The Innovator’s Path

Introduction

Sometimes you speak to an industry expert who can take you along for a ride to the future. Allan Rayson is one of those people. He has been at the cutting edge of lending and fintech for his entire career and continues to push the boundaries. 

Allan’s audacious vision for 15-day middle market lending comes from a deep understanding of business owners and their needs. He marries that familiarity with a clear-eyed appreciation for what technology can — and can’t — do well. 

Allan’s insights paint a vibrant picture of an industry’s revolutionary transformation and left us inspired and eager to promote a new era of lending.

“Numbers, financials, and data aren’t going to tell you everything. They’re going to get you in a place to be able to learn what’s really going on with that business.”

Interview

Ben Fried: Allan, thanks a lot for being with us. I’d love to start by talking about your rise to Chief Innovation and Technology Officer at Encore Bank. Can you share a little bit about your own personal journey? 

Allan Rayson: I’m not going to lie to you — I got out of grad school and needed a job. A mentor whom I still lean on today gave me great advice: “Banks will pay you to train you,” which sounded like a no-risk proposition. There were analyst programs where you could be an analyst for a couple of years and rotate around to different loan groups inside the bank. So I spent time in a large corporate group, working in the small business group and the commercial real estate group. And that was my entry into banking. 

After spending roughly 15 years on the business side of banking, I had an opportunity to leave banking altogether and go launch an early-stage payments company. We were FinTech before it was called FinTech, and that’s where I learned the framework of software development, tech payments, and other things that I probably was never going to learn inside of a bank. 

Ultimately, I came back into the banking industry in executive roles — on the business side, but with a lot of experience with technology. This led to a crazy opportunity to come over to Encore in 2020 and be responsible for tech and innovation, while also launching the commercial banking office in Austin. 

My business banking experience informed me a lot in terms of how a bank makes money? Where does the bank take risks? How does one mitigate those risks? How do you turn those risks into new revenue opportunities? 

All of those experiences help me tremendously on the technology side to be able to create new revenue opportunities for the bank, and optimize existing revenue.

Encore has grown at a speed rarely seen in community banking. How has it been able to grow so fast while still keeping that community banking spirit?

A lot of our success comes down to how we’ve gone about raising capital. First and foremost, if you’re going to start a bank, the typical model will be raising $15 to $25 million in equity from four or five people and then turning that equity into loans, which will be turned into revenue, and then you’re rolling. What Encore has done is kind of turn that on its head. We went out and raised money across a large group (about 2,000 investors) of small and midsize business owners who have invested, in total, upwards of $350 million in the equity of Encore.

And then we executed a strategy to bank those investor partners, which really propelled our growth substantially. If you’ve got an investor partner who owns a small or midsize business, they have every interest in the success of Encore, so they want you to bank them and enjoy the economic upside of that growth.

You’ve long been an advocate of bringing a better experience to commercial lending, with a focus on middle market lending. What is the big opportunity here for a bank that’s looking at it in an innovative light? And what are the bottlenecks? 

The big opportunity is cutting down the time that it takes for a middle market company to access capital from a bank. Today, it takes them months to be able to access capital. It’s a very inefficient process, fundamentally, because each deal is different, each company looks a little bit different, does different things, and their financial statements are a little bit different. It’s not cookie cutter. This is why it’s really hard to create efficient processes and shorten that time-to-money, and that’s where a lot of the opportunity is in the space. 

Leveraging tech to access more data and make processes more efficient can help with faster decision-making while reducing risk and managing the portfolio a lot more efficiently. That’s the big opportunity. 

If you look at it from the middle market business owner perspective, accessing capital in 15 days instead of 60 to 90 days allows them to execute on whatever their initiative is, and it’s like gold to a smaller midsize business.

It certainly has a huge impact on the bank side because we can manage portfolios more efficiently, but at the same time, because we do it faster than the other banks, we can ask for a premium on pricing as well. Ultimately, if a business can acquire capital in 15 days versus 90, they’re going to make a lot more money on their side and cut down on the uncertainty, which they’re willing to pay for. 

But it’s easier said than done. There are a lot of ways to screw up the process of making a commercial loan, especially when automating steps. Like I said before, every deal is different, so it’s not really cookie cutter. We can still ingest data more efficiently to a place where a loan decision can be made and then create efficiencies around the back end of that process. Legal, negotiation, loan documents, credit agreements, security agreements, guarantees, etc. are all complex steps that tech can really play a role in and shorten time-to-money down from months to days. 

