Technological evolution will establish the future of finance through utilizing blockchain technology. In this exciting episode, Becky Reed, a renowned FINTECH leader and crypto enthusiast, explores the fascinating world of decentralized networks. She identifies the role of decentralized networks in bridging the crypto world and credit unions. Becky also emphasizes the importance of innovation in navigating through the technological evolution in finance. Mark and Becky discuss many things like decentralized networks, distributed ledgers, cryptocurrencies, small credit unions, and the important role of innovation. Don’t miss this educational opportunity with Beck Reed today!
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Becky Reed Fintech Leader, Credit Union & CUSO Consultant
I'm here with Becky Reed. How are you?
I'm fantastic. How are you? I'm excited to be here.
Becky is a FinTech leader, a credit union, a CUSO consultant, a crypto enthusiast, and an educator. She started her own LLC, which she'll be talking about, and has some work going on with BankSocial. She was the CEO. I had a credit union in Texas. I'm on LinkedIn a lot. I see you on LinkedIn. I've seen you on other podcasts and the stage with some NCUA board members, Kyle Hauptman, for example. I've gotten to know you through LinkedIn. We've had one conversation prior to this, but I have heard you on other podcasts. I'm excited to chat with you so that my audience can read what's going on in your neck of the woods.
Thank you. It's interesting being known by reputation. We haven't had a lot of in-person conversations, but I think you and your audience will find that my LinkedIn post and brand are very aligned with what we'll probably talk about. If you know me on LinkedIn, then this will be very recognizable.
This will be very similar to that. When we chatted last time, I knew that you had worked at another credit union before. Was it Lone Star that you wrapped up your stint?
Correct.
I remember us talking about some of the things that were percolating in your head relative to smaller credit unions and the challenges of smaller credit unions, yet, at the same time, you have this visionary thing going on of blockchain and DeFi. That's a unique combination in some ways. Talk a little bit about the journey that you've had in credit unions and maybe how you've gotten to the point now where you decided to, “I'm going to go out and do some solo consulting.”
My credit union career spans many years in the credit union space. I've worked for different-sized credit unions, some on the smaller end of the spectrum and some on the larger end of the spectrum. As you can imagine, when I joined credit unions many years ago, we didn't even have websites or debit cards. That wasn't even a thing. Digital banking or online account opening wasn't a thing.
Loan origination systems weren't even a thing. You pulled a credit report and pulled it off the dot matrix printer that printed in the back room. I've been on this journey in the credit union space through the ‘90s and into the early 2000s, ‘10s and ‘20s. Every decade brings about new technology. I consider myself a technologist, meaning that I'm very enamored with technology. Because of that, I was always the default technology person in the credit union. “My computer doesn't work. I call Becky.”
Because I joined Credit Union early and I was interested in technology, I implemented a lot of technology solutions from hardware to software, all kinds of things. I've been a CEO twice. Lone Star Credit Union was my last CEO role for a little over nine years and ushered in a technology evolution at that credit union, which continues to live on now that I've gone.
You think, “Credit unions and the crypto world, what the heck do those two things have in common?” Frankly, I talked about the fact that I'm enamored with technology. When I first learned about decentralized networks, it intrigued me. As I have learned more about it and delved into that whole space, I feel like distributed ledger technology or blockchain technology is the future of finance. Technology is where it all started.
Distributed ledger technology or blockchain technology is the future of finance.
Decentralized network and distributed ledger, is one a subset of the other? Is distributed ledger a type of decentralized network or am I barking up the wrong tree there?
You're absolutely right. Most people understand what blockchain is because of Bitcoin. Blockchain is a type of distributed ledger, but there are different types of distributed ledgers. It depends on how it works and records information on chain. Distributed Ledger Technology or DLT encompasses the whole space, but it can be used interchangeably with blockchain.
Jumping back to some Super Bowls ago when crypto was all the ads, you had all the folks that were in those ads and you had some very bizarre things happen in the crypto world. That's one side of things, and then there are credit unions who want to make the ability to invest in crypto with the role that youth lay in society. That's something that a lot of credit unions want to be able to offer to their members. That's one side of it. The other side is distributed ledger, which has nothing to do with coins. Touch on that and then touch on how, setting aside the cryptocurrency side of things, you see credit unions' potential role in distributed ledger 5 or 10 years from now.
