There are few bankers who understand the process of digital transformation better than Mike Butler.
Beginning in 2014, Butler oversaw the evolution of Boston-based Radius Bancorp from a federally chartered, brick-and-mortar thrift to one of the most tech-forward banks in the country. Radius closed all its branches except for one (federal thrifts are required to have at least one branch) and adopted a digital-only consumer banking platform.
The digital reinvention was so successful that in February 2020, LendingClub Corp. announced a deal to buy Radius to augment that marketplace lender’s push into digital banking. Now Butler is off on another digital adventure, this time as president and CEO of New York-based Grasshopper Bancorp, a five-year-old de novo bank focused on the small business market. Like Radius, Grasshopper operates a digital-only platform.
Butler will moderate a panel discussion at Bank Director’s upcoming Acquire or Be Acquired Conference focusing on the importance of integrating bank strategy with technology investments. The conference runs Jan. 30-Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.
Butler says that successful transformation begins with the bank’s executive management team and board of directors, where discussions about technology need to be an integral part of strategic planning. And most importantly, management and the board need to see digital transformation as crucial to the bank’s future success. Butler says there are still plenty of “digital deniers” among bankers who believe they can be successful without strengthening their institution’s digital capabilities.
“Have you embraced the kinds of changes that are taking place inside the industry?” Butler says. “And do you have a very strong cultural commitment to be a part of that change? When you do that, you start to look to technology as the enabling driver to get you to that place.”
Management teams that are just starting out on a path to digital transformation can easily find themselves overwhelmed by the sheer number of potential projects. “The most important thing to do is to prioritize and recognize that you cannot do this all at once,” Butler says. “It would be a mess if you tried. Pick two to three things that you think are critically important.”
A third element of a successful transformation process is finding the right person to lead the project. “You’ve got to have the right talent to do it,” Butler says. “That leader better be somebody who has been pushing it rather than you push it on them as CEO. You can’t say, ‘Joe, you’ve been running branches for 30 years, do you believe in digital? Eh, kind of. Okay, I want you to put in a digital platform.’ That’s not going to work.”
Butler goes so far as to say that only true believers should run those fintech projects. “You cannot do this without people that have the passion and the belief to get to the other side, because you will hit a lot of roadblocks and you’ve got to be able to bust through those roadblocks,” he says. “And if you don’t believe, if you don’t have the passion, there’s a lot of reasons to stop and go a different way.”
Butler might not seem the most likely person to be a digital change agent. He spent 13 years at Radius and pursued a branch banking strategy in the early years. Prior to joining Radius, Butler was president of KeyCorp’s national consumer finance business. He did not come from the fintech sector. He has a traditional banking background. And yet as Butler is quick to point out, Radius didn’t reinvent banking, it reinvented the customer experience.
The fact that Butler lacked a technology background didn’t deter him from pursuing a transformational strategy at Radius. He was smart enough to see the changes taking place throughout the industry, so he understood the business case, and he was also smart enough to surround himself with highly committed people who did understand the technology.
In building out its digital consumer banking platform, Radius worked with a number of third-party fintech vendors. “I wasn’t making technology decisions about whose technology was better, but I surely was making decisions about the companies that we were partnering with and what type of people we were willing to work with,” Butler says. “I met every single CEO of every company that we did business with, and that was a big part of our decision as to why we would partner with them.”
At Grasshopper, Butler says he prefers the challenge of building a new digital bank from scratch rather than converting a traditional bank like Radius to a digital environment. Sure, there are all the pain points of a startup, including raising capital. But the advantages go beyond starting with a clean piece of paper from a design perspective. “It’s really hard to transform a culture into something new inside of an organization,” Butler says. “So, I’d say the upside is that you get to start from scratch and hire the right people who have the right mindset.”
If Money 20/20 was any indication, it seems like banks are finally ready to really embrace fintech. Small and medium-sized banks have realized that their technology budgets can be used for things other than building and managing technology in-house to keep up with large financial institutions with big budgets and neobanks with brand new tech stacks. A tech stack is the combination of technologies a company uses to build and run an application or project, and typically consists of programming languages, frameworks, a database, front-end tools, back-end tools and applications connected via APIs.
