Supporting Data-Driven Strategy with an Innovative Culture feat. Nigel Morris

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00:01 
Michael Praeger 
Welcome to the Power of Change, the podcast that delves into the intersection of leadership and technology in the finance world. I’m your host, Michael Praeger, the CEO and Co-Founder of AvidXchange. In each episode I dive into the leadership topics and industry trends with business leaders, partners and customers who embrace the power of change.

Super excited today to have a really special guest in our podcast studio with me, Nigel Morris. Nigel not only has been a great friend, he’s been an early investor in AvidXchange and a longtime board member. And I’m excited. I know we’re going to get some great nuggets of wisdom, some practical advice and super excited for it. Nigel is the Co-Founder of Capital One Financial Services. In 1994, under Nigel’s leadership as president and Chief Operating Officer, Capital One pioneered both an information-based strategy and database strategy that really transformed consumer lending. He’s currently the Co-Founder and Managing Partner at QED Investors, a FinTech venture capital platform focused on disruptive, high growth fintech and financial services companies. And made a great investment in back in 2015 at the time, this little company called AvidXchange. And my pleasure to have Nigel in our studio. Nigel, welcome.  

01:18 
Nigel Morris 
Nice to be here, Michael. Thank you.  

01:20 
Michael Praeger 
You have such a unique background from, you know, co-founding Capital One and then what you’re doing now in QED and I’d love to you know get a little bit of update on QED and just how many companies now you guys have invested in and impact. Explain a little bit about how you use that background to kind of influence your approach to both leadership and innovation.  

01:38 
Nigel Morris 
Yeah. Thank you, Mike. We’re now nearly 4 billion under management. We’ve made nearly 200 investments, we’ve had 28 unicorns that we’ve invested in companies worth a billion. And AvidXchange, of course, one of them from Nubank to Klarna to Credit Karma to SoFi to a whole generation of fintechs that are now, I think, reshaping the whole financial service landscape. We did a study with our friends at Boston Consulting Group last year where we took a look at where Fintech is in its evolution. And we concluded, and of course we had a dog in this hunt, but that we are in chapter two of a long book, not chapter eight. One statistic that really strikes me, if we add up financial service revenue worldwide, insurance and banking, it’s $14 trillion 

Michael Praeger 
Okay

Nigel Morris 
And of that fintech is something like $300 billion, which you don’t have to be a rocket scientist to figure out that’s 3% penetrated, right? The opportunity, the TAM, the total addressable market is just enormous.  

02:43 
Michael Praeger 
We feel the same way at AvidXchange. It’s, you know, sometimes scary and daunting knowing that, you know, we’re entering our 25th year and we still have this type of Runway in front of us.  

02:52 
Nigel Morris 
You’re just 25 years in and you’re still just getting started. It speaks to how difficult it is to build things out of the ground and get to scale.  

02:58 
Michael Praeger 
Right.  

02:59 
Nigel Morris 
But in the end innovation and creativity and customer centricity wins out.  

03:04 
Michael Praeger 
Absolutely. Well, let me, let’s go back a little bit in time because I think there was just incredible kind of innovation that occurred in the early days of Capital One where you guys were really unique at the time in terms of, you know, how you use data to really transform consumer lending. Maybe take us back to that journey and how you did that. Cause that’s a great transformation, you know, for the industry.  

03:26 
Nigel Morris 
Yeah, circa 1988, when Rich Fairbank and I left our strategy consulting business to go to Signet Bank in Richmond, pricing was homogenous in the credit card business. It was any color you like, so long as it’s black. It was 19.8% APR and a $20 fee. And all of the major issuers had that product. I had spent time working with actuaries and understanding how to use data sets to predict risk, life insurance, auto insurance. And one powerful notion was look, we had substantial databases were emerging and these scores from Fair Isaac, which now is a part of our culture that allowed you to be able to understand actuarially how what the underlying risk was. And with that you could price according to risk.  

