New Big Bank Digital Ventures Could Threaten Community Banks


big-banks-8-14-18.pngAs if community banks don’t have enough to worry about, along comes Finn. And Access. And in the not-too-distant future, Greenhouse. All three are new digital banking platforms that have been introduced or are being test run by some of the country’s largest banks—JPMorgan Chase & Co., Citizens Financial Group and Wells Fargo & Co., respectively—and they mark a significant escalation in the digital banking space, with more new entrants to come. For example, Citigroup—at $1.9 trillion in assets, the country’s third largest bank—announced in late March that it plans going nationwide with a new mobile banking platform, although it hasn’t disclosed an exact release date.

The digital banking space is already crowded with countless fintech neobanks that work with bank partners behind the scenes to offer banking services along with unique personal financial management capabilities to millennials and other digitally-savvy consumers. Included in the mix are somewhat older challenger banks, like Simple, which is owned by BBVA Compass Bancshares (which is itself owned by Spanish banking conglomerate Banco Bilbao Vizcaya Argentaria); well-established direct banks like Bank of Internet USA, a subsidiary of $10 billion asset BOFI Holdings, which started operations in 1999; and unique players like Marcus, a digital platform launched in 2016 by investment bank Goldman Sachs, which combines an automated consumer loan capability with various deposit products—all aimed at a lower-brow customer base than Goldman has traditionally focused on.

“There is not a single incumbent bank in the U.S. with more than 20 branches who would surprise me if they launched a digital subsidiary,” says Peter Wannemacher, an analyst at Forrester Research who focuses on digital strategy in the financial services space. “What I mean by that is, I think every bank in America is considering this option.”

Why so much activity now when digital banking—including mobile—isn’t exactly new? “Incumbent banks are under a lot of pressure,” Wannemacher says. “Some of that’s market pressure. A lot of it is internal pressure. That is, their boards or their C-level executives desperately want to be relevant and be talked about in the digital space.”

Finn, which is branded as “Finn by Chase,” was launched nationwide by JPMorgan Chase (the largest U.S. bank with $2.5 trillion in assets) in June of this year as an all-mobile bank that is separate and distinct from its existing consumer banking product set, including its branch, online and mobile banking distribution channels. Finn includes a checking account with a debit card, a savings account, remote deposit and a multi-featured financial management tool set. Melissa Feldsher, a managing director who heads up the Finn operation, says that Chase is responding to what its research showed was “an unmet need” by a “smaller growing portion of the country that was truly looking for an end-to-end mobile banking experience.” Feldsher says that Finn is specifically targeting all “digitally savvy” consumers rather than just millennials, although she adds that those individuals “will tend to skew younger.”

Wells Fargo, the third largest U.S. bank with $1.9 trillion assets, is developing its own standalone mobile banking app, called Greenhouse. “Greenhouse is currently in a limited customer and team member pilot, and will expand to several states for iPhone users later this year on the Apple App store,” a spokesperson wrote in an email. “We will determine the national rollout following the pilot.” According to published reports, Greenhouse offers a spending account for paying bills, a savings account, debit card and financial management tools. Like Finn, this is a separate offering than what Wells customers receive through its consumer bank.

Taking a somewhat different approach is $155 billion asset Citizens Financial, the country’s 13th largest bank, which in July launched Citizens Access, described as a “nationwide direct-to-consumer digital bank” that will operate separately from its branch operation. Unlike Finn and Greenhouse, Access will only offer savings accounts and certificates of deposit. Citizens Access President John Rosenfeld says direct bank deposits are growing three to five times faster than brick-and-mortar deposits nationally. “This is an opportunity to extend our footprint [so] we can now reach all 50 states,” he says, “whereas we couldn’t do that before with our branch-based web product,” which Rosenfeld says was only available in Citizen’s traditional market. “We didn’t have the capability to open accounts outside the states we were in. Now we do,” he adds.

As large banks target consumers nationwide with these new direct banking ventures, community banks will be under pressure to up their game. “The larger banks are investing more in digital capabilities … and I think that community banks, to compete, are going to have to really evolve their digital capabilities,” Rosenfeld says.

Citizens Bank and Fundation Mobilize Credit Delivery


partnership-5-16-18.pngWhile Citizens Bank and Fundation are certainly not the first bank and fintech company to work collaboratively together, theirs is unlike any other, both parties say, because of the relationship that exists between the two organizations.

