00:00welcome to the a 16z podcast I'm Michael
00:02Copeland Max Levchin helped build PayPal
00:05then he went on to tackle gaming at
00:08slide now he's back in the world of
00:10payments and finance with his latest
00:12startup a firm a 16 ZZZ Angeles strange
00:16talks with legend about a firm's
00:18opportunity in the world of finance and
00:21how it aims to build trust among a
00:23customer base that doesn't trust banks
00:26why building models around loans
00:28requires making bad loans and finally
00:31why everyone should start watching Keira
00:34Sawa's Seven Samurai
00:36over and over angela strange starts
00:40things off why don't we start by talking
00:42about a firm and payments finance an
00:47area that's quite complex that you spent
00:49a long time in and often times
00:52entrepreneurs that have built successful
00:53companies in one space say hey that's
00:56that's enough and you made a foray over
00:58to slide and now now you're back so what
01:02is it about the idea for a firm and a
01:04firm specifically that really got that
01:06passion that I need to spark this and I
01:08need to solve this problem sort of two
01:11parts to that question one is sort of
01:16why back to finance and my wife
01:21explained it to me I could naturally
01:22figure out what went wrong
01:23with slide which did very well
01:25financially but was never quite the real
01:28catch for me and a firm as I'm wallowing
01:32in my my daily pleasures of running this
01:34company and she unfortunately I think I
01:37don't know she meant it as a compliment
01:38Sheba so you're a very serious person
01:40spend most of your formative years
01:42building a payments company that became
01:44the payments company in the internet
01:45that was a very serious task and he
01:47fought fraud and it was great and then
01:50he went off the deep end and had to
01:51build a games company and look at you
01:53now back to serious things like that you
01:55are just not that guy who makes funny
01:57games so I'm probably back where I
02:00belong at least according to her and I
02:01tend to agree the kind of more
02:05interesting question why'd this part of
02:07payments why this part of sir the
02:08serious universe and the answer there is
02:12the FICO score that drives the credit
02:15decisioning it's essentially proxy for
02:17how much limit you're gonna get if
02:19you're gonna get a credit card what
02:21terms you're gonna get all the different
02:23decisions by even the most sophisticated
02:25lenders and banks are largely driven
02:28through this magical number called the
02:30FICO score which was invented in the 80s
02:32or even late 70s and has really not
02:35changed that much certainly has not been
02:39adjusted for the notion of the gig
02:42economy no the it was invented well
02:44before people changed their jobs more
02:46than a couple of times per lifetime and
02:48so there was always this moment when it
02:53would start creaking under the changes
02:56to the world we live in and it really
02:59hit hard right after 2008 financial
03:02crisis because young people that were
03:04coming of age entering the workforce
03:06starting to consider their first sort of
03:08contemplated purchases would say oh this
03:11FICO score and they didn't necessarily
03:12know what it what the name was but they
03:14would say well why am I getting these
03:15terrible rates why can't I borrow our
03:16money why do I have to get a credit card
03:19where I can't even understand let alone
03:20calculated with the APRs and as I was
03:22sort of watching all this stuff and
03:24reading the research on it because of a
03:26serious person that I read this kind of
03:27research before bed time I started to
03:30think that there's probably an
03:32opportunity to just build a Bank of the
03:33future for all these 18 plus year old
03:35people and which is how we wind up with
03:37a firm so talk specifically lots of
03:39different ways that this problem could
03:41be tackled from the lending clubs on the
03:44consumer side there's bunch and on back
03:46on the business side you've chosen a
03:47pretty specific angle at a firm talk
03:50what is a firm do exactly so a firm
03:52first and foremost is a purchase finance
03:55service what we do best
03:58today is integrate at the online and
04:01just launched offline literally a few
04:03weeks ago point-of-sale where as a
04:06typically a young person comes in and
04:08says I would love to buy this amazing
04:09looking Casper mattress on Casper calm
04:12it is a bit expensive I see a hundred
04:14dollars and that's not really something
04:16I'm going to put on my debit card and I
04:17don't have a credit card because I don't
04:19want to have a credit card I could do it
04:20but I just don't trust these guys and so
04:23I'm gonna go home I'm gonna be a window
04:25shopper and probably
04:26I wind up sleeping on the floor for an
04:27extra couple years until they noticed
04:29that on that page it says or you can
04:31split it into six payments as low as
04:36probably in this case will be along the
