Session Recap: Mastering Uncertainty: Key Takeaways from Gabe Krajicek at Future Branches Boston 2025

[2025], [Future Branches Boston].[Keynote] – [Day 1, Track A - Mastering Uncertainty: Grow Deposits, NII, Loans, and Loyalty in Any Environment]

EJ Kritz, Chief Experience Officer, DBSI: And perfect transition as Ms. Carmen chatted about Casa. It's my pleasure to introduce the CEO of Casa, and that's Gabe Kra. Give him a big round of applause please.

Gabe Krajicek, Chief Executive Officer, Kasasa: Man, that was a good panel. Thank you so much, Carmen, for those kind words. And I thought Aaron was just nailing it. One of my favorite things she said was, it's the content, not just the channel. You gotta be going out there with creative stuff, gonna catch the eye. We go and post boring stuff like I see so often on Facebook and say, oh, now it's on TikTok.

I ain't gonna change the game. But that's not what I'm here to talk about. I'm here to talk about unleashing, NII. And I want to talk about that in the context of core deposit generation, because really when you do this right. Core deposits, noninterest income or peanut butter and jelly, and you can generate significantly more deposits and use the non-interest income to pay for how you attracted those deposits.

I'm gonna show you some data from our institutions. We work with about 600, about half of them when rates started going up, took our advice. We told them that the highest rate at the institution needs to be your high yield checking account, not your cd. And we said the reason why is when people walk in, especially people with some deposits that are gonna be meaningful to the balance sheet, they always wanna know what's the best rate and when the best rate is.

The CD. Money moves like water except not downhill. It always moves to the highest rate. When the best rate is the cd. That's where the money goes. When the best rate is a high yield checking account. That's where the money goes. And what I'm gonna share with you is the data of what happens over time. Just kinda like erosion as you move the money over here or over here instead.

So this is a five month period. The general market shrunk over that five month period, 56 basis points, but their CDs more than doubled. 117% increase. The cost of funds in the industry increased 205 basis points on average in this five month period. Here's what happened to the institutions with the highest.Rate being their high yield checking, they went up 4.11% and you might say that's no surprise. They had 6% free checking. Of course, their balance was increased. That's true, but their CDs only went up 43%. So yes, they went up. They needed some CDs. Everybody was fighting for deposits really hard during this period, but they needed two thirds less CDs, and as a consequence, their cost of funds only went up 143 basis points.

So if you remember nothing else from my presentation. These guys grew while their cost of funds went up less than the people that were shrinking because these guys were all fighting the same fight. We have the highest rate CD and that's really hard to make people care about, but you go out with five or 6% free checking, it will turn heads.

So what's been going on in NII, if we're gonna use NII to help pay for this? One thing that's happened is ODP has massively declined. We've seen about a 50% decrease since 2010 in per account overdraft revenue. PFI status is even harder to get than ever. You may have seen Ron Chevon's report in Forbes at the beginning of the year, but it shows where the new checking accounts are being opened.

We are the four and 5%, unless you're a mega bank in the room. That's community banks and credit unions, but the fintechs are. 44%. The biggest chunk, most of the accounts right now are being opened as FinTech accounts, but that doesn't mean that people are shutting down their existing deposit account.

Those deposit accounts are becoming zombie accounts with a Venmo and a PayPal and a whole bunch of other stuff. Wallets connected to it. That's how they're transacting. And the existing deposit account becomes not dormant, but just not really functioning in the way that it's supposed to generate the value that you want.

'cause you're no longer the PFI really in the mind of the consumer. I got curious about this and started looking at our clients. We pulled 531 institutions. That's where we had good A-C-H-P-O-S data where we could see where it was going. And we wanted to know how much money was flowing out every month to fintechs and crypto wallets.

And what we found was that for an average institution of $540 million, it was about $2 million a month, or $22.5 million a year. Which was 4% of their total deposits going out to these zombie creating fintechs. Where specifically does it go? Most of it's Venmo, PayPal, and Cash app. A little bit to Apple Wallet, but the fast growth is in Coinbase, and shockingly, when you look at how much the accounts that are sending.

The ones that are sending crypto, Coinbase, Kraken, those ones, those are the crypto wallets, the big ones, they're all over $1,500 a month in total outbounds. Those guys are doubling down like crazy. So two strategies to increase non-interest income. I'm gonna present two ideas to you. One is to double your interchange.

