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.

3 Examples of Next’Gen Partnerships

News & Notes from February 13 – 17
By Al Dominick, CEO of DirectorCorps (parent co. to Bank Director & FinXTech) | @aldominick

A few weeks ago, I made note of an interesting new relationship between a bank and a technology firm.  Specifically, BBVA Compass’s announcement that it has been piloting Amazon Lockers in eleven of its Austin-area branches.  This is the first time Amazon Lockers are available with a bank in the United States — and may provide a creative spark to those thinking about how to increase traffic into an existing branch network.

Since sharing my observation on this partnership, I’ve made note of a number of new relationships that reflect the changing nature of the financial industry.  This week, three things caught my eye:

In addition, I took note of Wells Fargo forming a new innovation team (called Payments, Virtual Solutions, and Innovations) to better build out its digital banking experiences.  The three pillars of this effort revolve around payments, artificial intelligence and APIs. For Wells Fargo — and banks in general:

  • Payments are a critical driver of relationships for consumer, small business, and commercial and corporate banking customers.
  • In terms of artificial intelligence, the bank sees an increasing number of opportunities to better leverage data to provide personalized customer service through its bankers and digital channels.
  • Application Programming Interfaces (APIs) technology enables commercial and corporate banking customers to integrate products, services and information into their own digital environments.

So as financial institutions continue to search for new growth opportunities, I intend to share weekly recaps like this as a way to share what I find compelling.  Let me know what you think — and if there are other news & notes I might share.

5 Cybersecurity Companies Bank Execs & Board Members Need to Know

When it comes to cybersecurity, the best defense might just be a great offense.  Whereas cybersecurity once focused on how banks could avoid losing money, my team and I are working on a program for 2017 to help officers and directors address potential scenarios (and develop realistic response plans) should a hack, breech or attack occur.  Indeed, protecting the bank against a cyber attack is a core responsibility of every member of a bank’s board and executive team.

In recent posts, I’ve highlighted various fintechs that I find compelling given their relationships with financial institutions.  In terms of cybersecurity, I’ve had the chance to learn more about companies like DefenseStorm (given their support of companies like nCino and LiveOak Bank) that I greatly respect.  Below are five more companies that I think bank leadership teams need to know:

Cognizant

A global cybersecurity solution and service provider, Cognizant supports multiple industry verticals and information security service lines.  I encourage you to take a look at their thoughts on what traditional banks can do to rebuild trust in the digital era.

Centrify

California-based Centrify offers identity & access management solutions to help secure enterprise identities against cyberthreats that target today’s IT environment of cloud computing.  Banking customers include such recognizable names as BB&T, SunTrust, Citi and RBS.

Lookout

Lookout has taken a mobile-first approach to security.  Indeed, one of the world’s largest investment management firms chose Lookout to provide threat and data leakage protection to over 10,000 managed iOS and Android devices.

Feedzai

Founded by data scientists and aerospace engineers, Feedzai’s mission is to “make commerce safe for business customers and create a better experience for their consumers through artificially intelligent machine learning.”

Brighterion

Since the founding of Brighterion, its core technology has been adapted and improved for real-time applications in the fields of payment, healthcare, marketing and homeland security.  For instance, its analysis of payments provides “unprecedented behavioral insights,” from the spending behavior of customers to the constantly evolving techniques of fraudsters.

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As a complement to these five businesses, let me wrap up by sharing a recent FinXTech article:Emerging Technologies Combat Cybercrime.  As you will read, banks are doing everything they can to reassure customers that their digital information is safe and secure.

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.

FinTech Day is One Week Away

The fabric of the financial industry continues to evolve as new technology players emerge and traditional participants transform their business models. Through partnerships, acquisitions or direct investments, incumbents and upstarts alike have many real and distinct opportunities to grow and scale.  If 2015 was all about startups talking less about disruption and more about cooperation, I see 2016 as the year that banks reciprocate.

