How You Can Foster an Entrepreneurial Environment

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entrepreneur-8-8-18.pngGone are the days of bank employees repetitively completing their tasks. A productive day in today’s banking environment consists of collaboration and teamwork to solve challenging problems.

Community banks and credit unions need to deliver on two industry trends to succeed: 1) managing interest rate, compliance, and regulatory risks, and 2) adapting with technology and products to compete against a decline in branch visitors, check volume, and cash transactions. The question is, how?

The answer is new ideas. Managers and leaders must cultivate an entrepreneurial environment where employees are not afraid to share them, because they are the future of the banking industry.

1. Refine the team
Leader Bank itself is an entrepreneurial venture started in 2002 with $6 million in assets. After spending the first six years focusing on implementing traditional methods, we began shifting our hiring practices to include employees with little or no banking experience but that had a lot of potential for creative problem solving. Today, almost 40 percent of our employees (excluding loan officers) are new to the banking industry.

By not hiring solely based on education and experience, and focusing more on potential, we have seen some of our most successful periods of growth to date.

2. Listen to customers
New ideas often present themselves as customer issues.

Take this example: A landlord customer encounters legal complications with his tenant’s security deposit, so to avoid future issues he assumes a greater risk by no longer requiring security deposits. Identifying this real-world problem led to the creation of a new security deposit platform that manages compliance headaches for landlords.

3. Pursue lopsided opportunities
All ideas come with upsides and downsides, but as we all know, the best ideas are asymmetrical, meaning the upsides outweigh the downsides.

A great example is when we developed our rewards checking product.

Before developing the product, we knew we not only wanted to grow deposits but also reward our customers for using us as their primary bank. We analyzed the downside versus the potential upside before deciding to move forward.

The downside vs. the upside
A downside is best kept small and finite. It’s something you would be comfortable with if it actually happened.

With our rewards checking product, the only real downside we could foresee was lack of participation. There is always a risk with a new product or process that the client may not fully adopt it.

However, in this particular situation, the upsides significantly outweighed our fear of failure.

To start, we developed Zeugma in-house. We had existing employees working on it, to keep our cost of investment low. It gave us control of the product features, which allowed us to differentiate leading to strong growth in deposits.

Assessing the upside vs. downside
With any new idea, senior management and the board will want to know what the downside is, and if it is limited. That limitation is finite and can be articulated, then odds of approval increase.

When trying to measure the downsides relative to the upsides, there are questions we ask to lean one way or the other:

  • Is the total potential financial loss greater than the cost of the project?
  • Could the project cause significant reputational damage?
  • Does the project require additional resources?
  • Does the project effort need significant interdepartmental coordination?

If the answers are “no,” then the idea likely carries low risk and can move quickly.

There are also additional ways to mitigate risks throughout the launch process of any new idea.

Start a focus group
There is no better way to see how a new idea works before launching full-force than experimenting with beta groups. Testing the product with hand-selected, vested people first helps gives managers an idea how customers will use the product and understand pitfalls before going live.

Conduct weekly meetings
Weekly meetings are great for adapting procedures as necessary throughout the development and launch process. Teams from product development to marketing can share ideas on how to develop and grow the product to its utmost potential.

Maintain strong financial tracking
Tracking every penny will ease the anxiety that comes along with the development and launch process of any new idea. Start a shared spreadsheet among involved employees and enter in the income and expenses along the way. If the financial budget is kept in check, it is easier to plan where to allocate future expenses.

Also don’t forget to track success, including each new customer acquired or deposit gathered.

Moving forward
Banks are inherently risk-management institutions, which is why understanding the downsides of new ideas is so important.

Transitioning a financial institution to an entrepreneurial, spirited workforce takes time, patience and dedication. Every idea, whether a success or a failure, is a stepping stone to the next. Over time, even in a highly regulated industry like banking, a culture of energy and entrepreneurship can be a competitive advantage.

