Creating the Next Opportunity for Your Bank

Health, social, political and economic stressors around the world are bumping up business uncertainty for banks everywhere.

Some bankers may find a hunker-down posture fits the times. Others are taking a fresh look at opportunities to achieve their business objectives, albeit in a different-than-planned environment. What is your bank trying to accomplish right now? What are you uniquely positioned to achieve now that creates value for your institution, your shareholders and your customers?

The best opportunities on your bank’s list may be straightforward initiatives that may have been difficult to prioritize in a non-crisis environment. This can be a good time for banks to review their suppliers and vendors, their risk management, cybersecurity and compliance plans and protocols.

We’ve seen bank clients of ours with rock-solid foundations find themselves with the ability to leverage these times to pursue growth, to increase their technology offerings and explore niche markets, such as an all-digital delivery of banking services. These institutions are creating their own opportunities.

From straightforward to downright bold opportunities, BankOnIT and our client banks across the United States have observed that skillful execution requires one constant: a solid technology and systems foundation.

Here are a few examples of various objectives that we see our clients pursuing:

Embrace and Excel at Digital Banking
Digital banking, not to be confused with online banking, is more than a trend. Banks with user-friendly digital experiences are meeting the needs of millennials and Generation Z by offering activities that were once only accessible from the banking center. It removes geographical barriers and limitations of the traditional bank, such as operating hours and long lines.

Technological hurdles are grievances of both digital and traditional banks. The simple solution is unrestricted technology capabilities that improve reliability and increase security, especially when introducing features like artificial intelligence and digital banking.

A Growth Plan with The Ability To Compete
Customers’ expectations are shifting; banks need to be technologically nimble in response. With a high-growth plan in place, one BankOnIT client viewed outsourcing the network infrastructure to a partner with industry knowledge as the key to success. The result: opening four bank offices in seven months.

“We have all of the benefits of a large bank infrastructure, and all of the freedom that comes with that, without being a large bank,” said Kim Palmer, chief information officer at St. Louis Bank.

Partnering with Fintechs To Reach Niche Markets
The trick to accessing new markets will vary from bank to bank, but your strategy should start with the network infrastructure technology. This will be the foundation upon which all other technology in the institution is built upon. Cloud computing, for example, provides digital and traditional banks with resources needed to improve scalability, improve efficiency and achieve better results from all the other applications that rely upon the network foundation.   

Banks should look for partners that help them tailor their banking operations to benefit consumers who are conducting business in the virtual world. Technology at the forefront can keep business running smoothly during the global pandemic. Bloomfield Hills, Michigan-based Mi Bank, for example, is able to accommodate customers during the pandemic, just like before.

“We can leverage technology to allow our customers to function as normal as possible,” said Tom Dorr, chief operating officer and CFO. “BankOnIT gives us the flexibility to function remotely without any disruption to our services. Our structure allows us to compete with the bigger institutions without sacrificing our personal service.”

Is your technology reliable, scalable, and capable of sustaining your goals post-pandemic?

A Solid Foundation
Take the opportunity to review your institution’s goals. How do they line up with the opportunities to act in the midst of this unplanned business environment? This may be your opportunity to build a solid technology, systems and compliance foundation. Or, this may be your time to seize the opportunities that are created from turning technology into a source of strength for your institution.

A Pandemic-Proof Process Transformation Game Plan

Initiatives without execution are dreams that never become plans.

At MX, we’re helping banks use financial data to improve the financial lives of more than 30 million people. Banks need a secure foundation to build on at a time when profits have stalled, laying the groundwork for ways to increase revenue, offset losses and impact to your bottom line.

To get a better understanding of what financial institutions are focusing on, we recently surveyed more than 400 financial institution clients for their top initiatives this year and beyond. We believe these priorities will gain even more importance across the industry. The top five initiatives are:

  1. Enabling Emerging Technologies, Continued Innovation
  2. Improving Analytics, Insights
  3. Increasing Customer Engagement
  4. Leveraging Open Banking, API Partnerships
  5. Strategically Growing Customer Acquisition, Accounts

But identifying the initiatives to prioritize is merely the first step. Banks need to align their top initiatives throughout their organization to lay down the project’s foundation. Sustainable transformation is not accomplished by simply plugging in a new technology or process. True transformation requires a shift in the way the organization operates day to day. Without a commitment to changing the way you do business your efforts will be stunted and you will not achieve the outcomes promised in the initial business case.

