Leveraging Artificial Intelligence in 2022

Around a quarter of bank executives and board members reported that their institution used artificial intelligence (AI) and/or machine learning in Bank Director’s 2021 Technology Survey — leaving room for more banks to adopt these technologies over the next few years. Slaven Bilac, CEO of Agent IQ, shares use cases for AI and offers advice for bank leaders seeking to add these solutions.

  • AI Applications
  • Requirements for Adoption
  • Overcoming Barriers
  • Questions to Ask

The Do’s and Don’ts of Digital Lending Transformation

For many mid-size community banks, the shift to technology has been slower than expected. There can be a resistant mindset when it comes to implementing financial technology practices, hindering any results that the technology can provide. Bankers try to make the tech fit to their existing processes, rather than the other way around.

If you’re already considering a digital transformation, you might be tempted to run out and overhaul your entire system right away. However, this can be an overwhelming approach, destining the project for failure. One recent study finds that most financial institutions that have partnered with fintech firms have seen moderate gains, but there is still a need to distribute more dedicated resources to a true digital lending transformation. However, there are a few quick do’s and don’ts that every institution can benefit from:

Don’t try to overhaul the entire thing at once. Take an assessment of not only your bank’s current technology state, but also of your current practices and approaches. Too often, financial institutions want to focus on “the way it’s always been done,” rather than looking to see how digital solutions can make processes easier and more efficient. Keep what works in today (and tomorrow’s) environment and find ways to adapt the rest.

Do start with the most profitable areas. One of the best ways to see the most return on an investment in digital is to begin with the areas that drive revenue and profit to the institution. Your back office and credit department will benefit the most from technology that allows them to operate more efficiently and make decisions faster, making them logical starting points.

Don’t try to mix and match solutions. When it comes to implementing technology into the branches, many choose to try and piecemeal different products and systems together. While you might think this approach saves money by only buying certain products from certain vendors, your bank is most likely losing key integrations that can come from having a single solution.

Do trust your technology partners to guide you. Finding a partner that understands what it means to work in a bank, with these current processes, ensures that you’re getting support from folks that understand what you’re trying to do. The key here is trust. Too often, banks are resistant to the idea that their technology partners might be able to teach them a more efficient way.

Don’t try to change the technology. Rather than looking at how the bank can adopt the tech to its processes, consider leveraging technology partners to explore how your bank can simplify processes through technology. When you purchase a solution from a financial technology provider, you’re also paying for their expertise. Don’t throw your money away.

Do adjust your mindset when it comes to tech. Tech in the banking industry has made giant leaps in the last five years, let alone in the decades prior to that. If your bank’s mindset when it comes to implementing or adding technology into your processes is that certain things can’t be changed because it’s always been done this way, you’re setting yourself up to achieve fewer desirable results.

When the coronavirus pandemic sent everyone to their homes for months in 2020, many banks were forced to recognize that an online portal or a mobile app wasn’t going to cut it anymore. Adapting to a fully automated process has become necessary, not optional. Now is the time to learn from this and to take control of your technology. Don’t wait until the next unexpected issue forces you to adapt, when you can get ahead of the game.

About Baker Hill
Baker Hill empowers financial institutions to work smarter, reduce risk and drive more profitable relationships. The company delivers a single unified platform with modern solutions to streamline loan origination and risk management for commercial, small business and consumer lending. The Baker Hill NextGen® platform also delivers sophisticated analytics and marketing solutions that support sound business decisions to mitigate risk, generate growth and maximize profitability. For more information, visit www.bakerhill.com.

FinXTech’s Need to Know: Augmented Intelligence

Banks are exploring how to best develop and retain personal relationships as financial interactions move online.

Here’s what they need to know.

Replicating in-branch experiences isn’t only about providing customers with tailored responses and greeting them by name. It’s also about giving those customers the ability to control their interactions: how, when and with whom they handle their financial situations.

Some customers may want to call, some may feel more comfortable texting and some may change their mind and want to head to their local branch in the middle of a conversation. Chatbots — often powered by rules-based artificial intelligence — can automatically populate responses, but may fall short when it comes to fluid and intuitive communications that customers want, potentially complicating their issue resolution.

