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Course Change CEO Cort Oâ€™Haver boots up Umpqua Bank 3.0
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11 Course change For a bank whose mantra has been “come into our stores,” changing the model was not easy By Bill Streeter, editor & publisher Cover image: Umpqua Bank
14 Tech 2018: The pace picks up Report covers going digital, vendor options, community bank impact, and more By Bill Streeter & Steve Cocheo executive editor
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8 11 Seven Questions Cort O’Haver, Umpqua Bank’s new CEO, explains bank’s “digital human” strategy
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Making the tough calls
hen reading through “Signs of a High Per for mer” in Threads (p. 8), some readers may come away thinking, “Kind of old-school, isn’t it?” We admit thinking that ourselves, initially, probably from hav ing been immersed in writing the Technology Outlook article (p. 14). But old school or new, it’s good. We were a little puzzled, however, that the piece didn’t mention technology in the list of signs, so we asked the author—bank consultant and attorney Jeff Gerrish—about tech’s role. One point in his response stood out: “I often view [technology] as a competitive disadvantage for those boards that are not willing to move forward appropriately.” That ties in with the first of his signs of high performance: “A fully engaged board,” of which oversight is a primary duty. Part of oversight is “credible challenge ,” a c onc ept i nclude d i n O C C guidelines for directors. “Credible” could be the result of research, observation, or, most credible of all, experience. A credible challenge would not simply mean challenging some practice or product that seems inappropriate, important as that is. It also means challenging a lack of action. In regard to technology, for example, that could be challenging management’s reluctance to upgrade computer systems. Ultimately that inaction could doom the bank to irrelevance. Not quite as dramatically or quickly as a major CRE credit gone bad, perhaps, but just as certainly. Another of Gerrish’s points for high performance includes CEO leadership (versus managing). These days it’s easy to hesitate, or to move first one way then another in response to rapidly changing circumstances. The relentless advance of technology has had this effect on many organizations and whole industries. In Seven Questions (p. 11) you can read how Umpqua Bank, an institution that has long had a clear and distinctive sense of direction, wrestled with how—and how much—to change strategic direction as fewer customers came into its “stores.” Making this particularly tough, branches
have squarely been the focus of its strategy for two decades. Like all banks, Umpqua hears the confident chorus of voices imploring it to become digital, be “agile,” embrace “fast failure,” and the like. The advice is important, but it needs to be said, too, that knowing how and when to pivot from one strategy to another, and having the gumption to do it, is truly difficult. The focus of this publication, in fact, and its companion website, bankingexchange.com, is to assist bankers in making the transition from today to tomorrow. In Umpqua’s case you can read how new CEO Cort O’Haver has made a strategic “pivot.” The bank is betting on using technology to enhance human interaction rather than diminish or replace it. It is doing that by using a new mobile app to let customers choose a “Best Financial Friend.” These BFFs work in both digital and branch worlds. It will be interesting to see how the pilot program works out. One of O’Haver’s points is that it’s good to have a person to call or text when you have a problem or complex question. Someone who “has your back.” Give that observation two thumbs up! The digital revolution has shown that almost all of us love to do things for ourselves—it’s often quicker and easier than the “old ways.” But not always. And when something isn’t working (including a device), or you’re not sure what to do, or the YouTube video doesn’t quite match what you’re trying to fix, being able to easily reach a person who knows is still worth its weight in gold. So just maybe the Umpqua “human digital” program will work. Perhaps even Apple with its vaunted “Genius Bars” would do well to track this project. Apple stores are impressive, but wouldn’t it also be great to just be able to text or call a “genius” that you’ve selected as your go-to iGuru instead of having to make an appointment and drive to the store? That could lead to a sweet “man bites dog” headline: “Bank shows the way for Silicon Valley giant”!
December 2017/January 2018
BILL STREETER, Editor & Publisher email@example.com
“Credible challenge” also means challenging a lack of action. Inaction on a strategic issue like technology will doom a bank to irrelevance
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/ THREADS SIGNS OF A HIGH PERFORMER
What makes a high-performing community bank today? By Jeff Gerrish, contributing editor
ecently, I was asked by the chairman of a mid-sized community bank to discuss the characteristics of a high-performing community bank with the board and senior management. We would then discuss how the bank compared with those characteristics. The following is a summary of what I told the bank. When considering whether a particular bank is high performing, the initial considerations would be achieving sustainable return on assets and return on equity. In my opinion, a high-performing Subchapter S bank should be at 2% return on assets and 20% return on equity. A high-performing C corporation bank should be at 1.25% ROA and approximately 12% to 14%% ROE. So what drives these financial metrics? • A fully engaged board. It is a board that provides oversight, business development, and business referrals, and is interested in what is going on at the bank—not one that micromanages.
• CEO leadership. Similar to a fully engaged board, the CEO not only needs to be a manager, he needs to be a leader. Therefore, the CEO must have a vision for the bank, exhibit that vision, and work to develop that vision in the other bank employees and the board.
It’s about focusing on service, asset quality, and your competitive advantage • Heavy involvement in the community. Every high-performance community bank that I have worked with over the years has significant community involvement. • A culture of service. Service must be ingrained such that employees carry it out to the community and also let members
BLOCKCHAIN ROLLS ON Most financial firms remain content with learning about blockchain technology and testing proofs of concept while awaiting clarity about the technology’s future, according to a Cognizant study. This option, which the report’s authors say is not viable, is already beginning to change. At right are examples of blockchain bank uses and time frames from Financial Services: Building Blockchain One Block at a Time.
December 2017/January 2018
of the community experience it every time they walk into the bank. • A culture of compliance. While compliance is not such an overriding factor that it freezes the bank from doing things to benefit customers, there is an underlying culture that actively shows compliance is important to the bank. • The bank is based on relationships. Most high performers do not simply engage in transactions. They build and maintain relationships with customers; they do not just do deals or acquire assets from unknown customers. • Diversification of income stream. Most, although not all, high-performing banks will exhibit some form of noninterest income either through fees, other lines of business, or otherwise. • Excellent asset quality. High performers typically have strong loan demand, excellent underwriting, a conservative approach to lending, and, as a result, high asset quality. • Utilizing franchise players. Those banks that are expanding geographically lift out one or more franchise players from another organization. It is difficult to expand your bank geographically using people who are not from the community into which the bank is expanding. • We l l - c o m p e n s a t e d m a n a g e m e n t employees. This is basically a high pay, high assets per employee model. • Significant employee ownership. I find that there is a positive correlation
TIME FRAME TO GAIN PROMINENCE Private blockchain 6% Not sure 44% 1–3 years 36% 3–5 years 14% 5–10 years
between high performance and employee ownership. Skin in the game matters. • Core funding. Most high-performing banks do not use brokered deposits or Federal Home Loan Bank advances, or only in nominal amounts. Their funding comes through core deposits. • Knowing your strengths. Last, but not least, the characteristic I have found most often in a high-performing bank is that it understands its competitive advantage— what it does better than anybody, whether it be SBA lending or consumer finance— and will focus on that and develop it.
Technology’s role This article was adapted from Jeff Gerrish’s blog post “14 signs of a high-performing bank” on BankingExchange.com. BE asked Gerrish a follow-up question about the significance of technology in contributing to high performance in a bank. He said: “Technology has become so interwoven that it is really part of everything these days. I do not view it as a separate competitive advantage. I often view it as a separate competitive disadvantage for those boards that are not willing to move forward appropriately.” Gerrish added that most community banks are totally dependent on their core providers, so it is just a question of what the provider offers and what the bank wants to pay to have. See feature story, page 14, for more on the impact of technology.
BLOCKCHAIN IN BANKING
Top current use cases
Top future use cases
39% Automotive finance
41% Automotive finance
36% Mortgage lending
37% Supply chain financing
35% Trade finance
35% KYC processing
December 2017/January 2018
/ THREADS /
BANK-CU DEALS ON THE RISE
Why credit unions buy small banks By Kevin Dobbs, S&P Global Market Intelligence staff writer
n Atlanta-based credit union’s m o v e i n No v e m b e r —f i r s t reported by CUToday.info—to buy a community bank would mark a first-of-its-kind acquisition in Georgia. But a leading M&A adviser who worked on the deal says increasingly more credit unions are looking to acquire banks. Georgia’s Own CU agreed to acquire Fayetteville, Ga.-based State Bank of Georgia, which has about $95 million in assets and which gives the buyer, with its nearly $2.3 billion in assets, added scale, a stronger presence in suburban Atlanta, and proven lending talent—the seller said all its staff will join Georgia’s Own. A purchase price was not made public.
More purchases coming The buyout of State Bank marks the fifth announcement this year of a credit union plan to acquire a bank. There were four such deals in 2016, three in 2015, and none in 2014, according to S&P Global data. Such arrangements have over the past couple of years gradually grown as credit unions looked to deploy excess capital to gain size and scale; diversify into new business lines; bolster funding; and acquire lending talent, says Michael Bell, a lawyer with Howard & Howard Attorneys PLLC, who advised the buyer. He adds that more small banks, under the
weight of heavy regulatory costs and facing strong competition, are increasingly considering sales to credit unions. Often that is because credit unions, which do not have publicly traded stocks, offer the option of simple, all-cash buyouts, which some small-bank owners prefer because they know exactly how much they are getting the day of the sale. Bell said in recent years, he would be working on a couple such possible deals at any given time. Now, he said, he is working on about 20 potential transactions involving a credit union buying a bank.
