How Embedded Compliance Plays the Game to Win, Not Break Even

Imagine a game where your team can’t score points and there’s no such thing as winning. All you can do is meticulously follow the rules; if you follow them well enough, then your team doesn’t lose. Most banks approach compliance with this survival mindset and it shows.

According to the Federal Reserve Bank of St. Louis, compliance expenses account for 7% of banks’ non-interest expenses. The majority of that spend is typically directed at headcount distributed across siloed operational functions — using equally siloed technology — to get the job done during the last leg of a transaction. The best that can be said for this approach is that it achieves baseline compliance. The worst? It prevents institutions from investing in transaction data management strategies that deliver compliance while simultaneously driving efficiencies and business growth that show up on the bottom line. This scenario becomes more untenable with each passing year: Increasing compliance complexity drives up costs, and that diversion of investment erodes a bank’s ability to compete.

Banks can choose to play the game differently, by viewing compliance as an integrated part of the data management process. Solutions that leverage application programming interfaces, or APIs, provide a mechanism for technology components to communicate with each other and exchange data payloads. Outside of this approach, transaction data resides in bifurcated systems and requires extra handling, either by software or human intervention, to complete a transaction and book the right data to the core. Having the same data in multiple systems and rekeying data dramatically increase an institution’s risk profile. Why make it harder to “not lose” the game when banks can leverage API-first solutions to ensure that data is only collected once and passes through to the touchpoints where it’s needed? The key to unlocking this efficiency is a compliance architecture that separates the tech stack from the compliance stack. Otherwise, banks are obliged to wait for code changes every time compliance updates are pushed.

Mobile enablement is now as critical for a bank’s success as any product it offers. The customers that banks are trying to reach have no practical limit to their financial services options and are increasingly comfortable with contact-free experiences. According to studies from J.D. Power & Associates released this year, 67% of U.S. bank retail customers have used their bank’s mobile app and 41% of bank customers are digital-only customers. Given historical trends, those numbers are expected to only increase.

Compliance represents an opportunity to remove friction from the mobile banking experience, whether offered through an app or a website. Traditional PDF documents are designed for in-branch delivery and are a clumsy fit for the mobile world. Responsive design applies to compliance content no less than it applies to mobile apps; content needs to adjust smoothly to fit the size of the viewing screen. The concept of “document package” is evolving to the point where a “compliance package” should be constructed on responsive design principles and require minimal user clicks to view and acknowledge the content.

An embedded compliance solution should treat optimized mobile channels as table stakes. To survive and thrive in this environment, institutions need to be where their customers are, when they are there. Traditional banker’s hours have officially gone the way of the dodo.

Embedded compliance can also enhance bank data security in the event of a breach. It is difficult to overstate the reputational damage that results from a data breach. Embedded compliance offers critical safeguards for sensitive customer information, bolstering an institution’s overall security profile. Legacy compliance or document-prep solutions often require duplicate data entry and expose customer personal identifiable information to the inherent data breach risks that come with multiple databases scattered across technology platforms. Look for solutions that do not store PII data, and instead offer bi-directional integrations with your platform.

Increasing demand for digital engagement provides banks with opportunities to rethink their technology stacks. Management should evaluate each component for its potential to address a myriad of business needs. Compliance solutions can sharpen or dull a bank’s competitive edge and should be considered part of a strategic plan to grow business. Who knows, maybe someday compliance will actually become “cool”? A dreamer can dream.

Notching Customer, Employee Wins Through Process Automation

Financial institutions are committed to improving digital banking services and enabled more digital capabilities over the past year out of necessity — but there is more transformation to be done.

In their haste to meet customers’ and employees’ needs, many banks overlooked opportunities in back-office processes that are critical to providing excellent customer service, such as operating an efficient Regulation E (Reg E) dispute tracking process along with other processes that can ease employee challenges with regulatory compliance issues.

To enable bank staff to better serve customers, financial institutions must automate their back-office dispute tracking processes. One way to do is through implementing process automation solutions that offer workflows to direct the disputes appropriately, a single storage location for all supporting documentation and automating mundane tasks, such as generating letters and updating general ledger accounts. Implementing this kind of automation enables banks to simplify and streamline their input of disputes, ensuring that all critical information is captured accurately and dispute intake is handled consistently. This allows banks to provide consistent engagement and faster response to their customers.

