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Jim Marous, named one of the most influential people in banking and co-publisher of The Financial Brand, sits down with PrecisionLender Director of Communications, Jim Young, to discuss the changes coming to the banking industry.
They discuss how banks can embrace and leverage these changes to be more successful.
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Jim Marous on the Financial Brand
Podcast Transcript
Jim Young: Hi, and welcome to the Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best banks. I'm your host, Jim Young, Director of Communications at Precision Lender. Today we welcome someone we truly admire and respect here at Precision Lender, and someone of whom I am a personal fan. We are excited to announce that he will be a speaker at our 2018 BankOnPurpose Conference.
Jim Marous has been named one of the most influential people in banking. He is co-publisher of the Financial Brand, and an owner and publisher of the Digital Banking report. He has advised the White House on banking policy, and he's been featured by CNBC, CNN, and the Wall Street Journal, just to name a few. Welcome to the podcast, Jim.
Jim Marous: Hey, it's great to be here Jim.
Jim Young: Alright, well to kick us off, I gave a little bit of an intro for you, but can you mind sharing a little bit more about your background, and particularly how it connects to the banking industry?
Jim Marous: Well, it's interesting. I started my career in banking, working for National City Bank many decades ago. I guess you don't get credit for anything beyond two decades, but suffice to say, it was in the late '70's, and back when the job of banking was viewed as a very comfortable, very riskless, very admirable career, which it still is very admirable, but I wouldn't say it's very riskless. People would say that, you know, it's a great career to go to because you move up the ranks based on tenure and you get recognition for what you do. I was in banking for about 10 to 15 years before I went to the other side of the desk, and started working for digital and direct marketing agencies that serve financial institutions.
So, the reality is, and for the majority of my career, I have been working in the banking industry and working either as a banker or serving the banking industry in the marketing and in the strategy roles. About four years ago, I decided to join Jeffry Pilcher at the Financial Brand, and become a co-writer and a publisher of the Financial Brand. What we focus on, trends in the banking industry, but almost the same time, Jim Bruene, who owned the Online Banking Report wanted to get out of that part of the business, wanted to know if I wanted to buy the business, and so, I did, and the beginning of the Digital Banking Report took place. It's a 20 year old publication, and what we do is focus on the digital transformation of the banking industry. So, have gone from banking, to serving the banks in a marketing role, to actually a writer and publisher.
Jim Young: Needless to say, the banking industry has gone through a lot of changes as well during that time period, and it's a time where the word disruption gets, not disruption gets thrown out all the time, but it seems to be particularly relevant in the banking industry right now, and you do a lot of work with some of the FinTech companies who are seen as the main causes of that disruption. What are some of the biggest, and try to answer this in five minutes or less, but what are some of the biggest changes you foresee, or you see right now, in the banking industry.
Jim Marous: Well, you say that word, a point of transition is kind of like, we could have been saying that five years ago and you could say it today, but I think, right now, we are seeing a really exciting time. I think some of the major trends we are seeing right now is, number one, we are seeing a realization that financial institutions have got to become digital, and becoming digital is not finding a commercial platform that we can make it so that people can have digital access. It's really looking at everything that we do within the banking, digitizing it, and making it so that it's less friction, less paper, and more seamless, so that our customers, our commercial customers, can get what they want with the least amount of effort.
And, I think the major transition we see most recently is really the movement of FinTechs, this small start-up firms, from being what we considered to be a threat to being actually partner and collaboration opportunities. I think a lot of these firms now, most financial institutions, are looking at these Techs and saying, you know, let's look at how we can partner with them. Let's see how we can take advantage of their benefits and bring them to our customers, and provide the best possible service. What that has done, however, and this came out in a McKinsey study this week, is that it reopened the door for a much more ominous threat, and that is the, what we call, the Tech Platform Companies.
Those are the Amazon's, the Alibaba's, the [Tensens 00:04:42], the Facebook's of the world, and while some of these seem to just be consumer-oriented organizations, we see firms like PayPal, Square, Facebook, starting to put their toes in the water when it comes to commercial services as well, and the threat they provide is they know how to manipulate and work and bring great analytics to the table for a better customer experience. They are masters at simplifying the process of not only the buying process, and getting you to where you want to go, but to proactively anticipate what you are going want. So, it's the difference between waiting until my organization raises their hand, and says, I need a loan, to me proactively saying, based on what we know about you, we believe you might be in the marketplace for a loan, and we already pre-approved you for this.