Why bank sold to CU
R. Edwin Haworth, president of State Bank of Georgia, says his bank sold in part because of heavy regulatory burdens, increasingly lofty technology costs, and fierce competitive pressures from larger banks, credit unions, and financial technology companies. Mu shir Sh aikh c ont r ib ute d to this article. A longer version of this article, including a table showing recent deals, can be seen at tinyurl.com/CU-bankdeals-rise
ormer banker and BankingExc h a n g e b l o g g e r E d O’ Le a r y teaches an online class for the American Bankers Association on bank financial performance. In it he asks: How do you spot a “hot” bank? By “hot,” he means one where most external comparisons to peers are in the upper percentiles, but the longterm trend lines are ambiguous. In a recent blog, O’Leary explained further: Consistency of a bank’s financial performance is a usually reliable proxy for the degree of risk a bank is subject to. Some CEOs push loan volume and
shave a bit on terms and conditions to win business. They are often the ones in disagreement with auditors and have, in serious cases, disputes with Loan Review. They also never saw a fee they didn’t like or a way to tack on a little extra for the margin. To judge whether or not a bank is being “run hot,” I look at the degree of leverage; full range of metrics of asset quality; and core sources of funding. Leverage is stored up on a bank’s balance sheet, as reflec ted in the debt-to-equity ratio. It also can be present in the loan-to-deposit ratio.
December 2017/January 2018
Don’t forget that by increasing leverage, we are goosing return on equity. Credit quality is the biggest single source of risk on bank balance sheets. I pay attention to the trends of nonperforming loans, the size of the reserve to loans, and to recoveries. Core funding is about to become even more important to community banks as rates head up and savers have more (and better) yield choices. I think liquidity may well be the defining problem of the next few years. Read the full blog at tinyurl.com/ spotHotBank
How do you spot a “hot” bank?
/ Seven Questions /
Umpqua, the bank that dared to be different, is at it again, led by new CEO Cort O’Haver By Bill Streeter, editor & publisher
e didn’t ask Cort O’Haver if succeeding Umpqua Bank’s longtime leader, Ray Davis, w a s t ou g h . T he a n s w e r seemed obvious: How could it not be? Davis is an industry icon, particularly in retail banking circles where he inspired many to copy his signature vision of branches as experiential, not just transactional, centers. These “stores” boasted cybercafes, coffee bars, and very unbanklike designs. Davis, 67, now executive chairman of Umpqua Holdings, handed off the CEO mantle in January 2017 to O’Haver, who was president at the time. O’Haver, 54, has spent most of his nearly nine years at Umpqua running commercial banking. The commercial bank, which includes the bank’s leasing and private banking units, comprises between 80% and 85% of the balance sheet, the rest being residential mortgages and consumer loans. Headquartered in Roseburg, in southwestern Oregon, Umpqua Bank has total assets of $25.6 billion and operates in five western states. It has just over 300 branches—down 35 after some recent consolidations. As O’Haver notes below, the bank’s strategy for years was connected to its physical presence and attracting people into its stores. Yet because of the digital revolution, people were coming in less frequently, relying on mobile and online to conduct much of their routine business. Clearly, the model needed adjustment. But how? And how much? O’Haver and the Umpqua senior team have been immersed in those questions for some time. In the following dialogue, edited for clarity and length from an interview, the answer emerges. Q1. Umpqua Bank is now in the Cort O’Haver era. What’s your vision for the company in a digital world? The long-term vision of the company has not changed: to provide banking products and services to people when they want it. We call it personalized banking for all—anytime, anywhere.
Having been a commercial banker my entire career, I know the value of a relationship. I don’t care what type of customer you are—a retail customer or a commercial customer borrowing $100 million—hav ing a personal connection with a financial institution is really important, especially when something is going on with your business or your life. Umpqua built a strong reputation for being very service minded But how do you create a human relationship when more and more business is being done electronically? So we’ve decided as a long-term strategy to combine the human element with digital components. We call it “humandigital banking.” What does that mean?
We have a new retail application in pilot called BFF—Best Financial Friend—created by Pivotus Ventures [Umpqua’s Palo Alto, Calif.-based fintech/research unit], that customers download on their phones. The first phase of the pilot was a centralized hub. Now we’re rolling it out in stores in the Portland [Ore.] market, training associates to serve as a BFF digitally in addition to working with customers in person. Our intent, as a more robust application becomes available early in 2018, is to introduce it into other metropolitan markets. Using the app, customers pick a banker in the bank who will be kind of their personal concierge—almost like a personal shopper. They will help the customer do
December 2017/January 2018
/ Seven Questions / “I’m thinking about opening a college savings account; can you give me some suggestions?” I just met with the BFF team the other day, and they said they don’t get a lot of account balance questions, which I find interesting. Many of these customers right now are digitally sophisticated, so they know how to check their balance through online banking or mobile banking. Q3. Where do digital assistants like Alexa, Erica, Siri fit into your strategy?
Our whole service pledge is based on our stores. But now it’s going to morph into ‘press the app and we’ll chat’ if we choose to offer it under some type of use agreement. Q2. A call center can function in a similar role. Can you speak to how BFF is different—beyond the fact that it’s app-based? The BFF application could replace the call center someday if the app had AI [artif icial intelligence] and machine learning functionality, which it doesn’t yet—although we have people working on that. About 80% of our calls to call centers are password resets and account balance queries, which can be handled pretty much by AI and machine learning. To me, the difference is in the conversations. The people who are BFFs will tell you the conversations they are having with customers so far—90% of them by text—are more personal, and go another couple of layers deeper than you would have at a call center. For example,
December 2017/January 2018
Q4. Does the BFF program have application for business customers? I think the way customers—retail or commercial—want to do business is more alike than it’s ever been. In this day and age, no one has to go anywhere. The consumer can bank from home in their pajamas and the $100 million borrower can stay in his office, and everything gets done electronically. It’s kind of dehumanized banking and makes it easy for customers not to have a connection, but I think customers like a connection. I’ll give you an example of how the BFF program relates to commercial banking. We want our lenders out with customers. So when their books of business grow big enough, we’ll transfer some of the loans to a service center to make sure taxes are paid, insurance is paid, and so forth. There’s no reason to have a lender working on these sorts of things for a ten-year term loan. What happens, however, because of lender turnover or other reasons, when these loans come up for maturity, sometimes they w ill pay of f because the customer doesn’t feel like there is a connection anymore with the bank. But what if when we transferred those loans to the service center, the customer could choose a BFF? The customer may never use the banker, but the BFF could communicate with the customer once in a while. That way, it’s not just mail or email that
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anything with Umpqua except get cash. We don’t assign the banker. The customer picks the person based on the banker’s background or however they want to decide. We feel that delivering a human exper ience through a dig ita l dev ice is a unique offering. Mobile technology is great for ease of use but is pretty sterile when you have an issue and don’t know anybody in the institution. Not having a go-to person who’s got your back can be a real problem. So what we’ve done is take the anxiety out by letting you select a person up front. The BFF banker knows, through the use of data, what you’re interested in, how you spend your money, what products you have. If we know your kids are getting close to college, we can volunteer related products—not as a sales pitch, but because it’s the right thing to do as part of the relationship—again, like a personal shopper. Within our private banking function, BFF is just another delivery channel. But most of our private banking customers want to meet with their banker in person and have a conversation over lunch about investment opportunities or recommendations for a trust attorney. It’s a different type of relationship. So our long-term strategy is to take this ver y strong brand we’ve got and combine the human aspect with some new digital delivery channels. We think this clearly is a market differentiator for Umpqua, and potentially for other banks
Our premise for BFF is that there is a person you can reach, so it’s not about chatbots, which are driven by AI and robotic kind of learning. Now, when we can provide the answers to the many common types of questions through AI and data, we would certainly consider bots. It’s a much more efficient way to deliver information. But the concept here is there is a human being actually sitting there texting or typing you an answer.
prompts a customer to make a payment. There is a real person at the bank that has the customer’s back. And we have more of a connection with these customers than just a check or ACH payment. It humanizes what otherwise can be more of a transactional commercial experience. There are applications like that for BFF all over the company. Q5. How do you view the impact of fintech competition—both on the retail and commercial sides of the business? Speaking from the perspective of the industry as a whole, retail banking has probably seen the largest disruption from fintech competition. But you know, fintech impact can also be bank to bank, right? If you’re a $500 million community bank competing for customers against Chase, Wells, Bank of America, the technology they have makes it very difficult to compete against them. I’ve already mentioned fewer people coming into stores anymore, and that’s what community banks really sell. The advent of the smartphone and all that it can do—whether that capability comes from a fintech company, a mature core aggregator, or from a bank—is what has disrupted the retail side of banking. On the commercial side, many fintech companies were formed to put liquidity back into small business by online and peer-to-peer lending. Most banks would tell you, I think, that that trend hasn’t really disrupted them. Many of those start-ups just didn’t have the access to capital that traditional lenders did. But I think commercial impact from fintech is coming. Innovators are asking, “How can we add value? What can we do to improve the scalability and efficiency of back room workflows?” So far, everybody’s been focused on the lending side. No fintech has come up with a really cool mobile application for small business deposits. But there’s a company in Portland working on a small business online deposit tool. I can’t mention the name because it’s in the start-up phase. Q6. Does the bank’s culture need to change to embrace human-digital banking? It’s going to have to transform, but I don’t want to leave behind our basic core tenets. That’s the biggest challenge as we create a different means of delivery. Right now we’re so physical, right? Our whole reputation and service pledge is
based on “come across the threshold of our store,” which has worked very, very well. But now it’s going to morph into “press the app on your phone and we’ll chat.” So how do you hang onto what we’ve got and do it in that channel? Keeping the core culture value proposition we have today is more difficult as we shift delivery to digital, but vital. I’ve spent more time studying that, honestly, over the last six months than I have worrying about the technology. The first thing we did is write down our core values. At the beginning of the year, Eve Callahan [executive vice-president of corporate communications] and I wrote down the values. All companies have these, but sometimes, they are just kind of created over time without being written down. One, for example, is “be curious.” We want our people to ask questions and be curious about customers and about each other. Then we spent several months visiting every location and talking about the core values, and making sure people understood that those values will be rooted in all the decisions we make—even on this human-digital experience. For management’s part, we must not waver on our commitment to not compromise those va lues even w ith the fundamental change in the way we serve our customers. We challenge each other by saying, “How does that project fit with our core values?” That helps us realize, “Yeah, you’re right. We’d be compromising a core value if we did that.” Give me another year at this, and I’ll write a book about it!
