Part Two: Winning With SMBs Is About More Than Just Technology

In this week's podcast, Dallas Wells and Alex Habet continue their conversation about how financial institutions can best serve small businesses. There's no question that inserting technology into a relationship-driven business is tricky, but how can it be done, and why does it matter? Tune in as Dallas and Alex explore these questions, how the team at Q2 thinks about achieving this balance, and more.

  

Helpful Links

[Press Release] Q2 Modernizes Commercial Banking With Q2 Catalyst
[White Paper] How to Win in Commercial Banking: A Step-by-Step Guide
[Webinar] Ready for the Imminent Disruption of Commercial Banking?
[Web Page] Q2 Catalyst

Transcript

Dallas Wells

Hello, and welcome to The Purposeful Banker, the podcast brought to you by Q2 where we discuss the big topics on the minds of today's best bankers. I'm Dallas Wells, head of product at Q2, and I'm here again with Alex Habet, the recovering banker and Precision Lender client turned Q2 solutions consultant.

So in the last episode, Alex and I talked about how banks and credit unions are serving small businesses and a segment that's always been about human relationships. Financial institutions are struggling with how to engage with and serve these customers in this new digital reality. So today will be part two of that conversation where we'll talk about the "so what" aspect. We know it's hard, but what's next?

So a quick note. As part of this conversation, you'll probably hear the name Q2 Catalyst. We're in the midst of a big announcement and launch of Catalyst, which is the suite of commercial products offered by Q2. If you've been listening for a while, you know hard-core product pitches are not our style on this podcast. So don't fret. Just wanted to make sure that you had the context of what the heck we're talking about there. So with that, let's jump in to the conversation. So Alex, welcome back.

Alex Habet

Thank you, Dallas. And it's awesome to continue what we started last week together.

Dallas Wells

Yeah. We didn't scare you off. So glad you came back. All right. So to get us started, in the last episode, we covered some of the challenges of serving the small business segment and how banks are trying to use technology to make themselves both more effective and more efficient so that they can do that profitably. So in the interest of just, like, right away grossly oversimplifying things, what inning do you think we're in in this process of, like, actually using technology to solve some of these challenges?

Alex Habet

I think it's without a doubt definitely still early innings, right? Just think about what we talked about last time, which was probably a step even before this, right? We're talking about the culture. What is the banking culture, the relationship culture you want in your bank? What kind of banker do you want to be for your clients? Do you want to excel in one space versus have a broad-based approach? A lot of banks are still trying to figure that stuff out, right? And so until you figure that stuff out, it's hard to actually transform your tech stack. Would you agree?

Dallas Wells

Yeah, I think so. It's like who do you want to be and for who? Right? So this being all things to all people in your local geography is, well, it's not the easy strategy that it used to be. And not that banking's ever been easy, but it was clear that you were a community financial institution, you kind of owned that part of your community and you served all aspects of it well. But I think that is an important first step is you (acknowledging you) can't do that anymore. You can't effectively be all things to all people, and geography's not the differentiator that it used to be. So you've kind of got to pick a lane. And if that lane is serving small businesses well, then you have some work to do. But I think that's a good point that you've got to start with is this even for you.

Alex Habet

I guess the good thing is certainly in the conversation I'm sure you're having with clients. The ones I'm having, we're talking about this, which is really important. It used to be talking about point solutions back in the day. Even when I used to be a client, it was, "Hey, we need a new pricing tool. Let's go like robots out to the market and find a pricing tool," right? But now this whole new landscape has pushed everyone to think about it differently and go a little bit beyond what was the traditional thought process, right? You have to start asking yourself questions like how has the technology investment in the bank benefited your banker's ability to compete and win, right?

That's probably the case. I might be overgeneralizing a little bit. That's probably the case, though, that there's been a lot of emphasis in the past on management tools, right? Perhaps not enough enablement, things that actually help the bankers be good bankers. And so with that in mind, that's why it just still feels so early in the process because we've seen a few banks make some real great progress in this, but the majority haven't yet. And that's OK. It's a journey.