Back-office automation strengthens a bank’s regulatory compliance and customer engagement. Awaiting outcomes from back-office processes can be extremely frustrating to customers — these moments are often tied to high-stress situations, such as having their cards used fraudulently. Banks should consider how manual, error-prone dispute tracking processes negatively affect the customer experience. Institutions also gain the crucial visibility that supports their decision-making and improves compliance with regulations, mitigating the risk and cost of non-compliance.

Process automation can also eliminate the stress that impacts account holders during this process. Having back-office automation with enhanced workflows and centralized documentation allows banks to return provisional credit more quickly and minimizes errors and delays. Instead of missing deadlines and making mistakes that erode customer confidence and cause audit exceptions, back-office employees meet deadlines and process disputes consistently and accurately, avoiding fines and additional work to remedy errors.

Automation can also improve back-office productivity by enhancing visibility. Clear visibility is created when a back-office employee can immediately track documentation and data when it is needed, at any stage in the process. During an audit, an employee may need to retrieve the date that a customer filed a Reg E dispute or to prove proper credit was applied. Without the appropriate tools, such as a single dashboard for dispute tracking and one platform for all supporting documentation, employees waste time searching paper files, spreadsheets and emails to piece together the required information. A workflow automation platform means a full audit trail with supporting documentation is readily available, optimizing everyone’s time.

For example, automation at Watkinsville, Georgia-based Oconee State Bank enables employees to efficiently complete tasks and focus their attention on serving their customers without being slowed down by complicated processes. The bank reduced the amount of time it took to file consumer disputes by more than 80% through process automation.

With 12 branches across Illinois and Indiana, First Bank, based in Carmi, Illinois, reduced claim processing time by more than 50% and experienced positive impacts from its digital dispute process. Dispute processes that can be easily tracked enable bank executives to clear audits and gain greater visibility into risk and compliance across their institution.

The visibility banks gain through automation improves their decision-making. Hard-to-access information and lack of visibility can be especially defeating when managing risk and compliance. Not only does incorrect or unavailable information open the door for human error, but it can also lead to financial loss. In areas like Reg E dispute tracking, this financial loss can be a result of not identifying a fraudulent dispute or trends of fraudulent charges. Process automation helps by supporting a methodical approach to reducing fraud and increasing visibility of high-risk merchants and customers.

This kind of attentive review during the Reg E process can help banks reduce the amount of undetected fraud and lower their write-off threshold, which is the pre-established amount set by an individual financial institution, under which any dispute is automatically written off as a financial loss. These thresholds are traditionally set with the back office staff’s bandwidth in mind; with more free time, banks can lower this threshold and avoid automatic losses. For instance, after implementing an automated, Reg E dispute tracking solution, Happy State Bank, the bank unit of Canyon, Texas-based Happy Bancshares, was able to lower its write-off threshold from $100 to $50 per dispute.

Tackling process automation can help banks compete and win while improving the level of service provided to customers. This technology empowers staff to be more responsive and alert to trends, enabling better decision-making and saving both cost and time. Implementing process automation allows banks to differentiate themselves from their competitors by providing consistent engagement and faster responses to customers. Process automation is the key to optimizing efficiency within any financial institution.

2021 Technology Survey Results: Tracking Spending and Strategy at America’s Banks

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon recognizes the enormous competitive pressures facing the banking industry, particularly from big technology companies and emerging startups.

“The landscape is changing dramatically,” Dimon said at a June 2021 conference, where he described the bank’s growth strategy as “three yards and a cloud of dust” —  a phrase that described football coach Woody Hayes’ penchant for calling running plays that gain just a few yards at a time. Adding technology, along with bankers and branches, will drive revenues at Chase — and also costs. The megabank spends around $11 billion a year on technology. Products recently launched include a digital investing app in 2019, and a buy now, pay later installment loan called “My Chase Plan” in November 2020. It’s also invested in more than 100 fintech companies.

“We think we have [a] huge competitive advantage,” Dimon said, “and huge competition … way beyond anything the banks have seen in the last 50 [to] 75 years.”