maybe their kids are getting ready to go to college, or maybe a parent just died and they might need an estate attorney. Creating this capability is going to take training on our part. But hiring clearly goes back to our core values. We’re not going to make decisions here on the executive f loor about how we’re going to run the company without making sure the people we hire aspire to and have the strengths of our core values. I give Ray Davis a lot of credit for that. Before I even got here, he was nonnegotiable on the kind of people we hire. So the type of experience may change, but not the alignment with core values. One last comment on this subject. I just hired a new chief strategy officer from a large bank. She has already commented how much she enjoys working at a place where people genuinely are in it for the good of all—the bank and those whom it serves. We have this sense of camaraderie here that’s part of the culture. The bank has this living breath to it, and it’s so cool. Hav ing people that believe “We’re doing something right,” is really what we look for.
Q7. As your delivery strategy changes, have your recruiting and training changed, or will they? Speaking generally f irst, as a signif icantly bigger organization than we were even five years ago, we have customers today who we could never have banked before. So we’ve been hiring people with different levels of experience than we previously needed. Talking about BFF specifically, there’s clearly a new type of role here at Umpqua Bank—bankers who have a medium-tohigh level of understanding of all types of banking products and services, which is kind of cool, right? It’s about knowing how to talk to a customer and knowing that they may have a mortgage need, or
One of Umpqua Bank’s “Best Financial Friends” taken from a bank video. Still in pilot, the BFF program now operates in several of Umpqua’s “stores.”
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an Fisher’s core system review business is f lourishing. Where he used to do three or four reviews a year for banks and credit unions, he did 12 in 2017, and expects to do 18 in 2018 and 25 or more the following year. “We had clients initially that would 14
die before they’d change vendors,” says Fisher, president of Copper River Group, a consultancy. “Now, 70% or more of the clients that go through the review end up changing vendors.” Fisher attributes the change to retirement of older management. “Younger managers have either never been through
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a conversion or just embrace the newer technology,” says Fisher, a former bank chief information officer. The reluctance to change technology providers is understandable to Dharmesh Mistry, chief digital officer for Temenos: “Who volunteers for open heart surgery?” But he agrees this view is changing. The
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Tech Pace Picks Up
“Fast follower” has a new meaning. Banks—and their vendor partners— increasingly see that it’s no longer business as usual By Bill Streeter and Steve Cocheo
reason he gives is that the banking industry “has not faced this level of disruption in many years,” referring to the competitive impact from fintech start-ups and so-called “challenger” banks—banks that are digitally powered from the get-go and often target a particular niche market. “Newcomers into the business can get
access to computing power through the cloud at far less cost [than traditional banks],” Mistry says. That lets newcomers come to market with new ideas faster. Mistry, who is based in London, cited examples in the United Kingdom of challenger banks: Monzo and Starling Bank are two; a third is Metro Bank, now seven
years old. He notes that in the United Kingdom, where regulatory powers are more fintech friendly than in the United States, just under 30 new banks have been approved in the last few years, with 20 more in the pipeline—many of them nontraditional entities. Here in the States, the fintech presence
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is equally strong, but mostly without the actual banking charter. That may change, in time, as regulators now seem more inclined to encourage innovation. Even without that, however, bankers increasingly are sensing the importance— even urgency in some cases—to upgrade technology capabilities. As Fisher notes, after a core review, it’s not unusual for clients to react, “OMG; we’re so far behind!” Mistry’s colleague Larry Edgar-Smith, executive vice-president of Temenos’ Lifecycle Management unit, says more banks now realize that how they are positioned today is almost secondary to “Will we be in position to be successful three, four, five years from now? Do we have the processes and systems in place?” Often, this view is accelerated when people from outside the industry assume a leadership position and ask, “Why are we doing it this way?” adds Edgar-Smith. (The views of five bankers on the digital revolution are presented in the companion article, “After the wake-up call,” p. 18.)
WILLING TO CHANGE The very largest banking companies are not known for being nimble. But in one sense at least, they don’t have to be. They have so many people and so much financial bandw idth that they can attract talent, buy companies, and experiment with the latest technologies at will—like artificial intelligence and blockchain. Smaller financial institutions, including good-sized regional players, cannot 16
match this extravagance. They must rely in whole or in part on the bank technology companies that support the industry. Most banks are not “masters of their own fate,” says Terence Roche, a founder and partner at Cornerstone Advisors. “They are highly reliant on vendors developing the capabilities they need.” This is particularly true, he says, with “delivery systems”—e.g. loan origination, cash management, mobile banking, money movement, etc. Banks other than the largest can’t develop these applications, says Roche. This situation has evolved into the current U.S. environment where three companies dominate the bank technology business: Fiserv, FIS, and Jack Henry & Associates. But there are alternatives, and judging by Fisher’s opening comments about his core review business, bankers increasingly are willing to explore them. That could include switching among the big three; moving to one of the next-level tech companies like Finastra, CSI, or DCI, or to one of the overseas companies active in the United States, such as Temenos or Infosys; or simply reaching out to work with one of an ever-growing list of companies providing specific “delivery system” solutions.
BEST-OF-BREED—YES The emergence of the fintech movement has heightened a long-running debate in the bank technology world: Is it better to choose a so-called “best of breed” solution
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from a third-party supplier (one not affiliated with, or loosely affiliated with, your core processing provider), or stick with the full package of services offered by the major bank tech companies? It’s a complex issue with proponents on both sides. The big tech companies, having built up their solution portfolios through numerous acquisitions, naturally prefer the “all-in” approach. Even so, these companies have noticed the changes wrought by new entrants and are quick to say they will work with any solution that a bank client wants. There are good reasons for, and good reasons against, both options. Looking at the reasons against first, the CIO of one midwestern community bank says he has done research on the big core providers and found that they really haven’t made much progress in becoming truly open platforms. He says that ideally a “banking-as-a-platform” approach would mean a platform in which all the “plumbing” was set up such that an outside application could drop onto the foundation just as easily as the similar application provided directly by the core vendor. “U.S. core providers make hurdles and don’t integrate outside solutions well,” the banker says. “Ultimately, they’ll have to.” Roche agrees that integration of thirdparty solutions is an issue with some vendors, and that going forward banks’ vendor management focus will shift. Instead of being on r isk/reg ulator y
Shutterstock/ Phonlamai Photo, Vector-M
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issues, he says, “increasingly, it will be about performance.” Bankers will ask their core providers: “Are you giving me the option of the same, self-service tools that the biggest banks are putting in their internet and mobile banking offerings? Are you giving me an easy-to-use online loan application system? And if you are not giving these to me, are you committed to working with outside vendors to integrate their systems?” For their part, vendors acknowledge these questions. “We respect that our clients have a choice,” says Byron Vielehr, a Fiserv group president. He adds that Fiserv is investing in an enterprise services framework to facilitate integration. “This is not just about integrating components,” he says. “It is about delivering a better customer experience.” CSI, which markets itself as a singlevendor solution, nevertheless built the CSI Bridge to facilitate integration of other solutions, notes Steve DuPerrieu, vice-president of channels and analytics. The bridge involves a series of application program interfaces “that connect thirdparty software to the CSI core system in a simpler, quicker way,” he says.
GO WITH SINGLE VENDOR
A single-vendor approach has its proponents, however, and not just from the vendor community. Dan Fisher, who work s w ith both community banks and credit unions, maintains that to have true real-time processing, where the customer’s balance at any given moment is the same on any device, the best integration will result from having one vendor deliver all the applications and not relying on third parties. He’s actually skeptical even when a core provider has a third-party partner for a solution like mobile banking. “If that relationship is fragile, or the third party can jack up the price,” says Fisher, “it can impact the effectiveness of the core, which is mission critical.” In addition, Fisher notes that a fully integrated system is a much better safeguard against fraud and identity theft. In addition to keeping better track of balances across channels, it allows a bank to push out fraud alerts to clients in time for them to take immediate action, such as turning off a card. To Fisher’s point about third-party partners, Sarah Fankhauser, executive
vice-president and chief operating officer of DCI, a bank-owned core processor, notes that at DCI, “a top priority is to build solutions ourselves, but we can’t always do that. We vet potential partners very carefully and either private label or embed them in our core.” She says DCI will work with other vendors that aren’t partners, often at a customer’s request. If the arrangement works out well, DCI may offer the solution to other customers.