04:39lines of hundred and something dollars
04:41I'm trying to Cal there's a lot of
04:43restriction to what you can and cannot
04:45say so I'd rather not be quoted to miss
04:49you absolutely should one of my favorite
04:52merchants is Casper and so you notice
04:55that there is this extremely obvious
04:57transparent commercially framed payment
05:02plans available on Casper and it
05:04resonates beautifully was the young
05:06shoppers mind where they say oh no card
05:09no complexity the interest is pre
05:12calculated very important we've
05:13disclosed the interest both in the rate
05:15and dollars terms the approval is
05:17instant there's no weird hang on while
05:19we go and play around with your credit
05:22rating we don't do a Hart poll as they
05:24call it in the history so you don't
05:25really we don't ding your credit record
05:26figure out what the rate will be and
05:29disclose it very clearly and then you
05:32agree and within 24 hours Casper tells
05:35you okay it's it's on the way or within
05:37seconds because they get from us in
05:39notification that we approved alone and
05:41it goes so we basically help people
05:43finance these considered purchases
05:45something north or a couple hundred
05:46dollars all the way out to several
05:47thousand dollars and it's grown pretty
05:51significantly this point we have several
05:53hundred merchants live and several
05:54hundred more integrating it's has a
05:58pretty amazing impact on the merchants
06:00themselves we see about a thirty percent
06:02increase in sales for most of these
06:03merchants really all about window
06:06shoppers converting into buyers by way
06:08of saying I can't afford a thousand
06:10dollars overnight but I can certainly
06:12afford eighty dollar payments over the
06:15next year or so or year and a half and
06:17so that's a that's been our bread and
06:20butter for a year in a little bit now
06:22and we're just starting to branch out
06:24into the next set of services in our
06:26plan to build a sort of comprehensive
06:28financial system for the young people
06:29you talk a lot about young people and
06:31you've been you've been the one that's
06:34been toting a lot of these stats and
06:36just some of them and like they see
06:40completely undifferentiated Millennials
06:42would rather get their financial
06:44services from anybody except for one of
06:46the banks the really surprising stat to
06:48me was that two-thirds don't even have
06:50credit cards and then generally they
06:53just hate these brands so do you think
06:55that there's an opportunity to build a
06:58new brand it's not that they hate Bank
07:00brands all the time indefinitely it's
07:02that they don't like these Bank brands
07:04and are really looking for what's that
07:06next thing that's going to be fast
07:08transparent mobile some of the
07:09characteristics of a firm that you
07:10talked about yeah I think that is the
07:12opportunity I think the opportunity of
07:15the day is to build this nice loan book
07:17we have very sensible set of merchants a
07:20lot of very cool young startup merchants
07:22use us because it resonates well most
07:23their customers but the long-term
07:26opportunities to really build a trusted
07:27brand that speaks to what these young
07:30people expect because they don't expect
07:32anything good from you know fill in your
07:34favorite top ten back there they're one
07:35of the best stats as a in the Millennial
07:38disruption index study which was a giant
07:40survey they I think for fun they said
07:43they said you know list your top ten
07:44most despised brands top four one of
07:46being banks so they're definitely not
07:48well liked and there's a couple of a
07:50couple of reasons for it number one the
07:53notion of you have to go to a branch to
07:54do certain things is completely anathema
07:58to a lot of what people think of
08:00convenience these days but to kind of in
08:03a more sour or darker note a lot of
08:06these people were in their formative
08:08years in 2008 and they witnessed what
08:11happens when a bank of that scale is
08:14squeezed by their own bad decisions
08:17government's better decisions it doesn't
08:18matter whose fault it was the ultimately
08:20many of them didn't stand behind their
08:21customers in a way and that they had
08:23advertised or talked about and so as
08:25these houses were getting sold short
08:27that's their credit card limits were cut
08:29those people were being told sorry we're
08:31gonna have to pull your line even as the
08:33consumer wanted that line the most they
08:35walked away with a pretty strong muscle
08:36memory of that's not your trusted
08:38partner the the corner bank is not
08:42really the corner bank it's got a
08:43national brand and it's it's just not on
08:46our side anymore so I think that that's
08:48the opportunity we're really looking at
08:53equivalent of a great American bank for
08:55the next generation interestingly enough
08:57they're really two brands that survived
08:59to banking brands that survived 2008
