The Community Bank Board Guide to Crossing $10 Billion

Community banks that have weathered the economic extremes of the coronavirus pandemic and a rapidly changing interest rate environment may find themselves with another important looming deadline: the $10 billion asset threshold.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (often called Dodd-Frank) created a regulatory demarcation for banks above and below $10 billion in assets. In 2018, regulatory reform lessened one of the more-stringent expectations for $10 billion banks, but failed to eliminate many of the other regulatory burdens. Experts that have worked with banks to cross the divide since the law went into effect recommend that institutions around $5 billion begin preparing for the costs and expectations of being a larger bank.

“The list of changes when going from $9.9 billion to $10 billion isn’t long. It’s the significance of those changes that can create challenges if not appropriately planned for,” writes Brandon Koeser, financial services senior analyst with RSM US LLP, in an email. “Banks need to take a thorough look at their entire institution, including people, processes and risk oversight.”

The pandemic may have delayed or complicated the work of banks who are preparing to cross the threshold. Anna Kooi, a partner and national financial services industry leader at Wipfli, says she has clients at banks whose growth accelerated over the last two years and are approaching the $10 billion asset line faster than expected.

Bank Director has assembled a guide for boards that reviews some areas that are impacted by the threshold, along with questions directors can use to kick off conversations around preparation.

Lost Income
The Dodd-Frank Act’s Durbin Amendment capped the interchange fees on debit card transactions that banks above $10 billion can charge; interchange fees are not reduced for banks under $10 billion. The capped fees have cost card issuers nearly $106 billion in interchange revenue since 2012, including an estimated $15.2 billion in 2020, according to an Electronic Payments Association analysis in August 2021 using data from the Federal Reserve.

Banks preparing to cross $10 billion should analyze how big the reduction of debit interchange revenue could be, as well as alternatives to make up for that difference, Kooi says. The interchange cap impacts banks differently depending on the depositor base: commercial banks may not miss the income, while institutions with a larger retail base that use their debit cards may experience a significant hit. Banks that have more time to consider alternatives will be better positioned when the interchange cap goes into effect, she says.

Regulatory Expectations
Banks over $10 billion in assets gain a new regulator with a new round of exams: the Consumer Financial Protection Bureau. While other banking regulators tend to focus on prudential safety and soundness, the CFPB aims to promote “transparency and consumer choice and preventing abusive and deceptive financial practices” among markets for financial services and products, according to the agency’s mission statement. This exam shift means banks may want to reach out to consultants or other external partners that have familiarity with the CFPB to prepare for these exams.

“The focus is going to be more intense in certain areas,” says Adam Maier, partner and co-chair of Stinson’s banking and financial services division. “They’re going to bring in a different regulatory approach that is very unique, and at times, can be difficult.”

Expectations from other regulators may also increase, and increased scrutiny could lead to a higher risk that examiners discover something at a bank that needs to be addressed.

“A guaranteed place of focus from regulators will be over the bank’s risk program,” Koeser writes. “Undertaking an assessment of the risk management function, including the risk program, staffing levels and quality of talent will be key. In a new world above $10 billion, the old mantra of ‘If it isn’t broke, don’t fix it,’ won’t fly.”

While banks don’t have to participate in the annual Dodd Frank Act Stress Test, or DFAST, exercise until they are $100 billion, regulators may want to see evidence that the bank has some way to measure its credit and capital risk exposure.

“What I’ve heard [from] banks is the regulators, the OCC in particular, still want to talk about stress testing, even though [the banks] don’t have to do it,” Maier says. “I would follow the lead of your primary regulator; if they want you to still demonstrate something, you still have to demonstrate it.”

And importantly, the Dodd-Frank Act mandates that bank holding companies above $10 billion have a separate board-level risk committee. The committee must have at least one risk management expert who has large-company experience.

Staffing and Systems
Heightened regulatory expectations may require a bank to bring on new talent, whether it’s for the board or the executive team. Some titles Kooi says a bank may want to consider adding include a chief risk officer, chief compliance officer and a chief technology officer — all roles that would figure into a robust enterprise risk management framework. These specialty skill sets may be difficult to recruit locally; Kooi says that many community banks preparing for the threshold retain a recruiter and assemble relocation packages to bring on the right people. Oftentimes, banks seek to poach individuals who have worked at larger institutions and are familiar with the systems, capabilities and expectations the bank will encounter.