TRULY DIGITAL Asking people to define a “digital bank” is a bit like asking them to define a “beautiful painting.” In theory, it shouldn’t be subjective, but there is no official meaning to digital bank, any more than there is one meaning for a customer relationship management system. Herewith are some of the comments elicited from various sources, arranged
While bank attitudes toward digital have evolved, budgets haven’t. Investments in technology and skills are critical roughly in terms of scope. At the more focused end is the concept of a bank that is deliberately moving to offset the ongoing decline in branch transactions. As described by CSI’s DuPerrieu, “Such a bank’s primary channel would be digital. Brick and mortar is there to support digital, not vice versa.” He sees more banks moving to this approach. Cornerstone’s Roche ag rees: “ The movement of service transactions to digital and away from the branch and call center is just accelerating and will continue. That is a given.” A consequence of this is a shift away from geographically defined markets and increased service opportunities. Notes DCI’s Fankhauser, “It used to be that when a customer moved away from their bank’s market, they would open up an account in a new bank. Now, they can stay with their existing bank through digital
channels. It’s a great retention tool.” Fiserv’s Vielehr frames the concept a little differently. “It is no longer about physical versus digital channels,” he says. “It’s about a seamless experience driven by digital capabilities in ever y channel.” As an example, he mentions using a mobile app to make an appointment to come to a branch to discuss a loan. Taking digital banking to a different level, Roche says banks need to ramp up online marketing, online sales, digital account opening, and online fulfillment. “Many banks right now originate maybe 10% of their loans online and none of their deposits,” he points out. That number can and must be higher, he believes, as there are institutions already hand l i ng 30% - 50% of c on su mer loa n s end-to-end digitally. The steps Roche describes are what Temenos’ Mistry refers to as “digitizing”— adding digital capabilities incrementally. That is the norm for most of the company’s clients, he says. Even further along the curve are true digital banks—existing only on a mobile device or online. Two that Temenos has worked with are Canada’s EQ Bank and Bank Leumi’s recently launched Pepper. Mistry doesn’t feel it is feasible for most traditional financial institutions to undergo a “big bang” conversion to become completely digital. But the incremental steps are important, nonetheless, Mistry says, because any all-digital institution has a “massive advantage” over a traditional institution in terms of time to market. Author and f intech obser ver Brett K ing says attitudes of banks toward being digital have evolved significantly. Old resistance has given way to questions about how to make the transition. While attitudes have changed, he adds, budgets haven’t. “Banks often don’t invest enough [in digital] and don’t have the skills.”
A cautionary noTe
There are those who are more outspoken about the slow pace of change in banking to become digital. One of them is David Birch, author, and director of innovation at Consult Hyperion. Banking hasn’t really made the change from digitization of traditional banking to digital banking, according to Birch. As an example, he cites the Barclays’ mobile app, which he uses and likes very much. “But I am using it to access the same
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/ Tech Outlook / products I would have accessed ten years ago—even 20 years ago.” Birch believes that digital should instead be a new approach to people’s financial needs. The pr oblem for f i n a nc ia l i n s t itutions is that in the current digital environment, they could become a platform—“operating the pipes,” as Birch puts it—for companies, such as Facebook, to do banking transactions. Both Birch and King say it’s not clear that banks will be winners if they essentially just “operate the pipes.” In any event, it’s not a game many banks will be able to play, according to King. Partnering with fintech companies, especially larger ones, he says, would generally mean one winner.
AFTER THE WAKE-UP CALL To best deal with the tech challenge, community bankers say: “Know who you are, and what you are trying to do” By Steve Cocheo and Bill Streeter
ot long ago, Indiana’s Peoples Bank SB had a business prospect come in who had a loan with Kabbage, the online lender, at 20%. “We reviewed their credit, and we got them into the bank at close to 5%,” says Benjamin Bochnowski, president and CEO at the $914.2 million-assets bank. With credit that was worthy of a rate like that, the bank asked the customer why it had gone to Kabbage in the first place—and been willing to pay nearly 15 percentage points more for credit. Simple, the new customer responded. Kabbage was easy to use and delivered the proceeds of the loan quickly. “We’ve got to get better at that,” says Bochnowski, if that’s what convenience is worth to business customers. Actually, ref inancing marketplace lender bu si ne s s loa n s for bu si ne s s
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borrowers with good credit is turning into a bit of a cottage industry for banks, according to Trevor Dryer, cofounder and CEO at Mirador, a fintech firm that sets up online business lending platforms for banks. They just about have to do this, he adds. Dryer has found that some regional banks say that as much as one-third of their existing small business customers have loans with Kabbage and its online brethren. Mirador expects growing adoption in the year ahead, with marketplace lending’s threat becoming more apparent to mainstream lenders. Technology has been an equalizer for community banks in recent decades. Tech still plays this role, but simultaneously it also can be a competitive challenge in the form of fintech-based rivals. For Howard Jaffe, president and COO of $1 billion-assets Inland Bancorp in Oak
When it comes to technology, one concept has long been embraced by many bankers: They don’t want to be on the “bleeding edge.” They would rather be “fast followers.” There is a fa ir a mount of w reckage in the tech space from the many star t-ups that didn’t make it. That’s capitalism. However, banks also must preser ve depositors’ funds and meet regulators’ requirements. So the fastfollower concept has served many banks well. Will it still? “When you don’t develop software, you almost have to be a fast follower,” observes Roche. But banks have to be careful that they are not just using the concept as an excuse to not do things, he points out. “‘Fast’ nowadays means ‘really fast’,” he says. Ag reeing w ith that , Edgar- Smith of Temenos says that in the past, if you came up with a response to a competitor’s initiative within two years, you would qualify as fast following. Now, the requirement is a few months. “Banks are not ever going to be bleeding edge,” explains Edgar-Smith, “but some banks are more willing to have failures” in trying something new. He gives the example of one customer that introduced an innovation only in certain branches. That way if the innovation didn’t work well, the bank could easily take a different approach. Financial institutions can be agile in trying out new concepts, according to Edgar-Smith. “They just need to put a little bit of a safety net under it to protect themselves,” he says.
Brook, Ill., there’s been a two-part fintech wake-up call. This prodded him to begin attending the annual Finovate meetings in New York—he’s been to three so far—to get up to speed on the latest fintech offerings. What first caught veteran community banker Jaffe’s attention was the proliferation of new ways for people to pay. These began to grow right after the financial crisis, when most parts of the traditional banking industry were concentrating on survival and rebuilding, says Jaffe. The second part of his awakening was the significant speedup in technological change. Jaffe says that historically banking tech seemed to require an upgrade every seven years. Suddenly, significant changes in bank tech seem to arrive every two years. Banks must be ready to spend more—and more frequently. “That’s a huge wake-up call,” says Jaffe.
WHAT’S YOUR STRATEGY? Community banks face challenges in technology that larger banks don’t, which we’ll come to. But Jaffe says a key point is that after you get a wake-up call, don’t panic, but consider carefully what you are trying to accomplish. In other words, think strategically, not reactively. “I don’t think this is something you can rush into,” says Jaffe, “but at the same time, it’s essential that you get moving.” Fintech players come in at least two varieties now: disrupters who want to steal banks’ lunch, and potential partners who want to help banks make lunch (and some in between). Even among these players, the variety is huge. Partnering can be a good choice, says Jaffe, “but before you go down that path, you have to figure out what you want to accomplish. There is a plethora of alternatives out there to help you get that done.” Jaffe says the range of choice resembles searching for an app for your smartphone—there’s lots and lots of variation on nearly any theme. Meeting the tech challenge may require changing how community banks approach strategic planning. Banks today typically have a three-to-five year strategic planning horizon. (Think of what you had no idea was coming, five years ago.) Jaffe says the three-to-five year view can still work, but banks must pay more attention now to their one-year operating plans. “It’s a much shorter time frame,” maintains Jaffe, “and you are always going to be reinventing yourself.”
Increasingly, in the fintech age, competition, the grow ing irrelevance of geography, as well as greater customer awareness of what is available will be driving things. “You have to go out and learn to understand the customer and understand their needs,” says Mark Moroz, director of deposits, Live Oak Banking Company. The $2.3 billion-assets bank serves over a dozen small business verticals. One common need is the means to easily take their own customer payments and turn them into usable cash as quickly as possible, he points out. At the end of the day, most commu-
Business customers will pay online lenders 15 percentage points more for credit. Why? Ease of use, quick proceeds. Take heed nity banks exist to provide a return to shareholders—not be a bet for venture capitalists. So then every new technology must be considered in the context of what will provide revenue. The chief information officer of one mid-sized community bank says technology facilitates success, but is not the end in itself. His management, he says, is looking for direct impact to the bank’s revenue from new technologies. A s a n e x a mple , t he ba n ker c it e s ITMs—interactive teller machines linking a remote customer to centralized human tellers. Ideally, a new piece of hardware like an ITM should be saving costs or adding to profit. He doesn’t see either from this tech right now. “Technology is an enabler,” says this banker. “What’s going to make a difference to the economic performance and to the experience of customers?” Community banks need to keep an eye not only on what’s going on in the financial world and what they must do to remain current, but also on what their own customers are asking for. Bochnowsk i says Peoples Bank reg ularly surveys its customers, seeking input on
their “pain points.” He notes that in spite of all the new technology out there, something Peoples frequently hears about is “not having enough ATMs.” ATMs recently passed the half-century mark as a basic technology.
WHAT’S YOUR BASELINE? These bankers’ comments touch on a key point setting community banks apart from larger institutions as the future of digital banking unfolds. In a recent guest post on BankingExchange.com, fintech expert Chris Skinner criticized banks that don’t “get” the implications of the digital revolution. In “Doing Digital Isn’t Equal to Being Digital,” Skinner wrote that many institutions adopt a mobile app and take similar steps, but they are overlaying the tech on the same bank. For Skinner, reinventing the underlying bank in a digital mold is where the future lies. That’s not what community bankers seem to be thinking about. “I don’t want a community bank to be completely digital,” says Trey Maust, copresident and CEO at $181.6 millionassets Lewis & Clark Bank in Portland, Ore. “We have to continue to bring the relationship to the table.” Maust favors increasing the digital component of community banking, but he says that many aspects of digital aren’t sufficiently mature yet to become the primary transactional channel for his bank. This isn’t a one-sided decision being
Within five years Ben Bochnowski of Indiana’s Peoples Bank SB says he can see hiring software developers.