So on the one hand you could offer lower prices to people who were really good credit risk and on the other hand you could offer a plastic and access inclusion to people who otherwise would not have been able to do that. So that was one substantial breakthrough. The second one was really looking at products that met the needs of particular customers, who would want what kind of reward system, who would want cash back. And the notion, the leveraging this data was about sub segmentation and working backwards from what customers needs were. We adopted a very much a mechanized at scale, test and learn methodology. We took any conventional wisdom you like, we reverse engineered our competition and we tested what they did and we figured out where it worked and where it didn’t work.  

In a sense the credit card business was a giant experimental laboratory. And then were able to ground the data that we saw in unit economics in finance theory. So I spend a dollar and what do I get back over time, which is now of course with CAC and LTV ratios now has also become part of the conversation in fintech land. So to do that we had to bring in the best and brightest from the top universities around the world. And we put them through a sort of Stockholm syndrome series of case studies where we tested them out and then once these folks were in the organization, they were the strategic fulcrum who organized and set the testing agenda and then were able to drive risk and marketing to work.  

And we empowered so many young talent to really have responsibility way beyond what they would have got in a traditional bank. So this was unleashing entrepreneurism guided by the heuristics around data analytics.  

05:58 
Michael Praeger 
One of the things we’ve talked about in the past is that evolution of moving from more of an early stage startup to actually doing it at scale, where you know, you’ve concluded the magic happens, is where you have elements of both the entrepreneurial mindsets as well as you know how to operate at scale. You maybe share a little bit about some examples of how you learn that and kind of the power of that combination.  

06:20 
Nigel Morris 
My argument always was if you get the most talented people and you unleash them in a really supportive cultural ecosystem, you can get both. So what does that mean? It would mean that in customer service, I’d want to have really great service and really low cost. I’m not going to be dealt the tyranny of having to make a choice. I want the best of bigness and I want the best of smallness at the same time. Bigness is economic scale, classic scale curve. It’s leverage over vendors, it’s brand, it’s diversification. Smallness is energy and entrepreneurism and permission to fail and a belief that you can change the world. If you over index, particularly as a later stage company like yours, Mike, you will find that you’ll run into all kinds of obstacles.  

So what I’ve really attempted to be a student of is how to manage those two at odds concepts in real time. And that’s about culture and that’s about the people that you hire and it’s about not being ever willing to be satisfied with a false compromise.  

07:31 
Michael Praeger 
I think there’s an element of risk in there as well. Right. Because by kind of definition, people that are used to operating at scale have a lower risk profile versus those that are more kind of entrepreneurial, you know, take more risks. Right. And I think that plays out in this dynamic of the two of them together. And it’s why we probably don’t see as much innovation in the banking industry as we do in some of the fintechs because of that risk tolerance.  

07:55 
Nigel Morris 
That’s quite right. You know, look, I’ve got so many friends who are in the C suite of banks and I’m constantly encouraging them to think about innovation and to look to the outside world rather than looking inside and to imagine and focus on their customer, be it large corporate, SMB, retail, to focus on solving their problems rather than thinking about your infrastructure and what you can sell them. And I think that’s a really such a powerful way of thinking about the world. And what we’ve seen in, as we, I think close out chapter two of this fintech revolution is that we now see, I don’t know, 20 companies around the world that are at scale, that are incredibly profitable, that are public, that are growing rapidly and now are starting to really eat into the profit pools of the banks.  

And if I go one slight hobby horse is that banks confuse inertia with loyalty. That is my customers aren’t leaving me so I must be really treating them incredibly well. Even though my net promoter score, if I measure it might only be 13. The truth is 

Michael Praeger 
It’s hard to leave.  

Nigel Morris 
Yeah, it’s hard to leave. Open banking is coming and I think it will promote less friction. But it’s also that the economics to switching are often not compelling. And we’re going to see these AI agents emerging over the next few years that will allow you as an individual to optimize across a series of what are largely commodity services on behalf of the bank. So to my friends in the C suites of the banks, watch out. This is changing and it’s changing fast. 