09:01financial crisis really pretty much
09:03intact one is American Express which i
09:06think is probably one of the best
09:07financial institutions out there but
09:09they have not figured out how to market
09:11to young people at all there's really
09:12not that much cool left in the black
09:15card if you're an eighteen year old and
09:16Visa MasterCard have six out of either
09:19buy started issuing banks have
09:19successfully chipped away that by
09:21issuing their own Visa black and all
09:22that good stuff Sapphire cards things
09:24like that but the other one that's
09:26fascinating kind of a spiritual guide
09:28light for us is USAA they're far less
09:31known but they're the Armed Forces
09:33serving Bank and they gained customer
09:36traction during the crisis they stood
09:38behind their customers no questions
09:39asked they would help people refinance
09:40loans even if there were dire straits
09:42they would give them incredible
09:45treatment during the time people would
09:46lose their jobs or have to deal with
09:48some sort of personal tragedy and even
09:50though they probably lost short-term
09:52revenue opportunity they ultimately made
09:54an unbelievable number of people very
09:55loyal to them so every time was harassed
09:57ourselves where's the right next
09:59branding move for us we search for a
10:02precedent in the USA's history
10:04let's talk talk a bit more about that
10:06many of you have seen the stats I think
10:09there's been something like thirty
10:10billion dollars of financial capital
10:13that's gone into the FinTech space in
10:14the last two years we are we are proud
10:17investors of a proud investors of a firm
10:20one of the one of the popular terms
10:22right now is just aggregations of the
10:24bank and you can see a lot of these
10:25images on Google look for banks web site
10:29point to any product that they offer and
10:31you can see five to ten new startups
10:34that are hitting each area take wealth
10:37management you've got the term now with
10:39Robo advisors instead of paying to your
10:42financial adviser a larger percent you
10:44pay a small amount to an automated robot
10:46that will put you in funds that don't
10:48cost you as much if you want to go for
10:50your consumer loan there's a bunch of
10:52different companies you can go their
10:53business loans a bunch different there
10:55you could imagine this world where every
10:58time you want something different
10:59financially you're going to a a totally
11:02separate company or there's a world
11:06ferm you're starting with point-of-sale
11:08lending you've moved into student
11:10lending do you see that banking is going
11:12to progress is really a big
11:14disaggregation or that it's just
11:16starting as being disaggregated but
11:18someone's going to come out on top and
11:19build a really trusted brand and be able
11:21to provide more and more of those
11:22services so I think both things will
11:26actually happen the search Google find
11:30service fulfil service is a very
11:35transactionally related oriented
11:36relationship if you need to refinance
11:38your existing credit card debt it
11:40behooves you to shop for a good rate and
11:42Google is as good a shopping tool as you
11:45can find these days so or perhaps more
11:47specialty schools like Credit Karma you
11:49would go and search for a provider and
11:51that would make you feel like you're
11:53getting a good deal it's not something
11:55that happens all the time and you don't
11:57really hopefully don't refinance a
11:58credit card debt all the time and so
12:00once every and months or years sort of
12:03an event I can see that being
12:06permanently deconstructed into these
12:08extremely efficient very thin once
12:11transactional service and then you're
12:13done and you feel very good about sort
12:14of satisfying you need there's
12:16definitely going to be several probably
12:18winners that take the spot in your brain
12:21that belongs to Wells Fargo for your
12:25parents the sort of a place where your
12:28money goes into a direct deposit account
12:32of some sort that takes care of your
12:35billing mostly automatically except they
12:37do that very poorly that's where you get
12:39your card that's where we get your
12:40cheques are probably hopefully gonna go
12:43away it but the the the modern
12:46equivalent I'm a checking account is
12:47actually automated bill paying it will
12:49happen from that and I think that's
12:50going to be something that will probably
12:53remain a branded monthly weekly
12:57relationship something that happens to
12:59be a part of your life now the
13:01interesting opportunity there is if
13:02played correctly and we're certainly in
13:04competition for that the opportunity
13:07there is not just to be the thing that's
13:09in your head and you're using it every
13:10day but the thing that in your head that
13:11you know is your trusted adviser is
13:12actually your helper and then that may
13:15well be the jumping-off point for you
13:18know where do I get my best
13:20terms for credit card refinancing and
