artificial intelligence and robots answering to us. And, then, you talk about creating a relationship. That's actually fascinating because it's very untypical. But yet, you find this as a foundation for your business. And this is how actually Duca started the relationship and keeps building those relationships. And, building those relationships has been fundamental to the existing and growth of Duca. And, you are taking that and you are passing this towards the future. Do you think, is it important for traditional financial institutions to open up to fintech solutions? Is it going to change the dynamics? Is this going to change their relationships with the customers, or is this just simply pertaining more to the services they can offer?

Keith Taylor: [00:12:33] I don't think technology and automation are necessarily at odds with the relationship driven approach. I think in the best cases, they can enhance that approach, especially when it comes to providing better data to informed advice being given by the financial institution. I think one of the things we also see in that area, banking study, is that there's a big advice problem in financial services, and it's one that fintechs are really well-positioned to help support the improvement of. So, I don't think it's necessarily the antithesis of what I would say there's starting to be an opportunity to identify fintech companies that are really taking a mindful approach to solving a problem that is worth solving as opposed to, you know, building something that can easily be gobbled up by a ban and the value proposition of each company is completely different. And the latter, you know, has an obvious audience, but the former has a chance to do something truly transformational and can fit into that sort of approach that I just described. So maybe, it is maybe, it is a bit atypical, but that's, you know, that's what we see in our business and it's what's driven the success of the credit union and its played role in the risk analysis of the impact of our pilots as well. You know, it's a crucial part of the risk that is underexplored because it's less quantifiable, but it's certainly there.

Anna Niemira: [00:14:35] So definitely like tapping into fintech, it seems to be beneficial for either midsize financial institutions as well as for the big banks. But at the same time, what are exactly customers' possible benefits from such partnerships? You mentioned the services. You mentioned also that there are certain applications. But, you know, it's a broad spectrum of applications when it comes to financial apps. So in particular, what are you focusing on?

Keith Taylor: [00:15:15] Through the Impact Lab?

Anna Niemira: [00:15:17] Yes, exactly, through the Impact Lab, yes.

Keith Taylor: [00:15:19] We run, in addition to some larger pilots, some research initiatives that we're involved in, we run special loan pilots, which are collaborations between different community organizations or social finance entities, fintechs, and ourselves. So we're focused on building models with that sort of approach that seek to address some sort of inequity in the financial system and to test, you know, to test this notion of like what would banking look like if all we were trying to do was solve a problem or create an opportunity. And framing a banking business model design process that way is a very different way of looking at it than saying, OK, what's our hurdle rate over the next three months or a month or whatever it extends, know the short-term of that type of approach with like really what ends up being a single metric that matters to a long-term view of it with a lot of different metrics that matter. So, I'll give you an example, one of the pilots we run, and I spoke about it with Stephanie Holmes from Cash-Flow, who's our fintech partner, over the summer at your conference, is the utility of cash flow based lending. And the way that it can form a type of personal lending is very much geared towards an individual's cash flow. And that is structured entirely on that individual's cash flow profile. So we created a loan pilot using that sort of a methodology and using their platform to help move individuals that have gotten themselves into trouble with high cost debt, like payday loans, or other types of high cost consolidation loans or private lenders, and provide them a way out of that with a low cost loan. It was only a prime plus two loan that was entirely adjudicated based on a cash flow profile. And what we're finding in that, in that pilot, is that the risk is a lot lower than we might have assumed. And I think that's true of both the Impact Lab pilots that we're running right now. That's what we're seeking to get out, and I think fintechs are a really crucial part of the equation. And in my earlier statement, I gravitated more towards the data functionality because that's really the value that one of the big pieces of value they've been able to bring to the table is helping us collect, dissect and utilize data in a bit of a different way than we would be otherwise.

Anna Niemira: [00:18:31] When it comes to Canadians, and I'm sorry to say that, we are one of the most indebted nations. So definitely, when it comes to this variety of loans, with some of them being very high interest, why this is actually happening? Do we have too easy access to money here, or perhaps not enough of financial education, or do we consume too much that we are spending too much? What is actually happening when you are dealing with retail clients and you are consolidating their debts? What is the biggest problem here and why we are borrowing so much?

Keith Taylor: [00:19:20] Well, I think it's a complicated answer, I keep coming back to one of the findings from our fair banking study that was really interesting to me. And I think it's been mirrored in the results of other studies is that there's a two part problem, really. There's a big gap between consumers self-assessment of their financial literacy and evidence of that financial literacy. So, for example, I forget the actual numbers now, but most of the respondents, it was somewhere in the neighborhood of 80 percent of people, thought that they were very, very good at managing their own personal finances. But half of those people never established and don't have a budget. You know, a similar proportion don't have any goals. So, the evidence that you are good at managing your own money is not really there, despite this self-perception that you know, you're excellent at it. The second part is, where financial institutions need to reflect on their role in that equation and that it's not just the availability of debt. It's the quality of advice that they're getting in that same study we saw almost half the borrowers say that the advice I get at my financial institutions is very helpful. And you combine that with the fact that most lenders don't think that, almost half of the lenders surveyed don't think, that their borrowers understand what they're buying. That's a recipe for a bit of a mess.