By Al Dominick, President & CEO, Bank Director

Next Tuesday, at Nasdaq’s MarketSite in Time Square, our team hosts our annual “FinTech Day.” With so many new companies pushing their way into markets and product lines that traditionally have been considered the banking industry’s turf, we look at what fintech means for traditional banks. Likewise, we explore where emerging fintech players may become catalysts for significant change with the support of traditional players.  When it comes to trends like the personalization of banking, the challenges of scaling a company in our highly regulated industry and what shifting customer expectations portend for banks and fintechs alike, we have a full day planned. Take a look at some of the issues we will address.

Riding The Wave Of Change
Al Dominick, President & CEO, Bank Director
Robert H. McCooey, Jr., Senior Vice President of Listing Services, Nasdaq

At a time when changing consumer behavior and new technologies are inspiring innovation throughout the financial services community, we open this year’s program with a look at how collaboration between traditional institutions and emerging technology firms bodes well for the future.

Banking’s New DNA
Michael M. Carter, CEO, BizEquity
Vivian Maese, Partner, Latham & Watkins
Eduardo Vergara, Head of Payments Services & Global Treasury Product Sales, Silicon Valley Bank
Moderated by: Al Dominick, President & CEO, Bank Director

With continuous pressure to innovate, banks today are learning from new challengers, adapting their offerings and identifying opportunities to collaborate.  With this opening session, we focus on the most pressing issues facing banks as they leverage new tools and technologies to compete.

Who Has the Power to Transform Banking
Jeana Deninger, Senior Vice President, Marketing, CoverHound, Inc.
Brooks Gibbins, Co-Founder & General Partner, FinTech Collective
Colleen Poynton, Vice President, Core Innovation Capital
Moderated by: Al Dominick, President & CEO, Bank Director

While fintech startups continue to spearhead the technological transformation of financial services, recent efforts by systemically important financial institutions call into question who reallly has the power to tranform banking. From an investment perspective, recent market turmoil may put some opportunities on hold – while others now have a higher, sharper bar to clear. In this session, we talk to investors about the traits that they look for when backing a venture in the context of a changing economic environment.

Opportunities to Reinvigorate the Banking Industry
Tom Kimberly, General Manager, Betterment Institutional
Thomas Jankovich, Principal & Innovation Leader, US Financial Services Practice, Deloitte Consulting LLP
Pete Steger, Head of Business Development, Kabbage, Inc.
Moderated by: Al Dominick, President & CEO, Bank Director

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 upheaval – where considerable market share will be up for grabs – ambitious banks can leapfrog both traditional and new rivals. During this hour, we explore various opportunities for financial services companies to reinvigorate the industry.

Opportunities to Financially Participate in Fintech
Joseph S. Berry, Jr., Managing Director, Co-Head of Depositories Investment Banking, Keefe, Bruyette & Woods, Inc. A Stifel Company
Kai Martin Schmitz, Leader FinTech Investment LatAm, Global FinTech Investment Group, International Finance Corporation
Moderated by: Al Dominick, President & CEO, Bank Director

While large, multinational banks have made a series of investments in the fintech community, there is a huge, untapped market for banks to become an early-stage investor in fintech companies. Based on the day’s prior conversations, this session looks at opportunities for banks to better support emerging companies looking to grow and scale with their support.

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While this special event on March 1 is sold out, you can follow the conversations by using #Fintech16 @aldominick @bankdirector @finxtech and @bankdirectorpub.  And as a fun fact, I’ll be ringing the closing bell next Tuesday flanked by our Chairman and our Head of Innovation.  So if you are by a television and can turn on CNN, MSNBC, Fox, etc at 3:59, you’ll see some smiling faces waving at the cameras.

5 Fintechs I’m Keen On

My first post in 2015 focused on three “up & coming” fintech companies: Wealthfront (an automated investment service), Kabbage (an online business loan provider) and Dwolla (a major player in real-time payment processing).  Since writing that piece, I’ve kept tabs on their successes while learning about other interesting and compelling businesses in the financial community.  So today, five more that I am keen on.