13:23the efficiency of those services might
13:26still propel them forward in their own
13:28little transactional ways but you
13:30probably would start in a place where
13:32you have the trusted relationship and
13:34also where your money goes from your
13:35paycheck so that's the I think that that
13:38that's really interesting opportunity
13:39that's also where we're playing one of
13:41the things I think is really special and
13:43unique about a firm is how you're
13:45fitting into what we like to call the
13:48on-demand economy we used to live in
13:50this world of planned purchases if you
13:52wanted anything you need it to think
13:54about it at least a week in advance and
13:55now with your mobile phone you want a
13:58taxi you call uber you want food you've
14:00got 200 different companies you can
14:02deliver a meal in 15 minutes there is
14:04actually four different startups that
14:06will come fill up your car with gas on
14:08demand now moving to a fairly like large
14:11extreme and I think with finance it's
14:15also moving that direction and you
14:17talked a bit about it about I'm gonna go
14:19buy my mattress oh it costs $1000
14:21I'm not gonna buy my mattress a firm to
14:23the rescue you've just moved into
14:25student loans it used to be I'm gonna
14:27plan for four-year colleges now I can
14:29take a three-month coding boot camp I
14:31don't have three months to plan for
14:33loans I need my money
14:34right then how do you think about like
14:37being customer acquisition being at that
14:39critical point of need as part of the
14:42establishing that relationship with
14:44customers versus trying to drive people
14:46into a branch they go let's go away
14:48right so that that's entirely central to
14:50how we're growing how would we do the
14:54partnership we have with our merchants
14:57and at this point that's a very
14:59stretched definition because alternative
15:01learning platforms are merchants in our
15:02system and we have all kinds of other
15:04interesting verticals that we're working
15:05on but the provider of service or
15:09product that encounters that consumer
15:12typically tells them about us as they're
15:15considering the purchase in most cases
15:18the conversation doesn't start on the
15:20checkout page when they say well these
15:22are MasterCard it's the you probably
15:24can't afford it but we have an
15:26installment plan available to you and we
15:29trust these affirm guys they've done
15:31good for us they will will treat your
15:33and so that sort of kicks off the
15:35relationship building process where they
15:37found out about us and we are introduced
15:40to them under the umbrella of the brand
15:42who basically vouches for us they
15:45wouldn't put us on the product page on
15:47the front page and sometimes in their
15:49email drops unless they thought we
15:51providing a good service and interesting
15:53ly enough there's a sort of implicit
15:54indictment of the larger banks that do
15:59what's known as point-of-sale issued
16:00credit cards which is you know somewhere
16:02borderline evil product because they
16:04give you a zero percent financing unless
16:05you missed the first payment at which
16:06point becomes maximum available must
16:08maximum possible by law
16:10compounding from the point of purchase
16:11and it's kind of a pretty awful product
16:13practically speaking and those are very
16:17rarely promoted in giant print because
16:19merchants are vaguely embarrassed by
16:20them they do drive incremental volume so
16:22that they are useful but they're not
16:24exactly something to be proud about and
16:26we typically show up under the rubric of
16:28these guys are not just good they are
16:31the enabler they're the unlocker of a
16:33whole new segment of the market that
16:36typically couldn't afford this stuff and
16:38so that's that that's the sort of the
16:41handoff point and absolutely critical
16:43portion of what we do it requires that
16:46we hold ourselves to an incredibly high
16:48service standard on both sides of the
16:50equation we can't tell the merchant hey
16:52we'll do all these marvelous things for
16:53you will approve lots of people and then
16:55say actually we're not nor can we tell
16:57the consumer here's your rate it's
16:59pretty calculated we'll never change
17:01your interest and then do something else
17:02so part of the difficulty or challenge
17:04of living our business we are constantly
17:06being held to a very high standard of
17:09service and even more importantly high
17:12standard of transparency big part of our
17:14trust building exercise is from the
17:17point of discovery as the consumer says
17:19oh yes I would absolutely love to do an
17:21installment pay over the next twelve
17:22months we have to instantaneously tell
17:25them you're approved and here's how much
17:27and here's your rate and here's how many
17:28dollars and we are not just going to do
17:32all of this for you we're going to start
17:33reminding you so you're not late and if