And we saw this with Silicon Valley bank had a problem and how quickly those deposits evaporated when people were counting on them being much stickier.

Michael Praeger 
Overnight. 

Nigel Morris 
Literally overnight. 

09:48 
Michael Praeger 
The last kind of, maybe I call it decade, there’s been a lot of focus on data analytics and all those things and now we have this new phenomenon around AI. Just talk a little bit about where you see some of the opportunities. Companies like AvidXchange as well as just general fintech and now continue to leverage that data. But now introducing another whole lens and strategy around AI.  

10:10 
Nigel Morris 
Well, this is such a fascinating area and changing almost by the day. Of our portfolio of companies. I can’t think of one that is not either experimenting deeply or is gone from experimentation into rapid deployment of AI. It is alchemy, it is working in real time and you don’t need to develop it yourself. You can get it off the shelf. And it has amazing impact. We’re seeing where costs fall, efficiency improves, consistency gets better, and net promoter scores can get better too. So it’s really a classic win, win, win. I saw a study just recently where a survey of banks deploying AI and 15% of them are deploying it, which means actually 85% are not.  

11:00 
Michael Praeger 
But if you look at fintech, then it’s probably the flip.  

11:03 
Nigel Morris 
Oh, no, it’s 100%, right? I mean, it really is. I mean, fintech is by its very nature digital. And layering on mathematical tools on top of that is something that we’ve been doing for ages. And AI is being embraced full on. And I think it speaks to culture. And I often say culture eats strategy for breakfast. And it’s really true here that it’s the culture of the incumbent, be it in your business or be it in banking, that stands in the way of the wholesale experimentation and adoption of AI. I was talking to a C suite person the other day who talked about how there’s an internal fistfight going on within the bank as to who owns AI. And until they resolve that, then they’re not going to move forward.  

And then they will do an evaluation of whether or not they should build it themselves or use vendors and then they’ll be two years behind. So this is something where, you know, I massively encourage our portfolio companies to get in there and experiment and learn and make mistakes. You know, really just get on that growth curve. 

12:02 
Michael Praeger 
When you made your investment in 2015 in AvidXchange, there was a little idea that we had that you were excited about, and it was the idea about using our network and the data of our network to provide a financing lending service to the suppliers on our network to advance their invoices for next day payment. There was supplier financing. How has it changed? Or what’s the opportunity you still see?  

12:25 
Nigel Morris 
I think it came out of some research that I remember, Mike, when you ask owners, founders, Senior people at SMBs where their pain points were, I remember one, I don’t have enough time, and two, I need more working capital to grow. It’s always been clear to me that it’s very difficult for banks in particular to meet the needs of small business lending. Their infrastructure is too expensive, the loans are not secured, and it’s a complicated business. Most of them like consumer lending than it does SMB lending. So here you have this incredible, incredibly privileged position where you have two or three things in your favor. One, you have specific data at the customer level that’s proprietary that can be incredibly predictive as to whether or not somebody will pay you back.  

Two, you have permission because of your existing product set to say, look, would you like this secured loan against future receivables? And this is a business model that you’re not creating some kind of reinvention. This has been going on for a thousand years, I’m sure. And you have the ability at that time to be able to offer it. Press a button and somebody gets access to it. To me, this is classic embedded finance with comparative advantage leveraging your data set. So I remember saying to you, perhaps too grandiosely, that there is another AvidXchange here to be built on this dimension where your customers will trust you to do this with them and they will have a virtually insatiable appetite for you to help them with working capital and make it really easy for them.  

14:03 
Michael Praeger 
I think what we’ve already seen in that business is data analytics based underwriting for that customer set is actually much more accurate and predictive than actually the financial underwriting. And so it really shows the power of the data.  

14:15 
Nigel Morris 
Well, that’s right. And when we talked about the banks, they don’t have access to your specific data, which is a pinpoint in terms of predicting the event that you care about.  

