Winners Announced for the 2019 Best of FinXTech Awards


Awards-9-10-19.pngBanks face a fundamental paradox: They need to adopt increasingly sophisticated technology to stay competitive, but most have neither the budget nor the risk appetite to develop the technology themselves.

To help banks address this challenge, a legion of fintech companies have sprung up in the past decade. The best of these are solving common problems faced by financial institutions today, from improving the customer experience, growing loans, serving small business customers and protecting against cybersecurity threats.

To this end, we at Bank Director and FinXTech have spent the past few months analyzing the most innovative solutions deployed by banks today. We evaluated the performance results and feedback from banks about their work with fintech companies, as well as the opinions of a panel of industry experts. These fintechs had already been vetted further for inclusion in our FinXTech Connect platform. We sought to identify technology companies that are tried and true — those that have successfully cultivated relationships with banks and delivered value to their clients.

Then, we highlighted those companies at this year’s Experience FinXTech event, co-hosted by Bank Director and FinXTech this week at the JW Marriott in Chicago.

At our awards luncheon on Tuesday, we announced the winning technology solutions in six categories that cover a spectrum of important challenges faced by banks today: customer experience, revenue growth, loan growth, operations, small business solutions and security.

We also announced the Best of FinXTech Connect award, a technology-agnostic category that recognizes technology firms that work closely with bank clients to co-create or customize a solution, or demonstrated consistent collaboration with financial institutions.

The winners in each category are below:

Best Solution for Customer Experience: Apiture

Apiture uses application programming interfaces (APIs) to upgrade a bank’s digital banking experience. Its platform includes digital account opening, personal financial management, cash flow management for businesses and payments services. Each feature can be unbundled from the platform.

Best Solution for Revenue Growth: Mantl

MANTL developed an account-opening tool that works with a bank’s existing core infrastructure. Its Core Wrapper API reads and writes directly to the core, allowing banks to set up, configure and maintain the account-opening product

Best Solution for Loan Growth: ProPair

ProPair helps banks pair the right loan officer with the right lead. It integrates with a bank’s systems to analyze the bank’s data for insights into behaviors, patterns and lender performance to predict which officer should be connected with a particular client.

Best Small Business Solution: P2BInvestor

P2Binvestor provides an asset-based lending solution for banks that helps them monitor risk, track collateral and administer loans. It partners with banks to give them a pipeline of qualified borrowers.

Best Solution for Improving Operations: Sandbox Banking

Sandbox Banking builds custom APIs that communicate between a bank’s legacy core systems like core processors, loan origination, customer relationship management software and data warehouses. It also builds APIs that integrate new products and automate data flow.

Best Solution for Protecting the Bank: Illusive Networks

Illusive Networks uses an approach called “endpoint-focused deception” to detect breaches into a bank’s IT system. It plants false information across a bank’s network endpoints, detects when an attacker acts on the information and captures forensics from the compromised machine. It also detects unnecessary files that could serve as tools for hackers.

Best of FinXTech Connect: Sandbox Banking

The middleware platform, which also won the “Best Solution for Improving Operations” category, was also noted for working hand-in-hand with bank staff to create custom API connections to solve specific bank issues. In addition, banks can access three-hour blocks of developer time each month to work on special projects outside of regular technical support.

How Banks Can Use the Dark Web to Shed Light on Cybersecurity


cybersecurity-9-5-19.pngCyberthreat intelligence, or CTI, can give bankers a deeper understanding of the potential threats that face their business.

Whether it is knowing your enemy or learning about the latest malware, CTI provides information that can help executives make prudent, risk-based decisions. This information comes from the open internet as well as closed sources, including the darknet and dark web. Analyzing this CTI can produce insights and identify signs of a potential breach, leaked data or pending attacks.

The darknet is the part of the internet that is not accessible through conventional browsers and requires specific software or configurations; the deep web is the part of the internet that is not accessible through search engines. Some nation states, cybercriminal gangs and threat actors thrive in this underground economy through illegal activity that includes the sale of personal information, financial goods and illicit services. For bank’s CTI, the deep web and darknet are a treasure trove of breached information and threat indicators.

A vast majority of these cyberthreat intelligence sources contain goods and sensitive data stolen from the financial services industry. Potential financial gain drives bad actors to maintain a thriving marketplace built on illicit items, including debit and credit card numbers, identity theft services and banking malware.

