How Legacy Systems, Tech Hold Bank Employees Back

The recent explosion in financial technology firms has allowed banks to make massive strides in improving the customer experience.

The most popular solutions have focused on making processes and services faster and easier for customers. For example, Zelle, a popular digital payments service, has improved the payments process for bank customers by making transfers immediate — eliminating the need to wait while those funds enter their checking account. There are countless examples of tools and resources that improve the bank customer experience, but the same cannot be said for the bank staffers.

Bank employees often use decades-old legacy systems that require weeks or months of training, create additional manual work required to complete tasks and do not communicate with each other. Besides creating headaches for the workers who have to use them, they waste time that could be better spent meaningfully serving customers.

The Great Resignation and tight labor market has made it difficult to find and retain workers with adequate and appropriate experience. On top of that, bankers spend significant amounts of time training new employees on how to use these complicated tools, which only exacerbates problems caused by high turnover. The paradox here is that banks risk ultimately disengaging their employees, who stop using most of the functionality provided by the very tools that their bank has invested in to help them work more efficiently. Instead, they revert to over-relying on doing many things manually.

If bank staff used tools that were as intuitive as those available to the bank’s customers, they would spend less time in training and more time connecting with customers and delivering valuable services. Improvements to their experience accomplishes more than simply making processes easier and faster. As it stands now, bank teams can spend more time than desired contacting customers, requesting documents and moving data around legacy systems. This manual work is time-consuming, robotic and creates very little profit for the bank.

But these manual tasks are still important to the bank’s business. Bankers still need a way to contact customers, retrieve documents and move data across internal systems. However, in the same way that customer-facing solutions automate much of what used to be done manually, banks can utilize solutions that automate internal business processes. Simple, repetitive tasks lend themselves best to automation; doing so frees up staff to spend more of their time on tasks that require mental flexibility or close attention. Automation augments the workers’ capabilities, which makes their work more productive and leads to a better customer experience overall.

There are good reasons to improve the experience of bank employees, but those are not the only reasons. Quality of life enhancements are desirable on their own and create a greater opportunity for employees to serve customers. When deciding which tools to give your staff, consider what it will be like to use them and how effectively they can engage customers with them.

Asking the Right Questions About Your Bank’s Tech Spend

Bank Director’s 2022 Technology Survey, sponsored by CDW, finds 81% of bank executives and board members reporting that their technology budget increased compared to 2021, at a median of 11%. Much of this, the survey indicates, ties to the industry’s continued digitization of products and services. That makes technology an important line item within a bank’s budget — one that enables bank leaders to meet strategic goals to serve customers and generate organizational efficiencies.

“These are some of the biggest expenditures the bank is making outside of human capital,” says John Behringer, risk consulting partner at RSM US LLP. The board “should feel comfortable providing effective challenge to those decisions.” Effective challenge references the board’s responsibility to hold management accountable by being engaged, asking incisive questions and getting the information it needs to provide effective oversight for the organization.  

Banks budgeted a median $1 million for technology in 2022, according to the survey; that number ranged from a median $250,000 for smaller banks below $500 million in assets to $25 million for larger banks above $10 billion. While most believe their institution spends enough on technology, relative to strategy, roughly one-third believe they spend too little. How can boards determine that their bank spends an appropriate amount?

Finding an apples to apples comparison to peers can be difficult, says Behringer. Different banks, even among peer groups, may be in different stages of the journey when it comes to digital transformation, and they may have different objectives. He says benchmarking can be a “starting point,” but boards should delve deeper. How much of the budget has been dedicated to maintaining legacy software and systems, versus implementing new solutions? What was technology’s role in meeting and furthering key strategic goals? 

A lot of the budget will go toward “keeping the lights on,” as Behringer puts it. Bank of America Corp. spends roughly $3 billion annually on new technology initiatives, according to statements from Chairman and CEO Brian Moynihan — so roughly 30% of the bank’s $11 billion total spend.

For banks responding to the survey, new technology enhancements that drive efficiencies focus on areas that keep them safe: For all banks, cybersecurity (89%) and security/fraud (62%) were the top two categories. To improve the customer experience, institutions have prioritized payments capabilities (63%), retail account opening (54%), and consumer or mortgage lending (41%).

Benjamin Wallace says one way board members can better understand technology spend is to break down the overall technology cost into a metric that better illustrates its impact, like cost per account. “For every customer that comes on the board, on average, let’s say $3.50, and that includes the software, that includes the compensation … and that can be a really constructive conversation,” says Wallace, the CEO of Summit Technology Group. “Have a common way to talk about technology spend that you can look at year to year that the board member will understand.”

Trevor Dryer, an entrepreneur and investor who joined the board of Olympia, Washington-based Heritage Financial Corp. in November 2021, thinks boards should keep the customer top of mind when discussing technology and strategy. “What’s the customer’s experience with the technology? [W]hen do they want to talk to somebody, versus when do they want to use technology? When they do use technology, how is this process seamless? How does it align with the way the bank’s positioning itself?” If the bank sees itself as offering high-touch, personal service, for example, that should be reflected in the technology.

And the bank’s goals should drive the information that floats back to the boardroom. Dryer says $7.3 billion Heritage Financial has “great dashboards” that provide important business metrics and risk indicators, but the board is working with Chief Technology Officer Bill Glasby to better understand the impact of the bank’s technology. Dryer wants to know, “How are our customers interacting with our technology, and are they liking it or not? What are the friction points?” 

