Recoding the Bank

In 2009, a former Google engineer and his wife decided to buy a little bank in tiny Weir, Kansas. At the time, the bank had less than $10 million in assets. Why would a tech guy want to get into banking, with all its regulation and red tape—and do so by buying the textbook definition of a traditional community bank?

“Money is a very fundamental invention,” says Suresh Ramamurthi, the ex-Google engineer who is now chairman and chief technology officer at CBW Bank. (His wife, Suchitra Padmanabhan, is president.) “The best way to understand the [changing] nature of money is to be within a bank.” So Ramamurthi learned how to run every facet of the bank, and then set about fixing what he says was a broken system. The bank’s new-and-improved core technology platform was built by Yantra Financial Technologies, a company co-owned by Ramamurthi.

Ramamurthi and his team “recoded the bank,” says Gareth Lodge, a senior analyst at the research firm Celent. Many banks rely on their core providers for their technology needs, but CBW, with Yantra, wrote the software themselves. The bank’s base technology platform allows it to make changes as needed, through the use of APIs. (API stands for application programming interface, and controls software interactions.) “What they’ve created is the ability to have lots of different components across the bank, which they can then rapidly configure and create completely new services,” says Lodge.

The bank has used this ability to create custom payment solutions for its clients. One client can pay employees in real time, so funds are received immediately on a Friday night rather than Tuesday, for example, decreasing employee reliance on payday loans. Another client, a healthcare company, can now make payments to health care providers in real time and omit paper statements; by doing so, it cuts costs significantly, from $4 to $10 per claim to less than 60 cents, according to Celent.

The bank created a way to detect fraud instantly, which enables real-time payments through its existing debit networks for clients in the U.S., at little cost to the bank, says Lodge. CBW also makes real-time payments to and from India.

Today, CBW is larger and more profitable, though it’s still small, with just $26 million in assets, and still has just one branch office in Weir. The bank now boasts a 5.01 percent return on assets as of June 2016, according to the Federal Deposit Insurance Corp., and a 26.24 percent return on equity. Its efficiency ratio is 56 percent. In 2009, those numbers were in the negative with a 140 percent efficiency ratio.

Not only has its profitability substantially changed, but its business model has too. Loans and leases comprise just 9 percent of assets today, compared to 46 percent in 2009, as CBW increasingly relies on noninterest income from debit cards and other deposit-related activities. CBW found opportunities in partnerships with fintech firms, long before the rest of the industry caught on. CBW provides the FDIC-insured backing for the mobile deposit accounts of the New York City-based fintech firm Moven, and also issues the company’s debit cards. “Every one of these opportunities is a learning opportunity,” says Ramamurthi.

Is it possible to duplicate CBW’s approach to innovation? The bank’s model and leadership is extremely unique. A large bank may have the technology expertise in-house, but completely changing a complex organization is difficult. On the other hand, while it’s easier to make changes to a small, less complex bank, these institutions often can’t attract the necessary talent to facilitate a transformation. To further complicate matters, many banks are working off older core technology, and their partnerships with major core providers limit their ability to integrate innovative solutions, according to Bank Director’s 2016 Technology Survey.

CBW, on the other hand, is nimble enough to transform seamlessly, due both to its size and its custom core technology. It also has leadership with the ability and the interest to implement technology that can help better meet clients’ needs. “They’re providing things that nobody else can do,” says Lodge. “It’s not just the technology that distinguishes them. It’s the thinking.”