Narmi’s Co-Founder Nikhil Lakhanpal — building an API-driven digital banking platform

In today’s episode, Kailee Costello hosts Nikhil Lakhanpal, Co-Founder at Narmi. Narmi’s mission is to offer financial institutions the best digital banking platform in the industry. Narmi does this through an API-driven platform that layers on top of existing banking infrastructure to give these financial institutions access to Narmi’s products, including digital account opening, consumer and business digital banking, and an admin platform.

In the episode, Kailee and Nikhil discuss:

• What sparked the idea to found Narmi

Nikhil: Narmi was founded in 2016 by myself and co-founder Chris Griffin. We have a pretty interesting founding story where we met during our undergraduate years at Georgetown University. Through that experience, we basically ran a financial institution together. We were CEO and CTO of a government-insured financial institution. And truly, it was eye-opening to see the tech stack that powered this financial institution, and more broadly speaking, the tech stacks that, that power all 10,000+ financial institutions in the country. We weren’t very impressed is kind of how I would characterize our assessment of the situation.

We wanted to take on the whole tech stack, but that would take years and years and billions of dollars of capital. So what we really focused in on was the digital experience. Like, how does our financial institution offer a better account opening, mobile banking, and online banking? Just a superior digital experience that is on par with consumer and business expectations today. We found it really difficult to find something in the market that we were excited about — so that was the original motivation point. That was over 10 years ago, so we’ve obviously turned a lot of that into reality.

• The core products and services that Narmi provides to financial institutions

Nikhil: The Narmi platform is extremely deep and extremely wide and complicated and has over 75+ integrations. But the easiest way to conceptualize that is what I would say is four Tier One products.

• Consumer account opening: So if a bank or credit union wants to enable consumers to open accounts with them, either digitally or in branch
• Business account oppening: Financial institutions want businesses like an LLC or sole proprietorship or C Corp to open up accounts with them in branch or through digital
• Consumer digital banking: How to service these customers either through online banking or mobile banking
• Business digital banking: The same concept but for businesses

What’s interesting is regardless if you purchase all four of those products or just one of those products, you also get the Narmi admin platform, which is what powers the bank or credit union. Staff use this tool to administer these front end tools. So obviously, it gets way more complicated. There are many integrations, there are many pieces of functionality you can add on. There’s additional modules, but, typically our goal is to be the digital partner for a financial institution. If they want to do anything digitally, we want them to pick up the phone and call us, and we’re well on our way there.

• How Narmi works from a technical perspective

Nikhil: So I think it’s important to just understand the technology stack of a financial institution. A really big part of that is the core banking system. Basically, think about the core as the brain of a financial institution. What is your account balance? What’s your next loan payment due? What’s your amortization schedule? How much cash does the bank have on its balance sheet? What’s the weighted duration of CDs that the bank has? There’s just so much information that goes into this core banking system. Typically these cores are provided by one of three companies, FIS, Fiserv, and Jack Henry. These are companies that are quite large, relatively speaking. They’ve been around for decades and they definitely have a very strong hold on the market. A recent development though, really over the last five to ten years, has been that these cores have become a lot more accessible to call it third parties but really partners; they’ve done that by embracing openness and what that actually means in reality is APIs. So those three companies I mentioned and others now have very robust API programs, have publicly documented APIs, have certification programs. This really didn’t exist 10+ years ago. So I’m very proud or I’m very happy where the industry has moved. It obviously makes companies like Narmi more successful where we can seamlessly integrate into these cores. So, from a technical perspective, a huge part of Narmi is integrating with these cores and making sure that integration is very robust and very stable and very reliable. There’s obviously a ton more integrations, you know, with respect to third parties like eStatements and BillPay and Remote Deposit Capture and Check Imaging and Security and BSA tools. And again, I won’t bore you with that, but, the underlying principle is a bank or credit union has a core, Narmi sits on top of it and is really that customer facing layer with seamless real time integration with that backend system.

• The difference in the customer experience for a financial institution compared to before layering on Narmi’s services

Nikhil: It’s pretty crazy, it’s not like there’s one thing, right? It’s not like Narmi does Face ID and the competition doesn’t. That’s not really how we think about it; it’s this constant evolution of digital banking that we feel we are delivering to our customers that we feel our competition is not.

What do I mean by that? What we experienced when running our own financial institution, what I know still happens today is, a bank buys a product, it goes live, but then the product doesn’t evolve with the same pace as consumer and business expectations. That’s a big problem, because financial institutions are at the same bar as airlines, as streaming services, as rideshare services. And to a large degree, who is setting those user expectations? It is Google and rideshare. It is these mass direct-to-consumer products. But, our customer base, regional and community financial institutions, does not have the resources internally to keep up with those and that’s why they need to hire Narmi.

