Enhancing Shareholder Value



Bank stocks have taken a dive in late 2018, and bank boards play a key role in the strategic decisions driving shareholder value. Scott Sommer and Steve Williams of Cornerstone Advisors explain the issues impacting shareholder value in 2019, including technology.

  • Bank stock trends
  • Focus on fintech
  • Board decisions

The Big Banks Are Back


banks-1-28-19.pngIs it now a big bank world that the rest of the industry is just living in?

One could justifiably come to that conclusion based on comments by Tom Michaud, president and chief executive officer at the investment bank Keefe Bruyette & Woods during a presentation on the opening day of Bank Director’s Acquire or Be Acquired conference Sunday in Phoenix.

Approximately 1,300 people are attending the 25th anniversary of Bank Director’s Acquire or Be Acquired event at the JW Marriott Phoenix Desert Ridge resort, which will run through Tuesday.

It’s no secret the four largest U.S. banks—JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup—hold dominant positions in the country’s banking market. These four megabanks control approximately 45 percent of the U.S. deposits. But historically, large institutions have been less profitable than much smaller ones in part because their size and complexity have made them more difficult to manage.

That is now changing, according to Michaud.

Bank of America, for example, posted a return on tangible common equity (ROTCE) in 2017 of 10.8 percent. The bank’s ROTCE rose to 15.4 percent in 2018 and is projected to hit 15.9 and 16.5 percent in 2019 and 2020, respectively.

Similar ROTCE increases are forecasted for JPMorgan, Wells and Citi through 2020.

The reason these banks are now operating at a much higher level of profitability is in part because their management teams have figured out how to turn their enormous size into an advantage. Although analysts, consultants and the banks themselves have often touted the advantage of size, it has had an averaging effect on their financial performance as they have grown increasingly larger in recent years.

“It seems now that the scale argument has a lot more traction,” said Michaud.

Just three years ago, the most profitable U.S. banks based on their performance metrics were in the $5 billion to $10 billion asset category—just large enough to gain some benefits from scale but still small enough to escape the averaging effect. This so-called “sweet spot” shifted in 2017 to banks with assets greater than $40 billion, and Michaud expects these large institutions to again claim the sweet spot in 2018 by an even wider margin once the industry’s profitability data are finalized.

One important place large banks have been able to use scale to their advantage is in technology. The U.S. economy is in the midst of a digital revolution, and the banking industry is being forced to embrace digital distribution of consumer products like checking accounts and mortgages. “Consumers really like the digital delivery of retail banking services,” Michaud said.

And it’s the national and super-regional banks that are capturing the greatest share of “switchers”—consumers who are leaving their current bank for another institution that offers a better digital experience. Michaud cited data from the consulting firm AT Kearney showing that national banks are capturing about 41 percent of the digital switchers, with super-regionals taking 28 percent. Even direct banks at 11 percent have been gaining a larger share of switchers than regional banks, local banks and credit unions.

The advantage of scale becomes most apparent when you look at the amount of money large banks are able to invest to upgrade their digital capabilities. Each of the big four banks are expected to invest a minimum of $3 billion a year over the next few years in technology—and some of them will invest significantly more. For instance, JPMorgan’s annual technology spend is expected to average around $10.8 billion.

While not all of that will be invested in digital distribution, the country’s largest bank is investing heavily to build a digital banking capability capable of penetrating any consumer market anywhere in the country.

How Progressive Banks Use Board Software


software-1-7-19.pngThere’s a little magic in board meetings. Industry veterans — each armed with decades of wisdom and expertise — come together to make decisions that dictate the future of your bank. Each decision affects the lives of the employees and the customers they loyally serve.

Those decisions matter. So why not make them as effective as possible?

Achieving the best outcome in every board decision requires effective decision-making. That’s why progressive banks invest in board management software.

Transitioning to board software saves banks over $10,000 in annual administrative costs, but that pales in comparison to the broader benefits of better governance.