The first thing banks need to do is ensure that their organizational goals translate top down, from executive leadership through department levels, all the way to individual contributors. If certain priorities don’t align from top to bottom, it’s important to address these outliers right away to ensure everyone is moving ahead in the same direction.

Banks will also want to make sure they’re effectively tracking their performance against the company strategy and organizational vision through Objectives and Key Results (OKRs) and department metrics. Look at the top initiatives in the industry and see how they align within your bank’s own organizational goals.

This practice might reveal that that not all initiatives work together. Three critical questions to ask during this process are: Are we focused on understanding and solving the needs of our customers? How do we shift priorities to align with where we should be going as an organization? Where is overlap or conflict of priorities between all stakeholders?

Here’s a brief overview of how banks can create a game plan to guide their process transformation:

1. Align OKRs With Vision
Break down your bank’s vision into objectives. This can be anything from helping employees develop the right skills to acquiring the right technologies and so on. From there, break those objectives down into quarterly Objectives and Key Results and translate them across each department and individual employee.

2. Specify Metrics
Ensure your bank has the right metrics in place for measuring your OKRs. The more clarity your bank can get around what you’re measuring and why, the easier it will be to understand if your efforts’ progress and success.

3. Find Champions
Identifying champions within your organization is a great way to move things forward. These critical stakeholders will be just as motivated as you to get certain things done. If you’re considering new technologies or new programs, work with them to translate the need and opportunity to the executive suite.

4. Identify Trusted Partners 
Now’s the time to lean on trusted partners for support. Your customers are actively looking to you for alternative digital solutions to manage their money. Instead of going at it alone and trying to build everything in-house, it may be faster to partner with financial technology firms and other third parties that can get your products to market more efficiently.  

At MX, we’re working closely with our partners and clients to ensure they have the tools they need to optimize their digital experiences and complete their top initiatives, even in these challenging times. Banks must create comprehensive strategies around their digital channels and offerings, so they can continue to lead during uncertainty and change. This is a valuable opportunity for all of us to be better to one another and to the communities we serve.

How Experience FinXTech Parallels The NFL Draft

By the time the NFL announced plans to host the draft from various remote locations, nearly every other sports league had postponed or canceled their events.

The decision raised eyebrows.

The NFL draft has become a must-attend in-person event, as evidenced by the record-breaking 600,000 turnout in Nashville, Tennessee, last year. As a fan, I wondered if the league was putting their own interests too far ahead of others by going forward with a new, unproven format just to keep to this activity on the calendar.

It turns out, the digital nature of the three-day event resonated in many positive ways. The draft was viewed by 55 million viewers over the three-day event, according to the league. Naturally, some of the viewership reflected an appetite for new, non-pandemic related content. But from a business perspective, it showed how migrating an in-person event entirely online could, in a pinch, work.

As we all try our best to live normal lives from our homes, the NFL’s success with the draft gives me confidence in our decision to go remote with our annual Experience FinXTech.

Much as the NFL drew a great audience to Music City last year, so too were we excited to welcome a stellar audience to Bank Director’s hometown in early May. Just as the NFL figured out how to provide viewers with new glimpses into their team’s futures, so too will our Experience FinXTech as we move online. Ours will just be in terms of how and where financial technology companies and financial institutions might develop relationships that beget future successes.

Experience FinXTech parallels the NFL draft based on the concept of team-building. Just as every NFL franchise faces its own challenges, so too does every financial institution. Indeed, the ever-expanding digital chasm between the biggest banks and community institutions remains a major strategic challenge in terms of talent, tools and dollars spent.

While there is no one-size-fits-all approach to building a team, there are lessons that executives and leadership teams might entertain from their peers during a program like this one. Indeed, we have heard and seen incredible examples of community banks pulling together to serve their constituents as best they can, however they can, during this time. This program allows us to share examples.

Bank Director’s desire to help community banks succeed in all circumstances provides an impetus for moving to video and webinars instead of waiting until the late fall to meet in person. Helping banks and fintechs get smarter about immediate opportunities to develop meaningful relationships is incredibly relevant. The time is now to assess a business strategy and make decisions that could reshape your institution’s future. Access to timely, verified and reliable information is something we didn’t want to delay in providing.

Indeed, Experience FinXTech will touch on areas where technology can assist banks to provide counseling, assistance and a personal touch to their existing and potential customers. In addition, we talk about authentication. The need to embrace the cloud. Filling in the missing pieces in the digital commercial banking product set.

