Kicking off FinXTech’s Summit

Quickly:

  • Technology continues to transform nearly every aspect of the financial services industry — from mobile payments to peer-to-peer lending to financial management.

PHOENIX — Tomorrow morning, we kick off our annual FinXTech Summit.  As I wrote yesterday, this annual event serves as our “in-person” bridge between banks and qualified technology companies.  Personally, I am so impressed to witness numerous financial institutions transforming how they offer banking products and services to businesses and individuals.  As such, I find myself eager to engage in tomorrow’s conversations around:

  • Partnerships, collaboration and enablement;
  • How and where banks can invest in cloud-based software; and
  • The business potential of machine learning, advanced analytics and natural language processors.

Joining us at the Phoenician are senior executives from high-performance banks like Capital One, Customers Bank, Dime Community Bancshares, First Interstate Bank, IBERIABANK, Mechanics Bank, Mutual of Omaha Bank, PacWest, Pinnacle Financial, Seacoast National Bank, Silicon Valley Bank, South State Bank, TCF National Bank, Umpqua, Union Bank & Trust, USAA and US Bancorp.  Long-time tech players like Microsoft share their opinions alongside strong upstarts like AutoBooks during this two-day program.  So before I welcome nearly 200 men and women to this year’s conference, allow me to share a few of my preliminary thoughts going into the event:

For those with us here in Arizona, you’ll find nearly every presentation explores what makes for a strong, digitally-solid bank.  So to see what’s trending, I invite you to follow the conference conversations via our social channels. For instance, I am @AlDominick on Twitter — and our team shares ideas and information through @BankDirector plus our @Fin_X_Tech platform.  Finally, search & follow #FinXTech18 to see what’s being shared with (and by) our attendees.

Cybersecurity and the Fintech Wave

Earlier this month, at Bank Director’s FinTech Day at Nasdaq’s MarketSite in New York City, I noted how many technology firms are developing strategies, practices and tools that will dramatically influence how banking gets done in the future. Concomitantly, I expressed an optimism that banks are learning from these new players, adapting their offerings and identifying opportunities to collaborate with new “digital-first” businesses.  Unfortunately, with great opportunity comes significant risk (and today’s post looks at a major one challenging bank CEOs and their boards). 

By Al Dominick, President & CEO, Bank Director

To grow your revenue, deposits, brand, market size and/or market share requires both strong leadership and business strategy.  Right now, there are a handful of banks developing niche vertical lines of business to compete with the largest institutions. For instance, East West Bancorp, EverBank Financial, First Republic Bank, Opus Bank, PacWest Bancorp, Signature Bank and Texas Capital Bancshares.

Just as compelling as each bank’s approach to growing their business is the idea that new competitors in direct and mobile banking will spur the digitalization of our industry.  I am a firm believer that through partnerships, acquisitions or direct investments, incumbents and upstarts alike have many real and distinct opportunities to grow and scale while improving the fabric of the financial community.

However, with myriad opportunities to leverage new technologies comes significant risk, a fact not lost on the bank executives and board members who responded to Bank Director’s 2016 Risk Practices Survey, sponsored by FIS.  For the second year running, they indicate that cybersecurity is their top risk concern.

More respondents (34 percent) say their boards are reviewing cybersecurity at every board meeting, compared to 18 percent in last year’s survey, indicating an enhanced focus on cybersecurity oversight. Additionally, more banks are now employing a chief information security officer (CISO), who is responsible for day-to-day management of cybersecurity.

However, the survey results also reveal that many banks still aren’t doing enough to protect themselves—and their customers. Less than 20 percent of respondents say their bank has experienced a data breach, but those who do are just as likely to represent a small institution as a large one, further proof that cybersecurity can no longer be discussed as only a “big bank” concern.

For those thinking about the intersection of fintechs and banks, take a look at our just-released 2016 Risk Practices Survey. This year, we examine risk governance trends at U.S. banks, including the role of the chief risk officer and how banks are addressing cybersecurity. The survey was completed in January by 161 independent directors, chief risk officers (CRO), chief executive officers (CEO) and other senior executives of U.S. banks with more than $500 million in assets.

Key Findings Include:

  • Sixty-two percent of respondents indicate their bank has used the cybersecurity assessment tool made available by the Federal Financial Institutions Examination Council, and have completed an assessment. However, only 39 percent have validated the results of the assessment, and only 18 percent have established board-approved triggers for update and reporting. FWIW, bank regulators have started to use the tool in exams, and some states are mandating its use.
  • Seventy-eight percent indicate that their bank employs a full-time CISO, up from 64 percent in last year’s survey.
  • The majority, at 62 percent, say the board primarily oversees cybersecurity within the risk or audit committee. Twenty-six percent govern cybersecurity within the technology committee.
  • Forty-five percent indicate that detecting malicious insider activity or threats is an area where the bank is least prepared for a cyberattack or data breach.
  • Just 35 percent test their bank’s cyber-incident management and response plan quarterly or annually.

