Poll Results: Digital Transformation’s Next Phase

NYDIG-Report.pngJPMorgan Chase & Co., which is the largest U.S. bank by assets, spends $12 billion a year on technology, investing in a vast array of technologies that include machine learning, artificial intelligence and blockchain. The second largest bank, Bank of America Corp., spends roughly $3.5 billion annually on new technology initiatives alone, according to Chairman and CEO Brian Moynihan.

It’s a lot of money — and a level of spending that smaller banks can’t hope to achieve. Executives and directors primarily representing community banks under $10 billion in assets reported a median technology budget of $1.7 million for fiscal year 2021 in Bank Director’s 2021 Technology Survey, with a median increase in spending of 10% compared to the previous year.

Those limitations should have bank leaders thinking strategically about how to allocate those precious dollars. With that in mind, Bank Director’s FinXTech division polled bank executives in January and February 2022 about technology adoption trends, and asked about specific noncore solutions that have had a recent, significant impact toward achieving their goals.

Bankers identified 20 platforms as their favorites when it came to driving that change, ranging from digital lending solutions to data analysis. You can find the companies listed on page 7-8 of the report. To categorize the solutions by type, we relied on input from FinXTech Research Analyst Erika Bailey, who manages Bank Director’s FinXTech Connect platform, a guide to financial technology companies working with U.S. banks.

While the past 18 months found many banks putting digital account opening and lending platforms in place — in response to the digital acceleration brought about by the pandemic — banks shifted plans for the next 12 months to application programming interface (API) platforms, data aggregation and analysis, and workflow automation.

To gain additional perspective on these trends, we talked to the executives of three banks that are actively accelerating their digital journeys. Mascoma Bank, a $2.6 billion mutual in Lebanon, New Hampshire, is in the early stages of implementing an API-enabled, cloud-based core platform that will help the bank customize its product and service offerings. St. Louis-based Midwest BankCentre, with $2.4 billion in assets, leveraged its digital subsidiary to expand its capabilities to all of its customers; it will expand digital account opening to business clients in 2023. And West Reading, Pennsylvania-based Customers Bancorp, with $20 billion in assets, is using data-driven insights to fuel the next phase of its digital transformation.

Click here to access the poll results and learn more about how those banks are moving technology transformation forward in this special report.

Also included is a success checklist, questions that boards and leadership teams could ask to help strengthen their technology strategy.

Bank leaders should start by evaluating their organization’s strengths and how technology can align with strategy, advises Ron Shevlin, chief research officer at Cornerstone Advisors. “Stop thinking about technology adoption, and focus more on … the business opportunity,” he says. “Focus on the business results.”

An Inside Look At One Bank’s Digital Growth Planning

By now, most bank leadership teams understand the importance of offering well-designed digital experiences. What we’ve found is often more elusive is knowing where to start when making a significant investment in digital.

One bank that recently grappled with this was Boston-based Berkshire Hill Bancorp, the $11.6 billion parent company of Berkshire Bank.

Executives wanted to digitally transform the bank and that success would only be achievable if they unified around a core set of goals and built a robust strategic plan for reaching them. This vision allowed teams to work toward individual milestones along the way.

We recently spoke with Lucia Bellomia, EVP and head of retail banking and CIO Jason White. They gave us an inside look at what went into developing the Berkshire BEST plan for transformation, and the factors they believe will lead to their successful digital growth.

The Berkshire leadership team started by recognizing that if the plan was going to truly transform the entire bank, they needed to gather input and feedback from every department. “Executives spoke to stakeholders in every department to what milestones the bank would need to hit and what it would take to achieve those goals”, says Bellomia. They also formed groups specifically to achieve some of the components of that milestone.

Involving this many additional stakeholders extended the strategic planning phase — In Berkshire’s case, it took three months of meetings. But White felt the time spent laying a foundation of transparency and open communication will help the bank execute and fulfill the objective of the transformation.

