adminAlready a force to be reckoned with in Silicon Valley, once-and-future billionaire Jackie Reses is out to disrupt financial services with a 95-year-old Missouri bank—without disturbing federal regulators.
By Jeff Kauflin, Forbes Staff
In March 2020, while Covid lockdowns were in full swing and small businesses’ sales had fallen off a cliff, Jackie Reses called Treasury Secretary Steve Mnuchin. As the head of Square Capital, the lending arm of Jack Dorsey’s payment processing company Square, Reses insisted that even though her company wasn’t a traditional bank, Mnuchin should make an exception and let Square help dole out the hundreds of billions of dollars in forgivable loans that the U.S. government had made available through the Paycheck Protection Program (PPP). She argued that Square’s relationships with millions of small businesses made it a good distribution channel.
After Mnuchin agreed to allow Square, Intuit, PayPal and other fintechs to become PPP lenders, Reses turned to her team and said, “We have three weeks to build a brand-new loan program from scratch, and it has to be mostly automated.” The 100-plus employees slated to work on it were exhilarated. “If we typed fast enough, these businesses could get saved. They wouldn’t lose their lease, they could make payroll,” says Audrey Kim, who worked under Reses as the head of product at Square Capital at the time.
“I felt so energized by the mission that I barely slept for the first four months of PPP,” Reses says. “I saw such an extreme level of need and fear across main street businesses in the United States, and I felt if we didn’t help them, they would largely go out of business, and local neighborhoods would deeply suffer. I felt that viscerally in my heart and my head, and it impacted every decision I made in that period of time.”
When the Square Capital loans started flowing, the stakes rose even higher. The Small Business Administration gave out Reses’ cell phone number to businesses that were applying for loans through Square, and owners of coffee shops, nail salons and other small businesses were calling Reses directly, in tears. She helped them with basic questions like how to submit tax forms–both on phone calls and in tweets. Her team held meetings at 8:00 am and 8:00 pm every day, seven days a week for months to keep the loans coming. Square ultimately gave out 80,000 PPP loans worth $857 million. Its average loan size was about $11,000, compared with $113,000 for the overall PPP program. “It was one of the most exhausting experiences of my life,” Reses says. “It was incredibly emotionally taxing.”
Today, Reses, 54, is using the lessons she learned from her experiences at Square to build a bank that helps other fintech companies become more agile. Since most fintechs lack bank charters but want to engage in regulated banking activities like taking deposits, transferring money and originating loans, they often pay fees to real banks to let them do basic financial transactions. Most of the banks servicing fintechs have tended to be small and lacking in terms of speed and technology. Reses says partnering with these banks during her six years at Square was painful.
“It’s like plugging an American power source into a U.K. outlet,” says Micky Malka, founder and managing partner at fintech-focused venture capital firm Ribbit Capital.
So in August 2022, Reses decided to change the game when she paid $52 million to buy a $790 million (assets) community bank in Missouri that had recently gained a reputation for partnering with fintechs. Her goal was to turbo-charge its growth by installing a top flight team from Square and build a technology-first, FDIC-insured, fintech-friendly bank from the ground up.
Reses has been signing up big-name fintech customers like Affirm, and she is taking on crypto customers as well. Lead Bank’s growth is already accelerating in spite of fintech’s lingering winter. In the third quarter of 2023, revenue rose 9% from the second quarter, reaching $37 million, and net profit jumped 50% to $5 million. Total assets hit $951 million, an increase of over $100 million (or 13%) versus a year ago. Lead bank’s net income of $11.8 million over the past nine months is 86% higher than it was two years ago. Now Reses must navigate a tough regulatory environment where government officials–already known for getting nervous when they see a bank growing too quickly–are cracking down hard on crypto and scrutinizing fintech-bank relationships more closely than ever.
