Winners Announced for the 2019 Best of FinXTech Awards


Awards-9-10-19.pngBanks face a fundamental paradox: They need to adopt increasingly sophisticated technology to stay competitive, but most have neither the budget nor the risk appetite to develop the technology themselves.

To help banks address this challenge, a legion of fintech companies have sprung up in the past decade. The best of these are solving common problems faced by financial institutions today, from improving the customer experience, growing loans, serving small business customers and protecting against cybersecurity threats.

To this end, we at Bank Director and FinXTech have spent the past few months analyzing the most innovative solutions deployed by banks today. We evaluated the performance results and feedback from banks about their work with fintech companies, as well as the opinions of a panel of industry experts. These fintechs had already been vetted further for inclusion in our FinXTech Connect platform. We sought to identify technology companies that are tried and true — those that have successfully cultivated relationships with banks and delivered value to their clients.

Then, we highlighted those companies at this year’s Experience FinXTech event, co-hosted by Bank Director and FinXTech this week at the JW Marriott in Chicago.

At our awards luncheon on Tuesday, we announced the winning technology solutions in six categories that cover a spectrum of important challenges faced by banks today: customer experience, revenue growth, loan growth, operations, small business solutions and security.

We also announced the Best of FinXTech Connect award, a technology-agnostic category that recognizes technology firms that work closely with bank clients to co-create or customize a solution, or demonstrated consistent collaboration with financial institutions.

The winners in each category are below:

Best Solution for Customer Experience: Apiture

Apiture uses application programming interfaces (APIs) to upgrade a bank’s digital banking experience. Its platform includes digital account opening, personal financial management, cash flow management for businesses and payments services. Each feature can be unbundled from the platform.

Best Solution for Revenue Growth: Mantl

MANTL developed an account-opening tool that works with a bank’s existing core infrastructure. Its Core Wrapper API reads and writes directly to the core, allowing banks to set up, configure and maintain the account-opening product

Best Solution for Loan Growth: ProPair

ProPair helps banks pair the right loan officer with the right lead. It integrates with a bank’s systems to analyze the bank’s data for insights into behaviors, patterns and lender performance to predict which officer should be connected with a particular client.

Best Small Business Solution: P2BInvestor

P2Binvestor provides an asset-based lending solution for banks that helps them monitor risk, track collateral and administer loans. It partners with banks to give them a pipeline of qualified borrowers.

Best Solution for Improving Operations: Sandbox Banking

Sandbox Banking builds custom APIs that communicate between a bank’s legacy core systems like core processors, loan origination, customer relationship management software and data warehouses. It also builds APIs that integrate new products and automate data flow.

Best Solution for Protecting the Bank: Illusive Networks

Illusive Networks uses an approach called “endpoint-focused deception” to detect breaches into a bank’s IT system. It plants false information across a bank’s network endpoints, detects when an attacker acts on the information and captures forensics from the compromised machine. It also detects unnecessary files that could serve as tools for hackers.

Best of FinXTech Connect: Sandbox Banking

The middleware platform, which also won the “Best Solution for Improving Operations” category, was also noted for working hand-in-hand with bank staff to create custom API connections to solve specific bank issues. In addition, banks can access three-hour blocks of developer time each month to work on special projects outside of regular technical support.

How Community Banks Can Compete Using Fintechs, Not Against Them


fintech-7-15-19.pngSmaller institutions should think of financial technology firms as friends, not foes, as they compete with the biggest banks.

These companies, often called fintechs, pose real challenges to the biggest banks because they offer smaller firms a way to tailor and grow their offerings. Dozens of the biggest players are set to reach a $1 billion valuation this year—and it’s not hard to see why. They’ve found a niche serving groups that large banks have inadvertently missed. In this way, they’re not unlike community banks and credit unions, whose people-first philosophy is akin to these emerging tech giants.

Ironically, savvy fintechs are now smartly capitalizing on their popularity to become more like big banks. These companies have users that are already highly engaged; they could continue to see a huge chunk of assets move from traditional institutions in the coming year. After all, what user wouldn’t want to consolidate to a platform they actually like using?

The growth and popularity of fintechs is an opportunity for community banks and credit unions. As customers indicate increasing openness to alternative financial solutions, these institutions have an opportunity to grab a piece of the pie if they consider focusing on two major areas: global trading and digital capabilities.

Since their creation, community banks and member-owned organizations have offered many of the same services as their competitors. However, unlike fintechs, these financial institutions have already proved their resilience in weathering the financial crisis. Community banks can smartly position themselves as behind-the-scenes partners for burgeoning fintechs.