Some other basic information that Behringer recommends that bank leaders ask about before adopting new technology include whether the platform fits with the current infrastructure, and whether the pricing of the technology is appropriate. 

Community banks don’t have Bank of America’s $11 billion technology budget. As institutions increase their technology spend, bank leaders need to align adoption with the bank’s strategic priorities. It’s easy to chase fads, and be swayed to adopt something with more bells and whistles than the organization really needs. That distracts from strategy, says Dryer. “To me, the question [banks] should be asking is, ‘What is the problem that we’re trying to solve for our customers?’” Leadership teams and boards that can’t answer that, he says, should spend more time understanding their customers’ needs before they go further down a particular path. 

The best companies leverage technology to solve a business problem, but too many management teams let the tail wag the dog, says Wallace. “The board can make sure — before anyone signs a check for a technology product — to press on the why and what’s driving that investment.” 

Forty-five percent of respondents worry that their bank relies too heavily on outdated technology. While the board doesn’t manage the day-to-day, directors can ask questions in line with strategic priorities. 

Ask, “’Are we good at patching, or do we have a lot of systems where things aren’t patched because systems are no longer supported?’” says Behringer. Is the bank monitoring key applications? Have important vendors like the core provider announced sunsets, meaning that a product will no longer be supported? What technology is on premises versus hosted in the cloud? “The more that’s on prem[ises], the more likely you’ve got dated technology,” he says.

And it’s possible that banks could manage some expenses down by examining what they’re using and whether those solutions are redundant, a process Behringer calls “application rationalization.” It’s an undertaking that can be particularly important following an acquisition but can be applied just as easily to organic duplication throughout the organization. 

A lack of boardroom expertise may have members struggling to have a constructive conversation around technology. “Community bank boards may not have what we would consider a subject matter expert, from a technology standpoint,” says Behringer, “so they don’t feel qualified to challenge.” 

Heritage Financial increased the technology expertise in its boardroom with the additions of Dryer and Gail Giacobbe, a Microsoft executive, and formed a board-level technology committee. Dryer led Mirador, a digital lending platform, until its acquisition by CUNA Mutual Group in 2018. He also co-founded Carbon Title, a software solution that helps property owners and real estate developers understand their carbon impact. 

Experiences like Dryer’s can bring a different viewpoint to the boardroom. A board-level tech expert can support or challenge the bank’s chief information officer or other executives about how they’re deploying resources, whether staffing is appropriate or offer ideas on where technology could benefit the organization. They can also flag trends that they see inside and outside of banking, or connect bank leaders to experts in specific areas. 

“Sometimes technology can be an afterthought, [but] I think that it’s a really critical part of delivering banking services today,” says Dryer. “With technology, if you haven’t been in it, you can feel like you’re held captive to whatever you’re being told. There’s not a really great way to independently evaluate or call B.S. on something. And so I think that’s a way I’ve been trying to help provide some value to my fellow directors.”  

Less than half of the survey respondents say their board has a member who they’d consider a tech expert. Of the 53% of respondents who say their board doesn’t have a tech expert, just 39% are seeking that expertise. As a substitution for this knowledge, boards could bring in a strategic advisor to sit in as a technologist during meetings, says Wallace. 

On the whole, boards should empower themselves to challenge management on this important expense by continuing their education on technology. As Wallace points out, many boards play a role in loan approvals, even if most directors aren’t experts on credit. “They’re approving credit exposure … but they would never think to be in the weeds in technology like that,” he says. “Technology probably has equal if not greater risk, sometimes, than approving one $50,000 loan to a small business in the community.”

The ways in which banks leverage technology have been featured recently in Bank Director magazine. “Confronting the Labor Shortage” focuses on how M&T Bank Corp. attracts and trains tech talent. “Community Banks Enter the Venture Jungle” examines bank participation in fintech funds; a follow-up piece asks, “Should You Invest in a Venture Fund?”  Some institutions are evaluating blockchain opportunities: “Unlocking Blockchain’s Power” explores how Signature Bank, Customers Bancorp and others are leveraging blockchain-based payments platforms to serve commercial customers; risk and compliance considerations around blockchain are further discussed in the article, “Opportunities — and Questions — Abound With Blockchain.” 

Technology is an important component of a bank’s overall strategy. For more information on enhancing strategic discussions, consider viewing “Building Operational Resiliency in the Midst of Change” and “Board Strategic Leadership,” both part of Bank Director’s Online Training Series.   

Bank Director’s 2022 Technology Survey, sponsored by CDW, surveyed 138 independent directors, chief executive officers, chief operating officers and senior technology executives of U.S. banks below $100 billion in assets to understand how these institutions leverage technology in response to the competitive landscape. Bank Services members have exclusive access to the complete results of the survey, which was conducted in June and July 2022. 

How Fifth Third Crafts Successful Bank-Fintech Partnerships

From the start, Eric White anticipated the solar lender he launched in 2013 would eventually be owned by a bank. But it wasn’t until last fall that he settled on the $207 billion Fifth Third Bancorp in Cincinnati, Ohio.