Providence, Rhode Island-based Citizens, a top-20 U.S. bank at $152 billion in assets, partnered with Fundation, a fintech firm in Reston, Virginia that focuses on credit delivery to improve the efficiency and turnaround time for small business loans under $150,000.

Fundation’s technology serves as the entire front end, essentially a white-labeled online application, for Citizens’ commercial lending line of products, providing a technology platform that includes underwriting, closing and engagement tools, and features a decision engine that, based on certain criteria, determines “up front” which loan goes to Citizens and which to Fundation, according to Jack Murphy, president of the business banking division at Citizens.

“What makes the partnership unique is there’s a fair amount of folks in this space who outsource this type of lending to the partner,” Murphy said. Instead, the application process is integrated into Citizens’ own digital platform, a top priority for the bank, Murphy said.

“We wanted to integrate (it) into our technology.”

Citizens and Fundation won Bank Director’s Best of FinXTech Partnership award, presented May 10 at the FinXTech Annual Summit, held at The Phoenician resort in Scottsdale, Arizona.

The platform allows for an entirely electronic application process, and enables Citizens’ lending team to physically go to and visit its small business customers to start or complete that application. Customers can also begin the application process in a branch, and finish at home, “or in their car,” Murphy joked, though he doesn’t advocate driving and applying for a commercial loan at the same time.

“It’s really become the front-end to our core underwriting system,” Murphy said.

Fundation has multiple bank clients, but its credit delivery platform uses data and a decision engine to automate much of the decision-making framework that many banks have and still use when reviewing applications. It also simplifies the compliance assessment, including the Customer Due Diligence (CDD) final rule that was developed just two years ago and became effective in May 2018.

There is automated scoring in approving small loans, allowing Citizens to focus its human capital on other strategies, like bigger, more intensive applications and projects that need more careful review while also reducing paperwork that can be cumbersome. It also has in some ways upended the entire underwriting process—they use bank statements instead of financial statements as part of the application process, and the technology determines which loan goes to the bank and which goes to the partner automatically up front.

The technology has only been available to all customers since the end of March 2018, but getting to that point involved months of due diligence, whittling down a list of nearly two dozen other firms before ultimately selecting Fundation.
“We took about a year to research who might be the best partner for us,” Murphy said, noting that it all began with the goal of improving the customer experience through a digital platform.

The board considered whether to buy, build or partner with a fintech, but ultimately there was only one choice.
“The fintechs have not had the balance sheets or cost of funds or the customer bases that the banks have, so partnership is really the best way for the two companies to business,” Murphy said.

Culture and cohesion between the two companies was half the driving force behind the decision to choose Fundation, Murphy said, in a crowded and competitive fintech market. Murphy said they wanted to partner with somebody who was “not just a tech company,” but a “partner that has a similar vision.”

Like other banks, Citizens has several relationships with fintech companies which provide other services, like SigFig, for instance, a tech-based personal investment platform. But Fundation offered something that was new to the bank, and has in just a short time already proven its worth.

It’s shortened the time from application to credit delivery to as little as three days, which in previous generations could have taken weeks, and generated “many multiples” of increased demand since a series of pilots with the software last fall.

The transformation of this credit delivery, he said, is far more than what some banks have done, which Murphy described rudimentarily as simply taking a paper-based loan application and converting it to an online webform.
“That’s not digital,” Murphy said. “Digital is literally the entire experience being electronic.”

Citizens wanted to make its application process fully digital, Murphy said, which has reduced costs and improved efficiency for the bank. And that result has not only transformed the bank’s commercial lending process, but how it strategizes its future.

“This is for us, I would say step one in a journey of multiple products and multiple ways of making it easier to do business with the bank, not vice versa,” Murphy said.

Staying Relevant in a Changing Industry



How can community banks choose the right path to ensure that their institution stays relevant in this era of technological change? In this video, Kevin Riley, president and CEO of $12 billion asset First Interstate BancSystem, shares with Barbara Rehm of Promontory Interfinancial Network how his bank is focusing on investments in its digital platform, and how he expects the financial industry to change in the near future.

