Viewing the COVID-19 Crisis From a New Vantage Point

Fintech companies have a unique vantage point from which to view the COVID-19 crisis.

Technology leaders are working long hours to help banks go remote, fill in customer service gaps and meet unprecedented loan demand. They’re providing millions of dollars in free services, and rapidly releasing new products. They’re talking to bankers all day, every day, and many of them are former bankers themselves.

Bank Director crowdsourced insights about banks’ pandemic-fueled tech initiatives from 30 fintech companies and distilled their viewpoints into five observations that can help banks sort through the digital demands they face today.

“Nice to Have” Technology Is Now “Must Have”
Online account opening, digital banking, financial wellness and customer service are garnering fresh attention as a result of the COVID-19 crisis.

Before the pandemic, these areas were thought of as “nice to have,” but they weren’t at the top of any bank’s tech expenditure list. COVID changed that.

Account opening and digital banking are essential when branch lobbies are closed, and customers are looking to their banks for advice in ways they never have before in times of widespread uncertainty.

These new demands have created a unique opportunity to push technology initiatives forward. Ben Morales, who had a 24-year tenure in banking before founding personal loan fintech QCash, observed that bank leaders shouldn’t “waste an emergency. Now is the time to push bank boards to invest.”

Bank boards are already talking about COVID as a potential inflection point for tech adoption, says Jon Rigsby, a former banker who co-founded and now is the CEO of Hawthorn River Lending. He notes that this moment is different from past crises. “In my 27-year banking career, I’ve never seen bankers change so fast. It was quite phenomenal.”

Customer Service, Financial Wellness Are Taking Center Stage
Consumers are increasingly seeking guidance from their banks, inundating call centers. As a result, communication and financial wellness tools are getting their moment in the sun.

Boston-based fintech Micronotes has witnessed exponential growth in demand for their product that helps banks initiate conversations with their customers digitally. Micronotes introduced a new program that’s purpose built for pandemic in mid-March. The Goodwill Program helps banks proactively communicate with their customers around issues like relief assistance and the Small Business Administration’s Paycheck Protection Program (PPP). Inbound interest in the firm from banks was nearly eight-times higher two weeks after the program launched, compared to the two weeks prior to launch, Micronotes reports.

Banks already equipped with digital communication tools are seeing an uptick in usage. Kasisto, a New York-based fintech, reported that several clients have seen a 20% to 30% increase in the use of KAI, a virtual assistant that can converse with customers and lessen the burden on call centers.

Financial wellness initiatives are also seeing liftoff. Happy Money, a personal loan fintech that uses financial and psychometric data to predict a borrower’s willingness to repay a loan, launched a free financial stress relief product for its bank partners’ customers. And SavvyMoney, a fintech that provides credit information to borrowers alongside pre-qualified loan offers, is seeing an influx of inquiries from banks that “understand the need to provide their customers with tools so they can better manage their money during uncertain financial times,” says CEO JB Orecchia.

Due Diligence Can Move Faster, When It Has To
Several fintechs have noted that banks are speeding up their vendor due diligence processes immensely — but not by relaxing standards.

Vendor onboarding programs can sometimes stretch to fill an entire year, according to Rishi Khosla, CEO of London-based digital bank OakNorth, but they don’t have to. OakNorth developed its own credit underwriting and monitoring solution, and recently spun out a technology company by the same name to provide the tools to banks outside of the U.K.

Khosla has a unique perspective given his dual roles as both a banker and technologist. He says some banks have created “unbelievable processes” that, when cut down, actually only amount to 10 to 20 hours of work. In this environment, he says, a commercial bank partner can get 20 hours of work done within days. They’re in “war mode,” so they can take a dramatically different approach, but with no less rigor.

“It’s not like they’re taking shortcuts. They’re going through all the right processes,” he says. “It’s just they’re doing it in a very efficient, streamlined manner without the bureaucracy.”

Approach Existing Partners First
Banks now wanting to adopt new technology may find themselves at the end of a long waitlist as fintechs are inundated with new demand. Fintech providers are prioritizing implementations for existing customers first — just as most banks prioritize existing borrowers for PPP loans.

To get the technology they need fast, some banks are getting creative in rejiggering the tech they do have to meet immediate needs.

