Uber Enters the Financial Services Market


The online transportation network company Uber shook up the transportation service industry when it introduced the idea of ride sharing. It was a revolutionary development that allowed private citizens to use their vehicles to pick up passengers and earn money for doing so. The service quickly spread around the United States and the world. The company currently provides ride sharing services in 66 countries and 449 cities globally. Other ride sharing companies like Lyft have since entered the market to compete with Uber for customers and drivers. In order to attract and retain drivers Uber has introduced several services, one of which should serve as a wake up call for the banking industry.

Uber has partnered with GoBank to offer business checking accounts and debit cards that allow drivers to get paid immediately instead of once a week. The account functions just like a regular business checking account, and in addition to collecting instant payments users can transfer funds, pay bills and deposit funds directly from other sources. Drivers can add cash to their account for free by stopping into any Walmart that has a GoBank location or by paying a small fee at any participating 7-11, Rite Aid, CVS or Walgreens. Drivers can even order paper checks for $5.95 from GoBank.

The service is offered only in the United States for now, but Uber has said it wants to eventually offer similar services to drivers around the world. The account fee is $8.95 a month but fees are waived for anyone who has initiated an instant pay transaction in the previous six months. Drivers love the fact that they can get paid instantly. Once the fee is added to the account drivers can access cash through a network of over 40,000 ATMs around the United States. The business checking account can also be a good way to keep track of Uber related driving expenses and track profits for tax purposes.

Uber picked the right partner to expand into financial services. GoBank is a subsidiary of Green Dot Corp., a financial services and technology company that says it is on a mission to reinvent personal banking for the masses. Green Dot pioneered the prepaid debit card business and is the leading provider of reloadable debit cards in this country. They also offer online mobile checking accounts that can be managed directly from the user’s smart phone. Green Dot has a relationship with Wal-Mart to provide prepaid debit cards and checking accounts to Wal-Mart customers. The company has marketed its products and services to people who had no previous relationship with a bank or were simply unhappy with traditional banking and wanted a more tech savvy banking relationship. Green Dot’s novel approach to providing banking services made it the perfect fit for Uber’s new instant pay process.

Uber is looking to provide other financial services to its drivers as well. It has a pilot auto leasing program underway, called Xchange Leasing, that is administered by an Uber subsidiary and offers its drivers leases on used cars, and permits them to drive unlimited miles and turn the car in with just two weeks notice. Some leases also include routine maintenance as part of the contract. Uber expects this will enable it to attract and keep drivers as they continue to expand and add services.

If all 400,000 or so Uber drivers in the United States switched their banking relationships to GoBank tomorrow it would not be a tremendous blow to the banking industry. The real threat to the industry is not in this one relationship but the fact that innovative technology companies like Uber are finding new aggressive ways to market financial services, and they are establishing relationships with those the industry has not previously served and do not care for the way the banking industry currently works. These companies are combing technology with financial services in a way that is making inroads with younger tech savvy consumers.

While Uber’s limited expansion into financial services probably won’t keep many bankers up at night, the marketing approach behind it is definitely a potential problem. If tech savvy companies that are popular with millennial consumers begin to aggressively offer financial services offer to their employees, associates and customers—many of whom are millennials—traditional banks could have a hard time building a relationship with that generation of consumers.

Community banks have always had to compete in a marketplace crowded with other banks and credit unions. They will find themselves increasingly competing with technology companies whose product just happens to be financial services. Banks are going to have to change their approach to conducting business and marketing their services to the next generation of consumers to maintain market share and grow their customer base.

The Fintech Ecosystem

The fintech ecosystem goes beyond the technology firms that work with—or compete against—the banking industry. In this video, FinXTech President & CEO Al Dominick outlines the emerging trends and issues you should watch as the fintech and banking industries continue to evolve.

