3 Disruptive Forces Confronting Banks – and How Zelle Might Help

By Al Dominick, CEO of DirectorCorps (parent co. to Bank Director & FinXTech) | @aldominick

“The volume and pace of what’s emerging is amazing. I’ve never seen it before in our industry.”

These words, spoken about technology driving an unprecedented pace of change across our financial landscape, came from Greg Carmichael, today’s keynote speaker at Bank Director’s annual Bank Audit & Risk Committees Conference.  Greg serves as president and CEO of Fifth Third Bancorp, a diversified financial services company headquartered in Cincinnati, Ohio.  The company has $142 billion in assets, approximately 18,000 employees, operates 1,191 retail-banking centers in 10 states and has a commercial and consumer lending presence throughout the U.S.

Fifth Third Bancorp’s four main businesses are commercial banking, branch banking, consumer lending and wealth and asset management.  Given this focus, Greg’s remarks addressed how, where and why technology continues to impact the way banks like his operate.  Thinking about his perspective on the digitization of the customer experience, I teed up his presentation with my observations on three risks facing bank leadership today.

Risk #1: Earlier this year, the online lending firm SoFi announced that it had acquired Zenbanx, a startup offering banking, debit, payments and money transfer services to users online and through its mobile app.  As TechCrunch shared, “the combination of the two will allow SoFi to move deeper into the financial lives of its customers. While today it focuses on student-loan refinancing, mortgages and personal loans, integrating Zenbanx will allow it to provide an alternative to the traditional checking and deposit services most of SoFi’s customers today get from banks like Bank of America, Citi or Chase.”  Given that many banks are just beginning their digital transformation, combinations like this create new competition for traditional banks to address.  Cause for further concern?  It came to light that SoFi just applied for an industrial loan bank charter in Utah under the name SoFi Bank.

Risk #2: With so much talk of the need for legacy institutions to pair up fintech companies, I made note of a recent MoneyConf event in Madrid, Spain.  There, BBVA chairman Francisco González said that banks need to shed their past and image as ‘incumbents’ and transform into new digital technology companies if they are to prosper in a banking environment dominated by technologically astute competitors. Transforming the bank “is not just a matter of platforms. The big challenge is changing an incumbent into a new digital company.”  Clearly, transforming one’s underlying business model is not for the faint of heart, and the leadership acumen required is quite substantial.

Risk #3: Finally, when it comes to digital companies doing it right, take a look at TheStreet’s recent post about how “Amazon Has Secretly Become a Giant Bank.”  I had no idea that its Amazon Lending service surpassed $3 billion in loans to small businesses since it was launched in 2011.  Indeed, “the eCommerce giant has loaned over $1 billion to small businesses in the past twelve months… Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction.” What I found particularly note-worthy is the fact that over 20,000 small businesses have received a loan from Amazon and more than 50% of the businesses Amazon loans to end up taking a second loan.

A Potential Solution

Jack Milligan, our Editor-in-Chief, recently wrote, “disruptive forces confronting banks today are systemic and in some cases accelerating.” In his words, the greatest risk facing bank leadership today is “the epochal change occurring in retail distribution as consumers and businesses embrace digital commerce in ever increasing numbers, while aggressive financial technology companies muscle into the financial services market to meet that demand.”

Against this backdrop, Fifth Third Bank just announced it will be one of more than 30 major financial institutions to roll out Zelle, a new peer-to-peer (P2P) payments service operated by Early Warning.  As Greg shared during his remarks, this will initially be offered through the banks’ mobile banking apps, and positions the bank to better compete with PayPal’s Venmo.

This is big news.  Indeed, Business Insider noted in today’s morning payments brief that the growing crowd of providers will fight over a mobile P2P market set to increase ninefold over the next five years, reaching $336 billion by 2021.  In addition to working directly with financial institutions, let me also note that Early Warning has established strategic partnerships with some of the leading payment processors –– think FIS, Fiserv, and Jack Henry.  These relationships will allow millions more to experience Zelle through community banks and credit unions.