Riley discusses:

  • Building a Vision for the Future
  • Investing in Digital Delivery
  • How the Industry Will Evolve
  • Competitive Threats

Digitization Inside and Out of the Boardroom


digitization-4-16-18.pngAs global businesses and markets are caught in a seemingly perpetual cycle of disruption and adjustment, company leadership and directors are tasked with finding new, innovative ways of communicating and working with shareholders in an increasingly complex and fragmented landscape. This is even more important given the massive technological advancements within the last decade, which have not only shifted the ways in which companies operate, but the means in which businesses and investors convey and share information.

Recent advancements in technology have transformed everyday business processes through digitization, which, in turn, has made cybersecurity a top priority. Moreover, they have made the world a much more connected place, facilitating business at a faster pace than ever before. To help company leadership adjust, new technologies have been developed to help directors and leadership teams improve collaboration and workflow.

Digitization
Today’s boards are going paperless, and the reality has become indisputable: directors are turning away from printed documents in favor of digital information that is easy to share and accessible on mobile platforms, like board portals.

Through digitization, directors are now accustomed to heightened levels of speed and efficiency across all business processes. With board portals, corporate secretaries and meeting managers are able to streamline board book creation and tighten information security. The benefits to this technology are clear: easy access to digital meeting information with user-friendly tools for assigning tasks, approvals, consent votes and secure messaging.

We have also observed a growing trend driving increased global demand for board portal solutions: the need to collaborate and share confidential information and documents across internal and external teams in a highly secured environment. The C-suite executives who already use our board portal tools for director-level collaboration are now expanding that capability across their organizations, all through a single sign-on service.

Cybersecurity
As businesses shift to digital platforms, data security plays a much bigger role. Companies must closely scrutinize how sensitive information is handled due to the risk of breaches. Cyberattacks are common and can result in significant financial and reputational damage; cybercrime damage costs are expected to total $6 trillion annually by 2021, according to CSO. This makes it especially important for boards and company leadership to take a strategic approach to data protection. Information is being shared in more rapid and innovative formats, and the methods in which boards communicate with shareholders will need to prioritize safety along with accessibility.

Protecting sensitive information should be at the top of a company’s concerns. This is why solutions should comply with strict encryption standards, multi-factor authentication and a completely cloud-less data storage system. Companies can also leverage machine learning and artificial intelligence (AI) to navigate and secure large volumes of data. These technologies can monitor and detect network anomalies that signal potential attacks and prevent further access before data is compromised.

Globalization
Due to the digitization of communication channels, we are now able to connect and do business in seconds with people halfway across the world. As technology brings us closer together, it breaks barriers to information accessibility. This ease of information exchange has impacted investing by virtually removing any impediments that once stood in the way of certain markets.

Increased ease of access to information around the world means companies, and particularly company leadership, should ensure key information is digestible for all stakeholders. That’s why being equipped with full translation services for common languages can be advantageous.

Moreover, as globalization continues to facilitate business and investing opportunities, shareholder bases are broader and more diverse than ever before. With the rise of passive investing, companies lack a level of transparency that allows them to know who their stakeholders are. For this reason, it is necessary to take advantage of tools and technologies that provide actionable insights into passive investment data and provide a more comprehensive picture of shareholders.

Looking Ahead
As technology continues to augment the ways in which companies operate, boards need to keep pace, ensuring they are communicating with their shareholders in the most efficient and preferred methods possible.

Pursuing the Pole Position in Digital Banking


digital-banking-11-3-17.pngBanks with unique strategies tend to perform well in the marketplace, and a $1.2 billion asset bank in Wausau, Wisconsin, is proving that formula through a digital platform and a strategy focused on lending to a niche community.

IncredibleBank serves customers nationwide as the digital division of River Valley Bank, a 15-branch community bank serving Wisconsin and the Upper Peninsula of Michigan. The division was established in 2009, when the bank was seeking to grow deposits and looked at the new online banks in the marketplace at the time, such as ING Direct (now Capital One 360). Then, the bank relied more on wholesale funding to fuel loan growth, but growing core deposits was a challenge, says Todd Nagel, River Valley Bank’s chief executive officer. “We started the online bank to create larger distribution in our regional footprint for deposits, and it was a way to replace our wholesale funding. We never dreamed that it would take off the way it did.

River Valley Bank’s net interest margin, at 4.13 percent per the Federal Deposit Insurance Corp., performs better than its peers, according to BankRegData. So does the bank’s return on assets (1.43 percent) and return on equity (15 percent).