17:36you're late we're not going to charge
17:37you a late fee because that's our fault
17:39we didn't remind you correctly and when
17:40we make the underwriting decision we
17:42made the choice to take you on as a risk
17:46that's we're gonna have to stick with so
17:47by sort of constantly aligning ourselves
17:49as a consumers best interest is
17:52basically the way to play this onto
17:54manicott I mean you can see that playing
17:56out in all these other companies but you
17:57couldn't routinely just kind of branch
18:00through the decision tree where or any
18:02one of these companies actually says
18:03what would be the consumer friendly
18:06consumer intelligent things to do and
18:09building that trust over time especially
18:11important given given the background
18:13well and you can tell to you from some
18:16of the stats with a firm that customers
18:18are trying with smaller purchases and
18:19then they often come back with larger
18:20and larger purchases and you're building
18:22that trust over time yeah one of the
18:25best stats we got is so typically a lot
18:29of the purchase that we make we
18:32underwrite provide for our what they
18:35call consider purchase these are a
18:36couple hundred dollars but they're very
18:38lifestyle life change driven they learn
18:41a term from somebody in the furniture
18:44business from home wares business
18:47interesting stats when people are
18:49furnishing a house they make 85 percent
18:52of the purchases that they will pour
18:55from that brand within 45 days of the
18:59middle point of the largest purchase so
19:01essentially this is an incredibly
19:03concentrated set up and it kind of makes
19:05undermining a bed well they need some
19:06bedding and you need some towels and
19:09dishes because you're moving into it
19:10your first apartment and so what
19:12typically happens people try us out and
19:14they borrow some amount of money at a
19:16merchant and they start paying it off
19:18and you're like wow it's all true it is
19:21precomputed interest and they're
19:23transparent and I missed it by day
19:25nothing happened the somebody called me
19:27and reminded me politely and then I took
19:28care of it and they thanked me and sent
19:32me a nice note that was that and so as
19:33they kind of figure there's a wait a
19:35second I have another thing I need to
19:36buy and that other thing and I'm gonna
19:38go for the nicer one so the second
19:39person is 80% larger than the first one
19:41on average and it doesn't necessarily
19:44mean the same merchants so people kind
19:45of you're where else can I use a firm so
19:48that that's been the trust establishment
19:51exercise has been working fairly well
19:52given how we how we been behaving yep
19:55all right let's uh let's dive under the
19:59you're known for lots of things but one
20:01of the one of the most well known is
20:03just fraud at PayPal and world class
20:07fraud fighting team which really enabled
20:09PayPal to grow into what it is today and
20:11you've got in some of the band back
20:13together at firm how you hear lots of
20:17different companies saying we're gonna
20:19look at your your Facebook friends what
20:21you ate for lunch I'm exaggerating but
20:22there's all sorts of different social
20:23signals and different things that you
20:25could bring in how are you thinking
20:27about judging what isn't isn't important
20:29and how do we know like is it going to
20:31work so you don't the honest answer is
20:34you don't and the only way of building a
20:38successful anti-fraud and risk
20:42underwriting system is rigor and it's
20:47like a better sermon balls of steel the
20:50may sound a little preposterous but it's
20:52actually one of the things that was an a
20:57priori at PayPal so when we looked at
20:59our loss rates in the summer of 2000 we
21:01were basically bleeding out millions of
21:04dollars in fraud related losses per week
21:07we were basically running out of money
21:09even though we had 60 million dollars in
21:10the bank which is very strange
21:11but how much time do we have left six
21:14weeks how much money do we have fifty
21:16something million dollars that does not
21:18compute but it does if you look at how
21:20much you were paying out to the various
21:22Eastern European mobsters and so the
21:26thing that happened though is we had
21:27this unbelievable database of
21:29transactions gone bad and you don't need
21:32to guess what will predict the outcome
21:37of transactions that go sour because you
21:38look at your historic data base so long
21:40as you've done a good job logging you
21:42can then run the correlation say oh this
21:44thing predicts losses much better than
21:47that thing and you build a model around
21:48that knowledge the most valuable data is
21:50not social data not wait for lunch not
21:52even that to income ratio you know
21:53that's fairly predictive but your own
21:56data because every data set that you're
21:58looking at internally describes your own
22:01process including your bugs including
22:03your delays including what change