Dallas Wells

Yeah, I think that's a good point. If you really kind of draw a line between what financial institutions have done on the retail side of the balance sheet versus what they've done on the commercial side, in retail, there have been big investments. There've been big investments in that enablement technology, kind of call center and branch staff. They have tools that are actually pretty good at helping them better serve their customers. And of course, there's been a whole bunch of investment in the actual customer-facing tools. And on the commercial side, that just hasn't happened yet, at least not anywhere near to the same degree.

And so I think you make a good point there that on the commercial side, a lot of it has been, frankly, policing tools or it's been the management team says, hey, we feel a little blind. So help us know what's going on, which means, so frontline staff, we're not necessarily going to help you serve your customers better, but we need you to track everything. We need you to enter all the data about all the interactions you're having. What do you know about this customer? What have you done with them? What have you offered to them? What was the last conversation? And that stuff's all put into this system so that management can see it, can track it, can measure it, can frankly monitor you. But you've been asked to put all this stuff in, what do you actually get back out of it? In a lot of the cases, it's not really anything, right? So it's a lot of extra friction for not a lot of extra help for those staff or for the customers themselves.

Alex Habet

Absolutely. But it's needed. It's important, right? And so it's heartening now to be at a point of this whole evolution in the industry to start thinking beyond that kind of stuff. And you'll see it all gets better once it starts connecting a little bit better.

Dallas Wells

So we're in agreement that it matters, right? It's worth some effort. So I'm reluctant to even use these words and even go here, but let's say these words anyway. They might be the two most overused words in the industry: digital transformation, right? So we've been talking about this since I started in this business a long time ago, but how should banks really think about this process? Like what should digital transformation really mean? And again, we're talking about sort of the commercial or small business-facing part of the institution, what does digital transformation really mean and what should their approach be there?

Alex Habet

Yeah, that's another tricky one to respond to. Back in the day, I probably would've defined it as here's the bookends of the process I want to affect. And how do I make everything between the bookends work much better? But once you achieve these objectives and you take a step back, not a whole lot changes, right? You might have affected a small patch there. So for things like online or digital banking, it's been a ton of great progress. And we talked a little bit about before you mentioned some things, Dallas, on the retail side, but when you start marrying the digital stuff with the human element to it, it becomes a much bigger free for all. Bank to bank, it looks different, right? There are wonderful software providers that provide great capabilities in isolation, but playing nice with everything else the banker interacts with or even the customer in some cases is still sluggish, right?

I still had to fill in my address when I was applying for an auto loan to the bank that I've banked with since when I was 18, right? It's ridiculous. They know this information. Why am I entering it again, right? But it's everywhere. So we've solved today, luckily, a lot of these functional challenges. We have great onboarding experiences. We have great underwriting systems and account opening, pricing, and all that stuff. The time is finally upon us to think about sequencing of all these things together in a much more meaningful way. Once you see these things in action, that's when you'll actually feel the meaningful progress in the digital transformation. It'll start to become real, right? It's long, but when your clients can start to feel it, when your bankers can start to feel it, that's when it becomes real.

Dallas Wells

So what you're describing there, it sounds a little bit like there's all these individual projects, right? So they're sort of "I'm going to digitally transform from point A to point B within this particular process." And we kind of stitched those together and we've just done ... like I've heard the term project fatigue from a lot of customers that we talk to. There's like, "Man, we've been at this for a while." Just like this project's going to make all the difference and then the next one, then the next one, then the next one. And they've been trying to stitch these together, but what you describe there like you've got to go reenter something.

What that realistically probably is is it's a gap, right? It's a crack between two processes that got stitched together. And we've sort of arbitrarily chosen end points. I'm going to digitally transform from A to B, and B was sort of like arbitrarily chosen. And then you have to go from B to C and that handoff between those two is a little rough still. And so I think all that's a long way of saying that there's no such thing as just you do a project and then, poof, you're digitally transformed, right? This is a years-long journey that maybe is never done because by the time you get to the end of the conveyor belt, so to speak, where the customers or the widgets, however you want to look at it, that you get to the end of the line there, you've got to go back and start over because the technology's moving that fast, right? Like there's better, faster options out there. Your customers are demanding the next new thing.