It may seem like the typical credit union or community banking customer would have little to do with international transactions. But across the world, foreign payments are incredibly common—and growing. Global trading is an inescapable part of everyday consumer life, with cross-border shopping, travel and investments conducted daily with ease. Small businesses are just as likely to sell to a neighbor as they are to a stranger halfway around the globe. Even staunchly conservative portfolios may incorporate some foreign holdings.

Enabling global trades on a seamless digital scale is one of the best avenues for both community banks and credit unions to expand their value and ensure their continued relevance. But the long list of requirements needed to facilitate international transactions has limited these transactions to the biggest banks. Tackling complex regulatory environments and infrastructure can be not only intimidating, but downright impossible for firms without an endless supply of capital earmarked for these such investments.

That means that while customers prefer community banks and credit unions for their personalization and customer service, they flock to big banks for their digital capabilities. This makes it all the more urgent for smaller operations to expand while they have a small edge.

Even as big banks pour billions of dollars into digital upgrades, an easy path forward for smaller organizations can be to partner with an established service that offers competitive global banking functions. Not only does this approach help them save money, but it also allows them to launch new services faster and recapture customers who may be performing these transactions elsewhere.

As fintechs continue to expand their influence and offerings, innovation is not just a path to success—it’s a survival mechanism.

How Innovative Banks are Eliminating Online Card Fraud

Card fraud has a new home. Just a few years after the prolonged and pricey switch to EMV chip cards, fraud has migrated from purchases where the card is physically swiped to transactions where the card is not present. The shift means that U.S. banks might be on the cusp of yet another move in card technology.

EMV chips were so successful in curbing cases of fraud where the card was swiped that fraud evolved. Fraud is 81 percent more likely to occur today in “card-not-present” transactions that take place over the phone or internet rather than it is at the point of sale, according to the 2018 Identity Fraud Study by Javelin Research.

Technology has evolved to combat this theft. One new solution is to equip cards with dynamic card verification values, or CVVs. Cards with dynamic CVVs will periodically change the 3-digit code on the back of a credit or debit card, rendering stolen credentials obsolete within a short window of time. Most cards with dynamic codes automatically change after a set period of time—as often as every 20 minutes. The cards are powered by batteries that have a 3- to 4-year lifespan that coincides with the reissuance of a new card.

Several countries including France, China and Mexico have already begun adopting the technology, but the rollout in the United States has been more limited. The new Apple Card, issued by Goldman Sachs Group, boasts dynamic CVV as a key security feature. PNC Financial Services Group also launched a pilot program with Motion Code cards in late 2018.

Bankers who remember the shift to EMV might cringe at the thought of adopting another new card technology. But dynamic CVVs are different because they do not require merchants to adopt any new processes and do not create extra work for customers.

But one challenge with these more-secure cards will be their cost. A plastic card without an EMV chip cost about 39 cents. That cost rose to $2 to $3 a card with EMV. A card with the capability for a dynamic CVV could cost 5 times as much, averaging $12 to $15.

But advocates of the technology claim the benefits of eliminating card-not-present fraud more than covers the costs and could even increase revenue. French retail bank Société Générale S.A. worked with IDEMIA, formerly Oberthur Technologies, to offer cards with dynamic CVVs in fall 2016. The cards required no change in customers’ habits, which helped with their adoption, says Julien Claudon, head of card and digital services at Société Générale.

“Our customers appreciate the product and we’ve succeeded in selling it to customers because it’s easy to use.”

He adds that card-not-present fraud among bank customers using the card is “down to almost zero.”

Eliminating card-not-present fraud can also eliminate the ancillary costs of fraud, says Megan Heinze, senior vice president for financial institutions activities in North America at IDEMIA. She says card fraud is estimated to cost banks up to $25 billion by 2020.

“A lot of prime customers ask for the card the next day. The issuer then has to get the card developed—sending a file out that has to be printed—and then it’s FedExed. The average FedEx cost is around $10. The call to the call center [costs] around $7.50,” she says. “So that’s $17. And that doesn’t even include the card.”

What’s more, dynamic CVVs could also create a revenue opportunity. Société Générale charges customers a subscription fee of $1 per month for the cards. The bank saw a more than 5 percent increase in new customers and increased revenue, according to Heinze.

Still, some are skeptical of how well a paid, consumer-based model would fare in the U.S. market.

“The U.S. rejected EMV because it was so expensive to do. It was potentially spending $2 billion to save $1 billion, and that’s what you have to look at with the use case of these [dynamic CVV] cards,” says Brian Riley, director of credit advisory service for Mercator Advisory Group. “If it tends to be so expensive I might want to selectively do it with some good customers, but for the mass market there’s just not a payback.”

