Five Digital Banking Initiatives for Second Half of 2020

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As the calendar nears the midpoint of 2020 and banks continue adjusting to a new normal, it’s more important than ever to keep pace with planned initiatives.

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

1. Enabling Emerging Technologies, Continued Innovation
Nearly 20% of clients see digital and mobile as their top initiatives for the coming years. Digital and mobile initiatives can help banks limit the traffic into physical locations, as well as reduce volume to your call centers. Your employees can focus on more complex cases or on better alternatives for customers.

Data-led digital experiences allow you to promote attractive interest rates, keep customers informed about upcoming payments and empower them to budget and track expenses in simple and intuitive ways. 

2. Improving Analytics, Insights
Knowing how to leverage data to make smarter business decisions is a key focus for financial institutions; 22% of our clients say this is the top initiative for them this year. There are endless ways to leverage data to serve customers better and become a more strategic organization.

Data insights can indicate customers in industries that are at risk of job loss or layoffs or the concentration of customers who are already in financial crisis or will be if their income stops, using key income, spending and savings ratios. Foreseeing who might be at risk financially can help you be proactive in offering solutions to minimize the long-term impact for both your customers and your institution.

3. Increasing Customer Engagement
Improving and increasing customer engagement is a top priority for 14% of our clients. Financial institutions are well positioned to become advocates for their customers by helping them with the right tools and technologies.

Transaction analytics is one foundational tool for understanding customer behavior and patterns. The insights derived from transactions and customer data can show customers how they can reduce unnecessary spending through personal financial management and expert guidance.

But it’s crucial to offer a great user experience in all your customer-facing tools and technologies. Consumers have become savvier in the way they use and interact with digital channels and apps and expect that experience from your organization. Intuitive, simple, and functional applications could be the difference between your customers choosing your financial institution or switching to a different provider.

4. Leveraging Open Banking, API Partnerships
Open banking and application programming interfaces, or APIs, are fast becoming a new norm in financial services. The future of banking may very well depend on it. Our findings show that 15% of clients are considering these types of solutions as their main initiative this year. Third-party relationships can help financial institutions go to market faster with innovative technologies, can strengthen the customer experience and compete more effectively with big banks and challengers.

Financial institutions can leverage third parties for their agile approach and rapid innovation, allowing them to allocate resources more strategically, expand lines of business, and reduce errors in production. These new innovations will help your financial institution compete more effectively and gives customers better, smarter and more advanced tools to manage their financial lives.

But not all partnerships are created equally. The Office of the Comptroller of the Currency recently released changes surrounding third-party relationships, security and use of customers’ data, requiring financial institutions to provide third-party traffic reports of companies that scrape data. Right now, the vast majority of institutions only have scrape-based connections as the means for customers to give access to their data — another reason why financial institutions should be selective and strategic with third-party providers.

5. Strategically Growing Customer Acquisition, Accounts
As banking continues to transform, so will the need to adapt including the way we grow. Nearly 30% of our clients see this as a primary goal for 2020 and beyond. Growth is a foundational part of success for every organization. And financial institutions generally have relied on the same model for growth: customer acquisitions, increasing accounts and deposits and loan origination. However, the methods to accomplish these growth strategies are changing, and they’re changing fast.

Right now, we’re being faced with one of the hardest times in recent history. The pandemic has fundamentally changed how we do business, halting our day-to-day lives. As we continue to navigate this new environment, financial institutions should lean on strategic partnerships to help fill gaps to facilitate greater focus on their customers.

Five Reasons to Consider Banking Cannabis

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Like nearly every industry, the banking sector is facing major economic disruption caused by the coronavirus pandemic.

Operational strategies designed to capitalize on a booming economy have been rendered obsolete. With the Federal Open Markets Committee slashing interest rates to near zero, financial institutions have needed to redirect their focus from growth to protecting existing customers, defending or increasing earnings and minimizing losses.

While this will likely be the status quo for the time being, bank executives and their boards have a responsibility to plan ahead. What will financial markets look like after absorbing this shock? And, when rates begin to rise again — as they will, eventually — how will you position your financial institution to take advantage of future growth?

The booming legal cannabis industry is one sector banks have been eyeballing as a source for low-cost deposits and non-interest income. While ongoing conflict between state and federal law has kept many financial institutions on the sidelines, others have made serving this industry part of their growth strategy. According to new market research, the U.S. legal cannabis market will be worth $34 billion by 2025. While we don’t claim that sales will be immune to the financial shock caused by the pandemic, they have remained somewhat steady — due in large part to being deemed essential in most states with legal medical cannabis programs. With much of this revenue unbanked, it’s worth taking a closer look at how this industry can be part of your bank’s long-term strategy. Here are five reasons why.