Let me give you an example. There’s a competitor out there of ours that “has entitlement controls” for their business banking product. Meaning, if a business owner goes in and wants to add their accountant and their CFO and their Head of Operations and give them different permissions, they technically on paper can do that. But it’s not intuitive. It doesn’t make sense, it’s ridden with errors. And frankly, it’s easier for them to call in and have someone do that than use the platform. With us, it’s just far more intuitive. It’s built on mobile, it’s built on online, the email communications are there, it’s actually thought out from a product led experience. So when you take something like that, again, sure, you can say you offer it, but if it’s so clunky where your business owner is calling the bank, then you don’t offer it, let’s just call it what it is. So if you take that example and multiply it by 200 examples, well now you’re moving mountains. And now you’re saying, okay, I’m now moving all my customer interactions to digital, you’re therefore saving money in the call center, in the branches, you’re hiring less people, becoming more attractive for money movement. It’s really a flywheel effect that is a big part of the Narmi story.

• How Narmi thinks about segmenting and targeting potential customers

Nikhil: The easiest way to think about this market is by asset size. Banks can go from $0 to trillions of dollars on the high end. Narmy’s sweet spot is really right around the $100 million mark on the low end and about that $50 billion mark on the high end. We feel that is just a really great opportunity because they are the ones that need our help the most; they’re the ones that won’t be able to hire 20, 30, 40 engineers per bank to do what it takes to maintain your own platform, and they need our help. And we’ve proven success at all those levels. I think we’ve done a great job staffing those different financial institutions according to their complexity and according to their needs. So that’s the easiest way.

We also approach them with a great conversation around the core banking systems. So we do segment via core. There are cores we won’t work with as well. We know we have very high bar for how we want our platform to be successful, and there are definitely some legacy cores that have either their owners have announced they’re being sunsetted or they’re not receiving R&D investment and the investments going elsewhere. But the cores that account for 90% of the market we’re integrated with, so I’m not worried about that, but that is a great way to target the ICP.

Interestingly enough, we don’t segment by geography. You know, we feel successful that we can target a financial institution that’s in the heart of New York City and that’s digital only, or someone that has 113 branches spread across the Midwest or the West Coast. So geography, interestingly enough, is not a huge driver of what we do.

• Selling to financial institutions, which have typically been risk-averse and slow to adopt new technologies

Nikhil: What I think is perhaps one of the biggest tailwinds to Narmi is that banks and credit unions now evaluate technology spend on digital technology, which is what Narmi does, as investments versus operating expenses. Conceptually, that is a huge mindset shift. You go from “okay, I need to pay for this service.” What happens in that case? You go for the lowest cost. Vendors are very interchangeable; you’re providing a service, you call it a day. It does the job — great. If not, you find someone else. There’s no loyalty. There’s no partnership. When you shift it to an investment, it’s just a totally different ballgame. That’s where you want to be, I think both in the industry we’re in, but also in software in general. I think those are the type of companies that do the best. So ours is like, “okay, what are the deposits you’re gonna generate through Narmi?” “What’s the revenue opportunity you’re going to get?” “How many more customers am I going to get through Narmi?” “Is my member penetration on digital going to go up through Narmi?”

I’ll even take this deeper. It’s more revenue focused than it is cost-savings focused. You’re already in a good spot if you’re on the ROI side. Then I think you’re in a better spot if you’re on the revenue side versus the cost-saving side. But there is also a huge cost-saving advantage to Narmi.

I’m super excited about the future. Of course, it’s not easy to sell to financial services. Rightfully so, they are risk-averse. They have a lot of compliance requirements they really leaned into. I think, if you want to get into this industry or if you want to be an investor in this industry or anything and you get caught up with slower sales cycles or, you know, the fact that a company needs to have their SOC 2, their PCI, their ACH audits, this industry is not right for you. That is required to be successful here. We’ve spent a lot of time and effort and money in making that possible, but we view that as table stakes. So, in terms of the challenges, I think it’s just that, banks in general just are a little bit slower moving and that just is what it is. I don’t fault them for it. I think that as an industry, we’re very quick to criticize, but, it’s not like we’re doing nothing as financial institutions. They’re doing a lot. They also have to be, the regulators are there. So again, just working through all that is a challenge in its own, but it’s a challenge that I think will never go away, so it’s totally fine.

