Technological innovation is glorious when it comes to financial products. But only if the tech is solving the right pain point. Michael Panzarella is a Senior Fintech leader and a passionate believer in financial inclusion through modern banking services, and a Rocket Dollar customer. He shares how innovators need to be asking the right questions and answering with a tech product that eases their customers' pain over flash and trend.
Thomas Young: Today we're lucky to have Mike Panzarrella on the podcast, and Mike to me is probably the most experienced person I know in the FinTech space. His career is almost too long to list here, but we'll start. When I met you, you were the chief design officer at Green Dot, before of which you were the chief product officer at Green Dot. You've been at American Express, you're at Square currently, thank you for being here today, Mike. I mean, this is cool for our team to have you, and to spend this much time with you and thanks for carving out a few minutes to be on the podcast with us.
Mike Pazarrella: No, I'm glad to be here, thanks for having me.
Thomas Young: Yeah, of course. And, as I said, I mean, you've touched everywhere in FinTech, but let's start at the beginning. How did you decide to get into FinTech?
Mike Pazarrella: I got into FinTech many years ago and I started very traditionally at a bank branch as a bank teller in college. And as I moved throughout my career, I got into technology and AI and some other things early on and was intrigued by at scale, people trying to mimic really what you get at a small institution, which is a personal service and being able to engage in a community and have empathy towards customers. And I felt that was missing in the industry, and as I've moved through my career, I've worked at really understanding how to provide services and products to human consumers and also engage people and solve a problem, not just create fee income for a bank, for instance.
Thomas Young: And I think that because you've been on the product side and on the design side that, I mean obviously, since that was your route and that's what you wanted, having come from a bank teller position where you're one-on-one, is it fair to say that you just carried that experience into to everything that you did with products? I mean, you've touched products that reach almost every American at this point.
Mike Pazarrella: Yeah, I've been really lucky. I think at last count probably 40 to 50 million people have touched the stuff I've worked on, which is humbling, it's cool. I think that the thing that I have seen in the career is just as technology keeps evolving so quickly. And everyone is just always about tech, tech, tech, tech, and I love tech, I do. I'm a total Apple fanboy, I love it, and I got to work on some Apple products in the past. But I think that what I want to understand in creating products for the FinTech space, and I've worked not only in banking but also insurance and even did a little stint in retail and mortgage and some back-office investing and cash management. I'm lucky to get to do all that. But I think the common thread in all of that is just demystifying financial services.
So many times people that are analysts or the product people that are creating these products know the space and they think they know what the customer wants and they develop things that they might feel are efficient or cool, but they may not solve a problem for the consumer. So I think that the biggest concern I have as I work in this space and getting to see the impact of these products is that we have still a lot of room to grow and that we have a lot of people that do it right, some that don't do it right. And that's one reason I was attracted to Rocket Dollar is that I feel that Rocket Dollar can provide a product and a service that's not mass available to people and should be, and also does it in a way that is helping the person who's becoming your customer really unlock some value that they didn't know that they could even have in a retirement account.
Thomas Young: Yeah, and for Henry and myself and Chris and Rick and everybody at Rocket Dollar, I mean, we count ourselves incredibly fortunate to be able to call you or text you and not to mention you flying to Austin to spend the time with us. And I remember about, I guess, it was about a year ago, maybe a little bit longer. It was probably about 18 months ago that you and I met and I remember Henry came into my office and he goes, "What are you doing tomorrow?" I go, "Well, I'm sure not what I'm about to tell you because I'm sure you're about to tell me what I'm doing." And he goes, "Look at this guy's LinkedIn." And it was your LinkedIn profile. And I just, I was like, "Who is this person?" And he goes, "Well, we're flying to Phoenix tomorrow to have lunch with him. He agreed to sit down with us." And that one meeting that we had in Phoenix, I remember I was super nervous walking into it just because I knew who you were. And since then, as I said, we count ourselves incredibly lucky to be able to work with you.
Thomas Young: But I wanted to ask you, I remember in that first meeting that we had in Phoenix and I showed you sort of the first version of the product and I was incredibly nervous to show it to you and even more nervous when you came in as a customer. I think it was about a week later you signed up for your account and we knew the process was still being worked on and it was still kind of in its NVP stages. But now, I mean, you're about to meet with our product team. I mean, what have you seen as sort of the biggest thing that the Rocket Dollar has done to make it easy? Because there are so many things we do work on and I know you advise us on what we should work on, but how have you seen that sort of evolution of the product?