  1. Cannabis banking can provide reliable non-interest income. As net interest margins compress, financial institutions should look to non-interest income business lines to support overall profitability. Cannabis companies are in dire need of quality banking solutions and are willing to pay upwards of 10 times the amount of traditional business service charges. Assessing substantially higher base account charges, often without the benefit of an earnings credit to offset those charges, means there are untapped cash management fee opportunities. Together, these fees can fully offset the operational cost of providing a cannabis banking program.
  2. New compliance technologies can reduce costs and support remote banking. Many banks serving cannabis customers are using valuable human capital to manage their compliance. However, new technologies make it possible to automate these processes, significantly reducing the labor and expense required to conduct the systematic due diligence this industry requires. New cannabis banking technologies can also enable contactless payments, and handle client applications, account underwriting and risk assessment — all via remote, online processes.
  3. Longer-term, cannabis banking can provide a source of low-cost deposits. The pressure to grow and attract low-cost deposits may wane momentarily but will continue to be a driver of bank profitability long-term. Increasing those deposits today will protect future profitability as the economy improves.
  4. Comprehensive federal legalization is on the back burner — for now. While your bank may want to wait for federal legalization before providing financial services to this industry, there’s a significant first-mover advantage for institutions that elect to serve this industry today. The ability to build new customer relationships, earn enhanced fee income and gain access to new sources of low-cost deposits early on could be a game-changer when legalization eventually occurs.
  5. You don’t need to be a pioneer. Having spent most of my career leading retail operations at a community bank, I know financial institutions don’t want to be the first to take on something new. Although it is still a nascent industry, there are financial institutions that have served cannabis businesses for several years and are passing compliance exams. Banks entering the industry now won’t have to write the playbook from scratch.

The coronavirus pandemic requires banks to make many difficult decisions, both around managing the financial impact and the operational changes needed to protect the health of customers and employees. While adapting operating procedures to the current environment, banks should also begin planning for a future recovery and identifying new potential sources of growth. Cannabis banking can provide a lucrative new revenue stream and the opportunity for financial institutions to grow deposits with minimal competition — at least for now.

Repatriating Office Employees While the Pandemic Continues

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It is the greatest human resources challenge of the modern corporate era.

In early March, U.S. companies — including most banks — sent their employees home to work as the Covid-19 pandemic gained strength and many states issued shelter-in-place requirements and business lockdowns. Most banks kept their branches open for limited customer access, and continued to staff their operations centers, but sent most of the remaining people home. Now, banks are starting to repatriate these employees as state restrictions are eased, and the economy begins to reopen.

There are a number of factors to consider as your bank prepares to repatriate its office staff, including how to keep them safe and changes that will have to be made to the workplace. Some employees may be leery of returning to their old offices since the Covid-19 infection rate is still rising in many states, even though the national rate is slowly declining. New precautions need to be put in place to protect your staff from infections, and these will need to be communicated clearly to them.

It seems highly likely that U.S. companies will have to learn how to live with the Covid-19 virus for the foreseeable future.

Darin Buelow, a principal with Deloitte Consulting LLP and leader of its global location strategy practice, says the only comparable experience in recent memory was the hectic week after the Sept. 11, 2001 terrorist attack on the World Trade Center towers in New York. Most of lower Manhattan was closed, and the big Wall Street banks had to make alternate plans so they could operate when the financial markets reopened on Sept. 17.

“The banks had to figure out how they were going to get ready for the market reopening, and to do so without trying to cram and jam all their employees back into lower Manhattan,” Buelow says. “This prompted them to [move to] their business continuity sites, if they had them, in the suburbs. And if they didn’t, very quickly look for those locations where they could try to get trading desks and phone banks and everything else they needed to occupy offices.”

Of course, this was in the days before widely available video conferencing services. Many households still had dial-up internet service, so relying on a distributed workforce wasn’t an option. “But it was short-lived, and Manhattan was deemed to be okay again,” Buelow says. “What we’re experiencing now is new for all of us.”

Buelow has five suggestions that bank management teams should consider as they prepare to bring their employees back into the office.

Prioritize Employee Health and Safety
To make employees feel safe while the pandemic continues, banks should provide them with personal protection equipment (PPE) while also conforming with new, Covid-19 hygiene standards that have started to emerge. Banks should be stockpiling PPE supplies now, even if they don’t anticipate bringing their people back until the fall or later. Banks that have kept their branches and operations centers open have already had to take these precautions, although they now be applied on a larger scale. “Demand is increasing because there are more companies that are planning on having those stockpiles ready to go for when reentry happens,” Buelow says. “But also, the supply curve has been increasing. We’ve got more companies engaged in producing those products now, and they’re really starting to ramp up.” Of course, this could change if a surge in infections occurs this fall as the economy reopens, leading again to scarcities.