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Here in Chicago, we have 298 bank officers and directors with us today and tomorrow — and our Bank Audit and Risk Committees Conference itself totals 366 in attendance.  In terms of bank representation, we are proud to host audit committee members, audit committee chairs, CEOs, presidents, risk committee members, risk committee chairs, corporate secretaries, internal auditors, CFOs, CROs and other senior manager who works closely with the audit and/or risk committee.  Curious to see what’s being shared socially? I encourage you to follow @bankdirector and @fin_x_tech and check out #BDAudit17.

Banks Vs. Fintechs

By Al Dominick, CEO of DirectorCorps (parent co. to Bank Director & FinXTech) | @aldominick

Quickly:

  • I’m in from Dallas at the Consumer Bankers’ Association “CBA Live!”
  • Thanks to Richard Hunt, the CEO of the CBA, for inviting me to participate.  Richard spoke at our Acquire or Be Acquired conference in January + I hope to live up to his great speaking standards when I’m given a mic tomorrow.
  • The rapid pace of change in the financial sector took center stage during yesterday’s opening session.

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Since arriving in Big D on Sunday evening, I’ve met quite a few interesting men & women from great financial institutions at this annual event for the retail banking industry.  This year, more than 1,300 are at the Gaylord Texan (with some 550 being senior-level bankers) to talk shop.  Personally, I’m looking forward to presenting on “Economic States of America” with Amy Crews Cutts (Chief Economist, Equifax), Robert Dye (Chief Economist) of Comerica Bank and Cathy Nash, the CEO of Woodforest National Bank tomorrow morning.  From credit trends to banking consolidation, if you’re in Dallas, I invite you to join us for this Super Session as we explore the economic state of our union.

Before then, I thought to share a few interesting takeaways from a “FinTech vs. Bank” general session that pit SoFi and Kabbage “against” PNC and BBVA.  As part of the panel discussion, CBA posed a number of interesting questions to the audience; most notably, “do you believe fintechs are built to last.”  Given our upcoming FinXTech Summit in NYC, I thought the answer (which reflects the thoughts of many of the biggest banks in the U.S.) was interesting, but not surprising.

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Further, I found the results of this question pretty telling (given we asked a similar question at this year’s Acquire or Be Acquired conference and received a similar response from an audience of CEOs, CFOs, and members of a bank’s board).

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Finally, I think the results of this question best represent the types of conversations I’ve found myself in when I explain what I do + who I meet with.

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As I’ve shared in recent posts, an increasing number of financial institutions are using partnerships with technology companies to improve operations and better meet customer needs.  Given the input on these questions from various heads of retail, product lines and product development + compliance, risk and internal audit, I feel these three pictures are worth noting — and sharing.  Agree or disagree?  Feel free to leave a comment…

 

We Are On To FinTech Week

#AOBA17 conference intel (Friday)
By Al Dominick, CEO of Bank Director | @aldominick

Quickly

  • The “bank of the future” is not about technology, it is all about customers.
  • For many financial institutions, the time may be right to retire legacy systems for cloud-based platforms.
  • Numerous financial technology companies are developing new strategies, practices and products that will dramatically influence the future of banking..

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The intersection of technological innovation with strong depository franchises may lead to more efficient banking processes, reductions in fraud and a win/win/win for banks, financial technology firms (fintechs) and consumers.  Globally, nearly $23 billion of venture capital and growth equity has been deployed to fintechs over the past five years, and this number is growing quickly. Still, the nature and extent of impact that fintechs have on the industry remains unclear.

Throughout this week’s Acquire or Be Acquired conference, bank CEOs talked about the continually changing nature of financial services — with fintech often front and center.  For many, collaboration between traditional institutions and emerging technology firms bodes well for their future.  Here, Bank Director’s FinXTech provides authoritative, relevant and trusted content to a hugely influential audience, specifically:

  • Fintechs who view banks as potentially valuable channels or distribution partners;
  • Banks looking to grow and/or innovate with fintech companies’ help and support; and
  • Institutional investors, venture capitalists, state & federal regulators, government officials and academicians helping to shape the future of banking.

We designed FinXTech as a peer-to-peer resource that connects this hugely influential audience around shared areas of interest and innovation.  As a host of FinTech Week in New York City this April 24 – 28 (along with Empire Startups), we bring together senior executives from banks, technology companies and investment firms from across the U.S. to shine a light on what is really generating top line growth and bottom line profits through partnerships, collaboration and investments.

