How to Respond to LendingClub’s Bank Buy

For me, the news that LendingClub Corp. agreed to purchase Radius Bancorp for $185 million was an “Uh oh” moment in the evolution of banking and fintechs.

The announcement was the second time I could recall where a fintech bought the bank, rather than the other way around (the first being Green Dot Corp. buying Bonneville Bank in 2011 for $15.7 million). For the most part, fintechs have been food for banks. Banks like BBVA USA Bancshares, JPMorgan Chase & Co and The Goldman Sachs Group have purchased emerging technology as a way to juice their innovation engines and incorporate them into their strategic roadmaps.

Some fintechs have tried graduating from banking-as-a-service providers like The Bancorp and Cross River Bank by applying for their own bank charters. Robinhood Markets, On Deck Capital, and Square have all struggled to apply for a charter. Varo is one of the rare examples where a fintech successfully acquired a charter, and it took them two attempts.

It shouldn’t be surprising that a publicly traded fintech like LendingClub just decided to buy the bank outright. But why does this acquisition matter to banks?

First off, if this deal receives regulatory approval within the company’s 12 to 15 month target, it could forge a new path for fintechs seeking more control over their banking future. It could also give community banks a new path for an exit.

Second, banks like Radius typically leverage technology that abstract the core away from key digital services. And deeper pockets from LendingClub could allow them to spend even more, which would create a community bank with a dynamic, robust way of delivering innovative features. Existing smaller banks may just fall further behind in their delivery of new digital services.

Third, large fintechs like LendingClub don’t have century-old divisions that don’t, or won’t, communicate with each other. Banks frequently have groups that don’t communicate or integrate at all; retail and wealth come to mind. As a result, companies like LendingClub can develop and deploy complementary banking services, whereas many banks’ offerings are limited by legacy systems and departments that don’t collaborate with each other.

The potential outcome of this deal and other bifurcations in the industry is a new breed of bank that is supercharged with core-abstracted technology and a host of innovative, complementary technology features. Challenger banks loaded with venture capital funds and superior economics via bank ownership could be potentially more aggressive, innovative and dangerous competitors to traditional banks.

How should banks respond?

Start by making sure that your bank has a digital channel provider that enables the relatively easy and cost-effective insertion of new third-party features. If your digital channel partner can’t do this, it’s time to draft a request for proposal.

Next, start identifying and speaking to the myriad of enterprise fintechs that effectively recreate the best features of the direct-to-consumer fintechs in a white-label form for banks. Focus on solutions that offer a demonstrable path to revenue retention, growth and clear cost savings — not just “cool” features.

After coming up with a plan, find a partner to help you market the new services either through  the third-party vendors you select or another marketing partner. Banks are notorious for not doing the best job of marketing new products and features to their clients. You can’t just build it and hope that new and existing customers will come.

Finally, leverage the assets you already have: physical branches, a mobile banking app that should be one of the top five on a user’s phone, and pricing advantage over fintechs. Most fintechs won’t be given long runways by their venture capital investors to lose money in order to acquire clients; at some point, they will have to start making money via pricing. Banks still have multiple ways to make money and should use that flexibility to squeeze their fintech competitors.

Change is the only constant in life — and that includes banking. And it has never been more relevant for banks that want to stay relevant in the face of rapidly developing technology and industry-shifting deals.

Turning Compliance From an Exercise Into a Partnership

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

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

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

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

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

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

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

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

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

Crafting a Last-Minute Telecommuting Policy

As the COVID-19 pandemic evolves, more banks are asking their employees to stay home and work.

Capital One Financial Corp. asked employees who could do so to begin working remotely effective March 12. JPMorgan Chase & Co. asked its managers around the world to allow employees to work from home, where possible, less than a week later.

“We understand that this may be a disruptive decision, but we believe that is in the best interests of our associates and our communities,” said Capital One Chairman and CEO Richard Fairbank in an internal memo. “And it will create more space and distance for those who still need to come into work.”

Some employees — those in customer-facing positions, for example — can’t work from home. But remote work can keep others safe and enable in-branch workers to better practice so-called social distancing, helping to prevent the spread of the novel coronavirus while still keeping the business running.

The pandemic promises to disrupt all workplaces, at least temporarily. Yet, few banks are prepared for this mode of work. Directors and executives responding to Bank Director’s 2018 Compensation Survey indicated less than one-third offered telecommuting options to at least some of their employees.