Additionally, boards will also want to revisit how a bank monitors its internal operational systems, as well as how those systems communicate with each other. Maier says that banks may need to bulk up their compliance staff, given the addition of the CFPB as a regulator.

M&A Opportunities
A number of banks have chosen to cross $10 billion through a transaction that immediately offsets the lost revenue and higher compliance expenses while adding earnings power and operational efficiency, writes Koeser. M&A should fit within the bank’s strategic and long-term plans, and shouldn’t just be a way to jump over an asset line.

Banks that are thinking about M&A, whether it’s a larger bank acquiring a smaller one or a merger of equals, need to balance a number of priorities: due diligence on appropriate partners and internal preparations for heightened regulatory expectations. They also need to make sure that their prospective target’s internal systems and compliance won’t set them back during integration.

Additionally, these banks may need to do this work earlier than peers that want to cross the threshold organically, without a deal. But the early investments could pay off: An $8 billion institution that is prepared to be an $11 billion bank after a deal may find it easier to secure regulatory approvals or address concerns about operations. The institution would also avoid what Maier calls “a fire drill” of resource allocation and staffing after the acquisition closes.

Questions Boards Should Ask

  • Do we have a strategy that helps us get up to, and sufficiently over, $10 billion? What is our timeline for crossing, based on current growth plans? What would accelerate or slow that timeline?
  • Will the bank need to gain scale to offset regulatory and compliance costs, once it’s over $10 billion?
  • What do we need to do between now and when we cross to be ready?
  • What role could mergers and acquisitions play in crossing $10 billion? Can this bank handle the demands of due diligence for a deal while it prepares to cross $10 billion?
  • Are there any C-level roles the bank should consider adding ahead of crossing? Where will we find that talent?
  • Do we have adequate staffing and training in our compliance areas? Are our current systems, processes, procedures and documentation practices adequate?
  • How often should the board check in with management about preparations to cross?
  • Have we reached out to banks we know that have crossed $10 billion since the Dodd-Frank Act? What can we learn from them?

The Easiest Way to Launch a Digital Bank

New fintechs are forcing traditional financial institutions to acclimatize to a modern banking environment. Some banks are gearing up to allow these fintechs to hitchhike on their existing bank charters by providing application programming interfaces (APIs) for payments, deposits, compliance and more. Others are launching their own digital brands using their existing licenses.

Either way, the determining factor of the ultimate digital experience for users and consumers is the underlying technology infrastructure. While banks can spawn digital editions from their legacy cores through limited APIs and cobbled-up middleware, the key questions for their future relevance and resilience remain unanswered:

  1. Can traditional banks offer the programmability needed to launch bespoke products and services?
  2. Can they compose products on the fly and offer the speed to market?
  3. Can they remove friction and offer a sleek end-to-end experience?
  4. Can they meet the modern API requirements that developers and fintechs demand from banks?

If the core providers and middleware can’t help, what can banks use to launch a digital bank? The perfect springboard for launching a digital bank may lie in the operating system.

Removing friction at every touchpoint is the overarching theme around most innovation. So when it comes to innovation, why do banks start with the core, which is often the point in their system with the least amount of flexibility and the most friction?

When it comes to launching a digital bank, the perfect place for an institution to start is an operating system that is exclusively designed for composability — that they can build configurable components to create products and services — and the rapid launch of banking products. Built-in engines, or engines that can take care of workflows based on business rules, in the operating system can expedite the launch of financial services products, while APIs and software development kits open up the possibility for custom development and embedded banking.

That means banks can create products designed for the next generation of consumers or for niche communities through the “composability” or “programmability” offered by these operating systems. This can include teen accounts, instant payments for small and medium-sized business customers that can improve their cash flow, foreign exchange for corporate customers with international presence, domestic and international payments to business customers, tailored digital banking experiences; whatever the product, banks can easily compose and create on the fly. What’s more, they also have granular control to customize and control the underlying processes using powerful workflow engines. The operating system also provides access to centralized services like compliance, audit, notifications and reporting that different departments across the bank can access, improving operational efficiency.

Menu-based innovation through operating systems
The rich assortment of microservices apps offered in operating systems can help banks to launch different applications and features like FedNow, RTP and banking as a service(BaaS) on the fly. The process is simple.

