How Banks Can Implement 3 Types of Automation Solutions

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Many banks struggle with digital transformation, often because they lack an effective strategy, clear governance over the transformation process or both.

Common and current inefficiencies include relying on manual reports created in spreadsheets across multiple systems, using email or word processing to capture and document approvals and serve as a system of record and inconsistent procedures across business functions.

A digital-first approach has increasingly become table stakes for financial institutions given consumer adoption. In 2021, 88% of U.S. consumers used a fintech, up from 58% in 2020, according to an annual report from Plaid. Customers expect a frictionless experience from their bank; traditional institutions need to have a plan in place to adapt accordingly.

Banks that don’t already have a digital transformation strategy need to establish one to anchor and govern their process for evaluating, prioritizing and executing digital transformation projects. One area for consideration on that digital journey should be automation, which can help organizations become more efficient and better mitigate a variety of risks. There are three intelligent automation solutions that can help banks reduce costs and improve productivity, among other benefits: robotic process automation, digital process automation and intelligent document processing.

  1. Robotic process automation: In general, RPA is task-based automation focused on accomplishing targeted components of business processes without the need for significant human intervention. RPA is capable of handling high volume, repetitive and manual tasks on behalf of human process owners, filling gaps where systems lack integration capabilities.
  2. Digital process automation: This type of automation focuses on optimizing workflows to orchestrate more collaborative work processes. DPA typically involves highly auditable data flows to improve regulatory compliance, and is scalable in a way that helps the organization adapt to evolving business needs.
  3. Intelligent document processing: IDP automation involves the extraction of semi-structured data from digital documents such as PDFs and image files. This transforms such documents into discrete data elements that can drive decision-making. IDP can enhance the scope of RPA and DPA solutions.

Questions to Ask
On a foundational level, banks need to have a clear, intentional link between technology spending and their overall business strategy if they want to succeed in their digital journey. Leadership teams need to understand issues with current processes to ascertain where streamlining those processes could offer the greatest return on investment. Here are some key questions to consider when evaluating process automation:

  • How does the automation solution reduce friction and improve the customer or user experience?
  • What is the associated market opportunity or efficiency gain enabled by the solution?
  • Is the institution potentially automating a bad process?
  • How does the solution align with what customers want?
  • How will the institution train its teams to ensure adoption?
  • How does the automation solution fit into the organization’s current processes, workflows and culture?
  • How will the bank manage the change and govern post-transformation?

Developing a Framework
Depending on where a bank is in its digital transformation journey, there are a variety of steps the organization will need to take to implement automation solutions. Those banks that are early in their journey can use the following steps to help:

  • Plan: Establish a framework for implementation, including objectives, teams, timelines and a project governance structure.
  • Assess: Understand the current state of functions across the business and identify process gaps where automation can help.
  • Design: Use best practices to establish a “fit for purpose” system design that meets business requirements and is scalable for future growth.
  • Execute: Configure the applications and integrations according to system design; validate, test and resolve any defects identified; migrate the approved configuration to the production environment.
  • Go live: Assess user readiness and deploy the solution.
  • Support: Execute an automation support strategy and establish an external support framework.
  • Monitoring: Establish and track key performance indicators to provide metrics for better visibility into the business.
  • Road map: Evaluate business unit usage and develop a plan for optimization and expansion to realize the company’s digital transformation vision and business goals.

Addressing each of these steps can help banking leadership teams develop a more thoughtful approach to automation solutions and improve their overall digital transformation strategy.

In an Uncertain Market, Count on Data

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Against a backdrop of challenging macroeconomic risks, including inflation, potential recession and high interest rates, banks are also dealing with volatility connected to the collapse of three regional banks. These are difficult times, especially for financial institutions.

At the same time, banks are struggling to achieve primacy: being the go-to for their customers’ financial needs amid the marketplace of more agile fintechs. To do this, banks need to make smart decisions, fast. This amalgamation of business-impacting factors might seem like an unsolvable puzzle. But in an uncertain market, banks can leverage data to cultivate engagement and drive primacy.

