Welcome to the Wild West for Small Business Management Technology


small-business-management.png

Today’s small businesses are empowered more than ever by technology. Start-ups and emerging technologies are colliding with established financial institutions to create a true Wild West for business and financial management in the small and medium business (SMB) sector. But what approaches are different finance and technology players taking—and how will they impact the way small businesses manage their finances?

There’s no doubt that business owners recognize the benefits of technology—one recent survey found that 29 percent of all SMBs say technology is critical to improving business outcomes. The result is a mad dash by incumbents to catch up, keep pace and partner with innovators in the right ways to earn the loyalty of business owners.

Here are four different ways that financial companies are battling it out to help small businesses manage their cash flow, start to finish.

Integrating POS with Financial Management
In a recent report by technology provider Wasp Barcode, a majority of small business owners said that their number one priority for technology investment this year is to replace hardware. For a great many SMBs, this includes front end equipment like cash registers and credit card processing devices. Square was the primary innovator of integrating credit card swiping with iPads, but today the bar is much higher in terms of payment hardware technology design, performance and accessibility.

Take Bank of America’s Clover Point-of-sale (POS) solution, for example. As opposed to Square, which only allows for card swiping, Clover is a fully integrated POS, cash drawer and receipt printer. BofA supplements the basic hardware and software with an app store, where businesses can add extra layers of functionality and customization based on their unique processes. The POS software is then able to communicate and send data back to financial management software, so that the two are seamlessly integrated.

Offering End-to-End Cash Flow Management
Other companies are approaching small business management technology with the goal of providing complete, end-to-end financial management. This means that everything from payments, checking, savings, credit, insurance and investments are all handled by one technology platform. This is the logic behind Capital One’s Spark Program for small business finance, that offers a different Capital One Spark product or service for each of those areas, all tailored towards entrepreneurs.

That isn’t to say businesses can pick and choose from different products within the Spark ecosystem (such as checking, corporate credit Cards and 401(k) account management), but the goal is to have everything tightly integrated so business owners can access everything in one place. The ancillary part of the pitch is that it makes customer service that much more convenient, as you only have one partner to contact if multiple issues arise. The challenge will be for a medium-sized mainstay like Capital One to innovate on a pace with both fintech start-ups and mega-bank competitors that acquire or partner with these new players.

Creating a Best of Breed Ecosystem
Having an all-in-one suite is great in theory, but there are certain small business tools that will always be known as being the best at what they do. Accounting and financial management is an area that Quickbooks has traditionally dominated; it still occupies 80 percent of total market share for SMB accounting. But rather than building additional features onto the Quickbooks product, companies like Intuit are building out tightly integrated ecosystems consisting of first-class applications across the breadth of business management needs.

Intuit is an interesting case also because it owns another hugely popular brand, TurboTax. It has been in Intuit’s best interest to keep these successful brands, and add others like the hugely successful personal finance app Mint.com. The intent is to not only make the business easier to manage, but to handle the business owner’s personal finances as well.

SalesForce.com’s strategy is another great illustration of building out a comprehensive ecosystem under one umbrella. Any business that uses SalesForce.com can purchase proprietary financial management apps on the firm’s cloud platform, and perform multiple functions without leaving the SalesForce interface. Businesses can utilize the Financial Force app for payroll, Accounting Seed for accounting and so forth. In these cases, SalesForce often provides resources and guidance to these start-ups to make the software on their platform as competitive as possible.

Innovating the right way
Fintech startups have the stated goal of disrupting a financial services sector that has become known as overly traditional and lacking in personalization. But as startup technologies for small business management begin to scale, like the example of Mint.com, these companies often face a crossroads in terms of how and where to expand. Some choose to be acquired, as in the case of Mint.com, while others seek partnerships with big banks to gain additional marketing exposure while retaining control of their product.

David Gibbons, managing director at Alvarez & Marshal financial consulting, recently told CNBC that “Banks are partnering to keep in the game and keep relevant. I think they’ve caught up fairly well.” On Deck Capital is one of the foremost innovators in small business lending, using technology to gauge creditworthiness based on the performance of an entrepreneur’s business instead of personal credit score. But rather than be acquired, On Deck has partnered with JP Morgan Chase to build a new lending product for small businesses, under the Chase brand. This is a great example of some “quick win” technology partnerships taking place in the small business space that combine the benefits of innovation with the security and scalability of big banking to better serve SMBs.