So, what do banks need to know about putting a remote-work plan in place? To find out, Bank Director reached out to a few banks to see how their telecommuting program has evolved.

Ensure a secure workplace
Memphis, Tennessee-based Triumph Bank limited telecommuting to its mortgage division before the pandemic hit, and it was a natural place to start when the $837 million bank began implementing social-distancing measures.

Triumph doesn’t have a set policy in place for remote work, but it has established guidelines — starting with ensuring that the employee’s workplace is safe from a data security perspective. The bank doesn’t want sensitive information easily accessed by an employee’s spouse, child, roommate or anyone visiting that person’s home.

With that in mind, the bank asked loan officers and some loan processors to work from home in response to the pandemic — a decision made, for the processors, based on each employee’s at-home environment. “You evaluate each situation: Does [the employee] have an area that they can work from at home that is a secure spot, where you don’t have to worry about customer information, [and] they won’t be distracted by young children or a spouse,” says Catherine Duncan, the bank’s vice president of human resources. Those factors are taken into consideration. “We were able to send those [employees] home, and we separated everybody else.”

Port Angeles, Washington-based First Northwest Bancorp is allowed to examine employees’ at-home workspaces to ensure data security, if needed. The $1.3 billion bank’s remote-work policy also outlines equipment usage, and what to do if something goes wrong — if the internet goes down, for example. “Whatever that is, expectations of you as an employee, what you’re expected to do at that moment,” says Chief Human Resources and Marketing Officer Derek Brown. 

Get the technology in order
TAB Bank Holdings was able to shift to remote work quickly — from about 10% of staff roughly three weeks ago to 96% as of March 18. The $827 million digital bank unit operates out of one location: its Ogden, Utah headquarters.

The fact that the bank has digital onboarding in place for loans and deposits, and moved from paper-based processes five years ago, enabled it to move rapidly.

It was really just a matter of setting up VPNs and machines, because the workloads are the same no matter where you sit,” says President Curt Queyrouze. A VPN is a virtual private network, which allows the user to send and receive data as if their computer were operating on a private network.

Following the bank’s disaster recovery meeting about the pandemic almost a month ago, staff identified where they needed more VPN licenses, and which employees lacked a personal computer or access to the internet at their home. This gap wasn’t limited to older employees; younger workers tend to rely on smartphones when they’re not in the office.

In response, TAB Bank ordered $400 laptops to distribute to select employees and granted stipends so staff could access the internet at home. That early move was critical — Queyrouze says a later trip to purchase a few more laptops came up empty, as stores wrestled with demand.

Banks need to consider all the technology required by the employee. For example, Duncan says Triumph Bank updated its payroll system so employees can now clock in remotely. That’s necessary for those that are eligible for overtime pay.

Enable communication between employees and teams
Technology facilitates communication and collaboration. Both TAB Bank and First Northwest use Microsoft Teams, a communication and collaboration platform tied to Office 365.

“To the extent that [employees] have video capabilities on their laptop or desktop [computer], we’re really encouraging them to use those so that we can see each other and feel more connected,” says Queyrouze. “We’re finding that it actually makes a difference.” He regularly emails staff, and they’re clearly communicating tasks that need to be accomplished as the situation evolves. “We have some employees whose actual work activity is going down because of reduced activity in some of our areas; for instance, loan demand’s down,” he says. “We’re trying to be purposeful about getting them engaged in other projects.”

Enabling communication is particularly critical for employees at this uncertain time.

“It’s been so fast moving that I’ve been just working to create communications and a sense of security for our employees,” says Brown. The situation is evolving rapidly, as new guidance comes from government agencies, legislative and executive bodies pass new rules, and banks work to digest it all and react appropriately for their employees, customers and communities. “We’re meeting every day to assess the situation.”

Teresa Tschida, a senior practice expert at Gallup, recommends setting clear expectations for staff, communicating frequently and gaining feedback along the way. Great managers “help people know what’s expected,” she says. And in a period of intense uncertainty — as schools and businesses close, and people are asked to isolate themselves in their homes — the daily grind of work can be a source of comfort.

“If done right, management and the company itself can be a respite from some of the stuff that we’re facing in our inboxes, or with our families and whatnot,” she says. “At least with our companies, we feel well taken care of.”

