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.

Innovating the Capital One Way: Do YOU Think This Is The New Normal?

bd8a817e833e9bb01ddf91949fce917bAs shared in Bank Director’s current issue, peer-to-peer lenders, like San Francisco-based Lending Club, are beginning to gain traction as an alternative to banks in both the commercial and consumer loan space.

In the retail sector, well-funded technology companies like Google, Amazon and a host of others are swimming around like sharks looking to tear off chunks of revenue, particularly in the $300 billion a year payments business. These disruptors, as many consultants call them, are generally more nimble and quicker to bring new products to market.

While being “attacked by aggressive competitors from outside the industry is certainly not a new phenomenon for traditional banks,” it is fair to ask what a bank can do today. For inspiration, take a look at what Richard Fairbank, the Chairman and CEO of Capital One, had to say on a recent earnings call.

Ultimately the winners in banking will have the capabilities of a world-class software company. Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company. To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.

I thought this was particularly interesting given our editor’s take in this quarter’s issue: “if you’re a traditional banker, it’s time to recognize (if you don’t already) that a growing number of consumers — many of them young, well educated and upwardly mobile—can get along just fine without you.”  Clearly, it would be foolish for any bank CEO or director to operate with a false sense of security that their institution won’t need to adapt.

So is Capital One’s “approach” to business the way of the future for many big banks?  

Drop me a line or send me a tweet (@aldominick) and let me know what you think.  Aloha Friday!

In advance of Washington & Lee’s annual Entrepreneurship Summit

Good morning from the campus of the 9th oldest university in the United States: Washington & Lee. Yes, I am back in Lexington, VA to speak at my alma mater’s 3rd annual Entrepreneurship Summit. So in lieu of my traditional Friday post on banking, today’s column highlights three points (specific to social media) that I will expand upon in a few hours.

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I am fortunate to share today’s stage with a number of successful fellow Generals.  I love this school, and thought to share the presentation I put together for this two-day event (see: W&L 2014 Presentation). As you will see — and maybe hear — I’ve broken it into three parts that all relate to leveraging social media in a small, growing and profitable business:

  1. You can’t manage what you can’t measure — with a look at “the stats” we use at Bank Director to gauge progress and success;
  2. A juxtaposition of JPMorgan Chase’s #AskJPM fail with TD Bank’s wildly popular Automated Thank You Machine; and
  3. Inspiration from our recent FinTech day at the NASDAQ MarketSite and a conversation I had with BNY Mellon’s head of innovation about Staying Relevant While Standing Out.

If you are a student at W&L, I hope you will pay close attention to the final slide in this shared presentation. It speaks to the internship opportunities we have for interested and qualified applicants looking for a paid position in Nashville next summer.

Aloha Friday!

Let the Good Times Roll

Checking in from a rain-soaked Reagan National airport, where I think I see the plane I’ll take down to New Orleans taxiing towards its gate.  Yes, it’s “Growth Week” at Bank Director, and I’m heading to the Crescent City to host bank CEOs, Chairmen and board members keen to focus on big picture business issues surrounding growth (not necessarily associated with mergers and acquisitions) and profitability.

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A Deep Dive

I realize the phrase “let the good times roll” is most frequently heard during Mardi Gras celebrations in New Orleans; I’m using it to tee up Bank Director’s Growth Conference that kicks off tomorrow morning at the Ritz-Carlton.  Once the lights come up, I’ll be interested to hear:

  • How growth is driving pricing;
  • Why efficiency & productivity are both key elements in positioning a bank to grow; and
  • If “overcapacity” in the US banking industry offers opportunities.

I’m particularly excited for our opening session with Thomas Brown, CEO, Second Curve Capital.  We’ve asked him to help us “set the table” for the next two days of conversations with an outlook for banks across the country by reviewing the current capital market and operating conditions, thereby providing financial context to the next two days’ presentations.  If I don’t cover his remarks in my post tomorrow, you can bet our editor, Jack Milligan, will on his must-read blog The Bank Spot.

A Look Back

Much of last year’s conversation revolved around technology and the need to adapt to a changing marketplace, as well as the importance of creating a unique niche in a competitive landscape dominated by the biggest banks.  Many of our bank speakers at the conference had a more nuanced view of technological change. Richard Hill, the chief retail banking officer for the $19-billion asset Hancock Holding Co. in Baton Rouge, Louisiana, said when he got into banking in the 1970s, the prediction was that checks would go away and branch banking would go away. That clearly didn’t happen, or at least not at the accelerated pace that many predicted. The problem for his bank and for many others is that profits are getting squeezed with low interest rates, and the bank needs to make investments that expand revenue. As he said, “a great challenge we have is figuring all this out.”

Take Our Your Crystal Balls

Let me wrap up by sharing a 2 minute video our team compiled on the “future” of banking.  We played it at our Acquire or Be Acquired conference in January and the perspectives of KPMG’s national banking leader, the CEO of Congressional Bank, etc. are worth a watch and listen.

Laissez les bons temps rouler!

Joining a Bank’s Risk Committee?