So I think bankers have to get into this mentality of it's not really a one-time digitally transform and you're done, but instead it is like this is the new approach to the business of constantly weaving in the new technology, the better way of weaving it into what are still the core tenants of the business, which is serving those relationships. So it really is a journey and not a big bang transformation done and on the next thing, right?

Alex Habet

Yeah. The more mileage we all get working together with banks and banks talking with each other a little bit, the more it'll spread, right? The network effect gets better. We learn better ways of doing things and it comes to fruition and technology solutions and then all of a sudden ... Like think of single sign-on, right? Just a few years ago, that wasn't even around. And you'd have to literally log into all these systems all day. Now, that probably saves you, I don't know, 10, 15 minutes per day now, right? That's a very simplistic example, but that is something that you can go back and patch up and make a much more efficient experience for everyday life. Same thing applies here with this stuff.

Dallas Wells

Yeah, that's right. So I mentioned in our intro that we would use these words. So we're right in the midst of launching something that we're calling Q2 Catalyst. And Q2 Catalyst is our set of commercial products, which range from commercial digital banking to business account opening and treasury onboarding and some loan origination. It's kind of all the things that you need to digitally serve your commercial customers. But along these lines, one of the key aspects of us building this, and one of the things that, frankly, from the product side of the house that's been really challenging is that it does have to be flexible because every financial institution that we talk to is in the midst of this now decade-long journey of digital transformation. And so they've got bits and pieces of this stuff done or they in some degree have done this anyway, but no one shows up in exactly the same state.

So it's really important that we be able to meet them where they are and then plug in the gaps and figure out what's the next right thing to do. So, one of the interesting things as we talk about that, though, is all of that sort of implies that there's some master plan, right? Like that every customer has this grand vision about where they're headed. Is that kind of a roadmap or at least a fuzzy point on the horizon? Is that necessary or do you just react to the next big thing in front of you? What's been your experience with all the customers that you work with on that?

Alex Habet

As a former customer myself, it felt like we operated in the latter example you provided where you're kind of just going from thing to thing, right?

Dallas Wells

Yeah.

Alex Habet

And not taking that step back and looking at the bigger picture, having that broader conversation. Do you need that? I actually think you do today, right? We're at a point where we've solved a lot of things. There's been a lot of progress in this space, right? We have great fraud detection tools in place. We have great underwriting process and technology in place. But taking that second, that higher-level conversation involves having an intention of where you're going to take all this stuff working in unison together. And it can look a little different, as you pointed out, from bank to bank. So is there one master plan to rule them all? Probably not. That would be a little bit too overgeneralizing, but I come back to the same concept that I think if you just really focus on the relationship as the centerpiece of specifically the client-banker interaction, you really can't go wrong.

And that's a very fundamental banking thing. Focus on relationships, but how often do you actually see technology investments completely aligned to that same exact objective? Usually it's more like, hey, we've got to make sure we keep the regulators off our back. So we've got to do this and we've got to make sure that ... There's a whole host of reasons, right? But when you actually think about it, that specific interaction point between the banker and the client is very underinvested. And so if you focus on that, that's when things really start to come together. Ask yourself, are you embracing the talent within your four walls effectively? Are you sending them into client meetings well-informed? Can you quickly paint a picture of the backdrop? Can you tell them what the market looks like? Can you give them your bank's perspective or the position in that space? How do you compete? What criteria must be met? That sort of thing.

You get that it's a huge boost to the brand of the bank, right? When you get your deal teams working in perfect harmony together, collaborating in real time, when you dial in your digital banking experiences to just the services that the client needs, right? If you give bankers tools to become more than just credit providers, it's a win-win for everyone. And look, I think I mentioned this in the last episode is that good bankers will spend a good amount of their time actually doing that very manually, right? They might be achieving a lot of these objectives, but they're spending 50% of their time just preparing to get there. We are at the point now where we can drastically shorten the amount of time and effort needed to get them up to speed.

