What do the results from Bank Director's annual technology survey tell us about how banks are viewing technology and their ability/willingness to invest in it during a pandemic? We take a closer look at the survey's findings in the latest episode of The Purposeful Banker.
Helpful Links
- 2002 Technology Survey Results: Accelerating the Drive to Digital (Bank Director)
- First Financial on the Hunt for M&A to Offset Crossing $10B in Assets (S&P Market Intelligence - Subscription Required)
- How Banks Can Grow Like Bank of America, Chase, and Wells Fargo: The Reacquisition Imperative (Forbes, Ron Shevlin)
- The Reacquisition Imperative (Cornerstone Advisors)
- COVID-19 Market Updates & Resources
- Risk Levels & Bank Behavior During COVID-19 (Report)
Questions? Comments? Email Jim Young at jyoung@precisionlender.com
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 bankers. I'm Jim Young, Director of Content at Precision Lender, joined again by Dallas Wells, our EVP of Strategy.
Today we're going to take a deeper look at Bank Director's annual Technology Survey, which was released earlier this fall. And Dallas, let's start off here with the timing of when the survey was conducted, which is basically in the summer after the whirlwind that was PPP. Not a real surprise then that one of the findings was 65% of respondents say their bank implemented or upgraded technology due to the coronavirus. What I'm curious about is do you look at that stat and think that's a one off, or hey, that's a growing trend?
Dallas Wells: I don't think banks did anything as a response to the pandemic that wasn't already on their roadmap or at least in their line of sight somewhere, it's just that it happened sooner than they thought and it was forced upon them of, "Hey, I know this is something you'd like to have gotten to in the next two years, five years. You got to do it in the next 30 days." So that was the sort of insanity of it all, is that it pulled forward some investment.
What I think will be really interesting to watch is does that mean that that investment's now happened and there's a little lull? And I think there will inevitably be some as banks have to digest and frankly do some cleanup of when you have to do things that fast, you got to skip a few steps and cut a few corners, and they can go back and clean up some of that.
But I think there also is going to be ... What we've seen already is that there are some really good early results from that stuff, and so it may actually cause ... I think that that will always be a spike as you look back over the trend line, but I think it may actually accelerate some of those projects going forward. Right? We'll keep some of that momentum just because the consumers have responded really well to it, and I think banks are seeing some pretty big ROI on it. It's been thrust upon them, but I think they're happy with how it's gone.
Jim Young: Yeah. Yeah, there was an article I was looking at. I don't know this specific bank (Editor's Note: It was Abilene, Texas-based First Financial Bank), but it was sort of a it's almost too much of a good thing where they did so well with PPP and adding customers during this stretch that they inadvertently went over the $10 billion asset mark earlier than they thought.
Dallas Wells: Yeah, earlier than they thought.
Jim Young: Right. But I think, yeah, again, an indication of tough time, definitely. But if things worked out well, like you said, the ROI in some of these cases could really make a case for future investments.
So that's a rosie stat, but then it's followed by this one that I thought it was a little bit curious, which was only 37% of respondents say they sought new technology providers as a result of the pandemic. So 65% are implementing new stuff and that sort of thing, but only 37% say they were looked to new technology providers. I had three possible multiple choice on this one, and maybe you can feel free to also choose none of the above.
But does that mean that A), they just already have a stable of providers, that what they needed to handle COVID and remote employees and all that, they just went to one of those? They had what they needed to meet their needs. Or B), are we talking about essentially a lot of banks that pretty much it's always the core provider for them that gives them whatever technology solution they're hoping to get? Or does it mean C), that they said, "You know what? We can do some of this stuff ourselves"?
Dallas Wells: I think it's probably a combination of two of those. What it's not is, at least according to the survey, is it wasn't the banks doing it themselves. There simply was not time to build too much stuff in-house. Now, there were a few banks, and especially the big banks, who did a whirlwind building of something, but that was largely banks that already had some homemade solutions and they were doing some modifications of those to meet some specific needs.
So really this was Bank Director does a good job of breaking all these survey results out by size of the institution. And so there's a size under 500 million usually that just their core provider provides the vast majority of their solutions, and so they did just stick with the core providers. But for the others, they used alternate providers, not their core system vendor, but it was somebody they already did business with.
And so I think this is just them being smart. This is a mistake we made as a startup along the way multiple times, where we tried new ideas and also tried them with new people that we'd just hired. And then if it didn't work, the question was, "Well, was it the idea or was it the person?" And I think banks didn't want to get caught in that of trying new technology with a new vendor and then if it flops, where's the problem? So they went with proven vendors, even though the solution might've been something that they wired together with string and chewing gum over the weekend. At least it was with a known quantity.
So a lot of this stuff that the banks had to use didn't exist out of the box. There was no PPP solution that existed before that program was announced. There wasn't even a very clean way to connect to SBA. There was the E-Tran system, but it didn't get used in the way it was for PPP before that. So lots of new stuff that had to be built on the fly, that the banks just turned to their trusted providers and those that they know do good work and do work quickly.
