A version of this article was originally published on April 3, 2023, as part of a special report called “Finding Fintechs.”
USAA Federal Savings Bank was among the first banks, if not the first bank, to launch mobile deposit capture to its customer base in 2009, long before such technology was widespread.
In the years since, $111 billion USAA has invested heavily in its mobile banking app, enabling its customers to complete a range of banking transactions, open new accounts, chat with a virtual assistant, apply for a loan or start an insurance claim. The San Antonio bank earns consistently high marks among its peers for its mobile and digital banking offerings, often topping far larger brands like JPMorgan Chase & Co. in customer satisfaction ratings.
Moreover, USAA has done this in an almost entirely digital environment. Because its core customer base — deployed military members and their families — tends to move frequently, the bank has barely any branches, and has poured significant resources into its digital offerings and customer service capabilities. Its core market is a small one, but keeping their specific needs at the center of its strategy has worked to USAA’s benefit, says Ron Shevlin, managing director and chief research officer at Cornerstone Advisors. He likens USAA’s strategy to a bull’s-eye, with deployed military members in the center, and retired service members and their family comprising the outer rings.
“They designed everything about their business as if they were serving the active deployed military member,” Shevlin says. “The reality is that by serving the bull’s-eye, they’re able to attract and serve the outer rings.”
That’s why Shevlin cites USAA as an example of what it means for a bank to have a strong digital strategy. When it comes to financial technology, a successful strategy begins before thinking about specific technologies or even using the word “technology,” Shevlin and others say.
Instead, banks can start by thinking about their core audience and how they can differentiate their organization in the marketplace, and using those principles as a guiding North Star. In turn, that can help communications between chief technology officers and the rest of the bank’s leadership, as well as decisions around staffing and prioritization of different problems.
A little over a third of bankers who participated in Bank Director’s 2022 Technology Survey expressed concerns that their bank was unable to identify specific technologies that would help achieve its strategic goals. A quarter also said they were concerned about an inability to identify specific companies or resources needed to achieve those goals.
“Rather than thinking of technology as a pillar or a piece of your strategy, you should come up with those strategic objectives. And then technology is a ribbon that goes throughout those strategies,” says John Behringer, a financial institutions leader and risk consulting partner at RSM US LLP.
Community banks may lack the talent they need to set up successful technology partnerships. Many community bankers also wear multiple hats, so they may not be able to focus on partnerships. Another crucial conversation to have around this time is how much staff the bank can dedicate to the success of this project. Under-resourcing these projects from the beginning can complicate the rest of the work — like due diligence, implementation and continued oversight — leading to underwhelming and unsatisfactory results for the institution. And banks that don’t have enough staff to manage these projects may need to bring in external consultants, which adds costs.
Shevlin recommends banks cultivate their internal competency for digital partnership collaborations throughout the bank — not just among finance and IT employees. A bank that wants to grow through fintech partnerships will need a number of experts in-house that can find, negotiate, bid, deploy, scale and monitor these new vendor relationships.
Ultimately, it’s the senior leadership team that develops a technology strategy in consultation with outside experts and internal ones, and with approval of the board of directors.
The chief technology or chief information officer is often responsible for managing and developing the bank’s technological resources, among their other duties. When it comes to larger strategic goals, this responsibility will likely include advocating for the bank’s technology needs before the board and other senior leadership. To do so successfully, that person needs to be able to tie those particular needs back to the bank’s core vision for what it wants to achieve, Behringer says.
For example, a chief executive or director may feel the bank has enough IT staff, not necessarily realizing that those employees are largely handling help desk tickets and other basic maintenance, not working on big-picture strategic needs. When communicating with the rest of the bank’s leadership, senior technology officers might emphasize the need for in-house staff working on initiatives that move the needle on strategy, while discussing the possibility of outsourcing or automating the more rote tasks needed to keep the lights on, Behringer says.
“Come back to, ‘What’s our vision? What do we view as kind of core to who we are?’” he says. “That’s where I think the CEO can do a better job. A lot of times with management, technology is an afterthought.”
