Becoming an Innovator With a Research Lab


One of the most innovative companies on the planet, Google, is allowing researchers to spend their entire days dreaming up big ideas that have little immediate connection to making a profit—like inventing driverless cars. Research is being done in a lab near headquarters called Google X with an idiosyncratic cast of characters, according to Fast Company magazine. Google X is different from a lot of innovation labs. Two of the criteria for any project are that it has to affect millions or billions of people and it can’t be an incremental improvement.

It’s a great idea, if not for the fact that few American companies bother with such basic research innovation labs. You have to spend money that is hardly justified from a shareholder perspective without any clear goal of making a profit, let alone accomplishing a result in a specific timeframe. Gone are the days of Bell Laboratories, which for decades invented things that would transform the world such as the transistor in the 1950s, which later became the basis for the computer chip, not to mention inventions that were also useful for AT&T. For proper perspective, Google X, as awesome as it clearly sounds, employs 250 people. Bell Labs during its heyday employed 15,000.

“Those were the days of pure research,’’ says Bert DuMars, a former Forrester Research analyst who has gone on to become vice president of digital marketing at Bi-Lo Holdings, the grocery store company. DuMars wrote a report in December 2013 on “The Costs and Benefits of Marketing Innovation Labs.” Many large companies now run these labs, albeit with a clear financial goal and a way shorter timeline than Google X does. They might have a two-year window to implementation, not a 10-year timeline. “No business wants to create another white elephant because they become very expensive and unusable,” DuMars says.

Companies with marketing innovation labs include Wal-Mart, Comcast, Chick-fil-A, Capital One and Wells Fargo & Co. Wells Fargo has a separate space near its San Francisco headquarters that employs more than a dozen people. The company calls it “WF Digital Labs,” and says it is a test-and-learn platform for new, innovative concepts on the digital experience for customers. The mission of the lab is to spark new ideas, re-imagine existing “experiences,” and enable innovation, including developing demos and prototypes for the bank and beta testing those ideas in front of customers and Wells Fargo employees.

This year, the lab’s goals included exploring Google Glass and other smart wearables (such as Samsung Watch) as well as new forms of authenticating customers using biometrics. The lab also worked on creating seamless experiences across digital platforms for the bank, such as online and mobile banking. So unlike Google X, Wells Fargo’s lab is very much focused on improving the basic customer experience with the bank.

DuMars says that companies that succeed with these labs establish clear goals, budgets and venues, with a C-level leader responsible for their success. You have to decide if your company really has the organizational culture to foster and help innovation succeed, otherwise, don’t do it. Innovation labs require:

  • Significant investments in talent and technology. You could start with as little as 5 to 10 people, but keep in mind, the average annual cost per lab employee is about $228,515 based on an average office lease rate of $400 per square foot in Silicon Valley. Rent might be cheaper elsewhere in the country, but you still have to attract the right talent to your designated location.
  • Specific goals. Decide what they are. Most labs do not execute their innovations, although some, such as Comcast’s, do.
  • A calculated decision on whether your lab will be housed in a city known for its innovation such as Silicon Valley or co-located with your headquarters office. Chick-fil-A has two full-sized experimental restaurants where headquarters employees can go test the latest projects, such as using iPhones at the drive-through. Capital One has an innovation lab in San Francisco that allows people to walk in off the street, sip coffee made by baristas and test out new banking ideas and apps from the researchers in the lab.

Many game-changing innovations that transform the world may not be hatched in these laboratories, but they are a start to staying competitive in a changing world.

The Top Five Technology Trends in Financial Services


9-10-14-CDW.jpgFrom transactions migrating to the cloud, to mobility reaching a tipping point and the influence of big data, the financial services industry is facing a new reality in 2014 and into the future. While addressing customer needs, financial services organizations must also maintain a sharp focus on meeting regulatory compliance standards and proactively addressing cyber threats.