Matt Johnner, a bank board member and the president of construction lending fintech BankLabs, got a call from a bank client a few days after the rollout of PPP loans. The bank wanted to customize the BankLabs construction loan automation tool to process PPP loans. Johnner says the bank “called because they know our software is customizable … and that we go live in 1 hour.”

Because of the exponential rise in digital demand, a bank’s success with technology during the pandemic has been based largely on what they had in place before the outbreak, according to many fintechs.

“Some banks are innovating through this and are thinking near and long term, especially those that have made good investments in digital banking and have a solid foundation to build out from,” explains Derik Sutton, VP of product and experience for small business solution Autobooks. “The most common response we get [from banks] is ‘We wish we had done this sooner.’”

Resist the Urge to Slash-and-Burn
There are typically three ways that banks respond in crisis, according to Joe Zeibert, who started his banking career as an intern at Bank of America Corp. in summer 2008. He recently joined pricing and analytics platform Nomis as managing director of global lending solutions after an 11-year career in banking, and believes history can be a useful indicator here.

Similar to the financial crisis, we see some banks rushing to innovate who will be ahead of the curve when they get out of the downturn. Others are playing wait and see, and then others are slashing tech and innovation budgets to cut costs wherever they can,” says Zeibert. According to him, the more innovative banks came out of the last crisis better off than their peers that cut tech spending. “They came out of the downturn with a 5-year innovation lead over their competitors — a gap that is almost impossible to close,” he says. Banks now should resist the urge to slash and burn and, instead, focus on investing in technology that will help them emerge from the crisis stronger.

Most technology companies are reporting an influx of inbound interest from banks, and strong momentum on current projects. Fintechs appear to be rising to the occasion, and one sentiment they all seem to share is that it’s their time to give back; to help banks and, as a result, the nation, weather this crisis together.

*All of the companies mentioned in this article are offering new products, expedited implementations or free services to banks during COVID-19. To learn more about them, you can access their profiles in Bank Director’s FinXTech Connect platform.

The Most Important Question in Banking Right Now


banking-2-15-19.pngTo understand the seismic shifts underway in the banking industry today, it’s helpful to look back at what a different industry went through in the 1980s—the industry for computer memory chips.

The story of Intel Corp. through that period is particularly insightful.

Intel was founded in 1968.

Within four years, it emerged as one of the leading manufacturers of semiconductor memory chips in the world.

Then something changed.

Heightened competition from Japanese chip manufacturers dramatically shrank the profits Intel earned from producing memory chips.

The competition was so intense that Intel effectively abandoned its bread-and-butter memory chip business in favor of the relatively new field of microprocessors.

It’s like McDonald’s switching from hamburgers to tacos.

In the words of Intel’s CEO at the time, Andy Grove, the industry had reached a strategic inflection point.

“[A] strategic inflection point is a time in the life of a business when its fundamentals are about to change,” Grove later wrote his book, “Only the Paranoid Survive.”

“That change can mean an opportunity to rise to new heights,” Grove continued. “But it may just as likely signal the beginning of the end.”

The parallels to the banking industry today are obvious.

Over the past decade, as attention has been focused on the recovery from the financial crisis, there’s been a fundamental shift in the way banks operate.

To make a deposit a decade ago, a customer had to visit an ATM or walk into a branch. Nowadays, three quarters of deposit transactions at Bank of America, one of the biggest retail banks in the country, are completed digitally.

The implications of this are huge.

Convenience and service quality are no longer defined by the number and location of branches. Now, they’re a function of the design and functionality of a bank’s website and mobile app.

This shift is reflected in J.D. Power’s 2019 Retail Banking Advice Study, a survey of customer satisfaction with advice and account-opening processes at regional and national banks.

Overall customer satisfaction with advice provided by banks increased in the survey compared to the prior year. Yet, advice delivered digitally (via website or mobile app) had the largest satisfaction point gain over the prior year, with the most profound improvement among consumers under 40 years old.

It’s this change in customers’ definition of convenience and service quality that has enabled the biggest banks over the past few years to begin growing deposits organically, as opposed to through acquisitions, for the first time since the consolidation cycle began in earnest nearly four decades ago.

And as we discussed in our latest issue of Bank Director magazine, the new definition of convenience has also altered the growth strategy of these same big banks.

If they want to expand into a new geographic market today, they don’t do so by buying a bunch of branches. They do so, instead, by opening up a few de novo locations and then supplementing those branches with aggressive marketing campaigns tied to their digital banking offerings.

