It Started With a Dream

Cheryl Brown

In honor of Q2’s 20th anniversary, Dallas Wells welcomes our founder Hank Seale to the podcast for a look back at how his mission of empowering financial institutions through technology has come to fruition and how he’s bringing the next part of his vision to life.

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Transcript

Dallas Wells

Hello, and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm Dallas Wells. Welcome to the show.

Today we're bringing you an episode that we are really excited about. This year, Q2 is celebrating a big milestone and turning a whopping 20 years old. Twenty years in tech is quite a ride, so we thought it would be interesting to talk a little bit about the founding story, some of the trends that we've seen come and go, and maybe some of the things that are just around the corner that we're already working on. And with those as our topics, there was no better guest than our very own Hank Seale.

So back in 2004, Hank founded Q2 with a very specific mission in mind, which was to provide financial institutions the technology to help them better serve their communities. That started with the vision of creating a digital banking platform that delivers a complete range of financial services any time, anywhere, on any device. Twenty short years later, Q2 has gone from a scrappy startup to an industry standard, serving over 1,400 financial institutions and one in 10 digital banking users.

So Hank, it's been a long and winding road, and thank you so much for taking some time to join us today.

Hank Seale

Thank you, Dallas. It's so nice to join you.

Dallas Wells

All right. So let's jump right into it. As I said, 20 years, but Q2 wasn't your first stop in doing technology for the banking industry. So maybe tell us a little bit about kind of how you started and how you got the passion for where these two things intersect between banking and technology.

Hank Seale

That's the winding road right there.

Dallas Wells

Yeah.

Hank Seale

I actually grew up on a ranch and doing all ranching stuff and was supposed to take over that ranch. As part of that journey, I went to Texas Tech, got an Ag Eco degree, just barely, and then went to work at a bank. Our family, because we'd raised cattle, relied heavily on our relationship with banks to be able to finance acquiring those cattle, and then we'd feed them out and sell them. They wanted me to go work at a bank to learn how to talk banker and to understand bankers better.

After Texas Tech, I went to work at a bank called Bank of the Hills in Austin, Texas. It's actually right next door to where the Q2 campus ended up. It was the Lyndon Johnson family bank. And so, growing up I had been taught that your relationship with your bankers was very important. And then, I come to work at a community bank that is very involved in the community and it was just all that more important. I started Jaycees and Kiwanis and Rotary Club, attending those things. The bank would actually give you time off to go do that stuff; it was so important to them that you do it.

And so, during that process it really gets driven home how important a community financial institution is to the community they serve. While I was at Bank of the Hills, this is in 1980 … I started in 1985. Around 1987, our family loses everything including the ranch in the S&L crisis. So banking is the new career for me.

I was lucky enough that I had worked in lots of different departments just trying to learn about banking. And when computers start coming onto the scene, the bank asked me to go completely refit the bank with all new technology, which gave me the opportunity to learn a master's in technology at the dawn of technology and banking. And that served me really well because I was able to buy all that technology. I was involved in training all the bank employees on it, installing it, everything, learning what ancillary systems were, what core system was, who played nicely with others, and all that kind of stuff.

Then the bank goes out of business in 1990. So I'm the breadwinner for my family, I decided to start one of the first phone banking companies. We weren't the first, but our kind of take on it was that early time, everybody used a 1-800 number, and there was no zero in the menu because it was only the very biggest banks that were doing it. And without going into a whole lot of detail, that's just not the way they did it. And so, we decided to use a local phone number and we put zero in the menu so that customers or members could get to a human.

Dallas Wells

OK.

Hank Seale

That turned in to be a big differentiator and it was very successful. Along that way, again without getting into too much detail, decided that the person I was in business with at that time was not the right guy to be in business with, and decided the voice response had gone from balancing the last five checks to this huge tree of information. So it was hard to picture where what you were looking for was in that tree of information.

Dallas Wells

Right.