It is going to take longer than 1 year or 2 in order for this to fully mature. When you talk about 5 to 10 years, that's right. I'm not talking about this type of technology changing the world overnight. It will take time for it to get fully integrated into the financial spectrum. What I do want to address is the bright shiny object, which I'm going to call cryptocurrency. That is where the whole hullabaloo happened. You mentioned the Super Bowl a couple of years ago and everybody has been paying attention to cryptocurrency.
The reason they're paying attention to it is because some people made a lot of money with Bitcoin. They got into Bitcoin when it came out. It was practically worthless. People were exchanging Bitcoin to buy pizza to where it ballooned to ridiculous amounts of money when Bitcoin was worth $30,000, $40,000, $50,000, or $60,000. It was crazy. There were a lot of folks who said, “This is something new where I can make a lot of money.”
It got a lot of attention because of that. Not just Bitcoin, but Ethereum and all these other meme coins. You've got Dogecoin and whatever out there. There was what I call the crypto craze, meaning there was a fear of missing out. There was a ton of attention paid to the cryptocurrency side of things and, subsequently, the crypto exchanges because how you buy cryptocurrency is through an exchange. FTX was a crypto exchange. You mentioned the Super Bowl. FTX had quite a bit of advertising at the Super Bowl.
That got a lot of attention. However, the underlying technology on which cryptocurrency resides is a distributed ledger. Bitcoin specifically rides on a blockchain. That is where the rubber meets the road. That technology and how the tokens move and how information is recorded on a chain immutably is the magic of why I feel like it's going to be the next evolution of financial services and lots of other things like manufacturing. There are a lot of use cases for it, but cryptocurrency was the bright shiny object and where all the press has been the rising and falling of all that because that's exciting, good, or bad. What's going to happen now? Whereas the plumbing, the behind-the-scenes is not that exciting, but that is what's going to change the world.
The underlying technology on which cryptocurrency resides is a distributed ledger.
That's how it's recorded. I know enough about distributed ledger and blockchain to be dangerous, but one of the things that stuck in my head was an example of how deeds are recorded. If you had a municipality that started using blockchain as a way to record that, ultimately, that's very safe and secure and would be faster, etc. Are there corollaries to the financial world that you could give a summary of how it might be utilized for credit unions, how it might be used for banks, CUSOs, etc.?
There are several use cases I can talk about. For credit union readers out there, the phrase that will be very familiar to all of us in DLT is L, which stands for Ledger. We use a general ledger system in our core software systems. Before we had core software systems, we had a paper ledger. An Excel Spreadsheet is an example of a ledger.
When I start talking about plumbing or distributed ledger technology, distributed means that the servers are not centralized. Think about your core and the general ledger that sits in your core. That is a centralized piece of software that sits on a centralized server. One server, maybe you have a few servers that are replicated to each other and a backup, but it is a centralized server. When you're talking about data-distributed ledgers and decentralized nodes, you're talking about multiple servers on a network that have to agree or have consensus in order to log a transaction.
When I say immutable, I mean that it can't be changed. Let's compare that to your core general ledger system. You can make adjustments and change that. Even after you close the books, you still can go in there and change a general ledger entry from some time in the past. This is why we have auditors and examiners who come out and look at our transactions to make sure that everything is compliant and that we're doing things in a way that is in the best interest of our members. That's what a distributed ledger does but in an immutable way. In your core, somebody can go in and change something in the past. Now, that is your source of truth. If somebody wanted to go back and look at a transaction that had been changed, you can find that breadcrumb trail, but it can be challenging.
People can cover their tracks when they make changes. On a distributed ledger, you can't do that. Once it's recorded and all of the nodes on the chain agree that a transaction is ready to be recorded, you can't go back and change that transaction. You can make an update to it. That's going to be connected to the original transaction. One use case could be that general ledger transactions are recorded immutably on a blockchain. The examiners or the auditors who want to come in and look at your general ledger transactions can have a key to go in and look at the blockchain transactions of your general ledger and can have a level of confidence that what they see hasn't been tampered with. That's one use case that folks out there in credit union land will understand.
A lot of things popped into my head. Long ago, in 1986, I had an Accounting degree. When I was hired by NCUA, if you wanted to be an examiner, you had to have an Accounting degree. Over time, they've gotten away from that. I had my Accounting degree and my first levels of NCUA training classes. I remember going into my first or second credit union with my on-the-job trainer. Their accounts were all out of balance.
They hadn't reconciled their corporates or other issues, may or may not have been a little bit of fraudulent activity around the edges, but my eyes were wide open as a theoretically trained accountant who had gone to take several classes and got good grades in Accounting. Here I am and we have all these suspense accounts because they don't tell you about suspense accounts when you're learning because everything's a debit or credit.
