Digital deposits: Understanding digital deposits

Liquidity, how to price your deposit, digital onboarding, do you have a digital product, what does digital really mean?

Transcription:

Panel Member (00:04):

Mainly focused on cybersecurity, but every once in a while I'll get to write about innovative banks, credit unions and fintechs, and Piermont is one of them. So I'm happy to be here with Winnie Wu, Chief Growth Officer for Piermont, and I'll have Winnie introduce herself, kind of talk about what you do.

Winnie Wu (00:23):

Sure. Well, hello everyone. Winnie Wu, the Chief Growth Officer at Piermont Bank. Banking was an accidental career for me now that after 15 years, I probably can't call myself a banker. Finally, I started in cross border business and slowly was moving into commercial banking. I was part of the founding team for Piermont, which has been a very interesting experience in the last four or five years. We're actually, Piermont is a new bank and we are turning four next month. It's been incredible, particularly starting a bank in today's environment. And also we managed through a global pandemic six months after we launched the bank. And also I think the last couple years we were able to grow successfully despite the macro environment.

Panel Member (01:18):

Yeah, cool. So we're talking about digital deposits, obviously, so it might be helpful to just start with definitions. So what is a digital deposit, Winnie?

Winnie Wu (01:31):

Well, I think that digital deposit really just means if you're not walking to a branch and make a deposit, the rest of it is also considered digital deposit. I think the digital deposit really means that the customer's interaction with the banks have changed to digital channels. So if today your opening an account and you are doing transactions all digitally, those are all considered digital deposits. It's just a little weird. I think that when we got on the prep call, I think my first question was what does it mean? Why are we talking about digital deposit? Mostly because I come from a digital bank, so every deposit for us is digital, but I think that in a very weird way, digital deposit, this term just feels a little cold. And a quick example will be if you are John Smith's and you own a pizza store down the street and you walk into your branch and you open an account and you make a deposit, I think the branch staff knows who you are.

(02:40)

They know exactly where your store is, they know how your business, they know whether your pizza is good or not. And later on, I think the bank teller will also tell you that you come in, Mr. Smith will come in at three o'clock in the afternoon because that's when the pizza store is not so busy and he has time to walk in to make a deposit. If we open that same account for John Smith digitally and we will receive all his information through the application, we run through the same KYC process, and somehow it just feel like we don't know John Smith just as much as he walked into the branch and do the same account opening. Why is that? I think that a big part of it has to do with the mentality shift, meaning that a lot of the bank staff has not been able to truly understand that no, that deposit that John Smith just made, that $500 is essentially the same when he walk into the branch or not.

(03:45)

And I think that that is something that we have not been able to help all of our staff to change that mentality, yet they're not trained. They are a lot more comfortable with drawing that customer profile and run through that KYC and building that relationship through an in-person interaction versus digitally. And I know that a lot of the banks, because of pandemic, really change and speed up their digital transformation. And a lot of them probably just finished implementing their digital account opening or online banking or perfecting that whole process. But I think that the talent gap is still a big part of why we feel that digital deposits feels a little colder.

Panel Member (04:41):

Sure. Yeah. So just to summarize, the digital deposits are the ones where you're, you have the deposit and you're primarily the is interacting with you or you're interacting with a customer digitally through the app, through the website, whatever that may be. Whereas a traditional deposit would be one where it's like the primary way that you interact with that customer is in a branch or really just in a branch. Is that kind of so Yeah.

Winnie Wu (05:09):

Yeah, I would think so. And I think that digital account opening, online banking, those are really just the beginning. More importantly, is payment solutions and how do we build that customer relationships digitally, and how do we interact and service our customer digitally?

Panel Member (05:26):

Yeah, yeah. So digital banking, you as a commercial bank, you might know that digital banking is stand for most consumers, but not all businesses. So what sectors tend to expect more in terms of digital banking?

Winnie Wu (05:42):

Well, I think the short answer is all sectors are, but compared to consumer banking, I think commercial banking or that digital experience for commercial customers remains a little scattered, disconnected. And the reason why, and I can tell you is that a lot of times it's because the lending department and your banking department, they don't really talk to each other in the same way. When the lending department decided that they're going to go and replace a long origination system, they probably make the decision. And then after the fact, they think about how do I integrate it with the banking team? How do I integrate it with the deposit story side of the business? So that creates a experience that is not holistic, and this is not news. I think a lot of the times banks have problems with each new technology platform and they don't necessarily connect and talk to each other well, and I think the resources that you want to really create that whole entire end to end experience is difficult.

(06:54)

So the other part, I think your digital transformation should really be driven by your customer as well, and what your customer expect from you. Why is it important that you have a certain capability? Who are you trying to serve? I think that we've seen most improvements in the last couple of years in the commercial space is in the small business sector because I think that lending and treasury management services for those small business is a lot easier to standardize, a lot easier to streamline. So I think that we are seeing a lot of improvement in that area. And the large corporate side, typically, traditionally they've been well-served. The problem really is lies in the middle, those that are like what we call middle market lending. I think that when we launched Mont Bank, I think last year you interviewed our founder and CEO, Wendy, Kylie, and she probably shared that the reason why we built Mont Bank was because we were so inspired by the digital banking in consumer banking and what FinTech has done to really transform that consumer banking experience.

