2022 Technology Survey: Complete Results

Bank Director’s 2022 Technology Survey, sponsored by CDW, surveyed 138 independent directors, chief executives, 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. The survey was conducted in June and July 2022, and primarily represents banks under $10 billion in assets. Members of the Bank Services program have exclusive access to the full results of the survey, including breakouts by asset category.

The survey finds that most respondents (81%) say their bank increased its 2022 technology budget over last year, reporting a median 11% increase. Banks have primarily prioritized investments in new technology features and updates in areas like security, or where customers frequently interact with the bank, like payments or digital loan applications. 

Leveraging technology to create a more competitive and efficient organization requires internal know-how, and directors and executives find this to be a key area for concern: 48% worry about an inadequate understanding within the bank of emerging technologies. Forty-five percent say they’re worried about their organization’s reliance on outdated technology. 

While directors aren’t involved in day-to-day decisions about the bank’s technology, the board needs to align technology with strategy and ensure that the bank has the resources it needs to achieve its goals. Forty-two percent of respondents say their board has at least one member they would consider to be an expert in technology, including digital transformation, user experience or data analytics. 

Click here to view the complete results.

Key Findings

The Competitive Landscape
Fifty-six percent of all respondents view local banks and credit unions as their top competitive threat, followed by big and superregional banks, at 46%. One-third worry about competition from big tech companies such as Apple, while an equal number are concerned about competition from digital, nonbank business lenders. 

Hit-or-Miss on Digital Applications
Nearly half of respondents say their bank has a fully digital process for opening retail deposit accounts, with larger shares representing banks over $1 billion reporting as much. Far fewer respondents report a fully digital process for retail loans, small business deposits or loans, or commercial loans. 

Generational Divides
Just 25% of the directors and executives surveyed say their bank has the tools it needs to effectively serve Generation Z (16-25 years old), and half believe their institution can effectively serve millennials (26-40). Eighty-five percent say as much about Generation X (41-56), and 93% say this of baby boomers (57-75). 

All-In on the Cloud
Eighty-eight percent say their bank uses cloud technology to generate efficiencies internally; 66% use application programming interfaces (APIs), which allow different applications or systems to exchange data. Robotic process automation (32%) and artificial intelligence or machine learning (19%) are far less commonly used. 

New Frontiers
Three-quarters say their board or leadership team has discussed risks or opportunities related to cryptocurrency or digital assets in the past 18 months. Sixty-four percent say the same of banking as a service (BaaS), and 69% say that of environmental, social and governance issues. Cannabis, on the minds of 58%, has been more commonly discussed at banks under $5 billion of assets. 

Views on Collaboration
More than half of respondents view technology companies as vendors only, as opposed to collaborating with or investing in these firms. Thirty-nine percent, primarily representing banks over $1 billion in assets, say their institution has collaborated with technology providers on specific solutions. Twenty percent have participated in a venture fund that invests in technology companies, and 11% have directly invested in one or more of these companies. 

2022 Technology Survey Results: Investing in Banking’s Future

In mid-July, at the peak of second quarter earnings, large regional banks showed off an array of technology initiatives. 

Providence, Rhode Island-based Citizens Financial Group, with $227 billion in assets, highlighted a new mobile app for its direct-to-consumer digital bank. And $591 billion U.S. Bancorp in Minneapolis realized the benefits of its ongoing investments in digital payments capabilities over the years, reporting $996 million in payments services revenue, or a year-over-year increase of nearly 10%.

Community banks, with far fewer dollars to spend, have to budget wisely and invest where it makes the most sense. For many, that means prioritizing new technology features and updates in areas like security, or where customers frequently interact with the bank, like payments or digital loan applications.

Bank Director’s 2022 Technology Survey, sponsored by CDW, delves into some of these strategies, asking bank senior executives and board members about the concerns and challenges that their institutions face, and where they’ve been investing their resources in technology.

Eighty-one percent of respondents say their bank increased its 2022 technology budget over last year, reporting a median 11% increase. Asked where their bank built more efficient processes by deploying new technology or upgrading capabilities in the past 18 months, 89% named cybersecurity as a key area for investment, followed by security and fraud (62%). During the same time period, 63% implemented or upgraded payments capabilities to improve the customer experience; 54% focused on enhancing digital retail account opening.