1. Cloud Adoption Accelerates
Shifting business models, an intensified focus on efficiency and demand for customer-orientated technology is driving cloud computing technology adoption like never before. The fact that 71 percent of financial services organizations say they will invest more in cloud computing this year, which is up from 18 percent in the previous year, is proof positive that the cloud adoption ship has sailed, according to a 2013 report from PwC. And, the cloud is infiltrating all sectors of the financial services industry. Sixty percent of banks worldwide will process transactions in the cloud by 2016, while 77 percent of capital markets firms will leverage the cloud this year alone, according to technology research firm Gartner. In addition, many in the financial services industry have started to realize the quantifiable benefits that the cloud can deliver, like reduced infrastructure and hardware costs. The average cost reduction due to cloud computing savings on infrastructure is 23 percent, says a survey of a variety of companies by Rackspace and market research firm Vanson Bourne.

2. Mobility Makes Its Move
Mobility in the financial services industry has reached a tipping point. With the number of U.S. smartphone users predicted to increase to more than 265 million by 2017, according to research and consulting firm Frost & Sullivan, financial services organizations that haven’t created a mobile strategy are putting their growth and efficiency at risk. The mobile app market is exploding as banks, credit unions and capital markets firms embrace mobile services as a way to harness this constant, real-time interaction and significantly enhance the customer experience. In fact, 32 percent of U.S. adults now bank using their mobile phones, 51 percent of consumers use their phones to make a mobile payment and 51 percent of capital markets firms intend to invest in app-driven technology to achieve efficiencies, says surveys by the Credit Union National Association, the Pew Internet & American Life Project and IPC Systems.

3. Cyber Security Concerns Loom Large
The proliferation of mobile apps, cloud computing and big data are just some of the reasons why cyber security remains a top concern for the financial services industry. While retail security breaches demand the headlines, attacks on financial institutions still loom large. In fact, 37 percent of cyber attacks are directed at financial services organizations, according to a Verizon Data Breach Investigations Report. Recognizing that it’s critical to proactively combat rising cyber crime, 93 percent of financial organizations are maintaining or increasing their cyber security investments, says Ernst & Young. This includes allocating 46 percent of information technology (IT) spend toward security improvement, expansion and innovation over the next 12 months.

4. Big Data in the Driver’s Seat
Seventy-one percent of the financial services industry is already using big data and predictive analytics, but the demand for big data is getting bigger, according to the University of Oxford and IBM. This is the year that organizations will truly leverage big data to change the way they do business and achieve a competitive advantage by enhancing their knowledge of customers and prospects. Leading financial services firms are more confident than ever before about how they can use big data: 70 percent of data leaders say they can generate forward-looking insights from their data and 72 percent understand how to integrate performance and risk analytics, according to State Street Corp., which surveyed global financial institutions.

5. Regulatory Compliance Remains a Priority
Making it a priority to stay ahead of the regulatory compliance curve is crucial to the success of any financial services organization. Unfortunately, this is easier said than done. Nearly 80 percent of financial institutions admit to significant concerns about staying abreast of regulatory change and complying with regulator demands, according to a survey by Wolters Kluwer Financial Services. That is likely the reason many are heavily investing in compliance technology—to the tune of a 35 percent growth in compliance spending by 2015, says the Aite Group—as the market maintains its focus on compliance and reform. The trickle down effects of regulatory reforms—such as the Dodd Frank Act and recent Volcker Rule—continue to impact some 87 percent of financial services companies, according to Deloitte.

Is Your Bank Ready for the Cloud?


8-27-14-cisco.pngFinancial services firms, like other companies, are running out of computing and storage space with available resources, and they are turning to cloud computing as a way to deliver information technology services on an as-needed basis. Firms are now looking for ways to stretch their existing data centers, as they often need more computing and storage capacity than their own facilities provide, especially during peak high-demand times. With the importance of this from a strategy and security standpoint, the board of the bank needs to provide proper oversight over this issue.

What is Cloud Computing?
Think of the cloud of a collection of computers where services such as compute (crunching numbers and data), and storage (a place to store the data that is being crunched and the results of that), are delivered dynamically as a service, rather than as a product. These services are typically delivered over the network, and in many cases, the Internet.

