How the Edges of Financial Technology Could Change Regulation

Financial regulation in the United States follows a longstanding pattern: The presidential administration changes, the other political party takes power and the financial regulation pendulum swings. Those working in compliance inevitably need to recalibrate.

President Joe Biden’s messaging so far has aimed to minimize polarization. This bodes well for moving beyond the typical “financial deregulation” versus “more regulation” dynamic. It gives the industry an opportunity to turn our attention towards pulling the overall framework out of an old, slow, manual and paper-based reality. What the U.S. financial regulatory framework really needs are large, fundamental overhauls and modernizations that will support a healthy, ever-changing financial services marketplace — not just through the next presidential administration, but further beyond, through the next several decades.

The incoming leadership could make regulation smarter and more effective with reforms that:

  • Measure success by outcomes and evidence, as opposed to procedural adherence.
  • Leverage technology to streamline compliance for agencies as well as providers.
  • Catch up and keep up with the ongoing advancements in financial technology.

The time for these sorts of changes just so happens to be ripe.

Digital or cryptocurrencies and charters for financial technologies have an awkward fit within the existing regulatory framework. Cannabis, another fringe area of finance, poses extra layers of legal and regulatory challenge, but its status could change on a dime if the new administration resolves the state and federal disconnect. All three of these peripheral business opportunities have gained significant momentum recently and may force regulators to adapt. To support these new use cases, which would otherwise break existing bank infrastructure, technology providers would have to modernize in ways that would benefit financial service compliance across the board.

As the emerging regulatory lineup takes shape from the legacies of the outgoing agency heads, the swing from the past administration to the present may not be all that dramatic. There are strange bedfellows in fintech. In the last six months of Donald Trump’s administration, there was already a balance between Acting Comptroller of the Currency Brian Brooks and U.S. Treasury Secretary Steven Mnuchin.

Brooks was indeed very active in his short tenure. Under him, the Office of the Comptroller of the Currency issued full-service national bank charters for fintech companies, published interpretive letters supporting digital currencies and published a working paper from its chief economist, Chartering the FinTech Future,” that lent support to the use of stablecoins.

In contrast, Mnuchin spent his last month in office encouraging  Financial Crimes Enforcement Network, or FinCEN, to issue a controversial proposed rulemaking that would affect crypto wallets and transactions. Critics argue this would make compliance impossible for decentralized technologies.

The Biden administration may have a similar dynamic between these two regulatory roles, albeit less dramatic. The confirmation of Treasury Secretary Janet Yellen, with her experience and moderate stance, conveys a great deal of stability. Still, she may not champion stablecoins, given her public statements on cryptocurrency.

At writing, Michael Barr is the anticipated pick for comptroller. His extensive and diverse résumé shows a long history of supporting fintech. We anticipate that he would continue the momentum towards modernization that Brooks started.

Gary Gensler, the nominated chair of the Securities and Exchange Commission, has a great deal of expertise and enthusiasm for digital currencies. Since his tenure as chair of the Commodity Futures Trading Commission during Barack Obama’s administration, he has served on faculty at MIT Sloan School of Management, teaching courses on blockchain, digital currencies and other financial technologies. Chris Brummer, the Biden administration’s anticipated choice for the CFTC, currently serves as faculty director at Georgetown University’s Institute of International Economic Law, has written books on the regulation of financial technologies and founded D.C. Fintech Week to help promote discussion of fintech innovation among policymakers.

When we get to the outer edges of finance — to crypto, charters and cannabis — the divide between political camps starts to disappear. But there’s still quite a bit of rigidity in the traditional financial industry and regulatory framework. Combining the slate of steady, open-minded regulators with the building pressures of technology yields reasonable hope for regulatory overhauls that will pull compliance along into the future.

Bank Director Reveals 2020 FinXTech Connect Award Winners

In 1993, Bill Oesterle was looking for contractors that could work on an old house he purchased in Indianapolis’ Meridian-Kessler neighborhood. He had been burned by contractors before and didn’t want to rely on the phone book to find a new one.

A co-worker pointed him to Unified Alliance, a group of neighbors that shared resources and recommendations through a newsletter and call-in service. He joined the group and grew to depend on it.

