Strategy Before Structure

Imagine this scenario: A bank executive meets with an innovative and forward-thinking tech leader and is immediately taken in by their offering. They think it would make a lot of sense for their bank and ask the tech leader to meet with the rest of the bank team, who are similarly impressed. They do their due diligence and find that all of the tech company’s customers give them glowing reviews.

They move forward, and after some time and effort the product launches. Everyone is excited … until the product falls completely flat and ends up doing nothing to help the bank do business better. What happened?

Unfortunately, too many banks work with vendors without considering whether their products actually fit into the larger strategy of their bank first. Instead, they do the opposite: They mold their strategy around the technology vendor they end up working with.

In these situations, the principle of strategy before structure is really important. Are the actions you and your bank are taking defined by your strategy? Or is your strategy being driven by your vendors? It should always be the former.

One example that comes to mind is banks investing a lot of time and money into online lending or account opening, only to be disappointed when they are met with mostly fraud and spam. Often, this is because they never built out an online marketing strategy for the software to support the new technology. Conversely, we know banks that have experienced tremendous results through the same channels — when it was part of a deliberate strategy to go online.

Building a Strategy
If the above scenario hits a little too close to home, you are not alone. But in order to keep it from happening again, there’s a few things to keep in mind moving forward:

1. Understand what is out there. It’s important for bank executives to understand what is available when it comes to new technology. Your team should be speaking with and engaging with tech leaders to understand what is possible.

You should also be speaking to other banks to find out what they are doing. Identify a banker in a different state or market where your institution doesn’t compete and ask them what tech stack they are using, both successfully and maybe not so much.

From there, take the information you gather back to your institution’s drawing board. Think about your bank’s strategy and use what you now know is possible to advance it.

2. Work with transparency. When working with vendors, it’s common for banks to be secretive about their evaluation process and which vendors they are considering. In my opinion, this is the wrong way to go about it. Working with vendors should resemble World Wrestling Entertainment’s Royal Rumble: Everyone is in the same ring and the last person standing wins.

This is the best way to ensure complete transparency and get the management team the clarity they need to make a decision. It also allows vendors to work together and balance off each other, rather than handicapping them by asking them to design a system without knowing all the pieces in play. We have seen scenarios where two seemingly competing vendors can actually come together to form a better total solution.

In my opinion, this is also the best way to cut through the noise and see who really understands your bank and strategy the best. Ask your vendors to explain the differences between them and the other organizations you are reviewing and compare notes.

3. Run a pilot program. When it’s possible, your bank should implement new tech products first as a mini or pilot program.

Find a division in your bank — or maybe even just a single banker — and let them try out the
product first. If that’s not possible, ask the vendor if they can set up a sample instance or use dummy data in a workshop before going live.

These kinds of tests allow your institution to agree on the success criteria and see if the vendor can meet them, before spending the time and energy to go live on a large scale. Any vendor worth working with should have no problem offering such an option.

With these tips in mind, bankers can be empowered to move forward with new technology and services that will actually deliver on their promises of helping their business and customers — rather than fall flat from the start.

Insights Report: The Secret to Success in Banking as a Service

Banking as a service can bring in more revenue, deposits and customers for community banks. But it can also increase compliance burdens and potential risk.

Banking as a service, or BaaS, is an indirect banking relationship where a financial institution provides the back-end servicing for a company that intermediates with retail customers. Today, most of these relationships occur online — the third party brings in customer deposits, payments transactions and loans in exchange for fees associated with the arrangement. In turn, the bank houses the relationship, facilitates the transactions, and takes the lead on compliance and oversight.

“Banks are outsourcing significant compliance duties to the third party, and they’re taking on risks that are new and different from their direct business because they are providing their banking services indirectly,” says James Stevens, a partner and co-leader of Troutman Pepper’s financial services industry group.

Banking as a service isn’t new, although technology has made it easier for institutions to build out this business line. Sioux Falls, South Dakota-based Pathward N.A., a subsidiary of $6.7 billion Pathward Financial, has been in this space for about two decades. The bank sees its legal and regulatory compliance management system as a “core strength” fueling its innovation with partners, says Lauren Brecht, senior vice president and managing counsel of credit and tax solutions at the bank.