For banks starting to explore fintech partnerships, we’ve compiled a list of the top five fintech solutions every bank should have in its tech stack today.
1. Account Opening Platform
New customer acquisition is one of the most important components of a successful financial institution. An online account opening platform powers an omnichannel interface to onboard new customers quickly and seamlessly. A good account opening platform should also provide a customizable user interface, increased account conversion rates and detailed reporting.
2. Identity Decisioning Platform
An identity decisioning platform, or IDP, automates identity and risk decisions across the lifecycle of your customer. IDPs power smart decisions that can reduce risk for your business while providing a frictionless customer experience for identity verification and onboarding, ongoing transaction monitoring and credit underwriting.
IDPs are the decision engine behind the account opening platform that helps banks determine whether to accept or reject an applicant. It continues to monitor that client’s account activity and powers underwriting decisions. Your IDP should connect to multiple data sources through application programming interfaces, or APIs, allowing you to add and change data sources as needed. By bringing all of your identity and risk decisions into one platform, you’ll see a holistic view of your customers and automate more decisions.
3. Open Banking Platform
Your customers expect to be able to access their financial data across various apps. Open banking platforms make it easy for banks to securely share data with third-party businesses through an API that allows customers to connect their banking data. Open banking platforms are the key component connecting your bank to popular apps like peer-to-peer payments, financial management and cryptocurrency investments.
4. BaaS Platform
You’ve probably noticed the trend of non-bank businesses beginning to offer financial products. This trend is powered through BaaS, or banking as a service, platforms. BaaS platforms enable a third-party business to integrate digital banking or payment services directly into their products by connecting them with a bank. This model allows non-financial institutions the ability to offer a financial product without getting a banking license. Unlike open banking platforms, which share the financial data within a bank account to a third-party business, BaaS platforms transfer the complete banking services into a third-party business’s product.
5. Know Your Transaction Solution
If your bank is starting to think about how to approach cryptocurrency and digital assets, one of the first things you’ll need is a Know Your Transaction, or KYT, provider to complement your Know Your Customer (KYC) procedures. KYT solutions help you remain compliant with anti-money laundering laws when monitoring crypto transactions. A KYT solution allows banks to track crypto funds and ensure they are not coming from mixers (a service that mixes streams of cryptocurrency to improve anonymity and make it more difficult to trace), foreign exchanges or blacklisted addresses.
Fintech companies can provide a lot of value to banks. Many of them are built to plug into your existing infrastructure and be up and running in weeks. They can help banks be more agile and adapt to new customer needs faster, save banks money on engineering resources and bring focused expertise to their category. Alloy also has resources available to help banks select fintech partners and build out their tech stacks.
Customer expectations have evolved dramatically over the past decade, and they seek much more from their financial institution, including advice. Unfortunately, banks often aren’t meeting these needs in the digital space. Soren Bested of Agent IQ explains how banks can return to one of their core functions — dispensing financial guidance to their customers.
To compete today, banks need to proactively meet the needs of their commercial clients. That not only requires building strong relationships but also improving the digital experience by automating the commercial lending process. Joe Ehrhardt, CEO and founder of Teslar Software, shares how bank leaders should think through enhancing lending processes and how they should consider selecting the best tools to meet their strategic goals.
2021 has been a year of challenge and change for community bankers, especially when it comes to lending.
Banks modernized and digitized significant portion of loan activity during the pandemic; as a byproduct, customers have begun to realize the inefficiencies in traditional lending processes. Community financial institutions that hope to stay ahead in 2022 should prioritize the incorporation of digital and automated loan processes.
Although the need to digitize commercial lending has long been a point of discussion, the Paycheck Protection Program (PPP) sparked a fire that turned talk into action for many institutions. Bankers quickly jumped in to help small businesses receive the funding they needed, whether that meant long hours, adopting new technologies or creating new processes. The amount of PPP loans processed in that small window of time would not have been possible without many bankers leveraging trusted technology partners.