When Oesterle moved to Columbus, Ohio, a few years later, he was dismayed to find that a similar group didn’t exist there and enlisted a former intern, Angie Hicks, to build a new version. After researching service providers and customers, the company launched a website that came to be known as Angie’s List. It had 5 million members by 2016.

FinXTech Connect takes a page from the same playbook.

No one knows banking technology better than the people who use it. Given this, FinXTech gathers insights from bankers, aggregates those insights, and then distills them into actionable information to help banks find reliable technology partners.

The intelligence we gather from banks powers our FinXTech Connect platform, a curated directory of bank-friendly fintechs. It also informs our annual FinXTech Connect awards.

This week marked Bank Director’s second annual Experience FinXTech conference. The event brings together bank and technology leaders for demonstrations and conversations about what’s now and next in banking. Demos are open to technology companies that have been vetted for the Connect platform, so attendees can be sure they’re hearing from proven partners.

The event and awards have never been more important, given the role technology plays in making it possible for banks to provide service in a socially distanced world.

Great examples can be found among this year’s Best of FinXTech award winners, which were announced on the final day of the event.

The Best Solution for Customer Experience went to SmartLaunch, a digital bank-in-a-box that helps institutions provide services and grow deposits remotely. Created by NYMBUS, SmartLaunch enables banks to launch standalone digital brands that operate on the NYMBUS SmartCore. In this way, a bank’s digital brand can run parallel to its legacy systems — providing a low risk way to experiment with new digital offerings.

Another example is performance-marketing solution, Fintel Connect. With travel significantly curtailed, billboards and signage don’t provide the marketing punch they used to. Bank marketers are looking to retool their strategies, with performance-based, digital marketing offering an alternative avenue for acquiring customers online.

Fintel Connect won the Best Solution for Revenue Growth category, as well as the overall Best of FinXTech Connect award this year. Their technology enables banks to approach digital marketing from a new angle — instead of paying for impressions or clicks, banks only pay when viewers convert into customers.

Here’s the full list of winners:

  • Best Solution for Customer Experience: NYMBUS SmartLaunch
  • Best Solution for Loan Growth: SavvyMoney
  • Best Solution for Improving Operations: Cinchy
  • Best Business Solution: Brex
  • Best Solution for Protecting the Bank: ARGO OASIS
  • Best Solution for Revenue Growth: Fintel Connect
  • Best of FinXTech Connect: Fintel Connect

More information on these solutions can be found here.

During Experience FinXTech, Bank Director also launched a new research product, leveraging lessons we’ve learned from curating the Connect platform. Our inaugural data intelligence report is titled “APIs: Creating New Opportunities for Revenue and Efficiency.” You can access it for free by clicking here. Angie’s List capitalized on the dawning of the internet to replicate neighborly advice. In a similar way, FinXTech relies on the collective wisdom of bankers to cut through the noise in the technology landscape and help banks find ideal partners.

Developing a Future-Proof Bank

Banks are growing more fintech-friendly, giving them an avenue to strengthen their capabilities. In this video, Mbanq CEO Vlad Lounegov shares how traditional financial institutions can better compete with tech-savvy upstarts in the financial space.  

  • The Changing Relationship Between Banks & Fintechs
  • Examining Core Systems
  • Four Qualities of a Good Solution

FinXTech Annual Summit: Exploring the Power of Collaboration


fintech-5-9-18.pngBanks are increasingly becoming technology companies—not in the eyes of investors, perhaps—but certainly in terms of meeting the expectations of their customers in a rapidly digitizing consumer marketplace. Banks have been heavy users of technology for decades, but the role of technology in virtually every corner of the bank, from operations to distribution, to product design, lending and compliance, is taking on a greater strategic importance.

It was only a few years ago that an emerging fintech sector was viewed by many bankers as a competitive threat, particularly marketplace lenders like Lending Club and SoFi, or new payments options offered by the likes of Apple Pay and Venmo, PayPal’s successful P2P product. While those competitive threats still exist, the focus of most banks today is working with fintech companies in collaborative relationships that benefit both sides. Banks are facing enormous pressure from changing consumer demographics and preferences to develop new products and services that go well beyond what they have traditionally created on their own. The new ideas include more than just new applications that enhance or expand an institution’s mobile banking capability, an area that continues to receive a lot attention. With developments in artificial intelligence (AI) and machine learning, banks are able to bring greater efficiencies and effectiveness to such disparate activities as regulatory compliance and accounts payable.

