Thanks to technology, we live in an ever-changing world, and this is particularly true for financial institutions (FIs). For one, the way consumers manage their money – investing, borrowing, saving, and lending – will not be the same tomorrow as it is today. Add to that the fact that FIs must also manage regulatory and compliance issues, data and personal information security issues, and much more, FIs are becoming increasing reliant upon the solutions that financial technology, or fintech, companies can bring. As a result, fintech is no longer limited to back-office functions. Fintech solutions, with their ability to help institutions streamline processes, expedite services, and secure information, are transforming this $8.5 trillion industry, most significantly in the area of customer-facing processes.

Here's the situation. The industry’s biggest players are under siege from not only small competitors such as de-novo banks (ala Grasshopper), but “non-banks,” as well; those financial service providers that are not regulated by the banking industry. Since these companies – such as the Big Four; Google, Apple, Facebook, and Amazon – can devote a greater percentage of their assets to cutting-edge financial technology, they’re well positioned to steal tech-savvy customers from traditional banks. FIs need to be both nimble and digitally savvy in order to thrive and are hoping that technology will allow them to deliver a faster, more robust experience that can contend with these new threats. Given, however, that a significant portion of their resources must be dedicated to security, compliance, and other industry-specific requirements, FIs have a tough battle ahead.

Security, blockchain and cryptocurrency

What does this technology mean to the financial services industry? Security. Around the globe, FIs are moving toward block chain technology (BCT) for operations such as money transfer, record keeping and other back-end functions. BCT is extremely useful in FI processes such as secure document management, reporting, payments, treasury and securities, and trade finance. Some FIs, including JP Morgan Chase and Ethereum, are already exploring the potential of this technology.

Turbocharged ATMs

ATMs transformed the bank tech system when they were first introduced in 1967. The next revolution in ATMs is likely to involve contactless payments. Much like Apple Pay or Google Wallet, soon you’ll be able to conduct contactless ATM transactions using a smartphone.

Some ATM innovations are already available overseas. For example, biometric authentication – which allows the consumer to be identified by evaluating one or more unique, distinguishing biological traits like face, hand, retina, voice and ear features – is already in use in India, while iris recognition is already being utilized by banks in Qatar. These technologies can help overall bank security by protecting against ATM hacks, but may not be available to US-based FIs for some time due to the strict regulations governing North American banks.

Regulatory technology

In recent years, there has been an increase in instances of compromised consumer data. Whether incidentally allowing user information to be hacked, or covertly sharing consumer’s private search histories and other analytics, many corporations are feeling the backlash of compromised personal customer data. The good news is that this increase in cybercrime has given rise to a host of new technologies designed to enhance privacy controls and further safeguard client data. One such technology is regtech, or regulatory technology.  Regtech companies, through the use of data and machine learning, are helping FIs reduces risk by analyzing data on breaches and illegal activities. Two products currently on the market that offer this protection are ProfitStars Gladiator Suite and RedOwl, which was purchased by Forcepoint.

Artificial Intelligence

Artificial Intelligence (AI) can provide quick and personalized services, dealing with each customer and focusing on their specific requirements. How? By collecting information and building models – and subsequently, customer conversations – based on that information. And, what about robotics, a technology that mimics the actions of humans performing simple rule-based processes? Software robotics will one day automate all of those inefficient, rule-based processes that demand little human judgement.

The banking sector has yet to fully embrace the use of artificial intelligence (AI) and software robotics, but they are making tremendous strides. Some banks are making use of robotics in combination with human support to give their customers relevant advice on how to improve their banking experience or make small changes to their accounts and services. Others are using AI in the back office. Some institutions -- U.S. Bank, Wells Fargo, and BBCA Compass, to name a few – are implementing robotics and AI to streamlining back office procedures and establish more uniform (and cost-effective) processes. The automation of every-day tasks such as cutting and pasting data from one app to another is causing a shift in banking jobs and the skills required to do them.

Another example of AI implementation is the automation of customer service lines. Some of the advancements in this area have been so great that some consumers find it hard to distinguish between a robot and a live customer care agent. (Hint: Attire is a giveaway).

Last, but not least, is the chatbot. Some FIs have been using chatbots for years, and advancements in the field of artificial intelligence (AI) technology will continue to add value in this area. As chatbots’ intelligence has increased, so too have their capabilities.

With the new “conversational banking”, chatbots can address a variety of customer service issues, and FI customers can get answers immediately. This not only gives the customer the personalized information they demand, but one, it ensures that everyone who interfaces with the FI gets the same level of attention and two, CSRs are free to focus on more important areas of the business.

Wearables

As time goes on, an increasing number of remote technologies will continue to enable FIs to enhance a digital experience that consumers will access via their mobile devices. According to Samsung Insights, wearables such as smartwatches are “poised to become the future of the retail banking experience. One example is that banks could use Bluetooth beacons to push personal greetings to customers’ smartwatches when they enter a banking location.” Another type of wearable might be smart glasses for bank tellers, according to a report from Deloitte, “which could process customer banking information for the employee as the employee is simultaneously doing other customer service tasks.”

