Daily Briefing: Sunday at Acquire or Be Acquired

PHOENIX — When Bank Director first introduced our Acquire or Be Acquired Conference 25 years ago, some 15,000 banks operated in the United States. While that number has shrunk considerably — there are 5,120 banks today — the inverse holds true for the importance of this annual event. What follows are two short videos from our first day in the desert that surface a few key ideas shared with our 1,300+ attendees.

Three Interesting Stats:

  1. Of the 5,120 banks in the U.S., 4,631 are under $1Bn in asset size and 489 are over that amount.
  2. Two years ago, we talked about the sweet spot of banking being banks between $5B and $10B in asset size; now, its those with assets of $50B+.
  3. Digital channels drive 35% of primary banking relationship moves, while branches drive only 26%.

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  • Whether you are able to join us in person or are simply interested in following the conference conversations via our social channels, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech on Twitter. Search & follow #AOBA19 to see what is being shared with and by our attendees.
  • On the Horizon for Bank CEOs, Their Leadership Teams and Boards

    WASHINGTON, DC — Can community banks out-compete JP Morgan, BofA and Wells Fargo?  This is the elephant in the room awaiting 853 bank executives and board members — representing 432 Banks — at our upcoming Acquire or Be Acquired Conference.  The lights don’t officially come up on our 25th annual event at the JW Marriott Phoenix Desert Ridge until Sunday, January 27.  So in advance, three big questions I anticipate fielding in the desert.

    Does 2019 Become the Year of BigTech?

    As noted by H2 Ventures and KPMG, Amazon is providing payment services and loans to merchants on its platform, while Facebook recently secured an electronic money licence in Ireland.  Alibaba, Baidu and Tencent have become dominant operators in China’s $5.5 trillion payments industry.  Add in Fiserv’s recent $22B acquisition of First Data and Plaid’s of Quovo and we might be seeing the start of a consolidation trend in the financial technology sector.  Will such investments and tie-ups draw the attention of big technology companies to the financial services industry?

    Has the window to sell your bank already closed?

    When I heard the rumor that BBVA might be buying UK-based Atom Bank — one of the proverbial European challenger banks — I started to look at acquisition trends here in the U.S.  Case-in-point, we put together the following graphic in December for BankDirector.com

    ma-infographic-final_1

    We know that some community banks have been holding out hopes of higher pricing multiples or for a strategic partner.  These institutions might find the window of opportunity to stage an exit isn’t as open as it was just a few years ago. This doesn’t mean the window has shut — but I do think an honest assessment of what’s realistic, at the board level, is appropriate.

    Wither the bond market?

    A NY Times op-ed piece  posits that the bond market reveals growing cracks in the financial system.  Authored by Sheila Bair, the former chairwoman of the FDIC, and Gaurav Vasisht, director of financial regulation at the Volcker Alliance, it warns that “regulators are not doing enough to make sure that banks are prepared.”  While the duo calls for thicker capital cushions for big banks and tighter leveraged loan underwriting standards, I wonder how executives joining us in Arizona feel about this potential threat to our economy?
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    As the premier bank M&A event for bank CEOs, senior management and board members, Bank Director’s 25th annual Acquire or Be Acquired Conference brings together key bank leaders from across the country to explore merger & acquisition strategies and financial growth opportunities. If you’re joining us in the desert, I’ll share a few FYIs later this week. If you’re unable to join us in Phoenix, AZ, I’ll be tweeting from @aldominick and using #AOBA19 when sharing on social platforms like LinkedIn.

    What (Bank) Directors Think

    Quickly:

    CHICAGO — Guess what?  As institutions continue to seek out growth and efficiencies through technology, they in turn expose themselves to new risks and liabilities. Understanding the two-sided nature of this proverbial coin reflects just one of the many nuanced conversations that took place during our annual Bank Audit & Risk Committees Conference.  If you’re not familiar with this exclusive event, we invite bank leaders from across the country to take a broad and strategic view at the risk landscape, while also focusing on specific actions to improve a bank’s performance.