There are various Covid-19 hygiene standards that companies can rely on as they prepare their workplaces for reentry. The Occupational Safety and Health Administration has released a set of recommendations — “Guidance on Preparing Workplaces for Covid-19” — as have the International Facility Management Association and the Building Owners and Managers Association International. And of course, banks should be checking state and local guidance and requirements as well.

Modify the Workplace
Most offices will have to be reconfigured to provide enough room to maintain social distancing precautions, and this could limit the available space for people to 25% of its normal capacity. “If they try to get up to 50% capacity, most layouts are going to be problematic, and it may be difficult to achieve six-foot distancing,” Buelow says.

Banks with employees in high-rise office towers will have to work closely with their landlords to address a number of issues. “Many [banks] are going to be in multi-tenant situations,” Buelow says. “Landlords have responsibility, oftentimes, for the lobby, for lobby security, maybe lobby temperature testing, maybe lobby hygiene, bathroom hygiene and ventilation. Increasing ventilation is something that’s being debated, the merits of that, the feasibility of that to remove airborne contaminants from offices. Not an easy thing to do, but the landlord has to be part of that conversation. Modifying the workplace is not just what to do in your own space and your cube farm, it’s also engaging with the landlord.”

Elevators in high-rise office towers pose another challenge because they will only be able to take a small number of people at a time to maintain some level of social distancing. “Imagine in a multi-tenant building that has an elevator design platform, which presumes that people are going to pack those elevators [from] 8:00 to 9:00 in the morning,” says Buelow. “Even if your company decides that it’s only going to bring back 10% or 15% [of its employees], if there are other companies that have a much higher number than you and you’re not the only one using those elevator banks, it’s going to slow it down for everyone.” Buelow says that some companies are already modeling how long it will take employees and customers to reach a desired floor using their building’s elevators. He knows of one major company that estimated it would take two hours in the morning and evening for people to enter and exit the building.

Prepare the Workforce
Communication is a critically important piece of the office worker repatriation process. Returning employees will need to be trained on any new Covid-19 safety procedures or mechanisms that have been put in place, as well as proper PPE use. Equally important, employees will need assurances that their health and safety are the bank’s top concern. “I think most companies are going to be very proactive, transparent and genuine in their communications to their employees,” Buelow says. “I think it’s important to communicate with employees that the company is going to place their health and safety above everything else. Be open about the timing of when you think you’re going to be looking at coming back. We’ve seen companies say things like, ‘We know it’s not going to be before Labor Day.’ Or, ‘We know it’s not going to be before 2021.’”

Buelow says some companies have assured employees who are afraid of returning to the office that there will be no repercussions if they continue working from home. “‘And when you feel comfortable coming back, we would love to have you, assuming the state and local regs allow it and we feel like we’ve been able to put in place the changes that we feel are necessary, in order to make it a safer workplace,’” he says. “I think it’s just all about communication and change management, and helping employees understand where the company’s priorities are.”

Develop Pandemic Management Protocols
These involve all the processes the bank will rely on to keep employees and customers safe. Some of these processes will be in response to federal, state and local mandates, while others will be developed by the bank itself.

“We’re already living in a country that has pandemic management protocols [PMPs] in place,” says Buelow. “You have to wear a face mask if you’re going to go to the grocery store. You might be gated on your way in, you might be subject to temperature testing. So those PMPs are a fact of life in many U.S. cities right now. And it could be that way for some protracted period of time. What we’re saying is that companies need to have new protocols and new procedures and new policies to deal with pandemic times.”

Buelow offers one example of a PMP that could become a common occurrence as employees start returning to the workplace. “What if you develop a fever while you’re at work, in the office on the 17th floor, at 3:00 in the afternoon?” he says. “Where do you go? What’s your routing? Who do you notify? What does day one look like on the first day of reentry? What can employees expect? What’s the protocol for testing and screening? What’s the work-at-home policy? I think there’s new policies that have to be written, new procedures and protocols that have to be developed and followed.” 

Use Technology to Enable New Ways of Working
It seems likely that companies will be forced to rotate their office staff until either an effective coronavirus vaccine has been widely distributed, or some level of herd immunity develops and naturally drives down infection rates. And there are a variety of technology tools that can help manage Covid-19 risk in the workplace.

If you’re going to do temperature screening, for example, you’ll need a way to track and manage that information while protecting the employee’s identity. “There are technologies out there to help with … contact tracing or contact awareness so that somebody who has a fever at 3:00 in the afternoon, who were they sitting near?” Buelow says. “Who did they brush up against? Who did they eat lunch with?”