Without some clearly defined pillars outlining your main goals, the whole process of starting the institution’s digital plan can feel chaotic and messy. White suggests that banks first investigate what it means for their institution to digitally transform, and then define the core strategic pillars from there.

Berkshire’s three core pillars were: optimize, digitize and enhance. These pillars support efforts to improve the customer experience, deliver profitable growth, enhance stakeholder value, and strengthen their community impact. Taking the time to first define core pillars that support a larger strategic plan helped Berkshire Bank recognize even greater opportunities. Rather than simply adding new digital services to their banking stack, they realized they could facilitate the evolution of their entire bank.

With the plan announced and in place, Berkshire launched into the execution phase of its transformation. Here, they were met with new challenges that required thoughtful commitments from leadership and investments in project infrastructure. One impactful early investment was developing a transformation office that was responsible for measuring, monitoring and communicating the success of the plan. Executives and sponsors worked with the office to define both date and monetary milestones.

A dedicated internal resource focused on project management helped Berkshire communicate the progress made toward each milestone through regular meetings, tracked and updated key performance indicators, and other updates.

Equally important to the success of Berkshire’s transformation plan was its commitment to scrutinizing each investment and vendor to ensure the right fit and an acceptable return on investment for the bank. The bank is a “low-code” development team with limited resources and used achievable digital goals to identify and select vendors to digitize, according to the bank’s plan.

As part of its transformation plan, the bank extended its existing fintech relationship to include digital banking platforms for consumer and small business customers. This allows the bank to innovate and digitize at an accelerated pace, without having to grow internal developer resources.

Ultimately, institutions like Berkshire Bank are realizing that developing a successful plan for digital transformation that works for both internal stakeholders and customers requires a rethinking of the way executive teams gather feedback, address challenges across departments, and monitor the success of a project.

The Race to Perform

Last October, I journeyed to Austin, Texas, to watch my first Formula One race. Like many, Netflix’s wildly popular Formula 1: Drive to Survive drew me in. That docuseries dramatically increased the popularity of the sport in the United States, with plenty of drama on track and off. 

Inevitably, the show takes viewers inside a showdown between two cars jostling for points, separated by mere milliseconds. While being out front has its advantages, so too does drafting your competition, waiting for the chance to pull ahead. Indeed, the “push-to-pass” mechanism on a race car provides a temporary jolt of speed, allowing the hunter to quickly become the hunted. Speed, competition and risk-taking is on my mind as we prepare to host Bank Director’s Experience FinXTech event May 5 and 6 in the same city as the Circuit of The Americas.

Much like Formula One brings some of the most ambitious and creative teams together for a race, Experience FinXTech attracts some of the most inspiring minds from the deeply competitive financial services space.

Now in its seventh year, the event connects a hugely influential audience of U.S. bank leaders with technology partners at the forefront of growth and innovation. Today, as banks continue to transition towards virtual or digital strategies, fintechs become partners rather than just competitors in the race to succeed. 

We’ll look not only at fintechs offering efficiencies for banks, but at fintechs offering growth and improved performance as well. As fintech guru Chris Skinner recently noted, “If you only look at technology as a cost reduction process, you never get the market opportunities. If you look at technology as a market opportunity, you get the cost savings naturally as a by-product.”

We’ll consider investor appetites, debate the pros and cons of decentralized finance and share experiences in peer exchanges. 

Throughout, we’ll help participants gauge technology companies at a time when new competitors continue to target financial services.   

Most Formula One races are won on the margins, with dedicated teams working tirelessly to improve performance. So too are the banks that excel — many of them with dedicated teams working with exceptional partners.

How Innovative Banks Manage Cannabis-Related Businesses

The number of banks providing financial services to cannabis-related businesses (CRBs) has doubled in the last two years according to filings from the Financial Crimes Enforcement Network.

But, once a bank answers the philosophical question of whether it wants to participate in the cannabis industry, it must consider the more difficult question of how. Technology firms have sprung up to help banks fill this need, but assessing the value propositions of these solutions in such a nascent, complex industry can be a challenge.

