What Banks Need to Know About Fintech Partnerships

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The idea that banks and fintechs need to compete with each other is unfounded and restrictive to both parties.

Both fintechs and banks have a lot to gain by collaborating, and very little to lose. For fintechs, the most widely cited reasons for partnering with banks, according to Capgemini, include enhanced visibility by partnering with established brand names, achieving economies of scale and gaining customer trust.

fintech-reasons.png

For banks, the benefits are much more tangible, and their impact on the bottom line can be immediate.

The European Business Review explained it well: “By tapping into expertise, traditional banks stand to move much more swiftly and effectively than they otherwise could to introduce new products, streamline processes, enhance customer experience, and increase revenues.”

Looking at increased revenues, Accenture claims banks can potentially gain three to five percent by partnering with fintechs, with gains coming from enhanced customer acquisition, more fee-based revenue, better pricing accuracy, and a lower cost of risk.

When approaching a partnership with a fintech, there are a few things banks should be cognizant of in order to ensure success:

1.  Serve your customers first
First and foremost, your customers should be at the center of everything you do, including your partnerships with fintechs. How well you are serving your customers dictates your success more than anything else, and every fintech partnership represents an opportunity to further build and solidify customer loyalty.

For this reason, it’s important to partner with fintechs that will address customer pain points the most effectively. There are a lot of fintechs for banks to choose from in the process of finding partners, and the degree to which a partnership with a fintech will improve the life of customers should weigh in heaviest in your decision making.

2.  Think holistically about your partnership
If you want your partnership with a fintech to be a success, you need to think deeper than your initial partnership agreement. Especially in sell-through partner channels, setting time aside to have your sales and support teams familiarize themselves with the typical FAQs and support procedures will ensure your go-to-market strategies are aligned, and you are promoting the product or service as effectively as possible in the smallest amount of time.

3.  Ongoing collaboration is necessary for success
The nature of your fintech partner’s business is bound to change and evolve. For this reason, it is essential to keep up with the best ways to sell their product or service to your customers.

Many fintechs host training and workshops for the banks they partner with, and offer marketing resources to help banks promote the value of their service. Take advantage of these things to ensure you are getting the most out of your partnerships.

Accounts Payable (AP) Automation is one example of a way a fintech partnership can become a strategic advantage for a bank.

MineralTree has seen banks build customer loyalty while simultaneously driving interchange revenue due to a few core changes, which include:

  1. The private-labeled solution streamlines a workflow for bank customers that has traditionally been very manual, paper-based, and filled with frustration.
  2. The updated workflow simplifies the process for bank customers to pay vendors through the commercial card program run by their banks.
  3. Banks are able to integrate with their customer’s business at a deeper level by addressing pain within the operations of their customers’ businesses.

Also, with AP Automation still approaching a tipping point in adoption, banks have an opportunity to drastically differentiate themselves by offering a solution that is truly disruptive.

Regardless of which types of services or products you believe can bring value to your customers, the opportunity to partner with fintechs makes the process of introducing them and quickly realizing their benefits much easier.

Why Management and Directors Need to Consider Blockchain in Overall Digital Strategy

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blockchain-8-15-18.pngIf we think back to what we were doing in 1994, we would say we were using a gigantic cell phone, just hearing about the internet, addicted to the fax machine, and just starting to use email. Fast forward, and we are with blockchain where we were with the internet and email in 1994.

After the sale of Mechanics Bank in 2015 and subsequently leaving my role as CEO, I embarked upon a journey that has forever changed how I think; how I problem solve; how I view the boardroom; the secret society of the c-suite and most importantly, how I view technology, people and process.

There is a convergence of social media, digital retail, robotics, artificial intelligence, wearables, blockchain, Internet of Things, big data and advanced analytics. We must think about the big picture and how all of these pieces fit together in overall corporate and organizational digital strategy.

Forbes recently reported the top 20 largest businesses in the world, including top financial institutions, are all now exploring blockchain. These same companies are simultaneously evaluating and implementing the use of big data, predictive analytics, artificial intelligence and machine learning.

Since 90 percent of goods in global trade are transported through the shipping industry supply chain, let’s use the announced partnership of Maersk and IBM as our first example.

As you may know, Maersk is the largest shipping container company in the world, transporting 15 percent of the world GDP each year.