And not only that, you get that applied to your entire workforce, not just the cream of the crop bankers you have. So in terms, again, going back to your question about the master plan, it can look different, but if you focus on that, chances are you will see remarkable results. It's kind of like the analogy. Do you remember in "The Matrix" when Neo plugs in the little thing and in 30 seconds knows Kung Fu or knows how to fly like a Black Hawk?

Dallas Wells

Yeah.

Alex Wells

You can kind of achieve that with ... It's a little bit less gruesome than the way they did it in the movie, but you can kind of achieve a lot of those types of capabilities as it relates to being a good financial banker or partner to clients. And along the way, you just pick off at the small problems again. Like figure out why Alex had to punch in his address again when you've banked with the same place forever. That's a solvable thing. That's just a symptom of the silo that the client unfortunately sees and is everywhere. But that's kind of how I would respond back to your question, Dallas. I'm curious what's your reaction?

Dallas Wells

Yeah, I think one thing that strikes me there is that what it takes is a really fair kind of introspection on behalf of the management team of how good are we actually at this? Right? So every institution that we talk to is like, well, we're really good at relationships. Our customers love us. We do a good job of building relationships and that's what we're known for in the community. Well, I doubt that every financial institution's actually ... Like, not everybody's above average, right? There's some of you out there that think you're good at it and you're not, and that's kind of the harsh reality.

And so I think what that takes is the management team being willing to look at this really clear-eyed evaluation of, hey, the world has changed. The expectations of our customers have shifted. Have we kept pace? And I'll give you the example that's used a lot. This won't be news, but I think it's a good example. It's a good way to think about it. For a long time there's a lot of bankers that said, we hear all the buzz about digital account opening, being able to open loans and deposit accounts online, but we started doing that and 95% of our accounts are still opened in the branch. So I just don't think people really want that stuff. Well, maybe it's because your digital account opening sucked, right? Maybe it's because they would get partway through the process and then they had to come into the branch to solve some problem, right? Like your tool kicked them out or they had to enter their address too many times and they're like, "Forget this. I'll just go down to the branch. I'm three hours in and I could have already been done and back." Right?

So that's what people started figuring out is that actually, when it comes to digitally building relationships, you're no good at it. And more of those relationships are trending that way. And so if you don't invest in that, if you don't get good at it, if you don't do an honest assessment of where you really stand, it's possible that you're missing it. And all of a sudden the customer base that expects you to operate more like Amazon and you're operating more like the "got to come into the branch and talk to a human being" and you're going to be left behind no matter how friendly those human beings are inside the branch. So that's kind of what this requires is that honest assessment of are we really good at building modern banking relationships, which are just different.

So even if you have really good human connections, your loan officer needs to be able to say, "Hey, we've been talking about this project. I'm going to send you a link to start the application. Just fill it out there. You'll be able to see progress. We'll get all the documents you need. Just start there. Holler if you got questions." That's marrying the two things in a way that if you say, "Hey, come on in. Meet me at three o'clock tomorrow and we'll fill out this application together," like you used to, they're going to be like, "Man, I don't have time for that. I got a business to run. I can't keep doing that." So I think it'll be really interesting. I think you're seeing a lot of financial institutions that are willing to do that, willing to make those hard decisions and those hard evaluations and a lot of them that just aren't.

And so they're the ones that kind of look up and they're like, oh man, we got left behind. When did that happen? Well, it was step by step by step when you just sort of refused to see it. So, anyway, I agree with you. I think some sort of a roadmap is necessary. Now, you can't see the future. It doesn't have to be perfect, but I think you should have a rough idea of here's where we're good. Here's where we're not good. Let's go solve the gaps that we have. Let's go solve the challenges. And heck, like try filling out one of your own online account applications and see how it goes. See if it's actually as easy as you think or if you've let the compliance regulatory-driven system holes, if you've kind of let all those things get in the way of actually a good experience there.

Alex Habet

Just to add to that too, it's funny. So I came here from a very large bank and one of the things that was intriguing to me was it was very rare that we all got together cross-functionally at the banker, underwriter, treasury officer level and literally talked with each other about what the full end-to-end life cycle of the deal looks like, right?