One result of this approach was enhancing transparency and boosting efficiencies while helping small businesses at the same time. Many in the banking industry saw firsthand that, despite the commonly held belief, it is possible to digitize lending while maintaining personal, meaningful relationships. Bankers do not have to make a choice between convenience and personal connection, and we expect to see more institutions blend the two going forward.
Bankers also have a newfound familiarity with Small Business Administration programs following the wind down of the PPP. The program marked many institutions’ first time participating in SBA lending. Many now have a greater understanding of government guaranteed lending and are more comfortable with the programs, opening the door for continued involvement.
Embracing digitization in lending enhances efficiencies and creates a more seamless experience not only for the borrower, but for employees institution-wide. This will be especially important as the “Great Retirement” continues and bank executives across the country end their careers with no one in place to succeed them. To make the issue even worse, recruiting and maintaining technology talent has become increasingly difficult — even more so in rural markets. Such issues are leading some banks to sell, disrupting the businesses and communities that rely on them.
Partnering with technology providers can give institutions the bandwidth to effectively serve more small businesses and provide them with the customer experiences they have come to expect without increasing staff. Adopting more digital and automatic aspects in small business lending allows banks to reduce tedious manual processes and optimize efficiencies, freeing up employee time and resources so they can focus on strategy and growth efforts. Not to mention, such a work environment is more likely to attract and retain top talent.
Using technology partners to centralize lending also has benefits from a regulatory compliance standpoint, especially as potential changes loom on the horizon. Incorporating greater digitization across the loan process provides increased transparency into relevant data, which can streamline and strengthen a bank’s documentation and reporting. The most successful institutions deeply integrate lending systems into their cores to enable a holistic, real-time view of borrower relationships and their portfolio.
Community institutions have been a lifeline for their communities and customers over the last two years. If they want to build off that momentum and further grow their customer base, they must continue to lean into technology and innovation for lending practices. Developing a comprehensive small business strategy and digitizing many aspects of commercial, small business and SBA lending will position community banks to optimize their margins, better retain their talent and help their communities thrive.
In July 2021, First Horizon Corp. bought IBERIABANK Corp. and launched an experiment that few banks of its size have attempted: a conversion to an alternative core provider.
But the $88 billion banking company based in Memphis didn’t want to replace its core, the basic nervous system of the bank. It wanted to replace the core of a virtual bank acquired from IBERIABANK. Doing so would allow First Horizon to test the waters with Finxact, a cloud-native core that offers banks a fully open architecture to pick and choose what software and services to offer customers, providing the chance to quickly update and offer new products as customers’ needs change.
Finxact had all the bells and whistles of a modern system. “The way someone designed a mainframe 30 years ago isn’t dictating what we’re doing today,’’ says Tyler Craft, senior vice president and head of First Horizon’s VirtualBank.
Although a few brave souls such as Seattle Bank have accomplished a complete core conversion to a modern, alternative core such as Finxact, some others are testing the waters with partial conversions. While a complete core conversion to an alternative core may feel time consuming and risky, there are a variety of options, including First Horizon’s approach. An increasing number of banks are trying their options.
In fact, it was First Horizon CEO Bryan Jordan who first put that image in my head of an operating table and a skilled surgeon going to work on the very cord that makes the bank function. “This is probably not a great analogy, but changing your core system is, in my mind, about as complicated as a spinal transplant,’’ he says.
This report delves into why and how some banks have leaped off that cliff, the strategies for success, how to get buy-in at your bank and what to ask potential core providers.
Many banks are still trying to determine which consumer preferences and behavior changes are permanent, given the shifts that have occurred over the past 24 months.
During this time period, I’ve spoken with hundreds of bankers and the prevalent theme emerged: The need to respond to customers in a timely fashion, and assurance that there is go-forward alignment with the right business model.
At this point, institutions should consider further exploring ways to refresh customer experience or tackle questions about feasibility, with a focus on defining the strategy for a more competitive customer experience and acquisition structure in today’s digital economy. A strategy that successfully addresses customer needs depends on the ability to project empathy. Executing this in an omni-delivery ecosystem requires financial institutions to effectively listen to their customers’ needs and respond with information or options that are relevant and timely.