How? Let’s look at how technology can deliver better decisions from your board.

Streamlining Organization
The biggest brains in banking are often the busiest. When you bring those brains together, every minute counts. But bank board packets are notoriously lengthy. Organizing and navigating materials can be a drain on meeting time.

Board management software makes it easy to drag and drop files into your board book, rearrange pages, and access everything at the touch of a button. The best board software supports interactive agendas and robust search features, allowing directors to search multiple documents and navigate from a single location. These features limit the “information overload” during board meetings, and keep directors focused on more pertinent discussions.

Banks use board management technology to organize material between various committees. Administrators can configure access to material by individual users (i.e. a specific board member) or their role on a particular committee. Quality board software extends the same security features and granularity of information control to users at the committee level as it does for the board itself.

The right technology helps maintain focus in the boardroom by centralizing information and making it easy to navigate. Spending less time flipping through pages means having more time for decisions that matter most to your bank.

Maximizing Security
Board software enhances the security of confidential information and makes it easier to control how that information is shared.

Directors can securely share private bank records with examiners and regulators. Streamlining this process means gaining earlier access to audit reports, which often guide a board’s decision-making.

Board members can also add their executive assistants to the software, giving them access to the information they need while avoiding the risks associated with sharing confidential materials via email.

Enhancing the privacy and security of board documents and communications allows directors to provide more honest insights and, ultimately, more informed decisions.

Strengthening Communication
Board management software improves director communication beyond the boardroom, making materials available for review and discussion at any time.

Banks can use the software’s annotation features to share thoughts and feedback among board members. Directors can take notes directly on the page of a board book as they would a physical copy. They can also share their notes with others.

The benefits these features serve are twofold; (1) increasing the portability of information means having more informed and prepared directors, and (2) more informed decisions about the future of your bank.

Optimizing Deliberation
Board software doesn’t just strengthen communication, it optimizes deliberation. Voting and e-signature features optimize a board’s efficiency while survey features allow members to quickly gauge consensus over an issue as it’s being discussed. Surveys can also be used before meetings to prioritize agenda items or after meetings for ancillary voting on outcomes and process improvements.

The best board software provides directors with the option to accept anonymous survey responses, which allows board members to submit candid, honest feedback and paves the way for more effective decision-making.

Leveraging easy-to-use software keeps board members organized and engaged, strengthening their communication and maximizing administrative efficiency. Investing in management technology is an easy win for progressive banks interested in making better decisions across the board.

Breaking Down The Three Options With Fintech


fintech-1-2-19.pngThere are three ways to consider expanding into new lines of business, improving operational capabilities, or tapping new markets. Should you build, buy, or partner?

Technology is disruptive, and established companies struggle with the best way to adapt to the changing trends.

Fortunately, there are options. Fintech partners, big and small, offer a variety of financial products and services utilizing the latest technology that can be white-labeled or simply acquired.

In addition, the talent pool of technologists is expanding, giving financial institutions access to the necessary skills should they choose to build internally. When determining whether to build, buy, or partner, these institutions must consider their core competencies and competitive advantages, as well as their culture, structure, and access to capital.

While there is no one-size-fits-all approach for financial institutions, partnering with fintechs can be most beneficial and provide needed flexibility for the long term.

Consider the choice to build. First, an institution must recruit and fill a team of product managers, engineers, and other highly skilled positions that demand significant compensation. An up-front investment must be made to support software development, testing, security and maintenance. The speed to market is typically slower if an institution chooses to build, elevating the risk the product or service will be out-positioned by the time of launch.

While true that some of the largest financial institutions have managed to develop popular new digital products and applications internally, they are the exception. Those banks also typically had the surplus capital to put to work.

The “buy” option presents challenges as well. Few credit unions and community banks have the financial clout to acquire a fintech company. Those that do will face numerous hurdles integrating the acquisition into their existing operations, technology stack and company culture.