Dallas Wells

Yeah, that's right.

Alex Habet

I always said, why don't we just get all in a conference room, pick one team, find the team in New York that serves that market, bring in that credit officer, that underwriter, that relationship manager, whatever, and get them talking. OK. So I do this first. I talk to them about this and then I offer this kind of information. OK. Then I usually hand it off to this individual and then that individual talks ... That actually doesn't happen, which is shocking to me because it's a fantastic way to uncover a lot of these little ripples, right? So you said, your examples, run through your own application process. That's kind of the same thing, but just doing the internal handoff analysis. There's a lot of stuff to be fixed in a lot of that if you're not doing it.

Dallas Wells

Yeah. And you used to have secret shoppers come into your branches. Like you should have the same concept digitally and do it yourself. And I think that's an important nuance is don't look at it just internally. So it is important that you follow the trail internally, but look at it from your customer's perspective. And one of the things that we talk about a lot, it's a part of the launch around Catalyst, is this idea of an end-to-end journey for your customer. For them to be able to enter into a business relationship with your institution and for that to be a smooth process and for it to be somewhat consistent and for people to know who you are and where you've been and the things that you need, how you do business, how you don't like to do business. It's basic stuff. But, again, in a digital world, the expectations have changed and the required investment from you has changed.

So let's talk about that change a little bit. What's that really mean, that end-to-end journey thing, and how does it look different now from how it looked even just a few years ago? What are the big trends there?

Alex Habet

Well, one thing that's abundantly clear at least to us as an organization is that it's all about being a little bit more intentional now with what you're doing. So look, there are a lot of places you can really dig in and start blocking and tackling, trying to figure out how to make better, right? Different size organizations, they're going to have different starting off points or jumping off points, and the more complex organizations, they're going to have these really complicated ownership matrices of platforms and requirements and that sort of thing. So it's difficult to swoop in and make wholesale changes.

But to those organizations, if they were listening and looking for advice from at least people who get to talk to a lot of banks is, look, if you're focusing at least on the broader ecosystem, then you're on the right path. It's all about leveraging the right architectures and capabilities in just the right way and tuning the engine in just the right way. If you're doing that stuff, you're on the right path. If you're not doing that stuff, you're not unusual either. That's traditional how it's always sort of felt anyway. So that's about evolving into a new frame of thinking.

Smaller organizations and especially new organizations like de novos, for example, they're at a significant advantage here because they can move in much faster and they can close ... They don't have the $12 billion that JP Morgan has to spend on their infrastructure, but they can also make wholesale changes significantly faster and at much less cost usually. So this is an area where when we're talking to these banks, for example, we remind them. This is a generational opportunity because everyone's going to figure out how to become nimble at some point, right?

And so we remind them of that. And then we also see a lot of situations these days with mergers and the mix and match of systems and that sort of thing. That's always fun to navigate, he said sarcastically, but the point is the closer to ecosystem thinking you can get, that's the ideal footing. So it might be different parts of the life cycle depending on the bank. Some banks might have a much more advanced front end and not an advanced back end or vice versa, but get closer to that ecosystem thinking. That's what sets you up for a positive future.

Dallas Wells

Yeah. And when we start to talk about an ecosystem like that, I come back to always, probably what we talked about in the last episode, the last conversation we had where it can get wildly complicated, right? Like just the level of complexity inside of a typical financial institution. And then when you introduce all the moving parts of the technology and all the integrations and all the like administration and oversight and upgrades and all the stuff that goes with that, it does get really complicated. And so I think it's helpful sometimes to step back from that and say, what are we actually trying to do with this particular tool, with this piece of this ecosystem that we're building?

And so what we talked about last time is that there's really only four buckets of jobs that you're trying to do. That you're hiring any given tool to do. And it's either to win new business, like go out there and acquire customers in some way. It's to onboard them once you've won that business, get them into your ecosystem, simple things like get their loan closed or get the debit card ordered, get the direct deposit switched, those sorts of things. It's ongoing service of them, right? Which a lot of times is like moving money around and helping them make use of the funds that they are either depositing with you or borrowing from you. And then it's to try to grow those relationships over time to figure out what's the next need for them. So those are the four buckets, grow, onboard, serve. You've got to win that new business, right? And it's just a loop. You keep doing those things over and over.