Community banks’ spending on technology won’t get within field-goal distance of JPMorgan Chase’s technology spend, but budgets are rising. More than three-quarters of the executives and board members responding to Bank Director’s 2021 Technology Survey, sponsored by CDW, say their technology budget for fiscal year 2021 increased from 2020, at a median of 10%. The survey, conducted in June and July, explores how banks with less than $100 billion in assets leverage their technology investment to respond to competitive threats, along with the adoption of specific technologies.

Those surveyed budgeted an overall median of almost $1.7 million in FY 2021 for technology, which works out to 1% of assets, according to respondents. A median 40% of that budget goes to core systems.

However, smaller banks with less than $500 million in assets are spending more, at a median of 3% of assets. Further, larger banks with more than $1 billion in assets spend more on expertise, in the form of internal staffing and managed services — indicating a widening expertise gap for community banks.

Key Findings

Competitive Concerns
Despite rising competition outside the traditional banking sphere — including digital payment providers such as Square, which launched a small business banking suite shortly after the survey closed in July — respondents say they consider local banks and credit unions (54%), and/or large and superregional banks (45%), to be the greatest competitive threats to their bank.

Digital Evolution Continues
Fifty-four percent of respondents believe their customers prefer to interact through digital channels, compared to 41% who believe their clients prefer face-to-face interactions. Banks continued to ramp up their digital capabilities in the third and fourth quarters of last year and into the first half of 2021, with 41% upgrading or implementing digital deposit account opening, and 30% already offering this capability. More than a third upgraded or implemented digital loan applications, and 27% already had this option in place.

Data Dilemma
One-third upgraded or implemented data analytics capabilities at their bank over the past four quarters, and another third say these capabilities were already in place. However, when asked about their bank’s internal technology expertise, more than half say they’re concerned the bank isn’t effectively using and/or aggregating its data. Less than 20% have a chief data officer on staff, and just 13% employ data scientists.

Cryptocurrency
More than 40% say their bank’s leadership team has discussed cryptocurrency and are weighing the potential opportunities and risks. A quarter don’t expect cryptocurrency to affect their bank; a third haven’t discussed it.

Behind the Times
Thirty-six percent of respondents worry that bank leaders have an inadequate understanding of how emerging technologies could impact their institution. Further, 31% express concern about their reliance on outdated technology.

Serving Digital Natives
Are banks ready to serve younger generations? Just 43% believe their bank effectively serves millennial customers, who are between 25 and 40 years old. But most (57%) believe their banks are taking the right steps with the next generation — Gen Z, the oldest of whom are 24 years old. It’s important that financial institutions start getting this right: More than half of Americans are millennials or younger.

To view the full results of the survey, click here.

Motivation for Mergers Will Grow as Interest Rates, Loan Growth Stay Low

The pace of announced mergers among rated U.S. banks has accelerated and is likely to gain steam.

The limited prospect of material loan growth makes asset growth via mergers and acquisitions increasingly attractive. And as we anticipated, more banks are favoring large transformational deals. We expect the industry will continue to consolidate in the second half of 2021. Greater size and efficiency will remain primary drivers of consolidation in the face of continued low interest rates, as will the imperative to invest in new technologies at scale.

  • There was a substantial jump in transformational M&A activity during the second quarter. Four sizable deals were announced in the period, and each envisions an enlarged entity that benefits from greater diversification and economies of scale. All four transactions promise eventual benefits for creditors, but each presents significant execution risk that is an immediate credit negative.
  • The main drivers of consolidation will continue for the next 12 to 18 months. Interest rates are unlikely to rise until 2023, increasing the likelihood of a jump in M&A activity. Technology upgrades will require substantial investment, which prospective cost savings from acquisitions can help fund. And loan growth will remain subdued because of the massive deposit holdings of U.S. companies and households.
  • Difficulty forecasting business activity and loan growth, as well as rising bank share prices, may have held back some deals. The value of an acquisition target is harder to gauge in an uncertain economic and market environment, which likely helped slow overall sector consolidation in 2020 and first quarter 2021, but nonetheless did not prevent the prominent deals we highlight in this report.

