How Settlement Service Providers Help Banks with Surging Refinance Demand

Real estate lenders are racing against the clock to process the deluge of refinancing demand, driven by record-low interest rates and intense online competition.

Susan Falsetti, managing director of origination title and close at ServiceLink, discusses the challenges that real estate lenders are facing — and how they can address them.

What particular stressors are real estate lenders facing?
We’ve seen volume surge this year, but heavy volume is only part of the equation. Market volatility, job loss and forbearance are adding even more pressure. Meanwhile, the origination process is increasingly complicated, with the regulatory environment remaining an important factor. Amid all of this, many lenders have shifted to a remote work business model, forcing team members to grapple with additional caregiving and family complications.

How have market conditions affected lenders’ abilities to meet consumer expectations for closing timelines?
Some of our clients working with other providers have reported processes as simple as obtaining payoff demands and subordinations are causing delays. They’re telling us that, in some cases, these requests have gone from 24-hour turn times to 10-day turn times. Working with an efficient settlement service provider is essential, given that 75% of recent homebuyers in a Fannie Mae survey expect that it should take a month or less to get a mortgage.

What can lenders do to immediately reduce their timelines?
One way is by selecting the right settlement service partner, which can help them get to the closing table faster without making major changes to their process or tech investment. Settlement service providers should provide a runway to close, not contribute to a bottleneck. Examining or revisiting settlement service providers is low-hanging fruit for lenders looking to immediately deduct days from closing timelines.

What characteristics should lenders look for when making a settlement service provider selection?
Communication: Lenders should examine how they’re communicating with their settlement service provider. Is their provider integrated into their loan origination system or point-of-sale platform? Can they submit orders through a secure, auditable platform, or is email the only option? Regardless of how orders are submitted, lenders should also consider whether their provider has the resources to dedicate to communication and customer service, even in a high-volume environment.

Automation and digitization: Selecting a title provider with automation and digitization built into its processes can help lenders thrive, even as their volume fluctuates. The mortgage industry is cyclical; it’s essential that settlement service providers have the capacity to scale with their client banks and grow with their business. They should help banks manage their volume, without having to make dramatic process or technology changes.

Some providers can provide almost-instantaneous insight into the complexity of particular title orders through an automatic title search. This type of workflow helps both the lender and the provider. They both can quickly funnel the simplest orders through to the closing table while employing more-experienced team members to work on more-complicated loans.

Transparency: That kind of insight gives lenders extra transparency into their customers. When originators are aware of the complexity of a title early in the process, they can let their borrower know that the title is clear. If that’s the case, the consumer can stop shopping and leave the market.

Access to virtual closing solutions: Of course, the origination process doesn’t stop once a loan is clear to close. A survey recently conducted by Javelin Strategy & Research at the request of ServiceLink found that one of consumers’ chief complaints about the mortgage process was the number of physical forms that must be signed at closing. The survey also found that 79% expressed interest in using e-signatures specifically for mortgage applications. This interest in e-signings has evolved into genuine demand for virtual closings.

The right settlement service provider should help lenders to operate more efficiently and profitably. The key is identifying a partner with solutions to help banks thrive in today’s high-volume environment.

The Digitalization of Commercial Lending

Commercial lending is a balance of risk and reward.

When properly managed, this business line can be a bank’s profit leader. Part of that competitive edge is employing a digital strategy specifically tailored to match your bank’s commercial lending vision. No doubt your institution has shifted resources to more fully support digital banking in 2020 — not only to benefit your customers, but to address the challenges of staff operating remotely. Automation that was thought to be nice-to-have became critical infrastructure both to expedite loan origination and to efficiently manage the volume of loan servicing. The commercial loan life cycle is evolving, creating opportunities for digital improvement at all stages.

Simplifying applications. While the banking industry lacks a standard commercial lending application, it is possible to dramatically reduce the burdensome data collection exercise that banks have traditionally required of their business borrowers. Technology can create significant lift during this phase. Integrating credit policy data into the digital application and automating the retrieval of public data to reduce the number of fields an applicant must complete can reduce the time required to complete an application to minutes.

The democracy of automated underwriting. Automated underwriting used to be premier software intelligence harnessed by only the most enterprising of institutions. However, as the technology has become more commonplace and pricing models have moderated, institutions of all sizes can take advantage of efficiencies that can shave weeks off the process.