With the digitalization of the banking world growing, there are a lot of exciting things to look forward to in 2020 and beyond. Fintech solutions, with their ability to help institutions streamline processes, expedite services, and secure information, will continue to transform the banking experience and, with it, the entire financial services industry.

Having spent the last 40 years in the marketing industry, I’ve always wondered why when I log into my Farmers and Merchants Bank account, the name Jack Henry Associates, Inc. shows up. Fortunately, I know who Jack Henry is, but for most people, that has to raise a red flag. Who the heck is Jack Henry and how did he get unto my account? Why did Farmers and Merchants Bank send me to him?

Who is Jack Henry?

Turns out, the company, as well as its competitors – like Fidelity National Information Services (FIS) and Fiserv, Inc. – is a big deal in the banking world, providing what The Wall Street Journal recently described as “much of the modern banking system’s financial plumbing, especially for smaller banks.”

But here’s the deal: Just as Congress dropped an oversized hammer on community banks when it enacted reforms after the 2008 financial crisis, some small-town bankers and their organizations contend that core providers aren’t playing fairly with them, giving big banks access to their leading-edge technology while making smaller banks delay implementation of their latest software.

For example, the Journal reported in its April 11 edition that Lead Bank, a community institution in Kansas City, Mo., wanted to offer Zelle, the payments app, to its customers. They were told by Fiserv, one of its technology providers that it would have to wait until June at the earliest to launch.

Big banks, however, began offering the service two years ago, the Journal reported.

Therein lies a problem.

Fiserv, FIS, Jack Henry and their competitors are known as “core providers” whose pitch to small banks is that the core providers can give Main Street banks access to the same tech as the Wall Street institutions.

But with a nod to the musical “Oklahoma,” when it comes to this promised technological access, everything isn’t up to date in Kansas City, or at other community banks, putting them at a competitive disadvantage.

But community banks aren’t going to let this pass without a fight. In fact, some are filing lawsuits, looking to startups and taking a strength in numbers approach, negotiating as a group for a better deal, the WSJ reported.

American Bankers Association CEO Rob Nichols speaks out

This alleged failure to deal fairly isn’t isolated, American Bankers Association CEO Rob Nichols told the Journal.

“I’ve met with over 3,000 bank CEOs and this came up time and time again; the challenges and constraints they face with their core provider,” Nichols told the WSJ. As you know the ABA represents banks big and small.

But the problem is about more than equal, timely access, according to the story. Community banks and industry organizations say that unfair contracts and sometimes-mediocre offerings make it hard to compete with their bigger rivals.

“Executives at some small banks say they feel they are becoming franchises of the core providers because they are so reliant on their technology,” the Journal reported.

Community banks and core providers began working together in the 1990’s, as the banks sought to computerize paper work. But now, the small institutions turn to core providers for everything from websites to apps.

Ask community bankers, and dollars to doughnuts they’ll tell you that while eye-to-eye relationships are critical to keeping customers, flashy, user-friendly tech is often the difference between gaining and keeping – or losing -- a new client.  Especially with younger customers, tech is critical.

The WSJ cited numbers from the consulting firm J.T. Kearney:

“Midsize and local banks hold 13 percent of primary banking relationships but capture only 7 percent of the customers who switch banks,” the WSJ reported.  Cutting-edge tech is more often than not the deciding factor in the banking choice for customers who switch institutions. Banks with less than $100 million in assets hold only 6.42 percent of industry assets.

Community Banks are putting up a fight

Given the significance of all this to the future of community banking, small institutions are putting up their dukes.

An examples from the WSJ:

• Millington Bank in New Jersey found that if it sold itself, it would owe FIS more than $4 million, according to court records cited by the paper, an amount equal to a year’s profits. Millington sued FIS and the case is awaiting arbitration.

Aaron Silva’s firm Paladin fs negotiates contracts with core providers on the banks’ behalf.

“They’re not building highways to the banks’ data,” Silva told the Journal, “they’re building toll roads”.

For its part, Fiserv said it has updated its processes and plans a widespread roll out of Zelle to many banks at once. But in this spring of small banks’ discontent with core providers, Lead Bank CEO Josh Rowland and other community banks are growing impatient. He compared their battle with the fight between big box stores and mom-and-pop retailers.

Community banks, he told the Journal, “are fighting a Walmart-sized battle.”

“We’re not going to wait around,” Rowland told the paper. “But it’s harder than it feels like it should be.”

In an earlier article posted HERE, we discussed the importance of reliability and technology for community banks. In light of these recent developments in the relationship between core providers and small institutions, some points bear repeating:

• “Invest intelligently in technology. Community banks know their markets well, better than one of the big Wall Street players. As a result, your bank should know specifically what technology works best for your customers. Tailor your tech investment to those specific needs.
• Face Facts. The bottom line is that in 2019, it’s short sighted to rest on the laurels of community relationships and ignore technology. If you want to attract new, younger customers who will one day want mortgages, car loans, or investment services, community banks must adapt to changing times. And remember, your older, established customers may be more tech-savvy than you think.