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Moving to digital can’t be at the expense of relationships, says Lewis & Clark Bank’s Trey Maust. made by a provider industry. Bochnowski says of his bank’s customers that “regardless of the delivery channel, there is a strong expectation of personalized customer service.” He says that while community banking’s tools will change, the service that many customers expect should not. “ The mantra I preach a lot is that as a community bank, technology will enhance the customer relationship,” says Bochnowski, “but it won’t replace it.”
CAN’T BE GUINEA PIGS Communit y bankers say they face a balancing act in moving forward with digital technology. There is an urge to “hang with the cool kids.” But that has to be resisted. “We get bombarded with the latest shiny whistle,” says Bochnowski. “We have to think about what will really serve our customers.” He adds: “Bankers don’t necessarily understand technology, but technology companies definitely don’t understand banking.” Newcomer firms often don’t appreciate the structured environment that banks work in, both internally and in terms of regulation and legislation. Outright acquisitions of innovative fintech firms aren’t likely for most community banks. Even where partnerships look promising, there’s a process of evaluation there, too, says Maust. “You can’t just snap your fingers and bring in something new,” he adds. “We have only so much human bandwidth, so we have to 20
be certain about a new technology. Is it a viable product, or is it just hype?” Much of what is currently hot, he says, isn’t really mature. For an organization like Lewis & Clark, the fruit has to be close to ripe before it makes sense to engage. “We can’t be guinea pigs,” says Maust. “But we do have the advantage of being nimble.” That agility can come into play once strategy and the merits of a new technology coincide. Hence, among community bankers who are attuned to new tech possibilities, you hear the aspiration to be “fast followers” a good deal. While this comes somewhat from the resource challenge, Bochnowski allows that part of that policy, for his bank, is a matter of reputation risk. “If you go with a technology that doesn’t work,” he explains, “customers are going to think that it [and your bank] didn’t solve their problems.” Community banks and bankers live more closely to their customers than do employees of large bank innovation labs. “Fast failure,” a philosophy for fintech development, plays better in a fintech lab—not when an irate customer is sitting on the other side of your desk. “Customers are looking to solve problems in their lives,” says Bochnowski. Live Oak’s Moroz says that for small business ow ners, time is a precious resource. When they look for banking, they aren’t looking for “banking,” but solutions to help them with issues like time management. One issue is remote deposit capture. Full-size scanners take up space, are costly, and often have issues with customers’ web browsers, according to Moroz. Mobile remote capture is popular, but Moroz says small business customers need something beefier. The bank has been working with Ensenta, a provider of financial services application program interfaces (API), and now offers mobile capture that allows the small business customer to capture and put through multiple items in batches. “Creating a nimble experience equivalent to a branch without the customer needing to get to a branch is very attractive,” says Louise Steller, vice-president of product strategy at Ensenta. As faster payments technologies come on stream, Moroz sees such tech playing to the needs of these customers and will look to APIs to help the bank make it happen. The rollout of Z elle, the ba n k ing industr y version of person-to-person
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payments, is of large interest to community banks. Zelle won’t necessarily be the name consumers know, as banks do their own branding, says Bochnowski, but “they will know that their payments work better.” Bankers note that getting on board with Zelle underscores an issue for many community banks—they must wait for their core processors to be ready with the service and have their turn.
OVER THE HORIZON: HARD WORK
For many bank customers, apropos of Bochnowski’s comment about Zelle, what they use may not have a label on it that says “new” or “wow” like consumer electronics do. They will just know that something works better, faster, and more reliably. Bochnowski notes that much of the fintech his own bank has adopted in recent months has been implemented behind the scenes to improve existing processes and services. Indeed, much of what community banks adopt will likely be behind the scenes. Based on several comments we heard, a major concern is improving a bank’s customer relationship management systems. Part of the challenge of making such systems work is coordination of origination systems and core systems with CRM systems and analytics. Community bank CIOs will be wrestling with nitty-gritty issues like that—and putting out fires like cybersecurity risks—far from the cool kids and the venture capitalists.
Banks must have balance, says Illinois banker Howard Jaffe: watch fintech, but know what your strategy is.
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BANKS AGAINST YIELD CURVE Coping with interest rates continues to challenge deposit and loan pricing decisions By Steve Cocheo, executive editor
Shutterstock/ ESB Professional
hen it comes to interest rate risk, the big engine that drives much of the overall picture is the current rate policy of the Federal Reserve Board. Even today, with greater transparency regarding the Fed’s rate-setting and open market operations policies, much effort goes into reading the trends and deciding what the collective market is expecting to happen in future periods. Some “read” the rate curve and quietly plan based on what the market seems to be anticipating. Others, in the business of guiding people and companies on their investments, do their own tea-leaf reading. One of the most aggressive “reads” right now recently came from Goldman Sachs, which forecasts four Fed interest rate increases for 2018, whereas many Wall Streeters polled by Reuters were forecasting only three. That is all at the short end of the rate curve. But banks live on the whole of the curve. Many banks are currently in budgeting season and the f lattened rate curve is a key concern, according to Vincent Clevenger, managing director at Darling Consulting Group. This concern is somewhat anticipatory, but Clevenger says that “we’ve already been living it.” Flat rate cur ves keep margins thinner, he explains, and while they don’t last forever, they can hang around for many months. “The good news is that it doesn’t last forever,” says Clevenger. “The bad news is that we have to deal with it now!” The f lat curve will continue to exert much pressure on margins, he adds. The combination of the f lat curve and rates that, while rising, remain historically low, makes it harder for some banks to generate sufficient return on capital, Clevenger says. Spread alone doesn’t tell the story. No matter what the rate on loans and the cost of funding, there are costs of providing loans and related services. With rates on business loans typically only
in the high 3%s, Clevenger continues, some lenders have difficulty covering their overhead. In late October FDIC’s most recent Quarterly Banking Profile reported that community banks’ average net interest margin came in at 3.65%. This was 19 basis points thinner than the third quarter of 2015. A n d t h e r e i s n’ t n e c e s s a r i l y o n e right answer. “It’s hard to say that a bank should do X or Y,” says Clevenger. “Much hinges on
the bank’s particular business model.” The nomination of Jerome Powell, already a member of the Federal Reserve Board, has emphasized the rate question. “Ha nd ic apping the Fed is a lways brought up in ALCO,” says Clevenger, using the shorthand for banks’ Asset Liability Management Committees. Clevenger points out that Powell is widely viewed as a continuation of the Yellen regime. And even if he was coming from outside of Fed circles, Clevenger continues, and was something of an
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Deposit pricing One frequent issue is funding. Many community banks have seen credit demand grow and the loan-to-deposit ratios have been rising, putting greater emphasis on liquidity, according to Clevenger. Thus far, says Clevenger, FDIC data doesn’t indicate a materially increased level of interest paid on deposits, though 22
many banks have seen a lower growth rate for deposits as well. Clevenger says the industry has pretty much had a “mulligan” for years, but that may not hold. He says he has seen some banks paying interest on business checking in order to hold on to deposits. For much of the last decade, banks enjoyed an abundance of such deposits with no interest paid. Indeed, Clevenger wonders if 2018 will be the year when the industry’s depositcost “mulligan” goes away. Different types of deposits, as well as different sources and customer types, can behave differently in response to market and rate changes. Clevenger thinks this is a good time for banks to invest in “deposit intelligence” on some level. Ideally, a full-blown deposit study will give the bank a better appreciation of the dynamics of its deposit “population.” A key issue, says Clevenger, is assessing what the “f light risk” of various sources and types of deposits is. Overall, he says, deposit studies can help banks determine how “sticky” their
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deposit relationships really are. “It’s a way of getting a handle on evolutions going on among your deposit base,” Clevenger says.
Deposit innovations Often experts discuss the commoditization of banking. That label surely applies to deposit products. Yet here and there new, or “rebooted,” themes pop up and Neil Stanley points to a couple of new twists that have been inspired by the ongoing rate challenge. Stanley is CEO and founder of The Corepoint consulting firm as well as president of communit y banking at Iowa’s TS Banking Group. One innovation that has had Stanley scratching his head a bit nonetheless has a growing number of adopters. This is the idea of paying interest completely in advance on CDs. Stanley says typically the deal works such that the saver brings the bank say $100,000, and after the account is opened, the institution pays the saver the entire interest payment at once.
Shutterstock/ Vintage Tone
unknown, it’s important to recall that the Fed’s rate-setting process is a collaborative, consensus process. “I don’t think anything will change drastically,” says Clevenger, “no matter who goes into the Fed chairmanship. There’s a lot of intellectual horsepower there, with a lot of different opinions on where rates should be.” Clevenger’s own view is that the f lattened yield curve will continue to bedevil the industry for a while. It is possible, he said, that this could change and that margins could wind up rising again, but a good many factors would have to come together for that to occur.
Stanley is no fan of the idea in practical terms. Among other things, there are tax implications involved in receiving all that interest at once, he points out. The intent, Stanley suggests, is to make the interest promised seem like more, in these still comparatively low-interest times for savers. “This approach doesn’t change the economics,” says Stanley, “but it sounds cool. It’s a gimmick more than a reality.” The existence of such a wrinkle, he says, illustrates that many bankers don’t know what else to try, short of beginning to pay higher levels of interest on deposits to hold onto funds. Something that TS Bank has tried with some success is CDTwo, also called the “Smart CD.” This instrument gives the customer a CD that can run as long as 60 months. The accounts pay a fixed rate. What makes these CDs stand out is this feature: Customers can withdraw their funds without penalty, and if rates have dropped, they may actually receive a bonus. This ref lects the fact that the bank will be able to replace the deposit at a cheaper rate. This gives the bank some security and the depositor has flexibility with the potential for a bonus. “It makes a CD more like a bond,” explains Stanley.
