Bank CEOs and Their Boards Can Lay Claim to These 5 Technologies

Quickly:

▪ Regional and community banks continue to lay claim to innovative technologies that attract new customers, enhance retention efforts, improve efficiencies, cut costs and bolster security.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech

ATLANTA — The digital distribution of financial goods and services is a HUGE issue for bank executives and their boards.  Margins on banking products continue to decline due to increased competition.  In my opinion, this provides ample incentivize for banks to seek partnerships with specialized product and service providers.

I shared this thought earlier today at Bank Director’s annual Bank Board Training Forum. During my remarks to an audience of 203 officers and directors (representing 84 financial institutions), I laid out five potential area of collaboration that community bank CEOs and their boards might spend more time discussing:

1. New core technologies;
2. Machine learning / Artificial intelligence applications;
3. RegTech;
4. Payments; and
5. White labeling product offerings.

I elaborated on why I think our audience needs to explore each area before expanding on how banks might take steps to incorporate such technologies into their culture and business.  I wrapped up by providing examples of companies in each space that attendees might learn more about.

For instance, when it comes to the core technological systems offered by Fiserv, Jack Henry and FIS, many banks are investing in “integration layers” to bridge the needs of client‐facing systems with their core system. While these layers have proven valuable, banks are also aware of the need to migrate away from legacy cores should the flexibility they desire not come from these companies.  Hence the advent of companies like Finxact, a cloud banking platform promising to be the most transparent and open core banking system available.

In terms of machine learning and artificial intelligence, I see five potential use cases for banks to consider: smarter customer acquisition, better Know-Your-Customer efforts, improved customer service, smarter and faster account openings and the ability to offer more competitive loans.  Here, I am impressed with the work being done by companies like Kasisto, whose conversational AI platform is pre-loaded with thousands of banking intents and millions of banking sentences.  It promises to fulfill requests, solve problems, predict customers’ needs and improve performance on its own using sophisticated machine learning.

Given the cost and complexity of compliance, RegTech offerings promise to simplify fraud prevention and detection, improve the interpretation of regulation while accelerating reporting functions.  Further, RegTech companies held simplify data access, storage and management while strengthening risk management efforts.  There are quite a few companies in this fast-growing space that I highlighted.  One is Fortress Risk Management, a company whose advanced analytics predict and detect financial crime while its tool enable efficient case management, dispute management, reporting and regulatory compliance.

With respect to payments, our rapidly changing and oh-so-interconnected markets of debit, credit, mobile, prepaid and digital payments proves both a blessing and a potential curse for traditional institutions. As we move toward a cashless society and payments become less visible, banks need to maximize their opportunities to become the default payment method, and keep abreast of innovations in credit scoring, faster payments, analytics, security and fraud detection.  Case-in-point, BluePay delivers non-interest income to banks of all sizes by aggregating customer data coupled with the latest merchant processing technology.

Finally, white label product offerings are nothing new.  However, technology companies like SimplyCredit and StrategyCorps continue to help banks reshape and rethink customer engagement, setting new and higher bars for their’s clients’ experiences.  For banks seeking innovations like rapid loan adjudication, partnering with technology providers like these enables a bank to keep pace with the customer experience expectations set by large technology firms.

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If you weren’t able to join us in Atlanta and are curious about today’s featured image, here is a link to the pdf: 2017 Bank Board Training Presentation (Tech-focused). As I shared, New Zealand’s All Blacks are the world’s most successful sporting outfit, undefeated in over 75% of their international rugby matches over the last 100 years.  Their willingness to change their game (and their culture) when they were at the top of their game inspired me — and allowed me to challenge our attendees to think if they are willing to do the same with their banks.  I’m also inspired by my colleagues who helped develop this year’s program. From our conference team to editorial group, marketing to data departments, I’m proud to work with a great group dedicated to the idea that a strong board makes contributes to a strong bank.

Bank Director’s new Tech Issue

Earlier this week, we published the December issue of Bank Director Magazine, our annual Tech Issue.  Stories range from the changing nature of mobile banking to institutions moving into the cloud to a venture capitalist’s perspective on the future of banking.  I invite you to take a look.