The bank announced on Jan. 19 that it would acquire Dividend Finance for an undisclosed amount and closed the deal in May, with White, its founder and CEO, continuing to run the business.

White recalled two moments that made him feel certain his company had found its ideal buyer — the first was last fall when a group of Fifth Third’s top executives visited the fintech’s San Francisco’s headquarters for an initial meeting and the second was not much later when he met Ben Hoffman, Fifth Third’s chief strategy officer.

“It starts with people,” White says. “You have to like the people who are on the other side of the table from you before you get on the same side of the table as them.”

Hoffman echoed that, saying Fifth Third has come up with a couple of heuristics that help it determine whether it wants to pursue a partnership with a particular fintech. One is the way it assesses the entrepreneurs at the helm.

“We look at the leadership team and we ask, ‘Are these people that we could see filling other roles in the bank? Not because we intend to take them off mission — quite the opposite. When we bring these leaders in, it’s about empowering them to continue doing the thing that they’re incredibly passionate about and great at,” Hoffman says.

Not all bank-fintech partnerships turn into acquisitions, nor does Hoffman intend them to. And not all acquisitions start out as partnerships. Fifth Third and Dividend Finance had not worked together prior to striking their deal.

But Fifth Third’s introspective question serves as “a real test for cultural fit,” Hoffman says. “If there isn’t another real job on the org chart that you think these individuals could do, how can you expect them to understand us, and how can you expect us to really understand them, and to appreciate each other?” 

Ensuring a Cultural Fit
In anticipation of rising interest rates, White began seeking prospective bank buyers for Dividend Finance late last year. His prerequisite was that the banks had to be experienced with indirect lending, as his company is a point-of-sale lender that partners with contractors nationwide to provide their customers with financing for solar and other home improvement projects.

White says Fifth Third’s long partnership with GreenSky – a point-of-sale lender that offers home improvement loans through merchants – gave him comfort. Fifth Third invested in and began collaborating with GreenSky starting in 2016. (Goldman Sachs acquired the fintech in March.)

“Indirect lending is a very different model than direct lending. Some banks just don’t get it, and Fifth Third did,” White says.

But it was in that first meeting with Fifth Third, as then-President Tim Spence talked about how he had previously worked at technology startups and as a strategy consultant, when White first felt a sense that this bank stood out from the other contenders. Spence had been lured away from Oliver Wyman, where he focused on helping banks — Fifth Third among them — with their digital roadmaps. (He succeeded Greg Carmichael as Fifth Third’s chief executive officer in July.)

“Hearing Tim introduce himself and give his background was an eyeopener in and itself. He doesn’t come from a traditional bank executive background,” White says. “So, it was a different and a very refreshing perspective. It was very exciting for us.”

Hoffman made just as strong an impression on White when they met later on, further reassuring him that Dividend Finance had found “a perfect cultural fit” in terms of management philosophy and the long-term goals of both sides.

Hoffman previously worked with Spence as part of the Oliver Wyman team that advised Fifth Third and other banks; he followed Spence to the bank side in 2016. Hoffman’s mandate has evolved over the years, but one facet of his duties is overseeing Fifth Third’s fintech activities. White gives Hoffman rave reviews, calling him “one of the most creative thinkers that I’ve come across in my entire career.”

With the people test passed, the most salient selling point for White was “how the bank thinks about technology and product.”

In his perspective, too many banks are stuck in “archaic approaches” to managing growth and innovation. But Spence’s answer when asked why he decided to work at a bank in Cincinnati “really stuck with me,” White says. “He viewed Fifth Third as a platform to combine the best elements of traditional banking along with the opportunity to infuse innovation and a technology-driven approach to product development and organizational management.”

It gave White confidence that Fifth Third would not make the mistake that he believes other banks sometimes do, which is “trying to make the fintechs conform to the way that the bank has operated historically and in doing so, stripping out the qualities that make that fintech successful.”

White says his confidence has only grown since the acquisition. At Fifth Third, his title is Dividend Finance president, and he operates the business with a comfortable level of autonomy, reporting to Howard Hammond, executive vice president and head of consumer banking.

Ensuring a Strategic Fit
Fifth Third has partnerships with about a dozen fintechs at any given time and, over the past year and a half, has acquired two niche digital lenders outright, Dividend Finance, in the ESG space, and Provide, in the healthcare space. (ESG stands for Environmental, Social and Governance, and is often used to refer to the components of a sustainability-minded business approach.)

ESG and healthcare are two categories that align with Fifth Third’s own areas of focus, in accordance with a rule Hoffman follows when choosing fintechs of interest, whether for partnerships or acquisitions. He considers this rule — the fintech must help the bank improve on its existing strategy — key to helping ensure a partnership will eventually produce enough of a return to make Fifth Third’s investment of time, effort and money worthwhile.

As a result of the Dividend Finance acquisition, Fifth Third is actively assessing whether to increase its sustainable finance target. The bank had set a goal two years ago that called for achieving $8 billion of lending for alternative energy like solar, wind and geothermal by 2025.

“The things that we do with fintech are things that we were going to do one way or another. We’re not taking on incremental missions. We’re just pursuing those missions in different form. So, that framing completely changes the analysis that we’re doing,” Hoffman says.

Other banks might have to look broadly at competing priorities to decide between partnering with a specific fintech or tackling some other important initiative. But Fifth Third engages in a different thought process.