To address this shortcoming and improve digital communication capabilities, some banks have decided to build their own technology. Umpqua Holdings Corp., which has $30.9 billion in assets and is headquartered in Portland, Oregon, launched its customized Umpqua Go-To platform in 2018. The stand-alone app was developed and built in-house at Umpqua’s innovation lab, Pivotus Ventures, according to The Financial Brand. Umpqua Go-To allows customers to personally select which banker they want to interact with based on who was available online.

But many banks don’t have the bandwidth, resources or budget to build their own technology from scratch. Instead, a bank can choose to partner with a financial technology company such as Agent IQ.

The San Francisco-based fintech helps banks communicate with their customers using augmented intelligence. Augmented intelligence is used to enhance and assist human-based communication, unlike artificial intelligence, which often aims to replace it.

At institutions that use Agent IQ, customers can choose a specific, personal banker to communicate with through digital channels, which can include mobile messaging, web chat and SMS text messaging, as well as social media channels like Whatsapp and Facebook Messenger.

Agent IQ uses asynchronous technology: Customers and bankers can pick up conversations where they left off, at any time and through any channel. The conversation records are saved after a banker or customer leaves a session and can be referenced afterward by either party, by another banker or for compliance purposes.

Bankers are always looking to improve their customers’ experience. In fact, Bank Director’s 2021 Technology Survey found this to be the second most popular response driving banks’ technology strategy; 68% included it in their top three objectives.

And as it turns out, customers respond well to 24/7 access to personal bankers.

Independent Bank Corp., the $14.5 billion parent of Rockland Trust Company based in Rockland, Massachusetts, has seen significant engagement with the Agent IQ platform since its implementation. Since late May 2021, over 37,000 customers — approximately one fifth of their online customers — have used the platform without the bank marketing it or notifying customers of its presence, said Patrick Myron, Rockland’s senior vice president of retail network strategy and sales analytics, during a recent webinar hosted by Agent IQ. That’s an average of 500 to 600 weekly conversations that customers are opting into because they want to reach their banker digitally.

“We’ve done customer surveys,’’ he said. “The majority [of the results] are seven out of seven. They really like the engagement – the ability to talk to a banker any time they want.”

Chatbots are built to interact with customers with predetermined responses. That automation can be useful for directing traffic to certain webpages or answering yes and no questions, but many financial situations are complex and can’t be appropriately addressed solely by chatbots. Instead of being transferred to a bank representative 10 minutes into a conversation with a chatbot, Agent IQ will show the customer who’s available to communicate at the start of the interaction.

According to Bank Director’s 2021 Technology Survey, chatbots may not even be what banks want. Seventy-eight percent of respondents stated the bank doesn’t use chatbots. Only 15% had chatbots and 7% were unsure if the bank had them.

Augmented intelligence can enhance digital communication between banks and their customers, not replace it with algorithms. Firms that leverage it, like Agent IQ, may be an attractive solution for banks looking to create and maintain digital relationships with their customers.

Agent IQ is included in FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email finxtech@bankdirector.com.

What the Heck is Web3?

With increased interest around Web3, making sense of the latest and newest technology trend — and its potential impact on financial services —  could add value to strategic discussions as leadership teams and boards consider their long-term strategies.

For early and seed stage venture capital, the top 15 firms invested $1.3 billion in Web3 and decentralized finance in the third quarter 2021, according to Pitchbook. The research company said investment in the space — which includes $900 million into the cryptocurrency exchange FTX and $120 million in Offchain Labs, a blockchain-based, smart contracts platform — beat out the separate fintech category, which landed in the No. 2 spot with $860 million invested.

Not everyone is convinced. In a December 2021 tweet, Tesla CEO Elon Musk called Web3 “more marketing buzzword than reality right now.” He was responding to a video of a 1995 interview of Microsoft Corp. founder Bill Gates with David Letterman, in which the TV host asked, “What about this internet thing?”

That question seems quaint today. Amazon.com had just opened for business as an online bookstore; Mark Zuckerberg would start Facebook roughly a decade later.

Facebook represents the current state of the internet, characterized by centralized platforms that own or leverage user content. But the web continues to evolve; venture capital firms and tech titans are using the term “Web3” to discuss this next phase. These changes encompass concepts that bank leadership teams and boards should be watching and regularly discussing.