Key Trends & Topics in 2016

Small and midsized banks should continue to outperform the market, but “challenger banks” are positioned to take on even more market share. Tom Michaud, president and CEO of Keefe, Bruyette & Woods, identifies these “challenger banks,” which include innovators such as Silicon Valley Bank and Opus Bank, growing due to a focus on technology and niche expertise, and strong performers such as Bank of the Ozarks and Pinnacle Financial Partners, more traditional models with strong cultures that attract talent. Speaking to the audience at Bank Director’s 2016 Acquire or Be Acquired Conference, Michaud outlines expectations for the industry in 2016, including exposure to commercial real estate, a receptive IPO market and whether we’ll see more partnerships between banks and fintech companies.

Highlights from this video:

  • Current State of the Banking Industry
  • 2016 Banking Outlook & Emerging Trends
  • The Rise of Challenger Banks
  • The IPO Market for U.S. Banks
  • Fintech Partnerships
  • Consolidation Trends

What to Look for in Your Next CEO: Part II

CEO-11-2-15.pngSelecting your bank’s next chief executive officer remains the board’s single most important responsibility. The risk of selecting an underprepared or inadequate leader is high, and can impact the bank’s strategic direction, reputation and ultimately, its viability. As highlighted last month, there are many critical banking industry skills needed in a leader today. In addition, there are intangible competencies and leadership qualities which are equally vital for the success of the CEO and the institution. Here, we emphasize ten leadership competencies and attributes which have proven vital for bank CEOs.

Leadership and Vision
As the late great management guru Peter Drucker famously stated, “management is doing things right; leadership is doing the right things.” CEOs must be able to set the proper course for an institution by outlining the company vision, and inspire employees to follow this mission.

Broad-based Communication Skills and Executive Presence
Every board member should desire these qualities in a CEO, but they can’t be taken for granted. Today’s CEO must communicate through a broader array of channels than ever before, and to a wide audience beyond the bank’s customers, employees and communities. When you add investors and regulators to the mix, the presence and style of communication become increasingly important.

Cultural Agility
The U.S. today is a bigger melting pot than ever. As a result, a bank’s customers and employees have become ever more diverse. A growing number of new businesses are started by women and minorities, so the agility to appreciate a more varied constituency is critical for banks that want to grow.

The Ability to Assess and Attract Top Talent
This may be one of the most underappreciated elements of successful leadership. Stars want to work with stars, and the ability to bring superior talent into the organization has never been more important. Talented employees have become one of the few remaining differentiators between banks.

Adaptable and Flexible
The banking industry continues to evolve rapidly and, at times, dramatically. Adaptability and flexibility are newer traits that successful CEOs must deploy. Technology leads the pack in terms of change, but regulatory focus and customer desires shift as well, and banks need leaders who can respond quickly and effectively.

Strong Execution Skills
While having a current and well-developed strategic plan will always be important, execution is the other side of the coin. The ability to drive the plan forward is the key to enhanced performance, and the variable in successful execution always comes down to managing people.

Ahead of the Curve on Industry Trends
It’s not enough to know what the current trends are. Standout leaders not only see where the industry is heading, but begin formulating responses to these trends so their bank can stay ahead of the pack.

A Focus on Accountability
There is little room in today’s bank for complacency. In a competitive and cost-conscious environment, many banks seek a leader who can enhance accountability, and recognize and reward individual performance.

Builds a “Culture of Excellence”
Excellence is a habit, as the saying goes. Banks that truly seek to distinguish themselves should cultivate a culture that practices excellence every day. Leaders who understand the need to “raise the bar” to survive and thrive will drive this focus home.

Knows How to Work Constructively With a Board of Directors
One of the quickest ways for a bank CEO to falter is to lose the trust of the board. A successful CEO must appreciate the pressure that directors face, from regulators, investors and communities, and partner with the board to manage the pressures and challenges that the institution is facing almost daily. A truly constructive working relationship benefits everyone.