We saw some unusual projects come our way with existing clients. It wasn't new banks coming to us, but it was our existing clients saying, "Hey, we have X problem or Y problem that we're trying to deal with. I know it's not your usual. It's not down the fairway for you, but can you help us?" And so we ended up doing a fair amount of that kind of work through the early days of the pandemic, and I think lots of vendors saw that same thing.
Jim Young: Yeah, and now that I think about it, that probably is another... Maybe... The biggest sort of element is simply again, and we know this as well as anyone, vendor vetting at banks is not a fast process.
Dallas Wells: No, you want somebody who's already approved so that you can tack on something to an existing agreement way easier then you can start from scratch with somebody who's got to clear all the due diligence hurdles. That's definitely true.
Jim Young: That may have been the answer right there. It was just simply hey, these guys who do something cool don't have time.
Okay, well, then another stat that is going to be a little bit of a Captain Obvious one here: 81% of respondents say improving customer experience drives their bank's technology strategy. I mean, that makes perfect sense. But then I should also note that the way that Bank Director does this survey ... Well, actually, I should note that we'll have links to the survey here. Obviously thanks to Bank Director for doing this survey. It allows us to do this podcast, piggy backing off of it. We'll definitely have links to that survey so you can dive into the numbers yourself in our show notes.
But they allow banks to ... They don't pick their top objective, they pick their top three objectives. So while 81% picked customer experience as a key priority improving that in terms of their bank strategy, 79% also picked create a more efficient operation as one of the top priorities. So basically pick your top three objectives when it comes to spending on tech, and 81%, customer experience; 79%, create a more efficient operation.
And so Dallas, I will... I was going to say I was going to play the role of jaded cynic here, but that's really ... I mean, I don't have to play that. I was going to say it just comes naturally. If you ask a bank to say one objective, does customer experience still come out on top, or is it maybe efficient operation?
Dallas Wells: Yeah, I think I'm afraid you might be right there, that I don't know that improving the customer experience, like it's always going to be in the top three for banks. Because I believe that they're genuine there, but I don't know that it's the top priority. And you know, we should also point out that those two don't have to be mutually exclusive. If you think of some of the truly awful customer experiences out there - things like dealing with Comcast - efficiency, would actually make them much better to deal with, right? Like if you called a person, they could actually find in their system who you were and when they had talked to you before, etc., etc.
Jim Young: Yes, I would like my medical provider to not ask me for the medications I take every single time I go there.
Dallas Wells: Right, yeah. So there are some cases where you can actually get both, right? That is certainly possible. Those two don't have to be opposing ideas. But I think it is fair to say there are some banks where that is absolutely the top priority and they invest accordingly. There are plenty of others that we have seen firsthand where it's like, yeah, nice if we can get it.
And I'll tell you the indicator that I saw in this survey that makes me think that probably isn't realistically the top priority. Enhancing the bank's top line growth. Revenue and sales stuff was only in 25% of the banks' top three. If you're really talking about improving the customer experience, one of the outputs of that should be that there should be revenues associated with that. If you're providing new products, new services, better serving, there should be some top line growth from that, if you're really, truly going to invest in that. And you can see it's just not a priority. There there's much more focus on efficiency than on top line revenue growth, and it's been that way in banks since I started in this business. It's been that way for a long time.
Jim Young: I was going to say, and the other part of that is, is yeah, if you say that we're not really that focused on growing revenue, well, then you better be focused on managing and reducing expense, which goes in with creating more efficient operation in that situation.
All right, but let's put aside our data cynicism for a minute here. And assuming that banks really did mean it when they say customer experience is top priority, well, then I was a little bit struck by only 33% put leveraging data for customer and/or strategic insights into that list of top priorities. And this is... Again, I don't want to go down the rabbit hole of how surveys are constructed and how you construct questions and options and how that affects things, but only to acknowledge that there's some of that here, and maybe do you write that off to hey, I already said customer experience was important so I don't really care about the customer insight part, that maybe it's implied in that first one? Or do you look at this and say banks maybe don't connect data insights as being key to customer experience?
Dallas Wells: One interesting thing there. The stat you cited was 33%, and that's actually for banks over 10 billion, so the grand total number there was 27%. For the smaller community bank, so those under 500 million, that number is all the way down at 19%. So to me, that's what's interesting about that, is that you see the larger banks ... And that's not just the survey results. You can see the evidence of it in lots of other places also. The larger the banks, the more they are investing in leveraging data.
The community bank answer to that will be "Well, that's because you have to. You don't know your customers as well as we do."
In the early days of my career, I worked for one of those very small community banks. We were $300 million or so at the time I was there and we had somewhere in the order of 17,000 customers, so that's a very small customer base compared to these larger regional and global banks. But we didn't personally know that many customers, right? Everybody knew their customers they typically dealt with.
But I think a lot of community banks maybe are a little fooled sometimes by how well they really know their customer base. And that there is, if you are going to improve the customer experience, you are going to have to leverage some data. You are going to have to know how to treat different customers differently, how to give them a personalized experience, and the only path for that is with data, especially when most of those customers are interacting with you now through digital channels. You don't have the person in the lobby who knows how they like their cash counted back when they come in and cash a check and that they prefer large bills over small bills, right? That's irrelevant in the digital channel, but there's lots of other things that would be relevant.