It’s a massive shift. But is it a strategic inflection point along the same lines as that faced by Intel in the 1980s?

Put another way, has the debut and adoption of digital banking changed the fundamental competitive dynamics of banking? Or is digital banking just another distribution channel, along the lines of phone banking, drive-through windows or ATMs?

There’s no way to know for sure, says Don MacDonald, the former chief marketing officer of Intel, who currently holds the same position at MX, a fintech company helping banks, credit unions, and developers better leverage their customer data.

In MacDonald’s estimation, true strategic inflection points are caused by changes on multiple fronts.

In the banking industry, for instance, the fronts would include regulation, technology, customer expectations and competition.

Viewed through this lens, it seems reasonable to think that banking has indeed passed such a threshold.

On the regulatory front, for the first time ever, a handful of banks don’t have a choice but to focus on organic deposit growth—once the exclusive province of community and regional banks—as the three largest retail banks each hold more than 10 percent of domestic deposits and are thus prohibited from growing through acquisition.

Furthermore, regulators are making it easier for firms outside the industry—namely, fintechs—to compete directly against banks, with the Office of the Comptroller of the Currency’s fintech charter being the most obvious example.

Technology has changed, too, with customers now using their computers and smartphones to complete deposits and apply for mortgages, negating the need to walk into a branch.

And customer expectations have been radically transformed, as evidenced by the latest J.D. Power survey revealing a preference toward digital banking advice over personal advice.

To be clear, whether a true strategic inflection point is here or not doesn’t absolve banks of their traditional duty to make good loans and provide excellent customer service. But it does mean the rules of the game have changed.

Why Soccer And Restaurant Reviews Are Becoming Part of Digital Banking


fintech-9-27-18.pngFor years banks have looked to fintechs to make their digital offerings more convenient, an area where legacy core systems have been slow to develop. That remains a primary goal for some institutions that have been slower to adopt modern digital capabilities.

Banks attending Finovate Fall Sept. 24-26 in New York City were looking for fintech partners that could help them bolster their main value proposition: deep customer relationships and personalized customer service. Several companies are serving up unique capabilities such as providing restaurant recommendations or basing savings goals on how well your favorite soccer team performs.

Dan Latimore, senior vice president of banking at the research firm Celent, tweeted that customer experience was the leading topic of discussion at this year’s fintech-heavy U.S. conference, but it’s not just the conveniences of a robust mobile app that banks are rolling out. Some banks are working with fintechs to build unusual but highly personalized capabilities in their digital experience to drive human interaction and improve the quality of their customer relationships.

Three unique examples of bringing the bank and its customers closer together involve recommendations from the bank through its fintech partner.

Tinkoff Bank – Tinkoff Bank, a branchless Russian bank with $278 billion in assets according to its most recent disclosure, bills itself as a “digital ecosystem of financial and lifestyle products.” The bank’s mobile app goes beyond traditional banking services to provide things like restaurant recommendations, user tips and troubleshooting advice. Tinkoff engages its user base of about 7 million customers through stories that are similar to those used in popular social media apps like Instagram.

Meniga – This London-based fintech’s transaction categorization engine helps banks personalize their digital channels. Meniga presented at the conference with client Tangerine Bank, a Canadian direct bank and subsidiary of Toronto-based Scotiabank with $38 billion in total assets. The bank’s app recommends personalized savings goals.

For example, Tangerine’s app will notice if a user is a fan of a particular soccer team based on their purchasing history. The app can then automate a savings challenge for the user that will move money from their checking account to savings every time the team scores a goal.

Bond.AI – One of several chatbots in attendance at Finovate, Bond brands itself as an “empathy engine” that understands the context of financial data. In addition to answering basic banking inquiries, Bond proactively recommends behaviors users should take and products that fit their lifestyle.

Meniga and Bond.AI were both awarded Best in Show by conference attendees. They represent an emerging focus on understanding a customer’s lifestyle through transaction data and then making helpful recommendations to them based on that information, which are often described as artificial intelligence or machine learning. This is the latest stage in the innovation of fintech capabilities, which began by making the bank’s digital experience more convenient and friendly to mobile users.

These capabilities have been popular topics at national conferences, including Bank Director’s FinXTech Summit, held in May at The Phoenician in Phoenix, Arizona.