There are solutions that financial institutions can leverage today to demonstrate empathy through a listen-respond model. This involves embedding “listening posts” within six functional areas including:
Website sensory: Detecting and interpreting customer needs based on digital behavior. Based on this insight, banks can quantify a customer’s intent and propensity-to-purchase and apply decisioning to trigger the “best” engagement, which could include digital advertising, lead capture or engagement campaign deployment through digital or human channels.
Customer engagement responses: Applying analytics and decisioning to quantify and respond appropriately to customer interaction with campaigns. Desired responses include launching a survey, clicking a link to complete a fulfillment or accepting an invitation for other services that offered by the institution.
Personal financial planner: Obtaining self-disclosed information related to customer needs through unique personal financial planning tools. With goal-centric solutions, the customer selects primary and secondary goals that could include meeting monthly expenses, housing, transportation, education or retirement. The user enters financial information such as income, expenses, assets and debt. By listening to customer goals and financial position, the solution can identify segmentation, quantify customer value index and calculate goal achievability.
Omni-channel fulfillment: Tracking fulfillment attempts and automatically deploying abandonment retargeting campaigns to increase conversions. During the fulfillment process, listening posts can detect customer progress through the application. Through fulfillment completion, a bank can use a decision engine to select an appropriate onboarding engagement plan based on the product selected and any additional anticipated needs.
Staff interaction: Quantifying and monitoring customer satisfaction and attrition risk scores related to personal engagement. Branch and contact center staff listen physically, but they also contribute to digital listening. For example, missed service-level agreements and customer complaints contribute negatively to customer experience and impact predictive attrition risk, triggering customer action. Banker-assisted fulfillment, followed by positive customer survey feedback, can increase satisfaction scores.
Attrition risk: Identifying and quantifying attrition risk factors and proactively and reactively mitigating them. Digital environments can lead to increased customer attrition due to decreased face-to-face engagement.
Solutions can quantify behavior and sentiment indicators based on information that is detected through embedded listening posts. Automated decisioning can respond when thresholds are met and deploy appropriate engagement. Leveraging management insight through key performance indicators and reporting allow banks to monitor, track, execute A/B testing, perform trend analysis and optimize the listening-response model so they can better understand and meet customer needs.
Meeting customer needs requires engagement over time. When banks can understand their customers’ needs through listening and respond with relevant engagement, the customer feels heard, and the institution benefits from increased acquisition, relationship expansion and improved customer experience.
Americans need personalized financial and wealth management advice more than ever, but don’t know where to look.
The coronavirus pandemic negatively impacted personal finances for more than 60% of Americans, according to recent data from GOBankingRates. Many of these Americans have relationships with regional and community banks that could be a trusted partner when it comes to investing and planning for the future, but these institutions often lack adequate financial advisory resources and options. This drives customers to social media and other providers, such as fintechs or large national institutions, for wealth management needs — when they actually would prefer a personal, professional relationship with their bank.
The current need for stronger wealth management offerigns, coupled with advances in easy-to-deploy technology, means that community banks can now offer more holistic, lifecycle financial advice. These offerings have the potential to create new revenue streams, engage people earlier in their wealth-building and financial planning journey, deepen and fortify existing customer relationships and make financial advice more accessible.
But while many banks have a strong depositor base and a customer base that trusts them, the majority don’t have the expertise, resources or digital engagement tools to offer these services. Modern technology can help fill this gap, empowering institutions to offer more robust financial advisory services.
Banks should meet customers where they spend the majority of their time — within digital channels. Intuitive, self-service digital options presents a valuable way to engage customers in a way that’s not complex or requires additional staff in branches. First steps can include a digital calculator within the bank’s mobile app so individuals can compute their financial wellness score, or presenting simple options to customers to invest a nominal sum of money, then adding a way to monitor its progress or dips. It can also include a digital planning discovery tool to help customers organize their accounts online.
More meaningful success lies in leveraging customer behavior data to understand changes and designing processes so that individual can seamlessly move to the next phase of the financial advice lifecycle. This might include flagging when a customer opens additional accounts, when someone has a high cash balance and frequent deposits, or when a younger individual accrues more wealth that simply sits. If banks fail to proactively monitor this activity and reach out with relevant hooks, offers and insights, that individual is almost guaranteed to look elsewhere — taking their money and loyalty with them.