Since starting this blog in 2012, I’ve shared my optimism that 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, FinTechs and consumers.  So as I read through this current digital issue, a few key takeaways:

  • When San Francisco-based Bank of the West, an $80.7 billion asset subsidiary of BNP Paribas Group, analyzed last year the bottom line impact of customers who are engaged in online banking and mobile banking, it found some surprising results. Digital customers, or those who were active online or on their mobile phones during the previous 90 days, had lower attrition rates than nondigital customers, and they contributed higher levels of revenue and products sold, said Jamie Armistead, head of digital channels at Bank of the West.
  • Automating the small-business lending process requires some deep thinking from boards and management about how much faith they’re willing to place in technology, and their ability to embrace the cultural change implicit in basing lending decisions more on data than judgment. “The marketplace is demanding quicker decisions through technology,” says Pierre Naude, CEO of nCino, a maker of bank operating systems. Bank customers, he says, are clamoring for special products and specialized coding that enable greater automation of the small-business lending process. “Bankers are waking up to the fact that speed and convenience will trump price. You can lose a customer to an alternative lender if you don’t have it.”
  • As our Editor, Naomi Snyder, shares in her welcoming letter, banks tend to have the usual board committees (think audit, compensation and risk).  But we know that few have a board-level technology committee.  So I wonder if 2017 is the year that more institutions decide to create such a group to become better informed and better prepared as the digitization of the banking industry continues?

Concomitant to this issue’s release, Chris Skinner shared his perspectives on the state of FinTech our FinXTech platform.  In his words, “it is apparent that the fintech industry has become mainstream just as fintech investing cools. What I mean by this is that fintech has matured in the last five years, going from something that was embryonic and disruptive to something that is now mainstream and real. You only have to look at firms like Venmo and Stripe to see the change. Or you only have to consider the fact that regulators are now fully awake to the change and have deployed sandboxes and innovation programs. Or that banks are actively discussing their fintech innovation and investment programs… Fintech and innovation is here to stay.”

Clearly, the pace of change in the banking space continues to accelerate.  Accordingly, I encourage you to check out what we’re doing with both Bank Director and FinXTech to help companies who view banks as potentially valuable channels or distribution partners, banks looking to grow and/or innovate with tech companies’ help and support; and institutional investors, venture capitalists, state & federal regulators, government officials and academicians helping to shape the future of banking.

Bank Director’s annual Tech Issue is now available for free

Take a look at Bank Director’s just-published “Tech Issue.” In it, we look at how bank CEOs and executive teams can better engage with fintech companies, what the biggest banks are doing in terms of technology strategy and what the Internet of Things (IoT) means for financial institutions in 2016.

To download this free issue:

  1. On Your Tablet or Mobile Device, Select Apple’s AppStore, Google Play or Amazon’s Apps;
  2. Search “Bank Director Digital Magazine;” and
  3. Download the App to Your Digital Device & Enjoy.

Happy Holidays!

Quick Guide: Banking’s Digital Transformation (#Payments)

Developing faster payments capabilities is a critical element within the banking industry’s digital transformation.

In yesterday’s post (The 5 Corners of Technological Innovation in Financial Services), I looked at the introduction of an Innovation Group at Wells Fargo that, in the words of their CEO, “puts an even larger focus on creating the products, services, and technologies” that will allow the institution to stay competitive and allow its customers to do their banking when, where, and how they would like.

As I dug into the Wells story — which received a lot of play from the press — It strikes me that to successfully transition one’s business model, innovation teams such as this one need to work in concert with major business groups like wholesale and commercial banking, commercial real estate, trust and wealth management, and payments / consumer banking.  As I consider how banks actually operate — e.g. how work is done, the degree of automation, the pricing and design of products and underlying compensation systems — I revisited several videos from Bank Director’s annual FinTech Day @ NASDAQ.  One, of Ben Plotkin, Vice Chairman of Stifel / Executive Vice President of Keefe, Bruyette & Woods, stands out, as he shares his perspective on how banks of all sizes can find success.

Ben touched on the payments space, and I too am curious to explore the role banks must play in the emerging payments ecosystem.  Here, Accenture provides valuable context as the world becomes more digital: “speed in all aspects of financial services is increasingly important. The payments ecosystem is no exception. Faster payments are taking shape across the globe—and may become industry standard.  While faster payments can enhance the customer experience and improve cash flows, it introduces a number of complexities, such as capital costs, and accounting and fraud systems impacts. In the short term, providing the impression of a near-real-time payment through memo posting and verifying the certainty of payment could be implemented sooner, and may meet expected market demand.”

