Over the past year and a half, there’s been a lot of good news for the banking industry. New regulators have been appointed who are more industry-friendly. Congress managed to not only pass tax reform, but also long-awaited regulatory relief for the nation’s banks. And the economy appears to remain on track, exceeding 4 percent gross domestic product (GDP) growth in the second quarter of 2018, according to the Bureau of Economic Analysis.
Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, finds that the challenges faced by the nation’s banks may have diminished, but they haven’t disappeared, either.
Small business owners are more optimistic than they’ve been in a decade, according to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey. This should fuel loan demand as business owners seek to invest in and grow their enterprises. In turn, this creates even more competition for commercial lenders—already a hot commodity given their unique skill set, knowledge base and connections in the community. Technological innovation means that bank staff—and boards—need new skills to face the digital era. These innovations bring risk, in the form of cybercrime, that keep bankers—and bank regulators—up at night.
For key positions in areas like commercial lending and technology, “banks have to spend more,” says Flynt Gallagher, president of Compensation Advisors. “You have to pay top dollar.”
But a solid economy with a low unemployment rate—dropping to 3.8 percent in May, the lowest rate the U.S. has seen in more than 18 years—means that banks are facing a more competitive environment for the talent they need to sustain future strategic growth.
And regulatory relief doesn’t mean regulatory-free: With the legacy of the financial crisis, along with the challenges of facing economic, strategic and competitive threats, all of which are keeping boards busy, there’s more resting on the collective shoulders of bank directors than ever before, and boards will need new skill sets and perspectives to shepherd their organizations forward.
For more on these considerations, read the white paper.
To view the full results to the survey, click here.
Few directors and executives responding to Bank Director’s 2018 Technology Survey believe their bank to be industry-leading when it comes to how they strategically approach technology—just five percent, compared to 70 percent who identify their bank as a fast follower, and 25 percent who say their bank is slow to implement or struggles to adopt new technology.
While most banks understand the need to enhance their technological capabilities and digital offerings, the leaders of more tech-savvy banks reveal they’re seeking outside help, as well as focusing greater internal resources and more board attention to the technological conundrum faced by the industry; that is, how to make their banks more efficient, and better serve customers so they don’t take their deposit dollars or loan business to another competitor—whether that’s the local credit union, one of the big banks or a digital challenger.
Based on the survey, we uncovered five lessons from these banks that you should consider adopting in your own institution. At the very least, you should be discussing these issues at your next board meeting.
1. Tech-savvy banks see a primarily digital future for their organizations. While innovation leaders and laggards are equally as likely to cite the improvement of the digital user experience as a top goal over the next two years, respondents from tech-savvy banks are less likely to focus on the branch channel. Just 14 percent plan to upgrade their branch technology in the next two years, and 14 percent plan to add new technology in their branches, compared to roughly half of respondents from fast follower or technologically struggling banks.
Tech-savvy banks are also more likely to indicate that they plan to close branches—29 percent, compared to 8 percent of their peers—and they’re slightly more likely add branches that are smaller—57 percent, compared to 45 percent.
With branch traffic down but customers still expecting great service from their financial provider—in a digital format—many banks will need to rethink branch strategies. “There is a newer branch model that, to me, more resembles an office environment that you would go to get advice, to sit down and meet with people, but it’s really not a place where transactions are going to be taking place,” says Frank Sorrentino, the chief executive of $5.3 billion asset ConnectOne Bancorp, based in Englewood Cliffs, New Jersey. The branch still has a place in the banking ecosystem, but “people want a high level of accessibility, and the highest form of accessibility is going to be through the digital channel.”
2. Industry-leading banks are more likely to seek newer technology startups to work with, rather than established providers. Seventy-one percent of tech-savvy banks have a board and management team who are open to working with newer technology providers that were founded within the past five years, to help implement new products and services, or create efficiencies within the organization. In contrast, 31 percent of their peers haven’t considered working with a startup, and 10 percent aren’t open to the idea.
“We in the smaller end of the banking space find ourselves constrained in how much investment we can make in technology,” says Scott Blake, the chief information officer at $4.3 billion asset Bangor Savings Bank, in Bangor, Maine. “So, we have to find creative ways to leverage the investments that we are able to make, and one of the ways that we’re able to do that is in looking at some of these earlier-stage companies that are on the right track and trying to find strategic ways that we can connect with them.”