22:05including the merchant base that you
22:06sign an immersion base that churn all
22:07those changes to your system are encoded
22:12own logs and building models from your
22:14own data is the only way to build a
22:16really successful system it's very hard
22:17to build models from your own data if
22:19you don't have a lot of data and the
22:20only way to get a lot of data is to lose
22:21a bunch of money at PayPal we learn that
22:24by way of going holy crap we've already
22:25lost a bunch of money in fact we've lost
22:27so much we might be out of business any
22:29minute now quick everyone worked faster
22:31and we were able to escape the the
22:34unfortunate demise and came out better
22:36for it and this guy Nathan and I built a
22:39bunch of really cool systems and then he
22:42went on to do some other exciting stuff
22:43and when I started a firm I called him
22:45up and said hey I'm gonna go do another
22:47one of these crazy things this time I'm
22:49gonna be a little bit more careful about
22:50losing money but I learned the hard way
22:53last time you have to pay tuition and
22:55it's expensive but then you have this
22:57amazing data set that no one else has
22:58because it describes your system
23:00perfectly and say if you're gonna do it
23:03let's get the band back together and he
23:04joined and now he runs at risk but the
23:07punchline is you only find out what
23:11works when you use the data that
23:13describes your own system and that means
23:15processing a lot of transactions and
23:17bracing for impacts because a lot of the
23:19transactions are gonna go sour one of
23:21the things that happens for a brand new
23:23launched credit card done right you lose
23:27about 50% of the dollar volume in the
23:30first several months which is terrifying
23:32because it's half the money literally so
23:34you're quoted as saying that we're
23:37trying to build a company that will
23:38serve customers for their lifetime and
23:41now in a firm you can help me out when I
23:45want to buy larger purchases you've
23:47moved into student loans I can imagine
23:50at some point I'm gonna want a mortgage
23:52and now now I start to think of you as a
23:55bank so are you a bank are you thinking
23:58you're gonna gonna become a banker how
24:00how do you imagine you want your
24:02customers to think about you in a few
24:03years so actually think banks in a few
24:08years will probably not exist the way
24:10they are today the purpose that the bank
24:15the banker used to fulfill a couple
24:17hundred years ago was that of a trusted
24:19adviser a barely literate farmer would
24:23come to a rural banker and say hey
24:25I got here a bag of gold that I have
24:28produced by the sweat of my brow and I
24:30know it's money and do something with it
24:33help me out and a banker would be a
24:34trusted adviser who would say hey Hughes
24:37we're gonna do it we're gonna put this
24:38to work in a following way or we're
24:39gonna save this or uni some sort of a
24:41structure that the farmer in the story
24:44would implicitly trust a banker to do
24:46and at this point we're actually
24:48trending towards the sort of a extremely
24:51mechanical relationship with your
24:53existing banks because they just don't
24:55have time for you because their
24:56efficiencies are so low and they're
24:58still maintaining the empty standing
25:01branches were theoretically can go talk
25:02to a clerk behind the counter at a Wells
25:05Fargo branch but they probably would be
25:07able to answer any sort of sophisticated
25:09question about your financial life so
25:10the goal of a firm ultimately is not so
25:12much to be a better lost Fargo or to
25:15beat Citibank at their own game
25:17but to regain that trusted adviser
25:19relationship with a consumer where today
25:22we're helping them borrow responsibly so
25:24they know the incentives are aligned
25:26they're not gonna get screwed by late
25:27fees or hidden fees or any sort of a
25:29charge they didn't expect in a long-term
25:31twenty thirty fifty years from now in
25:33addition to providing you with all the
25:34products you mentioned being a mortgage
25:36or a car loan we want to ultimately be
25:38in position to tell you here's the
25:40smartest way to live your life
25:42financially and have the trust of the
25:45consumer to say you know what I will by
25:47default it basically do what you think
25:50is right because you know more about
25:51this stuff lastly on banks you talk
25:53about how you think that they won't
25:54exist in the same form in here's Jamie
25:58Dimon chairman of JPMorgan Chase's now
26:00quite famously quoted as saying Silicon
26:03Valley is coming and what he means by
26:05that is all the different startups that
26:07are nibbling at different pieces of
26:09their business how do you see banks
26:12potentially working with startups or and
26:15then specifically affirm do you see
26:16yourself working with banks one example
26:19some of the regional banks are
26:20partnering with lenders who would
26:23actually underwrite clients at those