Banks should provide options for customers to reach out for guidance or questions around next steps — including knowledgeable financial advisors at the ready. While people are increasingly comfortable with (and establishing a preference toward) managing money and investments digitally, there is still a critical need for direct and quick access to a live human. Banks can integrating matching capabilities and staffing regional centers or branches with designated experts, but there should also be options for customers to contact advisors remotely through video or chat. This allows individuals to receive relevant advice and support from anywhere, anytime.
But building the infrastructure that can properly serve and support clients throughout every stage and situation can be prohibitive and cumbersome for most community and regional institutions. Fortunately, there are strategic technology partners that can offer a modern, end-to-end platform that spans the entire advisory lifecycle and offers integrated digital enablement right out of the box.
A platform, in lieu of a collection of bespoke software features from multiple vendors, can act as a single point of truth and provides a centralized ecosystem for customers to receive a holistic snapshot of their financial situations and plan. Look for platforms with open APIs to facilitate seamless integration to complement and maintain the front, middle and back office while offering a full range of functionality for bank customers. Plus, having one platform that can accommodate every stage of the financial advisory lifecycle makes interactions easier and more efficient for the institution, and more familiar and friendly for the customer.
Community and regional institutions have always served as a beacon of trust and support for their communities and customers. They don’t have to experience customer attrition over wealth management options and functions. Those that do so will be able to form even stickier, more profitable relationships, while helping customers broaden their opportunities and improve their overall financial wellness.
Just 29% of chief executives, and 17% of chief information and chief technology officers, say they rely on members of their board for information about technology’s impact on their institution, according to Bank Director’s 2021 Technology Survey. But what if a bank could leverage their board as a resource on this issue, helping to connect the dots between technology and its overall strategy?
Coastal Financial Corp., based in Everett, Washington, has brought on board members over the past three years with experience working in and supporting the digital sector: Sadhana Akella-Mishra, chief risk officer at the core provider Finxact; Stephan Klee, chief financial officer at the venture capital firm Portage Ventures and former CFO of Zenbanx, a fintech acquired by SoFi in 2017; Rilla Delorier, a retired bank executive who until last year led digital transformation at Umpqua Bank; and Pamela Unger, a certified public accountant who created software to support her work with venture capital firms. That deep bench of technology expertise helps the bank evolve, according to CEO Eric Sprink, by better understanding opportunities and risks. The board can even help $2 billion Coastal identify and bring on staff.
“The board has always been entrepreneurial at its basis, and some of the core values that we developed as a board were, be flexible, be unbankey and live in the gray — and those are [our] board values,” Sprink says. “We’ve really worked hard to continually ask people to join our board that continue that evolution and entrepreneurial spirit with some specialty that they bring.”
Bank Director’s recent Technology Survey finds that roughly half of bank boards discuss technology at every board meeting; another 30% make sure it’s a quarterly agenda item. That’s been the picture for several years in our survey, given technology’s importance in an increasingly digital economy.
But for many community bank boards, the expertise reflected in the boardroom hasn’t caught up to today’s reality — just 49% of board members and executives representing a bank smaller than $10 billion in assets report that their board has a director with a background or expertise in technology. And these skills are even rarer for discrete areas affecting bank strategies and operations, from cybersecurity (25% say they have such an expert on their board) to digital transformation (20%) and data analytics (16%).
Bank boards would benefit greatly from this expertise — and many of them know it, says J. Scott Petty, a partner at the executive search firm Chartwell Partners. “When I interview boards and we go through an assessment process, it’s always the No. 1 thing they talk about,” he says. “There’s no one there [who] can really understand what their head of technology is talking about. So, whatever they say, they go, ‘OK, well, you’re the tech expert.’”
In Bank Director’s 2021 Governance Best Practices Survey conducted earlier this year, board members identify their two most vital functions: holding management accountable for achieving strategic goals in a safe and sound manner, and meeting the board’s fiduciary responsibilities to shareholders.