Still, dynamic CVVs are an interesting solution to the big, expensive problem of card-not-present fraud. While some institutions may wait until another card mandate hits, adopting dynamic CVV now could be a profitable differentiator for tech-forward banks.

Potential Technology Partners

IDEMIA

Idemia’s Motion Code technology powers cards for Société Générale and is being piloted by PNC and WorldPay.

GEMALTO

Gemalto’s Dynamic Code Card hasn’t been publicly linked to any bank or issuer names, but the company cites its own 2015 Consumer Research Project for some impressive statistics on customer demand for dynamic CVV cards.

SUREPASS ID

SurePass ID offers a Dynamic Card Security Code. The company’s founder, Mark Poidomani, is listed as the inventor of several payment-related patents.

FITEQ

FiTeq’s dynamic CVV requires cardholders to push a button to generate a new CVV code.

VISA AND MASTERCARD

Visa and Mastercard are leveraging dynamic CVV codes in their contactless cards

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

How Innovative Banks are Eliminating Online Card Fraud


technology-5-8-19.pngCard fraud has a new home. Just a few years after the prolonged and pricey switch to EMV chip cards, fraud has migrated from purchases where the card is physically swiped to transactions where the card is not present. The shift means that U.S. banks might be on the cusp of yet another move in card technology.

EMV chips were so successful in curbing cases of fraud where the card was swiped that fraud evolved. Fraud is 81 percent more likely to occur today in “card-not-present” transactions that take place over the phone or internet rather than it is at the point of sale, according to the 2018 Identity Fraud Study by Javelin Research.

Technology has evolved to combat this theft. One new solution is to equip cards with dynamic card verification values, or CVVs. Cards with dynamic CVVs will periodically change the 3-digit code on the back of a credit or debit card, rendering stolen credentials obsolete within a short window of time. Most cards with dynamic codes automatically change after a set period of time—as often as every 20 minutes. The cards are powered by batteries that have a 3- to 4-year lifespan that coincides with the reissuance of a new card.

Several countries including France, China and Mexico have already begun adopting the technology, but the rollout in the United States has been more limited. The new Apple Card, issued by Goldman Sachs Group, boasts dynamic CVV as a key security feature. PNC Financial Services Group also launched a pilot program with Motion Code cards in late 2018.

Bankers who remember the shift to EMV might cringe at the thought of adopting another new card technology. But dynamic CVVs are different because they do not require merchants to adopt any new processes and do not create extra work for customers.

But one challenge with these more-secure cards will be their cost. A plastic card without an EMV chip cost about 39 cents. That cost rose to $2 to $3 a card with EMV. A card with the capability for a dynamic CVV could cost 5 times as much, averaging $12 to $15.

But advocates of the technology claim the benefits of eliminating card-not-present fraud more than covers the costs and could even increase revenue. French retail bank Société Générale S.A. worked with IDEMIA, formerly Oberthur Technologies, to offer cards with dynamic CVVs in fall 2016. The cards required no change in customers’ habits, which helped with their adoption, says Julien Claudon, head of card and digital services at Société Générale.

“Our customers appreciate the product and we’ve succeeded in selling it to customers because it’s easy to use.”

He adds that card-not-present fraud among bank customers using the card is “down to almost zero.”

Eliminating card-not-present fraud can also eliminate the ancillary costs of fraud, says Megan Heinze, senior vice president for financial institutions activities in North America at IDEMIA. She says card fraud is estimated to cost banks up to $25 billion by 2020.

“A lot of prime customers ask for the card the next day. The issuer then has to get the card developed—sending a file out that has to be printed—and then it’s FedExed. The average FedEx cost is around $10. The call to the call center [costs] around $7.50,” she says. “So that’s $17. And that doesn’t even include the card.”

What’s more, dynamic CVVs could also create a revenue opportunity. Société Générale charges customers a subscription fee of $1 per month for the cards. The bank saw a more than 5 percent increase in new customers and increased revenue, according to Heinze.

Still, some are skeptical of how well a paid, consumer-based model would fare in the U.S. market.

“The U.S. rejected EMV because it was so expensive to do. It was potentially spending $2 billion to save $1 billion, and that’s what you have to look at with the use case of these [dynamic CVV] cards,” says Brian Riley, director of credit advisory service for Mercator Advisory Group. “If it tends to be so expensive I might want to selectively do it with some good customers, but for the mass market there’s just not a payback.”

Still, dynamic CVVs are an interesting solution to the big, expensive problem of card-not-present fraud. While some institutions may wait until another card mandate hits, adopting dynamic CVV now could be a profitable differentiator for tech-forward banks.