And these are just a few of the innovations, technologies and trends that are constantly emerging in the small business sector. The bottom line is big banks now realize that adopting new technologies is critical to retaining SMB clients. With so many startups and established players evolving to offer more services with less hassle, it’s a pretty good time to be a tech-savvy small business owner.

Gaining a Competitive Advantage through Regtech


regtech.png

The newly-coined term “regtech,” which is a combination of regulation and technology, is a useful concept to a highly-regulated industry like banking. Regtech is distinct from fintech in that regtech refers to a combination of regulatory strategies that a regulated business can use to secure a business advantage.

Banks sail on a sea of pervasive regulation. We see several ways that banks can chart a new course on this sea and make more money through regulatory innovation, beginning with the use of technology to make regulatory compliance more efficient. Most of the literature sees regtech as a single idea: using technology to drive efficiency in regulatory compliance. We think that such efficiencies are a very important part of regtech–but are only part of the story. The topic of compliance efficiency has several elements:

  • Identify areas where the bank’s compliance oversight is not effective–typically because human resources have the wrong priorities or are spread too thin. Many institutions risk fines and enforcement actions and put their long-term viability at risk by tolerating gaps in their compliance oversight–and yet they still manage to spend too much.
  • Identify a technology provider whose software and services are a good fit for your bank’s existing and projected growth.
  • Communicate with regulators to spot any regulatory objections to the technology provider and the overall strategy as early as possible in the process.

For example, the forward publishing function in software available in HotDocs, a popular provider of document assembly technology, allows banks and other financial institutions to maintain their own lending or operational forms. This means that changes to an institution’s form documents can be applied prior to new regulations coming in and accurate, updated templates can be made available to document users on the legally required date. Version control ensures that only the most up to date template is available for use, negating the risk of any old and non-compliant documents being issued. Such an automated system for updating forms based on regulatory changes is a classic example of technology making a compliance task faster, more efficient and effective.

Marrying technology to compliance will result in a much more effective compliance team. They can use their time to review dashboards, clear exceptions and otherwise exercise their experience and judgment instead of wasting time on rote or repetitive busywork. It also makes possible much more valuable internal and external compliance audits as well as meaningful reports to the bank’s board of directors on operational and compliance risks. Being smart in this area of regtech is mission critical for community banks and financial technology companies.

Another new approach is the creation and exploitation of intellectual property based on regulatory insights. Many times, figuring out a way to offer a new product or service, or offer an existing product in in a new way, depends on finding a regulatory interpretation that allows the innovation to proceed.—•?_ There is precedent for patenting new regulatory loopholes, including tax-related loopholes discovered and patented by CPAs and others. Some examples include a derivatives-related patent application, in which one of the authors of this article was a co-inventor, as well as several patents obtained by the consulting firm Promontory Financial, which are based on regulatory insights. Those patents have made possible new business processes and services.

A financial institution that has a flash of insight on how to improve an existing process or develop a new innovation should carefully consider seeking a patent or otherwise surrounding the regulatory insight with as much intellectual property protection as possible. We think that doing so is another great way to use regtech to get a business advantage.

Most banks and financial technology companies have important choices in deciding how and by whom they will be regulated in a particular jurisdiction. If you know you want to be a depository institution, you still need to choose (1) a state or national charter and (2) if a state charter, the chartering state; (3) the type of charter including a commercial bank, savings bank, savings and loan or credit union; and (4) depending on what charter you choose, whether to be a member institution in the Federal Reserve. Also available are a few “bank-lite” charters, such as an industrial loan company (ILC) charter that is available in seven states including Utah, or a trust company charter from one of several states. Some banks would do well to carefully consider changing their charter—and in the process, their regulator–to something that better supports their business goals.