Alan Hanson helped establish one of the first cannabis banking programs in the nation as the general counsel of Salem, Oregon-based Maps Credit Union back in 2014. In his experience, software “can gather the data, but really can’t evaluate the data” needed to manage CRB risk.

Many new compliance solutions gather data by tying into the point-of-sale systems used by CRBs and the seed-to-sale tracking systems run by the states. Hanson, now a Portland, Oregon-based attorney at Gleam Law, says these tools can typically match CRB sales to the deposits that come into the bank. However, they can’t always assess vital information, like where that money goes when it leaves a CRB account. For that, it’s important to have compliance staff that has a handle on their cannabis clients’ operations and vendor networks.

For example, if a CRB client misallocated funds from their dispensary to their grow operation, a well-trained banker could spot the discrepancy based on the use of funds to purchase special lights or tubing that aren’t required for a dispensary operation. Those types of distinctions can be harder for technology platforms to detect.

Technology is most helpful for managing the processes associated with onboarding, ongoing document collection, case management and reporting.

Some institutions, like Narragansett Financial Corp. bank unit BayCoast Bank, leverage their existing Bank Secrecy Act (BSA) solution — Verafin — for reviewing suspicious, flagged activities. The Swansea, Massachusetts-based bank supplements the BSA process with quarterly audits and support from employees with experience in both compliance and customer service. For more specialized monitoring tasks, the $1.9 billion bank uses spreadsheets and other traditional methods. As BayCoast’s number of CRB clients grows, so does its team. Chief Risk Officer Gary Vierra oversees the CRB program and estimates the bank needs one full-time employee for every eight to 10 CRB clients.

Other banks are looking to CRB-specific tools to help them get into cannabis banking without materially growing headcount. That was one of the goals for Marlborough, Massachusetts-based Main Street Bank, which has just over $1 billion in assets. It selected technology from Shield Compliance to help manage its CRB program.

Potential clients told the bank they needed a simple, single place to manage documentation requests and other communication with the bank. This led Main Street to select Shield, which provides automated compliance and document collection workflows in addition to BSA functions. Main Street’s team liked that the Shield interface mirrored Verafin, which the BSA team was already using, and estimated that the platform enabled it to launch its CRB program with about a third of the staff they would have needed otherwise.

CRB-specific compliance tools are gaining traction within banks, but there are other “silver bullet” solutions financial institutions should be wary of. The biggest one is companies that claim to help CRBs accept credit and debit card payments.

Currently major card brands do not allow CRBs to participate in their networks; forcing them to rely on cash causes significant, practical issues for these businesses and their banks. To address that pain point, some companies circumvent the prohibition by coding transactions in such a way that the networks do not recognize them as being linked to cannabis purchases — essentially masking the transactions as something else. “That’s not the way we do business,” Vierra says, “and most of the cannabis companies don’t want to do business that way either.”

Cannabis banking presents opportunities for banks to increase fee income and broaden their deposit base among a profitable niche. But with those opportunities comes the challenge of creating a compliant program for serving complex businesses. Technology can help, but banks need a solid understanding of the industry to succeed.

Potential Technology Partners:

Shield Compliance

Built by a former banker, Shield Compliance helps financial institutions manage CRB operations in a format that’s familiar to compliance officers.

Abaca

This company’s compliance specialists follow up on suspicious activity for the bank, and assist with identifying and vetting potential CRB clients.

Green Check Verified

This compliance platform provides a wealth of information to help banks understand the cannabis banking landscape nationally and within local markets.

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

Are Innovation Labs the Best Way to Innovate?


innovation-1-15-18.pngThese days, companies as diverse as Lowe’s and Blue Cross are touting a shiny new innovation lab—and banks are no different. These special divisions, designed to incubate new ideas and technologies, are on the rise. According to a report from the website Innovation Management, the number of innovation labs jumped 66 percent in a 15-month period from July 2015 through October 2016. But even though some banks like to think of themselves as technology companies, does it really make sense for them to build standalone innovation teams?