Potential Technology Partners

IDEMIA

Idemia’s Motion Code technology powers cards for Société Générale and is being piloted by PNC and WorldPay.

Gemalto

Gemalto’s Dynamic Code Card hasn’t been publicly linked to any bank or issuer names, but the company cites its own 2015 Consumer Research Project for some impressive statistics on customer demand for dynamic CVV cards.

SurePass ID

SurePass ID offers a Dynamic Card Security Code. The company’s founder, Mark Poidomani, is listed as the inventor of several payment-related patents.

FiTeq

FiTeq’s dynamic CVV requires cardholders to push a button to generate a new CVV code.

Visa and Mastercard

Visa and Mastercard are leveraging dynamic CVV codes in their contactless cards

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

Drafting a Data Strategy


data-4-29-19.pngBanks need to be aware of trends in data analytics that are driving decision-making and customer experience so they can draft an effective data plan. Doing so will allow them to compete with the biggest banks and non-bank technology competitors that are already using internal customer data to predict behavior and prescribe actions to grow those relationships. These approaches leverage concepts like machine learning and artificial intelligence — buzzwords that may seem intimidating but are processes and approaches that can leverage existing information to grow and deepen customer relationship and profitability.


analytics-4-29-19-tb.png10 Data and Analytics Trends Banks Should Consider
Current trends in analytics include focusing on the customer’s experience, using artificial intelligence and machine learning in analysis, and storing and organizing information in ways that reduce risk. Banks also need to know about threats like cybersecurity, long-term developments like leveraging blockchain, and how to build a governance program around the process. Knowing the trends can help companies make educated choices when implementing a data strategy.

datat-trends-4-29-19-tb.pngHow Banks Can Make Use of Data-Driven Customer Insight
Banks can use machine learning and artificial intelligence to gain insights into customer behavior and inform their decisions. These data-driven approaches can efficiently analyze the likeliness of future events, as well as suggest actions that would increase or decrease that likeliness. Many institutions recognize the need for new technical capabilities to improve their customer insight, but a significant percentage struggle to embrace or prioritize the technology among other priorities at their bank. These institutions have an opportunity to establish a data strategy, map out their internal information and establish appropriate governance that surrounds the process.

The Next Things To Know About Data


data-3-5-19.pngThere’s one thing in today’s banking industry that is critical to remaining competitive, being innovative, and maintaining compliance and risk levels: data.

This is no longer a surprise for most banks. It’s an issue that comes up often among bank boards and management, but there are still a number of challenges that banks must overcome to be successful in all of those areas.

It has a connection to many of the major decisions boards make, from what third-party partners to join forces with to how it integrates the next landmark technology.


	strategy-3-5-19-tb.pngFive Steps to a Data-Driven Competitive Strategy
Maintaining a competitive advantage for banks today lies in one of its most precious assets: data. Banks have the gold standard of consumer data, and leveraging that information can be the trump card in achieving growth goals.

Getting there, though, requires good governance of data and technology, and then using those elements to craft strategic objectives.

compliance-3-5-19-tb.pngFintechs Can Fend Off Compliance Issues With Data
Fintechs are known to be nimbler than banks for a few reasons, including a limited regulatory framework compared to their bank partners and a smaller set of products or services. But with that relative freedom comes added risk if they don’t comply with broader regulatory requirements. One compliance problem can put a fintech out of business.

But those companies can use data to reduce compliance risk. Here’s how.

risk-3-5-19-tb.pngRisk Management at the Forefront in Fintech Partnerships
Bank regulators have generally kept their distance from interfering in bank-fintech partnerships. Agencies have deferred to the bank’s third-party risk management process, but some regulators have indicated the intent to keep a closer eye on third-party fintech firms.

Here is an overview of what banks should keep in mind when considering and managing the risk associated with these third-party partnerships.

innovation-3-5-19-tb.pngFour Ways To Innovate And Manage Risk, Compliance
There is a careful balance that banks must strike in today’s industry. To remain competitive, they have to innovate, but they also have to remain compliant with regulations, many of which have stood for years, and manage risks that can ebb and flow with economic and technological pressure.

Finding a similar balance between thinking strategically for the future while also remembering what has worked and not worked can also be challenging for financial institutions. Building a checklist around these four ideas can help achieve that balance.

partner-3-5-19-tb.pngHow to Pick The Right Data Partner
Banks are grappling with trying to gain the greatest efficiency through a variety of innovative and technological tools, but often are hampered by the quality of the data they maintain. To make correct and sound decisions, accurate and reliable data is essential.

Partnering with third-party data service providers can help with that effort, but even that requires due diligence. To help with that due diligence, banks should have a checklist of capabilities for those partners.