There are challenges to a partnership approach, however, beginning with the necessity to fully vet the potential fintech partner in a thorough due diligence process. Banks are conservative by nature, while many of the fintech companies developing the systems and applications that enable banks to stay abreast of the rapidly evolving digital economy are quite young and culturally different. Banks that want to work with fintech companies will have to do the necessary due diligence while also bridging the culture gap.

The benefits, and challenges, of working collaboratively with fintech companies will be the focus of Bank Director’s FinXTech Annual Summit, which will take place May 10-11 at The Phoenician resort in Scottsdale, Arizona. The agenda kicks off with back-to-back peer exchange discussions on the dynamics of fintech partnerships and changes in consumer behavior, then provides both general session presentations and case study sessions that examine such topics as innovation, AI, automation in commercial lending, vendor contract management, the digital robotic workforce and the future of the branch in an increasingly digitized world.

Also occurring at the Summit will be the announcement of Bank Director’s 2018 Best of FinXTech Awards, which will be given to banks and their fintech partners for projects where they worked together in a collaborative relationship. From a list 10 finalists, awards will be given a bank and its fintech partner in each of the following award categories: Startup Innovation, Innovative Solution of the Year and Best of FinXTech Partnership.

Why Improving the Customer Experience is the Latest Industry Trend


technology-5-9-18.pngPerhaps you’ve noticed a driving theme across the financial services industry to innovate and improve the customer experience. While the path to achieving the goal varies greatly—from using artificial intelligence to personalize the experience to implementing a single platform—winning the experience and efficiency game comes down to one simple mission: create an enjoyable customer experience.

Everyone watched as this transformation, led by user experience, disrupted industries like e-commerce and entertainment. Companies like Amazon and Netflix have been ahead of the curve in delivering superior experiences to their customers, which often has not just been because they offer a great user experience, but also because of logistical excellence. Today, offering a personalized experience and real-time services across any device is the new normal.

In fact, recent data confirms this expectation even in financial services, according to Barlow Research Associates Inc. Customers cite that a primary driver for working with a bank is often based on how easy the bank is to do business with. Furthermore, customers expect the same seamless and easy-to-use digital interaction with their bank as they do while ordering an Uber, for instance.

The Single Platform Difference
With the rise of financial technology (fintech), there is no shortage of vendors providing an assortment of solutions to help financial institutions offer an improved customer experience. Unfortunately, some banks and credit unions have found themselves with more headaches than enhancements when multiple vendor solutions are implemented across the institution.

Disparate systems often lead to data siloes, expensive integration projects and increased overhead in due diligence and security monitoring. The seamless, multi-channel experience customers want is thrown out the window when multiple, separate systems are implemented and expected to work together, and rarely do.

A single-platform solution has become a strategic imperative to overcome many of the issues associated with disparate systems. With one system managing all channels, banks and credit unions can deliver a unified experience while reducing operational inefficiencies. This is a clear need as more than half of financial institutions customers don’t believe that the digital channel of a bank can service all their needs, recent research data shows.

However, transforming the customer experience doesn’t just mean introducing a slick user interface; back-office processes must also be efficient and meet the real-time demands of customers. There is almost a 50 percent abandonment rate of banking customers starting a process online and then finishing at a branch, according to the 2017 Account Opening and Onboarding Benchmarking Study. This is likely due to another fact: less than 20 percent of financial institutions have implemented an end-to-end process to date.

Streamlining customer and employee interactions within a financial institution to drive increased efficiency, transparency, profitability and regulatory compliance across all lines of business is essential in order to drive a superior customer experience. Regardless of the originating channel, a customer should receive:

  • Transparency into banking processes
  • Convenient access to status updates and document sharing
  • Personalized, seamless customer experience
  • Digital/mobile-enabled access

Where to Begin
Consider these three areas for ensuring a successful transformation.

