The Future of Banking in the Metaverse

From Nike’s acquisition of RTFKT to Meta Platform’s Chairman and CEO Mark Zuckerberg playing virtual pingpong, the metaverse has evolved from a buzzword into a way of doing business.

The metaverse could become a “river of entertainment in which the content and commerce flow freely,” according to Microsoft Corp. Chairman and Chief Executive Satya Nadella in “The Coming Battle Over Banking in the Metaverse.” Created by integrating virtual and augmented reality, artificial intelligence, cryptocurrency, and other technologies, the metaverse is a 3D virtual space with different worlds for its users to enhance their personal and professional experiences, from gaming and socializing to business and financial growth.

That means banking may ultimately come to play a significant role in the metaverse. Whether exchanging currencies between different worlds, converting virtual or real-world assets or creating compliant “meta-lending” options, financial institutions will have no shortage of new and traditional ways to expand their operations within this young virtual space. Companies like JPMorgan Chase & Co. and South Korea’s KB Kookmin Bank already have a foot in the metaverse. JPMorgan has the Onyx Lounge; Kookmin offers one-on-one consultations. However, banks will find they cannot operate in their traditional ways in this virtual space.

One aspect that might experience a drastic change is the branches themselves. The industry should expect an adjustment period to best facilitate the needs of their metaverse banking customers. These virtual bank branches will need to be flexible in accepting cryptocurrencies, non-fungible tokens, blockchains and alternative forms of virtual currency if they are to survive in the metaverse.

However, not everyone agrees that bank branches will be that relevant in the metaverse. The idea is that online banking already accomplishes the tasks that a branch located in the metaverse might fulfill. Another issue is that there is little current need for bank branches because the migration to the metaverse is nascent. Only time will tell how banking companies adapt to this new virtual world and the problems that come with it.

Early signs point to a combination of traditional and new banking styles. One of the first products from the metaverse is already shining a light on potential challenges: The purchase and sale of virtual space has significantly changed over the past year. In Ron Shevlin’s article, “JPMorgan Opens A Bank Branch In The Metaverse (But It’s Not What You Think It’s For),” he writes, “the average investment in land was about $5,300, but prices have grown considerably from an average of $100 per land in January to $15,000 in December of 2021, with rapid growth in the fourth quarter when the Sandbox Alpha was released.”

The increasing number of virtual real estate transactions also means the introduction of lending and other financial assistance options. This can already be seen with TerraZero Technologies providing what could be described as the first mortgage. This is just the beginning as we see opportunities for the development of banking services more clearly as the metaverse, its different worlds and its functions and services mature.

Even though the metaverse is still young and there are many challenges ahead, it is clear to see the potential it could have on not only banking, but the way we live as we know it.

Is Crypto the Future of Money?

Regardless of their involvement in the financial services industry, anyone paying attention to the news lately will know that cryptocurrencies are making headlines.

As the worldwide economy becomes less predictable, regulatory agencies are wondering whether cryptocurrencies could be used to transfer money if other assets become subject to international sanctions, likening crypto to gold. According to an early March article from CNN Business, the price of gold has spiked and could surpass its all-time high before long, while bitcoin is trading 4% higher.

Crypto has also been in the news because of an executive order recently issued by President Joe Biden. The order requires the Department of the Treasury, the Department of Commerce and other agencies to look into and report on the “future of money,” specifically relating to cryptocurrencies.

As part of that order, those agencies need to outline the benefits and risks of creating a central bank digital currency (CBDC), informally known as the digital dollar. The digital dollar can be thought of as the Federal Reserve’s answer to crypto. It would act like cryptocurrency, with one big difference: It would be issued and regulated by the Fed.

How would this work? One idea involves government-issued digital wallets to store digital dollars. While the U.S. is not likely to take imminent action on creating a CBDC — Congress would need to approve it — it would not be a big leap to sell this concept to the American public. The Federal Reserve reports that cash use accounted for just 19% of transactions in 2021. Digital payments, meanwhile, are up. According to McKinsey’s 2021 Digital Payments Consumer Survey, 82% of Americans used digital payments last year, which includes paying for purchases from a digital wallet like Apple Pay. Using digital dollars, in a similar kind of digital wallet, wouldn’t be all that different. The future state of digital currency and the current state of online payments, credit cards, buy now, pay later purchases and more are, in effect, exchanging bills and notes for 1s and 0s.

What this means for financial institutions is a need to focus on education and information, and an ear toward new regulations.