The shipping industry supply chain consists of:

  • Land transportation brokers
  • Customs brokers
  • Ports
  • Freight forwarders
  • Governments
  • Ocean carriers

Like many bank functions in the U.S., global trade functions are antiquated. The industry is still largely paper intensive with organizational silos and a heavy reliance on Excel. A typical transaction can take up to 30 people and more than 200 communications to complete. Maersk is not immune to these same challenges, but recently embarked on its own digital transformation through two partnerships:

  • Microsoft Enterprise Services to move five regional datacenters to the cloud, improve IT performance, bolster customer services, and reduce operational risk;
  • IBM to improve transparency and efficiency, with complete visibility of tracking millions of container shipments each year.

Each participant in a supply chain ecosystem can view the progress through the supply chain. They can also see the status of customs documents, view bills of lading and other data. This will all be done using blockchain technology and smart contracts.

So, what does all of this mean? Let’s take a look at how this all ties in to what I call “the digital innovation melting pot” and why we as bankers must pay attention:

In this video, the bank is partnered with the shipping, wearable device, driverless car, identity, virtual agent/chatbot, social media, social media influencers, predictive analytics, retailer, airline, and hotel industries. These 11 industries are working together to offer products, complete transactions and improve the customer experience with little in-person human interaction.

My view of blockchain, innovation and its place in the new digital world is from my role as a CEO who’s been accountable to shareholders, responsible for the bottom line. Though the top banks in the country have caught on to this trend, many banks are still in the dark ages, plagued by denial, lack of innovation knowledge and the right talent.
Many institutions still have bricked-up infrastructure, engrained in the mentality that “this is the way it’s always been done,” with a lot of outdated, dysfunctional and inefficient processes, policies and procedures.

The disregard of digital technology disruption and innovation is like a termite infestation that destroys the structure if you don’t pay attention to warnings and maintain the property.

Key Takeaways
Partnerships are the way of the future. A bank can no longer rely solely on its own infrastructure and core vendor relationships. The new digital world converges industries, so make sure you pick the right partners. To do so, understand existing infrastructure and look through the lens of generational age groups with a customer focus.

  • Does the customer want simple to use technology services and want it now?
  • Do they prefer more traditional services, and are they less trusting of new market entrants? Do they still value human advice?
  • Do they value high-quality service and view “trust as a must,” but are interested in innovation and want to be educated?
  • Is there forward-thinking leadership in the boardroom and C-suite?
  • How does the board get refreshed with new perspective?
  • Would board members be willing to give up their board seat to allow fresh perspective?
  • Has there been evaluation about current state and future growth?
  • Is there understanding about existing system capabilities, shortfalls, what works, what doesn’t?

Determine your game plan:

  • Does the front end need digitization?
  • Fix front end while gradually replacing legacy infrastructure and integrating middle and back office?
  • Go digital native – full overhaul?
  • Evaluate whether systems, processes, procedures and policies are still relevant?

Don’t forget impact on your people. Make sure new offerings do not cannibalize existing product offering and pricing. Remember that a digital expert is unnecessary in the boardroom. Instead find a digital technology translator; someone who understands the cause and effect of decisions made at the macro level. Lastly, and most importantly, figure out how to disrupt your business model before it becomes disrupted.

New Big Bank Digital Ventures Could Threaten Community Banks

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big-banks-8-14-18.pngAs if community banks don’t have enough to worry about, along comes Finn. And Access. And in the not-too-distant future, Greenhouse. All three are new digital banking platforms that have been introduced or are being test run by some of the country’s largest banks—JPMorgan Chase & Co., Citizens Financial Group and Wells Fargo & Co., respectively—and they mark a significant escalation in the digital banking space, with more new entrants to come. For example, Citigroup—at $1.9 trillion in assets, the country’s third largest bank—announced in late March that it plans going nationwide with a new mobile banking platform, although it hasn’t disclosed an exact release date.

The digital banking space is already crowded with countless fintech neobanks that work with bank partners behind the scenes to offer banking services along with unique personal financial management capabilities to millennials and other digitally-savvy consumers. Included in the mix are somewhat older challenger banks, like Simple, which is owned by BBVA Compass Bancshares (which is itself owned by Spanish banking conglomerate Banco Bilbao Vizcaya Argentaria); well-established direct banks like Bank of Internet USA, a subsidiary of $10 billion asset BOFI Holdings, which started operations in 1999; and unique players like Marcus, a digital platform launched in 2016 by investment bank Goldman Sachs, which combines an automated consumer loan capability with various deposit products—all aimed at a lower-brow customer base than Goldman has traditionally focused on.