Dynamic documenting. One of the many risks associated with commercial lending is the accuracy, validity and enforceability of the loan documentation. Compliance solutions that are integrated with loan origination systems minimize duplicate data entry and render a complete and compliant commercial loan document package based on an institution’s criteria. This technology can significantly reduce human touchpoints, improving the speed and efficiency with which loan documentation is assembled.

E-signing and paperless transactions. If any single innovation has already transformed the lending experience, it is e-signing. Electronic signatures and electronic contracts were granted validity and legal effect through the passage of the Electronic Signatures in Global and National Commerce Act. It’s been 20 years since the act became law, but e-signing commercial loan documents and conducting commercial loan transactions electronically have only recently gained wider traction with institutions. It’s evolved into an expectation of some customers, expedited in no small part by the continuing coronavirus pandemic and related social distancing guidelines.

Generally, commercial loans that are unsecured or secured by personal property can be paperless and conducted electronically. Those secured by real estate, on the other hand, have traditionally required some wet ink signatures because of notarization and recording requirements. However, electronic and remote notarization in conjunction with electronic recording has increased the likelihood of completely electronic and paperless transactions.

Twenty-five states have passed laws authorizing remote notarizations, with another 23 states implementing emergency remote notarization procedures in response to the pandemic. While state requirements of remote notarization vary, this potentially allows commercial loan documentation signed electronically to be notarized online instead of requiring parties to be physically present in the same room.

Electronic recording is rapidly becoming the standard for real property documents, with more than 68% of U.S. counties now supporting e-recording. Documents with the recording stamp can be returned immediately after recording, speeding up delivery of the recorded documents to the title insurance company. Electronic recording also allows for the e-signing of real property documents instead of requiring wet ink signatures.

The increasing availability of e-signing and electronic and remote notary technology and resources means more institutions will be able to move entirely to or provide support for electronic and paperless commercial loan transactions.

Automation in servicing. Many traditionally manual processes associated with the review, servicing, tracking and maintenance of commercial loan transactions can be automated. For example, transactions often require parties to provide financial documents to the institution. Instead of manually entering those requirements into a spreadsheet and creating calendar reminders, institutions can leverage technology to automate reports and reminders for the financial document delivery requirements. Similar automated reminders and tracking can be used for collateral, compliance, document and policy issues and exceptions.

The effect of these digitalization opportunities — available at every step in the process, aggregated over your portfolio — can significantly accelerate your institution’s transition to a more touchless loan process.

Five Ways PPP Accelerates Commercial Lending Digitization

The Small Business Administration’s Paycheck Protection Program challenged over 5,000 U.S. banks to serve commercial loan clients remotely with extremely quick turnaround time: three to 10 days from application to funding. Many banks turned to the internet to accept and process the tsunami of applications received, with a number of banks standing up online loan applications in just several days. In fact, PPP banks processed 25 times more loan applications in 10 days than the SBA had processed in all of 2019. In this first phase of PPP, spanning April 3 to 16, banks approved 1.6 million applications and distributed $342 billion of loan proceeds.

At banks that stood up an online platform quickly, client needs drove innovation. As institutions continue down this innovation track, there are five key technology areas demonstrated by PPP that can provide immediate value to a commercial lending business.

Document Management: Speed, Security, Decreased Risk
PPP online applications typically provided a secure document upload feature for clients to submit the required payroll documentation. This feature provided speed and security to clients, as well as organization for lenders. Digitized documents in a centrally located repository allowed appropriate bank staff easy access with automatic archival. Ultimately, such an online document management “vault” populated by the client will continue to improve bank efficiency while decreasing risk.

Electronic Signatures: Speed, Organization, Audit Trail
Without the ability to do in-person closings or wait for “wet signature” documents to be delivered, PPP applications leveraged electronic signature services like DocuSign or AdobeSign. These services provided speed and security as well as a detailed audit trail. Fairly inexpensive relative to the value provided, the electronic signature movement has hit all industries working remotely during COVID-19 and is clearly here to stay.

Covenant Tickler Management: Organization, Efficiency, Compliance
Tracking covenants for commercial loans has always been a balance between managing an existing book of business while also generating loan growth. Once banks digitize borrower information, however, it becomes much easier to create ticklers and automate tracking management. Automation can allow banker administrative time to be turned toward more client-focused activities, especially when integrated with a document management system and electronic signatures. While many banks have already pursued covenant tickler systems, PPP’s forgiveness period is pushing banks into more technology-enabled loan monitoring overall.