Another technology, deployed either as a wearable or a mobile app, would enable employers to detect who an infected person came in contact with so it wouldn’t be necessary to quarantine an entire floor or department for two weeks out of an abundance of caution. “Deloitte has an application that just hit the street, called MyPath, which does a lot of these things,” Buelow says. “It’s a tool that companies can use for these kinds of self-certifications at home and contact awareness, and case management, and a number of other things to help clients and companies with all of the technological aspects of reentry.”

There is also a technology that monitors how rooms are being used and whether social distancing restrictions are being observed. “Are people congregating in rooms where they shouldn’t be having too many people in a particular room?” says Buelow. “Removing chairs or draping them so that people don’t use them doesn’t do any good. If a meeting is called in a conference room with 20 people and they just roll 20 chairs in there, they’re not socially distant anymore.”

The process of repatriating office workers includes a lot of unknowns. For example, how will they feel about working in a very different environment which may still pose an infection risk despite all the precautions? “We’re not really sure what reentry is going to look like,” Buelow says. “If the employer creates a space that is so antiseptic, and everyone’s wearing masks, and nobody’s in meetings with anyone else, and they’re behind barriers, it could actually discourage integration. If you had to wait in the lobby for an hour-and-a-half for an elevator, on top of all of that, would you really want to come back on Tuesday after your Monday experience? So, that remains to be seen, and it could further delay reopening.”

Leverage Tech to Release HELOC Demand

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Even though bank may still have limitations on physical operations due to the Covid-19 pandemic, they can still leverage technology to prepare for what a potential boom in home equity line of credit (HELOC) lending.

Inflation will happen and rates will once again rise, making the market ripe for HELOCs. Community and regional banks need to be savvy enough to compete against larger banks and rising fintech nonbank lenders for this growing market share, and they can do this by using technology to properly harness the data. Data is new currency.

According to a J.D. Power study on HELOC satisfaction, 88% of consumers say they started the HELOC process without being prompted by a bank employee. That percentage is even greater for millennials: 94%. This a trend that is likely to continue.

Fast-paced technology allows consumers online options to do their banking from their smartphone, and many don’t want to speak to a banker unless they cannot get the answer online. They are signing up for loans, transferring funds to another account or opening new accounts — all transactional services that can be done with a few keystrokes and mouse clicks, without having to visit a local branch.

This same technology can be applied to the HELOC application process, which banks can use to greatly improve interactions with consumers. So why aren’t more banks embracing this technology? Why do we keep seeing phone numbers or “email us” prompts under the HELOC section of a bank website? It seems home equity lending is stuck in the 1990s.

This has to change to capture customers’ attention. The rise in home prices means millennials have more equity in their homes, and 59% gather their information online — 50% through smartphones only, according to the J.D. Power study. Banks have not been actively marketing to this group, making it a crucial area for improvement with the use of technology.

For any technology to be successful, banks need to change their approach or mindset regarding their HELOC application process. There are many options that can be used on the front-end of the HELOC experience as more banks streamline their digital processes. Others are using their loan origination system as a robust starting point in this process; one that should be easy, fast and intuitive.

Technology can automatically order the necessary data, like credit, income, flood and instant title reports. If the title data is not readily available, it can use intelligence logic to select the best data property report provider, based on turn time and price. That information is then delivered in one report that is custom-tailored to each lender’s unique loan fulfillment requirements.

Other technology can help with the front end, digital marketing and other aspects of the business, from the top of the funnel to eClosing. The constant change means that systems put in place three years ago were probably more expensive than some banks were willing to invest. Those systems might not have featured all the functionality a bank needed; now, they are outdated. Even if banks previously considered and decided against possible systems for whatever reason, it is paramount that they take another careful look today.

Some banks may be content with their current level of home equity loans; however, as the market starts to ramp up, they risk leaving significant business on the table or losing a customer to a non-bank fintech. Recent advancements mean there are innovative and inexpensive systems available that do not require a total retooling of a bank’s existing technology stack. What is the price on shaving 25 days off the process? What price can your bank can put on saving 25 days in the process? With the right approach, these new tools can help banks be cost neutral, or even save money.

A Small Bank’s Big Bet on AI

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Brex.pngBuilding a board with an appetite for innovation can be difficult, but the small group that oversees C3bank is decidedly different.

The institution was originally founded as a quiet community bank serving the Inland Empire region of southern California in 1981.

