Sharing a few bank-inspired observations from Asheville, North Carolina on a glorious Saturday evening.
Reduce and Redirect
What To Expect at the 2022 Acquire or Be Acquired Conference
When Robert Iger joined The Walt Disney Co. as its new CEO in 2005, the company’s storied history of animation had floundered for a decade.
So Iger turned to a competitor whose animation outpaced Disney’s own and proposed a deal.
The relationship between Pixar Animation Studios and Disney had been strained, and Iger was nervous when he called Pixar’s CEO, Steve Jobs.
The two sat down in front of a white board at Pixar’s headquarters and began listing the pros and cons of the deal. The pros had 3 items. The cons had 20, as the now-retired Iger tells it in his this Masterclass online.
“I said ‘This probably isn’t going to happen,’’’ Iger remembers. “He said, ‘Why do you say that?’”
Jobs could see that the pros had greater weight to them, despite the long list of the cons.
Ultimately, Disney did buy Pixar for more than $7 billion in 2006, improving its standing, animation and financial success. In the end, Iger says he “didn’t think it was anything but a risk worth taking.”
I read Iger’s memoir, “The Ride of a Lifetime,’’ in 2021, just as I began planning the agenda for our annual Acquire or Be Acquired Conference in Phoenix. Widely regarded as the premier event for the financial industry’s CEOs, boards and leadership teams, we are preparing to welcome nearly 1,400 to the Arizona desert this weekend. His story resonated, and not just because of the Disney/Pixar transaction.
I thought about that line of risks worth taking… and was reminded of the leadership traits Iger prizes; specifically, optimism, courage and curiosity.
Many of this year’s registered attendees wrestle with the same issues Iger confronted at Disney. They represent important brands in their markets that must respond to the monumental changes in customer expectations. They must attract and retain talent and to grow in the face of challenges.
While some look to 2022 with a sense of apprehension — thanks to Covid variant uncertainty, inflation, supply chain bottlenecks and potential regulatory changes — I feel quite the pep in my step this January.
I celebrate the opportunity with our team to return, in-person, to the JW Marriott Desert Ridge. With so many registered to join us Jan. 30 through Feb. 1, I know I am not alone in my excitement to be with people again in real life.
So what’s in store for those joining us? Conversations around:
- Capital allocation.
- Balancing short-term profitability versus long term value creation.
- Managing excess liquidity and shrinking margins.
- Re-thinking hiring models and succession planning.
- Becoming more competitive and efficient.
Naturally, we discuss the various growth opportunities available to participants. We talk about recent merger transactions, market reactions and integration hurdles. We hear about the importance of marrying bank strategy with technology investment. We explore what’s going on in Washington with respect to regulation, and we acknowledge the pressure to grow earnings and the need to diversify the business.
As the convergence of traditional banking and fintech continues to accelerate, we again offer FinXTech sessions dedicated to delivering growth. We unpack concepts like banking as a service, stablecoins, Web3, embedded finance and open banking.
Acquire or Be Acquired has long been a meeting ground for those that take the creation of franchise value very seriously — a topic even more nuanced in today’s increasingly digital world. The risk takers will be with us, which is great company to keep. Indeed, “there’s no way you can achieve great gains without taking great chances,’’ Iger says. “Success is boundless.”
To follow along with this year’s event, I invite you to bookmark this blog, visit BankDirector.com and search #AOBA22 on LinkedIn and Twitter.
An Easy Way to Lose Sight of Critical Risks
CHICAGO — Let me ask you a question:
How does the executive team at your biggest competitor think about their future? Are they fixated on asset growth or loan quality? Gathering low-cost deposits? Improving their technology to accelerate the digital delivery of new products? Finding and training new talent?
The answers don’t need to be immediate or precise. But we tend to fixate on the issues in front of us and ignore what’s happening right outside our door, even if the latter issues are just as important.
Yet, any leader worth their weight in stock certificates will say that taking the time to dig into and learn about other businesses, even those in unrelated industries, is time well spent.
