Automating Middle Market Vendor Payments with Commercial Cards


vendor-payments-7-5-17.pngWhy are so many businesses still using checks for vendor payments, after all these years? Advances in payment technology has created better ways to pay and be paid and there are now opportunities for banks to offer something different. BC Krishna, the president and CEO of MineralTree, and Justin King, senior director of partnerships at Visa, sit down to discuss this issue in the following Q&A.

Q: Why are middle market businesses continuing to use checks for vendor payments?
JK: First, there is a perception among middle-market companies that checks are convenient, quick and secure. However, sending and receiving checks creates significant waste in the form of higher processing costs (for both suppliers and buyers) and lost cash flow (for suppliers). Furthermore, recent research from the Association of American Certified Fraud Examiners (ACFE) shows that a majority of business-to-business payment fraud is check-based. Second, middle-market companies sometimes do not have access to the bank and technology platforms that are helping drive payment optimization among large companies over the recent years. These feature-rich tools can help optimize payments holistically by enabling payment to the right supplier, with the right payment method, at the right time.

BC: On the surface, checks are easy. There’s no supplier enrollment. There are no questions such as: Are you a card-accepting merchant? Do you accept my card? Sending remittance detail, which is critical for any invoice payment, is trivial. The detail is on every check stub, and getting setup to send checks is simple. There’s no need to be underwritten for cards or ACH. There are no limits on how many checks I can send out. However, checks are slow and paper-based so they require more manual work to create and send. There is also no guarantee as to when the payment will arrive at the vendor’s location that could put you at risk for late-payment penalties.

Q: Are commercial cards in broad use for making vendor payments, as opposed to just travel and entertainment?
JK: Commercial cards for vendor payments, or virtual commercial cards, are being leveraged broadly for a variety of use cases among large market companies in the U.S. and Canada. They are also a growing payment product outside North America and emerging as a key payment method for small to medium sized businesses in the U.S.

BC: Our experience is that commercial cards are still an emerging payment vehicle, especially for middle market companies. The market is gaining more awareness of the benefits, principally to buyers, of card-based payments, but it is still early days. The market opportunity is gigantic.

Q: What is keeping commercial cards from being THE payment method of choice for vendor payments?
JK: Research shows that there are three primary perceptions that can be barriers to the adoption of virtual commercial cards. Those are unknown value to the organization, anticipated supplier resistance and lack of technical resources to perform a system integration with a payables platform. We know from experience that these barriers can be overcome with the right platforms, the right processes and the right client education.

BC: I completely agree with Justin. Cost—to the supplier—is a factor too. Vendor payments are usually higher value than travel and entertainment expenses. Middle market vendor payments can average $2,500 per item, and there may be some resistance to adopting electronic payments if there is concern about the security of these transactions, for example. The good news is that there are payables platforms that help protect organizations against fraud and provide access to one-time use cards as a payment method.

Q: What is the relationship between MineralTree and Visa about?
JK: MineralTree and Visa have a strategic alliance, under which MineralTree has integrated with Visa’s accounts payable automation capabilities. These capabilities enable MineralTree, together with participating Visa financial institutions in the U.S., to provide the bank’s corporate clients with a full suite of Visa virtual commercial card creation, controls management and processing.

BC: We want to make it easy to enable a Visa financial institution to drive commercial card adoption. And that means eliminating the hurdles of integration and supplier enrollment. It also delivers a packaged solution that addresses the accounts payable vendor management pain that middle market clients experience.

Q: Can smaller issuers benefit from a commercial card program?
JK: Not all issuers have commercial cards, but most financial institutions that have a significant customer base of middle market and large market organizations often offer a commercial card program to clients. These programs drive an opportunity to diversify revenue streams, create greater customer stickiness, and deploy a product capability highly desired among commercial customers. Issuers of all sizes can benefit from having a commercial card program.

Three Top Trends in Mobile Banking: What You Need to Know


mobile-banking-6-21-17.pngIt comes as no surprise that today’s banks need mobile solutions to stand a chance of satisfying their customers. You’ve probably heard of the Big 5 of mobile banking, the essential features that are now an absolute must-have for the modern customer, including: the ability to transfer funds between accounts, pay bills, make deposits, locate ATMs and branches and conduct peer-to-peer payments.

