Commercial Customers Want Fintech Innovation Too


fintech-6-3-16.pngOnline banking, electronic bill pay, and mobile deposits are no longer seen as innovative offerings by consumers. They’re simply check boxes—a bare minimum set of tools and services that they expect their bank to offer. Despite the fact that this technology is considered table stakes in the battle to win consumers, business customers at most banks are still waiting their turn to benefit from this technology. And as the workforce skews younger and gets even more tech savvy, they’re going to get frustrated from waiting for comparable services—if they haven’t already.

Just last year, millennials surpassed Gen Xers as the largest generation in the U.S. labor force. This is the first digitally native generation that grew up with computers in their homes and came into adulthood with near ubiquitous access to the Internet, social networking, and mobile phones. As they take over the workforce, they’re going to want—and expect—the same conveniences they’ve become accustomed to in their personal lives. But when it comes to banking technology, they’re not getting it.

The stark difference between bill payment processes of accounting professionals at home and at work is just one example of how a lack of adequate technology is holding them back. A study last year by MineralTree found that 81 percent of respondents use paper checks frequently or exclusively at work, whereas almost half (48 percent) said they rarely use checks in their personal lives and 7 percent said they never use them at all.

If banks don’t start providing business customers with innovative tools to do their jobs more efficiently, they’re going to start looking elsewhere for the technology they want. As JP Morgan Chase & Co. CEO Jamie Dimon now famously noted in his 2015 annual shareholder letter, “Silicon Valley is coming.”

The Path to Business Banking Innovation
It’s not surprising that business customers have found themselves in this position. It makes sense that technology on the consumer side has paved the way for innovation in banking because it’s so much less complex to build and implement.

Take mobile deposits for example. Being able to take a picture of a check with a mobile phone and deposit it via a banking app is a significant advancement in mobile banking. But it’s much more realistic for a personal account holder to use this technology than it is for a business. For a company that might deposit hundreds of checks every day, taking photos of each of them with a mobile phone is simply not practical or efficient. Not to mention adding the complexities of a business’s need for increased security features like role-based permissions for different users, or integration with other enterprise systems.

Bill pay faces similar hurdles. On the consumer side, banks have proven capable of creating directories that include most of the vendors their customers regularly pay—companies like electric, cable TV or mortgage providers. But it would be nearly impossible for a single bank to create such a directory for all business payments because the size and scope of such a network is just too vast. And then there are complexities like supporting approval workflows, role-based permissions, and integrations.

Integration with other core enterprise systems is a major issue for business customers. Being able to seamlessly connect a bank’s bill pay technology with a company’s financial system of record—their accounting/ERP system—is a must have. But again, it’s a complex task that takes a high level of technical knowledge and expertise to achieve.

Innovations in consumer banking technology have made significant strides in moving the industry forward, but now commercial customers want their share of fintech innovation too. We’re at a tipping point where business banking technology needs to catch up, and the burden is on the banks to make it happen. They can either build the technology on their own or partner with companies who can. But if they don’t, they risk being left behind.

Leveraging Technology to Strengthen the Enterprise


stengthen-enterprise.png

A Georgia bank CEO was recently quoted as saying that he doesn’t “need technology that is going to help make more loans,” but technology that will “help make the loans [he’s] already making more efficiently.” His comments represent a much larger discussion about the the role of financial technology to either disrupt the banking industry or enable banks to respond more quickly to changing consumer expectations for things like speed and convenience. While non-bank financial startups are centered around technology and exploring how it might revolutionize banking, banks are trying to understand how technology can impact their existing operations and customer experience.

Specific to commercial and small business lending, there are five key areas where banks can incorporate technology to position themselves for improved performance, service and longevity given today’s market conditions and competitive factors:

Measuring financial efficiency
There are two ways to measure efficiency; the first is the financial definition of efficiency, or the efficiency ratio. The second is the practical type, characterized by shortened turnaround times, faster processes and easier methods. Both types of efficiency can be influenced by technology, but the current lending landscape calls for more focus on the latter. Using technology to speed up processes and eliminate waste will ultimately create higher and more consistent profits, a more resilient risk profile and employees empowered to make better decisions.