Banks can count on data, with some caveats. The data must be:

  • While there is a massive amount of data available, banks often lack a complete picture of the consumers they serve, particularly as digital banking has made it easier for consumers to initiate multiple financial relationships with different providers to get the best deals. It’s vital that banks get a holistic view of all aspects of a consumer’s financial life, including held away accounts, insurance and tax data.
  • Increased open banking functionality empowers consumers to take charge of their data and use it to be financially fit. Open banking serves that connectivity and makes it more reliable.
  • Banks are flooded with data, the torrent of which makes it difficult to extract value from that data. Up to 73% of data goes unused for analytics. But the right analytics allows banks to reduce the noise from data and glean the necessary insights to make decisions and attract and retain customers.
  • Most transaction data is ambiguous and difficult to identify. Banks need enriched data they can understand and use. Data enrichment leads to contextualized, categorized data that gives banks tangible insights to improve their customer’s journey and inform more meaningful interactions.

Data as a Differentiator
Once banks have high quality data, they can use it to differentiate themselves across three key areas:

1. Make smart, fast customer decisions.
Banks are expected to deliver relevant offers at the right time to customers before rapidly making critical risk decisions. The ability to do this hinges on having a holistic view into the totality of a customer’s bank accounts. Data science algorithms using artificial intelligence and machine learning can then surface insights from that data to engage, retain and cross-sell via personalized, proactive experiences. From there, banks can execute for growth with rapid integrations that help gain wallet share and productivity.

2. Promote financial wellness.
Banks are nothing without their customers. To win and keep customers, banks need to provide tools and products that can enable an intelligent financial life: helping consumers make better financial decisions to balance their financial needs today and building to meet their aspirations for tomorrow. One way to help them with this is to provide a holistic view of their finances with account aggregation and money management tools. According to a recent survey, 96% of consumers who used financial apps and tools powered by their aggregated data were more likely to stay with the financial institution providing these tools. These tools give banks a way to helping their customers and inspire loyalty.

3. Forecast and manage risk.
Uncertainty over recent events in the banking industry has made the need for immediate insights into net deposit flows an imperative. Banks can use aggregated data to identify, forecast and manage their risk exposure. Digital transformation, which has been all the rage for years now, can enable centralized holistic views of a bank’s entire portfolio. Dashboards and alerts make it more practical for bankers to identify risks in the bank as they develop. A platform approach is vital. Banks need an entire ecosystem of data, analytics and experiences to mobilize data-driven actions for engagement, retention, growth and ROI.

Now more than ever, banks rely on data to cultivate engagement and drive primacy. Starting with holistic, high-quality data and applying analytics to derive insights, banks can drive the personalized consumer experiences that are necessary to attract and retain customers. And they can use that same data to better forecast and manage risk within their portfolio.

The First Considerations in a Bank-Fintech Partnership

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A version of this article was originally published on April 3, 2023, as part of a special report called “Finding Fintechs.”

USAA Federal Savings Bank was among the first banks, if not the first bank, to launch mobile deposit capture to its customer base in 2009, long before such technology was widespread.

In the years since, $111 billion USAA has invested heavily in its mobile banking app, enabling its customers to complete a range of banking transactions, open new accounts, chat with a virtual assistant, apply for a loan or start an insurance claim. The San Antonio bank earns consistently high marks among its peers for its mobile and digital banking offerings, often topping far larger brands like JPMorgan Chase & Co. in customer satisfaction ratings.

Moreover, USAA has done this in an almost entirely digital environment. Because its core customer base — deployed military members and their families — tends to move frequently, the bank has barely any branches, and has poured significant resources into its digital offerings and customer service capabilities. Its core market is a small one, but keeping their specific needs at the center of its strategy has worked to USAA’s benefit, says Ron Shevlin, managing director and chief research officer at Cornerstone Advisors. He likens USAA’s strategy to a bull’s-eye, with deployed military members in the center, and retired service members and their family comprising the outer rings.