While no tool or service can completely eliminate the risk of a data breach, integrating CTI into a bank’s cybersecurity program can make it more difficult to target and lower the likelihood of a breach. To get value from CTI, a bank can:

  • Identify the threat actors that are leveraging potential vulnerabilities in systems used by the financial sector;
  • Understand whether a particular organization or client is being targeted directly;
  • Detect active malware campaigns that could target the bank;
  • Learn where its customer and employee information may exist;
  • Find breached credit or debit cards on deep web or darknet marketplaces; and
  • Understand emerging trends regarding data theft.

There are a variety of ways that financial institutions can leverage, and directly benefit from, CTI. Some examples include:

  • Incorporating technical indicators of compromise into the company’s security information and event management system;
  • Briefing high-level executives on industry trends and providing intelligence on potential future attacks;
  • Providing intelligence briefings to security operation centers (SOCs), increasing the situational awareness of technical campaigns and bad actors;
  • Developing incident response scenarios;
  • Achieving timely integration with fraud teams to deactivate stolen credit or debit cards;
  • Working with law enforcement to remove stolen credit, debit or other financial information from the deep or dark web;
  • Segregating and limiting internal access to systems if an individual’s credentials are exposed;
  • Communicating with social media and marketing teams about exposed data; and
  • Implementing patches for known vulnerabilities that are discovered on external-facing systems and applications.

What does a successful CTI program look like at financial institutions?
Deep analytical CTI is usually not possible at small- to medium-sized financial institutions using the internal resources of their existing security teams, and is often outsourced to a vendor or third party. Outsourcing can provide some value-added actions, such as:

  • Identifying breached credit and debit cards or other financial information;
  • Monitoring chatter about C-suite executives;
  • Assisting in fraud prevention through credential theft;
  • Thwarting attacks planned by adversaries that uses new financial theft malware, ransomware or Trojans;
  • Examining reputational damage or brand-related chatter for an organization;
  • Identifying large credential data dumps or breaches;
  • Identifying or ascertaining stolen or fraudulent goods like blueprints, skimmers and physical devices, or sensitive data such as tax forms, personally identifiable information and protected health information.

CTI can provide a variety of actionable information that executives can use to make better cybersecurity decisions and assess their risk appetite. With CTI, bankers can prioritize initiatives, address budgets and create business strategies for securing customer, employee and client data. A deeper understanding of the threats they face gives companies a firmer grasp of the tumultuous cyber landscape and a clearer vision of how to prevent problems.

The Strategic Side of Cybersecurity Governance


cybersecurity-8-7-19.pngWithout a comprehensive cyber risk governance strategy, banks risk playing Whac-A-Mole with their cybersecurity.

Most financial institutions’ cybersecurity programs are tactical or project-oriented, addressing one-off situations and putting out fires as they arise. This piecemeal approach to cybersecurity is inefficient and increasingly risky, given the growing number of new compliance requirements and privacy and security laws. Institutions are recognizing that everyone in the C-suite should be thinking about the need for a cyber risk governance strategy.

There are three key advantages to having a cyber risk governance strategy:

  • Effectively managing the audit and security budget: Organizations that address current risks can more effectively prepare for cybersecurity threats, while meeting and achieving consistent audit results. A thorough risk assessment can highlight real threats and identify controls to evaluate on an ongoing basis through regular review or testing.
  • Reducing legal exposure: Companies and their officers can reduce the potential for civil and criminal liability by getting in front of cybersecurity and demonstrating how the institution is managing its risk effectively.
  • Getting in front of cybersecurity at an organizational level: Strategic planning is an important shift of responsibility for management teams. It proactively undertakes initiatives because it’s the right thing to do, versus an auditor instructing a company to do them.

So what’s required to set up a cyber risk governance strategy? Most organizations have talented individuals, but not necessarily personnel that is focused on security. Compounding the industry shortage of cybersecurity professionals, banks may also lack the resources necessary to do a risk assessment and ensure security practices are aligned to the cyber risk governance. As a result, banks frequently bring in vendors to help. If that’s the case, they should undertake a cyber risk strategy assessment with the help of their vendor.

