There is little doubt that technology is rapidly changing lifestyles, not to mention banking. More than half of all Americans owned a smartphone in 2013, up from 35 percent just two years prior, according to the Pew Research Center.
Jack Schultz, chairman at Effingham, Illinois-based Midland States Bancorp, which has $1.7 billion in assets, says his bank’s board and management keep an eye on the competition from both inside and outside the banking industry, and then rapidly adapt. He uses mobile banking as an example. “It’s a much quicker game than what it was 5 or 10 years ago,” he says.
Technology moves at a rapid pace, and much of that change could result in better service to potential and current clients, all while making the institution more efficient. Here are some items that bank boards can consider to avoid becoming irrelevant.
Add a board member with expertise in technology or innovation.
“Because of the way that the industry is changing so quickly, I think that having people who have a background in technology and innovation is a strong attribute for the board,” says Schultz. Not only do these board members need to understand what technology will be important to customers, but they also need to understand the impact of cyber security risk on the institution and, due to the reliance of many small institutions on third-party technology, how to oversee vendor management. “Every single bank is a consumer of technology,” says Ryan Gilbert, himself a technology expert and director at Sacramento-based River City Bank. Gilbert is chief executive officer of BetterFinance Inc. (formerly known as BillFloat), a financial technology company which helps consumers manage their bills and provides small loans to consumers and small businesses through lenders. While many banks have lawyers, real estate professionals and doctors with expertise in areas like business development or compliance, many board members do not fully understand the technology the bank relies on. “There is a significant knowledge gap that’s out there,” Gilbert says.
But finding these directors can be a challenge. “Most people like me don’t want to be on bank boards,” Gilbert says. Aside from the liability posed by serving on a bank board, he says that the difference between the banking industry, focused on safety and soundness, and the technology sector, focused on innovative problem-solving, can result in a culture clash. “Working with banks as a financial innovator is super difficult,” he says. “Banks and regulators put the ‘no’ into innovation.”
Add a technology committee to the board.
“I think all boards should have an IT [information technology] committee” focusing on the bank’s technology needs, including external vendors, says Gilbert. Technology is a significant part of the bank’s budget, with industry spending in the U.S. expected to increase by almost 10 percent by 2015, according to research and consulting firm Celent. More than half of spending was allocated to external services and software in 2013, and Celent expects the industry’s reliance on vendors to increase.
“Unfortunately many banks, or bankers, do not get very involved in IT matters, and prefer to either outsource or really not lend too much attention to these issues,” says Agustin Abalo, who uses his expertise as a former chief information officer at Banco Santander International, a subsidiary of Spanish global bank Banco Santander, to chair the IT committee of BAC Florida Bank, a $1.3 billion-asset institution headquartered in Coral Gables, Florida. This board-level committee is composed of three independent directors and several officers, including the bank’s president, chief risk officer, chief operating officer and chief information officer. Abalo says that just like other committees focus on relevant risks, like large loans, IT committees can help tackle the growing issue of cyber-crime. He recommends that the IT committee keep the board informed about the bank’s technology needs and related budget requirements.
Focus on technology that improves the user experience and makes the bank more efficient.
“Usability, which is a massive focus for [financial technology] companies and Internet start-ups, really hasn’t been a focus in banking,” says Gilbert, making it critical for boards that want to set the institution apart to ensure that the customer experience—both in person and online—is positive.
Mobile banking continues to have a big impact on the industry, and when done right, can result in satisfied customers and a more efficient institution. “Access and convenience are key to the customer,” says Dustin Luton, chief executive officer at Covina, California-based Simplicity Bank, a savings bank with $867 million in assets. “They want things on their own timeline.” If more tasks, like cancelling a debit card or stopping payment on a check, can be done through mobile or online banking, it’s convenient for customers. It can also allow branch and call center staff to better focus on customers that need more assistance or want more products and services from the bank. “These little things will make the difference in the long run from a customer perspective, all these little things that [customers] just don’t really think about,” says Luton.