Beginning on May 5, we take a pragmatic approach to new business relationships, collaborations and strategic investments. We offer virtual demonstrations to help viewers see proven technologies available to banks with regards to security, data and analytics, internal systems, lending, digital banking, payments, compliance and the customer experience.

With so many elements of our economy being challenged, we know our “next normal” will look very different from what we’ve become accustomed to. Connecting interests, and ideas, to help banks and fintechs navigate their futures is why we ultimately decided to offer this year’s experience online, for free, to anyone interested in joining us.

I look forward to welcoming people to this year’s Experience FinXTech and promise that references to certain NFL teams will be kept to a minimum.

Thanks to the support of these companies, we are able to extend complimentary registration for Experience FinXTech. To sign up, please click here.

Turning Compliance From an Exercise Into a Partnership

The Greek philosopher Heraclitus once observed that no one can ever step into the same river twice. If these philosophers tried to define how the financial industry works today, they might say that no bank can ever step into the same technology stream twice.

Twenty-first century innovations, evolving standards and new business requirements keep the landscape fluid — and that’s without factoring in the perpetual challenge of regulatory changes. As you evaluate your institution’s digital strategic plan, consider opportunities to address both technology and compliance transformations with the same solution.

The investments your bank makes in compliance technology will set the stage for how you operate today and in the future. Are you working with a compliance partner who offers the same solution that they did two, five or even 10 years ago? Consider the turnover in consumer electronics in that same period.

Your compliance partner’s reaction time is your bank’s reaction time. If your compliance partner is not integrated with cloud-based systems, does not offer solutions tailored for online banking and does not support an integrated data workflow, then it isn’t likely they can position you for the next technology development, either. If your institution is looking to change core providers, platform providers or extend solutions through application programming interfaces, or APIs, the limitations of a dated compliance solution will pose a multiplying effect on the time and costs associated with these projects.

A compliance partner must also safeguard a bank’s data integrity. Digital data is the backbone of digital banking. You need a compliance partner who doesn’t store personally identifiable information or otherwise expose your institution to risks associated with data breaches. Your compliance data management solution needs to offer secured access tiers while supporting a single system of record.

The best partners know that service is a two-sided coin: providing the support you need while minimizing the support required for their solution. Your compliance partner must understand your business challenges and offering a service model that connects bank staff with legal and technology expertise to address implementation questions. Leading compliance partners also understand that service isn’t just about having seasoned professionals ready to answer questions. It’s also about offering a solution that’s designed to deliver an efficient user experience, is easy to set up and provides training resources that reach across teams and business footprints — minimizing the need to make a support call. Intuitive technology interfaces and asynchronous education delivery can serve as silent accelerators for strategic goals related to digitize lending and deposit operations.

Compliance partners should value and respect a bank’s content control and incorporate configurability into their culture. Your products and terms belong to you. It’s the responsibility of a compliance partner to make sure that your transactions support the configurability needed to service customers. Banks can’t afford a compliance technology approach that restricts their ability to innovate products or permanently chains them to standard products, language or workarounds to achieve the output necessary to serve the customer. Executives can be confident that their banks can competitively adapt today and in the future when configurability is an essential component of their compliance solution.

A compliance partner’s ability to meet a bank’s needs depends on an active feedback loop. Partners never approach their relationship with firms as a once-and-done conversation because they understand that their solution will need to adjust as business demands evolve. Look for partners that cultivate opportunities to learn how they can grow their solution to meet your bank’s challenges.

Compliance solutions shouldn’t be thought of as siloed add-ons to a bank’s digital operations. The right compliance partner aligns their solution with a bank’s overall objectives and helps extend its business reach. Make sure that your compliance technology investment positions your bank for long-term return on investment.

Banks, Fintechs Share This Three-Letter Word


technology-9-6-19.png“Try.”

This one humble word reflects the mindset I encounter in nearly every high-performing executive today. And it might just be the theme at next week’s Experience FinXTech Conference at the JW Marriott Chicago.

Simple as it first appears, breaking away from the known and attempting to explore what’s possible requires leadership, conviction and a commitment to try something new.

While other fintech-oriented conferences highlight “funding paths” or “successful exits,” we built this event for bank leaders seeking growth and efficiencies through the application of financial technologies. Over two days, we’ll look closely at the implications of technology on the banking business, and explore how and where traditional brick-and-mortar institutions can generate top-line growth and bottom-line profits through new business relationships.