Bank innovation labs are unlikely to replicate the secret sauce found in many successful startup companies because they are artificially engineered environments that cannot recreate the parameters that allow the most successful technologies to thrive. As described by Anderee Berengian, CEO of Cie Digital Labs, in-house innovation labs are missing three key ingredients:

  1. A passionate leader: Apple had Steve Jobs, Facebook has Mark Zuckerberg and Amazon has Jeff Bezos. The most successful technology companies in the world have one thing in common: a passionate, obsessive founder. Bank innovation labs miss out on this key ingredient. Even if they’re able to hire a technical wunderkind to run the lab, they simply can’t have that kind of passion. Part of this is because of a lack of ownership. Part of this is that labs are rarely, if ever, founded to pursue a specific idea or product. Bank labs are conjured up to digitize the company, explore new products or pursue any myriad of equally vague directives. These directives do not inspire and, without a visionary founder to lead the way, labs flounder about trying to build something that will meet undefined and unmeasurable objectives.
  2. Room to fail: Banks expect a reasonable ROI when they make a large investment. As Berengian described, “[p]icture Thomas Edison trying 5,000 light bulb filaments before settling on tungsten . . . [t]he reality is, most profit-focused companies would stop after 500 tries. Edison would then go start his own company.” Many of the “innovations” banks expect to come out of labs will not immediately add to the bottom line, or may be difficult to measure in any meaningful capacity for that matter.
  3. Constraints: Bank innovation labs also lack the constraints that force startups to either succeed or burn out. Bank innovation teams have security. So what if they don’t make that iteration deadline? It’s not like they need to ensure another funding round. Without clear objectives and high stakes, it’s hard to push an innovation lab to the lengths necessary to be truly groundbreaking.

Banks are, by nature, the direct opposite of startups; so why are they striving to artificially recreate that environment? That’s not to say that banks are incapable of invention—quite the opposite. To meet the demands of the digital world, banks don’t need innovation labs. They simply need to harness the creativity and ingenuity their teams already possess.

We know that innovation works best when it’s engrained as a corporate cultural value (see the book “Driving Growth Through Innovation,” by Robert Tucker). Too often, responsibility for innovation is limited by organizational silos that relegate the task (typically seen as merely one of many check marks on a CEO’s to-do list) to a small pocket of individuals. Technological advancement shouldn’t be a pet project for an executive team, or a nebulous directive for an innovation lab. It should be a goal that’s shared by every employee—from the retail teller to the CEO—so that ideas can flow freely from those that have a good handle on the way the bank actually works.

Instead of investing in new innovation labs, banks should strive to encourage organic innovation by fostering a culture that prizes critical thinking and new ideas. For example, USAA stays on the cutting edge of technology by utilizing the ideas of its 30,000 employees through events, challenges and its “ideas platform,” which allows any bank employee to post and vote on new ideas. Over 1,000 employee ideas were implemented in 2017. (For more on USAA, read the article “Crowdsourcing Innovation” in the May 2017 issue of Bank Director digital magazine.)

That’s not to say that remaking a bank’s culture is easy. Cultivating culture is hard, especially at a large institution, and can be even more difficult than creating an in-house innovation lab. However, the rewards of culture shift can be more far reaching and long lasting than a lab because new talent—especially tech talent—wants to work in an open, inclusive environment that encourages collaboration.

Innovation is not new; it’s something humans inherently do when faced with a problem. To truly innovate, banks don’t need new office facilities or new branches on their organizational chart (and, really, who needs more of those?) Instead, they need to embrace the natural creativity in their organizations and harness ideas to create specific solutions to real issues.

Using Culture to Drive Innovation at Your Bank


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

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

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

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

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

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

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

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

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

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

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

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

Balancing Innovation and Risk Through Disciplined Disruption


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The digital disruption reshaping financial services mirrors the disruption brought about by Netflix, Uber, Lyft and Amazon in other sectors of the economy. What distinguishes financial technology companies is the financial and personal information their consumers entrust them with. The savviest fintech companies are those that employ discipline and structure to manage risk.