The bank fills up a form with basic information and exercises its choice from a menu of microapps compiled for bankers and customers. The menu includes the payment rails and networks the bank needs — ACH, Fedwire, RTP, Swift — along with additional options like foreign exchange, compliance, onboarding and customer experiences like bulk and international payments, to name a few.

The bank submits the form and receives notification that its digital bank has been set up on a modern, scalable and robust cloud infrastructure. The institution also benefits from an array of in-built features like audit, workflows, customer relationship management, administration, dashboards, fees and much more.

Setting up the payment infrastructure for a digital bank can be as easy as ordering a pizza:

  1. Pick from the menu of apps.
  2. Get your new digital brand setup in 10 minutes.
  3. Train employees to use the apps.
  4. Launch banking products to customers.
  5. Onboard fintech partners through For-Benefit-Of Accounts (FBO)/virtual accounts.
  6. Offer APIs to provide banking as a service without the need for middleware.

The pandemic has given new shape and form to financial services; banks need the programmability to play with modular elements offered on powerful operating systems that serve as the bedrock of innovation.

Chief Risk Officers Help Community Banks Navigate Uncertain Environment

The role of chief risk officer is no longer relegated to the largest banks. Ever since the Great Recession of 2007 to 2008, banks of all sizes have begun incorporating chief risk officers into the C-suite.

Nowadays, the role could be more useful than ever as community banks confront an assortment of risks and opportunities, including cybersecurity, emerging business lines such as banking as a service, as well as rising inflation and a potential recession.

In the earliest days of the pandemic, Executive Vice President and Chief Risk Officer Karin Taylor and the teams that report to her helped executives at Grand Forks, North Dakota-based Alerus Financial Corp. understand the potential impacts on the business and coordinate the bank’s response. They addressed employee concerns, made decisions about how to sustain the business during the pandemic, performed stress tests and helped human resources with establishing new policies and communication.

“[CROs] bring some discipline in planning and operations because we facilitate discussion about risks, help identify risk and help risk owners determine if they’re going to accept risk or mitigate risk. And then we do a lot of reporting on it,” she says. “If anything changed in the pandemic, perhaps it was a better understanding of how [the risk group] could better support the organization.”

At $3.3 billion Alerus, Taylor reports directly to the CEO and serves as the executive liaison for the board’s risk and governance committees. Her reporting lines include the enterprise risk group as well as the bank’s legal, compliance, fraud teams, credit and internal audit teams (internal audit also reports to the audit committee). Those kinds of reporting lines allows CROs to help manage risk holistically and break down information silos, says Paul Davis, director of market intelligence at Strategic Resource Management. Their specific risk perspective makes them useful liaisons for community bank directors, who are usually local business people and not necessarily risk managers.

“You’re going to have one member of the management team [at board meetings] talk about opportunities,” he says. “It’s the CRO’s job to say, ‘Here are the tradeoffs, here the potential risks, here the pitfalls and the things we need to be mindful of.’”

Southern States Bancshares, a $1.8 billion institution based in Anniston, Alabama, decided to add a CRO in 2019 as the company prepared to go public. Credit presented the largest risk to the bank, so then-Chief Credit Officer Greg Smith was a natural fit.

His job includes reviewing risk that doesn’t neatly fit into other areas of the bank. He also serves as liaison for the risk committee and sits in on other meetings, like ALCO, to summarize the takeaways.

“While I was focused on risk the entire time I’ve been at the bank, this broadened that horizon and it expanded my perception of risk,” he says.

For instance, the bank’s rollout of the new loan loss accounting standard made him consider risk in the bond portfolio. Working with several attorneys on the board made him think about reputation risk when the bank launched new products and services. That expanded perspective allows him to raise considerations or concerns that different committees or areas of the bank may not be focused on. He can also help the bank price its risk appropriately.

Taylor sees her role as helping Alerus and its directors and executives make empowered decisions; her job isn’t just to say “No,” but to help the bank understand and explore opportunities based on its risk appetite. However, she doesn’t think all community banks need a CRO. Banks of similar asset sizes may have very different levels of complexity and strategies; adding another title may be a strain on limited resources or talent. The most important thing, she says, is that executives and the board feels that they have the right information to make decisions. To that end, Taylor shared a list of questions directors should ask when ascertaining if banks have appropriate risk personnel.