Achieving efficiency through auto decisioning
In an era where the rise of alternative lenders has prompted customers to demand instant action on loan queries, banks must be able to quickly and accurately deliver loan verdicts. By implementing auto decisioning technology, banks can more effectively compete against digital-platform lenders, and then grow that business. Banks’ advantage over non-bank lenders lies in their funding stability and mindfulness of operational compliance. Getting up to speed—literally–in delivering quick, smart loan approvals can give them a big boost.

Embracing the digital relationship with business customers
Banks have an opportunity to leverage technology solutions to not only better connect with their current customers, but also to attract new ones by supplementing face-to-face interaction with digital tools. Arm bankers with tools in the field so that they may meet customers where they are, and perform the same functions they could in-branch. And provide customers with a digital channel so they can track the status of a loan or complete and return important documentation from their home.

Engaging in treasury management opportunities
Treasury management is a valuable business for banks, and an area that many experts predict will have an expanding role in coming years. However, the onboarding process can be a very complex one encumbered by manual processing and poor workflow management. Transitioning to electronic documents for onboarding and seeking to automate pricing, approval and even status tracking will offer significant rewards to banks’ commercial transaction goals.

Acquiring and retaining the right talent
In recent years, the industry has experienced an alarming trend in young talent either not being interested in banking or unexpectedly leaving the industry. A large factor in this decision is banks’ hesitation to replace dated legacy systems in favor of new, cutting-edge technologies. Employees want to work in an environment where the systems they use mirror the technology user experience they have in their personal lives — intuitive, streamlined and empowered.

I predict 2016 will be the year when bankers more completely embrace technology and view it as a tool that will take their institutions into the next generation by allowing them to do the same things they’ve always done, but with much greater speed and efficiency.

Why Banks Are Buying Design Firms


design-1-22-16.pngWithin the past 18 months, two of the industry’s more innovative banks have made some seemingly odd acquisitions. McLean, Virginia-based Capital One Financial Corp., in October 2014, acquired Adaptive Path. The Spanish-based BBVA (Banco Bilbao Vizcaya Argentaria) acquired Spring Studio in April 2015. The common thread between these acquisitions? Both are San Francisco-based user experience and design firms.

Banks are seeing a critical need to improve customer experience, says Norm DeLuca, managing director of digital banking at Bottomline Technologies, a technology provider for commercial banks. He believes that changing consumer expectations and competition both within the industry and from fintech startups are contributing to a heightened focus on user experience. “One of the biggest differentiators that fintechs and new innovators lead with is a much simpler and [more] attractive user experience,” he says.

Customers increasingly identify their financial institution through their online experiences more than personal interactions, says Simon Mathews, chief strategy officer at San Francisco-based Extractable, a digital design agency. He believes that Capital One and BBVA found a way to more quickly improve the digital experience at their institutions. It’s a relatively new field, and good user experience designers aren’t easy to find. “What’s the quickest way to build a team? Go buy one,” says Mathews.

Design is only one piece of the puzzle. “Great design is important, but it really is only the tip of the iceberg on user experience,” says DeLuca.

A bank can’t expect to place a great design on top of outdated technology and create a good user experience, says Mathews. Data plays a key role. Customers with multiple accounts want to see their total relationship with the bank in one spot. That requires good, clean data, says Mathews.

The products and services offered by a financial institution need to be integrated. Can the customer easily manage and access separate products, such as loans and deposit accounts? Often, the process can be disjointed, and it’s a competitive disadvantage for the bank. “You might as well be buying from separate providers, if the experiences are separate,” says DeLuca.

Data analytics can also help banks personalize products and services for the customer, says Stephen Greer, an analyst with the research firm Celent. The industry is spending a lot on data analytics, “largely to craft that perfect customer experience,” he says.

While technology can be updated, organizational challenges are more difficult to overcome. Banks tend to operate within silos–deposit accounts in one area, wealth management in another and that doesn’t align with the needs of the consumer. “They don’t think, necessarily, about the total experience the user has,” says Mathews. “Users move fluidly between [delivery] channels.”