For banks today, the intangible aspects of effective leadership are as important as the technical skills and industry expertise. While the tangible proficiencies may be more obvious and identifiable on the surface, it is often the attributes, competencies and qualitative elements of leadership that make the difference in the success of truly great CEOs.

Say Goodbye to ‘All Work, No Play’

Many banks today struggle with two concerns related to loyalty, both among customers and employees. Attracting and retaining talented employees, particularly among the younger and tech savvy set, remains difficult for many banks. Commanding customer loyalty is another key issue. What’s known as “gamification,” properly used, can help financial companies address these problems.

In practice, gamification uses techniques learned from video games to reward specific behaviors. Microsoft Corp.’s Xbox console has long rewarded players for their achievements, whether it’s completing a level in the popular Halo series or constructing a sword on Minecraft. A 2007 study by Electronic Entertainment Design and Research, a video game research firm, found that game titles with a greater number of possible achievements sold more copies. It’s a tactic that can work for the banking industry, particularly those desperate to attract millennial employees and customers.

“‘Gamification’ is ultimately a very powerful methodology for increasing customer engagement and ‘stickiness’ to that institution,” says Michael Yeo, a Singapore-based senior market analyst with IDC Financial Insights.

USAA.pngSan Antonio, Texas-based USAA is one financial services company that seems to have gone all-in. The bank’s Savings Coach app rewards members, who earn points and medals for completing challenges, like skipping trips to Starbucks, and transfers the money that would have been spent into a USAA savings account. The standalone app uses voice command technology, and features an animated eagle named Ace, which ties to the company’s logo and military membership. Ace provides bits of financial advice to users. “He’s sort of a stern-sounding dude who scans your transactions” to identify ways to save money, says Neff Hudson, vice president, emerging channels at USAA. Members have saved $400,000 so far through the app, which was introduced in July. In the near future, Hudson says members could earn rewards by using other USAA services, such as financial planning, that establish a more sound financial future for the customer.

Perhaps it’s no surprise that other examples from the world of video games abound in the fintech sector. New York City-based online investing platform Kapitall makes investing a game, where users can earn points by completing educational quests, participating in tournaments or playing investment-related games. These points can be redeemed for items in Kapitall’s online store. LendUp, an online lender based in San Francisco, rewards the good behavior of lessees that make payments on time or take education courses. Points earned by climbing “The LendUp Ladder” translate into a better rate for the borrower.

PaySwag.pngSimilar to LendUp, mobile payment app PaySwag rewards good behavior among a consumer base that may lack good credit and has a greater need for financial education. PaySwag was developed by Reno, Nevada-based Customer Engagement Technologies. “What we’re trying to do is completely change the concept of collections, and build that around a combination of rewards, ‘gamification’ and…education, to help really minimize defaults and get rid of the negativity around collections,” says Max Haynes, the company’s CEO. Intended for high-risk borrowers who may struggle to make payments on time, the white label app partners with lenders and other entities involved in collecting debt.  Users can earn points by watching educational videos or making payments on time. Those points translate into small rewards, like a $5 Amazon gift card. The program also allows some flexibility for the borrower to make changes to their payment plan. By using PaySwag, these organizations aim to establish good financial habits that help users avoid delinquencies—meaning PaySwag’s partners are paid on time. One auto lender saw serious delinquencies of more than 30 days drop by 50 percent over a one-year period, says Haynes.

USAA works with Badgeville, a Redwood City, California-based “gamification” solution provider. In addition to adding savings games for customers, USAA is in the early stages of using similar methods to better engage and motivate employees.

According to Karen Hsu, Badgeville’s vice president of marketing, the purpose is “to change behavior and motivate, really motivate people, and it’s to motivate to perform better year after year.” She says video game techniques can help speed up the onboarding process for new employees, and continue training and education efforts. Employees can provide each other with positive encouragement and real-time feedback, and earn points for answering a coworker’s question or sharing educational materials, like an article. “It’s hard to physically give everybody the time they need, and being able to give that instant feedback is really important,” says Hsu. Employees can also be encouraged to develop skills and expertise in certain areas, or to meet specific criteria that help the institution’s efforts to cross-sell products and services.