Despite her bank’s Kansas City address, Reses is not your typical midwestern community banker. After graduating from Wharton in 1992, she worked for 20 years on Wall Street, first doing mergers and acquisitions for Goldman Sachs and later in private equity. She then spent four years leading M&A at Yahoo, where she helped the company acquire more equity in Alibaba, an effort that led Yahoo to realize tens of billions of dollars in additional profits.
In 2021, Reses briefly became a billionaire thanks to her stock in Square and a fancy art collection, including pieces by Picasso, Matisse and Basquiat. “She’s fancy, but not fancy. She’s very real,” says Carrie Wheeler, a longtime friend and the CEO of publicly traded real estate fintech company Opendoor. “She’s the person who says things out loud that maybe you weren’t going to say out loud.”
Adds Ari Emanuel, the CEO of media conglomerate Endeavor (Reses is on Endeavor’s board), “Jackie’s a fucking workaholic. You’re not going to outwork her.”
Jacqueline Dawn Reses was born in 1969 and raised in the New Jersey shore town of Margate to a family of entrepreneurs. As a child, she worked at the family pharmacy, wrapping gifts for customers alongside her pharmacist mother at Christmas time, and she accompanied her father on deliveries of liquid oxygen for the medical supplies stores he ran. The family was constantly on the clock. “I never saw the idea of Monday through Friday, nine-to-five or holidays. It doesn’t exist in my head,” she says.
At 14 years old, she wanted to leave home because her parents were on bad terms, and the house was unstable. She convinced them to send her to the Peddie School, an expensive boarding school in central New Jersey. “While I knew they could pay for me, it was unclear at moments in time when either of them would choose to,” she says. While in high school, Reses rented space with her brother on the Wildwood Beach boardwalk and ran two carnival games, including one where you throw softballs into a milk can. “They were super profitable,” she says.
Reses left high school after three years to go to college—she says it was too difficult to work and earn her own money while in boarding school—and attended Wharton to study economics. While there, she ran a taxi business during the holidays where she recruited college students as drivers, and she sold custom-printed items like t-shirts to fraternities and sororities, which helped her pay her college expenses.
In 1992, Reese graduated and started as an analyst at Goldman Sachs in New York. She was deft at finding the most interesting assignments and working directly with partners on important deals, such as a stock sale for AT&T at a time when Goldman was barely doing business with the telecom giant. She also did a stint in Goldman’s prestigious private equity division.
“I was like, who is this person? Her presence and ambition just struck me,” says Carrie Wheeler, a fellow analyst at Goldman at the time.
In 1999, Reses left Goldman to join New York private equity giant Apax Partners, eventually making partner. She was head of the firm’s media group and co-led a $150 million investment in a leveraged buyout of satellite company Intelsat in 2004. Within four years, Apax sold its Intelsat stake for about $1.5 billion.
Reses believes she was one of just five female investment partners then working in private equity in the entire U.S. and bristles at the memory of its male-dominated culture. “I learned a lot about how not to build teams by watching private equity firms” and how they lacked an inclusive culture, she says. Oren Zeev, a billionaire venture capitalist with $2 billion in assets under management, worked with Reses at Apax and felt a similar sentiment. “It felt clubby–both Jackie and I were not invited to the club.”
Reses joined Yahoo in 2012 to lead human resources and corporate development under its new CEO Marissa Mayer. Her most important job was to manage Yahoo’s stake in Chinese e-commerce giant Alibaba. Yahoo once held 40% of Alibaba, but it had just sold half of that stake for $7.6 billion and had agreed to sell the rest in a future IPO, opting to use the cash for other investments. The relationship between former Yahoo chief executive Carol Bartz and Alibaba CEO Jack Ma had become “incredibly fraught,” Reses says. “There was tons of mistrust.”
Reses went to work repairing the relationship and was given a seat on Alibaba’s board. She flew to China every other week to meet with the Alibaba team, and she was very impressed with how they were riding the wave of China’s emerging middle class and teaching women how to be business owners in the country. She developed a mantra that she began to tell others at Yahoo, “Equity is good.” Reses managed to renegotiate the deal and retain a 15% stake. When it was liquidated for Yahoo shareholders about five years later, it fetched an estimated $40 billion.