For a business model based on lending money, there are the bank models mentioned above as well as a range of non-depository charters, such as the ILC charter and other state lending licenses. Many of these are only valid in the issuing state, which means that building a national business in the U.S. using multiple state lending licenses can quickly become a complex endeavor. Similarly, for a business model premised on moving money, including money transmission, payments, stored value cards, wallets and remittances to name a few, there is a similar choice between a web of state licenses or a carefully-crafted bank partnership, a blend of the two, or possibly one of the new federal charters being discussed by the Office of the Comptroller of the Currency.

Rent-a-charter is a derogatory term for a partnership between a bank or other chartered or non-chartered institution in which the bank lends its name (and little else) to the other party. Such an arrangement can lead to allegations that the non-chartered party is the “de facto” lender or other real party in interest and that the bank is not exercising sufficient oversight or control over the process. However, bank partnerships are crucial in the financial world and most of the time a business model can be built on a properly-structured bank partnership. The details of the partnership are extremely important and we think rise to the level of true regtech.

These are foundational choices with numerous and conflicting considerations. However, the business that shrewdly chooses its chartering path (and therefore its regulators) can gain a crucial edge on its competitors. For example, some financial technology companies are learning that some business models actually face a more complex and expensive compliance burden by not being a bank than they would have experienced by acquiring a bank charter. Thus, we think that the initial and ongoing chartering strategy is an element of regtech.

And finally, we think good old-fashioned lobbying is properly considered part of regtech. Think about the varied tactics used in Uber and Lyft’s efforts to beat back challenges to their shared ride business model. A large company like Uber, which has immense popularity with consumers, can use that popularity in its lobbying and negotiation with regulators. Might can make right.

For most other companies that lack the market clout of an Uber, lobbying can take more traditional forms such as convincing a range of stakeholders and legislators that statutory reform is necessary and appropriate to achieve a broader social good. Think about recent California legislation exempting free credit building loans (low or no-interest loans designed to help people build a good credit score) from finance lender legislation. Or think about the Consumer Financial Protection Bureau’s current advertising campaign—an effort ostensibly designed to raise consumer awareness of the bureau’s services that also helps build political support during an election year for a controversial agency.

Other situations are better suited for a quiet one-on-one approach. Sometimes this can result in a published interpretation or no-action letter that expressly blesses the proposed innovation. Probably more frequently, a no-names inquiry through lawyers or other representatives can get equally valuable information that has the added benefit of not being publicly available to competitors. With good faith around the key regulatory elements of a proposed innovation, a company can be first to market with a new product or service.

In summary, we think that regtech is not only useful in sparking thought and conversations in the financial industry, it may even spur innovation and profitability.

What Banks Need to Do to Address Technological Change


tech-change.png

In the past few years the fintech industry has grown exponentially. According to a recent Forbes article, the existing number of fintech start-ups globally are between 5,000 and 6,000, all seeking to take a slice of the financial services marketplace. The fintech industry broadly includes any new technology that touches the financial world, and in many ways, this industry redefines forever the notion of traditional banking. More specifically, fintech includes new payment systems and currencies such as bitcoin, service aggregators such as robo advisors, as well as mobile applications, data analytics and online lending platforms. The fintech industry can also be divided into collaborators and disruptors, those businesses that provide services to banks and those that are competitors for services and looking to displace banks. As new technologies and approaches to delivering financial services are adopted, community banks will be challenged to meet the future expectations of their customers as well as to assess the additional risks, costs, resources and supervisory concerns associated with providing new financial services and products in a highly regulated environment.

The largest commercial banks have recognized the future competitive impact on their business as fintech companies create new and efficient ways to deliver services to their customers. Bank of America, for example, recently announced a fintech initiative and plans to target the start-up market for potential acquisitions. The large banks have the advantage of scale, deep pockets and the luxury of making bets on new technologies. If not by acquisition, other banks are partnering with new players that have unique capabilities to offer products outside of traditional banking. While community banks are not new to the benefits of fintech, the advancement and number of new technologies and potential competitors have been difficult to keep up with and integrate into a traditional bank’s business model. On top of that, the fintech industry remains largely unregulated at the federal level, at least for now.

