“You don’t invest to stay where you are. You invest to go where you want to be in the future,” says Chris Nichols, chief strategy officer of CenterState Banks Inc., a $4.9 billion asset bank headquartered in Davenport, Fl. The term is everywhere–innovation. But what does it mean relative to banks? In an industry burdened with compliance and regulatory pressures, it is rare for bank leadership to have the bandwidth to also think creatively. And when it comes to financial technology, many bankers feel that they don’t really understand this new world they are trying to enter. Nichols was the keynote speaker at a recent conference put on by the law firm Bryan Cave–Crossroads: Banking and Fintech Conference. The following is an edited conversation between Nichols and FinXTech Head of Innovation Kelsey Weaver.
When it comes to innovation, who at the bank is or should be responsible?
Nichols: Everyone should be responsible for innovation. Anyone can lead the charge. Every banker needs to understand the basics of how a bank works–credit, deposit gathering, compliance, finance—and the same is true for innovation. Everyone within the bank should be on the lookout for how to improve a process and how to incorporate new technology. The mistake that many banks make is leaving innovation to their IT group. Technology and process improvement is democratized at CenterState so any business leader can spearhead an effort with the support of IT, compliance, management and other line staff.
What area of fintech do you think has had the most profound impact for your bank?
Nichols: Figuring out how to add value to our customer’s lives and figuring out how to become more efficient in delivering our services are two areas that all banks need to have a relentless focus on. As a metric, we want to become part of our customer’s lives once per day and want to cut our efficiency below 40 percent over time. Neither effort will be easy, but it is getting easier over time with new processes and technology.
What advice would you give to other bankers when it comes to innovation?
Nichols: Be intentional. Proactively develop a culture of innovation so experimentation is the norm and failure is just part of the process. Next, commit to improving a process. Start with creating a vision, incorporate that into an action plan, approve a budget and hold someone accountable for execution. Improving your loan process is an excellent place to start in order to deliver credit faster and cheaper. Next to cutting branch delivery costs, loan processing is the second largest functional cost for a bank. Operational leverage in these two areas is easy to obtain and can make a huge difference on the bottom line in addition to the lives of a bank’s customers.
What advice would you give to fintech companies looking to work with banks?
Nichols: It is no wonder banks have a hard time working with fintech companies. There is a disconnect on both counts. Banks need to understand the urgency and mindset of the entrepreneur while fintech need to understand the compliance and reputational risk that the bank has to be responsible for.
I can’t tell you how many times a fintech company just wants to connect to our core system or have us send over “sample customer information” as if these are simple tasks. Fintech companies need to understand that these types of requests are huge undertakings and don’t happen lightly. Vendor compliance for a start-up alone is daunting let alone entering into a beta test. At Centerstate Bank, like most banks, our customer is our most valuable asset and we are fiercely protective of both their data and their experience.
Further, we run into many fintech companies that just have not thought through their business model. We get pitched many models that just cannot work from a pricing or customer care standpoint. We will never let another fintech company aggregate our customer base or our brand value.
What other banks in your opinion are doing things right when it comes to innovation?
Nichols: We stand in awe of many banks that excel in different areas. USAA, C1 Bank, Commercial Bank of California, Citizens of Edmonds, Triumph Bank, Live Oak, Texas Bank & Trust, Austin Capital are just some of the many banks that make equal or greater progress around being innovative. We follow and learn from a great many banks.