Four Interesting Insights From High-Performing Bank CEOs


insight-1-11-19.pngThere comes a point in the process of mastering a subject (in this case, banking) when reading books or articles, or studying data, begins to offer diminishing returns.

After reaching that point, the best way to maintain a steep learning curve is to speak directly with authorities on the topic.

There are lots of authorities on banking—academics, consultants and lawyers, to name a few—but the ones who know the most are seasoned executives sitting atop high-performing banks.

I had many conversations with top-performing bankers in 2018. Here are four of the most valuable insights I picked up along the way.

1. The benefit of skin in the game
People in business talk all the time about the importance of a long-term mindset. Thinking long-term is especially critical in banking, given the leverage used by banks and the severe cycles that afflict the industry.

Unfortunately, in a world geared toward quarterly performance, maintaining a long-term mindset is easier said than done. When times are good and there are no signs of economic trouble, it’s only natural to relax lending standards to maintain market share.

Steering clear of this requires discipline. And one way to impose discipline is through skin in the game. If executives own large stakes in the institutions they run, they’re less likely to take imprudent risks.

This was one of the takeaways from my conversation with Joe Turner, CEO of Great Southern Bancorp, one of the industry’s top-performing banks over the past four decades.

“There are always going to be cycles in banking, and we think the down cycles give us an opportunity to propel ourselves forward,” he said. “Having a big investment in the company plays into this. It gives you credibility with institutional investors. When we tell them we’re thinking long-term, they believe us. We never meet with an investor that our family doesn’t own at least twice as much stock in the bank as they do.”

2. The pace of innovation in banking
It’s tempting to think the pace of innovation in the banking industry has accelerated over the past few years.

Even most millennials can probably remember when they had to visit a branch to make a deposit or check their account balance. Today, by contrast, three-quarters of deposits at Bank of America Corp., the nation’s second biggest bank by assets, are completed through its digital channels.

But this doesn’t mean bankers are strangers to change, because they aren’t. The industry has been in an acute state of evolution since the 1970s, when laws against branch and interstate banking started to come down.

Furthermore, while change is indeed happening, perhaps even accelerating, one benefit associated with operating in a heavily regulated industry is it won’t change overnight.

This was one of the takeaways from my conversation with John B. McCoy, CEO from 1984-99 of the notoriously innovative Bank One, which is now a part of JPMorgan Chase & Co.

“The digital thing is happening—it’s changing things—but it’s not going at warp speed or anything,” said McCoy “Maybe one of the reasons is that banks are still highly regulated, so it’s hard for an outsider to come in and disrupt the whole system. … But absolutely it’s going to make a difference, and in 10 years things will look totally different than they look today. But I don’t see any one thing that will change things overnight.”

3. Continuous self-improvement
In 2015, Phil Tetlock, a Wharton Business School professor, published his book, Superforecasting: The Art and Science of Prediction.

Don’t let the corny title fool you. Tetlock is a leading authority on the accuracy of predictions. The book walks readers through an experiment he conducted to determine whether some people can forecast more accurately than others.

Not only did Tetlock find some people were in fact better at forecasting than others—the so-called superforecasters—he also found those people shared certain traits.

Foremost among those traits is perpetual beta, “the degree to which one is committed to belief updating and self-improvement.” According to Tetlock, perpetual beta was nearly three times as powerful a predictor as its closest rival, intelligence.

It should be no surprise then that many top executives at top-performing banks share a similar trait, dedicating large amounts of time to learning and self-improvement.

Here’s how Brian Moynihan, chairman and CEO of Bank of America, answered my question about what he reads:

“It’s an eclectic mix, but basically newspapers, periodicals and I get a lot of books sent to me. It’s mainly just a lot of articles. The world has changed. It used to be when I delivered papers in college that I’d read The Boston Globe, The New York Times and The Providence Journal because I delivered them every morning. I still read them, but where I pick up most stuff now is from the article flow on a given day coming through all the feeds.”

He went on:

“Reading is a bit of a short hand for a broader type of curiosity. The reason I attend conferences is to listen to other people, to pick up what they’re thinking and talking about. So it’s broader than reading. It’s about being willing to listen to people and think about what they say. It’s about being curious and trying to learn. That’s what we try to instill in our people. The minute you quit being educated formally your brain power starts to shrink unless you educate yourself informally.”

4. Continuity of leadership
Some sort of panic, crash or credit crisis has struck the banking industry an average of once every decade going back to the Civil War. Yet, every time a crisis strikes, it catches bankers by surprise and leads to legions of bank failures.