Indeed, smart executives and experienced outside directors prize efficiency, prudence and smart capital allocation in their bank’s dealings. But here’s the thing: Your biggest—and most formidable—competitors strive for the same objectives.
So when we talk about trending topics at today and tomorrow’s Bank Audit and Risk Committees Conference in Chicago, we do so with an eye not just to the internal challenges faced by your institution but on the external pressures as well.
As my team at Bank Director prepares to host 317 women and men from banks across the country this morning, let me state the obvious: Risk is no stranger to a bank’s officers or directors. Indeed, the core business of banking revolves around risk management—interest rate risk, credit risk, operational risk. To take things a step further:
Given this, few would dispute the importance of the audit committee to appraise a bank’s business practices, or of the risk committee to identify potential hazards that could imperil an institution. Banks must stay vigilant, even as they struggle to respond to the demands of the digital revolution and heightened customer expectations.
I can’t overstate the importance of audit and risk committees keeping pace with the disruptive technological transformation of the industry. That transformation is creating an emergent banking model, according to Frank Rotman, a founding partner of venture capital firm QED Investors. This new model focuses banks on increasing engagement, collecting data and offering precisely targeted solutions to their customers.
If that’s the case—given the current state of innovation, digital transformation and the re-imagination of business processes—is it any wonder that boards are struggling to focus on risk management and the bank’s internal control environment?
When was the last time the audit committee at your bank revisited the list of items that appeared on the meeting agenda or evaluated how the committee spends its time? From my vantage point, now might be an ideal time for audit committees to sharpen the focus of their institutions on the cultures they prize, the ethics they value and the processes they need to ensure compliance.
And for risk committee members, national economic uncertainty—given the political rhetoric from Washington and trade tensions with U.S. global economic partners, especially China—has to be on your radar. Many economists expect an economic recession by June 2020. Is your bank prepared for that?
Bank leadership teams must monitor technological advances, cybersecurity concerns and an ever-evolving set of customer and investor expectations. But other issues can’t be ignored either.
So as I prepare to take the stage to kick off this year’s Bank Audit and Risk Committees Conference, I encourage everyone to remember that minds are like parachutes. In the immortal words of musician Frank Zappa: “It doesn’t work if it is not open.”
Everything You Need to Know About 2019’s Acquire or Be Acquired Conference
WASHINGTON, DC — So, there’s this guy named Warren Buffet who has a few thoughts on business. This Nebraska-based investor once opined “I’d rather pay a fair price for a wonderful company than a wonderful price for a fair company.” Quite sagacious — and appropriate to share in advance of our 25th annual Acquire or Be Acquired Conference which takes place January 27-29 at the JW Marriott Phoenix Desert Ridge in Arizona.
Since we last hit the desert, several regional banks have been active in the M&A market — and may continue to look for merger opportunities to build up scale. In addition, we’ve seen how tax reform had a big impact on the industry, with many making investments to grow their business.
Now, with the government shutdown straining our economy, big banks beating community banks on the digital front and shifting team & cultural dynamics, we have a lot of ground to cover over two-and-a-half days. Interested to see what we have planned? Take a look at the full agenda.
While I am excited to reconnect with quite a few folks, I am particularly interested in a number of strategic issues that will be discussed. For instance:
- Since the stock market doesn’t always reward longer-term thinking, what does a bank’s CEO needs to focus on, especially with many stocks being valued as if a recession is imminent;
- How can regional and local banks boost their deposits given the biggest banks 2018 deposit gather successes;
- How laggards to the digital movement can catch up with their peers? (One suggestion: take a look at Finxact, a “Tesla-like” financial technology company that offers an innovative, open-core banking platform. I believe it will quickly become a legitimate challenger to FIS, Jack Henry and Fiserv);
- The M&A outlook for 2019;
- How institutions can gain/acquire/rent the skills needed to vet and negotiate with potential FinTech partners;
- When we might see IPOs — realizing the SEC has to re-open before this occurs; and
- How many new bank applications will be approved by the FDIC, realizing that 14 were last year.