USAA has five projects in the works using video game methods, and more on the drawing board. “I really think we need to look at this as a set of tactics that can make the products that we offer our members and consumers better,” says Hudson. As expectations change to meet the demands of younger generations, “gamification” could provide a strategic advantage to banks creative enough to use it.

What Bank Directors Are Worried About Now

Apparently, bank directors are a very worried bunch. Nearly 20 members of Bank Director’s membership program responded to the question posed in last month’s newsletter: “What worries you most about the future?” We’ve compiled a word cloud that shows which words came up most often in bank directors’ responses, followed by direct quotes.

Assessing Your Board’s Strengths and Weaknesses

4-6-15-Jack.pngIf the composition of a bank board of directors hasn’t changed over a period of several years, is it a sign of stability—or stagnation?

The banking industry has gone through a period of dramatic change since the financial crisis, and a board that was up to the challenge of providing effective oversight in 2007 might not be today. Consider how much has changed in recent years:

  • The regulatory environment has become much more rigorous, not only with more rules and regulations than ever before, but with a higher level of supervision by the bank regulatory agencies. Boards in particular are under greater scrutiny today.
  • Much greater emphasis is now being placed on risk management. Primary regulators encourage (or require) banks of all sizes to adopt new approaches like enterprise risk management and stress testing, and to form board-level risk committees.
  • The emergence of potential nonbank competitors like Google, Apple, Facebook and the Lending Club, many of whom are more technologically savvy and quicker to bring new products to market than traditional banks, may threaten to erode the industry’s market share.
  • The exploding popularity of all things mobile is forcing banks to reassess their reliance on bank branches as their primary distribution system.

If the membership of your board is the same today as it was seven years ago, you should consider doing an assessment to determine whether its collective skill set and knowledge match up with the bank’s challenges. Most directors are generalists who bring their good judgment and experience to the board table, and while these are invaluable assets, it can be very helpful to have experts in specific areas of need.

One institution that has done an impressive job of refitting its board is Huntington Bankshares Inc. in Columbus, Ohio. The bank was one of many casualties of the financial crisis and in 2008 found itself with some pretty significant credit issues, a balance sheet that needed to be strengthened with more capital and a chief executive officer who had reached retirement age. Chairman and CEO Stephen Steinour was hired in January 2009 to lead the bank’s turnaround, and in early 2010 Steinour and the board did a thorough assessment of the board’s strengths and weaknesses.

“In conjunction with Steve, we developed a list of the qualities that Huntington needed on its board as we moved into the future,” says David Porteous, the bank’s lead director. “We had this incredibly talented board but over time we had [become] overweighted in some talents and in other areas [we were] underweighted.” Porteous says that exercise was “absolutely essential” because it identified the kinds of directors that Huntington would need going forward.

That process resulted in some of the bank’s directors stepping down while five new directors have joined the board since 2010. Peter Kight, managing partner of the private equity firm Comvest Partners and founder of technology pioneer CheckFree Corp., which was sold to Fiserv Inc. in 2007, brings a deep knowledge of financial technology to the Huntington board and chairs its technology committee. Steven Elliott, a former senior vice chairman at Bank of New York Mellon Corp., has a background in banking and risk management and chairs the bank’s risk oversight committee. Richard Neu, board chairman at MCG Capital Corp. and a former bank treasurer, chairs the audit committee. Retired KPMG partner and director Eddie Munson, who has an extensive accounting background, also serves on the audit committee. And Ann Crane, president and CEO of Crane Group Co., a family-owned company in Columbus, brings her experience with private businesses.

“We’ve been able to add a number of directors to complement what is really a strong core of directors,” says Steinour. “It allowed us to bolster the areas that we identified in 2010. And we continue to work on that as we think through director retirements and the incremental areas of opportunity for us to enhance the breadth of skills and knowledge on the board.”