These essentials are an excellent starting point for banks developing mobile solutions. However, the truth of the matter is that the basics are no longer enough. Any bank that has entered the 21st century provides their customers these capabilities. In order to differentiate their products, drive profits and keep their customers satisfied, modern banks must find ways to use mobile to offer customers more value and convenience and be more relevant to their daily lives.

Many of the largest banks have already realized this and have been working diligently to develop creative new solutions. Perhaps that’s a large part of why these banks have managed to pull ahead of community banks in customer satisfaction rates, a surprising development considering that community banks are commonly thought to have the personal touch.

However, who’s really owning the mobile banking space are companies that aren’t banks at all. Apps like Venmo have taken the mobile banking world by storm and are edging banks out of their rightful place as financial service providers. To stay on top of the latest mobile banking trends, banks should keep an eye on three larger mobile trends and follow suit with their own offerings.

So, what’s the latest?

No. 1: Intuitive Interfacing
The banks who have been most successful with their mobile banking have found ways to make the experience as intuitive for their customers as possible. One of the ways they’ve done this is through eliminating complicated menus and interfacing mobile capabilities into the features that customers are already familiar with.

For example, customers can now use their smartphones’ voice control to request and make payments from PayPal’s Venmo, one of the most popular peer-to-peer payments apps. Users don’t have to navigate the app—or even directly use it—to transfer money between friends. Instead, they can simply instruct their phone and their payments are taken care of.

To ensure their mobile offerings are attractive, banks should first and foremost make sure they’re easy-to-use and provide customers with a seamless experience they don’t have to think about twice.

No. 2: Artificial Intelligence
Voice-activated devices like Amazon’s Alexa have recently introduced artificial intelligence into the mainstream. Banks on the cutting edge have already recognized this technology’s potential to provide an enhanced customer experience that offers more value and have begun capitalizing on it.

Perhaps the best example of this is Erica, Bank of America’s soon-to-be-released chatbot, which can now go beyond the Big 5 basics to impart personalized advice on customers’ finances.

Companies outside of financial services are finding creative ways to utilize artificial intelligence as well. One interesting example is the app Digit, which helps the user build savings by connecting to his or her checking account and automatically making transfers to an FDIC-insured savings account based on income and spending activity. Users no longer need to think about practicing better financial habits; instead; they have an algorithm to do it for them.

No. 3: The Subscription-Based Model
Subscription-based services like Spotify, Netflix and Amazon Prime are influencing purchase trends and consumers’ expectations of the companies they work with, including their banks. These fee-based services offer value at an affordable price and can easily be controlled and customized based on the user’s need.

Also interesting to note is that a recent survey indicated access to discounts as a primary impetus for customers to not switch from their current bank. Money-saving deals can promote better fiscal health and allow customers to save more than they’re able to make in today’s interest rate environment. Plus, the bank is at the point of sale whenever consumers make a purchase.

The payment models utilized by services such as Amazon can clue banks in to how they should structure their own mobile offerings. And in fact, the top six banks have all been developing their own rewards-based shopping programs, which may be part of the reason why they’ve managed to pull ahead in customer satisfaction.

These are just a few of many mobile trends that are currently all the rage in banking. But it’s important to remember that mobile is ever-evolving, and today’s trends won’t be tomorrow’s. Banks must be ever-vigilant about observing what’s happening in the mobile space and think about ways they can keep innovating their own offerings to stand apart from the crowd and make sure their products and services please their customers.

Making Blockchain a Reality

 

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FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part Three of this series.

Part One
Part Two
Part Four

Though blockchain is still in early stage development, one of the most notable blockchain applications took place last fall between Commonwealth Bank of Australia and Wells Fargo. An Australian cotton trader purchased a shipment of cotton from a company in Texas and had it sent to China. The blockchain trade consisted of 88 bales of cotton, totaling $35,000. The two banks shadowed the normal trade process utilizing blockchain technology to create verifiable digital records automatically replicated for all parties in a secure network eliminating the need for third-party verification, and to make automatic payments when the shipment reached certain geographic locations. This greatly reduced duplication (checking and re-checking) of payment processing, manual errors and long standing time constraints from being in multiple time zones during the course of shipment.