  1. Plan the journey before you begin. In order to establish a vision to guide the entire organization (or even a line of business), it’s imperative to first understand the journey customers go through when interacting with the institution. This involves considering customers’ emotions, and the cause for those emotions. Dig into these areas while exploring the customer journey to improve the experience.
  2. Pick one product or line of business and take it end-to-end. Many institutions, while taking the correct path of not just implementing a slick user interface, end up trying to take on more digital transformation than they are ready for. Instead of trying to transform the whole bank or department all at once, greater success is often met by starting with a single product, like a secured small business loan, and transforming that experience end-to-end.
  3. Finally, release then iterate. Starting with a single product or a particular line of business provides the opportunity to test and perfect. The iterative process is important not just to improving the customer experience, but also to ensuring that any needed operating model adjustments can be properly vetted.

As technology giants like Amazon continue to push the bounds of customer expectations, it can at times feel daunting to try to make these shifts at your own institution. However, as customer demands for seamless digital experiences grow and become even more a part of the buying decision, the emphasis on a single platform to help deliver both an exceptional experience and logistical excellence is even more pronounced. This growing demand marks the importance and urgency of employing a strategy that focuses on delivering a delightful customer experience from the first interaction all the way to the back office.

What Facebook’s Data Debacle Could Mean for Banking


regulation-5-2-18.pngThere was a particular moment on the second day of his most recent testimony Facebook CEO Mark Zuckerberg struck a rare smile.

Zuckerberg, on Capitol Hill to answer pointed questions about the scraping of company’s data on 87 million of its users by U.K.-based Cambridge Analytica—was asked if Facebook was a financial institution.

The odd inquiry came during a string of questions from Rep. Greg Walden, the Oregon Republican who chairs the House Energy and Commerce Committee that grilled Zuckerberg about the massive company’s complex web of operations, which includes a mechanism for users to make payments to each other using popular apps familiar to bankers like PayPal and Venmo, as well as debit cards.

Facebook is not a financial institution in the traditional sense, of course, but it does have a clear position in the financial services space, even if just by its role in providing a platform for various payment options. It has not disclosed how much has been transferred between its 2 billion users, and it certainly has raised questions about how tech companies—especially those with a much narrower focus on financial technology, or fintech—collect, aggregate, use and share data of its platform’s users.

This relationship could soon change as Washington lawmakers discuss possible legislation that would place a regulatory framework around how data is collected. Virtually any industry today is dependent on customer data to market itself and personalize the customer experience, which is predominantly on mobile devices, with fewer personal interactions.

“I think it’s likely something is going to happen here, because we’ve kind of been behind the curve as it relates to [regulation], especially Western Europe,” says David Wallace, global financial services marketing manager at SAS, a global consulting and analytics firm.

While banks are somewhat like doctors and hospitals in the level of trust that consumers historically have had with them, that confidence is finite, Wallace says.

Survey data from SAS released in March shows consumers want their banks to use data to protect them from fraud and identity theft, but they aren’t crazy about getting sales pitches.

At the same time, payments services like Paypal’s Venmo and Zelle, a competing service that was developed by a consortium of banks, also collect data, but have a lower “score” with consumers in trust, according to Wallace.

Where’s the Rub?
The question from Walden barely registered on the national news radar, but it also highlights new areas of concern as banks begin to adopt emerging technologies like artificial intelligence, and market new products that are often driven by the same kind of data that Facebook collects.

The recent SAS survey also asked respondents about their interactions with banks, and how AI might influence those. Most of the survey respondents say they are generally comfortable with their bank collecting their personal data, but primarily in the context of fraud and identity theft protections. Sixty-nine percent of the respondents say they don’t want banks looking into their credit history to pitch products like credit cards and home mortgages.

As the Cambridge Analytica situation demonstrates, there is a fine balance that must be observed giving all companies the opportunity and space to succeed in an increasingly digital environment while protecting consumers from the misuse of their personal data.

Congress tends to be a hammer that treats every problem like a nail—so don’t be surprised if the use of customer data is eventually regulated. Thus far, the only regulatory framework in existence that’s been suggested as a model of what might be established in the U.S. is the GDPR, or General Data Protection Regulation, currently rolling out in Europe. It essentially requires users to opt-in to allowing their data to be shared with individual apps or companies, and is being phased in across the EU.

How that approach might be applied to U.S. banks, and what the impact might be, is still unclear. It could boil down to a “creepy or cool” factor, says Lisa Loftis, a customer intelligence consultant with SAS.