By Al Dominick // @aldominick

With continuous pressure to innovate, I’m not surprised to see traditional financial institutions learning from new challengers, adapting their offerings and identifying opportunities to collaborate with emerging players.  From tokenization to integrated payments, security tools to alternative lending platforms, the investments (and efforts) being made throughout the financial sector continues to impress and amaze me.  As I shared in 15 Banks and Fintechs Doing it Right, there are very real and immediate opportunities to expand what banking means to individual and business customers.  Personally, I am excited by the work being done by quite a few companies and what follows are five businesses I’ve learned more about while recently traveling between D.C., San Francisco and New York City:

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i2c, a global card processing company, provides back-end processing and settlement for cards, virtual accounts and mobile payments.  What’s interesting about them? According to a brief shared by Bridge by Deloitte (a web platform connecting enterprises with startups to accelerate innovation and growth), i2c recently teamed up with Oxfam, Visa and Philippines-based UnionBank to channel funds to people in disaster-affected communities through prepaid cards.

adyen-logo

With Money20/20 fast approaching, expect to see a lot of #payments trending on twitter.  Trending in terms of financial investment: Adyen, a company receiving a lot of attention for wrapping up a huge round of funding that values the payment service provider at $2.3B.  Adyen, which provides its services to a number of large organizations including Facebook and Netflix, excels in having a highly integrated platform, unlike others with multiple platforms.

Blend labs

When it comes to technology “powering the new wave of mortgage lending,” take a look at the work being done at BlendLabs.  Developing software & data applications for mortgage lenders, the company acknowledges that “accommodating complex rules and regulation changes is time-consuming and costly.” For this reason, the company has quietly rolled out technology that empowers some of the country’s largest lenders to originate mortgages more efficiently and compliantly than ever before while offering their borrowers a more compelling user experience.

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As the head of a company, I know first-hand how much time and effort is spent on efforts and ideas designed to maximize revenue and profits.  So the promise and premise of nCino is hugely attractive.  Co-founded by a fellow W&L grad (and the former CEO of S1) nCino is the leader in cloud banking.  With banks like Enterprise in St. Louis (lead by a CEO that I have huge respect for) as customers, take a look at their Bank Operating System, a comprehensive, fully-integrated banking management system that was created by bankers for bankers that sits alongside a bank’s core operating system.

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While not solely focused on the financial industry, Narrative Science is a leader in advanced natural language generation.  Serving customers in a number of industries, including marketing services, education, financial services and government, their relationship with USAA and MasterCard caught my eye.  As FinXTech’s Chief Visionary Officer recently shared with me, the Chicago-based enterprise software company created artificial intelligence that mines data for important information and transforms it into language for written reports.

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In addition to these U.S.-based companies, you might look at how Fidor, a digital bank in Europe that offers all-electronic consumer banking services, links interest rates to Facebook likes and give cash rewards based on customers’ level of interaction with the bank (e.g. how many customer financial questions answered).  Clearly, the fabric of the financial industry continues to evolve as new technology players emerge, institutions like Fidor expand their footprint and traditional participants transform their business models.  So if you follow me on twitter (@aldominick), let me know of other fintech companies you’re impressed by these days.

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.

The 5 Corners of Technological Innovation in Financial Services

To grasp what the future of banking holds, look no further than the five areas of focus for Wells Fargo.  Last week, the best performing large bank in the United States launched an “Innovation Group” in San Francisco.  As they share, this team will will work in partnership with its major businesses to meet evolving customer needs and stay ahead of the shifting competitive landscape.  Initially, such efforts will center on five areas:

  • Research and development;
  • Innovation strategies;
  • Payment strategies;
  • Design and delivery; and
  • Analytics.

As a nationwide, diversified, community-based financial services company with $1.7 trillion in assets, Wells Fargo now has six innovation labs along with its startup “accelerator.”  Given that a number of the world’s largest finance sector companies are reviewing their business models following the rapid growth of “fintech” entrants in the sector, the investment in both time and resources by Wells Fargo gives shape to the potential future of banking.

Wells Fargo Labs invite customers to “Come out and Play: Be one of the first to test out latest ideas and technologies – from still-in-development beta offerings to newly launched products.”