That is what this is bringing about, and again, we have to remember, that the head of commercial organizations, the head of big organizations that are looking for commercial services, they are people too, and so they get impacted by the changes in what the relationship is, and what the experience is, with an Amazon, with a Google, with a Facebook, and with an Apple, and those are really what are guiding the marketplace right now, and as McKinsey said this week in a very long, 52 page white paper, this threat, the threat of changing the entire banking ecosystem, and the threat of an organization not going digital, could bring on either a great opportunity with growth on return on equity, or bring on another financial crisis where return on equity gets back to the 4 and 5% levels because of the inability for the industry to react to the marketplace.
Jim Young: I'm glad you framed that, because a lot of the stuff I see about customer experience is from a retail side, and obviously that is where you get the scale. You got a lot more customers, but that point that the people on the commercial side, there's not a robot asking for a loan for their business. It is still a human who has had customer experiences everywhere else that is going expect that same thing from their commercial bank as well.
I mentioned robot, which raises red flags nowadays, because there is some fear ... You mentioned about the threat of these companies out there, but I think there is some fear that the technology out there is, in of itself, the threat. This feeling that, with analytics and AI and machine learning, that essentially the robots take over and that sort of thing. Is that still out there? Do you think that is a fear that people have gotten past now and understand how humans and technology work together, or do you find still some resistance to that sort of thing?
Jim Marous: It's interesting you say that, because I think it should be a fear to those people that are complacent. The reality is, the robotics, the AI, the technology, is going to replace standard, repeatable technology and decision-making. So, things that can be automated will be automated. So, we are going see things change. We are going see everything from the way we get fast food to the way we get commercial loans change, but a lot of this is going happen in the back office. A lot of the back office is going transition, where the things that, maybe, the most boring of what we do gets taken out and gets mechanized. Technology will replace parts of the equation. That's important, because what that does is make the process easier and better.
Where the human aspect comes into effect is how do you then apply that for a better customer experience. I keep on getting back to this because, there's no place in a financial institution that there is more friction, steps, paperwork, than in either the wealth management or the lending area, and especially the commercial lending. There is a lot of things that go into that process. On the consumer side, look at the mortgage process. So much of the process is filled with paper. Well, it's no different on the commercial side. What we need to do is, how do we digitize those things that are repetitive? How do we digitize the documentation so that I don't have to fill out the same information on fourteen different forms?
I mean, the reality is, on a personal or commercial loan, or any commercial service, that if I already have a relation with a consumer, I should be able to go with them with maybe three, four, five questions that will complete the complete documentation needed for the financial services because we should already be on top of what the organization is doing that we are talking to, how much we know about that organization, so we can proactively go them and say, by the way, you haven't come to us yet, however based on your business, based on your business model, based on the trends over the last three years it looks like you would be in the marketplace for a [floor plan 00:10:03] loan. It looks like you would need, possibly, some additional funding for growth. Here is how we would structure it based on what we already know about you, and all we need is your signature, which by the way, we don't need in person.
And, that calling officer could be a specialist in my business, so instead of having my typical banking calling officer that does a whole lot of different things and wears a lot of hats, and may not really know my business, I make it the commercial calling officer that really knows exactly what my business is, works with maybe 20 or 30 of my competitors, understands what my needs are and what my pain is, and can proactively adjust that, and say, by the way, we have an answer for you, and what I like to say is, banking lives their lives as providing indications as to what has already happened to me. You know, if I have [inaudible 00:10:55], I find out after it happens. If, I have something else that happens, I find out afterwards.
The future of banking is going be the GPS of financial services. It is going be looking at the future and saying, here is things I know about you. Here's things I want you to look out for. Here's things I can provide you. Here's the rewards I can do, and you haven't even asked.
Jim Young: That is, at least to me, I would think that requires a significant shift in mindset and thinking, and we are talking about an industry that is understandably a risk-averse industry. I mean, that is a huge part of it, right, is avoiding making bad deals. That sort of thing. So, how do you shift that thinking? It seems kind of, to be honest, a little bit scary to make that leap. How do banks do that? How do they build that culture to support that shift?