Anna Niemira: [00:21:04] Ok.

Keith Taylor: [00:21:07] So I don't know that answers your question, really, but I think what we need is a better assessment of our own abilities and in a better framework for giving advice through either tax or financial institutions, or both.

Anna Niemira: [00:21:27] Right. So we can say that we are lacking financial education, that Canadians are lacking financial education and, you know, being positive by nature they overestimate what they are capable of doing, and earning, and paying. And, I think that is actually the biggest problem, that we are lacking a reality in our financial situations.

Keith Taylor: [00:21:53] And it speaks to the value. If you can come up with a model, you know, of addressing financial literacy for a bunch of people that don't think they need financial literacy addressed is a really big opportunity.

Anna Niemira: [00:22:06] And, at the same time, that pertains also to advisors, to financial advisors, as you mentioned, who are working at the bank. That sometimes it's just for them about knowing their products, but not really seeing if those products are suitable for their customers. So, the perception of the bank needs to be a little bit changed, or the mentality of the bank. It's not just about selling the products, but also selling the products which are suitable for the customers. And that actually makes a big difference. What are the differences between lenders' and borrowers' perceptions of lending risk factors? You mentioned that you're looking, for example at Duca, at the cash flow; whereas, banks are looking from a different perspective. At the same time, borrowers also looking at themselves from a different perspective. If you were to mention one or two crucial points what each side would need to look at when evaluating the person for the loan.

Keith Taylor: [00:23:27] I think credit scores are still really important in our studies. They insistently come out on the lender side as the highest weighted aspects. And I think the more we learn about using that as a basis for lending, the more we realize we need other indicators. And it particularly becomes relevant, I think. And I think one of the most interesting transparency issues, in the kind of borrower-lender world, or the lending world, is the way things are priced. I think you have situations where credit scores are overly weighted in applications, but then you also have lots of situations where similar types of credit profiles are getting different deals. So, the importance of negotiation is one of those things that I think lenders appreciate that borrowers may not be based on what we're hearing. There are about half the lenders that responded, suggested, that they don't get questions on pricing a lot, or at least, just half the time, which means half the people aren't really asking. They're kind of taking what they're given. And what they're given is primarily based on a credit score and with a few other things peppered in there. That is a difference that's worth unpacking. And the importance of negotiation, especially on the borrower side, is an underappreciated difference because I think lenders are expecting a certain amount of it and they're not always getting it.

Anna Niemira: [00:25:17] Thank you. Thank you so much. That's actually very helpful because we can at least know what we need to focus on making sure that certain points are completed before we are applying for anything. As you mentioned, education is the key to successful banking and successful lending as well and it makes it easier for both sides. What is the current project you are running at Duca? Is it escalator loan? What is it?

Keith Taylor: [00:25:57] It's a yeah, it's a mix of projects. The Escalator Loan is one project and that's the pilot loan program I mentioned that we're running with CacheFlo and it's called CacheFlo, the Credit Canada Debt Solutions, which is a national non-profit that counselor, Equifax is involved, and Duca and Duca Impact Lab are involved so that that pilot is meant to be a consolidation loan option for individuals that wouldn't qualify for consolidation loans through the usual channels without being, you know, huge premiums to do so. It's structured on its adjudicative based on the cash flow profile and structured in a bit of a unique way, it's a prime plus two loans and for borrowers that meet the terms and payment obligations of the loan as they've agreed. They actually get the plus two back in a cash payment. So there's kind of an incentive both to repay the loan, but also a cushion to help them avoid to start funding a savings account and start to avoid getting into trouble with particularly payday loans. We've seen a lot of payday loan patrons in that in that pilot and it's something that I think there's a lot of, it's just amazing to see what people are paying for that type of financing, and the circumstances they get themselves into. I think it's also amazing to see how many people have multiple payday loans outstanding at once, which is technically against the rules but seems to happen anyway and there's a lot we're learning there. I think the other pilot we're running is a working capital pilot for underbanked entrepreneurs and social enterprises that are being done with our Partners Fund through and we're targeting businesses and individuals that would never we are outside of the usual criteria of funding through his usual channel and testing, you know, the risk and impact of providing this type of short term financing for businesses to help manage cash flow crunches by giving them a vehicle for selling their receivables.

Anna Niemira: [00:28:41] Those ones are actually fantastic projects. And what I can see, we were talking about education, but I can see, that through your projects, you are actually educating people because you are focusing on this cash flow management as well, and you are trying to do everything to help people to improve their credit score, to consolidate the debt giving, as you mentioned, prime plus two, which is really affordable for many people. That can really set them up in life as well and they can start looking at life from a different perspective as well.

Keith Taylor: [00:29:19] Yeah, we're taking the approach of solving the problem first and then thinking about how to scale as the second. I don't know if that's the right way to do it, but that's how we're doing it and it's been successful.

Anna Niemira: [00:29:35] Now, you're looking at, as I can see, that this is a long-term approach. This doesn't look like a short-term approach that, OK, let's make money as much as possible, but rather what we can do to help people, to help Canadians. And if we help Canadians, they are going to be better off, and then they are going to be our better clients. Through that, our business will excel, our business will scale and will grow. You're looking to do all through action, to build yourself through tangible actions and seeing the problems and looking for solutions.