Leveraging Rationalization to Tackle Digital Transformation

The coronavirus pandemic has had a notable impact on financial institutions, creating a more-urgent need to embrace digital-first banking. However, shifting to digital doesn’t just mean adopting new digital banking tools — a common misconception. Rather, it requires that banks rethink their holistic digital strategy to evolve alongside customer expectations, digitize all aspects of the financial journey and connect their customers’ digital and physical experiences.

Such a transformation boils down to determining which processes are digital-ready and which will need to be overhauled completely. Enter rationalization.

Relying on rationalization
Three billion people will access banking through digital devices this year, according to one estimate from Deloitte. Most banks have 3, 5 or even 10-year plans, but struggle to determine where to start. Think of rationalization as triage for banks: It allows them to identify which processes are ready to be digitized right now, and which need to be reimagined entirely before embarking on digitization.

Consider the process to open a checking account. It’s a simple process, requiring proof of identity and address, and a form to complete. Customers are generally good to go. This is a prime example of a digital-ready banking service that should be moved online immediately — and that can be accomplished rather easily.

Compare that to applying for a loan: a process that involves careful evaluation of the applicant and a mountain of paperwork filled with lengthy, confusing terms and requirements. If the process is intimidating to consumers with the help of a professional, imagine how it feels left to their own devices.

For processes that contain inherent points of friction, like the loan application example above, digitizing may simply make the cumbersome process quicker. Outdated, clunky processes must be revamped before they can be digitally transformed.

Putting customers at the center
Customers are the most important part of rationalization. As customer expectations have rapidly evolved, it’s time for institutions to modernize the digital experience to strengthen relationships and solidify loyalty. Some areas that banks should consider when evaluating the customer experience include:

  • Automating previously manual processes can reduce costs, improve efficiency and deliver an “always on” experience.
  • Ease-of-use. Along with being more accessible to people who might resist digitization, intuitive use and educational resources are integral to customer adoption and success.
  • Constant support. According to Accenture, 49% of customers say real-time support from real people is key to fostering loyalty.
  • Enhanced security. Strong security efforts are fundamental to giving customers peace of mind, which is critical when it comes to their money.
  • Make simple possible. Remove friction from the process to enhance the customer experience.

As banking catapults into a digitally dominant era, institutions should establish a presence across all digital touchpoints — desktop and web browser, mobile apps, even social media — to enable customers to access financial services and information at their convenience. A mobile-first mentality will help ensure that products and services work seamlessly across all devices and platforms. Consistency here is key.

Customers are ultimately looking to their institutions to solve their individual financial problems. Banks have a wealth of data available to them; those that seek to create the strongest relationships with customers can leverage these insights to tailor the experience and deliver relevant, timely products and support to meet their unique needs.

All sectors faced the same challenge over the course of the pandemic: How does a business survive physical separation from their customers? Industries like retail were better prepared for expedited digital transformation because they’ve been establishing a digital presence for years; they were largely able to rationalize quicker. Hospitality sectors, on the other hand, more closely mirrored banking in that many processes were far behind the digital times. Some restaurants lacked an online presence before the pandemic, and now must undergo their own version of rationalization to remain in business.

While rationalization looks different to each vertical, the central mission remains the same: determining the best, most sensible order of digital transformation to provide the best customer experience possible. Those companies that leverage the principles of rationalization to manage the massive migration to digital will be better positioned to solidify and capitalize on customer loyalty, and keep their institutions thriving.

How to Modernize Your Payments Strategy

2020 induced widespread digital transformation in response to the coronavirus pandemic.

In payments, we saw the rise of options for contactless payments, digital wallets, P2P transfers and more. The challenge for banks was that consumers often did not have to go through their bank to use any of these solutions.

The developments in the payment space over the past year make one thing clear: Banks should keep up with the newest available consumer technology to retain and attract customers, and modernize their digital payments strategy for future success as well.

Consumer demand remains strong, and the experience companies provide matters more than ever. After leaning so heavily on digital solutions for the past year and a half, they expect everything to be easy and instant. It is now relatively easy to find payment apps that provide real-time payments, P2P, bill pay and more. Banks that don’t offer similar solutions runs the risk of losing market share to non-banks that do.

Customers are weighing their banking experience against their experience with fintech apps as well as  any other experience they have when shopping online, ordering food or taking a rideshare. Any good customer experience — no matter the industry — is one that the bank must now measure up to.