Jim Marous: Well, what's interesting, is I don't think anything that we're doing, in technology, in innovation, in the future, means you need to take on more risk. What it does, it allows you to make better decisions based on this technology to look at risks, and to look at things beyond our typical way of doing things, so, for instance, why are we just looking at our typical things we look at when we're doing a credit [judication 00:12:13]? Why aren't we also look at things, which financial institutions don't really do a good job of, which is, what are the relationships that this organization has within their organization, within their executive structure? How else do they do business? Even though they have some things in the future, are they explainable, and should we make decisions base on how the industry itself is growing, as opposed to, what is happened in the past.
So, really, it's using technology to reduce risks now, when real change comes in culture, and the culture is difficult because, especially on the commercial side of an organization, and especially the top levels of an organization across the entire realm of what a financial institution does, these traditionally are older people. These are people that have been banking for quite some time. They are people like myself that came into the industry because it wasn't that threatening, because it wasn't much change.
Well, now we are being hit by all angles, and I think what we have to do is embrace the fact that technology can be our friend and can reduce the risk, but we have to move forward, because if we don't, if we tend to do banking the way we always have, while we got away in the future, because really what we are talking about is, how do we address our competition?
Now, we have to say is, how do we address the consumer or the business banking officer or the commercial client who is now asking for a whole lot more because they see what can be done. They see everywhere from their fast food place, to the dry cleaner, how technology can make the experience better, so then you say, okay, yeah, you have to look beyond some of the things that have happened in the past, but I'm hoping with your technology, you are going be able to make assumptions for my business that not only is going make it less risky, but you are going be able to make decisions on this [quad-b loans 00:14:08], where in the past you may be only been able to been able to do [inaudible 00:14:11] loans. You may be able to accept some [C-lending 00:14:14] opportunities that you weren't able to accept before because all the technology in place and all the advanced learning, artificial intelligence place says, you know, this is a business we should invest in despite what some of the triggers from the past may say.
So, really it starts from the top, but I believe that you can also have mid-level cultural changes, but when you look at the best organizations out there, I think the best ones you are going see that is truly a top-down cultural change, and embracing and encouraging innovation, in limited risk-taking, and risk-taking but with a lot more information to go against.
Jim Young: So, you started going into that, culture up at the top and the middle, and I'm curious, so, let's say I'm a top performing commercial banking relationship manager, or maybe I manage a team of those relationship managers, and I get things are changing, but I also have been in that world where I have had success in the way things used to be, what advice would you have for someone like that, who's trying to, sort of, figure out on an individual level where they fit in with all these changes and how that they can, not just survive, but sort of leverage those changes to be more successful?
Jim Marous: That's a great question, and it's one that I think every banker is up against going, how do I fit in? How do I fit in this new culture, and this new environment? I think first of all, you have to look upon it the way they traditionally look upon it, which the role of the commercial banking officer, the role of the leadership in those areas, is really, how do I generate more business, but that really gets back to, how do I make clients happy? So, we are looking at the overarching concept of how do I make my customers happy. A customer says ... They make it fairly easy.
They say, I want you to know me. I want you to look out for me, and I want you to reward me. So, the difference in what was doing before, and what is going on now, is really saying, how do I take technology, and make it so the things I'm doing in the back office, I can make them simpler for the customer, because I'm going keep more customers if I can digitize all the paperwork that I currently have, and maybe I can digitize elements of the loan approval process that says, you know what, there are a lot of steps here that we make it very difficult because it is tradition.
It's not tradition to make it difficult, but it's tradition that we use the same forms. We done the same things. I mean, on the retail side, I think, for years financial institutions thought they legally had to have signature cards, and when they found out that they didn't know, and they could use electronic signatures and other ways, and all that was, was a way to get to know who the customer was. Well, how we can do that on the commercial side as well, well, we have a lot more information that we have stored, so how can we use that to make it so we know more about the customer, so, the first thing you want to do is, say, okay, what's steps can we take out of the processor really nonsense or just plain traditional that we have, that really have very little use today.