Personally, I’m drawn to this new addition to the Wells family in light of a report by the World Economic Forum, supported by Deloitte Consulting, entitled The Future of Financial Services:How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed.

As noted by the paper’s lead author, “for decades, banks and insurers have employed similar, highly profitable business models. But they realize those models are coming under pressure due to fintech innovations… Financial technology companies are deploying online platforms, have small capital bases, and make strategic use of data, to acquire customers and revenues at a fast pace. Banks and insurers noted that, and are contemplating their response.”  So as major players like Wells Fargo explore the “transformative potential of new entrants and innovations on business models in financial services,” seeing the cards they are putting on the table provides real color for what the future holds for many here in the U.S.

Three FinTech Companies I’m Keen On

It seems not a day goes by where I’m not coming across a story about Venmo.  Maybe I should thank holiday shoppers; more specifically, friends or family member that go in on a joint present for someone.  Rather than accept an IOU, the social payments company has made story titles like “Cash is For Losers!” en vogue by allowing its users to settle debts without cash or check.  So the company’s success had me exploring the world of FinTech and other companies worth taking a look at.  Here are three I’m keen on along with a short overview on what they offer.

wealthfront-logo-e1396828112845

Wealthfront is an automated investment service with over $1 billion in client assets.  The Palo Alto-based company manages a “diversified, continually rebalanced portfolio of index funds” on behalf of its clients.” Their proposition: “Wealthfront takes the guesswork out of sound, long-term investing through effortless automation. Wealthfront manages a personalized online investment account for you that is fully diversified and periodically rebalanced – accessible anytime and anywhere from your desktop, tablet or phone.” For an individual, their service premise is quite attractive, given “the consistent and overwhelming research that proves index funds significantly outperform an actively managed portfolio.”

Unknown

I wrote about Kabbage last year (A Pop Quiz on the Future of Banking) as a platform for online merchants to borrow working capital. Per Time’s Business & Money site, “Kabbage financing resembles a line of credit in that customers only pay for what they use, but it isn’t a loan and doesn’t require merchants to use their personal assets as collateral. Rather, as with a business factor, a Kabbage financing is structured as a cash advance against future sales.”

dwolla-logo

Dwolla is a payment network that allows any business or person to send, request and accept money. As they say, they are “not like those other big payment companies that rely on plastic cards and charge hefty fees.” Instead, the company built its own network that “securely connects to your bank account and allows you to move money for just $0.25 per transaction, or free for transactions $10 or less.”

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I’m on record with my feelings that bank leaders have real and immediate opportunities to expand what banking means to individual and business customers by offering services that go beyond a traditional business model.  These three companies provide alternatives to traditional lines of business, and are just a few of the many that are working to create a “newer” normal for individuals and businesses.  If you are interested to share your thoughts on FinTechs worth watching, feel free to comment below about those companies you find compelling.

Is Walmart the Next Big Bank

Part four of a five piece series on emerging threats to banks from non-financial companies. To read parts one through three, click on “For Banks, the Sky IS Falling,” “PayPal is Eating Your Bank’s Lunch” and “The Bank of Facebook.”

At the risk of crashing through an open door, did you know that the retail juggernaut Wal-Mart Stores Inc. launched Bluebird in partnership with American Express late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks?  Yes, customers also have access to mobile banking, which includes features like remote deposit capture and person-to-person (P2P) payments.  So does this position Wal-Mart as the next SIFI (*no disrespect to CIT following their announced acquisition of OneWest in a $3.4Bn stock & cash deal earlier this week)?

Walmart bank logo.001

Cue Robin Thicke

According to Wal-Mart, 95% of Americans live within 15 miles of one of its stores.  So I think its fair to say that Wal-Mart continues to blur lines between banking and shopping as it added yet another financial service to its stores across the country.  Indeed, the retailer announced this spring that customers can transfer money to and from any of its 4,000 stores in the U.S. and Puerto Rico.  As this article in Forbes highlighted, low income workers who don’t have traditional bank accounts are turning to prepaid cards and alternatives to checking accounts.  Banks like JPMorgan Chase and Wells Fargo are trying to fill that gap with prepaid and reload able cards — something Wal-Mart has been offering for years.