Mike Pazarrella: Well, I think you've done some really good things, first of all, the content that you've created, videos, how-to's, education, super important. A lot of people don't understand how 401ks and IRAs and self-directed, especially, work. Roth, not to Roth et cetera, it's very confusing and I think that the content you've created helps demystify that. Also, the onboarding process has gotten streamlined, I know in a major release a couple of months ago and recently introduced Rocket Dollar Gold, which is a great extension to the base product. But I believe that the onboarding process allows for a very clean, easy to navigate, and very high touch experience in terms of the hard part, which is getting the money into the account. Maybe helping you get your old accounts closed if you're switching jobs and want to go ahead and put something in Rocket Dollar. I think you've done a really good job of creating a high touch service that's normally not available at this level of investing.
Thomas Young: Yeah, and that's completely a testament to our product team, who's sitting right outside the door. But no, it's been so good having your input into those things that we do. And I remembered what I wanted to ask you earlier and then we can edit that in. You were talking about products in the FinTech space and how there are tons of new products being released and I think it was Steve jobs that famously said, "The customer doesn't know what they want, so we'll build it for them." But I don't know if it works that way in the FinTech space because it's people's money, it's emotional and people do have needs. How do you balance something that's sort of on the cutting edge of what you can do and then really what the need is?
Mike Pazarrella: Yeah, I think that the main problem with a lot of the FinTech spending I've seen recently is that they're trying to solve problems that are already solved. They're just trying to repackage it and maybe call it new when it's not. And I think that one of the things Rocket Dollar does well is that it is providing products that aren't readily available. Not everyone can open a self-directed IRA or self-directed 401k. Literally, there are not mass-market companies out there doing that and you can't get it from a big bank either, they don't want the responsibility of fiduciary accounts and all these things. So I think that when you're looking at, certainly yes, people don't know what they don't know, but you also have to understand that you're trying to solve a need.
Mike Pazarrella: So when you basically boil it down to what need you're trying to solve for and come at that product design in terms of solving a pain point versus trying to be cool or come up with something that once again will just drive a lot of fee revenue, you're going to win every time. So keeping focused on the consumer and what they need is always important regardless of how you may think they don't know what they need, they do have a need. Maybe you're going to solve it differently. You're just going to do that from a different point of view from what they're used to.
Thomas Young: Yeah, and I think that one of our things at Rocket Dollars, as we were so focused on seeing if this is something that people even wanted because we know it exists and we know that it's available and we knew that we could build tech around it. But we didn't know if there was an appetite for it and we sort of went to market with a very early version of our product that was incredibly paper-based. And that was both a good and a bad thing because we made some people angry at the beginning because we were working out a lot of kinks. But at the same time, Rick and I were working with real-time feedback. So while we sold it and it was good, the experience was bad. But I was on the fulfillment side, Rick was on the support side and we were fielding everything, and so we got that feedback and we were able to build.
Thomas Young: Now as we get a little bit bigger and we start onboarding more customers, Rick and I aren't so on the front lines. It's Joe who's been on the show before and it's Dan on the sales side and its different people. But we try to integrate sort of what is being asked for right now. Eventually, maybe we will roll out features that are more, we think that this will be great but people don't know to ask for it. But we're lucky enough that we're so early that everything's based on feedback, which is good. It makes our job a little bit easier.
Mike Pazarrella: Absolutely, and I think that the website, all the transactional pieces that you have there, and then once again, the content that you provide, and education, work together to really, I think to provide a product that's not available anywhere else in the open market.
Thomas Young: Yeah, and I mean we're excited about it and right now, I mean, part of the reason you're here is we have some things to change, and some things to improve, and some education to create. So we're excited to get to do all of these things. But yeah, I mean, it's taking a very niche product and trying to make it more mainstream and make it so that people are very comfortable doing these sorts of things, which maybe they wouldn't be otherwise.
Mike Pazarrella: Yeah, when you look at all the $10 trillion of money sitting in retirement accounts. And I think especially right now with yields and interest rates going down and bond market getting choppy and the stock market getting a little bit towards the end of a cycle, investing in what you know and being able to do things locally and maybe have a little bit of closer connection with your retirement is not an option most people have with Fidelity or one of the larger providers. And you guys can provide that, I feel that that's going to become more of a need and will be very helpful not only for individuals to just understand and have tighter control and local control of their retirement in a choppy environment. But also to help communities where they live that may be impacted by any economic downturn that may be happening.
Thomas Young: Yeah, absolutely, and that sort of leads into what I wanted to ask you about sort of the FinTech space as a whole. There is talk every day of the "upcoming recession" I mean, I think it's clear that something is going to happen, whether it's this year, or next year, or in 2021. But what do you think is going to happen to a lot of, for example, like the bigger robo-advisors that are offering sort of prepackaged mutual funds or, mainstream investments? What do you see happening to the Betterment's, the Wealthfronts of the world when the bull market ends?