Competition, compliance and cost are the three critical factors that bank management and board members must assess in adopting new technologies or fending them off by trying to stick with traditional banking values. Good, old-fashioned service based on long-term banking relationships may become a thing of the past as the millennial generation grows older. Contactless banking by the end of this decade or sooner could rule the financial services industry. While in some small community banking markets, the traditional relationship model may survive, it is far from certain as the number of brick-and-mortar bank branches in the United States continues to decline.

Also falling under the fintech umbrella is the rapidly escalating online marketplace lending industry. While most banks may rationalize that these new alternative lending sources do not meet prudent credit standards in a regulated environment, the industry provides sources of consumer, business and real estate credit serving a diverse market in the billions. While the grass roots banking lobby has been around forever, longtime banks should take note that the fintech industry is also gaining support on Capitol Hill, as a group of Republicans are now preparing legislation coined the “Innovation Initiative” to facilitate the advancement and growth of fintech within the financial services industry.

Fortunately, the banking regulators are also supportive of innovation and the adoption of new technologies. The Comptroller of the Currency in March released a statement on its perspective on responsible innovation. As Comptroller Thomas Curry noted, “At the OCC, we are making certain that institutions with federal charters have a regulatory framework that is receptive to responsible innovation along with the supervision that supports it.” In an April speech, he confirmed the OCC’s commitment to innovation and acceptance of new technologies adopted by banks, provided safety and soundness standards are adhered to. The operative words here are responsible and supervision.

Innovation will come with a price, particularly for small and midsize community banks. Compliance costs as banks adopt new technologies will increase, with greater risk management responsibilities, effective corporate governance and advanced internal controls being required. Banks may find it necessary to hire dedicated in-house staff with Silicon Valley-type expertise, hire chief technology officers and perhaps even change the board’s composition to include members that have strong technology backgrounds. In the end, banks need to step up their technology learning curve, find ways to be competitive and choose new technologies that serve the banking needs and expectations of their customers as banking and fintech continues to converge.

This article was originally featured on BankDirector.com.

Taking on the Toughest Challenges


As bank leaders explore different avenues for growth, they must also weigh the risks that could threaten their institution. In this panel discussion from Bank Director’s 2016 Bank Audit & Risk Committees Conference, led by President & CEO Al Dominick, Dale Gibbons of Western Alliance Bancorp., Lynn McKenzie of KPMG and Bill Fay of Barack Ferrazzano Kirschbaum & Nagelberg focus on the key issues that bank boards and executive teams need to address, from third-party vendor risk to strategic growth.

Highlights from this video:

  • Top Issues for Audit & Risk Committees
  • Aligning Growth Strategy & Risk
  • Evaluating Partnership Opportunities
  • Addressing Technology & Cybersecurity as a Board

The Speed of Innovation


The unprecedented rate at which technology is rapidly improving experiences, costs and efficiencies is directly impacting the future of the banking industry. In this video, Thomas Jankovich of Deloitte Consulting shares three trends that bank executives and directors should focus on today.

*This video was originally published on FinXTech.com.

BNY Mellon Is Betting on Blockchain


blockchain-6-24-16.pngSometimes people ask BNY Chief Information Officer Suresh Kumar if blockchain is a friend or foe. “Why would I think of that as a foe?” Kumar told the magazine Fast Company in June. “It’s another piece of technology that could help us and our clients and remove friction from the system.”

Blockchain is the technology underlying bitcoin, the most popular form of cryptocurrency, a digital, encrypted currency that isn’t tied to a central bank. Blockchain is the public ledger for all bitcoin transactions, and each block on the blockchain represents a transaction. These transactions are irreversible.

Organizations, including banks, see potential for blockchain technology to revolutionize many areas of the financial industry and beyond, including securities trading, payments, fraud prevention and regulatory compliance. “We think blockchain can be transformative,” said BNY Mellon CEO Gerald Hassell, in the company’s first quarter 2016 earnings call. “We’re spending a lot of time and energy on it, but I think it’s going to take some time to see it play out in a full, meaningful way. We actually see ourselves as one of the major participants in using the technology to improve the efficiency of our operations and the resiliency of our operations.”

