2019 Survey Results! Here’s How Banks Are Spending Money on Technology

The desire to streamline customers’ experience and improve efficiency is driving bank technology strategies across the industry, as most executives and directors believe their offerings are “adequate,” according to Bank Director’s 2019 Technology Survey, sponsored by CDW.

The survey, conducted in June and July 2019, reflects the views of CEOs, technology executives and independent directors. It seeks to better understand bank strategies, staffing and budgets around technology and innovation, as well as banks’ relationships with legacy core providers and newer vendors.

Seventy-eight percent of survey respondents say that improving the customer experience is a top objective driving their bank’s strategy around the investment, development and implementation of technology. Seventy-two percent say that fueling efficiency is a top objective.

These strategic objectives are driving where banks are investing in technology: 68% say they’re investing in automation in fiscal year 2019, and 67% are investing money to enhance the bank’s digital channels.

Most banks rely on their core provider to advance these goals. The cores are the primary providers for many of the technologies used by banks today, including application programming interfaces (68% say that API technology is provided by the core), business process automation (43%), data aggregation (42%) and peer-to-peer (P2P) payments (47%).

That relationship isn’t stopping many banks from searching for new potential partners; 60% are willing to work with newer fintech startups. The survey finds that the use of alternate providers is gaining ground, in particular when it comes to the cloud (57%), data aggregation (25%) and P2P payments (29%).

Despite the rise of the digital channel, 51% of respondents say the branch is equally important to online and mobile channels when it comes to growing the bank. More than half indicate they’re upgrading branch and ATM technology.

Just 30% say that driving top-line growth fuels their technology strategy, which indicates that most banks see technology as a way to save money and time as opposed to generating revenue.

Key Findings

  • Loyal to the Core. More than half of respondents say their core contract expires within the next five years. Sixty percent say they’re unlikely to switch to a new provider.
  • But Banks Aren’t Satisfied. Just 21% say they’re completely satisfied with their core provider.
  • Technology Pain Points. Sixty percent say their current core provider is slow to provide innovative solutions or upgrades to their bank, and almost half cite difficulty in implementing new solutions. These are major sticking points when 60% rely on their core provider to introduce innovative solutions.
  • It’s All on IT. Almost three-quarters point to the senior technology executive as the individual responsible for identifying, developing and implementing technology solutions. Almost half task a management-level committee to make decisions about technology.
  • Rising Budgets. Forty-five percent say their technology budget has risen between 5% to 10% for FY2019. Almost one-quarter report an increase of more than 15%. Responding banks budgeted a median of $750,000 for FY2019.
  • Where the Money’s Going. In addition to automation, digital enhancements and branch improvements, banks are hiring consultants to supplement in-house expertise (50%), and bringing on additional employees to focus on technology and innovation (43%).
  • Data Gap. Almost half describe their bank’s data analytics capabilities as inadequate.
  • More Expertise Needed. Fifty-three percent say technology is on the agenda at every board meeting — up three points from last year’s survey. Yet, 80% say the board needs to enhance its technology expertise. Forty-three percent say they have a technology expert on the board.
  • Cybersecurity Top of Mind. Protecting the bank from cyberattacks dominates board technology discussions, according to 96% of respondents. Many boards also focus on process improvements (63%) and implementing innovative customer-facing technology (46%).

To view the full results of the survey, click here.

The Strategic Side of Cybersecurity Governance


cybersecurity-8-7-19.pngWithout a comprehensive cyber risk governance strategy, banks risk playing Whac-A-Mole with their cybersecurity.

Most financial institutions’ cybersecurity programs are tactical or project-oriented, addressing one-off situations and putting out fires as they arise. This piecemeal approach to cybersecurity is inefficient and increasingly risky, given the growing number of new compliance requirements and privacy and security laws. Institutions are recognizing that everyone in the C-suite should be thinking about the need for a cyber risk governance strategy.

There are three key advantages to having a cyber risk governance strategy:

  • Effectively managing the audit and security budget: Organizations that address current risks can more effectively prepare for cybersecurity threats, while meeting and achieving consistent audit results. A thorough risk assessment can highlight real threats and identify controls to evaluate on an ongoing basis through regular review or testing.
  • Reducing legal exposure: Companies and their officers can reduce the potential for civil and criminal liability by getting in front of cybersecurity and demonstrating how the institution is managing its risk effectively.
  • Getting in front of cybersecurity at an organizational level: Strategic planning is an important shift of responsibility for management teams. It proactively undertakes initiatives because it’s the right thing to do, versus an auditor instructing a company to do them.

So what’s required to set up a cyber risk governance strategy? Most organizations have talented individuals, but not necessarily personnel that is focused on security. Compounding the industry shortage of cybersecurity professionals, banks may also lack the resources necessary to do a risk assessment and ensure security practices are aligned to the cyber risk governance. As a result, banks frequently bring in vendors to help. If that’s the case, they should undertake a cyber risk strategy assessment with the help of their vendor.

Bank boards can perform a cyber risk governance strategy assessment in three phases:

  1. An assessment of the current cyber risk governance strategy. In phase one, a vendor’s team will review a bank’s current organizational and governance structure for managing information security risk. They’ll also review the information technology strategic plan and cybersecurity program to understand how the bank implements information security policies, standards and procedures. This provides a baseline of the people and processes surrounding the organization’s cyber risk governance and information security risk tolerance.
  2. Understand the institution’s cyber risk footprint. Here, a vendor will review the technology footprint of customers, employees and vendors. They’ll look at internal and external data sources, the egress and ingress flow of data, the data flow mapping, the technology supporting data transport and the technology used for servicing clients, employees, and the third parties who support strategic initiatives.
  3. Align information security resources to cyber governance goals. In phase three, a vendor will help the bank’s board and executives understand how its people, process and technology are aligned to achieve the company’s institution’s cyber governance goals. They’ll review the bank’s core operations and document the roles, processes and technology surrounding information security. They’ll also review the alignment of operational activities that support the bank’s information security strategic goals, and document effective and ineffective operational activities supporting the board’s cyber governance goals.

Once the assessment is complete, a bank will have the foundation needed to follow up with an operational analysis, tactical plan and strategic roadmap. With the roadmap in place, a bank can craft a cyber risk strategy that aligns with its policies, as well as an information security program that addresses the actual risks that the organization faces. Instead of just checking the boxes of required audits, bank boards can approach the assessments strategically, dictating the schedule while feeling confident that its cyber risks are being addressed.

What’s Trending at Acquire or Be Acquired 2019

Smart Leadership – Today’s challenges and opportunities point to one important solution: strong boards and executive teams.
Predicting The Future – Interest is growing around mergers of equals, commercial deposits and shifting team dynamics.
Board-Level Concerns – Three characteristics define the issues facing bank directors.
Spotlight on Diversity – Diverse backgrounds fuel stronger performance.
Digging into Strategic Issues – The end of the government shutdown could yield more IPOs.

Exclusive: How KeyCorp Keeps Diversity & Inclusion in Focus

Banks large and small are focusing more sharply on diversity and inclusion as a way to attract and retain the best talent, regardless of gender, race, ethnicity or sexual orientation.

One bank demonstrating a robust D&I program is $141.5 billion asset KeyCorp, headquartered in Cleveland, Ohio. It’s perhaps no coincidence that it’s the largest bank led by a woman: CEO Beth Mooney, who took the reins at the superregional bank in 2011 to become the first female CEO of a major U.S. financial institution.

Heading KeyCorp’s D&I efforts since 2018 is Kim Manigault, who joined Key in 2012. She previously served as the chief financial officer in the bank’s technology and operations groups; before that, she spent 12 years at Bank of America Corp. in similar roles.

“I’ve had lots of different opportunities at different organizations, but I’ll say in coming to Key, what I realized here is a really firm and demonstrated commitment to creating opportunities for women as well [as men] in our senior ranks,” Manigault told Bank Director Vice President of Research Emily McCormick, who interviewed her as part of the cover story for the 2nd quarter 2019 issue of Bank Director magazine. (You can read the story, “A Woman’s Place is in the C-Suite,” by clicking here.)

A strong D&I strategy isn’t solely the domain of big banks. In this transcript—available exclusively to members of our Bank Services program—Manigault delves into KeyCorp’s intentional and deliberate focus on diversity and inclusion, and shares the tactics that work within the organization.

She also discusses:

  • Components of KeyCorp’s D&I program
  • Measuring Success
  • Creating a Culture of Inclusion

The interview has been edited for brevity, clarity and flow.

download.png
 Download transcript for the full exclusive interview

Engaging Branch Staff to Build Merchant Services Momentum


services-7-3-19.pngThe success of a bank’s merchant services program lives or dies by the support from branch staff.

While offering competitive rates and top-notch customer service is important, those things won’t make a difference if bank branch staff isn’t discussing merchant services with customers. Programs suffer without the support and enthusiasm of staff. Here are some best practices on keeping branch staff engaged in merchant services promotion.

Set Goals
A bank should employ a top-down directive from leadership that emphasizes the importance of cross-selling merchant services during customer interactions. It is imperative that the directive includes clear, attainable goals for branches and employees. “Goals are the fuel in the furnace of achievement,” writes development consultant and author Brian Tracy.

Goals help motivate branch staff to sell these services. Leadership also needs to track performance and offer recognition. If staff gets the impression that set goals are not followed up on, it can be incredibly demoralizing.

Empower Your Sales Staff
Employees may hesitate to sell products they have not been fully educated on. But the growing popularity of online banking means it’s important that branch staff capitalizes on every opportunity to cross-sell. It may be the only chance they have to speak face-to-face with a prospect.

Executives need to make sure that bank staff is trained up on all products and services. They can do this through role-playing exercises of different situations that focus on improving communication skills and preparing for curveball questions. This is one of the best ways to prime employees for productive conversations with prospects.

Implement an Incentive Campaign
Managers should encourage staff to stretch for sales goals through an incentive campaign. These campaigns can include referral bonuses, sold-product goals, raffle campaigns and more. Some merchant services providers may sponsor incentive campaigns for their partner banks. Additionally, incentive campaigns aren’t limited to employees; banks should consider incentivizing existing clients through referrals.

Provide Ongoing Training
Payment card technology is constantly changing. Executives need to provide branch staff with tools that will help them stay up-to-date on current trends and industry changes. One way to do this is through a portal that is regularly updated with new resources and information. It is vital that executives cultivate an environment where branch staff feels comfortable asking for additional training or information.

The success of a merchant services program rests on the shoulders of a bank’s branch staff. Executives must make sure they equip their front-line people with all the tools and knowledge they need. The investment of time and resources up front will pay dividends in the future. Every win for branch staff is a win for the bank.

Community Bank Succession Planning in Seven Steps


succession-6-25-19.pngSuccession planning is vital to a bank’s independence and continued success, but too many banks lack a realistic plan, or one at all.

Banks without a succession plan place themselves in a precarious, uncertain position. Succession plans give banks a chance to assess what skills and competencies future executives will need as banking evolves, and cultivate and identify those individuals. But many banks and their boards struggle to prepare for this pivotal moment in their growth. Succession planning for the CEO or executives was in the top three compensation challenges for respondents to Bank Director’s 2018 Compensation Survey.

The lack of planning comes even as regulators increasing treat this as an expectation. This all-important role is owned by a bank’s board, who must create, execute and update the plan. But directors may struggle with how to start a conversation with senior management, while executives may be preoccupied with running the daily operations of the bank and forget to think for the future of the bank without them. Without strong board direction and annual check-ins, miscommunications about expected retirement can occur.

Chartwell has broken down the process into seven steps that can help your bank’s board craft a succession plan that positions your institution for future growth. All you have to do is start.

Step 1: Begin Planning
When it comes to planning, there is no such thing as “too early.” Take care during this time to lay down the ground work for how communication throughout the process will work, which will help everything flow smoothly. Lack of communication can lead to organizational disruption.

Step 2: The Emergency Plan
A bank must be prepared if the unexpected occurs. It is essential that the board designates a person ahead of time to take over whatever position has been vacated. The emergency candidate should be prepared to take over for a 90-day period, which allows the board or management team time to institute short- and long-term plans.

Step 3: The Short-Term Plan
A bank should have a designated interim successor who stays in the deserted role until it has been satisfactorily filled. This ensures the bank can operate effectively and without interruption. Often, the interim successor becomes the permanent successor.

Step 4: Identify Internal Candidates
Internal candidates are often the best choice to take over an executive role at a community bank, given their understanding of the culture and the opportunity to prepare them for the role, which can smooth the transition. It is recommended that the bank develop a handful of potential internal candidates to ensure that at least one will be qualified and prepared to take over when the time comes. Boards should be aware that problems can sometimes arise from having limited options, as well as superfluous reasons for appointments, such as loyalty, that have no bearing on the ability to do the job.

Step 5: Consider External Candidates
It is always prudent for boards to consider external candidates during a CEO search. While an outsider might create organization disruption, he or she brings a fresh perspective and could be a better decision to spur changes in legacy organizations.

Step 6: Put the Plan into Motion
The board of directors is responsible for replacing the CEO, but replacing other executives is the CEO’s job. It is helpful to bring in a third-party advisory firm to get an objective perspective and leverage their expertise in succession and search. When the executive’s transition is planned, it can be helpful to have that person provide his or her perspective to the board. This gives the board or the CEO insight into what skills and traits they should look for. Beyond this, the outgoing executive should not be involved in the search for their successor.

Step 7: Completion
Once the new executive is installed, it is vital to help him or her get situated and set up for success through a well-planned onboarding program. This is also the time to recalibrate the succession plan, because it is never too early to start planning.

Are These the Best of Times for Bank Directors?


strategy-5-13-19.pngFor someone who has covered the banking industry as long as I have (hint: I wrote my first banking story in 1986), these are among the best days to be a banker—or director of a bank—that I can remember. Profitability is high, as is capitalization, and the industry is gliding on the updraft of a strong economy and lower taxes.

The current health of the industry was apparent from what we did not talk about at Bank Director’s Bank Board Training Forum, which took place on May 9-10 in Nashville. There were no sessions about deteriorating loan quality, or the best way to structure a loan workout program, or the need to raise capital. Indeed, our managing editor, Kiah Lau Haslett, wrote a story that published Friday on this website warning against the perils of complacency.

When your biggest challenge is guarding against complacency, you’ve definitely found yourself in tall cotton.

It’s worth drilling down a little bit into the industry’s strong fundamentals. In addition to the continuation of a strong U.S. economy, which will be a record expansion if it continues much longer, banks have also benefited—more than any other industry—from last year’s steep cut in corporate tax rates, as well as a modest rollback of regulations in the Dodd-Frank Act.

Joseph Fenech, managing principal and head of research at the investment banking firm Hovde Group, explained during a presentation that thanks to the tax cut, both return on average assets and return on average tangible common equity jumped to levels last seen prior to the Great Recession. And not only has deregulation had a measurably positive impact on the industry’s profitability, according to Fenech, it has also brought new investors into the sector.

“It’s really driving change in how investors think about banks,” he says.

The only bad news Fenech offered was his assessment that bank M&A pricing has peaked. From 2008 to 2016, stocks of the most active acquirers traded at a premium to book value while many distressed targets traded at a discount, which translated to favorable “deal math” for buyers, according to Fenech. Deal pricing began to edge up from 2016 to 2018 as more acquirers came into the market. Many transactions had to be priced at a premium to book value, which began to make the deal math less favorable for the buyer.

Generally, the higher the deal premium, the longer it takes for it to be accretive. Since the beginning of this year, says Fenech, many investors have become wary of deals with high premiums unless they are clearly accretive to earnings in a reasonable period of time. Undisciplined acquirers that overpay for deals will see their stocks shunned by many investors.

This new dynamic in bank M&A also impacts sellers, who now may receive a lower premium for their franchise.

“I think the peak pricing in bank M&A was last year,” says Fenech.

An important theme during the entire conference was the increased attention that board diversity is getting throughout the industry. Bank Director President Mika Moser moderated a general session panel discussion on board diversity, but the topic popped up in various breakout sessions as well. This is not always a comfortable discussion for bank boards since—let’s face it—most bank boards are comprised overwhelming of older white males.

For many proponents, the push for greater board diversity is not simply to accomplish a progressive social policy. Diverse groups usually offer a diversity of thought—and that makes good business sense. Academic research shows that diverse groups or teams make better business decisions than more homogenious groups, where the members are more inclined to affirm each other’s biases and perspectives than challenge them. Larry Fink, the chairman and CEO of Blackrock—the world’s largest asset manager—believes that diverse boards are less likely to succumb to groupthink or miss emerging threats to a company’s business model, and are better able to identify opportunities that promote long-term growth.

The banking industry still has a lot of work to do in terms of embracing diversity in the boardroom and among the senior management team, but I get the sense that directors are more sensitive—and more open to making substantive changes—than just a few years ago.

The Bank Board Training Forum is, at its core, a corporate governance conference. While we cover a variety of issues, it’s always through the perspective of the outside director. James McAlpin, Jr., a partner and leader of the financial services client services group at the law firm Bryan Cave, gave an insightful presentation on corporate governance. But sometimes the simplest truth can be the most galvanizing.

“The responsibilities of directors can be boiled down to one simple goal—the creation of sustainable long-term value for shareholders,” he says. There are many decisions that bank boards must make over the course of a year, but all of them must be made through that prism.

Building a Stronger Bank



Following an acquisition or merger, many banks struggle to build and strengthen their brand. The branch channel is an important part of the franchise for most institutions, so determining which locations to keep, and which to close, is a key strategic decision post-merger. In this video, Anthony Burnett of Level 5 explains how to approach these decisions. He also shares how banks can position themselves for future growth by evaluating opportunities and staffing, and developing a long-term growth plan for the back office.

  • Strategies that Strengthen Your Bank’s Brand
  • Making Decisions About Branch Redundancies
  • Addressing the Back Office
  • Positioning the Bank for Future Growth

Should Banks Repurchase Stock Right Now?


stocks-2-5-19.pngWith expectations of regulatory reform and growth in organic capital generation, it is generally expected that over the next 12 months banks will continue to return capital to shareholders through continued M&A activity, dividend increases or share buybacks.

Given the current market environment, it is an opportune time for banks to consider initiating a share repurchase program.

As market volatility continues, a growing number of banks have been implementing share repurchase – or stock buyback – strategies to manage capital and shore up stability. During volatile periods, financial companies are frequently the first to feel the pain, and buyback programs are a means of getting in front of potential price dips and preserving value.

The buyback market set records in 2018 across many industries. As of late December, more than $1 trillion in share repurchase programs had been authorized – eclipsing the $655 billion total for 2017. The third quarter of 2018 was especially active, with financial institutions making up the third-largest sector. In the bank buyback space alone, 22 repurchase programs were announced in October, 18 in November and 27 in December.

chart.png

Generally, companies that participate in share repurchase programs are carrying cash on the balance sheet in excess of what is necessary to fund daily operations and growth opportunities. The question then becomes how to use it. Given the relative slowdown lately in the M&A market, buybacks have presented banks with the opportunity to accomplish a variety of goals.

Reasons why banks undertake share repurchase programs:

  • Reducing the number of outstanding shares can be accretive to earnings per share, making the company more attractive to investors 
  • A buyback signals to the market that a bank views its share price as undervalued
  • It can absorb overhang from capital markets transactions
  • These programs can help manage or optimize capital structure 
  • They return excess capital to shareholders 
  • Buybacks can offset or mitigate the dilution from employee equity compensation awards

What banks should keep in mind when pursuing buybacks:

  • It will reduce capital available for future growth and acquisitions
  • A buyback utilizes cash and regulatory capital and may impact book value
  • They will likely reduce the number of shareholders and future share liquidity.
  • The impacts are temporary.
  • Blackout periods may apply.
  • Banks with pending acquisitions where the target shareholder vote has not taken place cannot execute a buyback unless the transaction is paid with solely cash, or unless the bank was repurchasing shares pursuant to SEC Rule 10b-18 in the three months preceding the announcement.

While there is no cookie-cutter profile for companies that elect to participate in share repurchase programs–they vary in terms of market capitalization, balance sheet composition and industry sector – there is a well-defined and strictly regulated process these types of transactions must follow.

While SEC Rule 10b-18 governs the parameters of a buyback, including the manner of purchase, the timing of the repurchases, the prices paid and the volume of shares repurchased, companies executing a buyback program should consider the benefits of Rule 10b5-1.

The rule provides companies the ability to establish a buyback plan in an open window that can be executed during closed trading periods. Many companies establish 10b5-1 plans to ensure continuous execution of their buyback strategy and to take advantage of periods of market volatility where opportunistic purchases may be realized.

The buyback market is busy and breaking records. The Corporate & Executive Services team at Raymond James has discussed repurchase programs with more than 50 regional banks in recent months.

Now is a good time for banks with excess capital to weigh their options and reach out to partner firms that can help develop and execute successful repurchase strategies.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value. © 2019 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2019 Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.