By Dennis Boone
Last fall, the global consulting group Forrester issued a report on trends in banking technology, which included this incisive comment from one bank executive: “We want to get ahead of the market, but it’s hard to know which (services) customers don’t know they need yet.”
“Apple, Google, Amazon, and to some extent, Uber, AirBnB—whether we want to think of them that way or not, they are directly related to banking. That’s changing the game for a lot of us, raising customer expectations with how you engage via digital channels.” -- Scott Jashinski, Dickinson Financial Corp.
Welcome, then, to Bruce Bienhoff’s world. He’s the senior vice president for commercial products at Commerce Bank, which means his team is front and center in the race to meet consumer demands for improved mobility and ease of access through new digital doo-dads.
“We used to do upgrades every couple of years,” Bienhoff muses, looking back more than a decade, before the advent of the iPhone. That was then; this is now. “Last year,” he says, “we put in nine releases that all added value to our customers.”
From a matter of perhaps 24 months to a product turn-around ever six weeks—that’s the kind of pressure that banks are up against in a never-ending cycle to stay ahead of changes in both hardware and the applications running on it. Much of the consumer demand is being driven by Millennials who seem to be always within reach of their devices. But compounding the challenge is that the rapid advance in types of applications and potential services are changing the consumer market—even as banks are preparing new tools for what they thought the market looked like just weeks ago.
“There are so many things coming out these days, it makes my head spin. Whether it’s self-driving cars, things talking to each other, the whole Internet of Things concept,” said Scott Jashinski, who handles IT challenges for Armed Forces Bank. “Our position is technology for tech’s sake, doesn’t do a lot’ we have to figure out what makes sense for us and for consumers.”
Thus, mobile technologies, he said, remain a big part of the bank’s future, including the ability to open an account remotely (consider the security issues inherent in that functionality), mobile payments “anything that makes our customers’ lives easier around the digital space,” he said.
Bienhoff and Jashinski were among a half-dozen banking executives interviewed separately for this report, but a score of others, from banks large and small, addressed technology challenges as an entire segment of Ingram’s 2017 Banking Industry Outlook assembly earlier this month. They, too, see what’s coming.
“There are more than 12,000 fintech companies in the world today,” said Mark Fortino, chief operating officer at Bank of Blue Valley. “In some ways, they’re a great equalizer for us, that smaller banks are now able to compete with the larger banks.” That covers mobile deposits, access to Apple Pay and other features. But a change is coming in that emerging sector, as well, he said. “A lot of these companies are nearing the end of their first round of capital. Are they going to start being acquired by banks? It’s alre-ady happening, to a certain extent” and smaller banks aren’t necessarily going to be acquirers of that technology, he said.
Those new fintech applications, in some cases, are cutting into services that have been key revenue generators for traditional banks for decades. PayPal is the best-known example of that, raking in fees for transactions that used to be the domains of banks. But other applications are emerging, like Currency Cloud, iZettle, WorldRemit and Klarna, digging into revenue streams for other traditional banking services.
How does a community bank keep up with the tech arms race? “You have to get the organization to wrap its mind around it, that we have to have the tech,” said Josh Rowland, CEO of Lead Bank. “People won’t take you seriously about your ability to provide anything.”
One thing working in most smaller banks’ favor is the shortening of the time between rollout of the next Shiny New Thing at a major bank and acquisition of similar technologies by smaller banks. That is where something that goes beyond tech will make the difference for smaller banks.
“It is about affinity,” Rowland said. “It’s about what does our bank do in our market that creates a relationship with the community and with our staff. We have to talk about why we are special, and tech has got to be a neutralizer. You don’t get any brownie points (with consumers) because you’ve got mobile deposit.”
Tom Kientz of Dickinson Financial Corp. says that the vast majority of new customers open an account by visiting one of the holding company’s bank branches. “Then we never see them again,” he says, because of their digital footprint. “We have to increase our technology, and online has to at least keep up. We’re not Chase, but if we can’t develop tech fast enough, how can we hang onto customers who only go to a branch once?”
The tech challenge, though, applies to banks of every size.
“It’s moving very fast,” says Mark Jorgenson, head of community banking for U.S. Bank, which, as the seventh-largest U.S. bank has ample staffing and budget to keep ahead of that pace. “It helps to have a structure in the bank, and all these people do is focus on that,” he said. But while the pace may be changing, the impetus behind it is an old one.
