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.

15 Banks and Fintechs Doing it Right

15 examples - new blog cover image.001

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.

Banking Millennials

The Millennial generation comprises 80MM people, the largest in U.S. history.  Born between the years of 1980 and 2000, millennials range in age from 15 to 35 years and are just beginning to gain their foothold in the economy.

By Al Dominick // @aldominick

Do we really want to bank millennials? If I borrowed a crystal ball from one of the soothsayers out at Jackson Square in New Orleans’ French Quarter, I imagine this would be the question on most everyone’s mind that joined me at our annual Bank Board Growth & Innovation conference.  With many community banks making their money through C&I lending, the immediate concern (at least at the board’s level) is how do I grow right now?  While many conversations trended towards the opportunities to engage this demographic by leveraging emerging technologies with a bank’s sales and marketing efforts, I was not surprised to hear a concern about the investment costs of bringing new technologies into a bank.  The rationale, as I understood it, is by the time a bank gets a return from its investment, it may be too late.  I’m not saying this is my way of thinking, but I do think it reflects apprehensions by key officers and directors when the conversations comes to these future business owners, inheritors of wealth and digitally demanding individuals.  As shared in a presentation by Ingo Money, in the next five years, the Millennial generation will have the largest income in U.S. history, and any company that can monetize Millennial spending or data may seek to bank them.  Still, regional and community bankers wrestle with the type of client they might be — both now and in the future.

Key Takeaway

To kick things off, we invited Dave DeFazio from StrategyCorps to “look beyond the basics” in terms of mobile banking.  As he shared, over 75% of people in the U.S. own a smartphone in the year — and most everyone has some sort of addiction to their device.  With all of the big banks offering the “big five” today (mobile banking, mobile bill pay, mobile deposits, ATM/Branch locators and P2P payments), bankers should think beyond basic banking transactions to develop a mobile presence that is a “can’t live without” app.  Some of his tips: provide easy authentication, pre-login balances, voice recognition, budgeting tools and coupon and shopping tools.

Trending Topics

Anecdotally, the issues I took note of were, in no particular order:

  • The four biggest banks in the U.S. are among the 10 least loved brands by Millennials.
  • Millennials want banking services designed for their needs that are instant, simple, fair and transparent… which is why new providers are beginning to emerge.
  • For those not familiar with Moven, GoBank and Simple… take a look at what each has to offer.
  • The cultural divide between banks and FinTech companies is getting smaller for bigger banks, but remains high for regional and community banks.  Nonetheless, these banks are in a better position to collaborate and seriously consider new tools and products as the decision making cycle is considerably shorter then at large institutions.

Picked Up Pieces

While today was “just” a half day, some of the more salient points I made note of:

  • Per Jennifer Burke, a partner at Crowe, “proactively identifying, mitigating, and in some cases, capitalizing on these risks provides a distinct advantage to banks.”
  • In terms of building value, the ability for a bank to grow is as important as a bank’s profitability.
  • It was refreshing to be at a banking conference where talk about regulation was at a minimum; in fact, it seemed that the regulatory environment presents more of a distraction than it poses a threat to bank’s looking to grow.
  • The corollary to this point: competition from non-banks is higher then ever before.

To see what’s being written and said as we wrap up our time in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

FI Tip Sheet: The Size of the Sandbox

Just as an Apple store conveys a community and market presence, so too does a bank’s branch.  While younger customers may no longer visit more than a front-of-the-house ATM, I do think many of us choose our bank based on their proximity to where we live and work.  Today’s tip sheet builds on this thought — beginning with a look at the economics of deposit taking, followed by a visual reminder of our industry’s size before ending with an acquisition by a a big-bank based in Madrid.

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Face-to-Face Trumps Technology?

To borrow a few lines from a recent CDW white paper, as the U.S. financial industry emerges from the recent financial crisis, “the surviving institutions are leaner and more focused than ever before. In some cases, this means lowering overhead — doing more with less — to effectively maintain operations.” While the future of banks proved a popular conversation starter during my travels around Washington D.C. and New York City this week, it is a report shared by Fred Cannon — the Director of Research at Keefe, Bruyette and Woods — that caught my eye. I am a big fan of Fred’s prose and the perspectives he offered in “Branch Banking in Retreat” demonstrates that real branch transformation continues to elude many financial institutions. To wit:

“The economics of bank deposit taking is poor in the age of Bernanke and Yellen (low rates) and Durbin (reduced fees). But beyond rates and politics, technology is also undermining the role of traditional branches as the payment system has moved sharply towards electronics in the last decade… Yet, overall banks are responding slowly to the changes in economics and technology of branching. While the number of bank branches has fallen since 2009, the population per branch in the U.S. is still at the same level as the mid-1990s.”

Most branch transformation initiatives I have seen seek to simultaneously reduce costs while improving sales. Here, size matters. Smaller banks can re-invent themselves faster than the big guys; however, its the biggest banks that can financially absorb the most risk in terms of rolling out something new (and expensive).

