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Welcome back to the podcast! This week we sit down with tech veteran and product leader, Prashant Fuloria, CEO of Fundbox.
Fundbox is “a working capital platform based in San Francisco that offers credit and payments as a service to small businesses. Founded in 2013, the company innovates technology to help optimize cash flow for small businesses. Its primary offering is a revolving line of credit to manage cash flow. Fundbox uses a banking partner to give short-term funds up to $100,000. It also offers membership-based offerings and payments which include Flex Pay, which provides additional payment options for business expenses. Its services are offered online and through a tech platform that integrates with QuickBooks, FreshBooks, Xero and Indeed.”
Some background about Prashant - he is a “seasoned tech executive who has played senior leadership roles at companies across the consumer internet (Yahoo, Google, Facebook), mobile developer platforms (Flurry), and AI-driven fintech (Fundbox). He is a sought-after advisor who has advised companies in fields as diverse as executive recruiting (Spencer Stuart), musical instruments (Fender), energy tech (Bidgely), crowdfunding (Patreon), and advertising tech (Singapore Telecom). He is also a regular lecturer at leading business schools, teaching popular MBA courses in building consumer internet businesses.
Before joining Fundbox, he was senior vice president of advertising and data at Yahoo, reporting to the CEO and managing the 1300-person engineering, product and UX teams driving Yahoo’s $5B/year advertising business. Fuloria joined Yahoo through the acquisition of Flurry, the world’s leading mobile app analytics platform, supporting over 100,000 monthly active developers and over 2B monthly active mobile devices. At Flurry, he was chief product officer, responsible for product strategy and delivery. Fuloria played a critical role in the Flurry acquisition and led the highly successful integration of Flurry’s product and business into Yahoo’s, helping create a new $300M/year mobile advertising revenue stream.
Prior to Flurry, he was senior director of product management at Facebook. Fuloria was responsible for all of Facebook's advertising products during a period of intense 2.5X year-over-year growth, which saw the company cross the $1B/year and $2B/year revenue milestones. He also managed Facebook Credits, an attempt to monetize the Facebook platform that achieved a $500M/year revenue run-rate within just two years of its launch.
Before joining Facebook, Fuloria was product director at Google, where he most recently managed all of Google's products (search, ads, apps) for the Asia-Pacific region (including CJK, AU/NZ, South and Southeast Asia). He also worked for several years building monetization products at Google, both as an early product manager on Google AdWords and then as the first product director for Google’s global billing and payments platform.
He holds a PhD and an MA in business, a PhD minor in operations research and an MS in statistics, all from Stanford University. Before joining Stanford, Fuloria studied at the Indian Institute of Technology (IIT) Delhi, where he was awarded the President of India's Gold Medal, the most prestigious undergraduate engineering award in the country.
He is an avid guitarist, currently playing with the Silicon Valley tech exec band, Coverflow. While in college, Fuloria played guitar for Euphoria, which became India's largest-selling rock band. He lives in Los Altos, CA, with his wife, a fellow IIT Delhi and Stanford graduate, and their two children.”
I wish I had gotten time to ask Prashant about his music experiences! But we’ll save that for a follow-up down the road - really enjoyed hearing from a fellow Xoogler and grateful for him taking the time from an undoubtedly busy schedule. Special thanks to Avenue Z for helping coordinate the discussion.
Zarik: Prashant, welcome to FinTech Compliance Chronicles podcast. I'm happy to have you join us, to get us started quick background on yourself. As I like to say at the beginning, who are you and what do you do?
Prashant: First of all, thank you for having me excited to be here. I consider myself to be a recovering product manager. So today I lead Fundbox, which is an embedded platform for capital for small businesses. We serve the small business economy through capital, and we provide capital solutions to the ecosystems and tools and systems that SMBs already use to run and grow their businesses, whether it's an accounting software or a payment provider, or some sort of vertical SaaS platform, et cetera.
Very excited about what the company does, our mission and kinda where we are going, and including the compliance aspect of that. I've been at Funbox now for almost a decade, and so this is an important part of my career. Prior to that, I was an early product manager at Google, worked on Google AdWords when it was just getting started.
