Turning Compliance From an Exercise Into a Partnership

The Greek philosopher Heraclitus once observed that no one can ever step into the same river twice. If these philosophers tried to define how the financial industry works today, they might say that no bank can ever step into the same technology stream twice.

Twenty-first century innovations, evolving standards and new business requirements keep the landscape fluid — and that’s without factoring in the perpetual challenge of regulatory changes. As you evaluate your institution’s digital strategic plan, consider opportunities to address both technology and compliance transformations with the same solution.

The investments your bank makes in compliance technology will set the stage for how you operate today and in the future. Are you working with a compliance partner who offers the same solution that they did two, five or even 10 years ago? Consider the turnover in consumer electronics in that same period.

Your compliance partner’s reaction time is your bank’s reaction time. If your compliance partner is not integrated with cloud-based systems, does not offer solutions tailored for online banking and does not support an integrated data workflow, then it isn’t likely they can position you for the next technology development, either. If your institution is looking to change core providers, platform providers or extend solutions through application programming interfaces, or APIs, the limitations of a dated compliance solution will pose a multiplying effect on the time and costs associated with these projects.

A compliance partner must also safeguard a bank’s data integrity. Digital data is the backbone of digital banking. You need a compliance partner who doesn’t store personally identifiable information or otherwise expose your institution to risks associated with data breaches. Your compliance data management solution needs to offer secured access tiers while supporting a single system of record.

The best partners know that service is a two-sided coin: providing the support you need while minimizing the support required for their solution. Your compliance partner must understand your business challenges and offering a service model that connects bank staff with legal and technology expertise to address implementation questions. Leading compliance partners also understand that service isn’t just about having seasoned professionals ready to answer questions. It’s also about offering a solution that’s designed to deliver an efficient user experience, is easy to set up and provides training resources that reach across teams and business footprints — minimizing the need to make a support call. Intuitive technology interfaces and asynchronous education delivery can serve as silent accelerators for strategic goals related to digitize lending and deposit operations.

Compliance partners should value and respect a bank’s content control and incorporate configurability into their culture. Your products and terms belong to you. It’s the responsibility of a compliance partner to make sure that your transactions support the configurability needed to service customers. Banks can’t afford a compliance technology approach that restricts their ability to innovate products or permanently chains them to standard products, language or workarounds to achieve the output necessary to serve the customer. Executives can be confident that their banks can competitively adapt today and in the future when configurability is an essential component of their compliance solution.

A compliance partner’s ability to meet a bank’s needs depends on an active feedback loop. Partners never approach their relationship with firms as a once-and-done conversation because they understand that their solution will need to adjust as business demands evolve. Look for partners that cultivate opportunities to learn how they can grow their solution to meet your bank’s challenges.

Compliance solutions shouldn’t be thought of as siloed add-ons to a bank’s digital operations. The right compliance partner aligns their solution with a bank’s overall objectives and helps extend its business reach. Make sure that your compliance technology investment positions your bank for long-term return on investment.

Radius Bank CEO Talks LendingClub Acquisition

Last week, a $1.4 billion asset community bank sent shockwaves through the financial industry when it agreed to be acquired by national fintech, LendingClub Corp.

What most people are talking about is what LendingClub will gain — access to a cheaper and more secure funding, freedom from loan sponsorship fees it pays to its current partner, Salt Lake City-based WebBank, and the ability to wade into other traditional banking activities. But what does the deal mean for the acquisition target, Boston-based Radius Bank? And what does it say about the future of banking?

I caught up with Mike Butler, president and CEO of Radius Bancorp, to find out. The following excerpts from our conversation are edited for brevity, clarity and flow.

BD: What does this deal mean for Radius Bank’s business model?
MB: We think we’re a fintech company with a bank charter. And LendingClub is obviously a fintech that’s thinking about banking. When you bring them together, it’s a nice combination of two companies looking to do the same thing.

Radius will have an opportunity to plug itself into the infrastructure of LendingClub and leverage a lot more of what we’ve built to provide both of our clients with better products and services. We will be operating out of our Boston location here in the Innovation District, not only driving our direct-to-consumer business, but also our commitment to fintechs on the strategic partnership side. As part of our early discussions with LendingClub,there was a lot of interest in our banking-as-a-service model, and we think that’s a great opportunity for us to expand further.