That’s because institutions interested in offering a BaaS business line must walk a fine line of responsible innovation and robust third-party risk management. Executives should understand that they can’t outsource their oversight responsibilities. That’s why it’s so important that banks create robust, “top-down” third-party vendor risk management policies and procedures that specifically address BaaS concerns, Stevens says. He also recommends that banks invest in personnel and systems that can handle the oversight and compliance functions “way in advance” of any partnerships.

“Banks are always going to be the ones left holding the bag, from a regulatory and compliance standpoint,” Stevens says. “It’s incumbent upon them to not only do due diligence and establish a good contractual relationship with their partner, but to also have the capability to manage and oversee it over time to manage those risks.”

To download the report, sponsored by Troutman Pepper, click here.

The Banking as a Service Insights report was originally published in the second quarter 2023 issue of Bank Director magazine.

What Banks Can Learn From Credit Unions

In today’s highly competitive market, community financial institutions are doing everything they can to stand out and grow. This is always a challenge, especially given the complexities of commercial and business banking.

Credit unions have been a traditional competitor of community banks, typically focused more on retail customers rather than business banking. Many credit unions often have tools in their arsenal that give them a significant competitive advantage: credit union service organizations, or CUSOs. CUSOs are client-owned cooperatives that give institutions control of specialized companies that provide them with personnel, marketing support, technology and a wide range of other products, services and benefits.

Increasingly, more forward-thinking community banks are adopting a similar strategy to better compete and thrive in their local markets — and realizing some key strategic benefits along the way.

Better Technology
More robust and newer technology is one of the key advantages that larger banks typically have over smaller institutions; sharing the development expenses and saving on configuration costs gives community and regional institutions a way to level that playing field.
This gives institutions access to innovative technology and needed resources that they might not otherwise be able to afford. Banks can realize many benefits from today’s technology and get a better view of what may be coming next.

One of the biggest challenges that many community banks face is the inability to capitalize on emerging technology trends — even when they can see them coming. Most institutions are at the mercy of their technology partners and vendors, that in turn tend to focus on the needs of their larger bank customers. A cooperative, by comparison, can respond to the needs of all its clients, giving each of them a voice in the future development of their tools, regardless of asset size.

Having a seat at the table is an invaluable benefit if a bank realizes it needs to alter its workflow or implement new back-office processes. Instead of waiting on a technology partner to find time to discuss the changes, cooperative clients have access to dedicated experts who can prioritize their needs.

All-Inclusive Access
Community bankers recognize that while having access to technology and innovation is a key competitive advantage, knowing how to properly leverage that technology is even more critical.

Banking cooperatives can give bankers direct access to best-in-class technology like secure, cloud-based loan origination platforms and systems, pairing that with access to experts who can help their clients fully understand these solutions to generate the greatest return.

Cooperatives can also provide access to skilled professionals across a wide range of specialties, including underwriting, marketing and call center operations. This is especially valuable in today’s marketplace, as recruiting qualified talent has become even more challenging.

Additionally, most cooperatives offer access to group purchasing. This can save clients a significant amount of money on everything from software, computer equipment and hardware to office and break room supplies.

Innovating Together
One of the biggest advantages that cooperatives offer financial institutions is the ability to bring together a community of like-minded, forward-thinking peers that foster and promote innovation. The cooperative structure allows credit unions — but also banks — to share best practices and take a more direct role in how they help develop and implement new technologies, while having an ownership stake in those products and services.

Today’s banking landscape is more crowded than ever; with technology evolving so quickly, it can be difficult and costly for community banks to stay on top of these changes while competing effectively against larger institutions.

A well-designed banking cooperative can offer community banks a way to share benefits in the same way that many credit unions have long enjoyed, through access to the best technology and the collective wisdom, insights and experience of a cooperative community that provides the tools and support they need to grow and succeed.

This piece was originally published in the second quarter 2023 issue of Bank Director magazine.

Effectively and Realistically Embracing Embedded Fintech

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

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

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

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

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

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

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

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

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

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

5 Key Takeaways From the State of Commercial Banking

In January, Q2 released the 2023 State of Commercial Banking Report, which analyzed data from Q2’s PrecisionLender proprietary database that includes commercial relationships from more than 150 banks and credit unions throughout the United States, along with other sources. Report author Gita Thollesson weighs in on the uncertainty of the 2023 outlook and other key takeaways from the report.

