A slow economy gave regionals chance to catch up on tech
Grayson Hall could be considered an optimist.
Hall, who recently retired as CEO of Regions Financial in Birmingham, Ala., admits that regional institutions have had limited bank acquisition opportunities in recent years. And he acknowledges that the economy isn’t growing as fast as most bankers would like.
Still, Hall is convinced that the sluggish environment yielded some benefits for regional banks. Primarily, it allowed banks like the $125 billion-asset Regions to improve core systems and customer service, especially though an increased use of technology.
Technology is familiar territory for Hall, who is set to step down as Regions’ executive chairman at the end of this year. He was the chief information officer at AmSouth Bancorp., which Regions bought in 2006. At AmSouth, he also oversaw the technology and operations side of the bank.
Regions has also been working on fintech initiatives. It invested in Lender Price, a mortgage fintech firm, and introduced Regions Wealth Platform, an online interface for trust and investment management services.
Hall recently shared his thoughts on the banking industry, its use of technology and fintech competition, at a conference at the University of Mississippi. He provided additional thoughts in an interview after the speech, though he declined to discuss Regions specifically.
Here is an edited transcript.
Where are we now in terms of the economy?
GRAYSON HALL: I think all the economic metrics are very positive. Several months ago we were all asking if we’d continue to be subjected to slow growth of 1.5% to 2% GDP. Now we’re asking how long will [economic expansion] will last. Given that we’re still not that far past the great recession there’s still a lot of thoughtful caution by consumers, businesses and bankers.
As I go around talking to customers there are two issues I hear. The first issue is tied to the work force. It is hard for business owners to find qualified labor. I also hear a lot of complaints about the duration in time it takes to order new equipment. Those have served as a constraint on economic growth, which might be a good thing. We’ve got bankers looking around every corner for the next downturn. Numerically, you don’t see evidence of anything, so we think the economy is on a constructive path. Still, downturns are hard to predict.
What’s your view of technology use in the banking industry?
Technology is having an impact across all the channels that traditional banks provide. That includes branches, automated teller machines, call centers and web applications. While most growth has been in digital channels, customer expectations continue to accelerate. They don’t necessarily compare Bank A to Bank B in terms of digital. They compare banks to other industries.
There's a need for greater speed of delivery. We’re seeing adoption of new technology accelerate. It took 35 years for 25% of households to own a telephone. It took just three years for 25% of households to have a smartphone. That is having the largest impact, not only on our business but on many industries, because people are using [smartphones] to purchase products and make financial decisions every day. It gives them choice and convenience.
Then you have the impact that dominant players like Amazon are having on customer expectations. It has raised the bar for all of us and changed the way consumers expect to be serviced.
What’s your view on fintech?
Fintechs are new competitors, but we see that as a positive thing. It stimulates innovation and finds new ways to help customers. When you see innovation, you know it will be disruptive, competitive and, at times, confusing, but in the end it helps customers. There will be some growing pains. Some disruptors will suffer from funding challenges, given market volatility. I think banks will partner with some and compete with some — and some we will acquire. Banks are investing a lot of money to satisfy customers and address their higher expectations.
Banks have significantly increased their investment in fintech.
Evidence indicates that the pace of investment and the scale of investment have clearly accelerated. One thing to look at is the changes in the spending that large companies are making. When you look at traditional banks, they’re [collectively] spending over $100 billion a year on technology. But customers are benefiting from a better experience, more choice and more convenience.
Today, a lot of the time is being spent on artificial intelligence, though I prefer to call it augmented intelligence. We’re using AI to automate a lot of the routine service transactions. If you have a team member sitting at a computer to collect data for a decision, we can now automate that. We’re using a lot of different products to improve efficiency and provide higher-quality answers for customers. Innovation creates disruptions. Some people adapt and some won’t — there are clearly winners and losers.
What are your thoughts on payments?
Payment channels die slowly. Look at the age-old paper check. We’ve been trying to eliminate that since the 1980s, but it is going away slowly. Part of [reason checks still exist] is we’re using technology to process them more efficiently and inexpensively. Over 50% of financial transactions are being done electronically. We still see a lot of cash in the system, accounting for roughly a third of transactions. The card has become the dominant payment of choice with rapid acceptance.
What areas are primed for tech disruption?
We’re just in the very beginning stages of AI. We're taking very routine tasks and doing them faster, better, cheaper and with more consistent results.
One of the biggest challenges is identification and authentication for customer access. We have tried to make so much data available for customers. This ability to engage with your bank online on a real-time basis has also created a window of opportunity for a certain elements of our society to try and take advantage of that. The most difficult part of the customer experience is authenticating that you are who you say you are.
There’s a lot of work going on in voice and facial recognition to identify customers faster. Just look at what Apple is doing with facial recognition. That will remove a lot of fraud. User IDs and passwords must go away. You have to find a friendlier way to give information to customers — and no one else.
Cybersecurity is particularly important to banks because we’re supposed to be a trusted advisor. We are in the trust business. Without that we really don’t have a business strategy.
What about the branch model?
Today, branch employees must have different skills such as problem solving and providing advice and guidance around financial decisions. We also have to deliver consistent real-time information across all channels. Customers don’t restrict themselves to a single channel. While traffic is down at branches, 86% of millennials still say they use them. While we look to rationalize branches — they are our most expensive channel — they are still important. We still believe branches will be relevant. There will be fewer and smaller branches, but they will still be there.
How do you prepare employees for a tech-centric model?
You invest more in training and messaging to create an environment where the workforce you have is successful at implementing and maintaining new technology. Technology is just a tool, albeit a very important tool, but the sustainable competitive advantage in our business continues to be the people. Banking at its core is still a people business. We need to have business plans that pay attention to technology and invest in that, but we should never forget that investing in our teams and training, and creating a passion for our mission, is important for business.
When you look at banking today, the vast majority of employees are working in branches. I think there will be fewer branches and fewer people employed in branches. The good news is that new format branches will result in different roles. Customers in new format branches really want to sit down with a banker who can meet all their needs. From that standpoint it is a better role, and a broader role with more opportunity, which is good news.
When you back away from branches, you will need to recruit people with totally different skills. We are recruiting people for data mining and data modeling, and people who understand channels and how to harmonize those. We're looking for people who are experts in fraud protection and fraud prevention. Technology jobs, whether it is client facing or involves risk or infrastructure, as a percentage of the workforce is going up dramatically.
How do regional banks measure up to bigger institutions in terms of tech investment?
The big banks continue to invest even more in digital channels. Clearly they will be early adopters. Regional and community banks still lean heavily on relationship banking, which I think is correct. Still, we must be aggressive followers to play competitively with larger banks.
Regionals are probably in a better position than they have been in years. In the last 10 years there hasn’t been a lot of acquisition activity among regionals. Most M&A has involved [community banks]. But we’ve been spending a lot of time and money on systems, including regulatory compliance and risk management. Time and resources have been devoted to delivering a better digital experience from a technological and infrastructure perspective.
A slow economy with limited expansion opportunity let us focus inwardly to get our house in order. That should continue for a while. You hear some consultants say that the largest banks are just going to outspend regionals on marketing and investment. My experience with technology is that it is hard to sustain a competitive advantage but you have to invest to stay competitive. Every dollar invested eventually benefits the entire population of banks because it can easily be replicated.
You have to realize that the investment is taking place and you have to stay competitive, but you have to be very selective and invest in the right things. Investments in technology, as a percentage of spending, continue to go up. I don’t think regionals are in any way disadvantaged in today’s environment.
We’re all making different decisions and time will tell how those decisions play out. Banking will change a lot in next 10 to 15 years. It will be exciting but also challenging.