“Web3 is really just a rebranding of a lot of the things we’ve already been talking about for a while,” says Alex Johnson, director, fintech research at Cornerstone Advisors. “It’s the collision of the internet and crypto in a way that allows for users of the internet to have verifiable ownership over the companies and products that they interact with.”

The expansion of digital assets underpinned by blockchain — including cryptocurrency and non-fungible tokens (NFTs), which represent ownership in art, music or even real estate — are reshaping the way that internet users think about ownership.

“There will now be the capability to give verifiable ownership — over content, over relationships, over access to special features, over [intellectual property] — to customers or users. And the potential impact of that is that companies that do that will have a significant marketing advantage and retention advantage,” says Johnson. Companies could use tokens to build loyalty and community, granting partial ownership to customers of products or ideas, similar to a referral bonus or share of stock.

Leveraging blockchain technology, investor Ryan Zacharia envisions consumers and businesses building digital identities. “People are going to effectively own and control their own identities and information, and hold that information in a digital wallet,” providing access when applying for a loan, for example. Zacharia is general partner at JAM Special Opportunity Ventures, which invests in up-and-coming bank technologies on behalf of partner institutions.

At the same time, a few banks are using blockchain to power real-time transactions. Last month, I watched the first real-time interbank transfer of stablecoins — cryptocurrency pegged to a stable currency or commodity — between two banks, $53 billion Western Alliance Bancorp., based in Phoenix, and $2.5 billion Coastal Financial Corp. in Everett, Washington. The transaction was facilitated by Tassat Group, which provides blockchain-based payment solutions for banks.

“The ability to have programmable money is a game changer for the whole economy,” says Chris Nichols, director of capital markets for SouthState Bank. “It’s the first time where you have value, the message and the ability to program all in one unit of code. … [T]his opens up a whole new set of products for banks.” Signature Bank, JPMorgan Chase & Co., Customers Bancorp and New York Community Bancorp are among the banks exploring blockchain-based products and services focused on payments and asset securitization.

Fintechs competing with banks are also taking advantage of the disintermediation trends promised by a Web3 economy. In March 2021, Block (formerly Square) acquired TIDAL. The artist-centered music streaming platform allows the Jack Dorsey-led digital payments provider to tap into another niche. In a press release, current TIDAL head and Square executive Jesse Dorogusker said the two platforms would “explore new artist tools, listener experiences, and access to financial systems that help artists be successful.”

Musicians and artists have been early movers on NFTs. Just last month, Ozzy Osbourne launched a “CryptoBatz” collection of NFTs, commemorating the notorious 1982 gig where the rocker bit the head off a bat. Earlier in 2021, the band Kings of Leon released the first NFT album.

“There is an opportunity for content creators, music creators, owners and writers and musicians to eliminate intermediation, connect directly to their fans [and] sell their music as NFTs,” says Zacharia. “That can generate revenue for the musician, and the NFT holders can receive programmatic royalties based on [a song] being played …  or what have you.”

Web3 requires an open mind and a firm foot in reality. Research into these concepts quickly unearth ideas that seem more like science fiction than traditional economics and finance. Facebook, for example, recently changed its corporate name to Meta Platforms as Zuckerberg expects people to interact more in the metaverse. Will part of the economy take place in a digital world, where we interact via avatars in a virtual space?

”It’s important to have conversations that contemplate what the world could look like in five or 10 years,” says Zacharia. The metaverse is an unlikely next step for a typical bank, but he could see an early-mover advantage for an enterprising financial institution that figures out how to bank the space. And despite the sci-fi luster, the evolution of the web promises to soldier on, bringing opportunities and risks for banks to consider, including fraud and cybersecurity. “There’s a tremendous amount of talent and effort and capital that’s going into this,” he says. “Frankly, I don’t think it’s a fad.”

Digital Deniers Need Not Apply

There are few bankers who understand the process of digital transformation better than Mike Butler.

Beginning in 2014, Butler oversaw the evolution of Boston-based Radius Bancorp from a federally chartered, brick-and-mortar thrift to one of the most tech-forward banks in the country. Radius closed all its branches except for one (federal thrifts are required to have at least one branch) and adopted a digital-only consumer banking platform.