“They designed everything about their business as if they were serving the active deployed military member,” Shevlin says. “The reality is that by serving the bull’s-eye, they’re able to attract and serve the outer rings.”

That’s why Shevlin cites USAA as an example of what it means for a bank to have a strong digital strategy. When it comes to financial technology, a successful strategy begins before thinking about specific technologies or even using the word “technology,” Shevlin and others say.

Instead, banks can start by thinking about their core audience and how they can differentiate their organization in the marketplace, and using those principles as a guiding North Star. In turn, that can help communications between chief technology officers and the rest of the bank’s leadership, as well as decisions around staffing and prioritization of different problems.

A little over a third of bankers who participated in Bank Director’s 2022 Technology Survey expressed concerns that their bank was unable to identify specific technologies that would help achieve its strategic goals. A quarter also said they were concerned about an inability to identify specific companies or resources needed to achieve those goals.

“Rather than thinking of technology as a pillar or a piece of your strategy, you should come up with those strategic objectives. And then technology is a ribbon that goes throughout those strategies,” says John Behringer, a financial institutions leader and risk consulting partner at RSM US LLP.

Community banks may lack the talent they need to set up successful technology partnerships. Many community bankers also wear multiple hats, so they may not be able to focus on partnerships. Another crucial conversation to have around this time is how much staff the bank can dedicate to the success of this project. Under-resourcing these projects from the beginning can complicate the rest of the work — like due diligence, implementation and continued oversight — leading to underwhelming and unsatisfactory results for the institution. And banks that don’t have enough staff to manage these projects may need to bring in external consultants, which adds costs.

Shevlin recommends banks cultivate their internal competency for digital partnership collaborations throughout the bank — not just among finance and IT employees. A bank that wants to grow through fintech partnerships will need a number of experts in-house that can find, negotiate, bid, deploy, scale and monitor these new vendor relationships.

Ultimately, it’s the senior leadership team that develops a technology strategy in consultation with outside experts and internal ones, and with approval of the board of directors.

The chief technology or chief information officer is often responsible for managing and developing the bank’s technological resources, among their other duties. When it comes to larger strategic goals, this responsibility will likely include advocating for the bank’s technology needs before the board and other senior leadership. To do so successfully, that person needs to be able to tie those particular needs back to the bank’s core vision for what it wants to achieve, Behringer says.

For example, a chief executive or director may feel the bank has enough IT staff, not necessarily realizing that those employees are largely handling help desk tickets and other basic maintenance, not working on big-picture strategic needs. When communicating with the rest of the bank’s leadership, senior technology officers might emphasize the need for in-house staff working on initiatives that move the needle on strategy, while discussing the possibility of outsourcing or automating the more rote tasks needed to keep the lights on, Behringer says.
“Come back to, ‘What’s our vision? What do we view as kind of core to who we are?’” he says. “That’s where I think the CEO can do a better job. A lot of times with management, technology is an afterthought.”

Technology executives should also be mindful not to get too deep into the weeds and keep tech discussions focused on how they tie to broader business objectives.

“A CIO or CTO, even just talking to the executive team, has to translate the tech speak into business operational impact and dollars and cents: ‘What’s this going to cost us, and what’s this going to do,’ without going into mind-numbing levels of detail about the technology,” Shevlin says.

When considering broader staffing needs required to put strategic tech initiatives into play, it may be useful for banks to segment staff into those dedicated to running the bank and those dedicated to growing the bank, while improving efficiency and profitability. One centralized group should take responsibility for integration into the bank’s core, while another should have ownership for the results of fintech partnerships, Shevlin says.

Banking as a service and embedded finance are another story entirely, and banks that are getting into those areas should ideally have entire departments or business units dedicated to that. “You really have to understand that’s not your garden-variety fintech partnership,” Shevlin says. “That’s a whole new set of products and services.”