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Typical bank involvement in the international trade process:

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Any bank offering trade services to its customers either directly or through a correspondent bank via a letter of credit can appreciate how cumbersome, risky and redundant this process is today. The international trade ecosystem is ripe for disruption.

Other recent examples include HSBC Bank and State Street Corp. successfully testing bond transactions and UBS and Santander testing a new cross-border payments process.

Here is how cross-border payments work today and how blockchain streamlines the process:

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More than 75 banks worldwide have joined blockchain consortiums or formed partnerships with companies such as R3, ConsenSys, Ripple, Digital Asset Holdings, IBM, Microsoft and others. Many of these banks have established innovation labs for blockchain and other related technology initiatives. Some are more serious than others about implementation versus trying to boast an image of being innovative.

I encourage you to read “The Blockchain Will Do to the Financial System What the Internet Did to Media,” published by the Harvard Business Review in March 2017. The title says it all and the article is backed up by some pretty powerful intelligence and market data.

Banks and related financial services companies have already begun patenting blockchain technologies for themselves, including Goldman Sachs, Bank of America and Mastercard.

Last Fall, IBM reported that within four years, 65 percent of banks globally expect to have blockchain in commercial production or at scale. IBM interviewed 200 global banks and reported that 15 percent will be using some form of blockchain technology by end of 2019.

These banks are all focused on lending, payments and reference data (real time information) sharing of transactions across business divisions and between banks.

What are some hurdles to making blockchain work for banks?
With all of the energy and momentum behind blockchain there are also signs of fatigue and plenty of challenges. There are lots of ongoing discussions surrounding this topic. Morgan Stanley’s Global Insights report published last year sums it up best by identifying the ten key hurdles to making blockchain a reality.

What needs to happen to make this a reality?
There are four keys to long-term success:

  1. Continued education about blockchain technology to the public and private sector.
  2. Consensus among and between financial institutions and regulatory bodies.
  3. For individual institutions, a determination of whether if blockchain is a valid solution.
  4. Commercial bank clients begin to adopt the technology ahead of the banks themselves and bank regulatory bodies, forcing all to assimilate to some form of distributed ledger technology.

When do we anticipate certain milestones being achieved?
We are already seeing the achievement of important milestones. Though some may perceive these advances as baby steps, they are still a step in the right direction. While I remain optimistic, I am also realistic and know that something as complex and regulated as the U.S. financial system will take time to adopt this technology. I predict that other industry verticals will make active use of blockchain before the U.S. financial system, but only time will tell.

 

Innovation Spotlight: American Savings Bank


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Jack Kuntz, CEO, American Savings Bank

Jack Kuntz is president and CEO of American Savings Bank, with previous experience as the head of a core processing company. In this interview, Kuntz shares his thoughts about selecting providers, the benefits of investing in technology at both the employee and consumer level, and creating the bank’s most accessible customer service line—his personal cell phone number.

What investments in technology has American Savings Bank made that have added value?
Our investment in technology has been significant over the past three years and has provided a major component to our successful growth. American Savings is a multiregional bank with concentration in two areas of Ohio. One essential technology we employ is an HD video conferencing system which has saved time and money for the bank while reducing employee stress and protecting their safety by not driving two hours one way to attend a meeting. We use the system for everything from board meetings to operational meetings, and the technology is as effective on a PC or smart phone as it is on the big screens. In late 2015, we changed core processing systems, installed a new loan origination system and upgraded to a new mobile app. From a back office perspective, we have installed new and stronger vendor management and cybersecurity systems. All of these new technologies provide a benefit to the bank and our customers.

What made you decide to switch core processing systems?
Switching to a new core provider is the most significant and risky technology decision that a bank can make. Prior to becoming president of a core processor, I was in charge of support and conversions and was involved in dozens of core conversions over a span of nearly two decades. That first-hand knowledge about the costs of a conversion not only in dollars, but in employee stress, customer frustration and overall community reputation was invaluable. I believe there are three basic reasons to change core providers: you are paying too much, the current provider is lacking the products you need, or for some other reason you have lost confidence in the provider. Over the seven-year contract with the new provider, we are saving over 25 percent of our previous technology investment. That is significant as technology is the third largest expense item in our income statement, behind the cost of funding and personnel. Additionally, while having all the products of our prior provider, we were able to secure more commercial capabilities both on the loan and deposit side.

