Technophobes vs. technophiles: Community bankers divided on digital
BOSTON — Here’s a social experiment: Ask a room full of bankers to discuss the balance between branches and technology.
The answers will vary. On one end of the spectrum are bankers who believe branches are quickly becoming irrelevant to a growing technophile customer base. Others remain skeptical of emerging technology and fintechs.
Most bankers fall somewhere in the middle. While they express an interest in new tech, most of those executives also believe the branches will continue to play an important role for years to come.
American Banker recently hosted a meeting of several Boston-area bank executives to discuss industry trends in a conversation that underscored the vastly different approaches they are taking.
Bankers, by and large, said they are pleased with the current business climate. Profits at most banks rose in the first quarter, and institutions around Boston are hiring and launching new products. Still, anxiety lingers, particularly as customers move to digital channels and new competitors rise up.
“We still have to keep thinking, ‘Are we the pharmacists of 1965?’ ” said Barry Sloane, president and CEO of the $4.8 billion-asset Century Bank in Medford. “They all said the same thing. ‘Oh, don’t worry. We know Mrs. Jones’ peculiar ailments. They’ll never pass us.’ And if you think of the pharmacy industry, ultimately two giants got the experience right.”
The pharmacist analogy resonated with Michael Daly, CEO of the $11.5 billion-asset Berkshire Hills Bancorp, which recently moved its headquarters to Boston. After relocating, Daly traded the local pharmacist he had known for years for a 24-hour CVS.
“They text me when my prescription needs a refill and text me when they are there," Daly said. "I love [my local pharmacist] but I don’t miss him."
It is easy for customers to stick with a bigger financial institution, the bankers said. As a result, small banks must find ways to stay relevant.
“Inertia is the strongest force in the world,” said Darryl Fess, president and CEO of the $4.2 billion-asset Brookline Bank.
Challenges vary greatly based on each community bank's business model.
Radius Bank, a $1 billion-asset online bank in Boston, doesn’t have to worry as much about overhead. Instead, it aims to build a national brand as a forward-thinking community bank.
Mike Butler, Radius' CEO, said his biggest concern is the speed of the banking industry’s technology and keeping up with customer demand. The bank has partnered with three fintech firms, including Mantl, a startup that improves online account opening processes. Radius, which invested in Mantl, was the firm's first client.
“Now they have four clients and our investment has doubled or tripled,” Butler said. “I have a new account opening system that gives the client the opportunity to open an account in three minutes, down from seven minutes. This is where the industry is going.”
Not all community bankers are ready to experiment.
“I have to say, I am a dinosaur on these matters because I’m just very worried about all of these fintech vendors,” Sloane said, adding that he’s concerned that fintech firms lack an understanding of the intricacies of bank regulation.
“I know I'll always be six to nine months behind the best in the industry,” Sloane said. “I can live with that because my view is the greatest risk I have in the business is no longer lending risk — it’s cyber.”
Still, worries about cyberattacks shouldn't deter banks from taking a closer look at technological innovation, Butler said. In some ways, tech could address issues in a bank's growth strategy.
Butler pointed to a friction point in Amazon’s business model that the company has tried to fix with innovation. The technology giant bought a smart doorbell company to combat package theft.
“That's innovation and that's what bankers fail at,” said Julieann Thurlow, president and CEO of the $549 million-asset Reading Cooperative Bank. “We're all risk managers.”
Technology also weighs heavily on Daly as he looks at way to expand Berkshire's national mortgage business to include other products such as retail banking and insurance. Berkshire, however, has not yet decided what combination of technology and physical infrastructure would be best suited for the task.
“We're all fighting with two pieces,” Daly said. “We're fighting with how fast do we go to the technology piece without losing the intimacy we have with our customers. We're also fighting with bad guys and they're persistent and smart.”
Bankers also debated whether innovation should come from within their industry or through the use of outsiders.
Sloane said he is more comfortable taking a back seat and trusting his bank's technology provider, Jack Henry & Associates, to set the course for innovation.
Doing so cedes over a large degree of ownership and control, some bankers countered.
“The problem with Jack Henry is they decide what’s next,” Thurlow said.
Thurlow suggested that a consortium of community banks should come together to innovate and tackle industry challenges, mimicking the big banks' creation of Zelle.
“I think that’s where we will be heading as a group,” Daly said.