Working with newer providers could require extra due diligence, and banks leading the field when it comes to technological adoption indicate they’re willing to take a little more time to get to know the companies with which they plan to work. This means meeting with the vendor’s executive team (100 percent of respondents from tech-savvy organizations, versus 62 percent of their peers) and visiting the vendor’s headquarters to meet its staff and understand its culture (71 percent, compared to 51 percent of peers).
“I’m a pretty big believer in trying to have these relationships be partnerships whenever possible, and that doesn’t happen if we don’t have a company-to-company relationship, and a person-to-person relationship,” says Blake. By partnership, he means the bank actively works with the startup to produce a better product or service, which benefits Bangor Savings and its customers, as well as the bank’s technology partner and its clients.
3. Tech-savvy banks dedicate a high-level executive to technology and innovation. Eighty-three percent of respondents from tech-savvy banks say a high-level executive focuses on innovation, compared to 53 percent of their peers. They’re also more likely to report that their bank has developed an innovation lab or team, and are more likely to participate in hackathons and startup accelerators.
But Blake doesn’t believe that establishing an innovation unit that functions separately from the bank is culturally healthy for his organization, though it can be effective tool to attack select projects or problems. Instead, Bangor Savings has invested in additional training and education for staff who have the interest and the aptitude for innovation. “We want everyone, to some extent, to think about, ‘how can I do this task that I have to do better,’ and that will hopefully yield longer-term benefits for us,” he says.
4. The board discusses technology at every meeting. Eighty-three percent of respondents from tech-savvy banks say directors discuss technology at every board meeting, compared to 57 percent of fast followers and one-quarter of respondents whose banks are slow or struggle to adopt technology. They’re also more likely to have a board-level technology committee that regularly presents to the board—50 percent, compared to 28 percent of their peers.
Larry Sterrs, the chairman of the board at $4.2 billion asset Camden National Corp. in Camden, Maine, says with technology driving so many changes, a committee was needed to address the issue to ensure significant items were reviewed and discussed. The committee focuses on items related to the bank’s budget around technology, including status updates on key projects, and stays on top of enhancing products, services and delivery channels, as well as back-office improvements and cybersecurity. It’s a lot to discuss, he says.
The board receives minutes and other information from the committee in advance of every board meeting, and technology is a regular line item on the agenda.
Technology committees have yet to be widely adopted by the industry: Bank Director’s 2018 Compensation Survey, published earlier this year, found 20 percent of boards have a technology committee. Bank boards also struggle to add technology expertise, with 44 percent citing the recruitment of tech-savvy directors as a top governance challenge.
5. Tech-savvy banks still recognize the need to enhance board expertise on the issue. Individual directors of tech-savvy banks are no more likely to be early adopters of technology in their personal lives when compared to their peers, so education on the topic is still needed.
Not every director on the board can—or should—be a technology expert, but boards still need a baseline understanding of the issue. Camden National provides one or two technology-focused educational opportunities a year, in addition to written materials and videos from outside sources. If a specific technology will be addressed on the agenda, educational materials will be provided, for example. This impacts the quality of board discussion. “We always get a good dialogue and conversation going, [and] we always get a lot of really good questions,” says Sterrs.
Jamie Dimon, CEO of JPMorgan Chase & Co., has now been infamously linked to his declaration that the “golden age of banking” is upon us, though bankers and directors often follow that celebratory tone with a caveat, whether they’re speaking about technology, growth or governance topics.
This dynamic became clear at Bank Director’s 2018 Bank Board Training Forum, held Sept. 10-11 at the Four Seasons Hotel Chicago, where nearly 200 directors, chairmen, lead directors and chief executives discussed how the favorable economy has also added pressure and challenge in a range of areas on the priority lists for bank boards, including governance, technology, risk and, of course, growth.
It is clear that a strong economy has kicked earnings into high gear, which draws headlines when buybacks or 30-percent growth in earnings per share is announced on quarterly earnings calls. But at the same time, transition and new challenges are presenting themselves in front of bank leaders regardless of size, location or whether the company is public or private. The industry is shifting, and so does the conversation when bankers and directors discuss anything from growth strategies to technology.