Saket Sharma, BNY Mellon’s chief information officer of treasury services, chairs a virtual team at the bank that includes all lines of the bank’s business. The team meets monthly, with the goal to foster understanding regarding how blockchain could impact each area of the organization. Meanwhile, BNY Mellon’s innovation center actively works with the technology. “We need to constantly be in touch with it, because technology’s evolving so rapidly,” he says.

BNY Mellon created an internal currency, called “BKoins,” to understand how blockchain technology could impact the bank. “We thought it would be good to do something purely internally, and learn about the technology,” says Sharma.

BKoin doesn’t have real value, but by working with it, the technology team now understands how the blockchain is generated, and from there is learning how it could transform different business lines, as well as the organization as a whole. It was widely reported last year that the cryptocurrency would be used as an internal rewards program, where employees could exchange BKoins for gift cards and perks. While the bank doesn’t rule out those possibilities for the future, Sharma says that this isn’t how BKoin is currently used and, aside from that, was never the goal. The goal is to educate BNY Mellon’s technology team and business lines about blockchain’s possibilities, and create a conversation about the technology’s potential for the organization. The approach has resulted in a significant increase in knowledge about blockchain at BNY Mellon in the span of just a few months, he says.

BNY Mellon isn’t the only bank using its own internal cryptocurrency to test blockchain’s potential. Citigroup and Japan’s Bank of Tokyo-Mitsubishi UFJ are also experimenting with proprietary digital currencies.

In addition to internal trials, BNY Mellon is also a member of a consortium of more than 40 global banks, including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp., which is led by the financial innovation firm R3 in New York. Following a smaller test in January, 40 banks, including BNY Mellon, successfully traded fixed income assets in March using blockchains built by IBM, Intel and startup firms Chain, Eris Industries and Ethereum.

How blockchain will impact the banking industry is unclear for now. But the potential benefits are promising: Efficiency gains created through the technology could save the industry $20 billion annually by 2022, according to a joint paper released by Santander Innoventures, the consulting firm Oliver Wyman and London-based advisory firm Anthemis Group.

But the blockchain probably isn’t ready for primetime yet. In June, a hack resulted in the theft of almost 4 million “ether,” a cryptocurrency housed on the Ethereum blockchain, from the Decentralized Autonomous Organization (DAO), a crowdfunded venture capital firm. At the time, the stolen “ether” was valued at $79.6 million. After the discovery, the value of the cryptocurrency plunged precipitously. Bitcoin’s value stumbled as well.

Two days after the DAO incident, Ethereum creator Vitalik Buterin wrote: “There will be further bugs, and we will learn further lessons; there will not be a single magic technology that solves everything.”

Banks are less comfortable with the inevitable failures that come along with experimentation, but BNY Mellon and other global banks will continue to cautiously experiment, combining internal experiments with peer collaboration. “We’re going to have to work together with our industry peers to really drive [blockchain innovation],” says Sharma.

A New Challenge for CMOs: How to Spend All That Money


spendmoney-6-17.png

According to the consulting firm Gartner, by 2017 chief marketing officers will spend more on technology than their chief information officer counterparts. That money will be spent on customer relationship management (CRM) systems, digital marketing, database marketing, marketing automation, customer analytics, mobile marketing and e-commerce. That seismic shift has led to a Cambrian explosion in marketing technology companies from 150 in 2011 to 3,800 in 2016.

This puts the bank CMO in a tricky spot given a two to three year purchase and integration cycle. How does the CMO know if the technology he or she adopts today won’t be facing extinction three years from now? Moreover, the stakes are high with billions of dollars in venture capital money being invested into disaggregating the banking business—making the need to leverage technologies to preserve and deepen bank customer relationships an almost existential requirement.

What’s a CMO to do? Let’s start by asking the right questions:

  1. What’s the biggest problem I need to solve right now—revenue growth, retention, engagement?
  2. How will I know that I’ve solved it?
  3. Am I likely to solve it by using internal resources given the organization’s past history? And can I do it in the market time allotted?
  4. Do I have time to wait for other banks to solve the problem so I can copy their solution?
  5. How do I select a solution, given the thousands of companies operating in the space?