• Who Narmi’s main competitors are, and how Narmi distinguishes its value proposition from theirs

Nikhil: There are a number of other digital banking providers out there. I would say our two biggest competitors are an Austin based company called Q2 eBanking as well as a Dallas based company called Alkami. Both excellent companies; I have a lot of respect for their teams. In fact, we work with them in partnership in some capacity and that’s another interesting part about this industry, where a lot of your competitors can also be your partners. I think as long as you have mutual respect for each other, I think both can coexist, which is actually pretty rare in general in SaaS, but something that is needed. Because on one side, there’s 10,000 financial institutions, and that’s a lot of them, more than any other country. But on the other side, there’s only 10,000, so there’s going to be cross-pollination.

On the value proposition, look, I think those companies do a lot of great things well. I think from our side, we have continuous focus on user experience and that constant innovation pace. I tell financial institutions, the number one reason you should hire us is because the product you buy today will not be the same as the product you have in three months and six months and 12 months. And they almost pause a little bit and say, “what do you mean? We want the same product”. And I’m like, “you want the same product, but you want it to change over time. You want it to get better. You want us to push you. You don’t want to be playing catch-up and we’re going to make sure you’re not.” I would encourage your viewers to go to new.narmi.com: we publicly publish our innovation and we hold ourselves publicly accountable. I truly haven’t seen that in FinTech or anywhere in SaaS in general, at least to the degree we do it (there’s probably companies that do it, just to be fair, but I definitely don’t see it in our industry).

It was so frustrating to me that I would buy a product and then maybe a three year contract and I’m sitting there in year two and I’d be like, “this thing hasn’t moved at all. I just don’t understand, what did I get the last two years? What did I pay for? Did I pay for just support and hosting? Well, if that’s the case, it should be 10% of this price.” So, very frustrating and obviously that problem is something we’re addressing head on.

We’ve also got a couple of other differentiators. A lot of my competition set has grown through acquisition, which is not a bad way to grow, obviously, at scale, but we’ve written all our code in-house. All of our products are coded in-house in the United States, in New York City. So we definitely are very R&D-focused. In fact, as a percentage of overall revenue, the amount we spend on R&D is considerably higher than our public comps, and we know that because they disclose a lot of that in their financial statements. So yeah, ton of advantages to working with us, but I would just call out those as the main ones.

• How the industry is evolving through FedNow, and how Narmi is enabling organizations to support FedNow

Nikhil: There’s a lot of great content on this on narmi.com, so just a plug for what we’re doing. We actually have an innovators retreat, which is our biannual conference, where the director of FedNow Management is actually speaking with Narmi’s co-founder, Chris Griffin. So as you can tell, very plugged in.

Narmi is going to be a provider of FedNow. We’re connecting directly with the Fed and there are a few advantages of working with us directly on that. Number one is definitely that seamless customer experience right in the mobile online banking platform, like being able to send those payments seamlessly right in the click of a button from your mobile app, like getting a push notification. It just works, and that’s what we’re really going for here. Number two, we just have a lot of data on the customer, so, we know a lot about the fraud profile of them and one interesting thing about FedNow is the fraud component. A lot of that is actually on the vendor themselves to build, like on Narmi itself. There’s no fraud spec that the Fed has released. There’s guidance for sure, but we understand the data we have in the digital banking platform and are applying that to the fraud protocol as well. And I think as more and more FIs adopt this, that’s going to be a critical part of it. Number three, we’re very involved. FedNow requires active participation. We’re on committees with them, we’re extremely involved.

In general, I definitely see a lot of interest from our FIs. I think it’s a little bit “wait and see”. For example, this was the verbatim conversation I had with one of our customers as recently as yesterday, “Narmi, we fully believe in FedNow and real-time payments. There’s absolutely no question that it is the future of payments in this country.” And it’s obvious because there’s actually a Canadian employee on that call. He’s like, “we already have it here, so I’m already for it.” And we obviously see how Europe is just years ahead of the United States. But it’s a new payment network at the same time. So I think you’re going to see a little bit of a “crawl, walk, run” approach the next year or so. But our job is to make sure FIs are ready for that. So we’re really excited, and it’s a huge investment here at Narmi.