Questions for Directors and Executives to Ask:

  • Do you feel you have a holistic view of risk for your organization?
  • Do you think you have the information you need to understand your risk profile and identify potential pitfalls or risk to your strategy, as well as being able to address opportunities?
  • Is there a good understanding of the importance of, and accountability, for risk management throughout the organization?
  • Can these questions be answered by existing staff, or should we consider hiring for a chief risk officer position?

The Nuts and Bolts on Executive Sessions

A board’s success can depend on the strength of the independent directors. But as boards become more centralized around the CEO’s carefully choreographed meetings, there’s greater potential for kabuki-style processes, with all decisions eventually funneling through one member of management. Executive sessions may be instrumental to the strength of independent directors and should be a part of the board’s meeting schedule.

Most boards believe they hold management accountable. Nearly three-in-four (74%) of the directors, chairs and chief executives surveyed by Bank Director in 2021 said their board had several directors willing to ask difficult, challenging questions. Another 72% felt free to exercise their own independent judgement if they disagreed with a board decision. Yet, in Bank Director’s 2022 Governance Best Practices Survey a year later, 24% believe that holding management accountable would improve the governance process.  

Executive sessions can be a powerful tool in the toolbox for independent directors to hold management accountable and allow room for directors to gain a stronger understanding of certain concepts before coming to a decision. 

“Whoever is chairman controls the agenda,” says James McAlpin Jr., a partner at the law firm Bryan Cave Leighton Paisner LLP, which has sponsored Bank Director’s annual Governance Best Practices Survey. Sometimes, the CEO retains the chair title and directs the agenda. Sometimes, an independent director retains the chair title. Boards have to decide which model works best for them, while ensuring independent directors have a voice. Executive sessions help ensure that directors can discuss scenarios when the chairs “may not raise the matters themselves,” he adds.

By addressing such topics in open forums, directors can determine if they’re viewing certain issues as other members do or if there’s a lack of cohesion on strategies. Discrepancies in opinions or doubts on a strategy may not come to the surface if the issue isn’t brought up during the normal process of a board meeting. 

Executive sessions occur when a group of directors call for time to discuss an item or topic, without the presence of specific individuals. There’s no hard-fast rule, although they generally involve independent directors without the presence of executives. This typically would exclude the CEO, if he or she sits on the board. But it could include a group of directors that do not participate in a certain committee, for instance, but who can provide broader input. Or it could include the CEO but exclude everyone else in the room who doesn’t sit on the board. 

Since executive sessions aren’t transcribed, they allow for a free flow of conversation. This gives the directors a chance to express their feelings on certain topics, bring up concerns or even ask questions of a sensitive nature. While it may seem as if such sessions would be awkward to call, since the CEO or other executives may wonder why such conversation needs to take place, there’s a tactic to counteract this potential. 

“It’s recommended to have them on regularly scheduled basis,” says Charles Elson, the founding director of the Weinberg Center for Corporate Governance at the University of Delaware. By building them into the agenda, he adds, they don’t become an unusual, uncomfortable situation since everyone knows when potential leadership issues will be discussed. Among directors and CEOs surveyed by Bank Director in 2021, 38% said the board held an executive session at the end of every board meeting, while 16% held them quarterly and 24% called one whenever independent directors wanted one.

For companies listed on the New York Stock Exchange (NYSE) or Nasdaq, it’s less of a social concern and more of a proper practice. Both exchanges require companies to incorporate executive sessions of the independent directors on a regular basis. Nasdaq defines that as at least twice a year (if not more), while the NYSE leaves the definition more open-ended. Such executive sessions provide an outlet for directors at community and private banks as well, serving as a valuable way to address concerns without worrying about hurting others’ feelings or working relationships.

Historically, executive sessions have been a tool of senates and parliaments, but they began to make their way to the boardroom at a greater rate in the mid-1990s. Directors needed a way to speak on certain topics off the record; this resulted in having small meetings with one or two directors over lunch or on the way to the parking lot. Instead, executive sessions formalize these conversations, encouraging directors to speak as a group. This can not only lead to a greater awareness of a certain type of thinking among directors but can also provide stronger conclusions, questions and coordinated insights for management or the board at large.

“It’s not so much hiding [issues] but addressing them in an appropriate way,” says Chip MacDonald, a financial services lawyer at the law firm Jones Day. “Whether it’s a committee function or whole board function, if you have full-time employees or officers on the board, you may want to exclude them.”