Educating account holders will be vital. Pew Research reports that 86% of Americans are familiar with cryptocurrencies, while 16% say they have invested. The reason more people haven’t invested? They don’t fully understand it. This is a huge growth opportunity for banks to partner with account holders as a trusted voice of information, within the confines of current regulations.

  • Use account holder transaction data to spot trends in cryptocurrency purchases within their ecosystem and inform them on how to communicate and educate account holders.
  • Task an employee to become the in-house cryptocurrency expert, in the ins and outs of crypto’s current and future state.
  • Develop a section on the website with information for account holders.
  • Create an email campaign that shows account holders a history of investment product adoption with links back to the bank’s website for resources about the latest news on cryptocurrencies. Even if the institution doesn’t facilitate sales, it is important to set the institution up as a trusted resource for industry data.

Crypto fraud is rampant because the majority of people still aren’t quite sure how crypto works. That’s why it’s so important for financial institutions to be the source of truth for their account holders.

Further, fintech is already in the crypto arena. Ally Bank, Revolut, Chime and others are working with their account holders to help facilitate crypto transactions. And even established institutions like U.S. Bank are offering cryptocurrency custody services.

Data will be an important key. Pew Research reveals that 43% of men ages 18 to 29 have invested in, traded or used a cryptocurrency. But what does that mean for your specific account holders? Look closely at spending data with a focus on crypto transactions; it’s an extremely useful metric to use for planning for future service offerings.

The role that traditional financial institutions will play in the cryptocurrency market is, admittedly, ill-defined right now. Many personal bankers and financial advisors feel hamstrung by fiduciary responsibilities and won’t even discuss it. But U.S. banking regulators are working to clarify matters, and exploring CBDC, in 2022.

Is cryptocurrency the future of money? Will a digital dollar overtake it? It’s too early to tell. But all signs point to the wisdom of banks developing a crypto and CBDC strategy now.

3 Ways to Drive Radical Efficiency in Business Lending

Community banks find themselves in a high-pressure lending environment, as businesses rebound from the depths of the pandemic and grapple with inflation levels that have not been seen for 40 years.

This economic landscape has created ample opportunity for growth among business lenders, but the rising demand for capital has also invited stiffer competition. In a crowded market, tech-savvy, radically efficient lenders — be they traditional financial institutions or alternative lenders — will outperform their counterparts to win more relationships in an increasingly digitizing industry. Banks can achieve this efficiency by modernizing three important areas of lending: Small Business Administration programs, small credits and self-service lending.

Enhancing SBA Lending
After successfully issuing Paycheck Protection Program loans, many financial institutions are considering offering other types of SBA loans to their business customers. Unfortunately, many balk at the risk associated with issuing government-backed loans and the overhead that goes along with them. But the right technology can create digital guardrails that help banks ensure that loans are documented correctly and that the collected data is accurate — ultimately reducing work by more than 75%.

When looking for tools that drive efficiency in SBA lending, bank executives should prioritize features like guided application experiences that enforce SBA policies, rules engines that recommend offers based on SBA eligibility and platforms that automatically generate execution-ready documents.

Small Credits Efficiencies
Most of the demand for small business loans are for credits under $100,000; more than half of such loans are originated by just five national lenders. The one thing all five of these lenders have in common is the ability to originate business loans online.

Loans that are less than $100,000 are customer acquisition opportunities for banks and can help grow small business portfolios. They’re also a key piece of creating long-term relationships that financial institutions covet. But to compete in this space, community institutions need to combine their strength in local markets with digital tools that deliver a winning experience.

Omnichannel support here is crucial. Providing borrowers with a choice of in person, online or over-the-phone service creates a competitive advantage that alternative lenders can’t replicate with an online-only business model.

A best-in-class customer experience is equally critical. Business customers’ expectations of convenience and service are often shaped by their experiences as consumers. They need a lending experience that is efficient and easy to navigate from beginning to end.

It will be difficult for banks to drive efficiency in small credits without transforming their sales processes. Many lenders began their digital transformations during the pandemic, but there is still significant room for continued innovation. To maximize customer interactions, every relationship manager, retail banker, and call center employee should be able to begin the process of applying for a small business loan. Banks need to ensure their application process is simple enough to enable this service across their organization.

Self-Service Experiences
From credit cards to auto financing to mortgages, a loan or line of credit is usually only a few clicks away for consumers. Business owners who are seeking a new loan or line of credit, however, have fewer options available to them and can likely expect a more arduous process. That’s because business banking products are more complicated to sell and require more interactions between business owners and their lending partners before closing documents can be signed.