For those joining us in Arizona, I encourage men to bring a sports coat or a jacket for the evenings as we plan to be outside for our receptions and the desert quickly cools off once the sun sets. In addition, the rumors of people being in their seats at 7:15 – 7:30 on Sunday morning? 100% true. We start at 7:45 AM and there are quite a few pictures from last January’s event if you need visual proof.
Finally, the digital materials for the conference can be found on BankDirector.com. Once you register on-site, you’ll be given a passcode to access the materials that can be used throughout the event.
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Whether you are able to join us in person or are simply interested in following the conference conversations via our social channels, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech on Twitter. Search & follow #AOBA19 to see what is being shared with and by our attendees. If you are going to be with us in Arizona and we’re not already connected here on LinkedIn, drop me a note and let’s fix that.
3 Trends (and 3 Issues) Every Bank’s Board Needs To Consider
Quickly:
- The challenges faced by financial institutions today are as numerous as they are nuanced. Be it data security, emerging technology, fraud, crisis management and/or the effectiveness of internal controls, I opened the 12th annual Bank Audit & Risk Committees Conference by laying out a number of key governance, risk and compliance issues and trends.
CHICAGO — While a sophomore at Washington & Lee University, a professor loudly (and unexpectedly) chastised a close friend of mine for stating the obvious. With a wry laugh, he thanked my classmate “for crashing through an open door.” Snark aside, his criticism became a rallying cry for me to pause and dive deeper into apparently simple questions or issues.
I shared this anecdote with some 400 attendees earlier today; indeed, I teed up Bank Director’s annual program by reminding everyone from the main stage that:
- We’re late in the economic cycle;
- Rates are rising; and
- Pressure on lending spreads remains intense.
Given the composition of this year’s audience, I acknowledged the obvious nature of these three points. I did so, however, in order to surface three trends we felt all here should have on their radar. I followed that up with three emerging issues to make note of.
TREND #1:
Big banks continue to roll-out exceptional customer-facing technology.
Wells Fargo has been kicked around a lot in the press this year, but to see how big banks continue to pile up retail banking wins, take a look at Greenhouse by Wells Fargo, their app designed to attract younger customers to banking.
TREND #2:
Traditional core IT providers — Fiserv, Jack Henry & FIS — are under fire.
As traditional players move towards digital businesses, new players continue to emerge to help traditional banks become more nimble, flexible and competitive. Here, FinXact and Nymbus provide two good examples of legitimate challengers to legacy cores.
TREND #3:
Amazon lurks as the game changer.
Community banker’s fear Amazon’s potential entry into this market; according to Promontory Interfinancial Network’s recent business outlook, it is their greatest threat.
In addition to these trends, I surfaced three immediate issues that banks must tackle
ISSUE #1:
Big banks attract new deposits at a much faster pace than banks with less than $1 billion assets.
If small banks can’t easily and efficiently attract deposits, they basically have no future. ‘Nuf said.
ISSUE #2: Bank boards need to know if they want to buy, sell or grow independently.
In a recent newsletter, Tom Brown of Second Curve Capital opined that “if you have less than $5 billion in assets, an efficiency ratio north of 65%, deposit costs above 60 basis points, and earn a return on equity in the single digits, this really is time to give some thought to selling.” As I shared on LinkedIn yesterday, the 3 biggest bank M&A deals of the year took place in May: Fifth Third Bancorp’s $4.6 billion purchase of MB Financial, Cadence Bancorp’s $1.3 billion acquisition of State Bank Financial and Independent Bank Group’s $1 billion agreement to buy Guaranty Bancorp. I don’t see the pace of consolidation slowing any time soon — and know that banks need to ask if they want (and can) be buyers or sellers.
ISSUE #3:
The risk of data breaches across industries continues to increase.
Be it risk management, internal control or third-party security considerations, every aspect of an institution is susceptible to a data breach — and managing these threats and identifying appropriate solutions takes a village that includes the most senior leaders of an organization.