I was a little surprised to see that down there. I think a lot of it is just by the nature of how the survey was set up, that it just didn't make the top three. Didn't mean it wasn't important. And maybe banks saying, "Well, maybe that was already included in the if I want to improve the customer experience, I already included that, and this seemed like a subset of that." That could be possible, but what was interesting to me was the difference between the smallest and the largest banks in that category.
Jim Young: Got you. All right, I need to make sure to make a mental note, go back and edit the podcast so that I say the right number, and that I'll just edit out the part where you corrected me and called me out not reading a chart correctly.
Dallas Wells: Problem solved.
Jim Young: Yeah, thanks. But actually, touching on a little bit again of the big bank/smaller bank difference in strategy, of difference in resources, and maybe difference in philosophy here, 50% of banks over 10 billion in assets reported they're hiring data scientists. Only 14% of banks in the one to $10 billion area are doing so. So if you're in that one to $10 billion banks ... And I'm putting aside the really smaller community banks ... but if you're in that group, the 1-10B, does that widening gap in the data science arms race, does it concern you? Or do you look at it and go, "Well, yeah, again, they're massive. They probably should have some data scientists combing through all their data"?
Dallas Wells: I think if I'm a bank in that category or smaller, this is the issue that panics me. And it's not just because they're spending the money on data initiatives and on data scientists, it's that they're getting results with it. I think there's a study that Ron Shevlin has done at Cornerstone Advisors that we'll try to link to from here if we can dig it up.
But Ron has pointed out that for all the talk about Fintechs and alternate providers of things like checking accounts, that's not where most small community banks have lost market share to. They're losing it to Bank of America, right? They're kicking their butts in new account openings and deposit growth.
And in some of the research that Cornerstone has done, it comes down to they have better digital tools, and they feel like the bank knows who they are and what they need and what products are right and how to interact with them. That's all data. That's data-driven stuff and the willingness to spend on technology and make decisions based on data.
That would scare the heck out of me if I was an executive at a community or small regional bank. That's an arms race that's going to be hard for you to keep up in, and I think that's where you're going to have to make some smart vendor choices in the coming years, and you can't rely on some of the old line core providers to keep up. They're just not going to.
So I think that's where these banks are going to have to turn to make sure that their customers, their account holders, are getting the kind of technology, the kind of data response that will make it seem like it's worth staying with the smaller local institution versus Bank of America or Chase, who are the ones who are actually winning this race, not the fintechs.
Jim Young: All right. Well, I want to end this one, final one that is more of just an interesting observation maybe than a pressing question, but it's one of those I label it as tech vendors are from Mars and banks are from Venus sort of findings, or you can flip the planets if you want to. But I was just struck by one of the questions was about top three challenges in shifting to a remote workforce, and 34% of the respondent ... And I think the top one on this one may have had like 42, so this was right in the mix with all the other ones ... Said that one of their biggest challenges was acquiring laptops to provide employees. And again, I just thought that was interesting.
I left the newspaper business in 2008, and that is the last time I used a desktop. Ever since then it's been laptops and docking stations and taking the computer home with me and that sort of thing and doing work on it. I don't know if you can shed some light on that. That just struck me as that's really fascinating, that that was an issue for banks.
Dallas Wells: Here's some interesting on top of that, again, not necessarily pertinent. I don't know that I'm answering the question you didn't ask. But this has actually been an issue for schools as well, and one of the interesting things is, is that there's all kinds of computers sitting in office buildings that just got abandoned in March, as there was this mass exodus from these big office buildings.
A lot of times ... And some of the banks fell into this, too. It wasn't necessarily that their employees were using desktops, it's that they had laptops, but they're in the building and getting back in a thing, and it's actually just cheaper and easier just to send them a new one, issue them a new one. And especially because there's some new software that has to be put on there anyway, they can just pre-set it all up and send it to them, rather than have to one by one have an IT person dial in to that person's laptop and do all kinds of updates and changes to add video conferencing, software and VPN stuff so that they can VPN into the network. And so bankers may have had laptops, but it was like they weren't necessarily set up to do robust work remotely.
And the other side of that is, is yeah, there's actually a lot of desktop systems out there and a lot of employees who log into a workstation that just permanently stays attached there. They may move around a little bit, but they just log into different desktops that are there. So a little different setup than you're used to, but I think it's pretty common.
Jim Young: Yeah. Interesting stuff. All right, well, that will do it for this week's show. Dallas, thanks again for coming on.
Dallas Wells: You bet, anytime.
Jim Young: Thanks for explaining to me how it works inside of a bank with the technology as opposed to-
Dallas Wells: Yeah, glad we settled that.
Jim Young: Exactly. And thanks so much for listening. Now for a few friendly reminders. If you want to listen to more podcasts, check out more of our content. You can visit the resource page at precisionlender.com, or head over to our homepage to learn more about the company behind the content. If you like what you've been hearing, please make sure to subscribe to the feed in Apple Podcast, Google Play or Stitcher, and we love to get ratings and feedback on any of those platforms. Until next time, this is Jim Young, Dallas Wells, and you've been listening to Purposeful Banker.
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