Banks must embrace and leverage the capability of technological advancements, but… The cost and risk associated with such integrations are, and will remain, a challenge.
In a closing panel of three successful chief executive officers, Scott Dueser, CEO of First Financial Bankshares in Abilene, Texas, Dorothy Savarese, CEO of The Cape Cod Five Cents Savings Bank in Southeastern Massachusetts, and Dave Mansfield, CEO of The Provident Bank in Amesbury, Massachusetts, all said cybersecurity and technological improvements are top-of-mind for their companies, but finding a balance between convenience and value are challenging.
“We’re using technology to enhance—take away the menial tasks. We have to deliver value. We’re not going to do that with just technology,” Mansfield says.
Fintech disruption will continue, but… “This is not a time to be scared,” says Ed Kelley, vice president of sales for TransCard Payments, LLC, who, along with Ahron Oddman, area vice president at nCino, Inc., billed themselves as “the face of fintech” to the audience.
Payments and small-business lending, which Oddman discussed, highlight two areas where the agility of fintechs enables them to attract more business. Kelley noted that while a challenge, “there’s also a good bit of opportunity” to partner with fintechs to be competitive.
“In order to be competitive, you have to spend money. And in order to spend money, you have to be competitive,” Kelley says, noting the paradox.
Competition among community banks is intense, but… It’s not seen as coming from the major financial institutions despite their ability to attract low-cost deposits.
Most bankers suggest their competition remains other community banks, credit unions and fintechs, not the largest institutions. Joe Bower, CEO of CNB Bank, a $3 billion bank based in Clearfield, Pennsylvania, says those large institutions “are actually really good for us,” because they often have little interest in the tier of commercial customers a bank similar to his would have, and instead are interested in large-scale commercial real estate clients.
Regulations are beginning to relax, but… The pressure on sound governance is increasing, both in oversight of bank management and internal governance.
Board refreshment is drawing greater scrutiny as the average age of directors is increasing, according to Alan Kaplan, founder and CEO of Kaplan Partners, a sign that refreshment and diversity remain tough topics for many boards.
A show of hands among attendees indicated that while evaluation is consistent, peer evaluation is less common, though proxy advisory firms like ISS and Glass Lewis are ramping up pressure on boards to evaluate their performance with greater frequency.
Regulators are also placing greater scrutiny on board oversight, highlighted by “direct finger pointing” at the board of Wells Fargo & Co. by the Federal Reserve and legal actions against loan committees in the wake of the financial crisis.
M&A is increasing in number and “red hot,” but… Traditionally hot metropolitan markets are becoming scarcer in terms of potential targets, and some banks are considering alternatives to traditional deals.
Jonathan Hightower, an M&A attorney in Atlanta with Bryan Cave, points to WSFS Financial Corp.’s $1.5-billion deal to acquire Beneficial Bancorp Inc., which will result in the new $13 billion bank pouring investments into technology.
Despite an active market, Hightower says boards should carefully vet any potential deal, because “if it doesn’t offer opportunity for growth, what’s the point.” Hightower also notes that banks should consider alternative growth strategies, like an initial public offering, that can provide a different path to raise large amounts of capital.
The financial crisis is firmly in the rearview mirror, and the industry is the healthiest it has been in almost a generation by many metrics. But that should not stop banks from planning for the next downturn, or how they can maintain a competitive advantage against their peers.
“This is the way we compete, we think about these things futuristically,” said Jennifer Burke, a partner with Crowe LLC.
For an increasing number of consumers, the primary means of interacting with their financial institution is the mobile banking app on their smartphone. This number will continue to grow, as will the number of ways they want to use digital devices to interact with their financial institutions. Though oft-criticized for their risk-averse natures, especially when it comes to new technology, banks understand and are responding.
The success of their initiatives will depend on how well each can navigate the complexity associated with effectively closing the digital gap. Establishing competitive parity in the digital race requires more than simply selecting a new digital banking platform to replace the legacy, disparate system. Banks must navigate the digital challenge holistically. To achieve the goals desired, digital transformation must encompass many aspects of an institution’s operations.
Shift the Org Chart From Vertical to Horizontal Technology is an important part of any digital transformation, but too often banks rush to make a choice in this area before considering basic elements in their own operations that play a profound role in in its success or failure. For example, the organizational charts of most banks is built on a vertical, “line of business” model. Technology, however, especially that which inspires a digital transformation, is horizontal in its role and impact.