In lending, try “indifference” Bankers worry about meeting commercial customers’ rate preferences, says Stanley, but he believes that they should be able to accommodate them with indifference. The secret lies all in the pricing of the options presented to the customer. In a rising-rate environment, borrowers often want f ixed-rate commercial loans, seeking protection from where bank rates could theoretically go. While that’s understandable, says Stanley, borrowers must understand that the bank is a business as well, and must realize a return in line with its risk. At TS Bank, he says, “we offer a fixedrate option and a variable-rate option.” He says management has built the yield curve into its pricing. As a result, he says, the bank is indifferent regarding whether the borrower has a fixed or floating rate. “We don’t care which they choose,” Stanley says. Customers, he says, want upside and they crave security. “A good banker is charging them for that security,” says Stanley. “An astute banker is willing to do what they can for a
customer, but profitably.” Stanley puts some numbers to this by assuming a $500,000 loan. He would price that at 4.75% variable, which is about 50 basis points over current prime. If a customer wanted a fixed-rate loan, to obtain rate protection, he says, the bank would be willing to make that loan—at 5.57% fixed. The bank’s profitability would be identical under either scenario, he explains, so if the customer is willing to pay for price protection, they can have it by selecting the higher-rate fixed-rate loan. “Every situation is a little different,” says Stanley, but this illustrates the concept. Stanley says bankers should bring similar thinking to the issue of caps and
An astute banker is willing to do what they can for a customer, but profitably —Neil Stanley, TS Bank f loors on the rates they charge commercial borrowers. Both forms of rate protection have a value to a party in the loan, and that value should be ref lected in the deal’s pricing.
Considering interest rates Following up on his advice concerning negotiating business loan rates, Stanley says he believes bankers tend to obsess about their loan interest rates, much more so than do their consumer and commercial customers. The baseline is that depositors want higher rates, but borrowers want lower rates. The bank, as the intermediary, strives to balance between those poles, at a profit. Stanley believes that many consumers and businesses will go with what seems fair, rather than literally shopping for the ultimate rate to the basis point. Often, he says, banks could have their business without needing to be quite on the cutting edge of rates. They just can’t be too far out of line with the competition. Likewise, for depositors, a bank that does not keep up with market rates in
general won’t keep them satisfied. Being a bit off the market will work, to a point, due to other factors, but not, perhaps, “loyalty.” “There are people who say loyalty is blind to price,” says Stanley. “Quite honestly, I wonder if that ever was true. That only happens with a monopoly.” “If I’m not getting a fair deal,” he adds, “I’m going to think you aren’t being loyal to me.” “ Today ’s ma rket s a re a ll over the place,” says Stanley. Now, he suggests, the most a banker can hope for out of loyalty is “right of first refusal.” The threshold between being given that right, and having a customer simply move to another bank, says Stanley, is something banks must figure out customer by customer.
Looking at hedging Beyond the art of frank negotiation with commercial customers over loan rates, bankers can now better avail themselves of hedging tools, according to Darling Consulting’s Vincent Clevenger. Traditionally, community banks especially have not felt comfortable using derivatives as part of the asset-liability management process, but Clevenger recommends a fresh look. One significant change in this area is that the Financial Accounting Standards Board has made major changes in the accounting rules applicable to use of hedges, enabling banks to not only engage in cash-flow hedges but also now in fair-value hedges. Clevenger says that past accounting headaches with this tool are reduced with the new rules. “This is a welcome accounting change which gives bankers another tool to manage interest rate risk on their balance sheets,” says Clevenger. As an example, he says that a liabilitysensitive bank with a high concentration of longer-term f ixed-rate mor tgages could enter into an interest rate swap that would help protect the bank “against rising rates.” “This strateg y is not for everyone,” cautions Clevenger, and board members must be educated so they understand and are comfortable with what the bank proposes to do. But for the right banks, he adds, using a golf analogy, “it’s kind of like being allowed to carry an extra club.”
December 2017/January 2018
/ Compliance Watch /
BOARD RISK ROLE EVOLVES
Fed proposal and Deloitte study underscore directors’ duties in risk management By Steve Cocheo, executive editor
Time for a reset? In August, the Fed published “Proposed Guidance On Supervisory Expectation For Boards Of Directors.” The pending proposal (the comment period closed 24
in October) ref lects the Fed’s desire to dial things back somewhat. In an August speech, Gov. Jerome Powell, later nominated to become Fed chairman, spoke about it: “The new approach distinguishes the board from senior management so that we can spotlight our expectations of effective boards.” “They felt the role of boards was starting to blur,” says Stephen Fromhart of the Deloitte Center for Financial Services. “This backing off by the Fed, making management accountable and challenging boards to make sure management is accountable, sets the right dynamic,” says Scott Baret, Deloitte vice-chairman and leader of the firm’s U.S. banking and securities practice. The Fed essentially said where expectations on boards have been pushed “wasn’t a beneficial change.” (Certain parts of the proposal cover only boards of institutions over $50 billion that are under Fed super v ision, while others include any bank holding company or bank board under the Fed’s supervision. Read the proposal here:
December 2017/January 2018
Reviewing risk charters The Deloitte review of risk charters used five key points from the Fed’s proposal as a structure for reviewing the state of the art. One change that Baret anticipates is an elaboration in board minutes of how directors meet their risk management duties. “To have ‘effective challenge,’ and ‘critical challenge,’” says Baret (the latter term is drawn from guidance from the Comptroller’s Office), “you have to have independence.” This will be illustrated by reporting lines, the language of committee charters, and minutes. Baret also expects further emphasis on board evaluations of risk oversight.
ank boards of all sizes, but especially those of larger banks, have watched their responsibilities and regulators’ expectations expand like dough mixed with fast-rising yeast. In the wake of the Sarbanes-Oxley Act and the Dodd-Frank Act, and regulators’ independent actions over the years, bank directorship became a bigger, tougher job. Fingers get pointed directly at boards more readily—witness Sen. Elizabeth Warren’s periodic calls for sacking Wells Fargo directors. Even as the Federal Reserve has proposed “punching dow n” the bloated dough of modern bank governance, the boards’ risk management role continues to expand. That won’t change, but the line of delineation between board and management appears to be on the verge of change.
tinyurl.com/Feddirectorproposal.) As the Fed was publishing its proposal, Deloitte was working on the latest version of a periodic study it does of the risk committee charters of very large (over $50 billion) banks in the United States as well as U.S. nonbanks classified as SIFIs (systemically important financial institution) and non-U.S. G-SIBs (global systemically important banks). In the final report, What’s Next For Bank Board Risk Governance?, issued recently, Baret and Ed Hida, Deloitte’s leader for global risk and capital management, write: “Boa rd members have f requent ly found themselves being drawn ‘into the weeds’ of risk management issues, and are sometimes left with inadequate time to guide and challenge management on broader strategic issues. The Fed’s proposal, therefore, heralds a fundamental rethinking of the way boards prioritize their focus. Its delineation of board and management responsibilities also creates an environment in which senior executives and business line leaders can be unambiguously held accountable for their management responsibilities.” The report says the Fed’s proposal characterizes the board role as “effective challenge.” Overall, the firm says its research found much progress in how institutions and their risk units oversee risk, “which should leave them prepared to step up to the challenge.”
Here is a summary of the results of the Deloitte Center for Financial Services’ review of risk committee charters: 1. Setting risk policies, overseeing risk management and governance, and setting risk strategy and tolerance. Clearly, risk management can’t be left on autopilot. Course corrections must be made. The Deloitte analysis found that 87% of U.S. banks require the risk committee to review and approve risk management policies and framework. The study found that 83% of banks require oversight of capital and liquidity management by the committee as well. Both measures were substantially ahead of levels seen in the firm’s 2014 study (57% and 75%, respectively). While the rise among U.S. firms came after release of the Fed’s “enhanced prudential standards,” the report notes that the non-U.S. f irms’ char ters studied also showed much progress in these areas. 2. Actively managing information flow, resources, capabilities, and committee discussions. The report found that more than most (over eight in ten) charters require regular reports from chief risk officers (CRO). This is something stipulated by the Fed’s enhanced guidelines. Many charters also give the committee authority to meet in executive session—without management’s presence—or with only risk management executives present. Importantly, the report reviewed provisions in charters for intercommittee communication on risk—risk crosses traditional committee boundaries. Coordinating data flow between risk and audit committees has become pretty standard, rising to 77% of charters versus 63% in 2014. But a weak spot is coordination with compensation committees—only 30% of charters call for that. “This potential lack of coordination may hinder the risk committee’s ability to effectively oversee management’s implementation of strateg y, which may be influenced by the nature and structure of
compensation incentives set for management,” the report states. Baret says the “onus is on the board members to get the information they need to be able to provide effective challenge.” 3. Holding senior management accountable for overall risk management and emerging risks. In spite of the overf low of regulatory expectations, study authors found that the key traditional role of boards—representing shareholders—has not been forgotten. “Our risk committee charter reviews showed that committees (under the remit of the overall board) appear to be pr ior itizing this management accountability aspect of oversight,” the report states. Still lacking, in charters at least, is “issue radar”—attention to emerging risks. While the percentage of committee charters mentioning cyberrisk grew over 2014, only about half the charters mention this specifically (47% versus 25% in 2014). Two other issues receiving even less mention: third-party risk (13%)—a major concern of regulators and a key issue as partnerships with fintech firms beckon—and the risk of unethical employee conduct (7%). “Both issues have led to billions in fines for many large banks across the world,” the report states. 4. Supporting CRO independence and stature, and independence of risk management and compliance functions. “A comfor table majorit y of char ters now note that CROs report to both the CEO and the board risk committee,” the report notes. “. . . However there appears to still be significant room for improvement rega rd ing t he boa rd’s role in elevating the stature and independence of the CRO, which the Fed’s proposal also explicitly endorses.” In addition, the report notes w ith some surprise that only 43% of U.S. risk committee charters address the need to maintain the independence of the bank’s risk management function. And 27% of charters require the risk committee to
produce a “state of risk culture” report. For U.S. banks, the report says, the Fed’s recent board effectiveness proposal guidance should bolster elements of its enhanced standards concerning documentation by risk committees of their support for independent risk management and compliance. Two steps the report suggests to make this commitment ev ident: prov iding direc t , unrestricted access by risk management employees to the risk committee, and putting representatives of the independent risk management function on senior management level committees. 5. Maintaining a capable board risk committee composition and structure. The report notes that a combination of regulatory requirements and attention to best practices has led to nearly every company covered—and 100% of U.S. banks reviewed—establishing a risk committee. The Fed’s enhanced standards set up the requirement for a risk expert on large banks’ r isk committees—something addressed in 80% of U.S. committee charters. By contrast, only about one in five of the foreign institutions studied included any such requirement.
