Behind the Pathward rebranding with CEO Brett Pharr
- Meta Bank, a well-known community FI serving other banks with payments programs, recently rebranded.
- Pathward CEO Brett Pharr takes us through the process of taking his institution into a new era for fintech, banking, and technology.
My guest today is Brett Pharr, CEO of Pathward Financial. You might not have heard of Pathward – it’s more likely you have heard of Meta Bank, which recently rebranded to Pathward. I spoke with Brett about the community bank and payments legacy the firm has and how it impacted the decision to rebrand in 2022.
I always find it interesting and insightful to hear about these stories – about how an established financial institution decides on and aligns around a rebranding. It’s a big deal to change your name – Brett gives us insight into how the firm is positioning itself for future growth.
Brett Pharr is my guest today on the Tearsheet Podcast.
The following excerpts were edited for clarity.
Meta Bank becomes Pathward
Brett Pharr, Chief Executive Officer of Pathward Financial: I am a 40 year banker, spent most of my career in a large bank, and came to Pathward, which was at the time Meta Bank, about four years ago. I’ve been the CEO for just a little over a year.
We're a non traditional bank. The history of our company has its roots in community banking in the Midwest. And there was a very early fledgling industry of prepaid cards that was attached to that small community bank. And before long, that part of the bank became much bigger than the community bank. And it's been a very rapidly growing industry. And it has done very well. So much so that a couple of years ago, we actually sold our community bank. So we are entirely a bank that is virtual, and we do not have branches and a lot of those kinds of things.
We talk about our purpose, and our purpose is financial inclusion for all. And we really mean all the words that are in that. So first of all, we're about the financial network. And for people to have access to the American dream, they have to have seamless access to the financial network. That comes with both some duties and responsibilities. And that's the role the bank plays.
We very much believe in financial network access and inclusion. And this is a big topic, because ever since Dodd Frank, people have been excluded from financial services. And so, depending on who you talk to, some numbers of people in the million either do not, cannot, or will not open a checking account. And that immediately puts them to providers with more friction. And so they don't have seamless access to financial network – we mean that we want financial inclusion.
And then we mean for all, and this is an important point, as well. And it comes in two flavors. One is, I don't think the financial network should be used to pick winners and losers. Obviously, things have to be legal. But beyond that, making choices of various types, whether they're political, moral or otherwise, is not the role of a financial network. And so we actually mean all, and we have customers that do things that I don't agree with personally, but it doesn't matter. It's financial inclusion for all, and that's the perspective that we have.
Mass, plain vanilla products
Different segments and sub segments of the economy want to be served in different and unique ways. And so broad based mass products do not meet the need for them. And so that's one of the reasons they're excluded. I appreciate the efforts by some very large financial institutions to provide a vanilla product. But that vanilla product does not meet the needs of ethnic segments and sub segments – they want to be served in a particularly unique way. And so part of our inclusion for all is to not only serve everybody, but serve them in the way that they want to be served.
Banking with purpose
I think that everybody wants to do well, but there is certainly a profit motive and a scale motive that has to be analyzed at different size organizations. I think it comes in two forms. One is you have to have scale to be able to write a profitable operation. And for the very large players in financial services, the segments and sub segments that we’re serving, they can't get scale and so it would not make sense for them to enter into those markets. And you have to attack that with a unique business model.
The other component of it is a bit of a risk appetite conversation, because the degree of front page risk that you have varies based on the size of the organization. There are certain kinds of customers that, frankly, are harder to serve. And so under the guise of ‘I want to reduce my risk’, I do things that cut them out and do not let them come into financial services. And so that's an important component of it.
And then there is, of course, the profit motive. Most of the end consumers that use our products are low to moderate income – they do not have big balances. And in some organizations, if you don't have $5,000 in checking accounts, you're really not a valuable consumer to them, simply because of their size, scope, and scale in what they offer. They do offer a wonderful technology and some of those kinds of things, but they can't make money when there's $400 in the checking account. We have a business model that allows that to happen.