“It’s not, if we decide to partner with Provide, or should we acquire Dividend Finance, what will we not do?” Hoffman says.

Instead, Fifth Third asks, does this accelerate the timeframe for achieving a goal the bank has already set for itself?

“These partnerships are successful when they are aligned to our strategy and they accelerate, or de-risk, the execution of that strategy, as opposed to being separate and apart from the core ambitions of the franchise,” Hoffman says.

Assessing the Priority Level of Partnering — for Both Sides
Beyond that, any proposed partnership also needs to be “a top five priority” for both the fintech’s leadership and the relevant Fifth Third business line.

Hoffman advises other banks against the common approach of setting up a “tiny” partnership for the two sides to get to know each other with the idea of taking things to the next level when the time is right. “The likelihood of the timing ever being right, is very, very low,” he says. Those relationships often end up as distracting “hobbies” rather than ever escalating to the priority level necessary to add value for both sides and pay off in a meaningful way.

His insight is informed by experience. Hoffman leads Fifth Third’s corporate venture capital arm, which makes direct minority investments in fintechs. Given recent regulatory changes, it also participates as limited partners in several fintech-oriented venture capital funds.

His team is responsible for nurturing Fifth Third’s fintech partnerships, offering strategic insight and facilitating access to resources within the bank.

“As you can imagine, with some of the early-stage companies that we invest in, it’s six partners and an idea. Meanwhile, we have 20,000 people and branches and a half-dozen regulators and all of that. So, we provide a single point of contact to help sort of incubate and nurture the partnership until it reaches a level of stability and becomes a larger business,” Hoffman says.

“We work hard, as the partnerships mature, to stabilize the operating model such that the handholding, the single point of contact, becomes less necessary.”

That transition typically happens as the fintech gets better integrated into the day-to-day operations of the core business with which it is partnering, whether consumer banking, wealth management or another area in the bank.

Delivering Above and Beyond
With Provide, a digital lending financial platform for healthcare practices, the bank was an early investor, taking a lead role in a $12 million funding round with the venture capital firm QED Investors in 2018.

Fifth Third began funding loans made on the platform about two years later, with the amount increasing over time to the point where it was taking about half of Provide’s overall loan volume, the largest share among the five participating banks.

Through the Fifth Third partnership, Provide also expanded its offerings to include core banking and payments services, which are now used by more than 70% of the doctors for whom the fintech provides acquisition financing nationwide.

In announcing the agreement to buy Provide in June 2021, Fifth Third says the fintech would maintain its brand identity and operate as an independent business line.

Daniel Titcomb oversees Provide as its president and reports to Kala Gibson, executive vice president and chief corporate responsibility officer. (Gibson had oversight of business banking when Titcomb came on board and, though he’s in a new role as of March, continues to work with Provide.) Under Fifth Third’s ownership, Titcomb, who co-founded the fintech with James Bachmeier III in 2013, envisions being able to fuel loan growth and offer expanded services that help make starting and running a healthcare practice easier for doctors.

Since its launch, Provide has originated more than $1 billion in loans, largely through “practice lending,” which enables healthcare providers to start, buy or expand their practices. Its average loan size is $750,000.

Titcomb cited “a shared belief” in bank-fintech partnerships as one reason the early relationship with Fifth Third proved to be a success. “We both had a view of the future that didn’t include one destroying the other,” he says.

Years ago, fintechs and banks were often wary of each other — even adversarial — with banks being labeled by some as “dumb pipes,” the implication being that they were unable to keep up with nimble and innovative startups and were useful merely for product distribution to a larger customer base, Titcomb says. But he always found Fifth Third to be thoughtful and strategic, defying those stereotypes.

Though selling his business was scary, he says, “it was a lot less scary than it could’ve been,” given the established relationship.

Still, “we had to get comfortable and confident that they weren’t going to encourage us to spend less on technology,” he added. “Any time you enter into an agreement like that, you hope, but you don’t know.”

Titcomb says he is thrilled that the consistent feedback from Fifth Third since he joined has been: “You run this business the way you think it should be run.”

“It’s a relief,” he says.

Given outcomes like those experienced by White and Titcomb, Fifth Third has become known in fintech circles as a strong partner that delivers on its promises. Hoffman works hard to maintain that reputation—a competitive advantage.

“These companies have options, and some of those options are very compelling,” Hoffman says, adding that his goal is to make sure Fifth Third is “the partner of choice” for the fintechs it targets. That only happens, he says, if their experience after signing a deal aligns with what he says beforehand.

Count an enthusiastic Titcomb among those who attest that it has. “They have delivered above and beyond,” Titcomb says.

Banking’s Single Pane of Glass

Imagine looking at all the elements and complexities of a given business through a clear and concise “single pane of glass: one easily manageable web interface that has the horizontal capability to do anything you might need, all in one platform.”

It may sound too good to be true, but “single pane of glass” systems could soon become a reality within the mortgage industry. Underwriters, processors, loan originators and others who work at a mortgage or banking institution in other capacities must manage and maintain a plethora of different third-party software solutions on a daily basis.

It’s complex to simultaneously balance dozens of vendor solutions to monitor services, using different management console reports and processes for each. This cumbersome reality is one of the most significant challenges bankers face.

