Posted December 4th, 2019
Smaller financial institutions are finding a way to compete in a world of too big to fail banks. The Central Bank of Kansas City is an interesting case study. The bank is one of a small number of FIs in the US certified by the Treasury as a Community Development Financial Institution, serving people of modest means who may not have had the benefit of affordable and accessible financial products. A little over five years ago, the company launched Central Payments, a division that leads the bank’s nationwide presence in the payments industry.
Trent Sorbe is the president of Central Payments and joins us on the podcast to talk about how his firm has been able to punch above its weight in issuing activities, headquartered near Sioux Falls, South Dakota. Central Payments recently announced the creation of its Falls Fintech accelerator and Trent describes how the new program will service the ecosystem Central Payments is building. We also discuss the company’s new Open API platform, CPX, and how that fits into all the moving pieces.
Central Payments was really born out of a vision of Central Bank of Kansas City. Coming out of the recession, management was looking for a way to grow the bank in a special way by serving our customers of modest means.
The Central Bank of Kansas City is a Community Development Financial Institution. There are only about 133 CDFIs that are also banks. One of the things it opens up is the ability to issue new markets tax credits. While that doesn’t have anything to do with payments, it does enable CBKC the ability to work with and finance developers in distressed neighborhoods.
As we were looking to expand the breadth of our services for our customers of modest means, fintech and payments seemed like a great way to do that. We formed Central Payments just over five years ago. The whole notion was to offer innovative products that required a bank by working with innovative technology firms focused on customer experience. Rather than build new expensive branches, the bank decided to focus on the infrastructure — to get into the guts — of payments.
It takes a bank to offer and insure deposits. It takes a bank to be a member of Visa and Mastercard. It takes a bank to move ACH and wires. Let the technology first companies focus on user experience while Central Payments can be their support and foundation. Let them build a business on top of us while we focus our expertise on product.
We have seen an increase in companies focused on serving customers of modest means. I think that’s because such a large percentage of the population hasn’t enjoyed the benefits of working with a financial institution. Fintechs have penetrated that demographic, bringing great and valuable products and services to them via the mobile experience.
We work with PayActiv, a well-known fintech company that provides earned wage access products. The company is a great example of a company that works with us to deliver wages in the middle of a pay period. It’s not just PayActiv — we work with a variety of companies in this space. The consumers that find themselves in a liquidity crunch during a two week period are many times the same folks we serve out of our branches in inner city Kansas City.
Sioux Falls is really the hub of payment card issuing in the US. It goes back to when Citi relocated here n the mid 1980s. Citi really incubated a whole banking / payment card ecosystem. Wells Fargo and Capital One are here, as are entrepreneurs in the space. It’s only natural that prepaid card issuing started to take hold here. What started as prime and subprime credit moved into prepaid cards and fintech partnerships — it’s really the same backbone.
We called Sioux Falls home because we got access to a really talented, experienced pool professionals in the payments space. It’s one of the few places that if I’m recruiting for a mid-level manager with eight or nine years experience in AML and BSA in payments, I’ll probably have three dozen resumes come in. We look at Sioux Falls as a strategic place to be.
We constantly talk to entrepreneurs with amazing product ideas but may be premature to onboard with us and to sign on capital-intensive services like card processing and card manufacturing. We were looking for ways to help these firms accelerate the last mile challenge with a team of experts and bring a product to life earlier and at lower costs than if they went at it alone.
Falls Fintech was a natural extension of our business development strategy of finding interesting products, putting them on our platform and backbone, and bringing them to life. It’s super strategic to our mission.
It’s a ten week accelerator program. We’ll run two cohorts per year and the first is scheduled in March of 2020. We’re trying to be flexible. Most of the curriculum is onsite but we do have the option for entrepreneurs to access the learning remotely, if they needed to split up their time in Sioux Falls with us.
We’ve learned from the fintechs we’ve worked with the past five years about how we can become a more embedded, strategic parter of theirs. One of the ways we can do that is connectivity. CPX brings top of mind providers — networks, processors, surcharge free ATMs — and lets partners bolt on to us to get access to all these partners.
We think CPX is strategic for us as we think about the types of offerings that are attractive to our emerging fintech partners. It’s coincidental that the news of the launch of CPX came out with the launch of Falls Fintech. We’ve been working on both and they came to life at the same time. They’re complementary to one another. When a new accelerator graduate comes to life, we want them to use CPX.