Bank boards can perform a cyber risk governance strategy assessment in three phases:

  1. An assessment of the current cyber risk governance strategy. In phase one, a vendor’s team will review a bank’s current organizational and governance structure for managing information security risk. They’ll also review the information technology strategic plan and cybersecurity program to understand how the bank implements information security policies, standards and procedures. This provides a baseline of the people and processes surrounding the organization’s cyber risk governance and information security risk tolerance.
  2. Understand the institution’s cyber risk footprint. Here, a vendor will review the technology footprint of customers, employees and vendors. They’ll look at internal and external data sources, the egress and ingress flow of data, the data flow mapping, the technology supporting data transport and the technology used for servicing clients, employees, and the third parties who support strategic initiatives.
  3. Align information security resources to cyber governance goals. In phase three, a vendor will help the bank’s board and executives understand how its people, process and technology are aligned to achieve the company’s institution’s cyber governance goals. They’ll review the bank’s core operations and document the roles, processes and technology surrounding information security. They’ll also review the alignment of operational activities that support the bank’s information security strategic goals, and document effective and ineffective operational activities supporting the board’s cyber governance goals.

Once the assessment is complete, a bank will have the foundation needed to follow up with an operational analysis, tactical plan and strategic roadmap. With the roadmap in place, a bank can craft a cyber risk strategy that aligns with its policies, as well as an information security program that addresses the actual risks that the organization faces. Instead of just checking the boxes of required audits, bank boards can approach the assessments strategically, dictating the schedule while feeling confident that its cyber risks are being addressed.

How CECL Impacts Acquisitive Banks


CECL-7-30-19.pngBank buyers preparing to review a potential transaction or close a purchase may encounter unexpected challenges.

For public and private financial institutions, the impending accounting standard called the current expected credit loss or CECL will change how they will account for acquired receivables. It is imperative that buyers use careful planning and consideration to avoid CECL headaches.

Moving to CECL will change the name and definitions for acquired loans. The existing accounting guidance classifies loans into two categories: purchased-credit impaired (PCI) loans and purchased performing loans. Under CECL, the categories will change to purchased credit deteriorated (PCD) loans and non-PCD loans.

PCI loans are loans that have experienced deterioration in credit quality after origination. It is probable that the acquiring institution will be unable to collect all the contractually obligated payments from the borrower for these loans. In comparison, PCD loans are purchased financial assets that have experienced a more-than-insignificant amount of credit deterioration since origination. CECL will give financial institutions broader latitude for considering which of their acquired loans have impairments.

Under existing guidance for PCI loans, management teams must establish what contractual cash flows they expect to receive, as well as the cash flows they do not expect to receive. The yield on these loans can change with expected cash flows assessments following the close of a deal. In contrast, changes in the expected credit losses on PCD loans will impact provisions for loan losses following a deal, similar to changes in expectations on originated loans.

CECL will significantly change how banks treat existing purchased performing loans. Right now, accounting for purchased performing loans is straightforward: banks record loans at fair value, with no allowance recorded on Day One.

Under CECL, acquired assets that have only insignificant credit deterioration (non-PCD loans) will be treated similarly to originated assets. This requires a bank to record an allowance at acquisition, with an offset to the income statement.

The key difference with the CECL standard for these loans is that it is not appropriate for a financial institution to offset the need for an allowance with a purchase discount that is accreted into income. To take it a step further: a bank will need to record an appropriate allowance for all purchased performing loans from past mergers and acquisitions that it has on the balance sheet, even if the remaining purchase discounts resulted in no allowance under today’s standards.

Management teams should understand how CECL impacts accounting for acquired loans as they model potential transactions. The most substantial change relates to how banks account for acquired non-PCD loans. These loans first need to be adjusted to fair value under the requirements of accounting standards codification 805, Business Combinations, and then require a Day One reserve as discussed above. This new accounting could further dilute capital during an acquisition and increase the amount of time it takes a bank to earn back its tangible book value.

Banks should work with their advisors to model the impact of these changes and consider whether they should adjust pricing or deal structure in response. Executives who are considering transactions that will close near their bank’s CECL adoption date not only will need to model the impact on the acquired loans but also the impact on their own loan portfolio. This preparation is imperative, so they can accurately estimate the impact on regulatory capital.

A Top-Performing Bank Explains Why It Sponsors Three NFL Teams


Best-Performing Stadium Sponsorships

Sponsoring a local sports team is an effective way to resonate with a community.

It’s something M&T Bank Corp. takes so seriously that it sponsors three NFL teams: the Buffalo Bills, in the bank’s hometown of Buffalo, New York; the New York Jets, who play out of Metlife Stadium in East Rutherford, New Jersey, and the Baltimore Ravens.