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Just as banks need to develop their audit and risk capabilities, skills and talents, so too do officers and directors have both an opportunity and the responsibility to stay abreast of various trends and topics. Bank Director’s event continues tomorrow with some fascinating presentations. To see what’s been shared already, take a look at Twitter, where I’m tweeting using @aldominick and #BDAudit18.
Do You Know These 3 Cs of Banking?
Quickly:
- When it comes to talk about bank mergers and acquisitions, It has been written that the questions rarely change — but the conversations prove irresistible.
By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.
PHOENIX, AZ — If you’re with us here at the Arizona Biltmore for Bank Director’s annual Acquire or Be Acquired Conference, you’ve heard that banks with low‐cost core deposits continue to attract interest from acquirers. So as banks wrestle with increased funding costs, that observation sparked an idea about what constitutes the “three Cs” of banking today:
- Compliance
- Cost Control
- Consolidation
For instance, having good on-going relations with one’s regulators is hugely important. In fact, I heard several prominent attorneys share that regulatory risk remains the greatest obstacle to completing an M&A deal. So having the bank in position to act quickly and confidently when an opportunity arises is a major advantage in today’s competitive M&A environment. I take this to mean no enforcement actions, satisfactory CRA, good HCR results, etc.
As was discussed yesterday afternoon, when an acquirer can present a credible narrative that a potential deal is consistent with a well-considered strategy — and that the company has the infrastructure appropriate to the new organization, you find a well received merger.
In terms of consolidation, we saw a number of presentations note the 261 bank M&A deals, worth an aggregate $26.38 billion, announced in 2017. As a point of reference, 241 deals were announced — worth an aggregate $26.79 billion — in 2016. According to S&P Global Market Intelligence, the median deal value-to-tangible common equity ratio climbed significantly in 2017 to 160.6%, compared to 130.6% for 2016. Last December alone, 32 deals worth a combined $1.84 billion were announced and the median deal value-to-tangible common equity ratio was 156.5%.
Throughout the fourth quarter, there were 74 bank deals announced in the US, which was the most active quarter since 83 deals were announced in the fourth quarter of 2015. However, last quarter’s $4.4 billion aggregate deal value was the lowest since the third quarter of 2015, which totaled $3.43 billion.
These are by no means the only Cs in banking. Credit, core technology providers, (tax) cuts… all, huge issues. So along these lines, I made note of a few more issues for buyers, for sellers — and for those wishing to remain independent. Take a look:
If you are interested in following the final day of the conference via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, or search #AOBA18 to see what is being shared with (and by) our nearly 1,200 attendees.
5 Trending Topics at the Acquire or Be Acquired Conference
Quickly:
- Large buyers are not in the bank M&A game right now; indeed, banks $25Bn and below continue to drive M&A activity. Case-in-point, 95% of total M&A deals since 2011 have buyer assets less than $25Bn. Might this change in 2018?
By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.
PHOENIX, AZ — Michael Porter, the noted economist, researcher and teacher, once said, “strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. The essence of strategy is choosing what not to do. No one can tell you which rules to break, but you can acquire more skill in determining which rules to break given your talents and circumstances right now.”
Porter’s perspectives came back to me while listening to KBW’s CEO, Tom Michaud. Yesterday morning, Tom talked about the strategic paths that a bank’s CEO might consider in the years to come. As he shared, pressure from investors to deploy capital stimulated M&A discussions in 2017 — and will continue to impact deals in 2018. He also noted that pressure placed on deposit costs, as interest rates rise, contributes to the potential acceleration of bank consolidation. These were just two of the many notes I jotted down during the first day of our annual event. Broadly speaking, what I heard fell into five categories:
1. Economic trends
2. Regulatory trends
3. Small business lending trends
4. Management succession trends
5. Technological innovation trends
Many banks enter 2018 with steady, albeit slow loan growth — while recognizing modest margin improvement as they continue to focus on controlling expenses. Accordingly, I thought to elaborate on the issues I found interesting and/or compelling. Feel free to comment below if other points caught your eye or ear.