“If you provide your (health) info to a provider or pharmacy, and they use that information to determine positive outcomes for you, like treatments or new meds you might want to try, that might factor into the cool stage,” Loftis explains.

If you walk by a bank branch, whether you go in it or not, [and] you get a message popping up on your phone suggesting that you consider a certain product or come in to talk to someone about your investments without signing up for it, that’s creepy,” she adds.

Any regulation would likely affect banks in some way, but it could be again viewed as a hammer, especially for those fintech firms who currently have a generally regulation-free workspace as compared to their bank counterparts.

Bank Director’s Bank Compensation & Talent Conference to Highlight Culture


culture-10-23-17.pngCorporate culture will be on center stage at Bank Director’s 2017 Bank Compensation & Talent Conference, which begins on Monday, October 23, at The Ritz-Carlton Amelia Island in Florida with peer exchanges and a workshop. On Tuesday and Wednesday, October 24-25, the main conference takes place with presentations on incentive compensation, leadership development, business strategy and insights from bank CEOs and directors.

Culture is an important but under-examined topic in banking because of the connection between the culture of a company and its financial performance and regulatory compliance track record. To understand that, look no further than the fraudulent account opening scandal at Wells Fargo & Co. This was clearly a cultural issue, where a large number of people in the retail bank were willing to break the law just to elevate their own compensation, or keep their jobs.

The opening general session on Tuesday, “Culture Eats Compensation for Breakfast,” will examine the importance of culture in a bank’s performance, and how its compensation philosophy and practices can reinforce culture. A second general session on Tuesday, “Creating a Company That Scales,” will look at how bank management teams with experience acquiring other banks are able to take the cultures of two banks and successfully integrate them to get the full value of the acquisition.

One of the most important responsibilities of the board is to make sure the bank is doing a good job of managing its talent, from the CEO’s office down to middle management. A session titled “The Board’s Role in Leadership Development” will review some best practices for bringing talented people into the organization and then making sure they have an opportunity to grow and expand. Managing the CEO succession process is especially important given the key role that individual plays in the bank.

Other general sessions scheduled on Tuesday and Wednesday include “All Business Models Are Not Created Equal,” will look at how three factors—the increased use of technology, the continued popularity of online and mobile channels, and the changing demographics of banking’s customer base—are impacting the talent selection process. The impact that disruptive market forces like financial technology is having on how banks interact and attract customers and recruit talent will be explored Wednesday in the general session titled “Managing Disruption & Compensating for Innovation.”

Banking Blockchain: Making Virtual Currencies a Reality for Your Bank


blockchain-10-17-17.pngBlockchain-based virtual currencies are gaining in popularity and evolving quickly. Blockchain currencies often are described as disruptive, but also have the potential to radically revolutionize the banking industry in a positive manner. The reality is that blockchain currencies may develop into a useful tool for banks. Their acceptance, however, is hindered by their own innovative nature as regulators attempt to keep pace with the technological developments. Potential blockchain currency users struggle to understand their utility. Despite these hurdles, many banks are embracing opportunities to further develop blockchain currencies to make them work for their customers.

What Are Virtual Currencies and Blockchain?
Virtual currencies, also referred to as “digital currencies,” are generally described as a digital, unregulated form of money accepted by a community of users. Currently, blockchain currencies are not centrally regulated in the United States. For example, the federal government’s Financial Crimes Enforcement Network (FinCEN) and the Securities and Exchange Commission view blockchain currencies as money, the Commodities Futures Trading Commission sees them as a commodity, and the Internal Revenue Service calls them property. The IRS has attempted to define virtual currency as:

a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value [and] does not have legal tender status in any jurisdiction.

FinCEN, the agency with the most developed guidance regarding virtual currency, regards it in a more practical fashion as a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. Whatever the regulatory definition, virtual currencies need more certainty in form and function before their use becomes commonplace.

Blockchain technology brings benefits to payment systems and other transactions that are quite revolutionary. Blockchain technology is essentially a decentralized virtual ledger (aka, distributed ledger), utilizing a comprehensive set of algorithms that records virtual currencies chronologically and publicly.

