What’s Working and Why


DI_mag_thingy.pngI am a big believer that many banks have immediate opportunities to expand what banking means to individual and business customers. This special supplement to Bank Director magazine highlights a number of interesting technologies that have re-shaped the fortunes of banks across the U.S.

Now, technology in the financial world encompasses a broad spectrum of tools. For most officers and directors, I’ve found conversations about technology naturally incite interest in mobile banking. This isn’t a surprise when one considers that 68 percent of American adults connect to the Internet with smartphones or mobile devices, according to the Pew Research Center. Smartphone penetration is highest among people with higher incomes, and the young. What an opportunity to engage and reshape your relationships with this audience! To show how Americans use smartphones, and how banks are offering mobile services to meet that demand, Bank Director compiled an infographic on pages 4-5.

Clearly, banks are trying to reach customers with the appropriate technology to stay relevant. But some banks are pushing themselves beyond what every other bank is doing. A story on page 6 features interviews with banking leaders about the most successful innovations or technological advances impacting banks right now. Among new ideas is Malauzai Software’s and Allied Payment Network’s PicturePay, which allows banks to pay customer bills with a photo of the bill taken on a smartphone. 

As many banks face pressure to grow revenue or reduce expenses, we take a look at some that are coming up with creative solutions to tackle that problem. For instance, Central Bancompany in Jefferson City, Missouri, turned to Ignite Sales to double the number of services the average new business customer uses at the bank from three to six or seven different products or services. 

Likewise, City National Bank in Charleston, West Virginia, found success with the help of StrategyCorps. About one-third of the bank’s customers have opted into a value-added checking account for $5 per month, even though free checking is still available. Inland Community Bank in Ontario, California, used Paladin fs to save money on its core information technology contracts during the sale of the bank, improving the value of the deal and saving $700,000 in termination expenses.

While most banks are far more efficient than they were just five years ago, there is money to be saved in banking. Some of the more ambitious companies, who want to stay relevant and solve their customers’ problems, are saving money and growing revenues through a variety of means. Banks have to make changes to stay relevant and address customer needs, and some of the more inventive banks are finding unique ways to do this while boosting the bottom line. On behalf of our team, please enjoy this special supplement, one we designed to inspire and shine a light into what’s possible.

Contents

When Free Checking Is No Longer Enough

Successful banks like City National are always looking for customer friendly ways to grow fee income, says StrategyCorps’ Dave Crook.

Giving Banks a Better Way to Cross Sell

When Central Company engaged Ignite Sales, it needed to help its front-line associates improve relationships with its business customers.

Saving Money on IT Contracts

Financial institutions are generally paying too much for information technology contracts. In many cases, those contracts could negatively affect M&A transactions in the future.

Succeeding With Mobile Bill Pay

Park Sterling Bank is increasing customer retention through mobile bill pay.

Walmart Makes a Bet on the Future of Banking


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Photo: Business Wire

When Wal-Mart Stores Inc. announced its partnership with Pasadena, Calif.-based Green Dot Corp. to launch the online and mobile-only banking alternative GoBank, the retailer was also placing its bet on where the future of banking is heading. But with all its other financial ventures up to this point still in place, like in-store branches and prepaid debit cards, Walmart is keeping a hand in all possible outcomes.

Not only is GoBank designed with modern features that would be appealing to any consumer looking for more advanced mobile banking, the account is low cost and open to almost anyone over 18 with i.d. verification. This makes the account extremely attractive to customers who simply aren’t satisfied with their current bank relationship or have limited access to traditional banking.

Data from the annual Consumers and Mobile Financial Services report published by the Federal Reserve shows that people who are unbanked (do not have a bank account) make up 11 percent of U.S. consumers, while the underbanked (minimal access to bank services) make up 17 percent. And according to data from statistician Nate Silver’s web site, Fivethirtyeight.com, states with higher percentages of unbanked households are home to more Walmart stores. Since Walmart’s traffic is more likely to have a high concentration of unbanked and underbanked customers, GoBank allows the retailer to seize the opportunity to help those people get banking products, which helps GoBank’s business grow and allows people to spend more money in Walmart stores.

“GoBank is breaking down the barriers to traditional banking and brings the benefits of a FDIC-insured checking account that’s loaded with features to a large segment of Americans,” said Green Dot CEO Steve Streit in a statement.

The move to launch GoBank now gives Walmart the opportunity to target consumers from three different angles—the traditional branch, prepaid cards and GoBank—in order to appeal to the underbanked or now, any modern bank customer.

Traditional Branches
The retailer is already offering traditional branches in nearly 40 percent of its U.S. stores. With more than 700 branches in Walmart, Woodforest Bank, headquartered in The Woodlands, Texas, has the largest presence out of the total of more than 1,600 in-store banks. Woodforest serves the underbanked with its trademarked Second Chance Checking, created to give people who would typically be denied a traditional checking account the opportunity to open one.