Hank Seale

So I thought it'd be easier if it was all on a computer screen, and you could see all that information in one place. And that turns into internet banking. That was a company called Q UP, also did very well. There was a lot of interest from larger companies to acquire Q UP. We were profitable; most other companies were not. We weren't interested in selling.

Then a company called S1 comes along, and I explained to them this new vision I have about how to transform the financial industry, and it's essentially a two-pronged attack. One's a vertical piece with Q2, another one is a horizontal piece with CBANC. And they're very interested in that strategy. We merge. I later find out—ranching doesn't teach you a lot about business—I later find out you don't merge anything. You're either acquired or you acquire, and we were acquired. Once the internet bubble burst, this is about '99, the internet bubble burst, and they had no interest in executing this broader vision. They had only interest in sucking every dime out of Q UP that they could, so that's how you get Q2. We weren't starting a business and we were afraid we weren't going to be successful at the business. We were past that point.

Dallas Wells

Yeah.

Hank Seale

We were very confident we could build a successful business. What we were trying to do at this point is we're trying to change the financial industry for the benefit of end consumers and the financial institutions that serve them. And it's always been a huge fear of mine that we would end up with very few financial institutions. We called it euphemistically Four, two on the East Coast, two on the West Coast, and flyover country is just not served very well in that scenario. That's been our driving force ever since.

And Q2 was to change some major things like real estate as part of the business model. So back then, Bank of America, and I don't even think it was called Bank of America way back then, had 10,000 branches, 17,000 ATMs. And we look at it and how does a bank with very few branches or ATMs compete with that? And the answer is you eliminate real estate as a necessary component of the equation.

So we had this initial idea of taking the internet banking system, which really was an expansion of just voice response. It was balancing, paying bills, and that kind of thing. And we expanded that and kept expanding that to the point where you wouldn't ... The goal was to make it where you didn't have to go into a branch.

Dallas Wells

Yeah.

Hank Seale

Back 20, 25 years ago that was considered heresy, that banking is a business built on personal relationships and forever and ever, people will want to go into the branch and have a cup of coffee and meet with their banker, and that's when they will conduct their business. And we said, "OK, that's fine. But let's make it where you don't have to do that." And I'm not going to say that Q2 did that on its own, but we saw that coming early on and we built, I think, the best solution for that, even amongst the big banks.

Another thing was, and this was very much transformational, was we were looking for ways to open up data so that … Bank of America can control their vendors; they can jerk their chain and they get access to whatever they want access for. These smaller financial institutions don't always have the ability to call their core and say, "We want X, Y, and Z" and get it right away.

Dallas Wells

Right.

Hank Seale

So how do you open up that data? One of our answers was to go buy a core and have a different model, and that is Helix and Fabric and all that. But also, another part of that strategy is the SDK and Innovation Studio. And all of that is opening up data so the banks and credit unions have access to it, and understanding that once that data is available, people will find ways to use it.

And so, that third piece of the equation for Q2 was we want to develop ways for the financial institutions to deliver more value to their customer than is currently being delivered by delivering tools, software, whatever. And because they're delivering more value, they're going to generate more revenue, and this will be a completely new revenue source for them. So that's another way we change the business model of banking is I think what's going to happen is that, ultimately, this line of revenue will be equal to, or I'll say has the potential to be greater than, the lending revenue that a financial institution is able to generate with their customers. Think of it as convenience store and gas, the classic example where gas stations used to make all their money selling gas and somebody comes along and figures out that people will pay more for a candy bar than they will gas.

Dallas Wells

Yeah, now they're in the chips and lottery ticket business instead of gas.

Hank Seale

Exactly, exactly. So I'm not saying banks will be in the chips and lottery business, but they will be in the business where they can provide tools to businesses and individuals to help make their life better. And it's coming very fast. I think Innovation Studio, they now have, last time I checked, over 20 financial institutions generating 50% or more of what they pay Q2. That means Q2 is half as expensive to them as it used to be. And Q2 is the most expensive product out there because it's the best. And what we've done is we found a creative way to bring that cost down and, I think, reinvent the business of banking for those banks that choose to, and credit unions who choose to embrace that strategy.