Rebranding Meta Bank to Pathward
We were already contemplating some rebranding. We'd sold our community bank and we wanted to do some things to change and shift it. We’re a B2B2C company – understand that we're not a direct competitor to banks. We're a different kind of player. In fact, many of our products are pushed through other banks. So that's one reason we wanted to have a little bit more of a forward looking view and acknowledge our purpose: financial inclusion for all. And while we were contemplating that, Facebook [embraced] the metaverse and some of those things [and rebranded to Meta]. And so that's how this sort of transpired.
It ended up being a win win for us, because we were able to sell our name and we were also able to make some of the changes that we wanted to make, internally and externally, to fit the look. The process of picking a name is very interesting. It seems like all the actual words are already taken in. So you have to make up words, and you go through a robust process. And frankly, we had some external help that was fantastic. We considered lots of possibilities, both from a creative standpoint, a messaging standpoint, and a legal standpoint. And then we arrived at Pathward, which when you simply think about – path forward – it’s what we're trying to do for these lower, real economy consumers. Give them a path forward and their lives.
And of course, everything about their financial lives, to be able to have access to financial networks, not have high friction costs and products. And it's a way to do that. And so it fit, and we're very happy about it. It works on our consumer side, and we also have a commercial finance side that tends to work with companies that have less access to credit for a variety of reasons. And so it fits in that space, too. It gives them a path forward to greater financial stability. And what often happens in that particular part of our business is we bank a company for three or four years, and then they rehabilitate, and then they go on to somebody else. And that's good. That's giving them and their employees a path forward.
Leaving ‘bank’ out of the name
That was by design. I think that was one of the very early decisions, because the people have a particular connotation of a bank. And, yes, we are a bank. And that's why you see us in a national association, FDIC insured, and all those kinds of things, and they're very much required. But from a marketing standpoint, I think it gives us a little bit of a leg up because we try to be a little bit more forward thinking and more risk appetite friendly, with proper controls, than your traditional bank.
The rebranding process
I entered this with a great deal of trepidation. I imagine part of it's because in a prior organization, I went through 17 mergers and name changes. It had been through a couple of large name changes, some of which went well, and one of which particularly blew up and did not go well. And I know that the name that everybody likes is the name they got. And so if you change anything, it's immediately a problem. Right? So, I went into it with a lot of trepidation.
We had a couple of external firms that work with us that had done this many, many times. And they had a great process, asking questions like, Who are you? What are your values? What’s your purpose? What are you trying to accomplish? What do you want to convey in your name? We went out and vetted 25,000 possible words. We got that down to a set of probably 100 of them, and they said, Okay, which ones do you like? Which ones do you not like? And most importantly, why do you like or not like?
So we did a lot of those things, then they went back and did a whole other set of names based on that feedback. There's an extensive legal process you have to go through here, too, because there's words that are already taken. We had to check URLs and all those things, so that we eventually narrowed down these names to a handful, and then we picked.
Choosing a logo
The other process was logo selection. I was really pleased with the way the word shows up in the logo. It was scary. At one point, I was making paper airplanes in the meeting to try to help people understand what kind of logo we should have, because we want to give the idea of onward and upward for people. And I think we did that with our new logo.
How the rebrand impacted the team
The internal team was a collection of people of different disciplines across the company. I think they worked really hard. And they had a lot of genuine excitement about it, probably unlike me, because I'd been through a bunch of these. They came into it much more optimistic and hopeful. And in the end, I was thrilled, but I don't know they had to go through the same journey I did.
The other thing we did is we collected an additional team to look at our values of the company, our internally-conveyed values, who we are. And that has been part of it as well, because it's one thing to come up with a brand. It's another thing to deliver on your brand promise. Over the next several years, we've got to demonstrate that we're delivering on our brand promise. You say you're forward thinking that your path-forward, but how does that show up? And how does that show up in different difficult business environments? And so I don't think our work is done. In fact, in some ways, I would say our work is just beginning on delivering on our promise.