This means there are many opportunities for banks to find efficiency within this process; the right technology can even allow institutions to offer self-service business loans.

The appetite for self-service business loans exists: Two years of an expectation-shifting pandemic led many business borrowers to prioritize speed, efficiency and ease of use for all their customer experiences — business banking included. Digitizing the front end for borrowers provides a modern experience that accelerates data gathering and risk review, without requiring an institution to compromise or modify their existing underwriting workflow.

In the crowded market of small business lending, efficiency is an absolute must for success. Many banks have plenty of opportunities to improve their efficiency in the small business lending process using a number of tools available today. Regardless of tech choice, community banks will find their best and greatest return on investment by focusing on gains in SBA lending, small credits and self-service lending.

Understanding the Cannabis Banking Opportunity

The legal cannabis industry is growing exponentially each year, creating extraordinary opportunities for financial institutions to offer services to this largely underbanked, niche market.

Revenue from direct marijuana businesses alone is expected to exceed $48 billion by 2025, part of a larger $125 billion cannabis opportunity that includes hemp, CBD and other support businesses, according to information from Arcview and BDS Analytics.

In the last few years, the number of banks providing services to cannabis businesses has increased, along with an expansion of the products they are offering. Financial institutions are moving far beyond being “a place to park cash’ which defined the pioneer era of cannabis banking. Today, our bank clients are approaching the industry as a new market to deploy all of their existing products and services, including online cash management, ACH origination, wire transfers, lending, insurance, payments and wealth management. Additionally, a contingent of banks are trailblazing bespoke solutions.

For banks wanting to better understand what the current cannabis banking opportunity looks like, we recommend starting by:

Exploring the Entire Cannabis Ecosystem
A common pitfall for banks considering a cannabis line of business is failing to grasp the true market opportunity. It’s important that bankers explore the entire supply chain: growers, cultivators, manufacturers, distributors and delivery operations and public-facing retail and medical dispensaries that make up the direct cannabis ecosystem.

Beyond that, there is a supporting cast of businesses that service the industry: armored couriers, security firms, consultants, accountants, lighting companies, packaging companies, doctors who prescribe medical cannabis, and many more. These are not plant-touching businesses, but they require additional scrutiny and often struggle with non-cannabis-friendly institutions. All this is in addition to the significant hemp market, which represents an additional $40 billion opportunity by 2025.

Thinking Beyond Fees
Aside from low-cost deposits, many financial institutions initially entered this niche line of business for additional fee income. While the industry still provides strong fee opportunities, including account opening fees, monthly account fees per license, deposit fees and fees for services such as ACH and cash pickup, these can vary greatly from market to market and will decrease as more financial institutions build programs.

Instead of limiting their focus to fees and deposits, banks should understand the full breadth of the services and solutions they can offer these underserved businesses. Most services that a bank provides their average business customer can be offered to legal cannabis businesses — and there is a significant opportunity to create additional services. We believe there are products this industry needs that haven’t been created by banks yet.

Banks thinking about where to start and what products to add should consider common challenges that legal cannabis businesses face: electronic payment products, cash logistics, fair lending and the numerous difficulties around providing opportunities to new business owners and social equity entrepreneurs. Bankers should become familiar with the industry; find out what it’s most similar to — namely agriculture, food processing and manufacturing — as well as how it is unique. That’s where the real opportunity lies.

Building a Scalable Program
To safely service this industry and meet examiner expectations, banks need to demonstrate they understand the risks and institutional impact of banking cannabis and have the capabilities to accomplish the following, at a minimum:

  • Consistent, transparent and thorough monitoring of their cannabis business clients and their activity, to demonstrate that only state legal activity and the associated funds are entering the financial system.
  • Timely and thorough filing of currency transaction reports (CTRs) and suspicious activity reports (SARs).
  • Ability to gracefully exit the line of business, should the bank’s strategy or the industry’s legality change.
  • An understanding of the beneficial ownership structures, particularly when working with multi-state operators.

Performing these tasks manually is time consuming, prone to error and not suitable for scale. Technology allows banks to automate the most tedious and complicated aspects of cannabis banking compliance and effectively grow their programs. Look for technology that offers advanced due diligence during onboarding, detailed transaction monitoring, automated SAR/CTR reporting and account monitoring to ensure full transparency and portfolio management in your program.