That same year, Evert “Chooch” Alsenz and Paul Becker, now board members at C3bank, formed an engineering partnership that would go on to fund the development of the world’s first quartz-based solid-state gyroscope, a patented technology used in brake systems for millions of automobiles. Subsequent ventures from the duo produced military communications antennas, lightning diversion strips and surge protection equipment for aircrafts.

Alsenz and Becker are no strangers to invention, a background they brought with them when they joined commercial real estate expert Michael Persall to buy C3bank in a deal that closed in 2014.

Alsenz and Becker’s shared history helps one understand how a four-branch, $356 million institution has been able to remake itself as a tech-savvy commercial bank. From the moment they acquired it, Persall, Alsenz and Becker, who also serve as principals for investment company ABP Capital, worked to transform the bank into an entrepreneurial shop with a specialty in commercial real estate lending. In 2019, the group moved the bank’s headquarters to Encinitas, California, where ABP is based, and changed its name to C3bank.

Understanding the entrepreneurial owners at C3bank also helps explain how the group was able to ink a new partnership to develop an artificial intelligence-based commercial lending tool just a few years after the change in ownership.

To strengthen the bank’s CRE lending program, bank chairman Persall approached technologist Shayne Skaff to develop a custom platform for assessing and monitoring CRE loans. Initially, Skaff wasn’t sold on the idea. When he dug deeper, though, he discovered that commercial lending technology was years behind the solutions for residential loans. That lag presented an opportunity, so he started working with the teams at ABP Capital and C3bank in June 2018 to build a solution that would eventually become known as Blooma.

Skaff brought developers into the institutions to learn about their respective underwriting processes. The goal for the project was to streamline the commercial underwriting process in a way that made it more dependent on science, than on art. Science, the parties believed — in this case, AI —  would lead to thorough, well-researched deals.

“Our board and ownership group continues to think AI can have a big impact on banking,” says A.J. Moyer, the CEO of C3bank. “[They] push that thought process and believe a lot of underwriting can be supplemented.”

Traditionally, lenders spend a lot of time manually gathering the data that factors into a potential deal. Blooma allows banks to outsource that process to its AI engines. It taps into third party databases to extract information about local real estate markets and scours the web for other relevant information, such as neighborhood crime statistics and negative news.

Blooma then scores CRE deals on a 100-point scale that measures the probability that it will fit within the bank’s risk profile and portfolio needs. Users can drill down into the score to see exactly what factors influenced the score. As more deals pass through the system, Blooma’s AI gradually learns from the bank’s process to prioritize new opportunities.

The result? The process of onboarding and assessing a potential deal can shrink from weeks to minutes.

“[Q]uick yet accurate decision-making can be a strategic advantage for your institution,” says Moyer. “If I have a toolset that, when a potential deal comes my way, I can quickly confirm what that asset’s worth, [then] I can sign that deal faster than anyone else.”

In addition to the underwriting assist, Blooma provides a digital hub for managing deal documents and workflows. “We’ve gotten out of a spreadsheet environment,” says Moyer. “The world we’re in is more dynamic. Everyone can go [to Blooma] to see what deals we’re working on and what’s mission critical.”

Blooma was a finalist in the Best Business Solution category of this year’s Best of FinXTech Awards. Shield Compliance, a Seattle-based fintech helping institutions bank cannabis-related businesses, was also a finalist. The winner in this category was Brex, which partnered with Bank of the West to launch a small business-focused credit card that’s grown the bank’s revenue by more than 50% from clients using the co-branded card. You can learn more about that partnership here: How Innovative Banks Cards to Grow Revenue, Earn Loyalty.

Using Data Platforms to See Customers

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Customers leave behind valuable breadcrumbs about their interests, needs and intentions across their financial lives.

What’s their current financial health? Are they shopping for a new credit card? Even: Are they considering switching to a competitor?

Unfortunately, this wealth of insights is more-than-likely locked away across a series of legacy, on-site systems, stuck in siloed data warehouses and generally difficult to access due to antiquated reporting systems. Understanding and acting on customer signals has become more important in recent months as customers seek financial partners that understand their unique needs. What does it take for a bank to unlock this treasure trove of data and insights? More often than not, a customer data platform (or CDP) can help banks take an important step in making this a reality and craft a 360-degree view of their customers.

I spoke with Brian Knollenberg, vice president of digital marketing and analytics at Tukwila, Washington-based BECU, about his recent experience of setting up a CDP for one of the country’s largest credit unions in the country. 

The Need for CDP
When Knollenberg joined the $22 billion credit union, he saw that creating a marketing performance dashboard using slow-batch processing across multiple systems took 12 manual hours to produce. As a result, the data stakeholders needed to make key decisions was a week out of date by the time they received it — much less take action on it.