When it comes to implementing a fintech solution, would you rather buy, build or partner?
As a small community bank, building applications is cost prohibitive. In most cases we prefer to outsource major technologies to major players in the market. Our core, for example, is with D+H due to the many products the company offers. This gives our bank a single point of contact to obtain technology as we launch new and different products, as well as providing “one throat to choke” when the inevitable problems occur. When partnering or buying technology for the bank, a rigorous process is followed before a decision is made. Factors considered in our process include the financial strength of the provider, the fit of the product with our needs, viable references and accessibility to the decision makers within the provider’s company. Cost is always a factor but not the final determinant. My father used to say: “If you buy cheap, you buy twice”.

As consumer expectations in banking change, how does American Savings Bank stay connected with this audience?
We have found at American Savings that customer expectations vary in our two Ohio markets. In our metropolitan region, technology is more readily embraced, while the more rural region remains more face-to-face oriented. Having mobile, online loan applications, social media presence and other technologies are a prerequisite in today’s environment. Regardless of the region, we have created two keys to differentiating our brand. First is direct access to the CEO. All our advertising campaigns include my personal cell number. The second key is the reception you receive and the environment we create in our branch network. We provide a warm hello and fresh coffee or water in the lobby of our offices with cookies and pastries. I conveyed to my team that when a customer walks into one of our offices, I want them to feel like they walked into grandma’s house on Christmas Day.

M&A Readiness: Making Sure Your Bank Can Do Acquisitions


acquisitions-5-10-17.pngWith many financial institutions benefiting from increased stock values and renewed optimism following the November election, merger activity for community banks is on the uptick. Successful acquirers must remain in a state of readiness to take advantage of opportunities as they present themselves.

Whether a prolonged courtship or a pitch book from an investment banker, deals hardly, if ever, show up when it is most convenient for a buyer to execute on them. As a result, buyers need to develop a plan as to what they want, where they want it and what they are willing to pay for it, long before the “it” becomes available. M&A readiness equates to the board of directors working with management to have a well-defined M&A process that includes the internal and external resources ready to jump in to conduct due diligence, structure a transaction and map out integration. Also, M&A readiness requires that buyers have their house in order, meaning that their technology is scalable, they have no compliance issues and the capital is on hand or readily available to support an acquisition.

Technology. In assessing the scalability of an institution’s technology for acquisitions, a buyer should review its existing technology contracts to see if it has the ability to mitigate or even eliminate termination fees for targets that utilize the same core provider. Without this feature, some deals cannot happen due to the costs of terminating the target’s data processing contracts. Cybersecurity is another key element of readiness. As an institution grows, its cybersecurity needs to advance in accordance with its size. Buyers need to understand targets’ cybersecurity procedures and providers in order to ensure that their own systems overlap and don’t create gaps of coverage, increasing risk. Additionally, buyers should understand existing cybersecurity insurance coverage and the impact of a transaction on such policies.

Compliance. Compliance readiness, or lack thereof, are the rocks against which even the best acquisition plans can crash and sink. Ensure that your Bank Secrecy Act/anti-money laundering programs are above reproach and operating effectively, and that your fair lending and Community Reinvestment Act policies, procedures and practices are effective. Running into compliance issues will cause missed opportunities as the regulators prohibit any expansion activities until any issues are resolved.

Conducting a thorough review of compliance programs of a target is critical to an efficient regulatory and integration process. A challenge to overcome is the regulators’ prohibition on buyers reviewing confidential supervisory information (CSI), including exam reports as part of due diligence. While the sharing of this information has always been prohibited, the regulatory agencies have become more diligent on enforcement of this prohibition. Although it is possible to request permission from the applicable regulatory agency to review CSI, the presumption is that the regulators will reject the request or it will not be answered until the request is stale. As such, buyers should enhance their discussions with target’s management to elicit the same type of information without causing the target to disclose CSI. A simple starting point is for the buyer to ask how many pages were in the last exam report.