The problem is that each new generation of banker has to re-learn the lessons of history. And these lessons are often learned the hard way.

This is why it’s important for banks to maintain institutional consciousness, passing lessons learned from the older generation of bankers down to the younger generation.

One bank that’s done this particularly well is First Financial Bankshares, the dominant locally owned bank in West Texas and one of the top-performing regional banks in the country over the past two decades.

There are a number of explanations for First Financial’s success during this time, which encompasses the financial crisis, but one is that its current chairman and CEO Scott Dueser lived through an acute banking crisis in Texas in the 1980s and is determined to avoid doing so again.

“The 1980s was this super education,” said Dueser. “I learned what not to do. And I learned how to get out of problem loans. I’m so glad I went through it because I remember it today and am not ever going to go through it again. And that’s why in the 90’s [and through the financial crisis] we did so well. That’s the value of having somebody like me in a bank that remembers. All these young guys, they don’t remember that. So how do you teach them? Well, you just tell them this is what happens when you do that.”

Banks Need A Digital Advisory Dance Partner


fintech-12-6-18.pngFor many consumers, their relationships with financial institutions can be highly personal. They often choose a bank because that’s where their family has done business, or because they’ve done their own due diligence and made a personal choice.

That gives people have a certain level of loyalty to their chosen organizations.

Due to the highly sensitive nature of financial relationships, trust is essential to maintaining them. But with the rise of technology, and the demand for financial organizations to adopt and adapt, many are faced with the risk of their own attention diverting from their core strength — building and maintaining customer relationships.

This is understandable for a few reasons. In order for banks to acquire new clients and retain their existing ones, they need to meet customers where they are, whether that means offering mobile apps or digital services beyond the core of a typical banking relationship.

A great example of this is the demand for digital wealth management. Consumers are increasingly looking for services that enable them to manage their wealth online, and the proof is in the numbers.

Assets on digital platforms stand at approximately $397 billion and are expected to more than triple, eclipsing $1.4 trillion by 2022, according to the data service Statista.

For financial institutions looking to capture a piece of this growth, speed to market is a vital differentiator. While many might consider designing and launching their own digital advisory platform in-house, the risks are significant both internally and externally. For consumers, in the time it might take for a financial institution to build its offering from start to finish, many might seek out a provider that can meet their needs immediately.

For institutions, asking staff to focus on work outside of their specialty might cause them to leave for more nimble firms that can leverage technology to empower and not distract their workforce.

The solution to both challenges? Outsource non-core technology capabilities, such as digital advisory services, to proven, enterprise-ready third parties that understand the banking space. This approach helps retain talent while simultaneously enabling banks to support a higher volume of higher value customers.

Done right, outsourcing to sophisticated digital advisory providers allows banks to retain existing customers while also focusing its efforts on attracting new ones. It opens new opportunities to deepen engagement and further monetize existing relationships through upselling. It also opens the possibility for growth into new market segments — the much talked about notion of increasing wallet share.

Offering digital advisory shouldn’t cost much to support. Sophisticated third-party solutions offer easy access to wealth management for digitally savvy customers, enabling them to self-serve with minimal assistance. These solutions, in turn, allow banks to service these types of clients with less overhead.

Choosing the right approach for offering a digital wealth platform comes down to institutional preparedness. Designing and developing a solution in-house takes time and money. Partnering with a third party that supports white-labeled technology allows for quick and easy implementation, allowing you to harness the provider’s talent as your own.

One thing to keep in mind when hiring a vendor is whether or not they have deep experience in both the wealth management and the banking spaces. This means finding trusted providers that have taken the time to integrate with multiple banking cores and custodians, as well as diverse payment systems and best-in-breed portfolio managers.

Having the right pipes in place ensures implementation flows seamlessly, without any clogs in the process.

Additionally, banking institutions entrenched with legacy systems can feel comfortable partnering with a third-party provider that is pre-vetted and has established relationships with core providers, the only way that new technologies can be deployed at the speed of customer demand.

Five Lessons You Can Learn from Tech-Savvy Banks


technology-9-20-18.pngFew directors and executives responding to Bank Director’s 2018 Technology Survey believe their bank to be industry-leading when it comes to how they strategically approach technology—just five percent, compared to 70 percent who identify their bank as a fast follower, and 25 percent who say their bank is slow to implement or struggles to adopt new technology.

While most banks understand the need to enhance their technological capabilities and digital offerings, the leaders of more tech-savvy banks reveal they’re seeking outside help, as well as focusing greater internal resources and more board attention to the technological conundrum faced by the industry; that is, how to make their banks more efficient, and better serve customers so they don’t take their deposit dollars or loan business to another competitor—whether that’s the local credit union, one of the big banks or a digital challenger.