Many fintech companies adopt a fast-failure approach: move quickly and accept mistakes as necessary for innovation. Coordinating innovation with risk management might seem cumbersome. But if innovation is not integrated with effective risk management, companies risk running afoul of regulatory or compliance responsibilities.

One challenge fintech companies face is the sheer number of regulators that have rulemaking or supervisory authority over them due to unique business models and state level licensing and regulators. In the absence of a uniform regulatory scheme, there is widespread confusion about rules, expectations, oversight and regulatory risk. Many fintech companies and their banking partners remain uncertain about which laws and regulations apply or, most importantly, how they will be supervised against those rules.

A potential solution to this problem was the announcement in December 2016 by the Office of the Comptroller of the Currency (OCC) that it intended to create a special purpose national bank charter for fintech companies. The OCC aims to promote safety and soundness in the banking system while still encouraging innovation. A special purpose national bank charter would create a straightforward supervisory structure, coordinated by one primary regulator. This has turned out to be a controversial proposal, since the Conference of State Bank Supervisors has sued the OCC in federal court claiming that creation of a fintech charter would be a violation of the agency’s chartering authority.

Common Weaknesses
Executing an effective risk management plan in an innovative culture is challenging. Companies should be alert to the following common areas of weakness that can create vulnerability.

Compliance culture: Fintech companies often have more in common with technology startups than with financial services companies, which becomes particularly notable when maintaining a compliance management system (CMS). Compared with banking peers, many fintech firms generally have less mature compliance cultures that can struggle under increased regulatory scrutiny. The lack of a comprehensive CMS exposes companies to considerable risk, particularly as regulators apply bank-like expectations to fintech companies.

Risk assessments: Many companies fail to move beyond the assessment of inherent risk to the next logical steps: identifying and closing gaps in the control structure. Assessing the control environment and continually aligning an organization’s resources, infrastructure and technology to pockets of unmitigated risk is critical.

Monitoring and testing: Fintech companies can fail to distinguish between monitoring and testing, or understand why both are important. When executed properly, the two processes provide assurance of sound and compliant risk strategy.

Complaint management: Many organizations become mired in addressing individual complaints instead of the deeper issues the complaints reveal. Root cause analysis can help companies understand what is driving the complaints and, if possible, how to mitigate similar complaints through systemic change.

Corrective action: Finally, because of their fast-fail approach, fintech companies do not always follow up to remediate problems. Companies need feedback loops and appropriate accountability structures that allow them to track, monitor and test any issues after corrective action has taken place.

Strategies Across the Organization
Fintech companies should define clear and sustainable governance and risk management practices and integrate them into decision-making and operational activities across the organization. There are a number of actions that can help companies establish or evaluate their risk management strategies.

Assess risks: Because the fast-failure approach can ignite risk issues across the board, companies should evaluate their structure and sustainability of controls, the environment in which they operate, and their leadership team’s discipline level to measure the coordination of risk management and operational progress.

Identify gaps: Often, these gaps (for example non-compliance with certain laws and regulations, ineffective controls or a poor risk culture) represent the gulf between risks and the risk tolerance of the organization. A company’s risk appetite should drive the design of its risk management strategy and execution plan.

Design a road map: Whether a certain risk should be managed through prevention or mitigation will be driven by the potential impact of the risk and the available resources. Defining a plan within these constraints is important in explaining the risk management journey to key stakeholders.

Execute the plan: Finally, companies should deploy the resources necessary to execute the plan. Appropriate governance, including clear lines of accountability, is paramount to disciplined execution.

Successful companies align their core business strategies with effective risk management and efficient compliance. This alignment is especially important in the constantly changing fintech environment. Risk management and innovation can and should coexist. When they do, success is just around the corner.

John Epperson, principal with Crowe Horwath LLP, is theco-author of this piece.