There are proven solutions and approaches to rationalizing these operational processes and streamlining interactions with customers, clients and new accounts. In the parlance of a technologist, these are called “single panes of glass,” better understood as multiple single panes of glass.

That does exist if you’re talking about a single product. Herein lies the problem. Heterogenous network users are using single third-party platform solutions for each service they need, with a result that one would expect. Too many single panes of glass — so much so that each becomes its own unique glass of pain.

How can banks fix this problem? Simply put, people need a single view of their purposed reality. Every source of information and environment, although different, needs to feed into a single API (application program interface). This is more than possible if banks use artificial intelligence and machine learning programs and API frameworks that are updated to current, modern standards. They can unify everything.

Ideally, one single dashboard would need to be able to see everything; this dashboard wouldn’t be led by vendors but would be supported by a plethora of APIs. Banks could plug that into an open framework, which can be more vendor-neutral, and you now have the option to customize and send data as needed.

The next hurdle the industry will need to overcome is that the panes of glass aren’t getting any bigger. Looking at pie charts and multiple screens and applications can be a real pain; it can feel like there isn’t a big enough monitor in the world to sift through some data spreadsheets and dashboards effectively.

With a “single pane of glass” approach, banks don’t have to consolidate all data they need. Instead, they can line up opportunities and quickly access solutions for better, seamless collaboration.

Focusing on one technology provider, where open-source communication can make integration seamless, might be a good adoption route for bank executives to consider in the short term while the industry adapts to overcome these unique challenges.

Eyes Wide Open: Building Fintech Partnerships That Work

With rising cost of funds and increased operating costs exerting new pressures on banks’ mortgage, consumer and commercial lending businesses, management teams are sharpening their focus on low-cost funding and noninterest revenue streams. These include debit card interchange fees, treasury management services, banking as a service (BaaS) revenue sharing and fees for commercial depository services, such as wire transfers and automated clearinghouse (ACH) transactions. Often, however, the revenue streams of some businesses barely offset the associated costs. Most depository service fees, for example, typically are offered as a modest convenience fee rather than a source of profitability. Moreover, noninterest income can be subject to disruption.

Responding to both competitive pressures and signals of increased regulatory scrutiny, many banks are eliminating or further reducing overdraft and nonsufficient fund (NSF) fees, which in some cases make up a substantial portion of their fee income. While some banks offset the loss of NSF fees with higher monthly service charges or other account maintenance fees, others opt for more customer-friendly alternatives, such as optional overdraft protection using automatic transfers from a linked account.

In rethinking overdraft strategies, a more innovative response might be to replace punitive NSF fees with a more positive buy now, pay later (BNPL) program that allows qualified customers to make purchases that exceed their account balances, using a short-term extended payment option for a nominal fee.

Partnering with a fintech can provide a bank quick access to the technology it needs to implement such a strategy. It also can open up other potential revenue streams. Unfortunately, a deeper dive into the terms of a fintech relationship sometimes reveals that the bank’s reward is not always commensurate with the associated risks.

Risky Business
As the banking industry adapts to new economic and competitive pressures, a growing number of organizations are turning to bank-fintech partnerships and various BaaS offerings to help improve financial performance, access new markets, and offset diminishing returns from traditional deposit and lending activities. In many instances, however, these new relationships are not producing the financial results banks had hoped to achieve.

And as bank leaders develop a better understanding of the opportunities, risks, and nuances of fintech relationships, some discover they are not as well-prepared for the relationship as they thought. This is particularly true for BaaS platforms and targeted online service offerings, in which banks either install fintech-developed software and customer interfaces or allow fintech partners to interact directly with the bank’s customers.

Often, the fintech partner commands a large share of the income stream — or the bank might receive no share in the income at all — despite, as a chartered institution, bearing an inordinate share of the risks in terms of regulatory compliance, security, privacy, and transaction costs. Traditionally, banks have sought to offset this imbalance through earnings on the fintech-related account balances, overlooking the fact that deposits obtained through fintechs are not yet fully equivalent to a bank’s core deposits.

Moreover, when funds from fintech depository accounts appear on the balance sheet, the bank’s growing assets can put stress on its capital ratio. Unless the bank receives adequate income from the relationship, it could find it must raise additional capital, which is often an expensive undertaking.

Such risks do not mean fintech partnerships should be avoided. On the contrary, they can offer many benefits. But as existing fintech contracts come up for renewal and as banks consider future opportunities, they should enter such relationships cautiously, with an eye toward unexpected consequences.

Among other precautions, banks should be wary of exclusivity clauses. Most fintechs understandably want the option to work with multiple banks on various products. Banks should expect comparable rights and should not lock themselves into a one-way arrangement that limits their ability to work with other fintechs or market new services of their own. It also is wise to opt for shorter contract terms that allow the bank to re-evaluate and renegotiate terms early in the relationship. The contract also should clarify the rights each party has to customer relationships and accounts upon contractual termination.

Above all, management should confirm that the bank’s share of future revenue streams will be commensurate with the associated risks and costs to adequately offset the potential capital pressures the relationship might trigger.

The rewards of a fintech collaboration can be substantial, provided everyone enters the relationship with eyes wide open.

How Technology Fosters Economic Opportunity and Success

Is your bank promoting financial literacy and wellness within the communities you serve?