There are certainly examples of successful fintech acquisitions by financial institutions, but unless the acquirer is prepared for a lengthy and resource-consuming process, this may not be the most viable option.

Partnering can often be the most cost-effective and efficient alternative. There is no shortage of turnkey solutions that allow community banks to automate products and services, enabling them to provide the kind of digital experience consumers have come to expect.

Partnering with a fintech also provides the financial institutions with an option to test before investing in a build or buy strategy later. For institutions seeking a stopgap solution, partnering can meet current needs and buy time to consider long term alternatives.

It’s not hyperbole to suggest the technological challenges and threats facing banks are existential. Those that do not adapt quickly face the risk of becoming irrelevant. Fortunately, whether it is build, buy, or partner, there are myriad solutions that allow institutions to provide an attractive digital experience without relinquishing their core competencies and competitive advantages.

How And Where Blockchain Fits in Traditional Banking


blockchain-12-26-18.pngMany banks haven’t found an efficient way to deal with issues like payment clearing inefficiencies, consumer fraud, and the general limitations of fiat currencies.

Blockchain, however, may be the go-to solution for many of these challenges.

Issues Traditional Banks Face Today
Traditional banks and financial institutions have faced some challenges for decades, but we have yet to see the technical innovations to mitigate or eliminate them, including inefficient payment clearing processes, fraud and currency options.

Inefficient Payment Clearing Processes
One of the biggest roadblocks that banks face today is how to quickly clear payments while complying with regulatory procedures. The number of payment clearing options available in 2018, is not different from the options available in 2008 – a decade ago.

In the U.S., for example, same-day ACH is likely considered to be the biggest improvement during this decade. Only in recent years have cross-border fintech applications emerged that reduce payment clearing costs and wait times. For the most part, we are still stuck with old architectures that lack innovation, efficiency and the data to make a meaningful impact on money laundering and fraud reduction.

Inability to Stop Fraud
Fraud has always been notoriously difficult to stop. Unfortunately, this remains the case even today. Fraud costs are so high in the US, that interchange fees paid by merchants are some of the highest in the world. Despite an increase of available identity fraud detection systems, banks are still unable to make a material improvement in fraud reduction.

For banks, this leads to financial losses in cases where funds are paid to the fraud victim. For customers, this can reduce trust in the bank. For merchants, it means higher fees for facilities, which creates higher costs for customers. Additionally, customers often wait to receive a new bank card. In 2017 alone, the cost the data lost to identity theft totaled $16.8 billion.

Limited Number of Currency Options
Fiat currencies are limited by geography and slim competition.

When we think about fiat currency around the globe, we have seen a steady move towards standardization. This presents risks for banks and consumers. For example, a heavy reliance upon a single national currency relies upon factors like economic growth and monetary policy.

Twenty-eight nations have experienced hyperinflation during the past 25 years. Not only did banks fail in some cases, but entire economies collapsed. Because there were no currency choices, the problem could not be easily avoided.

This process continues to happen in many locations globally.

Benefits of Blockchain Over Traditional Systems
There are ways blockchain can reduce or eliminate these issues for financial institutions.

More Efficient Approval Systems
When compared to traditional payment approval processes, many blockchains are already more efficient. Instead of waiting days for payments to go through clearinghouses, a well-designed blockchain can complete the verification process in minutes or seconds. More importantly, blockchain also offers a more transparent and immutable option.

With innovations like KYC (Know Your Customer) and KYT (Know Your Transaction) transactions conducted via blockchain, banks can be more capable of preventing finance-related crimes. This means traditional finance can more effectively comply with laws for AML (Anti-Money Laundering), ATF and more.

In addition, legitimate transactions can be approved at a lower cost.

No More Fraud
While fraud seems like a pervasive issue in society, this can be reduced using technology. Blockchain can change how people prove identity and access services.