Straight-Through Processing: Efficiency, Accuracy, Cost Saves
Banks can gain significant efficiencies from straight-through processing, when data is captured digitally at application. Full straight-through processing is certainly not a standard in commercial lending; however, PPP showed lenders that small components of automation can provide major efficiency gains. Banks that built APIs or used “bots” to connect to SBA’s eTran system for PPP loan approval processed at a much greater volume overall. In traditional commercial lending, it is possible for data elements to flow from an online application through underwriting to final entry in the core system. Such straight-through processing is becoming easier through open banking, spelling the future in terms of efficiency and cost savings.

Process Optimization: Efficiency, Cost Saves
PPP banks monitored applications and approvals on a daily and weekly basis. Having applications in a dynamic online system allowed for good internal and external reporting on the success of the high-profile program. However, such monitoring also highlighted problems and bottlenecks in a bank’s approval process — bandwidth, staffing, external vendors and even SBA systems were all potential limiters. Technology-enabled application and underwriting allows all elements of the loan approval process to be analyzed for efficiency. Going forward, a digitized process should allow a bank to examine its operations for the most client-friendly experience that is also the most cost and risk efficient.

Finally, these five technology value propositions highlight that the client experience is paramount. PPP online applications were driven by the necessity for the client to have remote and speedy access to emergency funding. That theme should carry through to commercial banking in the next decade. Anything that drives a better client experience while still providing a safe and sound operating bank should win the day. These five key value propositions do exactly that — and should continue to drive banking in the future.

Realities Beyond the Balance Sheet Facing Bank Buyers

Financial leaders face new and unique challenges as the navigate the remainder of this year and well into 2021.

The early reads on credit quality, credit access, operational and execution risk, regulatory oversight impacts and dimming growth prospects paint a bleak picture. Underlying this environment is an ongoing consideration for consolidation forcing institutions to assess their long-term viability. A closer examination of tangible book values clearly demonstrates who could be the buyers and potential sellers.

So, what is so different for M&A now? I have always believed that no two deals are the same —and that remains true. In the past, we may have looked solely at regulatory good standing, loan concentration, deposit pricing and distribution like geography and branches. While these remain fundamentally most important at the core, we now fully expect to see a heightened focus in due diligence around key layers of bank leadership, corporate culture and values, ability to deliver digital offerings to key customer segments, financial literacy programs and community investment.

A recent study by Deloitte noted that more than ever, bank M&A strategies need the right tools, teams and processes — from diligence through integrations — to pull off successful mergers. Additionally, buyers need to consider the compatibility and integration of any digital tools and how they will meet customer expectations. Can your bank deliver what these customers expect?

Most institutions looking to acquire or be acquired need to address several non-financial topics when considering how to proceed. Five in particular are consistently under-communicated by acquirers and will be even more impactful moving forward. These items speak to the fit of the merger partners — the intangible elements that cause the difference between a high customer retention rate with a platform for organic growth or a tepid retention rate with little sign of future organic growth.

1. Strategic Leadership
How an institution’s leaders navigated the recent Covid-19 pandemic says a lot about what investors, employees, customers and communities can expect if it merges with another bank. For example, the Small Business Administration’s Paycheck Protection Program may have given some banks lessons and plans that may make them potential partners worth exploring. No one knows what lies ahead, but strategic leaders must be able to think, clarify and execute during these new M&A conditions.

2. Bank Culture and Values
Most banks have a mission, vision and values statements. Until the current environment, how leaders must lead to make employees feel included and valued had not been challenged. But in almost every M&A engagement, there are significant segments of impacted employees and customers that experience uncertainty and fear. Demonstrated values can go a long way to secure trust and help the execution of these transactions succeed.

3. Digitization Expectations for Employees and Customers
Many institutions were not prepared for what occurred earlier this spring. Disaster recovery and business resumption plans were a solid start, but many were insufficient for this type of event, requiring operations and services to move off-site in a matter of days.

But aside from the initial challenges of the PPP, most banks appear to have done an outstanding job of helping employees work from home without too much customer disruption. This operating model will be the new way forward in banking. When banks merge, it is important to understand how each institution’s plan worked, and how much or little displacement that model could be for employees and customers going forward.