It’s also a good idea for bankers to make sure they’re fully utilizing the technology they already have, says Enrico Camerinelli, a strategic advisor at Aite-Novarica Group. The more technology a bank introduces, the more robust its backend systems need to be to handle that, he says.

“Banks need to leverage, as much as possible, the existing investments they have,” he says. “Technology is not necessarily always innovation in the sense of always building new things on top of old stuff.”

Legacy technology written in older programming languages doesn’t necessarily need to be scrapped as long as the bank is able to still maintain that infrastructure. In many cases, the
issue is not so much with older programming languages as it is with a lack of internal expertise about the language or tech in question.

“It’s not necessarily the software per se, but it’s the fact that it’s at risk of being unmanaged,” Camerinelli says. “That is the risk.”

Bankers can work on a broader strategy by mapping out whether a particular item on the to-do list is internal or external facing, or if it relates to a credit opportunity, mobile banking, the retail bank, a back-office function or some other function. Initiatives aimed at creating efficiencies within the organization can be just as meaningful as those intended to boost revenue or customer acquisition.

It may also help for bankers to think about setting measurable goals, within reasonable timeframes, as part of that strategic road map. For customer-facing technologies, tangible metrics could include adding more customers, growing market share or increasing the number of customers using digital banking or the bank’s mobile app.

“There should definitely be a growth target, from both the perspective of the percentage of customers that are in that bull’s-eye plus the percentage of revenue that is being generated by that segment,” Shevlin says. He adds that executives should be realistic in setting those goals, though, saying, “It’s never going to be 100%.”

Breaking larger projects into smaller chunks or tasks can also help keep teams motivated and on track when tackling strategic initiatives, says Laura Merling, chief transformation and operations officer at $26 billion Arvest Bank Group in Bentonville, Arkansas.

“You’re not shortcutting something, but you’re saying, what can be done in small chunks to show progress,” Merling said in an August 2022 conversion with Bank Director. “A lot of times in a bank, something might be a very long project that’s going to take 18 months to roll out. I don’t ever want a big aha at the end. What I want to see is incremental progress, which means figure out what you can roll out in 30 days, 60 days, 90 days, so that you have consistent progress. And then you measure it.”

Tech initiatives that serve an internal function can still be linked to some measurable outcome, but Behringer says that doesn’t necessarily have to be head count or expense reductions. Instead, bankers might look at improving the average time it takes to clear a particular task and once that’s accomplished, think about how they can deploy those fulltime employees more smartly. “I don’t like to just focus on cost-cutting,” he says.

Bank Secrecy Act and Anti-Money Laundering Act compliance may be one example of a function where a bank can digitize some part of the process and create internal efficiencies. Behringer describes one client that previously took about four hours to close out a suspicious activity report investigation because the BSA analyst needed to spend about three of those hours pulling data from various places. The firm built a bot that could automatically pull that relevant data for the analyst and was ultimately able to make that person’s job less mundane and repetitive. After making that change, a BSA analyst can now close out about eight alerts in a work day instead of two.

“That employee’s job satisfaction just went through the roof because they’re doing what they like to do, versus doing administrative tasks,” he says.

Bank Director Managing Editor Kiah Lau Haslett contributed to this report.

Fintechs Offer Many Opportunities for Banks. But How Do You Decide?

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Another version of this article was originally published on April 3, 2023, as part of a special report called “Finding Fintechs.” 

As part of his job, Clayton Mitchell once bought a list of global financial technology companies from a data provider. It had 7,000 names on it. 

“I can’t do anything with this,” says the managing principal in the risk consulting practice of Crowe LLP, who advises banks on partnering with fintech companies. “Figuring out the winners and losers is a bit of a needle in a haystack approach.” 