Here’s my take on the answers:

First, the biggest problem in banking is customer retention; once solved — you get a bank like Wells Fargo, the world’s largest bank by market capitalization. You’ll know if you’ve solved it when your level of customer churn drops to the low single digits.

Second, it’s difficult to bring innovative solutions to life from inside the bank, which means it’s going to be slow going–if it ever happens. The fintech start-ups and their respective investors are placing big bets that innovation won’t come from within so it’s a fair bet that it won’t.

Third, waiting for someone else to solve the problem historically has been a good, low-risk strategy, but it’s incompatible with the rate at which money is being poured into fintech, which aims to disaggregate banking. Banks don’t want to be like taxi companies waiting around to see if another taxi company solves the Uber problem.

And lastly, selecting solutions among thousands of companies begs for some criteria, so here’s my list:

“Plan to kiss a lot of frogs.” Ah, the virtues of lightweight integration. It’ll be difficult to test a bunch of solutions that each take several years and a lot of resources to implement. Look for solutions that can be tested with minimal integration effort and cost. You’ll likely have a long list of candidates to get through. If you think a particular solution will work, you can go ahead and spend the money to do a full integration.

“Don’t try to sweet talk your soon to be ex-customer.” In short, plan to measure customer satisfaction if you aren’t already doing so before you try to test or implement marketing technology solutions. Customer retention is dependent upon delighted customers, the attractiveness of alternatives and the cost of switching. In the bank space, switching costs and happy customers drive retention because the products themselves are difficult to differentiate. Delighted customers can be measured using Bain’s Net Promoter scores, while switching costs can be measured by the number of products and services per customer. These two metrics–NPS and products per customer–enable both problem and success definition. Moreover, you can’t deepen relationships with customers who don’t like the bank no matter how cool the marketing technology may be.

“Get Engaged!” Place a premium on solutions that customers really engage with– and that’s not going to be a better-targeted banner ad. Much more engaging solutions are available today, so find and test them.

“Channel Surf!” All solutions must operate in a coordinated manner across multiple digital channels including: mobile apps, online banking and SMS, and also off the bank’s digital property like Facebook, Twitter and any other website where customers go, for that matter. And solutions must produce actionable feedback out of the channels.

“High IQ!” Machine learning is no longer optional–it’s required because humans just can’t process the amount of data produced through the digital channels in any relevant time frame. Machines have to perform that function in a systematic and additive fashion.

The stakes couldn’t be higher for CMOs but they also have both an unprecedented budget and variety of weapons to choose from to win the war–so choose wisely.

Icebergs Ahead: Five Questions Every Board Should Ask the CISO


CISO-questions-5-30-16.pngPicture this: Your chief information security officer (CISO) has arrived at the board meeting to give a rundown on your bank’s latest efforts to mitigate cyber risk. You’d like to take an active role in data governance (kudos for that!), but what are you supposed to ask? You’re not a cyber security expert.

In fact, many board members may not understand everything that the CISO’s role entails or the specifics of how the CISO’s responsibilities differ from those of the CIO and CTO. Whereas CIOs and CTOs make the technology work, CISOs identify and manage technology-related threats to the bank’s operations or reputation. They must obtain a 360-degree view of the threats and how much they might end up costing the organization, as well as the costs of reducing the probability of a cyber-attack to an acceptable level.

Given the prevalence of security breaches and the scope and magnitude of the consequences, getting “up close and personal” with your CISO shouldn’t require a chance encounter in the elevator. You should demand direct access to the CISO on a formal—and regular—basis.

But that doesn’t mean you need to dig into the technical details about risks and mitigation plans. By asking a set of high-level questions, you can gather information that positions you to be an active participant in key strategic decisions relating to information security:

1. What are the top information-security threats facing your bank? These are the “icebergs” that have the potential to severely damage the bank’s viability. Theft of data often grabs the headlines, but cyber attacks are alarmingly diverse. Other potential threats include a “denial of service” attack that could stop your bank from operating its business, as well as malware injection and phishing, to name just a few.