The digital reinvention was so successful that in February 2020, LendingClub Corp. announced a deal to buy Radius to augment that marketplace lender’s push into digital banking. Now Butler is off on another digital adventure, this time as president and CEO of New York-based Grasshopper Bancorp, a five-year-old de novo bank focused on the small business market. Like Radius, Grasshopper operates a digital-only platform.

Butler will moderate a panel discussion at Bank Director’s upcoming Acquire or Be Acquired Conference focusing on the importance of integrating bank strategy with technology investments. The conference runs Jan. 30-Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

Butler says that successful transformation begins with the bank’s executive management team and board of directors, where discussions about technology need to be an integral part of strategic planning. And most importantly, management and the board need to see digital transformation as crucial to the bank’s future success. Butler says there are still plenty of “digital deniers” among bankers who believe they can be successful without strengthening their institution’s digital capabilities.

“Have you embraced the kinds of changes that are taking place inside the industry?” Butler says. “And do you have a very strong cultural commitment to be a part of that change? When you do that, you start to look to technology as the enabling driver to get you to that place.”

Management teams that are just starting out on a path to digital transformation can easily find themselves overwhelmed by the sheer number of potential projects. “The most important thing to do is to prioritize and recognize that you cannot do this all at once,” Butler says. “It would be a mess if you tried. Pick two to three things that you think are critically important.”

A third element of a successful transformation process is finding the right person to lead the project. “You’ve got to have the right talent to do it,” Butler says. “That leader better be somebody who has been pushing it rather than you push it on them as CEO. You can’t say, ‘Joe, you’ve been running branches for 30 years, do you believe in digital? Eh, kind of. Okay, I want you to put in a digital platform.’ That’s not going to work.”

Butler goes so far as to say that only true believers should run those fintech projects. “You cannot do this without people that have the passion and the belief to get to the other side, because you will hit a lot of roadblocks and you’ve got to be able to bust through those roadblocks,” he says. “And if you don’t believe, if you don’t have the passion, there’s a lot of reasons to stop and go a different way.”

Butler might not seem the most likely person to be a digital change agent. He spent 13 years at Radius and pursued a branch banking strategy in the early years. Prior to joining Radius, Butler was president of KeyCorp’s national consumer finance business. He did not come from the fintech sector. He has a traditional banking background. And yet as Butler is quick to point out, Radius didn’t reinvent banking, it reinvented the customer experience.

The fact that Butler lacked a technology background didn’t deter him from pursuing a transformational strategy at Radius. He was smart enough to see the changes taking place throughout the industry, so he understood the business case, and he was also smart enough to surround himself with highly committed people who did understand the technology.

In building out its digital consumer banking platform, Radius worked with a number of third-party fintech vendors. “I wasn’t making technology decisions about whose technology was better, but I surely was making decisions about the companies that we were partnering with and what type of people we were willing to work with,” Butler says. “I met every single CEO of every company that we did business with, and that was a big part of our decision as to why we would partner with them.”

At Grasshopper, Butler says he prefers the challenge of building a new digital bank from scratch rather than converting a traditional bank like Radius to a digital environment. Sure, there are all the pain points of a startup, including raising capital. But the advantages go beyond starting with a clean piece of paper from a design perspective. “It’s really hard to transform a culture into something new inside of an organization,” Butler says. “So, I’d say the upside is that you get to start from scratch and hire the right people who have the right mindset.”

Five Fintech Solutions Every Bank Should Have

If Money 20/20 was any indication, it seems like banks are finally ready to really embrace fintech. Small and medium-sized banks have realized that their technology budgets can be used for things other than building and managing technology in-house to keep up with large financial institutions with big budgets and neobanks with brand new tech stacks. A tech stack is the combination of technologies a company uses to build and run an application or project, and typically consists of programming languages, frameworks, a database, front-end tools, back-end tools and applications connected via APIs.

For banks starting to explore fintech partnerships, we’ve compiled a list of the top five fintech solutions every bank should have in its tech stack today.

1. Account Opening Platform
New customer acquisition is one of the most important components of a successful financial institution. An online account opening platform powers an omnichannel interface to onboard new customers quickly and seamlessly. A good account opening platform should also provide a customizable user interface, increased account conversion rates and detailed reporting.