• How quickly Nikhil expects to see FedNow adopted across the industry

Nikhil: As I was saying, it’s fairly new. So do I think 10,000 out of 10,000 FIs will have FedNow by the end of Q2 ‘24? I do not. But at the same time, I think you’re going to have a set of forward-thinking FIs really push the needle early in 2024. I think they will be set up for long-term success because they will learn from that and they will iterate on it. And I think you’re going to see trickle-down adoption the next few years, and I think that’s totally fine. Again, it’s a brand new payment network. It will take years to roll out, but that’s totally fine. Again, I think it’s okay that it will take years to roll out. And I think that doing it right is really, really important. And again, Narmi has this long-term view of FedNow, but we have customers that are working on implementing it right now as we speak

• What’s top of mind for Nikhil given that 2023 has been a tumultuous year for the banking sector

Nikhil: Look, I continue to remain very positive on my customer base and my prospect base. I think they do incredible things for this country, incredible things for small and medium business, incredible things for everyday consumers, and I think they need digital technology to do those things well. No secret, 99% of financial institutions need more deposits right now. So you are seeing a deposit-led initiative almost at all our financial institutions. They’re really getting their products set right, really getting their go-to-market right, getting their pricing right on rates. I don’t see, at least I’m not being communicated a decrease in loan demand. So they’re all looking for deposits to fund those loans. There’s no secret that high interest rates are fully into effect and definitely cut to the bottom line of banks and credit unions. But again, just put it all in perspective, like, will financial institutions be a stable and solid source of just financial well-being and security over the next 10 years? Absolutely. Will they need digital to succeed over the next 10 years? Absolutely. So all in all, I try to take a medium to long-term view, and that’s kind of our mantra at Narmi in general, take a medium to long-term view on things, because again, as a theme of this podcast has been, things take time in this industry. So if you’re optimizing for what’s going to happen in two months, to be honest, the amount of time it takes you to build something that will impact in two months, it’s just not going to be good enough and you really need to build stuff to last. And that was our conversation with them now and some of the stuff on the sales cycle. So I feel good, our pipeline’s strong, we’re still experiencing record revenue growth. And obviously we’re a much larger company now than we were a few years ago and still seeing that high growth rate. So nothing but good things to say about the next few years, in my opinion.

• Banks and credit unions are getting more meticulous about their tech spend

Nikhil: I see banks and credit unions really getting in the weeds on their digital tech stack and tech spend and analyzing it. I think the best customers I have know down to the penny how much they spend to acquire a new consumer client, a business client, and how much it costs to service them, whether that’s the Narmi expense or their core banking expense. They’re just very meticulous about their tech spend and I definitely see that happening.

That will have to happen at more and more banks and credit unions because that will force them then to think about their technology stack as a growth lever and as an investment tool versus just an expense. I think you’re just going to see banks and credit unions just get a lot smarter about the digital spend specifically. Then, they’re going to say, “Okay, how do we want to deploy that? Do we want to deploy that in account opening and digital banking and MarTech and something more AI-driven?” That I think still remains to be seen. There is no shortage of vendors that would love to sell to banks and credit unions in all fairness, so I think it’s just a matter of picking the ones that make the most sense for their business.

• Whether what Narmi looks like today is what Nikhil envisioned when he started working on the company

Nikhil: You know what? The answer is yes. I’m really, really proud of that. One thing that we pride ourselves on is that our mission statement has never changed. We never had to pivot the company’s goals or vision. I have this slide I like to show to new joiners and then in external presentations and it just graphs all the products we’ve built over every single year and it’s just incredible and insane how much we’ve built. It’s so motivating; we’re at a point on our company almost eight years in where we’ve built a ton of foundation. So now the roadmap moving forward is really building on all those products and making them more robust and more platform heavy and more integration deep. So I think we got a lot of things right and I don’t take that for granted. I think that experience running our own financial institution is a huge part of that. Hiring great people who are really bought into serving our customer base is also a huge part of that. And yeah, just staying focused. We try not to get distracted. So its been a great ride and I hope in eight more years from now we can say, “we’re still working on the same thing, just digitizing banks and credit unions.”

• How Narmi approached developing their suite of products

Nikhil: You just have to listen to your customers and you have to listen to your prospects. So I’ll just give you an example. In 2018, we brought to market consumer digital banking. We took financial institutions live on our mobile online banking platform for consumers. And their feedback was, “this is really great, and I want to put tens of thousands, hundreds of thousands of users on it, but how do I get them?” What they’re really asking for is an account opening tool. How do you layer on a way that’s right before mobile online banking to get them in. That’s when consumer account opening came.

Then what happened was, “Okay, this is great. We want this same exact thing for businesses”. So you just have to be super lockstep with your customers and with your prospects. Both are important because prospect needs will be different to customer needs. Customers have already bought your product and customers are already implemented. So they’re going to want enhancements to those current products. Whereas prospects are the ones saying, “Hey, we may not buy any product you have”. So again, very, very different. But that’s the number one thing. You need to just really focus on that.