Leveraging technology to create a more competitive and efficient organization requires internal know-how, and directors and executives find this to be a key area for concern: 48% worry about an inadequate understanding within the bank of emerging technologies. Forty-five percent say they’re worried about their organization’s reliance on outdated technology.

While directors aren’t involved in day-to-day decisions about the bank’s technology, the board needs to align technology with strategy and ensure that the bank has the resources it needs to achieve its goals. Forty-two percent of respondents say their board has at least one member they would consider to be an expert in technology, including digital transformation, user experience or data analytics.

Following on the heels of Bank Director’s 2022 Compensation Survey, which found technology talent in demand, the 2022 Technology Survey indicates that most banks employ high-level executives focused on technology, particularly in the form of a chief information security officer (44%), chief technology officer (43%) and/or chief information officer (42%). However, few have a chief data officer or data scientists on staff — despite almost half expressing concerns that the bank doesn’t effectively use or aggregate the bank’s data.

Key Findings

The Competitive Landscape
Fifty-six percent of all respondents view local banks and credit unions as their top competitive threat, followed by big and superregional banks, at 46%. One-third worry about competition from big tech companies such as Apple, while an equal number are concerned about competition from digital, nonbank business lenders.

Hit-or-Miss on Digital Applications
Nearly half of respondents say their bank has a fully digital process for opening retail deposit accounts, with larger shares representing banks over $1 billion reporting as much. Far fewer respondents report a fully digital process for retail loans, small business deposits or loans, or commercial loans.

Generational Divides
Just 25% of the directors and executives surveyed say their bank has the tools it needs to effectively serve Generation Z (16-25 years old), and half believe their institution can effectively serve millennials (26-40). Eighty-five percent say as much about Generation X (41-56), and 93% say this of baby boomers (57-75).

All-In on the Cloud
Eighty-eight percent say their bank uses cloud technology to generate efficiencies internally; 66% use application programming interfaces (APIs), which allow different applications or systems to exchange data. Robotic process automation (32%) and artificial intelligence or machine learning (19%) are far less commonly used.

New Frontiers
Three-quarters say their board or leadership team has discussed risks or opportunities related to cryptocurrency or digital assets in the past 18 months. Sixty-four percent say the same of banking as a service (BaaS), and 69% say that of environmental, social and governance issues. Cannabis, on the minds of 58%, has been more commonly discussed at banks under $5 billion of assets.

Views on Collaboration
More than half of respondents view technology companies as vendors only, as opposed to collaborating with or investing in these firms. Thirty-nine percent, primarily representing banks over $1 billion in assets, say their institution has collaborated with technology providers on specific solutions. Twenty percent have participated in a venture fund that invests in technology companies, and 11% have directly invested in one or more of these companies.

To view the high-level findings, click here.

Bank Services members can access a deeper exploration of the survey results. Members can click here to view the complete results, broken out by asset category. If you want to find out how your bank can gain access to this exclusive report, contact bankservices@bankdirector.com.

Where Banks Can Find Tech Talent

Even as the labor market cools, the need for tech talent remains particularly acute. The problem for banks is that they compete not just with other banks, credit unions and financial technology companies for data scientists, software engineers and product designers. 

“The reality is, when we start talking about engineers, designers, product individuals, every company on the face of the planet is hiring those types of talents,” says Nathan Meyer, head of innovation strategy at $545 billion Truist Financial Corp. 

That’s why Meyer and several other bankers are turning to the Georgia Fintech Academy, a unique program that trains college students across the University System of Georgia for technology jobs in financial services. Students in 26 institutions such as Georgia State, Georgia Tech and Kennesaw State, totaling 340,638 enrolled as of fall 2021, can work toward a certificate in financial services from a mix of nine undergrad courses and six graduate level courses. They might be majoring in computer science or business and taking those classes as electives. To complete the certification work, they need to finish three classes and complete an internship. The goal of the program is to help students find jobs in financial technology with employers across the nation. 

Normally, Generation Z students don’t gravitate to a career at Truist, BankSouth in Greensboro, Georgia, or Ally Financial, all of which are involved in the program, says Tommy Marshall, executive director of the Georgia Fintech Academy. Nor have they heard of the fintechs that have used the program, such as core providers FIS, Fiserv, or U.S. Bancorp’s payment processor Elavon. “If you say Square or CashApp, they’ll say yes, or Venmo, they’re there,” he says. 

Banks could improve their message to attract college students, says Meyer. “We’ve just started to do a better job around telling the story of banking, and helping students understand why it’s important,” he says. 