There’s no doubt that the challenges of partnering with fintechs was a much different proposition than when fintech firms were stood up some 10 years ago. Now, more than a decade into some fintech life cycles, the firms have matured.

Fintechs have learned to work within the regulatory framework, core system capabilities and other legacy issues banks have long been familiar with. Banks, on the other hand, have become more open to partnership with smaller, nimble tech companies.

The technology banks need to engage customers on a meaningful level has arrived. Fintechs have established themselves as viable business partners. Consumers are demanding more convenient digital experiences and many banks are progressing in meeting those demands, but those who don’t continue to lose ground in being able to grow or remain competitive.

Improving Customer Experience Depends on Rewriting This Rule


customers-2-8-18.pngCustomer experience in banking used to be about simply offering the best digital banking experience. But today, customer experience (CX) is a competitive battleground. Consumers aren’t just comparing their experience at your bank to other financial institutions, but to successful online retailers like Amazon and Zappos, as well.

Fortunately, building a differentiated customer experience is well within the reach of traditional banks and contrary to popular belief, getting there doesn’t require a major overhaul to existing processes, or even waiting until the entire digital or CX strategy is mapped out. It just requires bank leaders to rewrite one rule: Instead of waiting for customers to come to you for self-service, go to them with proactive service.

Improving customer experience in banking means making engagement proactive and personal.

A great customer experience can mean different things to different people, but there’s one common thread: ease. Ask your customers to name the most important thing you can do to win their loyalty, and you’ll probably hear, “make it easy for me” as the most common answer.

While simple in concept, this is at odds with how most companies serve their customers. If you take a look at your bank’s current CX model, chances are you’ll find it relies heavily on self-service and one-to-many messages. Mobile apps, customer portals, community forums and chatbots are great tools for customers seeking answers, but customers still have to do the work in reaching out to the bank and asking the right questions. Even then, customers have to sort through tons of information to find content that’s relevant to them.

As easy experiences become a baseline expectation for customer loyalty, companies must make the switch to guiding customers with proactive CX. Unlike self-service, proactive service takes the weight off of customers by eliminating the need to search for answers. Instead, it predicts the information that customers will need based on where they are in their journey. Then, it delivers this content as personalized experiences, directing customers to the information they need before they have to ask.

The content for a better banking customer experience is there—it just needs the right timing.

So where should banks start? The best way to begin is to identify the moments in the customer lifecycle that are causing the most friction. This can be accomplished by looking at call logs, the bank’s more popular web pages, common chatbot questions and FAQs. (Relay has provided a step-by-step guide on how businesses can do this well.)

Map out these interactions and reduce any unnecessary complications. Then, guide customers through each step by delivering the right content at the right time, with the right context. By focusing on problems that are common to all users, your bank can automate proactive, individualized service that empowers customers.

As an example, $152 billion asset Citizens Financial Group, headquartered in Providence, Rhode Island, struggled with high drop-off rates in its student loan application process. The forms required a lot of back-and-forth to collect necessary information from each applicant, creating a negative customer experience. Citizens needed to improve its student loan application pull-through with automated and proactive mobile messages that knew where customers were in the application process. An automated process that delivers relevant information and proactive, timely reminders has resulted in a 10 percent increase in loan completions, and the process is now 40 percent faster.

The process for home equity lines of credit (HELOC) is another area where banks could improve the experience. Customers are often stumped during the application process, which can lead to costly outbound calls to the customer to help them through. Once approved, customers usually have a number of questions: What are the benefits? What can I use the line of credit for? How do I draw down? As a result, lines of credit are underutilized. Instead of relying on the customer to seek out these answers, banks can educate and engage customers at every stage in the process.

The banking experience can’t abandon self-service—but proactive service will preempt it.

In order to succeed in this new era of heightened CX expectations, banks need to invest in channels that enable relevant, personalized and proactive engagement with customers. By making it easy for customers to get exactly what they need through their preferred channels, your bank could be one that customers are eager to use.

Competitive to Collaborative: How Fintech Works With Banks and Not Against Them


collaboration.png

Over the past two decades alone, the advent of new technologies has undeniably changed the way we communicate, work, travel, invest, shop and more. This has forced traditional financial institutions to adopt more efficient and modern business models. It comes as little surprise, then, that the banking industry—long renowned for its staid, traditionalist approach to business—is ripe for disruption, operates under significant financial pressure and is subject to renewed scrutiny as a result of the liquidity spiral of 2008. Enter fintech.