Technology executives should also be mindful not to get too deep into the weeds and keep tech discussions focused on how they tie to broader business objectives.
“A CIO or CTO, even just talking to the executive team, has to translate the tech speak into business operational impact and dollars and cents: ‘What’s this going to cost us, and what’s this going to do,’ without going into mind-numbing levels of detail about the technology,” Shevlin says.
When considering broader staffing needs required to put strategic tech initiatives into play, it may be useful for banks to segment staff into those dedicated to running the bank and those dedicated to growing the bank, while improving efficiency and profitability. One centralized group should take responsibility for integration into the bank’s core, while another should have ownership for the results of fintech partnerships, Shevlin says.
Banking as a service and embedded finance are another story entirely, and banks that are getting into those areas should ideally have entire departments or business units dedicated to that. “You really have to understand that’s not your garden-variety fintech partnership,” Shevlin says. “That’s a whole new set of products and services.”
It’s also a good idea for bankers to make sure they’re fully utilizing the technology they already have, says Enrico Camerinelli, a strategic advisor at Aite-Novarica Group. The more technology a bank introduces, the more robust its backend systems need to be to handle that, he says.
“Banks need to leverage, as much as possible, the existing investments they have,” he says. “Technology is not necessarily always innovation in the sense of always building new things on top of old stuff.”
Legacy technology written in older programming languages doesn’t necessarily need to be scrapped as long as the bank is able to still maintain that infrastructure. In many cases, the
issue is not so much with older programming languages as it is with a lack of internal expertise about the language or tech in question.
“It’s not necessarily the software per se, but it’s the fact that it’s at risk of being unmanaged,” Camerinelli says. “That is the risk.”
Bankers can work on a broader strategy by mapping out whether a particular item on the to-do list is internal or external facing, or if it relates to a credit opportunity, mobile banking, the retail bank, a back-office function or some other function. Initiatives aimed at creating efficiencies within the organization can be just as meaningful as those intended to boost revenue or customer acquisition.
It may also help for bankers to think about setting measurable goals, within reasonable timeframes, as part of that strategic road map. For customer-facing technologies, tangible metrics could include adding more customers, growing market share or increasing the number of customers using digital banking or the bank’s mobile app.
“There should definitely be a growth target, from both the perspective of the percentage of customers that are in that bull’s-eye plus the percentage of revenue that is being generated by that segment,” Shevlin says. He adds that executives should be realistic in setting those goals, though, saying, “It’s never going to be 100%.”
Breaking larger projects into smaller chunks or tasks can also help keep teams motivated and on track when tackling strategic initiatives, says Laura Merling, chief transformation and operations officer at $26 billion Arvest Bank Group in Bentonville, Arkansas.
“You’re not shortcutting something, but you’re saying, what can be done in small chunks to show progress,” Merling said in an August 2022 conversion with Bank Director. “A lot of times in a bank, something might be a very long project that’s going to take 18 months to roll out. I don’t ever want a big aha at the end. What I want to see is incremental progress, which means figure out what you can roll out in 30 days, 60 days, 90 days, so that you have consistent progress. And then you measure it.”
Tech initiatives that serve an internal function can still be linked to some measurable outcome, but Behringer says that doesn’t necessarily have to be head count or expense reductions. Instead, bankers might look at improving the average time it takes to clear a particular task and once that’s accomplished, think about how they can deploy those fulltime employees more smartly. “I don’t like to just focus on cost-cutting,” he says.
Bank Secrecy Act and Anti-Money Laundering Act compliance may be one example of a function where a bank can digitize some part of the process and create internal efficiencies. Behringer describes one client that previously took about four hours to close out a suspicious activity report investigation because the BSA analyst needed to spend about three of those hours pulling data from various places. The firm built a bot that could automatically pull that relevant data for the analyst and was ultimately able to make that person’s job less mundane and repetitive. After making that change, a BSA analyst can now close out about eight alerts in a work day instead of two.
“That employee’s job satisfaction just went through the roof because they’re doing what they like to do, versus doing administrative tasks,” he says.
Bank Director Managing Editor Kiah Lau Haslett contributed to this report.