Risk committees, chief risk officers, risk appetite programs, stress tests and enterprise risk management programs were not a major part of most board’s focus six years ago — but they are now.  As a risk committee typically coordinates risk oversight with the audit and other committees, today’s post builds on yesterday’s piece, Joining a Bank’s Audit Committee.  Please understand, there are so many risks that can undermine a bank today that this column simply tees up the where a committee member might focus his/her time.

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Most bankers understand the concept of financial risk.  For those directors joining a risk committee?  Let’s just say they really need to understand the risks of running an operation that relies on numerous internal processes, systems and people to be successful.   Indeed, a committee member must focus on the full range of complex and often interrelated risks, including:

  • Strategic
  • Credit
  • IT
  • Market
  • Operational
  • Compliance
  • Liquidity
  • Legal
  • Reputation

Yes, risk oversight is a fundamental responsibility of the entire board; however, I hear that individual risk committee members should develop a broad view of issues across their organization to both see and know how they relate to one another.  My two cents: (a) its imperative to define your own bank’s risk appetite before communicating risk management plans throughout the bank (b) if you have one, work with your chief risk officer to determine what forward-facing metrics you want consistent focus on in order to identify and react to emerging threats.

If you’re interested…

Here are three resources that can help you go deeper into this topic:

Tomorrow’s focus: a check-in from the Bank Board Training Forum at the Hermitage hotel in Nashville, TN.

Joining a Bank’s Audit Committee?

At most financial institutions, the audit committee is the most important board committee. Indeed, just about everything of significance that happens within an institution ends up passing through the audit committee in some form or fashion.  To build off of yesterday’s post (Building a Higher Performance Bank Board), let me take a quick look at this essential committee.

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While a typical audit committee meeting involves matters like a summary of internal audits, regulatory reports and economy/operational/product/market/personnel changes, I thought to share four characteristics of “high performing audit committees” based on numerous conversations with audit committee chairs, members and executives with accounting firms:

  1. Independence from management is critical;
  2. Financial expertise is key;
  3. Access to external experts (e.g. authorized to engage counsel independently) is essential; and
  4. Industry knowledge separates the good from the great.

As my friend and colleague Jack Milligan likes to say, members of a bank’s audit committee are typically the smartest people on the board.  When you look at some of the technical accounting and financial reporting issues they have to deal with, you would at least have to agree that they carry a pretty heavy load — particularly when the audit committee is also responsible for risk governance, which is still the case on most community bank boards.

If you’re interested…

Here are three resources that can help you go deeper into this topic today:

Tomorrow’s focus: joining a bank’s Risk Committee.

Building a Higher Performance Bank Board

This is the first of five bank director “education”-type posts on About That Ratio.  Against yet another snowstorm in D.C., I’m gearing up for a Bank Board Training Forum in Nashville later this week and will share various thoughts that tie into our “strong board, strong bank” philosophy.

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Today’s post is not a “check the box” criteria for how a bank’s board should operate; rather, a personal observation based on numerous conversations with CEOs, Chairmen and outside directors.  Simply, when it comes to building a high performance board, I would ask each member of the board to consider:

  1. Are you prepared to lead when something big happens (e.g. a regulatory agency takes action against the institution… an unexpected takeover attempt, etc.)?
  2. Have you given succession planning serious time and attention for your next generation of leaders?
  3. What kind of diversity of perspective do your fellow board members bring to the table – and how are these used to strengthen the bank?

Although bank boards have certain duties that have been prescribed by law or regulation, I’ve learned that an individual board’s role is defined as much by culture and tradition as by an external requirement.  While building a higher performance board is as much an art as it is a science, I’ve found asking “better questions” leads to better results.

If you’re interested…

Here are three free resources that can help you go deeper into this topic today:

  • Jack Milligan authors The Bank Spot – a must-read blog about banks & banking, written from the perspective of a veteran financial journalist (and yes, Bank Director’s editor)
  • Weil is one of the pre-eminent corporate governance counsel
  • McKinsey recently published “Building a Forward-Looking Board” (registration required)

Bank Director Education

A simple truth: being a bank leader today demands more time, more attention and more knowledge than ever before. I’m lucky to engage with many exceptional bankers from around the country and am continually impressed with the appetite these executives and board members have for information and insight about our increasingly complex industry.
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While I’m proud of the online, in-person and on-site work of the Bank Director team, I thought to highlight a series of easy-to-access 25-minute videos we produced for banks that have a relationship with us. As you will see in this short overview, we cover important topics such as the role of the board, risk management, key audit, compensation and governance issues and advice on growing the bank.

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These videos naturally align with a one and a half day event we will host at the Hermitage Hotel (pictured above) in our company’s hometown of Nashville, TN next month.  Our Bank Board Training Forum provides directors with cutting-edge preparation for the issues and challenges facing them in today’s ever competitive, highly regulated and rapidly evolving banking and financial services industry.  While just one of seven events we host throughout the year, I’m excited to move my attention from our biggest conference — Acquire or Be Acquired — to our newest.