Community Banks: Leveraging Technology to go Global: The right technology strategy helps solve the complex global needs of international customers

• Facilitate international payments with ease

• Foreign currency accounts based in the U.S. 

• Manage FX liquidity using APIs

• Digitize trade finance transactions

• Leverage SWIFT to increase automation

Transcription:

William Pohl: (00:07)
Everybody. Thanks so much for joining. I am here to present the speakers. So my name's William Pohl with Backbase. I'm gonna count executive. I think, most of you have heard the back base spiel a couple times now, if you've been in this room, but we're essentially helping community banks compete with much larger financial institutions by giving 'em the same technology. So we work with banks as big as Royal Bank of Canada and as small as Vantage Bank, Texas. So I know we're a bit tight on time, so we're gonna get right into the introductions here. So we have, Katherine Weislogel. I hope I didn't, but I was close and she's embraced a series of progressive high level positions throughout her, nearly 30 year career. Most recently, the EVP Head of Treasury and Payment Solutions at Synovus... reading's a little bit different than talking sometimes. And then we have Jeff Beisler-Snell... Dr. Jeffrey Beisler-Snell is the Head of International Banking at Synovus and brings 22 years of finance and global banking experience. And with that, I'll let you guys get to it. Thanks so much.

Katherine Weislogel: (01:11)
Okay. So, everyone should have a cell phone. I hope, I want you to join ahaslides.com/ABDIGITAL

Katherine Weislogel: (01:22)
Because we're gonna do an interactive polling. I'm gonna give you a second to, to join that site. A H a slides.com/abdigital. And we, we do have a prize for the winner. Now, if I knew we were gonna be at 4 45, we would've had happy hour in here as well, but, the winner gets a $10 Starbucks gift card. So they can be the first one in line at 4:00 AM in Starbucks, downstairs. Okay. Is everybody set? Anyone need more time? Okay, so we're gonna do three questions and it's all a game of speed. So number one wins the $10 gift card. So true or false. Each question has two possible answers pick either true or false. Let's go. Number one, you can open foreign currency accounts in the U.S... Pick true or false.

Katherine Weislogel: (02:30)
Is it letting you guys go?

Katherine Weislogel: (02:40)
That's weird. Okay. We even tested this. Okay. We can go to the second one.

Katherine Weislogel: (02:47)
I know seriously when we tested it, it worked, okay. Why isn't this going? Time's up? Okay. We had this problem before. No results yet. Let's go back. I don't know why it's not going

Katherine Weislogel: (03:04)
All right. Well, so much for, um, our Q&A. Maybe we will I'll think of my favorite number and someone could win the gift card from that. All right. We're gonna get going. Sorry about that. It worked in testing. I don't know why it's not picking up, but it's really cool. If you haven't done AHA slides, it's all interactive, and it does time it, and it's all tied to your phone. So it's pretty cool. So with that, so Jeff and I work for Synovuss and he runs our head of international. And about 18 months ago, we decided that we really needed to stop our strategy, rethink it, reimagine it, and really bring somebody in to energize and recharge and take a fresh set of looks under the hood. We had a lot of, starts and stops. And, we've learned a lot in today. Jeff's gonna talk a lot about some of the technology components, how to think about the business, as it relates to some of those mistakes and some of those advances that we made. So Jeff, great.

Jeff Beisler-Snell: (04:00)
Can you click us through,?

Katherine Weislogel: (04:02)
I can click us through.

Jeff Beisler-Snell: (04:05)
Awesome! Good afternoon everyone, who actually thinks that you can't open foreign currency accounts in the U.S?

Jeff Beisler-Snell: (04:14)
Yes. So I think a gift card's gonna be given away now. we can give away for those. You actually can. Yes. So if you click me over to the next one, you actually can, that was kind of a trick question. So, what I thought we'd do is talk a little bit about kind of the historical model of international and how banks used to do it, and then kind of where we are today. Cuz I like to think about it from the perspective of, we often build on what happened in the past, but if we could tear it all apart and do it all the way we want it to today, how would that look different? And I think that applies specifically in international. So you know, many moons ago in international, if you were a bank trying to opera operate outside of the U.S, You had to do one or two things.