There are probably hundreds of areas where you can leverage tech to reduce time-to-money. What would you recommend starting with? 

One of the biggest areas is at the front of the process: being able to get all the required information about the business and making sure that the bank understands that information correctly. It often takes weeks for the bank to get the information that they’re looking for because of many back-and-forths and a lot of different parties involved in the process. Tech can shorten that circuit and just tie in directly to the data source — whether it’s an ERP, an accounting system, Shopify, data platforms, etc. — and process that data without a lot of reliance on a person to go grab information and organize it. This can cut weeks out of the process and allows decisions to be made more quickly.

It’s also possibly the most frustrating part of the process for the business owner because they’re basically repeating information, going back and forth, and kind of teaching the bank about their business, instead of working on business growth. That’s why companies tend to follow their banker. That banker has so much knowledge of their business, and they don’t want to have to retrain another banker.

How does automation in commercial lending impact the relationship between lenders and borrowers? Does it enhance or hinder communication and personalized services?

In theory, you could argue that it could reduce the reliance on the skill set of a commercial banker who has built a career around being that resource for that middle market company and learning all the different aspects of that business. But numbers, financials, and data aren’t going to tell you everything. They’re going to get you in a place to be able to learn what’s really going on with that business and understand at the macro level how that business fits into the overall economy.

There’s still a lot of the human element that needs to be in place to really be able to make decisions. We’re talking about substantial amounts of money. So in my opinion, automation speeds up the process, but it probably makes your bankers better. Bankers have seen so many deals that they understand how business works, understand what a business is, how it operates, how it reacts, etc. So I think it’s more of an enabler for your existing team than a replacement altogether. 

What advice would you give to a bank that is setting out on the process of streamlining or automating its lending flow? What are the key factors to consider before embarking on this journey?

That’s complex, certainly, and I think it’s fundamentally sort of product development. You have to learn each aspect of the process and prioritize where you can cut the most amount of time out of these processes, analyze bottlenecks, and shortcomings. The process that I go through is: Let’s dissect the process, prioritize the areas where we can get the most impact, and evaluate who our partners need to be in order to execute. 

What are the technologies that you see out there that are either already changing the game or kind of just a trend? 

Probably first and foremost, it’s the business payment space. You have to show the richness of the data related to the business spending, and it helps drive decision-making on the lending side. Second would be data aggregators. Aggregating really rich and important sources of data outside of business payments and helping banks ingest that data in a process that ultimately helps to make a decision on a loan. Those two categories are what I probably pay the most attention to in terms of really changing the game in the commercial lending space. 

Now for the topic that no one can avoid these days. Do you think artificial intelligence and large language models such as GPT play a role in automating commercial lending? 

They’re going to change the game, but it’s hard to have context on how long that will take. Consider all the transaction data associated with banks’ customers that a bank already has. By using machine learning and AI, you change the game from a data insights perspective. That’s where I see it evolving, as long as the industry can get comfortable with the security and regulatory protection of people’s information. 

We’re in a challenging macroeconomic time right now. How do you suggest banks and business owners deal with this part of the cycle?

We focus on what we do best. As you know, there are obviously two major components that a business owner needs to have to be successful: labor and capital. And banks are clearly such an important part of that equation. So what we should focus on is getting capital to those businesses, more efficiently, and in a shorter period of time. Those businesses would be able to take that capital and produce more and better revenue with it, and that’s how the industry can play a role. There’s a lot going on in the world, and there always will be a lot going on in the world, but what we can focus on is how to make business better.

This has been awesome. I appreciate the insight and always love chatting with you.

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Allan Rayson - Bio

Allan is an accomplished banker and leader with a twenty-year track record as a commercial banker and market executive in the commercial banking and specialty finance space. Allan is also former CEO and co-founder of PaidUp, a financial technology company designed to support youth sports clubs. Allan and his co-founders launched the startup in Austin, TX where they supported youth sports clubs across the domestic U.S. 

Applying what he has learned in FinTech and banking, Allan is now Chief Innovation Officer and Chief Technology Officer at an entrepreneurial bank called Encore Bank.

After earning his undergraduate marketing degree, Allan earned his MBA from Texas Tech University in 2000. In 2014, Allan also earned his Certified Private Wealth Advisor designation through the Investment Management Consultants Association (“IMCA”) and the University of Chicago’s Booth School of Business.