Technology Adoption Starts at the Contract

Financial institutions are increasingly looking outside their core provider for the technology solutions that are right for their bank and their customers. In this video, Aaron Silva of Paladin fs explains the challenges community banks face in working with new providers and how to overcome these issues. He also shares three key areas to watch before signing on the dotted line.

  • Why Banks Should Look Outside the Core
  • Challenges in Working With New Providers
  • Avoiding Contract Mistakes

 

How Innovative Banks Make Mortgages Work

“Push button. Get mortgage.”

That’s the simple value proposition touted by Rocket Mortgage — and it’s a message that was heard by over 100 million people this month in a star-studded Super Bowl 54 ad that may have cost upwards of $15 million. How can community banks compete with such bold promises and big budgets? The secret could lie in working with the same technology titans that have shaped current customer expectations around financing home purchases.

Mortgages are a notoriously volatile product for financial institutions to offer — both from an economic standpoint and a regulatory one — and many banks struggle to break even on them. While a spike in refinancing and a healthy purchase market led to increased profits in the last half of 2019, the Mortgage Bankers Association (MBA) warned that an anticipated dip in refinancing during the second half of 2020 could once again increase margin pressures. Those pressures may result in numbers reminiscent of 2018, when mortgage banking production profits fell to just $367 per loan, according to data from the MBA.

The challenges posed by heightened competition and pricing pressure are accompanied by rules and requirements that are constantly shifting. For banks, it’s not as simple as “Push button. Get mortgage” to make these loans safely, soundly and profitably.

Yet mortgages are a touchstone product that customers expect their bank to provide. This is the rock and the hard place that Brett Fulk, president and CEO of Riverview Financial Corp., found his institution between after his team worked for over a year to set up an FHA loan product.

“We no sooner got ourselves approved, with all of the vendors we needed lined up, [when] the market shifted from FHA to USDA,” he says. “We were now ready to go with a product that wasn’t necessarily the lead product anymore in our market, and I thought there has to be a better way to do this.”

The bank, which has $1.1 billion in assets and is headquartered in Harrisburg, Pennsylvania, found an unlikely ally in Quicken Loans, the parent company of Rocket Mortgage. And Fulk built a partnership that gave the bank access to technology and new products, while insulating it from rivalry with Rocket.

Riverview is working with Quicken through its wholesale program. The bank uses Quicken’s technology platform, underwriting and servicing to make mortgages to its clients, who benefit from Quicken’s slick interface and fast turnaround. Riverview keeps the customer relationship through the application process, staying front and center to provide customer service and also exploring in-house loan options if the application doesn’t conform to Quicken’s protocols.  Quicken retains the servicing for the life of the loan so customers won’t see their loans being sold and resold.

The bank’s customer relationships are further insulated by some rules of engagement that Rocket Mortgage must follow. Riverview customers do not receive offers from Rocket and, if a current bank customer applies through Rocket for refinancing, that application is immediately kicked back over to the bank.

The partnership has translated into tangible benefits. It gives the bank access to Quicken’s full suite of products, while removing processing and underwriting pressures from the bank’s staff. Quicken has made it possible to increase the bank’s mortgage volume without increasing headcount, Fulk says.

And technology isn’t just helping in terms of efficiency. Riverview makes more on transactions when they sell loans because of the volume the bank has achieved through Quicken.

Banks that are examining their mortgage businesses closely need to consider a wide range of technology options at play. Word on the street is that Black Knight Empower is a popular choice for big banks looking to completely replace legacy loan origination systems, and it’s hard to miss the mega funding rounds that Blend, a San Francisco-based fintech firm, has raised for its mortgage-focused consumer lending platform.

Headliners aside, there are numerous other technology companies helping banks of all sizes make mortgages work from multiple angles. Some help banks take part in aspects of the customer’s home-buying journey that institutions don’t usually play a part in; others streamline back office requirements and closing processes. Whatever the application, mortgage tech solutions could be a critical component to helping banks stay in the game.

Fulk says the partnership with Quicken helped keep Riverview Bank in the mortgage business. It stands to reason that the right technology partners could help other institutions do the same.

Potential Technology Partners

Blend

Powering the mortgage experiences for Wells Fargo & Co., U.S. Bancorp and community banks alike, Blend’s “one-tap” pre-approval feature launched in 2019 to compete head-to-head with Rocket Mortgage.