    Indeed, our team put together an agenda filled with opportunities to improve existing audit and risk functions.  In addition, we surfaced new ideas around issues and topics such as cybersecurity, credit quality, blockchain, rising interest rates and financial reporting.

    Personally, I was thrilled to welcome more than 400 men and women to the Swissotel Chicago — with over 300 participants comprising bank CEOs, chairmen, board members, CFOs, CROs, senior executives and internal auditors.  Throughout our time together, we took the opportunity to pose a series of questions to this hugely influential and knowledgeable audience.  As we discovered, the increasing level of U.S. debt proved the biggest macroeconomic concern for this group by a wide margin.  Yes, we polled this group using an audience response device and found 52% placed this issue as their top concern — far outpacing the 15% who cited a potential recession and 13% who pointed towards a political crisis.

    Such in-person polling provides quite a bit of insight as to where we might be heading as an industry and an economy.  What follows are five additional survey results from this year’s event on how this experienced audience feels about various hot topics.

    Q: What do you think is the biggest risk to the industry?

    54% = Technology changes and FinTech
    20% = Recession risk and loan quality
    17% = Flattening yield curve
    6% = Pushed out by consolidation
    4% = Regulatory scrutiny

    Q: What are your expectations for deposit competition in your markets over the next year?

    78% = We face stiff competition; deposit pricing will be a key concern
    13% = Our ability to compete for deposits will improve as rates rise
    9% = Unsure

    Q: As rates rise, are you concerned about loan terms within the bank’s existing loan portfolio?

    50% = No
    35% = Yes, but for a short period of time
    10% = Yes, I’m deeply concerned
    4% = Unsure

    Q: What is your greatest concern about deploying RegTech within your bank?

    23% = Updates to internal processes / infrastructure
    22% = Cost of RegTech solutions
    21% = Identifying valid solutions
    17% = Vetting providers / third party management
    15% = Internal skills
    3% = Regulatory acceptance

    Q: Do you believe the bank’s board has the necessary level of cybersecurity expertise?

    78% = No
    18% = Yes
    4% = Unsure

    I’ll keep my observations on these findings to personal conversations… That said, from improving risk oversight, mastering new reporting requirements and staying ahead on compliance, this year’s conference provided practical takeaways for participants to bring back to their banks.  Curious to see what we covered?  I encourage you to take a look at BankDirector.com or search for @BankDirector and #BDAudit18 on Twitter.

    The Best of FinXTech’s Annual Summit

    Quickly:

    • FinXTech’s annual Summit brought together senior executives from across the financial space to focus on new growth strategies and opportunities related to technology.

    PHOENIX — I’ve spent the past few days with bank leaders, technology executives, investors and analysts interested to explore emerging trends, opportunities and challenges facing many as they look to grow and scale their businesses.  So as I prepare to head home to DC after some wonderfully exciting days at Bank Director’s annual FinXTech Summit, a few highlights from my time in the desert.

    The 10 Finalists for 3 FinXTech Awards

    For me, one of the signature pieces of this year’s program occurred on Thursday evening.  Under the stars, we recognized ten partnerships, each of which exemplified how banks and financial technology companies work together to better serve existing customers, attract new ones, improve efficiencies, bolster security and promote innovation.  The finalists for this year’s Best of FinXTech Awards can be seen in this video.

    Winners of the 2018 Best of FinXTech Awards

    We introduced these awards in 2016 to identify and recognize those partnerships that exemplify how collaborative efforts can lead to innovative solutions and growth in the banking industry.  This year, we focused on three areas of business creativity:

    • Startup Innovation, to recognize successful and innovative partnerships between banks and startup fintech companies that have been operating for less than five years.
    • Most Innovative Solution of the Year, to highlight forward-thinking ideas, we recognized partnerships that have resulted in new and innovative solutions in the financial space.
    • Best of FinXTech Partnership, a category to recognize outstanding collaboration between a financial institution and fintech company, we based this award on growth by revenue, customers and/or reputation plus the strength of integration.