Finding a Trusted Partner
When it comes to partners, banks must consider whether their partner can quickly adapt to changes in rules and regulations. Do their tools support visibility into transaction level sales data, peer comparisons and historical performance? Have they worked with your examiners? What do they offer to help banks service both direct and indirect businesses? Can they help their institutions offer new and innovative products to this line of business?

Banks weighing which partners they should take on this journey need to consider their viability for the long run.

Opportunities For Transformative Growth

The bank space has fundamentally changed, and that has financial institutions working with more and more third-party providers to generate efficiencies and craft a better digital experience — all while seeking new sources of revenue. In this conversation, Microsoft Corp.’s Roman Chwyl describes the rapid changes occurring today and how software-as-a-service solutions help banks quickly respond to these shifts. He also provides advice for banks seeking to better engage their technology providers.

Topics addressed include:

  • Focusing Technology Strategies
  • Partnership Considerations
  • Leveraging Digital for Growth
  • Planning for 2022 and Beyond

How to Build a Bank From Scratch

Corey LeBlanc is best known as the man behind the @InkedBanker Twitter handle, inspired by his affection for tattoos. He’s also co-founder, chief operating officer and chief technology officer of Locality Bank, a newly chartered digital bank based in Fort Lauderdale, Florida. In the interview below, which has been edited for length, clarity and flow, he talks about the value of standing out and the process of standing up a de novo digital bank.

BD: How did you become known as the InkedBanker?
CL: A few years ago, Jim Marous, co-publisher of The Financial Brand, told me that I had to get on Twitter. When my wife and I created the profile, we needed something that made sense. I’ve had tattoos since I was 18 – full sleeves on both arms, on my back and chest — so that’s what we picked. It’s turned out to be incredibly important for my career. People remember me. It gives me an edge and helps me stand out in an industry where it’s easy to get lost in the mix.

             Corey LeBlanc, Locality Bank

BD: What’s your vision for Locality Bank?
CL: The best way to think about Locality is as a digital bank that’s focused on the south Florida market. There’s a void left in a community after its locally owned banks are either bought by bigger, out-of-state rivals or grow so much that they no longer pay attention to their legacy markets. Our vision is to fill that void using digital distribution channels.

BD: Was it hard to raise capital?
CL: Not especially. Our CEO, Keith Costello, has been a banker for many years and was able to raise an initial $1.8 million in December 2020 from local investors to get us off the ground. We later went back to that same group to raise the actual capital for the bank, and they committed another $18 million. Altogether, including additional investors, we raised $35 million between October and November of 2021. Because that was more than the $28 million we had committed to raise, we had to go back to the regulators to make adjustments to our business plan, which delayed our opening.

BD: How long did it take to get your charter?
CL: It was about 10 months. We filed our charter application on St. Patrick’s Day of 2021. We received our conditional approvals from the state in mid-September, and then we had our conditional approval from the [Federal Deposit Insurance Corp.] in early November. Our full approval came on Jan. 11, 2022.

BD: What was it like working with the regulators?
CL: You hear bankers say that regulators make everything difficult and stop you from doing what you want to do. But we didn’t find that to be the case. Just the opposite. They served more like partners to us. They worked with us to fine-tune our business plan to better meet the needs of the customers and markets we’re targeting, while still trying to accomplish our original objectives.

BD: What’s your go-to-market strategy?
CL: We’re going to be a lend-first institution. Our primary focus is on the south Florida commercial market — small to medium-sized businesses all the way up to early stage, larger enterprises. We’ll expand as we grow, but we want to be hyper-focused on serving that market. To start out, we’re offering two commercial accounts: a basic commercial checking account and a money market account. Then we’ll expand to providing accounts with more sophisticated capabilities as well as [Interest on Lawyer Trust Accounts] for lawyers. Because of the markets we’re in, those two accounts are absolutely necessary.

BD: As a new bank, how do you ensure that you’re making good loans?
CL: It was a top priority for us to recruit good, trusted bankers who understand that you need to balance the needs of the bank and the needs of the market. The bankers we’ve hired know how to do that. On top of this, if you can get a banker who’s been successful with the tool set that most traditional institutions give them, and then you give them a better set of tools, imagine the experience that you’re creating for those bankers and their customers. You’re empowering them to do something exponentially greater than they could in the past. And by giving them that set of tools, you’ve now inspired and motivated them to push even further and start challenging systems that otherwise they would have never challenged. We see it very much as a virtuous circle.