Eventually built Google's first global payment network. This was before we had companies like Stripe and Adyen to take care of this, do it yourself. Also ran Google's products, all of Google's products for the APAC region, the Asia Pacific region. Then actually went to Facebook, did the same thing. I ran Facebook ads for a couple of years, and then ran Facebook payments.
Did a startup called Flurry, which was a mobile analytics platform, which was acquired by Yahoo. I sometimes joke that I've done Yahoo, Google, and Facebook, but not quite in the right order. For the last, for quite some time, I've been at Fundbox and for me, the biggest thing has been in my previous career journeys, I had seen how technology could level the playing field between small businesses and large enterprises in areas like marketing in the Google auction.
It doesn't matter whether you are. Target, or a local grocery store, you're competing in the same auction on fair terms. And I think for me, the question was could technology also level the playing field between small businesses and large enterprises in other areas like access to financial services.
And a large enterprise has all of these people and talent and resources to manage finances, whereas the small business owner just has himself or herself. And what could Fundbox do to help with some of those financial questions? And that is the journey that, that I got started on, and it continues to be an amazing one.
Zarik: That's fantastic and this is actually a great segue into my next question, which has to do with Fundbox's focus on embedded finance and SMBs. So you talked about access to products and resources and capabilities. I think about consumers when I hear embedded finance and what it's enabled for them.
So, just your overall take on what embedded finance has been able to do. Specifically for small businesses, but even for the consumer as well, if you will, and how Fundbox fits into that equation.
Prashant: I'll stick with small business because there's so much to say there. This access to financial services has been so difficult for small businesses for years or decades or maybe even centuries. Capital has always been difficult. Getting paid and making payments has been hard.
Getting any kind of insurance product has been difficult. And the small business market is notoriously difficult because it's a big market. We all know that there are over 33 million small businesses in the US, for example, but it's very fragmented. So customer acquisition is hard. It's hard to serve small businesses because they also have, a high mortality rate.
You have a small business on average lasts for only five or six years, and for all of these reasons, this whole trend of embedded financial services, which is really bringing the financial service to the customer inside of their daily, weekly, monthly workflows, the tools they already use has been a game changer.
And we at Fundbox, have chosen to really use the embedded channel because it helps us in three ways. One, it helps us with distribution. When we partner with someone like Intuit and are embedded into their QuickBooks product, well, they've got millions and millions of customers using QuickBooks every day, and so it gives us access to those customers that would otherwise be very difficult for us to acquire. The second is gives us data, so I'll just continue with the QuickBooks, example there. We can, using the QuickBooks APIs, get access to a business' entire accounting ledger and underwrite instantly or in less than a minute, and assess their risk and their suitability for some sort of capital product. Imagine the old school analogy, going to a bank waiting for days to get a loan approved and the bank spending several thousand dollars in human capital to review your books. All that is being done through technology. And the third thing is that it's not just a matter of accessing users and getting data, it's also the opportunity to provide products that are really convenient and friendly for the customer. Products that are, somehow embedded inside my workflow. So, for example, we have a Payroll Guard product that our customers sometimes use to make sure that they never miss payroll, where we are actually making payroll for them, where their payroll backstop. So you don't have to worry as a small business owner on a Friday, I have to run payroll this afternoon.
Did that check from my customer clear or not? We are running payroll for you and we later decide or let you decide how you want to fund it. So there's little product innovations like that that just make the lives of our customers easier. So it's a very, very major part of our strategy and it's how we've shaped our product offerings.
It's how we've shaped our company, literally. So it's a very critical thing for us.
Zarik: Speaking of innovation, you had referenced your usage of risk assessment tools. And so when I hear risk assessment in my world, it starts to bring the compliance, regulatory part of my brain into activation. So how do you, on a day-to-day basis, balance your usage of tools like getting involved in a risk assessment with things on the regulatory side, like fair lending and UDAAP, for example, which gets into how you portray things to consumers? What's your thought process around balancing innovation with regulatory compliance?
Prashant: So there's a lot of depth to your questions, Zarik, but I'm gonna start with something very simple. It starts with the alignment of incentives, which is does the lender or the capital provider, in this case Fundbox, succeed if the customer succeeds? In this case, the customer is a small business owner, and if the small business owner fails for whatever reason, does the lender succeed in that case?