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Given the changing nature of banking today, this week-long event in New York City looks at the various issues impacting banks, non-banks and technology companies alike.  So as we move towards FinTech Week in New York City, I invite you to follow me on Twitter via @AlDominick, FinXTech’s President, Kelsey Weaver @KelseyWeaverFXT@BankDirector and our @Fin_X_Tech platform and/or check out the FinTech Week New York website for more.

Whether They Want To or Not, Banks Need to Open Up

Apart from interest rates, the two biggest issues that bank executives seem to wrestle with are regulatory and compliance costs.  I sense another emerging challenge coming to shore; specifically, how to “open up” one’s business structure in terms of developing partnerships and permitting others to leverage their customer data and/or capabilities.

For bankers, this challenge comes with significant reputation and customer risk.

Now, it is hard to truly disrupt the concept of banking — and I shared this opinion from the stage at Bank Director’s annual Bank Executive & Board Compensation Conference this morning.  However, I did adjust some of my welcoming remarks based on the Consumer Finance Protection Bureau’s position that consumers can control their own financial data, including to let third parties help them manage their finances.  As I learned from Jo Ann Barefoot’s Fireside Chat with CFPB Director Richard Cordray at Money 2020, the CFPB “is not content to sit passively by as mere spectators watching these technologies develop.”  According to his prepared remarks:

Many exciting products we see… depend on consumers permitting companies to access their financial data from financial providers with whom the consumer does business. We recognize that such access can raise various issues, but we are gravely concerned by reports that some financial institutions are looking for ways to limit, or even shut off, access to financial data rather than exploring ways to make sure that such access, once granted, is safe and secure.

Since reading the CFPB’s position, Ms. Barefoot’s recap and the Wall Street Journal’s synopsis, I decided to talk with various bank executives and board members that are here with us at the Ritz-Carlton in Amelia Island about this stance.  As I note in this video, I sense both an ongoing struggle — and a sincere interest — to truly understand the role of technology.  For those I talked with, this is as much about “becoming sticky” to their customers as it is about embracing or defending themselves against “the new.”

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For more about this year’s conference, I invite you to take a look at BankDirector.com.  Also, a virtual high-five to the team here for a great first day.  You all rock!

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The Promise of 8 Blockchain Companies

Yesterday, I spent the majority of my day at the Economist Conference’s “Finance Disrupted” in New York City.  As an early hook to their first panel discussion entitled ‘Building the blockchain: The promise and perils’, we learned that venture capitalists invested nearly $500 million in blockchain business last year — up from $2 million just three years ago.  While I’ve shared my perspectives on the potential applications for blockchain in previous posts (Blockchain 101 – a Primer for a Bank’s CEO and Board), panels like these underscore the immense potential of this technology.

“Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole.”

– Bob Greifeld, Chief Executive of NASDAQ

Like many, I see potential for blockchain technology to revolutionize many areas of the financial industry — think securities trading, payments, fraud prevention and regulatory compliance.  Moreover, a new report from Deloitte explores how blockchain could be used in loyalty rewards programs.  Still, as our industry transforms, there is real uncertainty around what the future of the banking industry will look like.

This is why I take note of comments like those from BNY Mellon’s CEO, Gerald Hassell. On his Q1 earnings call, he opined “we think blockchain can be transformative.  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.”

While additional big-time players — such as Goldman Sachs, Visa and NASDAQ — garner headlines for their investments in crypto-currencies & blockchain technology, I spent last night and this morning looking at eight blockchain companies that might help you to form your own opinions on the potential of this technology:

For more about these companies — and their funding sources — I encourage you to check out this piece on Lets Talk Payments.  Not familiar with LTP?  It is a fast-growing global destination for news, insights & data-driven research in emerging financial services.  Much like the information shared by both FinXTech and Bank Director, LTP’s content is fiercely independent, thought provoking and always up-to-date, in a way that continues to inform, engage and inspire.