Since 2003, the $121.6 billion asset bank has held naming rights for the Ravens’ home field, M&T Bank Stadium in Baltimore, Maryland. It’s a relationship the bank extended in 2014, for a cool $60 million, keeping M&T’s logo on the stadium until 2027.

“We are embedded in the communities where we live and work, [and] we understand that those teams are important to their communities, including our employees, customers and prospects,” says Betsey Locke, senior vice president of brand, advertising and sponsorships at M&T.

Back in 2003, M&T was relatively unknown in the Baltimore market, she says. Holding the naming rights for the Ravens’ stadium “gave us immediate credibility. We’re now perceived as a hometown bank.”

Placing a bank’s logo on a local stadium and aligning the brand with a well-loved team can make an impact; that’s what drives even efficiency-conscious companies like M&T to spend millions on these sponsorships. It’s a unique relationship that Bank Director sought to understand by looking at the recent records of major sports teams.

In addition to win/loss records, the ranking accounts for the popularity of the sport, based on survey data from Gallup.

“Football remains the biggest and most popular sport,” says Locke. “The NFL draws the largest, strongest partnership ROI and the greatest fan affinity.”

Sponsoring sports teams is a tactic embraced by banks nationwide. There are more than 250 minor league baseball teams in the U.S., for example, and naming-rights sponsorships with these teams include big regional banks like Cincinnati-based Fifth Third Bancorp (the $168.8 billion asset company sponsors the Toledo Mud Hens) as well as smaller banks like $9.6 billion asset NBT Bancorp, in Norwich, New York, which sponsors the Syracuse Mets.

College teams offer another popular option. Through its Centennial Bank brand, Home Bancshares, based in Conway, Arkansas, has naming rights on the stadium that’s home to Arkansas State University’s Red Wolves football team – John Allison, the chairman of the $15.3 billion asset company, is an alumnus of the school.

M&T gets hundreds of sponsorship requests from sports teams to arts and cultural activities, says Locke. Her team uses a scorecard to conduct an initial review and determine whether a request meets the minimum requirements for M&T to seriously consider it. They look at things like alignment with the bank’s target audience, whether the opportunity will effectively promote M&T’s brand and differentiate the company in the marketplace, and if the bank will be able to promote its products and services to new audiences. Requests that pass this initial review are then handed off to a committee that meets quarterly to decide which requests to ultimately pursue.

Sponsoring the Ravens is a good fit, says Locke, because M&T doesn’t just cut a check. “We do community efforts together,” she says. For example, 150 employees from both organizations worked together to rehab a Boys & Girls Club of America in Baltimore earlier this year. Showing that both organizations are “deeply embedded in the community” is an important piece of the partnership, says Locke.

For the Ravens and other partners, M&T tracks the return on its investment through a number of key metrics, including impressions and engagement on traditional and social media. The bank also offers branded checking accounts for fans of the Ravens, Jets and Bills. These affinity accounts are promoted alongside the sponsorship, and M&T tracks their growth as part of the checking portfolio.

Fans’ love of the game goes beyond the numbers. A team’s record doesn’t account for its history, and teams that perform well one year can break fans’ hearts the next.

Locke says M&T is with fans through the good times and the bad. “Fans are deeply engaged and support [their] teams year-round,” she says. And football promotes values that M&T wants to align itself with. “[It’s] about teamwork, love for the sport, love for the community,” she says.

Best-Performing Stadium Sponsorships

Rank Sponsoring Bank Team League Win/Loss Record Score*
#1 M&T Bank Corp. Baltimore Ravens NFL 62.5% 1.2
#2 Wells Fargo & Co. Philadelphia 76ers NBA 62.2% 1.8
#3 TD Bank Boston Celtics NBA 59.8% 2.8
#4 U.S. Bancorp Minnesota Vikings NFL 53.1% 5.0
#5 Barclays New York Islanders NHL 58.5% 5.6
#5 Capital One Financial Corp. Washington Capitals NHL 58.5% 5.6
#7 PNC Financial Services Group Carolina Hurricanes NHL 56.1% 6.4
#8 SunTrust Banks Atlanta Braves MLB 55.6% 7.2
#9 Citizens Financial Group Philadelphia Phillies MLB 49.4% 7.8
#10 Bank of America Corp. Carolina Panthers NFL 43.8% 8.6

Source: Source: Gallup, NFL, MLB, NHL, MLS
*The score is based on the popularity of the sport as well as the win/loss records for each team. Where the bank sponsors an arena that hosts two sports teams, the best-performing team appears in the ranking.