This speed-to-value lag wasn’t limited to just marketing dashboards; it was just one example teams encountered when trying to access timely customer data across legacy systems. His team recognized that the organization needed current data, individualized for each customer, to make timely decisions. They also needed a way to easily syndicate this across critical customer and stakeholder touchpoints. 

Knollenberg also recognized his team’s expertise was better suited to modifying processes rather than building a robust enterprise-grade tool that could ingest and process terabytes of data in near-real time. He needed a solution to transform this data hindrance into an asset, and looked for a partner with direct experience in tackling these challenges to streamline implementation.

CDP Benefits
Implementing a CDP has extended the BECU team’s ability to tackle more difficult data challenges. This included building out performance dashboards that update every 24 hours, personalized customer communications and the ability to modeling member financial health.

This last use case empowers BECU to aggregate a score based on behaviors, transactions, and trends to identify which members could benefit from proactive outreach or help. He said financial health scoring has been extremely helpful during the coronavirus pandemic to identify potential recipients of proactive outreach and assistance. Having this information readily available enables marketing, customer service and even product teams to create bespoke experiences for their members and make informed business decisions — like offering a lower rate card to a member showing large carried balances with an outside card provider.

Lessons Learned
Before tackling any new data program, Knollenberg recommends companies first identify the overall effort versus impact. He finds that while companies often invest ample time and effort into developing comprehensive strategy and goals, they often miss when planning for the execution realities to properly implement them. Spend time scaling up your bank’s execution capabilities, determine how you’ll realistically measure potential impact and test-drive product solutions via a robust proof of concept.

The best financial brands know that putting their customers first will result in returns. Building out a customer data platform for your bank can unlock powerful new insights and opportunities to engage with your customers, if done right. As you start on this journey, make sure to identify what specific use cases are most impactful for your business, and find the right software partner that will work with you to execute it properly. Once unlocked, your bank will be able to service customers at a truly personalized level and drive a greater share of wallet.

Strengthening Corporate Culture During Covid-19

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Before Covid-19, watercooler talk was an integral part of office culture. Groups of workers would gather in the breakroom for coffee and chat about their day, or the latest Netflix binge, or what they planned to do over the weekend. But today, with so many now working remotely and the rest encouraged to socially distance themselves from their coworkers, office culture has temporarily — and perhaps permanently — changed. For many, the big looming question is whether we return to that environment at all, given the potential for cost savings and the possibility of a second and third wave of the coronavirus later in the year.

But employees still need to interact with one another to foster relationships and collaborate. They also need to connect with managers, and create and maintain bonds with mentors.

The technology to enable this existed before the coronavirus struck the U.S., but many companies are only now shifting their practices to take advantage of it. These tools include video conferencing, and scheduling and productivity applications offered by providers like Microsoft Corp., Slack Technologies, Zoom Video Communications and Alphabet, the holding company for Google.

The savviest companies are finding ways to be more effective in the transition. One of these is State Street Corp. Christy Strawbridge, senior vice president and transformation director, shares the Boston-based bank’s experience in a discussion that took place as part of Microsoft’s Envision Virtual Forum for Financial Services.

Most of State Street’s employees are working from home and returning to the office isn’t a top priority, says Strawbridge. “We are not going to be rushing people back into the office; we’re going to help [them] work from home effectively,” she says.

It’s a stressful time, so the company is keeping communication lines open.

“Senior leaders are communicating formally and informally on a regular basis,” Strawbridge says. Employees can dial in to live, virtual forums hosted by senior executives — even CEO Ronald O’Hanley — to get answers on everything from technology needs to mental burnout. “It keeps us all connected,” she says. “It keeps us up to date on what’s going on.”

A number of companies now host virtual employee happy hours and other events using video communications technology. These intentional social interactions are vital to maintaining corporate culture, says Strawbridge. “We’re not running into each other in the elevator, so we need to be more deliberate on those social interactions,” she says, “because they’re not happening ad hoc.”

“It’s really important, now more than ever, that we stay connected,” she adds.

Employees are also encouraged to take time off. Maybe they can’t take the cruise they planned or visit Disney World with their family but taking time to do simple things — a day off for a hike, for example — can help prevent burnout.

Agility has grown increasingly important as the banking industry responds to the shifts and changes the coronavirus crisis has brought to bear on the U.S. economy. Financial institutions are rapidly deploying new technologies and practices to better serve customers and enable employees to work safely. Strawbridge points out that for State Street, their strategic goals remain the same but the path to achieve those aims is being adjusted.

