Someone had to be first. More than a decade before the word fintech became a thing we had the original fintech bank, First Internet Bank. As the name implies they were the first bank to operate completely online when they launched in 1999. In many ways they have been a trailblazer, paving the way for a new generation of fintechs to thrive.

My next guest on the Fintech One-on-One Podcast is Nicole Lorch, the President and COO of First Internet Bank. She has been at the bank since the very beginning and has seen it grow to become a successful and profitable online bank. There are many lessons here for the new crop of fintech banks.

In this podcast you will learn:

• What it was like launching an online bank in the dot com era.
• The types of consumers they attracted in the early days.
• How RV and horse trailer loans became a successful niche.
• The different verticals they are involved with today.
• Who they think about as their competitors in banking.
• What they have done to emulate in-person banking in the digital world.
• How they manage their customer service call center.
• Details of their tech stack and their approach to technology.
• Nicole’s view on the recent rise of the digital neobank.
• How they are partnering with Treasury Prime for banking-as-a-service.
• Why First Internet Bank has such a deep understanding about fintech-bank partnerships.
• What they are focused on when it comes to growing the bank.
• How she views the moves by big tech into financial services.
• What Nicole is excited about for 2023.

Connect with Nicole on LinkedIn
Connect with First Internet Bank on Twitter

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Download a PDF of the Transcription or Read it Below

FINTECH ONE-ON-ONE PODCAST 395-NICOLE LORCH

Welcome to the Fintech One-on-One podcast, Episode No.395. This is your host, Peter Renton, Chairman & Co-Founder of Fintech Nexus.

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Before we get started, I want to talk about our flagship event, Fintech Nexus USA, happening in New York City on May 10th and 11th. The world of finance continues to change at a rapid pace, but we will be separating the weed from the chaff covering only the most important topics for you over two action-packed days. More than 10,000 one-on-one meetings will take place and the biggest names in fintech will be on our keynote stage. You know, you need to be there so go ahead and register at fintechnexus.com and use the discount code “podcast” for 15% off.

Peter Renton: Today on the show, I’m delighted to welcome Nicole Lorch, she is the President & COO of First Internet Bank. Now, if you haven’t heard of First Internet Bank, you should have and now is obviously your chance, they were this country’s first totally online bank launching in 1999. Nicole has been there since the beginning and she tells a little bit about those early days and what they were like.

This is a bank with a long track record, profitable, a decent size. They’re not a tiny bank by any means, they operate 100% online, been doing so for a long time, so she talks about what they’ve learned over the past, you know, 23 years and how to really bring the human touch to the online experience. She talks about Banking-as-a-Service and how First Internet Bank is becoming a serious player there, she talks about what it was like to see the rise of the digital banks, the neobanks over the last few years, she talks about Big Tech and much more. It was a fascinating episode, hope you enjoy the show.

Welcome to the podcast, Nicole!

Nicole Lorch: Thanks for having me, this is a real treat.

Peter: My pleasure. So, let’s get started by giving a little background to the listeners. I mean, you’ve been at First Internet Bank, it seems like, for most of your career, but why don’t you tell us a little bit of background about who you are and what you’ve been doing for the last couple of decades.

Nicole: Certainly. Well, I did join First Internet Bank when it launched in 1999, probably not very common anymore for people to stay in one place for 23 plus years, but this has been anything but the common experience. Sometimes in banks it can feel like the same year of experience repeated over and over, but I can honestly say that no two years have been the same since I joined. We were a de novo bank in 1999 when we launched, and ever since then our growth has been primarily organic. So something is always starting, something is always new and that has allowed me to grow my experience in ways that I may not have foreseen.

Before I joined the bank, I had a little bit of experience with banking in that I had done an undergrad internship at a community bank here in Indianapolis, did not expect to be a banker. I went into some fintech companies right out of college before the term fintech even existed so I was working with financial services organizations on a nationwide basis to implement digital banking systems at the time which was very new. Then when the bank was getting off the ground, I had the opportunity to come over here and I thought I would be a dot com millionaire, (Peter laughs) it was 1999.

Peter: Right.

Nicole: Then the bubble burst, and now it’s something of a get rich slowly program, but in terms of experience and knowledge that we’ve been able to grow over that time, that has been richly rewarding.

Peter: Right, right. So, I’d like to just talk about those early days for a minute, if we could, because, I mean, there’s very few people I’ve talked to that have a history going back to the 90’s at the same company. I remember the dot com era, I mean, it was just go, go, go and we were all going to be dot com millionaires, it felt like, everything was getting funded. What was it like because you launched the first online bank and banking is obviously a serious business, did you kind of feel like you were part of the dot com wave or how did you kind of think about it internally, what was it like?