A word of encouragement to those joining us from community banks: Don’t let your asset size limit your aspirations.

Yes, technology companies continue to impact consumer expectations and challenge existing business models. And yes, this is changing the basis of competition in the industry. But it’s your mindset, not the size of your bank’s balance sheet, that will dictate its future. That’s why Experience FinXTech brings banking peers together from across the country to share how they pursue collaboration and creativity.

There’s something for all of us to learn.

For those attending from the technology sector, I urge you to tell us stories that demonstrate your resiliency, curiosity and resourcefulness. I continually hear that banks prize anecdotes that reflect a tenacity of purpose — a trait that many technology companies joining us can rightfully claim.

Ahead of Experience FinXTech, I’m inspired and intrigued by three companies making waves in the financial space:

  • Aspiration, which offers socially responsible banking and investment products and services, and has attracted 1.5 million customers as of June 2019.
  • Chime, which advertises itself as one of the fastest-growing bank accounts in America.
  • N26, a German direct bank that promises to provide real-time payments information and early access to paychecks to woo new U.S. consumers.

Executives should think about what these companies hope to accomplish, how they are building their presence and how it could impact community banks across the country.

At the conference, we’ll talk about companies like these, as well as the technology firms that have gained traction with banks. We look at the choices and challenges facing small and mid-size banks as they apply to payments, lending, data and analytics, security and digital banking. We’ll explore changing the basis of competition when it comes to earnings, efficiency and engagement.

Given that many community banks specialize in particular verticals or business lines to remain competitive, we’ll also talk about how they can cultivate a culture that prizes creativity and authenticity. We’ll look at tools and strategies to help them grow. Throughout the program, we’ll encourage conversations about inspiration and transformation.

The underlying theme is to encourage attendees to try something new in order to build something great.

For those joining us at the JW Marriott Chicago, you’re in for a treat. Can’t make it? Don’t despair: We intend to share updates from the conference via BankDirector.com and over social media platforms, including Twitter and LinkedIn, where we’ll be using the hashtag #FinXTech19.

Leveraging Fintechs to Do More with Less

Fintech is often viewed as a disrupter to the banking industry, but it greatest influence may be as a collaborator.

Financial technology companies, often called fintechs, can provide benefits both banks and themselves, especially when it comes to lending. But banks need to be prepared for the potential challenges that can arise when forming and executing these partnerships.

Partnerships between community banks and fintechs makes sense. For community banks, the cost of building or buying their own online loan origination platform can be prohibitive. A partnership with a fintech can help banks achieve more with less risk.

Banks can partner with fintechs to improve services at a significantly lower capital expenditure, reducing the cost of doing business and reaching market segments that would otherwise not meet their credit criteria. Collectively, these relationships advance not only the business of community banks, but also their mission.

Partnering with banks offers fintech firms brand exposure, allows them to more quickly scale their business and increases their access to capital and liquidity, which can translate to better company returns.

Community banks and fintech firms should be natural allies, given the market dynamics and growth in online lending, the underfunding of small businesses and the increased competition facing smaller institutions.

Community banks are also ideal first movers in the bank-fintech partnership space, given the personal nature of the business, low cost of capital and ability to move quicker than regional banks. Community banks are the preferred source of funding for small- and medium-sized enterprises, and consistently receive high marks from clients for customer service and overall experience.

However, there can be challenges. Bank respondents cited their firms’ overall preparedness as a point of concern when considering a fintech collaboration, according to a recent paper on bank-fintech partnerships from law and professional services firm Manatt. The Office of the Comptroller of the Currency and Consumer Financial Protection Bureau mandate that banks must implement appropriate oversight and risk management processes for third-party relationships and service providers.

Other issues that could arise for community banks when pursuing a fintech partnership include data security, staff training and technology integration with legacy systems. It’s imperative that community banks are clear about the responsibilities, requirements and protections that will contribute toward a successful partnership in conversations with a fintech firm.

borrowe-chart.png

Despite their desire to fund local businesses, community banks sometimes encounter significant pressures that prevent them from doing so. These issues are amplified by various market forces and longstanding structural inefficiencies such as consolidation, slower economic expansion, increased regulation and more-stringent credit requirements. Consumer expectations around new channels and banking services compound the situation. Community banks need to adapt to this new dynamic and complex ecosystem. Without a strategy that includes technological vision, banks risk becoming irrelevant to the communities they serve.