Maximizing the Power of Predictive Analytics

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Data analytics affects all areas of the bank, from better understanding the customer to addressing regulatory issues like stress testing. However, organizations face several barriers that prevent unlocking the power of predictive analytics. John Sjaastad, a senior director at SAS, outlines these barriers, and shares how bank management teams and boards can address these issues in this video.

  • The Importance of Predictive Analytics
  • Barriers to Using Predictive Analytics
  • Considerations for Bank Leaders

Understanding the New Age of Integrated Payables

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payments-7-25-18.pngUntil now, treasury management solutions have been focused almost solely on helping clients execute payments. These solutions have emphasized simplified payments and payment method flexibility. This can be referred to as Integrated Payables 1.0.

New and disruptive accounts payable automation has enabled banks to offer a more holistic solution, which caters to their customers’ end-to-end accounts payable process while addressing an even broader range of customer pain points. This can be called Integrated Payables 2.0.

Offering solutions that leverage automated processes can provide benefits for commercial banks they aren’t realizing with the legacy solutions. A couple of key benefits that offering Integrated Payables 2.0 technology provides to banks in comparison to traditional Integrated Payables 1.0 solutions include:

Addressing the end-to-end accounts payable process, instead of just payment execution, provides customers with more value.

The first step to understanding the benefits Integrated Payables 2.0 solutions provide is centered on understanding the end-to-end accounts payable process for their customers. This process, regardless of company or industry, generally involves four steps:

  1. Invoice Capture: Lifting data from vendor invoices and coding it into an accounting system.
  2. Invoice Approval: Confirming vendor invoices are accurate and reflect the agreed upon amount.
  3. Payment Authorization: Creating a payment run, getting the payment approved by an authorizer, and leveraging the correct payment type and bank account to use.
  4. Payment Execution: Sending money to vendors.

Within this process, Integrated Payable 1.0 solutions are only serving step #4: Payment Execution. The truth is every payment is the result of an invoice, and the process of making a payment includes all of the steps in between receiving the invoice and paying it. By not streamlining steps leading up to the payment, Integrated Payables 1.0 solutions allow opportunity to improve efficiency.

Integrated Payables 2.0 solutions streamline all four steps by providing one simple user interface that eliminates unnecessary manual processing. By offering Integrated Payables 2.0 solutions, banks provide more value to their customers by addressing the pain each of these manual steps brings throughout the AP process.

Becoming a strategic partner (instead of just a solution provider) to customers drives retention by creating switching costs.

There are a lot of costs associated with manual accounts payable that businesses face every day. Some are very straightforward and easy to track, like processing fees. But there are other costs that are less apparent, but have much broader cost implications on the business. These costs include:

  • Wasted time reconciling duplicate invoice payments.
  • Missed revenue from rebates and early-pay discounts.
  • Value-added projects that never get done.

With the middle-market businesses paying more than 100 invoices every month, costs add up tremendously over the course of a year. When you can eliminate these costs from your customers’ accounts payable process by providing them with an end-to-end accounts payable solution, you will be able to establish a loyal list of customers.

With only a small fraction of businesses currently automating accounts payable, it is clear Integrated Payables 2.0 solutions are still approaching it’s tipping point.

Banks have an opportunity to get ahead of competitors and differentiate themselves by offering a disruptive solution. Then, when their customers get offers from other banks to switch, the switching costs associated with going back to manual accounts payable are likely to dissuade them from making the switch.

Although Integrated Payables 1.0 solutions have been helpful to your customers for years, new disruptive technology is creating even greater capabilities for mid-sized businesses to efficiently pay their bills, and for you to further strengthen your relationships with customers by providing this technology in the form of a white-label solution.

ChoiceOne and Autobooks Bring Rural Customers into the Digital Age

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sba-6-20-18.pngAdom Greenland works with a lawn care specialist who was running his business in a way reminiscent of a bygone era. He’d leave a carbon copy invoice on the counter when he finished his work, Greenland would cut a check and some three weeks later, the small-business owner would finally be compensated for the work he had done weeks prior.