Dallas Wells

Yeah. Lots of things we can dig into there. The first one that kind of jumps out, you described going to work at a bank in mid-‘80s. I got into the business in the early 2000s. Those business models looked exactly the same, which is community banking and you're going to the Kiwanis meetings and the Chamber of Commerce and playing in the charity golf tournaments and all those things.

But in the meantime, the other thread of that story is the technology is evolving, and so you have this very people- and relationship-centric business, but the actual transacting of that business is moving now into these digital channels. And I think that's been an interesting thing for banks and credit unions to try to navigate, is to hang on to that sort of personalized face-to-face part of business and part of handling people's money and earning that trust and all those things that go along with that, but having to do it now in this kind of abstracted digital world. So you mentioned some of the technical parts of, I think, trying to overcome that, but where do you see that going? Right? How do banks kind of keep leaning into this digital world without losing that human element that's clearly such an important part of it?

Hank Seale

And if you'll look at everything that Q2 and CBANC have done it has all been with an eye of preserving what makes that personal side of banking. We've preserved the ability to do that. And these tools are meant to take away the impersonal or ... You don't want to do a million balance inquiries. "What's my balance this morning?" That's not getting you anywhere.

Dallas Wells

Yeah.

Hank Seale

Not very far. Where I think this is, you did ask the question where do I think this is going, correct?

Dallas Wells

Mm-hmm. Mm-hmm.

Hank Seale

So I think that the tools that are coming on board out there, you've got of course AI, which is kind of like saying you use a computer. So AI is just a tool. All those things are a new generation of tools—technology—that I believe are going to be easier for the loan officer, for example, to be calling on a business, understand what the problems of that business are, and either develop or allow for the interface for that business owner to develop tools that connect directly to the bank.

Dallas Wells

Right.

Hank Seale

I think that's within two or three years from now. The workforce in banking changes, and I believe the personal skills and the listening skills and those kind of things become very, very important because the technological skills necessary to create and utilize these tools is coming down really, really quickly.

Dallas Wells

Yeah.

Hank Seale

And I'm not a technology ... People think I'm some kind of technology buff. I can barely turn on a computer. I can tell you that these tools are just about simple enough for me to create workflows. I think that's going to completely change not just the nature of banking, but all businesses. Because I believe each of us will become a problem solver in our own business and we will not have to rely on monolithic companies to deliver us huge blocks of code, of which we only used 10, 20% of.

Dallas Wells

Sort of in there is this … back when it was such a real estate-centric business, the way a community institution could sort of be small and nimble and relationship-specific was very local, right? It's like you were the bank in town, and so that's what a community institution was. That was your community was the city limits. And now a community can be kind of anything you want to shape that community around. So we see banks that are specializing by industry and specializing by what are some of the interests of their members, what are the charitable causes that they care about? What's the sports team that they like? Anything that shapes the community, you can build a very targeted relationship around that. And I think you said it well. The technology is just sort of a means to an end to that kind of personalized approach to it.

Hank Seale

Obviously, we're very focused on the financial industry. Bank and credit union professionals, every single person in that financial institution is going to have the ability to solve problems that they have without relying on a gateway of having to go figure out which technology vendor they're going to use or relying on a programmer with a very specific set of skills. I think all of that is going to shift, and I don't know to what extent.

Dallas Wells

And also, maybe removing some of the constraints. I'm going to take you back to, you mentioned it along the way, but back to the creation of Innovation Studio inside of Q2. And so, Innovation Studio has a couple of kind of buckets, but the overall idea was to open up the platform and really remove Q2 from being the bottleneck in the process, right? We only have so many engineers and so many hours to spend writing code.

Hank Seale

Exactly.