Fintech firms — reputed as industry disruptors — can be powerful collaborators and allies in this land grab. They can help banks expand their borrower market by reaching customers with alternative credit profiles and providing technology-driven improvements that enhance the customer experience. The inherent advantages held by community banks make them well positioned to not only capitalize on these opportunities, but to lead the next wave of fintech innovation.

Managing Cost, Efficiency & Control in the Loan Portfolio

What sets today’s lending environment apart is the potential for banks to collaborate with technology platforms to manage their risk more effectively and efficiently, explains Garrett Smith, the CEO of Community Capital Technology. In this video, he outlines how banks of varying sizes are diversifying their loan portfolios, and he shares his advice for banks seeking to buy or sell loans on the secondary market.

  • Using Technology to Manage the Loan Portfolio
  • Purchasing Loans on a Marketplace Platform
  • What to Know About Selling Loans

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.

Who Will Lead the Bank Industry Into the Future?


leadership-2-1-19.pngLeadership is a central aspect of banking. Not only do bank executives lead their institutions, but directors who sit on bank boards tend to be leading members of their communities.

Indeed, it’s no coincidence that the biggest and tallest buildings in many cities and towns across the country are named after banks.

That’s why leadership was one underlying theme of this year’s Bank Director’s Acquire or Be Acquired Conference held at the JW Marriott in Phoenix, Arizona.

It was the 25th anniversary of the conference, one of the marquee events in the banking industry each year.

The conference opened with a video tracing the major events in banking since 1994—a period of deregulation, consolidation and innovation.

In that time, the population of banks has been cut in half, Great Depression-era regulations have rolled back and the internet and iPhone have made it possible for three-quarters of deposit transactions at some banks to be completed from the comforts of bank customers’ own homes.

It was only fitting then to bookend the conference with some of the greatest leaders in the banking industry throughout this tumultuous time.

The first day concluded with the annual L. William Seidman CEO Panel, featuring Michael “Mick” Blodnick, the chief executive officer of Glacier Bancorp from 1998-2016, and Joe Turner, the CEO of Great Southern Bancorp since 2000.

The banks run by Blodnick and Turner have created more value than nearly all other publicly traded banks in the United States. Glacier ranks first in all-time total shareholder return—dividends plus share price appreciation—while Great Southern ranks fifth on the list.

As Blodnick and Turner explained on stage, there is no one right way to grow. Blodnick did so at Glacier through a series of 30 mergers and acquisitions, building one of the leading branch networks throughout the Rocky Mountain region.

Turner took a different approach at Great Southern. He and his father, who had run the bank from 1974 to 2000, focused instead on organic growth. They built a leading footprint in the Southwest corner of Missouri, and then, in the financial crisis, completed five FDIC-assisted transactions to spread their footprint into cities up the Missouri and Mississippi rivers.

One consequence of this approach was it enabled Great Southern to consistently decrease its outstanding share count by upwards of 40 percent since originally going public, as it never had to issue shares to buy other banks.

Asked what one thing he wanted to share with the audience, Turner talked about the importance of ignoring shortsighted stock analysts. Despite Great Southern’s extraordinary returns through the years, it has rarely if ever been “buy” rated by the analyst community.

Why not? When the economy is great and other banks are growing at a rapid clip, Great Southern tempers its growth to avoid making imprudent loans. Then when times are tough, and a pall is cast over all stocks, Great Southern surges ahead.
Blodnick’s advice focused on M&A. For sellers, the goal should never be to get the last nickel, he explained. Rather, the goal should be to establish a partnership that will maximize value over time.

The conference also had a parallel track of sessions, FinXTech, focused on technology.

These sessions were often standing-room only. It was an obvious indication about what the future leaders of banking are focused on now.

Don MacDonald, the chief marketing officer of MX Technologies, took a particularly broad approach to the subject. Although his session ostensibly focused on harnessing data to increase growth and returns, he put the topic into historical perspective.

The question MacDonald was trying to answer was: How do we know if the banking industry has reached a genuine inflection point, after which the rules of the game, so to speak, have changed?

The answer to this question, MacDonald said, can be found in developing a framework for assessing change. That framework should include multiple forces in an industry, such as regulations, customer expectations and technology.

It’s only when multiple major forces experience change at or around the same time that a true strategic inflection point has been reached, explained MacDonald.