Mike Pazarrella: Well, all the algorithms that all these folks developed over the last couple of years have been in an upmarket and so they have to train their models to understand what a downmarket looks like and that means if you're participating in one of those and we do have a down market, you're going to be a Guinea pig to help train their model. So your yields are not going to be so hot, you're not going to do so well and I think they're going to have some problems keeping people engaged in their products because the returns are not going to be great. Anyone can be a hero when you're able to grow 10% a year because the market's growing 10% a year, that doesn't take a rocket scientist. And those people don't know what beta is, they don't model that, so they haven't thought that far ahead. So I think that there will be some problems and it's not anything other than a cycle it's not a matter of when, it's a matter of if, and it's just a natural part of our economy and just modern finance and it's bound to happen. And all these people that have started and funded during this upcycle aren't going to be that well-prepared for a down cycle.
Thomas Young: Yeah, and sort of on the flip side, there's an explosion of sort of alternative investing platforms. So people that make it easy to get into real estate and maybe not even like Areté, but individual properties that then they Crowdfund or there are people like YieldStreet up in New York that do varied alternative investments. What do you think happens to those platforms in a downturn?
Mike Pazarrella: Well, I think that those are going to weather a little bit better because there are more specific things, there's like Roofstock and some of those as well. They're able to take a little bit different take, they're more of a longterm take than maybe somebody in a mutual fund that's just buying ETFs and then just riding the market wave. So I think they'll fare a little bit better than some of your traditional providers in the space. But like anything, they'll be competing for maybe less discretionary dollars. So that'll just make them have to sharpen their pencils and define their products better.
Thomas Young: Yeah, and let me ask you sort of a personal question. We don't have to get into super deep details, but what are you doing personally?
Mike Pazarrella: Well, I have used my Rocket Dollar account. I became a customer right away. Anything I do, I always try to use the product, I think that goes with the territory of being a product person.
Thomas Young: You've got to use the product, sure.
Mike Pazarrella: And I love it, and I have used it for some investing and one of my investments is in Rocket Dollar and-
Thomas Young: Disclaimer.
Mike Pazarrella: Disclaimer, yeah, and proud disclaimer. And I also have a mix of things more on short term investments right now. But most of my investing is personal and I invest in things that I know because working in the market for so long I just don't trust to throw money into like a tracking fund. Okay, I have a couple of spiders and other things like that out there just as a base on some of my stuff. But the vast majority of it that I want to be at risk, I do in things that I know.
Thomas Young: Yeah, and that I think is smart for anybody because while risk is, I think, healthy, a portion of your portfolio in risk, you can really de-risked it by, if you're in someplace like Waco whose real estate market has exploded, don't invest in real estate in St. Louis because you don't know that market and invest in real estate in what you know. So I think that's smart, whether it's a tax advantage, retirement accounts, Rocket Dollar or just cash, right? I mean, you should approach it all the same way at the end of the day.
Mike Pazarrella: Yeah. I think that risk is the risk of what you do know, and then the risk of what you don't know. And a lot of times in traditional 401ks and IRAs, someone's made a fiduciary guess and created some balanced funds and given you some options and it only takes one rogue trader or one bad fund, "Oops, we just wiped out four years of our performance." So, it happens less these days. But since the market and all these funds are moving more towards backend robo, even for their trades. You're going to get more of a common beta response too because they're tuning those models to just kind of hopefully just do a little bit better than the market. But they don't have the skills and they're not having eyes on trading desks like they used to, to look for things that maybe someone else didn't see. So you're kind of genericizing your investments even across those traditional high-end partners because they are just going for the cheapest route on their backends.
Thomas Young: Yeah, and that's a little scary. So one of the things that we talk about at Rocket Dollar is that when there is this eventual downturn, the focus on alternatives will be amplified because people will start really checking in on their 401k balances, on their IRA balances, on their brokerage balances, that maybe they haven't looked at for the last four or five years because it's been great. Do you think that it's better to sort of getting prepared now or do you think that it's better to wait? Because we might still have some ... The bull isn't dead yet. So what do you think the timing is? I mean, do you start hedging and start going to cash or do you keep riding it? I mean, what do you see?