While stress testing may officially apply to banks with $10 billion or more in assets, regulators are expecting smaller banks to prevent concentrations of risk from building up in their portfolios. The expectation is for banks to conduct annual stress tests, particularly among their commercial real estate (CRE) loans. Because of these expectations, buyers need to know the interagency guidance governing CRE concentrations and how they will be viewed on a combined basis. Reviewing different stress-test approaches can help banks better understand the alternatives that are available to meet their unique requirements.

Capital. An effective capital plan includes triggers to notify the institution’s board when additional capital will be needed and contemplates how it will obtain that capital. Ideally, the buyer’s capital plan works in tandem with its strategic plan as it relates to growth through acquisitions. Recently the public capital markets have become much more receptive to sales of community bank stock, but this has not always been the case. In evaluating an acquisition, the regulators will expect to see significant capital to absorb the target as well as continue to implement the buyer’s strategic plan.

The increase in financial institution stock prices has increased acquisition opportunities and M&A activity since the election. Opportunistic financial institutions have plans in place and solid understandings of their own technology needs and agreements, regulatory compliance issues and capital sources. Although it sounds simple, a developed acquisition strategy will aid buyers in taking advantage of opportunities and minimizing risk in the current environment.

How to Become a Data-Driven Bank


data-5-8-17.pngBanks collect lots of data on their customers, but they aren’t always adept at using it to grow their business. Community banks, in particular, are just beginning to realize the power of data analytics and business intelligence.

Client data and the tools to analyze it can transform how banks conduct their commercial lending business. Data-driven banks can leverage analytics to make better informed decisions, streamline operations, and improve customer service.

The following are three steps for boards to consider for successful adoption of better data analytics:

  1. Support investment in systems that organize and centralize data and standardize processes.
  2. Reinforce the systems investment with policy, training and change management initiatives.
  3. Champion the new systems and processes and how they contribute to the bank’s success.

Here are some practical recommendations for a community bank executive who wants to turn data analysis into bottom-line results.

Define the data universe. The data that community banks can use includes company financials, qualitative customer data, and borrower behavioral data, including payment and credit utilization history. Establishing a centralized system that captures this unstructured data consistently is the first step in this process.

Consider a partnership. Effective analytics strategies ensure that short- and long-term goals are aligned with the bank’s current business operations. Partnering with a vendor with the required analytics technology and implementation expertise could help the bank capture the right data and integrate it into their processes.

Data quality is key. The top tactical issues with this approach involve collecting, organizing, and protecting the quality of the data. Maintaining the integrity of analytics requires clean data that is accurate, comprehensive and continually updated. Data quality is key to realizing the value of business intelligence tools.

Communicate early and often. Educating the organization on the value of credit measures, whether back office risk managers or front office sales professionals, will equip all stakeholders with a solid understanding of the new analytic tools and how they support the overall goals of the bank.

Establish Success Metrics. Even data-driven banks should be wary of aligning internal data with external benchmarks and best practices, because the latter may not be applicable to a particular type of business, product focus, marketplace or strategy. Instead, banks can use internal data to define their own benchmarks and measure success against goals and past performance. Assessing actual performance by comparing historical trends to new profitability, default and recovery metrics (including internal ratings) serves as an indicator of improvement. In other words, how would the prior portfolio perform given new tools and measures versus its actual performance?

Leveraging advanced data analytics and business intelligence tools is an investment that, if properly implemented, should pay dividends in the form of higher quality loans, better customer service and increased operational efficiency.

To read the complete white paper, “How to Become a Data-Driven Bank,” click here.

Three Ways to Increase Shareholder Value


shareholder-5-3-17.pngWith the Federal Reserve due to raise interest rates again this year and an administration focused on domestic issues and reducing regulation, community bank stocks are in high demand. The OTCQX Banks Index, a benchmark for community banks traded on the OTCQX market, gained 30 percent in the past 12 months, compared to 15 percent for the S&P 500. How can community banks leverage this positive trend and deliver greater value to their shareholders?

First, achieve a fair valuation for your shares. Fair market value is the price at which a person is willing to buy a company’s stock on the open market. Determining fair market value for a publicly traded stock is relatively straightforward and can be done by, for example, taking the average of the highest and lowest selling prices for the stock that day.