Instead of having to wait to stop a case of fraud, blockchain can stop transactions before they ever occur. The Ivy Network will have smart contracts which will allow banks and financial institutions to review a transaction and supporting KYC and KYT before accepting the deposit. Because blockchain transactions are immutable, we could see a reduction in counterfeiting of paper currency and consumer products.

Increased Digital Payment Options
While blockchain has many use cases, this is one example of how technology can change finance and the global economy. In the early days of cryptocurrency, there was really only bitcoin. Now, there is a range of coins and tokens like Ivy that serve important purposes within existing regulatory and legislative frameworks.

One of the biggest misconceptions is crypto and fiat payment systems have to be direct competitors. By creating a blockchain protocol that links fiat and cryptocurrency, businesses and consumers can have more, better market choices and use cases for cryptocurrency.

At the same time, financial institutions can serve an important role in the future of digital payments and fiat-crypto currency conversions.

As financial institutions look to solve many challenges they face around payment clearing inefficiencies, consumer fraud, and the limitations of fiat currencies, blockchain is a viable solution. Financial institutions that fail to embrace blockchain’s potential will face heightened monetary and reputational risks, and miss opportunities for growth and innovation.

What Bankers Should Know About Conversational AI in 2019


omnichannel-12-21-18.pngWe’ve come a long way since filmgoers watched nervously as the computer “Hal” struck out on his own with the bland yet threatening response, “I’m sorry Dave, I’m afraid I can’t do that,” in Stanley Kubrick’s “2001: A Space Odyssey.”

Today, humans are comfortable interacting with machines. Twenty-five percent of customer service and support operations will integrate virtual customer assistant (VCA) or chatbot technology by 2020, up from less than 2 percent in 2017, according to Gartner, Inc. And in some cases, consumers seem to prefer machines to humans. Therapy bots like Woebot are successful in part because users don’t experience the fear of judgment that may exist speaking with another human.

The technology that enables machine-to-human interactions is known as conversational AI. It powers virtual assistants across apps, websites, messaging and smart speakers. In 2018, we saw virtual assistants take off in banking – finding their way into the apps and websites of the world’s largest banks. Pilots turned into production, and virtual assistants started engaging with real consumers at scale.

This technology is a growth engine for banks by servicing customers more efficiently, engaging customers to boost brand loyalty and acquiring customers to increase their lifetime value. But all conversational AI solutions are not the same.

Here are three key trends for banks implementing conversational AI in 2019.

Think omnichannel, not multichannel
Consumers’ expectations for banking are evolving from siloed multichannel experiences to deeply personalized omnichannel experiences. They expect the experience with their bank to be consistent and informed, no matter which channel they interact on, and they expect to move smoothly between channels. Banks implementing conversational AI should support “channel traveling” and never lose sight of who the customer is – not just their unique ID, but their preferences, history and more.

Make sure your solution supports sophisticated customer journeys and hand-offs between channels. Your customer should be able to start a conversation with your virtual assistant on Amazon Alexa, and the virtual assistant should be smart enough to follow up with more related details in the mobile app. The virtual assistant knows the optimal interaction model for each channel and generates the right response for the channel of choice.

Conversations that explain “why”
By now, consumers are accustomed to automated assistants that respond to them. A virtual assistant that answers questions has become table stakes. In 2019 and beyond, we’ll see consumers gravitate toward services that can give them answers to questions and explain their finances. People will come to expect answers to “why” in addition to “what.”

For example, customers will want to know their balance, but also why it is lower than expected. Or, they may ask if they can afford a vacation now, and if they could still afford it in six months. They’ll want to know their FICO score, and why it is lower than last year.

Banking customers already know chatbots can give their balance and move their money. In 2019, their expectation will be that conversational AI will do more to help manage their money with context and insights.