Dallas Wells

So we opened it up such that a financial institution can kind of build their own solution. There's partners that can come and build things. And so, now the number of active developers has exploded. And what's really interesting is we now, if you just kind of measure it by size of the code base, that's growing much faster now outside of the walls of Q2 than it is inside the walls, which is the magic of it.

Hank Seale

Exactly. That was exactly the design and the hope.

Dallas Wells

Yeah.

Hank Seale

You don't know what's going to happen. Twenty years ago, if we brought up opening up the data, people would have a cow.

Dallas Wells

Oh, yeah. Yeah.

Hank Seale

So it's taken a while to get here. And I think about transition points in the business where … and it had less to do with the technology and more to do with the people both inside of Q2 and inside of the financial institutions. You're going down a path and it's very hard to get people to jump ahead on the path. It doesn't matter how good it sounds and how great the destination looks, there's still a growth that you have to go through to get there, and there's just not much you can do other than lay it out. And we've been laying it out for now 20 years.

Dallas Wells

Yeah, yeah, how about that? Well, I'll tell you anecdotally, maybe the way that you kind of see that coming to reality is in our early days at PrecisionLender. It was a similar sort of idea of trying to make it open. And ours was a little different. We sat in the middle of this kind of complicated workflow and had no desire to build the things on either side of it. We wanted to play our spot and play it well and be able to take things in and hand them off to other players. So we tried to build this really robust, clean, standardized API kind of on either side.

And in the early days when we would be asked, "Do you either do this or do you integrate with this very specific vendor?" Our answer would be, "No, but we have this API." And the response used to be like, "Did you just tell me to go take a hike?” Right? “You basically just said, 'No, thanks.' " And now, a lot of times if we show up with a prebuilt integration, they're like, "Can't you just give me the API? I've got a team of developers. We can build it exactly the way we want it. We can kind of shape this thing to be what it needs to be." But that change in the industry, in the grand scheme of things, happened pretty quick.

Hank Seale

You guys were so far ahead of the curve, so far ahead of the curve with the tech that y'all had. The timing wasn't great for us. Y'all came along on our radar earlier than we would've liked, as far as my plan goes. But the tech you guys had, the people that y'all had, the culture that you had, it was like, we know this is going to be so important. Being able to price those relationships is such an integral part of the standard bank business that's never going away. It needs to get better. So we know we have to have it.

Dallas Wells

Yeah.

Hank Seale

We want it. Man, that was tough, though. That was tough.

Dallas Wells

Yeah.

Hank Seale

I'm so glad that we were able to do that, and it felt really like God just put His hand on that deal to get us together. Because it was so far out of the range of probability that we were ever going to be able to afford you, to get you, and all that.

Dallas Wells

Yeah. Yeah. And it all lined up. Yeah.

Hank Seale

Yeah. I really feel blessed to have been able to do that.

Dallas Wells

Yeah. Well, and maybe that's another part of sort of the journey along the way we can talk about, that was you all were in the midst of this multi-year, big push into commercial, right? So all digital banking, it started very much in the consumer realm. Now y'all were doing commercial stuff from day one, but there was a big push into some of the more kind of complex, sophisticated stuff. Did that require a different approach, a different mindset? Was there a different end goal in mind? But maybe just talk about that decision to invest as heavily as you did.

Hank Seale

I've got to give Matt Flake credit for that, because my plan did not contemplate that big of a push that high up into the commercial services. It just wasn't contemplated.

Dallas Wells

Yeah.

Hank Seale

Matt is the one that said, "This is something we really need to do." And if I remember correctly, we got Joe Cody in there early on. Joe Cody was a huge factor in that decision. But that was mainly those guys. The way I think is not detailed like that. It's like you get the people that know the business in that specific part of the business and they tell you what they need to do. I wasn't anticipating that big of a push, but they were absolutely right. And it's a huge reason that we're as successful as we are.