CECL Delayed for Small Banks


CECL-7-18-19.pngSmall banks hoping for a delay in the new loan loss accounting standard could get their wish, following a change in how the accounting board sets the effective dates for new standards.

On July 17, the Financial Accounting Standards Board (FASB) proposed pushing back the effective date of major accounting changes like revenue recognition, leases and — key to financial institutions — the current expected credit loss model (CECL). The board hopes the additional time will offer relief to smaller companies with fewer resources and provide more space to learn from the implementation efforts of larger peers. Under the proposal, community banks and credit unions now have a new effective date of Jan. 1, 2023, to implement CECL.

The board’s proposal also provided relief for a new category they call “small reporting companies,” and thus simplified the three-tiered effective dates into two groups. The proposal retains the 2020 effective date for companies that file with the U.S. Securities and Exchange Commission that are not otherwise classified as a small reporting companies.

CECL will force banks to set aside lifetime loss reserves at loan origination, rather than when a loss becomes probable. The standard has been hotly contested in the industry since its 2016 passage, and banking groups and members of Congress had unsuccessfully sought a delay in the intervening years.

But on Wednesday, some finally got what they were looking for. The proposed CECL delay for many banks comes as FASB grapples with how it sets the effective dates for different standards, said board member Susan Cosper in an interview conducted prior to the July 17 meeting.

In the past, FASB would pass a new accounting standard and set an effective date for SEC filers and public business entities in one year, then give private companies and nonprofit organizations an extra year to comply. The gap in dates recognizes the resource constraints those firms may face as well as the demand for outside services, and provide time for smaller companies to learn from the implementation lessons of large companies. However, the board’s advisory councils said this may not be enough time.

“What we’ve learned … is that the smaller companies wait longer to actually start the adoption process,” Cosper says. “There are many community banks that haven’t even begun the process of thinking about what they need to do to apply the credit loss standard.”

The extra time should allow these companies the ability to digest and implement the credit loss overhaul using existing resources. During the meeting, FASB member R. Harold Schroeder said that bankers tell him they could quickly apply the CECL standard in a “compliance approach” as a “box-checking exercise” for their banks. But, they tell him, they need more time if they want to implement CECL in a way that allows them to use it to make business decisions.

“The companies I talked to are taking these standards seriously as an opportunity to improve; ‘We want the data to flow through our systems, but it takes more time,’” he said.

The board also adopted an SEC filer category, called “small reporting companies” or SRCs. The SEC defines a small reporting company as a firm with a public float of less than $250 million, or has annual revenues of less than $100 million and no annual float or a public float of less than $700 million. For CECL, SRCs have the same implementation deadline as their private and not-for-profit peers. Companies with a 2023 effective date have the option of adopting the standard early.

The proposal to extend the CECL effective dates for small companies received unanimous support from the board. The proposal now goes out for public comment.

“The process of gathering, cleaning and validating [loan loss] data has taken longer than we expected,” says Mike Lundberg, national director of financial institutions services at accounting firm RSM US. “Having a little more time[for banks] to run parallel paths or fine-tune their models is really, really helpful.”

Lundberg points out that small banks will now have nearly six years to implement the standard, which passed in 2016. He also warns against bankers’ complacency.

“[The implementation] will take a long time and is a big project,” he says. “It’s definitely a ‘Don’t take the foot off the gas’ situation. This is the time to get it right.”

FASB also offered additional assistance to financial institutions with a newly published Q&A document around the “reasonable and supportable” forecast, and announced a multi-city roadshow to meet with small practitioners and bankers. Cosper says the Q&A looks to narrow the work banks need to do in order to create a forecast and includes additional forward-looking metrics banks can consider.

“I think that people really get nervous with the word ‘forecast,’” she says. “What we tried to clarify in the Q&A is that it’s really just an estimate, and it goes on to describe what that estimate should include.”

Why It’s Hard for Banks to Get Answers From Their Systems


core-7-17-19.pngIt starts with a simple question from a director or regulator about the bank’s loans, deposits or customers. It should be easy to answer but for some reason, it takes days or weeks to get the information.