At the extreme case, you have lenders that do well financially. Whether the customer does well financially or not, those are typically predatory lenders. If, for example, you as a customer default on a loan and I seize your house, I'm probably going to make more money in the event that you default, in which case your incentive and my incentive are completely misaligned, like that's a, that's structurally a bad place to be.
Now for us that our best customers are customers that use Fundbox, not just once, but over and over and over again. And so we have customers that we've acquired right since we started. We launched our offerings in 2014/2015, who've been with us for like nine or 10 years. They love the product. Keep coming back, keep using us.
Our average repeat customer uses us, I'd say something like seven to 10 times a year. And those are our best customers and they're growing, and as they grow, our business with them also grows. So even before we get into the technology, I think fundamentally we've built our business model where we succeed if our customers succeed.
So that actually just helps us in a more structural way. Now, I think in, in the deployment of technology itself, there is sometimes people sort of frame this as a, how do you make sure you can use technology while, complying with things like the Equal Credit Opportunity Act or the Truth in Lending Act, or you know, all of that. Or the Fair Credit Reporting Act for that matter. And I think that there are a few things that go into this. One of them is just the interface and the interaction with the user. So things like having the appropriate disclosures are really helpful in making sure that you comply with, say, truth and Lending, or for that matter, making sure that you are communicating.
Why you've declined a customer in a transparent way, like adverse Action notice helps you with things like the Equal Credit Opportunity Act. So one part of it is just the interface you have with your customers. The other part of it is how much do you look at your models and keep checking to see statistically how they're performing.
There's "What features are you using to make predictions?" Clearly those features have to be free of bias, but that's not all, even features that are themselves free of bias when combined can have some implicit bias in them. So you kind check statistically that way as well.
And then you also run what you might call disparate impact assessments by third parties who look at a set of customers and may have access to data that you don't have access to and check to see how you're doing. Very important part of what we do. We are a FinTech or a financial technology platform and we partner with banks to originate these loans.
So our partner banks are, have national charters and are regulated by agencies like the FDIC. So the work that we do has to really pass the muster of the FDIC and other regulatory bodies that regulate the activities of our bank partners. So they get audited on a regular basis and as part of their audits our programs with these banks also get audited.
Zarik: Yeah. And to that point, I'm curious, have you had any either direct or indirect feedback about your products from a regulator? Obviously you're providing a solution for your customers, but, sometimes regulators are regulating financial institutions, right?
They utilize tools to help them succeed. So in your case, as providing a solution to help some of those folks succeed I'm curious if you received any direct or indirect feedback about your product and how that has informed your approach or validated what you've already been doing.
Prashant: We do communicate with regulators at the state and at the federal level, both directly and also through our partner banks. The banks that we work with know that when they interact with regulators, one of the most useful things they can do is use specific examples of programs that they think are working well. They might say, " For example, let's take Fundbox. This is what we are doing with Fundbox. Here's our program. Here's how it's helping customers." So you may have a lawmaker in some state saying, "Hey, I wanna better understand what you guys are doing."
If our bank partner can say "With Fundbox, here's our program and by the way here are the actual customers in Rhode Island that this program has actually helped," it just gives a lot of specificity to all of this. We get questions on a regular basis from regulators, and that's nothing out of the ordinary.
In fact, every audit generates questions like, how do you do this? How do you do that? And so on. We've also been commended by regulators, so for example during the COVID Crisis and PPP, the Paycheck Protection Program, we did participate and work with the SBA on PPP. We were originating there as well.
And you might recall, and a lot of it has come out in the years after 2020, there was a fair amount of fraud in the PPP program. And meanwhile we were very, very careful about not letting fraud enter our system. So the Financial Crimes Enforcement Network. Sent us a very positive letter that commended our efforts to fight financial crime and maintain the integrity of the PPP program.
So, I think the days when fintechs try to avoid talking to regulators are over. They should be working with regulators. Whether this is federal or state it's the way to go because I think now we have a pretty decent level of sophistication on all sides.
FinTech is not exactly new the industry has been around now for like a decade or more. I would argue that the first FinTech, truly FinTech company was probably Capital One. That's been 30 plus years. So I think there's a lot of interaction with regulators.