14:26 
Michael Praeger 
Absolutely. Well, let’s switch gears for a second. And one of the elements of the podcast we love to talk about is leadership. You’ve been on an incredible journey over, you know, your career and every time I talk to you it’s amazing about the new things that you’re embarking on and doing. And QED is the current platform that you’re using. But maybe talk a little bit about how you’ve been able to evolve as a leader over time and what’s been your secret to your success.  

14:50 
Nigel Morris 
To me it’s my insatiable curiosity and my still now while I look at myself in the mirror and I realize I’m no longer that 27-year-old iconoclast is the energy to want to build and grow things. And the journey of helping young half my age, often twice as smart entrepreneurs, build and create things that didn’t exist. And you are perfect. You’re an example now of that in living color, Mike. I think there’s nothing better in the world. And I say before I stop doing this and I don’t know how long I’ll keep doing it, I’d like to be able to impact the lives of a billion people around the planet. Fintech levels the playing field. Fintech empowers customers, consumers, and SMB, it shakes the inertia of the incumbent.  

That hegemonic power that comes from regulatory moats is something that fintechs attack all the time. So with Capital One and Klarna of Credit Karma of SoFi 

Michael Praeger 
Don’t forget AvidXchange. 

Nigel Morris 
AvidXchange, of course. I think I can add up to about 450 million and that means I’ve got 550 million to go. So it’s Nigeria, it’s Indonesia, it’s India, the inclusion there and there’s still huge opportunity in the US as well. So that would be a wonderful hallmark and bookend to my career if I can possibly pull that off.  

16:13 
Michael Praeger 
Well said. And certainly we’re working hard in the team here at AvidXchange to help you in that and hit those milestones for sure. Well, maybe just in closing, today’s episode is such a rich life kind of experience. Has there been any kind of key mentors or advice that you’ve received along the way that’s kind of really stuck with you, that’s of helped you navigate everything that you’ve navigated in terms of, you know, being an entrepreneur, operating at scale, being at the forefront of transformational change?  

16:42 
Nigel Morris 
You know, it’s a very interesting question that you ask there. I think that being relentless is really important. Surrounding yourself with terrific people that complement you is really amazing. I think leadership is a very difficult thing to be authentic about because we’re told that you have to be like General Patton and lead the troops out of the trenches. But you know what? Being vulnerable as a leader is very important because few people follow you not because you’re the cleverest person in the room, but they follow you because they believe that you care about them and that you have the right intentions and that your rhetoric and your action are consistent. And if they’re not people figure it out really quickly. The empty suit syndrome.  

So, you know, I’ve learned so many things over these years, many of them by making the mistakes, Mike, and self-flagellate myself, some of the really darn stupid things I’ve done. 

17:38 
Michael Praeger 
That’s when the best learning happens, right?  

17:40 
Nigel Morris 
And with these young founders, if I can help them not make the mistake that I made and sort of give them some a priori signaling of the monster that’s around the corner that they should be thinking about now, then I’ve done my job.  

17:54 
Michael Praeger 
That’s awesome. You know, all kinds of great nuggets of takeaways that I’ve had, but a couple that really stick out. It’s just on the last topic, leadership, about energy being relentless, having purpose in what you’re trying to do, surrounding yourself with the best and brightest people, and then just being authentic. I think those are great nuggets for everyone listening to this podcast to take away. And Nigel, on behalf of myself and AvidXchange, super excited to have you here today and thank you.  

18:21 
Nigel Morris 
It’s a pleasure to be back in Charlotte. It’s fantastic. Thank you, Mike. 

18:24 
Michael Praeger 
AvidXchange, thanks for listening to the Power of Change presented by AvidXchange. If you like what you’ve heard, subscribe to our channel and leave a five-star review. While you’re waiting for the next episode, head over to avidxchange.com for our latest research reports and business insights. And if you’re interested in learning more about Accounts Payable Automation from AvidXchange, click the link in our show notes to connect with our experts. Thanks again for listening to the Power of Change. We’ll see you next time.