McAlpin, who works with boards at community and family banks, has often suggested that a board move to executive session when discussing certain topics that require more room for debate or discussion. 

“They provide particularly strong value when there’s an issue that’s difficult to discuss in front of the CEO or chair,” he says. “It’s better to have the discussion than not and if you do it on a regular basis, it provides open time for people to just share notes.”

The areas of discussion that are addressed during a session can run the gamut, from strategy, managerial issues, regulatory concerns or an investigation. The reason for the session will determine the people that may be present during the conversation.

The discussions are off the record, but this isn’t meant to imply that there’s nefarious conversations happening. In some cases, it might provide an open forum for direction on a new strategy. Or it may even allow for “due process,” says MacDonald. 

For instance, say there’s an accusation made against a certain member of the management team. While it’s important to scrutinize, a board may not want to make it publicly known until they have a chance to investigate the impropriety. Why? First, the board has to make sure that the accusation has validity before divulging it in a board meeting transcription. Second, the board must ensure it has a plan in place to address the issue. The closed-door executive session provides room for directors to plan.

But executive sessions also offer a way to address regular aspects of the oversight role. For instance, when discussing pay potential of top executives, the compensation committee will meet without any executives around to determine pay. This will be presented to the full board. If directors want to discuss the committee’s findings without offending certain individuals on the board — like the CEO — then an executive session would be prudent in such cases. 

The same tools can address potential strategies presented to the board. Or, in the case of a regulatory concern, the directors may want to discuss with fewer people so they have a clear understanding of the problem before coming to a decision. 

For an executive session to take place, there’s no specific quorum required, and there are no rules around whether executives should stay or go. In some organizations, a specific independent director runs all executive sessions; in others, any director can call one at any time. In both cases, the directors that seek an executive session or the director that handles executive sessions — often a lead independent director — can determine who stays and who goes. 

There’s also no requirement that the directors inform the CEO, or anyone else not in on the conversation, about what occurred during the session. But experts advise that it’s often good practice to have one director speak with the CEO after the conversation to provide a high-level recap of the talk. This doesn’t need to occur — and probably shouldn’t if directly addressing CEO wrongdoing. The regular communication with a CEO, however, can ease the potential of imaginations running wild. 

“It’s probably never a comfortable moment,” says McAlpin. “They may always wonder what is discussed in the room; best practice, have the lead outside director give an overview of what was discussed.”

The session cannot come to a decision that’s final or binding. Instead, it may provide a game plan in addressing an issue with the full board. Once the game plan is set, the directors can bring it to the full board for a vote. 

Executive sessions ensure that the directors’ game plan has the input of everyone involved. With that insight, then the board can operate with a full and robust voice. Failing to do so, would “be a breach of duty,” says MacDonald.

3 Things Business Customers Want From Their Banks

Just like the best community bankers, we want to be the best for our customers: the community banks powering small businesses across the country. So reviews really matter.

Our most energizing reviews are the comments that community banks relay to us from their business customers, specifically regarding their business credit application experience. You are the best banker you can be when business customers are ecstatic about the end-to-end business credit application experience. What makes business customers go out of their way to tell a community banker how happy they are?

To answer that, let’s take a look at the reasons that really help a small business owner thrive. Take Rachel, a cafe owner looking to expand her operations. Here are three things that would make you a hero in her eyes:

1. Applying for Credit Feels as Easy as Ordering Takeout
Maybe it won’t be quite as easy as a takeout order, but the experience can have many things in common. Efforts to digitize the Paycheck Protection Program, along with the customer experience for a whole host of other industries, have permanently re-trained business customers to expect more. She can even sign up for a full-fledged marketing platform in mere minutes online. Business credit application that attempt to replicate something similar include:

  • A state-of-the-art application on the bank’s business product website.
  • The application for credit follows a logical, intuitive flow, with no questions that could stump the applicant or require unnecessary precision.
  • An easy way to checking the loan status. The platform offers a way to login to check the status, revise the application once it is submitted and add documents. Prospective borrowers know where their application stands every step along the way.

2. Quick Decisioning From the Bank
This does not mean that every applicant is ultimately approved. But a fantastic online digital experience helps applicants self-select away from what would never have a chance. Completed applications are thorough and include all the data and documentation necessary to tell the applicant where she stands in a day or two. Your bank may even be able to fund her that much more quickly, generating incredible satisfaction from business owners.