Best of FinXTech Award Winners Announced at Nasdaq


award-winner-4-26-17.pngWhile many bankers still think of them as a source of competition, most fintech companies focus on providing solutions that will ultimately make financial institutions more efficient and profitable. True, some fintech firms do compete head-to-head with banks, but the great majority of them are more interested in partnering with banks in ways that will benefit both sides. In recognition of this growing trend towards cooperation, FinXTech.com recently held its 2nd annual Best of FinXTech Awards, which highlights collaborative efforts between banks and fintech companies working together in a successful partnership. From a pool of 10 finalists, three winners were chosen by this year’s FinXTech Advisory Group. The judging criteria were strength of integration, innovation and growth in revenue, reputation and the customer base that resulted form the project. The three teams, whose stories are detailed below, were honored today at the FinXTech Summit in New York.

USAA and Nuance

Headquartered in San Antonio, Texas, USAA wanted to develop a stronger relationship with current customers while also attracting new customers through the use of technology that would meet their needs and preferences. Since 2013, USAA has utilized Burlington, Massachusetts-based Nuance’s virtual assistant technology—called Nina—on its mobile banking app. Nina leverages natural language understanding and artificial intelligence to provide a proactive and personalized customer experience. In 2016, following Nina’s widespread adoption by USAA members on the mobile channel, the bank deployed Nina on its usaa.com website.

On usaa.com, Nina provides immediate, human-like support and assists USAA members with tasks such as activating cards, changing a PIN, adding travel notifications and reporting lost or stolen cards. Nina goes far beyond a static question-and-answer capability to deliver a more human experience that speaks, listens, understands and helps USAA members get things done efficiently. Nina responds to 1.4 million requests per month and eliminates the need for USAA members to sift through menus, ensuring that every interaction begins and ends with an effortless, natural experience. Through its partnership with Nuance, USAA is able to provide its customers with a compelling, multi-channel, automated customer service experience that keeps it ahead of the pack.

Scotiabank and Sensibill

In October 2016, Scotiabank—Canada’s third largest bank—and Sensibill, both of Toronto, launched eReceipts, a service that allows customers to store, organize and retrieve any receipt (paper or electronic) directly from Scotiabank’s mobile banking app and wallet. Scotiabank is the first of the Canadian Tier 1 banks to rollout the solution, and Scotiabank CEO Brian Porter has referred to it as a “game-changing application.”

Sensibill’s receipt processing engines uses deep learning and machine-learning to extract and structure information about each item, including product names and SKU codes. This adds clarity to otherwise vague transactions and reduces the friction associated with searching for a specific purchase. The service is also the first to offer consumers automatic matching of receipts to card transaction histories, which supports customers’ need for convenience and accessibility and enables Scotiabank to provide a seamless end-to-end payment experience.

Scotiabank customers use the service to track both personal and business expenses, with approximately 38 interactions with the service per month per customer. In the same way that online and mobile bill pay serves as a “sticky” product that retains customers who do not want to move their information to another bank, eReceipts has the propensity to reduce attrition. Forty-eight percent of eReceipts users use the app’s folders and notes to keep themselves organized, with captured receipts often being revisited. Not only does the app improve the customer experience, it also has the potential to lower the bank’s costs. For example, Scotiabank believes that 20 percent of credit and debit card queries could have been resolved through the Sensibill app, which ultimately should lead to a reduction in call center activity.

Green Dot Corp. and Uber Technologies Inc.

One of the biggest challenges workers in the gig economy face is gaining speedy access to their earnings. In March 2016, Uber, the transportation network company headquartered in San Francisco, and Green Dot, a prepaid card issuer located in Pasadena, California, launched a customized business version of Green Dot’s GoBank mobile checking account. Initially piloted in San Francisco and a few other cities, the solution provides Uber drivers with immediate access to their funds through a feature called Instant Pay. All drivers do is open a free Uber debit card from a mobile GoBank checking account and use this account to access their earnings instantly, for free, up to five times per day. Drivers are also able to use their Uber debit card for free at any of GoBank’s 42,000 ATMs spread across the country, and can also use it for transactions wherever Visa cards are accepted.