That arrangement is one that still exists in many rural areas, but Greenland, the chief operating officer at $642 million asset ChoiceOne Bank, headquartered in Sparta, Michigan, saw an opportunity to help rural customers like his lawn care specialist usher themselves into the 21st century by partnering with Autobooks.

ChoiceOne found itself in a position that many banks in the country have found themselves in at some juncture in the last several years: recognizing the need to make a move to remain competitive with booming fintech firms popping up all over the place. Located in a largely rural area in western Michigan—Grand Rapids, with about 200,000 residents, is the largest city in its area—the bank has been a fixture for its rural community but is slowly moving into urban markets, Greenland says. Its specialties include agricultural and small business borrowers that are comfortable with antiquated practices that often aren’t driven by technology. But in an increasingly digital world, Greenland says the move was made to make both the bank and its commercial customers competitive by improving its existing core banking platform to digitize treasury services for commercial customers.

ChoiceOne chose Autobooks to digitize its small business accounting and deposit process in 2017, a journey the bank began three years ago after realizing that the technology wave rolling over the banking industry was going to be essential for the bank’s future. But identifying potential partners and wading into the due diligence process was at times frustrating, Greenland says. “Everything was either, you had to pay a quarter-million dollars and then had to hope to sell it to somebody, or it was just 10-year-old technologies that weren’t significantly better than what we already had.”

Autobooks, through an array of application programming interfaces, or APIs, essentially automates much of the bank’s existing treasury services such as invoicing, accounting and check cashing processes. The system sits on top of the bank’s existing banking platform from Jack Henry, but works with FIS and Fiserv core systems as well.

With just 12 branches in a predominantly rural market, Greenland says this has become a game changer for the bank and its customers.

“My sprinkler guy could have been doing this a long time ago, but this will accelerate the adoption of technology [by] my rural customers,” Greenland says. “It’s bringing my customers to the next century in a really safe and easy way.”

The partnership between Autobooks and ChoiceOne generates revenue for both companies through fees. It is a similar arrangement to that of Square, QuickBooks or PayPal, the competitors Greenland is trying to outmaneuver while integrating similar accounting, invoicing and payments functionalities.

So far, the partnership has been able to reduce the receivables time by about two weeks, and automates many time-consuming tasks like recurring invoicing, fee processing and automatic payments. It also cuts expenses for the bank’s customers that have been using multiple third-party providers for similar services, which has driven loyalty for the bank. ChoiceOne hasn’t generated significant revenue from the partnership—Greenland says it’s at essentially a breakeven point—but the loyalty boost has been the biggest benefit, an attribute that’s becoming increasingly important as competition for deposits rises.

And the results are visible for small businesses, like Greenland’s sprinkler technician. “For that kind of business, this thing is absolutely revolutionary.”

The Good and the Bad Facing Audit and Risk Committees Today

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committee-6-12-18.pngIn today’s news cycle, it seems barely a week goes by before another headline flitters across a social news feed about a data breach at some major U.S. or foreign company. Hackers and scams seem to abound across the marketplace, regardless of industry or any defining factor.

Cybersecurity itself has become an increasingly important issue for bank boards—84 percent of directors and executives responding to Bank Director’s 2018 Risk Survey earlier this year cited cybersecurity as one of the top categories of risk they worry about most. Facing the industry’s cyber threats has become a principal focus for many audit and risk committees as well, along with their oversight of other external and internal threats.

Technology’s influence in banking has forced institutions to come to terms with both the inevitability of not just integrating technology somewhere within the bank’s operation, but the risk that’s involved with that enhancement. Add to that the percolating influence of blockchain and cryptocurrency and the impending implementation of the new current expected credit loss (CECL) standards issued by the Financial Accounting Standards Board, and bank boards—especially the audit and risk committees within those boards—have been thrust into uncharted waters in many ways and have few points of reference on which to guide them, other than what might be general provisions in their charters.