2. Identity Decisioning Platform
An identity decisioning platform, or IDP, automates identity and risk decisions across the lifecycle of your customer. IDPs power smart decisions that can reduce risk for your business while providing a frictionless customer experience for identity verification and onboarding, ongoing transaction monitoring and credit underwriting.

IDPs are the decision engine behind the account opening platform that helps banks determine whether to accept or reject an applicant. It continues to monitor that client’s account activity and powers underwriting decisions. Your IDP should connect to multiple data sources through application programming interfaces, or APIs, allowing you to add and change data sources as needed. By bringing all of your identity and risk decisions into one platform, you’ll see a holistic view of your customers and automate more decisions.

3. Open Banking Platform
Your customers expect to be able to access their financial data across various apps. Open banking platforms make it easy for banks to securely share data with third-party businesses through an API that allows customers to connect their banking data. Open banking platforms are the key component connecting your bank to popular apps like peer-to-peer payments, financial management and cryptocurrency investments.

4. BaaS Platform
You’ve probably noticed the trend of non-bank businesses beginning to offer financial products. This trend is powered through BaaS, or banking as a service, platforms. BaaS platforms enable a third-party business to integrate digital banking or payment services directly into their products by connecting them with a bank. This model allows non-financial institutions the ability to offer a financial product without getting a banking license. Unlike open banking platforms, which share the financial data within a bank account to a third-party business, BaaS platforms transfer the complete banking services into a third-party business’s product.

5. Know Your Transaction Solution
If your bank is starting to think about how to approach cryptocurrency and digital assets, one of the first things you’ll need is a Know Your Transaction, or KYT, provider to complement your Know Your Customer (KYC) procedures. KYT solutions help you remain compliant with anti-money laundering laws when monitoring crypto transactions. A KYT solution allows banks to track crypto funds and ensure they are not coming from mixers (a service that mixes streams of cryptocurrency to improve anonymity and make it more difficult to trace), foreign exchanges or blacklisted addresses.

Fintech companies can provide a lot of value to banks. Many of them are built to plug into your existing infrastructure and be up and running in weeks. They can help banks be more agile and adapt to new customer needs faster, save banks money on engineering resources and bring focused expertise to their category. Alloy also has resources available to help banks select fintech partners and build out their tech stacks.

Commercial Lending Automation in 2022


To compete today, banks need to proactively meet the needs of their commercial clients. That not only requires building strong relationships but also improving the digital experience by automating the commercial lending process. Joe Ehrhardt, CEO and founder of Teslar Software, shares how bank leaders should think through enhancing lending processes and how they should consider selecting the best tools to meet their strategic goals.

  • Shifting Client Expectations
  • Processes Banks Should Automate Next
  • Specific Technologies to Adopt
  • Selecting Providers

Filling the Gap of Wealth Management Offerings to Grow Wallet Share

Americans need personalized financial and wealth management advice more than ever, but don’t know where to look.

The coronavirus pandemic negatively impacted personal finances for more than 60% of Americans, according to recent data from GOBankingRates. Many of these Americans have relationships with regional and community banks that could be a trusted partner when it comes to investing and planning for the future, but these institutions often lack adequate financial advisory resources and options. This drives customers to social media and other providers, such as fintechs or large national institutions, for wealth management needs — when they actually would prefer a personal, professional relationship with their bank.

The current need for stronger wealth management offerigns, coupled with advances in easy-to-deploy technology, means that community banks can now offer more holistic, lifecycle financial advice. These offerings have the potential to create new revenue streams, engage people earlier in their wealth-building and financial planning journey, deepen and fortify existing customer relationships and make financial advice more accessible.

But while many banks have a strong depositor base and a customer base that trusts them, the majority don’t have the expertise, resources or digital engagement tools to offer these services. Modern technology can help fill this gap, empowering institutions to offer more robust financial advisory services.

Banks should meet customers where they spend the majority of their time — within digital channels. Intuitive, self-service digital options presents a valuable way to engage customers in a way that’s not complex or requires additional staff in branches. First steps can include a digital calculator within the bank’s mobile app so individuals can compute their financial wellness score, or presenting simple options to customers to invest a nominal sum of money, then adding a way to monitor its progress or dips. It can also include a digital planning discovery tool to help customers organize their accounts online.