Based on the survey, we uncovered five lessons from these banks that you should consider adopting in your own institution. At the very least, you should be discussing these issues at your next board meeting.

1. Tech-savvy banks see a primarily digital future for their organizations.
While innovation leaders and laggards are equally as likely to cite the improvement of the digital user experience as a top goal over the next two years, respondents from tech-savvy banks are less likely to focus on the branch channel. Just 14 percent plan to upgrade their branch technology in the next two years, and 14 percent plan to add new technology in their branches, compared to roughly half of respondents from fast follower or technologically struggling banks.

Goals-chart.png

Tech-savvy banks are also more likely to indicate that they plan to close branches—29 percent, compared to 8 percent of their peers—and they’re slightly more likely add branches that are smaller—57 percent, compared to 45 percent.

With branch traffic down but customers still expecting great service from their financial provider—in a digital format—many banks will need to rethink branch strategies. “There is a newer branch model that, to me, more resembles an office environment that you would go to get advice, to sit down and meet with people, but it’s really not a place where transactions are going to be taking place,” says Frank Sorrentino, the chief executive of $5.3 billion asset ConnectOne Bancorp, based in Englewood Cliffs, New Jersey. The branch still has a place in the banking ecosystem, but “people want a high level of accessibility, and the highest form of accessibility is going to be through the digital channel.”

2. Industry-leading banks are more likely to seek newer technology startups to work with, rather than established providers.
Seventy-one percent of tech-savvy banks have a board and management team who are open to working with newer technology providers that were founded within the past five years, to help implement new products and services, or create efficiencies within the organization. In contrast, 31 percent of their peers haven’t considered working with a startup, and 10 percent aren’t open to the idea.

“We in the smaller end of the banking space find ourselves constrained in how much investment we can make in technology,” says Scott Blake, the chief information officer at $4.3 billion asset Bangor Savings Bank, in Bangor, Maine. “So, we have to find creative ways to leverage the investments that we are able to make, and one of the ways that we’re able to do that is in looking at some of these earlier-stage companies that are on the right track and trying to find strategic ways that we can connect with them.”

Working with newer providers could require extra due diligence, and banks leading the field when it comes to technological adoption indicate they’re willing to take a little more time to get to know the companies with which they plan to work. This means meeting with the vendor’s executive team (100 percent of respondents from tech-savvy organizations, versus 62 percent of their peers) and visiting the vendor’s headquarters to meet its staff and understand its culture (71 percent, compared to 51 percent of peers).

“I’m a pretty big believer in trying to have these relationships be partnerships whenever possible, and that doesn’t happen if we don’t have a company-to-company relationship, and a person-to-person relationship,” says Blake. By partnership, he means the bank actively works with the startup to produce a better product or service, which benefits Bangor Savings and its customers, as well as the bank’s technology partner and its clients.

3. Tech-savvy banks dedicate a high-level executive to technology and innovation.
Eighty-three percent of respondents from tech-savvy banks say a high-level executive focuses on innovation, compared to 53 percent of their peers. They’re also more likely to report that their bank has developed an innovation lab or team, and are more likely to participate in hackathons and startup accelerators.

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But Blake doesn’t believe that establishing an innovation unit that functions separately from the bank is culturally healthy for his organization, though it can be effective tool to attack select projects or problems. Instead, Bangor Savings has invested in additional training and education for staff who have the interest and the aptitude for innovation. “We want everyone, to some extent, to think about, ‘how can I do this task that I have to do better,’ and that will hopefully yield longer-term benefits for us,” he says.

4. The board discusses technology at every meeting.
Eighty-three percent of respondents from tech-savvy banks say directors discuss technology at every board meeting, compared to 57 percent of fast followers and one-quarter of respondents whose banks are slow or struggle to adopt technology. They’re also more likely to have a board-level technology committee that regularly presents to the board—50 percent, compared to 28 percent of their peers.

Larry Sterrs, the chairman of the board at $4.2 billion asset Camden National Corp. in Camden, Maine, says with technology driving so many changes, a committee was needed to address the issue to ensure significant items were reviewed and discussed. The committee focuses on items related to the bank’s budget around technology, including status updates on key projects, and stays on top of enhancing products, services and delivery channels, as well as back-office improvements and cybersecurity. It’s a lot to discuss, he says.

The board receives minutes and other information from the committee in advance of every board meeting, and technology is a regular line item on the agenda.

Technology committees have yet to be widely adopted by the industry: Bank Director’s 2018 Compensation Survey, published earlier this year, found 20 percent of boards have a technology committee. Bank boards also struggle to add technology expertise, with 44 percent citing the recruitment of tech-savvy directors as a top governance challenge.