This difference between how a bank is structured organizationally and how digital technology should be used within an institution means bank’s leadership must have a horizontal mindset about technology. The manner in which a midsized regional bank addressed this challenge is a good example. The bank converted a digital banking team of four, working in the retail side of the business, into a department of more than 30 that included each person who has or will directly contribute to the digital strategy of the bank. To ensure communication and ideas flowed as freely as possible, the bank housed all the people on this digital team in the same area of their headquarters using an open-office concept.
Adjust Budgeting From Project-Based to Forward-Based Another area to consider during the early stages of any digital transformation is an institution’s budgeting process. Many banks use a project-based budgeting process where the senior executive responsible for a project works with others to build a business case, project plan, and budget that goes through several approvals before reaching the board of directors. Given the material levels of investment of many projects within a bank’s operation, this vetting process seems justified.
However, because the project-based model is optimized to minimize risk, progress can be painfully slow and take a very long time. It is therefore ill-suited for any organization that wants to maintain parity in the digital marketplace where the only things that change faster than technology are the expectations of the customer. To respond to this rate of change, banks must be able to move quickly. In the case of one bank, this was achieved by implementing a “forward-based” budgeting model that designated a specific investment level for digital at the start of the year. The digital leadership of the bank was given the authority to use this money marked for digital in whatever way deemed necessary for the institution to respond to evolving customer demands and technological innovation.
This Isn’t Your Grandparents’ Technology When an institution does turn its focus to determining what third-party solutions and services will best support its digital aspirations, there are non-negotiable qualities from vendors that should be part of the evaluation process. These qualities are not typically on the list of “must-haves,” and can typically decrease both cost and complexity.
In the case of three regional banks going through a digital transformation, the non-negotiable item was control. Each felt it was essential that the vendors with which they would build their digital future delivered a product that gave the banks control over their own digital future at the solution level. In other words, does the solution allow a bank to make changes at a branch level, only be exposed to customers in that branch’s area, without needing the assistance of the vendor? This is important as many banks have had limited ability because the solutions required vendor intervention for even the smallest change.
Digital transformation is about more than choosing the right replacement for legacy, disparate, online and mobile banking systems. It should touch every aspect of an institution. This is an undertaking not for the faint of heart. Many institutions will insist they are different and can win without changing the way they operate. Unfortunately, such evaluations are why the billions of dollars of investments made collectively by financial institutions will not delay how quickly they become irrelevant to the customers.
Cryptocurrencies and blockchain could directly affect banks as the technology evolves, and regulators start to pay more attention to the issue. But what does the board need to know about this seemingly complex technology? In this video, Wolters Kluwer’s Stevie Conlon breaks down the differences between blockchain and cryptocurrency, as well as the broader regulatory implications.
According to the U.S. Small Business Administration Office of Advocacy, there are currently 29.6 million micro and small businesses in the United States. Of those, 80 percent are one-person businesses, and 22 percent are made up of 10 employees or fewer. Businesses that fall within these parameters span every industry from freelancers and bloggers, to designers, developers, and start-up entrepreneurs. All are seeing a boom in sales and dependency from consumers due to the so-called “gig economy.”
A lot has been done by banks and alternative lenders when it comes to providing financing for these micro and small businesses, but given this data, it begs the question: how do they all bank? Traditionally, banking for micro and small businesses has been limited at best and inadequate at worst. In most cases, small business owners have had no other option but to visit a physical bank branch, fill out endless paperwork, provide documentation, and then transfer items back and forth to the bank through the mail or by email. The technology is typically clunky, out of date, and inconvenient – all adjectives a far cry from how these businesses would describe themselves, and how they need to operate. In addition, these owners are, at their core, consumers. They experience cutting-edge products and technology with their own personal banking accounts, but that same innovation is not replicated on the business side.
To alleviate this burden, the banking industry has a lot of soul searching to do. Some banks have spent a lot of time and energy discussing digital banking disruption in the consumer world. The time has come for the next frontier in the small business market, which has inspired and driven forward-thinking banks to develop customized solutions for small business customers.