Jeff Beisler-Snell: (04:51)
One, you either had to go make an acquisition of a bank in another country so that you had a presence there, or you had to just build out a branch network within that country. And that was the model that most banks followed. Cause they really had no other choice, because at the time you could not open foreign currency accounts in the U.S. They all had to be in U.S Dollars per the regulations here. So that was, the U.S Bank's way of getting outside of the U.S And helping their customers who were starting to go global, and then, and I think when you think about a us bank who used to have that model and some still do, honestly, some of the big ones really do, it's not as seamless as it was it once, it would seem, but that's because in every country, even though it's the same bank name, they were all on different platforms.

Jeff Beisler-Snell: (05:28)
So I remember when customers would walk in and they'd have key fobs and they'd have like five or 10 of them and it's from that same bank. But those banks said different platforms from the different countries they were in. And that was just the historical way that, that banks operated in the past, lots of costly overhead by doing that model, and the other thing that I would say it's very different from a customer experience perspective is that if you're a U.S Based customer, U.S Based company and you need to go open a Euro account out of London, London will, then you'll then have to apply through London regulation. You're no longer a part of U.S Regulations and London due diligence is completely different than it is here in the U.S. It takes about four to six months to open an account there. And it's because as a U.S Based company, you are then considered a foreign entity to them and you all know how difficult that could be for our bank to consider.

Jeff Beisler-Snell: (06:10)
So, lots of implications about following that model, what we've seen now is, um, have you heard of a FinTech before right. So fintechs have, helped us kinda evolve from that. And so today a lot of banks are using a technological approach to being able to facilitate transactions, payments, and accounts all through, technology, and yes, you based the foreign accounts, foreign currency accounts in the U.S, So you can today use your platform, and I'm gonna talk about how to take a look at those and examine those that you can't open those accounts here in the U.S. So you would go through U.S Due diligence and open them in a matter of weeks, as opposed to a matter of months outside of the U.S, so lots of advantages to doing that as well, and then guess what, it's on one platform. So when you log in, banks will often have their integrated international platform into their, us platform, do a single sign on so that you can sign into one place at one time and do all of your transactions where it's domestic or international.

Jeff Beisler-Snell: (07:04)
All right. So as you're kind of thinking about that strategy, it's something that I did when I joined, Sonovas a little over a year ago was to figure out what we were gonna do to move forward and do it in a way that was, kind of on the forefront of international banking and not considering what we did in the historic model. And so kind of the three things that I was looking at and wanted to explore was one, what are our customers asking for? What's the bank's risk appetite, especially around the FX liquidity, and then what are the technological integrations that we had to go through? So I'll start with the first one is customer needs. That's what drives everything we do, right? That's what you have to first understand is what do customers wanna do? What do they have to do?

Jeff Beisler-Snell: (07:37)
What are they trying to accomplish? and usually things you'll hear about is, do I need to do wires in U.S Dollars? Do I need to do them in foreign currency? do I need a foreign currency account? Do I need information reporting? Those are kind of the key buckets of information that clients are looking for, and I would say that, uh, kind of the biggest decision point is around the U.S Dollar versus foreign currency payments, so I'm gonna dive into that in just a second, but, as you think from a bank risk appetite, a lot of banks will take the first strategy that I'm gonna mention and that's back to back trades. And so, think about it this way. So when a customer comes to you and says, Hey, as a bank, I need to buy euros and the bank then says, great, I'm gonna go buy euros from my liquidity provider, and then I'm gonna sell it to you right away.

Jeff Beisler-Snell: (08:17)
And so that way you're kind of managing the risk in a very quick way. You don't have to worry about managing liquidity, cuz you're pretty much buying and selling at a seamless, seamless way, very much back to back, and so there's not a lot of risk of holding foreign liquidity by doing that strategy. I will say that it's the least profitable way to do it as well though. It cuz you're not gonna make a whole lot of mone being an FX provider who you, when you don't hold foreign currency, but it is a way that banks often operate in order to help fulfill the customer needs, the decision point, I think you would really wanna talk to, to people in your treasury department within the bank. And certainly, from a risk and compliance perspective is a man, if you decided to manage liquidity yourself.