Promoting the new brand
We've done some similar things like the party we threw in Las Vegas at Money 2020 . And so commercial finance venues, different asset classes have their own kind of annual meetings and those kinds of things. But one of the things we have to remember about our business model is it is B2B. It's not B2C. So we're not spending a lot of time widely advertising and broadcasting it.
We're making sure our core partners know and in commercial finance, our customers recognize that we did a significant upgrade to our website. I think the best way that we promote ourselves is, again, back to my PowerPoint, deliver on our brand promise to our companies that we work with.
What clients want now
There's two categories out there. One is our long standing partners that have been doing this for a very long time. And typically, they have a particular market segment or sub segment that they want to address. Sometimes they associate themselves with yet another distribution channel like a retail franchise. And they are continuing to try to provide the product, which is basically a checking account, it's a debit account, to consumers, to become the center of their core business. How they train that is they have a lot of data, they have a lot of technology, they have a lot of capital, and they are profitable. They also have a lot of good ideas. And they're constantly going and bringing us new ideas, or new third or fourth parties to work with, and launching these things.
For example, some recent public things: we did a Target card. We did something with Dave Ramsey's organization. There are others that are like that, and will continue to be out there. The thing that has shifted somewhat with these types of partners is they're wanting to get broader than just a single product kind of thing. There was a time that it was just about offering an account for the balances and the interchange fee income and all that. Now they're wanting to get bought.
So now they talk about different kinds of payments, opportunities, etc. In some cases, they are even offering some consumer lending. And they're engaging in that. And so they're expanding their share of wallet with these consumers that tend to be underserved, at least in ways that they want to be served. And so they're doing well, and they're very much growing in that part of that shift is, which is the other side of the equation.
This other set of partners saw the neobanks coming, the fintechs. And so that's the second group that we're seeing: they hit the ground running and running hard. They were much more challenging to work with, did not have the history, the background and program standards and risk and compliance or all those kinds of things. So there's a lot more hand holding and doing that. They are experiencing much more fraud and those kinds of things. Now they've hit a window where they're running out of capital.
Revenue and regulatory pressures
I do think they have done a better job of the customer experience. They have slick skins, you know, very good front ends. They have not invested as much in the appropriate back ends. And many of them sought out banks that were not as focused on risk and compliance as we are. And so they've connected themselves. Most of these are very small, but connected themselves to two other banks that are engaged in it. So now what's happening is, you've got some pretty tough pressures coming in across the industry, but particularly in that fintech/neobank space, which is a cash burn issue. They're running out of cash, because they're not yet profitable. But you also have the regulatory pressure that is hitting a number of banks that got into this in more recent years.
You want to always say about things like this, going through the cycle matters. And that's an old banking term. But, you know, everybody comes up with a great idea. And this is the next new thing. That's wonderful. And we need the innovation. But the jury is out until you go through a full cycle. And it might be an economic cycle, a political cycle, a regulatory cycle, a funding cycle, whatever it might be, to really see. And I think there'll be some great things that come out of the fintech world, but I think it's going to be a much smaller field than it started out being. I think there'll be some more competitors in banking as a service, but it's going to be a much smaller field than it is now. Because many of them are going to grow weary of the investment that it's going to require.
Vertical integration is interesting. You're seeing this where some are trying to play both sides. They want to be a bank and a fintech. My view is there's three components that are part of the equation. One component is the technology. And, frankly, these guys are awesome at technology. They're agile, quick, fast, smart. They think about the customer experience. They've got that, and I get it. And some of us that have longer standing things, we're a little behind. So we got some work to do to catch up.