    The winners? Radius Bank and Alloy for Startup Innovation, CBW Bank and Yantra Financial Technology for Innovative Solution of the Year and Citizens Financial Group and Fundation for Best of FinXTech Partnership.  To learn more about each, check out this cover story on BankDirector.com

    Favorite #FinXTech18 tweet

    Well played with the ZZ Top reference — now we just needs to grow out that beard and drop a pair of RayBans into the shot.

    Favorite picture

    DSC03946.JPG

    Three timely (and paraphrased) comments

    1. COMMUNICATION is key…. said nearly every presenter.
    2. Make the tough call to kill bad tech or a bad relationship. You’ll lose customers if you don’t react quickly (h/t to our VP of Research, Emily McCormick).
    3. Change is the key to being valuable; start thinking and working like a startup (h/t @nabeelmahmood).

    Video Recaps

    During our time in the desert, we shared a number of videos on BankDirector.com.  The page with all videos can be found on FinXTech Annual Summit: Focusing on What’s Possible.  To get a sense of what these short videos look like, here is an example:

    Thanks to all those who joined us at the Phoenician.  For more ideas and insight from this year’s event, I invite you to take a look at what we’ve shared on BankDirector.com (*no registration required).

    3 Ways Banks Can Pick Up their Pace of Creativity

    Quickly:

    • Financial institutions need a culture that allows for, and encourages, leadership teams to test & implement new approaches to traditional banking.

    PHOENIX — Many financial institutions face a creativity crisis.  Legacy systems and monolithic structures stifle real change at many traditional banks — while newer technology leaders move quickly to pick up the slack.  During the first day of our annual FinXTech Summit at the Phoenician, I picked up on a few practical ideas to break down a few of the most common barriers to innovation inside financial institutions.

    As our managing editor, Jake Lowary, wrote for BankDirector.com this morning, “the cultural and philosophical divides between banks and fintech companies is still very apparent, but the two groups have generally come to agree that it’s far more lucrative to establish positive relationships that benefit each, as well as their customers, than face off on opposite ends of the business landscape.”

    So with this in mind, I invite you to follow the conference conversations via our social channels, where our team continues to shares ideas and information from Day 2 of this event using @BankDirector and @Fin_X_Tech on Twitter. In addition, you can search & follow #FinXTech18 to see what’s being shared with (and by) our attendees.

    Shh, Disruption in Banking Continues

    Quickly:

    • I spent yesterday afternoon at Capital One Growth Ventures’ inaugural VC & Startup Summit, an event that inspired today’s post.

    WASHINGTON, DC — I’m hard pressed to find anyone willing to contest the notion that technology continues to disrupt traditional banking models. Now, I realize the “D” word jumped the shark years ago. Personally, I try my best to keep my distance from employing the adjective to describe what’s taking place in the financial world vis-a-vis technology. However, banks of all sizes continue to reassess, and re-imagine, how financial services might be structured, offered and embraced given the proliferation of new digital offerings and strategies.

    As I reflect on the first quarter of 2018, it strikes me that we’re living in an industry marked by both consolidation and displacement. Yes, many bank executives have fully embraced the idea that technology — and technological innovation — is a key strategic imperative. However, few banks have a clear strategy to acquire the necessary talent to fully leverage new technologies. On the flip side, I get the sense that a number of once-prominent FinTech companies are struggling to scale and gain customer adoption at a level needed to stay in business. Nonetheless, the divide between both parties remains problematic given the potential to help both sides grow and remain relevant.

    While banks explore new ways to generate top-line growth and bottom-line profits through partnerships, collaboration and technology investments, I have some concerns. For instance, the digital expectations of consumers and small & mid-sized businesses may become cost-prohibitive for banks under $1Bn in assets. So allow me to share what’s on my mind given recent conversations, presentations and observations about the intersection of fin and tech.