Clearly, banks are increasingly relying on complex models to support economic, financial and compliance decision-making processes.  Considering the full board of a bank is ultimately responsible for understanding an institution’s key risks — and credibly challenging management’s assessment and response to those risks — I am pleased to share this year’s report as part of our commitment to providing timely & relevant information to the banking community.

15 Banks and Fintechs Doing it Right

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Many bank CEOs and their executive teams are looking for emerging methods, products and services to reach new customer segments to drive growth. Today, I identify fifteen banks in the United States, all under $20Bn in asset size, that are growing with the help of fintech companies.

By Al Dominick // @aldominick

With the rise of many innovative, non-traditional financial services companies, leaders of financial institutions can find themselves overwhelmed when it comes to selecting the right partners.  If you are running a bank that doesn’t have multiple incubators, accelerators and skunk work projects already under way, knowing where to participate with the fintech community can prove quite the challenge.  Should it be with an upstart touting a new credit decisioning models?  What about one with a new lending model?  In the quest to become more “nimble” and responsive to consumer demands, do you partner? Refer business? Accept referrals?  The list of not-so-rhretorical questions goes on and on…

Now, quite a bit of digital ink has been spilled over the creativity and aspirations of the fintech community (and its many investors) to transform banking.  But not nearly as much for banks looking to do the same.  While the efforts of major players like Wells Fargo and Capital One garner well-deserved attention, it is my belief that for fintech companies keen to collaborate (and not compete) with banks, developing relationships with banks from $1Bn to $10Bn — there are approximately 550 — and those from $10Bn to $50Bn — there are approximately 75 — may prove as lucrative over the next few years as working with the 30 banks that have assets from $50Bn up.

With this parameter in mind, I polled a few of my team at Bank Director to compile a list of banks, all under $20Bn in asset size, that “play well” with fintechs to show that you don’t have to be the biggest of the big to benefit from this wave of new market participants.  Here, in no particular order, are fifteen banks with notable relationships and/or efforts.

  1. Eastern Bank checks in at $9.7B in asset size, and the Massachusetts-based bank stands out for bringing on some great fintech talent; notably, hiring ex-Perkstreet CEO Dan O’Malley and several of his colleagues to lead its innovation unit;
  2. California’s Fremont Bank ($2.7B) caught our eye, as the bank was a fast adopter of Apple Pay;
  3. River City Bank ($1.3B, Sacramento) has a fintech guy — Ryan Gilbert, Better Finance — on their board;
  4. The Bancorp ($4.5B) backs a lot of fintech/nonbank firms like Moven and Simple;
  5. Radius Bank (just under $1Bn) is a Boston institution with just two physical locations — but is forming alliances with fintech startups to be “everywhere;”
  6. Union Bank & Trust in Nebraska works with Betterment, an automated investing service, to offer its customers a smart, simple and easy way to invest;
  7. A real pioneer, CBW Bank ($14.5B) is a community bank in Kansas and one of the first U.S. banks to use the Ripple protocol for modern, real-time payments between the U.S. and other countries globally;
  8. In the Pacific Northwest, Washington Trust ($4B) is vocal on being tech-friendly;
  9. In Texas, First Financial ($6B) is big on mobile and being innovative — working with Mitek, they are the first regional bank to offer mobile photo bill pay);
  10. Banc of California ($6B) uses nCino to automate and standardize its commercial and SBA lending;
  11. PacWest ($16B) are all about lending to technology and fintech companies;
  12. The Bank of the Internet, BofI, is a full-service internet bank with $5 billion in assets;
  13. Everbank ($16B) plays well with Fintech while adorning the stadium of the NFL’s Jacksonville Jaguars;
  14. Rockland Trust has a SVP of digital and payments innovation, which is unusual for a $5.6 billion dollar bank; and
  15. The $17 billion-asset First National Bank of Omaha hosts a weekend-long hackathon, a competition common in the tech world but rarely hosted by banks, to attract talent into its ranks.

By no means is this a complete list of community banks collaborating with fintechs in the U.S.  If I was to expand the list up in size, you can bet larger regional standouts like KeyBank would merit recognition for their work with companies like HelloWallet.  In the spirit of learning/sharing, who else should be added to this list?  Let me know via twitter or by leaving a comment below.