It's got to add up. Using your terminology, it's got to be immutable. It's there and permanent, and it's going to balance. You've got the lens I always look through is how NCUA would deal with this. Further away, NCUA got from only having NCUA examiners who did accounting, the more challenging it became for those examiners to understand how to look at accounting. If you know the debits, credits, and how they work and you're looking at a suspense account, you can figure out if it has a debit balance, which means it's going to be a write-off. It's if it's got a credit balance, it's a good thing because, ultimately, it's going to end up being resolved as a positive to undivided earnings, etc.
I'm fascinated by the concept of I'm scared by it because it's new. I like technology. This whole concept, I love it, but it fears me as I look at it as how I would audit it because once they get through the journey of understanding how it works, how that key works, and making sure that the credit union understands that it could lead to less fraud, better books and records, and more efficiency perhaps on the credit union side of things.
That 5, 10, or 15-year journey A) For the credit union to understand it, B) For the service provider, whoever that might be, that's providing that blockchain to provide it, and then for NCUA to educate themselves so they can do the audits or the CPA firms. NCUA and credit unions rely heavily on CPA firms. All the tentacles of that fascinate me, but I could see how it could be a better system.
The reason it's called crypto is because it is encrypted with cryptography. That's the encryption mechanism that is being used to record the data on chain, which has been around for a long time. What's cool and different from what we're using nowadays is we're using a mishmash of analog type of technology and digital technology. Distributed ledger technology or crypto lives 100% in the digital space. It's all code. The things that you can do using code make this technology the next iteration of the future. You've probably heard of Web3. That is the next iteration of the internet that is foundationally designed on a distributed ledger technology, but it creates things that are very difficult to do and makes them much faster and much easier.
The things that you can do using code makes the distributed ledger technology the next iteration of the future.
Here's another use case because I know that you worked at NCUA. I've worked in the credit union space and examiners for a long time. I want to provide examples to your audience that I think would be applicable and interesting to them. Let's talk about call report data. From the credit union perspective, filling out the call report is super manual. I have to have a bunch of data that comes from a bunch of different sources so that I can plug that data into a dumb form.
It's a form that I have to fill out and fill in the blanks. There's no code written to take that data from my core and plug it in, but the technology already exists to be able to integrate and make those things happen. There are some integrations. I understand there are some data analytics tools that can pull in and help you fill out the call report. The call report itself that you pull up on the NCUA site is a dumb form. It's still in the blanks. You could put in whatever you want.
You could put something else in different the next quarter and you could have a new person do it the next quarter. NCUA could then come in and do their exam and go, “Which one's the truth? In March, you said it was these five numbers. In June, you're saying it is these six numbers.” NCUA says, “I think it should be these eight numbers. Both of those are wrong and it should be this one.” That's not good for anybody.
Now you have to have all the documentation to prove that the numbers you put in there were accurate. In all of that documentation, you're trusting a centralized database that may or may not have been tampered with, frankly. The examiners come in and that's what they do. That's one of their jobs, the same thing, to look at your call report data, your financial data, and have those checks and balances on the back end to make sure that what you're reporting is correct.
Let's talk about the data that comes out from NCUA. It is a quarter behind. How truly can our regulator keep up with the speed? Let's talk about what happened with the whole run-on deposit debacle, which was blamed on crypto since we're talking about distributed ledger technology. Some banks failed because the speed at which people took the money out was unprecedented, 48 hours, billions of dollars leaving a financial institution, which no financial institution could survive.
That was precipitated by the fact that people are doing things digitally. They can log into their digital banking on Sunday afternoon at 2:00 and schedule a wire to go out Monday morning at 8:00. That's what they did. That is the speed at which things move nowadays. However, our regulator is not publishing trend data. The banks are not much better. I'm going to talk about card union specifically because that's the world in which we live.
We're looking at peer data and trend data that is, in some cases, up to six months old. How awesome would it be? This is possible. All of that stuff can be put on chain and published near real-time so that, at any point in time, an examiner, the NCUA board, or whoever has the keys to look at this data. It could be Callahan or whoever could go out there and look and take a pulse check, “What does credit union's capital look like?” Let's narrow it down to credit unions in Texas or Dallas. Let's look at the nationwide example, ROA, and loan to share. All of that is possible using DLT, and it is very powerful.