Roostify

This digital mortgage solution boasts impressive loan officer adoption rates. The company has invested heavily in new integrations with pricing systems, document originators and other key vendors over the last few years.

NestReady

NestReady helps banks become hubs for the home-buying journey with a co-branded search tool that locates everything customers need from their real estate agent to their ideal neighborhood and mortgage loan officer.

LenderClose

This aggregation platform accelerates loan processing by delivering all of the reports and services required to close on a loan — from flood certification and valuation products to title reports and e-recording — in seconds.

SimpleNexus

SimpleNexus automates the information flow between loan officers, borrowers and referral partners. The digital mortgage platform allows banks to track loan officer activity and see when referral partners are sharing the app with potential clients.

Learn more about the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connect platform.

Defending Commercial Deposits From Emerging Risks

The competition for commercial deposits has become fiercer in the new decade.

The rate of noninterest deposits growth has been declining over the last three years, according to quarterly reports from the Federal Deposit Insurance Corp. The percentage of noninterest deposits to total deposits has also dropped over 250 basis points since 2016. This comes as the cost of funding earning assets continues to rise, creating pressure on banks’ net interest margins.  

At the same time, corporate customers are facing changes in their receipt of payments. Emerging payment trends are shifting payers from paper-based payments to other methods and avenues. Checks and paper-based payments — historically the most popular method — continue to decline as payers’ preferred payment method. Electronic payments have grown year-over-year by 9.4%.

Newer payment channels include mobile, point of presentment and payment portals. However, these new payment channels can increase the cost of processing electronic payments: 88% of these payments must be manually re-keyed by the accounting staff, according to one study. This inefficiency in manually processing payments increases costs and often leads to customer service issues.

Treasurers and senior corporate managers want automated solutions to handle increased electronic payment trends. Historically, banks have served their corporate customers for years with wholesale and retail lockbox services. But many legacy lockbox services are designed for paper-based payments, which are outdated and cannot handle electronic payments. Research shows that these corporate customers are turning to fintechs to solve their new payment processing challenges. Payments were the No. 1 threat that risked moving to fintechs, according to a 2017 Global Survey from PricewaterhouseCoopers.

Corporate customers are dissatisfied with their current process and are looking to use technology to modernize, future-proof, and upgrade their accounts receivable process. The top five needs of today’s treasurer include: enterprise resource planning (ERP) integration, automated payment matching, support for all payment channels, consolidated reporting and a single historical archive of their payments. 

Integrated receivables have three primary elements: payment matching, ERP integration and a single reporting archive. Automation matches payments from all channels using artificial intelligence and robotic process automation to eliminate the manual keying process. The use of flexible business rules allows the corporate to tailor their operation to meet their needs and increase automated payments over time. A consolidated payment file updates the corporates’ ERP system after completing the payment reconciliation process. Finally, integrated receivable provides a single source of all payment data, including analytics and reporting. An integrated receivables platform eliminates many disparate processes (most manual, some automated) that plague most businesses today. In fact, in one recent survey, almost 60% of treasurers were dissatisfied with their company’s current level of AR automation.

Banks can play a pivotal role in the new payment world by partnering with a fintech. Fintechs have been building platforms to serve the more-complex needs of corporate treasury, but pose a threat to the banks’ corporate customers. A corporate treasurer using a fintech for integrated receivables ultimately disintermediates the bank and now has the flexibility to choose where to place their depository and borrowing relationships. 

The good news is that the treasurer of your corporate customer would prefer to do business with their bank. According to Aite Research, 73% of treasurers believe their bank should offer integrated receivables, with 31% believing the bank will provide these services over the next five years. Moreover, 54% of the treasurers surveyed have planned investments to update their AR platform in the next few years. 

Many fintechs offer integrated receivables today, with new entrants coming to market every year. But bankers need to review the background and experience of their fintech partner. Banks should look for partners with expertise and programs that will enable the bank’s success. Banks should also be wary of providers that compete directly against them in the corporate market. Partnering with the right fintech provides your bank with a valuable service that your corporate customers need today, and future-proofs your treasury function for new and emerging payment channels. Most importantly, integrated receivables will allow your bank to continue retaining and attracting corporate deposits.