The era of available data is here
After years of waiting for banking data to be available, the future is finally here. Inspired by regulations such as PSD2, or the Payment Services Directive, in the European Union, large banks around the world are adopting open banking standards and launching modern developer portals that enable a new world of banking services. This is good for conversational AI, because its real value comes from personalized, actionable experiences—experiences that require data and services. With financial institutions such as Wells Fargo, Citi, Mastercard and Standard Chartered streamlining access to APIs, building meaningful conversational experiences and integrating them with the banks’ other services will be much easier and faster.

In 2018, we’ve seen conversational AI is here to stay, and in 2019, we need to make virtual assistants do more than respond to FAQs and complete simple tasks. Banks implementing conversational AI should remember consumer expectations are growing every year. To meet those expectations, leverage the abundance of available data via APIs to create omnichannel customer journeys that can understand your customers and explain the context to them.

The Secret to Lifelong Relationships With Generation Z


customer-12-14-18.pngGeneration Z consumers are positioned to be a significant force in the financial marketplace. This population group will soon begin graduating from college, earning disposable income, and making decisions about managing their finances.

This opportunity is of interest to many financial institutions that will compete for the loyalty of Gen Z customers for the next several years.

Banks that have been active in education lending have well-established relationships with the Gen Z market as customers already, which offers them an advantage. While being a trusted student loan provider is a start, financial institutions that wish to create lifelong customers must build on the initial relationship with technology-enabled products and individualized experiences the Gen Z consumer has come to expect.

The Gen Z Opportunity and Challenge
The impact of Gen Z on the financial services marketplace must not be underestimated. There were approximately 61 million members of Gen Z in the US in 2015, or about 19 percent of the U.S. population. This percentage is expected to grow to 25 percent by 2020.

While both the Gen Z and millennial generations have grown up in an environment shaped by technology, these groups are very different in their approach and use of financial services.

Gen Z has never known a world without smartphones, social media, or on-demand delivery of products and services. Adobe, Inc. has estimated that nearly half of Gen Z consumers are connected online for 10 or more hours per day and their preferences are strongly influenced by social media.

They are likely to conduct many of their daily activities on mobile devices. Also, while Gen Z members reportedly recognize that large financial institutions can offer products and services using advanced technology, they are less trusting of traditional banks than older customers. Approximately 75 percent of the Gen Z population surveyed said they trust traditional banks (as compared with digital payment solutions) – still a strong preference, but less than the 92 percent reported by baby boomers.

How To Win Gen Z Consumers
To win the loyalty of Gen Z, banks should focus on the following areas:

Invest in digital products and a best-in-class user experience. Gen Z consumers are accustomed to conducting business via mobile devices. So any services you offer—credit and savings products, investment services, or access to account information—it must be available online 24/7.

Some day, chatbots based on artificial intelligence (AI) will likely be an important way to connect with Gen Z consumers.

Focus on the right products. Understand which financial products and services resonate with Gen Z consumers. Research by Javelin, a strategy and consulting firm, shows 51 percent of Gen Z-ers do not plan to apply for a credit card, but they do start thinking early about retirement, according to a 2017 study by the Center for Generational Kinetics. For these reasons, your institution may make more headway by cross-selling savings accounts or retirement programs to your student loan customers.

Use social media. Gen Z members rely heavily on social media, so target your digital marketing to genuine influencers on those platforms like Twitter, Instagram, Snapchat, etc.

Foster a spirit of community. Research shows Gen Z members seek community. Being involved in your community through philanthropy, hosting career fairs and educational events are ways banks can appeal to Gen Z consumers.

Market in an age-appropriate manner. Make sure your marketing campaigns are designed and written in a way that will resonate with the Gen Z audience. Since Gen Z values experiences, one idea to consider is a travel rewards program layered on a promotion for a savings account or debit card.

Credit unions, banks and other financial institutions have originated approximately $90 billion in private student loans. That represents a lot of potential for Gen Z borrowers to become life-long customers if you build on those relationships with the right products and services, technology, social media and marketing.