Great user experience requires “a really deep understanding of customer’s lives, and the environment they’re in, and what they’re trying to do and why,” says Jimmy Stead, executive vice president of e-commerce at Frost Bank, based in San Antonio, Texas, with $28 billion in assets.

Many banks rely on vendors for their technology needs, but “if the user experience relies on the vendors that they’re working with, and those vendors have solutions that are not customizable, then it’s really hard for them to address the customer experience,” says Alex Jimenez, a consultant and formerly senior vice president of digital and payments innovation at $7.1 billion asset Rockland Trust Co., based in Rockland, Massachusetts.

According to a June 2015 poll of banks and credit unions conducted by Celent, more than one-third rely on the user experience supplied by the bank’s vendor for online banking, mobile and tablet applications, with minimal customization. Realizing the increasing importance of the online channel, Frost Bank decided to build its own online banking platform internally in 2000, and continues to manage its user experience in-house. The bank still works with vendors, but is picky when it comes to those relationships. “How can we integrate them seamlessly into our experience?” Stead says he asks of vendors.

Today, expectations are shaped by Apple and Amazon, companies that have done a great job of defining the consumer experience. While more innovative banks like BBVA and Capital One are making user experience a priority, many financial institutions don’t provide a cohesive digital experience, or let their website and mobile app lag behind consumer expectations.

“We can’t fall too much in love with what we have today,” says Stead. “Technology moves so fast.”

Getting Started With Third-Party Risk Management: Two Key Questions


risk-manangement-12-22-15.pngBanks often outsource technology services to third-party vendors. In light of increased regulatory attention and third-party involvement in day-to-day business operations, many bank boards and senior management teams are considering their approach to developing a third-party risk management program. A thoughtful approach based on an initial assessment of the bank’s current state can result in better risk management and compliance that aren’t overly burdensome. Addressing two important questions will help begin the process of successfully launching an effective third-party risk management program.

Does our bank have a full inventory of its contracts and agreements?
While most banks have some type of contract management system, many typically use low-tech storage facilities—like databases of scanned copies or even hard copies in file cabinets—from which data can’t be extracted. Such storage facilities rarely contain complete records of all executed contracts, and even simple data like contract renewal notification and expiration dates are not tagged or automated. In such environments, contract terms and conditions don’t keep pace with changes to regulations and the business environment, and financial reporting and accounting concepts, such as unrecorded liabilities, contingencies, and financial commitments, exist but may not be understood or monitored.

To address such drawbacks, banks should do a complete inventory of critical relationships to ensure that they have a complete inventory of current contracts. The contracts should meet current regulatory and business requirements, and data within the contracts should be metatagged, meaning tagged with coding in a web page so it can found with a search engine. Banks should consider establishing standard, required contract terms and using technology to track compliance. Increasingly, contracts are being moved into third-party risk management systems for a “single-book-of-record” view and improved risk management beyond basic compliance.

How do we identify all relevant third parties and manage the overall effort?
The potential universe of third parties in an organization can seem endless—from global companies to intercompany affiliates to mom-and-pop providers. On top of that, the potential universe of third parties is never constant. Companies regularly are onboarding and terminating third parties and expanding or reducing third-party services. While it is important to build data and artifacts (certificates of insurance, documentation of financial viability, or Service Organization Control reports, for example) that support a risk assessment at the third-party relationship level, it is easy to lose sight of the entire population of third-party relationships. Depending on how a bank defines third parties, that population could include franchisees, external salespeople and debt holders, among others. This is one area of risk management where completeness counts.

To make such a project manageable, banks should create a strategy and roadmap to systematically identify third parties using an inclusive definition. Banks should invest in the initial data-gathering phase and make it an enterprise-wide endeavor. Effective sources of relevant information include surveys conducted by the various lines of business, contract facilities and databases, accounts-payable systems, and legal counsel. The process needs to be sustainable or the population soon will become invalid. Banks should conduct an initial review of third-party relationships by identifying categories and potential risk factors to assist with prioritizing the evaluation. The project strategy and roadmap should start with the third parties that pose a higher risk. The project roadmap should include necessary activities and the timing and resource needs related to existing and future third-party due diligence and assessments.