Jeff Beisler-Snell: (08:54)
And so that requires holding euros, holding pounds, holding Canadian dollars, things of that sort. And so you need a policy around that. What's the bank risk appetite of doing that because if the market moves you could lose money, but if the market moves and you buy at the right time, you could also make money. So there's a larger profitability margin there. So it's something to consider and something you do examine. It's something that comes up with us all the time. People ask me questions about it all the time or ask Catherine, integration points I think is a area that people don't think about when they're considering an international platform, is it really needs to integrate into your core structure. So think about things like your core banking platform. So if a customer sends a wire and they need to debit the account, there has to be a connection there.

Jeff Beisler-Snell: (09:32)
Things like your OFAC scanning has to be a connection there, BSA, AML, all those connection points have to be connected to the platform, the thing that I think people forget about is kind of the back office and that's where reconciliation happens and you wanna make sure that that's seamless and so does it reconcile transactions and feed into your GL. Cause if not your back office spends tons and tons of time trying to figure out how to reconcile those transactions. So those are all considerations that I would think about, as how exploring, you know, doing an international platform. I've heard a lot of people at the conference talk about this and it's something that, that Katherine and I talk about a lot is how many conversations you have with different FinTech companies, we have them all the time and it's kind of overwhelming.

Jeff Beisler-Snell: (10:11)
So it's a lot to take in, so when you're considering the international perspective, there are a lot of 'em that offer international platforms. You're not gonna not gonna SU find an area where you can't find people to talk to about it, but one of the things that I took a look at when I joined Sonova, so when I was deciding which platform where we're gonna go with was first is company history, how long have they been doing it? What does their success look like? Kind of take a look at the back history of the company, and then, um, their capabilities and I kind of match that with our customer needs. So as you think about what your customers needs are, and then what the platform can provide, those are two really strong considerations, in terms of kind of final selections for me, you know, when I would talk to providers, what they would tell me is they could talk about their solution and what it could do and all the capabilities.

Jeff Beisler-Snell: (10:52)
But when I would explain my thought and my strategy, I wanted some feedback. What do you think that means in terms of this platform? And most couldn't answer those questions. They were kind of just focused on what their solution could do. And so I wanted those that were thought leaders that would give some ideas. If you're thinking about this strategy, then this may work for you. If you're gonna go down this road, this might be a better option for you. So for me, those are the ones that stuck out to me when I was having those conversations, and current clients, that's what I find super helpful. When you look at a FinTech organization, is who are their clients today? Which banks do they have today? cuz that's the ones I use as references. Those are the ones that I would call and have this conversation.

Jeff Beisler-Snell: (11:25)
And I was pleasantly surprised that those who would tell me that, kind of the history of it, how it was in implementation, how long it actually took when the company was Robinson three months, was it actually three months or six months? so you get a lot of great feedback by having that dialogue, and then security is critical and certainly we wanna be very cautious when we're opening up our platforms to providers. And if you're doing things in the cloud or any other type of connection through APIs, we gotta make sure that that's secure. Kathy, would you add anything else to that in terms of some of the selections that you've made? cause I think it's very similar.

Katherine Weislogel: (11:56)
Yeah. We go through a very similar process and we just went through this six months ago when we chose our current provider, but it's not only this, you gotta bring in all your partners too. As you mentioned, you forget about legal, you have to have risk, you have been compliance, they all have to be at the table, if not, you're gonna be backtracking all the entire process, and going back through it, we have them all at the table and it, it becomes really important, there's a lot of legal documents that come through when you're going through this process. We had another one yesterday. They seem to be coming out of the woodwork, as when you're starting to deal internationally cause everyone's covering themselves in the process. So just make sure you have all the right players at the table, upfront and make sure they all know what you're embarking on and what you're doing. We thought we did a really good job when we went through and had all the players at the table and we were so excited. We went into the board and we talked about what we were doing. And then they went into private session and they beat my boss up about, have they considered this and this and this and this and this and things that we thought we had touched upon. And we did. We just had to, show it in, display it in a very different way. So when you think you've done, every check mark, sometimes you there's others, especially in the board when they come from a variety of different experiences, think of it from a very different way, which made us think differently about our process. But, so when you do deal internationally, people start to get a little nervous in the company. We had, we had to calm some of those fears down, not once, but not twice, three times, and just getting to where we are today.