Brace Yourself For An Unstoppable Tech Wave


technology-12-10-18.pngBanks across the country are wrestling with the challenge of transforming current banking systems—the foundations of which were conceptualized in the Middle Ages—into systems designed to serve the needs of the digital age.

This marks a critical moment for banks. Some industry data suggests we’re in a golden age of banking, including a growing economy, increased loan demand, technological efficiency and higher levels of profitability. However, these factors could only be masking more important developments that signify even more change.

Much of the world is already living with both feet firmly planted in the digital age. Author Brett King, who is the CEO of the mobile banking startup Moven, notes between 2010 and 2030, an estimated 2.5 to 3 billion people worldwide will come into the financial services space. Of those billions of people, King says some 95 percent will have never visited a bank branch.

International Banking Systems
There are hundreds of examples around the world of what the digital age of financial services looks like. Kenya’s mobile money service, M-Pesa, counts nearly 100 percent of adults in Kenya as customers and also transmits nearly 50 percent of the country’s gross domestic product.

China-based Ant Financial Services Group has been valued at $150 billion, a market cap higher than Goldman Sachs. Ant Financial has the world’s largest money market fund, processes trillions of dollars in payments each year and can profitably make small- and medium-sized enterprise (SME) loans as little as $50 in a matter of minutes.

Examining international banking systems helps provide directional insight into various successful financial systems and institutions developed to serve the digital age—without the hindrance of legacy regulatory and organization systems.

Evolution of Client Expectations
It’s no longer good enough for banks to have a digital strategy that only aims to keep pace with their peers. Banks must have a forward-thinking strategy for the digital age, as their customers have become used to accessing world-class, technology-enabled services from their financial services providers.

A recent BKD survey of the employees of an advanced, progressive community bank found that more than 70 percent of the bank’s own employees had two or more credit cards beyond the cards offered by the bank, and more than 80 percent of the bank’s employees had a banking relationship outside of their employer. Even employees who think highly of their bank have relationships with other financial institutions, exposing them to the best services the financial services industry has to offer. As customer expectations climb exponentially, banks are challenged with keeping up.

Banks may find comfort knowing some people prefer digital interaction with a financial services company for routine, immaterial transactions, but prefer the one-on-one experience of sitting with a banker and receiving guidance for major financial decisions.

There likely will always be a place for high-touch client service in community banking. However, we’re entering an age where people are comfortable visiting a doctor by video, and IBM’s Watson outperforms doctors in some areas of health care diagnostics. If people are comfortable trusting their health to someone over the phone, and artificial intelligence is becoming better than humans at providing health care services, a disruption and transformation of the banking industry in the U.S. can’t be far behind.

Moving Forward
As technology across all industries advances rapidly and relentlessly, the inhabitants of a digital age will expect nothing less from their financial services provider. With intense transformation facing the banking industry, consider asking these important questions of your institution:

  • Are we ready to be ambient? Can we completely surround our customers on all sides, no matter where they go or which device they use?
  • Are we ready to provide end-to-end mobile account opening, with no paper forms or signatures?
  • Are we deploying machine learning and artificial intelligence?
  • Are we preparing to authenticate accounts and payments with facial recognition technology? 

Even answering these questions affirmatively isn’t enough.

Some prognosticators say it’s too late for banks. While that’s simply not true, banks do have to move more aggressively and rethink their approach to the market. Neither consumers nor regulators are going to materially slow technology’s rapid advancement within the financial services industry. There’s no turning back the clock on the digital age.

Driving Efficiency Through Automation



Automation makes it possible for banks to gain efficiencies and help their employees be more effective. But how can bank leaders ensure they’re getting the most out of these solutions? Richard Milam, the CEO of the software company Enablesoft, explains that people—not technology—will drive success in these efforts, and culture plays an important role.