These days, an online banking division focused on deposit gathering isn’t necessarily innovative. The management team has since expanded IncredibleBank’s focus to address the bank’s concentration in commercial real estate loans through a unique niche: motor coach loans. Motor coaches are one of Nagel’s passions, and he has one of his own, says Kathy Strasser, the bank’s chief operating officer. These vehicles aren’t the stereotypical cramped family RV, and the cost of these luxury homes on wheels range from $100,000 to $2 million or more. High-end motor homes are unique, with custom features that make it difficult to pinpoint their value. “That’s the hard part about financing them,” says Nagel. Two loan officers are dedicated entirely to this specialty niche, and these lenders visit motor coach manufacturers regularly to build their expertise in the area. Motor coach financing accounts for roughly 10 percent of River Valley’s overall business, according to Nagel.

In looking for a unique way to market IncredibleBank, Nagel and his team turned to another one of his passions: NASCAR. “There’s 150, 200 motor homes that go to every race, all over the country,” says Nagel. The bank sponsors NASCAR drivers Kyle Busch and Matt DiBenedetto, and brings the bank’s own motor home to entertain customers during meet-and-greets with the drivers at NASCAR races. A promotion around account openings offered a chance for customers to win a VIP pass at Watkins Glen International, a racetrack in Watkins Glen, New York, that hosts NASCAR events.

IncredibleBank accounts for 10 to 15 percent of the bank’s deposits, according to Nagel, and that, along with the division’s digital-only footprint, gives management some leeway to use it as something of an incubator for new technology. Nagel says the management team is working to examine every product offered by the overall organization—including all the necessary documentation—to explore whether it can be offered digitally. If that’s not possible, then “we may not offer it in the future,” he says. “We believe that everyone’s looking for an Amazon-like experience. I don’t want to be like Amazon, but I’d like to replicate the experience with banking.”

Seeing a future where Amazon is beating traditional retailers, Strasser says that River Valley Bank will continue as a traditional community bank in its markets, but won’t grow beyond a 15-branch footprint. The bank has been adding talent without traditional backgrounds—Strasser herself was an executive vice president at a company that is now a subsidiary of Deluxe Corp., which serves the financial industry with website design, customized checks and email marketing, among others. And good relationships with vendors are integral to innovation. The bank has worked closely with its core provider Jack Henry & Associates’ mobile division, Banno, which built IncredibleBank’s mobile banking app.

Still, the industry and its vendors aren’t moving fast enough for Nagel. He has high expectations for digital delivery. “Our greatest challenge is getting our partners in the industry to think like we’re thinking,” says Nagel. “You should be able to open a $1,000 checking account in two minutes. That’s my expectation.”

How NBKC Bank Made Mortgages User Friendly with Roostify


mortgage.png

For consumers, getting a mortgage can be a daunting task. Securing a home loan can take weeks (or months) from application to closing, in large part because the process often still requires offline and manual tasks. That’s not an ideal scenario for consumers who want to get in their new home, or for lenders trying to deliver a top-notch customer experience.

That was the challenge facing NBKC Bank, a full-service bank headquartered in Overland Park, Kansas. In 2014, the consumer-direct bank, which generated $2.5 billion in loans last year, realized that their internet application system was becoming a liability that could hold the bank back from further growth.

NBKC allowed clients to apply for loans online in 2014, but the application’s limited functionality didn’t provide the kind of experience the bank wanted to offer its customers, and generated unnecessary extra work for the loan officers. Based on older technology, the online application’s user interface was beginning to look obsolete. Making matters worse, the technology that powered the application was no longer completely reliable. “We often heard from borrowers that they completed [the application],” recalls Dan Stevens, the bank’s vice president of mortgage strategy. “But we didn’t always receive it.”

Another pain point was that the existing application couldn’t support a full online experience. Loan officers would still need to call the consumer after the application was submitted to complete the application. Due to the bank’s unreliable application system, consumers were sometimes asked for information they had already provided online, which was frustrating for everyone involved.

To address these problems, NBKC partnered with Roostify, a San Francisco-based fintech startup that provides a mortgage loan platform that enables faster closings and a more efficient, transparent loan process. The company bills itself as helping lenders provide user-friendly online applications, and offering online document and collaboration tools to cut down on the time-consuming manual tasks that can stretch out a mortgage approval process.