“There is not a single incumbent bank in the U.S. with more than 20 branches who would surprise me if they launched a digital subsidiary,” says Peter Wannemacher, an analyst at Forrester Research who focuses on digital strategy in the financial services space. “What I mean by that is, I think every bank in America is considering this option.”

Why so much activity now when digital banking—including mobile—isn’t exactly new? “Incumbent banks are under a lot of pressure,” Wannemacher says. “Some of that’s market pressure. A lot of it is internal pressure. That is, their boards or their C-level executives desperately want to be relevant and be talked about in the digital space.”

Finn, which is branded as “Finn by Chase,” was launched nationwide by JPMorgan Chase (the largest U.S. bank with $2.5 trillion in assets) in June of this year as an all-mobile bank that is separate and distinct from its existing consumer banking product set, including its branch, online and mobile banking distribution channels. Finn includes a checking account with a debit card, a savings account, remote deposit and a multi-featured financial management tool set. Melissa Feldsher, a managing director who heads up the Finn operation, says that Chase is responding to what its research showed was “an unmet need” by a “smaller growing portion of the country that was truly looking for an end-to-end mobile banking experience.” Feldsher says that Finn is specifically targeting all “digitally savvy” consumers rather than just millennials, although she adds that those individuals “will tend to skew younger.”

Wells Fargo, the third largest U.S. bank with $1.9 trillion assets, is developing its own standalone mobile banking app, called Greenhouse. “Greenhouse is currently in a limited customer and team member pilot, and will expand to several states for iPhone users later this year on the Apple App store,” a spokesperson wrote in an email. “We will determine the national rollout following the pilot.” According to published reports, Greenhouse offers a spending account for paying bills, a savings account, debit card and financial management tools. Like Finn, this is a separate offering than what Wells customers receive through its consumer bank.

Taking a somewhat different approach is $155 billion asset Citizens Financial, the country’s 13th largest bank, which in July launched Citizens Access, described as a “nationwide direct-to-consumer digital bank” that will operate separately from its branch operation. Unlike Finn and Greenhouse, Access will only offer savings accounts and certificates of deposit. Citizens Access President John Rosenfeld says direct bank deposits are growing three to five times faster than brick-and-mortar deposits nationally. “This is an opportunity to extend our footprint [so] we can now reach all 50 states,” he says, “whereas we couldn’t do that before with our branch-based web product,” which Rosenfeld says was only available in Citizen’s traditional market. “We didn’t have the capability to open accounts outside the states we were in. Now we do,” he adds.

As large banks target consumers nationwide with these new direct banking ventures, community banks will be under pressure to up their game. “The larger banks are investing more in digital capabilities … and I think that community banks, to compete, are going to have to really evolve their digital capabilities,” Rosenfeld says.

A Community Bank’s Pursuit of Coast-to-Coast SBA Lending

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lending-7-11-18.pngTraditional processes for underwriting and originating small business loans can be expensive and onerous for the typical financial institution, making it difficult to make these loans profitable. But Stuart, Florida-based Seacoast National Bank—through its partnership with SmartBiz, based in San Francisco—is already experiencing significant growth in SBA loan volume by automating the process and accessing a nationwide pool of prospective customers. In fact, the $5.9 billion asset bank plans to crack the Small Business Administration’s list of the top 100 SBA lenders by the end of this year.

It’s hard to argue with the results so far: Data from the SBA reveals the bank’s average number of loan approvals for 2018—43 per quarter as of June 22—are almost equal to the total number of SBA loans the bank approved (46) in all of 2017. Of the 129 SBA loans approved by Seacoast so far this year, almost 100 were generated through SmartBiz, according to the bank. SBA loan volume is at $33.9 million so far for the year—more than double the amount approved by the bank last year.

Seacoast started working with SmartBiz about a year ago, due to its interest in the fintech firm’s ability to provide access to a broad, national base of potential customers, says Julie Kleffel, executive vice president and community banking executive at Seacoast.

Eight banks currently participate in SmartBiz’s loan marketplace. Each bank outlines its credit policies and desired customer criteria with SmartBiz, which allows it to serve as a matchmaker of sorts between customer and lender. “We’re able to send the right borrowers to the right bank,” says SmartBiz CEO Evan Singer. Roughly 90 percent of the customers matched to the company’s partner banks are ultimately approved and funded, which benefits both the customer and the bank, which is less likely to waste time and resources underwriting a loan that it ultimately won’t approve.

Seacoast’s underwriters have the final say on whether the loan is approved, and they close the loan, says Kleffel. The guaranteed portion of the loan is sold on the secondary market, with Seacoast keeping the unguaranteed portion. (Under the SBA 7(a) loan program, the SBA pays off the federally guaranteed portion if the loan defaults.)