The Next Wave of Digital Transformation

There is no question that digital transformation has been a long-term trend in banking.

However, innovation is not instantaneous. When faced with the obstacles the recent pandemic presented, bankers initially accelerated innovation and digital transformation on the consumer side, thanks to a broad scope of impact and the technology available at the time to streamline human-to-human interactions.

Now, as easy-to-use technology that automates complex interactions between human and machine and machine-to-machine (M2M) interactions becomes more readily available, the banking industry should consider how it can transform their own business and the banking experience for their business clients.

The First Wave
Why were consumers first served in the early days of the pandemic? Because there are often a lot of consumers to serve, with similar use cases and needs. When many account holders share the same finite problems, it can be easier for banks to commit personnel and financial resources to software that addresses those needs. The result is the capability to solve a few big problems while allowing the bank to effectively serve a large base of consumers with a mutual need, generating a quick and viable return on investment.

The first wave of digital transformation in banking concentrated on consumers by focusing on digitizing human-to-human interactions. They created an efficient process for both the bank employee along with the customer end-user, and then quickly moved to enable human-to-machine interactions with the same outcome. This transformation can be seen in previous interactions between consumers and bankers, like account opening, check deposits, personal financial management, credit and debit card disputes and initiating payments — all of which can now be done by a consumer interacting directly through a digital interface. This is also known as human-to-machine interactions.

In contrast, business interactions with banks tend to be more nuanced due to regulations, organizational needs and differences based on varying industries. For instance, banks that manage commercial escrow accounts for property managers and landlords, municipalities, government agencies, law firms or other companies with sub-accounting needs frequently navigate various security protocols and regional and local compliance. Unfortunately, these complexities can slow innovation, like business online account opening that is only now coming to market decades after consumer online account opening.

The Next Wave
Automating these business interactions was once thought to be too large of an undertaking for many banks — as well as software companies. But now, more are looking to digitally transform these interactions; software development is easier, further advanced and less costly, making tackling complex problems achievable for banks.

This will mark the next wave of digital transformation in banking, as the potential benefits have a greater effect for businesses than consumers. Because profits for each business client are much higher than consumer accounts, banks can expect strong returns on investment by investing in value-add services that strengthen the banking experience for business clients. And with so many niche business verticals, there is opportunity for institutions to build a strong commercial portfolio with technology that addresses vertical-specific needs.

While the ongoing, first wave of digital transformation is marked by moving human-to-human interactions to human-to-machine, the next wave will lead to more machine-to-machine interactions. This is not a new concept: Most bankers have connected two separate software systems, and have heard of M2M interactions through discussions about application programming interfaces, or APIs. But what may not be clear to executives is how these M2M interactions can be extremely helpful when solving for frustrating business banking processes.

For example, a law firm may regularly open trust and escrow accounts on behalf of their clients. Through human-to-human interaction, their processes are twofold: recording client information in an internal software system and then providing the necessary documentation to their bank, via branch visit or phone, to open the account. They need to engage in additional communication to learn the balance, move money or close the account.

Transforming this to a human-to-machine interaction could look like the bank providing a portal through which the firm could open, move funds and close the account on their own. While this is an excellent improvement for the law firm and bank, it still requires double data entry into internal software and banking software.

Here, banks can introduce machine-to-machine automation to improve efficiency and accuracy, while avoiding extraneous back and forth. If the bank creates a direct integration with the internal software, the law firm would only need to input the information once into their software to automatically manage their bank accounts.

The digital transformation of business banking has arrived; in the coming years, machine-to-machine automation will become the gold standard in the financial services industry. These changes provide a unique opportunity for banks to help attract and satisfy existing and prospective business clients through distinctive offerings.

The Cannabis Banking Opportunity

Legalized cannabis continues to gain momentum across the United States, but banks may be left out of the opportunity if they lack a strategy to service the space. As this demand grows, banks can leverage their risk and compliance teams to build new revenue opportunities. In this video, Kevin Hart, the founder and CEO of Green Check Verified, explains how banks can formulate a cannabis banking program that fits into their overall strategy and risk management appetite.

  • Outlook for Future Growth
  • Direct and Indirect Cannabis Banking
  • Crafting a Scalable Program

The Missing Piece in Community Bank M&A

The community bank space is consolidating at a blistering pace, but buyers may be overlooking a key consideration when thinking about mergers and acquisitions. Prospective buyers should consider how other footprints complement growth opportunities against their own, lest they make critical and expensive mistakes. In this video, Kamal Mustafa, chairman of the Invictus Group, explains why bank buyers should assess a target’s footprint, and how to value the industries and lending opportunities within a new market.