Take artificial intelligence (AI) and machine learning, for example. While not every financial institution is using AI and machine learning today, retailers like Amazon.com use AI and machine learning to predict consumer behavior, knowing what they need and when they will need it. They estimate when consumers will repurchase a product or try something new. A bank that is not doing the same is falling behind in providing the experiences that many consumers are growing accustomed to.

Where to Start?
By leveraging technologies like AI and machine learning, banks can use the tremendous wealth of customer data at their disposal to provide a more personalized experience. This is a tremendous advantage over non-bank competitors that do not have access to the same consumer information. It can seem like a challenge to effectively put customer data to use, but there are a few steps banks should take to make the change a successful one.

First, a bank must set clear goals for what it wants to achieve when updating its payment platform or adding a technology like AI and machine learning. For most, the goal will be to provide a better experience, but it is helpful to dig even deeper than that. Ask: Do we want better customer satisfaction? More engagement with the platform? More bill pay users? More account-to-account (A2A) transactions? More P2P transactions? Be as specific as possible with goals, as these form the roadmap for the remainder of the process.

Once goals are set, find the partner that can help achieve those goals. Look for a partner that shares the bank’s vision for payments and has the right skill sets and capabilities to achieve those goals. Finding the right vendor partner will ensure the bank is successful in the end.

Clear goals and a like-minded vendor ensure that the tech a bank uses can help meet its goals. Just as Amazon uses AI and machine learning to predict a consumers’ purchases or recommend a product, banks can predict customers’ payment habits or make proactive payment recommendations to manage their financial health. The use cases of AI and machine learning are versatile, and can serve many different purposes to help banks reach their unique goals.

Finally, do not lose sight of the future. It is easy for banks to get concerned with what will make them successful now, but keep looking ahead. Work with your vendor to think about where both the industry and your bank are going. Be sure to choose solutions that can grow and change with the bank and its customers for years to come, rather than focusing too heavily on the here and now.

Change can be intimidating, but following the right steps to implement a tool like AI will ensure success by creating a better customer experience. Revitalizing your bank’s digital payment strategy is a process, but done right, the stronger digital relationships you build with your customers will be worth it.

Four Ways Banks Can Cater to Generational Trends

As earning power among millennials and Generation Z is expected to grow, banks need to develop strategies for drawing customers from these younger cohorts while also continuing to serve their existing customer base.

But serving these younger groups isn’t just about frictionless, technology-enabled offerings. On a deeper level, banks need to understand the shifting perspective these age groups have around money, debt and investing, as well as the importance of institutional transparency and alignment with the customer’s social values. Millennials, for instance, may feel a sense of disillusionment when it comes to traditional financial institutions, given that many members of this generation — born between 1981 and 1996, according to Pew Research Center — entered the workforce during the Great Recession. Banks need to understand how such experiences influence customer expectations.

This will be especially important for banks; Gen Z — members of which were born between 1997 and 2012 — is on track to surpass millennials in spending power by 2031, according to a report from Bank of America Global Research. Here are four ways banks can cater to newer generational trends and maintain a diverse customer base spanning a variety of age groups.

1. Understand the customer base. In order to provide a range of services that effectively target various demographics, financial institutions first need to understand the different segments of their customer base. Banks should use data to map out a complete picture of the demographics they serve, and then think about how to build products that address the varying needs of those groups.

Some millennials, for instance, prioritize spending on experiences over possessions compared to other generations. Another demographic difference is that 42% of millennials own homes at age 30, versus 48% of Generation X and 51% of baby boomers at the same age, according to Bloomberg. Banks need to factor these distinctions into their offerings so they can continue serving customers who want to go into a branch and engage with a teller, while developing tech-driven solutions that make digital interactions seamless and intuitive. But banks can’t determine which solutions to prioritize until they have a firm grasp on how their customer base breaks down.

2. Understand the shifting approach to money. Younger generations are keeping less cash on hand, opting to keep their funds in platforms such as Venmo and PayPal for peer-to-peer transfers, investing in Bitcoin and other cryptocurrencies and other savings and investment apps. All of these digital options are changing the way people think about the concepts of money and investing.