Too, remember the fate of print newspapers, which failed to adjust to the tech boom and as a result, failed to monetize digital content. As a result, the morning Daily Bugle that used to be part of your morning routine is no more. Without adapting to technology, your bank could go the same way. Consider this chilling number from Finextra.com: In 1985, there were nearly 16,000 community banks. By the end of 2015, there were 5,874.

• You’re not too small to have a mobile app. With an app, you can maintain relationships, while at the same time maintaining expectations about customer convenience. Maintaining a reliable app boosts customer loyalty.

While the WSJ article, as well as the reality of the declining numbers of community banks may send chills through our sector of the industry, as long as your bank’s doors are open, it’s not too late to change.”

Read the entire Wall Street Journal article here:

https://wsj.com/articles/small-banks-rebel-against-the-most-important-tech-firms-you-have-never-heard-of-11554975000?mod=diem10point

What’s been your community bank’s experience with core providers? Send me your story at nreynolds@bankmarketingcenter.com

April, Financial Literacy Month, is the time of year when we recognize financial literacy and how we are doing at this as Americans. So what better time to talk about financial literacy and our school systems? Knowledge about the ins and outs of daily finance activities is lacking among a large population of Americans. Many schools are taking notice. Knowing how to navigate the bare minimum requirements of adulthood, such as paying bills and filing annual taxes, is an integral part of being prepared for the future. Yet it is an area where there is a lot of room for improvement. In order to properly prepare our children for the huge leap into adulthood it is imperative they are equipped with tools to properly manage their money, obtain and maintain credit, plan for their future savings, budget their expenses, and much more. Financial literacy has become a required subject for many schools across the nation, and this practice is taking hold and growing.

What is Financial Literacy Month?

April has been recognized as Financial Literacy Month in the United States since the year 2003. Financial Literacy Month has a long history with inception dating back to nearly 20 years ago. The National Endowment for Financial Education (NEFE) introduced a financial literacy program nearly two decades ago as part of their High School Financial Planning Program. NEFE’s involvement in this literacy program helped to establish Youth Financial Literacy Day, which over the years impressively evolved to Financial Literacy Month.

Joining Forces With Schools

Concepts such as student loans, interest rates, qualifying for a mortgage, credit, and balancing a checkbook are proving to be foreign concepts to many Americans. Recent studies show that around 63% of United States residents could not pass a basic financial literacy quiz – a worrisome figure! Not only are people not attaining financial literacy, but a staggering percent are also not preparing for financial security. According to a recent survey done by the Federal Reserve Board, around 40% of U.S. adults do not have enough money in their savings account to cover a $400 emergency or household expense. Reports and studies such as the above have been receiving the attention they warrant. Many schools are making a change in their curriculum because of it.

Several states have taken steps towards making financial literacy lessons a priority in their schools. Wisconsin took a huge leap in the right direction. This happened when then Governor Scott Walker signed a bill requiring their school districts to include a personal finance curriculum into their kindergarten through 12th grade classes. New Jersey is now requiring schools to integrate financial literacy lessons into each year of middle school, and Iowa and Kentucky are now requiring all their students to pass a financial literacy course as a pre-requisite to high-school graduation. While these efforts are great, and the feedback is so far good, we hope to see other states following suit and passing similar legislation.

Since bankers are experts with money management, being involved in consumer education programs is a natural fit for them. Bankers are stepping up in communities nationwide to participate with financial literacy programs that are directed towards younger children, high school students, adults, as well as senior citizens and those with limited access to financial services.

For example, the Oregon Bankers Association, or the OBA, is pleased to have provided a Financial Education Resource Guide for teachers, bankers, and the general public. Here they provide the tools for managing all aspects of financial life - from creating a budget to managing your credit and protecting your identity.

By setting up a time to go into schools you can give students and faculty information about financial literacy. And, help promote your bank.

Encourage Teachers to Add this To The Curriculum

The topics for lesson plans on financial literacy are seemingly endless. Currently, most financial literacy programs are covering topics such as investing, credit cards, budgeting money, interest, managing debt, and bill paying. Ideas for additional useful topics such as how to file taxes and how to start a business, to name just a few, are plentiful and wait on the sidelines for funding and resources.

Luckily, teachers do not need to have a specialized degree in finance to teach their students a successful financial literacy course. These lessons can be introduced into everyday topics and subjects that students are already learning, and they can be started as young as kindergarten with the concepts of sharing, bartering, and saving for something special. The options for integration are endless, making this necessary change in our school’s curriculum affordable.

Look for simple integrations or information that you can provide to teachers and students.

Want to Get Involved?

You don’t have to be a legislator, educator or finance guru to get involved in Financial Literacy Month. Any bank can help educate the public about financial literacy at any time. This movement can help bring awareness to the problem lacking financial literacy among our children and young adults.

Sometimes referred to as Hill Day, this event has grown from a once small gathering on the steps of Capitol Hill to a large public event that attracts hundreds of participants each year. Hill Day is free, open to the public, and we encourage anyone who wants to get involved.

Financial Literacy Day on Capitol Hill is usually hosted in April, but this year the event will be held on June 26^th, 2019. We would love to hear feedback on how you improved financial literacy in your community. Or, if you’re looking for ideas on how to get the word out, reach out to us for more information on bank marketing.