More meaningful success lies in leveraging customer behavior data to understand changes and designing processes so that individual can seamlessly move to the next phase of the financial advice lifecycle. This might include flagging when a customer opens additional accounts, when someone has a high cash balance and frequent deposits, or when a younger individual accrues more wealth that simply sits. If banks fail to proactively monitor this activity and reach out with relevant hooks, offers and insights, that individual is almost guaranteed to look elsewhere — taking their money and loyalty with them.

Banks should provide options for customers to reach out for guidance or questions around next steps — including knowledgeable financial advisors at the ready. While people are increasingly comfortable with (and establishing a preference toward) managing money and investments digitally, there is still a critical need for direct and quick access to a live human. Banks can integrating matching capabilities and staffing regional centers or branches with designated experts, but there should also be options for customers to contact advisors remotely through video or chat. This allows individuals to receive relevant advice and support from anywhere, anytime.

But building the infrastructure that can properly serve and support clients throughout every stage and situation can be prohibitive and cumbersome for most community and regional institutions. Fortunately, there are strategic technology partners that can offer a modern, end-to-end platform that spans the entire advisory lifecycle and offers integrated digital enablement right out of the box.

A platform, in lieu of a collection of bespoke software features from multiple vendors, can act as a single point of truth and provides a centralized ecosystem for customers to receive a holistic snapshot of their financial situations and plan. Look for platforms with open APIs to facilitate seamless integration to complement and maintain the front, middle and back office while offering a full range of functionality for bank customers. Plus, having one platform that can accommodate every stage of the financial advisory lifecycle makes interactions easier and more efficient for the institution, and more familiar and friendly for the customer.

Community and regional institutions have always served as a beacon of trust and support for their communities and customers. They don’t have to experience customer attrition over wealth management options and functions. Those that do so will be able to form even stickier, more profitable relationships, while helping customers broaden their opportunities and improve their overall financial wellness.

2021 Technology Survey Results: Tracking Spending and Strategy at America’s Banks

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon recognizes the enormous competitive pressures facing the banking industry, particularly from big technology companies and emerging startups.

“The landscape is changing dramatically,” Dimon said at a June 2021 conference, where he described the bank’s growth strategy as “three yards and a cloud of dust” —  a phrase that described football coach Woody Hayes’ penchant for calling running plays that gain just a few yards at a time. Adding technology, along with bankers and branches, will drive revenues at Chase — and also costs. The megabank spends around $11 billion a year on technology. Products recently launched include a digital investing app in 2019, and a buy now, pay later installment loan called “My Chase Plan” in November 2020. It’s also invested in more than 100 fintech companies.

“We think we have [a] huge competitive advantage,” Dimon said, “and huge competition … way beyond anything the banks have seen in the last 50 [to] 75 years.”

Community banks’ spending on technology won’t get within field-goal distance of JPMorgan Chase’s technology spend, but budgets are rising. More than three-quarters of the executives and board members responding to Bank Director’s 2021 Technology Survey, sponsored by CDW, say their technology budget for fiscal year 2021 increased from 2020, at a median of 10%. The survey, conducted in June and July, explores how banks with less than $100 billion in assets leverage their technology investment to respond to competitive threats, along with the adoption of specific technologies.

Those surveyed budgeted an overall median of almost $1.7 million in FY 2021 for technology, which works out to 1% of assets, according to respondents. A median 40% of that budget goes to core systems.

However, smaller banks with less than $500 million in assets are spending more, at a median of 3% of assets. Further, larger banks with more than $1 billion in assets spend more on expertise, in the form of internal staffing and managed services — indicating a widening expertise gap for community banks.

Key Findings

Competitive Concerns
Despite rising competition outside the traditional banking sphere — including digital payment providers such as Square, which launched a small business banking suite shortly after the survey closed in July — respondents say they consider local banks and credit unions (54%), and/or large and superregional banks (45%), to be the greatest competitive threats to their bank.