The struggle of bank executives to pull answers from their core systems has been on my mind lately, so I asked a few how often they encounter this problem:

“Just recently, our examiners asked for a detailed listing showing applicable data around brokered, listing service and money desk deposits. I needed a way to get the answers quickly.” – Chief operating officer at a Texas bank, $4 billion in assets

“It’s definitely a pain point for us. We spend so much time assembling data to get basic intelligence about our business activities; those delays add up in terms of delayed decision making. We want to make faster, more informed decisions.” – CEO at a Missouri bank, $2 billion in assets

It has always been surprising to me that it is so difficult for executives to answer basic questions using their systems. The process to extract this information is often manual and painfully slow, involving subordinates who push down the request to their subordinates, and the manual aggregation of data from various systems and even paper files. The actual question can take days or weeks to get answered.

In our experience, bankers are hampered by three big problems. Here’s what they can do about them.

Systems Designed for Processing Only
Banks in the U.S. live and die with their core, but these systems were designed for processing, not reporting. While the core vendors often supply reporting and business intelligence tools, they may not include or store information from other systems or providers. Ease of use can also be a problem; many systems require someone with technical know-how to coax out the answers so they can be manually merged with results from other systems. To fix this, banks should consider implementing a simple enterprise reporting solution that consolidates information from multiple systems, including the core.

Disparate Systems Can’t Communicate
During a recent conversion, one of our clients discovered 72 different systems that were connected to their legacy core system. These systems were not well integrated or configured so executives could poll them for an answer. Banks often accumulate these systems as individual departments select solutions that fit their specific needs, such as loan review, credit administration or lending. But this creates massive information redundancy, which flourishes because no one is charged with addressing this holistically.

To help remedy this problem, banks should consider hiring a solution architect to analyze their existing systems for redundancies, and then craft a roadmap for eliminating and consolidating systems. A smart workaround at banks where a full-time systems architect may not be practical would be to select and implement a system that has built-in best practices. These systems can’t eliminate all the redundancies but can address them by integrating different systems and clearly identifying the systems of record for critical business information.

Failed System Implementations
Vendors are good at selling software with slick demonstrations that seem easy to use. But many bankers have experienced failed implementations, which can happen when vendors are more focused on setup and configuration and less on the adoption process. Vendors need to serve as true partners for clients, guiding them through the mine fields and providing solutions when issues arise.

That puts the onus on bank executives when it comes to vendor selection. Bankers need to consider a vendor’s willingness and ability to be a true consulting partner, and how it will work to understand a bank’s business and incorporate its unique needs into their system.

Implementing a solution that can seamlessly generate answers to bankers’ questions can be a sizable undertaking, but banks can make vast improvements by implementing a consolidated reporting solution, eliminating redundancies across systems and selecting vendors that are known for their ability to partner with clients.

How Innovative Banks Are Reimagining the Core


core-7-10-19.pngNew developments in technology have heightened bank customers’ expectations of speed, service and customization from their financial institutions—and cores are struggling to keep up.

Consumer expectations for banks are so high that it’s difficult—if not impossible—to meet them using existing core banking systems. Luckily, the landscape of core providers is growing rapidly too, and some banks are already taking the plunge.

The “Big Three” core providers as they’re known in the industry—Fiserv, Jack Henry & Associates and Fidelity National Information Services—serve just over 71 percent of U.S. banks according to data company FedFis. They’re criticized for providing poor service and lagging significantly behind smaller, more nimble fintechs when it comes to innovation. And their recent acquisition streaks have bank clients worried that it could erode service levels, reduce choice and increase cost.

James “Chip” Mahan III, chairman and CEO of Live Oak Bancshares, described the situation aptly: “It just seemed like every time we wanted to do something, it’s impossible. It’s ‘stand in line and write a big check.’ And it’s really, fundamentally, putting lipstick on a pig.”

That’s why the bank, based in Wilmington, North Carolina, invested in an emerging competitor—Finxact—and courted creators and industry veterans Frank and Michael Sanchez out of semi-retirement to take on the challenge of reinventing the core.

Finxact is an inventory management system that’s been architected from scratch on Amazon Web Services. Finxact and other alternative core providers offer three key features that banks should demand from a 21st century core processor.

Open Architecture
Nearly every core has some type of application programming interface (API) that allows its technology to connect to third-party applications, though the availability of those APIs is still tightly controlled in legacy systems.

Most challenger cores embrace open architecture—a quality that stands in stark contrast to the situation with incumbent cores. Deland, Florida based Surety Bank wasn’t able to negotiate with its legacy provider to use a third-party remote deposit capture solution.