Kleffel says the two entities have a “collaborative” relationship and spent time early on learning how the other does business. Together, “we provided a way to better serve both our existing clients as well as new clients [SmartBiz is] introducing us to,” she says.

Seacoast currently ranks 108th on the SBA’s list of top lenders, putting the top 100 within sight. Access to more customers through SmartBiz has contributed to the bank’s SBA loan growth, but a more efficient process means the bank can handle the increased volume. The traditional 30- to 45-day process has been cut to 11 or 12 days, according to Kleffel. Ultimately, the bank would like to approve SBA loans within 10 days of submission.

Singer credits Seacoast for making the most of the partnership. “The leadership at the bank has really embraced innovation, and you can see what they’re doing out in the marketplace to meet customer needs,” he says, adding that the experienced SBA team the bank has in place is another key differentiator.

Seacoast aims to treat these new customers just as well as the customers it would attract more traditionally through its Florida branches. Each new customer receives a call from a Seacoast banker, introducing them to the bank. The same banker “works directly with them all the way through closing and post-closing, so that they’re appropriately brought into the Seacoast family with the same level of care” as any other customer, says Kleffel, with an eye to retaining and growing the relationship.

Seacoast has accomplished this growth without hiring new staff. SBA loan origination is currently supported by just five employees, including a department manager. Supporting that level of loan volume and growth would require double that without SmartBiz on board. The partnership, Kleffel says, “has allowed us to pull through more revenue, faster, with [fewer] people and a better customer experience.”

How U.S. Bank Helps Distressed Borrowers

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mortgage-7-4-18.pngLike many lenders during the Great Recession, U.S. Bank found itself with a large number of mortgage loan borrowers who couldn’t keep up with their payments, and it had little help to offer. This was bad for the bank and borrowers alike because mortgage loans that went into default often ended up in foreclosure, which drove up the bank’s costs while putting the borrower at risk of losing their home.

Scott Rodeman, a senior vice president for consumer loan servicing who joined the Minneapolis-based bank in 2014, knew there were resources available to distressed borrowers from his experience at a previous bank employer, and he reached out to SpringFour, a 13-year-old company headquartered in Chicago. SpringFour acts as a conduit to agencies and organizations that work directly with borrowers having trouble making their loan payments because of other financial issues, like the loss of a job or mounting medical bills from a serious illness.

“Coming out of the mortgage crisis, mortgage servicers were somewhat limited in how they could help their homeowners…stay in their homes,” says Rodeman, who is responsible or U.S. Bank’s mortgage, auto and consumer loan collections, repossession, recovery and loss mitigation operations. The bank could offer solutions to homeowners who still had some cash flow, but it had little advice for those who couldn’t even make a partial payment. “Really, our loan counselors had very few options to help them improve their financial cash flow to pay for home-related expenses, housing and things like that,” Rodeman says.

That’s where SpringFour comes in. The company provides a cloud-based technology solution called the S4 Desktop that allows lenders like U.S. Bank to refer distressed borrowers to nonprofit organizations and government agencies that can help them get their financial affairs in order. “When people get behind and can’t pay their bills, it’s really because of something that’s happening in their financial lives,” says SpringFour CEO and co-founder Rochelle Nawrocki Gorey. “There’s a lot of shame attached to financial challenges, so they don’t reach out and get help. We believe that when people are living paycheck to paycheck, they need and deserve to be connected to local resources that can help.”

U.S. Bank and SpringFour were co-finalists in Bank Director’s 2018 Best of FinXTech Innovative Solution of the Year award.

The S4 Desktop solution can be accessed by U.S. Bank service representatives by logging into the service via the web. From there, they can direct the borrower to agencies and organizations that can help that individual work through their financial crisis. A link to SpringFour can also be found on the U.S. Bank website. The SpringFour database contains over 10,000 resources in all 50 states, and Gorey says her firm is constantly vetting and curating the data to keep it up to date. “We have a professional data team that is assessing the nonprofits for track record, reputation, funding and capacity to assist,” she says. “We’ve built a strong track record of trust with our financial institution clients. They know when they make a referral through SpringFour, it’s going to be accurate.”

Because the S4 solution is cloud-based, there were no implementation issues to speak of, according to Rodeman. “There was no technical work or development work really,” he says. “It was all customer-facing edits to our existing processes. Then, of course, training our employees to offer the service and manage that just like any other call center function.”