Moving Forward
As financial institutions work to effectively comply with the regulatory guidance and manage the risks associated with third-party relationships, creating a strategy and roadmap will help achieve compliance and avoid an overly burdensome process.

How Many Mobile Wallets Are Too Many?


mobile-wallet-12-22-15.pngFor many years, the mobile wallet landscape was filled with small niche offerings that tested some important ideas, but never really gained much national traction. However, over the past 15 months, four major players have introduced their wallets and the tipping point for widespread mobile wallet adoption appears close. Apple Pay, Android Pay, Samsung Pay and Chase Pay have extended the technology and functionality of those early wallets and have started to close the gap on a wallet that would deliver value to the trifecta of stakeholders: consumers, merchants and the wallet providers.

Should every bank be preparing to support one or more of the existing mobile wallets? CG sees five prerequisites for widespread adoption of mobile wallets.

  1. Better security. Consumers have well documented doubts about the security of mobile payments versus more traditional payment methods. Mobile wallets must implement improved authentication processes (e.g., biometrics, account number tokenization) to allay these fears as the price of admission.
  2. More large-scale mobile wallet providers. The recent addition of providers (including Chase Pay) offers the market a wide range of mobile wallet options and a key move toward critical mass for merchant acceptance.
  3. More smartphones. By 2020, there will be 6.1 billion smartphones in the global market (most with biometric security features). That’s a stark difference from the 2.6 billion smartphones in today’s market—most of which do not have biometric capabilities.
  4. More merchant acceptance of contactless payments. Many of the new terminals that merchants are implementing support both contactless payments and the EMV chip.
  5. A good reason to keep using the mobile wallet. The new wallets either have or are planning to implement rewards programs into their product, which will give consumers a compelling reason to habitually use their mobile wallets.

Each of these prerequisites to mass adoption is trending in the right direction, which means every bank should be working to support one or more of the large mobile wallets as part of their future strategy.

Many banks seem content to support the provisioning of their card accounts into Apple, Android and Samsung. The announcement of Chase Pay at the payments-focused conference Money20/20 in Las Vegas in October sent shock waves through the 10,000 conference participants. If Chase felt it needed its own proprietary wallet, will other large banks follow?

The decision to invest in a proprietary wallet should be based on three key elements in each bank’s strategic direction.

  1. Does the bank have a customer profile that wants a mobile wallet offering and would that group prefer a proprietary wallet over a large national wallet like Apple or Android?
  2. Does the bank have the internal resources or external partnerships required to develop and sustain a wallet in a very dynamic environment? (The wallet of 2020 is likely to be very different from the wallet of 2016).
  3. What are the banks’ competitors inclined to do and how will their actions affect the banks’ customers?

Each bank must consider its own strategic differentiation when determining whether to build or borrow. What distinguishes it in the marketplace and how might that change in the future? What will draw new customers to the bank in the next five or ten years?

One feasible strategy is to let others pave the way in developing new products and then figure out when and how to offer them to your own customers. It’s an approach that can minimize risk without necessarily jeopardizing the reward.

The bottom line is, mobile wallets are coming. (We really mean it this time.) Most banks must allow their card accounts to be provisioned into at least some of them. Some banks (but not most) should offer a proprietary wallet, but only if it fits into their larger strategy. Add the wallet to fit your strategy; don’t change your strategy to fit the wallet. Focus on your strategic differentiator and ensure that most of your future effort and investment are focused on the differentiator and not spread across all the possible initiatives in which you could invest (including wallets).

What to Look for in Your Next CEO: Part I


bank-ceo-10-1-15.pngSelecting a chief executive to lead your institution is a bank board’s single most important responsibility. Everything flows from this decision, including the bank’s strategy, reputation, the ability to attract critical talent, investor and employee confidence and the credibility of the board itself. Selecting an underprepared or inadequate leader—no matter how well liked or how long employed—can quickly send a bank in the wrong direction.

The list of optimal skills required in a bank CEO today could easily include dozens of items. Here we will highlight ten technical skills that we see as “must haves.” Next month, we will highlight ten leadership competencies and attributes which will complement the qualifications below.