Instead of a line of business requesting 40 servers for a new data analytics software package, an IT team could deploy that software package on a cloud environment and provide access to the software. A dynamic cloud environment may give more compute and storage capacity when the application needs it and allocate less in periods of slow volume. This system of dynamic resource allocation makes the cloud an economical solution for large organizations.

Challenges With Financial Services IT Delivery
Data centers are a considerable investment to build and operate. Banking in the cloud lets banks extend their data center and current infrastructure when needed, while also providing additional data storage and computing capabilities offsite. In many cases, additional computing capacity is needed only for a short time in order to run certain risk models or to provide additional reporting for regulatory requirements. In this instance, a cloud-based infrastructure could be used to augment current big data and risk/analytics environments that banks have deployed.

The Trend to Hybrid Clouds
Today’s banks are in various stages of their cloud journey. Some have built their own private cloud hosting, defined as a single-tenant environment where the hardware, storage and network are dedicated to a single client or company. The resources and equipment required to run it are usually deployed in the firm’s own data center and managed by their own IT staff. Others utilize third parties to augment their own in-house application development efforts, a hybrid approach. A hybrid cloud service is a cloud computing service that is composed of some combination of private, public and community cloud services, from different service providers. Typically in this environment, a firm may have its own in-house private cloud environment, but may connect its private cloud to another provider’s cloud. In some cases, these facilities are located off-shore in foreign countries, and are not permitted to connect to, or utilize the bank’s internal network. In these instances, banks can benefit from using cloud solutions that allow temporary computing capacity, without a significant capital expenditure or time.

The Cloud’s Differentiated Services
Financial institutions can build secure hybrid clouds that only allow certain credentials to access bank data. Private cloud solutions provide a purpose-built, secure environment in which financial services institutions can very efficiently expand their compute capacity at a very low cost. In addition, the institution has full transparency to the environment from a monitoring and systems management perspective. When the bank needs additional space, it can use a public cloud, which shares data from a number of different sources and will require a higher level of security or care in what kind of data is housed there.

Board Oversight
Given that banks are increasingly turning to cloud computing, it makes sense for the board to know whether and how the institution is using cloud computing, and provide proper risk management oversight. Questions the board should ask include:

  • Is our bank currently using cloud computing services?
  • Do we intend to?
  • Do we have a private “cloud” or do we use third parties?
  • What security do we employ?
  • What kind of data is housed there?
  • How do our regulators view the use of cloud computing?
  • What are the advantages and disadvantages of the various types of cloud computing?

2014 Growth Strategy Survey: Technology’s Role in a More Profitable Bank


8-22-14-Growth-Survey.pngIt’s not overstating the case to say that meeting strategic growth goals in today’s current climate is a huge challenge for the nation’s banks. In fact, 84 percent of the officers and board members who responded to Bank Director’s 2014 Growth Strategy Survey, sponsored by Vernon Hills, Illinois-based technology firm CDW, say that today’s highly competitive environment is their institutions’ greatest challenge when it comes to organic growth—a challenge further exacerbated by the increasing number of challengers from outside the industry primed to steal business from traditional banks.

Technology can be a valuable tool in differentiating the bank’s offerings to consumers, and as a part of the bank’s overall strategy, can help make the institution more profitable. Many of the directors and executives responding to the survey reveal that they want to know more about how technology can make the bank more efficient, and which technology trends can improve their customers’ experience. The technology is out there—but many industry leaders don’t know what technology to use, or how to deploy it. So bank boards give the topic a wide berth: Just 30 percent say that technology is on the agenda for every board meeting.

More than 100 directors and senior executives of banks nationwide responded to the survey, which was conducted by email in June and July.