In 2015, Jack Dorsey recruited her to lead Square Capital, its then-18-month-old small business lending unit. Partnering with traditional banks was difficult at Square, she says. For example, sponsor banks typically have few if any software engineers, and their rigid, patched-together, legacy tech systems make it hard for user-friendly fintechs to customize how they transact with customers. They can also be glacially slow–if a fintech wants to change the way it’s assessing risk or alter the color of its banking app, it needs the bank’s approval, which can take days or sometimes weeks.
In 2017, frustrated over its banking partnerships, Reses initiated an application for Square as a Utah-based Industrial Loan Company (ILC), a 113-year-old alternative to the standard U.S. bank charter available in certain states like Utah and Nevada. ILC charters allow corporations like Toyota and shipping company Pitney Bowes to offer banking services including FDIC insurance, but they’re free from Federal Reserve regulation. Generally speaking, regulators don’t like non-traditional banks, and there are only 25 ILCs in the U.S. with a combined $240 billion in assets. Thanks to Reses, Square’s ILC charter was granted in March 2020, one of only two approved in the last 17 years.
About six months after her ILC triumph for Square Financial Services, Reses left the company. Her stock and options, plus other assets she had accumulated, would soon amount to about $1 billion.
Despite spending the past 30 years at big companies, entrepreneurship has always been Reses’ goal. Fintech is the future of banking, and Reses is intent on disrupting the industry from the inside.
Armed with $100 million in capital from a host of backers including Coatue, Ribbit Capital, Andreessen Horowitz and Zeev Ventures, Reses, who Forbes estimates has a net worth of $400 million, set her sights on Kansas City-based Lead Bank. The small institution had already developed a banking-as-a-service business where it helped fintechs offer financial products.
Prior to Reses’ acquisition, the bank had cycled through different owners and struggled during the 2008 financial crisis. Bad loans caused it to lose $10 million in 2009, and it renamed itself Lead Bank in 2010. Over the following decade, Josh Rowland, a former lawyer and the son of prior owner and railroad executive Landon Rowland, helped turn it around. By mid-2022, when Reses was ready to buy the bank, it had $790 million in assets and was earning $2 million in quarterly profits.
Reses has been aggressively hiring executives from her network. Her chief financial officer is longtime friend Kristine Dickson, who until recently served as the chief financial officer and chief operating officer of post-bankruptcy Lehman Brothers, responsible for liquidating the company and distributing $130 billion to creditors. Erica Khalili, former general counsel of Square Financial Services, is Lead’s chief legal and risk officer. Reses’ chief technology officer Ronak Vyas and chief product and data science officer Homam Maalouf are also former Square Capital executives who worked under her. Five of Lead’s nine C-suite executives are women.
How do you attract high-powered, experienced executives to Kansas City, Missouri? You don’t. Only three members of her executive suite spend most of their time in the bank’s Missouri offices. Unlike many banks, Lead has a work-from-home culture. Reses, who lives in the venture capitalist haven of Woodside, California, says she goes to the Kansas City office every other week but only spends a third of each month there, splitting time between Silicon Valley, Kansas City and New York.
Reses says that in the last year, Lead Bank has taken on eleven new fintech customers including buy-now, pay-later giant Affirm (where she also sits on the board) and New York credit card startup Ramp. Most of Lead’s fintech business so far has been helping companies offer loans, issue credit and debit cards and provide bank accounts, and it eventually wants to help companies in any industry offer payment features to their customers. “I have never seen this kind of market pull from very large, scaled players who want to use financial products,” says Michael Gilroy, a Lead backer who’s a general partner and head of fintech investing at Coatue.