The pilot was so successful that in June 2016, Uber offered the solution to all of its drivers nationally, resulting in over 100,000 drivers signing up since August. That same month, in response to driver feedback and increasing demand, Uber and Green Dot announced it was expanding Instant Pay to work with not only a GoBank account, but almost any U.S. MasterCard, Visa or Discover debit card that is attached to a traditional checking and savings account. The expanded debit card program has scaled quickly, with millions of transactions having occurred between the August launch date and September 30, 2016.

The other seven finalists in this year’s Best of FinXTech Awards were IDFC Bank and TATA Consultancy Services, Franklin Synergy Bank and Built Technologies, National Bank of Kansas City and Roostify, Somerset Trust Co. and BOLTS Technologies, Toronto-Dominion Bank and Moven, Woodforest National Bank and PrecisionLender, and WSFS Bank and LendKey.

A Roadblock That Ruins Futures


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Culture is one of the best things a bank has going for it. It’s also one of the worst.

While I am bullish on the future of banking as a concept, I am admittedly concerned about what’s to come for many banks who struggle with cultural mindsets resistant to change. Specifically, the same mindsets that helped weather the last few years’ regulatory challenges and anemic economic growth may now prevent adoption of strategically important, but operationally risky, relationships with financial technology companies.

Most banks don’t have business models designed to adapt and respond to rapid change. So how should they think about innovation? I will raise that question and others at our upcomingFinTech Weekin New York City startingtoday, a look at how technology continues to change the nature of banking. Those in attendance include banks both large and small, as well as numerous financial technology companies.

More so than any regulatory cost or compliance burden, I sense that the organizational design and cultural expectations at many banks present a major obstacle to future growth through technology.While I am buoyed by the idea that smaller, nimble banks can compete with the largest institutions, that concept of agility is inherently foreign to most legacy players. It doesn’t have to be. Indeed, Richard Davis, the chairman and CEO of the fifth largest bank in the country, U.S. Bancorp, shared at our Acquire or Be Acquired Conference in Phoenix last January that banks can and should partner with fintech companies on opportunities outside of traditional banking while working together to create better products, better customer service and better recognition of customer needs.

The urgency to adapt and evolve should be evident by now.The very nature of financial services has undergone a major change in recent years, driven in part by digital transformation taking place outside banking.Most banks—big and small—boast legacy investments.They have people doing things on multi-year plans, where the DNA of the bank and culture does not empower change in truly meaningful ways.For some, it may prove far better to avoid major change and build a career on the status quo then to explore the what-if scenarios.Here, I suggest paying attention to stories like those shared by our Editor-in-Chief Jack Milligan, who just wrote about PNC Financial Services Group in our current issue of Bank Director magazine. As his profile of Bill Demchak reveals, it is possible to be a conservative banker who wants to revolutionize how a company does business.But morphing from a low-risk bank during a time of profound change requires more than just executive courage. It takes enormous smarts to figure out how to move a large, complex organization that has always done everything one way, to one that evolves quickly.

Of course, it’s not just technological innovation where culture can be a roadblock.Indeed, culture is a long-standing impediment to a successful bank M&A deal, as any experienced banker knows. So, just as in M&A deals, I’d suggest setting a tone at the top for digital transformation.

Here are three seemingly simple questions I suggest asking in an executive team meeting:

  • Do you know what problems you’re trying to solve?
  • What areas are most important to profit and near-term growth?
  • Which customer segments are critical for your bank?

From here, it might be easy to create a strategic direction to improve efficiency and bolster growth in the years ahead.But be prepared for false starts, fruitless detours and yes, stretches of inactivity.As Fifth Third Bank CEO Greg Carmichael recently shared in an issue of Bank Director magazine, “Not every problem needs to be solved with technology… But when technology is a solution, what technology do you select? Is it cost efficient? How do you get it in as quickly as possible?You have to maintain it going forward, and hold management accountable for the business outcomes that result if the technology is deployed correctly.”