What pops into my head when we talk about the lag time on NCUA's data being available is, as we speak, NCUA is having a national conference down in New Orleans where they have all their staff. It's the first fully national conference they had. I started at NCUA in ‘86. In ‘84 or ’85, they had one in Las Vegas. Edgar Callahan was the chairman of NCUA at the time. I came on right after Callahan left, but flashing forward 4, 6, or 8 years, I was at a national conference. It was a very interesting time because this was when collateralized mortgage obligations were an investment that had a lot of challenges with it. At the time, there was this big thumbs up and down of whether or not the stress tests.
All this data had gone into NCUA's call report. There was a request from Congress that came in asking for FDIC and for NCUA to provide the most current information relative to what was going on in the financial institutions and these collateralized mortgage obligations. FDIC and NCUA sent their data. I don't know if the right word is massaged or reviewed. I guess NCUA hadn't fully reviewed or massaged that data when it went out. The data that they sent to Congress was a little bit more draconian than what the actual numbers were. It led to NCUA locking down. That was the event that triggered NCUA to say, “We need to have more belts and suspenders to make sure that we've reviewed this data and validated it.”
When you upload all your reports, it gets validated. They check this number against that number. They have all these things behind the scenes to make sure that it's not out of balance. They made that far more robust after this one big event that embarrassed the current leadership at NCUA when that happened. It made the system better as far as accuracy, but it also slowed it down as far as the example that you're saying that there's this lead and lag time. The other thing that pops into my head is the trade associations and NCUA, on occasion, talks about a virtual examination. Exams are done more offsite. Life is done more online. Exams are done more offsite.
There's this virtual exam, and I was on a podcast where they asked me when they'll get fully virtual. I don't think they'll ever be fully virtual. That's because of the fraud element of things. NCUA needs to have some presence face-to-face because it's like an empty cop car. They put an empty cop car out there because you see it and it makes you slow down. NCUA showing up makes people think about the fact that they show up and that they do an exam, etc. While you can do a lot of it offsite, you can't necessarily do all of it offsite.
I could see that these technologies are going to allow NCUA to come closer to that fully virtual exam, and then also link it to that outflow of deposits. How do you assist those institutions that might need liquidity? How do those institutions measure what's happening? How they can go to the Federal Home Loan Bank or go to the central liquidity facility or their corporate if it's happening fast that your data is stale? Perfectly imbalanced data and current data can help everybody align. It sounds like this technology ultimately might help us in that arena.
This is why you read a little bit about my descriptor on LinkedIn, which is Crypto Enthusiast and Educator. One of the things that I'm involved with is a nonprofit organization called Block Advocates that is dedicated to educating credit union folks, including regulators, on this type of technology in an agnostic way that doesn't promote any product, vendor, or brand. This is why I think that regulators and credit union core software providers, digital banking providers, loan origination system providers, and anybody who provides credit union services or products need to pay attention to this. Regulators need to pay attention to it.
A lot of people go back to what you talked about, which is the cryptocurrency thing. You get this immediate red buzzer, “Stop. We're not talking about this. This cryptocurrency thing is a fad. You get the fear, the whole FTX thing, the Ponzi scheme, and all of that.” Certainly, those things happened. Those are part of the ecosystem. The magic about this technology isn't that. It is some of the things that I've been talking about.
This is why regulators need to be paying attention to this technology. Let's talk about these kinds of things that we're talking about. Better data reporting, data analytics, and ways to ensure that the share insurance fund is protected and consumers are protected from potential bad actors. This type of technology can help solve those problems and do it in a way that is much less labor-intensive and much faster to analyze than anything that we have nowadays.
The NCUA board is more open than the FDIC and OCC. There's a joint letter that came out from all the other regulators that aggressive was the word in my head. NCUA has a letter to credit unions that came out that talked about how they want credit unions to contemplate how these things might be able to move the industry forward. This board has been leading the charge relative to that. Kyle Hauptman, on occasion, I've heard him say, “How many planes crashed before you had planes?”
FTX was a functional equivalent of a crypto crash or plane crash. I'm reading a book about the Wright brothers back when the Wright brothers went from building bicycles to contemplating building airplanes, and then they ended up building airplanes. In the book, they're talking about how everybody's saying it's crazy to be thinking that people can fly. Here we are. It's the safest mode of transportation. Ultimately, perhaps distributed ledger is going to be the safest form of a lot of things.
That's why I think we need to pay attention to it, try to disseminate and get through the noise. This time period is very similar to the internet. Kyle Hauptman talks about that too. Remember the internet thing, the big bubble that burst and we have to go through those kinds of things with emerging technologies in order to get to the real use cases? The real use cases are definitely there. The few that I've mentioned are the tip of the iceberg.