Takeaway 1: All we can say with certainty about the economic outlook for 2023 is that it’s uncertain.
We’re seeing a lot of mixed signals in the market right now. On one hand, gross domestic product, or GDP, went from an actual rate of 5.5% at the end of 2021 to 2.1% by December 2022. Two quarters of negative GDP growth and an inverted yield curve are often two key predicators of recession, and 2022 had both.

On the other hand, the U.S. economy has enjoyed record low unemployment and a strong jobs market, robust industrial production and positive GDP growth in the latter half of 2022. These mixed signals suggest this recession will be different.

Takeaway 2: Banks are bracing for a downturn, but…
There’s wide consensus that there could be an economic downturn. However, bank credit metrics are currently holding strong; although some financial institutions are expecting some deterioration, it hasn’t materialized yet.

Looking at risk metrics in commercial real estate and commercial and industrial lending, delinquency rates are trending lower and charge-offs have fallen off a cliff. Despite that, we’re seeing banks increase their loan loss provisions, which could indicate they’re bracing for rough weather ahead.

It’s also worth noting that when we look at the probability of default (PD) grades on loans — both below and above $5 million — in our proprietary data, we found a tremendous amount of stability in terms of ratings in 2022. PD grades are often a much earlier indicator of borrower health than delinquencies; the stability suggests that customers are not yet showing signs of weakness.

Takeaway 3: Renewed focus on deposits amid a competitive lending climate.
We’re seeing a tremendous amount of competitive pressure from a pricing perspective. This runs counter to what we typically see at this stage of the cycle: Usually in a pre-recessionary period, banks begin to tighten up, but we’re not seeing that in the data yet. If anything, spreads are getting narrower.

Last year, the industry experienced climbing deposits through mid-year 2022 before balances started to flatten out. The Fed raised rates, but banks didn’t follow suit and deposits started leaving the banking industry, according to weekly data from the Federal Reserve’s H8 releases. By year end, these figures were heading south. Not surprisingly, deposit growth has risen to the top of the strategic priority list for 2023. Banks are raising deposit betas, passing a greater portion of the interest rate increases to customers, especially on commercial accounts to preserve liquidity.

Takeaway 4: Digital reaches deep into the financial institution.
What was once primarily a conversation about the online banking platform has evolved into so much more. We’re now seeing a real focus on the part of financial institutions to center and target their digital spending on client experiences and create internal efficiencies by providing more tools to employees to streamline and automate processes that have largely been manual in the past. Our research finds that these both are two of the top priorities for banks.

Takeaway 5: Payments innovation is leveling the playing field.
We’re also seeing tremendous change on the payments front. Real-time payment rails, which are slated to be the first new rails in 40 years, include a broader payment message set that covers the life cycle of a payment and enables the invoice/remittance data to travel with that payment from start to finish. The changes are leveling the playing field, and the benefits go far beyond the immediacy of the payments. The true value for business is in the remittance data.

Despite technological advancements, adoption has been slow; the industry still needs more financial institutions to get on board. Fortunately, new innovations that leverage the full power of real-time payments rails are set to hit the market in 2023.

How Banks Can Win the Small Business Customer Experience

In the first stages of the pandemic, it became apparent that many banks were unable to effectively meet the needs of their small business customers in terms of convenience, response time, fast access to capital and overall customer experience. Innovative financial technology companies, on the other hand, recognized this market opportunity and capitalized on it.

Bankers recognize the importance of providing their business banking customers with the same fast and frictionless digital experience that their consumer retail banking customers enjoy. So, how can banks ensure that they are competitive and continue to be relevant partners for their small business customers?

The reality of applying for most business loans below $250,000 is a difficult experience for the applicant and a marginally profitable credit for the bank. Yet, the demand for such lending exists: the majority of Small Business Administration pandemic relief loans were less than $50,000.

The key to making a smooth, fast and convenient application for the borrower and a profitable credit for the lender lies in addressing the issues that hinder the process: a lack of automation in data gathering and validation, a lack of automated implementation of underwriting rules and lack of standardized workflows tailored to the size and risk of the loan. Improving this means small business applicants experience a faster and smoother process — even if their application is declined. But a quick answer is preferable to days or weeks of document gathering and waiting, especially if the ultimate response is that the applicant doesn’t qualify.

But many banks have hesitated to originate business loans below $100,000, despite the market need for such products. Small business loans, as a category, are often viewed as high risk, due to business owners’ credit scores, low revenues or lack of collateral, which keeps potential borrowers from meeting banks’ qualifications for funding.

