FOMO, or the fear of missing out, is a term frequently used in discussions about social interactions. For example, it's the reason we check our phones immediately when a notification pops up. But how does it relate to banks and, more specifically, buying bank technology? Dallas Wells, Chief Success Officer at PrecisionLender, sits down with Jim Young to share his thoughts.
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Jim Young: Hi and welcome to The Purposeful Banker, the podcast brought to you by PrecisionLender where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, Director of Communications at PrecisionLender, and joining me today is Dallas Wells, our Chief Success Officer. Thank you all for tuning in.
When we wrote our book "Earn It", one of the phrases we used in the intro was, "It's a tough time to be a bank." When we come out with the second edition, and by the way the first edition is going to be out in the next couple of weeks and will be available on Amazon and Barnes & Noble if you want a copy, but when we come out with that second edition, we'll probably revise that wording a little bit. As we discuss in this podcast, the times are changing, and banks need to change as well, but first before we get into that, let's talk about what's in the title of this podcast, which is the term FOMO. Dallas, what is that and what does that have to do with banks?
Dallas Wells: Well, I've got to say Jim, explaining FOMO is not one of the things I would be doing on our Purposeful Banker podcast, but here we are.
Jim Young: We push the boundaries on this podcast, Dallas.
Dallas Wells: Yeah, we really do. So FOMO is the fear of missing out. So bankers love acronyms, so there you go. If you don't know that one, there's a new one for you, and fear of missing out really has become a thing needing an acronym in the social media world that we live in now, and so it comes from a tendency of people to wonder what's going on everywhere else in the world and in all their friends' lives and all their co-workers' lives, because you can go and find out so easily. So it's the fear of missing something in that constant stream of information that goes by. It's the fear of missing out on some social event. It's the fear of missing something in your email. It's why we all, when we hear the ding in our phone, we pick it up and check. That is FOMO. That's the fear of missing out on something important or interesting, and so you get that little dopamine hit whenever you check and see what you might have missed.
Jim Young: Yup.
Dallas Wells: So what that has to do with banks, and what banks are fearing missing out on. Banks like to pride themselves on, and I used to hear this phrase a lot more than I hear it now, but banks would pride themselves on being fast followers. In other words, it's a really bad idea to be the first one to try something because, as we've talked about a lot of times here, this is not a business where you can afford to be wrong very often, and so banks don't want to be the first one out of the gate with something and have made a mistake somewhere along the way. So they want to see an idea proven, and then they'll be fast followers.
Well, we're kind of to that point now where there's a lot of stuff happening in the industry, which we'll get into, and I think that banks are starting to go from fearful of a lot of those changes, to starting to have that FOMO a little bit. Fear of missing out on what everybody else seems to be doing that might just be working.
Jim Young: Got you. So now we know that this FOMO that is prevalent in banks. Let's dig into some of the reasons why it's particularly on the rise right now, and let's start with the global view. The banking crisis of 2008 had a very long ripple effect. Have we finally gotten to a point where we can say the aftershocks from that have settled?
Dallas Wells: Well, I think a crisis of that magnitude, which really in modern history has only been rivaled by the Great Depression, I think there will be aftershocks there and aftereffects that we'll feel for a very long time, but I think for the most part the waters have calmed. The regulatory changes have stopped. Most of the new rules have been rolled out, or at least they're in the process of being phased in, and everybody knows what the rules are or will be, and most of the credit issues are well in the past. In fact, we've been in a pretty long stretch of a very healthy credit cycle now, and so most of those things, I think, are in the rear view mirror.
Jim Young: So, and we may have gotten a little ahead of ourselves here, so that basically now corresponds with you would argue sort of a shift in bank attitudes at this point, which again is going to play into that. You don't have a fear of missing out if you don't have a sense that anyone's doing anything, right?
Dallas Wells: Yeah, because right after the crisis, it was duck and cover for everybody.
Jim Young: Absolutely.
Dallas Wells: It was clean up your credit messes. It was prepare for the inevitable regulatory tidal wave that was coming. So nobody was trying anything new. Nobody was being really aggressive with new business. There were a few outliers, but for the most part everybody was in the same boat, which was kind of the turtle strategy. Go inside the shell, hide for a while, and peek your head out when it feels like it's safe, and I think that's the point we're at is everybody's peeking out now and saying, "Things look okay and, in fact, there seems to be some activity going on around me."
Jim Young: Mm-hmm, and now you've actually got to start wondering is someone doing out there, doing something that my bank should be doing at that point?
Dallas Wells: Exactly.
Jim Young: I'm going to now try to tiptoe into a potential minefield here, but it's a question that needs to be asked. Is the recent presidential election playing a role in this shifting attitude, this coming out of the shell for banks?
Dallas Wells: Yeah, I think so, and I think elections where there's changes like that, you know, where we go from one party to the other, I think there's always this euphoria from one side and kind of despair from the other because it seems like the end of the world. So I think some of that initial excitement from the business community, and your potential minefield there, I won't get into all the political issues, but what bankers were excited about with this, it wasn't just the presidential election, but some of the congressional changes and all the appointments and stuff that go with a change in power like that.
What they were excited about was that a lot of promises were made during the election season of things being rolled back. So making regulations easier for business in general, for banks specifically. Maybe changes to corporate tax rates and simplifying corporate tax code, and all kinds of things that mean real dollars to the banking industry, so it felt like that it went from just some calm after the storm of the financial crisis to all of a sudden now there was some wind in the sails, where maybe not just there's no terrible regulation in front of us, but we might actually get some of this stuff rolled back, and so that changes it to a really positive feeling for a lot of folks in the industry, regardless of what your other political beliefs might be. The business environment looked pretty good, pretty promising.