And lest we forget, audit and risk committees still face conventional yet equally important duties related to identifying and hiring the independent auditor, oversight of the internal and external audit function, and managing interest rate risk and credit risk for the bank—all still top priorities for individual banks and their regulators.

The industry is also in a welcome period of transition as the economy has regained its health, which has influenced interest rates and driven competition to new heights, and the current administration is bent on rolling back regulations imposed in the wake of the 2008 crisis that have affected institutions of all sizes.

These topics and more will be addressed at Bank Director’s 2018 Audit & Risk Committees Conference, held June 12-13 at Swissôtel in Chicago, covering everything from politics and the economy to stress testing, CECL and fintech partnerships.

Among the headlining moments of the conference will be a moderated discussion with Thomas Curry, a former director of the Federal Deposit Insurance Corp. who later became the 30th Comptroller of the Currency, serving a 5-year term under President Barack Obama and, briefly, President Donald Trump.

Curry was at the helm of the OCC during a key time in the post-crisis recovery. Among the topics to come up in the discussion with Bank Director Editor in Chief Jack Milligan are Curry’s views on the risks facing the banking system and his advice for CEOs, boards and committees, and his thoughts about more contemporary influences, including the recently passed regulatory reform package and the shifting regulatory landscape.

Five Benefits to Automating the Credit Process

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automation-5-29-18.pngAutomation is a common buzzword these days in the financial services industry. What does it really mean for your business, and how far can you take automation through your credit origination process?

We have compiled the top five benefits of applying automation throughout your credit process.

  1. Reduce back and forth client interactions
    Instead of scanning, emailing, and faxing financial information and supporting documentation, customer-facing interactive portals and APIs can facilitate digital capture of required information.
  2. Eliminate unnecessary manual work
    By leveraging a portal that connects to the borrower’s financial accounting package, and has the technology to read tax forms digitally, you can reduce the amount of unnecessary manual data entry.
  3. Make quicker and smarter decisions
    Through the application of innovative machine-learning technology, the time required to generate financial spreads can be significantly reduced.
  4. Maintain high-quality data accuracy and governance
    Data integrity can potentially be compromised when several systems are used to store the same information. Turn-key integration between your customer engagement portal and loan origination system helps to keep all your data within one system.
  5. Gain a complete view of your portfolio
    With improved accuracy and quick access to available data comes better and faster insights into your portfolio. By reducing the need to consolidate and reconcile data from multiple sources, problems within your portfolio can be addressed in real time.

In a recent whitepaper, Maximize Efficiency: How Automation Can Improve Your Loan Origination Process, Moody’s Analytics explores these benefits and specific use cases for automation throughout key stages of the credit process.

Moody’s Analytics has also produced a video from a recent webinar related to this topic, which you can review here.

Blockchain is Coming, but It’s None of Your Business…Yet

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blockchain-5-18-18.pngFor most banks under the $20 billion asset threshold, blockchain technology—the distributed ledger—will be a tool like every other technology tool. Banks under that size will be provided that tool by established providers or very large institutions and the tool itself will enable typical banking businesses like extending credit, payments and wealth management.

While there is a ton of argument about the validity of the distributed ledger as a tool that enables currency that is untethered to a government or regulation, there is widespread belief that the technology behind the currency itself can carry value and be a boon for banks. It is useful because blockchain technology is enables faster, cheaper and fully transparent transactions in near real time.

Blockchain has potential to carry property deeds, stocks or insurance. Many banks have been skeptical about the technology because of the speculative nature of the cryptocurrency market and the dubious ethics of some of the folks running that market. But now many banks are starting to see it as a solution for quicker, cheaper transaction options.

JPMorgan Chase and the National Bank of Canada announced a debt insurance blockchain test. They believe that they can move debt insurance cheaper, faster and more securely on the distributed ledger, and they are doing a year-long test to find out. If that test works, the platform will have faced many challenges and presumably overcome them. It will have to get multiple regulators to sign off on it, it will have to integrate old systems’ data with the new platform, and it will have to prove that this new technology is actually superior to old systems.