    FIVE ON MY MIND

    1. With all the data issues coming to light courtesy of Facebook, how can banks extract the most revenue from the data available to them (*and how much will it cost)?
    2. As banks become more dependent on technology partners, what level of control —over both costs and data — should a bank be willing to trust to third parties?
    3. What does the arrival of new technologies, such as artificial intelligence, mean for a financial institutions’ current workforces?
    4. Amazon’s announced checking account partnership with JPMorgan Chase begs the question: how dependent should banks become on big technology companies?
    5. How many larger banks will acquire smaller institutions that cannot keep up with the cost and pace of technology in Q2?

    Significant technological changes continue to impact the financial community. In the weeks to come, I’ll relay what I learn about these five issues in subsequent posts. If you’re interested, I tweet @AlDominick and encourage you to check out @BankDirector and @FinXTech for more.

    10 Questions I Plan To Ask During Acquire Or Be Acquired

    Quickly:

    • Despite improving economic conditions, the business of banking remains difficult.

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

    PHOENIX, AZ — For all the talk of bank consolidation, there are still 5,700+ banks in the United States.  But let’s not kid ourselves.  For many community banks today, earnings pressures + regulatory and compliance costs + the continued impact of technology = a recurring challenge.

    While the number of banks in business will inevitably shrink over the next 10 years — perhaps being cut in half — I remain bullish on the overall future of this industry. If December’s tax reform spurs capital spending and job creation by small- and medium-sized businesses, many of the banks joining us here in Arizona stand to benefit. But will the recent tax cut induce companies to invest more than they already planned to? This is but one of a number of questions I look forward to asking on stage through the first day of Bank Director’s Acquire or Be Acquired Conference.

    Below, ten more questions I anticipate asking:

    1. Are FinTechs the industry’s new de novos?
    2. What does it mean that the banking world is deposit rich yet asset poor?
    3. Why are certain credit unions thinking about about buying banks?
    4. In terms of technology spending levels, where are dollars being earmarked and/or spent?
    5. With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
    6. What is an appropriate efficiency ratio for a bank today?
    7. Will big M&A buyers get back in the game this year?
    8. What are some of the critical items in due diligence that are under appreciated?
    9. What does an activist investor look for in a bank?
    10. Is voice recognition the next huge source of growth for banks?

    We have an exciting — and full day — coming up at the Arizona Biltmore. To keep track of the conversations via Twitter, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech.  In addition, to see all that is shared with (and by) our attendees, we’re using the conference hashtag #AOBA18.

    A Community Bank Can Build Innovation Into Its Growth Strategy

    Quickly:

    • I’m at the Montage Deer Valley for the Association for Financial Technology’s Fall Summit.
    • “Who do we want to be when we grow up in this new digital, always-on financial services environment?” might be the most important question for a bank CEO to strategize on with his or her team.

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

    PARK CITY, UTAH — For the technology companies looking to make a real difference in the financial services world, let me suggest a stronger focus on regional and community banks.  At a time when JPMorgan Chase, Wells Fargo, BofA and the like are investing heavily in digital engagement strategies to connect with digital-savy customers, there are significant pressures on banks not able to spend what the biggest banks do to develop or adopt digital strategies.

    As I listened to an afternoon panel discussion on the need for banks to create sustainable, scalable and relevant business models, I went back to my notes on a newer partnership between First Horizon’s First Tennessee bank unit and D3 Banking.  Developed to overhaul First Tennessee using D3’s API-driven platform, I see this type of partnership as one that positions a strong regional player to better compete with much larger banks.

    First Tennessee and D3 is one of a number of bank/fintech arrangements I think technology executives here in Park City should know about.  A smaller bank “doing it right” in terms of partnering with technology companies is Somerset Trust Co., a $1 billion asset bank out of western Pennsylvania.