Jim Young: All right, so let's take a moment here to kind of reset and put this back together. We talked about this concept of fear of missing out, and now we've sort of laid out the groundwork for why this is even a possibility now for banks in terms of 2008 is finally in the rear view mirror, we've got potentially a better business atmosphere for banks. So into that environment becomes the option now for banks to actually take a look at their technology and decide is it time to make a move with this sort of thing, and then, as you mentioned before, then also creeps in a little bit of the fear of, "Oh, man, is everyone else going something? Am I missing out on something? Should I be doing something?" Moving that to the next step, just because a bank can now purchase tech, doesn't mean they should or does it? What is the motivation right now?
Dallas Wells: Yeah, and another factor that I think is worth mentioning is being able to because the ships have been righted, right? The credit problems are in the past, and the regulatory environment looks better, but also earnings are up and interest rates are rising, and so that part of the equation is important to mention too. So now, all of a sudden, there's a restoration of technology budgets. So if you rewind over that whole period we talked about, you look at where banks were which, there wasn't a ton of technology investments that were made leading up to the crisis. I think times were good, but there was no pressing need for anybody to make big investments.
Then you go all the way through the crisis, which is now a decade in the rear view mirror essentially, and if you look at how much technology has changed in the last, even if you just call it that decade, but realistically it was a little more than that, you're looking at 10, 12, 15 years since a lot of banks have really made meaningful investments in their own infrastructure. So they've done little add on things like additions to mobile banking, and they've improved their apps, and maybe given a face lift to their online banking page, but the real guts of the organization, the real infrastructure that they've been using is really old, and so you have income to do it, yeah, but your question of should they do it?
Well, its not just a matter of keeping up with the Joneses, in a lot of cases it's there are real pressing issues that need to be dealt with, and also there's real opportunity there now that wasn't there 10 years ago, and banks liking, like we started out with, liking to be fast followers. There's proven things out there that have been proven either by banks or certainly in other industries that banks can now jump into. They have the budgets to do it, but what they're finding out as they get into that is it's not something they can just slap on top of their old legacy technology stack. They have to dig really deep into the stuff that's there to be able to add on all the cool new stuff that they're excited about.
Jim Young: Okay, well let me offer a little bit of pushback here on this, because it sounds to me like you're talking in terms of buying new technology, yet CEB puts out their annual report on trends in bank technology spending, and we'll post the actual hard numbers into the podcast link on the blog post, but I remember being struck by there were significant amount of banks spending their funds essentially on their current systems, not new ones. So, in other words, to me it sounds like updating old legacy systems. So I guess I ask you, you laid out the reason why you wouldn't want to do that. Why do you think they are?
Dallas Wells: Well, a lot of times it's the cheaper, easier alternative in terms of dollars out of pocket today, and so what we've run into is even some banks not being really sure how to make these decisions. Again, it's been a while since we've done this, and the technology world has changed so much. They come back to go shopping again and they're like, "Holy cow, everything's different here." So it is a little unsettling how different it is from traditional legacy systems.
So I guess the, "Why not do that?" I guess I'll go back to the old adage of the first way to get out of a hole is to stop digging. So banks feeling like they're behind, they're struggling with some of these, every banker out there will complain about their core system and how it doesn't do exactly what they want it to, and yet you look where they spend their money. The biggest check they still write every year, even the very largest banks, is dealing with that core system. In some way keeping that thing afloat.
So at some point you have to make the decision to, and not just around the core, but around origination systems and old CRM tools or pricing, customer facing portals, all those kinds of things, you have to pull the plug on the old stuff and, instead of feeding the monster there, redirect some of those dollars to the new and exciting things that are out there now.
Jim Young: We've talked about it before at one point about how storage used to be a super expensive thing, and now it has just become a commodity, and it's changed a lot of the industry. This new technologies particularly in the cloud, is there a case where maybe people aren't aware the extent to which those have become so much more usable?
Dallas Wells: Yeah, I think usable's one way to put it. Cheaper is another way to look at it, and also proven to be okay in the banking world.
Jim Young: As in secure?
Dallas Wells: Yeah, safe and secure. When we started PrecisionLender in 2009, one of the decisions that may have seemed a little out there at the time was we're going to do this cloud only. We're going to do this as Software as a Service delivered through the cloud, and if somebody says it's got to be on-prem, we just say, "Sorry, we're not going to do that." There was some lost business along the way in the early days from that, and some larger banks especially that would say, "We don't do cloud stuff." We still occasionally run into, "Do we have to do it in the cloud?" but we don't hear the, "We don't do cloud stuff," anymore. So it's become acceptable across the industry, but it's also just the utility of it.
The first things to go into the cloud, people kind of struggled with the why bother? Right? Why put it out there other than maybe some disaster recovery benefits. It was hard to see much real value, but now that the entire technology world has shifted a little bit, and you see the value of something being deployed that way, and the continuous deployment you can do, the constant updates, the much simplified maintenance and ability to configure things instead of write custom code. Now people see real business sense in that, and so those things have proven, they're cheaper, and there's just a lot more use cases out there that make sense for banks.
And I think that's really where the struggle and where the FOMO that we were talking about comes from, is you know that there's lots of things that you could do, lots of options. They all sound great, so the question is what should I be doing? What should the priority be? Where do I start this process? And it think that's where, the questions we're hearing all the time are, "What's everybody else doing?" We know we need to be doing something. We have some budget to do it, but are we doing it the right way, or are we going to be left behind because we picked the wrong horse here?
Jim Young: Right, exactly. All right, well that will do it for us today. Thanks for listening. If you'd like to learn more, visit our resource page at explore.precisionlender.com. If you like what you've been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, Google Play or Stitcher, and we love to get ratings and feedback on any of those platforms. Thanks for listening. Until next time, this has been Jim Young and Dallas Wells, and you've been listening to The Purposeful Banker.