Innovative fintechs gained the inside track on small business lending by finding ways to cost-effectively evaluate applicants on the front-end by leveraging automated access to real-time credit and firmographic and alternative data to understand the business’ financial health and its ability to support the repayment requirements of the loan. Here, much of the value comes from the operational savings derived from screening out unqualified applicants, rerouting resources to process those loan applications and reducing underwriting costs by automating tasks that can be performed by systems rather than people.

To make the economics of scale for small dollar business lending work, fintechs have automated data and document gathering tasks, as well as the application of underwriting rules, so their loan officers only need to do a limited number of validation checks. Adopting a similar approach allows banks to better position themselves to more cost effectively and profitably serve the borrowing needs of small business customers.

Although some fintechs have the technology in place to provide a faster, more seamless borrowing experience, many lack the meaningful, personal relationship with business owners that banks possess. They typically must start from scratch when onboarding a new loan customer, as opposed to banks that already own the valuable customer relationship and the existing customer data. This gives banks an edge in customizing offers based on their existing knowledge of the business client.

While consumer spending remains strong, persisting inflationary pressures and the specter of a recession continue to impact small businesses’ bottom lines. Small business owners need financial partners that understand their business and are nimble enough to help them react to changing market dynamics in real time; many would prefer to manage these challenges with the assistance of their personal banker.

The challenge for bankers is crafting and executing their small business lending strategy: whether to develop better business banking technology and capabilities in-house, buy and interface with a third-party platform or partner with an existing fintech.

Better serving business customers by integrating a digital, seamless experience to compliment the personal touch of traditional banking positions financial institutions to compete with anyone in the small business lending marketplace. With the right strategy in place, banks can begin to win the small business customer experience battle and more profitably grow their small business lending portfolios.

Why Banks Should Offer Real-Time Payments for Business Customers

Faster payments are the next phase of the digital revolution in banking. The race toward real time is well underway — more than 200 U.S. financial institutions already send and receive real-time payments. Those that cannot do so must start soon or they will be left behind.

The rise of mobile and digital commerce has created a need for speed and certainty of payment. Bank customers want to be able to pay whoever they want, whenever they want, using a device of their own choosing. But in practice, there are many flavors of fast. It’s important to clarify exactly what we mean by real-time payments and faster payments.

Real-time payments are payments that are initiated and settled almost instantly. A real-time payments rail is a digital infrastructure that facilitates real-time payments 24/7. A crucial characteristic of a real-time payments rail is that it is always available, bringing payments into line with a digital world that never sleeps. In the U.S., there are currently two real-time solutions:

  • The Clearing House has offered its real-time payments platform (RTP) to all federally insured U.S. depository institutions since 2017.
  • The Federal Reserve is currently developing FedNow, a new service that will enable individuals and businesses to send instant payments, due for launch in 2023.

Both real-time solutions are “open loop,” which means that the payment is connected to a bank account rather than a prepaid balance. This is important: It creates the potential for payments to reach every bank account in the U.S. and beyond.

Faster payments, such as Nacha’s Same Day ACH, are payments that post and settle faster than traditional payment rails but not instantly. For example, both Mastercard and Visa offer push payment solutions that message transactions in seconds but do not settle as quickly.

In practice, all real-time payments are faster payments, but faster payments are not always real time.

Although many payments, such as mortgage installments, are non-urgent, the transformational potential of real-time for banks and their business customers is enormous. Real-time technology marks the biggest advance in electronic payments in 40 years and heralds a new era where payments can be an opportunity for banks to add real business value.

Connectivity. Banks can offer business customers access to a growing real-time network that offers uninterrupted transaction processing. But real-time payment also enables two-way messaging, including request for payment, payment confirmation, credit transfer and remittance advice. Each of these features removes friction and can enhance the relationship between companies and their customers.

Cash flow. Businesses can adopt “just in time” cash management and pay creditors exactly on time. In the U.S., 82% of small businesses that fail do so because of cash flow problems; real-time payments signals a new era of easier cash management. A real-time picture of its cash position allows a small business can be sure it can meet its short-term commitments, minimize borrowing and optimize its use of surplus cash.

Certainty. Real time account-to-account settlement allows business customers to have payment certainty and reduces payment failures, streamlining business processes to reduce costs and increase efficiency.