Three Tech Questions Every Community Bank Needs to Ask

Community banks know they need to innovate, and that financial technology companies want to help. They also know that not all fintechs are the partners they claim to be.

Digitization and consolidation have reshaped the banking landscape. Smaller banks need to innovate: Over 70% of banking interactions are now digital, people of all ages are banking on their mobile devices and newer innovations like P2P payments are becoming commonplace. But not all innovations and technologies are perceived as valuable to a customer, and not all fintechs are great partners.

Community banks must be selective when investing their limited resources, distinguishing between truly transformative technologies and buzzy fads

As the executive vice president of digital and banking solutions for a company that’s been working closely with community banks for more than 50 years, I always implore bankers to start by asking three fundamental questions when it comes to investing in new innovations.

Does the innovation solve problems?
True innovation — innovation that changes people’s financial lives — happens when tech companies and banks work together to solve pain points experienced by banks and their customers every single day. It happens in places like the FIS Fintech Accelerator, where we put founders at the beginning of their startup’s journey in a room with community bank CTOs, so they can explain what they’re trying to solve and how they plan to do it.

Community banks don’t have the luxury of investing in innovations that aren’t proven and don’t address legitimate customer pain points. These institutions need partners who can road test new technologies to ensure that they’ll be easy to integrate and actually solve the problems they set out to address. These banks need partners who have made the investments to help them “fail fast” and allow them to introduce new ideas and paradigms in a safe, tested environment that negates risk.

Does the innovation help your bank differentiate itself in a crowded market?
In order to succeed, not every community or regional bank needs to be JPMorgan Chase & Co. or Bank of America Co. in order to succeed. But they need to identify and leverage ideas that bolster their value to their unique customer base. A bank with less than $1 billion in assets that primarily serves small, local businesses in a rural area doesn’t need the same technologies that one with $50 billion in assets and a consumer base in urban suburbs does. Community banks need to determine which innovations and technologies will differentiate their offerings and strengthen the value proposition to their key audiences.

For example, if a community bank has strong ties with local small to midsize business clients, it could look for differentiating innovations that make operations easier for small and medium businesses (SMBs), adding significant value for customers.

Banks shouldn’t think about innovation as a shiny new object and don’t need to invest in every new “disruption” brought to market. Instead, they should be hyper-focused on the services or products that will be meaningful for their customer base and prioritize only the tools that their customers want.

Does it complement your existing processes, people and practices?
When a bank evaluates a new type of technology, it needs to consider the larger framework that it will fit into. For example, if an institution’s main value proposition is delivering great customer service, a new highly automated process that depersonalizes the experience won’t be a fit.

That’s not to say that automation should be discarded and ignored by a large swath of banks that differentiate themselves by knowing their customers on a personal level; community banks just need to make sure the technology fits into their framework. Improving voice recognition technology so customers don’t have to repeat their account number or other personal information before connecting with a banker may be just the right solution for the bank’s culture and customers, compared to complete automation overhaul.

Choosing the right kinds of innovation investment starts with an outside-in perspective. Community banks already have the advantage of personal customer relationships — a critical element in choosing the right innovation investment. Ask customers what the bank could offer or adjust to make life easier. Take note of the questions customers frequently ask and consider the implications behind the top concerns or complaints your bank staff hear.

Can your bank apply its own brand of innovation to solve them? Community banks don’t need to reinvent the wheel to remain competitive, and can use innovation to their advantage. Think like your customers and give them what no one else will. And just as importantly, lean on a proven partner who understands the demands your bank faces and prioritizes your bank’s best interests.

Four Takeaways from One of the Biggest Events in Banking

One of the marquee events in banking has concluded, and what promises to be an interesting and important year for many institutions is underway.

More than 1,300 attendees, including 800-plus bankers, assembled in Phoenix for Bank Director’s 2020 Acquire or Be Acquired Conference. We heard from investment bankers, attorneys, accountants, fintechs, investors and — yes, other bankers — about the outlook for growth and change in the industry. There was something for everyone.

To that end, I asked my editorial colleagues to share with me their biggest takeaways from the conference. Here’s what we came away with.

 

Mergers Get Political

The discussions I found to be the most surprising were executives’ concerns about political regime change, especially as it relates to their decisions around M&A or remaining independent.