For banks considering entering—or reimagining their approach to—the small business segment, it begins with a solid strategic plan. Understanding the demographics and banking needs of your target market will help guide the product development and customer experience process. This covers everything from developing a product suite that will be appealing to both the market and your bottom line, to thinking through the journey as a business going from being a prospect to a customer.
At Radius, we took some learnings from our experience in the digital consumer banking space and used it to build the framework for our small business offering. While small business owners may need a little more complexity with their money management tools than consumers, designing something that was simple and straightforward was the key. The result for us was the Tailored Checking Account, which any small business can now apply for online and get opened in minutes thanks to a partnership we established with Treasury Prime, a San Francisco-based fintech.
Radius isn’t alone in its quest to help business owners better manage their finances. In addition to our offering, we’ve noticed several other fintechs focused and working to fill the void that many small business owners are experiencing. For example, Autobooks helps small businesses manage their receivables, payables, payments and accounting entirely online. Brex creates business debit cards that operate like credit cards without the need for a personal guaranty. And Rocket Dollar helps individuals unlock their retirement savings for things like funding a startup or making a small business loan.
Overall, the sheer amount of micro and small businesses requires the banking industry’s attention. Consumers are increasingly turning to shopping local and supporting small businesses, only hastening the need for small business owners to manage their money on their terms—a trend that won’t decline anytime soon. This is a market that all banking professionals should be paying attention to, as the market only continues to grow. I look forward to seeing the outcome over the next year and am eager to see what the future holds for us and the rest of the small business banking industry.
Technology and strategy are inextricably linked in today’s evolving digital economy. Unfortunately, bank boards—tasked with the oversight of the bank, including its long-term performance in a changing competitive environment—continue to struggle to wrap their hands around technological change and its implications. Seventy-nine percent of directors and executives say their board needs to enhance its level of technological expertise, according to the 2018 Technology Survey, sponsored by CDW.
Sixty-three percent indicate the board should better understand how to tie technology to bank strategy, and 60 percent say the board should better understand how the bank should invest in technology—a key concern, given rising budgets and an increasing number of technology vendors working with banks.
But the survey also indicates that directors have made strides in their focus on technology, both personally and as a board. Half say the board focuses on technology at every board meeting, up from 42 percent two years ago.
And the directors and executives participating in the survey indicate that they’re better users of their bank’s technology. More than three-quarters say they personally use their bank’s mobile and online channels, compared to 51 percent three years ago. With the onus on banks to enhance customers’ digital experience in the age of Amazon, a better understanding of digital through personal experience can only serve to improve these banks’ strategic direction.
The 2018 Technology Survey is comprised of the responses of 161 directors, chief executive officers, high-level technology executives and other senior executives at banks above $250 million in assets.
Sixty-five percent believe their bank has the products, services and delivery methods to meet the needs and demands of today’s customers.
Eighty-three percent say improving the user experience on digital channels is a goal for their bank over the next two years, followed by improving account onboarding (73 percent) and adding more features to the bank’s mobile app (71 percent).
Despite the buzz around Amazon’s Alexa, just 21 percent say integrating with that or a similar external platform is a near-term goal.
Forty-five percent say they plan to add more branches that will be smaller in size. Thirty-seven percent plan no changes to their bank’s branch footprint. More than half plan to update technology used in branches over the next two years, and 47 percent plan to add more technology in the branch. One-third plan to upgrade ATMs.
At least half of respondents indicate a need for significant improvement in their bank’s use of data analytics and business process automation.
Sixty percent indicate their bank has been increasing the number of staff focused on technology and innovation, and 55 percent have a high-level executive focused on innovation.
Sixty percent say their management team and board are open to working with newer technology startups. The typical bank, according to the survey, works with a median of seven technology vendors, including its core processor.
Sixty-one percent say their board has brought in relevant bank staff to better educate itself about technology. Twenty-nine percent have a board-level technology committee that regularly presents to the board.
Cybersecurity remains the top issue focused on by the board, at 93 percent.
To view the full results to the survey, click here.
Many banks are claiming victory over the promise of regulatory reform from bill S.2155, often called the Crapo Bill. However, the celebration and dreams of returning to the way it once was before the Dodd-Frank Act are premature.
There is still a long road for deregulation, with many obstacles. The bill’s limited scope and applicability, coupled with the uncertainty of the regulatory landscape, call into question the breadth and longevity of this so-called regulatory relief. Bankers must realize that any change, whether adding or reducing regulations, translates to extra work.