U.S. Bank has been working with SpringFour for about two years, and Rodeman says the program has shown tangible results. “Consumers that receive these referrals are twice as likely to engage in some kind of loan workout strategy with us rather than just allow the house to go into foreclosure,” he says. “That’s a significant number.” Mortgage borrowers that receive referrals are also 10 percent more likely to remain current with their mortgage. An equally important if less tangible benefit is that the program has enabled the bank to build a deeper relationship with its customers. “Coming out of the crisis, consumers were afraid of their mortgage servicers,” says Rodeman. “For us to see that kind of engagement rate increase shows that we’re building rapport and trust with our customers.”

If U.S. Bank had access to the SpringFour program during the mortgage crisis, Rodeman believes it would have helped reduce the number of foreclosures. The economy is much healthier today, of course. But even now there are borrowers who need help making their loan payments, “Based on our numbers in an improving economy, I don’t see why it wouldn’t have [helped] back then.”

How Pinnacle Improved the Efficiency of Construction Loan Management

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partnership-6-27-18.pngWhen banks make a construction loan on a new office building or housing development, the funds usually are not provided to the borrower in a lump sum, but instead are dispersed as various project milestones are achieved. The administration of these credits are often handled on a simple spreadsheet—one for every loan. That might work for a small community bank that only makes a handful of construction loans a year, but not for Pinnacle Financial Partners, a $23 billion asset regional bank headquartered in Nashville, Tennessee that considers construction lending to be an important business it wants to scale in the future.

Pinnacle wanted a more efficient way of administering its construction loan portfolio, particularly after a series of acquisitions of other banks that also did construction lending. “We’re always looking for ways to improve efficiency,” says Pinnacle Senior Vice President Dale Floyd. “Coming out of the recession, we were growing fairly fast, had merged a couple of banks into us and everyone was doing construction lending differently. We needed some consistency throughout the organization, and to try to be more efficient at the same time.”

And that led Pinnacle to another Nashville-based company, Built Technologies, which has developed an automated construction lending platform that not only centralizes the administrative process, but promises to be an effective risk management tool as well. “Construction loans require coordination between the bank, the borrower, the contractor, the title company and third-party inspectors to review the progress of the project,” says Built CEO Chase Gilbert. Now all of these parties are connected in real time and everyone is looking at the same information instead of information silos, and the draw process can be managed more proactively. “We bring that process online to the benefit of everyone involved.”

Pinnacle and Built were co-finalists in Bank Director’s 2018 Best of FinXTech Startup Innovation award.

The benefits to Pinnacle begin with greater speed and efficiency. “It cuts down on phone calls and emails and paper,” says Floyd. “It reduces the chances for errors … because the [loan] doesn’t have to go through so many hands.” When banks are using simple spreadsheets to administer their construction loans and a builder wants to make a draw against their loan, an inspector will have to drive to the project site and assess whether the required work has been completed, drive back and write up a report authorizing a dispersal. With the Built platform, all this happens much faster. “[All the information] is there and it’s immediate,” says Floyd.

The platform also provides the bank with an enhanced risk management capability. “We do a lot of large loans,” Floyd explains. “I can pull a report at any time of every loan I have over $1 million, by location and by builder. I can track loans that have been fully funded, or I can track loans that we’ve closed but no disbursements have been made for three months. If we see that we want to know why. What has caused this project to stall?”

And when state and federal examiners come into the bank, Floyd can “pull up any loan that they want to see and look at the inspection reports, look at the pictures and see all the numbers,” he says. “That information is there for as long as we want to store it.”

Gilbert says Built spent nine months getting to know Pinnacle and understanding the bank’s goals for construction lending before work commenced on the project. “Pinnacle is a high growth bank and it was looking for something that would allow it to scale [that business],” he says. “The bank is also fanatical about customer experience and it wanted to find a way of giving its borrowers and builders a best-in-class experience.”

Floyd says Built also made some changes to the platform at the bank’s request—for example, building in a feature allowing a borrower to overdraw their loan with the bank’s approval if the situation warrants it. “They’re constantly looking for input,” he says. “They want to make the system better all the time.” And the new platform was easy to implement, according to Floyd. “That’s one of the things I was surprised about,” he says. “The training time is very short, and it’s very user friendly.”

ChoiceOne and Autobooks Bring Rural Customers into the Digital Age

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sba-6-20-18.pngAdom Greenland works with a lawn care specialist who was running his business in a way reminiscent of a bygone era. He’d leave a carbon copy invoice on the counter when he finished his work, Greenland would cut a check and some three weeks later, the small-business owner would finally be compensated for the work he had done weeks prior.