Banks that want to partner with technology companies or buy software from a vendor face the same sort of tsunami of options. On the one hand, fintechs offer real promise for community banks struggling to keep up with bigger institutions, credit unions and other competitors — a chance to cut costs and increase efficiencies, grow deposits and loans, and give customers quicker and easier ways to do business with the bank. 

But in the midst of economic uncertainty, banks face real risks in doing business with early-stage fintechs that might consolidate or even go out of business. So how do you choose? 

The problems banks face making a digital transformation are legion. In Bank Director’s 2022 Technology Survey, 45% of responding CEOs, directors, chief operating officers and senior technology executives said they worried about reliance on outdated technology. Forty-eight percent worried their bank had an inadequate understanding of the impact of emerging technologies. And 35% believed their bank was unable to identify the solutions it needs.

Historically, small and midsized banks have relied on their core processor to identify and vet companies for them. About half of Mitchell’s customers continue to rely on the bank’s core processor exclusively to find and vet technology companies for them. Cornerstone Advisors’ annual “What’s Going On In Banking” survey of community banks found this year that 55% of respondents didn’t partner with a fintech startup in 2022; 20% had partnered with one fintech; 16% with two and the rest with three or more. But Mitchell thinks the opportunities to go beyond the core are better and more feasible for small and community banks than ever, if the bank follows due diligence. “Sometimes you have to solve problems quicker than the core will get it to you,” he says. “There’s a growing appetite to go outside the core.” 

The big three core processors — Fiserv, FIS and Jack Henry & Associates — have started offering newer, cloud-based cores to connect with a greater variety of technology companies, plus there are ways to add additional layers to core systems to connect useful technological tools, using what’s known as application programming interfaces. “There are different layers of technology that you can put in place to relegate the core platform more into the background and let it become less of a focus for your technology stack than it has historically been,” says Neil Hartman, senior partner at the consulting firm West Monroe. 

In combination with technological change, leadership among banks is changing, too. The last three years of the pandemic taught banks and their customers that digital transformation was possible and even desirable. “We’re seeing more progressive bank leadership. Younger generations have grown up in digital environments and with the experiences of Amazon and Apple, those technology behemoths, and are starting to think about their technology partnerships a little more aggressively,” Hartman says. He adds that banks are beginning to reckon with the competition coming from the biggest banks in terms of digital services. “That’s trickling down into the regional and community bank space,” he says. 

Fintechs, likewise, are adjusting to banks’ sizable regulatory compliance obligations, and they’re maturing, too, says Susan Sabo, the managing principal of the financial institutions group for the professional services firm CliftonLarsonAllen LLP. Many fintechs have upgraded their structure around risk management and controls to ensure they’ll get bank customers. “With the onset of the pandemic, I do think it allowed many fintechs to reset and reinvest, and they did start to build some traction with banks,” Sabo says. 

Still, many banks hesitate to use an alternative to the big three core processors or switch the bulk of their lending and deposit gathering capabilities to a fintech, she says. They’re sticking to fintechs that offer what she calls ancillary solutions — treasury management, credit loss modeling and other types of platforms. But even that has been changing, as evidenced by the success of the fintech nCino, which sells a cloud-based operating system and had its initial public offering in 2020. Sabo recommends using proper due diligence to vet fintech companies. It’s also important to consider cybersecurity, data privacy and contractual issues. And last but not least, consider what can go wrong.

One big hurdle for smaller banks is the cost of using third-party solutions. “Nothing about technology is ever cheap,” Sabo says. “Even things as simple as, ‘We need to refresh all of our hardware,’ becomes a massive investment for a [community] bank. And if you’re held to your earnings per share each quarter, or you’re held to your return to your investors each quarter … you may keep putting it off. Many banks are in a situation where they’re anxious about their technology because they haven’t invested along the way.”

Talent is another large obstacle banks face. Small banks, especially those in rural areas, may struggle to find the staff to make the technology a success. Information technology departments often aren’t equipped with strategic decision-making skills to ensure a fintech partner will meet the bank’s big-picture goals.