Certainly, the trend toward digital money continues to gain momentum, and when it comes to the payment space, there are emerging technologies that have the potential to dominate the financial landscape (e.g. P2P & Blockchain methods).  Case-in-point, Stripe, the California-based online payments company, has raised new investments which have raised the company valuation to $5 billion.  Per a report in yesterday’s Let’s Talk Payments (h/t Brad Leimer @leimer), the funding “was led by financial giant Visa and experts believe this is a huge endorsement for Stripe. The company had previously raised a total funding of $190 million from high-profile investors including PayPal co-founders, Sequoia Capital, Box CEO Aaron Levie, Khosla Ventures, Andreessen Horowitz and others.”  As The New York Times reported, the companies’ strategic alliance will give Stripe access to Visa’s global network of issuers and acquirers.  BI Intelligence Payments Insider notes the companies will also collaborate to create online checkout solutions and buy buttons that can be plugged into developers’ websites anywhere.

How we pay, borrow and invest continues to change the way we conduct our financial payments.  It is fascinating to watch as companies like Stripe, PayPal, Dwolla, etc hustle to simplify how businesses accept payments through mobile applications while banks like Wells Fargo invest to do the same.

Looking for Great FinTech Ideas

A fundamental truth about banking today: 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 of all sizes equates to aligning services and product mixes to suit core customers’ interests and expectations.

By Al Dominick // @aldominick

Sometimes, the temptation to simply copy, paste and quote Bank Director’s editor, Jack Milligan, is too much for me to resist. Recently, Jack made the case that the distinction between a bank and a non-bank has become increasingly meaningless.  In his convincing words:

“The financial service marketplace in the United States has been has crowded with nonbank companies that have competed fiercely with traditional banks for decades. But we seem to be in a particularly fecund period now. Empowered by advances in technology and data analysis, and funded by institutional investors who think they might offer a better play on growth in the U.S. economy than traditional banks, we’re seeing the emergence of a new class of financial technology – or fintech – companies that are taking dead aim at the consumer and small business lending markets that have been banking industry staples for decades.”

Truth-be-told, the fact he successfully employed a word like ‘fecund’ had me hunting down the meaning (*it means fertile).  As a result, that particular paragraph stuck in my mind… a fact worth sharing as it ties into a recent Capgemini World Retail Banking Report that I devoured on a tremendously turbulent, white-knuckling flight from Washington, D.C. to New Orleans this morning (one with a “minor” delay in Montgomery, AL thanks to this morning’s wild weather).

Detailing a stagnating customer experience, the consultancy’s comprehensive study draws attention “to the pressing problem of the middle- and back-office — two areas of the bank that have not kept pace with the digital transformation occurring in the front-office. Plagued by under-investment, the middle- and back-offices are falling short of the high level of support found in the more advanced front-offices, creating a disjointed customer experience and impeding the industry’s ability to attract, retain, and delight customers.”

Per Evan Bakker for Business Insider, the entirety of the 35-page report suggests “banks are facing two significant business threats. First, customer acquisition costs will increase as existing customers are less likely to refer their bank to others. Second, banks will lose revenue as customers leave for competitors and existing customers buy fewer products. The fact that negative sentiment is global and isn’t limited to a particular type of customer activity points to an industry wide problem. Global dissatisfaction with banks is likely a result of internal problems with products and services as well as the growing number of non-bank providers of competing products and services.”

While dealing with attacks from aggressive, non-bank competitors is certainly not a new phenomenon for traditional banks, I have taken a personal interest in those FinTech companies looking to support (and not compete with) financial institutions.  So as I set up shop at the Ritz-Carlton New Orleans through Wednesday for our annual Bank Board Growth & Innovation conference, let me shine the spotlight on eight companies that may help address some of the challenges I just mentioned. While certainly just the tip of the FinTech iceberg, each company brings something interesting to the table:

As unregulated competition heats up, bank CEOs and their teams need to continue to seek 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.  To see what’s being written and said here in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

Today is FinTech Day at NASDAQ (here’s what you need to know)

The who, what, when, where and why of FinTech Day at NASDAQ, a collaboration between the exchange and my company, Bank Director, that celebrates the contributions of financial technology companies — fintech for short — to banks across the U.S.

 

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Who: Bank Director, a privately-held media & publishing company focused on issues fundamental to a bank’s CEO, senior leadership team and board members, teams up with the NASDAQ OMX to showcase various technology-driven strategies and tactics successful banks use to fuel profitable, sustainable growth.

