As banks, credit unions and financial institutions of all sorts face the threat of digital disruption, forecasting what the next era of banking might look like – and how to prosper in the new environment – suddenly becomes one of the most important leadership aptitudes an executive can develop.
Before my recent keynote presentation at the Illinois Bankers Association annual conference in Nashville, I did a “deep dive” into a relatively new development in the banking sector called fintech, short for “financial technology.” There are 1000 or so fintech startups at work already from Silicon Valley to Tel Aviv to Shanghai. And they are chipping away at every revenue stream from auto loans to checking accounts to small business and agriculture loans and payments. Collectively, fintechs threaten to grab 32 percent of traditional banks’ revenue by 2020, according to Accenture.
During this deep dive I was fortunate to be introduced to Michelle Toll, Executive Vice President and Chief Operating Officer, at the State Bank Group based in Wonder Lake, Illinois. Michelle, as you’ll discover in this interview below, is a trend-tracker par excellence, a fintech research specialist, and a passionate advocate for the survival of small and midsized banks across America.
Interview with Michelle Toll, State Bank Group, on the topic of Fintech and Trends in Banking for 2020
Robert Tucker: Michelle, you spend five hours a week tracking the social, technological, and consumer trends. I’m curious, what do you do during those five hours? How do you stay abreast of all the emerging trends in the banking space? Not just fintech, but e-banking, the evolving needs of millennials, blockchain, and all the other paradigm shifts in banking as consumers alter their behavior to embrace mobile banking as their primary channel.
Michelle Toll: I do an array of things, for example, I personally challenge myself to find the nooks and crannies of information that stretch my thinking beyond my day-to-day banking experience. Given the time I spend (five hours or more) on a weekly basis (beyond a 60-hour workweek) that some could consider me a bit of a nerd when it comes to hunting down podcasts, whitepapers and articles on fintech. I recently volunteered to be on the Fintech task force with several of my banking peers and leaders within the Illinois Bankers Association.
This is a new effort on behalf of the IBA but honestly long overdue in my opinion. For the past four years I have been an avid listener to Breaking Banks (they just celebrated their 200th episode). I have read books by Brett King, Chris Skinner and others on fintech and banking. I follow many Fintech leaders and organizations on Twitter, such as Innovate Finance, FinTech Mafia, Fintech Circle, MIT Fintech and others. I closely monitor what core banking systems (especially Fiserv, which is our bank core provider) are doing to provide alternative solutions to their bank clients, how they are augmenting their offerings with Fintech resources through acquisitions or partnerships of smaller companies. Truly, the possibilities of research are endless and growing. That is the exciting part of all of it. However, the more I immerse myself the more I worry about traditional bankers that are asleep at the wheel and have no clue as to what is going on around them. I liken it to being in the eye of a tornado. There is no awareness of the storm that surrounds them. The complacency of bank leadership and boards is particularly worrisome. Banking will be transformed and consumers will seek the path with the least amount of friction and the best customer experience.
Robert: As you communicate and interact with community bankers across the country, what’s the biggest danger to their business model?
Michelle: The regulatory environment in the U.S. is truly the biggest weight on the industry. As innovation and maturing fintech business models evolve in banking elsewhere, the U.S. banking system lags. Although there is tremendous innovation happening here, the adoption and regulatory ease of moving this innovation into the banking space is well behind our global peers. This creates a terrible domino effect as growth and profitability suffer, the inability to recruit the necessary top talent (they go to fintech firms and elsewhere), fending off cyber-security and fraud risks, and timely investment in needed innovation suffers. Ultimately the customers are not getting the best of class services and these services can be found elsewhere with an install of an app or a few clicks on their computer.
Robert: How fast do you see these changes beginning to seriously impact the under a billion in assets category of bank?
Michelle: It’s happening already. The recent uptick of mergers and acquisitions is a direct result of some [banks] realizing that the regulatory environment is so burdensome that they are exiting banking altogether. Low earnings and negative loan growth has not returned community banks to pre-crisis earnings levels. Important ratios continue to lag and performance in many ways remains weak. Community banks under a billion in assets have reached out to express their concern of the increased regulatory burdens that put them at an inherent disadvantage. Again, all of this earnings pressure does not afford the necessary investments into the bank’s core systems or generating the necessary Fintech partnerships required to move many community banks forward. These missed opportunities may be unrecoverable. In short, I believe that in less than 10-years the community banking landscape will change dramatically.
Robert: Today’s bankers are not sitting back waiting to become the next Blockbuster, though, that’s for certain. Let me ask you about the innovative projects that IBA members reported on in the interactive exercise within my keynote. [The sharing was anonymous and over 200 bankers participated by describing one of their current ideas.] Were there any surprises that came out of that exercise for you?
Michelle: At first blush, there were no surprises for me as most ideas that were shared aloud in the session were within the expected sandbox. I was really looking for something new there but maybe they were holding the information close to the vest during the live session. However, in being exposed subsequently to the comprehensive list that was shared with you (no names of banks were shared with me), I can say there are some folks that get an A+ as they are on the right track. There are some responses that stood out for me as leading the way and they are:
- Develop a web-based bank – nationwide marketplace for deposit accounts
- Using technology to gather customer feedback and ideas for improvement
- Implementing pseudo robo advisor offering
- Partnering with a Fintech company
- Lobby kiosk with teller
- Create online conversations with customers
- Account opening on mobile devices
- P2P solution with core provider
- Customer customized mobile banking app
- Formed a committee of younger bankers in our institution to focus on the future
- Remote call center, cyber lunch and learns for commercial customer
- Intentionally hiring millennials and actively matching them with senior managers to create new thinking
View the complete list of community bank innovation ideas.
Robert: My take on it was that I was actually encouraged to see so much innovation taking place and was glad we did the exercise because it gave us a real-time gauge. As a guest speaker, it’s often difficult to gauge where members are at in their innovation journeys. Where do the smaller banks need to innovate most?
Michelle: In areas like lending partnerships, exploring virtual customer experiences, owning their own data through strong analytics, and obtaining the best talent and consultative partnerships to help them think beyond their four walls.
Robert: What stops the under $500 million bankers the most from innovating?
Michelle: The many hats that community bankers wear is truly amazing. But unfortunate in a timeline that requires breakout expertise. If you sat in a room of senior leaders and board members of your average community bank, most could not define fintech. They have no clue. If you do not understand it, how can you even begin to ask the right questions or identify opportunities for innovating in this realm?
Robert: In my sessions for banking and credit union conferences, I speak about the need to adopt an Opportunity Mindset, to develop one’s own and our team’s innovation skills, and to always be cultivating a risk-taking culture. What did I miss?
Michelle: The presentation is powerful and hit home on all fronts. I think the evolving story of fintech will provide you all the fuel you will need to make the speech for future banking groups richer by the minute. Providing resources that I use to [help] other bankers would be powerful and I have yet to hear that from others talking about fintech and innovation in conferences or in white papers. Continued education of bankers, board members and regulators on fintech and understanding how to navigate the change at-hand is imperative.
Robert: Michelle, I know you care a great deal about main street banks. Any parting comments with respect to the topic of preparedness?
Michelle: The vastness and ubiquity of Fintech makes a summary here a bit more difficult. I would want to venture into challenging bankers to understand the ecosystem of fintech, how it looks today and where it is evolving. Examining the possibilities and tentacles of the space is essential. The model is growing but already maturing in many aspects and traditional banking will be left behind if we continue to ignore the influence and opportunities of fintech. As Bill Gates once observed, “banking is essential, banks are not.”