Keith Taylor: [00:30:13] You said that a lot better than I did.

Anna Niemira: [00:30:17] Yeah.

Keith Taylor: [00:30:18] You can see that's exactly what we're trying to do. We'are trying to create a venue for ourselves and for like-minded partners to explore what's possible. If you take that sort of let's do it.

Anna Niemira: [00:30:30] I think one of your mottos at Duca is: be the best in the world but also be the best for the world.

Keith Taylor: [00:30:38] That's a B-Corp motto. We are also a B-Corp, and that's one of their lines. Duca's mission is to help people do more, be more, and achieve more money in their lives.

Anna Niemira: [00:30:50] Right.

Keith Taylor: [00:30:51] It's very, very much linked to the mission of the Impact Lab as well and why Doca decided to create such an environment.

Anna Niemira: [00:31:02] Right. But those two actually are going very well together. When you think people and by that you actually good for the world as well and Duca is the first ever credit union to receive global recognition, which is Duca's designation as a B-Corp certified organization, as you mentioned, and because of that, I'm sure that there's many fintech companies which would like to connect with you and collaborate. How they can do it? How the fintech community can connect and collaborate with Duca Impact Lab?

Keith Taylor: [00:31:39] I was going to ask, you can either send me a note on the Impact Lab site, there's a connect with us feature there that just come straight to me or you can find me on Linkedin and send me a note there, and if that fails, it's ktaylor@duca.com.

Anna Niemira: [00:32:00] For everyone who's listening, they can actually connect with Keith directly and make sure that they're giving actually a very good proposal as well because it definitely needs to be solution-oriented. It's all about fulfilling the mission.

Keith Taylor: [00:32:16] Yes, absolutely.

Anna Niemira: [00:32:18] If you were actually to give also one advice to the fintech community what would it be? We mentioned that, yes, they have to be solution oriented, but is it anything specific that you are focusing on when you are reviewing fintech companies for collaborating with you?

Keith Taylor: [00:32:43] Really, I think what separates the ones that we want to collaborate with from the ones we don't is the ones we collaborate with are trying to solve a problem we're solving. And they're trying to build something, you know, not necessarily build it to an exit, but build something that's a contributor to the ecosystem. They're trying to, they're taking that problem-solving first approach that the one we just went through and those are the partners that we find the most interesting, and those partnerships are the ones that work out the best. I know there are multiple ways or multiple drivers of evolving your fintech business, but, you know, if that sounds like the company that you run, then it'll be interesting to chat.

Anna Niemira: [00:33:43] We are coming to the end of our conversation. I would love to ask you more questions, but maybe at the same time, in the end, is it a story or some profound case or the situation or eureka moment that you said, either pertaining to you or your colleagues, that you encountered at Impact Lab and then you said, OK, this is it, this is how we do it. This is our vision and mission for the future when you actually either collaborated with someone or you came across something, that you had this very unique moment, either personal or from the business perspective.

Keith Taylor: [00:34:30] I think. I mean, for me, those moments are when we realize when we kind of had that Aha link to the history of Duca and recognize the need to kind of carry that on as we evolve, was one. I think the second was, you know, once we started to analyze the data that we had was that a lot of our existing members were in situations that could benefit from the loan and debt solutions that we were coming up with within the Impact Lab. So you could start to see a real tangible need for it and our membership base now that was really clearly linked to the history and why we became a thing in the beginning and I think those two pieces were really powerful. And, I'm looking forward to continuing to evolve what we're doing and to set out new partnerships, and solve problems.

Anna Niemira: [00:35:37] Yes. So you had this feel good moment.

Keith Taylor: [00:35:41] Yeah, exactly, but it was almost like it was "feel good", but it was a validation too. We kind of had this hypothesis of what we wanted to do and we started to look, OK well, who could benefit from this in our own membership base expecting to not find that many, but there were a lot of them and just, you know, got us excited in a way and in that it really demonstrates the need for what we're doing and how many people could benefit from it.

Anna Niemira: [00:36:13] I'm truly looking forward to seeing what will be happening in the future and how you are going to evolve, because so far what you do, I think, it's absolutely fantastic. Keith, thank you so much for being with me and sharing all this information and everything that you've said about Duca's future, but also what you are doing for the community and how you're trying to help retail and institutional clients as well, how you are working with fintech companies and trying to improve our financial systems, step by step, case by case.

Keith Taylor: [00:36:51] Thank you. Appreciate that. And thanks for having me.

Anna Niemira: [00:36:53] Thank you so much. Ladies and gentlemen, that's a wrap. On behalf of the FinTech Fridays podcast, we would like to thank Keith Taylor for joining us on this show and you for tuning in. Please feel free to share your thoughts with us. We always welcome your feedback. And listen and learn! Once again, I'm inviting you to visit NCFA website to check out some of the fantastic past episodes. We look forward to seeing you next Friday for another episode of FinTech Fridays. Have a great weekend. Thank you so much.

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End of Podcast

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