Every step you take is going make it better for the customer, and, it's going make it less expensive for the financial institution. So, how can we digitize the back office? Then, how can we look at our customers differently, and how we can maybe take new piece of information to be able to make better informed decisions that will not take as long to get to. The problem is, when things aren't black and white, which is three quarters of what we make decisions on, we got to get more engagement, and if we had more information to begin with, then robotics, artificial intelligence, and the humanity side can make a better decision.
So, I think, culturally, what you have to do to say, end of the day, it is still about making my customers happy. It's still about making it so that we make it easier to get where they want to go, and well, isn't it a great business decision to say, instead of waiting for people to apply for a loan, or instead of just trying to [crossess 00:18:26] something because we need it for our bottom line, maybe we could make it a better business decision just by looking and saying, can we proactively help our customers succeed?
And, by the way, there may be some costs involved in doing that, certainly [inaudible 00:18:44] your back office, but, I don't know of an organization today that has failed by doing good for the customer.
Jim Young: Yeah, that's great stuff, and you mentioned also, one of the things we talked about with the humanity aspect of it, is once you get to the point where all that other stuff becomes digitized, becomes automated, that becomes, you know, commoditized. So, where do you then stand out at that point, and the value of the human actually, you could argue, becomes more valuable in that situation.
Jim Marous: That's exactly right. That is hit on the head is that, if you could commoditized a lot of things that should be commoditized that are the same at every financial institution, then you have more time to focus on the things that make a difference, and the things that are going make a difference is, I'm a small business owner, so I most recently, have started an organization reaching out to me and going, we are going offer you this much today, and that's based on that insight, based on what I know about my business, yet my traditional financial institution, while I sit down with them on a regularly basis, because they have not made it easy for me to do banking. I got to go into that branch on a regular basis, because of [inaudible 00:19:58] they put in place, and what they call policies, which is like nails on a blackboard to the person on the other side of that, is that, if you can change that, and if you can make it so you are pro-actively thinking on behalf of the customer, that is going make it better.
And, again, as I said, with the digital world that we are in today. We have the ability to match up the right client officers with the right organization based on experience, history, and overall, the ability to make it better for the customer.
Jim Young: Well, I'm ready to go ahead and have you speak at the BankOnPurpose right now in Austin. This is great stuff, but we'll have to wait until April for that, but you will be on as part of our BankOnPurpose webinar series on November 15th to speak about a lot of these same topics. Really excited to hear that, and definitely encourage our listeners to join in for that webinar. But, between now and April, and ongoing, Jim, where can people that listen to this, and say, wow, that makes a lot of sense. I would like to learn more. Where can they find out?
Jim Marous: Well, the best place to find my perspectives and perspectives of people like-minded is on the Financial Brand. The Financial Brand, it's thefinancialbrand.com. It is a regular publication that we publish probably five to eight articles each week about banking, and the banking industry. It could be everything from the changes in technology to the changes in digitization to innovation. We just did an article this week on the Innovation Awards ceremony that took place in Rome last week that I was really happy to have been able to help MC, but to be able to look and say, what are the best of the best doing in the world, and as we discussed, some of these things look like they're just retail banking, but in reality, it's banking in general. It's what happened to the industry.
What is interesting is that I look at our webinar that is going happen on the 15th of November, and I think it's kind of funny, because I look and go, what I present then, I wonder how close it will be to what I present in your conference in April, because so many things are changing so fast. It's the most exciting time we have ever seen, technology side, like voice technology. Everything from drones to AI, to the internet of things, and the devices in the home are changing the way we live, but more importantly, changing every single consumer's expectations of every interaction both on a personal and business basis, so, really looking forward to joining you on the 15th, but also looking forward to joining everybody at the conference in April.
Jim Young: Looking forward to it as well, but that will do it for us today. Jim, thanks so much for coming on the podcast to share your expertise.
Jim Marous: Thanks a lot.
Jim Young: And, thanks for listening. If you would like to learn more, visit our resource page at precisionlender.com. If you like what you have been hearing, make sure to subscribe to the feed on iTunes, SoundCloud, Google Play, or [Stitcher 00:23:01]. We love to get ratings and feedback on any of those platforms. Until next time, this is Jim Young and Jim Marous, and you have been listening to the Purposeful Banker.
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