Are You Digitally Native or Just Digitally Naive?


digital.png

Your bank’s survival could hinge on how you answer this question.

In recent years, we’ve seen a tremendous increase in use of technology. According to a range of surveys, at least one in every three people in developed markets now carries a smartphone. And in the United States alone, smartphones account for more than half of all mobile subscriptions, meaning that at least a third of all consumers potentially will use their phones to make payments and purchases.

The digital era is here to stay and adopting a digital-first mindset is no longer a matter of preference but rather, a question of necessity. Traditional banks need to recognize the need to expand their own digital services and capabilities, and many have started innovating and investing heavily to do so.

If you’re ready to become a part of the digital revolution, that means your core banking platform needs to be up to the task of helping you establish a strong digital presence. Evolving into a more fully digital organization with the right core in place can help financial institutions deliver quicker and more reliable services, strengthen the relationship with current clients while helping to acquire new ones—all the while delivering a unique, personalized customer experience to all of their customers.

Looking into the future, a 2014 McKinsey & Co. research predicted that within a few years over two-thirds of all banking users will be fully adapted to the online world. However, a 2016 Bain & Co. study also indicates that adding channels to a customer’s experience can increase confusion and frustration. In other words, there are still some bumps in the road to a purely digital experience.

With the increasing adoption of digital channels, despite some snags, it’s easy to see an emerging trend: to succeed, financial institutions must adopt a digital-first view of how to do business (PDF).

The average customer will interact at least twice a day with their bank, checking on payments and balances, paying bills or making purchases. Because of this heightened activity, an increasing number of financial institutions are beginning to grasp the importance of the digital-first view of banking. North American banks have begun to invest heavily in apps that, when working in concert with existing core technologies, will improve the customer experience and cultivate stronger and longer-lasting relationships with their clients. These new apps allow banking clients to perform a range of financial activities while on the go, offering services more sophisticated than mere paperless customer experiences, which have been around for nearly a decade.

There is no doubt that the world is already experiencing a digital transformation. But can the inevitable change be advantageous? It can, if you’re ready with solid core technologies already in place. By some estimates, adopting digital technology could allow banks to decrease their physical footprint by 30 percent, resulting in a significant reduction in costs and corresponding improvement in profitability. Brian Moynihan, CEO of Bank of America Corp., cites the rise of digital usage among his customers as a prime driver behind significant workforce reductions in recent years.

Figures from the last few years demonstrate the success of digital banking. Online-only banks, for instance, saw more than a 30 percent rise in deposits between 2010 and 2013. Mobile banking will grow to more than 2 billion users worldwide by 2020. And according to a recent Accenture study, 20 percent of all bank customers are entirely digital users, meaning that if a bank wants to increase its customer base, catering to the needs of these new tech-savvy clients is a must.

The ability to deliver services the way customers want, including through digital channels, while not neglecting the core services that all clients demand, is increasingly crucial to establishing and maintaining long-term banking relationships. Digital change demands that financial institutions digitize their processes and drastically reset how banking staff reacts to customer needs. The adaptation of lean core banking IT systems and investment in new digital products and services that enhance and personalize customer experience will be key factors going forward.

In short, digital banking can realize astonishing improvements in earnings before interest, taxes, amortization and depreciation, while also enabling you to reach a wider set of customers through an expanded range of services. Experts estimate that a digital transformation of the financial sector and banking institutions can ensure secure transactions and minimize risks, reduce costs, ensure seamless integration with back office applications—and last but not least, streamline the customer experience.

David Mitchell is the president of Nymbus.

Mobile Deposit Penetration Key Indicator of Readiness for Digital Transformation


mobile.png

Banking is being dramatically transformed by digital and mobile technologies. The widespread proliferation of smartphones, with their sophisticated cameras and mobile capture capabilities, creates a valuable opportunity for banks to shift both their retail and commercial customers from the physical banking habits of the past to new, digital channels—which can increase customer loyalty and save banks billions of dollars in operating costs. According to research by Bain & Company, branch visits are expensive for the bank, at an average cost of $4 to complete the same transaction that would cost about 40 cents if done through a mobile channel, and the branch traffic that persists today is dominated by routine transactions that could easily be transitioned to digital. As much as 8 percent of branch visits are simply to check an account balance, and a whopping 31 percent are to deposit checks.