Many banks under $20 billion can and will use it when it is rolled out by a reputable provider. So don’t worry too much about blockchain for now—you will be using it when it has been developed by a much larger institution with the capacity to invest in its trials. One important part of that process will be creating shared protocols. Right now, there is no one blockchain, and there is no one common language where one chain can talk to another. That will probably need to change if it is to become ubiquitous.

There are exceptions for banks below $20 billion
When you are a bank that is a specialist in a particular line of business, you should watch the enablers of that specialty with keen interest. If a bank makes 80 percent of its profit through commercial real estate lending, for instance, that bank should be looking at anything that enables better, quicker, easier service, better pricing, or cheaper production. Adopting the technology that gets the bank in front of most competitors will eventually increase potential for growth, profitability and market share.

It doesn’t matter if that technology is Statistical Analysis System (SAS), or on a distributed ledger, someone in the bank should be trying hard to be the second adopter of the technology that will make the bank so much better at what it does well. That is when a bank should care about blockchain—when it is proven enough to not to be a nightmare to your bottom line or your employees, and provides a competitive advantage in an area that really counts.

Cybersecurity & Regtech: Defending The Bank

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How can financial institutions proactively combat the risks facing the industry today? The 2018 Risk Survey—presented by Bank Director and Moss Adams LLP—compiled the insights of directors, chief executive officers and senior executives of U.S. banks with more than $250 million in assets. According to the survey, the worries keeping top executives awake at night align with the key priorities that banks commonly hear from banking regulators: cybersecurity, compliance and strategic risk.

Cybersecurity
Cybersecurity was the biggest concern by far, reported by 84 percent of respondents.

The survey addressed the confidence that executive and directors have in their institutions’ cybersecurity programs, with an emphasis on staffing and overall effectiveness. Access to the proper talent—in the form of a chief information security officer (CISO) or a strategic partner with the necessary skill set—and associated costs are key to a successful program, and 71 percent of respondents revealed their bank employs a full-time CISO.

While technical skills are valuable in today’s business environment, financial institutions must overcome their dependence on skilled technicians who don’t necessarily have the ability to strategically look at the changing technological landscape. The CISO should build an appropriate plan by taking a full view of the bank’s technology and strategy. Without this perspective, a bank could provide hackers with an opening to breach the institution, regardless of size or location.

Institutions building the foundation of a robust cybersecurity program should also focus on three key areas:

  • Assessment tools: Is the institution leveraging the proper technologies to help maximize the detection and containment of potential issues?
  • Risk assessments: Has management identified current risks to the organization and implemented proper mitigation strategies?
  • Data classification: Has management identified all critical data and its forms, and addressed the protection of this data in the risk-assessment process?

Compliance
Compliance was the second biggest area of concern, identified by 49 percent of respondents. It’s an area that continues to evolve as new regulators have been appointed to head the agencies that regulate the industry, and technological tools—dubbed regtech—have entered the marketplace.

More than half of survey respondents indicated that the introduction of regtech has increased their banks’ compliance budgets, demonstrating that the cost of solutions and staff to evaluate, deploy and support these efforts in an effective manner is a growing challenge.

Because the volume of available data and the ability to analyze that data continues to grow, respondents may have felt this technology should have effectively decreased the cost of operating a robust compliance program.

Executives looking to decrease costs may want to consider the staffing required to operate a compliance program and whether deploying technology would allow for fewer personnel. When technology is properly used and standards are developed to help guarantee efficient use of it, the dilemma of acquiring technology versus adding staff can often be more easily solved.

Strategic Risk
Strategic risk was the third largest area for concern, identified by 38 percent of respondents. Many directors and executives are wrestling with what the future holds for their institutions. The debate often boils down to one question: Should they continue to build branches or invest more in technology—either on their own or by partnering with fintech companies?