There’s nothing wrong with being cautiously optimistic about the potential for regulatory relief, but bankers should gain a deeper understanding of the details before declaring victory. Banks that work to comprehend the scope of the bill’s effects, the potential for political shifts, and what deregulation means for management will be better equipped to navigate the unpredictable regulatory landscape.
The nitty gritty: a not-so-sweeping reform Many in the industry view the bill as enacting regulatory relief – and that’s where their understanding ends. Those who have properly digested the bill— whether bankers themselves or their regtech partners—have realized it isn’t the sweeping reform some claim. In reality, the bill is only a limited set of reforms, with restricted applicability and several distinctions based on asset size and product mix.
There is also confusion around timing and deadlines. Sections of the new law contain various effective dates, ranging from May 28, 2018, to three years from the enactment date. However, it is important to understand that regulatory relief differs from traditional rulemaking when it comes to effective dates. Typically, an effective date represents a deadline by which all implementation must be accomplished. For regulatory relief, the date represents the deadline by which a burden should be lifted or reduced.
Because of this discrepancy, questions remain around when the reduction of regulation is required versus when it is optional. This ambiguity is problematic, as some bankers will make changes right away, while others will wait until forced to do so. Complicating matters, software and technology updates won’t be readily available, causing friction in processes.
Furthermore, where provisions of the bill conflict with existing regulations, there is uncertainty about how the regulations will address these conflicts. How examinations will be conducted while there are inconsistencies between law and regulation are unclear at the time of this writing.
The unpredictable political landscape raises questions Washington’s tendency to deregulate banking is not a surprise. The current leadership has created a “pro-business” sentiment that favors limiting regulations. But political whims can change quickly. With midterm elections in November, there is potential for a regulatory shift in the other direction. Some reforms and regulatory relief promised in the Crapo Bill may never come to fruition, depending on what happens this fall.
Instead of trying to predict political outcomes, bankers should remain diligent about complying with regulations already solidified. For example, CECL will have many ramifications for how banks handle themselves fiscally, and bankers shouldn’t let chatter around regulatory relief distract them from that upcoming deadline. Until we have a more definite sense of the political climate for the next two years, bankers will benefit from focusing on the regulations in front of them now, rather than what may or may not be coming from S.2155.
Deregulation means more work Even if the trend continues, rolling back regulations isn’t as simple as it sounds. It will take just as long to undo portions of Dodd-Frank as it took to implement the rules. With technology challenges and limited flexibility at even the most progressive institutions, deregulation forces short-term pain without necessarily guaranteeing long-term gain.
With any change, institutions are forced through a complex management cycle. This includes retraining staff, upgrading technology, reevaluating risk and tweaking operational procedures. Significant adjustments follow any deviation from the norm, even with toning down or eliminating rules. Therefore, bankers will have to closely monitor the efforts of their vendors and work closely with regtech partners to interpret and respond to regulatory changes.
Technology can help navigate the pendulum swing of regulation by automating compliance processes, interpreting regulations and centralizing efforts. It has become too much to manage compliance with manual processes and the regulatory landscape is too complex and changes too quickly. An advanced compliance management system can help banks remain agile and ease the pain points associated with reconfiguring processes and procedures.
No matter the path of proposed deregulation, banks must quickly interpret and adapt to remain compliant. Banks that recognize the uncertainty of the current political arena and are realistic about the managing the work associated with the change – while closely collaborating with their regtech partners – will be better positioned to navigate the unpredictable days ahead.
The bulk of the banking industry may work with the big three core providers—FIS, Fiserv or Jack Henry & Associates—but some banks are finding that smaller, boutique providers can be the better fit. That’s the case for $3 billion asset CNB Financial Corp., based in Clearfield, Pennsylvania, which made the switch from its big core provider a little more than two years ago to one that’s smaller, nimbler and more willing to collaborate with its client banks.
“We’re not a change agent by any means, but we’re constantly changing and evolving to what we believe the clients need and what our markets want, and when we talked with our prior provider, they didn’t have that same impetus,” says CNB CEO Joe Bower. “Customer experience wasn’t their focus.”
So the bank began a long and exhaustive search, spending 18 months exploring 11 different core providers, including the big three. COCC, a client-owned, cooperative core platform in Southington, Connecticut, won the contract.