Why not just have twice as much interchange compared to what you have now? Wouldn't that dramatically move the bottom line? And another way is to integrate. Fees, but to do it in a very consumer friendly way. So how do we double interchange? You've gotta be the PFI offer. Features that consumers actually want to be the PFI.

And we believe that Kasasa and for the last two decades have been proving out with lots and lots of data that when you reward consumers for their engagement, you can become the PFI and you can generate a fundamentally different type of consumer. So what are the features? It's gotta be a free account.

If you're Conquest marketing, it must be free. And in the accounts that we help design if the consumer qualifies, now what's the qualify? It just means. They do stuff that mean they bank with you. Use your debit card a minimum number of times, usually 10. Log into online banking, have a direct deposit, take an e statement, maybe have a loan.

There's a lot of different things we can do, but we try to keep it simple. If they qualify, they get ATM refunds nationwide. This isn't a huge feature as it was 20 years ago, but it's still a thing that matters because people don't want to have to pay fees when they go elsewhere, and it's way better than all points, no offense, because when you say available at some ATMs, a whole bunch of them, it's just not the same as saying free ATMs nationwide, anywhere you want to go.

And then we pair that with a premium reward. High interest is definitely the deposit generator, so that's high yield checking, but not everybody gets attracted to that. Cash back is very attractive, particularly to younger consumers as is cash back on grocery and delivery. I. This is very attractive to young consumers, but the youngest of all is cash back on streaming services like Twitch.

Google play, those things that people spend money on. And then we pair that also with a high interest savings account and this high interest savings account. I wish I had more time to dive into 'cause it's so cool. But just know that when you add a high interest savings account, it magically reduces the cost of funds on the portfolio.

I can't explain why right now. So that's our system. It also is available for business. So imagine 5% free checking for small business or any business. Could we agree? This is the cheesiest sales question. In a presentation you're gonna hear. The entire future branches. Can we agree the consumers would love this?

That's everything I just said. You have 2% cash back, 3% cash back $15 worth of total cash back at your food delivery services like DoorDash and Uber Eats, and also local grocery stores and national grocery store chains, or all the streaming services. That, in other words, is the reason you're not doing this because you don't think that consumers would love it.

Probably not. The concerns that you probably have, which you know, we talk a lot about with new prospects, is how could it possibly be profitable? And also it introduces some complexity for the frontline staff. So how can we make that manageable? So regarding the profitability, about 30 to 40% of folks failed to qualify.

I qualified last month, but the month before that, I had left my debit card in my pants and it had to go all the way through the laundry, and then I had to wear those pants again. I did not qualify. So my point is that normal people, even me, they don't qualify every month. It doesn't mean that they're never gonna qualify, it just means that stuff happens.

They go on vacation, they switch to credit card for a month. The interchange in the account doubles and the attrition is reduced by 30 to 50%. And the products per household. Doubles and we've got a $20 billion database with about 3 million accounts in it that we can use to validate these data points.

So if you're curious, feel free to ask us hard questions. We love them. You can design this for the outcome that you want to create by adjusting the variables in the account. So I'm just gonna show you how one account might work. If you qualify, you might get 4.5% up to some amount. In this example, the amount is $20,000.

We call that the cap, and that's a very important number in designing how the program's gonna perform Above that cap. You get a lower interest rate. It's still good, but it's not ba, it's not banging. If you fail to qualify, you get a nominal interest rate. Something less than, five basis points, two, three basis points, maybe five.

But what this means is that at any given month, deposits in this portfolio of accounts are going to be getting some blend of, in this example, 4.5 0.5 and 0.05. So your cost of funds is never gonna be 4.5, it mathematically cannot be. So if you had a 4.5 free checking account and a 4.5 cd, and you ask a hundred consumers, which one's cooler?

The average consumer is gonna say 4.5. Free checking is cooler, and the difference is it's gonna attract a lot of $10,000 average balance kind of people, as opposed to like the 4.5 cd, which will attract a hundred thousand dollars depositor maybe, and that puts a lot of concentration risk right there.

But these guys over here that come in with these chunky balances, but not huge. They end up being very profitable because you can use a lot of non-interest income to subsidize the interest cost, which you could not do if the balance in the account was a million dollars. Kinda make sense. So I'll continue through.