26:25banks wouldn't be able to underwrite and
26:26you see a synergy there yeah so I think
26:30there's no heat here I'm very excited to
26:33partner it was just about anybody so
26:36long as they're a good actor and acting
26:37in good faith large banks have
26:39massive efficiencies that are very far
26:41away in our future and are not honestly
26:44core to our advantage and their
26:46partnerships are fantastic and extremely
26:48appropriate something like JPMorgan for
26:50example has or 2 trillion dollars in
26:53their asset management and so they are
26:55an unbelievably well-connected source of
26:59capital source of capital relationships
27:01placement etc etc so there I imagine us
27:04working together more and more with with
27:08companies like JPMorgan the other thing
27:10that I think they and people that are
27:14looking for yield are their natural
27:17buyers of the loan portfolios that we
27:19create and so in that sense we're kind
27:22of the opposite of the too-big-to-fail
27:24problems where we create these very
27:26carefully crafts at loans we care to
27:29align ourselves with our customers we
27:31make sure that we are reasonably well
27:35under ittin compared to sort of the
27:36let's just package all these things
27:38together and you know if you tranche it
27:39enough nothing's going to happen until
27:412008 so I think there's a lot of
27:44partnerships to be had on on that front
27:49finally I think the smarter ones of
27:53these banks kind of recognize that an
27:55impediment to their forays into the
27:59millennial demographic in particular is
28:01not lack of technology or lack of the
28:06right product it's actually who they are
28:08there's a fairly strong sense of I don't
28:11want my bank to be blank or blank is the
28:15top 10 or top 100 or whatever American
28:18banks and the young people are basically
28:25looking for these services these sort of
28:28a financial adviser thing that I
28:30described perhaps as a the most
28:35important piece of what they're trying
28:37to try to give themselves into and that
28:40cannot come from what
28:42Citibank represents to their parents
28:44that that brand works fine for the
28:47parents it doesn't work for the kids and
28:49so I think the opportunity for JP Morgan
28:53to partner with the young companies like
28:57a firm to say you know what you will be
28:59the servicer of these new generations
29:03and we need to work together and
29:04participate in in the yield participate
29:07in the market market services that you
29:10can't get to these people but ultimately
29:12the relationship between us and our
29:14customers is something that is not
29:16really in competition with their
29:18opportunities I don't believe the young
29:20people are actually a little listening
29:21when when those guys are talking and I
29:23don't mean that in the bad way I just I
29:25think that that's kind of the reality I
29:27want to end on a totally different note
29:30you are rumored to have seen Akira
29:34Kurosawa's 1954 Seven Samurai something
29:38like a hundred and ten times that is an
29:40accurate statement yes so we have two
29:43questions one which samurai are you him
29:47- why why do you use this as a you show
29:51it to your management teams and what
29:52what is it about that that that you're
29:54trying to drive home I think it's it's
29:58at this point it's almost a metaphor and
30:00so you can take something and turn it
30:03into a metaphor for something else and
30:05the mapping is extremely loose I saw it
30:09in college for the first time and film
30:11class and I'm a huge sort of a
30:13Japanophile and I love the culture I
30:17love kirsov films so it was kind of just
30:20one of the things like I knew I was
30:21gonna like it and I wash it and write on
30:23the same time I started running my very
30:25first student group it was the student
30:28chapter of the special interest group
30:30for computer graphics and the movie
30:32struck me as this very entertaining tale
30:37of a team being built by so I am
30:42obviously Gombe which is the the guy who
30:47built the team and he basically says
30:53well I need to build a team of I think
30:55this started out saying I need um I need
30:5811 samurai but there's really no time so
31:00we'll settle for nine like well okay the
31:03minimum is 7 so they have six and they
31:05have this guy who's obviously not a Sam
31:07he's kind of a joker but you know what
31:09he shows as a samurai so we're gonna
31:11groom him into being a samurai then
31:13we're gonna need an army but we don't
31:15really have an army so we're gonna go
31:18and train a bunch of peasants that don't
31:20really know how to fight and the
31:21probably gonna run under pressure but
31:22that doesn't matter it'll be enough
31:24people there who so essentially it's
31:26this kind of a building a startup in a
31:28war time for sort of life and death
31:33situation and I when I saw this I
31:35actually thought to myself I need to use
31:38sort of the ideas presented because the
31:41movie is literally black and white but
