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Q&A: What Does Innovation Look Like?

author Ncontracts
4 min read
Jun 15, 2023

Dave Hales, Chairman and CEO of $53 million-asset Global Innovations Bank in Kiester, Minnesota, was recently named a finalist for Innovator of the Year by American Banker. Hales and his team bought a small community bank in Minnesota five years ago and found a way to expand into a high-risk niche while still serving the local community – nearly tripling the size of the bank. 

We sat down with Dave to understand how he grew his bank and embraced new markets while carefully managing risk and compliance.  

Q: How did you become involved with Global Innovations Bank? 

Dave Hales: I’m a retired Air Force colonel and I co-founded a money service business named GI Bill Pay with my business partner. This business, primarily serving servicemen and women stationed overseas, faced periodic threats of being debanked.  

To address this, we took an innovative step and bought a small bank in Kiester, Minnesota. Renaming it as Global Innovations Bank – GI Bank for short – we aimed to serve the market we were already familiar with. Today GI Bill Pay is one of over 40 fintech money service business customers of Global Innovations Bank. 

Q: How have you transformed the bank since buying it? 

Dave: We took an old institution founded in 1899, one that was smaller and older than most banks in the U.S, from a modest $18 million in assets to just over $53 million today. It was limited by geography, so we found innovative ways to leverage and grow the bank.  

We’re focusing on servicing fintech money service businesses (MSBs) that are domestically oriented. We have eight different cash vaults that are servicing more than 40 money service businesses that are in turn providing services to tens of thousands of individual households across the US. And that’s where we’ve seen the growth. 

Last year was the most profitable year the bank has ever enjoyed in its 100-plus years – and it was strictly through innovation. It wasn’t 800 people moving into town and opening checking accounts and credit cards.  

Q: What are the compliance challenges of banking MSBs? 

Dave: We need fintechs, the MSBs, to understand our compliance obligations. We want them to be able to determine what they need to look at the areas where risk will arise. But in many cases, they don’t know what to ask for. 

For this, we knew we needed a partner that could help us manage risks and ensure compliance as we innovated. Ncontracts, with their robust risk management and compliance tools, was a perfect match for us. 

Having a streamlined system, the clarity of what we expect and when, and the understanding that’s going to develop these policies and procedures as our relationship develops, that’s what helps. MSBs know what we need, and we can more appropriately ask and target the kinds of questions and areas of risk that we need to be informed about. 

Related: Do You Have a Digital Payments Strategy?  

Q: How have you balanced innovation with regulatory scrutiny? 

Dave: It’s about discipline. We are very careful, methodical, and meticulous about examining what exactly the requirements are and how we can meet them. The key is thinking about how we can sustainably offer a product to customers in a way that will delight them and that regulators will find satisfactory. 

Q: You’re planning to expand beyond MSBs to working with more fintechs. What does that look like? 

Dave: Fintechs are engaging in innovation, but they need to be connected to banks because they need access to the payment rail. A lot of these fintechs are looking for clarity. They want someone to tell them what they need to do to get it right.  

Fintech often hire outside groups to help create their policies and then send it to the bank, and the bank then has their outside group review the policy and tell them if its approved. Fintechs want someone to tell them how to improve their processes. We want to do that.  

We see continued opportunity in pursuing fintechs and providing fintechs banking. It’s a little bit more advanced than what we’re currently doing with the MSBs, but it’s the next logical evolutionary step. We’ve spent a great deal of time building up a fintech banking program. 

It’s been reviewed by our regulators. Rather than waiting for regulators to come and tell us that we did something they didn’t like, we talk to the regulator and say “I know you’re not going to give me explicit approval, but I don’t want any secrets here. This is exactly what we plan to do. If you have any concerns, I will gladly take notes and react accordingly.”  

Related: How Banks and Credit Unions Can Maximize Fintech Partnerships 

We’re providing the infrastructure and the backend and the compliance oversight, so the regulators aren’t concerned that money laundering is occurring or other criminal activity. And so that’s where we’re headed. We’re one of a very small number of banks that’s willing to go into fintech banking because it is difficult, but we’re confident we can do it. 

Q: What’s your vision for the type of fintechs GIB will serve? 

Dave: We’re a small bank and we also know that there are lots of small fintechs. We can grow with them.  

We’re not distracted with Stripe, so we can do those more targeted and specific services and make it very clear what they need and help them to get it. 

It’s taking that community banking service and bringing it to a more technical group because we have technical expertise and know how to do that. 

Q: What role does traditional community banking play at GIB? 

Dave: We’re continuing to serve southern Minnesota and northern Iowa and have hired both locally and remotely. We’re looking to expand our loan offerings in the upper Midwest, particularly in Minnesota and Iowa where we’re located, and reinvest a great deal of the additional deposits that fintech activity drives into loans in the commercial, agricultural, and residential markets here in the upper Midwest.  

What advice do you have for other small institutions looking to innovate? 

Dave: We’re doing a lot more with a lot less. We can leverage technology, be innovative, and provide products and services to the community at large, but we need to use partners.  

We’ve learned that balancing innovation with regulatory compliance is crucial for transformation. Banks can grow beyond geographical constraints by offering innovative products and services. Solutions, like those from Ncontracts, can play a pivotal role in managing risk and ensuring compliance during a bank’s transformation journey.

 

Want insights how to work with fintechs? Check out our on-demand webinar Fintechs & Financial Institutions: How to Safely (and Profitably) Work Together. 

 

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