Number two, just continue to have a good pulse of what’s going on in financial services, what’s going on in other user experiences. I’ll give you another example. So we released a functionality called Unified Login. The whole premise is if you’re a consumer but you also have a business on the side. we want you banking with the same financial institution. That is an important cross-sell opportunity. But from a digital banking experience, what is that experience like? Do you have two separate logins? You have to log out, log back in. Okay, do you have one login and see everything? But then do you have business services? But do you also have consumer services? Do you have both? It gets very messy. So one thing we drew inspiration from was Gmail. People have multiple Gmail addresses and you can link them very easily on your mobile Gmail app or online Gmail app, and you can toggle between them. So we built something very similar to that in banking. So like, you have your business, but also your consumer, you just log into your app, go in the top right, toggle to your business, do all your needs, toggle back to consumer. It saves those sessions, it’s powered by biometrics. That is a 10X feature in my opinion, and our competition doesn’t have that. So yeah, I would say the second part is having a really good pulse on what’s going on and just like best in class SaaS, best in class user experiences, and then seeing how they apply to financial services.

• Learnings from developing earlier products that impacted how he went about developing future products

Nikhil: If I was to say one thing, a theme of what I’ve spoken about today is things take time. And I think that is a really important lesson, whether you’re a tech entrepreneur, whether you’re serving financial services or selling to financial institutions, things just take time. So the best thing to do, or the best lesson we learned is pick a yearly goal. I think yearly is the right duration. And make sure that goal is big though, it shouldn’t be like a very small goal in the year, but I think setting annual goals and then building towards those and tracking them throughout the year, at least in this industry, I think is a really healthy way to do it. And you need to be happy, if you say, “okay, if we hit this goal, this is what the business looks like at the end of the year”, make sure you’re extremely happy with that desired outcome. Then you just have to motivate your team to execute on those goals.

So I know you asked about building earlier products, but that’s the lesson: you cannot do everything in a year on the product side. So be really happy with where you want to be at the end of the year from a product side and commit to that and then try to stay focused on that because there will be a lot of shiny objects that show up throughout that year. But if you have that year end goal from the product side, it really serves as this beautiful North Star that is very helpful.

• Narmi’s short-term goals, and where Nikhil sees Narmi 5 years from now

Nikhil: Our short-term goals are continue to execute. We have a ton of great products that we’d love to get in the hands of more financial institutions. We have a ton of customers that are happy and could use more growth, and our goal is to make them more successful as well through our existing products.

We do have some major initiatives around FedNow. We talked about that a little bit. We’ve released some really cool openness tools, Narmi Functions is what we call it. It’s basically a low code way to extend Narmi. So if you want to automate emails getting sent out or if you want to set up a call every time someone opens their account welcoming to the bank, you can set that up and you can automate back office processes. So getting that more in the hands of our customers and helping them understand it is huge.

On the five-year plan. Just taking a step back, our mission statement is pretty simple. It’s “be the best digital banking provider to financial institutions, period”. Like it literally says, period. That is what I want us doing in five years. And what is that going to mean in five years versus today? Way more products, far more enterprise, more extensibility, more openness. It’s going to mean so much in five years, but the great part is that mission statement will stay the same. We’re going to do all those things because we’re confident it will help that mission statement. So that’s what I want to be doing. We’ll definitely have hundreds of customers by then. This is a goal. And look, it would be a shame not to mention the team and culture and maintaining what we have. I’m constantly in awe of everyone who works here and I consider it a privilege to learn from them and work alongside them; continuing to maintain that team, especially as we scale, will be critical. Again, I don’t want to lower our hiring bar five years from now, even though we’ll be a thousand-employee company.

Check out the Episode on the platform of your choice here: Spotify | Apple Podcasts | Soundcloud

About Narmi

Narmi offers state of the art digital banking and digital account opening platforms to financial institutions. The platform — built for the enterprise — allows financial institutions to open accounts in less than 2.5 minutes, and then grow that relationship over a lifetime through intuitive mobile and online channels. Every single product at Narmi integrates with leading core banking systems.

About Nikhil Lakhanpal

Nikhil Lakhanpal is the Co-Founder of Narmi. Prior to Narmi, Nikhil ran a financial institution as CEO and also held roles in Investment Banking at Citi.

About the Author

Kailee Costello is an MBA Candidate at The Wharton School, where she leads the Wharton FinTech Podcast team. She’s most passionate about how FinTech is breaking down barriers to make financial products and services more accessible — particularly in the personal finance space. Don’t hesitate to reach out with questions, comments, feedback, and opportunities at kaileec@wharton.upenn.edu.

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