What a lot of people haven’t been paying as much attention to are our commercial lines of business and the opportunity for us to provide LendingClub with the diversification on the loan side that everybody’s looking for.

BD: You mentioned that Radius will be plugging into LendingClub’s infrastructure. What are your thoughts on how the companies will meld their teams?
MB: We’re going to help accelerate what is a fairly strong knowledge base inside LendingClub about regulatory and traditional banking. So we get a chance to leapfrog based on our work and our relationship with our regulator.

This is nothing like a traditional bank merger where cost saves are part of it. Things like overlapping technology and elimination of headquarters or branches are all distractions inside a traditional merger that keep you away from leveraging the beauty of a combination.We’ve got an acute focus on our objective of delivering superior products and services into the marketplace, and we won’t be distracted by those other issues, which will allow us to be more successful.

BD: I know Radius is run a lot like a tech company. Did that play a part in the relationship with LendingClub?
MB: It’s a big part of it. There is a cultural connection in any good merger. We’ve hired a lot of people from outside the banking industry and are teaching them banking. LendingClub has a whole group of technology people that they are teaching banking to as well. So, there’s a lot of cultural connections with what we’re trying to accomplish.

Beyond the cultural connection of people and mission, our national deposit gathering with industry-leading online banking and the awards we win for our product, make us a perfect match for a company like LendingClub, who also does business nationally.

As fintechs have evolved, they’ve done a great job in proving that they can take some banking products and produce them in a much more consumer-friendly way. But I think what we always thought is there would be a rebundling, in which companies would recognize that operating within a bank charter allows them more flexibility and profitability to deliver their products and services to clients. This deal reflects that; it’s the first step in the rebundling of financial services.

BD: How have regulators responded to the deal?
MB: LendingClub has been in the de novo application process for over a year, predominantly with the Office of the Comptroller of the Currency. And I think it’s safe to say that the regulators were positioned to issue a de novo charter to LendingClub, but LendingClub felt — and did feel all along — that an acquisition was a faster path. We were lucky enough to find each other over six months ago to start talking about this. And so a lot of work has been done behind the scenes.

In our discussions about the opportunity for a fintech to buy a bank, we’re extremely confident that the Federal Reserve and the OCC — and both of their offices of innovation — recognize the inevitability of this type of event and want to participate in helping the future and being a part of it, rather than not being part of it. So, we’re excited and optimistic about how the process will go.

BD: Do you think your model might be a clearer path to getting fintechs involved in traditional banking activities?
MB: I obviously do; we’re a fintech company with a bank charter. I always said, “Why wouldn’t a fintech company want to acquire a bank that had forward-looking people and technology as a path to create what we see as the future of the industry?”

You’ve got to be careful about the number of banks that may be out there that are really prepared to help accelerate a fintech to get to the next level. That will be the challenge with  people pursuing this avenue, and that’s why we’re excited to be the first one. But I do think the combination of fintechs and banks will become more and more prevalent.

BD: Is this the start of a new trend?
MB: I think it is, and I think you’ll see a couple of things happen. I can’t tell the future, but I think there will be several more banks that have considered developing more digital technology accept and move forward on doing that. And I think you will see more fintechs taking a look at banks as a way to rebundle and provide themselves with a path to profitability.

I do think there will be many that wait to see how the approval process takes place. I don’t think there’ll be a rush to it. Matter of fact, we like our competitive advantage. Another year with a competitive advantage would be good for us. So that’s OK by us.

BD: What does this deal say about the future of banking?
MB: It signals that technology has to become the number one component and driver to acquiring and servicing clients at the level that today’s consumer demands.

If banks haven’t been believing that technology is going to be a big player, then they need to start developing something quicker, rather than later, as it relates to their own business — to think about how they will participate in the future.

What I tell bankers is that transforming a bank into a digital platform is not an insurmountable task. I hope that I’ve proven to people that it can be done, and it can be done very successfully.

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

The People Who Plan to Change Financial Services


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This article originally published inside The FinTech Issue of Bank Director digital magazine.

The world is filled with technology companies hoping to transform the financial industry. Of course, very few of them will. Not all ideas can overcome the substantial hurdles to become major commercial successes. We are not proposing here at Bank Director digital magazine to tell you who will be a success and who won’t be. But we do want to introduce you to some of the entrepreneurs who are proposing to reshape the world as we know it. These are people whose ideas are re-envisioning platforms and processes, people who are simplifying, unifying and upsetting conventional practices. These entrepreneurs really are shaking up traditional boundaries to help us all think about banking a little differently.