Has banking reached such a point?

MacDonald didn’t answer that question, but given the environment banks operate in right now with the growth of digital distribution channels and the ever-evolving regulatory regime, one would be excused for coming to that conclusion.

Given these two tracks—the general sessions focusing on banking and the FinXTech sessions focusing on technology—it was fitting that the final day of the conference was opened by John B. McCoy, the former CEO of Bank One, from 1984-99.
McCoy hails from the notoriously innovative McCoy banking dynasty, preceded by his father and grandfather. Bank One was one of the earliest adopters of credit cards, drive-through windows and ATMs, among other things.

Furthermore, it was McCoy’s approach to acquisitions at Bank One, where he completed more than 100 deals, that helped to inform Blodnick’s approach at Glacier. Known as the “uncommon partnership,” the approach focused on buying banks, but allowing them to retain their autonomy.

The decentralized aspect of the uncommon partnership left decision-making at the local level—within the acquired banks. It allowed Bank One and Glacier to have their cake and eat it too—growing through M&A, but leaving the leadership of the individual institutions where it belongs: In their local communities. This resulted in lower customer attrition, the scourge of most deals.

One overarching lesson from Acquire or Be Acquired is that banking is about facilitating the growth of communities, and the best people to spearhead this are the ones with the most on the line—the leaders of those communities.

The Latest Model of Modern Banking


fintech-1-18-19.pngMost people assume that fintech companies are out to take business away from banks, but what if the opposite is true?

What if, instead of being a threat, fintech companies actually open up new opportunities for banks?

That’s what a handful of banks are exploring right now. They’re doing so by essentially white-labeling deposit insurance, regulatory expertise and access to credit platforms.

You can think of it as a partnership that leverages a fintech company’s strengths on the front end of the customer experience, with attractive and refined digital interfaces, as well as a bank’s strength on the backend, by providing access to safe and secure financial products.

It’s a classic win-win situation.

One bank pursuing this course is TAB Bank, an online bank based in Ogden, Utah, with $711 million in assets.

We came to the conclusion that we would build our strategy around how we think the market will look in two to five years, not how it behaves today,” says Curt Queyrouze, president of TAB. “What we determined was that once consumers try a digital interaction, they stay in that lane.”

Queyrouze has been cultivating this model for years.

The 20-year-old online bank has “sponsored” non-banks before who wanted access to the Visa and MasterCard credit platforms, says Queyrouze. Then TAB began working with marketplace lenders and offering traditional transaction accounts—in other words, white-labeling banking services to its partners.

“To the extent we can be the infrastructure for that cash account that attaches to whatever payment systems are out there, yeah, there’s a lot of benefit to that,” says Queyrouze. “As traditional banks we can hold that money, we can insure it and then we can take that money and turn around as the traditional banking model has always been and lend out that money, (or) use it in other ways to create profitable margin.”

The Bancorp Bank is pursuing a similar course. The $4.4 billion online bank headquartered in Delaware makes it clear what their model is all about: enabling non-bank companies to offer bank-like products.

“Take a close look behind some of the world’s most successful companies: that’s where you’ll find The Bancorp,” the company boasts.

The Bancorp backs Varo Money, for example, a mobile app offering users insured deposits, fee-free ATM withdrawals, interest-bearing savings accounts and personal loans in 21 states. (Varo Money was among the first fintechs to apply for the new national charter offered by the Office of the Comptroller of the Currency last year.)

Yet another bank pursuing a similar strategy is Cross River Bank, a New Jersey-based bank with $1.2 billion in assets.

Getting back to TAB, another epiphany came to Queyrouze in late 2018 at one of the biggest financial services conferences of the year.

Queyrouze thought about all the money being spent to lure new customers by both banks and non-banks.

As Queyrouze saw it, this gave TAB two potential paths to follow.

One would require a massive marketing budget to compete against bigger banks and fintech companies in the competition to acquire customers. The other was to stick to what it knew on the backend—namely, banking—while leveraging the strength of fintech companies on the frontend.

While we do have the option to market against this tide, we also have the opportunity to build a banking infrastructure to align with the fintech world and provide banking services to support their client base,” says Queyrouze.

In short, small banks like TAB don’t have the resources to compete in the digital realm against larger peers. Nor can they pump money into a national marketing blitz to grow their customer base.

But they can stick to what they do just as well as any bank regardless of size—banking—and let fintech partners handle the rest.