Key Findings:

  • Respondents reveal a strong need to better understand how technology can make the bank more efficient and improve the customer experience – but just 30 percent say that their board discusses technology at every board meeting. The majority of respondents, 47 percent, address the issue quarterly.
  • Fifty-two percent of directors and officers want to better understand business intelligence and analytics. More than 40 percent of all respondents, 78 percent of those from banks with more than $5 billion in assets, currently use data to support the bank’s growth goals. An additional 15 percent plan to use analytics over the next 12 months.
  • More than half reveal concerns about how their bank will address the evolving state of mobile banking. Eighty-seven percent offer mobile banking and 12 percent plan to offer this service to customers.
  • Omnichannel banking, which integrates delivery channels such as mobile, online and branch, is a great source of uncertainty for senior management and directors. Almost half say that they want a better understanding of this approach to banking. More than one-third use or plan to use omnichannel banking to grow within the next year—but an almost equal number are unsure how or when omnichannel banking will be integrated within their organization.
  • Core processors can make or break the organization’s ability to innovate, especially at community banks that depend on vendors for their technological know-how. Half reveal that their core processor is slow to respond to innovations.
  • One-quarter of respondents say that their IT staff lacks the resources to support the bank’s growth plans and current operations, with many citing a need for additional or more highly trained staff.

Download the summary results in PDF format.

Seeking Success Through Innovation


seeking-success-article.pngBanking is not known for its innovative qualities, let’s face it. One could argue convincingly that the last great innovation in commercial banking was the ATM machine, first introduced in the United States in 1969. Many mobile banking apps leave something to be desired and checks take too long to process, while non-bank competitors such as PayPal and Wal-Mart Stores Inc. are gobbling up market share for everything from payments to loans.

Commercial banking—I’m not talking about the wild ride of investment banking—is conservative for good reason. Banks have long enjoyed special status as the safe house for everybody’s money, not to mention the source of a great deal of the economy’s funding—status that has led to heavy regulation to protect that system. That conservative bone inside the body of nearly every commercial banker leads to a reluctance to spend unnecessarily on technology, or waste shareholder investment, as well as skepticism toward new-fangled products.

But technology has an important role to play in attracting and retaining customers. Boards and management teams should not sit around and watch their customers go elsewhere as the competition installs new technology and steals market share. In an age where customers are increasingly comfortable with mobile banking applications, or shopping online for auto or home loans, your bank will need to pay attention to trends. It is possible to lose customers because you assumed the old way was the best way. Do you really think people under the age of 40 are going to real estate agents to get referrals to mortgage lenders? Or are they going to Yelp, or Angie’s List or Facebook? Some community bankers have expressed a fear to me that their banks might soon become irrelevant.

Bank boards clearly have to define their bank’s strategy as it relates to technology. There is no need to be an early adopter if you don’t want to be. The biggest banks use technology to enhance customer service and improve the bottom line, including person-to-person payments and online chat, but smaller banks are definitely finding these technologies useful as well. Banks well below the $50-billion asset mark offer coupons with mobile banking, mobile picture pay and personal financial management tools. “If you are a community bank, it’s unlikely that you are going to have a world leading platform,’’ says The Boston Consulting Group’s Corey Booth. “You don’t have the resources. You might want to keep up with the Jones’ or whatever Fiserv gives you. You have to decide your posture.”

seeking-success.pngAll of this makes writing a special section on innovation in banking a challenging task. We wanted to show ways that new technology or innovative ideas really were changing the game for some banks in terms of retaining customers, increasing market share or improving efficiencies and profits. We looked for innovations, not necessarily technological ones, that made a measurable improvement. Of course, mobile banking is clearly changing the way banks deliver services. More transactions are conducted remotely than ever before, and branch traffic is dwindling. Everyone knows that. But what new mobile applications make some banks stand out in terms of ease of use and efficiencies? For some banks, mobile photo bill pay is attracting new customers. Personal financial management tools hold the promise of generating fee income. How are some banks achieving efficiencies with innovative branch designs that allow for a combination of self-service and a personal touch? At Extraco Banks in Temple, Texas, for example, image-enabled ATMs are handling about 20 percent of the $1.2-billion asset bank’s deposits. Data analytics is another innovation that banks are increasingly using to effectively target marketing campaigns. Minneapolis-based U.S. Bancorp, for example, tracks customers’ online behavior and transactions, so the bank can send personalized messages or even call them on the phone when the data “flags” them as good sales prospects. The data analysis is so sophisticated that the bank can prioritize prospects based on the likelihood of closing a sale and adjust the delivery message based on that. And finally, voice biometrics at Barclays is quickly handling security so customers don’t get bogged down in a call center “miserable moment”. And the customers love it.