Clearly, U.S. banks have a tremendous opportunity ahead of them if they can migrate more of their consumer and commercial customers from high-cost branches to self-service mobile channels for routine transactions. Mobile deposit technology can provide a strategic advantage by helping banks accelerate this migration. It has long been understood that mobile deposit is one of the most powerful options available to financial institutions for driving increased adoption of all mobile banking services.

Forward-thinking banks, analysts and investors are all recognizing the role that mobile deposit plays as a key indicator of a bank’s readiness for the digital future. That’s why banks like Bank of America Corp. are now reporting their mobile deposit growth rates in their quarterly earnings reports. They understand that demonstrating growing mobile deposit penetration indicates to investors that they are not only on the path to digital transformation, but that they also have the type of mobile-first customer base that every bank wants.

It’s not just consumer banking that can benefit from shifting transactions towards mobile. The commercial side of the business has a major opportunity to increase mobile banking services with mobile deposit as well. Paper checks remain the dominant form of payment for many businesses. A full 97 percent of small businesses still rely on paper checks to make and receive B2B payments, and according to the Federal Reserve, more than 17 billion checks were circulated in 2015. Yet, too many banks continue to rely on outdated practices, providing proprietary hardware to their commercial clients for scanning checks or simply expecting businesses to visit a branch or ATM to make their deposits. By leveraging commercial mobile deposit technology, businesses can batch deposit multiple checks using a mobile device faster than they can via a typical single-feed scanner. As the research firm Celent puts it, “mobile is the new scanner.” Celent also states that banks have an opportunity for 10 percent annual revenue growth over the short term by transitioning more of their commercial customers to mobile deposit.

To help transition both consumer and commercial customers from the physical banking habits of the past to the more mobile, self-service model of the future, banks must provide a superior mobile user experience. The research firm Futurion Digital conducted a thorough analysis of the mobile deposit user experience at 15 of the top U.S. banks and discovered a direct correlation between the quality of the user experience and adoption rates for mobile banking services. Banks that want to increase customer usage of their mobile banking applications would be wise to review the best practices and recommendations identified in the report in order to better position themselves against their peers.

In short, as physical branches become less important to a bank’s consumer or business banking strategy, transitioning customers to digital channels will be critically important to ensure they still have access to the services they need. Doing so can actually help banks increase customer loyalty and save billions of dollars by moving routine transactions to lower-cost, self-service channels. As one of the most popular features among mobile banking services, mobile deposit plays a strategic role in enticing customers to adopt all mobile banking services, and a bank’s mobile deposit penetration rates serve as a key indicator of its readiness for digital transformation. By focusing on delivering a superior mobile user experience and actively engaging with customers to help them make the transition to mobile, banks will be well-positioned for the future.

Fifth Third CEO Says Pace of Bank Industry Change Is Fastest He’s Ever Seen


growth-6-14-17.pngWhile the audience was largely optimistic at Bank Director’s Bank Audit & Risk Committees Conference in Chicago yesterday, many of the speakers, including Fifth Third Bancorp President and CEO Greg Carmichael, hit a note of caution in a sea of smiles.

During an audience poll, 51 percent said the nation will see a period of economic growth ahead but 28 percent said the nation has hit a high point economically. Bank stock prices soared following the presidential election. Credit metrics are in good shape and profitability is up. Capital levels are higher than they’ve been in decades. And political power in Washington has turned against bank regulation, as evidenced by the U.S. Treasury Department’s recent report on rolling back the Dodd-Frank Act.

“It’s unlikely we will have increasing regulatory burdens and instead, we’ll go regulatory light,” said Steve Hovde, an investment banker and chairman and CEO of Hovde Group.

Although there’s a sense that bank stocks may be overvalued at this point, or “cantilevered over a pillar of hope,’’ as Comerica Chief Economist Robert Dye put it, the economy itself is resilient. “We’ll have another recession and we’ll get through it fine,” he said.