  • How Banks Use Automation Today
  • Successfully Deploying Automation
  • Advice for Bank Leaders

Zelle Costs Bankers Money, Venmo Can Make Bankers Money


payments-11-29-18.pngZelle, the personal payments platform developed by a consortium of large banks, is poised to become the most used P2P app by the end of the year—outpacing PayPal’s Venmo service, according to the market research company eMarketer.

But does that make Zelle a must-offer capability for the banking industry? Not necessarily.

eMarketer projects the personal payments market to grow nearly 30 percent in 2018, to 82.5 million people—or about 40 percent of all smartphone users in the U.S.

Zelle was developed by the likes of JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. to compete with Venmo, Square Cash, also known more simply as just “the Cash app,” and other up-and-coming third-party P2P services.

You can think of Zelle as the banking industry’s containment strategy—just like France’s vaunted Maginot Line in World War II that was supposed to keep out the German army.

The network of banks offering Zelle has grown to 161, but is a closed system where consumers at participating banks can send personal payments—for free, and in real time—to anyone at another Zelle bank.

One factor that probably accounts for Zelle’s fast growth was the decision to include it in each participating bank’s mobile app. So, if a customer’s bank belongs to the Zelle network, they are automatically a potential user.

While Zelle is a weapon that banks can use to beat back Venmo and Square Cash, the third-most frequently used P2P app, it does have its drawbacks. While Zelle is both free to the user and instantaneous, it costs the participating bank between $0.50 to $0.75 per transaction. So as Zelle’s transaction volume increases, so will each bank’s costs.

Charging users a transaction fee to offset that cost probably isn’t realistic since Venmo and Square Cash are free, although Venmo does charge $0.25 for instant transfers. A good analogy is online bill pay. It costs banks something to offer that service, but most banks don’t charge for it. They offer it for free because all their competitors do, and because it’s a hassle for customers to disentangle their finances from one bank’s online bill pay service and connect with another bank’s service, which can be a disincentive to switching.

Free online bill payment has become table stakes in retail banking, and P2P may go that way as well. But P2P transaction volume has yet to build to such levels that there’s a sense of urgency for all banks to offer Zelle today, lest they find themselves at a competitive disadvantage.

“Urgency means I immediately need to get Zelle. I don’t necessarily think that’s the case,” says Tony DeSanctis, a senior director at Cornerstone Advisors. “Why am I better off offering a product where I’m going to pay 50 to 75 cents a transaction to move money … and also pay the fixed costs to [integrate] it?”

There is, in fact, an argument to offering Zelle and Venmo, or maybe just Venmo. If a bank allows its consumers to include the Venmo app in their digital wallet and prefund the account, Venmo will pay them an interchange fee on every transaction. So while Zelle costs its participating banks money, Venmo offers them a small revenue opportunity to offset their costs.

Zelle is also a private network (which means other people can’t see your transactions) that is marketed to all demographic groups. Venmo, on the other hand, is a social payment network popular with younger generations who are among its biggest users. Richard Crone, CEO of Crone Consulting LLC, says banks are missing out on an important opportunity in social payments.

“A social network is not about [being] social,” says Crone. “It’s a marketing platform and it’s the most effective marketing out there because it’s word-of-mouth. It’s a referral. It’s peer pressure. And that’s how Venmo grows virally.”

Embracing Zelle and other non-bank payments options like Venmo, Square Cash, Apple Pay Cash and Google Pay could be described as a ubiquity strategy. Both DeSanctis and Crone argue that banks should accommodate a variety of payment options within their mobile apps that are linked to their debit and credit cards, just to stay relevant in the evolving payments space.

The problem is that when it comes to payments, most banks really don’t have a strategy. And hiding behind a virtual Maginot Line probably isn’t going to work.

Indeed, history is instructive. The invading German army easily flanked the Maginot Line, which now serves as a metaphor for a false sense of security.

Correction: An earlier version of this article stated that transfers sent over the Zelle app do not occur in real time. This is incorrect. We regret the error.