That arrangement is one that still exists in many rural areas, but Greenland, the chief operating officer at $642 million asset ChoiceOne Bank, headquartered in Sparta, Michigan, saw an opportunity to help rural customers like his lawn care specialist usher themselves into the 21st century by partnering with Autobooks.

ChoiceOne found itself in a position that many banks in the country have found themselves in at some juncture in the last several years: recognizing the need to make a move to remain competitive with booming fintech firms popping up all over the place. Located in a largely rural area in western Michigan—Grand Rapids, with about 200,000 residents, is the largest city in its area—the bank has been a fixture for its rural community but is slowly moving into urban markets, Greenland says. Its specialties include agricultural and small business borrowers that are comfortable with antiquated practices that often aren’t driven by technology. But in an increasingly digital world, Greenland says the move was made to make both the bank and its commercial customers competitive by improving its existing core banking platform to digitize treasury services for commercial customers.

ChoiceOne chose Autobooks to digitize its small business accounting and deposit process in 2017, a journey the bank began three years ago after realizing that the technology wave rolling over the banking industry was going to be essential for the bank’s future. But identifying potential partners and wading into the due diligence process was at times frustrating, Greenland says. “Everything was either, you had to pay a quarter-million dollars and then had to hope to sell it to somebody, or it was just 10-year-old technologies that weren’t significantly better than what we already had.”

Autobooks, through an array of application programming interfaces, or APIs, essentially automates much of the bank’s existing treasury services such as invoicing, accounting and check cashing processes. The system sits on top of the bank’s existing banking platform from Jack Henry, but works with FIS and Fiserv core systems as well.

With just 12 branches in a predominantly rural market, Greenland says this has become a game changer for the bank and its customers.

“My sprinkler guy could have been doing this a long time ago, but this will accelerate the adoption of technology [by] my rural customers,” Greenland says. “It’s bringing my customers to the next century in a really safe and easy way.”

The partnership between Autobooks and ChoiceOne generates revenue for both companies through fees. It is a similar arrangement to that of Square, QuickBooks or PayPal, the competitors Greenland is trying to outmaneuver while integrating similar accounting, invoicing and payments functionalities.

So far, the partnership has been able to reduce the receivables time by about two weeks, and automates many time-consuming tasks like recurring invoicing, fee processing and automatic payments. It also cuts expenses for the bank’s customers that have been using multiple third-party providers for similar services, which has driven loyalty for the bank. ChoiceOne hasn’t generated significant revenue from the partnership—Greenland says it’s at essentially a breakeven point—but the loyalty boost has been the biggest benefit, an attribute that’s becoming increasingly important as competition for deposits rises.

And the results are visible for small businesses, like Greenland’s sprinkler technician. “For that kind of business, this thing is absolutely revolutionary.”

How TCF Financial Reinvented the Customer Experience

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deposit-6-15-18.pngIn the spring of 2015, new leadership took over TCF Financial Corp., based in Minneapolis, and set about a course that would reshape the bank from the inside out.

At that time, the bank was in the midst of rebranding itself when Craig Dahl took over as CEO, and hired Tom Butterfield as chief information officer to usher in a new era of online banking that would keep the $23 billion asset bank on a level playing field with much larger competitors.

“We were not there. We had identified some pretty significant gaps in our market to our competitors,” Butterfield says. “Not the least of which was mobile remote deposit capture.”

That specific capability is coveted by both bankers and customers, who favor on-the-go functionality while banks enjoy the ability to increase their core deposits at a time when the competition for customer loyalty and their funds has increased sharply.

The bank went to market with a very specific request for information, or RFI, that solicited a very specific technological architecture that would remake its online user experience to be seamless between devices, but also adapt to its highly customized core technology and allow the opportunity for scale. While this limited the number of firms capable of handling the project, it also allowed the bank to customize its own technology. D3 Banking Technologies, based in Omaha, Nebraska, was one of the few who could handle the specific and unique request.

In the end, the D3 built an all-new online banking experience for TCF, which migrated 1.2 million accounts to the new platform over 15 months, from the time the board approved the funding for the project to complete migration, which they completed last fall.

D3, like other fintech partnerships, reinvented the TCF customer experience using application programming interfaces, or APIs, that function similar to a server at a restaurant. In TCF’s case, there are two layers of APIs that were necessary to adapt what Butterfield describes as a “highly customized” legacy core system that differs from typical core systems like those offered by Jack Henry, FIS or Fiserv. Butterfield described TCF’s core as “many many years old that doesn’t lend itself to interacting well with these modern technical platforms.”