Mike Pazarrella: Well, as a finance person and has worked in the markets, I mean, I think the adage that staying in the market depending on your time horizon and your risk tolerance, it's when you see a sign of a downturn, it's not a time to go into cash, right? It's time to diversify and it's time to explore what your investments that you're holding are. But it's certainly if you have any time horizon that you're not needing to go through at least another cycle or two, then it's not time to run into cash. You're going to leave money on the table if you do that. But it is time when the downturn happens is all the hidden fees come out because now your returns that we're covering all your fees, you don't see them. And now you do because your returns are flat or negative, and now these fees are showing up and like, "Why am I losing money here?" So I think you can always be looking at what's the true cost, "Am I in a front-load, a back-load and no-load or just some crazy servicing fee that I didn't even know I was getting because my gains are being eaten up by my advisor?" That you should always be looking at.
Thomas Young: Yeah, absolutely, and regardless of the market, you should be looking at what you're paying for the services that you're getting. I mean because if the service is outstanding and you're comfortable paying it, then pay it. But if you're not sure what you're paying, you need to be sure of what you're paying. So, sort of getting to the second half, what are you excited about coming up in the next year or so?
Mike Pazarrella: I'm excited to see how AI and machine learning keep evolving. I think that we're in the very early stages. I started working on some AI many years ago and it's come a long way and worked in some big data stuff even eight, nine years ago when that started coming into play. But I think people in the industry are getting a little bit smarter about what does it mean, figuring out the signal to noise ratio and tuning that. And I think there are a lot of upsides that can happen if it's used properly, right? Any tool can be used for good or harm, and I think that we'll have a little bit of both. But I think that we're coming to the point where we're finally going to be able to start leveraging some of these tools in a meaningful way.
Thomas Young: Yeah, and I think that AI and machine learning and all that has become sort of buzzwords, kind of like how blockchain was a year ago. It was a buzzword, but at the end of the day, it's got some really useful applications, like you said, if used properly and for me, I don't know what those applications are yet. You might be a little bit more versed in it, but I have a feeling that we don't know yet.
Mike Pazarrella: Well, I think that a lot of people confuse what AI and machine learning can be used for. I think especially with the massive amounts of data sets we have these days and just the just continual stream of yottabytes of data, piles of data. You really should be thinking about AI and machine learning as finding a signal and validating hypotheses, to then summarize data sets that then someone can maybe opine against and then action against that. If you say the AI will do everything, you're probably in for a rude awakening because it's not going to know what it doesn't know either.
Thomas Young: Yeah, yeah, I think that a lot of people assume that when these things sort of become more mainstream, it takes the human element out of it completely, which is not the case. I think that what it does is it allows people to make better decisions, right?
Mike Pazarrella: Yeah, I mean there's a couple of real-world examples of AI gone bad. I mean, the unfortunate Boeing Max incident was AI that was not working so well on their software. And another maybe a little bit off base, but very true, everyone loves a Roomba, I love Roomba, I have a Roomba. But if you have a puppy, you probably shouldn't run your Roomba because puppies have accidents and the Roomba doesn't know that it just ran over something that it might take all over the house. So that's probably a really good example, transfer that technology in finance and you might have the Roomba and the puppy situation if you don't pay attention.
Thomas Young: Yeah, no, that's very true. And some of these things work well in very isolated environments, but then when you let them sort of loose like the Roomba, it doesn't know what it's doing sometimes and it doesn't know if it's tracking something that it shouldn't be. So if someone is wanting to get into the FinTech space or the financial space or there's an entrepreneur that wants to start something in the FinTech space, what piece of advice would you offer them?
Mike Pazarrella: Well, I would say first and foremost, understand what problem you're trying to solve. And I've worked with a lot of startups in the past and my consulting work over the years, and even multinational Fortune 500 companies that wanted to do something new. And just because you have the technology and you think it'd be cool to solve a problem, if it's not solving the problem, you're going to fail. So really make sure you have a passion for it and that there's a reason you want to do it. If you don't feel that it's just because you want to make income or use cool technology, which I've seen happen in the past, you pretty much can just go ahead and burn that money, it's not going to work for you. So you just authentically want to understand what problem you're solving and have a passion for it because, and I've done some startups myself, you better really love what you're doing because you will be working a lot.
Thomas Young: Yeah, yeah, and I think that that point that you just hit is where a lot of entrepreneurs maybe get sort of stuck is that technology for technology's sake is relatively useless. Technology to leverage a problem or solve a problem by leveraging technology, that's really where it's sort of the magic happens, if you will because to a lot of people it is magic. But yeah, absolutely, I think that's great advice. Well, Mike, I think that's a great place to wrap up and thank you again for not only being on the podcast with us but for flying down from Arizona to meet with us. And I'm excited about our work session this afternoon and to continue learning from you and growing Rocket Dollar with you as one of our key advisors.
Mike Pazarrella: It's been my pleasure, thanks for having me.