4. Financial Literacy and Inclusion
The reality of how our country has operated over decades has come into focus during the pandemic. One issue that many banks have identified is access to capital and providing banking services in a service-blind manner going forward. Financial literacy and inclusion must be a tenet in creating a more-effective banking system. Aligning how these programs can work, collaboration and inclusiveness can create a platform for capital distribution that works with any institutional strategy and grows exponentially after a merger.

5. Community Investment
Many institutions have invested significantly in community programs over the years. In a merger, these groups need to understand what the plan for that support will be going forward. The pandemic has made it even more important to discuss and support these investments in communities, given the struggle of many organizations these days. While these five items are not exhaustive, we know that they are among the top issues of executives, employees and customers at prospective selling institutions.

Three Tech Questions Every Community Bank Needs to Ask

Community banks know they need to innovate, and that financial technology companies want to help. They also know that not all fintechs are the partners they claim to be.

Digitization and consolidation have reshaped the banking landscape. Smaller banks need to innovate: Over 70% of banking interactions are now digital, people of all ages are banking on their mobile devices and newer innovations like P2P payments are becoming commonplace. But not all innovations and technologies are perceived as valuable to a customer, and not all fintechs are great partners.

Community banks must be selective when investing their limited resources, distinguishing between truly transformative technologies and buzzy fads

As the executive vice president of digital and banking solutions for a company that’s been working closely with community banks for more than 50 years, I always implore bankers to start by asking three fundamental questions when it comes to investing in new innovations.

Does the innovation solve problems?
True innovation — innovation that changes people’s financial lives — happens when tech companies and banks work together to solve pain points experienced by banks and their customers every single day. It happens in places like the FIS Fintech Accelerator, where we put founders at the beginning of their startup’s journey in a room with community bank CTOs, so they can explain what they’re trying to solve and how they plan to do it.

Community banks don’t have the luxury of investing in innovations that aren’t proven and don’t address legitimate customer pain points. These institutions need partners who can road test new technologies to ensure that they’ll be easy to integrate and actually solve the problems they set out to address. These banks need partners who have made the investments to help them “fail fast” and allow them to introduce new ideas and paradigms in a safe, tested environment that negates risk.

Does the innovation help your bank differentiate itself in a crowded market?
In order to succeed, not every community or regional bank needs to be JPMorgan Chase & Co. or Bank of America Co. in order to succeed. But they need to identify and leverage ideas that bolster their value to their unique customer base. A bank with less than $1 billion in assets that primarily serves small, local businesses in a rural area doesn’t need the same technologies that one with $50 billion in assets and a consumer base in urban suburbs does. Community banks need to determine which innovations and technologies will differentiate their offerings and strengthen the value proposition to their key audiences.

For example, if a community bank has strong ties with local small to midsize business clients, it could look for differentiating innovations that make operations easier for small and medium businesses (SMBs), adding significant value for customers.

Banks shouldn’t think about innovation as a shiny new object and don’t need to invest in every new “disruption” brought to market. Instead, they should be hyper-focused on the services or products that will be meaningful for their customer base and prioritize only the tools that their customers want.

Does it complement your existing processes, people and practices?
When a bank evaluates a new type of technology, it needs to consider the larger framework that it will fit into. For example, if an institution’s main value proposition is delivering great customer service, a new highly automated process that depersonalizes the experience won’t be a fit.

That’s not to say that automation should be discarded and ignored by a large swath of banks that differentiate themselves by knowing their customers on a personal level; community banks just need to make sure the technology fits into their framework. Improving voice recognition technology so customers don’t have to repeat their account number or other personal information before connecting with a banker may be just the right solution for the bank’s culture and customers, compared to complete automation overhaul.

Choosing the right kinds of innovation investment starts with an outside-in perspective. Community banks already have the advantage of personal customer relationships — a critical element in choosing the right innovation investment. Ask customers what the bank could offer or adjust to make life easier. Take note of the questions customers frequently ask and consider the implications behind the top concerns or complaints your bank staff hear.

Can your bank apply its own brand of innovation to solve them? Community banks don’t need to reinvent the wheel to remain competitive, and can use innovation to their advantage. Think like your customers and give them what no one else will. And just as importantly, lean on a proven partner who understands the demands your bank faces and prioritizes your bank’s best interests.