3. Closing is Electronic
Not unlike a mortgage, loan closing can be fully electronic — with a lot fewer forms. Customers, like Rachel, love that. The PPP closing was largely electronic for many business owners nationwide. Why should they ever go back?

Of course, these three things only happen when your bank’s underwriting team has everything they need at their fingertips: all documents and data in one place and a decisioning engine with a recommended offer while avoiding the “black box decisioning” from artificial intelligence. A robust analysis that leaves no detail to chance and recommends quality decisions can help your bank finalize decisions. You answer your business customer in mere days.

To do that, consider adding a nimble platform that is both quickly enabled and valued priced. Your bankers are the trusted advisor to your valued business customer; you can be the hero with your bank.

Leveraging Embedded Fintech for Small Businesses

Small businesses are increasingly looking for more sophisticated financial solutions, like digital payments. Yet, many community banks haven’t adapted their products and services to meet these demands. Banks that don’t address their small business clients’ pain points ultimately risk losing those customers to other financial providers. Derik Sutton, vice president at Autobooks, describes how community banks can bridge that gap with embedded fintech.  

  • How Small Business Needs are Changing
  • Confronting Competition 
  • First Steps to Embedded Fintech 

Autobooks’ cloud-based platform is built on Microsoft Azure.  

Why There Is No ‘Back to Normal’ for Banks

In the past few weeks, I’ve started to go back into the office more frequently. Despite any inconveniences, it’s refreshing and invigorating to see colleagues and clients in person again. It’s clear that most of us are ready for things to go back to normal.

Except, they most likely won’t.

Last year was largely favorable for banks, with industry ETFs outperforming the broader market and rebounding from 2020’s contractions. Larger banks with diversified revenue sources — including mortgage lending and banks with active capital markets or wealth management businesses — did particularly well.

Now, with rising inflation and a rapidly shifting geopolitical landscape, there may be different winners and losers. But after two years of the global pandemic, we have learned what the future of work could look like, and how much the environment will continue to evolve. The recent challenges in Eastern Europe remind us that ongoing change is the only certainty.

In PwC’s latest look at the banking environment, Next In Banking and Capital Markets, we see investors being far more interested in growth than in saving a few dollars. And we see potential for that growth across the banking industry — regardless of size, geography or customer segment. In particular, we see five opportunities for institutions that focus on digital transformation, build trust — with a particular emphasis on environmental, social and governance (ESG) issues, win deals, review and respond to regulation, and adopt cloud technology.

Digital Transformation: My colleagues researched how consumer behavior has changed over the past two years. We found that the pandemic significantly accelerated the trend toward digital banking — and many banks weren’t prepared. The implications go far beyond adding a peer-to-peer payment tool to your consumer app. In fact, nearly every bank should be thinking about developing a growth strategy based on a customer focus that is much sharper than “They live near our branches” or “Businesses need access to capital.” Digital transformation is here to stay; aligning to a disciplined growth strategy can help make technology investments successful.

Environmental, Social and Governance (ESG) Frameworks: Community reinvestment, diversity initiatives and strong governance models are not new issues for banks. In fact, the industry has been laser-focused on building stakeholder trust since the 2008 financial crisis. But with a solid baseline of social and governance investments, banks have now shifted their focus to helping define and deliver commitments around the environment, namely climate change. Banking industry leaders are looking for more effective ways to integrate climate risk management throughout their operations. But the data we use to report on ESG issues is very different from typical financial metrics, and most firms struggle to tell their story. Leading firms can help enhance transparency with trustworthy data, while developing strategies to drive their climate agenda.

Deals: The industry experienced historic rates of bank mergers and acquisitions last year — everything from some foreign banks stepping away from the U.S. market, to regional bank consolidation, to banks of all sizes adding specialty businesses. But with valuations at current levels, corporate development teams should get far pickier to make the numbers work. Increasingly, this may require a greater emphasis on creating growth than on finding cost synergies. To do that, banks and their leaders need to have a very clear idea of whom they’re serving, and why.

Regulation: Evolving concerns over the global economy have resulted in a different approach to regulation. While this does not represent a 180° turn from where we had been, it is clear that banks have been attracting new attention from regulators and legislators, especially with respect to consumer protection, cybersecurity, climate risk, taxation and digital assets. Banks should be particularly diligent about control effectiveness, as well as identifying effective ways to collect, analyze and report data. But regulation isn’t just a matter of defense: The more banks understand and manage risk, the more they can take advantage of “new economy” opportunities like mitigating climate change and digital assets.