Dallas Wells

Yeah. And we've just seen so much of that really kind of labor-intensive process of things like originating payroll, and it's all moved to the digital channel now. And you've got those things, more and more of those complex times of transactions now coming into the Q2 world. And so, it feels like though a lot of those same concepts apply, we still don't want to be the bottleneck there. We still want to open it up. And it's a little bit of a different kind of partner ecosystem, but the fact that those rails already exist has been such a boon to the financial institutions to be able to go pick best-of-breed providers and ERP integrations and all those sorts of things, and to be able to plug them in on the same platform base.

Hank Seale

Absolutely. I think Q2 is going to be a super important platform for our customers for a long time to come. The 20-year vision was to improve out the strategies, build out the framework. The framework is built. There is virtually unlimited amount of stuff you can hang off that framework.

Dallas Wells

Yeah. Yeah.

Hank Seale

And that's a detail that frankly, I'm not the best one. Imagine the framework and we got that built out. But one of the reasons that I didn't run for reelection in June as chairman was because it's far enough along that I can see. And I think a lot of people can see that revenue idea has a lot of traction and is going to be successful. Once you have competitors copying you, some of the larger financial institutions copying you that build their own stuff, you've changed the industry. So we've changed the industry. We're there. Now it was time for me to go build out the other half of that vision, which was CBANC, and get that going.

Dallas Wells

Yeah, let's talk about that a little bit. As you said, you did not run for reelection of chairman, and so Matt stepped into that role. But you're also not exactly the type to sit in your rocking chair on the porch out at your ranch. So what are you up to these days?

Hank Seale

Yeah, so my wife is not very happy about all that.

Dallas Wells

Yes, a separate podcast. Yeah.

Hank Seale

Exactly. The vision was in two parts. Without a way to illustrate it, it's essentially Q2 is this vertical play that takes care of real estate business as a model, opening the data, creating new revenue. On the CBANC side, it's about scale, regulatory, and visibility of opportunities, things like that. So it's a horizontal play. And again, back 20 years, if I'd have told you you weren't going to have to go to a branch, we were going to open up data, and we were going to create a revenue source that's as big as lending in financial institutions, you would've said we were crazy.

We also got told we were crazy when we said we're going to go try to build an entity that has a scale, synthetic scale, equal to or greater than the largest financial institution. We're going to try to eliminate regulatory as being a burden on the community financial institutions, and we're going to try to build this ability to, we call it visibility of opportunities. Think of it as the ability to dial in. If you wanted additional loans, if you wanted additional deposits, if you wanted additional capital, you could dial in those numbers and play with this, and also actually go get loans from other places and deposits from other places, etc.

So that's the big vision. CBANC's been in business for about 14 years. It's been financed by me the whole way. Banks, credit unions have never paid a subscription fee or anything for that. We didn't know exactly how we were going to accomplish these big goals. And then AI comes along, and we were able to take hundreds of thousands of communications. Well, I'll start with CBANC has 8,600 financial institutions on it, 70,000 bankers. And if you add up all those financial institutions, $20 to $21 trillion in total assets. Bank of America is sitting at whatever it is, $3.5, $4 trillion. So that synthetic scale we were able to build.

It's not interesting, though, until you can do something with it. AI comes along. We were able to take all those conversations, all those documents, all those webinars and videos and all that stuff, and train an LLM to the point where, think of it as a super banker. You can ask it any banking question you want and it'll come back and it'll answer that question. And we upload the bank's policies and procedures and we'll do a lot more than that, but policies and procedures, and now we can answer any question down to the level of specifically according to how your bank would answer that question.

And then, the other kind of use case right now is we monitor all the federal and state sites, and if there is a reg change, we will make that change to all of their policies and procedures that that reg touches in your financial institution. And we'll take five weeks' worth of work and turn it into about 30 seconds. So we think there's a huge value proposition just there.

Dallas Wells

Yeah.

Hank Seale

And of course, we have a long-term vision on how to build a platform that allows the financial institution to use the power of AI in almost anything they want to. So it's another transformational piece of technology that we believe will have as much impact as the computer and mobile phone did in the ‘80s and ‘90s.