Jeff Beisler-Snell: (13:37)
I think, a big part of it comes around the foreign exchange piece of it, the managing foreign liquidity. It really freaks people out if they don't know it well, cause I told a story at, at one of our conferences recently and I was talking about the time when Russia invaded Ukraine and what happened that week afterwards and what we saw was the Euro dipped big time. And, and the market was unsure. We saw it kind of fluctuating, but the Euro dipped big time, but that's, if you're, I'm gonna manage your own liquidity, that's the perfect time to buy euros because when it recovers and we knew it would, then when you're selling it, you're selling it at a higher profitability margin, and when I told that story, I got a phone call from her the next day. They kind of freaked the leadership team out. I about, they thought we're just gonna

Katherine Weislogel: (14:14)
I am like they think we're going rogue. They think we're going rogue. We have, they wanna see all the policies, yeah, we had to calm 'em all down, but it gets them nervous. So just make sure that you get all the right people to the table. You have the policy in place. So that's critical

Jeff Beisler-Snell: (14:30)
Wanna flip this over.

Jeff Beisler-Snell: (14:35)
So, now that you're kind of thinking about I've got the platform decided on and kind of what do I do to get started after that? I think a big part of it is correspondent bank, you need a liquidity provider. That's gonna be able to supply you with, with the foreign liquidity, whether you do back to back transactions or whether you're gonna hold for liquidity in your accounts. And so you open noro accounts. If you're not familiar with those, those are just accounts you have at another bank, and those accounts shall, typically hold some type of balances, especially in the major currencies like Euro Canadian dollars, Australian dollars, Japanese gen, et cetera, and then others, other times the U.S dollar account will work at that bank if you do back to buy trades, because they're just gonna trade U.S Dollars for that currency and sell it right back to you, but that's a key part of the process, a key selection process. And I'll tell you that the liquidity providers, the big banks in the U.S Are very selective when they open these accounts for you, so they're, they're gonna wanna make sure they're making money about it. They're gonna wanna make sure there's a certain amount of volume there. So it's a conversation that you can't wait until the end to have. You've gotta have it throughout the process.

Katherine Weislogel: (15:32)
And I would add, we have a financial institution's, group within our risk committee within our group and every month I'm call or every quarter I'm calling Jeff up, do we have changes in the accounts? Do we, our balance is changing. Do we see limits changing because that is all considered risk and they do look at that. So that's just another piece to keep in mind,

Jeff Beisler-Snell: (15:53)
Great point, payment settlement. It's critical through a correspondent bank, cuz that's how your transaction are gonna get from point a through point B usually through swift, so you wanna make sure those things are set up. most of the time it's done through API through settlement through swift, but it's something you wanna have that conversation with, FX rates are critical to have that conversation with that provider because the higher that you're paying, the more your customers are gonna pay, and so that's a conversation that your correspondent banks will have with you, but typically as volumes increase and the higher, the higher amounts that you purchase, the better the rate's gonna be, but I would say don't be afraid to shop around because banks are, do compete. And so if you're talking to some of the big players and having this conversation, you'll find that you'll have some better rates at certain institutions.

Jeff Beisler-Snell: (16:32)
Cause they'll typically tell you the spread they're gonna charge you. And then you have to think about how much you're gonna charge on top of that. That's kind of mission one to me, of course, the correspondent bank that you select, so in terms of you've selected the platform, you gotta think about the solutions that you're gonna offer, whether that's gonna be FX, hedging solutions, what types of hedging are you gonna do? Foreign currency accounts, all those options that come with the platform. And what I would say is you don't need to do it all at one time, take it slow, especially if it's your first endeavor in international, you can do phase one phase two phase three type of approaches. First, get your payments out the door and get that roll, rolling, get the settlement piece, going with your correspondent bank. And then think about some of the other solutions that you could offer.

Jeff Beisler-Snell: (17:10)
Workflow is critical, something I've spent a lot of times with operation on operations on in terms of our rollout has been thinking through from the very front, front end, which is where the customer initiates a transaction all the way to it settles and your operations. Steve is critical to that, cuz they're the one have to help you think about that workflow cuz sometimes transactions will kick, out cause if hit OFAC or some other reason, payment details are missing, and you wanna make sure, that workflow matches, kind of the risk that you're trying to manage, and what that's gonna look like is not just up to you, it's up to the partners that help you reconcile in the back end. And it always goes to recon as well. So you're gonna think about that whole payment flow, so that it settles.