Going back to his days with Mark Twain Bank—which sold in 1996 as the Internet was just catching fire—he recalls a meeting with the chairman, who said the bank was going to have to sell. “I thought, ‘Why? We’ve got a good thing going,’” Jorgenson recalls. “But he said specifically that with the technology our clients are going to demand, the only way to keep up is to get to a size where we have the capacity to deal with that rapidly changing environment. He was spot-on.”
Smaller banks have run into something of a no-win situation: They can tap into third-party vendors who can help them at least maintain pace with some of the offerings from larger banks, but the cost will be significant.
“It’s a huge cost,” said Chuck Stones, president of the Kansas Bankers Association. Although he didn’t have access to specifics in how much that cost center has grown for small bank, “nothing in tech ever goes down, because they’re always adding bells and whistles—your new phone will be the same price, or more expensive, because it has a better camera or faster speeds, but nothing ever goes down. It’s the same with business software.”
The ironic thing, Stones said, is that “that was the promise of technology—that costs would decrease. We haven’t seen that.” Compounding that, he said, was that even if smaller banks can acquire third-party technology they need, it’s almost always built on a platform common to what’s used by other smaller banks, and they have no avenue to create unique customer tools.
Rather than accept a new digital order by which fintech firms are peeling away revenues, larger banks, said Jorgenson, are aligning with some of those companies to add new ser-vices, and ramping up their own IT capabilities, as well.
Last year, U.S. Bank launched a geolocation service aimed at business travelers. “Fraud systems send up a red flag if a credit card is used outside of a normal routine,” he said, “So you had customers using the card, but no way of knowing if they were the ones paying for that dinner in Florida.” The bank introduced an opt-in service using tech that could track the location of a user’s mobile device. As a result, he said, “the bank is less likely to decline a transaction.”
Bienhoff says increased use of tools available to consumers—especially to commercial clients—is still growing. “When customers access the bank through their mobile devices, it sets them free to manage their business, make their payments on the go and be untethered from their desk,” he said. “They see the value in that, so we’ve seen an increased usage in mobile. A lot of tech-savvy customers that get it, and understand it. Sometimes they learn from us, but we learn a lot from them, too.”
At Bank of America, market president Gary Jankowitz says the national powerhouse will occasionally turn to third-party vendors for certain technology needs, but is largely able to rely on a robust in-house IT development staff. “I don’t know the specific number of employees, but it’s a business unit, with the sole purpose to stay ahead of the curve,” he said. “Making sure your technology is best in class is a leading indicator of how successful you’re going to be.”
But the darn curve keeps changing. “It used to be an errand, going to the bank; now, it’s a destination—you go to a bank to attack a need. The rest, you can do sitting around on a Saturday afternoon at home.” So his organization, he said, “is trying to talk to customers and clients about how want they want to interact, to do business, to make their financial lives easier. We’re reacting to what they’re asking for and trying to make their visits to the banking center more meaningful. “
Yet those visits are becoming increasingly rare consumer experiences.
“Apple, Google, Amazon, and to some extent, Uber, AirBnB—whether we want to think of them that way or not, they are directly related to banking,” said Jashinski. “That’s changing the game for a lot of us, raising customer expectations with how you engage via digital channels.”
A good example of what’s coming down the pike, he said, was on display at a recent conference where the emphasis was on real-time interactions between customer and bank, using speech-recognition tools to have what we might call an electronic conversation.
“You can ask the question, ‘Hey, can I afford to go out to dinner tonight?; It was just a demo, but the concept looked at a person’s pattern of spending, and based on that, here’s what it thinks the pattern is likely to be going forward,” Jashinski said. “So it might response, yes, you can go out, but you’re going to have to cut back somewhere else.’ That’s where I think we’re heading.”
Given the rate of change today, it’s almost impossible to anticipate what banks could be looking at even a year from now. Mobile banking, said Stones, isn’t just a matter of tracking balances, paying bills or even making mobile deposits.
“Some of the fintech I’m seeing touted in the media and at conferences I go to are—remember I’m 62—they’re the ones that combine the social component with some of the financial products that, frankly, I don’t get.” There may be some value to someone, somewhere, when a Starbuck’s customer notifies his friends that he’s just purchased a half-double-decaf-half-caf, but it’s a bit hard at this point to know how much, or who benefits.
At any rate, he said, small banks “can’t keep up with it all. It’s a growing field, but I think the trend is the partnerships of financial institutions and fintech. What we don’t know is, are community banks going to be able to participate in that partnership, or are those fintechs going to go to the larger banks? We just don’t know that yet.”
And, bankers say, they’re not likely going to know the answer to that, or a great many other tech-related what-ifs. The reason? What constitutes some-one’s definition of banking today isn’t what it used to be.