Fintech has come a long way since Peter Knight, a business editor at the United Kingdom’s Sunday Times, first coined the term back in the 1980s, and since early entrant PayPal first revolutionized electronic payments. In its most current iteration (circa 2007, give or take), fintech emerged as a knight in shining armor: a disruptive force ready to save us all from those —evil’ financial institutions deemed responsible for the Great Recession.

Much has changed since 2007 and it seems that, as many predicted, banks, alternative lenders and fintech companies have come full circle in how they view each other relative to the ecosystem they occupy—from perceived partners, to “frenemies” (companies that cooperate for the mutual benefit despite competing in the same industry niche) and enemies (companies that compete in the same industry niche), then back to perceived partners. An increasing number of these actors have been adopting a more collaborative rather than adversarial approach, recognizing the overlap in business objectives in everyone’s self-interest. This can be seen as an extremely positive thing; partnerships with fintech companies can provide financial institutions with the ability to serve new segments, engage new customers and expand business with efficient technological solutions.

Bottom line, when banks and fintech companies work together, they are able to bring products to market quickly and seamlessly, all while providing a significantly enhanced client experience.

But what is behind this paradigm shift? There are three main factors driving this new wave of collaboration:

The Competitive Landscape
Beholden to prohibitively complex and cumbersome financial regulations, banks have seen significant consolidation and increasing competition over the past 40 years. They responded in large part by rebalancing their business models from a strict asset transformation approach, to blended fee-based models. Now, however, when fintech and banks collaborate, they’re able to not only leverage the resources of banks, but also leverage fintech’s nimbleness in order to effectively and expediently bring products to market. Data has exposed many previously underserved market opportunities, long overlooked due to bloated cost structures riddled with antiquated IT infrastructures and heavily layered processes, impeded further by the highly siloed nature of financial institutions’ operational structures.

Traditional Customer Service Role Has Changed
Traditional banks, be they large too-big-to-fail banks or regional and community banks and credit unions, have a strong position not only from a capital perspective, but also from a customer vantage point—they have records of all of their customers’ information. This is an important distinction between traditional and well-established institutions versus new alternative finance companies—banks would have a much lower cost of customer acquisition when compared to alternative lenders that face massive marketing expenditures.

The traditional role of the bank is to take in and manage deposits, allocate that capital and service a traditional portfolio with traditional loan parameters. Banks lend, borrow and ultimately help keep money in circulation. However, unless there is commitment by senior management at these financial institutions to adapt modern technologies, success is unlikely for traditional financial institutions.

Innovation Overdue
Lastly, driven by the competitive landscape, banks seem to have recognized that they are not viewed as bastions of innovation. Many are responding accordingly by teaming up with fintech companies that are well-positioned to steer them forward into the digital age. Deals between traditional financial institutions and alternative lenders and fintech players (like JP Morgan and OnDeck or Kabbage and Santander) are illustrative of the complementary and mutually beneficial qualities that players in banking and fintech bring to the table.

These factors, in combination, will likely result in an ecosystem of fintech companies assuming 25-30 percent, if not more, of the current banking system’s value chain. Catering to both traditional and alternative financial institutions, fintech companies enable banks to focus on their individual core competencies by offering expanding toolkits of services from origination (customer acquisition and digital onboarding) to underwriting and portfolio management (know your customer, otherwise known as KYC, anti-money laundering compliance, predictive data analytics and loan management).

The financial ecosystem is changing regardless of how market participants feel. Change is the only certainty, after all. Survivors will adapt by leveraging technological innovation through fintech partnerships, creating significant value for customers and the company itself. Those that don’t will quickly be left behind and ultimately perish.

Why Community Banks Need to Embrace Social Media


social-media-3-10-17.pngSocial media allows banks to appeal and engage with millennials, who constitute a quarter of the U.S. population.

Banks are actively stepping into the social media game by creating Facebook pages, Twitter accounts and YouTube channels to reach the masses with company updates, money management tips and education. IBM suggests that banks need to use social media not only for outreach—but customer service as well. The tech giant notes that millennials are more apt to air their grievances via social media than call a bank directly and wait on hold. Banks can use their twitter accounts as a customer sounding board and to address issues directly?thus, keeping customers happy and their money in the bank.