What: FinTech Day at the NASDAQ

When: Today, September 8

Where: The NASDAQ MarketSite (4 Times Square – 43rd & Broadway)

Why: Because who says there is no innovation in banking?  During this day-long event, we keep our focus on a board’s level, exploring growth opportunities made possible by various technology products and services.

To Watch: We will welcome a number of executives from the Fintech community throughout the day, along with one of the country’s biggest (and actually, oldest) institutions: BNY Mellon.  Personally, I’m looking forward to chatting with their Managing Director – Strategic Growth Initiatives, Declan Denehan, at 2 PM ET for an hour-long session focused on innovation, competition and staying relevant. Thanks to our friends at NASDAQ, you can watch the live feed for free (click here to register and watch).  At 3:55 ET, I’ll join our publisher, Kelsey Weaver, to ring the closing bell. A webcast of the NASDAQ Closing Bell will be available (click here or here) if you are keen to see how we wrap up FinTech day.

Of Social Note: To follow the conversation, let me suggest these twitter handles: @bankdirector, @nasdaqomx, @bankdirectorpub and @aldominick. For photos from the ceremony and event, you can visit NASDAQ’s Instagram Page or Facebook page later today.  As we are all about being a part of the community and broader conversations, Bank Director will use #fintech for its tweets.

The Bank of Facebook

Part three of a five piece series on emerging threats to banks from non-financial companies.  For context on today’s piece, take a look at “For Banks, the Sky IS Falling” and “PayPal is Eating Your Bank’s Lunch” (aka parts one and two).

As banking becomes more mobile, companies that power our mobile lifestyle have emerged as real threats to financial institutions.  While common in Europe — where Google, Vodafone and T-Mobile already compete head-to-head with traditional banks by offering mobile and web-based financial services — let me play out a scenario where Facebook decides to enter the banking space in order to remain relevant to its vast U.S. audience.

FB pix final.001

 

The New Math?

I recently shared the results of a TD Bank survey — one that shows millennials are banking online and on their mobile devices more frequently than in a branch. In fact, 90% of survey respondents said they use online or mobile tools for their everyday banking activities, such as checking balances or paying bills, and 57% said they are using mobile banking more frequently than they were last year.  So add this idea to  Facebook’s voracious appetite for views, visitors and preference data at a time when users are dialing back on status updates and not sharing candid photos on the site.  The sum of these two parts?  It might not be a matter of will; rather, when, Facebook stands up its own online bank in the U.S.

From Concept to Reality?

What I lay out above isn’t a radical thought; indeed, Fortune magazine ran a story on this very topic (Facebook Wants to be Your Online Bank).  The authors opine:

Someday soon, Facebook users may pay their utility bills, balance their checkbooks, and transfer money at the same time they upload vacation photos to the site for friends to see.  Sure, the core mission of the social media network is to make the world more connected by helping people share their lives. But Facebook knows people want to keep some things — banking, for example — private. And it wants to support those services too.

In a separate piece, Fortune shares “there remains a huge untapped market for banking services, including the exchange of money between family and friends living in different cities, and international money transfers between family in developed and developing countries.”

In fact, Facebook recently made the news when it announced plans to enable commerce from its social networks.  According to a post on Pymnts.com (Is Yelp + Amazon the Mobile Commerce Game Changer?), Facebook is testing a “Buy” button that can enable purchasing directly from a promotion inside a user’s news feed.  Now, I’m not getting into the social commerce conversation; simply pointing out that Facebook’s dive into traditional banking may not be as far off as some might think.

Banks as the New Black?

Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products.  As much as it has the technological chops — and financial clout — to enter the banking space, its Achilles heal may be the very thing that banks are built on: privacy.  Facebook relies on its members seeing and responding to their friends (and acquaintances) activity and updates.  Noticing a friend make a deposit to the “Bank of Facebook” or take a loan from said institution might not precipitate your own business.  The one thing I can see is an attempt by Facebook to acquire an online bank to jump-start its efforts to reach a specific demographic.  In that case, it might be as simple as “the Bank” powered by Facebook.  Regardless, I’d keep an eye on Facebook’s disclosures and press releases when it comes to payments, social commerce and financial services.

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To comment on this piece, click on the grey circle with the white plus sign on the bottom right or send me your thoughts via Twitter (I’m @aldominick). Next up, a look at the threats posed to a bank’s business by retail giant Wal-Mart.