Beyond Spreadsheets: Digitizing Construction Lending



Many banks rely on spreadsheets and personal contact to oversee and manage construction loans—methods that are ineffective today. How can financial institutions improve this process? In this video, Built CEO Chase Gilbert explains how upgrading technology and making the process digital creates efficiencies for both bank and borrower, and allows for better risk management capabilities.

  • Why Digitize Construction Lending
  • Efficiency Gains and Other Benefits
  • Confronting Common Obstacles

How To Make Construction Lending Less Risky


lending-8-14-18.pngWhen compared to the world economy as a whole, the construction industry lacks luster, at least in terms of its embrace (or lack thereof) of digital innovation. According to a 2017 report by the McKinsey Global Institute (MGI), the construction sector has grown by just one percent over the past two decades, while global economic growth has increased at nearly three times that rate. Construction was also the second-least digitized economic sector on MGI’s Digital Index, indicating a serious need for digitization, which could help boost the industry’s growth rate.

Another MGI report found a significant performance gap between industry members that leveraged digitization compared to those who don’t, “with the U.S. economy reaching only 18 percent of its digital potential.” The current lack of technology in the construction industry presents a clear opportunity for industry players establish industry leadership.

A Perfect Storm: Industry Growth Meets Digitization in a Burgeoning Economy
Despite political agitation and a series of natural disasters, 2017 proved to be a strong year for the housing market. Housing showed steady growth in spite of these external factors and a 10.5-percent decline between November 2015 and November 2016. Experts at Zillow believe the housing shortage will continue to drive housing market trends throughout 2018, swelling consumer demand for remodels and new construction.

Fueled by stable interest rates, a strong economy, and inventory shortages, the construction industry stands to enter a period of significant growth in 2018. As predicted by Dodge Data & Analytics, the industry could see a three percent increase with new construction starts in 2018 reaching an estimated $765 billion.

If the industry fails to digitize, it will likely struggle to keep pace with market demands. Currently, large construction projects take 20 percent longer than expected to reach completion and are up to 80 percent over budget. Not only do significant delays and expense oversights like these inhibit those working directly in the industry, such as contractors, sub-contractors, builders, and developers, but also those financing the projects. Missing project completion targets and budget goals makes improperly monitored construction lending a risky business. MGI lists improved “digital collaboration and mobility” as essential to the construction industry’s ability to meet its potential future growth.

Relieve Strain on Lender Resources with Digitization
Oldcastle Business Intelligence estimated in their 2018 Construction Forecast Report that construction, as a whole, would grow by 6 percent in 2018. This year is projected to see significant growth in single-family housing starts, estimated to increase 9 percent, with a predominant focus on Southern and Western regions. As housing and construction demands continue to climb, financial institutions stand to corner a substantial chunk of the growing market and increase revenue.

Historically, lenders have shied away from construction lending, viewing construction loan portfolios as administratively taxing and risky from both regulatory and credit decision perspectives. By bringing the construction loan administration process online through collaborative, cloud-based software, financial institutions can become industry leaders while relieving the burden on their lenders, mitigating risk, and improving the experience for everyone involved.

Reduce Risk with Construction Lending Software
The digitization of construction lending translates to less risk all around. Construction lending software streamlines the facilitation of compliance and regulatory timelines, reducing potential fines and penalties for non-compliance or loan file exceptions. In addition to the risks imposed on the industry by staunch government regulations, lenders also understand the high credit risk involved with traditional construction loans (and their many moving parts) due to their multifaceted, unpredictable nature.

Overseeing construction portfolios requires constant vigilance in tracking and monitoring cost estimates, advances, material purchases, labor costs, construction plans, and timelines, all while ensuring proper paperwork is filed and maintained for every transaction and correspondence.

Bringing the construction loan management process online gives lenders the ability to monitor their entire construction portfolio from one location. Real-time monitoring and alerts automatically highlight areas of concern, excessive advances, stale loans, maturities and overfunded projects. Digital oversight also allows lenders to foresee and correct potential problems with budget and timelines.

Increase Efficiencies Through Digitization
Financial institutions that implement a digital solution for construction loan administration drastically improve efficiencies, eliminating former portfolio limitations. By increasing efficiency, lenders can invest more time in bringing in additional business, approving more loans, and better serving existing clients.