While it may be a few more years before we see anything revolutionize the efficient delivery of services across the board like the ATM did in 1969, we can at least take a look at truly innovative designs and solutions that are changing the experience for some banks, and for their customers. We hoped to find those nuggets of change that are making a real difference.

Personal Financial Management Tools Help Customers Help Themselves


personal-finance.pngPersonal financial management (PFM) has a dual personality these days. On one side are Quicken-like planning packages that simplify budgeting and other financial tasks, but still require a certain amount of regular care and attention from users. For years—decades even—this type of “traditional PFM” has attracted about one in five consumers. “That market is steady, though its future is dimming,” says Mark Schwanhausser, director of omni-channel financial services at San Francisco, California-based technology consulting firm Javelin Strategy & Research.

Exploding in number, on the other hand, are web and mobile apps that provide quick bursts of financial information and activity for people making on-the-go financial decisions. The apps run the gamut, helping users get rewards, avoid late fees, pay bills, save on taxes, and a whole lot more, all through the slick interfaces common to today’s mobile devices. “PFM in the future goes so far beyond what it is today,” Schwanhausser says. “We’ll see PFM thrust in front of consumers every time they log on.”

Perhaps no company better exhibits PFM’s split personality than D3 Technology Inc. of Omaha, Nebraska. Founded in 2007, it adds its PFM tool to the online banking software of various providers, most notably Jack Henry & Associates of Monett, Missouri. More than 220 banks have signed up for the popular service.

But Chief Executive Officer Mark Vipond is not overly optimistic that the software will move PFM usage much beyond the long-standing rate of 20 percent, noting that the banks are mostly deploying PFM as a separate tab from online banking, creating yet another silo to support as well as a distinct user experience, mostly for “money hawks” who want to dive into their finances. “The adoption levels mimic those we’ve seen elsewhere,” he notes.

While the company plans to continue supporting PFM as a separate add-on to online banking, hope for much higher adoption lies in a version of the software D3 has been working on for the past two and a half years. The new digital platform provides equal support for PFM and online banking (as well as money movement). Burdensome PFM tasks like budgeting and expense categorization occur automatically, based on transaction history, right within the online banking interface. Only half in jest, Vipond said he expected usage to reach 100 percent since the PFM analytics will take place as a standard part of the online banking experience, without users having to log in elsewhere or do anything to set up the PFM functionality.

Just as important, the integrated platform will give banks access to a single, comprehensive view of all customer transactions and data, allowing banks to create a personalized, Amazon-like user experience in which they can predict a user’s cash flow and recommend products and services accordingly. “This re-establishes the bank as the primary financial services provider, using the customer’s own data to personalize the experience,’’ Vipond says.

Increasingly, that experience will be far more dynamic than the spreadsheets and budget trackers of the past. Star Financial Bank of Fort Wayne, Indiana, for example, depicts expenses in the form of bubble graphs, using software from MoneyDesktop Inc., of Provo, Utah, deployed as both a mobile app and an integrated part of its online banking product. “It’s incredibly interactive,” says Kristin Marcuccilli, chief operating officer of the $1.7-billion asset bank.

Since rolling out the service in January 2013, all of Star Financial’s customers have access to the PFM functionality through online banking, and about 20 percent so far have downloaded it to their smart phones or tablets. “We’ve had customers tell our bankers that they’ve never cared about their finances before, but now they’re following their bubbles, and they’ve got it right in their pocket. The tool makes it much more fun,” says Marcuccilli.

