Fifth Third Bank – About That Ratio

February 16, 2021

Inspired By Banking’s Modernization Efforts

“Trying to cut your way out of falling profit and revenue is like trying to lift a bucket by standing inside it and pulling up on the handles. It feels like progress but it’s a lot of wasted energy to go nowhere.”

One of the biggest changes, ever, is going on in the financial sector. So I talked with Greg Carmichael, the chairman and CEO of Cincinnati-based Fifth Third Bancorp, about staying relevant and competitive. As the business of banking undergoes significant technological transformation, I found his views on legacy system modernization particularly compelling:

In my experience, many banks are rooted in legacy technology — and just starting out on their multi-year digital / delivery transformation. So as part of Bank Director’s Inspired By Acquire or Be Acquired program on BankDirector.com, we explore this issue in the context of growth options and opportunities. To access this premium content — which includes my full conversation with Greg — register or log-in here.

January 27, 2018February 1, 2018

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.

June 13, 2017June 13, 2017

3 Disruptive Forces Confronting Banks – and How Zelle Might Help

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

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

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

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

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

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

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

A Potential Solution

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

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

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

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

May 1, 2017May 1, 2017

Address the Culture Gap Between Banks and FinTechs

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

Quickly

A “bank|fintech partnership” narrative dominated the conversation at last week’s FinTech Week NYC events.
If I were running a financial institution right now, I’d focus on the word integration instead of innovation.
Culture is one of the best things a bank has going for it. It’s also one of the worst.

_ _ _

While I am bullish on the future of banking as a concept, I am admittedly concerned about what’s to come for many banks who struggle with cultural mindsets resistant to change. As I shared in an op-ed that kicked off last week’s FinTech Week NYC, the same dynamics that helped weather the last few years’ regulatory challenges and anemic economic growth may now prevent adoption of strategically important, but operationally risky, relationships with financial technology companies.

Most banks don’t have business models designed to adapt and respond to rapid change. So how should they think about innovation? I raised that question (and many others) at last Wednesday’s annual FinXTech Summit that we hosted at Nasdaq’s MarketSite. Those in attendance included banks both large and small, as well as numerous financial technology companies — all united around an interest in how technology continues to change the nature of banking.

More so than any regulatory cost or compliance burden, I sense that the organizational design and cultural expectations at many banks present a major obstacle to future growth through technology. While I am buoyed by the idea that smaller, nimble banks can compete with the largest institutions, that concept of agility is inherently foreign to most legacy players.

It doesn’t have to be.

Indeed, Richard Davis, the chairman and CEO of the fifth largest bank in the country, U.S. Bancorp, shared at our Acquire or Be Acquired Conference in Phoenix last January that banks can and should partner with fintech companies on opportunities outside of traditional banking while working together to create better products, better customer service and better recognition of customer needs.

The urgency to adapt and evolve should be evident by now. The very nature of financial services has undergone a major change in recent years, driven in part by digital transformation taking place outside banking. Most banks—big and small—boast legacy investments. They have people doing things on multi-year plans, where the DNA of the bank and culture does not empower change in truly meaningful ways. For some, it may prove far better to avoid major change and build a career on the status quo then to explore the what-if scenarios.

Here, I suggest paying attention to stories like those shared by our Editor-in-Chief Jack Milligan, who just wrote about PNC Financial Services Group in our current issue of Bank Director magazine. As his profile of Bill Demchak reveals, it is possible to be a conservative banker who wants to revolutionize how a company does business. But morphing from a low-risk bank during a time of profound change requires more than just executive courage. It takes enormous smarts to figure out how to move a large, complex organization that has always done everything one way, to one that evolves quickly.

Of course, it’s not just technological innovation where culture can be a roadblock. Indeed, culture is a long-standing impediment to a successful bank M&A deal, as any experienced banker knows. So, just as in M&A deals, I’d suggest setting a tone at the top for digital transformation. Here are three seemingly simple questions I suggest asking in an executive team meeting:

Do you know what problems you’re trying to solve?
What areas are most important to profit and near-term growth?
Which customer segments are critical for your bank?

From here, it might be easy to create a strategic direction to improve efficiency and bolster growth in the years ahead. But be prepared for false starts, fruitless detours and yes, stretches of inactivity. As Fifth Third Bank CEO Greg Carmichael recently shared in an issue of Bank Director magazine, “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.”

Be aware that technology companies move at a different speed, and it’s imperative that you are nimble enough to change, and change again, as marketplace demands may be different in the future. Let your team know that you are comfortable taking on certain kinds of risk and will handle them correctly. Some aspects of your business may be harmed by new technology, and you will have to make difficult trade-offs. Just as in M&A, I see this is an opportunity to engage with regulators. Seek out your primary regulator and share what you’re looking for and help regulators craft an appropriate standard for dealing with fintech companies.

Culture should not be mistaken for a destination. If you know that change is here, digital is the expectation and you’re not where you want to be, don’t ignore the cultural roadblocks. Address them.

July 19, 2016July 20, 2016

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:

Does it improve the bank’s ability to serve customers?
Does it drive efficiency?
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.

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.