Economic Trends
FJ Capital authored a piece in late October that noted how, as the Fed progresses further into the tightening phase of the interest rate cycle, banks will find it more difficult to fund loan growth by raising new low‐cost deposits. Their view, which I heard echoed here, is banks with low‐cost core deposits will become more valuable over the next few years as banks wrestle with increased funding costs. In addition to this idea, I made note that banks with a strong deposit base could be more attractive to buyers as interest rates rise. However, a remark I’ve heard at past events re-emerged here. Namely, making a small bank profitable is hard; exiting, even harder.
Regulatory Trends
Given the audience here, I wasn’t surprised by the continued talk of removing the synthetic $10Bn designation. If the Fed, FDIC and OCC raise the $50Bn threshold as spelled out in Dodd Frank, we could see more banks in the $20Bn – $40Bn range come together. Given that large regional banks usually can pay high prices for smaller targets, unleashing this capacity could reignite more M&A and boost community bank valuations. In addition, the Community Reinvestment Act remains a major headwind in bank mergers. Many here want improvements in the CRA process, which in turn could reduce regulatory risk for bank M&A.
Small business lending
When it comes to the lifeblood of most banks — small business lending — a recurring question has been where and how community banks can take market share from larger banks. My two cents: closing loans faster is key, as is structuring loans to fit specific borrower profiles while being supremely responsive to the customer. Oh, and credit is a big theme right now — and the best clients typically have the best credit.
Management succession
An inescapable comment / observation: aging management teams and board members has been a primary driver of bank consolidation of late. I noted that the average age of a public bank CEO and Chairman is 60 and 66, respectively. It was suggested that this demographic alone plays a key factor in the next few year’s consolidation activity.
Technological trends
When it comes to bank mergers, one of the big drivers of deals is the rise in technology-driven competition (*along with regulatory costs and executive-succession concerns). I sense that most traditional banks haven’t really figured out the digital migration process we’ve embraced as a world. Finally, it appears that the biggest banks are winning the war for retail deposits. This is an issue that many management teams and boards should be discussing…
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For those of you interested in following the conference conversations via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and our @Fin_X_Tech platform, and search & follow #AOBA18 to see what is being shared with (and by) our attendees.
10 Questions I Plan To Ask During Acquire Or Be Acquired
Quickly:
- Despite improving economic conditions, the business of banking remains difficult.
By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.
PHOENIX, AZ — For all the talk of bank consolidation, there are still 5,700+ banks in the United States. But let’s not kid ourselves. For many community banks today, earnings pressures + regulatory and compliance costs + the continued impact of technology = a recurring challenge.
While the number of banks in business will inevitably shrink over the next 10 years — perhaps being cut in half — I remain bullish on the overall future of this industry. If December’s tax reform spurs capital spending and job creation by small- and medium-sized businesses, many of the banks joining us here in Arizona stand to benefit. But will the recent tax cut induce companies to invest more than they already planned to? This is but one of a number of questions I look forward to asking on stage through the first day of Bank Director’s Acquire or Be Acquired Conference.
Below, ten more questions I anticipate asking:
- Are FinTechs the industry’s new de novos?
- What does it mean that the banking world is deposit rich yet asset poor?
- Why are certain credit unions thinking about about buying banks?
- In terms of technology spending levels, where are dollars being earmarked and/or spent?
- With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
- What is an appropriate efficiency ratio for a bank today?
- Will big M&A buyers get back in the game this year?
- What are some of the critical items in due diligence that are under appreciated?
- What does an activist investor look for in a bank?
- Is voice recognition the next huge source of growth for banks?
We have an exciting — and full day — coming up at the Arizona Biltmore. To keep track of the conversations via Twitter, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech. In addition, to see all that is shared with (and by) our attendees, we’re using the conference hashtag #AOBA18.