“While PFM in the past put the onus on users to be proactive, PFM in the future will put banks in the driver’s seat, enabling them to ping customers with recommended actions,” says Wade Satterfield, the director of digital service systems at Arvest Bank. The $14-billion asset institution, based in Lowell, Arkansas, is working on a PFM system that it will roll out sometime in 2015.

Like online banking or bill payment, PFM is a service for which banks generally do not charge. So how do the investments in PFM make sense for a bank’s own budget? For Marcuccilli, the return comes from increased levels of customer engagement, leading to stronger loyalty and longevity. Satterfield says banks need to keep up with the digital experiences customers are getting from other service providers. “We really don’t have a choice.”

Coming Up With a Mobile Banking Strategy


Banks have to offer some kind of mobile banking service these days to compete. But deciding what to offer, what to spend, and what will provide the biggest bang for the buck are difficult questions for the board. Bank Director magazine got on the phone with Sutherland Global Services’ Niket Patankar to discuss how the board can develop a mobile strategy, what banks are offering, and what revenue opportunities are available. The company provides customer care, IT, and back and front office services, including mortgage banking servicing and processing.

What are the most popular mobile services that banks provide?
Banks are still in the early stages of mobile banking. The most popular are balance information, interaccount transfers, transaction history and basic customer self-service. Some banks offer advanced transaction services. Some allow a customer to search for a bank location by branch or ATM, while some offer bill pay. With respect to innovation, some banks are offering mobile wallet (the ability to carry cash around on your mobile device, load your debit and credit card information, and use the phone to make payments) and person-to-person payments (pay other people instead of companies). Banks also have the ability to offer contextual offerings through a mobile device for more revenue opportunities. A simple example is a person on a biweekly payroll. This person goes to a store to buy something on a Saturday, and it costs $200 but he has a $100 balance. But the bank knows the payroll is coming and therefore, the bank can offer a short-term, two-day advance for a fee of $3 right there. People will pay for that convenience.

Should you charge customers to access their accounts via mobile?
No. You will lose your customers that way. A personal financial management tool might be something customers are willing to pay for, such as a simple note telling them, ‘you spent $200 in groceries, your average spending has been $150 on groceries,’ which helps that customer make a financial decision. You can always offer more functionality within the mobile app that is transaction-oriented, for which customers will pay (the equivalent of in-app purchases), just like people pay the convenience fee for withdrawing from other banks’ ATMs.

What factors should a bank consider when deciding on a mobile strategy?
Where is your bank headed? Who are your customers? How is your customer demographic changing? What services and functionality should your bank offer, what are the costs and expected benefits, tangible and intangible, and what is your bank’s ability to analyze usage? You can offer this great service, but if nobody is using it, you need to know that. You need to look at the different kinds of costs. What is the cost of implementing it and maintaining it and marketing it to let customers know about it? It’s a simple cost-benefit analysis that should be presented to the board. It needs to be based on analytics. Your mobile strategy cannot be based on your gut feeling. In terms of benefit analysis, what has moved the needle in terms of similar services at other banks? If that’s not available, your conclusion needs to be based on detailed analysis of your customer base.

How does rolling out a mobile strategy impact the branch network?
There are still some customers who like to walk to a branch, but that number is declining as we speak. Mostly, they are going to a branch if they have exhausted other options, if they have an issue or a complex problem that has not been resolved through self-service options, or if they are seeking advice. If you are staffing your branch with the normal skill set of a teller, you will not be able to offer that. Branch traffic is declining. It has been coming down over the last seven or eight years. The number of visits from the average customer per year is coming down from 12 to 2. Branch traffic reduction is not necessarily a bad thing. It’s an opportunity to engage with the customer at a level that is unique. You need the best customer relationship managers there who can sell innovative products at the branches.