Fintech companies are a growing player in lending and payments segments, areas that were historically handled exclusively by traditional institutions. That, coupled with clients who no longer value personal relationships and instead prioritize being able to immediately access services via their devices, increases the pressure to deliver services via technology channels.

Financial institutions have entered what many would call a perfect storm. Every institution will need to make hard decisions about how to address these issues in a way that facilitates growth.

Assurance, tax, and consulting offered through Moss Adams LLP. Wealth management offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.

Risk/Reward: Can Insurtech Build Better Relationships With Your Bank Customers?

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insurtech-5-8-18.pngThe rise of financial technology, or fintech, has not disrupted banks to the extent that many predicted it would. What it has done, however, is chip away at the number of services a given customer will seek from their bank. Instead of using their banking app to check balances and transfer funds, many use third party personal budgeting tools like Mint and peer-to-peer (P2P) payment apps like Venmo. Instead of seeking credit at their local branch, many consumers are turning to online lenders like SoFi. As customers spend less and less time engaging with their banks, brand loyalty is at risk, which is at a higher premium in today’s market.

So how can banks recapture engagement or retain loyalty? Adding an insurance offering could be an option for creating a new touchpoint with bank customers. To many bankers, this is not a new idea. The concept of bancassurance—where a bank serves as an insurance broker and directly offers products to its customers—has been around for a long time. But there is a wave of technological transformation taking place in the insurance space that could breathe new life into bank/insurance partnerships: insurtech.

Insurtech is very similar to fintech. At the core, these firms are about utilizing technology and data to shake up an incumbent industry. The end goal of insurtech is offering more targeted, consumer-centric insurance products and ways of accessing those products. Insurtech is still in the early stages of development but, according to customer experience technology firm, Quadient, most incumbent insurance firms now have a “strong plan or strategy for how they will deal with onboarding innovative technologies and channels” that they did not have just two or three years ago.

Banks utilize a few key models for incorporating insurance into their customer offerings:

Building a marketplace: The marketplace model is being pioneered by many digital-only challenger banks. For example, U.K.-based challenger banks Starling Bank and Monzo have rolled out in-app marketplaces that augment their basic checking accounts by linking customers to a bevy of outside partners, from insurance and pension providers to mortgage lenders. While it’s possible to generate referral fee income from this type of arrangement, this model has not proven to be a major revenue driver, as the banks have yet to see a month without losses.

The marketplace model does allow digital banks to offer services beyond their basic online consumer accounts without the stress of integrations and new partnerships, but that’s a challenge that most traditional banks do not face because they can typically offer payment transfers, loans, and more. While a marketplace would move incumbents closer to the Amazon-like platform model in vogue today, it doesn’t seem to offer a major value add for traditional banks.

Using white-label products: Taking the idea of an insurance marketplace a bit further, banks can also consider incorporating white-label products to help consumers access insurance or compare policies in the bank’s existing online platform. Fidor Bank, a digital institution out of Germany, created an online marketplace that allows customers to access curated fintech and insurtech products. The Fidor product, FinanceBay, is now available as a white-label product to other banks.

Many digital-first insurance providers offer ready-made affinity programs with white-label capability as well. With this increased connection between the bank and the third party insurance providers, though, liability becomes a much larger concern.

“Bancassurance,” or partnering to establish an insurance brokerage: A step even further than incorporating a white-label product to help customers find insurance would be to engage in a bancassurance model, where the bank would serve as an insurance broker actively selling insurance products to its banking clients. This form of partnership has been utilized heavily in countries such as France and Spain.

When Glass Steagal was repealed in 1999, those bank/nonbank commerce barriers were largely removed, but regulations, complicated corporate structuring questions and mixed results have largely kept the model out of the U.S. However, the recent partnership announced between Germany’s largest bank, Deutsche, and Berlin-based Friendsurance is bringing interest in this model back to the forefront.