A Visual Reminder That Financial Size Matters

Fred’s research piece, focused on small and mid-sized banks along with the BofA’s and Wells Fargo’s of the country, inspired me to create the following infographic.  I’ve shared variations of these statistics in prior posts — and thought to illustrate how our industry breaks down in terms of asset size.

Screen Shot 2014-02-21 at 9.42.29 AM

(*note: while I hoped to serve this infographic up in a dynamic way, the image I created from Infogr.am isn’t embedding in WordPress.  Still, you get an idea of the market with this screenshot)

Old School Acquires New School

For smaller institutions, the size (and ability to scale) of their larger counterparts can be cause for alarm.  Indeed, Accenture shared “becoming a truly digital business is key to how we innovate and differentiate ourselves from our competitors. And if the last decade has been the playground of the digital start-ups, the coming decade will see the emergence of the traditional companies as the digital giants.”  I was thinking about this as I read the New York Times’ Dealbook story “BBVA Buys Banking Start-Up Simple for $117 Million.

This acquisition is notable as the buyer of this upstart is a 150-year old financial services corporation that operates in a number of markets, is a leading player in the Spanish market, as well as one of the top 15 banks in the U.S. and a strategic investor in banks in Turkey and China.  As noted by TechCrunch, “while not itself a bank, Simple operates as an intermediary between users and FDIC-insured institutions to provide users with access to data around their financial history, as well as tracking of expenditures and savings goals, with automated purchase data collected when its customers use their Simple Visa debit card.”  I wonder if this acquisition starts a consolidation trend of bigger banks buying newer fintech players to accelerate — while differentiating — their offerings…

Aloha Friday!

Financially Focused Friday Fun

1st stop at the Ferry Building in SF
Always my 1st stop at the Ferry Building in SF

What does my favorite, favorite, favorite purveyor of coffee have to do with banking (and payments)? I’ll do my best to connect the dots in this week’s financially focused Friday post. If you missed the last few week’s, take a spin on our way back machine, aka the search button on left.

As I do every Friday, what follows are three stories that I read/watched/heard this week. While tempted to open with a longer mention of seagulls, social media and white smoke, let me see if a picture really is worth a thousand words. This one succinctly captures the feelings that many community bankers have shared with regards to the last few year’s worth of new government regulation and scrutiny. It also sets up the first of this week’s three points:

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  • The WSJ ran an interesting piece entitled Small Banks in U.S. Hit by Rising Insurance Costs earlier this week. The premise: thousands of small U.S. banks “are feeling a financial pinch from the government’s efforts to punish executives and directors of banks that collapsed during the height of the financial crisis.” While I promise not to dwell on insurance costs or D+O liability issues today, Robin Sidel’s coverage (which I think originated at our M&A conference in January?) echoes what I’ve heard from bank executives. Namely, “the insurance squeeze is the latest headache for community banks that are still grappling with fallout from the financial crisis. Low interest rates, new regulations and tepid loan demand are pressuring profit. Many small banks would like to get out of the jam by selling themselves but can’t find buyers.”

Truth be told, I’m a bit talked out about bank M&A this week, so I won’t go down that path for point number two. Organic growth proves far more interesting — as its currently far more elusive:

  • On the same day I sat down with the founder and CEO of the Bank of Georgetown (who I think is doing a heckuva job building his bank), I had the chance to catch up with John Cantarella, President, Digital, News & Sports Group at Time Inc. Both talked about how banks are growing/changing; albeit, in much different terms. While Bank of Georgetown continues to build through commercial lending, let me share some thoughts inspired by John. In full disclosure, he recently sat down with our Chairman and agreed to speak to bank CEOs, board members and C-level execs our Growth conference in New Orleans. Subsequently, John and I talked about the focus of his presentation, “Standing Out in a Digital World,” and how he might introduce disruptive technologies and the companies bringing them to market (e.g. Simple and Square). If you’re not familiar with Square, its considered one of the hottest companies in the mobile payments space. When I hopped on their site to dig deeper, I saw that Blue Bottle Coffee Co. recently adopted Square for its point-of-sale. You should DM our Associate Publisher to find out how long she thinks it took for me to add this to today’s piece. So consider this my nod to both companies, our conference and this DC community bank. All interesting stories that really should have their own posts. Hmmm…. next week?

Finally, I do take comfort knowing a pendulum can swing only so far. While strictly my opinion, I believe too many folks within the various regulatory bodies focused on financial institutions (not hedge funds, not multi-national financial services organizations) are missing huge opportunities to contribute to — and communicate with — the banks they oversee. While I get off my soapbox, let me conclude with my third and final point from this week:

  • I saw the Comptroller of the Currency discussed community bank supervision at the Independent Community Bankers of America Annual Convention yesterday. I’m not in Las Vegas nor attending their event, so I simply hope the OCC’s lawyers didn’t totally overhaul his remarks. There are a lot of very real questions/concerns I know bankers would like addressed (e.g. Basel III, the tax benefits credit unions enjoy compared to community banks, etc.). If you were there and care to share, I’d be interested in any feedback/insight…

Aloha Friday to all!