Q&A with Brett King: How Innovators are Rebooting Banking


8-1-14-BKing-article.pngBrett King, who founded the bank alternative called Moven, made a name for himself with his book, Bank 2.0, which pushed banks to think about how they needed to transform themselves in the digital age. In his latest book, “Breaking Banks: The Innovators, Rogues and Strategists Rebooting Banking,” King offers up interviews with the disruptors and the people trying to keep banks from losing their shirts to the disruptors. Executives from the likes of PayPal, Google, USAA, the Bitcoin Foundation and peer-to-peer lending networks such as Lenddo make an appearance in this book.

How did you choose the title, “Breaking Banks,” for your book? Do you think banks ought to be broken?
The final chapter is called, ‘We’re not breaking banking; we’re rebooting and rebuilding it.” We are realizing that the way we used to bank, it’s not translating into the way we live right now. A classic example is if you are a Generation Y [graduate] getting your first job and going to a bank, the first thing the bank is going to try to give you is a checkbook, which makes absolutely no sense.

In your book, many expect mobile phones to transform the industry. In what ways does the banking industry get this wrong?
The key problem is that we’ve thought of mobile as another channel for the bank. We’ve either tried to get Internet banking on a small screen, or let’s stick a debit card in a mobile wallet so we don’t have to carry plastic. Those two things just mimic existing things. The really interesting thing is that we can do something completely different.

What is an example of that?
In the ‘60s and ‘70s, when you went to the bank to withdraw cash, you knew exactly how much money you had to spend. When you ran out of money, you didn’t buy anything. Now, we are having a resurgence in awareness and control coming through mobile. The most important question a bank can answer today is: Can I afford to buy this? The bank doesn’t see that as a useful engagement with a customer. But from the customer’s perspective, in terms of my money, that’s the most consistent and most important question you can answer for me. When you go into an Apple store, you would like to buy a phone, the first question is: Do I have enough money? Yes. Can I afford to buy this? Let’s say the answer is no. You have rent coming due. But the bank can say: You could buy it if we do this for you, which is in-store financing. Banks right now are having the epiphany that mobile and the Internet can be a revenue channel, but they have the issue of cannibalizing revenue from the branch, and how do we get the compliance and risk guys to agree to let us fulfill this revenue digitally in real time? This is an industry issue that we have to solve over the next few years. This is where the neo-banks [such as Moven and Simple] and the new players [such as peer-to-peer lending platforms] have an advantage, because they don’t have those hang-ups about what we have done in the past.

How much of a threat are these alternatives?
There are threats and opportunities. Ten years ago, the biggest sellers of books were Borders and Barnes & Noble. Now, it’s Amazon. If the traditional players can’t adapt their distribution method, then someone else comes in and fills that gap. A few traditional players survive. Some of the record labels still survive, for example, and the larger book publishers still survive, but the smaller book stores have tended to disappear.

I want to inject some skepticism into this, because does it really matter that most banks are not as good at selling online as Amazon? How much of a threat are these neo-banks given that regulators heavily regulate the banking system, and start-up capital is high?
The reality is that you are going to have a bit of a mix. You are going to have the bigger banks make that transition first, and downsize the number of branches and shrink the bank branches. For the smaller banks, unfortunately, there is going to be a lot of consolidation. As these alternatives [to banking, such as neo-banks] come in, they will work with the big banks who will offer FDIC insurance and compliance on the back end. It’s not going to be a wholesale reboot and all the banks disappear. It’s going to be a case where probably the larger banks survive and some banks will become a wholesale provider. It’s likely the fastest growing financial institutions in the United States or the world in the next decade will not be traditional banks.

I often hear people say that branches can be transformed to offer advice rather than transactions. But you say advice in the branch is no longer a differentiator, and you also are critical of attempts to give advice in the branch because the customer can view that as an attempt to upsell them.
If you think about what will build a strong relationship with the bank, it’s the bank’s ability to solve your problem or answer your questions. Once you are competing inside a branch against a [mobile] platform that can give you advice every day, you just can’t give advice enough or advice that is useful enough. That dramatically changes the economics of the branch. In five years’ time, it’s not going to be like the branch we have today. It might be like a small coffee shop or an Apple store where you have your Geniuses [to help solve problems]. It won’t be a heavy selling environment.