Legacy institutions are paying attention. Bank of New York Mellon Corp. announced in February a new digital assets unit “that will accelerate the development of solutions and capabilities to help clients address growing and evolving needs related to the growth of digital assets, including cryptocurrencies.”

Financial institutions more broadly will need to evaluate what these changing attitudes toward money will mean for their services, offerings and the way they communicate with customers.

3. Be strategic about customer-facing technology. The way many fintech companies use technology to help customers automatically save money, assess whether they are on track to hit their financial goals or know when their balance is lower than usual has underscored the fact that many traditional banks are behind the curve when it comes to using technology to its full potential. Institutions should be particularly aggressive about exploring ways technology can customize offerings for each customer.

Companies should think strategically about which tech functions will be a competitive asset in the marketplace. Many banks have an artificial intelligence-powered chatbot, for instance, to respond to customer questions without involving a live customer service agent. But that doesn’t mean all those chatbots provide a good customer experience; plenty of banks likely implemented them simply because they saw their competitors doing the same. Leadership teams should think holistically about the best ways to engage with customers when rolling out new technologies.

4. Assess when it makes sense to partner. Banks need to determine whether the current state of their financial stack allows them to partner with fintechs, and should assess scenarios where it might make sense — financially and strategically — to enter into such partnerships. The specialization of fintech companies means they can often put greater resources into streamlining and perfecting a specific function, which can greatly enhance the customer experience if a bank can adopt that function.

The relationship between a bank and fintech can also be symbiotic: fintech companies can benefit from having a trusted bank partner use its expertise to navigate a highly regulated environment.

Offering financial products and services that meet the needs of today’s younger generations is an ever-evolving effort, especially as companies in other sectors outside of banking raise the bar for expectations around tailored products and services. A focus on the key areas outlined above can help banks in their efforts to win these customers over.

Can a Hybrid Work Model’s Cyber Risk Be Tamed?

Many U.S. banks are beginning to repatriate their employees to the office after some 16 months of working at home during the Covid-19 pandemic.

Some, like JPMorgan Chase & Co., have demanded that their staff return to the office full time even though many of them may prefer the flexibility that working from home affords. A recent McKinsey & Co. survey found that 52% of respondents wanted a flexible work model post-pandemic, but that doesn’t impress JPMorgan’s Jamie Dimon. “Oh, yes, people don’t like commuting, but so what?” the CEO of the country’s largest bank said at The Wall Street Journal’s CEO Council in May, according to a recent article in the paper. “It’s got to work for the clients. It’s not about whether it works for me, and I have to compete.”

Other banks, like $19.6 billion Atlantic Union Bankshares Corp. in Richmond, Virginia, are adopting a hybrid work model where employees will rotate between their homes and the office. “We have taken a pretty progressive view there is no going back to normal,” says CEO John Asbury. “Whatever this new normal is will absolutely include a hybrid work environment.” Asbury says the bank has surveyed its employees and “they have spoken clearly that they expect and desire some degree of flexibility. They do not want to go back into the office five days a week [and] if we are heavy-handed, we risk losing good people.”

However, a hybrid work model does create unique cybersecurity issues that banks have to address. From a cyber risk perspective, the safest arrangement is to have everyone working in the office on a company-issued desktop or laptop computers in a closed network. In a hybrid work environment, employees are using laptops that they carry back and forth between the office and home. And at home, they may be using Wi-Fi connections that are less secure than what they have at the office.

“If you think of a typical brick and mortar [environment], the network and computer systems are walled off,” says David McKnight, a principal at the consulting firm Crowe LLP. “No one can gain access to it unless they’re physically there.” In a hybrid work environment, McKnight says, “There are additional footholds on to my network that I don’t necessarily have full visibility into, whether that’s my employee’s home office, or the hotel they’re at or their lake house. That introduces different dynamics, connectivity-wise.”

Still, there are ways of making hybrid arrangements more secure. Full disk encryption protects the content of a laptop’s hard drive if it is stolen. Virtual private networks – or VPNs – can provide a secure environment when an employee is working from a remote location. Multi-factor identification, where employees must provide two or more pieces of authentication when signing on to a system, makes it harder for hackers to break-in to the network. And new cloud-based platforms can enhance security if configured properly.