2. For each of these major threats, what are your bank’s mitigation strategies and the costs for executing them? Find out how the information security team plans to reduce these threats to a tolerable level and ensure that the costs of mitigation don’t outweigh the expected benefits. The CISO should also be able to explain how the team monitors the performance of the mitigation actions.

3. How frequently does your company reevaluate previously identified risks and seek to identify new ones? The information security team should never assume that it knows all the major threats or is mitigating them effectively. Ensure that the team re-evaluates which icebergs are out there at least annually, and then examines whether its mitigation strategies are still effective.

4. What is the crisis response plan when risk management fails? It’s a question of when, not if, your bank will experience some form of a cyber attack. How it responds will make a huge difference in terms of both financial and reputational damage. The CISO should be able to present a few slides that summarize the response plan for the top-three threat scenarios. Make sure the information security team is applying lessons from previous incidents that occurred at your bank and as well as at other banks in their efforts to aggressively manage the potential fallout from attacks.

5. To what extent are the budgets for technology spending and security spending aligned and proportionately scaled? Security spending should grow proportionately with technology spending. You don’t want your technology infrastructure to grow faster than the information security team’s ability to mitigate the risks. Ensure that the team has the resources it needs to keep pace.

Remember, you don’t have to be a cybersecurity expert to talk to the CISO. If the discussion strays into the technical weeds, steer the CISO back to business issues. The same common sense principles and risk-versus-reward assessments that drive discussions when you’re planning a merger or acquisition are just as helpful if you’re talking about information security risks with your CISO.

Leveraging Technology to Strengthen the Enterprise


stengthen-enterprise.png

A Georgia bank CEO was recently quoted as saying that he doesn’t “need technology that is going to help make more loans,” but technology that will “help make the loans [he’s] already making more efficiently.” His comments represent a much larger discussion about the the role of financial technology to either disrupt the banking industry or enable banks to respond more quickly to changing consumer expectations for things like speed and convenience. While non-bank financial startups are centered around technology and exploring how it might revolutionize banking, banks are trying to understand how technology can impact their existing operations and customer experience.

Specific to commercial and small business lending, there are five key areas where banks can incorporate technology to position themselves for improved performance, service and longevity given today’s market conditions and competitive factors:

Measuring financial efficiency
There are two ways to measure efficiency; the first is the financial definition of efficiency, or the efficiency ratio. The second is the practical type, characterized by shortened turnaround times, faster processes and easier methods. Both types of efficiency can be influenced by technology, but the current lending landscape calls for more focus on the latter. Using technology to speed up processes and eliminate waste will ultimately create higher and more consistent profits, a more resilient risk profile and employees empowered to make better decisions.

Achieving efficiency through auto decisioning
In an era where the rise of alternative lenders has prompted customers to demand instant action on loan queries, banks must be able to quickly and accurately deliver loan verdicts. By implementing auto decisioning technology, banks can more effectively compete against digital-platform lenders, and then grow that business. Banks’ advantage over non-bank lenders lies in their funding stability and mindfulness of operational compliance. Getting up to speed—literally–in delivering quick, smart loan approvals can give them a big boost.

Embracing the digital relationship with business customers
Banks have an opportunity to leverage technology solutions to not only better connect with their current customers, but also to attract new ones by supplementing face-to-face interaction with digital tools. Arm bankers with tools in the field so that they may meet customers where they are, and perform the same functions they could in-branch. And provide customers with a digital channel so they can track the status of a loan or complete and return important documentation from their home.

Engaging in treasury management opportunities
Treasury management is a valuable business for banks, and an area that many experts predict will have an expanding role in coming years. However, the onboarding process can be a very complex one encumbered by manual processing and poor workflow management. Transitioning to electronic documents for onboarding and seeking to automate pricing, approval and even status tracking will offer significant rewards to banks’ commercial transaction goals.

Acquiring and retaining the right talent
In recent years, the industry has experienced an alarming trend in young talent either not being interested in banking or unexpectedly leaving the industry. A large factor in this decision is banks’ hesitation to replace dated legacy systems in favor of new, cutting-edge technologies. Employees want to work in an environment where the systems they use mirror the technology user experience they have in their personal lives — intuitive, streamlined and empowered.

