Ten years ago a technology session at a banking conference wouldn’t have drawn a standing-room only crowd of experienced community bankers, but in 2019 you’ll see a much different scene.
Many of the 800-plus bankers attending Bank Director’s Acquire or Be Acquired Conference at the JW Marriott Phoenix Desert Ridge resort in Phoenix, Arizona were eager to soak up knowledge about technology—which many experts see as the answer to both the competitive pressure being applied by fintech companies from outside the industry, and from customers who want digital alternatives to the industry’s traditional distribution channels.
The shift in attention to tech-focused content is a clear indication that bankers are taking technology more seriously than they ever have—and for good reason.
“We’re entering a time where outside forces feed on the unprepared—maybe not directly but I think they create conditions that will make it very hard for unprepared institutions to survive,” said Mike Carter, executive vice president at the consulting firm SRM Corp., who made a presentation Monday on the threats posed by nonbank payments companies.
The good news, Carter said, is community banks can now more easily compete up-market despite the wide gap in deposit share compared to the country’s biggest money center banks that invest as much as $11 billion per year on technology. It no longer requires millions in up-front investment, Carter said, as many fintech firms now sell their technology through licensing fees.
The catch is that some banks will have to recalibrate their strategies and think of it as “banking in reverse,” said Frank Sorrentino, chief executive officer of $5.6 billion asset ConnectOne Bancorp, based in Englewood Cliffs, New Jersey.
Sorrentino, who participated in a panel discussion Sunday outlining strategies for growth, said ConnectOne has operated from its formation as a de novo in 2005 with the customer’s needs foremost in mind. Instead of thinking about what products would sell best, they thought about what the customer wanted and how they could provide that—and that has contributed to the rapid growth that ConnectOne has experienced.
“Technology gets you on the road to (grow),” Sorrentino said.
Before he became a banker, Sorrentino was a home builder who had become frustrated with the service he received from his bank—so he decided to start his own bank with a customer-first strategy.
Sorrentino’s philosophy is one that is becoming increasingly common among executives, said Pierre Naudé, CEO of nCino, which markets a cloud-based bank operating system to banks.
“I think it’s a new breed of C-suite people that’s coming up that’s actually adept and used to technology and very comfortable talking about it,” Naudé said.
That philosophical shift among bank executives has been a transition, Naudé said, which began with the initial wave of fintech firms that caused disruption in the industry through their technical innovation.
This disruptive dynamic has been exacerbated by the growth in market share by the country’s largest institutions.
Since 1992, deposits held in the country’s 100 largest banks have increased more than 700 percent compared to a mere 18 percent in the smallest institutions, according to data presented Monday by Don MacDonald, chief marketing officer for MX, a Utah-based fintech firm.
MacDonald made the case that the industry is entering a fifth age—the so-called “data age”—that emphasizes the use and leverage of various levels of information to reduce cost, increase revenue and deliver an exceptional customer experience, regardless of asset size.
“What’s amazing about it is the role of the consumer,” MacDonald said.
That role was a common thread in technology-focused presentations and conversations at the conference, where most agree that the focus should become what the consumer wants, not what banks can deliver that will appease them.
It’s a reversal in the traditional relationship between banks and customers.
“We as consumers have more choice than we’ve ever had in our lives, and perhaps more important is the friction to change is virtually nil,” MacDonald said.
“So if I don’t like you I can move from you at the click of a button, or from my current provider I can move to you at the click of a button.”
That precipitates a shift in perspective about how banks will think about growth, and in what terms that’s defined.
“Size isn’t a number,” Sorrentino said. “Size is your capability.”