  • Market Considerations and Assessments
  • Focusing on Industries, Not Loans
  • Target Valuations

Banks Enter a New Era of Corporate Morality

Are we entering a new era of morality in banking?

Heavily regulated at the state and federal level, banks have always been subjected to greater scrutiny than most other companies and are expected to pursue fair and ethical business practices — mandates that have been codified in laws such as the Community Reinvestment Act and various fair lending statutes.

The industry has always had a more expansive stakeholder perspective where shareholders are just one member of a broad constituency that also includes customers and communities.

Now a growing number of banks are taking ethical behavior one step further through voluntary adoption of formal environmental, social and governance (ESG) programs that target objectives well beyond simply making money for their owners. Issues that typically fall within an ESG framework include climate change, waste and pollution, employee relations, racial equity, executive compensation and board diversity.

“It’s a holistic approach that asks, ‘What is it that our stakeholders are looking for and how can we – through the values of our organization – deliver on that,” says Brandon Koeser, a financial services senior analyst at the consulting firm RSM.

Koeser spoke to Bank Director Editor-at-Large Jack Milligan in advance of a Sunday breakout session at Bank Director’s Acquire or Be Acquired Conference. The conference runs Jan. 30 to Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

The pressure to focus more intently on various ESG issues is coming from various quarters. Some institutional investors have already put pressure on very large banks to adopt formal programs and to document their activities. Koeser says many younger employees “want to see a lot more alignment with their beliefs and interests.” And consumers and even borrowers are “beginning to ask questions … of their banking partners [about] what they’re doing to promote social responsibility or healthy environmental practices,” he says.

Koeser recalls having a conversation last year with the senior executives of a $1 billion privately held bank who said one of their large borrowers “came to them and asked what they were doing to promote sustainable business practices. This organization was all about sustainability and being environmentally conscious and it wanted to make sure that its key partners shared those same values.”

Although the federal banking regulators have yet to weigh in with a specific set of ESG requirements, that could change under the more socially progressive administration of President Joe Biden. “One thing the regulators are trying to figure out is when a [bank] takes an ESG strategy and publicizes it, how do they ensure that there’s comparability so that investors and other stakeholders are able to make the appropriate decision based on what they’re reading,” he says.

There are currently several key vacancies at the bank regulatory agencies. Biden has the opportunity to appoint a new Comptroller of the Currency, a new chairman at Federal Deposit Insurance Corp. and a new vice chair for supervision at the Federal Reserve Board. “There’s a unique opportunity for some new [ESG] policy to be set,” says Koeser. “I wouldn’t be surprised if we see in the next two to three years, some formality around that.”

Koeser says he does sometimes encounter resistance to an ESG agenda from some banks that don’t see the value, particularly the environmental piece. “A lot of banks will just kind of say, ‘Well, I’m not a consumer products company. I don’t have a manufacturing division. I’m not in the transportation business. What is the environmental component to me?’” he says. But in his discussions with senior executive and directors, Koeser tries to focus on the broad theme of ESG and not just one letter in the acronym. “That brings down the level of skepticism and allows the opportunity to engage in discussions around the totality of this shift to an ESG focus,” he says. “I haven’t been run out of a boardroom talking about ESG.”

Koeser believes there is a systemic process that banks can use to get started on an ESG program. The first step is to identify a champion who will lead the effort. Next, it’s important to research what is happening in the banking industry and with your banking peers and competitors. Public company filings, media organizations such as Bank Director magazine and company websites are all good places to look. “There’s a wealth of information out there to start researching and understanding what’s happening around us,” Koeser says.

A third step in the formation process is education. “The [program] champion should start presenting to the board on what they’re finding,” Koeser says. Then comes a self-assessment where the leadership team and board compare the bank’s current state in regards to ESG to the industry and other institutions it competes with. The final step is to begin formulating an ESG strategy and building out a program.

Koeser believes that many banks are probably closer to having the building blocks of an effective ESG program than they think. “It’s really just a matter of time before ESG will become something that you’ll need to focus on,” he says. “And if you’re already promoting a lot of really good things on your website, like donating to local charities, volunteering and supporting your communities, there’s a way to formalize that and begin this process sooner rather than later.”