Improve User Experience with Digital Lending
In addition to risk mitigation and efficiency gains, construction lending software also drastically improves the overall user experience in the construction loan administration process by providing a singular platform for communication throughout the life of each loan. Bringing the process online allows lenders, borrowers, builders, inspectors, and appraisers to collaborate and communicate in one place, preventing missed phone calls and the inevitable tangle of email correspondence.

ChoiceOne and Autobooks Bring Rural Customers into the Digital Age


sba-6-20-18.pngAdom Greenland works with a lawn care specialist who was running his business in a way reminiscent of a bygone era. He’d leave a carbon copy invoice on the counter when he finished his work, Greenland would cut a check and some three weeks later, the small-business owner would finally be compensated for the work he had done weeks prior.

That arrangement is one that still exists in many rural areas, but Greenland, the chief operating officer at $642 million asset ChoiceOne Bank, headquartered in Sparta, Michigan, saw an opportunity to help rural customers like his lawn care specialist usher themselves into the 21st century by partnering with Autobooks.

ChoiceOne found itself in a position that many banks in the country have found themselves in at some juncture in the last several years: recognizing the need to make a move to remain competitive with booming fintech firms popping up all over the place. Located in a largely rural area in western Michigan—Grand Rapids, with about 200,000 residents, is the largest city in its area—the bank has been a fixture for its rural community but is slowly moving into urban markets, Greenland says. Its specialties include agricultural and small business borrowers that are comfortable with antiquated practices that often aren’t driven by technology. But in an increasingly digital world, Greenland says the move was made to make both the bank and its commercial customers competitive by improving its existing core banking platform to digitize treasury services for commercial customers.

ChoiceOne chose Autobooks to digitize its small business accounting and deposit process in 2017, a journey the bank began three years ago after realizing that the technology wave rolling over the banking industry was going to be essential for the bank’s future. But identifying potential partners and wading into the due diligence process was at times frustrating, Greenland says. “Everything was either, you had to pay a quarter-million dollars and then had to hope to sell it to somebody, or it was just 10-year-old technologies that weren’t significantly better than what we already had.”

Autobooks, through an array of application programming interfaces, or APIs, essentially automates much of the bank’s existing treasury services such as invoicing, accounting and check cashing processes. The system sits on top of the bank’s existing banking platform from Jack Henry, but works with FIS and Fiserv core systems as well.

With just 12 branches in a predominantly rural market, Greenland says this has become a game changer for the bank and its customers.

“My sprinkler guy could have been doing this a long time ago, but this will accelerate the adoption of technology [by] my rural customers,” Greenland says. “It’s bringing my customers to the next century in a really safe and easy way.”

The partnership between Autobooks and ChoiceOne generates revenue for both companies through fees. It is a similar arrangement to that of Square, QuickBooks or PayPal, the competitors Greenland is trying to outmaneuver while integrating similar accounting, invoicing and payments functionalities.

So far, the partnership has been able to reduce the receivables time by about two weeks, and automates many time-consuming tasks like recurring invoicing, fee processing and automatic payments. It also cuts expenses for the bank’s customers that have been using multiple third-party providers for similar services, which has driven loyalty for the bank. ChoiceOne hasn’t generated significant revenue from the partnership—Greenland says it’s at essentially a breakeven point—but the loyalty boost has been the biggest benefit, an attribute that’s becoming increasingly important as competition for deposits rises.

And the results are visible for small businesses, like Greenland’s sprinkler technician. “For that kind of business, this thing is absolutely revolutionary.”

Realign Your Bank’s Operating Model Before It’s Too Late


core-6-19-18.pngThe banking industry and its underlying operating model is facing pressure from multiple angles. The advent of new technologies including blockchain and artificial intelligence have started and will continue to impact the business models of banks.

Meanwhile, new market entrants with disruptive business models including fintech startups and large tech companies have put pressure on incumbent banks and their strategies. A loss of trust from customers has also left traditional banks vulnerable, creating an environment focused on the retention and acquisition of new clients.

In response to looming industry challenges, banks have begun to review and adapt their business models. Many banks have already adjusted to the influence of technology, or are in the process of doing so. Unfortunately, corresponding changes to the underlying operating models often lag behind technology changes, creating a strong need to re-align this part of the bank’s core functions.