Experience Working with Regulators
Regulatory relations were barely on the radar screen for bank leaders a decade ago, unless the bank was in trouble. However, in today’s altered regulatory climate, the ability to forge a positive working relationship with a bank’s varied regulators has become a critical element of success.

Balance Sheet Management Experience
The extended low interest rate environment has put pressure on bank spreads like never before. With interest rate risk and margin pressures on the front burner, CEOs need to understand the construction of their balance sheet, including capital strategy, more deeply than before.

Commercial Credit Skills
You can never have too much credit skill in a bank, in our opinion. Credit quality issues will quickly turn a good bank into an underperformer. The path to the CEO’s desk still goes through the commercial lending area more often than any other area.

Experience with Corporate Governance
Boards are under increased scrutiny from investors, customers, regulators, communities and even employees. CEOs need to appreciate the pressures facing directors (even for privately held and mutual institutions), and respect the ongoing challenges facing the board.

Technology Savvy, Including Evolving Channels
Technology in banking has moved from the back office to the front lines. Understanding how the rapidly shifting technological landscape is impacting the industry—and how to respond in real time—has become a vital ingredient for ongoing success.

A New Perspective on Risk Management
In the good old days, risk meant credit, fraud or simple liability for slip-and-fall accidents. Nowadays, this category has broadened to include cybersecurity, counterparty risk, compliance issues, legal challenges and more. Being able to identify and triage the bank’s risk factors is more important than ever.

Marketing and Social Media Knowledge
As mentioned, technology has become a front-line channel for growth. The integration of social media with technology has changed how many banks must go to market, build brand awareness, drive engagement and respond to customer needs. CEOs need to be plugged into these shifts, even if they are not active themselves on social media.

Exposure to Fee-Based Lines of Business
Given the decline in interest margins, boosting fee revenue appears to be on almost every bank’s strategic planning agenda. Even for banks with a low percentage of fee-driven revenue, CEOs need to explore alternative ways to grow the top line.

Transaction and Integration Experience
Many banks that never previously considered a transaction are now exploring all options, including acquisitions, mergers of equals, branch sales and purchases and fee business acquisitions. Exposure to the transactional arena has become more critical, as has the ability to successfully integrate post-transaction. Otherwise, the value derived from “doing a deal” may not be achieved.

Strategic Planning Skills
Everyone seems to have a plan, but how real and achievable is it? A CEO’s ability to craft a meaningful path forward and drive the plan’s execution has become a differentiator for successful banks.

There is no perfect template of skills which will guarantee success, particularly in the pressure-filled and constantly evolving banking industry. However, finding a CEO with a foundation grounded in these ten industry skills will increase your bank’s odds of surviving and thriving.

Unlocking Smartphone Secrets


mobile-apps-9-4-15.pngSoon, your bank may know more about you than you could imagine. Bank Director recently spoke with Stephen Burke, chief operating officer for Context360, a startup firm in San Mateo, California. Context360 uses a smartphone’s sensors to track user location and behavior, including what other apps the person is using on the phone and when. There are a variety of potential fraud and marketing applications for the technology. San Francisco-based Wells Fargo & Co. earlier this year awarded the company seed money to develop its platform for potential banking uses.

Tell me what Context360 does.
We started out three years ago focused on game developers trying to solve the problem called retention and engagement. Unlike the web, where web sites know where you came from and where you went [by] using cookies and various devices, apps are very much siloed. You don’t know where [users] came from when they open your app or where they go when they close your app. What if we could provide insights into what users do outside your app?

How does it work?
All smartphones have sensors. Once it’s installed and the user has accepted the permissions, it runs in the background. It collects changes in the phone’s state, like the phone moving, or logging in. If you open your mail app, that gets registered. Our license terms explicitly require our customers to get informed consent from the end users. I want to be very clear. We don’t have your contact lists, email content and we are not looking at SMS [text message] content. We just know that someone is spending two hours per day texting, but we don’t know the content of those texts.

I understand that Wells Fargo is interested in this as a way to prevent fraud, by knowing the customer’s location through the sensor in their smartphone and comparing that to where the credit card is being used, for example.
If you use the United app in the last few hours, that is a good indication that you might be traveling soon. We don’t know if it’s you. We know it’s your phone. If you have opted in to be directly recognized, if you are traveling a lot, you may opt to link your bank user profile with your smartphone profile.