Christian Ruppe and Jared Kopelman

They are creating the driverless car of banking.

Using machine learning, this duo, who met as students at the College of Charleston, have built a platform for banks and credit unions to help millennials save without even thinking about it. Frustrated that fellow college students would get on a budget and then abandon it a few weeks later, 22-year-old Ruppe thought he could make the attainment of financial stability easier. Achieving financial health takes discipline and focus, like weight loss. But Ruppe reasoned that technology could help with financial health so it wasn’t so dependent on discipline and focus. If he could come up with a way to automate savings, debt payments and investments, many more people could realize the benefits of compounding over time to create wealth. “We are the self-driving car of banking,’’ Ruppe says.

There are several other automated savings applications on the market that use machine learning, such as Digit and Qapital, but most of those are sold directly to consumers, rather than through a financial institution. Monotto’s private label approach means the customer doesn’t pay for the product and never knows the platform doesn’t come from the bank. Monotto, a play on the words “money” and “auto,” can be integrated into mobile banking or online applications, sending well timed messages about refinancing the mortgage or buying a house, for example. Bear State Financial in Little Rock, Arkansas, a $2.2 billion asset bank, already has agreed to pilot the program. When customers sign up, the algorithm learns from their spending patterns and automatically pulls differing amounts from their checking accounts into their savings account using the bank’s core banking software, taking into consideration each customer’s transaction history. Individuals can set savings goals, such as buying a house or a car, and the platform will automatically save for them. For now, Monotto has received funding from friends and family, as well as an FIS-funded accelerator program. Eventually, the founders envision a platform that will also help you invest and pay down debt.

“You have someone who is solving a problem [for society] but figuring out how to solve it for the bank, as well,” says Patrick Rivenbark, the vice president of strategic partnerships at Let’s Talk Payments, a research and news site.

Zander Rafael

This student lender calculates the school’s ROI to determine eligibility for a loan.

With the rising cost of tuition, students who take out loans end up with an average of $30,000 in debt after college, leading to rising rates of delinquency. But what’s holding the schools accountable?

Alexander “Zander” Rafael, 32, and his team created Climb Credit in 2014 to service student loans based on the returns the college provides its graduates. This places Climb among a menagerie of fintech startups, like SoFi, LendEDU and CampusLogic, all trying to serve the student loan market.

Climb, which funds its loans through investors, stands out because it only works with schools that have a record of landing students jobs that “pay them enough to [cover the] cost of tuition,” says Rafael. In addition to evaluating the student, Climb also assesses the schools. If the institution passes Climb’s graduation and return on investment analysis, then its students are eligible for Climb loans and the school takes on some of the risk of the loan, receiving more money if more students pay them back.

Climb has grown by focusing on more non-traditional learning environments, like coding boot camps, where students invest $10,000 for a yearlong program to learn web development. According to Climb’s analysis, many of these students land jobs that pay up to $70,000. “The return was very strong,” says Rafael. Climb now works with 70 schools, including some two and four-year university programs.

Schools benefit because they can accept students that lack cosigners and who otherwise may have struggled to find a private loan elsewhere. Climb charges an average of 9 percent APR for the loans, but it can range from 7.59 percent to 23.41 percent.

With a $400 million lending capacity, Climb has raised a Series-A funding round of $2 million. But the idea has shown early promise, as Rafael adds that profitability is “within line of sight.”

Ashish Gadnis

Could this man be the Henry Ford of identity?

What if you could unlock trillions of dollars of wealth that could be associated with individuals around the globe? What sort of opportunities would be there for banks and businesses of all sorts? BanQu cofounder Ashish Gadnis saw first hand the problem facing billions of people worldwide who don’t have a bank account when he tried to help one woman farmer in the Democratic Republic of Congo. “The banker said, —We won’t bank her, but we’ll bank you, Mr. Gadnis,’” a native of India who grew up in poverty himself. “They wouldn’t recognize her identity,’’ he says, despite the fact that she owned a farm and had income every year from her harvest. Gadnis and cofounders Hamse Warfe and Jeff Keiser say this is a problem that confronts 2.7 billion people around the world who don’t have access to bank accounts or credit because they don’t have a verifiable identity. Gadnis, who wore a giant cross in lieu of a tie to a recent conference, promises to change all that by providing a way for people to create their own digital transaction-based identity through an open ledger system, or blockchain. Others in their network can verify transactions such as the buying and selling of a harvest, or the granting of a job. He estimates that approximately 5,000 people, some of them living in refugee camps in the Middle East, are using the technology to create a digital identity for themselves that could open up future opportunities to obtain credit and enter the global economy.