“The elephant in the room is that there are two radicals running for president right now,” says Dory Wiley, CEO of Commerce Street Capital. And it’s not just investment bankers who see risk in the potential political change.

Executives of both Lafayette, Louisiana-based IBERIABANK Corp. and Memphis, Tennessee-based First Horizon National Corp. cited political uncertainty on the horizon in their motivations to combine through a merger of equals, which was announced in November 2019. Daryl Byrd, IBERIA’s current president and CEO, says the $31.7 billion bank saw the potential for political risk evolving into economic risk at a time when competition from the biggest banks for customers and deposits remains high. First Horizon saw emerging regulatory risk if the political tides turned.

“Generally speaking, we like a fair and balanced regulatory environment. We knew with the upcoming election that the regulatory would, at best, stay the same, but that it could get worse. So that was a consideration,” says BJ Losch, CFO at $43.3 billion First Horizon.

The mention of these concerns — and the magnitude of the response — has interesting implications. Banks operate in all types of environments, and many elements are outside of executives’ control. The industry has demonstrated resilience and flexibility before, during and after the financial crisis. What are the remaining 5,000-plus banks supposed to do in the face of the impending presidential election?

Kiah Lau Haslett, managing editor

 

Tipping the Scales

The most remarkable observation I had is how important scale has become in the banking industry. It was clear from comments at the conference that the large banks have been taking deposit market share away from the smaller banks, and that is partly a function of size and partly a function of technology. But the two seem to be inexorably connected — it’s the scale that allows those big banks to afford the technology that enables them to dominate the national deposit market.

The recent flurry of MOEs seem inspired partially by the perceived need to create enough scale to afford the technology investments needed to compete in the future. There also seems to be evidence that large banks have become more profitable than smaller banks (although I’m waiting for Bank Director’s 2020 Bank Performance Scorecard to confirm that), and that advantage may be in part because they have become more efficient and driven down costs. JPMorgan Chase & Co. had an overhead ratio (which is basically the same thing as an efficiency ratio) of 55% in 2019, down from 57% in 2018 — that’s better than many banks a 10th of its size. And I bet they continue to drive that ratio even lower in the years ahead because they know they have to.

We may be entering the Era of Big Banks, driven by scale, MOEs and technology. It will be interesting to watch.

Jack Milligan, editor in chief

 

The Attributes of a Trusted Partner

A growing number of technology companies have been founded to serve the banking industry. Not all of them have what it takes to satisfy bankers. What specific attributes is a bank looking for in a partner?

This was the question that inspired a session featuring Erin Simpson, EVP and chief risk officer of Little Rock, Arkansas-based Encore Bank, and Ronny Chapman, president of Compliance Systems.

One of the most important attributes, according to Simpson, is financial sustainability. A bank doesn’t want a partner that may or may not be around in a year or two. Flexibility and configurability are also desirable. “We want partners that will work with us,” says Simpson. “We want partners that are willing to tailor their solutions to our needs.”

A comprehensive product offering is another attribute identified by Simpson. As is the proven viability of products. “We don’t want to be your beta bank,” she says of the $247 million institution. “We don’t want you to be testing your products on us. We want a partner that knows more than we do.”

In short, given the growing role of technology in banking, articulating a defined list of desirable attributes for third-party tech vendors seems like a valuable exercise.

John J. Maxfield, executive editor

 

Learning the Language

“We have to be agile. We have to be nimble.”

That insight was shared by Brent Beardall, the CEO of $16.4 billion asset Washington Federal in Seattle, on the main stage during Day 2.

Since the financial crisis, Beardall has transformed his bank from tech-phobic to more tech-centric. And his thoughts sum up the strategic imperative faced by banks seeking to survive and thrive in today’s challenging marketplace.

In response, boards and executive teams need to learn to speak the language. Technology is no longer an issue that can be delegated to the IT department; it impacts the entire bank.

Talent is needed to drive these strategies forward. Presenters in a session on artificial intelligence asked attendees, how many banks have a chief digital officer? Data scientists? Few bankers raised their hands, identifying a talent gap that aligns with the results of Bank Director’s 2019 Technology Survey.

And change promises to be a constant. “If we go back five years and look back to what we thought this point in time will look like, we would’ve been so wrong,” said Frank Sorrentino III in another panel discussion. Sorrentino is CEO of ConnectOne Bancorp, a $6.2 billion asset bank based in Englewood Cliffs, New Jersey. “The future is still being written.”

