A Build vs Buy Banking Story

For the first time in a while, I get the sense that members of the boards at financial institutions across the country are not just ready, but also eager, to embrace various strategies that leverage emerging technologies.  Accordingly, what follows are three things I’m thinking about as the week wraps up that have a distinctly tech spin to them.

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Bringing IT In-House

Kudos to Scott Mills — President of The William Mills Agency — for sharing this American Banker profile of FirstBank, a $13 billion Denver institution.  With more than 115 locations in Colorado, Arizona and California, the bank is unusual in that it develops its own core banking software — made possible by an in-house IT team of 250+, or 12% of the bank’s 2,100 workers.  According to the piece, having a “homegrown core and in-house expertise enables the bank to be nimble and make changes quickly.”  Obviously, banks continue to use technology to generate efficiencies.  In fact, I’m seeing some community banks come up with creative solutions to meet their needs.  Case-in-point, this recent Bank Board & Executive Survey — conducted by Bank Director and sponsored by consulting firm Grant Thornton LLP — shows 84% of bankers surveyed plan investments in new technologies to make their institutions more efficient.  Still, FirstBank’s efforts to build instead of buying from outside vendors trumps any other bank’s effort that I’ve come across this year.  Oh yeah, their blog is pretty darn good too.

Finding the Right Partner(s)

For those more comfortable collaborating with firms who specialize in developing IT solutions, let me pass along an observation from my time with CEOs in San Francisco and Chicago.  Over the last month or so, I’ve talked with at least 13 CEOs about how they plan to stay — or potentially become — relevant in the markets they serve.  I’m not that surprised to hear that many want to get rid of branches — but do wonder as they turn to technology to fill in the gap if they have the right people in leadership positions.  Many smaller banks are focused on C&I lending and serving their business communities, so I don’t wonder about their branching focus, but do wonder about their hiring practices.  Certainly, it will become even more imperative to understand the various technology opportunities — and risks — what with so many “non-technical” executives and board members setting paths forward.

Square Peg, Round Hole?

Finally, I have something of a payments-focused writing streak going on this site, and I’m keeping it going thanks to this WSJ report vis-a-vis Square, the payments startup with a square credit-card reader.  As I found out, the company is eliminating a monthly flat-fee option for smaller businesses in favor of its usual “per swipe” fee.  The change is “prompting concern among some of Square’s more than four million customers, which include small businesses that were attracted to Square because it offered a cheaper alternative to traditional credit-card processors, which charge swipe fees of 1.5% to 3%.”  I wonder if this is opportunity knocking for community banks?  Certainly other point-of-sale vendors have seen it that way.

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To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick.  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!

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