But financial technology is transforming the industry and creating entirely new business models, said Carmichael. That won’t be a problem for banks as long as they adapt to the change. “The volume and pace of what’s emerging is amazing,’’ he said. “I’ve never seen it before in our industry.”

Carmichael, who has an unusual background as a bank CEO—he was originally hired by the bank in 2003 to serve as its chief information officer—is working hard to transform Fifth Third.

Sixty percent of the bank’s transactions are now processed through digital channels, such as mobile banking. Forty-six percent of all deposits are handled digitally. And the bank has seen an increase of 17 percent in mobile banking usage year-over-year.

To meet the needs of its customers, Fifth Third recently announced it had joined the person-to-person payments network Zelle, an initiative of several large banks. It has a partnership with GreenSky, which will quickly qualify consumers for small dollar loans, and which Fifth Third invested $50 million into last year. Consumers can walk into a retailer such as Home Depot, order $17,000 worth of windows, and find out on the spot if they qualify for a loan.

Fifth Third is gradually reducing its branch count, and new branches are smaller, with fewer staff that can handle more tasks. Carmichael is trying to make the organization more agile, with less bureaucracy, and less cumbersome documentation.

Automation will allow the bank to automate processes “and allow us to better service our customers instead of focusing on processes that don’t add value,” he said.

Banks that are going to do better are those that can use the data they have on their customers to better serve them, he said. But when it comes to housing enormous amounts of personal and financial data on their customers, the biggest worry for bank CEOs is cybersecurity risk, Carmichael said–not the traditional commercial banking risk, which is credit.

When he was a chief information officer, executives often asked how the bank could make its network secure, and his completely honest response was, “when you turn it off.”

Adding to the cybersecurity challenge, returns on capital are low for the industry compared to other, more profitable sectors, and measures of reputation are middling for banks compared to more popular companies such as Apple, Nordstrom, Netflix and Netflix.

Carmichael encouraged banks not to get mired in pessimism.

“There’s a lot of change but we can step up and embrace it and leverage it to better serve our customers and create more value for our shareholders and contribute to the success of our communities,” he said.

How Somerset Trust Streamlined New Account Opening with BOLTS


Somerset-Trust-Bolts.png

Mobile technology is simplifying banking for consumers in a plethora of areas—from payments to investing. But one area that’s been a sticking point for mobile banking, and is undergoing rapid transformation, is the ability for customers to open a brand-new account using nothing else but their smartphone.

The steps required to open a new account with a new financial institution usually require customers to fill out forms, speak to a representative on the phone, or even go into a branch. However, banks and fintech companies are beginning to partner to develop mobile apps that allow new customers to set up an account via their smartphone almost instantaneously.

That’s precisely the area that Somerset Trust Co., a $1 billion asset bank headquartered in Somerset, Pennsylvania, was looking to improve when it partnered up with BOLTS Technologies to improve its mobile new account customer experience. Somerset Trust, which was started by Civil War veteran Edward Scull and his son in 1889, has 29 physical branches across Pennsylvania and Maryland dedicated to customer friendly community banking. Today, Chief Executive Officer Henry Cook, a descendent of Edward Scull, manages the business his family started more than a century ago, but with the goal of leveraging technology to better service their customers.

One of the major problems facing Somerset Trust was the its digital new account signup processes. After conducting an audit of the process, the bank realized that there were serious deficiencies in the customer experience. Somerset Trust was also struggling to grow the business and obtaining funds to invest in modern technology. Customers simply weren’t drawn to Somerset Trust’s product offerings, due in part to apparent complexities in using its digital services. So, the bank decided to partner with BOLTS, located across the state in Bethlehem, Pennsylvania, to develop a sign-up experience designed to be consistent, timely and seamless across channels and devices.

BOLTS Technologies specializes in providing software to assist banks in better meeting customer needs, particularly in new account signups via digital channels. Moreover, BOLTS has worked with community banks for a number of years, and has developed a deep understanding of issues faced by community banks and areas they typically need to improve products or services.

One of the major technologies that banks fail to implement is fingerprint recognition and login, which BOLTS helped integrate into Somerset’s processes. The introduction of fingerprint recognition software on Somerset’s mobile application not only makes account sign-up easier, but allows banking staff to complete tasks seamlessly on mobile devices or tablets.