So what does “re-align” mean from an IT architecture point of view?

Impact on System
In order to keep up with the fast-paced digital innovation, investments have largely focused on end-user applications. This helped banks to be seen as innovative and more digital friendly. However, in many cases these actions led to operational inefficiencies and there are several reasons why we see this.

One is a lack of integration between applications, resulting in siloed data flow. More often, though, the reason is the legacy core, which does not allow seamless integration of tools from front to back of an organization. Further, M&A activity has led many banks to have several core legacy systems, and often these systems don’t integrate well or exist with multiple back-end systems that cater to a specific set of products. This complicates the creation of a holistic view of information for both the client and financial advisor.

There are two ways of addressing the above-mentioned challenges to remain successful in the long-run:

  1. Microservice driven architecture
  2. Core Banking System modernization

Microservice-driven architecture
Establishing an ecosystem of software partners is important to be able to excel amid rapid innovation. Banks can’t do all the application development in house as in the past. Therefore, a microservice-driven architecture or a set of independent, yet cohesive applications that perform singular business functions for the bank.

The innovation cycles of core banking systems are less frequent than innovation cycles for client- and advisor-facing applications. To guarantee seamless integration of the two, build up your architecture so it fully supports APIs, or application programming interfaces. The API concept is nothing new; however, to fully support APIs, the use of standardized interfaces will enable seamless integration and save both time and money. This can be done through a layer that accommodates new solutions and complies with recent market directives such as PSD2 in Europe.

core-banking-graphic.png

Core Banking System Modernization
Banks are spending a significant amount of their IT budget on running the existing IT systems, and this allows only specific parts go into modernization.

A simple upgrade of your core banking system version most likely won’t have the desired impact in truly digitizing processes from front to back. Thus, banks should consider replacing their legacy core banking system(s) to build the base layer of future innovation. This can offer new opportunities to consolidate multiple legacy systems, which can reduce operational expenditures while mitigating operational risks. In addition, a core banking replacement allows for the business to scale much easier as it grows.

A modern core banking system is designed and built in a modular way, allowing flexiblity to decide whether a specific module will be part of the existing core or if external solutions will be interfaced instead, resulting in a hybrid model with best-of-breed applications in an all-in-one core banking system.

Investing In Your Core Can Save You
Core banking system modernization and adoption of the microservice-driven architecture are major investments in re-aligning a bank’s operating model. However, given the rapid technological innovation cycles, investments will pay off in improved operational efficiency and lower costs.

Most importantly, re-aligning the operating model will increase the innovation capabilities, ultimately resulting in a positive influence on the top line through better client experiences.

Winners Announced for Bank Director’s 2018 Best of FinXTech Awards


awards-5-10-18.pngThe cultural and philosophical divides between banks and fintech companies is still very apparent, but the two groups have generally come to agree that it’s far more lucrative to establish positive relationships that benefit each, as well as their customers, than face off on opposite ends of the business landscape.

The benefits of collaboration in the fintech space, which manifest themselves in the form of improved efficiency and profitability, has led to a growing number of partnerships between banks and fintech firms. This year Bank Director and FinXTech selected 10 finalists in three categories—Best of FinXTech Partnership, Startup Innovation and Innovative Solution of the year—for its annual Best of FinXTech awards. The three category winners highlight some of the most transformative and successful partnerships between banks and fintechs that have improved operations, experience and profitability for both.

The awards were presented at Bank Director’s FinXTech Annual Summit, held May 10-11 at the Phoenician resort in Scottsdale, Arizona.

Startup Innovation:

Radius Bank and Alloy

Radius, an $1.1 billion asset bank headquartered in Boston, has been on a dedicated track to become an online-only retail bank since Mike Butler took over as CEO about 10 years ago. But Butler and his executive team knew that Radius’ customer acquisition and onboarding process was inefficient. The demand was there, but the bank’s internal onboarding processes couldn’t keep up, and the attrition rate was high.

Overhauling that process led Radius to Brooklyn, New York-based Alloy, a firm still in its relative infancy. Butler and the Radius board of directors knew that this was a risky play because Alloy was still a young startup company and they would be entrusting it to digitize its customer onboarding process, a critical move that aimed to make the process more efficient and reduce drop-offs. The bank had to bring together several departments, from data to marketing, and get them all on the same page.