Here's how it works. This is data from institutions that had set. This is today. This is the current set of institutions that have their high yield checking as their highest rate, and I'm doing average deposits at those institutions in just that checking account are 14 million. That may seem low, but we've got brand new institutions that just launched and all the ones that just launched went highest rate as casa some of the laggards.

The older institutions had big portfolios and didn't wanna move them. So it's about a $14 million average for probably a cohort of 18 months, 24 months. In terms of total live time for most of them the promoted rate is 4.22. So let's just imagine that the rate in the CD was that same 4.22.

What it would be in total interest paid in a year in the CD is $590,000, what it is as of last month and multiplying at times 12. So I did make a, monthly annualization, so assumption here, but it's 263,000, so it's way lower number. The reason why the cost of funds is 1.89, not 4.22 is.

Everything I showed you on this slide, there's a blend of balances across all those different interest rates. And so the cost of funds is gonna be a lot lower, but they do generate more non-interest expense, paper check processing. They've gotta pay cassa ATM refunds. There's also non-interest income that comes off those accounts, and this is something we drive the heck out of about 45% boost in non-interest income on a per account basis.

So if you get 45% more non-interest income on a per account basis and you're getting 178,000 back in total non-interest income from those checking accounts. Your annual marginal cash flow for holding those deposits is only $135,000 versus $590,000 to hold those deposits in the cd. It's a massive difference over fi over, $400,000.

And if you take the 135,000, this is the hardest math in the whole day. After this. I'm done with hard math, I promise. But you take the 35,000 and then you divide it by the 14 million. Then you get this effective cost of deposits or net interest cost, if you wanna think of it, net of the subsidization of non-interest income of.

Which is a heck of a low number. So let's look at that on a per account basis and how the different accounts per com compare. Cash back checking swipes 31 times a month has an average balance of $1,800. Average age of 42, it's cost of deposits, which is that same number that was 0.97 on the prior slide.

Its average cost for deposit, a negative 7.6 1.3 times the ol ACHs. And 90% of folks log into OLB. And by the way, this is across millions of accounts. This is all across the country. Cash back for groceries swipes go up to 38. The balance drops to 13. The age stays the same. Cash back for streaming even more swipes 40 average age drops down to 34.

They're not as young as you think. A lot of people like streaming services. Who has a streaming service subscription in the room? Yeah. Average balance is $1,340. High yield checking the granddaddy for making deposits happen. That's 'cause the average balance is 9,000 $753, and the average cost of deposits across the whole country is negative 1.29.

That includes the folks that are still running their programs, in my opinion, foolishly at 2% because they have a lot of money going in their CDs and they could be moving it over to here. But it does make our advertised cost and deposits for the portfolio very low. Average swipes in free is 15.

Just to give a sense of comparison. So when I say double, we're doubling interchange. That's it's not, it's only slightly embellished on high yield checking because.

This number, the 20,000 is really important. A lot of people miss this when they design their programs, and if you're gonna do this on your own, which I encourage you to do, I'd love you to work with us. But I don't understand why every single, I don't understand intellectually, after 20 years of doing this and staring at this huge database, our database has now a trillion rows in it.

When we look at all that data, when you set it up the right way, this works every single time. So I encourage you to take what I'm telling you, do it on your own or come talk to us. But this is a better way to fund the balance sheet in my humble opinion. So that $20,000 is huge because when you adjust it, it has a huge impact on the average balance.

It doesn't impact how many accounts you open very much, but it will change the average of balance on the accounts that you open. So if you're trying to calculate how much in new deposits you can generate, this number is actually the multiplier number. The cap, when it's set between five to 9,000, will generate an average balance of 5,000 when it's set from 20 to 25, 8,814.

And we have a handful of institutions running wildly uncapped with a $16,000 average balance. So still not quite as big as you'd think. A lot of people worry about cannibalization. This is an eye chart. Take a picture if you'd like or come by and talk to us. It's way too many numbers, but we have this thing that we do where we'll track people that move over from before they move to after they move.

This is different than like the average of people in this account and the average of people in this account. This is looking at just switchers people. How do they perform six months before they switch and then six months after they switch. And then we look at all their behaviors, all their product penetrations.