Innovation. With almost 60 million Americans participating in the gig economy and up to 90% of Americans considering freelance or consulting work, innovation allows people to be paid immediately for the work they’ve done. Real-time payment makes “day pay” a practical reality.

Customer expectations. The tech giants have redefined the customer experience. Real-time payments present a unique opportunity for banks to catch up with a fintech approach to business banking by coupling it with simplified account opening, accelerated credit decisioning and synced accounting packages.

Real-time payment processing is a pivotal innovation in banking that should be included in every bank’s digitalization strategy. But there’s a lot to consider. A payment never happens in isolation; it’s always part of a larger business workflow. Many mission-critical bank systems are batch based, so there will always be integration issues and challenges. Moreover, there are peripheral systems, such as fraud detection, that banks must choreograph with payment movements. And as real-time payments build momentum, banks should be prepared to manage burgeoning payment volumes.

Getting started in real-time payments is never easy, but it’s a lot easier with expert help. Banks should work with their payments partners and build a road map to success. Managed services can offer a fast route to industry best practices and empower a bank to start with a specific pain point — receivables, for example — and progress from there. But every bank must start soon, for the race towards real time is accelerating.

4 Keys Banks Need to Unlock Value From Artificial Intelligence

Banks of all sizes are tuning up their technology to better compete for customer loyalty by focusing on areas involving consumer interactions. But bank leaders need to understand that artificial intelligence, or AI, alone can’t revolutionize the customer experience.

In order for AI investments to elicit instant, human-like understanding and communication, banks must combine AI technology with:

  • Access to quality data.
  • Customer experience solutions that support responsiveness, natural interaction and context retention.
  • Security for enrollment, authentication and fraud detection — indispensable in the context of retail banking.

Quality and Access
Data is the fuel driving AI-based experiences. That means the quality of the available data about the user for a specific use case and the ability to access this data in a real-time, secure fashion are mission-critical aspects of an AI investment.

Unsurprisingly, increasing the quality of data and providing seamless, secure access to this data has been a challenge that banks have grappled with for years.

But institutions must overcome these data utilization hurdles in order to offer an AI-based experience that is better than mediocre. The best outcome? Users will no longer suffer through disjointed experiences or delayed satisfaction caused by siloed data, multiple data connection hops and antiquated back ends that haven’t been modernized to today’s standard.

Collection and Understanding
Big data — the collection of very large data sets that can be analyzed computationally to reveal patterns, trends and associations — goes hand-in-hand with AI. When it comes to consumer banking, an AI solution for banks should store all customer interaction information, from words used to communicate with the bot to actions taken by the user, so it can be analyzed and applied in future interactions. To do this, banks need to adopt AI technology that integrates a learning loop that’s always running in the background.

As data accumulates, AI-powered bots should get smarter over time. Behavioral, transaction and preference information enables banks to create personalized experiences that elevates customer experience to the next level. J.D. Power’s 2022 U.S. Retail Banking Satisfaction Study found that 78% of respondents would continue using their bank if they received personalized support, but just 44% of banks are actually delivering it.

Without the right data, there’s no intelligence to inform interactions.

Customer Experience
If someone asked, “What’s your name?” and it took you 8 seconds to respond, the conversation would seem unnatural and disjointed. Similarly, AI technology requires real-time responsiveness to live up to its human-like image. Additionally, bank customers expect to be able to seamlessly transition between interaction channels without having to rehash their issue each time they get transferred, change interaction channels or follow up. Banks can only achieve this omnichannel customer experience that incorporates customer interaction information across channels with customer experience technology that integrates AI.

Consumers now rank omnichannel consistency as the most important dimension of customer experience, according to a 2021 Harris poll, up from No. 2 in 2019. In a Redpoint Global research study, 88% of respondents said that a bank should have seamless, relevant and timely communications across all channels; less than half (45%) reported that their bank effectively achieved this objective. An omnichannel customer experience is foundational for AI.

As powerful as artificial intelligence can be as a competitive advantage in banking, lack of strong security measures is a nonstarter. In the latest The Economist Intelligence Unit Survey, bankers identified privacy and security concerns as the most prominent barrier to adopting and incorporating AI technologies in their organization. Thankfully, ironclad AI is within reach.