The second is human capital. And human capital is a critical component of this, because there have always been elements in banking that you can never solve with tech or fully automate. You've got to have cognitive people quickly evaluating things around risk and compliance and judgments and those kinds of things. A simple example is commercial underwriting. Nobody's figured out how to replace commercial underwriters with robots, and I don't think they're going to anytime soon. I think the human capital component is key.
But the one that I think everybody misses, that's such a core part of this, is culture. Because even if you come and take somebody that is an expert, and take them from my company, and bring them in, there has been some of that is going on in different places in the industry. If it's not within an appropriate culture that I think is unique to a bank, you're going to have significant problems. And I think there are some of them that figure that out.
Over the years, there are people who have given back bank charters, because of this issue. There's at least one I can think of – I won't call the name – that has a bank charter that wishes they didn't. And so I think the key there is (here's why I think the partnership model works so well) the culture that it takes to run a bank and to do its job, which is to protect the financial network of the United States in an appropriate way, versus the culture that it takes to very innovatively deal with the customer experience and all those themes. You want people who are really good at both. And when you put them together in the same company, it doesn't work.
I go back old school, and it's always like, investment bankers and commercial relationship managers never worked well. They've tried it and tried it and tried it – they are completely different cultures. And I think in this case, there are completely different cultures. So that's why I'm a fan of the partnership model, and some are trying it. They're trying to play both ends. And maybe one or two of them will figure it out. But they're really going to have a challenge with those three elements.
Regulation’s role in partnerships
There are several different components of this going on right now. One is, if they just enforced the rules that are already on the books, there's a number of banks that currently are or will be in trouble. Basic third party management is an example of that. And there's at least one very public consent order. There are certainly rumors about multiple other ones. It takes a little while for the regulators to catch up. But when they catch up, they catch up with a vengeance. I think some of that is going to happen with rulemaking and rule changing to address the fintech market.
And I think there will even be things that my company learns from. But we'll come from a position of strength, not from a position of being behind. And the degree to which the regulators start figuring out how to oversee fintechs, that would be a bit of a reach because they're not banks, and the partnership model. They can expect the banks to oversee them, I think that's the key thing to go forward.
Crypto and mainstream banking
Then you layer on top of that the whole crypto thing that was going on. I'd bet anybody who has any experience in financial services saw this coming. There's no doubt about that. And what needs to happen is there needs to be centralized regulatory things, but on top of that, it will become not the rail, but it will become an alternative rail for payments. And then, you let the best man win. Right now, it's in a situation where there wasn't the appropriate compliance or regulatory oversights going into it.
And everybody talking about it's cheaper: well, I can do things a lot cheaper if I don't have any regulatory compliance oversight. I can make them easy. All you're doing is moving bits and bytes. So I think that's the challenge. I'm very optimistic on blockchain technology, I think that's going to have a significant piece, but the whole of cryptocurrencies are not gonna become real until they get the centralized regulatory framework in place.
Plans for 2023
I think one thing that's going on is the economy and the things that are happening there, and I have a commercial finance portfolio. What we expect to happen there is that's going to actually grow a lot, because during bad times, more and more small and medium sized businesses have trouble getting credit. And we're really good at managing that. So a big focus for us is that with interest rates going up, the benefit that we will get out of that, and then making sure that we do that in such a way that will not create credit concerns. That's a sort of traditional banking kind of topic.
I think the second thing is as I'm waiting for the fintech shakeout – the banking as a service shake out. Who's going to be left standing? How are they going to be successful? What's the competitive landscape going to look like? And then how do we need to adapt and adjust to that? Meanwhile, we're doing things around technology to be a low cost provider. And we'll need to do that. And, frankly, this interruption in the fintech funding model is giving us a moment to breathe and catch up on some of these things. So we will make sure we do that.
And then finally, something I mentioned earlier, we've got to continue to deliver on that brand promise. So you say you help financial inclusion for all, here's a problem, how do you solve it? And with our partners, we'll continue to look for ways to solve that in creative and innovative ways.