What about small banks? Will there be “trickle down” to smaller banks of what the review found in large institution committee charters? This remains to be seen. Typically, “public institutions are held to higher standards,” says Fromhart. But in a blog earlier this year, community banking columnist and attorney Jef f Gerrish, a former FDIC official, urged community banks to keep an eye on the Fed’s final expectations for large banks. “I expect these will become ‘best practices’ for community bank boards,” he wrote.
Visit Gerrish’s blog at tinyurl.com/ gerrishboardblog. BE coverage of Powell’s speech: tinyurl.com/powellaugspeech. Full Deloitte report: tinyurl.com/ deloitteboardreport
December 2017/January 2018
/ BANK TECH /
UNITE “SUITS” AND “JEANS”
Two pairs of “them” must become an “us.” Otherwise your innovation may miss the mark By Roger Park, Ernst & Young LLP
millennial customers demand increasi ng ly novel pro duc t s a nd ser v ic e s. Moreover, the mountains of data that f ina ncia l institutions a re ta k ing in require constant and effective collection, analysis, and utilization. In response, organizations are trying to upset their own status quos. Banks know they need to innovate to continue grow ing and thriv ing. According to Ernst & Young’s Global Banking Outlook 2017, a recent survey of senior executives shows that 63% are prioritizing hiring or retaining key talent to drive innovation, and 60% are investing in new customerfacing technology. Clearly, many banks are innovating. But just how they innovate could mean the difference between success and failure. To gain the maximum benefits of innovation, banks need to do a better
December 2017/January 2018
job br ing ing t oget her what we c a l l their “suits” and “jeans.”
Weaving different threads
Suits represent the traditional business f unc tions, such a s operations, accounting, compliance, and tax, which enable an organization to operate at scale. Jeans represent the disruptive trends, such as digitization, blockchain, ar tif icial intelligence, robotics, and advanced analytics, which are enabling new ways of working and challenging business models. The integration of suits and jeans is critical for an organization to scale innovation across the enterprise to unlock significant business value. A s E Y ’s Global Banking O utlook shows, many firms have already ramped up hiring in jeans’ functions to encourage
any traditional banks riding the wave of tidy recent profits may be tempted to put their faith in business as usual. But that would be a mistake. More than ever, financial institutions that are unprepared to accelerate innovation at speed and scale face serious—even existential— business threats. The bank ing industr y is squarely in the path of a per fec t stor m of disruption: increased exposure to geopolitical uncertainty, dramatically shifting sociodemographic trends, the accelerating pace of technological advancement, the pervasiveness of data, and the evolving nature of risk. Among the threats today are fintech disrupters and nonbank competitors, which are challenging the banks’ traditiona l market position, just a s
innovation, both internally and at the enterprise level. But to truly industrialize innovation, jeans cannot operate in a specialist tech silo. Banks must be intentional about linking their jeans to their suits, who have direct insights into the specific business challenges facing the organization.
5 tips on uniting cultures So how can banking executives transform their operations by creating a culture where suits and jeans can accelerat e i n novat ion? L e a der s need t o introduce and embed these five concepts across their organizations: 1. Take a fail-fast portfolio approach. Innovate like companies do in the Silicon Valley. By continually testing and experimenting with business technology and allocating incremental funding to opportunities that demonstrate a product-market fit, organizations can turn innovation into a core revenue generator and get initiatives to market more quickly and cost effectively. The faster you are able to f ind out something is going to fail, the sooner you can stop wasting time and energy and apply your lessons learned to the next idea in the pipeline.
business challenges, opportunities, as well as needs. Produc t ma nagers c a n put the f ull-stack team on the path toward innovation by employing tools like agile development systems, while helping the enterprise keep up with the pace of change. This approach allows work to occur simultaneously, in place of traditional methods that have work streams completed sequentially. 4. Focus on design thinking. Emphasize design thinking and agile development principles across the organization. This starts from the top of the organization, and helps create a workplace culture that fosters innovation, encourages collaboration, and breaks down silos among different groups. 5. Put in physical innovation labs. T h e s e ph y s i c a l s p a c e s , w h i c h a r e extended by virtual tools, create a place outside the bank’s traditional centers where a dynamic, innovative culture can accelerate and grow. Innovation labs act as hubs where a bank can eliminate organizational walls,
bring together suits and jeans, and conduct controlled experimentation in an environment of accelerated learning.
Pay attention to disrupters
Many traditional banks may be enjoying healthy profits today, but remember, disrupters lurk around every corner. To stay ahead of the game, financial institutions must disrupt themselves before external forces do it for them. Uniting suits and jeans should be a critical par t of a bank’s necessar y transformation efforts. In an era when business and technology move at lightning speed, banks must keep in mind that one of us is not smarter than all of us together. By more effectively connecting the different kinds of expertise across organizations, f inancial institutions can bring to bear their best thinking on their business cha llenges, and help ensure that innovation becomes a continual, accountable, and dynamic core function today. Roger Park is Americas financial services strategy leader at Ernst & Young LLP.
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2. Provide a more collaborative, diversity-minded team culture. Bring together to the table the suits and jeans to pull from all available knowledge and get everyone aiming toward the same goal. This helps turn cultures of “no, because” to “yes.” The buy-in created by ensuring every function has some skin in the game will help teams collaborate and discover how they can make work the seemingly impossible. 3. Product management is the new project management. Instead of simply relying on the proje c t m a n a g e r s w ho a r e f o c u s e d on deliver ing a ssig ned ta sk s, get more day-to - day involvement f rom the pr o duc t m a n a g er s w ho c le a rly s e e December 2017/January 2018 BANKING EXCHANGE
/ Credit Trends /
LOCAL SELLS IN PHILLY
Bank with savings roots grows via commercial, exercises caution on CRE By Steve Cocheo, executive editor
those larger banks,” explains Cuddy. “Customers couldn’t wait for Charlotte, Chicago, and other headquar ters to make loan decisions.” He says that proposals for commercial credit in the range of $2 million to $25 million seemed especially slow. Suddenly, local mattered more. “We’ll get in our cars and head out to a company and we’ll say, ‘Okay, we can do this transaction,’” says Cuddy. “It’s just as critical for them to get a ‘no’ as it is to get a ‘yes.’ They need a decision.” The f lip side of being local and willing to make a decision, Cuddy points out, is that “we can’t run from a decision, because we’re right here.”
Moving to the business side For much of its history, into the mid1990s, Benef icial stuck to its savings institution origins, chief ly gathering deposits and putting them back out as mor tgages. Then the bank began to expand on the commercial side, beginning with housing-related commercial real estate lending, chief ly catering to
December 2017/January 2018
The flip side of being local and willing to make a decision is that we can’t run from a decision because we’re right here local developers. In time, the bank began to expand beyond this familiar base into other types of commercial real estate, and then moved into commercial and industrial lending. “Those decisions were driven by the need to safeguard our franchise from competitive restraints and to obtain growth,” points out Cuddy. “And we’ve been fairly successful.” In 2016, the bank’s loan portfolio grew
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mericans can be a funny lot. As consumers, we say we want to “buy local,” but we keep cardboa rd box ma ker s bus y a s we order everything online. We speak highly of community banks, but we scout around, even out of state, for higher interest rates or a better mobile app. Do we really care about local? That may be an open question, but on the business side of banking at least, sticking closer to home seems to matter more than ever. Benef icial Bank, the largest bank headquartered in Philadelphia at $5.8 billion in assets, maintains offices in eight Pennsylvania and New Jersey counties and does business with customers in five more. That puts it up against more than 100 other banking organizations, including players who arrived from New York and elsewhere in search of additional commercial real estate lending opportunities as their home markets have yielded less growth. “Over the last 18 months or so, the New York banks came down to Philadelphia, seeking to expand the reach of their expertise,” says Gerard Cuddy, president and CEO. “With their relatively new entrance to our market, there’s no shortage of competition for all types of deals—good and bad.” As a hometown bank, Beneficial has emphasized “local, local, local” for years. The bank began life in the mid-1800s as an offshoot of a Catholic savings service for the working class. “We thought local mattered a lot,” maintains Cuddy, who joined the bank in his current job in 2006. “But local didn’t seem to matter to anybody else until about two years ago.” Institutions with headquarters in faraway states had gained traction. What changed? Customers, especially commercial real estate and commercial loan customers, found that outsider entrants weren’t delivering service in a timely way. “All of a sudden, decision-making in our market kind of stalled at some of
by 36.3%. Of that, 17.6% came via acquisition; 14.7% via organic growth; and 4% through commercial real estate loan purchases. In the first three months of 2017, commercial loans grew by 4%. The Phi la delphia ma rket felt t he impact of the financial crisis somewhat later than other markets, Cuddy recalls, and Beneficial had its share of lumps in that period. “We had our chargeoffs like everybody else,” says Cuddy, “but we jumped into our cars, ran out to our developers, and worked with them. It’s the nature of the way we run the place.” To this day, Benef icial stresses the physical presence of lenders at the operations of commercial borrowers. Cuddy visits the bank’s top 50 borrowers at least annually. “Ours is a relationship model that offers access,” Cuddy explains. Customers get to know not only their commercial account officers, but also the support team surrounding that lender. While the bank is technologically adept, he says, he considers the human element significant to getting the job done right. In the wake of the crisis, Cuddy says, the bank “pivoted a little bit, going kind of upmarket in terms of the local developers we worked with. We wanted quality project sponsors, and I feel that now that book of business is really sustainable because we’re dealing with some of the best developers in our market.” Even with rising rates, “we’re a margin business, first and foremost, so C&I is a good outlet for our talents and for our balance sheet,” says Cuddy. He adds that going forward, Beneficial will continue to “skew away from consumer products into commercial products.”