The answer to that question may be the key to your bank’s future. For many community financial institutions, promoting financial wellness among historically underserved populations is directly linked to fostering resilience for individuals, institutions and communities.

Consider this: 7 million households in the United States didn’t have a bank account in 2019, according to the Federal Deposit Insurance Corp.; and up to 20 million others are underserved by the current financial system. Inequities persist along racial, geographical and urban lines, indicating an opportunity for local institutions to make an impact.

Many have already stepped up. According to the Banking Impact Report, which was conducted by Wakefield Research and commissioned by MANTL, 55% of consumers said that community financial institutions are more adept at providing access to underrepresented communities than neobanks, regional banks or megabanks. In the same study, nearly all executives at community institutions reported providing a loan to a small business owner who had been denied by a larger bank. And 90% said that their institution either implemented or planned to implement a formal program for financial inclusion of underserved groups.

Technology like online account origination can play a critical role in bringing these initiatives to life. Many forward-thinking institutions are actively creating tools and programs to turn access into opportunity — helping even their most vulnerable customers participate more meaningfully in the local economy.

One institution, 115-year-old Midwest BankCentre based in St. Louis, is all-in when it comes to inclusion. The bank partnered with MANTL to launch online deposit origination and provide customers with convenient access to market-leading financial products at competitive rates.

Midwest BankCentre has also committed $200 million to fostering community and economic development through 2025, with a focus on nonprofits, faith-based institutions, community development projects and small businesses for the benefit ofr historically disinvested communities. The bank offers free online financial education to teach customers about money basics, loans and payments, buying a home and paying for college, among others.

Midwest BankCentre executives estimate that $95 out of every $100 deposited locally stays in the St. Louis region; these dollars circulate six times throughout the regional economy.

In a study conducted in partnership with Washington University in St. Louis, researchers found that Midwest Bank Centre’s financial education classes created an additional $7.1 million in accumulated wealth in local communities while providing critical knowledge for household financial stability.

“When you work with a community banker, you are working with a neighbor, friend, or the person sitting next to you at your place of worship,” says Danielle Bateman Girondo, executive vice president of marketing at Midwest BankCentre. “Our customers often become our friends, and there’s a genuine sense of trust and mutual respect. Put simply, it’s difficult to have that type of relationship, flexibility, or vested interest at a big national bank.”

What about first-time entrepreneurs? According to the U.S. Bureau of Labor Statistics, approximately 33% of small businesses fail within 2 years. By year 10, 66.3% have failed.

Helping first-time entrepreneurs benefits everyone. Banks would gather more deposits and make more loans. Communities would flourish as more dollars circulate in the local economy. And individuals with more paths to economic independence would prosper.

For Midwest BankCentre, one part of the solution was to launch a Small Business Academy in March 2021, which provides practical education to help small businesses access capital to grow and scale.

The program was initially launched with 19 small businesses participating in the bank’s partnership with Ameren Corp., the region’s energy utility, with a particular focus on the utility’s diverse suppliers. And 14 small business owners and influencers participated in the bank’s partnership with the Hispanic Chamber of Commerce of Metro St. Louis. Midwest BankCentre teaches small businesses how to “think like a banker” to gain easier access to capital by understanding their financial statements and the key ratios.

Efforts like these might explain why, according to the Banking Impact Report, 69% of Hispanic small business owners and 77% of non-white small business owners believe it’s important that their bank supports underserved communities. Accordingly, non-white small businesses are significantly more likely to open a new account at a community bank or credit union: 70%, compared to 47% of white small businesses.

This can be a clear differentiator for a community bank: a competitive advantage in a crowded marketplace.

For today’s community banks, economic empowerment isn’t a zero-sum game; it’s a force multiplier. With the right strategies in place, it can be a winning proposition for the communities and markets within your institution’s sphere of influence.

Creating a Winning Scenario With Collaborative Banking

The banking industry is at a critical crossroads.

As banks face compounding competition, skyrocketing customer expectations and the pressure to keep up with new technologies, they must determine the best path forward. While some have turned to banking as a service and others to open banking as ways to innovate, both options can cause friction. Banking as a service requires banks to put their charters on the line for their financial technology partners, and open banking pits banks and fintechs against each other in competition for customers’ loans and deposits.

Instead, many are starting to consider a new route, one that benefits all parties involved: banks, fintechs and customers. Collaborative banking allows institutions to connect with customer-facing fintechs in a secure, compliant marketplace. This model allows banks and fintechs to finally join forces, sharing revenue and business opportunities — all for the good of the customer.

Collaborative banking removes the regulatory risk traditionally associated with bank-fintech partnerships. The digital rails connecting banks to the marketplace anonymize and tokenize customer data, so that no personally identifiable information data is shared with fintechs. Banks can offer their customers access to technology they want, without having to go through vendor evaluations, one-to-one fintech integrations and rigorous vendor due diligence.

Consider the time and money it can take for banks to turn on just one fintech today: an average of 6 months to a year and up to $1 million. A collaborative banking framework allows quick, more affordable introduction of unlimited fintech partnerships without the liability and risk, enabling banks to strategically balance their portfolios and grow.