Many smaller banks struggled to adapt when the pandemic essentially shut the U.S. economy down in the spring of last year, and many banks sent their employees to work from home. Some banks didn’t even have enough laptops to equip all of their workers and had to scramble to procure them, or ask employees to use their own if they had them.

Atlantic Union was fortunate from two perspectives. First, it had already completed a transition throughout the company from desktop computers to laptops, so most of its employees already had them when the pandemic struck. And the bank considers the laptop to be a “higher risk perimeter device,” according to Ron Buchanan, the bank’s chief information security officer. “What that means is you’re putting it in a high-risk environment, and you just expect that it’s going to be on a compromised network [and] it’s going to be attacked.”

The bank has a VPN that only company-issued laptops can access, and this gives it the same level of control and visibility regardless of where an employee was working.

Other security measures include full disk encryption, multi-factor authentication and administrator-level access, which prevents employees from installing unauthorized software and also makes it more difficult for hackers to break into a laptop.

Although cyber risk can never be completely eliminated, it is possible to create a secure environment as banks like Atlantic Union did. But they have to make the investment in upgrading their technology and cybersecurity skill sets. “The tools are there, and the abilities are there,” says Buchanan.

How Fintechs Can Help Advance Financial Inclusion

Last year, the coronavirus pandemic swiftly shut down the U.S. economy. Demand for manufactured goods stagnated while restaurant activity fell to zero. The number of unbanked and underbanked persons looked likely to increase, after years of decline. However, federal legislation has created incentives for community banks to help those struggling financially. Fintechs can also play an important role.

The Covid-19 pandemic has affected everyone — but not all equally. Although the number of American households with bank accounts grew to a record 95% in 2019 according to the Federal Deposit Insurance Corp.’s “How America Banks” survey, the crisis is still likely to contribute to an increase in unbanked as unemployment remains high. Why should banks take action now?

Financial inclusion is critical — not just for those individuals involved, but for the wider economy. The Financial Health Network estimates that 167 million America adults are not “financially healthy,” while the FDIC reports that 85 million Americans are either unbanked or “underbanked” and aren’t able to access the traditional services of a financial institution.

It can be expensive to be outside of the financial services space: up to 10% of the income of the unbanked and underbanked is spent on interest and fees. This makes it difficult to set aside money for future spending or an unforeseen contingency. Having an emergency fund is a cornerstone of financial health, and a way for individuals to avoid high fees and interest rates of payday loans.

Promoting financial inclusion allows a bank to cultivate a market that might ultimately need more advanced financial products, enhance its Community Reinvestment Act standing and stimulate the community. Financial inclusion is a worthy goal for all banks, one that the government is also incentivizing.

Recent Government Action Creates Opportunity
Recent federal legislation has created opportunities for banks to help individuals and small businesses in economically challenged areas. The Consolidated Appropriations Act includes $3 billion in funding directed to Community Development Financial Institutions. CDFIs are financial institutions that share a common goal of expanding economic access to financial products and services for resident and businesses.

Approximately $200 million of this funding is available to all financial institutions — institutions do need not to be currently designated as a CDFI to obtain this portion of the funding. These funds offer a way to promoting financial inclusion, with government backing of your institution’s assistance efforts.

Charting a Path Toward Inclusion
The path to building a financially inclusive world involves a concerted effort to address many historic and systemic issues. There’s no simple guidebook, but having the right technology is a good first step.

Banks and fintechs should revisit their product roadmaps and reassess their innovation strategies to ensure they use technologies that can empower all Americans with access to financial services. For example, providing financial advice and education can extend a bank’s role as a trusted advisor, while helping the underbanked improve their banking aptitude and proficiency.

At FIS, we plan to continue supporting standards that advance financial inclusion, provide relevant inclusion research and help educate our partners on inclusion opportunities. FIS actively supports the Bank On effort to ensure Americans have access to safe, affordable bank or credit union accounts. The Bank On program, Cities for Financial Empowerment Fund, certifies public-private partnership accounts that drive financial inclusion. Banks and fintechs should continue joining these efforts and help identify new features and capabilities that can provide affordable access to financial services.