The top layer is what D3 built and actually makes the experience, but there is a middle layer of APIs the bank built that connects the core, and also enables the bank to be able to customize and scale into other technologies, like voice commands (think Amazon Alexa or Google Home), and others.

The real-world implication of this new technology became clear when Apple rolled out its iOS 10, which swapped fingerprint recognition for facial recognition security. Mobile apps for megabanks like Bank of America were live with the new tech almost instantly. So was TCF.

“We feel like we can compete with the best banks in the country and the best platforms in the country,” Butterfield says.

Customers who had been migrated to the new system also had questions, Butterfield says. In anticipation of that transition, TCF put “digital ambassadors” into branches that offered customers—some of whom physically carried their laptops into the branch to get help—training on the new system, a scenario that represents the transformation that TCF put in place.

“The fact that our branches were a part of this story and part of this journey is a key piece of its success,” Butterfield says

Beyond the tech itself, Butterfield says the move to emphasizing technology inspired wholesale changes within the bank’s own culture. TCF literally tore down cubicle walls and put its IT and business staffs at the same table—often referred to as bench seating—reducing the barriers between the two wings of the bank that typically operate independently.

The integration fundamentally changed the way the bank works, making it unique compared to other banks who still hold true to traditional structures.

“That breaking down of silos is really key of how we got this done in 15 months,” Butterfield says.

Since the completed rollout in the fall of 2017, the bank has reduced payment processing costs by $1.3 million in the first year alone, and Butterfield said there has been a 400 percent increase in adoption rate, and a 250 percent increase in accounts opened by existing customers through the platform, and a reduction of 2.6 percent in checking account attrition, all signs the bank sees the tech has increased loyalty and potential for deposit growth, even as the largest banks grow their deposits over community and regional competitors.

“We’re definitely in the ball game,” he says.

More Than Your Average AI

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artificial-intelliegence-6-6-18.pngUSAA was looking for a financial technology firm to tell them they were dead wrong.

They found that candid firm in the summer of 2017, and the resulting partnership has generated one of the first technologies the large financial services provider has rolled out that allows its members, active military personnel, veterans and their families, to interact with USAA on Amazon’s home devices that feature the digital assistant Alexa. USAA wanted to solve a problem: “How do we create a scalable conversation engine that can talk about something as sensitive as personal finances?” says Darrius Jones, assistant vice president for enterprise innovation at USAA, in describing what led them to their partner, Clinc.

Working together, Clinc, an Ann Arbor, Michigan based fintech that has grabbed the attention of national outlets like CNNMoney, and USAA developed a “scalable conversation engine,” as Jones describes it, that goes far beyond a binary question-answer interaction between a human and a “talking silo.” The two companies formally announced their partnership to create a conversational artificial intelligence solution in August 2017. USAA was the first major national bank to partner with Clinc, which had raised nearly $8 million in multiple funding rounds before the announcement.

“From the beginning, our teams worked together to create a very different experience for delivering content that is complex … and trending,” Jones says.

Those interactions propelled the work USAA and Clinc have done to be named in March as a finalist for Bank Director’s FinXTech Innovative Solution of the Year, an award presented at the FinXTech Annual Summit, held this year in Phoenix.

The truth is, several banks have worked with fintechs or internally developed some version of conversation capabilities with in-home devices like the Amazon Echo, Apple HomePod or Google Home. But most of these interactions are basic, limited to rudimentary questions about account balances and other simple, mostly binary, inquiries. But $155 billion asset USAA uses Clinc’s technology to offer broader conversations and analysis than just binary sort of answers. Jones calls it “three-dimensional” because of its ability to infer intent from interrogatory statements based on contextual evidence proposed in the interaction with its human counterpart.

“Our Alexa skill really has the ability to disseminate what you’re saying and, in some cases, answer a question most humans wouldn’t answer without proper context,” Jones says. So instead of just getting simple responses, the engine can analyze spending trends at specific places, for example, and aggregate data across several accounts, making the responses more holistic in nature. The technology can also be predictive at times when the user asks questions in a vague way, according to Jones, and can respond with a suggested prompt with a perceived answer, a capability that is so far rare in other similar AI interfaces.