“[Some] priorities have shifted in this environment, so we need to pivot work to other people on the team who might be more freed up,” says Strawbridge. “We have really uncovered the art of the possible here. We are realizing that there were things that we thought maybe we couldn’t do, or would be hugely challenging, or would take us three years to do — and we’ve done them in two months.” She credits more effective communication and collaboration — along with employee initiative — with these achievements. “We have a laser focus on prioritization in this environment that we can’t lose when we go back.” 

The company is empowering and engaging employees to solve problems — something Strawbridge believes will help State Street weather, and emerge stronger, from the crisis.

The foundation for a strong culture was built before the pandemic, but smart companies will foster and strengthen it during this crisis.

Practical AI Considerations for Community Banks

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A common misconception among many community bankers is that it isn’t necessary to evaluate (or re-evaluate for some) their use of artificial intelligence – especially in the current market climate.

In reality, these technologies absolutely need a closer look. While the Covid-19 crisis and Paycheck Protection Program difficulties put a recent spotlight on outdated financial technology, slow technology adoption is a long-standing issue that is exacerbating many concerning industry trends.

Over the last decade, community banks have faced massive disruption and consolidation — a progression that is likely to continue. It’s imperative that bank executives take a clear-eyed look at how advanced technologies such as AI can support their business objectives and make them more competitive, while gaining a better understanding of the requirements and risks at play.

Incorporating AI to Elevate Existing Business Processes
This may seem like a contrarian view, but banks do not need a specific, stand-alone AI strategy. The value of AI is its ability to improve upon existing structures and processes. Leadership teams need to be involved in the development process to identify opportunities where AI can tangibly drive business objectives, and manage expectations around the resources necessary to get the project up and running.

For example, community banks should review how AI can automate efficiencies into their existing compliance processes — particularly in the areas of anti-money laundering and Bank Secrecy Act compliance. This application of AI can free up manpower, reduces error rates and help banks make informed decisions while better serving their customers.

It’s necessary to have a strong link between a bank’s digital transformation program and AI program. When properly incorporated, AI helps community financial institutions better meet rising customer expectations and close the gap with large financial institutions that have heavily invested in their digital experiences.

Practical Steps for Incorporating AI
Once a bank decides the best path forward for implementing AI, there are a few technical and organizational steps to keep in mind:

Minimizing Technical Debt and “Dirty Data”: AI requires vast amounts of data to function. “Dirty data,” or information containing errors, is a real possibility. Additionally, developers regularly make trade-offs between speed and quality to keep projects moving, which can result in greater vulnerability to crashes. Managing these deficiencies, “or technical debt,” is crucial to the success of any AI solution. One way to minimize technical debt is to ensure that both the quantity and quality of data taken in by an AI system are carefully monitored. Organizations should also be highly intentional about the data they collect.More isn’t always better.

Minimizing technical debt and dirty data is also key to a smooth digital transformation process. Engineers can add value through new and competitive features rather than spending time and energy addressing errors — or worse, scrapping the existing infrastructure altogether.

Security & Risk Management: Security and risk management needs to be top-of-mind for community bankers any time they are looking to deploy new technologies, including leveraging AI. Most AI technologies are built by third-party vendors rather than in-house. Integrations can and likely will create vulnerabilities. To ensure security and risk management are built into your bank’s operating processes and remain of the highest priority, chief security officers should report directly to the CEO.

Managing risks that arise within AI systems is also crucial to avoid any interruptions. Effective risk management ties back to knowing exactly how and why changes affect the bank’s system. One common challenge is the accidental misuse of sensitive data or data being mistakenly revealed. Access to data should be tightly controlled by your organization.

Ongoing communication with employees is important since they are the front line when it comes to spotting potential issues. The root cause of any errors detected should be clearly tracked and understood so banks can make adjustments to the model and retrain the team as needed.

Resource Management: An O’Reilly Media survey from 2018 found that company culture was the leading impediment to AI adoption in the financial services sector. To address this, leaders should listen to and educate employees within each department as the company explores new applications. Having a robust change management program — not just for AI but for any digital transformation journey — is absolutely critical to success. Ongoing education around AI efforts will help garner support for future initiatives and empower employees to take a proactive role in the success of current projects.

At a glance, implementing AI technologies may seem daunting, but adopting a wait-and-see approach could prove detrimental — particularly for community banks. Smaller banks need to use every tool in their toolkit to survive in a consolidating market. AI poses a huge opportunity for community banks to become more innovative, competitive and prosperous.

The Covid-19 Shift

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For many companies, the Covid-19 pandemic necessitated rapid change. Microsoft Corp. CEO Satya Nadella noted in late April, “We’ve seen two years’ worth of digital transformation in two months,” due to the speedy adoption and implementation of new technology by the U.S. business sector to better serve customers and keep employees working safely during the crisis. 