Be aware that technology companies move at a different speed, and it’s imperative that you are nimble enough to change, and change again, as marketplace demands may be different in the future. Let your team know that you are comfortable taking on certain kinds of risk and will handle them correctly. Some aspects of your business may be harmed by new technology, and you will have to make difficult trade-offs. Just as in M&A, I see this is an opportunity to engage with regulators.Seek out your primary regulator and share what you’re looking for and help regulators craft an appropriate standard for dealing with fintech companies.

Culture should not be mistaken for a destination.If you know that change is here, digital is the expectation and you’re not where you want to be, don’t ignore the cultural roadblocks. Address them.

Buying Bank Technology: If Not Now, When?


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FoMO, or the Fear of Missing Out, isn’t just a pop culture buzzword created to describe our obsession with social media. It’s an actual, scientifically proven phenomenon described in scientific literature as “the uneasy and sometimes all-consuming feeling that you’re missing out—that your peers are doing, in the know about, or in possession of more or something better than you.”

That feeling probably sounds very familiar to bankers these days. In the press, in blogs, on podcasts, and at every industry conference, bankers are hearing that the time is now to make big technology changes in their organizations. Everyone seems to be busy innovating, and many bankers are left wondering if they’re the ones being left behind.

In this case, the answer may be “Yes.”

We are facing a set of once-in-a-generation circumstances that will determine the winners and losers in banking for the coming decades. And this separation of the “haves” from the “didn’t act fast enough to be among the haves” is already in motion.

Here are the four big trends that have converged to create the opportunity—or threat—of a lifetime for banks.

1) Tech Spending Neglected
A great deal has been written about how antiquated much of the banking infrastructure has become. Some concerns about legacy systems are overblown, but there is undoubtedly a marked difference between the digital experience customers have with their banks and what they encounter in most other parts of their lives. Banks still handle debits and credits as well as ever, but when compared to the Amazon, Netflix or Gmail experience, the gap is widening. Banks cut all spending following the financial crisis, and have been slow to replace those vacated technology budgets in the face of new regulations and shrinking margins. The result is wide swaths of banking technology that haven’t been upgraded in 10-plus years.

2) Expected “windfalls” from regulatory and tax reform
In our interactions with banks, there has been a sudden change in mood. Bankers have shifted quickly from the glass being half empty to half full, in large part because of the outcome of the November elections. Banks now see the potential for big windfalls, in the form of tax relief and regulatory reform, with a recent Goldman Sachs piece suggesting that industry earnings in 2018 could increase by 28 percent over current estimates if the chips fall just right.

3) Interest rates (and margins) are rising
In addition to those windfalls, banks are also getting a long-awaited earnings boost from rising interest rates. The Federal Reserve has increased overnight rates by 0.75 percent, and long-term rates have followed suit, with 10-year Treasury yields up more than 1 percent from their 2016 lows. Deposits rates have been slow to follow along, resulting in margins that are finally improving after years of painful compression.

4) Game changing technology is plentiful and accessible
Finally, in the decade since most banks have been actively in the market, the number and quality of technology solutions has exploded. Computing power, high quality data sets and cheap storage are contributing to a renaissance in enterprise software, and banks now have multiple possible solutions for just about any conceivable business need. You are no longer beholden to your core provider to sell you everything, as the new generation of tools are better at integrating, easier to deploy and easier to use. On top of all that, most of them are also incredibly cheap for the value they are providing, making them accessible to banks of all sizes and shapes.

When you combine these four factors, you see why there is so much hoopla around innovation and fintech. Many bankers are viewing the next few years as their one big chance to completely revamp the critical pillars of their business. Due to the long gap in meaningful technology investment, they are starting with a blank slate, and because of the recent improvement in profitability trends, they have sufficient budgets to make substantial changes. They are approaching the market and finding plentiful options and are excited by the opportunity.

Some will choose wisely and win big. Others will choose poorly and will not fare as well. But FoMO is real: If you simply stand on the sidelines and do nothing, that is also a choice. Your competitors will leave you behind, and soon your customers might just do the same.

If you’re not willing to make some changes in this environment, when will you be?