Digital Age

by Trent Fleming

YOUR EXPECTATIONS OF YOUR DIRECTORS SHOULD BE HIGH, BUT THIS ALSO MEANS THAT YOU MUST WORK TO PROVIDE THEM WITH EDUCATION AND INFORMATION TO HELP THEM DO THEIR WORK AT THE HIGHEST POSSIBLE LEVEL.

Like many industries, banking has seen an explosion of technology, permeating all areas of the bank. This introduces convenience, efficiency, and complexity into banks of all sizes. The complexity translates not only to more technical skill sets on the part of employees, but also to a better understanding of effective management of technology at both a management and a board level.

For a board of directors to provide adequate oversight to all areas of their financial institution, their knowledge and skills must keep up. This includes knowledge of technology and operations. Following are five ways to support your board well as they strive to better understand and provide oversight to this important area.

Operational Statistics

Understanding the nature of the bank’s business is critical. This includes the overall volume of activity (total loan and deposit accounts, new account activity by week or by month, and related information) and the type of transactions (paper transactions, in person transactions, online transactions, and third-party transactions) the bank is experiencing. Such information is key for directors to understand the actual usage of bank systems by customers and employees. I recommend you start small, and at a high level. Present charts or graphs of key statistics, including both the current month and an historical component (last 6 months, year over year, or last 5 years, for example).

Exposure To Operational Matters

In the spring of 2023, the industry was given new guidance by the FFIEC for activities related to technology planning. Under the category of “Architecture, Infrastructure, and Operations” (AIO) the regulators are strongly suggesting that executive management be involved in all aspects of technology management and strategy development. Ideally, your IT steering committee is meeting monthly. This committee should already include C level participation, including your COO and perhaps CFO. Develop an annual calendar of key areas of focus, by month, for this committee. Perhaps you will choose to visit most areas twice a year, including core system, networking, EFT, and digital banking. That being the case, you can rotate outside directors through 6 months of meetings and help them gain a much better understanding of your overall operations and technology area. This will not only build their knowledge, but it will improve the quality of discussion at the board level about such matters, since over time your directors will be more knowledgeable about matters brought to the board from operations and technology.

Awareness Of Contractual Obligations And Commitments

Especially for large technology and operations investments, the board must be made aware of all aspects of such an investment. The exposure and liability involved in a long-term contract for core processing or EFT, for example, can be significant and as such, should be presented to the board in advance for understanding and approval.

Expertise To Your Board As You Navigate Replacing Retiring Directors Or

EXPANDING THE NUMBER OF DIRECTORS ON YOUR BOARD.

Matters involving initial costs, the potential for ongoing cost increases, and costs associated with contract end of life issues (both at the natural end of the contract and in the event of early termination) are all relevant to board oversight.

Cybersecurity

Cybersecurity is a business issue that will be with us forever. For proper management and to meet regulatory expectations, Cybersecurity and related technology issues must be in front of the board consistently. Building the right flow of information to your board from the technical areas of the bank is critical. A more informed board makes better decisions, and better decisions result in a safer, more secure banking environment.

Succession Planning And Board Composition

Along with striving to educate all directors regarding the use of technology within the bank, it is necessary in the longer term to add technology expertise to your board as you navigate replacing retiring directors or expanding the number of directors on your board. Banking technology is of course specialized to a certain extent, but directors and director candidates who understand the basics of managing technology will greatly improve your overall governance of operations and technology. In my experience it is helpful to begin now to establish criteria for your “next” director, including areas of expertise that would be a part of the ideal candidate’s resume.

About The Author

Trent Fleming, a native of Marked Tree, provides strategic planning and board education services to community banks around the country. He can be reached via trent@trentfleming.com.

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CITIZENS BANK’S NEW 'BANK IN A SCHOOL' INITIATIVE TAKES FINANCIAL EDUCATION HANDS-ON.

Young Americans have instant access to more information than any generation in history. But studies show many have a worrying blind spot that could impact their lifelong financial independence and earning potential: a generally poor understanding of the basics of banking, economics and budgeting. In other words: financial literacy.