It’s not a nonprofit company, as you might think. BanQu is in the middle of a Series A venture capital funding round, and envisions banks and other financial institutions paying for the platform so they can access potential customers. It’s free to users. Like other tech entrepreneurs, he is optimistic about the potential of his platform, perhaps wildly so. “The key to ending poverty is now within our reach,’’ he says. But he has quite a few admirers, including Jimmy Lenz, the head of predictive analytics for wealth and investment management at Wells Fargo & Co. Gadnis has credibility, Lenz says, as he sold a successful tech company called Forward Hindsight to McGladrey in 2012. “When I think about Ashish, I think about Henry Ford. We think about Henry Ford for the cars. But really, his greatest achievement was the assembly line, the process.”

Nathan Richardson, Gaspard De Dreuzy and Serge Kreiker

These entrepreneurs provide anywhere, anytime trading for brokerage houses and wealth management firms.

All three of these individuals have well established backgrounds in technology, including Richardson, who was formerly head of Yahoo! Finance. Now, they are using application programming interfaces, or APIs, to try to make it easier to trade no matter the platform or where you are. Instead of logging into a brokerage firm’s website, Trade It sits on any website and lets you trade your brokerage account inside the website of a publisher or other company, such as Bloomberg. Although many banks have yet to sign up to use the app, the company is licensing the software to brokerage houses and Citi Ventures, the venture capital arm of Citigroup, invested $4 million into the company in 2015. “The thing that impressed us is taking financial services to our customers in the environment they are in, rather than expecting them to come to us,’’ says Ramneek Gupta, the managing director and co-head of global venture investing for Citi Ventures.

Publishers like the app because it doesn’t take the customer outside of their site. Brokerages like it because they can reach their customers anywhere. “If you think about 70 percent of consumers under the age of 40 who trust Google and Facebook more than their financial institution, why wouldn’t you want to put your product there?” says Richardson.

Gupta thinks this speaks to the future of financial services. “You have already seen it elsewhere,’’ he says. “You can order Uber from inside Google Maps.”

FinXTech Advisory Group Weighs in on Partnerships Inside and Outside Your Bank


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Tasked with providing the most relevant information affecting the financial industry, the FinXTech Advisory Group is comprised of a select number of technology startup founders, established technology providers, innovation leaders in banking, investors and government, and non-government policy leaders. As financial institutions work to find the best technology solutions, we asked them to weigh in on how banks can evaluate their internal resources to maximize opportunity for innovation. When they cannot address these challenges in-house, our advisors also share how fintechs can best approach a bank to make their case guided by a careful understanding of the existing system that is in place.

How can banks create an organizational culture that prioritizes technology initiatives?

  1. Focus on Challenges: The entire organization needs to be in sync with the challenges it is looking to address.
  2. Reward Innovative Thinking: BNY Mellon hosts —innovation jams’ while U.S. Bank holds —Pitch Factory’ competitions to promote innovative thinking. Rewarding innovation will ensure organizations are open to using new technology.
  3. Continue Reinventing: The key to promoting technology initiatives is to ensure there is no dependence on one particular system or technology. Be open to adopt new and better ways of doing things.

Ensure that executive and senior leadership teams have participants that are invested in understanding the potential of applied technology to address the operating and growth needs of the institution. Additionally, the institution should have the appropriate access to customer and market information, along with the analytical capabilities on staff to assess and understand what that data shows. The institution should make appropriate investments to secure its own technical future, not just outsourced to a vendor or processor.


Preaching A but rewarding B has been the modus operandi of too many financial institutions. If a bank truly wants to prioritize technology initiatives, it can reward those that embrace such initiatives 100 percent, regardless of whether or not those initiatives yield near-term results. A bank should also look to make sure that its board includes professionals with a technology background. A board that only includes technology “spectators” and not practitioners will have difficulty in promoting a tech-driven culture.

How can fintech companies begin to work with banks?