Reses’ long-term vision is to use her regulated, FDIC-insured bank to build a big business helping fintechs and non-fintechs alike offer financial services within all types of apps and environments, a term dubbed embedded finance by fintech insiders. “It’s becoming more obvious that it’s easier to do banking businesses in different components of your life,” she says. For instance, you can insert payment features into a fitness app or a shopping app, or let people pay their rent through an app. She wants Lead to build infrastructure “to make that experience seamless.”
In addition to its growing fintech business, Lead continues to operate its decades-old community bank with two Missouri branches. Lead is on track to record higher revenue and profits this year than any year in the bank’s 95-year history: in the first nine months of 2023, it brought in $107 million in revenue and $12 million in net income, up from $79 million in revenue and $6 million in net income two years ago.
“For most VCs’ investments in 2021, including my own, if we could go back in time and undo them or at least renegotiate them, we would,” says Oren Zeev. “Not this one. This may be my star 2021 investment.” In Lead Bank’s most recent fundraise last year, the bank garnered a tech-company valuation of $450 million.
Reses is not the only deep-pocketed tech executive trying to transform a community bank into a fintech-first one. Former billionaire William Hockey, the 34-year-old cofounder of Plaid, and his wife Annie bought Northern California National Bank in 2021 for $50 million and renamed it Column. They opted not to take on any venture capital and have focused more on payments than lending. In the first nine months of 2023, regulatory disclosures show Column brought in $17 million in combined interest and non-interest income and $250,000 in net profits.
Recession worries aside, the biggest clouds overhanging the future of Lead Bank may be coming out of Washington, D.C. In March 2023, fintech-loving Cross River Bank of Fort Lee, New Jersey, a bank whose client roster includes Affirm, Upgrade and Upstart, was accused by the FDIC of engaging in “unsafe or unsound banking practices related to its compliance with applicable fair lending laws and regulations.” In a statement, a Cross River spokesperson said the consent order “is limited to correcting Cross River’s fair lending program in the state that existed in early 2021,” and that since then, the company has made “significant enhancements” to its lending practices.
Last year, Charlottesville, Virginia-based Blue Ridge Bank, which counts banking software unicorn Unit as a customer, agreed to a consent order for allegedly engaging in “unsafe or unsound practices” in areas such as risk management and anti-money-laundering compliance. Memphis-based Evolve Bank and Trust, which works with fintechs including Affirm and Stripe, was accused by the Department of Justice of having discriminatory lending practices for mortgages and was forced to pay a fine and improve its processes to reduce discrimination. In a statement last year, Evolve said it denied wrongdoing and that it “believes that it priced its mortgages fairly for all borrowers.”
Lead may already be facing increased scrutiny from the FDIC and Missouri regulators given the 13% jump in assets in the last year and its huge gains in revenues and profits. “We have made it a point to be very transparent and very communicative with our regulators, and we provide them quarterly updates on our business and who we’re onboarding,” says Lead Bank CFO Kristine Dickson, who is based in New Jersey.
Few expect regulatory concerns to slow Reses down. In early 2023, Lead partnered with bitcoin storage company Unchained in spite of the apparent disdain federal regulators have for cryptocurrency-related firms and activities. In February, crypto investor Nic Carter tweeted about regulators joining in a “well-coordinated effort to marginalize the industry” and cut it off from the banking system that he dubbed “a new Operation Choke Point.” Unafraid of any backlash, Reses replied to the post, “We can help on the core banking products not crypto custody.”
CFO Dickson is careful to point out that Lead doesn’t hold any digital assets, just U.S. dollars for crypto customers, and operates limited lending and payment accounts for companies, mostly to pay their employees. “That takes us out of a large part of the regulatory risk,” she says.
But Reses and her bank are smart to continue courting cutting-edge crypto and fintech customers despite the uncertainty surrounding the future. When regulation finally catches up to innovation in financial services, these markets will grow rapidly and gush profits.
Says Reses, “This is a very hard business, and you have to be good at three things. You have to understand the complexity of regulation. You have to be good at technology. And you need to have a strong balance sheet and liquidity management. We need to do all three of those things really, really well to be good at our day jobs.”
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