    Their COO, John Gill, participated in the panel that precipitated this post.  As we’ve written about at Bank Director, Somerset has learned to play the innovation game by partnering up with some impressive fintech companies.  For example, they teamed up with Malauzai Software in Austin, Texas, to develop a mobile banking solution that allows Somerset’s retail banking customers to securely check balances, use picture bill pay and remotely deposit checks from any location or device.  More recently, Somerset Trust partnered up with BOLTS Technologies to improve its mobile new account customer experience.

    It strikes me that figuring out how to move ones business towards a foundation of flexibility is essential.  So too is being open to new ideas and partnership opportunities. Most importantly, just because a bank is small doesn’t mean it can’t build innovation into its growth strategy.

    ##

    As part of AFT’s Fall Summit, I shared a few stories about bank CEOs leadership styles, their team’s investments in fintech companies and ideas, and several innovative solutions that caught my attention.  Interested?  Here is a link to both my presentation and post.

    Three Strategic Issues Shaping Financial Services

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

    Quickly:

    • Banks need to think beyond the notion that they can either build a technology solution or buy it — for inspiration, take a look at how Silicon Valley Bank uses APIs to tap into technology from third party providers.
    • Thanks to products like Amazon’s Alexa, financial institutions must now prepare for “hands-free banking.”
    • Various startups are using behavioral economics to nudge people towards making better financial choices for saving & investing.

    _ _ _

    If you have been to any of our conferences, you’ve probably heard me (and others) encourage participants to get up & out from their offices to see what’s happening with their customers, potential partners and competition.  I do my best to practice what is preached — and have recent trips to San Francisco, New York City and Austin to prove it.  As I re-read hand written notes, dog-eared white papers and highlighted sections of annual reports, I realize just how much time I’ve spent talking about technology-driven trends shaping the financial industry.  To me, three of the bigger issues being discussed right now involve:

    1. The push for retail customers, which may already be spurring dealmaking.
    2. How customers experience and interact with their bank — which broadly ties into the question should an institution buy, partner or mimic a fintech; and
    3. Given all the hype surrounding machine learning and advanced decision modeling, leadership teams want to know how to augment a bank’s revenues & relationships with such technologies.

    To these three trends, both our editor-in-chief, Jack Milligan, and I agree that most bankers understand the imperative to innovate around key aspects of their business, whether it’s payments, mobile in all its many permutations, lending, new account onboarding or data.

    Personally, when it comes to knowing one’s customer (and potential customer), I find any good experience starts with great data.  As Carl Ryden, the CEO and Co-Founder at PrecisionLender, made clear at their recent Bank of Purpose conference, “if you hold your data close to the vest and you don’t do anything with it, it’s not an asset. It’s a liability.”

    So with that in mind, let me close by sharing a link to our newest issue of Bank Director magazine.  This is our “Great Ideas” issue, one in which we highlight companies like USAA who crowdsource upwards of 10,000 ideas per year for products and new technology.  At a time when banks of all sizes are starting to take advantage of platform-based services, this new digital issue is one that I am really proud to share.

     

    A Technology Takeover on BankDirector.com

    For the next 5 days, I set up shop in my former home of New York City for FinTech Week NYC.  Hosted by Bank Director’s FinXTech in conjunction with Empire Startups, the week can best be understood as a confluence of conferences, round-table discussions, demo days, meetups and networking events across the city.

    If you’re not familiar with the various events taking place, here is a quick snapshot of three we’re primarily involved with starting today and running through Friday, the 28th.

    The common thread throughout each of these days? A desire to help leaders in the financial sector to better understand how when/where/why to engage with emerging technologies.