Banks enabling safe, private fintech partnerships will be especially important as consumers increasingly demand more control over their data. There is a need for greater control in financial services, granting consumers stronger authority over which firms can access their data and under which conditions. Plus, delivering access to a wider range of features and functionality empowers consumers and businesses to strengthen their financial wellness. Collaborative banking proactively enhances consumer choice, which ultimately strengthens relationships and creates loyalty.

The model also allows for banks to offer one-to-one personalization at scale. Currently, most institutions do not have an effective way to accurately personalize experiences for each customer they serve. People are simply too nuanced for one app to fit all. With collaborative banking, customers can go into the marketplace and download the niche apps they want. Whether this means apps for the gig economy or for teenagers to safely build credit, each consumer or business can easily download and leverage the new technology that works for them. Banks have an opportunity to sit at the center of customer financial empowerment, providing the trust, support, local presence and technology that meets customers’ specific needs, but without opening up their customers to third-party data monetization.

While many banks continue attempting to figure out how to make inherently flawed models, such as banking as a service and open banking, work, there is another way to future-proof institutions while creating opportunities for both banks and fintechs. Collaborative banking requires a notable shift in thinking, but it offers a win-win-win scenario for banks, fintechs and customers alike. It paves the way for industry growth, stronger partnerships and more control and choice for consumers and businesses.

How to Find the Right Title Service Provider

In a highly competitive market, bank title service providers can have a tangible impact on business outcomes. Below are several considerations for selecting a title provider who can help institutions navigate today’s challenging market.

Stability
It’s important to know that the title provider your bank selects remains consistent, whether the market is up or down. Decades of experience, minimal claims and strong financial backing all contribute to the stability of a settlement service provider. “There’s an element of risk lenders can avoid by working with a title partner that has a history of producing instant title with minimal claims. How long have they been doing it?” says Jim Gladden, senior vice president of origination strategy at ServiceLink. “What does their track record look like?”

Service
Each file matters. After all, a home is likely your borrower’s biggest investment; making sure a purchase, refinance or home equity transaction goes smoothly is critical. For that reason, it’s important to ensure that title service providers take the unique needs of the bank’s team and borrowers into account, and prioritizes each transaction.

One way to do that is to work with a firm that dedicates individuals to working with the same lenders and loan officers, so they can understand the unique expectations each of them has, according to Kristy Folino, senior vice president of origination services at ServiceLink.

Prioritizing the Borrower Experience
The real estate lending industry is increasingly competitive; attracting and retaining borrowers is critical. Investigate how different title providers think about your borrowers, and whether their service ethos and technology prioritize the borrower throughout the transaction.

Check out the 2022 ServiceLink State of Homebuying Report to learn more about today’s borrowers. Dave Steinmetz, president of origination services at ServiceLink, says the study suggests a growing number of buyers embrace technology.

“Many are open to new pathways to achieve homeownership. This indicates there is an opportunity for lenders to provide more targeted resources and guidance to buyers throughout their home buying journey.”

Operational Efficiency
In leaner times, banks need to maximize margins on each transaction. Consider where your title service provider has automated their processes, and how that shows up in your bottom line. For example, instant title technology speeds decisioning and enables shorter rate lock periods by quickly clearing the way to the closing table. In fact, many lenders are surprised at how many of their loans qualify for fast-tracking through the instant title process.

Integrating technology and approaches like instant title into your processes could allow you to improve your workflows. Using instant title complexity decisions can help prioritize clear-to-close files, getting them to the closing table faster.

Scalability
In the past few years, the mortgage industry has seen how quickly volumes can change. In this volatile environment, it’s critical to partner with settlement service providers who can flex up or down with their financial institution partner as the market necessitates. The size of a provider’s signing agent panel impacts their scalability — as does their ability to allocate vendors to your operations at critical times, like month’s end.

Geographic Footprint
Being able to use one provider for transactions in all 50 states can simplify bank operations. Partnering with a title service provider with national scope ensures that a bank and its borrowers have a consistent experience, wherever they’re located. Gladden pointed out that national coverage is especially important for lenders with portfolios that are geographically diverse.

Security
Strict adherence to local, state and federal guidelines is critical to ensuring compliant transactions. Security around data must be airtight to protect lenders and their customers from potential breaches or other security incidents.

“Each title provider uses a platform that is aggregating both public and nonpublic consumer information. It’s important to know how that information is protected,” says Gladden.

Data quality
It’s important to look at the sources of title service providers’ data. While speed is essential, assurances from your title providers about data quality is paramount, particularly when it comes to instant title.

“The product is only as good as the data source, so the quality and depth of the data is the biggest factor to look out for. Instant title providers may all be racing toward the same goal, but the methodologies we’re using to get there — whether technologies, processes or the decisions we’re making — differ significantly,” says Sandeepa Sasimohan, vice president of title automation at ServiceLink.

Breadth of product offering
When you’re considering adding to your slate of providers, consider what value can be gained by onboarding a particular vendor. Banks that partner with organizations that offer a comprehensive suite of services — including uninsured and insured title products, flood and valuations — can benefit from increased efficiencies.

These considerations ladder up to one critical theme: partnership. Your title service provider should be a strategic ally who works alongside you to navigate market conditions.

