Is Your Digital Banking Sign Always On?

You’ve already heard the promises: The digital revolution is here, and it’s ushering in a new era of profitability, velocity and efficiency.

Or is it?

While you’ve likely seen your bank’s technology budget grow over the last few years, it may be harder to see how that spending translated into gains in business share, customer satisfaction or the bank’s bottom line. You may be hearing from frontline employees that operations feel more fractured than ever before. What’s wrong with this picture?

Your digital experience may be suffering from a chronic case of squeaky-wheel choices as competing objectives elbow for access to finite budget dollars and project resources. Improving online and mobile offerings may come at the cost of enhancing digital lending capabilities. Operational efficiencies — a grab bag that can include any number of disparate automation tools intended to reduce cost and improve productivity — may take dollars away from compliance and risk management. You’re not building your digital business from scratch; you’re methodically replacing and upgrading components across your technology stack. But as long as you still have static data siloes and bifurcated systems in your operational mix, your digital service will collide with stopping points that interfere with a smooth user experience.

Bank transaction supply chains are likely the result of decades-old decisions and solutions so entrenched within the operation that it feels inevitable. Reimagining the end-to-end solution requires a fresh look at some previous assumptions and a fresh look at the ecosystem of fintech partners. Executives need to determine if their providers and partners are willing to collaborate to identify and address digital stopping points.

One of the most revealing questions banks can ask their providers is about their own investment strategy. How much are they putting back into the development of their own solutions? Small, ongoing investments mean that your partners are spending money on things that don’t sustainably deliver benefits to your bank. It also means they aren’t looking ahead to solve the next round of technology challenges. If their CEOs aren’t actively positioning their solutions for future viability, then you may have found the weak links in your own supply chain.

The customers your bank is trying to reach want speed, ease of use and mobile enablement in everything they do, whether it’s one-touch shopping on Zappos or depositing a check into their savings account. While these requirements have defined consumer preferences in retail segments for years, they arguably define consumer preferences in every segment following the quick adaptations the industry made in digital banking in response to Covid-19.

The dream of 24/7/365 banking requires a precise definition of digital: always on. Not “mostly on” until your bank needs a compliance update. Not “pretty much on” until you need to manually advance the loan in the loan origination software or collect physical signature cards. Interconnected services are critical to the always-on digital experience.

Your digital offer should take its inspiration from innovative disrupters outside of the financial industry, like Uber Technologies and Netflix that rewrote the delivery and service aspects of their products with interconnected, cloud-based systems. Your bank needs to be able to deliver to customers, regardless of whether someone is sitting at your service desk. Static and bifurcated systems are, by definition, unconnected, and need human intervention for updates to keep you in business.

As your bank continues to invest in technologies to deliver digital banking, make sure you focus on the end game for your customers. Digital must be as reliable as turning on a light switch. Interconnected, cloud-based systems from partners who are looking forward with you will help you get there more quickly — and with fewer headaches.

Getting Business for Your Bank: How to Get Involved at the Board Level

6-30-14-Naomi-DC.pngAt KeyWorth Bank in Johns Creek, Georgia, serving on the board means bringing business to the bank. Directors are expected to make referrals to the bank’s officers and lending team. That’s just part of the job.

It’s not unusual for small community banks to ask their directors to take on a business development role. But KeyWorth steps it up a notch. Board members are divided into teams where they compete for points based on the amount of business each team member brings to the bank. Only new deposit accounts or closed loans count, not referrals. At the end of the year, the losing team buys the winning team dinner at a nice restaurant; last year it was a private dining room at the casually elegant Grace 1720. There is no other financial remuneration, aside from dinner. The competition provides a way to nudge board members along in helping the bank grow, with some friendly ribbing as part of the process.

“Our board does a very good job in identifying and referring opportunities,” says Jim Pope, president and chief executive officer of the state-chartered, $380-million asset bank, which has five offices north of Atlanta. “They don’t have to be the loan officers or the experts. They just need to constantly be promoting our bank.”

As banks get larger, the focus on business referrals from the board diminishes and other governance-related needs become more important, such as the need for a risk expert on the board, or someone with deep banking experience. Still, boards take a variety of approaches to the question of what role board members play in bringing business to the bank.