Building a commercial team Growth, Cuddy continues, will come on the commercial side by deepening the bank’s relationships with the customers it already has. “We need to do more with our existing clients,” Cuddy says. “We tell our people all the time that our best prospect list is
sitting in front of us. And we’ll also scale through acquisitions.” Beneficial has built its team steadily over the years. Cuddy’s own beginnings were in Phila delphia-a rea business lending 37 years ago, when 30 banking institutions were headquartered in the city and each had its own self-contained lender training program. “Very few banks have that kind of program in place anymore,” says Cuddy. “We have a hybrid of that in our organization today.” The bank uses experienced lenders to train newcomers, as well as materials from Omega Performance and the Risk Management Association. Ba ck when t he ex pa nsion bega n, Cuddy says, the bank began with some key hires and built a team of about 16 lenders. “We hired friends; we didn’t use recruiters.” Today, the bank has on board 27 commercial lenders, and only one was there when the expansion began. Acquiring other in-market and contiguous-market banks offers both a tool for building market share and adding to the lending team, selectively. “There are enough targets that we can continue to acquire and continue to grow over time,” says Cuddy. “The first thing we look for is like-minded people. We have financial metrics, but aside from that, we have passed on deals where we thought we’d be buying an aggressive book of business that had flight risks.”
have been completing large projects for classroom space, student housing, and medical facilities. Office construction has been mostly slow, with the exception of the Comcast Innovation and Technology Center project, which will become the city’s tallest building and the largest in square footage. One darker spot is retail, with a great deal of f light. “Our malls are hurting, and in the city, retail is still searching for its identity,” says Cuddy. Such ripples from the age of Amazon cause concern for Beneficial, although the bank doesn’t typically finance that kind of retail operation. Beneficial tends to fund six-to-twelve-unit strip centers in neighborhoods with a mix of tenants, such as card stores, nail and hair salons, and fast-food shops. In multifamily financing, Cuddy says the bank recently termed-out a major project and recently approved what he thinks will be the last such project for a while for the bank. “Rental’s been good, and it’s rewarded the developers,” maintains Cuddy. “I’m just starting to worry a little bit about cycle risk.”
Looking ahead at the market Because the financial crisis continues to dominate political debate in the banking arena, it is sometimes hard to remember that it ended some time ago. Already, discussion of another downturn comes up. Cuddy doesn’t believe the local economy is in a bubble, but he does think markets have been cooling off a little bit. Some of this ref lects projects coming to their conclusion, he says. I n Ph i l a de lph i a pr op e r, a lo t o f hospitality development came after construction of a large convention center that often sat empty until recently, for example. Major educational institutions
“Beneficial’s is a relationship model that offers access,” says CEO Gerard Cuddy. He visits top borrowers yearly.
December 2017/January 2018
Industry Resources Banking Exchange partners with companies that work with banks to provide useful information, data, and analysis in the form of webinars, white papers, and roundtables. The webinars are conducted live, but are available for viewing on-demand for six months on bankingexchange.com. The white papers and roundtables run for up to six months on the website as well. Below are descriptions of the sponsored content currently on bankingexchange.com. You can learn more by using the shortened web address below each item. Or, on the site, click on the “Industry Resources” tab at the top of the home page.
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W H I T E PA P E R
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Analysts have identified the trends that are shaping the direction of consumer financial products, and the consensus is clear: Consumers expect the bank of the future to be digital. These expectations are changing the face of banking—presently and permanently. Any financial institution that doesn’t keep up with digital demand may well be doomed. “2016 is looking to be one of the most transformative years in financial services in decades,” concludes a January 2016 report from the Bank Administration Institute (BAI). “Banks will need to embrace smart innovation not only to keep up, but also to truly differentiate themselves in a cost-effective manner.” 1
Always-available Banking Demands Increasing Banks must embrace trending technology to remain competitive or risk becoming obsolete. Mobile payments have become a pivotal piece of the transition to digital banking, part and parcel with the increasing desire of
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The voice of the next generation of banking
December 2017/January 2018
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INTERACTIVE index of advertisers Welcome to Banking Exchange’s Interactive Service Center. This section has been created to allow you to interact with the advertisers who appear in this issue and to gain information on the products and services offered in the following pages of the magazine. Company Phone
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Director-National Sales Erik Vander Kolk (203) 550-0385 firstname.lastname@example.org
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December 2017/January 2018
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/ CounterIntuitive /
“WHAT’S A DOG?”
Wozniak and Kurzweil weigh in on the potential for artificial intelligence By Steve Cocheo, executive editor
earning is a concept humans take for granted. A child touches a hot stove and learns through pain that doing so hurts. A machine may register an out-of-range temperature, but this happens because a human programmed in a rule that contact with something too hot can cause damage. The debate now is whether artificial intelligence can someday transcend that and truly “learn.” At the recent Money 20/20 Conference, a deep-dive seminar about AI featured many practical applications in financial services, but also included philosophical discussions. Two key voices were Ray Kurzweil, a futurist now at Google, and Steve Wozniak, cofounder of Apple. (Wozniak appeared in person; Kurzweil appeared via FaceTime.) “I grew up thinking that a computer couldn’t get any where near a human brain, and never would,” said Wozniak. He recalled seeing early demonstrations of machine intelligence, such as watching a computer place a blue ball in a matching blue box. He dismissed that at the time merely as a machine following rules.” Even today, brand loyalty aside, Wozniak isn’t overly impressed by IBM’s Watson. “We have to tell Watson almost exactly what to do,” he said. “That’s not how the brain works.” He notes how an infant quickly learns what a dog is, from one or two encounters. “You don’t need to show an infant 80,000 pictures of dogs,” he said, whereas that’s what’s needed to “teach” a machine to recognize dogs. “Watson has to be tightly trained.” Kurzweil, on the other hand, has been building a vision in his research and a series of books that predicts a coming together of human intelligence and AI— he calls this the point of singularity. At the far end, he hopes to establish human immortality by pouring what a person becomes over a life into a silicon being. Right now, Kurzweil agrees that people and computers don’t learn the same way. Humans tend to learn linearly, while machines learn in multiple dimensions simultaneously. “In order for deep learning”—the far end of AI right now—“it
Ray Kurzweil, Google
Steve Wozniak, Apple cofounder
has to be annotated regarding what it means,” he said. In the human brain, the hypothalamus, he noted, is where scientists believe people can take experience and turn it into new behaviors. And some things stymie humans that machines have no trouble with. He gave the example of reciting the alphabet backwards. To a machine, it’s just reordering data. Kurzweil believes machines can be built to overcome the differences. At Google, he and his team built a hierarchical model—in brief, one that works more like a brain. “This can learn from much less data,” he said, beginning to approach human ability. In the future, machines
December 2017/January 2018
and human thinking will merge. Wozniak spoke of how technolog y is part of his life. So far, he isn’t overly impressed by Tesla’s autonomous driving software. It often seems to want to get off at the wrong exit, for example. He said the height of AI will be “Level 5,” and that Tesla only ranks at “Level 2.” But he’s impressed by how far Siri has come. He also built on Isaac Asimov’s Three Laws of Robotics, a science-fiction constr uction, on how robots should safeguard humanity. “My law, Woz’s law, is that a human being should never harm a robot.” No unplugging them to erase their memories, for example.
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JUST BECAUSE FINANCE IS COMPLICATED DOESN’T MEAN YOUR NETWORK HAS TO BE. Massive transactional trafc. Rising customer service expectations. Pressure from ntech start-ups. With changes in nance putting new demands on networks, traditional legacy networks aren’t up to speed anymore. Introducing SD-WAN from Comcast Business, Gig-ready and powered by an advanced IP network. A simplied software-driven network that minimizes capital expense by reducing hardware and dependence on T1s. According to industry research, SD-WAN can reduce branch WAN outages and troubleshooting costs by 90%.* It can also reduce labor expense by providing centralized control with point, click, and deploy scalability across all locations. That’s how nancial services companies outmaneuver.
Restrictions apply. May not be available in your area. Actual speeds vary. *Savings claim from “Faster, Better and Cheaper? Building the SD-WAN Business Case” (Winter 2016), Nemertes Research. © 2017 Comcast. All rights reserved.