Creating Better Banking Experiences

Earlier this week, we published our quarterly print issue of Bank Director magazine.  If you haven’t seen it, our talented editor, Naomi Snyder, shines a light on the “tech bets” being made by Fifth Third, a $142 billion asset institution.  Having worked for an IT firm, I appreciate the three questions their President & CEO, Greg Carmichael, asks his team to consider before investing in new technologies:

  1. Does it improve the bank’s ability to serve customers?
  2. Does it drive efficiency?
  3. Does it create a better experience for customers?

As he shares, “not every problem needs to be solved with technology… But when technology is a solution, what technology do you select? Is it cost efficient? How do you get it in as quickly as possible?  You have to maintain it going forward, and hold management accountable for the business outcomes that result if the technology is deployed correctly.”

“The challenges are how to grow the franchise and reposition the franchise to serve our customers in the way they want to be served, which is more of a digital infrastructure.”

-Greg Carmichael, President & CEO, Fifth Third Bank

While Fifth Third plans to invest some $60M this year in technology, Naomi notes that the bank doesn’t have an R&D lab with a staff separated from the rest of the bank and dedicated to inventing things (like its competitor U.S. Bancorp).  Nor does Fifth Third have the reputation of being highly innovative, like a BBVA.  Nonetheless, the regional bank, headquartered in Cincinnati, has a laser focus on developing practical solutions to everyday problems.

So to build on this issue’s cover story — and the efforts we’re making with our FinXTech platform — let me offer my take on who I consider standouts in the payments, lending and retail space today.  Those addressing “everyday problems” may find inspiration from the work being done and/or want to explore partnership opportunities.

Payments + Transfer

When one thinks about payments — and the movement of  value via cash, credit card, check and other transactions — some big names come to mind: Apple Pay, Chase Pay, Square, Paypal, etc.  But don’t sleep on these companies:

Lending

In the lending sector, a lot of people continue to talk about LendingClub’s travails, scoff at SoFi’s change of heart from anti-bank to pro-partnerships and follow Prosper’s efforts to shore up its business.  Within the lending space, these companies also deserve time and attention:

  • Affirm, a digital lender that provides installment financing;
  • Orchard, a technology and infrastructure provider for marketplace lending;
  • Lendio for small business loans;
  • Even, a new kind of financial app that turns variable pay into a steady, reliable income; and
  • Earnest,  a technology-enabled lender that enables one to consolidate and refinance  student loans.

Retail banking

Considering the core functions of retail banking remain the establishment of deposits and making of loans, those pushing the envelope in a way consumers desire include:

  • Ally Bank, known for its “No Branches = Great Rates” tag line;
  • Atom Bank, one of the first Challenger Banks in the UK;
  • Tandem, a new digital bank in the UK;
  • Moven, a pioneer in smart phone banking; and
  • Simple, part of the BBVA family that is reinventing online banking.

While these banks are pushing forward, many legacy institutions will be challenged to meet the expectations of their customers.  They will need to assess the additional risks, costs and supervisory concerns associated with providing new financial services and products.  Accordingly, I’m not alone in believing that financial institutions need to invest in services “for life’s needs” through collaboration and partnerships with companies like those shared in today’s post.

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I realize there are a number of companies “doing it right” in these three sectors – and this simply highlights some of the players that standout to me.  Feel free to comment below on others that I might highlight in future posts.

Without A Destination, What Good Is A Map?

Highlight: as executives grapple with a fast-changing operating environment that requires partnerships and collaboration, many wrestle with where they want to be vs. where they need to be.

In this video, I share my thoughts on growing through partnerships (between traditional banks and financial technology firms), becoming “data richer” and enhancing the customer experience you’re delivering.

FWIW, this video lives on FinXTech.com, a site designed to provide authoritative, relevant and trusted content to a hugely influential audience, specifically:

  • Fintech companies who view banks as potentially valuable channels or distribution partners;
  • Banks looking to grow and/or innovate with fintech companies’ help and support; and
  • Institutional investors, venture capitalists, state & federal regulators, government officials and academicians helping to shape the future of banking.

As a platform powered by Bank Director, FinXTech connects this hugely influential audience around shared areas of interest and innovation.  FinXTech specializes in (1) bringing valuable bank relationships to fintechs, and (2) offering banks valuable relationships with fintechs in a way no one else does.