Understanding the Needs of the Underbanked
Recent research we’ve conducted highlights the extent of the financial inclusion challenge. The key findings suggest that the underbanked population require a nuanced approach to address specific concerns:

  • Time: Customers would like to decrease time spent on, or increase efficiency of, engaging with their personal finances.
  • Trust: Consumers trust banks to secure their money, but are less inclined to trust them with their financial health.
  • Literacy: Respondents often use their institution’s digital tools and rarely use third-party finance apps, such as Intuit’s Mint and Acorns.
  • Guidance: The underbanked desire financial guidance to help them reach their goals.

Financial institutions must address both the transactional and emotional needs of the underbanked to accommodate the distinct characteristics of these consumers. Other potential banking product categories that can help to serve the underbanked include: financial services education programs, financial wellness services and apps and digital-only banking offerings.

FIS is committed to promoting financial inclusion. We will continue evaluating the role of technology in promoting financial inclusion and track government initiatives that drive financial inclusion to keep clients informed on any new developments.

The Robust Potential of Robo-Advisors

When the New York Stock Exchange closed its doors on its physical trading floors in March of 2020, the immediate future of investing looked fraught with trepidation. The Dow Jones Index had plunged nearly 3,000 points on March 16 — the largest point drop in its history — and many saw this as a grim indicator of the months to come.

Others saw an opportunity.

During the second quarter of 2020, at the onslaught of the pandemic, Apex Clearing’s Next Investor Outlook Report saw a 27.5% increase in volume of trades as compared to the first quarter. A Charles Schwab study found that 15% of U.S. investors entered the market for the first time during 2020. Robinhood claimed 13 million users by the end 2020, a number some now believe to be near 20 million, according to the news publication CNBC.

Interest in investing has arguably never been more popular, and this trend has no signs of slowing down. CB Insights’ State of Wealth Tech Q1’21 reported that the wealth tech sector raised $5.6 billion in capital in the first quarter of 2021, surpassing the total amount raised during all of 2020 ($5.2 billion). Investors plowed the most money into retail investing, with $4.2 billion raised during the first quarter.

Consumers, specifically new individual investors, are showing that they want in on the action. And banks are in a prime position to introduce their customers to all types of services associated with wealth management via robo-advising technology.

Implementing robo-advising capabilities is an affordable way for banks to provide personalized financial advice to a broad segment of customers. There is typically no asset minimum, and services are available at any time. Also worth noting, banks don’t have to pull professionals away from their high net worth clients and accounts.

Robo-advisors aren’t strictly rooted in investment capabilities. Robinhood and other similar retail investment technology platforms get a lot of press, but there are hundreds of wealth management companies around the world that offer retirement, personal finance management, savings, onboarding, back office automation, reporting, portfolio analytics and aggregation, as well as automated trade execution services.

ABAKA, for example, is a London-based fintech that uses its artificial intelligence technology to offer bank customers retirement, wealth management, banking, workplace and mortgage advice, among other services. Their technology isn’t limited to one sector of wealth management, and customers are in control of what type of advice they seek out depending on their current needs.

Bambu takes a similar stance when it comes to offering individuals specific financial advice at specific moments in time. “Everybody wants a better financial life,” says Ned Phillips, CEO and founder of the Singaporean digital wealth management technology developer. And while this is a universal want, the path to financial security is as unique as snowflakes are.

Phillips points out that the banks that will succeed in keeping customer accounts will be the ones that understand their goals and desires, and subsequently provide personal and actionable advice, as well as recommended next steps. “You need a smaller, nimble company to provide that tech,” he adds. And currently, he thinks fintechs are much better positioned than a bank to understand how to make this attainable for each individual user.

While robo-advisors are an incredible way to both democratize and personalize financial advice, they do not diminish the importance of professional advisor and management services a bank may offer. There will be customers whose needs surpass the services a robo-advisor can offer, and should be transferred to a physical advisor when the time comes.

There isn’t enough time in the world for each individual person to sit down with a financial advisor, but wealth techs with robo-advice capabilities can at least offer it as an option to bank customers. For many, this may be the first time they ever receive financial advice that is tailored to their wants and needs.

Making these services accessible to all will be what sets a bank apart from the rest. And Phillips believes that we’ve barely scratched the surface regarding robo-advising technology and its potential impact on consumer financial wellness. “Today, we’re not even at the beginning.”