USAA had wanted to wade into the AI and conversation engine area before signing on with Clinc, Jones says, and had developed a strategy they thought would have been effective, efficient and competitive, but then Clinc’s CEO, University of Michigan Professor Jason Mars, chimed in when they met at a conference. As Jones recalls, he told the team at USAA, “I think you guys have a great idea, but I think you’re doing it wrong.” It was exactly the assessment USAA was looking for. “We love partners who are willing to challenge us and make us better,” Jones says.

The conversational technology is still a ways off from administering payments or other products that might add to the bank’s bottom line, according to Jones. But USAA has already identified opportunities to leverage the technology to increase member loyalty, and potentially work in soft pitches for other products the bank offers and advise members of possible risks.

Jones says USAA has “really struggled with the success” of the pilot programs, so much so that they had to check and recheck the data and reporting to ensure it was accurate. Eventually, he says they hope to continue the scaling of the technology, which he expects to involve additional updates later this year.

“I have a belief that the days of typing or touching as your primary method of interaction are numbered,” Jones says.

Partners May Be Vendors, But Not All Vendors Are Partners

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partnership-6-1-18.pngTechnology companies may call themselves partners to the banking industry, but for the bankers themselves, most of these firms are just vendors. There’s a big difference in that particular bit of nomenclature, and bankers participating in a roundtable discussion held in advance of the 2018 FinXTech Annual Summit, co-hosted by Bank Director and Promontory Interfinancial Network, had a lot to say about the true nature of partnerships. It’s all about the relationship.

“We want [a partner] that’s bringing insights and dialogue and teaching us, and we’re teaching them and working together on different things,” said Sara Rountree, senior vice president in charge of digital strategy at Union Bankshares Corp., headquartered in Richmond, Virginia, with $13 billion in assets. She also wants to know about the startup’s infrastructure and vision for its own future. “That tells [us] a lot about where they’re going to go, and how they can be agile and flexible in the future as well.”

While the banking industry buys products and services from a multitude of technology vendors to do things such as enhance their mobile banking product, create a more efficient back office or better comply with regulations, the bankers participating in the roundtable discussion said that partners are companies they can collaborate with. Both companies can learn from one another, and the bank feels it has more of a say in the development of services.

Banks have to put work in to determine which relationships will be an appropriate strategic and cultural fit. That starts with evaluating a potential provider’s capabilities compared to the bank’s own requirements and determining the risks of doing business with the company. “It’s really keeping focused on what you have the resources to handle and gathering enough information, and then getting the right bankers at the table” to determine what’s best for the bank, said Mark Christian, executive vice president, operations and systems at Beverly Hills, California-based PacWest Bancorp, with $24 billion in assets.

And it’s essential to meet with the potential provider’s team. “It’s making sure that company is aligned to how we’re thinking about things, not just this next step of the one product, but how are you going to evolve that and how does that align with what we’re focused on,” said Travis Engebretsen, vice president of strategy at Stuart, Florida-based Seacoast Bank, with $5.9 billion in assets.

Trusting a provider to provide direct support to the bank’s customers is another sign of a true partner, according Richard Greslick, the chief operating officer at Clearfield, Pennsylvania-based CNB Financial Corp., with $2.9 billion in assets. The bank evaluates a provider’s level of support during the vetting process. “We want to make sure they’re carrying the brand like we would,” he said.

Being a partner means that the technology company is more responsive to the bank’s needs, but it also requires more hand-holding on the part of the bank, especially if the partner is a young company that may not fully understand the regulatory constraints facing the banking industry. However, this does provide the bank with an opportunity to influence the company’s product.

The banking industry is highly reliant on established core providers, but the sizeable core providers—Fiserv, FIS and Jack Henry & Associates—serve too many customers for a bank to have a significant voice in the products each core offers and therefore, to be seen as a true partner to their clients.

The smaller core providers can be more of a partner, at least if the bank is a big-enough fish. CNB selected COCC as its new core provider almost three years ago and integrated its new core over a two-year period. The bank is COCC’s first client in Pennsylvania and one of its larger client banks, and its representatives discuss issues monthly over the phone with the bank’s department heads.

Whether a company is a partner or a vendor, the result is new technology for the bank, and the bankers interviewed at the FinXTech Annual Summit agreed that getting employees—and by extension, customers—to use the technology poses a significant challenge.

In response, Seacoast has shifted its focus from project management to change management. This isn’t just a shift in classification, according to Engebretsen. Instead of just focusing on launching the technology, the change management team also ensures that associates understand why the new technology was needed, how it will impact employees and how employees will be trained.

To put it simply, transformation is less about technology and more about people. “It has to be part of the company culture. People need to think differently,” said Rountree.