And the need is great. Marshall estimates that bigger banks are hiring 800 to 1,000 people from college campuses every year for technology jobs. Meyer says that Charlotte, North Carolina-based Truist needs to hire hundreds of software engineers annually and adds that even the business side of banking needs people who have an understanding of technology, as well as people who can articulate the technology needs to upper management. 

And it’s not just big banks that are hiring. Even community banks are looking for tech talent as they transform digitally. Kim Kirk, the chief operations officer for $2 billion Queensborough National Bank & Trust Co. in Louisville, Georgia, is looking for application program management and business intelligence folks. When she started working at the bank more than six years ago, a lot more employees performed mundane, clerical tasks. The bank’s business intelligence director now focuses on getting a better handle on customer information across the different departments and visualizing that data. “The talent you need is quite a bit different than what you needed maybe even five years ago,” Kirk says. 

This fall, she hopes to work with Fintech Academy students on a way to use predictive analytics to foresee when a customer is going to close an account. “We really need a way to be able to get a 360-degree view of our customers,” she says. 

Meyer, meanwhile, was interested to the program as a way to recruit racially and ethnically diverse prospects to Truist, so the bank’s employee base looks like the communities it serves. Truist has its heaviest branch concentration in the Southeast, following the consolidation of SunTrust Banks and BB&T Corp. in 2019, but it also crawls up the Eastern Seaboard into Washington, D.C., New Jersey and Pennsylvania. Marshall estimates that 71% of the students in the Fintech Academy belong to minority racial or ethnic groups and a third are women, due to the nature of the schools inside the Georgia university system. In its three years of operation, the Georgia Fintech Academy has placed 1,600 students in internships or jobs.

Although Marshall says other universities offer certificates in fintech, they’re mostly associated with graduate degrees or executive-level education, and won’t nearly meet the demand for talent. Outside of Georgia, the Centre for Finance, Technology and Entrepreneurship in London has noncredit courses, and Duke University, The Wharton School at the University of Pennsylvania and New York University all have programs. 

“There’s no other school system in the United States of America doing anything like what we’re doing now,” asserts Marshall.

Bank Director magazine’s third quarter 2022 issue has an additional article for subscribers on what banks are doing to attract and retain technology talent. 

What to Look for in New Cash and Check Automation Technology

Today’s financial institutions are tasked with providing quality customer experiences across a myriad of banking channels. With the increased focus on digital and mobile banking, bankers are looking for ways to automate branch processes for greater cost and time savings.

This need should lead financial institution leaders exploring and implementing cash and check automation solutions. These solutions can improve accuracy, reduce handling time and labor, lower cost, deliver better forecasting and offer better visibility, establish enhanced control with custom reporting and provide greater security and compliance across all locations, making transactions seamless and streamlining the branch experience. However, as bank leaders begin to implement a cash and check automation solution, they must remember how a well-done integration should operate and support the bank in its reporting and measurement functions.

Ask Yourself: Is This the Right Solution?
When a bank installs a new cash or check automation solution, the question that should immediately come to mind for a savvy operations manager is: “How well is this integrated with my current teller software?” Regardless of what the solution is designed to do, the one thing that will make or break its effectiveness is whether it was programmed to leverage all the available functionality and to work seamlessly with the banks’ existing systems.

For some financial institutions, the question might be as simple as: “Is this device and its functionality supported by my software provider?” If not, the bank might be left to choose from a predetermined selection of similar products, which may or may not have the same capabilities and feature sets that they had in mind.

The Difference Between True Automation and Not
A well-supported and properly integrated cash automation solution communicates directly with the teller system. For example, consider a typical $100 request from a teller transaction to a cash recycler, a device responsible for accepting and dispensing cash. Perhaps the default is for the recycler to fulfill that request by dispensing five $20 notes. However, this particular transaction needs $50 bills instead. If your cash automation solution does not directly integrate with the teller system, the teller might have to re-enter the whole transaction manually, including all the different denominations. With a direct integration, the teller system and the recycler can communicate with each other and adjust the rest of the transaction dynamically. If the automation software is performing correctly, there is no separate keying process alongside the teller system into a module; the process is part of the normal routine workflow within the teller environment. This is a subtle improvement emblematic of the countless other things that can be done better when communication is a two-way street.