While AI capability is great, its usability is limited if its security is not up to par. An AI bot can go far beyond answering your customers’ basic questions if bank transactions are authenticated and secure; it can perform tasks such as retrieving account balances, listing and searching transactions, making payments, transferring funds and more. Imagine the impact that a friendly and reliable virtual teller, available 24/7, could have on your institution.

Four in five senior banking executives agree that unlocking value from artificial intelligence will distinguish outperformers from underperformers. To access its value, a bank’s customer-facing system must be supported by four pillars: AI understanding, quality data, omnichannel customer experience technology and security.

When technology budgets are tight, bank leaders must invest wisely; not all AI solutions are created equal. Chasing the new shiny thing can waste dollars if bank decision makers don’t have a handle on the scope of what their institution needs. Knowing which pieces of the puzzle will complete the picture is a competitive differentiator. Now, your bank can unlock the value of AI and win.

Bank Fraud: Where Do We Go From Here?

The work of so many bank fraud teams is to ensure that they don’t wake up to a crime scene.

In the latest episode of Reinventing Banking, a special podcast brought to you by Bank Director and Microsoft, we discuss the evolution of technology that helps fight cyber fraud and where the industry goes from here.

Seth Ruden is director of global advisory for the Americas for BioCatch, a behavioral biometrics company that helps financial institutions gain actionable insight, including fighting fraud. He talks with Bank Director’s FinXTech Research Analyst Erika Bailey about the promise that machine learning and automation have for bank fraud teams.

He also talks about the increasing sophistication of data analytics in tracking, and finding, potential fraud. Ruden also reveals his strategy for getting resources for bank fraud teams at your bank.

Finally, he chats a bit with Bank Director’s Erika Bailey on their mutual love for classic rock.

So ramble on …

Giving Customers Choice, Access With Investments

It’s time for community financial institutions to significantly upgrade their investment resources to service their clients. Retail investors want to be more educated about investing opportunities and have greater access to investment tools; in response, investment-as-a-service companies are building platforms so banks can give their clients more of what they want.

One problem with financial and investment innovation today is that there is either too much focus on gimmicks or not enough focus on innovation. Crypto-only investment companies indiscriminately pitch every token as the latest and greatest get-rich-quick scheme. Gamified investment apps promote risky options trades to retail investors, turning investing into a lottery or casino and distracting users from what investing should be: a powerful tool to maintain, protect and build wealth. Further, legacy investment institutions often make the bulk of their revenue from customers who are already wealthy via older products, with little incentive to experiment with creative new offerings.

In this unhappy mix, it is investors with the most to gain from a long-term investing strategy — younger less affluent or not yet rich investors — who lose the most. Unable to access wealth management and investing services from their trusted financial institution, they seek out third-party investment apps that don’t prioritize their long-term success and happy retirement. For community financial institutions, this interrupts the chain of familial wealth transfer and risks their next generation of customers.

Investors desire a unified platform that offers access to a growing list of investments, ranging from physical metals to AI-driven investment models to crypto-assets to collectibles. A self-directed platform is key: Investors should be given a choice to pursue the investment strategy they feel fits best for their unique investment interests and risk profile. The platform should include all the tools they need to effortlessly pursue the “Get rich slowly” strategy: passive investing and dollar-cost averaging into a low-cost, highly diversified portfolio.

Cloud computing innovations and numerous rounds of fintech venture capital have made it possible for companies to build curated investment platforms that traditional banks can easily add and implement. Investment tools driven by application program interfaces, or APIs, allow financial services to embrace change in collaborative ways that don’t conflict with existing business, yet still appeal to the ever-changing preferences of investors.

Investing is not one-size-fits-all. Wine fans may want to invest in a portfolio of wine assets to hold or eventually redeem. Investors who collected baseball cards as a kid may now have the capital to buy collectibles with significance to them as culturally relevant assets. Individuals also may want to invest in thematic categories, like semiconductors — the foundation for all computing, from electric vehicles to computers to smartphones. These investments are not optimal for everyone, but they don’t have to be for everyone. What matters most is access.

Too many banking platforms do not take full advantage of the full range of investment tools available in the marketplace, even though their clients are looking for these. Lack of access leads to painful experiences for the average investor who wants to be both intelligent with their money and allowed to experiment and explore the ever-changing world of digitally available investment categories. Give customers a choice to pursue wealth-building strategies based on their unique insights and instincts, and made available through their existing bank.