I believe it’s highly dependent on the work that is being contemplated. The legacy factors inside banks are what have given rise to fintech companies in many cases. The legacy environment in banks is something that fintech companies have to appreciate and work with, due to the structure, regulatory requirements and other parameters that exist in highly regulated environments.


I get 10-20 calls or emails from vendors daily trying to get a meeting. I would not try to work through the IT departments at community banks. I believe you need to find the “business” or “product” owners. They have an interest in learning more about the potential benefits of the solutions. I am much more open to meeting vendors at conferences or through their FinXTech relationships than through cold calls. If FinXTech or one of the reputable trade groups refers one of the vendors, I would take the call or meeting to try to help them network or provide advice.


Fintech companies need to look at the big picture and the individual needs at the same time. It is important for them to be self-aware: no matter how cool the fintech proposition, you will be one of the few hundred vendors with a small “v”—so deal with that reality dispassionately! Spend time with people at all levels in the organization. Understand the big and small pain points. Give it enough time. Most importantly, especially for small banks, don’t expect them to spend additional resources on integration with other third parties: try to provide a complete solution. Finally, put things in perspective: You may be the best, but you may not win.

Blockchain Information Series: It’s All About the Block


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FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part One of this series.

Part Two
Part Three
Part Four

I started researching blockchain in the fall of 2015 and became intrigued by the new digital currency called bitcoin. My attention quickly turned to how bitcoin was produced and the ways in which its underlying technology, the blockchain, was being explored in the financial sector. Early use cases were focused on international payments, foreign exchange, bond issuances, clearing and settlement processes. My intrigue has since broadened far beyond that of just the financial sector.

By way of background, I am not a programmer or developer. If you ask my friends and family they will tell you that I often struggle to properly use my (supposedly) universal remote control! My view of blockchain is from the practical application standpoint of how this technology can be integrated. Businesses today, whether you are a financial institution, manufacturer or a packaged goods provider, must be data driven and place business intelligence at the center of operations. There is a lot of low hanging fruit that can be picked from the proverbial fruit tree by utilizing blockchain technology—specifically, efficiency gains, cost saves, reduction in errors and redundancies, improved collection and storage of data without compromising good corporate governance.

For example, today in the financial industry, it is not uncommon for a stock trade to take two to three days to settle, or for bank loan trades to take in excess of 20 days to settle. Think about the amount of manual processes, double and triple entries being conducted today by multiple employees. Using blockchain technology, the average trade takes less than 10 minutes while at the same time effectively mitigating settlement, counterparty and systemic risk. Morgan Stanley Research group estimates the cost savings of using blockchain technology for trade settlements could save the industry in excess of $20 billion.

Who started it all?
First, let’s take a trip back in time and think about 1993. Were you a little reluctant to give up your old reliable friend, the fax machine, for e-mail? In addition to e-mail, we all became exposed to the worldwide web, .coms, social media and more sophisticated mobile phones, to name just a few communication advancements.

For the next several years, security and privacy became increasingly important as cybercrime grew to become a serious threat, and also when cryptography began to take center stage.

In 2008, Satoshi Nakamoto created the first peer-to-peer electronic cash system called bitcoin. Initially, it was all about currency and the ability to securely transact by eliminating all middlemen, costs and complexity of transactions. This was done through a shared ledger and network, cryptographically, using mathematical algorithms to confirm transactions and entities.

Though there are many passionate enthusiasts forging ahead with digital currency, it’s important to understand that this development will take time. It is unlikely we will see a conversion of all U.S. currency in our lifetime. Today, this would require the production of 21 billion bitcoin to replace all existing U.S. currency. However, it is realistic to assume some form(s) of digital currency will prevail at some point in the future.

What is it?
A software that enables data sharing across a network of computers.

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Today we are centralized. Blockchain offers a decentralized and distributed system through shared software infrastructure and trust. Users agree to a software protocol that describe the rules for the type, quality and transferability of data in addition to the rules for authorization, verification and permutation.

How does it work?
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Let’s simplify this very technical description of how blockchain works by remembering that a blockchain can be likened to an assembly line in an auto manufacturing plant in which each block represents a component of the car, or in this case, computers transferring blocks of records in a distributed ledger. The end product, the car, is the bitcoin or token used to record and transfer the asset.

If you want to learn more, Don Tapscott’s book “Blockchain Revolution” is a great and easy read. You can also visit Kahn Academy online for more bitcoin and blockchain tutorials.