Social Media Data for Underwriting
It is projected that in 2015, there were 26 million credit invisible consumers in the United States alone. About 8 percent of the adult population in the country have credit records that can’t be scored based on a widely used credit scoring model. Those records are almost evenly split between the 9.9 million that have an insufficient credit history and the 9.6 million that lack a recent credit history.

While large financial institutions are heavily focused on serving the credit-eligible population across the country, community banks play a critical role in the welfare of those left beyond the borders of eligibility. The opportunity to expand access to financial services in communities with an ineligible population is a critical step towards financial inclusion in those communities.

Social media channels are gaining an important role as alternative sources of data on credit eligibility. Who you know matters (especially in defined communities), and companies like Lenddo, FriendlyScore, ModernLend and credit scoring solution providers are leveraging this idea with the use of non-traditional sources of data to provide credit scoring and verification along with basic financial services. Social media also gives lenders an insight into how an applicant spends their time, which can be used as an alternative way to indicate someone’s financial trustworthiness, expanding opportunities for banks to reach new categories of customers.

While loan officers at megabanks apply impersonal qualification criteria without regard to individual circumstances, community banks are initially better positioned to benefit from the use of social media channels to get to know their customers even closer than they already do.

As emphasized by the team at Let’s Talk Payments, a source of information and research online about emerging financial services and payments, the following are some of the tangible opportunities for banks embracing social media data for creditworthiness assessment:

  • The opportunity to capture a new customer segment
  • Differentiated customer experience
  • Strengthening the existing underwriting process
  • Enhanced fraud prevention
  • Stronger engagement with the community

Given the scale of credit invisibility in the country, an innovative approach to potential customer profiling in communities where banks operate could serve as a competitive edge for those banks. Social media data can be used to extend loans to previously ignored groups in the population, improving household resilience and building stronger ties between community banks and their immediate communities.

Social Media is About Relevancy and Accessibility
There are two elements to relevancy and accessibility: an opportunity to gather feedback to improve products and services and the opportunity to increase accessibility and transparency to customers.

“Customer feedback is indispensable for any business that wants to grow, and the same holds true of community banks. Social media interactions are your doorway to customer conversations and feedback, which can help you fine tune your business. Tapping into online conversations on social media should shed light on customer problem points, helping resolve issues before they escalate,” said Jay Majumdar, vice president of sales at ICUC, a social media management services company.

Ignoring conversations about your bank on social media is a dangerous path—it removes control over the message and brand image, and it damages your reputation as a customer-centric business. It’s especially damaging for community banks that are dependent on community loyalty and long-standing relationships with customers. Jill Castilla, president and CEO of Citizens Bank of Edmond, echoes this point, saying that “social media is not about putting a message out there and leaving it. It’s a conversation.” She also emphasizes that “social media is about relevancy and the accessibility that you expect from your hometown community bank. It’s a tangible way that our community can see we’re living up to be the community bank you used to think about. That’s what social media allows us to achieve.”

Shaking Up Traditional Banking


banking-strategy-2-10-17.pngUnlike some executives, David Becker likes to be told what he’s doing wrong. The chairman and chief executive officer of First Internet Bank in Fishers, Indiana, says bank interns speak to the senior leadership team at the end of their internships to discuss ways the bank could improve. He expects the same of staff throughout the organization.

“[Our hire] is the dissatisfied banker,’’ he says. “They were in an organization that had a boatload of rules and policies. We take the banker who says, ‘What if we did this?’ We want the person who questions the day-to-day operations.”

Running the bank in such a way has paid off.

The bank’s holding company, $1.8 billion asset First Internet Bancorp, grew loans 31 percent last year from the year before, to $1.3 billion. Net income grew to $12.1 million from $8.9 million in 2015. The bank’s return on average assets was 0.81 percent in the fourth quarter of 2016, and its return on average equity was 11.24 percent. First Internet has its headquarters in Fishers, a suburb of Indianapolis, and a loan production office in Tempe, Arizona, and that’s it. With a focus on digital banking, First Internet can grow its loan book nationally while keeping expenses low. One of its niches is digitally savvy investors who own properties or businesses in multiple states because the bank can accommodate lending that may take place in different parts of the country.

Investment bank Keefe, Bruyette & Woods has an outperform rating on the stock, in part based on its cheapness relative to the bank’s performance. The bank will have to continue to grow to achieve efficiencies, because internet banks have to pay slightly more for deposits than other banks do, says Michael Perito, a KBW analyst who follows the stock.