21 Reasons I Am Excited About Acquire or Be Acquired
Quickly:
- Making banking digital, personalized and in compliance with regulatory expectations remains an ongoing challenge for the financial industry. This is just one reason why a successful merger — or acquisition — involves more than just finding the right cultural match and negotiating a good deal.
By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.
PHOENIX, AZ — As the sun comes up on the Arizona Biltmore, I have a huge smile on my face. Indeed, our team is READY to host the premier financial growth event for bank CEOs, senior management and members of the board: Bank Director’s 24th annual Acquire or Be Acquired Conference. This exclusive event brings together key leaders from across the financial industry to explore merger & acquisition strategies, financial growth opportunities and emerging areas of potential collaboration.
The festivities begin later today with a welcoming reception on the Biltmore’s main lawn for all 1,125 of our registered attendees. But before my team starts to welcome people, let me share what I am looking forward to over the next 72 hours:
- Saying hello to as many of the 241 bank CEOs from banks HQ’d in 45 states as I can;
- Greeting 669 members of a bank’s board;
- Hosting 127 executives with C-level titles (e.g. CFO, CMO and CTO);
- Entertaining predictions related to pricing and consolidation trends;
- Hearing how a bank’s CEO & board establishes their pricing discipline;
- Confirming that banks with strong tangible book value multiples are dominating M&A;
- Listening to the approaches one might take to acquire a privately-held/closely-held institution;
- Learning how boards debate the size they need to be in the next five years;
- Engaging in conversations about aligning current talent with future growth aspirations;
- Juxtaposing economic expectations against the possibilities for de novos and IPOs in 2018;
- Getting smarter on the current operating environment for banks — and what it might become;
- Popping into Show ’n Tells that showcase models for cooperation between banks and FinTechs;
- Predicting the intersection of banking and technology with executives from companies like Salesforce, nCino and PrecisionLender;
- Noting the emerging opportunities available to banks vis-a-vis payments, data and analytics;
- Moderating this year’s Seidman Panel, one comprised of bank CEOs from Fifth Third, Cross River Bank and Southern Missouri Bancorp;
- Identifying due diligence pitfalls — and how to avoid them;
- Testing the assumption that buyers will continue to capitalize on the strength of their shares to meet seller pricing expectations to seal stock-driven deals;
- Showing how and where banks can invest in cloud-based software;
- Encouraging conversations about partnerships, collaboration and enablement;
- Addressing three primary risks facing banks — cyber, credit and market; and
- Welcoming so many exceptional speakers to the stage, starting with Tom Michaud, President & CEO of Keefe, Bruyette & Woods, Inc., a Stifel Company, tomorrow morning.
For those of you interested in following the conference conversations via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and our @Fin_X_Tech platform, and search & follow #AOBA18 to see what is being shared with (and by) our attendees.
Expect the Unexpected
“If past history was all that is needed to play the game of money, the richest people would be librarians.” – Warren Buffett
#AOBA17 pre-conference intel
By Al Dominick, CEO of Bank Director | @aldominick
This may be a phenomenal—or scary year—for banks. Banks have benefited from rising stock prices and rising interest rates, which are expected to boost low net interest margins. Indeed, the change in the U.S. presidency has resulted in a steepened yield curve, as investors predict improved economic growth. Currently, many anticipate regulatory relief for banks and the prospect of major corporate tax cuts. Such change could have a significant impact on banks; however, those running financial institutions also need to keep an eye on potential challenges ahead.
As we head to our 23rd Acquire or Be Acquired Conference in Phoenix, Arizona, with a record breaking 1,058 attendees Jan. 29-Jan. 31, I am expecting the mood to be good. Why wouldn’t it be? But what is on the horizon are also fundamental changes in technology that will change the landscape for banking. What will your competitors be doing that you won’t be? Our conference has always been a meeting ground for the banking industry’s key leaders to meet, engage with each other and learn what they need to do deals. It is still that. Indeed, most of the sessions and speakers will be talking about M&A and growth.