So the bank app would know that I was doing something in an airline app, or that I had downloaded a boarding pass, so they don’t have to block my credit card when I travel to that city?
Yup. Or you could check into the Four Seasons hotel in London and because your phone is logged into the wifi there, we know it’s you. At the end of the day, your phone is you. It is the single most ubiquitous personal device ever. Similarly, if you travel back and your credit card continues to be used in London but your phone is in Tennessee, that’s a signal those charges should be blocked. We are in the middle of three weeks of testing for another use case, which is lead generation or cross selling. The example here is you suddenly have an interest in real estate apps such as Trulia or Zillow, and that’s a sign you might be in the market for a house. If I’m Wells Fargo, I have a new loan rate and I have 6,000 people in Tennessee who have been looking for real estate, so why don’t I send them a message right now that they should come in and talk to a loan officer now?

As a user, do you know what I’m searching for on the web?
No. We see the broad category, such as she just downloaded an app. But we don’t see what you’re searching for on the web.

But Wells Fargo is not actually using this with customers yet?
It is only being done with Wells Fargo employees in a trial. We’ve raised about $1 million to date including the seed funding from Wells Fargo. We have several other clients using our software and about 7 million active users on our platform right now, ranging from real estate apps, retail, to voice over IP and banking. We have about six game developers in the U.S. using it. We are in discussions with a large bank in the U.K. to do something similar to what we’re doing with Wells Fargo.

2015 Growth Strategy Survey: Are Banks Missing Out on Millennials?


bank-growth-8-31-15.pngTraditional banks, which are typically run by baby boomers and older Gen X’ers, are still trying to figure out the next big generation of consumers.

Sixty percent of bank CEOs and directors responding to Bank Director’s 2015 Growth Strategy Survey, which was sponsored by the Vernon Hills, Illinois-based technology firm CDW, indicate that their bank may not be ready to serve millennials, which this year surpassed baby boomers as the largest segment of the population, according to the U.S. Census Bureau.  As digital use increases among an increasingly younger customer base, truly understanding and planning for the digital needs and wants of consumers seems to continue to elude bank boards: Seventy percent of bank directors admit that they don’t even use their own bank’s mobile channel.

Bank Director contacted chief executive officers, chairmen, independent directors and senior executives of U.S. banks with more than $250 million in assets, to examine industry trends regarding growth, profitability and technology. Responses were collected online and through the mail in May, June and July, from 168 bankers and board members.

Instead of millennials, banks have been finding most of their growth in loans to businesses and commercial real estate, which is their primary focus today. Loan volume was the primary driver of profitability over the past 12 months for the institutions of 88 percent of respondents, and the majority, at 82 percent, expect organic loan originations to drive future growth at their institutions over the next year. Eighty-five percent see opportunities for growth in commercial real estate lending, and 56 percent in commercial & industrial (C&I) lending. Total loans and leases for the nation’s banks grew 5.4 percent year over year, to $8.4 trillion in the first quarter 2015, according to the Federal Deposit Insurance Corp. 

Despite the rise of nonbank competitors like Lending Club and Prosper in the consumer lending space, just 35 percent of respondents express concern that these startup companies will syphon loans from traditional banks. Just 6 percent see an opportunity to partner with these firms, and even fewer, 1 percent, currently partner with P2P lenders to expand their bank’s portfolio. Few respondents—13 percent—see consumer lending as a leading avenue for loan growth.

Other key findings:

  • Forty percent of respondents worry about potential competition from Apple. Just 18 percent indicate their bank offers Apple Pay, with 63 percent adding that they “don’t think our bank is ready” to offer the feature to their customers.
  • More boards are putting technology on their agendas. Forty-five percent indicate their board discusses technology at every board meeting, up 50 percent since last year’s survey. Almost half of respondents say their board has at least one member with a technology background or expertise.
  • More than three-quarters indicate plans to invest more in technology within their bank’s branch network.
  • More than 80 percent of respondents indicate that their bank’s mobile offering includes bill pay, remote deposit capture and account history. Less common are features such as peer-to-peer payments, 28 percent, or merchant discounts and deals, 9 percent, which are increasingly offered by nonbank competitors.
  • For 76 percent of respondents, regulatory compliance causes the greatest concern relative to the growth and profitability of their institutions, and 64 percent say the high cost of regulatory compliance had a negative impact on their bank’s profitability over the past 12 months. Low interest rates, for 70 percent, were also a key impediment to profitability.