    Given our cultural mindset to help make others successful, we’re kicking things up a notch with our on-line efforts.  Indeed, we’re “taking over” BankDirector.com and loading the site up with strategic issues and ideas that a bank’s CEO, board and executive team can immediately consider.  In parallel, we’re developing even more content to benefit technology companies keen to work with financial institutions and have some really interesting things planned for our FinXTech.com.  Three examples of this free content:

    • On BankDirector.com, Tips for Working With Fintech Companies by our editor, Naomi Snyder, provides insight from executives at Wells Fargo (one of the country’s biggest) and Radius Bank (a very strong community bank) on how they handle fintech partnerships.
    • On FinXTech.com, Advice for Fintech Companies Working with Banks by our editor-in-chief, Jack Milligan, shares suggestions from SF-based Plaid Technologies and Chicago-based Akouba as to how banks and tech companies can set realistic expectations in terms of cooperating to their mutual benefits.
    • Finally, I authored a piece on a major challenge I see confronting banks when it comes to their digital futures with A Roadblock That Ruins Futures.  As an optimist, things aren’t hopeless; you will see I find inspiration from the CEOs of U.S. Bancorp, PNC and Fifth Third.

    Banks Vs. Fintechs

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

    Quickly:

    • I’m in from Dallas at the Consumer Bankers’ Association “CBA Live!”
    • Thanks to Richard Hunt, the CEO of the CBA, for inviting me to participate.  Richard spoke at our Acquire or Be Acquired conference in January + I hope to live up to his great speaking standards when I’m given a mic tomorrow.
    • The rapid pace of change in the financial sector took center stage during yesterday’s opening session.

    _ _ _

    Since arriving in Big D on Sunday evening, I’ve met quite a few interesting men & women from great financial institutions at this annual event for the retail banking industry.  This year, more than 1,300 are at the Gaylord Texan (with some 550 being senior-level bankers) to talk shop.  Personally, I’m looking forward to presenting on “Economic States of America” with Amy Crews Cutts (Chief Economist, Equifax), Robert Dye (Chief Economist) of Comerica Bank and Cathy Nash, the CEO of Woodforest National Bank tomorrow morning.  From credit trends to banking consolidation, if you’re in Dallas, I invite you to join us for this Super Session as we explore the economic state of our union.

    Before then, I thought to share a few interesting takeaways from a “FinTech vs. Bank” general session that pit SoFi and Kabbage “against” PNC and BBVA.  As part of the panel discussion, CBA posed a number of interesting questions to the audience; most notably, “do you believe fintechs are built to last.”  Given our upcoming FinXTech Summit in NYC, I thought the answer (which reflects the thoughts of many of the biggest banks in the U.S.) was interesting, but not surprising.

    IMG_8588

    Further, I found the results of this question pretty telling (given we asked a similar question at this year’s Acquire or Be Acquired conference and received a similar response from an audience of CEOs, CFOs, and members of a bank’s board).

    IMG_8586

    Finally, I think the results of this question best represent the types of conversations I’ve found myself in when I explain what I do + who I meet with.

    FullSizeRender 106

    As I’ve shared in recent posts, an increasing number of financial institutions are using partnerships with technology companies to improve operations and better meet customer needs.  Given the input on these questions from various heads of retail, product lines and product development + compliance, risk and internal audit, I feel these three pictures are worth noting — and sharing.  Agree or disagree?  Feel free to leave a comment…

     

    Trending at Bank Director’s Acquire or Be Acquired Conference

    #AOBA17 conference intel (Sunday)
    By Al Dominick, CEO of Bank Director | @aldominick

    Quickly

    • We could see over 200 merger transactions despite a declining number of banks in 2017.
    • There is a clear trend on M&A pricing multiples being driven by bank profitability and asset quality.
    • For banks, too little capital is not the only issue — too much capital and the inability to produce sufficient returns on capital is equally problematic.

    _ _ _

    What is my bank worth?  How will the changing tax environment affect bank values?  When is the right time to buy (or sell) a bank?  What are the most significant factors affecting bank value?  These were just some of the questions surfaced this morning here in Arizona.  In this video recap of Sunday morning’s presentations at Bank Director’s Acquire or Be Acquired Conference, I share a few observations about the conversations taking place around issues such as these.

    Given the focus of this three-day event, I anticipate many subsequent presentations building off of these points.  For those interested in issues such as these, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and its @Fin_X_Tech platform, and search & follow #AOBA17 to see what is being shared with (and by) our attendees.