It had to be just right to make their model succeed—and so far it has worked. The bank has reduced its technology cost to open an account by 50 percent, and seen a 30 percent increase in its application conversion rate. Radius also has seen a steep downward trend in fraudulent account openings, an issue that’s become increasingly prevalent with online banking.

But even with significant technology investments and improvements, there was still considerable human productivity invested in some of the bank’s core functions. Some 30 to 40 of every 100 incoming retail account applications were being tapped for manual review. With some 1,000 applications coming in each week on average, the calculus there is pretty clear about the expense the bank faced with reviewing those applications. Alloy’s technology automates much of the review process using decision engines, and has reduced that manual review by 98 percent.

Alloy’s technology automates most of the process and has reduced dropped applications on the consumer side and the human capital expense for the bank. Now, just three or four of every 100 applications on average are pinged for manual review.

Most Innovative Solution of the Year:

CBW Bank and Yantra Financial Technologies

Who would have thought a former Lehman Brothers executive and her husband with a technology pedigree that includes a stop at Google would somehow elevate a tiny bank and fintech firm in rural Kansas to national prominence?

While maybe not a possibility completely in the left-field bleachers, the partnership between CBW Bank and Yantra Financial Technologies has drawn significant attention from both the banking industry and the tech world. Suresh Ramamurthi, the CEO of Yantra and chief technology officer for the bank, and his wife, Suchitra Padmanabhan, the president and CEO of CBW, together turned the near-failing bank around after they purchased it in 2009, mostly with personal savings.

The bank, with just $33 million in assets, has maintained is rural core deposit base in the tiny town of Weir, but also launched a revolutionary global marketplace for some 500 application programming interfaces, or APIs, that enable tech firms and other companies, like those in the health care space, to experiment with finding efficiencies and maintain compliance at the same time.

Using Ramamurthi’s technological expertise, the bank developed the APIs whose application can range from developing new products that are compliant with regulatory requirements to helping the institution or fintech scale up their operations, or simply improving the bank’s core operating system.

The APIs were also applied to CBW’s own digital banking platform, which has drawn nationwide clients, including popular fintech firms like Moven and Simple, as well as companies in the health care industry.

The bank then published the APIs publicly, working with Yantra in the Y-Labs Marketplace. Common APIs results in streamlined interoperability, like a payments solution, for example, between multiple businesses in multiple industries. More than 100 companies have signed up with the Marketplace to use the APIs, including other fintechs and companies outside of financial services.

It has also allowed the bank to enhance its own digital offerings, which Ramamurthi says will result in a new app later this year that will reshape how mobile banking works.

Best of FinXTech Partnership:

Citizens Financial Group and Fundation

For two decades, Citizens Financial made business banking loans using a manual process that was heavy on the paper. But this is an extremely inefficient way of doing business and the bank’s leaders wanted a faster and less costly way of underwriting loans, particularly with new fintech marketplace lenders coming into the market—whose technology gave them a big competitive advantage.

Providence, Rhode Island-based Citizens, one of the country’s top-20 banks at $152 billion in assets, worked with Fundation, a Reston, Virginia-based credit solution provider, to reinvent how it makes small business loans, rolling out in March a new credit delivery process for small-business loans and lines of credit up to $150,000.

“This is the future,” says Jack Murphy, president of Business Banking at Citizens. The new system has automated nearly all of the decision-making for the bank, which Murphy says makes it easier on both bankers and customers alike. Bankers aren’t spending hours reviewing applications, and customers can complete the application on their own time, even in the car, Murphy jokes. The bank still controls the credit policy, which ultimately determines if a manual review is necessary.

But the partnership didn’t come about overnight, and took many months of due diligence and conventional vetting before it was finalized. The bank took a deliberate approach to ensure it was making a good decision.

“There’s not a bank today that’s not thinking about fintech and what are the right ways to go about executing a strategy around digital technology,” Murphy says.

Finalists

The following partnerships were also recognized among finalists for the three top awards:

  • MVB Financial Corp. and BillGO
  • TCF Bank and D3 Banking Technology
  • U.S. Bank and SpringFour, Inc.
  • USAA and Clinc
  • Seacoast Bank and SmartBiz Loans
  • ChoiceOne Bank and Autobooks
  • Pinnacle Financial Partners and Built