So any new system, new project that you're evaluating, it's going to take hundreds of hours of people time, thousands of hours of people time, six, seven figures, sometimes bigger price tags on those. What are you hiring that thing to do? And is it clear what the outcome's going to be? What do you get? And maybe the forgotten question that I think you've touched on a couple times here is what does your customer get? OK? So of those jobs that we're hiring to do, you talk to a lot of banks and credit unions out there. Is there one of those that feels like it's getting the short end of the stick? Is there a place where it feels like there should be more attention paid, more focus in those buckets or are banks doing a pretty good job of spreading the love amongst those?

Alex Habet

I guess my initial reaction is there's probably a tendency more toward certain buckets, right? For example, the serve is a very high focus one. It's become, for lack of a better term, more of a commoditized thing. There's great workflow to even CRM. By and large, it's really great databases built with great workflows. And a lot of that will apply to making a great origination system. And these aren't new capabilities. They've been around for a better portion of 20 years. When it comes to things like winning and onboarding, that's where you start to see more of the newer trends influencing. And so not only have there been some dramatic advances in advanced analytics, machine learning, AI, all that stuff. That's a lot newer and not many institutions have cracked how to leverage some of these things, right?

They'll say, "Hey, we implemented optical character recognition. We can read financial statements." And then they kind of just do like, "We're done." That's a great ground floor to get used to using these kind of capabilities. There's so much more you can do that's tangential to that. And so that's why it's going to rapidly, I think, shift out of the more commoditized stuff and into the win and the ... And in terms of user experience, like the onboarding, right? I mentioned last episode that my spouse, she started her own business. She went with one of these digital-only banks because it was significantly less painful to enroll and get started and get everything set up than a regular. I encouraged her do it because I wanted to actually see what the experience was like so I can have that perspective in my own gig over here, and I was pleasantly surprised at how good they've gotten at this. And they're not even a bank, right? They're just using an open platform.

This is all new stuff. And none of this is exclusive to certain companies. Even traditional banks can leverage some of this capability. Think of the open platform and start partnering with other companies. The grow phase, that's like the sky's the limit, right? If you're providing a financial service to a business and you know that this company or this client of yours also works with another company who might not be a bank, but you know that if you tied your services together, it would be a better outcome, not only for your client, but also for you, that could be a new revenue stream for you by making that easier for the client. So all that stuff is just so brand new and we're super excited to start talking to a lot of our existing clients and, of course, prospects about some of this stuff. So definitely more to come and you'll hear a lot of these things as part of the Catalyst rollout for Q2.

Dallas Wells

Yeah, I think that's probably, Alex, a good place for us to wrap here. Our goal here was kind of talk generally about some of the difficulty of servicing this segment. It's hard, right? And there is no silver bullet here, but I think if we can frame it as here's the overall problem that we're trying to solve and then expect some future conversations maybe where we get really specific about this, we'll tackle some of these individual problems that need to be dealt with, some of those individual jobs to be done and we'll dig into them.

And that's really how we've approached the whole concept of Catalyst, right? It is our collection of things and they all have a problem that they're there to solve and we'll group them into those buckets of jobs that they're doing for your customers. And so when we talk product here, that's the way we'll do it, we'll focus less on the solution that we have for sale and more on like what problem ... Like why'd we go build this thing? So expect some future conversations around that. And so, Alex, thanks again for joining. Appreciate you coming back and doing this, buddy.

Alex Habet

Thank you, Dallas. That was great. Thank you.

Dallas Wells

And thanks everybody, of course, for listening. Don't forget, if you want to listen to more shows, you can go to the podcast page at explore.precisionlender.com, or you can head over to q2.com and learn more about the company behind the content. If you like what you've been hearing, make sure to subscribe to the feed in Apple Podcast, Google Play, or Stitcher. We'd love to get ratings and feedback on any of those platform. So until next time, this is Dallas Wells, and you've been listening to The Purposeful Banker.

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