5. Tech-savvy banks still recognize the need to enhance board expertise on the issue.
Individual directors of tech-savvy banks are no more likely to be early adopters of technology in their personal lives when compared to their peers, so education on the topic is still needed.

Not every director on the board can—or should—be a technology expert, but boards still need a baseline understanding of the issue. Camden National provides one or two technology-focused educational opportunities a year, in addition to written materials and videos from outside sources. If a specific technology will be addressed on the agenda, educational materials will be provided, for example. This impacts the quality of board discussion. “We always get a good dialogue and conversation going, [and] we always get a lot of really good questions,” says Sterrs.

Bank Director’s 2018 Technology Survey is sponsored by CDW. Click here to view the full results.

7 Things Bank Boards Should Focus on in the Year Ahead


board-9-10-18.pngThe world of corporate governance today has a brighter spotlight on boards of directors than ever before. While bank regulatory relief has provided a long-awaited respite, bank examiners seem to be zeroing in on governance, director performance and board succession. Here are 7 things directors should have on their radar screens in the year ahead:

  1. Defining Innovation. Digitization and innovation are the buzzwords, but truly embracing the transformations taking place all around us can be daunting.  Pondering how technology has altered our client relationships and acquisitions means thinking out of the box, which may be a challenge for some directors and bank executives. A refresh of the bank’s website is not an innovation—it is table stakes.  True innovative thinking requires more proactivity and planning, and likely some outside perspectives as well. Boards should encourage management to craft a plan to address to these challenges, which are key to remaining relevant.
  2. Talent Management. Historically, boards viewed talent management as the purview of executive leadership and the CEO, except when it came to CEO succession. In today’s talent-deficient environment, though, boards need to hold the CEO and senior team much more accountable for developing the next generation of leaders and revenue generators. If your bank wants to perform above the mean, then the senior team must be composed of very strong players well suited to execute your strategic plan. A true linkage between the business strategy and human capital strategy has never been more critical for success and survival.
  3. Revisiting Compensation Strategies. Balancing the tradeoffs between enhanced compensation packages and performance/accountability has become a significant challenge for compensation committees and CEOs. In this competitive talent climate, banks need to make sure that their compensation practices properly reflect the bank’s market and goals, motivate the right behaviors, and incentivize key players to both perform, and remain, with the institution. Fresh board thinking in this area may be appropriate, particularly for banks that have been less performance driven with their incentive programs, or do not have the currency of a publicly listed stock as a compensation tool.
  4. Enhanced Accountability and Self-Assessment. Just as boards need to truly hold their CEO accountable for institutional performance, boards need to hold themselves accountable as well. Governance advocates are pushing for boards to assess their own performance, both as a group and individually. Directors should have the fortitude to evaluate their peers—confidentially, of course—to identify areas for improvement. Directors should be open to this feedback, and work to improve the value they bring to the institution.
  5. Onboarding New Directors and Ongoing Training. Plenty of data reinforces that new executives as well as board members contribute more rapidly when there is a formal approach to ramping up their knowledge of the company. Expectations of new directors should be clear up front, just as any new employee. A combination of information and inculcation into the institution provides context for decision-making; clarifies the cultural norms; and often reveals the hidden power structures, including the boardroom. A strong onboarding program forms the foundation for ongoing board education. There should be an annual plan for each director’s education to maintain currency, refresh specific skills, and to stay abreast of leading governance practices.
  6. Board Refreshment. Are we truly building a board of diverse thinkers with the range of skills needed to govern appropriately today? Age and tenure have become flashpoints around continued board service, in reality they avoid dealing with declining contributions and underperforming directors. Every board seat is a rare and precious thing, and needs to be filled with someone who broadens the collective skills and perspectives around the board table. Board nominating and governance committees need to manage accountabilities for existing—and particularly for prospective—directors, and be willing to make the tough calls when needed. Underperforming directors should be encouraged to raise their game or be asked to step aside.
  7. Leading by Example. In today’s information-driven society with endless social media channels and instant visibility, C-Level leaders and board members are under the microscope. Lapses in judgment, breaches of policy or inappropriate behavior, once validated, must be dealt with quickly and decisively. The company’s brand reputation and credibility are always at risk. The board itself—along with the CEO, of course—must set the standard for ethics and compliance and lead from the front. Every day.

Bank Boards will continue to be under scrutiny no matter the environment. More importantly, a bank’s board must be a strategic asset for the institution and provide strong oversight and advice. The expectations of good governance have never been higher, and successful boards will raise their own performance to ensure success and survival.