Automation Fueling Better Reporting and Monitoring
A proper and robust solution must be comprehensive: not just controlling equipment but having the ability to deliver on-demand auditing, from any level of the organization. Whether it is a branch manager checking on a particular teller workstation, or an operations manager looking for macro insights at the regional or enterprise level, that functionality needs to be easily accessible in real time.

The auditing and general visibility requirements denote why a true automation solution adds value. Without seamless native support for different types of recyclers, it’s not uncommon to have to close and relaunch the program any time you need to access a different set of machines. A less polished interface tends to lead to more manual interactions to bridge the gaps, which in turn causes delays or even mistakes.

Cash and check automation are key to streamlining operations in the branch environment. As more resources are expanding to digital and mobile channels, keeping the branch operating more efficiently so that resources can focus on the customer experience, upselling premium services, or so that resources can be moved elsewhere is vital. Thankfully, with the proper cash and check automation solutions, bank leaders can execute on this ideal and continue to improve both the customer experience and employee satisfaction.

5 Things Banks Can Do Right Now to Protect Older Customers

Your bank’s most valuable customers are also its most vulnerable.

Americans born before 1965 hold 65% of bank deposits in the U.S., according to the American Bankers Association 2021 Older Americans Benchmarking Report. They are also routinely targeted by criminals: Adults ages 60 and older reported losing more than $600 million to fraud in 2020 alone, according to the Federal Trade Commission.

Banks’ role in protecting these customers is quickly becoming codified into law. More than half of states mandate that financial institution’s report suspected elder financial exploitation to local law enforcement, adult protective services or both.

However, banks need to go further to keep older adults’ money safe. Not only will these efforts help retain the large asset base of these valuable customers, but it can drive engagement with their younger family members who are involved in aging loved ones’ financial matters. Banks can do five things to support and protect their older adult customers.

1. Train employees to detect and report elder financial exploitation.
Although most banks train employees to spot elder financial exploitation, there’s confusion around reporting suspected exploitation due to privacy concerns, according to the Consumer Financial Protection Bureau. And when banks do file reports, they often aren’t filed directly with law enforcement or state Adult Protective Services agencies.

Executives must ensure their bank has clear guidelines for employees on reporting suspected exploitation. Training employees to detect and report fraud can help reduce the amount of money lost to exploitation. A study by AARP and the Virginia Tech Center for Gerontology found that bank tellers who underwent AARP’s BankSafe training reported five times as many suspicious incidents and saved older customers 16 times as much money as untrained tellers did.

2. Use senior-specific technology to monitor for fraud and financial mistakes.
Standard bank alerts don’t go far enough to protect against elder fraud. Banks should offer a financial protection service that:

  • Recognizes senior-specific risks such as unusual transfers, unfamiliar merchants and transactions that could be related to scams.
  • Monitors accounts to determine what is “normal” for each individual.
    Detects changes in transactional behavior and notifies customers of suspicious activity and their own money mistakes.
  • Bank Director identified companies and services, like Carefull, that can offer added protection by analyzing checking, savings and credit card accounts around the clock, creating alerts when encountering signs of fraud and other issues that impact older adults’ finances, such as duplicate or missed payments, behavior change and more.

3. Ensure older customers have trusted contacts.
The CFPB recommends that financial institutions enable older account holders to designate a trusted contact. If your bank isn’t already providing this service, it should. Technology gives banks a way to empower users to add trusted contacts to their accounts or grant varying levels of view-only permissions. This helps banks ensure that their customers’ trusted contacts are informed about any potential suspicious activity. It’s also a way for banks to connect with those contacts and potentially bring them on as new customers.

4. Create content to educate older customers.
Banks should inform older customers how to safeguard their financial well-being. This includes alerting them to scams and providing time-sensitive planning support, video courses and webinars about avoiding fraud.

Banks must also provide older customers with information about planning for incapacity, including the institution’s policy for naming a power of attorney. And banks must accept legally drafted power of attorney documents without creating unnecessary hurdles. Having a policy here allows for this balance.

5. Create an ongoing engagement strategy with older customers.
The days of banks simply shifting older adults to “senior checking accounts” are fading. Banks should take a more active role in engaging with older customers. Failing to do so increases the risk that this valuable customer base could fall victim to fraud, which AARP estimates totals about $50 billion annually.

Banks need a strategy to combine training, technology and content to generate ongoing senior engagement. Working with a trusted partner that has a proven track record of helping banks engage and protect older customers could be the key to implementing this sort of holistic approach.

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 Hills 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.