Other articles related to governance:
Do You Trust Your CEO, and Do They Trust You?
Do You Have a Committed Board?

Women Who Serve as CEOs Talk About the Glass Ceiling

2-24-15-OTC.pngThe banking industry’s top ranks have long been considered an “old boys’ club,” if not forbidden to women, at least unwelcoming. Even today, only one of America’s 25 largest banks has a woman in the CEO slot: Beth Mooney, chairman and CEO of KeyCorp.

That’s why I was surprised to discover more than one-third of the 46 banks that trade on our OTCQX marketplace have a woman in a senior leadership role. In fact, two OTCQX banks have a female CEO and CFO and one bank has a female chairwoman.

But the gender diversity doesn’t stop there. Of the 15 OTCQX banks surveyed, several reported a high number of women in senior leadership roles. In one bank, up to 80 percent of the senior leadership was female. The two banks with a female CEO and CFO also reported a high concentration of women on their boards.

Click image for complete list

Is there a correlation between being a transparent, shareholder-friendly OTCQX community bank and having more female officers and board members? Who knows, but I thought I’d ask female OTCQX bank executives about their thoughts on gender diversity in banking, what unique traits women bring to the banking profession and their advice to young female bankers who seek to ascend the ladders at their companies. Here are their thoughts:

Do you think gender diversity is important on community bank boards and management? Why or why not?
“… gender diversity is just as important as professional, educational, and ethnic diversity on a bank board and in management.” —Janet Silveria, president and CEO of Community Bank of Santa Maria (OTCQX: CYSM), a $211-million asset community bank serving Santa Maria, Orcutt and Lompoc, California.

“Yes, as is overall diversity including education, experience, ethnicity, etc.  I think having a female on the board changes the communication and dynamics of a board of mostly men in a positive way.” —Tamara Gurney, president and CEO of Mission Valley Bancorp (OTCQX: MVLY), holding company for Mission Valley Bank in Sun Valley, California, with $260 million in assets.

What unique trait or perspective do you think women bring to bank boards and the C-suite?
“… women tend to be more practical and analytical. They tend to work better as a team, and see things more globally.” —Silveria.

“… women are very efficient and good at multi-tasking.  In addition, many women are very good at decision making and a caring approach to staff development and team building.” —Colleen Brown, senior vice president, treasurer and CFO at Standard Financial Corp. (OTCQX: STND), parent company of Standard Bank, a Pennsylvania chartered savings bank serving Allegheny, Westmoreland and Bedford Counties in Pennsylvania and Allegany County in Maryland.

What advice would you give a woman looking to attain a leadership position in banking?
“Be yourself; don’t flaunt feminism, but you don’t need to act like a man. Embrace your feminine perspective and all the positive attributes that come with being a woman. Be assertive; stand up for your convictions, but always be respectful and kind.” —Silveria

“Use the strengths of being a woman, finding balance between the more nurturing, caring side and the drive typically associated with masculinity. You need to show strength, conviction, confidence and assertiveness, but the caring and compassion are critical as well. Believe in yourself and be yourself; don’t try to act like a man.” —Gurney

When asked if they actively recruit or mentor young women at their companies, most survey respondents said that they take a measured approach, preferring to hire the “best person for the job” rather than hire based on gender.

As to a pay disparity between male and female bankers, most of the women agreed it still exists, but at least one sees a silver lining: “I have seen a slight improvement,” says Gurney.

Eight Changes To Expect in 2013

The past year saw the banking industry recover significantly from the fallout of bad loans and poor asset quality. While profitability improved, the impact of new banking regulations began to take effect, including provisions that cut debit fee income for banks above $10 billion in assets. So what is in store for 2013? Bank Director asked industry experts to answer the question: What will be the biggest change in banking in 2013? Here are their responses: