Digital Transformation Starts With the Customer

Digital transformation isn’t an end unto itself; the goal should ultimately be to make your customers’ financial lives easier. Without figuring out what customers need help with, a bank’s digital journey lacks strategic focus, and risks throwing good money after bad. In this video, Devin Smith, experience principal at Active Digital, walks through the key questions executives should ask when investing in digital transformation.

  • Customer Centricity
  • Creating a Cohesive Experience
  • Build versus Buy

Are Bank Directors Worried Enough About Fair Lending?

Bank directors and executives, be warned: Federal regulators are focusing their lasers on fair lending. 

If your bank has not modernized its fairness practices, the old ways of doing fair lending compliance may no longer keep you safe. Here are three factors that make this moment in time uniquely risky for lenders when it comes to fairness.

1. The Regulatory Spotlight is Shining on Fair Lending.
Fair lending adherence tops the agendas for federal regulators. The Department of Justice is in the midst of a litigation surge to combat redlining. Meanwhile, the Consumer Financial Protection Bureau has published extensively on unfair lending practices, including a revision of its exam procedures to intensify reviews of discriminatory practices.

Collections is one area of fair lending risk that warrants more attention from banks. Given the current economic uncertainty, collections activities at your institution could increase; expect the CFPB and other regulators to closely examine the fairness of your collections programs. The CFPB issued an advisory opinion in May reminding lenders that “the Equal Credit Opportunity Act continues to protect borrowers after they have applied for and received credit,” which includes collections. The CFPB’s new exam procedures also call out the risk of “collection practices that lead to differential treatment or disproportionately adverse impacts on a discriminatory basis.”

2. Rising Interest Rates Have Increased Fair Lending Risks.
After years of interest rate stability, the Federal Reserve Board has issued several rate increases over the last three months to tamp down inflation, with more likely to come.

Why should banks worry about this? Interest rates are negatively correlated with fair lending risks. FairPlay recently did an analysis of the Home Mortgage Disclosure Act database, which contains loan level data for every loan application in a given year going back to 1990. The database is massive: In 2021, HMDA logged over 23 million loan applications.

Our analysis found that fairness decreases markedly when interest rates rise. The charts below show Adverse Impact Ratios (AIRs) in different interest rate environments.

Under the AIR methodology, the loan approval rate of a specific protected status group is compared to that of a control group, typically white applicants. Any ratio below 0.80 is a cause for concern for banks. The charts above show that Black Americans have around an .80 AIR in a 3% interest rate environment, which plummets as interest rates increase. The downward slope of fairness for rising interest rates also holds true for American Indian or Alaska Natives. Bottom line: Interest rate increases can threaten fairness.

What does this result mean for your bank’s portfolio? Even if you conducted a fair lending risk analysis a few months ago, the interest rate rise has rendered your analysis out-of-date. Your bank may be presiding over a host of unfair decisions that you have yet to discover.

3. Penalties for Violations are Growing More Severe.
If your institution commits a fair lending violation, the consequences could be more severe than ever. It could derail a merger or acquisition and cause a serious reputational issue for your organization. Regulators may even hold bank leaders personally liable.

In a recent lecture, CFPB Director Rohit Chopra noted that senior leaders at financial institutions — including directors — can now be held personally accountable for egregious violations:

“Where individuals play a role in repeat offenses and order violations, it may be appropriate for regulatory agencies and law enforcers to charge these individuals and disqualify them. Dismissal of senior management and board directors, and lifetime occupational bans should also be more frequently deployed in enforcement actions involving large firms.”

He’s wasting no time in keeping this promise: the CFPB has since filed a lawsuit against a senior executive at credit bureau TransUnion, cementing this new form of enforcement.

How can banks manage the current era of fair lending and minimize their institutional and personal exposure? Start by recognizing that the surface area of fair lending risks has expanded. Executives need to evaluate more decisions for fairness, including marketing, fraud and loss mitigation decisions. Staff conducting largely manual reviews of underwriting and pricing won’t give company leadership the visibility it needs into fair lending risks. Instead, lenders should explore adopting technologies that evaluate and imbed fairness considerations at key parts of the customer journey and generate reporting that boards, executive teams, and regulators can understand and rely on. Commitments to initiatives like special purpose credit programs can also effectively demonstrate that your institution is committed to responsibly extending credit in communities where it is dearly needed.

No matter what actions you take, a winning strategy will be proactive, not reactive. The time to modernize is now, before the old systems fail your institution.

Core Processing? Find the Aces Up Your Sleeve

Outsourced core processing usually represents regional and community banks’ most significant — and most maligned — contractual relationship. Core technology is a heavy financial line item, an essential component of bank operations and, too often, a contractual minefield.

But contrary to popular belief, it is possible for banks to negotiate critical contractual issues with core processing providers. No matter their size, banks can negotiate both the business and legal terms of these agreements. Technology consultants and outside legal counsel can play impactful, complementary roles to help level the playing field. Be certain that your bank is well advised and allocating adequate resources to these matters.

Critical Contractual Issues
From a legal angle, we at BFKN routinely look at and comment on dozens of separate points in a typical agreement — some of which are of critical importance as the arrangement matures. We have favorably revised termination penalties, service levels and remedies, the definition and ownership of data, caps on annual fee increases, limitations of liability, information security and business continuity provisions, ongoing diligence and audit rights, deconversion fees and the co-termination of all services and products, among many other items.

Exclusivity provisions which prevent banks from securing competing products without incurring penalties are also a focus for many organizations seeking to futureproof their core processing; a vendor reserving exclusivity, whether outright or through volume minimums, can hinder the bank’s ability to innovate.

Engaging External Resources
Banks are generally at a disadvantage in vendor contract negotiations, given that vendors negotiate their forms frequently against many parties and banks do not. Fortunately, there is a robust industry of technology consultants, of varying degrees of competence and quality, that work specifically in the core processing and technology vendor space. Most banks should engage both technology consultants, which can tackle the practical and business angles of the vendor relationship, and outside legal counsel, to focus on legal and regulatory concerns.

When considering whether to bring in outside advisors, executives at institutions considering a change in their vendor or approaching a renewal or significant change in their core processing services should ask the following questions:

  • Has the bank thoroughly evaluated its existing relationship and potential alternatives?
  • Would it be helpful to have an outside consultant with a perspective on the current market review the key business terms and pricing considerations?
  • Is the bank confident that the existing agreement sufficiently details the parties’ legal rights and responsibilities? Could it benefit from an informed legal review?
  • If considering an extension of an existing relationship, can any proposed changes be addressed sufficiently in an amendment to the existing contract, or is it time for a full restatement (and a full review) of the documentation?
  • Are there strategic considerations, such as a potential combination with another entity or the exploration of a fintech venture, that may raise complex issues down the line?

Leveraging Internal Resources
Dedicating the right internal resources also helps banks ensure that they maximize their leverage when negotiating a core processing agreement. As a general matter, directors and senior management should have an ongoing familiarity with the bank’s vendor relationship. For many, this can seem a Herculean task. Core processing contracts often span hundreds of pages and terms are gradually added, dropped and altered through overriding amendments. Nevertheless, by understanding, outlining, and tracking key contractual terms and ongoing performance, directors and senior management can proactively assess the processor and apprise its limitations.

This engagement can result in better outcomes. Are there any performance issues or problems with the bank’s current vendor? If a provider is falling short, there may be alternatives. Diverse technology offerings are introduced to the market continually. Of course, establishing a new relationship can be a painstaking process, and there are risks to breaking with the “devil you know.” Yet we are having more conversations with banks that are exploring less-traditional core technology vendors and products.

Short of a wholesale switch of vendors and products, it is possible for banks to negotiate for contractual protections against a vendor’s limitations. And even if senior management takes the lead in negotiating against the vendor, directors can play a valuable role in the negotiation process. We’ve seen positive and concrete results when the board or a key director is engaged at a high level.

If it’s time to start negotiating with a core processing provider, don’t leave your chips on the table. Fully utilizing both internal and external resources can ensure that the bank’s core processing relationship supports the bank for years to come.

How Banks Can Speed Up Month-End Close

In accounting, time is of the essence.

Faster financial reporting means executives have more immediate insight into their business, allowing them to act quicker. Unfortunately for many businesses, an understaffed or overburdened back-office accounting team means the month-end close can drag on for days or weeks. Here are four effective strategies that help banks save time on month-end activities.

1. Staying Organized is the First Step to Making Sure Your Close Stays on Track
Think of your files as a library does. While you don’t necessarily need to have a Dewey Decimal System in place, try to keep some semblance of order. Group documentation and reconciliations in a way that makes sense for your team. It’s important every person who touches the close knows where to find any information they might need and puts it back in its place when they’re done.

Having a system of organization is also helpful for auditors. Digitizing your files can help enormously with staying organized: It’s much easier to search a cloud than physical documents, with the added benefit of needing less storage space.

2. Standardization is a Surefire Way to Close Faster
Some accounting teams don’t follow a close checklist every month; these situations make it more likely to accidentally miss a step. It’s much easier to finance and accounting teams to complete a close when they have a checklist with clearly defined steps, duties and the order in which they must be done.

Balance sheet reconciliations and any additional analysis also benefits from standardization. Allowing each member of the team to compile these files using their own specific processes can yield too much variety, leading to potential confusion down the line and the need to redo work. Implementing standard forms eliminates any guesswork in how your team should approach reconciliations and places accountability where it should be.

3. Keep Communication Clear and Timely
Timely and clear communication is essential when it comes to the smooth running of any process; the month-end close is no exception. With the back-and-forth nature between the reviewer and preparer, it’s paramount that teams can keep track of the status of each task. Notes can get lost if you’re still using binders and spreadsheets. Digitizing can alleviate some of this. It’s crucial that teams understand management’s expectations, and management needs to be aware of the team’s bandwidth. Open communication about any holdups allows the team to accomplish a more seamless month-end close.

4. Automate Areas That Can be Automated
The No. 1 way banks can save time during month-end by automating the areas that can be automated. Repetitive tasks should be done by a computer so high-value work, like analysis, can be done by employees. While the cost of such automation can be an initial barrier, research shows automation software pays for itself in a matter of months. Businesses that invest in technology to increase the efficiency of the month-end close create the conditions for a happier team that enjoys more challenging and fulfilling work.

Though month-end close with a lack of resources can be a daunting process, there are ways banks can to improve efficiency in the activities and keep everything on a shorter timeline. Think of this list of tips as a jumping off point for streamlining your institution’s close. Each business has unique needs; the best way to improve your close is by evaluating any weaknesses and creating a road map to fix them. Next time the close comes around, take note of any speed bumps. There are many different solutions out there: all it takes is a bit of research and a willingness to try something new.

How Fifth Third Crafts Successful Bank-Fintech Partnerships

From the start, Eric White anticipated the solar lender he launched in 2013 would eventually be owned by a bank. But it wasn’t until last fall that he settled on the $207 billion Fifth Third Bancorp in Cincinnati, Ohio.

The bank announced on Jan. 19 that it would acquire Dividend Finance for an undisclosed amount and closed the deal in May, with White, its founder and CEO, continuing to run the business.

White recalled two moments that made him feel certain his company had found its ideal buyer — the first was last fall when a group of Fifth Third’s top executives visited the fintech’s San Francisco’s headquarters for an initial meeting and the second was not much later when he met Ben Hoffman, Fifth Third’s chief strategy officer.

“It starts with people,” White says. “You have to like the people who are on the other side of the table from you before you get on the same side of the table as them.”

Hoffman echoed that, saying Fifth Third has come up with a couple of heuristics that help it determine whether it wants to pursue a partnership with a particular fintech. One is the way it assesses the entrepreneurs at the helm.

“We look at the leadership team and we ask, ‘Are these people that we could see filling other roles in the bank? Not because we intend to take them off mission — quite the opposite. When we bring these leaders in, it’s about empowering them to continue doing the thing that they’re incredibly passionate about and great at,” Hoffman says.

Not all bank-fintech partnerships turn into acquisitions, nor does Hoffman intend them to. And not all acquisitions start out as partnerships. Fifth Third and Dividend Finance had not worked together prior to striking their deal.

But Fifth Third’s introspective question serves as “a real test for cultural fit,” Hoffman says. “If there isn’t another real job on the org chart that you think these individuals could do, how can you expect them to understand us, and how can you expect us to really understand them, and to appreciate each other?” 

Ensuring a Cultural Fit
In anticipation of rising interest rates, White began seeking prospective bank buyers for Dividend Finance late last year. His prerequisite was that the banks had to be experienced with indirect lending, as his company is a point-of-sale lender that partners with contractors nationwide to provide their customers with financing for solar and other home improvement projects.

White says Fifth Third’s long partnership with GreenSky – a point-of-sale lender that offers home improvement loans through merchants – gave him comfort. Fifth Third invested in and began collaborating with GreenSky starting in 2016. (Goldman Sachs acquired the fintech in March.)

“Indirect lending is a very different model than direct lending. Some banks just don’t get it, and Fifth Third did,” White says.

But it was in that first meeting with Fifth Third, as then-President Tim Spence talked about how he had previously worked at technology startups and as a strategy consultant, when White first felt a sense that this bank stood out from the other contenders. Spence had been lured away from Oliver Wyman, where he focused on helping banks — Fifth Third among them — with their digital roadmaps. (He succeeded Greg Carmichael as Fifth Third’s chief executive officer in July.)

“Hearing Tim introduce himself and give his background was an eyeopener in and itself. He doesn’t come from a traditional bank executive background,” White says. “So, it was a different and a very refreshing perspective. It was very exciting for us.”

Hoffman made just as strong an impression on White when they met later on, further reassuring him that Dividend Finance had found “a perfect cultural fit” in terms of management philosophy and the long-term goals of both sides.

Hoffman previously worked with Spence as part of the Oliver Wyman team that advised Fifth Third and other banks; he followed Spence to the bank side in 2016. Hoffman’s mandate has evolved over the years, but one facet of his duties is overseeing Fifth Third’s fintech activities. White gives Hoffman rave reviews, calling him “one of the most creative thinkers that I’ve come across in my entire career.”

With the people test passed, the most salient selling point for White was “how the bank thinks about technology and product.”

In his perspective, too many banks are stuck in “archaic approaches” to managing growth and innovation. But Spence’s answer when asked why he decided to work at a bank in Cincinnati “really stuck with me,” White says. “He viewed Fifth Third as a platform to combine the best elements of traditional banking along with the opportunity to infuse innovation and a technology-driven approach to product development and organizational management.”

It gave White confidence that Fifth Third would not make the mistake that he believes other banks sometimes do, which is “trying to make the fintechs conform to the way that the bank has operated historically and in doing so, stripping out the qualities that make that fintech successful.”

White says his confidence has only grown since the acquisition. At Fifth Third, his title is Dividend Finance president, and he operates the business with a comfortable level of autonomy, reporting to Howard Hammond, executive vice president and head of consumer banking.

Ensuring a Strategic Fit
Fifth Third has partnerships with about a dozen fintechs at any given time and, over the past year and a half, has acquired two niche digital lenders outright, Dividend Finance, in the ESG space, and Provide, in the healthcare space. (ESG stands for Environmental, Social and Governance, and is often used to refer to the components of a sustainability-minded business approach.)

ESG and healthcare are two categories that align with Fifth Third’s own areas of focus, in accordance with a rule Hoffman follows when choosing fintechs of interest, whether for partnerships or acquisitions. He considers this rule — the fintech must help the bank improve on its existing strategy — key to helping ensure a partnership will eventually produce enough of a return to make Fifth Third’s investment of time, effort and money worthwhile.

As a result of the Dividend Finance acquisition, Fifth Third is actively assessing whether to increase its sustainable finance target. The bank had set a goal two years ago that called for achieving $8 billion of lending for alternative energy like solar, wind and geothermal by 2025.

“The things that we do with fintech are things that we were going to do one way or another. We’re not taking on incremental missions. We’re just pursuing those missions in different form. So, that framing completely changes the analysis that we’re doing,” Hoffman says.

Other banks might have to look broadly at competing priorities to decide between partnering with a specific fintech or tackling some other important initiative. But Fifth Third engages in a different thought process.

“It’s not, if we decide to partner with Provide, or should we acquire Dividend Finance, what will we not do?” Hoffman says.

Instead, Fifth Third asks, does this accelerate the timeframe for achieving a goal the bank has already set for itself?

“These partnerships are successful when they are aligned to our strategy and they accelerate, or de-risk, the execution of that strategy, as opposed to being separate and apart from the core ambitions of the franchise,” Hoffman says.

Assessing the Priority Level of Partnering — for Both Sides
Beyond that, any proposed partnership also needs to be “a top five priority” for both the fintech’s leadership and the relevant Fifth Third business line.

Hoffman advises other banks against the common approach of setting up a “tiny” partnership for the two sides to get to know each other with the idea of taking things to the next level when the time is right. “The likelihood of the timing ever being right, is very, very low,” he says. Those relationships often end up as distracting “hobbies” rather than ever escalating to the priority level necessary to add value for both sides and pay off in a meaningful way.

His insight is informed by experience. Hoffman leads Fifth Third’s corporate venture capital arm, which makes direct minority investments in fintechs. Given recent regulatory changes, it also participates as limited partners in several fintech-oriented venture capital funds.

His team is responsible for nurturing Fifth Third’s fintech partnerships, offering strategic insight and facilitating access to resources within the bank.

“As you can imagine, with some of the early-stage companies that we invest in, it’s six partners and an idea. Meanwhile, we have 20,000 people and branches and a half-dozen regulators and all of that. So, we provide a single point of contact to help sort of incubate and nurture the partnership until it reaches a level of stability and becomes a larger business,” Hoffman says.

“We work hard, as the partnerships mature, to stabilize the operating model such that the handholding, the single point of contact, becomes less necessary.”

That transition typically happens as the fintech gets better integrated into the day-to-day operations of the core business with which it is partnering, whether consumer banking, wealth management or another area in the bank.

Delivering Above and Beyond
With Provide, a digital lending financial platform for healthcare practices, the bank was an early investor, taking a lead role in a $12 million funding round with the venture capital firm QED Investors in 2018.

Fifth Third began funding loans made on the platform about two years later, with the amount increasing over time to the point where it was taking about half of Provide’s overall loan volume, the largest share among the five participating banks.

Through the Fifth Third partnership, Provide also expanded its offerings to include core banking and payments services, which are now used by more than 70% of the doctors for whom the fintech provides acquisition financing nationwide.

In announcing the agreement to buy Provide in June 2021, Fifth Third says the fintech would maintain its brand identity and operate as an independent business line.

Daniel Titcomb oversees Provide as its president and reports to Kala Gibson, executive vice president and chief corporate responsibility officer. (Gibson had oversight of business banking when Titcomb came on board and, though he’s in a new role as of March, continues to work with Provide.) Under Fifth Third’s ownership, Titcomb, who co-founded the fintech with James Bachmeier III in 2013, envisions being able to fuel loan growth and offer expanded services that help make starting and running a healthcare practice easier for doctors.

Since its launch, Provide has originated more than $1 billion in loans, largely through “practice lending,” which enables healthcare providers to start, buy or expand their practices. Its average loan size is $750,000.

Titcomb cited “a shared belief” in bank-fintech partnerships as one reason the early relationship with Fifth Third proved to be a success. “We both had a view of the future that didn’t include one destroying the other,” he says.

Years ago, fintechs and banks were often wary of each other — even adversarial — with banks being labeled by some as “dumb pipes,” the implication being that they were unable to keep up with nimble and innovative startups and were useful merely for product distribution to a larger customer base, Titcomb says. But he always found Fifth Third to be thoughtful and strategic, defying those stereotypes.

Though selling his business was scary, he says, “it was a lot less scary than it could’ve been,” given the established relationship.

Still, “we had to get comfortable and confident that they weren’t going to encourage us to spend less on technology,” he added. “Any time you enter into an agreement like that, you hope, but you don’t know.”

Titcomb says he is thrilled that the consistent feedback from Fifth Third since he joined has been: “You run this business the way you think it should be run.”

“It’s a relief,” he says.

Given outcomes like those experienced by White and Titcomb, Fifth Third has become known in fintech circles as a strong partner that delivers on its promises. Hoffman works hard to maintain that reputation—a competitive advantage.

“These companies have options, and some of those options are very compelling,” Hoffman says, adding that his goal is to make sure Fifth Third is “the partner of choice” for the fintechs it targets. That only happens, he says, if their experience after signing a deal aligns with what he says beforehand.

Count an enthusiastic Titcomb among those who attest that it has. “They have delivered above and beyond,” Titcomb says.

Understanding Customers’ Finances Strengthens Relationships

As the current economy shifts and evolves in response to inflationary pressures, and consumer debt increases, banks may encounter an influx of customers who are accruing late charges, overdue accounts and delinquencies for the first time in nearly a decade.

Banks have not been accustomed to seeing this level of volume in their collections and recovery departments since the Great Recession and have not worked with so many customers in financial stress. To weather these economic conditions, banks should consider automated systems that help manage their collections and recovery departments, as well as guide and advise customers on how to improve their financial health and wellbeing. Technology powered with data insights and automation positions banks to successfully identify potential weakness early and efficiently reduce loan losses, increase revenue, minimize costs and have the data insights needed to help guide customers on their financial journey.

Consumer debt increased $52.4 billion in March, up from the increase of nearly $40 billion the previous month. Financial stress and money concerns are top of mind for many households nationwide. According to a recent survey, 77% of American adults describe themselves as anxious about their financial situation. The cause of the anxiety vary and stem from a wide range of sources, including savings and retirement to affording a house or child’s education, everyday bills and expenses, paying off debt, healthcare costs and more.

While banks traditionally haven’t always played a role in the financial wellness of their customers, they are able to see patterns based on customer data and transactional history. This viewpoint enables them to serve as advisors and help their customers before they encounter a problem or accounts go into delinquency. Banks that help their customers reduce financial stress wind up strengthening the relationship, which can entice those customers into using additional banking services.

Using Data to Understand Customer’s Financial Health
By utilizing data insights, banks can easily identify transaction and deposit patterns, as well as overall expenses. This allows banks to assess their customer risk more efficiently or act on collections based on an individual’s level of risk and ability to pay; it also shows them the true financial health of the customer.

For example, banks can identify consumers in financial distress by analyzing deposit account balance trends, identifying automated deposits that have been reduced or stopped and identify deposit accounts that are closed. Banks can better understand a consumer’s financial health by collecting, analyzing and understanding patterns hidden in the data.

When banks identify potentially stressed customers in advance, it can proactively take steps to assist customers before loans go delinquent and accounts accrue late fees. Some strategies to accommodate customers facing delinquency include offering free credit counseling, short-term or long-term loan term modifications, and restructuring or providing loan payment skip offers. This type of assistance not only benefits the financial institution — it shows customers they are valued, even during tough economic times.

Data enables banks to identify these trends. But they can better understand and utilize the data when they integrate it into the workflow and apply automation, ultimately reducing costs associated with the management of delinquencies, loss mitigation and recoveries and customer relationship management. A number of banks may find that their outdated, manual systems lack the scalability and effectiveness they’ll need to remain competitive or provide the advice and counsel to strengthen customer relationships.

Banks are uniquely positioned to help consumers on their journey to improve their financial situation: They have consumer information, transaction data and trust. Banks should aim to provide encouragement and guidance through financial hardships, regardless of their customers’ situation. Augmenting data analysis with predictive technology and automated workflows better positions banks to not only save money but ensure their customers’ satisfaction.

How Banks Can Benefit From Adopting Automation for Month-End Close

The finance industry is no exception when it comes to the general shift toward automation in daily life.

Automation is a powerful tool that eliminates repetitive manual processes, whether it’s to improving the bottom line by increasing productivity and output or offering better service to bank customers. One area of the business that bank executives and boards should absolutely take full advantage of automation is back-office accounting. Here are some of the top benefits banks can gain from automating the month-end close process.

Perhaps the most immediate benefit of automation for banks is the amount of time they can expect to save. Many bank accounting and finance teams are not closing on a timeline they or their CFOs are satisfied with. The month-end close is not something that can be skipped, which means allocating the time it takes for a full close can encroach into other projects or duties. Executives who have worked as accountants know that if the month-end close is not done on time, stressful days turn into late nights in the office. Automating areas of the close, such as balance sheet reconcilements, can free up time for more high value work such as analysis.

It is not uncommon for bank accounting teams to run lean. Cracks in the month-end close can lead to an overburdened workload, burnout and mistakes. When accountants work under stressful conditions, exhaustion that results in an error can be common. Even one mistake on a spreadsheet can create a material cost for the bank; it’s amazing how the tiniest miscalculation can multiply exponentially. One way to reduce human error is to automate processes with a program that can complete recurrent work using algorithms.

An additional pain banks must consider is compliance: external auditors, regulators and more. Things can start to go downhill if the finance team doesn’t properly generate a paper trail. That’s assuming they have, in fact, properly completed the close and balance sheet reconcilements. When a bank takes shortcuts or makes errors in their accounting, it can result in heavy fines or in extreme cases, even sanctions. In this context, automating the month-end close assumes the ethos of ‘An ounce of prevention is worth a pound of the cure.’ Digitizing the month-end close and supporting documents makes it easier to locate important data points and lessens the potential for discrepancies in the first place.

Lastly, accounting automation can help minimize a bank’s fraud risk. Fraud can go undetected for a long time when banks don’t perform due diligence during the month-end close. Reconciling accounts every month will make it easier to spot any red flags.

Companies that take advantage of available, advanced technology available have more chances to keep up with the ever-shifting business landscape. Bank accounting teams can benefit hugely by automating month-end close.

Where Banks Can Find Tech Talent

Even as the labor market cools, the need for tech talent remains particularly acute. The problem for banks is that they compete not just with other banks, credit unions and financial technology companies for data scientists, software engineers and product designers. 

“The reality is, when we start talking about engineers, designers, product individuals, every company on the face of the planet is hiring those types of talents,” says Nathan Meyer, head of innovation strategy at $545 billion Truist Financial Corp. 

That’s why Meyer and several other bankers are turning to the Georgia Fintech Academy, a unique program that trains college students across the University System of Georgia for technology jobs in financial services. Students in 26 institutions such as Georgia State, Georgia Tech and Kennesaw State, totaling 340,638 enrolled as of fall 2021, can work toward a certificate in financial services from a mix of nine undergrad courses and six graduate level courses. They might be majoring in computer science or business and taking those classes as electives. To complete the certification work, they need to finish three classes and complete an internship. The goal of the program is to help students find jobs in financial technology with employers across the nation. 

Normally, Generation Z students don’t gravitate to a career at Truist, BankSouth in Greensboro, Georgia, or Ally Financial, all of which are involved in the program, says Tommy Marshall, executive director of the Georgia Fintech Academy. Nor have they heard of the fintechs that have used the program, such as core providers FIS, Fiserv, or U.S. Bancorp’s payment processor Elavon. “If you say Square or CashApp, they’ll say yes, or Venmo, they’re there,” he says. 

Banks could improve their message to attract college students, says Meyer. “We’ve just started to do a better job around telling the story of banking, and helping students understand why it’s important,” he says. 

And the need is great. Marshall estimates that bigger banks are hiring 800 to 1,000 people from college campuses every year for technology jobs. Meyer says that Charlotte, North Carolina-based Truist needs to hire hundreds of software engineers annually and adds that even the business side of banking needs people who have an understanding of technology, as well as people who can articulate the technology needs to upper management. 

And it’s not just big banks that are hiring. Even community banks are looking for tech talent as they transform digitally. Kim Kirk, the chief operations officer for $2 billion Queensborough National Bank & Trust Co. in Louisville, Georgia, is looking for application program management and business intelligence folks. When she started working at the bank more than six years ago, a lot more employees performed mundane, clerical tasks. The bank’s business intelligence director now focuses on getting a better handle on customer information across the different departments and visualizing that data. “The talent you need is quite a bit different than what you needed maybe even five years ago,” Kirk says. 

This fall, she hopes to work with Fintech Academy students on a way to use predictive analytics to foresee when a customer is going to close an account. “We really need a way to be able to get a 360-degree view of our customers,” she says. 

Meyer, meanwhile, was interested to the program as a way to recruit racially and ethnically diverse prospects to Truist, so the bank’s employee base looks like the communities it serves. Truist has its heaviest branch concentration in the Southeast, following the consolidation of SunTrust Banks and BB&T Corp. in 2019, but it also crawls up the Eastern Seaboard into Washington, D.C., New Jersey and Pennsylvania. Marshall estimates that 71% of the students in the Fintech Academy belong to minority racial or ethnic groups and a third are women, due to the nature of the schools inside the Georgia university system. In its three years of operation, the Georgia Fintech Academy has placed 1,600 students in internships or jobs.

Although Marshall says other universities offer certificates in fintech, they’re mostly associated with graduate degrees or executive-level education, and won’t nearly meet the demand for talent. Outside of Georgia, the Centre for Finance, Technology and Entrepreneurship in London has noncredit courses, and Duke University, The Wharton School at the University of Pennsylvania and New York University all have programs. 

“There’s no other school system in the United States of America doing anything like what we’re doing now,” asserts Marshall.

Bank Director magazine’s third quarter 2022 issue has an additional article for subscribers on what banks are doing to attract and retain technology talent. 

Using Embedded Finance to Grow Customers, Loans

Embedded finance is all around us, whether you know it or not.

Embedded finance is a type of transaction that a customer conducts without even realizing it — without any disruptions to their customer experience. Companies like Uber Technologies, Amazon.com, and Apple all leverage embedded finance in innovative ways to create impactful customer engagements. Today’s consumers are increasingly used to using embedded financial products to pay for a ride, buy large items and fill in cash-flow gaps.

But the explosion of embedded finance means that financial transactions that used to be the main focus of customer experiences are moving into the background in favor of more intuitive transactions. This is the whole point of embedded lending: creating a seamless customer experience centered around ease-of use, convenience and efficiency to enable other non-financial experiences.

Embedded lending extends embedded finance a step further. Embedded lending’s invisibility occurs through contextual placements within a product or platform that small to medium-sized businesses (SMBs) already use and trust. Because of embedded experiences, SMBs can get easier, faster access to capital.

All of this could put banks at a disadvantage when it comes to increasing their reach and identifying more and more qualified, high-intent SMBs seeking capital. But banks still have compelling options to capitalize on this innovative trend, such as:

  • Joining embedded lending marketplaces. Banks can capitalize on embedded lending’s ability to open up new distribution channels across their product lines. Banks can not only protect their services but grow core products, like payments and loans, by finding distribution opportunities through embedded lending partners that match businesses looking for credit products and lenders on a marketplace.

Banks can take advantage of this strategy and generate sustained growth by using platforms, like Lendflow, that bring untapped distribution opportunities into the fold. This allows them to easily reach qualified, high-intent businesses seeking capital. Even better, their applications for credit occur at their point of need, which increases the likelihood they’ll qualify and accept the loan.

  • Doubling down on traditional distribution channels. Another viable growth strategy for banks is to double down on providing better financial services and advice through traditional channels. Banks possess the inherent advantage of being in a position to not only supply products and services, but also provide ongoing advice as a trusted financial partner. Incorporating additional data points, such as payroll and cash flow data or social scoring, into their underwriting processes allows banks to leverage their unique position to develop more personalized products, improve customer experience and better support customers.

Embedded lending platforms can aggregate and normalize traditional and alternative data to help banks improve their credit decisioning workflows and innovate their underwriting processes.

  • Reverse engineering on digital banking platforms. Banks can replicate this approach by embedding fintech products into their existing mobile app or digital banking platforms. Consider a bank that decides to provide shopping access through their online portals. In a case like this, a customer may apply for a car loan through the digital bank portal. The bank can then connect that customer to a local car dealership with whom they have a partnership — and potentially maintain revenue share arrangements with — to complete the transaction.

Lenders’ Crossroads Choice
Embedded finance’s effective invisibility of its services and products poses the biggest threat — or opportunity — to banks and traditional lenders. The convenience and ease of access of embedded financial products through platforms that customers already know and trust is an ongoing challenge traditional financial services providers. Yet embedded lending doesn’t have to be a threat for banks. Instead, banks should think of embedded lending as an opportunity to innovate their product lines and expand their reach to identify underserved small and medium-sized businesses in highly profitable industries.

Embedded lending opens a new world of underwriting possibilities because it relies on smarter data use. Platforms can pull data from multiple third-party sources, so lenders can efficiently determine whether or not a customer is qualified. With better data and smarter data use, fewer qualified customers get turned away, saving lenders time, cutting down underwriting costs and increasing conversion rates.