Where Is That Achilles Heel?

Unlike online competitors to a bank, Wal-Mart enjoys huge brand recognition and an established customer base that feels comfortable walking into their local “branch.”  In fact, banks that already operate inside Walmarts reap among the highest fees from customers of any banks in the nation, according to a WSJ analysis.  But the very demographic the retail company serves — one that expects and demands rock-bottom pricing — may not favor a “B of W.”

Indeed, banking at Wal-Mart is a lot more expensive than shopping there.  As noted by in the WSJ, most U.S. banks earn the bulk of income through lending.  Among the 6,766 banks in the Journal’s examination, “just 15 had fee income higher than loan income — including the five top banks operating at Wal-Mart.”  Would the company really want to race to the bottom in terms of pricing its financial products (ones that would not be federally insured) and compete with its own tenants?

If At First You Don’t Succeed…

It is worth noting that Wal-Mart has tried to get into banking since the late 1990s.  It was thwarted in attempts to buy a savings-and-loan in Oklahoma and a bank in California — and later dropped a bid for its own banking charter in 2007.  While I’m not suggesting the new logo depicted above is anything more than a simple rendering by yours truly, it wouldn’t surprise me if the company explored even more creative ways to compete with financial institutions in the future.

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To comment on this piece, please click the white plus sign in the bottom right gray circle on this page or share your thoughts with me via Twitter (I’m @aldominick).  Next up, how crowdsourcing sites like Kiva and Kickstarter allow customers to bypass their bank to get funding for a business idea.

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.

PayPal is Eating Your Bank’s Lunch

Part two of a five piece series on emerging threats to banks from non-financial companies.  To read part one, “For Banks, the Sky IS Falling,” click the hyperlinked title.

I am not big on scare tactics, so apologies in advance of my next sentence.  But when HP’s chief technologist for financial services, Ross Feldman calls PayPal “the poster child of new technology,” adding, “they are the No. 1 scary emerging player in the eyes of bankers” how can you not be concerned?  PayPal, a subsidiary of eBay, is already a major player in the person-to-person payment business (P2P) and is poised to take a massive bite out of traditional banking revenue.

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What is PayPal Up To?

To preface this part of today’s post, keep in mind that as an unregulated entity, PayPal is not subject to the same regulations and compliance expenses as banks.  I share this oh-so-salient point as the company moves towards mobile payments with its apps and one-touch payment services.  The fact that PayPal embraces these offerings isn’t surprising, as so many bank users — myself included — prize 24/7 convenience.  Certainly,  companies that don’t meet user demands will not survive.

Moving away from individual expectations to small business demands, I am seeing more small businesses switch from traditional merchant accounts offered by the banks to those like PayPal’s.  As Nathalie Reinelt of Aite Group’s Retail Banking group shared, “ubiquitous smartphones and inefficiencies in legacy payments have propelled the digital wallet into the payments ecosystem—consumers are interested in it, merchants are willing to adopt it, and financial services companies cannot ignore it.”

So What’s A Banker to Do?

Where I see PayPal falling short — admittedly, most banks too — is an inability to help customers make decisions on what to buy, and where and when to buy it.  So let me shout it as loud as I can: exploit this achilles heel while you still can!  There are companies like MoneyDesktop (a leading provider of online and mobile money management solutions), Ignite Sales (a company whose “recommendation solutions” helps increase customer acquisition & retention while optimizing profitability), etc. that have been stood up to keep banks relevant.  There is a real opportunity for banks to do more than simply allow the same types of services digitally that were once only available in-person.

The window of opportunity is open for banks to expand what banking means to consumers by offering online services that go beyond their traditional business model.  The question boils down to this: will the board & senior leadership accept the risk to try something new to make sure they aren’t just warding off advances from the B of A’s of the world — but also the PayPal’s and their peers?

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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, pieces on two of the biggest non-bank competitors whose names you may have heard of: Facebook and Walmart.