In a 2022 study by the George Washington University School of Business and the TIAA Institute, researchers found that Gen Z (those born between 1996 and 2010) was the worst of any American age group at correctly answering basic financial knowledge questions. In the study, members of Gen Z scored an average of 42% on a test covering common financial topics, putting them behind the Boomers and Silent Generation and dead last in every category tested, including borrowing, saving, income and investing.

These results aren't just academic. The same study notes that Americans with very low levels of financial literacy are six times more likely to have trouble making ends meet than those with a good understanding of economic concepts. They’re also three times more likely to be constrained by excessive debt.

With costs continuing to rise and some predicting storm clouds on the economic horizon, financial knowledge might be a pop quiz today's young people can't afford to fail. But a new program in northeast Arkansas aims to help educate young Arkansans about their finances by bringing basic banking operations and financial literacy training right into schools.

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BANKING BY STUDENTS, FOR STUDENTS

Created through a partnership between Batesvilleheadquartered Citizens Bank and two area school districts, the "Bank in a School" program was launched on Sept. 6. Since then, the initiative has opened student-run, operational bank branches inside two Batesville-area high schools: Southside High School and Batesville High School.

Known as Financial Education Centers, these innovative programs are the first of their kind in Arkansas, and among only a handful of similar initiatives nationwide. Officials hope the services and information provided at the centers will help students get a running start at a sound economic future, while providing a select few with training that can put them on the fast track to banking careers.

"Student-operated" means just that. The branches at Southside and Batesville High Schools are managed and run by specially-trained student bankers, with oversight from instructors and Citizens Bank mentors. To be selected, students had to submit a professional resume and application, and pass a pre-employment interview. Once chosen, they underwent training in banking operations and other relevant topics. Combined, the two schools have more than two dozen student bankers on-site.

Day to day, the in-school locations operate similarly to any bank branch, though with a much more limited schedule. Student bankers can assist student and faculty customers at the school with opening a checking or savings account, depositing funds, withdrawing money or cashing checks up to $50, and other common banking functions.

At the same time, the branches serve as a hub for financial education at each school, offering information on more in-depth educational opportunities on topics like the basics of credit and understanding a credit score, budgeting for household expenses or a startup business and more.

CAREER TRAINING + BANKING & BUDGETING 101

Both bank and school officials are optimistic the program can help more students achieve greater financial independence while providing hands-on training in a high-paying sector.

“We know that our faculty and staff, parents and patrons will be excited knowing that this opportunity will enrich the learning of both the student bankers and the student customers,” Southside School District Superintendent Dion Stevens told the Batesville Daily Guard. “We hope this hands-on approach can spark several future stories and provide knowledge and skills for future employers in our community.”

Citizens Bank CEO Adam Mitchell, who championed the creation of these Financial Education Centers throughout the process, has similarly high hopes for the program and the impact it can make on students' financial lives. He said that by integrating banking into the school environment, the effort is making financial education and banking careers much more accessible and relatable to students.

"The thing a lot of young people seem to fear most is looking uninformed in front of others," Mitchell said. "Nobody likes to give the impression they're not up to speed on important issues. But when it comes to financial education, that reluctance to ask questions can be dangerous to a person's economic future."

Through the Financial Education Centers, Mitchell said, students can see and experience firsthand how banking works, learning from their peers and trusted educators in a supportive setting. He believes this familiarity will make a big difference, both in making financial education more accessible and opening a pipeline for the future banking workforce in Arkansas.

"There isn't always a reliable way for them to learn about personal finance," Mitchell said. "Their classes might not cover it in depth, and a lot of parents don’t discuss money matters openly with their kids. With these programs, we can help teenagers start to understand how making smart financial decisions can improve their lives and expose them to a viable career option."

Mitchell said he's hopeful the program will not only impact this community, but also empower additional opportunities to place hands-on financial practices on the campuses of our schools. He trusts that the financial health of the younger generation will greatly affect the financial health of the whole state – and sooner than you think.

"It's not that young people don't care about their finances," Mitchell added. "They absolutely do, including being one of the most debt-wary generations in American history. The problem is, there's a lot of bad information out there about financial issues, and they don't know who to listen to. If we give them a place where they can access solid financial advice from people they trust, I believe they'll not only listen, they'll utilize that advice for the rest of their lives."