BOLTS spent several months working with the operations team at Somerset Trust, and early in the process identified the need to empower customer reps as such. This flexibility for branch staff was essential to the bank’s goal of securing an edge in relation to competitors’ approach to mobile technology. The result was a signup application that seamlessly moves from customers’ devices to desktops and tablets of back-end staff. The signup application was also built with a dynamic, rules-based engine that allowed the bank to more easily change and optimize steps in their account opening workflow. Auto-population features were also built in, which reduced data entry errors both from customers and branch staff. Consequently, Somerset Trust can shift its employee training efforts to more critical areas like customer service and interaction.

Somerset Trust customers are now able to start their onboarding on one digital channel, and complete the process on another. Starting an application on a laptop and coming back a day later to complete it on a mobile phone is a breeze. BOLTS also installed dynamic reporting functionality for customer service staff, allowing them to do things like follow up on hot leads and recognize their most valuable customers.

Since recently launching the BOLTS powered account opening product, Somerset Trust has been able to slash the average time it takes to open a new account. This is expected to generate an estimated savings of approximately $200,000 in year one. The new technology has also allowed the bank to expand into new markets that aren’t served by its brick-and-mortar locations, something it had struggled to do previously. Customers now have a reliable way of opening a new account 24/7 on their mobile device, without the need to visit a branch.

The partnership between Somerset and BOLTS continues to evolve, with the two companies currently developing a digital solution for loan and deposit origination utilizing the speed and convenience of tablet devices.

“BOLTS [Technology] has been a true partner to us, giving our bank access to IT talent and resources that compete with the largest of banks,” says Cook.

“Their approach allows us to focus on the customer experience, as well as break the status quo in traditional banking systems. It’s an exciting and invigorating feeling knowing that we have the resources to develop such ideas and position Somerset Trust Co. for a very promising future for our stakeholders.”

Three Takeaways from FinTech Week


finxtech.png

New York is always teeming with energy and excitement. Every corner, every street, every person contributes to the hum of the city. There was extra buzz in the air with FinTech Week taking over New York last week with multiple events. I’m now sitting back home in Charlotte, reflecting on my time at the FinXTech Annual Summit and at Empire Startups’ FinTech Conference, and I thought it was important to share some takeaways with you—particularly if you couldn’t make it.

Meeting in Person is Always Valuable
We communicate in so many different ways with our customers, colleagues and friends so it’s easy to think we’re in constant contact, that a rapport is building. Additionally, we send most of our digital communications when we decide—we can pause, think, or not respond at all! We secretly like this control of the conversation. But no matter how many e-mails, phone calls, or text messages you exchange there remains no substitute for meeting someone face to face. Conversations are fluid, you must be in the moment. You can form relationships quickly and you learn a lot more about the person from the minute you say hello. That is incredibly valuable.

What I enjoyed about FinTech Week, and particularly the FinXTech Summit, was the smaller, focused audience. It wasn’t overwhelmed with booths, swag, and marketing; it was hundreds of people, not thousands. I think large conferences and gatherings have their place but when you look back at all the events you attend, how many enable you to meet most of the attendees?

Reader takeaway: Look at the second half of 2017 and search for some more focused events to add to your calendar that enable you to learn and meaningfully connect with the presenters and attendees.

We’re Just Getting Started
Fintech is still figuring out the best path forward, which is a good thing! There is so much activity happening here and around the world (which you shouldn’t ignore). Inevitably, some people are just trying to ride the fintech wave. The crowd at FinTech Week was genuine in its desire to bring fintech innovation to market and to consumers.

There is a common tension in the fintech community and last week was no different. Everyone is excited and understands the potential. Many I met already are working towards the future. The big industry change is always tomorrow, not today. Well, that’s OK. Doing something hard, like changing the financial service industry, takes time.

Most of the 5,000-plus banks in the U.S. are just beginning their journey to digital transformation. Industrywide change doesn’t happen overnight-particularly in financial services. While some may find that frustrating, I find it exciting. It means that every financial institution getting started today has more products, services and industry knowledge from which to leverage and learn. The financial services ecosystem is only going to get better-and that is exciting!