Insights Report: Technology Tools Enhance Financial Wellness

https://www.bankdirector.com/wp-content/uploads/Insights-FIS-Digital.pdfIn a March 2022 survey, Morning Consult found that just 23% of U.S. adults could handle a major, unexpected expense. At a time when Americans are worried about rising prices for everything from cars to gas to groceries in today’s inflationary environment, lower-income individuals who earn less than $50,000 annually feel this financial anxiety most deeply. Yet, even people in higher income brackets are worried: Only 47% of those earning $100,000 or more believe they could handle such an expense, according to the market research firm.

Financial wellness is often conflated with financial inclusion. These informative tools can play an important role in helping lower-income customers, but everyone needs a trusted advisor to meet their financial goals, whether that’s saving for retirement, eliminating debt or creating an emergency fund.

Americans may be struggling but they trust their banks, according to Morning Consult, which recommends financial institutions acknowledge financial stress, demonstrate empathy and provide “actionable guidance” for their customers.

The rapid digital acceleration occurring in financial services today has changed how banks maintain and build customer relationships, as well as deliver advice. “Banking relationships have become digital relationships,” says Maria Schuld, division executive, Americas Banking Solutions at FIS.

Financial education isn’t new to the industry, and personal financial management tools have been around for years. But technologies like artificial intelligence can help institutions deliver more meaningful insights to their customers. What’s more, younger consumers have a greater need for financial advice; a recent online WalletHub survey of 350 respondents found that young people are three times more likely to seek a complete view of their financial health, compared to consumers aged 60 or more. Being Gen Z’s first bank could lead to larger relationships as their lives change. “Once you establish that relationship early on,” says Schuld, “you have a very strong chance of being able to retain that relationship as their financial needs grow.”

To download the report, sponsored by FIS, click here.

FinXTech’s Need to Know: Construction Lending

Demand for housing hit a high unlike any other during the pandemic. While demand grew, the number of acquisition, development and construction (ADC) loans in bank portfolios grew parallel alongside it. Construction and development loans at community banks increased 21.2% between the first quarter of 2021 and the first quarter of 2022, according to the Federal Deposit Insurance Corp.’s Quarterly Banking Profile.

As a subset of the commercial real estate (CRE) lending space, banks are accustomed to the timely process that construction lending requires. But are banks prepared for the influx of risk that can accompany this growth?

Mitigating construction risk is a bit like attempting to predict the future: Banks not only have to evaluate creditworthiness, but they also have to predict what the project will be worth upon completion. With another interest rate hike expected later this month, being able to accurately price projects is becoming more complicated — and more vital.

Here are three ways financial technology companies can help banks in their attempt to fund more ADC projects.

Software can automate the drawing process. Construction lending features the unique ability for builders to “draw” cash from their loan throughout the project. Spacing out the draw schedule protects banks from losing large amounts of money on projects that go cold, and also allows proper due diligence and inspection to be on rotation.

CoFi — formerly eDraw — specifically focuses on this process. Bank associates access all budgets, invoices, approvals and construction draw records in one web-based system. The bank’s borrowers and builders also can access the software through customer-facing accounts. A builder requests funds by uploading invoices, and CoFi then notifies the bank that their approval is required for the funds to be disbursed.

Once the bank approves the disbursement, the borrower is notified. Banks can also dispatch inspectors to the property using CoFi. After confirming that construction progress is in line with the draw requests, the inspector can upload their report directly into CoFi. With all of the proper approvals in place, the bank can release funds for the payment request. All actions and approvals are tracked in a detailed, electronic audit trail.

CoFi also has a construction loan marketplace banks can plug into.

Multiple parties and industries can collaborate in real time through web-based solutions Nashville-based Built Technologies operates as a construction administration portal, coordinating interactions and transactions between the bank, the borrower, the contractor, third-party inspectors and even title companies in one location. 

Legacy core banking technology wasn’t designed to completely support construction loans, which moved the tracking of these types of loans into spreadsheets. Built’s portal eliminates the need for these one-way spreadsheets. The moment a construction loan is closed, instead of a banker creating a spreadsheet with a specific draw budget, they can design one digitally in Built and reconcile it throughout the duration of the project.

Builders can even request draws from their loan through their phones, using Built’s mobile interface. 

Fintechs can better monitor portfolios, identify errors and alert banks of risk areas, compared to manual review only. ADC loans are fraught with intricate details, including valuations that fluctuate with the market — details that can’t always be caught with human eyes.

Rabbet uses machine learning and optical character recognition (OCR) when reviewing documents or information that is inputted to its platform, the Contextualized Construction Draw format (CCDF). It also continually monitors and flags high-risk situations or details for borrowers, including overdrawn budgets, liens or approvals. Any involved party — developer, builder or bank — can input budget line items into the platform. Rabbet then links relevant supporting documents or important metrics to that item, which is information that is typically difficult for lenders to track and verify.

Storing loan calculations and documents in one place can translate to faster confirmations for borrowers and easier reconciliation, reporting and auditing for the bank.

In July 2022, Built announced the release of its own contractor and project monitoring solution, Project Pro. The technology helps banks keep track of funds, identify risk areas such as missing liens or late payments, and stay on top of compliance requirements.

Banks with a heavy percentage of construction loans on their balance sheet need to keep notice of all elements attached to them, especially in a rapidly changing economic environment. Technology can alleviate some of that burden.

CoFi, Built Technologies and Rabbet are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email finxtech@bankdirector.com.