If board members can’t pose a credible challenge to management when it comes to discussions on technology — asking pointed questions about a rising budget item for the majority of banks, as our recent research finds — then they can’t effectively fulfill their two most important duties. And boards also will find themselves unable to contribute to the bank’s strategy in the way they could or should.
Directors with technology expertise can help boards provide effective oversight and link technology and strategy, says Petty. “That’s the No. 1 [thing] — that fiduciary responsibility to really understand how the bank [aligns] its business strategy with its technology strategy.”
Petty shares a comprehensive list that identifies how technology expertise in the boardroom can contribute to the board’s oversight and strategic functions. These include:
Linking technology to the overall business strategy
Asking incisive questions of the bank’s CIO and/or CTO, and holding them accountable for goals, deadlines and budgets
Providing effective oversight of information security as well as Bank Secrecy Act/anti-money laundering (BSA/AML) compliance
Offering input and guidance on the bank’s technology initiatives
Giving feedback on innovation, customer experience and acquisition, product development, digital integration, cross-selling opportunities and similar areas
Asking pointed questions and deliberating about these technology matters isn’t just a fiduciary responsibility — it makes banks better, points out Jeff Marsico, president of The Kafafian Group, a consulting firm. Technology use by the industry isn’t new, he notes, but community bank boardrooms are typically composed of older members who will be inherently less tapped into what’s going on in the digital banking space. As a result, “they don’t have enough base knowledge to be challenging to management and therefore management knows, ‘I’m not going to be particularly challenged here,’” Marsico says. “[Boards] need somebody with enough knowledge to be able to challenge management — because then management gets better.”
Marsico sees flaws in most boards’ often-informal nomination processes. Performance evaluations, he notes, aren’t adequately used by the industry to identify gaps in board composition, and board members are often reticent to leave. Bank Director’s governance research backs this up, finding that roughly half of boards representing banks between $1 billion and $10 billion in assets conduct an annual performance assessment; that drops to 23% of boards below $1 billion in assets. Fewer than 20% overall use that assessment to modify the board’s composition.
Finding technology skill sets may challenge community bank boards, but Petty recommends a few ways that nominating committees can expand their search. Banks aren’t alone in the digital evolution, which affects practically every sector of the economy. With that in mind, he suggests looking at other industries for prospective board members. “Take an industry-agnostic look to find technology experts from organizations that are larger than the current institution,” Petty says.
Colleges, universities or vocational schools may also provide a resource to tap into technology expertise. “They typically are also at the forefront of talking about digitization across industries,” Petty adds.
While boardrooms should benefit from recruiting members with expertise for the digital age, that doesn’t excuse directors from enhancing their own understanding of the topic.
The 2021 Technology Survey finds board members highly reliant on bank executives and staff (87%) for information about the technologies that could affect their institution — right behind articles and publications (96%) as directors’ top resources.
While input from the bank’s executive team is critical, it’s important that directors leverage their own backgrounds, in addition to taking advantage of ongoing training and informational resources, to ask the right questions of these executives.
Marsico recommends that boards focus on strategy in every board meeting, with regular quarterly updates on the bank’s progress on executing the strategy. Other sessions should provide opportunities to educate board members on what’s going on in the banking environment — and should include external points of view. These could include technology vendors or representatives from the various associations serving the banking community. Petty suggests bringing in a former technology executive of another, larger bank who could brief members on what they’re seeing in the marketplace.
“[Boards] can get an outsider’s perspective that breathes fresh air into what is the possible — because I don’t think they know what is the possible,” says Marsico.
Petty also points to increasing interest in forming board-level technology committees. Bank Director’s 2021 Compensation Survey, conducted earlier this year, found that 23% of banks use such a committee.
“Even the smaller banks will have a technology committee, because it’s such a major focus for any institution to drive the digitization of how they go to market, how they leverage the digital experience for the customer, how they leverage the digital product offerings, [and] how they use digital to acquire new customers and onboard new customers,” says Petty.
Bank Director’s 2021 Technology Survey, sponsored by CDW, surveyed more than 100 independent directors, CEOs, COOs and senior technology executives of U.S. banks below $100 billion in assets to understand how these institutions leverage technology in response to the competitive landscape. The survey was conducted in June and July 2021.