How to Hire an Innovator


7-7-14-emily.pngIf you want to hire a tech expert, you might want to look outside the banking industry.

One-quarter of banks with more than $1 billion in assets report technology and information security hires at the executive level in 2013, according to Bank Director’s 2014 Compensation Survey. Technology hires range from experts in areas such as cyber security, data analytics, or mobile applications.

JPMorgan Chase & Co. has lately hired from Silicon Valley, poaching from tech giants such as Yahoo and Google. With startup cultures growing in places like the Midwest’s Silicon Prairie, which encompasses parts of several states including Illinois, Texas and Missouri, community banks might find opportunities to lure talent away from tech companies, says Stessa Cohen, a research director with technology research and advisory firm Gartner Inc. Culture is fundamental. Of those reporting a technology hire in 2013, 60 percent cited corporate culture as a factor that makes the bank attractive to candidates, according to the survey.

Acquiring a startup firm is another way to bolster a bank’s talent roster. Spanish banker Banco Bilbao Vizcaya Argentaria S.A. (BBVA) acquired banking startup Simple in February. For BBVA, Simple will not only be a means to innovate, but will also “bring new talent into the bank,” says Cohen. Simple promised to revolutionize the banking industry with an elegant mobile app, no branches, free access to ATMs everywhere, and financial management tools. One Boston-area mutual bank with a board focused on innovation recently brought on several new hires from a failed start-up.

In April, Eastern Bank, with $8.7 billion in assets, hired Dan O’Malley, the former CEO of PerkStreet Financial, as the bank’s chief digital officer, spearheading Eastern’s new digital technology and data analytics unit. The circumstances were serendipitous: PerkStreet, an online-only financial services startup that offered lucrative cash debit account rewards tied to online checking accounts, closed in August 2013, citing an inability to attract new investors. Its FDIC-insured partners had been Bancorp Bank in Delaware and New York-based Provident Bank.

Three other PerkStreet executives joined O’Malley at Eastern, all with extensive technology experience within and outside the banking industry. John Magee, now Eastern’s chief data scientist, headed analytics at Mullen, a Boston-based advertising agency, prior to joining PerkStreet. Laurence Stock, senior vice president, emerging technologies, and Sean Boice, vice president, technology and analytics, both worked for several e-commerce and financial technology companies. O’Malley has a background in payments as an executive at Capital One Financial Corp.

The team could see that joining an existing bank has advantages, says Bob Rivers, Eastern Bank’s president. Eastern is rich in capital, leaving O’Malley free to focus on innovation and not on chasing funding to keep the business afloat. “They understood that, unlike other larger banks…they would be not only a very high priority for us but they would have very top-of-the-house attention,” Rivers says. Eastern’s board is also committed to innovation. Several board members have backgrounds in innovation and technology, and O’Malley and his team meet with the board’s innovation committee quarterly.

The new team will focus on building enhancements to the business, including an updated mobile banking platform that will launch in the spring. Under Magee’s leadership, the bank also has plans to mine the data found in the bank’s 93 million annual transactions, which will help the bank identify opportunities to better serve clients. Eastern Bank is also looking for new ideas outside the bank. Part of Stock’s job is to find technology companies to invest in or acquire that fit within the bank’s business model.

While Rivers describes Eastern Bank as supportive of the technology team, he also says that, like most banks, its culture is conservative. “It causes us to not be as open [to] exploring as many things as we should and not move as quickly as we should,” he says. The PerkStreet team, he hopes, will make Eastern quicker to innovate and more attractive to those with technology backgrounds. “If we don’t further adapt our culture, we won’t get more talent,” says Rivers.

Using Technology to Grow Your Customer Base


For many community banks, continuously communicating with their customer base can be challenging given limited resources and rising compliance requirements. In this video, Michael Tipton of emfluence discusses how using an automated messaging platform for new accounts can help banks cultivate and grow customer relationships.