But this year, more than 100 executives from fintech companies that provide products and services to banks join us in the desert, on our invitation. We want to help banks start thinking about the challenges ahead and how they might solve them.
Here are some things to consider:
- How will the Office of the Comptroller of the Currency’s limited-purpose fintech charter enable more established fintech companies to compete with some of the incumbents in the room?
- If smaller banks are indeed relieved of many of the burdens of big bank regulation, will they use the savings to invest in technology and improvements in customer service?
- How will customer expectations change, and from whom will customers get their financial services?
To this last point, I intend to spotlight three companies that are changing the way their industries operate to inspire conversations about both the risks and rewards of pursuing a path of change. Yes, it’s OK to think a little bit beyond the banking industry.
Spotify
Rather than buying a CD to get their favorite songs, music-lovers today favor curated playlists where people pick, click and choose whom they listen to and in what order. There is a natural parallel to how people might bank in the future. Just as analytics enable media companies to deliver individually tailored and curated content, so too is technology available to banks that might create a more personalized experience. Much like Spotify gives consumers their choice of music when and where they want it, so too are forward-looking banks developing plans to provide consumer-tailored information “on-demand.”
Airbnb
The popular home-rental site Airbnb is reportedly developing a new service for booking airline flights. Adding an entirely new tool and potential revenue stream could boost the company’s outlook. For banks, I believe Airbnb is the “uber-type” company they need to pay attention to, as their expansion into competitive and mature adjacent markets parallels what some fear Facebook and Amazon might offer in terms of financial services.
WeChat
One of China’s most popular apps, the company counts 768 million daily active users (for context, that’s 55 percent of China’s total population). Of those users, roughly 300 million have added payment information to the wallet. So, WeChat Pay’s dominance in the person-to-person payments space is a model others can emulate. PayPal already is attempting such dominance, which Bank Director magazine describes in our most recent issue.
Many of those attending our conference also have done amazing things in banking. I can’t name all of them, but I’d be remiss to not mention CEO Richard Davis of U.S. Bank, our keynote speaker. After a decade leading one of the most phenomenal and profitable banks in the country, he is stepping down in April. We all have something to learn from him, I’m sure. Let us think about the lessons the past has taught us, but keep an eye on the future. Let’s expect the unexpected.
*note – this piece first ran on BankDirector.com on January 26, 2017
Cybersecurity and the Fintech Wave
Earlier this month, at Bank Director’s FinTech Day at Nasdaq’s MarketSite in New York City, I noted how many technology firms are developing strategies, practices and tools that will dramatically influence how banking gets done in the future. Concomitantly, I expressed an optimism that banks are learning from these new players, adapting their offerings and identifying opportunities to collaborate with new “digital-first” businesses. Unfortunately, with great opportunity comes significant risk (and today’s post looks at a major one challenging bank CEOs and their boards).
By Al Dominick, President & CEO, Bank Director
To grow your revenue, deposits, brand, market size and/or market share requires both strong leadership and business strategy. Right now, there are a handful of banks developing niche vertical lines of business to compete with the largest institutions. For instance, East West Bancorp, EverBank Financial, First Republic Bank, Opus Bank, PacWest Bancorp, Signature Bank and Texas Capital Bancshares.
Just as compelling as each bank’s approach to growing their business is the idea that new competitors in direct and mobile banking will spur the digitalization of our industry. I am a firm believer that through partnerships, acquisitions or direct investments, incumbents and upstarts alike have many real and distinct opportunities to grow and scale while improving the fabric of the financial community.
However, with myriad opportunities to leverage new technologies comes significant risk, a fact not lost on the bank executives and board members who responded to Bank Director’s 2016 Risk Practices Survey, sponsored by FIS. For the second year running, they indicate that cybersecurity is their top risk concern.
More respondents (34 percent) say their boards are reviewing cybersecurity at every board meeting, compared to 18 percent in last year’s survey, indicating an enhanced focus on cybersecurity oversight. Additionally, more banks are now employing a chief information security officer (CISO), who is responsible for day-to-day management of cybersecurity.