Becker feels as if the big banks are getting consumers more accustomed to digital banking, and therefore, more likely to leave for digital-only banks. When he first started the internet bank in 1999, customers had to deposit checks by sending them in the mail to the bank. Now, they can just remotely deposit them through the bank’s mobile banking app. If customers use another bank’s ATM, First Internet reimburses them for up to $10 per month in surcharges—making up for the bank’s lack of a branch network.

The bank has been growing lately in part because it is hiring seasoned bankers to tend to its loan book of mortgages, commercial real estate and consumer loans. Becker says the bank has managed to survive by building slowly and carefully in its early years, so as not to overstep its infrastructure. “The team we have on board are all folks at the senior level that worked at multistate, large, regional banks and have the expertise and the ability to help us grow to that multi-billion-dollar position,’’ Becker says. “It is all about the people. We can create computer tools and algorithms, but at the end of the day, somebody has to talk to you if there is a problem and know how to underwrite a loan.”

The bank is acutely focused on customer service, and in its early days, it didn’t hire anyone right out of high school or in their first job. “We needed talented people who could handle anything that came in the door,’’ Becker says. There are no tellers per se, and everyone who works in customer service needs to handle multiple functions, from wire transfers to starting a new deposit account. Staffers can communicate with their customers on the phone, in online chat rooms or via email. They keep track of customer reviews on sites such as Yelp, because bad reviews can damage the company’s reputation. Software vendors are held to account, and the bank doesn’t sign any long-term contracts with vendors, Becker says.

Although the bank relies on vendors rather than developing its own software, it follows the workplace ethic of a tech company: a 24-hour gym is available, and people can show up in jeans to work every day. “We use technology to revolutionize the banking process,’’ Becker says. “There really isn’t any limit to our potential growth. Are we a drop in the bucket in the whole community of financial services? Yes. But the consumer is coming our way. We are getting better at it and we are bigger day by day.”

Five Ways to Improve Your Bank’s Commercial Lending Department


commercial-lending-5-27-16.pngWhen running a business, one of the most important things an owner needs is access to capital. Unfortunately, getting their hands on that much needed capital is never easy, quick or painless. In fact, it’s quite the opposite. But the experience doesn’t have to be all bad. If you are a lender, consider these five steps to stand out from your competitors.

Be Convenient
For people who own or run a business, many times it is their passion (or their obsession) and most spend 60 plus hours a week tirelessly working on making that business a success. The last thing they have time for in the middle of the day is to run to the bank to talk about their borrowing needs. Provide your business customers with a way to explore and even apply for a loan outside of the scope of normal bank hours and in a way that leverages technology as a productivity enabler. In this instant online access world, banks need to provide their customers convenience, and technology is essential to that.

Be Fast
When the need for capital arises, most business owners needed it “yesterday” rather that “six to eight weeks from now.” Let’s face it, in the world of banking, we’re always thorough, but we’re not always quick. The time to process most loans, from application to funding, can take a very long time. One of the biggest negative influencers on the customer experience is the frustration borrowers have to deal with as the lending process drags on. Through automation, banks can streamline lending processes without compromising their credit requirements. Leverage technology by integrating resources for data collection, underwriting, collection of the required documentation as well as closing and funding.

Be Easy to Work With
It takes a lot of time and energy just to complete a loan application. And it’s by no means over once the business owner gets approved. Streamline and automate your application loan processing workflows as much as possible to eliminate tedious re-keying of the same data over and over again, or requiring applicants to fill out or review elements of the application that don’t apply to them. Provide a way for clients to get the bank what it needs, including bank statements, tax returns, financials etc., in a simple, automated and timely way by integrating technology where possible.

Be Aware of the Big Picture
Business owners are coming to you for more than just a loan. They want help running their business and welcome any advice or value-added information the bank provides. Know that the loan is only one part of the picture. Understand what the capital means to the business. What does the new piece of machinery mean for the long and short term of the company’s performance? How will the extra employees impact the growth of the company? How does what you are doing for the business enhance both the business and personal side of the relationship? To really be a trusted advisor, ask questions that focus on the benefits the business will realize from engaging with the bank. Create a loan process that allows bankers to focus their time on helping customers. Bankers should be building relationships, cross-solving, and maximizing the bank’s share of wallet instead of spending their time spreading numbers and chasing down documents.