Prepaid Cards
10-10-14-StrategyCorps2.pngJust two years ago, Walmart partnered with American Express to launch the Bluebird prepaid card as another alternative to traditional debit and checking accounts. The prepaid cards have functionality very similar to a traditional debit card.

In Walmart’s October 2012 press release for the launch, American Express group president Dan Schulman (who was recently named the new CEO of PayPal) stated its purpose: “In an era where it is increasingly ‘expensive to be poor,’ we have worked with Walmart to create a financial services product that rights many of the wrongs that plague the market today.”

GoBank
Walmart isn’t necessarily bidding GoBank against Bluebird or its in-store branches, but rather, it is opening up even more options for underbanked customers who want to use mobile banking. The Federal Reserve found that in the U.S., 49 percent of the unbanked and 64 percent of the underbanked has access to a smartphone.

10-10-14-StrategyCorps3.pngGoBank has features more advanced than basic mobile banking. For example, its Fortune Teller feature can become a budgeting resource for customers’ shopping decisions. You simply enter how much an item costs, and the Fortune Teller is able to instantly tell you if you can afford it or not based on the budget you set. “Remember that time you won the lottery? I don’t either,” is one message you can expect from the Fortune Teller, along with lots of humanized language that’s a refreshing update from standard bank formality.

To open a GoBank account, customers buy a $2.95 starter kit at Walmart. Instead of paper checks, customers can use online bill–paying services. There are no minimum balance requirements and no overdraft fees. Plus, customers have access to 42,000 free ATMs throughout the country. The $8.85 monthly fee is waived with a direct deposit of $500 or more each month.

Of these three ventures, the financial industry will keep an eye on which survives in the long run and becomes Walmart’s go-to product.

Is Your Bank Ready for the Cloud?


8-27-14-cisco.pngFinancial services firms, like other companies, are running out of computing and storage space with available resources, and they are turning to cloud computing as a way to deliver information technology services on an as-needed basis. Firms are now looking for ways to stretch their existing data centers, as they often need more computing and storage capacity than their own facilities provide, especially during peak high-demand times. With the importance of this from a strategy and security standpoint, the board of the bank needs to provide proper oversight over this issue.

What is Cloud Computing?
Think of the cloud of a collection of computers where services such as compute (crunching numbers and data), and storage (a place to store the data that is being crunched and the results of that), are delivered dynamically as a service, rather than as a product. These services are typically delivered over the network, and in many cases, the Internet.

Instead of a line of business requesting 40 servers for a new data analytics software package, an IT team could deploy that software package on a cloud environment and provide access to the software. A dynamic cloud environment may give more compute and storage capacity when the application needs it and allocate less in periods of slow volume. This system of dynamic resource allocation makes the cloud an economical solution for large organizations.

Challenges With Financial Services IT Delivery
Data centers are a considerable investment to build and operate. Banking in the cloud lets banks extend their data center and current infrastructure when needed, while also providing additional data storage and computing capabilities offsite. In many cases, additional computing capacity is needed only for a short time in order to run certain risk models or to provide additional reporting for regulatory requirements. In this instance, a cloud-based infrastructure could be used to augment current big data and risk/analytics environments that banks have deployed.

The Trend to Hybrid Clouds
Today’s banks are in various stages of their cloud journey. Some have built their own private cloud hosting, defined as a single-tenant environment where the hardware, storage and network are dedicated to a single client or company. The resources and equipment required to run it are usually deployed in the firm’s own data center and managed by their own IT staff. Others utilize third parties to augment their own in-house application development efforts, a hybrid approach. A hybrid cloud service is a cloud computing service that is composed of some combination of private, public and community cloud services, from different service providers. Typically in this environment, a firm may have its own in-house private cloud environment, but may connect its private cloud to another provider’s cloud. In some cases, these facilities are located off-shore in foreign countries, and are not permitted to connect to, or utilize the bank’s internal network. In these instances, banks can benefit from using cloud solutions that allow temporary computing capacity, without a significant capital expenditure or time.

The Cloud’s Differentiated Services
Financial institutions can build secure hybrid clouds that only allow certain credentials to access bank data. Private cloud solutions provide a purpose-built, secure environment in which financial services institutions can very efficiently expand their compute capacity at a very low cost. In addition, the institution has full transparency to the environment from a monitoring and systems management perspective. When the bank needs additional space, it can use a public cloud, which shares data from a number of different sources and will require a higher level of security or care in what kind of data is housed there.

Board Oversight
Given that banks are increasingly turning to cloud computing, it makes sense for the board to know whether and how the institution is using cloud computing, and provide proper risk management oversight. Questions the board should ask include:

  • Is our bank currently using cloud computing services?
  • Do we intend to?
  • Do we have a private “cloud” or do we use third parties?
  • What security do we employ?
  • What kind of data is housed there?
  • How do our regulators view the use of cloud computing?
  • What are the advantages and disadvantages of the various types of cloud computing?