Figuring out fair market value for a stock that is not traded on a public market is a little more complex. For privately held community banks, this typically requires the chief financial officer to call around to multiple investors to negotiate prices in bilateral transactions. Not only is this process opaque and inefficient, but it generally doesn’t yield the highest value for shareholders.

For a publicly traded community bank, achieving fair market value is also a factor of the market on which it is traded and how much information it makes available to investors. A bank that trades on an established public market like OTCQX or OTCQB is helping maximize the value of its shares by providing transparent pricing, access to liquidity and convenient access to its news and financial disclosure.

Second, reduce the risk of owning your securities. Community banks can also maximize shareholder value by reducing the risk of trading their securities. A privately-held bank that trades its stock out of a desk drawer opens itself up to additional risks related to pricing, holding and clearing its securities. In contrast, a bank that trades on an established public market reduces risk for shareholders by allowing them to freely get into and out of its stock.

Public market standards can also help lower shareholder risks. In the OTC markets, the top two markets—OTCQX and OTCQB—have verification processes which allow banks to demonstrate to shareholders that they have met certain standards and that there are risk controls around their securities. In contrast, there is no such verification process for companies on the bottom Pink market, which increases the risks—and costs—of owning these securities.

Third, embrace technology. As community banks struggle to replace an aging shareholder base, technology will play a key role in attracting and retaining a new generation of millennial investors. Millennials, aged 18 to 34 years old, get most of their news online and on their phones, so banks need to embrace technology to make sure their financials and news are widely disseminated.

Trading on an established public market like OTCQX and OTCQB can help community banks ensure their news and disclosure is seen by broker-dealers and investors wherever they analyze, value or trade its securities. OTC Markets Group also works with Edgar Online to provide non-Securities and Exchange Commission reporting banks conversion and distribution of their fundamental data in XBRL format, so it can be more easily consumed and analyzed by investors.

With community bank stocks receiving positive attention, now is the time for banks to capitalize on market demand. Think about your shareholders and what’s important to them. Whether your bank has $100 million in assets or $3 billion, your shareholders should be treated like customers and you need to put their needs first.

The Innovator’s Imperative


I’ve seen enough to believe there are no barriers to innovation in banking. Certainly, there are speed bumps, gate crossings and rumble strips that banks will encounter on the road to innovation, but nothing that flat out prevents you from getting there. Indeed, there are a growing number of banks, including community banks, that have made important achievements that serve as good examples of innovation. (For a great list, see the Best of FinXTech Award Winners announced at Nasdaq this week.) Some innovation projects have been quite ambitious, others more modest, but they all spring from the same source—a recognition that banks need to begin simplifying and speeding up various aspects of their businesses to keep pace with (or at least, not fall too far behind) where the customer is heading.

Where is the pressure to innovate coming from? The popular boogeymen are fintech companies that compete with banks in payments, lending and personal financial management. But companies in that space are simply reacting to a much deeper trend, which is the profound way that technology is changing our lives. Banks must do the same, and a growing number of you seem to realize it.

On April 26, Bank Director hosted the FinXTech Annual Summit at the Nasdaq MarketSite in New York. The event brought together 200-plus bank executives, directors and fintech executives to explore how technology is changing the industry. Underlying themes were innovation, the opportunities for partnership between banks and fintech companies, and how banks can move forward.

I believe that most bankers understand the imperative to innovate around key aspects of their business, whether it’s payments, mobile in all its many permutations, lending, new account onboarding or data. What many of you lack is a roadmap for how to innovate. Actually, a “roadmap” is probably the wrong metaphor to describe what you need because innovation is really a process rather than a destination—something you do rather than a place that you go. So maybe you need something like a yoga chant (Om!) to help focus your energy as you practice innovation.

There are several issues that need to be dealt with, starting with a vision of what projects to undertake. You can’t change everything at once, so where do you start? What are the greatest friction points within your most important businesses? Where are you seeing the greatest competition, and how would digitalization tilt the competitive balance more in your favor? What has the greatest potential to positively impact your profitability?