Be Prepared
Study after study has proven the the main difference between a top performing sales person and an average producer is the amount of time they spend “preparing” for a conversation with a business owner. The more prepared a banker is, the better the customer experience. Being prepared means doing your homework and understanding the business, the industry, the business owner, and the local economy, for starters. The more prepared a banker is, the more help they can provide and the more value they will bring to the relationship.

With every bank knocking at the doors of the same businesses, competition for quality customers has never been more intense. Follow these five simple steps to set the customer experience your bank delivers above all the rest.

Some Banks Offer Digital Appointment Booking, But It’s Rare


mobile-appointment-3-18-16.pngIf a customer wants a haircut, chances are that individual can go online and schedule an appointment at a local salon. But if the same person wanted to schedule online a convenient time to sit down with a banker to discuss a loan, that customer likely can’t do the same. A bank’s website should be a strong prospecting tool for banks, but despite the drive to digital, many banks don’t offer a way to go online to schedule an appointment. Shouldn’t banks offer an easy way to direct the customer from the web to the branch?

Few banks offer digital appointment booking, according to the research firm Celent. According to a Celent survey conducted in October 2014, just 36 percent of North American financial institutions above $50 billion in assets offer online appointment booking to their customers. For institutions below $50 billion, online booking is even rarer, at less than 5 percent.

Bank of America was an early adopter of online appointment booking, starting with its mortgage lenders in 2008. The bank has since expanded to allow customers to book appointments within its mobile app as well, and customers can arrange appointments for a score of products, including checking and savings accounts, credit cards, investments, financial planning, small business banking and various loans. Prospective customers just choose a product area, select an in-person or phone meeting, and type in their zip code to find a nearby branch. From there, the client can select a date and time. “We do 21,000 appointment requests a week now through either smartphone or the website,” Bank of America’s head of digital banking, Michelle Moore, told the Associated Press in February 2016.

Users of digital appointment scheduling in the U.S. include Wells Fargo & Co., Regions Financial Corp. and PNC Financial Services, and small community banks such as Santa Barbara, California-based Montecito Bank & Trust, with in $1.2 billion in assets, and $577 million asset Paducah Bank & Trust Co., based in Paducah, Kentucky.

“You’ve got to figure out how to be smarter in engaging customers, and digital appointment booking is one way to do it,” says Celent Senior Analyst Bob Meara. “Make it easy to click to call, or have an online chat with somebody or to make an appointment in a branch.” Celent reports that Bank of America’s digital appointment features were developed in-house, but vendor solutions are available that can easily tie into a bank’s current infrastructure.

“We’re in this on-demand economy,” says Gary Ambrosino, president and CEO of TimeTrade, based in Tewksbury, Massachusetts. Clients that use TimeTrade’s online appointment scheduling technology include retail banks, healthcare companies, universities and retailers.

Prompting a potential customer to make an appointment online makes that person more likely to follow through with bringing their business to the bank. A customer may be looking for a loan late at night, and want more information. “It makes sense to have a link” for scheduling a time to come in to see a banker, says Meredith Deen, president of Alpharetta, Georgia-based FMSI, a branch performance technology provider serving the banking industry.

Bank marketing teams also gain valuable data—even if that customer skips the appointment. “They just handed you their name, their phone number, [and] their email,” along with information on the products and services that the customer is interested in, says Glenn Shoosmith, CEO of BookingBug, an online booking platform based in London, with offices in the United States. “That’s the marketer’s dream set of information, and you’re getting that for free.”

Scheduling appointments online means that bankers can meet at a time that’s convenient for the customer. By doing so, branches can better schedule their day, reducing traffic at peak times and instead creating a steady flow, so ideally even walk-in customers will have a better experience. Banks can also make better, more profitable use of specialized employees that float between branches, who can now potentially see more customers within a day, says Deen. And bankers can better prepare for their day, by knowing exactly why the customer is coming in, and the product that customer is interested in.

Adoption among Montecito Bank & Trust’s customers has been slow, according to Megan Orloff, director of marketing. However, she expects that to change when the bank improves its website. To ensure the success of such appointment platforms, bank marketing teams could advertise their availability to customers, and ensure that it’s easy to find and use on the bank’s website or app. The financial institutions that offer digital appointment booking now remain in rare company—which means newcomers easily will stand out in a competitive marketplace.

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.