31:42everything in it is black and whites
31:44like this life and death situation if
31:46they don't win the bandits will kill
31:47them and if they don't win this battle
31:52the bandits will you know kill this old
31:54lady and a baby and so it's it's
31:56extremely black and white it's it's sort
31:58of a true heroic saga and sorry I
32:01watched it to sort of figure out how to
32:02run an organization how to sort of build
32:04a team around myself and then as I got
32:05into startups I realized wait a second I
32:07seen this before you know the sort of a
32:10courage under fire how do you discipline
32:13a team that is flailing like there's a
32:15great scene in there where he kind of
32:17figures out that he's having fear drive
32:22his team apart two people are
32:23essentially starting to kind of stop
32:26caring about the common good and run to
32:28their houses and to defend their
32:30families even though it's very clear
32:32that if the bandits are allowed into the
32:33village then it doesn't matter if your
32:35house is your fortress they're gonna
32:36burn it down and so he sort of basing
32:39his look you know what next time
32:40somebody runs away any deserter will be
32:43killed like I I'm going to personally
32:45murder you if you step off the line and
32:48so this kind of extreme level of
32:50management by sword where you you have
32:54to you have to be part of the team
32:56because he committed to it so so that
32:59was kind of a at some point I basically
33:01decided I'm just gonna keep watching
33:02this movie cuz there every time I watch
33:03it there's one more wrinkle of something
33:06interesting or amazing that I picked up
33:08and then I realized that I spent so much
33:11time doing computer graphics and
33:12starting companies in college that I
33:14completely missed this notion of needing
33:17to do what's called a goal directed
33:19sequence at universe
33:20you can't really have a minor so you
33:22have to take a bunch of classes that
33:23would have qualified you for a minor but
33:25you don't get a minor on your
33:26certificate anyway so last two years
33:29while I was wrapping up a little crazy
33:30computer science stuff that I was doing
33:31I also did East Asian literature and
33:33culture because I figured being in Japan
33:35a file and watching lots of Japanese
33:37animation and course ah movies I could
33:40be able to breeze through most of the
33:41Japanese related content it was exactly
33:43I was it was a read gamble and then the
33:45last did you get the sort of a
33:47certification of like yes you completed
33:49you older I could sequence you need to
33:51write a paper and the paper had some
33:52obscene requirements like 25 pages
33:54single-spaced and he was like supposed
33:56to be done over the course of a year
34:00it's like a senior project I think and
34:04the cool thing about it was that you can
34:06pick any form of Asian art and write
34:11commentary on it and it just needs to be
34:12sort of dialectic where you have to be
34:14sort of very sort of thoughtful about it
34:16essentially for lack of a better term
34:17and I said well obviously it's gonna be
34:19Seven Samurai because by then it already
34:20seen it like 12 times or something like
34:22that because I'd watch it with my
34:23friends and say you know here's what I
34:25think about this amazing movie and then
34:27ever as there were two different
34:28translations and I had to watch the
34:29other one that I thought the other one
34:30was better so I had to watch it a couple
34:31more times and I got a little bit
34:33obsessed but that basically for this
34:34final paper said I'm not really gonna
34:36bother writing this 25-page paper I
34:38don't have time for this I have to do
34:39some homework and computer science but
34:42there's gonna watch it every night
34:44maybe twice a day until I memorize every
34:48part of this movie so that one day I'm
34:50gonna sit down and write a 25-page paper
34:51in one sort of fell swoop and so I wound
34:54up just watching it twice three times a
34:56day sometimes I'd watch it kind of watch
34:58it fell asleep watch it some more and I
35:00didn't remember whether the DCI
35:01restarted or not my friends started
35:03giving me copies became this sort of
35:05weird obsession and then on the last day
35:07before the paper was due i sat down
35:08started writing at 10 p.m. they turned
35:10in an ATM and got a plus on paper so he
35:13worked 45 and then I think that was like
35:16in the 80s or 90s that I've seen it and
35:18I started counting after I realize it's
35:19been like 25 times so I had a reason to
35:21go track and then after I moved to
35:23Silicon Valley I was lonely so I watched
35:24it every once in a while and then I
35:25started building a team at PayPal and I
35:27started watching it as a practical I
35:28hate for building a team and then it
35:29became a tradition I just keep on
35:32hey well thank you very much for joining
35:33us max pleasure thank you
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