Zarik: That's where I was trying to nudge. I think this is the attitude that I hope folks who are watching this who are in early stage startups or have never really gone into the regulatory side of things with their business, [are] hearing this, that it is actually possible to get, commended by a regulator for your product.
And on top of it, actually have them look at you as basically a role model for the industry. And then you briefly talked about financial crime so I want to just touch on that.
In terms of AML and KYC, some of the more fraud based issues. How do you, in your role, working with partner banks, working with these small businesses, et cetera, how do you mitigate that risk of financial crime from where you sit or how do you work with the players that have a greater risk than you or equal risk perhaps.
Prashant: There are different vectors to financial crime, based on the product. I think a very basic thing is to make sure you have a good understanding of the identity of your customer. And now in a typical lending product, the customer that you're giving money to and the customer that you're collecting money from are the same.
So it's a different fraud vector than say, payments where you're taking money from one person and giving it to another person. So there's differences there. But identity is tricky in small business because the same individual can open a business A today, open a business B tomorrow, and a business C the next day. Those are all different businesses and there are many, many legitimate reasons why someone might do that. But it means that some of your KY B know your business, has to be small business specific and not generic kYC. We have our own tools. We also work with a number of third party vendors that have built up databases and machine learning tools around verifying identity. And when we end up having to move money around for some of our products, we have to be even more careful about financial fraud because it's money from one account into another account as well.
There are also all kinds of fraud, like first party fraud and third party fraud. I would say the distinction between first party fraud and credit risk is a little blurry. If someone, were to go to a lender and take out a loan with no intention of ever having to pay that loan back is that fraud or credit risk? That's a gray area in some ways. Clearly, if I've misrepresented my identity, that's fraud for sure. But we also sometimes see people revealing the true identity of their business, but then never making a single payment. We call them first payment defaults.
And that's sort of semi fraud risk and then semi credit risk. So there's an entire spectrum of risks that we have to manage and mitigate from a compliance perspective. The clear thing is just to make sure that you understand the real entity of your customer.
For example, they're not on any OFAC list. And it's a critical part of our product. It becomes more interesting in the embedded case because in many cases our partners already have done their own identity checks, so then it becomes a matter of, can we and our partner banks get comfortable with the identity checks that our partners have done. So imagine if you are, using a vertical SaaS platform as a small business, you're a hairdresser using a vertical SaaS, software with payments in it, someone, let's say Stripe or someone has already done a K Y B from a payments perspective.
Now, is that enough? For credit or not, it depends on the partner, but now you can see that there's a chain of trust that has to be built. We have to verify what our partner, the platform has done and satisfy the needs of our bank partners. This is happening now. There are more standards being set and so on.
But the whole idea here is how do you make it as frictionless for the good actors while catching all the bad actors. Right. That ultimately is the framing that we use.
Zarik: Appreciate that. I just wanted to zoom out a little bit and just ask, for those FinTech leaders that might be listening and trying to figure out how to balance compliance and innovation. Clearly talking to you, you speak the language, but you're also running this company. And I think it's great to get your perspective and I would just ask if you can provide some advice to folks who are struggling trying to figure out, " How do I balance at a high level running a business, being innovative, taking risks versus also staying out of trouble." And of course there's been shifts from a regulatory perspective, but I think as you had alluded to, at the end of the day, your customers are still your customers. Your customers are still gonna hold you accountable, regardless of what the regulatory direction is at that point in time. So, in summary, how, would you say for those folks if you had to give them advice, is the best way to balance compliance and innovation?
Prashant: I don't think that innovation and compliance always have to be at odds with each other. I think there are actually many situations where clever implementation can satisfy a regulatory need while being innovative. And I think an important part of this is making compliance a key part of your innovation process or product development process, or even ideation process.
I think one thing that I've found in financial services and FinTech financial technology is that it's really, really helpful to not only have experts in their field like a chief compliance officer or someone who's very deep in compliance, someone who is a great product innovator. But also having everyone at least have a basic understanding of all the domains.
And what I mean by that is ideally if you're a product person, thinking about a product, let's say in a credit context or an insurance context or a payments context, ideally you understand the domain IE credit, like what is the user experience, for example. But you also understand credit and what does credit mean?