Some examples of blockchain currencies currently in use are Bitcoin, Dash, Ether, Litecoin and Ripple. These currencies are constantly evolving and are being developed by individuals, technology-based peer groups or financial institutions. In August 2016, a consortium of banks, led by UBS, Deutsche Bank, Santander and BNY Mellon, announced the development of the “utility settlement coin” or USC. The USC is meant to allow banks to transact payments in real time without the use of an intermediary. It is expected to go live in 2018.

Blockchain Currency Opportunities for Banks
Despite their reputation for being tools of illicit trade, blockchain currencies may be useful to banks in a variety of ways and can achieve certain benefits. Blockchain currencies could:

  • actually reduce fraud, including hacking or theft attempts, because the technology makes every step of the blockchain transparent.
  • reduce costs and risks associated with know-your-customer (KYC) programs because blockchain has the ability to store KYC information.
  • allow a financial institution to establish a new trading platform for exchange that eliminates intermediaries.
  • potentially could transform the payments industry. An obvious example is the USC, which permits payments to be made in real time, without the use of intermediaries; and strengthens the confidence in the authenticity of the transaction. Banks that are either able to establish a blockchain currency or adapt a proven technology for their operations will generate operational efficiencies and obtain a significant competitive advantage.

What Are the Regulatory Challenges?
Blockchain currencies currently are not centrally regulated in the United States. As discussed above, the lack of a uniform definition is a fundamental issue. FinCEN has classified any person or entity involved in the transfer of blockchain currencies as a money transmitter under money services business regulations.

As blockchain currencies continue to evolve, however, additional federal laws and regulations must be drafted to address the most substantial areas of risk. Some states are weighing in on the topic as well. For example, the Illinois Department of Financial and Professional Regulation recently issued guidance on the use of virtual currency in which the Department views virtual currency through the lens of the Illinois’ Transmitters of Money Act.

Additionally, the Uniform Law Commission is developing regulations that would, among other things, create a statutory structure (for each state that adopts it) to regulate the use of virtual currency in consumer and business transactions. Regardless whether the federal government or the states enact legislation affecting blockchain currencies, a more uniform regulatory approach would greatly aid their development and utility.

Conclusion
Blockchain currencies, and the laws and regulations governing them, are in a promising state of development. As new technologies emerge and existing technologies continue to evolve, banks are presented with real opportunities for innovation by successfully adapting blockchain for use by their customers. Those that figure it out are poised for real success.

Using Culture to Drive Innovation at Your Bank


culture-9-1-17.pngHow important is culture when it comes to changing a company’s approach to innovation and technology? Bank Director’s 2017 Technology Survey found that few bank executives and directors believe that their bank’s culture has more in common with a technology company than a traditional bank. But that doesn’t mean that cultural elements don’t play a role in creating a tech-savvy bank.

People generally underestimate the importance of culture and innovating,” says Jimmy Stead, chief consumer banking officer at Frost Bank, headquartered in San Antonio, Texas, with $30 billion in assets.

Most financial institutions wouldn’t be comfortable operating like a technology company. Frost Bank doesn’t think like a technology company, says Stead, but the bank has adopted a cultural mindset along with practices that promote innovation. Other banks are changing their approach too. Here are four elements that financial institutions are embedding in their cultures to encourage innovation and technological change.

Make empathy a core cultural component.
Caring about the customer is a core value at Frost Bank. “If you’re going to truly innovate, you have to start with a problem that’s worth solving,” says Stead. To solve problems for customers, you have to know what problems are important to them. “You don’t do that by caring about innovation. You do it by caring about people,” he says. Improvement is a secondary element of this corporate mindset, and employees are encouraged and empowered to identify and solve customer pain points.

Require bank employees to actively use financial technology.
In his “Advice for New Bank Directors,” Bank Director Editor in Chief Jack Milligan encourages board members to use financial technology, including the bank’s mobile app and competing products such as Venmo, the person-to-person (P2P) payments app owned by PayPal. It’s sound advice that extends to bank staff as well.

When Central National Bank, in Waco, Texas, with $820 million in assets, first introduced mobile banking, Chief Information Officer Rusty Haferkamp says that employees struggled to become familiar with the technology and, by extension, support customers. Later, the bank required that staff use the P2P payments function within the bank’s mobile app, and employees are better equipped to help customers. Training staff on the latest technology is an ongoing process as new solutions continue to evolve.