Navigating the short-term impacts of these shifts has bankers working round-the-clock to keep pace, but the long-term effects could differentiate the companies that take advantage of this extraordinary moment to pivot their operations. This transformation makes up the core of the discussions taking place at Microsoft’s Envision Virtual Forum for Financial Services. As part of that event, Bank Director CEO Al Dominick virtually sat down with Luke Thomas, Microsoft’s managing director, U.S. banking and financial providers, to discuss how financial institutions can use this opportunity to modernize their operations.

They address:

  • Accelerated Adoption of Technology
  • Legacy vs. New Core Providers
  • Ensuring Continued Improvement

How Peoples Bancorp Prevailed Through PPP

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“You only learn who has been swimming naked when the tide goes out,” wrote Warren Buffett in his 2004 annual letter.

He was referring to operations that trade derivatives. You don’t really know the value of what you hold in opaque markets, he explained, until it’s tested in hard times.

The same can be said about banking.

Rarely has the industry faced an environment as acute as today.

“The scope and speed of this downturn are without modern precedent,” said Federal Reserve Chairman Jerome Powell earlier this week. It’s “significantly worse than any recession since World War II.”

It’s hardly an exaggeration to say that bankers bear much of the burden of saving the economy from oblivion. “If doctors and nurses are first responders to those who are sick,” says Robyn Stevens, chief credit officer at Peoples Bancorp, “bankers are the first responders for businesses, communities and economies.”

Stevens would know.

Within its three-state footprint spanning Ohio, West Virginia and Kentucky, Peoples was the top-performing bank in the first round of the Paycheck Protection Program measured by dollars of PPP loans approved per assets.

“A culture is tested when times get tough,” says Ryan Kirkham, general counsel at the $4.5 billion bank based in Marietta, Ohio. “You find out whether it is real or just lip service. We passed the test.”

The success of Peoples in the first round of PPP reveals a flaw in one of the principal narratives that has emerged from the unfolding crisis — that banks with the most advanced technology were the ones best positioned to manage the onslaught of loan applications.

It’s not that Peoples Bank hasn’t invested in technology in recent years, because it has. But the secret to its success in the first round of PPP was simple elbow grease.

Personnel from the top of the bank to the bottom volunteered to enter data into the Small Business Administration portal to process customer loan applications.

“Banks had to decide whether they were going to do it automated or whether they were going to do it manually,” says CEO Chuck Sulerzyski. “Peoples tried an automated approach but then opted for manual.”

“Many of our most senior executives have done data entry until 8, 9, 10, 11, 12 at night,” he adds. “We did over 100 of these loans on Easter Sunday. And when they shut banks over $1 billion out from 6 p.m. to midnight one evening, we had a couple dozen people volunteer to work midnight to 4 a.m. putting in the entries.”

This success reflects a culmination of a decade’s worth of effort, spearheaded by Sulerzyski, who joined the bank from KeyCorp in 2011.

The 62-year-old CEO spent the previous four decades working up the corporate ladder at multiple prominent banks. He worked at Citibank during the Walter Wriston era. He was at Chemical Bank when Walter Shipley was CEO. And he spent eight years at Bank One, working closely with President Don McWhorter and CEO John B. McCoy.

Sulerzyski has been there and done that, in other words. One lesson he’s learned along the way has been the importance of culture and customer relationships. It’s a lesson that has paid off in spades over the past three months.

“From a competitive standpoint, a lot of the large banks struggled with PPP,” Sulerzyski says. “One of the large regionals couldn’t do any loans the first few days. Another one started, but then had to shut down. Each of the bigger banks we compete against had their own degree of difficulties with this. Because our customers were well taken care of, CPAs and attorneys started referring business to us and it kind of snowballed on itself.”

Sulerzyski’s team speaks in single voice on this.

“Our commitment to our communities and the importance that plays resonates with our employees,” says Thomas Frawley, senior vice president, consumer lending. “They start the call as a banker and end the call as a counselor, listening to the fears of our customers while assuring them that we are going to do our best to help them.”

“We have several associates who are working day and night,” says Ann Helmick, director of enterprise risk management. “They are doing this for the good of the client. For most, there will not be a personal gain.”

“It is easy to come up with a mission, vision and values. And when times are good, it can be easy to live by those values,” says Jason Phipps, regional president. “It is when a company or person faces adversity that you find out who a person or who an organization really is.”

One can argue all day long about the importance of scale and technology, and how it could soon be a principle competitive differentiator in banking. But technology is only a tool to help bankers ply their trade. The soul of any organization, and the true source of performance, lies instead in the people who run it.

“Bankers may have got a bad rap during the last crisis,” says Stevens, “but ours have been heroes during this one!”