CEO Ryan James says that was “a deal killer” because the bank does a large volume of deposits with that provider, had tailored it to their needs and had undergone examinations with it as well.

“It just was absurd that [our legacy core] didn’t even want to take that file, because they were greedy. They wanted to charge the [remote deposit] rates on that even though they couldn’t do what we needed,” he says. “That was an eye opener.”

Surety Bank eventually chose to undergo a full core conversion. It only took four months for the bank to launch on a cloud-based system from NYMBUS at the beginning of 2018.

Cloud Native
In addition to featuring open architecture, many challenger cores are cloud native. Although most legacy cores have some ability to run some of their system within a cloud environment, truly cloud-native companies offer banks greater advantages.

“There are different services that the cloud provides that will enable you to scale without drastically increasing your costs,” says Eugene Danilkis, co-founder and CEO of Berlin-based core technology provider Mambu. “That allow [cores] to have the best practices in terms of security, in terms of disaster recovery and also the sort of operations you can support.”

One of the operational advantages a cloud-native system provides is the ability to deploy updates within a day or two, Danilkis says.

Being cloud native is synonymous with scalability; a system can handle one hundred accounts as easily as it can handle one hundred thousand. This significant benefit means core providers don’t need to charge banks for each new account or service they add, and often use software-as-a-service models or other simple, transparent pricing schemes.

Configurable
Perhaps the most important hallmark of a modern core system is configurability. Modern cores give banks the ability to create their own ecosystems, workflows and bespoke financial products that differentiate them from competitors.

Banks on a core like Finxact could build a new type of savings account that automatically raises its interest rate when the balance reaches a certain level. In contrast, legacy cores only offer out-of-the-box products that can be tweaked to meet a bank’s risk appetite or other basic requirements, without changing the product.

Changing the Game
Modern core processors approach banking technology in radically different ways from legacy core providers. They’ve built new systems from scratch, instead of bolting on acquired products. They run in realtime instead of overnight batches. They look and feel like websites instead of flat green screens. They’re open, cloud-native and highly configurable—and they’re finally coming into their own. Innovative banks should explore these options now so that they can leapfrog their peers in the near future.

Potential Technology Partners

Finxact

Currently in limited use at Live Oak Bancshares and engaged in discussions with several other U.S. banks.

NYMBUS

The SmartCore platform is powering at least one community bank, and its SmartLaunch product uses SmartCore to support digital-only brands for additional institutions.

EdgeVerve

The Infosys Finacle core is used in over 100 countries and made waves in the U.S. when Discover Financial Services left Fiserv to use this core for its direct banking business in late 2014.

Smiley Technologies

The SIBanking platform is currently in use in several U.S. banks with assets up to $1.3 billion.

Thought Machine

This London-based company wrote its cloud-native Vault core from scratch. The company states that it has clients in the U.S., but is unable to identify them publicly.

Mambu

Mambu has bank clients in 15 countries. In the U.S., current clients include non-bank lenders, and the company is planning to use its latest funding round, in part, to grow its footprint in the U.S.

Mbanq

The founder of NYMBUS just joined this operation to help the company expand into the U.S. They currently serve 15 banks primarily in Europe and Asia.

Learn more about each of the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connect platform.

Sink or Swim in the Data Deep End


data-7-1-19.pngCommunity banks risk allowing big banks an opportunity to widen the competitive gap by not investing in their own data management.

It’s now-or-never for community banks, and a competitive edge could be the key to their survival. A financial institution’s lifeblood is its data and banks can access a veritable treasure trove of information. But data analytics poses a significant challenge to the future success of community banks. Banks should focus on the value, not volume, of their information when adopting an actionable, data-driven approach to decision-making. While many community banks acknowledge how critical data analytics are to their future success, most remain uncommitted.

This comes as the multi-national institutions expand their data science teams exponentially, create chatbots for their websites, use artificial intelligence to customize user interactions and apply machine learning to complete back-office tasks more efficiently. The advantage that a regional bank manager has when working next door to a community bank is growing too large. And the argument that the human touch and customer experience of a community bank will make up for the technological gap has become less convincing as younger customers forgo the branch in favor of their phone.

Small and medium institutions are dealing with a number of obstacles, including compressed margins and a shortage of talent, in an attempt to move past basic data analytics and canned ad hoc reports. If an institution can find a qualified candidate to lead their data management project, the candidate usually lacks banking experience and tends to have a science and mathematics backgrounds. A real concern for bankers is the hiring managers’ ability to ask the right questions and fully discern candidates’ qualifications. And once hired, is there a qualified leader to drive projects and their results?