Emily McCormick, vice president of research

Industry Perspectives at Acquire or Be Acquired 2020

People, Products & Performance – In this interview with Bank Director CEO Al Dominick, John Eggemeyer shares his thoughts on what drives performance.
Super-Connected Customers – Data, payments and other technology-related issues were top of mind for bankers at the 2020 Acquire or Be Acquired conference.
Who Gets the Dog? – On the heels of the CenterState Bank Corp./South State Corp. merger, Al Dominick evaluates a core cultural issue around these deals.
Spotlight on M&A – Drivers of M&A, balancing organic growth with acquisitions, and nonbank deals were key topics discussed from the stage at Acquire or Be Acquired.
Exploring Opportunities – Bank Director CEO Al Dominick shares three important takeaways from the first day of the 2020 Acquire or Be Acquired conference.
Technology’s Impact – Hear how banking industry leaders view today’s quickly evolving technology landscape.
Focus on Consolidation – Big mergers of equals and tech deals defined the banking market in 2019.

Winners Announced for the 2019 Best of FinXTech Awards


Awards-9-10-19.pngBanks face a fundamental paradox: They need to adopt increasingly sophisticated technology to stay competitive, but most have neither the budget nor the risk appetite to develop the technology themselves.

To help banks address this challenge, a legion of fintech companies have sprung up in the past decade. The best of these are solving common problems faced by financial institutions today, from improving the customer experience, growing loans, serving small business customers and protecting against cybersecurity threats.

To this end, we at Bank Director and FinXTech have spent the past few months analyzing the most innovative solutions deployed by banks today. We evaluated the performance results and feedback from banks about their work with fintech companies, as well as the opinions of a panel of industry experts. These fintechs had already been vetted further for inclusion in our FinXTech Connect platform. We sought to identify technology companies that are tried and true — those that have successfully cultivated relationships with banks and delivered value to their clients.

Then, we highlighted those companies at this year’s Experience FinXTech event, co-hosted by Bank Director and FinXTech this week at the JW Marriott in Chicago.

At our awards luncheon on Tuesday, we announced the winning technology solutions in six categories that cover a spectrum of important challenges faced by banks today: customer experience, revenue growth, loan growth, operations, small business solutions and security.

We also announced the Best of FinXTech Connect award, a technology-agnostic category that recognizes technology firms that work closely with bank clients to co-create or customize a solution, or demonstrated consistent collaboration with financial institutions.

The winners in each category are below:

Best Solution for Customer Experience: Apiture

Apiture uses application programming interfaces (APIs) to upgrade a bank’s digital banking experience. Its platform includes digital account opening, personal financial management, cash flow management for businesses and payments services. Each feature can be unbundled from the platform.

Best Solution for Revenue Growth: Mantl

MANTL developed an account-opening tool that works with a bank’s existing core infrastructure. Its Core Wrapper API reads and writes directly to the core, allowing banks to set up, configure and maintain the account-opening product

Best Solution for Loan Growth: ProPair

ProPair helps banks pair the right loan officer with the right lead. It integrates with a bank’s systems to analyze the bank’s data for insights into behaviors, patterns and lender performance to predict which officer should be connected with a particular client.

Best Small Business Solution: P2BInvestor

P2Binvestor provides an asset-based lending solution for banks that helps them monitor risk, track collateral and administer loans. It partners with banks to give them a pipeline of qualified borrowers.

Best Solution for Improving Operations: Sandbox Banking

Sandbox Banking builds custom APIs that communicate between a bank’s legacy core systems like core processors, loan origination, customer relationship management software and data warehouses. It also builds APIs that integrate new products and automate data flow.

Best Solution for Protecting the Bank: Illusive Networks

Illusive Networks uses an approach called “endpoint-focused deception” to detect breaches into a bank’s IT system. It plants false information across a bank’s network endpoints, detects when an attacker acts on the information and captures forensics from the compromised machine. It also detects unnecessary files that could serve as tools for hackers.

Best of FinXTech Connect: Sandbox Banking

The middleware platform, which also won the “Best Solution for Improving Operations” category, was also noted for working hand-in-hand with bank staff to create custom API connections to solve specific bank issues. In addition, banks can access three-hour blocks of developer time each month to work on special projects outside of regular technical support.