Download the summary results in PDF format.

Should Community Bankers Worry About Digital Transformation?


fintech-8-28-15.pngI was sitting in a group discussion at Bank Director’s Chairman/CEO Peer Exchange earlier this year when the subject of the fast growing financial technology sector came up. That morning, we had all heard a presentation by Halle Benett, a managing director at the investment bank Keefe, Bruyette & Woods in New York. The gist of Benett’s remarks was that conventional banks such as those in attendance had better pay attention to the swarm of fintech companies that are targeting some of their traditional product sectors like small business and debt consolidation loans.

The people in the room with me were mostly bank CEOs and non-executive board chairmen at community banks that had approximately $1 billion in assets, give or take a hundred million dollars. And I would sum up their reaction as something like this: “What, me worry?”

In one sense I could understand where they were coming from. Most of the participants represented banks that are focused on a core set of customers who look and act a lot like them, which is to say small business owners and professionals in their late forties, fifties and sixties. The great majority of community banks have branches, which means they also have retail customers, but their meat and potatoes are small business loans, often secured by commercial real estate, and real estate development and construction loans. I suspect there’s a common dynamic here that is shared across the community banking sector, where baby boomer and older Gen X bankers are doing business with other boomers and Gen X’ers, and for the most part they relate to each other pretty well.

There are two trends today that bear watching by every bank board, beginning with the emergence of financial technology companies in both the payments and lending spaces. The latter is the subject of an extensive special section in the current issue of Bank Director magazine. I believe the fintech trend is being driven in part by a growing acceptance—if not an outright preference—for doing business with companies—including banks and nonbank financial companies—in digital and mobile space. The fintech upstarts do business with their customers almost exclusively through a technical interface. There is no warm and fuzzy, face-to-face human interaction. Today, good customer service is as likely to be defined by smoothly functioning technology as by a smiling face on the other side of the counter.

The other trend that all banks need to pay attention to is the entry of millennials—those people who were born roughly between the early 1980s and early 2000s—into the economy. Millennials can be characterized by a number of characteristics and behaviors: they are ethnically diverse, burdened with school debt, late bloomers from a career/marriage/home ownership perspective and they generally are social media junkies. They are also digital natives who grew up with technology at the center of so many of their life experiences and are therefore quite comfortable with it. In fact, they may very well have a preference for digital and mobile channels over branches and ATMs. Although digital and mobile commerce have found widespread acceptance across a wide demographic spectrum, I would expect that the digital instincts of millennials will accelerate their popularity like the afterburner on a jet fighter.

Although they now outnumber boomers in the U.S. population, millennials are not yet a significant customer segment for most community banks. And the universe of fintech lenders is still too small to pose a serious market share threat to the banking industry. But both of these trends bear watching, especially as they become more intertwined in the future. The youngest boomers are in their early fifties. The cohort that follows, the Gen X’ers, is much smaller. Who will bankers be doing business with 10 years from now? Millennials, you say? But will millennials want to do business with bankers then if an increasing number of them are developing relationships with a wide variety of fintech companies now?

A board of directors has an obligation to govern its company not only for today, but for tomorrow as well. And these two trends, particularly in combination, have the potential to greatly impact the banking industry. Learning how to market to millennials today by focusing on their financial needs, and studying the fintech companies to see how community banks can adapt their technological advancements, is one way to prepare for a future that is already beginning to arrive.

For research on millennials and growth in banking, see Bank Director’s 2015 Growth Strategy Survey.

Using Mobile to Make Money



Banks need to continue to evolve and provide products and services to meet changing consumer and business needs. In this video, executives from Ingo Money explain the changing banking environment and how they can help banks move forward.

  • How have the banking needs of customers evolved?
  • How has mobile technology has changed?
  • Why should banks provide mobile banking options to customers?