And banks that want to leverage data analytics to improve their business will have to hire data scientists and data engineers, says Corey Coscioni, director of strategic alliance and business development at West Monroe. “You’re going to need to build some level of internal capabilities,” he says.

Profits Over Growth

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The last few weeks have been a whirlwind for banking. As bank stock indices plummet and investors make bets about which bank will fail, I’m headed to one of Bank Director’s most important conferences. 

But the agenda isn’t packed with discussion about investor and depositor panic. Experience FinXTech on May 9-10 in Tampa, Florida, is for bankers and technology company leaders who want to make connections and learn from each other. Still, the news headlines will be on people’s minds. I’m thinking about how the new environment is going to impact banks and technology companies. Two years ago, a consultant to tech companies said to me, “The last five years have found that you don’t have to be profitable to be a company.” 

Tech founders focused on growth, not profitability; and once they had market share, they went public or sold to a bigger company, taking their billions in equity to retire at 30 on an island in the Caribbean.

The times are changing.

Some banks may pull back on planned tech implementations. I think some fintechs will be forced to sell.  Venture capital deals fell 60% in value in the fourth quarter of 2022 compared to a year prior, according to the news site PitchBook. Banks are choosing a vendor or partner while also considering the company’s financial stability. Banks don’t want their partners and vendors to disappear or be gobbled up by larger companies that disinvest in the platform.

But the current environment is not all bad for partnerships, either. In a contrast from two years ago, fintech founders tell me they’re concentrating on profitability these days and not just growth. The good news is that fintechs in general have gotten leaner, more focused and driven to create successful partnerships. 

Bankers still need to act like private detectives and investigate those fintechs. Bank Director Managing Editor Kiah Lau Haslett explores due diligence in Bank Director’s recently released FinXTech report, “Finding Fintechs.” But I’m convinced a group of fintechs focused on bank success — rather than growth for its own sake — can only be good for banks.

Effectively and Realistically Embracing Embedded Fintech

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Banks continue to face shrinking margins, skyrocketing customer expectations, technology advancements and an increasingly crowded competitive field — challenging boards and executives with how to stay relevant and prominent in their customers’ financial lives.

Exacerbating the issue is that players from outside industries, such as major retailers and tech companies, continue to attempt to infiltrate the financial services landscape by offering banking and payment services that directly compete with existing banking relationships. To overcome these challenges, more banks are evaluating embedded fintech to extend their brand and presence into new areas of customers’ lives. Meanwhile, some are also considering embedded finance, which may sound similar but is, in fact, very different.

To determine the best path forward in banking — one that enables quick innovation, deposit growth and a stronger foothold in customers’ financial lives — bankers should first gain a clearer understanding of embedded fintech versus embedded finance and then identify an effective way to pursue their chosen path.

Clearing Up Confusion: Embedded Fintech Versus Embedded Finance
While these terms often get thrown around interchangeably, they have very different meanings and implications for banks. According to Cornerstone Advisors, embedded finance is the integration of financial services into nonfinancial websites, mobile applications and business processes. In other words, processes that used to occur within the bank ecosystem now happen extraneously.

Cornerstone defines embedded fintech, on the other hand, as the integration of fintech products and services into financial institutions’ product sets, websites, mobile applications and business processes. This option is all about banks and fintechs working together toward a common goal. Banks maintain customer relationships and provide new tools and technology based on customers’ needs, all within the bank-owned, regulated environment.

Embedded fintech may seem like the natural path, but executing a strategy may be easier said than done. For example, one-to-one fintech integrations have long burdened banks. The integrations, contracts and ongoing partnership management require time, money and resources — often more than are available in-house. It’s no surprise that banks have struggled to effectively implement new technology at scale.