Innovation costs money, so you will have to budget for it. Based on my conversations with bankers that have begun to automate key parts of their operations, expect your innovation projects to cost more and take longer than their original estimate. Innovation can be messy, so perseverance and patience are important. You also have to make sure that your bank’s culture will embrace change. When I say “culture,” I really mean people. You must ensure that your employees are open to new ways of doing things, because innovation will change job descriptions, processes and work habits, and many of your staff will feel threatened by this. It’s not enough that your executive management team and board commit to a large project like a new automated underwriting platform for small business lending and allocate the necessary resources to make that happen. You will also have to sell this change to people in your organization whose buy-in is critical.

For most banks—and particularly community banks with a finite amount of money to spend—innovation isn’t something they can do by themselves, so you will have to work in partnership with a fintech company that can help you achieve your objective. This is more complicated than it sounds, because banks and fintech companies have very different perspectives when it comes to how they do business. Banking is a highly regulated industry, so you need a partner who knows how to work within a prescriptive environment that has lots of rules. Fintech companies that have experience working with banks understand this and have learned how to manage change in an ecosystem that tends to discourage it.

The innovation imperative is real, and banks must act upon it. Your world is changing faster than you think, and the longer you wait to embrace that change, the further behind you will fall.

Bank Boards Need to be Younger, More Diverse and More Visionary


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I was chairing a conference recently at which a Gartner Group consultant talked about the firm’s annual bank survey. Gartner found that of the senior bankers it surveyed, 76 percent don’t believe that digitalization will affect their business model.

I can tell you that 76 percent of those survey respondents were wrong. Of course digitalization is affecting the business model, and if you don’t think it is then you need to read my blogs about platformification; back office overhaul through the cloud and machine learning; the impact of shared databases through blockchain; the rapid cycle change of microservices organizations; and the rise of innovation economies in Africa and growth economies like China’s.

In fact, I would be amazed if any banker who reads my blog could honestly say that digitalization doesn’t change their business model. After all, the business model of traditional banks was built for face-to-face interactions backed up by paper documentation; the business model of digital banks is for device-to-device interactions backed up by data. The two are completely different.

It doesn’t worry me that bankers think their banks business models don’t need to change—after all, banks are run by bankers and it’s their problem if they believe otherwise—but it does worry me that people in charge of systemically important institutions that are so important to so many aspects of our lives could be so ignorant. I think it reflects the lack of insight into how digital transformation is impacting the world, and also the lack of balance in bank boardrooms.

This was evidenced by a recent Accenture analysisof the boardrooms of the 100 biggest banks in the world, which shows that:

  • Only 6 percent of board members have professional technology backgrounds.
  • Just 3 percent of these banks have CEOs with professional technology backgrounds.
  • Forty-three percent of the banks analyzed don’t have any board members with professional technology backgrounds.
  • Thirty percent of these banks have only one board member with a professional technology background.
  • In North American banks, 12 percent of board members have professional technology experience, compared with 5 percent in both European and Asian banks.
  • Though boards of banks in the United States and the United Kingdom have higher percentages of directors with professional technology experience than others, the numbers are still low—at 16 percent in the U.S. and 14 percent in the U.K.

Banks are led by bankers even though banks are actually fintech companies—even if they don’t yet realize that. That is the fatal flaw here, as fintech firms are led by a combination of technologists and bankers. Most fintech firms I meet have a healthy balance of young, bright technology experts and seasoned financial people.

That is why it’s interesting to see that the biggest banks are gradually reconstructing their boardrooms for more balance, or sothis year’s trendspredicted. When I think of a bank boardroom, I picture a lot ofold menin suits (andthe numbersprove this). When I think of a fintech firm’s boardroom, I see something that is young, diverse and visionary. It does have some old hands on board, but it’s balanced. So what I really expect in the next decade is to see a bank boardroom become just a little bit more awesome. Still a bit grey, but also a little younger, more diverse and a healthy mix and balance of financial acumen and technology vision. Please.

Gaining a Digital Competitive Advantage



The average small business owner uses technology every day to run the enterprise—and the same is expected of the financial institution, explains Chris Rentner of Akouba Credit. Banks that adopt technology will have a competitive edge in the market.

  • Why Banks Should Explore Fintech Partnerships
  • What Small Business Customers Expect From Their Bank