I predict 2016 will be the year when bankers more completely embrace technology and view it as a tool that will take their institutions into the next generation by allowing them to do the same things they’ve always done, but with much greater speed and efficiency.

Four Ideas to Engage Millennials as Bank Customers and Investors


millennials-5-11-16.pngIn my work advising community banks on capital and liquidity issues, one of the more common concerns I encounter is how to deal with a changing shareholder base. As existing shareholders age or pass away, they are bequeathing their stock to children and grandchildren, many of whom have no connection to the bank or no longer live in the same community.

Engaging and retaining these younger shareholders has become a challenge—they might sell the shares at a discounted price or fail to support the bank or subsequent capital raises. After all, as all community banks know: A bank’s best shareholders are its customers. Fortunately, there are a number of things community banks can do now to foster better relationships with the younger generation, including millennials.

1. Embrace the Crowd

The recent adoption of Regulation A+, a provision under the Jumpstart Our Business Startups (JOBS) Act, allows small companies to raise up to $50 million in crowdfunded offerings from non-accredited investors in any 12-month period. Millennials are natural crowdfunding investors. In fact, millennials’ craving for connection and desire to give back to their communities makes them more likely to participate in crowdfunding than more traditional capital raises.

That’s a benefit to community banks that are looking to raise capital under Reg A+. Already, several community banks have filed Reg A+ offerings to either issue shares in connection with a merger/acquisition or to redeem preferred stock issued from the Small Business Lending Fund, or SBLF, program. We’ll be keeping an eye on these offerings to see how they progress.

2. Get Tech Savvy

While most bank directors will remember a time before the Internet and mobile phones, today’s youth were weaned on smartphones. Millennials have seen technology transform and disrupt almost every aspect of their lives, from how they communicate, to how they consume entertainment, to how they bank.

In fact, according to a Viacom Media Networks’ survey, The Millennial Disruption Index, 68 percent of millennials believe that in five years, the way we access money will be totally different. Seventy percent believe that the way we pay for things will be completely different and 33 percent believe they won’t need a bank at all. Eek!

For community banks, that means investing in technology is critical. Online and mobile banking services are no longer optional, they are essential. Also, young and old alike are relying on web sites and electronic delivery of company reports and financial information so they can make investment decisions. To meet that demand, banks on our OTCQX market are providing news, quarterly and annual financial reports, which can be easily accessed via Yahoo! Finance and other financial portals.

Banks that don’t invest in their web presence to ensure their news travels risk being overlooked by millennials researching them online.

3. Invest in Education

Millennials grew up during the recession and are more frugal than the generation before. At the same time, they are more skeptical of traditional authority figures when it comes to managing their finances. All this has a resulted in a certain anxiety around finances. A recent study by Bank of America Corp. and USA Today found 41 percent of millennials are “chronically stressed” about money. Only one-third (34 percent) of millennials feel content about their finances, while many are anxious (2 percent) and overwhelmed (22 percent).

For community banks, that presents a tremendous opportunity for education. Chicago-area Liberty Bank for Savings has held free workshops on reducing student debt, even bringing in a debt specialist. Virginia Beach, Virginia’s Bank @tlantic holds regular “lunch and learn” sessions with guest speakers on everything from first-time home buying to cybersecurity for small businesses.

4. Think Outside the Box

Heads buried in their smartphones and tablets, millennials have gained a reputation that they care only about themselves. But that’s just not true. In truth, millennials care deeply about their local communities and the world around them. They want to know that what they do makes a difference. That presents a significant opportunity for community banks which are already deeply embedded in the communities they serve.

But it also means thinking about your community involvement differently. Instead of simply donating to local organizations, organize events where millennials can get involved. Liberty Bank for Savings partnered with a local news site to sponsor a Saturday night “taco crawl” to five local taco restaurants. Other banks have had success inviting their millennial customers to exclusive events they might not otherwise be able to attend like high-profile fashion shows and sporting events.

Think outside the box and you’ll find other ways to engage today’s youth as customers and shareholders.