Cloud: Virtually every bank has moved some of its work to cloud-based systems. But with definitions of “cloud” as imprecise as they are, it is no wonder that many executives have not yet seen the value they had hoped for. If you set out to consolidate data centers by moving some background processing to the cloud, don’t expect major rewards. But emerging cloud capabilities can, for example, help banks improve the customer experience by being more agile when responding to client demands — and this could be a game changer. Today’s cloud technology can help institutions rethink their core business systems to be more efficient. It can even help solve new problems by more efficiently integrating services from a third party. This year, we’re likely to see some banks pull farther ahead of their peers — perhaps, even leapfrogging competitors — by making strategic choices about how to use cloud technology to jump-start digital transformation, rather than just as a way to manage costs.

Last year, I made the case that banks needed to stay agile, given economic uncertainty and the rapid pace of change. This is still the case. But bankers and boards should also keep their eyes on the prize: Whether you are a community bank, a large regional institution or a global powerhouse, you will have plenty of chances to grow this year. The five opportunities described above can offer significant value to banks that adopt them strategically.

Harness the Power of Tech to Win Business Banking

The process for opening a consumer account at most financial institutions is pretty standard. It’s not uncommon for banks to provide a fully digital account opening experience for retail customers, while falling back on manual and fragmented processes for business accounts.

Common elements in business account opening include contact forms, days of back-and-forth communication or trips to a branch, sending documents via secure email systems that require someone to set up a whole new account and a highly manual document review process once the bank finally receives those files. This can take anywhere from days to multiple weeks for complex accounts.

Until very recently, the greatest competitor for banks in acquiring and growing business accounts was other banks. But in recent years, digital business banks have quickly emerged as a more formidable competitor. And these digital business banks empower users to open business accounts in minutes.

We researched some of the top digital business banks to learn more about how these companies are winning the business of small businesses. We discovered there are three key ways digital banks are rapidly growing by acquiring business accounts:

1. Seamless, intuitive user experiences. Business clients can instantly open accounts from a digital bank website. There’s no need to travel to a branch or pick up a phone; all documents can be submitted online.
2. Leveraging third-party technology. Digital banks aren’t building their own internal tech stacks from the ground up. They’re using best-in-class workflow tools to construct a client onboarding journey that is streamlined from end to end.
3. Modern aesthetics. Digital business banks use design and aesthetics to their advantage by featuring bright and engaging colors, clean user interfaces and exceptional branding.

The result? Digital banks are pushing their more traditional counterparts to grow and innovate in ways never before experienced in financial services.

Understanding what small businesses need from your bank
A business account is a must-have for any small business. But a flashy brand and a great user experience aren’t key to opening an account. Small businesses are really looking for the right tools to help them run their business.

While digital banks offer a seamless online experience, community banks shouldn’t sell themselves short. Traditional banks have robust product offerings and the unique ability to deal with more complex needs, which many businesses require. Some of the ways businesses need their financial institutions to help include:

  • Banking and accounting administration.
  • Financing, especially when it comes to invoices and loan repayment.
  • Rewards programs based on their unique needs.
  • Payments, specifically accepting more forms of payment without fees.

It’s important to keep in mind that your bank can’t be all things to all clients. Your expertise in your particular geography, industry or offerings plays a huge role in defining your niche in business banking. It’s what a lot of fintechs — including most digital banks — do: identify a specific niche audience and need, solve the need with technology, and let it go viral.

While digital banks might snap up basic small and medium businesses, the bar to compete in the greater market is not as high as perceived — especially when it comes to differentiated, high-risk complex entities. But it requires a shift in thinking, and the overlaying the right tech on top of the power of a community based financial institution.

It’s important that community bank executives adopt a smart, agile approach when choosing technology partners. To avoid vendor lock-in, explore technologies with integration layers that can seamlessly plug new software into your bank’s core, loan origination system, digital banking treasury management system and all other platforms and services. This means your bank can adopt whatever new tech is best for your business, without letting legacy vendors effectively dictate what you can or can’t do.

Your level of success in winning at digital banking comes down to keeping the client in focus and providing the best experiences for their ongoing needs with the right technology. While the account itself might be a commodity, the journeys, services and offerings your bank provides to small businesses are critical to growing and nurturing your client base.