A New Path Forward: Collaborative Banking
There is another option: pursuing an embedded fintech strategy through a collaborative banking approach that involves using application programming interfaces, or APIs, to connect fintechs to banks through a third-party platform. The key is that the platform should tokenize, normalize and anonymize customer data, allowing the customer to turn on fintech solutions without sharing personal identifiable information. This ultimately reduces liability and risk while positioning banks to become the bridge to a secure marketplace of customer-facing apps.

In this model, banks and fintechs work together instead of competing. What used to be banks’ biggest disruptors become a source of revenue. The bank remains the center of customers’ financial lives, deposits stay with the institution and new opportunities are sent back to the bank, leading to account acquisition and growth. Fintechs benefit by having a more effective path to market, including a distribution channel and customer acquisition and monetization model.

Increasingly, customers are in tune with data sovereignty and privacy and are increasingly wary of the risks involved with sharing personal information with technology providers. They’re looking for options to help manage identity, consent, data normalization, permissioning and data anonymization. Collaborative banking does this and more, presenting unprecedented flexibility and choice that allows customers to easily try out new technology and innovations through their financial institution. This empowers them to find and leverage the solutions that best meet their individual needs. Plus, they are able to manage all of their data and finances through a single, convenient location with a holistic view.

Embedded fintech via collaborative banking represents a new opportunity for banks to deliver needed technology and innovation to their customers in a safe, efficient and compliant way. Banks become the gateway to a secure marketplace of fintech apps, driving digital adoption, deposits and loans. This approach removes the time, money and burden of ongoing contract and partner management, along with the pressure to develop technology in-house. Customers benefit from a wider access to financial tools as well as greater control and choice over their data. Banks that embrace this path are primed to create new revenue streams, expand wallet share and strengthen customer relationships.

Finding Fintechs: A Choose Your Own Adventure Guide

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In my role as editor-in-chief, I attend countless off-the-record conversations with bankers who confess their experiences with financial technology companies. Sometimes, those experiences are anything but good, including a host of empty promises, botched integrations and disillusioned bank staff. It’s like the fintechs took off on the rocket ship but never made it to the moon, after all.

For one, banks and fintechs have a hard time speaking each other’s language. Banks, by nature and necessity, are focused on regulatory compliance. By contrast, technology companies tend to focus on growth, driven by nature and necessity to promise the world to their clients.

That seems to be changing. In the current economy and amid falling valuations for fintechs, many of them are focusing on profitability rather than growth for its own sake. And banks are changing, too. Small community banks, which we’ll define loosely as those below $10 billion in assets, historically have been reluctant to engage directly in partnerships with fintech companies unless those companies are offered by their core processors.

Traditionally, banks’ own policies forbid contracting with young firms that lack several years of audited financial statements, a fact that has excluded the vast majority of early-stage fintechs. But as fintechs mature in terms of compliance with banking regulations and as banks try to incorporate better technology into their systems, there is more room to meet in the middle.

This report is intended as a guide to help more banks take advantage of the offerings of financial technology companies to improve efficiency, customer relationships and to facilitate growth, and to do it in a way that mitigates risk.

First, though, I start with some terminology. Partnership gets batted around an awful lot. But what is it?

The Federal Reserve’s 2021 report, “Community Bank Access to Innovation Through Partnerships,” defines partnerships broadly to include traditional vendor relationships as well as more expansive arrangements that include shared objectives and outcomes, such as revenue sharing. We’ll adopt the Fed’s definition here, for ease of discussion.

In your journey to see what the universe may offer, Godspeed.

The Business Deposits Challenge

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In this excerpt from Reinventing Banking, Bank Director’s special podcast series sponsored by Microsoft Corp., Derik Sutton points to the value that community banks provide to their local small businesses. But that’s evolving in the digital age, as businesses have new ways to access capital and get paid. In the conversation, he discusses:
  • What’s Changed in Banking Small Businesses
  • How Mobile Apps Could Become Payments Terminals
  • Reconnecting With Customers
To listen to this episode in its entirety, click here.