Reader takeaway: If you think you’ve missed the fintech opportunity, you haven’t. We’re all experimenting with how to better serve our customers and there is plenty of room for improvement.

The Need for Action
Do something. Take the first step. Get involved and start implementing new ideas to improve the lives of your customers and employees. The initial stages of learning or doing something new make you feel dumber, not smarter. It makes you realize there is so much you don’t know. This is particularly acute if you’ve been in the industry for a long time. Don’t worry; this phase passes as you continue to familiarize yourself with the technology, new ideas and potential of fintech.

Financial services and banks enable people to invest for the future, buy a house, start a business and get an education. Fintech’s promise is to enable financial services to continue to meet the needs of their customers with a secure, delightful experience that fits in their daily lives-not takes them away from it.

Reader takeaway: Get to it. Next time, you can teach the audience what you’ve learned from fintech.

A week after FinTech Week, I am excited to get back to work helping people discover and engage with fintech. I implore you to go meet some people, find a customer problem to solve, and do something about it.

How Collaboration Is Taking Shape


collaboration.png

Banks and fintech firms are increasingly working together to create new and innovative solutions-developing a new products and services, or generating efficiencies for the traditional banking industry. How will these relationships continue to take shape in the near future? In these short videos, three members of the FinXTech Advisory Group share their thoughts.

Sima Gandhi, Plaid

—Sima Gandhi of Plaid shares why the best way for community banks to proactively invest in technology for the new digital age starts with partnerships.

Jim Hale, FTV Capital

Jim Hale of FTV Capital discusses where the significant investments and advancements for innovation lie for the banking industry.

Tom Brown, Paul Hastings LLP

Tom Brown, partner at the Paul Hastings law firm, shares why many early stage fintech companies fail, and how they can set themselves up for success.

A Cautionary Fish Tale for Bankers


technology-1.png

Last September I was lucky enough to have been invited to give a presentation in Bali, Indonesia.It’s a beautiful island.As I was walking along the beach, enjoying the views and soaking up the atmosphere, I stumbled across a large, dead fish.The fish looked very healthy, apart from being dead.I imagine it had spent the last few days and months feeding around the coral reef off the shore, gradually swimming closer and closer to the shore and oblivious to the fact that the waves and tides were strong.It was fat, happy and finding lots more to eat.Then, on the day I was there, a great big wave washed this poor sucker onto the shore.Once on the beach, it probably wriggled a bit.It would have been desperate to get back into the sea, but _ too late.The beached fish had had its day and now it was a goner.

This may sound like a sad thing to share on a blog.It doesn’t cheer you up much does it?But the reason I’m sharing this is that I feel many of the large banks I deal with are like this fish.They’re bloated with capital. They have millions of customers. They have decades and, in some cases, even centuries of history. Their profits are reliable. Customers don’t leave. The internal structure is challenged, but it works. The products and services aren’t great, but they’re good enough.And they have a management team that is complacent.You get the idea.

Then some kind of disruptive technology comes along.Today we talk about digital. Five years ago we talked about mobile. Ten years ago we talked about the internet, and 20 years ago call centers.So what?For bankers, these are just just technologies they absorb and apply.

And yet I would argue to disagree. Twenty years ago I was presenting technology change to banks and explaining how it fundamentally challenged their core structures.This was when internet banking was first emerging and the challenge was that most banks had systems in place dating back to the 1960s and 1970s that were inflexible and hard to adapt to the internet era.They were ledger systems used for tracking debits and credits and designed for access via internal staff in branches.They were updated overnight through batch processing and had no real-time access.

The people I talked to knew this was a problem but didn’t want to touch or change their core ledger systems and ducked the issue.They did the same thing when mobile came around, which is why most mobile bank apps look like a debit and credit ledger, and they’re still ducking the issue today as we talk about digital.

But this is why I am so assertive that digital structures require digital foundations.If we live in an open sourced economy of APIs and apps, where anything and everything can plug and play, how can an old batch system interact?If we see digital as a key part of the fabric of finance, how can an organization with technologies built for physical distribution compete?If we have customers who want real-time access to cash flow forecasts, how can a system that keeps track of past transactions meet that demand?