However, the survey results also reveal that many banks still aren’t doing enough to protect themselves—and their customers. Less than 20 percent of respondents say their bank has experienced a data breach, but those who do are just as likely to represent a small institution as a large one, further proof that cybersecurity can no longer be discussed as only a “big bank” concern.
For those thinking about the intersection of fintechs and banks, take a look at our just-released 2016 Risk Practices Survey. This year, we examine risk governance trends at U.S. banks, including the role of the chief risk officer and how banks are addressing cybersecurity. The survey was completed in January by 161 independent directors, chief risk officers (CRO), chief executive officers (CEO) and other senior executives of U.S. banks with more than $500 million in assets.
Key Findings Include:
- Sixty-two percent of respondents indicate their bank has used the cybersecurity assessment tool made available by the Federal Financial Institutions Examination Council, and have completed an assessment. However, only 39 percent have validated the results of the assessment, and only 18 percent have established board-approved triggers for update and reporting. FWIW, bank regulators have started to use the tool in exams, and some states are mandating its use.
- Seventy-eight percent indicate that their bank employs a full-time CISO, up from 64 percent in last year’s survey.
- The majority, at 62 percent, say the board primarily oversees cybersecurity within the risk or audit committee. Twenty-six percent govern cybersecurity within the technology committee.
- Forty-five percent indicate that detecting malicious insider activity or threats is an area where the bank is least prepared for a cyberattack or data breach.
- Just 35 percent test their bank’s cyber-incident management and response plan quarterly or annually.
Clearly, banks are increasingly relying on complex models to support economic, financial and compliance decision-making processes. Considering the full board of a bank is ultimately responsible for understanding an institution’s key risks — and credibly challenging management’s assessment and response to those risks — I am pleased to share this year’s report as part of our commitment to providing timely & relevant information to the banking community.
Fintech in 2016: A Whole Lot of Collaboration
While some of the largest and most established financial institutions have struck relationships with various financial technology firms (and not just startups / early stage), opportunities for meaningful partnerships abound. At Bank Director’s annual FinTech Day at Nasdaq’s MarketSite in Times Square next Tuesday, we explore — with executives from the companies depicted above — what’s really possible when banks and fintechs collaborate to help each other’s businesses accelerate and scale.
By Al Dominick, President & CEO, Bank Director
A fundamental truth: individuals, along with business owners, have more choices than ever before in terms of where, when and how they bank. So a big challenge — and dare I suggest, opportunity — for leadership teams at financial institutions and fintech companies alike entails aligning services & product mixes to suit core customers’ current interests and prospective one’s expectations.
Yesterday, I shared how the fabric of the financial industry continues to evolve as new technology players emerge and traditional participants transform their business models. Indeed, many fintech companies are developing strategies, practices and new technologies that will dramatically influence how banking “gets done” in the future. However, within this period of change — where considerable market share will be up for grabs — I believe that ambitious organizations can leapfrog both traditional and emerging rivals.
Clearly, bank CEOs and their teams must seek new ways to not just stay relevant but to stand out. While a number of banks seek to extend their footprint and franchise value through acquisition, many more aspire to build the bank internally. Some show organic growth as they build their base of core deposits and expand their customer relationships; others see the value of collaborating with fintech companies.
For a bank CEO and his/her executive team, knowing who’s a friend, and who’s a potential foe, is hugely important. Personally, I have found this to be quite difficult for many regardless of their size or market. Moreover, I find this to be a two-sided challenge in the sense that for a fintech founder or executive, identifying those banks open to partnering with, investing in or even acquiring a company like the one they run presents as great a challenge as it does opportunity.
So as more & more fintech companies look to partner with legacy players — and banks warm to such a dynamic — I am excited to think about the creative new partnerships that can be explored to ease payment processes, reduce fraud, save users money, promote financial planning and ultimately, move our giant industry forward.
About That Ratio 