Finding Your Customer’s Moment of Need

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A banker may think the quote, “You’ve got to take on growth tactics and a growth mindset that’s different than the way you did in the past,” had come from the main stage at Bank Director’s annual Acquire or Be Acquired Conference, an event that focuses primarily on financial institution growth. Instead, it came from a tiny studio six floors up, in a recorded conversation between two non-bankers.

Derik Sutton, chief marketing officer of Autobooks, a payments technology company that provides banks invoicing, accounts receivable and accounts payable solutions for their business customers, owns those words. He believes that community banks are positioned to earn and retain business customer relationships by finding and acting on their customers’ moments of need.

In this episode of Reinventing Banking, a special podcast series brought to you by Bank Director and Microsoft Corp., Sutton describes traditional banking practices that can be reimagined for digital, why convenience is king in the payments space and how asking hard questions could be key to getting ahead.

Instead of discerning what their business customers need from digital reports, it may be time for bankers to lace up their boots and get back on Main Street to find out for themselves.

This episode, and all past episodes of Reinventing Banking, are available on FinXTech.com, Spotify and Apple Music.

How to Get More Value Out of Your Tech Spend

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If banks want digital transformation to be more than a buzz phrase, they need a strategy based on a keen understanding of what their customers want — along with trusted partners that can help them deliver.

That’s exactly how Little Rock, Arkansas-based Encore Bank became one of the fastest-growing privately held commercial banks in the United States.

Under the guidance of Allan Rayson, the $2.8 billion bank achieved unprecedented results in 2021: 95% asset growth, 119% loan growth, 107% deposit growth, and 1,276 new loans worth approximately $740 million. I recently spoke with Rayson to find out how he vets tech vendors for optimal results.

“Early on, Encore Bank identified three big rocks that we wanted to move: driving commercial loan volume, driving core deposits and driving non-interest revenue,” he says. “Gaining clarity on our business outcomes helped us set a clear technology and innovation strategy.”

According to Rayson, Encore’s success comes down to getting specific about desired goals and outcomes. With upfront clarity on the desired outcome, the digital transformation conversation shifts from “we need tech” to something more substantial — not to mention measurable. For example: “We need the right technology to reduce our labor and marketing cost by X, increase our profit margins and new account openings by Y and boost our operational efficiency by Z.”

Best Practices for Vetting Tech Vendors

1. Legacy is not always better.
The Banking Impact Report found that legacy banking infrastructure is the top reason why bank executives have not fully embraced digital banking. In fact, legacy infrastructure can be a competitive liability that may be keeping your bank at a critical disadvantage in a crowded marketplace.

2. Steer clear of RFPs.
Many FIs rely on requests for proposal to vet technology partners. While this process can be helpful in identifying tech requirements and business objectives, RFPs often require a lengthy process and a drawn-out checklist that may fail to capture some of an institution’s most important considerations. Instead, make sure the fintech’s long-term strategic vision aligns with the bank’s strategic vision, and that the partnership will serve future banking needs.

3. One code base is better than custom code.
Custom code is risky. It can be time intensive and difficult for an institution to update. It doesn’t scale or innovate at the speed that banks might require, and it leaves little room to adapt for whatever the future may hold. Modern platforms that leverage a software as a service approach are built on a single code base. That means they can apply learnings from all of their customers directly onto the platform, so every customer benefits from economies of scale. This can be a major competitive differentiator that will help any bank keep up with the speed of innovation.

Many financial institutions view technology as a cost versus an investment — and a high-risk cost at that. But the advantages of strategic tech partnerships are far-reaching, and the right partner can deliver an enormous return on investment.

“I have zero developers on staff at Encore,” Rayson says. “Even so, we’ve grown to $2.5 billion and will be $3 billion by the end of the year without one. That shouldn’t be possible, but it is with the right tech partners. We probably rely on our fintech partners more than most banks — and I see that as a strength.”