The ability for CNB to be part-owners of COCC played a role in that decision: As owners, the provider’s clients have a larger voice, so advocating for a new feature is an easier process than CNB experienced with its former provider, which would demand money up front and put the request in a queue. Research and development on new features was charged by the hour. The process was slow and expensive. Enhancements to CNB’s mobile banking platform were expected to be a two-year project with the old core provider, for example.
Now, “action begins to take place almost immediately,” says Bower.
This isn’t because CNB is a bigger fish for COCC—Bower says the core provider is just as responsive to smaller client institutions with good ideas. And any new feature is then available to all COCC users, so everyone benefits.
And Bower says COCC’s proactive approach to innovation and the deployment of new technology played a role in its selection as CNB’s core. “We were looking for somebody [that] wasn’t stuck in their ways or too large to make major changes within their structure,” he says.
Perhaps because of this, COCC is open to working with startup technology providers and is nimble enough to vet them quickly. COCC directly partners with startups, and along with COCC’s own capabilities, it helps CNB get new features to market more quickly. For a technology company that’s not one of COCC’s partners, but rather the bank’s vendor, the core still coordinates integration efforts. CNB has experienced at least two fairly large integrations with outside technology firms—a commercial underwriting platform and a new peer-to-peer (P2P) payments solution.
“When new ideas surface—whether it’s from us or a small fintech startup—they’re nimble enough to take a look at it, review it and within months, as opposed to years, if we all feel like it’s a direction we ought to take, it happens, it comes aboard,” says Bowers.
Converting to COCC from its older core was more challenging in today’s 24/7 economy. CNB started fresh, converting everything—including its online and mobile banking platform—and timing this to ensure minimal disruption to customers was difficult. The core conversion began on a Friday in May 2016, and the bank and COCC only had until the following Monday to work out any major bugs. While the initial conversion went off without a hitch, dealing with smaller issues impacting a small percentage of customers at a time—problems with money transfers, incorrect statement descriptions, misapplied fees—kept bank staff busy long after the initial implementation.
“I would estimate close to 12 full months where your eye comes off the ball a bit in regards to new client acquisition, continuing to grow your assets—some of that has to take a back seat for a while,” says Bower.
Despite the conversion headaches, all-in-all Bowers says it was worth the hassle. “We’re a much better company today than we were before the transition,” he says. “Because of our ability to offer more programs, have better say in what happens with our core processor, and what services and what our client actually sees is something we [now] have some control [over].”
And the improvements aren’t just due to working with a core provider more suited to CNB’s business and strategy. Providing a better customer experience was a key driver in its decision to move to COCC, but the bank did some soul searching and realized that like its former core provider, it wasn’t thinking through the customer journey, either. So, roughly four years ago, Bowers put an executive in charge of the customer experience, promoting Leanne Kassab, who has a background in marketing, to a new position as executive vice president of customer experience and marketing. It’s position more commonly referred to as a customer experience officer, or CXO. In her role, she maps out every experience a customer could have with the bank to identify where to improve each process. She also oversees internal and external communications, and is in charge of the bank’s marketing department and call center.
Kassab also established employee task force groups to focus on different areas of the customer experience—the bank’s branches, commercial banking, new customers and existing clients—as well as employee training. These groups have been so successful that the bank’s human resources head borrowed the idea to create groups focused on the employee experience.
The bank has also changed its training programs to focus more on the client, rather than solely on operations. “We want the employees to understand the first onus on us is customer satisfaction,” says Bowers.
Bowers admits that better communication could have improved the relationship with its former provider, and his team actively works to keep the communication lines open with COCC. The bank participates in a commercial-banking roundtable to weigh in on future projects and frequently participates in user group meetings. Bowers has biannual conversations with COCC executives.
But perhaps most importantly, CNB chose to focus a junior executive on fostering a direct relationship through weekly communication with COCC. She’s newer to banking, and Bower says this fresh perspective is a benefit. She runs the bank’s e-solutions, managing what the customer sees online. Because of this, Bowers believes her perspective on new products, services and ideas inherently includes what the customer reaction could be—and she can communicate that to COCC.
Putting more effort into communicating with its core provider has created a more fruitful relationship, says Bower. “They understand where we want to be, and they understand where we think they ought to be in the world of banking today.”