Digital Evolution Continues
Fifty-four percent of respondents believe their customers prefer to interact through digital channels, compared to 41% who believe their clients prefer face-to-face interactions. Banks continued to ramp up their digital capabilities in the third and fourth quarters of last year and into the first half of 2021, with 41% upgrading or implementing digital deposit account opening, and 30% already offering this capability. More than a third upgraded or implemented digital loan applications, and 27% already had this option in place.

Data Dilemma
One-third upgraded or implemented data analytics capabilities at their bank over the past four quarters, and another third say these capabilities were already in place. However, when asked about their bank’s internal technology expertise, more than half say they’re concerned the bank isn’t effectively using and/or aggregating its data. Less than 20% have a chief data officer on staff, and just 13% employ data scientists.

Cryptocurrency
More than 40% say their bank’s leadership team has discussed cryptocurrency and are weighing the potential opportunities and risks. A quarter don’t expect cryptocurrency to affect their bank; a third haven’t discussed it.

Behind the Times
Thirty-six percent of respondents worry that bank leaders have an inadequate understanding of how emerging technologies could impact their institution. Further, 31% express concern about their reliance on outdated technology.

Serving Digital Natives
Are banks ready to serve younger generations? Just 43% believe their bank effectively serves millennial customers, who are between 25 and 40 years old. But most (57%) believe their banks are taking the right steps with the next generation — Gen Z, the oldest of whom are 24 years old. It’s important that financial institutions start getting this right: More than half of Americans are millennials or younger.

To view the full results of the survey, click here.

Building a Digital Masterpiece on Top of the Core

Digital banking has become a must-have feature. The coronavirus pandemic forced consumers to accelerate their adoption of digital banking tools; now they love the convenience and flexibility these products provide.

But what is troubling for banks is that many consumers do not care if these services are met by a traditional financial institution or a fintech challenger bank. U.S. consumers are increasingly comfortable transacting with an increasing number of financial service providers to get the specific products and features that are most important to them.

According to a recent survey conducted by Cornerstone Advisors, 35% of consumers now have more than one checking account, led by the 42% of millennials who have two or more accounts. The report found that challenger banks hold a growing number of these accounts by offering specific features that consumers can’t get from their existing financial institution.

This pressure is particularly high on community and regional banks, which lack the budgets and IT resources of the global banks. However, the technology powering challenger banks has also created an emerging option that enables banks to accelerate product innovation and effectively compete with larger financial institutions and challenger banks: modular banking.

Challenger Bank Tech, One Block at a Time

Community and regional banks in pursuit of innovation are often left to choose between two equally unappealing options: wait on a core that may not innovate at the speed they want or take on the risk of a massive core conversion.

Modular banking, on the other hand, applies the challenger bank approach of building hyper-focused services to the realities of a bank’s existing core and IT landscape. Modular banking platforms typically offer the same functionality as a modern core banking system. However, instead of building the entire platform at once, modular banking approaches service much like a set of building blocks. Banks only need to select the products and services that complement their existing systems’ functionality or build new digital products on top of it.

Put simply, modular banking looks at each piece of a bank’s functionality — such as Know Your Customer, card issuance, P2P or rewards — as a collection of loosely coupled microservices and application programming interfaces (APIs) that can be combined and deployed in a cloud environment to facilitate specific use cases.

Modular banking enables institutions to build specific products to meet the specific needs of their customers and quickly adjust as market conditions change. For example, a regional bank could solve an immediate need for banking products to offer contract workers with a pre-built module, before shifting to bring innovative features for families that make up most of the service area with teen and children accounts. A modular approach to digital transformation benefits small and mid-size community banks in two keys ways.

Quickly Develop New Products
By decoupling critical infrastructure, like the systems and processes that need to work reliably but don’t confer competitive differentiation, from the people, processes and technology focused on product innovation, modular banking provides a potential solution to execution challenges that banks face.

Productive Fintech Partnerships
Creating productive, long-term partnerships requires financial institutions to build mutually beneficial relationships with fintech companies. Innovating through fintech partnerships also requires banks to move fast, which is where modular banking comes in.

The open architecture of a modular banking platform can facilitate the rapid integration of third-party partners, by giving potential partners a modern API to connect to and build on top of. Bank leaders can take a much more proactive approach to pursuing and operationalizing new partnerships.

By building these strategic partnerships, they can create a competitive differentiator to fuel growth for the coming years.