Bank Director’s 2021 Compensation Survey, sponsored by Newcleus Compensation Advisors, surveyed 282 independent directors, chief executive officers, human resources officers and other senior executives of U.S. banks below $50 billion in assets to understand talent trends, cultural shifts, CEO performance and pay, and director compensation. The survey was conducted in March and April 2021.
Bank Director’s 2021 Governance Best Practices Survey, sponsored by Bryan Cave Leighton Paisner LLP, surveyed 217 independent directors, chairs and chief executives of U.S. banks below $50 billion in assets. The survey was conducted in February and March 2021, and explores the fundamentals of board performance, including strategic planning, working with the management team and enhancing the board’s composition.
Imagine a game where your team can’t score points and there’s no such thing as winning. All you can do is meticulously follow the rules; if you follow them well enough, then your team doesn’t lose. Most banks approach compliance with this survival mindset and it shows.
According to the Federal Reserve Bank of St. Louis, compliance expenses account for 7% of banks’ non-interest expenses. The majority of that spend is typically directed at headcount distributed across siloed operational functions — using equally siloed technology — to get the job done during the last leg of a transaction. The best that can be said for this approach is that it achieves baseline compliance. The worst? It prevents institutions from investing in transaction data management strategies that deliver compliance while simultaneously driving efficiencies and business growth that show up on the bottom line. This scenario becomes more untenable with each passing year: Increasing compliance complexity drives up costs, and that diversion of investment erodes a bank’s ability to compete.
Banks can choose to play the game differently, by viewing compliance as an integrated part of the data management process. Solutions that leverage application programming interfaces, or APIs, provide a mechanism for technology components to communicate with each other and exchange data payloads. Outside of this approach, transaction data resides in bifurcated systems and requires extra handling, either by software or human intervention, to complete a transaction and book the right data to the core. Having the same data in multiple systems and rekeying data dramatically increase an institution’s risk profile. Why make it harder to “not lose” the game when banks can leverage API-first solutions to ensure that data is only collected once and passes through to the touchpoints where it’s needed? The key to unlocking this efficiency is a compliance architecture that separates the tech stack from the compliance stack. Otherwise, banks are obliged to wait for code changes every time compliance updates are pushed.
Mobile enablement is now as critical for a bank’s success as any product it offers. The customers that banks are trying to reach have no practical limit to their financial services options and are increasingly comfortable with contact-free experiences. According to studies from J.D. Power & Associates released this year, 67% of U.S. bank retail customers have used their bank’s mobile app and 41% of bank customers are digital-only customers. Given historical trends, those numbers are expected to only increase.
Compliance represents an opportunity to remove friction from the mobile banking experience, whether offered through an app or a website. Traditional PDF documents are designed for in-branch delivery and are a clumsy fit for the mobile world. Responsive design applies to compliance content no less than it applies to mobile apps; content needs to adjust smoothly to fit the size of the viewing screen. The concept of “document package” is evolving to the point where a “compliance package” should be constructed on responsive design principles and require minimal user clicks to view and acknowledge the content.
An embedded compliance solution should treat optimized mobile channels as table stakes. To survive and thrive in this environment, institutions need to be where their customers are, when they are there. Traditional banker’s hours have officially gone the way of the dodo.
Embedded compliance can also enhance bank data security in the event of a breach. It is difficult to overstate the reputational damage that results from a data breach. Embedded compliance offers critical safeguards for sensitive customer information, bolstering an institution’s overall security profile. Legacy compliance or document-prep solutions often require duplicate data entry and expose customer personal identifiable information to the inherent data breach risks that come with multiple databases scattered across technology platforms. Look for solutions that do not store PII data, and instead offer bi-directional integrations with your platform.
Increasing demand for digital engagement provides banks with opportunities to rethink their technology stacks. Management should evaluate each component for its potential to address a myriad of business needs. Compliance solutions can sharpen or dull a bank’s competitive edge and should be considered part of a strategic plan to grow business. Who knows, maybe someday compliance will actually become “cool”? A dreamer can dream.