Dallas Wells

Yeah. And once again, kind of level the playing field, right?

Hank Seale

Absolutely. And in CBANC's case, it's going to be eliminating a lot of expense, so it's a lot of expense elimination. And then, the visibility of opportunities is a way for financial institutions, either credit unions or banks, to fine tune and perhaps create diversity where they had a hard time before, maybe because they've been traditionally a real estate bank in Fort Worth and now they would like to get some real estate outside of that trade area, just kind of balance things or whatever. That's the goal. And it's a whole lot of fun. It's just the ability to help these financial institutions and the people that they serve ultimately, right?

Dallas Wells

Yeah.

Hank Seale

If you enjoy charity work, if you enjoy helping people, to know that you're building stuff to help these banks and credit unions help mom and pop shops get stood up, to help people get their first home, to help people get the cars that they then drive around. And maybe they're delivering pizzas; it doesn't matter. It just helps people better their own lives. It helps the whole U.S. economy. We're 30,000 little economies that make the U.S. economy so strong. And that's what these guys are doing, and that's why four financial institutions just won't work well.

Dallas Wells

So that's a little bit of what you talked about from the stage earlier this summer at CONNECT.

Hank Seale

Yeah.

Dallas Wells

So you talked to customers, a lot of these folks that you've known now for a couple decades and been on an exciting and meaningful journey with them. So maybe to wrap up, just share with us what that's meant to you personally, just to kind of see that impact and see what was an idea now come to fruition across an audience of that size and that diverse.

Hank Seale

From a personal perspective, and I don't know that I've talked about this much, I know I haven't talked about this much, but you asked the direct question. So 20 years ago, and this is going to sound odd to people, but I believe God put a vision in my head, and I woke up with it and I drew it out. And I'm just a guy that used to dig post holes and work cows, and barely got an Ag Eco agree. So there's absolutely no plausible reason how I could have a vision of what this stuff was going to look like 20 years ago.

And I believe that for me, personally, it's been such a huge affirmation of my faith to just do what He tells me to do. And it has worked out. I don't think anybody could argue it has worked out exactly the way we said it would work out 20 years later, 20 years ahead of time. How many people we have been able to help that have benefited from this foray, not just employees, not just charities, but again, all those people and all those communities, the banks that we help, the credit unions that we help. It's such a feeling of satisfaction that it rivals watching your kids grow up and the satisfaction of that—enormously fulfilling. The reason has nothing to do with money. If you're doing it right, you're giving all that away anyway.

Dallas Wells

Yeah.

Hank Seale

So anyway, it's just tremendously fulfilling and all the glory to God, because Lord knows, it ain't me.

Dallas Wells

Well, Hank, that's a powerful testimony. And we share all the time that mission statement that you created 20 years ago and that we've leaned into. And we try to tell people, "We're not kidding with this stuff. This is what it was built around."

Hank Seale

It's miraculous.

Dallas Wells

Yeah. Yeah.

Hank Seale

Just how a bunch of knuckleheads get together and do the right thing.

Dallas Wells

Yeah. Why are we showing up to do this? And you've got to have an important why. So anyway, it's an honor for me to be along as kind of a part of this journey toward this end of it for you. And so, I appreciate that first and foremost, and of course, for taking the time to talk some history with us today and also kind of what's next. So I appreciate the time today, Hank.

Hank Seale

It's such an honor to be able to do it. And thank you so much for having me on. And God bless Q2, God bless our customers, and wish everybody the best.

Dallas Wells

All right. Amen to that. Thank you. Thank you, Hank, and thanks everybody else for listening to this week's episode of The Purposeful Banker. You want to catch more episodes? Please subscribe to the show wherever you like to listen, including Apple Podcasts, Spotify, Stitcher, and iHeartRadio. As always, we'd love to hear what you think in the comments, and you can learn more about the company behind the content by visiting Q2.com. Until next time, this is Dallas Wells, and you've been listening to The Purposeful Banker.