Encourage collaboration and partnerships.
Teamwork drives innovation at Frost Bank. “We’re fostering an environment of giving people the space to experiment some, and breaking down barriers so that they can work closely and be intensely focused on our customer,” says Stead. An open and collaborative environment helps Frost attract talent that has the technical know-how, he adds.

Relationships with the right technology vendors can drive innovation and also provide another layer of expertise. “I’ve tried through technology to help position the bank, knowing that we can’t develop it internally,” says Chip Register, chief administrative officer and CIO at Fauquier Bankshares, which has $646 million in assets in Warrenton, Virginia. Partnerships can enable this development.

Foster and reward innovative ideas.
San Antonio-based USAA, the diversified financial services parent of $81 billion asset USAA Federal Savings Bank, relies on an array of programs, including competitions, to encourage employees to come up with innovative ideas. Ninety-four percent of USAA employees participated in USAA’s innovation programs in 2016, with USAA implementing more than 1,000 employee ideas, says Lea Sims, assistant vice president of USAA Labs, which she discusses in further detail in Bank Director digital magazine’s May issue.

Frost Bank hosts an annual hackathon, a week-long event where employees collaborate on and develop technology solutions. Experimentation is encouraged—the winning team had two failed ideas before hitting on a winner—and each team has to communicate with customers about their concept. Some of these ideas are put to use at the bank. But that’s not the only goal of the event. “We want to make sure we’re giving smart people a chance to just work on something they’re passionate about,” says Stead.

Department managers at $444 million asset Franklin Savings Bank in Franklin, New Hampshire, are expected to identify efficiencies or areas for improvement in the customer experience, says Cheri Caruso, the bank’s CIO. These goals are part of each manager’s quarterly review, and these managers in turn engage their departments to uncover ideas and implement solutions.

Support for technology comes from the top. “We’re very fortunate that our board is very technology-focused,” says Caruso. She says new employees are often surprised by how much technology is in use at the bank, given its size. “It all comes from the top with the board supporting this,” she says.

The Blockchain Players: Understanding the Current Environment


blockchain-8-23-17.pngFinXTech 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 the final part in this series.

Part One
Part Two
Part Three

Banks may be slow to adopt blockchain in the long run but commercial clients may force their hand. Companies that use blockchain such as ConsenSys, Linux Foundation, Hyperledger, and R3 aren’t just working with banks. Kaiser Permanente, Toyota, Cargill, Amazon, and several state, local and foreign governments, among others, are looking to implement blockchain technology as well. The list of prospective commercial clients continues to grow daily.

Why Community Banks Must Pay Attention
It’s too soon for a community bank to dedicate precious and limited resources to blockchain beyond just staying educated. Blockchain, also known as digital ledger technology, will no doubt be led by and developed by the larger financial institutions and regulatory bodies. I believe a community bank’s first interaction with the technology will come from interactions through their correspondent banks in excess of $50 billion in assets or larger commercial clients with robust treasury management requirements.

Blockchain is potentially so transformative, banks are likely to see changes in how banking infrastructure works today in the areas of payments clearing and settlement; digital currencies; capital markets, including securities clearing, settlement and custody; digital identification; supply chain management and regulatory compliance.

Current Regulatory Vibe in the U.S. and Abroad
It is safe to say that blockchain technology is becoming mainstream. The Securities and Exchange Commission, Internal Revenue Service and several other regulatory and governing bodies acknowledge the technology and have adopted policy language surrounding blockchain, digital ledger technology and virtual currencies over the course of the last 12 months. The most notable foreign government to announce its acceptance of blockchain is Dubai which aims to be a “city built on blockchain.”

Have You Opened a Digital Wallet?
Though I am focused on the underlying blockchain technology instead of digital currency adoption, I do encourage you to understand how the digital wallet works. It will be increasingly important in the coming months and years as these consumer digital wallets become mainstream. Xapo offers an easy-to-use and secure bitcoin wallet. I found Xapo’s account opening process to be seamless and easy to use.

Resources for Staying up to Speed
I remain convinced our industry will continue to be disrupted by improvements in technology. Technology enhancements are moving faster today than ever before. We can thank IBM and others for leading this technology charge. As you look to stay educated, great resources to consider include a membership with the Digital Chamber of Commerce and Linux Foundation. For more information, you can also check out CoinDesk, a blockchain news source.