They're good examples that can get people thinking about how it can help our industry. We've talked a little bit offline about BankSocial and your new LLC. Let's chat about those here for my audience, BankSocial and BRaaS, LLC. I like the name. Explain where that came from. Let's talk about those two things that you've got going on.
I am a technologist. I'm the Cofounder of a CUSO called Pure IT that provides technology infrastructure services for credit unions. Because of that, the infrastructure piece, you're talking about hardware, networks, and now we're talking about cloud. With Pure IT, we were able at Lone Star Credit Union to go 100% virtual from desktops to servers way back in 2016. That was a game changer for my credit union, especially at the asset size that we were at, which was about $110 million at the time, then came my interest in this distributed ledger technology and helping usher in that technology evolution for Lone Star.
That created the Becky-Reed-as-a-Service, which is BRaaS. It's a little bit of a pun because there’s Software-as-a-Service. It is my consulting firm. I specialize in helping credit unions and CUSOs understand each other. I help CUSOs understand credit unions, selling to credit unions, pitching to credit unions for investment, getting proof of concepts, partnerships with credit unions, and then on the credit union side, helping them understand how to utilize CUSOs in order to grow.
I am the Board Chairman for NACUSO, which is the National Association of Credit Union Service Organizations. I'm very passionate about technology and CUSOs. BankSocial came onto the scene when Lone Star Credit Union was taking a look at its data and seeing that our members were buying cryptocurrency back in late ‘21 and early ‘22. I engaged with the CEO of BankSocial who reached out to me on LinkedIn because he wanted to start a credit union. It's interesting because this whole DeFi or Decentralized Finance space is a groundswell movement that is very similar to the credit union movement where people are in charge of their own finances and they own their financial institution. That whole DeFi movement and credit unions have a very similar ethos.
John Wingate, being in the DeFi space, wanted to start a credit union. He was in the process of doing that and NCUA told him, “You might want to get a credit union person to help advise you.” He reached out to several credit union folks on LinkedIn. I happened to respond, and because I was a DeFi enthusiast, we hit it off right away. Lone Star Credit Union launched the very first self-custody crypto exchange with BankSocial back in August 2022 and the Rivia Stablecoin, where the deposits backing the Stablecoin are sitting at credit unions.
Credit unions are not issuing Stablecoin. They are just holding the deposits. Because of that and where I am in my career, I left Lone Star Credit Union in great hands. Marcy Phillips, my protégé, took over as the CEO of Lone Star Credit Union and will take them forward continuing what we started together a couple of years ago.
I felt it was time to get out and help the whole industry. That's what BRaaS is all about. I'm also working with BankSocial. It’s announced that I'm the Chief Operating Officer. We will be building and have already built out a robust suite of products that utilizes this new emerging technology in order to help members and credit unions in the ways that I have talked about previously. I am doing both of those things at the same time, doing the consulting with BRaaS through Pure IT as well as working with BankSocial to usher in the future of finance.
You're going to be a busy adventure in these whole exciting areas of the world and how it relates to credit union. I'm excited for you. I'm glad that we had the opportunity to chat here. Becky, is there a question that I should have asked you perhaps that I did not ask you? If there's not, how would you like to wrap it? Any final thoughts for the audience?
We could have gone forever talking about lots of different things. I want credit union folks to embrace this new technology because it's a new way of doing what we've always done. When you look under the hood, it looks and feels a lot like what we already do, just in a better, faster, less expensive, and more secure way. Please keep an open mind. That would be my final parting words. I'm thankful that you had me on the show. I hope that it provides an educational opportunity for your audience.
We need to embrace this new technology because it's a new way of doing what we've always done in a better, faster, less expensive, and more secure way.
It educated me. Every time I chat with you, I learn a little bit more and my audience is going to feel the same. If someone wants to talk to you about how you might be able to assist them on things they've got going on, whether they're CUSO or credit union, what's the best way for someone to reach out to you?
LinkedIn is probably the best way. You can look up Becky Reed and connect with me that way. BankSocial and BRaaS, LLC, you can look up as well. LinkedIn is that single source that is the best way to reach out to me.
LinkedIn is growing in its importance as far as ways to communicate with people. I'll see you there. Thank you so much for sharing your time with my audience.
Thank you, everybody, for reading.
Readers, I want to thank you also for reading this episode. Hopefully, you'll read again soon.
Important Links
BRaaS, LLC - LinkedIn