Despite these obstacles, banks have only one option: Jump into the data deep end, head first. To compete in this data-driven world, community banks must deploy advanced data analytics capabilities to maximize the value of information. More insight can mean better decisions, better service to customers and a better bottom line for banks. The only question is how community banks can make up their lost ground.

The first step in building your organization’s data analytic proficiency is planning. It is crucial to understand your current processes and outputs, as well as your current staff’s capabilities, in order to improve your analysis. Once you know your bank’s capabilities, you can determine your goal posts.

A decision you will need to make during this planning stage will be the efficacy of building out staff to meet the project goals, or outsourcing the efforts to a consultant group or third-party software. A community bank’s ability to attract, manage and retain data specialist could be an obstacle. Data specialists tasked with managing more-complex diagnostic and predictive analytics should be part of the executive team, to give them a complete understanding of the institution’s strategic position and the current operating environment.

Another option community banks have is to buy third-party software to supplement current resources and capabilities. Software can allow a bank to limit the staffing resources required to meet their data analytical goals. But bankers need to understand the challenges.

A third-party provider needs to understand your organization and its strategic goals to tailor a solution that fits your circumstances and environment. Management should also weigh potential trade-offs between complexity and accessibility. More-complex software may require additional resources and staff to deploy and fully use it. And an institution shouldn’t solely rely on any third-party software in lieu of internal champions and subject-matter experts needed to fully use the solutions.

Whatever the approach, community bank executives can no longer remain on the sidelines. As the volume, velocity and variety of data grows daily, the tools needed to manage and master the data require more time and investment. Proper planning can help executives move their organizations forward, so they can better utilize the vast amount of data available to them.

Five Reasons Behind Mortgage Subservicing’s Continued Popularity


mortgage-6-3-19.pngMortgage subservicing has made significant in-roads among banks, as more institutions decide to outsource the function to strategic partners.

In 1990, virtually no financial institution outsourced their residential mortgage servicing.

By the end of 2018, the Federal Reserve said that $2.47 trillion of the $10.337 trillion, or 24%, of mortgage loans and mortgage servicing rights were subserviced. Less than three decades have passed, but the work required to service a mortgage effectively has completely changed. Five trends have been at work pushing an increasing number of banks to shift to a strategic partner for mortgage subservicing.

  1. Gain strategic flexibility. Servicing operations carry high fixed costs that are cannot adapt quickly when market conditions change. Partnering with a subservicer allows lenders to scale their mortgage portfolio, expand their geographies, add product types and sell to multiple investors as needed. A partnership gives bank management teams the ability to react faster to changing conditions and manage their operations more strategically.
  2. Prioritizes strong compliance. The increasing complexity of the regulatory environment puts tremendous strain on management and servicing teams. This can mean that mortgage businesses are sometimes unable to make strategic adjustments because the bank lacks the regulatory expertise needed. But subservicers can leverage their scale to hire the necessary talent to ensure compliance with all federal, state, municipal and government sponsored entity and agency requirements.
  3. Increased efficiency, yielding better results with better data. Mortgage servicing is a data-intensive endeavor, with information often residing in outdated and siloed systems. Mortgage subservicers can provide a bank management team with all the information they would need to operate their business as effectively and efficiently as possible.
  4. Give borrowers the experience they want. Today’s borrowers expect their mortgage lender to offer comparable experiences across digital channels like mobile, web, virtual and video. But it often does not make sense for banks to build these mortgage-specific technologies themselves, given high costs, a lack of expertise and gaps in standard core banking platforms for specific mortgage functions. Partnering with a mortgage subservicer allows banks to offer modern and relevant digital servicing applications.
  5. Reduced cost. Calculating the cost to service a loan can be a challenging undertaking for a bank due to multiple business units sharing services, misallocated overhead charges and hybrid roles in many servicing operations. These costs can be difficult to calculate, and the expense varies widely based on the type of loans, size of portfolio and the credit quality. A subservicer can help solidify a predictable expense for a bank that is generally more cost efficient compared to operating a full mortgage servicing unit.

The broader economic trends underpinning the growing popularity of mortgage subservicing look to be strengthening, which will only accelerate this trend. Once an operational cost save, mortgage subservicing has transformed into a strategic choice for many banks.