Nicole: I think we’ve always had a foot in both camps, that fintech endeavor as well as the regulated industry. Balancing between the two is not always an easy proposition from the early days of filing our application with the FDIC for a charter to be a chartered bank without a vault, I mean, why would be need a vault, right?  And so, we’ve been treading new ground on the regulated industry side, and I think sometimes fintech would then think because we have the charter, because we live in the regulated world we don’t nearly have the same street cred or level of cool factor that some of the fintechs do. And certainly since we’ve been public in 2013 there’s a pressure there to perform and to provide the shareholders with a return, so I felt unlike some fintechs, we are profitable and have been since 2001.

Peter: Okay. Wow, that is impressive. So, tell us a little bit about the bank today. Obviously, you’re a digital bank, you have no branches, right, but what is sort of the core focus?

Nicole: When we launched in 1999, the idea was that we would provide a range of services to consumers who did not need that branch infrastructure and I think the assumption was that we might serve primarily a student population with a backpack and a $20 checking account. But, in reality, we attracted high net worth individuals who traveled a lot so we had traveling professionals, we had people in the airline industry and we were growing our deposit base much, much faster than our asset size because we were getting $20,000, $30,000, $40,000 money market accounts with no need for a $20,000 auto loan.

So, the story of First Internet Bank has been a continual reinvention and in the early days it was about an effort to grow the asset side of our balance sheet which we did through indirect RV, and horse trailer loans, which remains to this day a niche for us where we can be very successful, but that, of course, kind of feeds the nomad lifestyle. And so, if you are in an RV, and even if you are just a snow bird and traveling in the winter months, still that ability to bank with a bank that doesn’t have that branch network has mass appeal so that’s been a successful market for us. We entered the mortgage industry right after the time that the financial crisis had melted everything down and many banks were sitting back and trying to make sense of their portfolios. That was a tremendous time for us to get into nationwide mortgage lending so we have been a long time residential mortgage lender on a 50-state basis.

When the commercial real estate followed residential real estate that’s when we were able to get into residential real estate, I’m sorry, commercial real estate and we have some commercial real estate programs that also operate on a nationwide basis which is pretty uncommon for traditional banks, most banks like to lend within a certain footprint of their branch network. But with the programs that we’ve built, we’ve been able to do lending on a nationwide basis and have been very successful with tremendous asset quality.

So, after we got into commercial real estate, we continued to look for ways to expand the bank which we have done through municipal lending channels. We’ve grown into commercial acquisition development and construction projects and more recently, we have gotten into the small business lending space through an SBA government-guaranteed program and we’re now inside the top 30 of nationwide of lenders in the 7(a) loan program.

Peter: Fantastic, that’s really great. So, in some ways, you don’t look that different to a traditional bank, I mean, apart from the fact that you don’t have a geographic footprint. A lot of the products that you just talked about there, you know, a lot of the, maybe not the smallest community banks, but certainly some of the larger community banks have a similar type portfolio, right. When you compare yourself, like who are your comps, shall we say?

Nicole: (laughs) It’s very difficult to find a peer group for First Internet Bank because in different lines of business we compete with different players. Obviously, on the residential mortgage space, you probably heard of Rocket Mortgage or Guaranteed Rate and there are other nationwide lenders where we are effectively competitive. And then as you look into some of the commercial real estate programs we’re doing, we have a program called Single Tenancy Finance which I don’t expect some of your listeners to know about, but we will lend on a nationwide basis.

As an example, take an out-lot tenant like Walgreens or similar drugstore or some quick service restaurant, so we’re not talking strip-malls, but the ones that are on the out parcels. When they are going to finance a new location or open a new location they don’t want to hold that real estate on their balance sheet, so they’ll work with a local real estate investor, but those local real estate investors often find that they can do programs just about anywhere, even outside of where they live, and sometimes banks locally don’t want to finance that. So, we’ve been very successful in building this niche program, also like our niche RV and horse trailer lending program. That’s really been the secret of success for us, I think, is to find these programs that we can execute on a nationwide basis from a single office here in Fishers, Indiana.

Peter: Right, interesting, interesting. So then, obviously, you’ve been going for 23 years all online, you’ve probably developed sort of a way to create a human connection, you know, because a lot of people will go their branch, people will value that. So, I’d love to sort of get a sense how you approach sort of the face-to-face or person-to-person that you can get at a bank, what have you done to kind of emulate that in the digital world?