Jeff Beisler-Snell: (17:45)
And that goes into accounting entries, something that I think a lot of people forget about. It's so critical to the bank and measuring profitability and measuring all the transactions that you're doing. You have to make sure all that's plugged in and typically these platforms will auto settle those things, but it's a conversation you should certainly have, billing is critical. So if you're using an account and analysis type of, billing for your customers, these platforms can feed fees into that system, depending on who you you're doing with, but think about it from the perspective of those integration points that I mentioned earlier. That's another integration point. They'll typically sit in a file overnight or once a month, depending on the company and they'll feed those transactions so that you can charge for those wire fees or whatever else you might be charging.

Jeff Beisler-Snell: (18:25)
Internal is Katherine and I been talking about is, is critical as well, the integration points that we talked about, you've gotta know which ones they are and there's costs around building those. And so we need to examine that, and accounting, we've talked a lot about that's. I bring them in the front end, not just in terms of reconciliation, what that looks like, but also their perspective on how to manage liquidity, if that's something you're gonna do and how they're gonna reconcile for it, operations are critical players in terms of the entire process, and one that I actually forgot about when we did ours was around tax, our tax partners. There's the tax implications. If you offer foreign currency accounts to customers and following that information to the appropriate regulatory body is critical, so it's something you wanna think about and have your tax professionals within your institutions talk through and think about with you. And then lastly, as Catherine mentioned, policy is critical. And so I would start with the policy instead of wait until the end, cuz you kind of set those parameters up front. I think it kind of settles the audience, and helps them kind of see, how, although there's risk, how you're gonna manage the risk.

Katherine Weislogel: (19:24)
Well, and it also helps, for audits and for, we have our Sox group come in, our audit groups, come in, we have our compliance group comes in and they all wanna see it and they all wanna see the detail. I feel like we're constantly talking through policy and procedures with all of the groups in the bank. So to just point, get it done up front because you're gonna need it.

Jeff Beisler-Snell: (19:45)
Great. Well that was it. So we'll see if there's any questions that anyone has, since we've wrapped up there and since we don't have a fancy giveaway at this point, now.

Jeff Beisler-Snell: (20:03)
Who thinks the best way to send, uh, international, uh, payments is in U.S Dollars versus a foreign currency. Everyone's right on that one. Great, it's most often best to send in foreign currency because, you typically pay less. So we find 'em with our customers when we talk them with this strategy, if they're paying in U.S Dollars and the person's receiving it into their account, that's in euros. For example, that person is paying, charging extras, cause they're charge, have to manage the volatility of the market. And so what we help our customers see is you're paying U.S Dollars cause that's what you're comfortable with, but you're paying 10% more than if you paid in the, in the foreign currency. And

Katherine Weislogel: (20:43)
It is a huge difference to the fee income of the bank. So, when Jeff came in, he said, well, number one, Katherine, your lowest hanging fruit is getting these U.S dollar payments shifted over to foreign currency and you're gonna quadruple your revenue overnight, but that's one thing to identify. It's another get to your customers to do it. So that ended up being, kind of a strategy that we then employed throughout our teams, but it has been fruitful for us in making that change over.

Jeff Beisler-Snell: (21:12)
Perfect. I can't remember the other question. Do you have

Audience Member 1: (21:15)
Do you have specialists that go out to, to deal with these customers?

Katherine Weislogel: (21:18)
So how we're set up today is Jeff, sits under our product innovation head and in that he's a tower under that group and he runs the group. We have international operations, we have FX sales, we have product management, who am I missing,

Jeff Beisler-Snell: (21:34)
Trade finance Sales.

Katherine Weislogel: (21:35)
...and trade finance. We also have trade finance in this group, all under his tower of international and all of our TSOs have enough to go out and be dangerous. We call it well TMCs, treasury consultants. And then we have, I'll call SMS in the international space on the trade. And on the FX side who are brought in when an opportunities are presented, because as you can tell, there can be some complication with it and we wanna make sure that, we're talking through it in the right way.

Jeff Beisler-Snell: (22:07)
I think the people we, try to help with our relationship managers and the treasury person. That's with them. Just understand questions to ask and uncover opportunities and then bringing their expert, to further to dial up. It's a great question though. Anything else before we hit the bar we should have gave away free shots that everybody would've been here today. That's what I said.

Katherine Weislogel: (22:30)
We're right on time.

Jeff Beisler-Snell: (22:32)
Awesome. Well, thank you guys. It's a pleasure.