By mid-2018, Deutsche plans to offer coverage from over 170 German insurers through its in-app insurance manager function, according to Insurance Journal. Friendsurance uses artificial intelligence to evaluate potential plans based not only on price but also on “the question of how financially stable the insurer is or how good its customer service is,” Friendsurance co-founder Tim Kunde told Handelsblatt Global in January. Deutsche will be establishing its own insurance brokerage firm run by Friendsurance as opposed to a simple referral program or marketplace tool. This differentiation, the bank hopes, will reinvigorate the bancassurance concept thanks to the added value the insurtech brings to the insurance buying experience.

However a bank/insurtech partnership takes shape, liability is a looming issue. The more deeply engrained a partnership is, the more complicated the liability analysis becomes. As with all major technology partnerships, banks should bring their regulators into the conversation early on if they’re considering a partnership with an insurtech provider.

Insurtech is a fast-growing sector, and the distribution of insurance products is becoming more prolific among retailers, utilities, lifestyle brands and more. If banks don’t begin to explore insurance partnership models, they may lose out on yet another opportunity to service their customers.

Regtech: Reaping the Rewards

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regtech-4-24-18.pngAs it evolves, regtech is uniquely poised to save banks time and money in their compliance efforts, and has become a common topic for many in the banking industry. If you’re ready to realize the promise of regtech at your institution, here are a few key steps to take before you start parsing through providers or sending out requests for proposals.

Consider changes to your organizational structure that would place oversight of both legal and compliance transformations under one department. In Burnmark’s RegTech 2.0 report, Chee Kin Lam, the group head of legal, compliance and secretariat for DBS Bank, pointed to his authority over both legal and compliance functions and budgets as a key to the Singapore-based bank’s ability to work with regtech companies.

At first blush, a change to your bank’s internal structure seems like an extreme measure for a precursor to a technology pilot, but that perception misses the big-picture implications of implementing a new regtech solution. If a bank intends to engage meaningfully with regtech, Lam pointed out, there’s a need for an overarching framework for onboarding new technologies to make sure they “speak to each other at a legal/compliance level instead of at an individual function level—e.g. control room, trade surveillance, AML surveillance and so on.”

What’s more, legal and compliance functions are already tied closely together, and any regtech solution would likely impact both areas of the bank. Central management of these two functions can help ensure efficient regtech implementation.

Create a solid, detailed problem statement before you ever look for a solution. Lam suggests identifying the top legal and compliance risks your bank is facing, and working from there to identify pain points for your employees and customers when they interact with that risk area. One way to go about this process is to utilize design thinking, which looks at products and experiences from the point of view of the customers and employees who utilize them.

By seeking out pain points and working through the design-thinking process to find their root cause, bank leadership can identify specific, actionable areas for improvement. As tempting as it can be for an institution to attempt a total overhaul of its regulatory processes, banks should pursue modular regtech solutions to solve specific, defined problem statements instead. As Peter Lancos, CEO and co-founder of Exate Technology, points out in RegTech 2.0, “[f]ragmentation makes a regulatory strategy impossible—especially due to geographic spread and banks having separate teams set up to deal with individual regulations.”

Leverage outside expertise. The risks of implementing regtech can be daunting, so bank leaders need to use every tool in their arsenal to get deployment right. Banks should involve regulators in the conversation early on in the process of working with a regtech company. According to Jonathan Frieder of Accenture in The Growing Need for RegTech, “[r]egulators globally have continued to accept and, ultimately, to embrace regtech” making 2018 “a pivotal year.”

In addition to getting regulators on board, banks should consider enlisting outside assistance from consultants or other regulatory experts. Such experts provide assistance with assessing problem statements or potential regtech vendors. Lancos states that he feels “it is essential for banks to have regulatory expertise support to actually write the rules that go into the rules engine of regtech solutions.”

Regtech implementation is a lot more involved than an average plug-and-play fintech product. However, when a bank considers the cost efficiencies, improved compliance record and decreased customer and employee frustration, the upside of regtech can be well worth the planning it requires.