The credit fundamentals. But you also understand compliance, at least at the very basic level, such that you have regulatory considerations be thought of from the very beginning of the product that way. You don't end up trying to build something and then running into a compliance roadblock.
It's more of a, you've thought about, oh, in this case I'm moving money. This is actually, we are originating a loan. Okay, that's great. So now there's a certain set of things that we need to be able to have in place before we originate a loan. And if that's not what we want to do, then let's think about a different way of solving this customer's problem.
But having that understanding at the very beginning is important. So at Fundbox, we try to make sure that all of the folks that are working on product are not only product managers or what have you from a traditional perspective. They also understand the business IE, this is credit and there are some analytical and constructs around credit and it's a regulated financial service.
So we'd better at least have the basics of. What does truth in lending look like? Or what does equal credit opportunity look like? Or what does fair credit reporting look like? So that we at least have that from the very beginning.
That's just the way we've built it and I'll make a pitch for having small teams where you have the end-to-end knowledge and expertise within the team as opposed to a very siloed way of building things where you've got like a product organization and an engineering organization and a credit organization, and then a compliance organization where things only come together at the top because that's recipe for disaster, right? A small team that has everybody talking all the time, and that has all of these viewpoints expressed and articulated from day one is a much more effective way to run.
Zarik: It's funny you mentioned that about product folks. I've also, in my career, I've encouraged compliance folks and audit folks and risk folks to think the same way. Where, you can't just know the regs and know the risks, but then not understand the product you're looking at.
And we've seen sometimes, unfortunately, even in, regulatory environments where the examiner doesn't understand the product, then it leads to unnecessary friction, between the companies they're trying to review. So I agree with you and I'm saying I think it would also, be good for it to go the other way as well from folks in compliance and risk.
We're coming up to the end here, and I wanted to close out with, your take on what's next for Fundbox. What does the future hold in terms of growth? In terms of next steps, where do you see, the company, particularly in this new regulatory environment, how you plan to play in it?
Any closing thoughts on that front?
Prashant: I mean, there's definitely a lot of uncertainty right now in terms of the compliance regime. I think that a careful adherence to first principles is always helpful. So I'll give you an example. We are a small business capital platform. We serve small businesses. It's a commercial product. At the same time, because we serve small businesses, we try to maintain consumer level compliance in what we do.
It's a degree of compliance that is perhaps more rigorous or more strict than what we need to. But we do keep consumer grade compliance in what we do. Similarly, I think that when you're making a really, really big decision around a product, your planning horizon may need to be more than just a few years.
If you're building a business on, and if the only way your business can succeed is, if a certain regulation is interpreted in way X versus way Y, that's a lot of risk you are taking, and it really begs the question, why is your business so dependent on the narrow interpretation of a regulation, right?
So I think while there's uncertainty, and I think everybody would agree that it would be good to get more clarity on certain things like. How, like what's gonna happen to, let's say all of the open banking discussions and so on so forth. I think first principles are always helpful.
The other thing I'll say is also that as you move from just the US to looking at other markets, you encounter different compliance regimes. That's another big consideration for us because we've focused primarily on the US and that has made all the sense in the world for us to get to our scale and, our economics.
But we serve partners who have a very large global footprint, and so we are now opening up in other markets where our partners want us to go so now we have to live in a world that has different compliance standards for different customers anyway, even in the us. To be fair, you think about different states, we've had to have different disclosures in let's say California versus Georgia versus Utah.
What did we have to do? Build the infrastructure to manage that. We work with multiple bank partners and even our same bank partners interpret different regulations slightly differently. So what's required to truly understand business ownership for a business? 'cause a business and like a consumer can have multiple owners, like what information do you need?
There's some subtle differences between how banks interpret it. Neither is right or wrong, it's just an interpretation of the regulation. And so we've had to build infrastructure to support multiple banks. So yes, life would be easier if there were just one set of regulations around the entire world and it, there was one set of interpretations around it, but life is not, and so you just have to innovate and kinda build.
The foundation such that you can handle different regulatory, regimes and so on.
Zarik: Great. We'll hope that maybe someday we can have that, set of unified standards. In any case, it has been a real pleasure talking to you, Prashant, and thank you so much for your time. Really appreciate it.
Prashant: Thank you for having me it's been a pleasure.
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