And all I can say is every single time we look at that, the increase in product penetration. Engagement and everything pays for the rewards and pays for our fee. So cannibalization is mathematically not something to worry about. I respect why you would intellectually, it's the first thing I would worry about if I were in your shoes.

But I have the just from, I've seen the data a lot is all I'm trying to say. I'm not trying to say we're smarter or anything, just I've seen the data, the cannibalization is not actually something to worry about. You can name it whatever you want. I love the name Casa, but you may hate it. So name it, whatever you'd like.

Bought a boom checking is what I thought of when I was playing with the chat. GPT. Can your frontline handle this? We will train 'em and we will mystery shop 'em and we will retrain 'em for free. But we could automate this too. And a lot of our institutions are moving in this direction to supplement the frontline training.

Just that if anybody on the frontline ever misses the pitch misses the opportunity to make the sale. That we've got a way to, to back clean up. And so every person that opens an account will be encouraged to activate their rewards. They get emails, they get text messages. When they click that, it takes them into your online banking, single sign on integrated, no separate app, beautiful integration where they can see all the different accounts that you offer with the rewards are what the qualifications are.

They select the one they want. We will cross sell the savings account because we know that's a huge driver of deposits. And sometimes the frontline forgets to ask if they would like a savings account add on the savings account and take the consumer into their rewards dashboard where they can see what they have to do to qualify how much they've earned in rewards over time, historically, and things like that.

And of course, it works in mobile as well. This. So these are my favorite slides, and I got three minutes left to describe 'em. What I'm about to show you is what happens when you go all in with our program. This is not the value of the program. We have a whole nother way we calculate that. It's the number of accounts, the difference, the profitability of the accounts, all the individual unity economics of the accounts.

This is looking at what happens to the institution when an institution goes all in with us and doesn't dabble. So we're comparing institutions that have 50% of their checking accounts powered by us versus less than 15. The institutions will repower 50% of the checking accounts. The average for all of their accounts, not just ours.

The average for every account at that institution is 26.5. If we power half the accounts, the average is 17.7. In institutions where we power less than 15. That's a nine swipe difference, which I thought I would quantify for you. If you have 20,000 accounts and you can increase their swage by nine point of sale transactions a month, you're driving $700,000 plus to the bottom line through incremental interchange, assuming a 33 cents.

Incremental interchange change per transaction. So again, is cannibalization a thing? You want more people behaving this way if it's gonna drive that much value to the bottom line. And we can put that in context of the rewards and you'll see you're in the money. But this is even more powerful, I think, 'cause this is the bigger driver.

This is really what drives cost of funds. The institutions that go all in with us that have 35% or more of their total balance sheet. So that means that they're a $3 billion institution. And I'm thinking of one. A billion and change of their balance sheet. We go and help power by looking at the data and administering rewards and doing other fee-based services and other stuff.

But all in we're like, 35% or more of that total balance sheet. Those institutions have 65% of their total balance sheet in checking and savings. So we're 35% or more. But they have on average 65% of their total balance sheet from checking and savings. Whereas the institutions where we power less than 15%, only 29% of their whole balance sheet is checking and savings.

Now, I know this isn't a finance conference, but if you have 29% in checking and savings, what's the 71% necessarily in? It's all that other stuff. It's CDs. Which are, hot money, single relationship deposits, money markets, hot money, single relationship deposit, if you ask me. And it's some maybe broker deposits.

It's gonna be borrowed funds of some kind, but it's definitely not strategic core deposits that are driving value for the institution. But when they get up to 35% or more of the deposits that we power they drive those checking, savings, deposits up to 65, which means they've driven the CD money market money down from 71 to 35.

Yeah, but they had all those high rate checking accounts. What's that do to the cost of funds? Cost of funds in the ones with 35% or more of their balance sheet with us is 29 basis points lower. If you're a billion dollar institution, that's worth $2.9 million. MCT Credit Union, Beaumont, Texas Stat and Jail.

Call him up. He's a good buddy. He is over 50% of his balance sheet are right at 50%. His cost of funds is a hair over 1%. So if you continue that line to the right, you have MCT our number one most dense client with our lowest cost of funds. That's all I have to say about that. I was gonna talk about consumer friendly fees, but I ran out of time.

But that's how much money we could make you. It's ID fraud and scam protection. We have an awesome way to do it, the consumers love. We've got these markets validated in market now. Thank you very much for your time. I'm very grateful to be here.