NBKC chose Roostify after seeing a demo highlighting the user experience for both the borrower and loan officer. Roostify provides NBKC with a highly usable consumer-facing online application, which the bank could white-label to present consumers with a branded NBKC online experience.

Through Roostify, NBKC’s customers can now apply for a mortgage in as little as 20 minutes without the need for a phone call or manual intervention from a loan officer. More customers are completing applications, too. Stevens confirmed that the updated process was a hit with NBKC’s customers. “Expectations [for an online experience] are super high. Hearing no complaints, with an extremely high usage and completion rate, shows us that it’s well received by our borrowers.”

NBKC was also able to use Roostify’s automation features to help improve internal productivity by reducing manual processes, particularly around documentation.

“One of the biggest selling points for us in 2014 was the creation of a customized required document list,” explained Stevens. “Not every loan application requires the same documents, so for it to be able to match the borrower’s personal situation with the loan program they were wanting, and giving them this information without needing to ever talk to a loan officer, was an outstanding upgrade in our workflow.”

Eliminating repetitive manual tasks like generating document lists and going over applications by phone freed up time for NBKC’s loan officers to process more loans, contributing to an overall increase in productivity. Between 2014 and 2016, NBKC saw their average loans nearly double, from 6.5 to 12.2 loans per loan officer per month.

Banks and fintech startups alike face stiff competition in most areas of financial services, and banks like NBKC highlight the importance of offering a seamless digital customer experience. The bank’s partnership with Roostify illustrates how savvy use of technology platforms can also benefit the lender’s bottom line.

Plaid: Friend or Foe


friend-or-foe-3.png

Whether customers are banking online with a big bank or trading stocks on sleek mobile platforms, their expectations for a smooth and seamless experience are constantly increasing. That’s why banks and fintech startups alike need to partner with the right companies on the back-end to make sure that their digital platforms can quickly and easily access the right data when they need to.

That’s where a company like Plaid steps in. Originally born out of a financial management and recommendation tool, Plaid eventually realized the need to provide fintech developers with an open Application Program Interface (API) that marries back-end bank data with front-end systems. In short, Plaid seamlessly connects applications with their users’ financial data housed in legacy banking systems. Without such technologies, accessing banking information within a third-party application would be nearly impossible.

Plaid has been so valuable to both banks and startups that the firm recently closed a new $44 million funding round led by Goldman Sachs to help grow the platform.

But is Plaid’s open API a boon to banks, or a threat to their survival? Let’s dive in and find out.

THE GOOD
Plaid’s platform and tools enable developers to interact with bank accounts to build financial applications. Plaid’s customers include fintech apps like Robinhood and Betterment, which rely on Plaid to give them access to back-end bank data. These applications can then access customer account data at their bank when providing mobile and web services like budgeting, investing and lending. Plaid also facilitates tokenized ACH transfers for payment processors like Stripe.

Plaid works in direct partnership with banks to make sure their customers can utilize apps like Betterment in conjunction with their accounts. However, Plaid is open (and interested) in broadening its footprint to work with banks of any shape and size in the future. And in so doing, banks that partner with Plaid give their own developers better tools to create apps that mimic the user experience of startups like Betterment and Venmo. That’s a win for banks since Plaid opens the door to developing apps in-house that could compete with fintech startups.

THE BAD
From its inception, Plaid has been focused on helping fintech startups connect their applications with banks to power their core businesses. Currently, Plaid works with thousands of U.S. banks, spanning the largest financial institutions to credit unions, whose customers want to use some of the popular apps powered by Plaid such as Venmo and Acorns.

The bottom line is that, while Plaid’s API is powerful and forward thinking, it needs to develop a track record of success with some of its larger partners in order to gain greater adoption. Plaid also needs to make a concerted effort to reach out to smaller banks and credit unions to draw those customers into the modern fintech ecosystem, with access to many of the newer apps we’ve discussed.

OUR VERDICT: FRIEND
Plaid is up against some stiff competition in the fintech API space, but its future in relation to big banks appears to be friendly. From what we’ve seen so far, Plaid is committed to working in tandem with big banks. By providing tools and resources for application developers and big banks, and expanding the number of institutions they partner with, Plaid is showing that it’s committed to a fintech future with banks still playing a huge role. Ultimately, it’s in banks’ best interests to better serve clients with better access to data, reduced online banking friction and internal innovation. And it looks like banks that work with Plaid in the future can achieve just that.