If we think back to what we were doing in 1994, we would say we were using a gigantic cell phone, just hearing about the internet, addicted to the fax machine, and just starting to use email. Fast forward, and we are with blockchain where we were with the internet and email in 1994.
After the sale of Mechanics Bank in 2015 and subsequently leaving my role as CEO, I embarked upon a journey that has forever changed how I think; how I problem solve; how I view the boardroom; the secret society of the c-suite and most importantly, how I view technology, people and process.
There is a convergence of social media, digital retail, robotics, artificial intelligence, wearables, blockchain, Internet of Things, big data and advanced analytics. We must think about the big picture and how all of these pieces fit together in overall corporate and organizational digital strategy.
Forbes recently reported the top 20 largest businesses in the world, including top financial institutions, are all now exploring blockchain. These same companies are simultaneously evaluating and implementing the use of big data, predictive analytics, artificial intelligence and machine learning.
Since 90 percent of goods in global trade are transported through the shipping industry supply chain, let’s use the announced partnership of Maersk and IBM as our first example.
As you may know, Maersk is the largest shipping container company in the world, transporting 15 percent of the world GDP each year.
The shipping industry supply chain consists of:
Land transportation brokers
Like many bank functions in the U.S., global trade functions are antiquated. The industry is still largely paper intensive with organizational silos and a heavy reliance on Excel. A typical transaction can take up to 30 people and more than 200 communications to complete. Maersk is not immune to these same challenges, but recently embarked on its own digital transformation through two partnerships:
Microsoft Enterprise Services to move five regional datacenters to the cloud, improve IT performance, bolster customer services, and reduce operational risk;
IBM to improve transparency and efficiency, with complete visibility of tracking millions of container shipments each year.
Each participant in a supply chain ecosystem can view the progress through the supply chain. They can also see the status of customs documents, view bills of lading and other data. This will all be done using blockchain technology and smart contracts.
So, what does all of this mean? Let’s take a look at how this all ties in to what I call “the digital innovation melting pot” and why we as bankers must pay attention:
In this video, the bank is partnered with the shipping, wearable device, driverless car, identity, virtual agent/chatbot, social media, social media influencers, predictive analytics, retailer, airline, and hotel industries. These 11 industries are working together to offer products, complete transactions and improve the customer experience with little in-person human interaction.
My view of blockchain, innovation and its place in the new digital world is from my role as a CEO who’s been accountable to shareholders, responsible for the bottom line. Though the top banks in the country have caught on to this trend, many banks are still in the dark ages, plagued by denial, lack of innovation knowledge and the right talent. Many institutions still have bricked-up infrastructure, engrained in the mentality that “this is the way it’s always been done,” with a lot of outdated, dysfunctional and inefficient processes, policies and procedures.
The disregard of digital technology disruption and innovation is like a termite infestation that destroys the structure if you don’t pay attention to warnings and maintain the property.
Key Takeaways Partnerships are the way of the future. A bank can no longer rely solely on its own infrastructure and core vendor relationships. The new digital world converges industries, so make sure you pick the right partners. To do so, understand existing infrastructure and look through the lens of generational age groups with a customer focus.
Does the customer want simple to use technology services and want it now?
Do they prefer more traditional services, and are they less trusting of new market entrants? Do they still value human advice?
Do they value high-quality service and view “trust as a must,” but are interested in innovation and want to be educated?
Is there forward-thinking leadership in the boardroom and C-suite?
How does the board get refreshed with new perspective?
Would board members be willing to give up their board seat to allow fresh perspective?
Has there been evaluation about current state and future growth?
Is there understanding about existing system capabilities, shortfalls, what works, what doesn’t?
Determine your game plan:
Does the front end need digitization?
Fix front end while gradually replacing legacy infrastructure and integrating middle and back office?
Go digital native – full overhaul?
Evaluate whether systems, processes, procedures and policies are still relevant?
Don’t forget impact on your people. Make sure new offerings do not cannibalize existing product offering and pricing. Remember that a digital expert is unnecessary in the boardroom. Instead find a digital technology translator; someone who understands the cause and effect of decisions made at the macro level. Lastly, and most importantly, figure out how to disrupt your business model before it becomes disrupted.