This last point is illustrated well by a young chap in the U.K. named Ollie Purdue.Ollie is a 23-year-old university dropout who has raised millions of pounds to launch a new bank app calledLoot.When I asked Ollie how he thought he could launch a bank when he’s just a student, his reply was clear: “Because they didn’t give me or my friends what we wanted or needed.” He then told me that bank mobile apps all show what money has come into and out of the account, but he wanted to know what would come in and out of the account in the future.As a student, that’s important as it makes the difference between party night and study night.And the only reason banks have been offering these old transactional apps is because their core systems are built that way.

Bottom line?They say it takes 30 years for a technology to mature.For the past 20 years, digital technology has been evolving in banking.In another decade, it will have matured.It is a technology wave we have seen coming for a long time, and now that wave is building into a breaking wall on the shore as fintech, insurtech, regtech and digital hits home.That means the clever banks will feed further out to sea to avoid getting beached when the technology wave hits.Those banks are redesigning their systems for the open sourced networked age.Meantime, the banks resisting that change are the ones that are happily sitting with millions of customers, billions of capital and years of history.Like a happy fish feeding too close to shore, they don’t see the wave. And they will be a dead fish if they don’t change direction in time.That is why I shared my story of my fish in the opening.You still have time to see the wave and change course.Please do so now.

One Bank’s Digital Transformation Journey


transformation-1.png

Last week Chris Skinner, a FinXTech advisor and fellow contributor, talked about the difficulties of banks shifting to digital, and shared the following: “It is radically different thinking, and is a cultural outlook, rather than a tech project.”

As the head of Radius Bank’s Virtual Bank, I work with a team that has been through the digital transformation process. And I can attest to the above statement: The shift to digital is far more than a project. It’s a total reconstruction of a bank’s culture, organization and systems. It is no easy task but the upside opportunity is big.

Digital transformation is perhaps the most important challenge facing banks at the moment. The penetration of the financial services industry by financial technology and the proliferation of alternative banking solutions presents the stalwarts with a choice: change, or else. Banks are realizing that the adoption of sophisticated, personalized technologies is no longer a “nice to have,” but rather a “need to have.” Never before has the customer experience been more critical to a bank’s success than it is today. I feel lucky that the Radius Bank team understood this early on, and set on a course aligned with this new way of banking.

When I first joined Radius Bank at the end of 2008, we were a small, commercial-focused community bank with six branches in Boston and New York. Mike Butler, the Bank’s CEO and president (and a member of the FinXTech Advisory Board), asked me to join him to help build the virtual bank. We recognized that the traditional model wouldn’t be able to address changing consumer demands. In light of that, we set out to build a bank focused on the future rather than the past.

Over the past several years, our Virtual Bank has actually become our primary retail banking strategy. While we’ve maintained one flagship financial center in Boston, our focus on customer experience, product development and technology offerings all starts with and focuses on the digital channel. We’ve made significant investments in technology to build a forward-thinking and responsive virtual banking platform that has allowed us to onboard and serve many new customers from across the country without the need to visit a branch.

We also realized a while back the importance of fintech partnerships. Let’s face it: Consumers today have more choices in terms of managing their finances than ever before, and many of them are choosing to put their trust in nonbanks. For us it has been about finding the right fintech firms to work with, and over the last three-plus years we’ve launched strategic partnerships with fintechs in areas such as mobile payments, investment management, student loans and alternative lending.

We’re proud of what we’ve been able to accomplish, but the transformation to a digital bank is a journey that’s never complete. It requires ongoing support from top leadership, including our board of directors and management team, and a creative, nimble team that brings marketing, sales, risk and IT together to build an infrastructure focused on security and scalability.

I’m eager to share some of the knowledge I’ve gained throughout our digital transformation process. I’m also eager to learn from my peers in banking and fintech about what’s next. FinXTech asked me to participate to represent the banking perspective, but as I’ve outlined above we’re not your traditional community bank. We sit at the intersection of financial institutions and technology companies—an increasingly productive cradle of innovation and disruption.

I look forward to engaging in these important conversations with you.