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.

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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.

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.

Spotlight on FinTech

If forced to pick but one industry that serves as a catalyst for growth and change in the banking space, my answer is “FinTech.” As NJ-based ConnectOne Bank’s CEO, Frank Sorrentino, opined late last week, “financial institutions today operate in a constant state of reevaluation… at the same time, low interest rates and a brand new tech-driven consumer landscape have further contributed to the paradigm shift we’re experiencing in banking.” After I shared “Three FinTech Companies I’m Keen On,” I was asked who else I am taking note of in the financial technology sector; hence today’s spotlight on three additional companies.

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The fabric of the banking industry continues to evolve as new technology players emerge in our marketplace.  With banks of all sizes continuing to implement innovative technologies to grow their organizations, companies like Yodlee have emerged “at  the heart of a new digital financial ecosystem.”  The NASDAQ-listed company counts 9 of the 15 largest U.S. banks as customers along with “hundreds of Internet services companies.”  These companies subscribe to the Yodlee platform to power personalized financial apps and services for millions of consumers.  With thousands of data sources and a unique, cloud platform, Yodlee aspires to transform “the distribution of financial services.” It also looks to redefine customer engagement with products like its personal financial management (PFM) service, which pulls together all of a customer’s financial information from multiple accounts.

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Now, technology in the financial world encompasses a broad spectrum of tools. For most officers and directors, I have found conversations about what’s happening in this space naturally incites interest in mobile banking.  So let me turn my focus to Malauzai, a company I first learned of while talking with Jay Sidhu (*Jay is the former CEO of Sovereign where he grew the organization from an IPO value of $12 million to the 17th largest banking institution in the US… he is now CEO of the very successful Customer’s Bank).  This past spring, he talked about the benefits of working with the company that was formed in 2009 to “participate in the mobile banking revolution.”  Malauzai works with about 320 community banks and credit unions across the country, providing the tools needed to connect to a customer through smartphone applications.  Specifically, the company builds mobile banking “SmartApps” that run across mobile platforms (e.g. Apple and Android) and several types of devices from smart phones to tablets.

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Certainly, many FinTech companies have a laser-like focus on individual customer needs.  Case-in-point, Openfolio, a startup that “brings the principles and power of social networks – openness, connectivity, collective intelligence – to the world of personal investing” (h/t to Brooks and Gareth at FinTech Collective for sharing their story).  Openfolio’s premise: in our sharing economy, people will divulge investing ideas and “portfolios, in percentage terms, within their networks.”  Accordingly, Openfolio provides a place where investors share insights and ideas, and watch how others put them into action. As they say, “we all learn from each other’s successes (and mistakes).”  As reported in TechCrunch, the company doesn’t reveal dollar amounts folks have invested, preferring to reveal how much weight different categories have in an investor’s portfolio to reveal information about markets.

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Personally, it is very interesting to watch companies such as these spur transformation.  If you are game to share your thoughts on FinTechs worth watching, feel free to comment below about those companies and offerings you find compelling.