Pretty much all the community banks John Geiringer works with as an attorney at Barack Ferrazzano in Chicago have a role for the board in recruiting business to the bank. He thinks the role has shifted slightly in recent years. For instance, there is much more of an emphasis on quality of governance and quality of the loan portfolio. Many of the banks that survived the financial crisis did so by focusing on the quality of their underwriting. It wasn’t just about bringing any business to the bank, but the particular kind of business the bank wanted. Board members should have a strong handle on the bank’s strategy and what kind of business the bank needs to generate, even if they aren’t underwriting loans. “Pre-crisis there was more of an emphasis on volume and now there is more of an emphasis on quality,” says Geiringer.

Nancy Eberhardt, a director at Congressional Bank in Potomac, Maryland, which has $452 million in assets, says she believes the role of the board is shifting. “It’s more important for directors to be independent and informed first and foremost, and looking to what’s next for the bank,’’ she says. She thinks it is great for board members to bring their connections with them to the bank, but the regulatory environment and the difficulties of oversight are making governance more of a focus for boards.

Robert Monroe, a law firm partner with Stinson Leonard Street in Kansas City, Missouri, says most of the time, board members are majority shareholders in the bank and their job is to bring their friends to the bank. He argues with his clients in favor of term limits and a diversified board but he thinks a diversified board can still bring business to the bank. “My community bank view is that they still want people who produce loans and deposits [on the board],’’ he says.

At Avenue Bank in Nashville, the board was selected for its expertise in the different areas the bank specializes in. For example, the $890-million asset bank has about $200 million in combined deposits and loans in the music business. Three of the bank’s directors are in the music business as well, and are expected to contribute their expertise and referrals: Joe Galante, the former chairman of Sony Music Nashville; Ken Robold, the former executive vice president and general manager of Universal Music Group Nashville; and Steve Moore, the former head of the County Music Association. Music star Kix Brooks was on the board as well, but had to step down to go on tour. Chairman and CEO Ron Samuels says board members will go on visits with potential clients if asked, but they don’t have specific referral metrics they have to meet.

One way to set expectations is for the CEO or chairman to be very direct and lay out expectations for each board member, Monroe says. Some banks will even go so far as to give directors a specific dollar amount of deposits or loans to achieve, he says. The expectations written down on paper also lay out other duties, such as attendance at board meetings and what committees the board member will sit on.

The board members can’t just bring any business to the bank. They need a clear handle on exactly what type of business the bank needs, and they should have a handle on this through their participation in strategic planning and understanding of the bank’s business.

At KeyWorth, annual off-site strategic planning meetings clarify what kind of business the bank needs to pursue and this is well known by the board. Monthly updates during board meetings show the board how the bank is accomplishing its goals. “Education of the board on the kind of business you want is important,’’ Pope says. For instance, KeyWorth likes owner-occupied commercial real estate properties. Also, one-third of the business-focused bank’s customers are in the medical profession. If a board member is going in for an annual physical, he might ask his doctor, ‘where do you bank? I’m on the board of KeyWorth, and our specialty is medical banking. Maybe I can have someone call you?’”

Pope makes it clear that the board members aren’t supposed to answer questions about lending or deposit products. “Don’t let the person lead you into a specific question about a product or a loan,’’ he says. “That’s not expected, nor [is it] your responsibility. Just say, ‘let me introduce you to one of our bankers. That’s not something I have the expertise to answer.’”

There is another incentive for KeyWorth board members to bring business to the bank, aside from the competition: they are also shareholders. The bank is majority owned by members of its communities, and one fourth owned by executives and board members. Directors are expected to make a financial commitment that ends up being more than $100,000 worth of shares.

Advisory boards are another way banks can bring influential members of the community into recruiting business. Geiringer says he knows of several banks that use advisory boards members, who generally attend only a portion of the regular board meeting and provide information on particular communities or industries where they have expertise.

Still, there are a few cautionary notes for directors who refer potential new customers to the bank. Geiringer says banks should be careful about paying a “finder’s fee” or commission to directors who bring business to the bank. “We’ve seen regulators criticize that in the past, ’’ he says. Boards should also be careful to avoid possible conflicts of interest and directors should abstain from any bank board or committee votes on the business of friends or family. The bank should not provide a special deal for any friends, business associates or family members of directors. Bringing business to the bank should be balanced against the director’s fiduciary role on the board. With that in mind, and with the right education and clear communication, board members can play an effective role bringing business to the bank.