(08:09)

And we really wanted to build paramount to redefine the commercial banking experience. And I think that what we were trying to define what is the right amount of technology and human touch? Because if you are underwriting a $10 million CNI loan, that human touch is still very much important because for those that went to banking school or credit training, one of the five Cs is character. You need to learn. You learn about your borrowers, you need to learn about their business. It's incredibly important to walk the warehouse, shake their hands, and understand the uniqueness of their business. So I think that to look at a fully integrated digital experience for commercial customers, we need to balance what that human touch and the technology really look like. That's why when we first launched, we call ourself a hybrid bank because we tried, the way we decided to do it is that we optimize and we automate and digitize everything that the customer doesn't see on the backend, so that we create efficiency operationally. However, what the customer can see is still you got somebody, you got a relationship manager that you can call, and there's still that human touch that's very much needed.

Panel Member (09:33):

So I want to talk as well about the risks associated with digital deposits, and we'll focus on the commercial side naturally. So I focus on cybersecurity and my reporting coverage for American bankers. So whenever I think about risk, my mind always jumps immediately to cyber and fraud risks. So talk a bit about those in any other categories of risk that banks need to consider when they are focusing on their digital experience.

Winnie Wu (10:02):

I think that cybersecurity and fraud risks are certainly should be on top of everyone's mind when we're talking about operating more digitally. I think that there are also a lot more tools available for the digital banking, for example, whether it is KYC or AML tools that you can connect with your online bank, online account opening, whether it is monitoring tools. I think that in a digital banking world, we actually have a lot more data and more integrated and granular data's about our customers than ever. However, because we're using a lot of those tools, then it opens up to third party risks. Then we have to make sure that our vendor due diligence and management program is sufficient and updated so that we can take a look at how our third party and all these tools are helping us with creating the experience.

(11:02)

I think the other big part is operational risk. Adding think technology and digitalization of deposits don't necessarily make the depository relationship riskier, but process gaps do. So how do you make sure that your internal process is updated to reflect and operationalize the technology that you're just implementing, I think is important. And the other part of this that is important is making sure that your talent is updated, your bank staff knows how to identify frauds. They're still very much your eyes and ears on the floor. How do they make sure that they call the customers when they feel something is suspicious, giving the activities that just came in.

Panel Member (11:56):

Gotcha. So how does the risk framework that you use for digital banking differ from the risk framework that you use for traditional banking?

Winnie Wu (12:05):

Well, I think that, like I said, some of all of those operational risks and third party risks, they're all important. But to me, I think that operationalize what the technology and what that process really needs to look like is important. So I think that before the bank open, we actually spend months and months of trying to come up with policies and procedures. And I think I was sharing with Carter earlier that we submitted up close to a hundred policies as part of our de Novo application, and that was even before the bank opened. And why that was important to us is that it actually allows us the opportunity to really come up with a process that works for our business model that is relevant to the clientele that we're trying to serve.

Panel Member (13:04):

Gotcha. So let's talk now about the digital experience side of things. So there's two parts to it. I think there's the digital experience for the customer, but then also for the bank itself. So in the next session after this, we'll hear about banks partnering with fintechs to help build digital experiences. What's the profile of digital bank that builds their own digital experiences? How is that common?

Winnie Wu (13:33):

Well, I think that fintechs are very good at creating digital experience. And this is an area, I think a lot of the banks are hard to compete mostly because banks rely on tech vendors. And we also are having a hard time sometimes getting internal users to adapt. And fintechs also, they can get very focused and they can create the experience that's very tailored to their clientele. And that's something that I think is a big difference. But what FinTech has brought to the customers is really that convenience and easy to use. But I think that for banks, we can really wing on trust and expertise. I think that for those banks that decided to make the investment and create their own digital experience, really there are a few things. One, they need to be very strong with the technology platform internally, that capability is important. Secondly, they really have to know their clientele and the value that they can create for their customer, what their customers is looking for.

(14:42)

And I think the last thing is that they must be able to lay out a clear product roadmap so that they know what is coming up. Because when you say that, okay, I'm going to create a digital experience for my customer, it doesn't just start with, okay, I'm going to offer you a online banking. I'm going to be able to take in your loans digitally. But it's also about ongoing basis. How do I serve you? How do I make sure that your payment solutions and those needs that you are growing quickly, that you may coming out from just doing 10 wires a month to all the Southern a hundred wires a month, then the risk profile is very different, and the product that you probably need is different. Right?

Panel Member (15:31):

Yeah. So one of the important decisions that banks have to make when building their digital experience is this is especially true for the commercial side, whether they connect that directly to their core software or whether they have a manual process on the backend. So what goes into that decision? What do banks need to think about when deciding, especially when they're serving commercial customers, whether they should directly connect their digital experience to their bank core?

Winnie Wu (16:04):

Well, I think the answer really depends on how much they have to untangle on their own digital platform, because I think it's very common that banks have layers and layers of technology platform that they sit on. A lot of banks also have gone through merger acquisition. They probably, at the time when they try to connect the two platform or implementing a new platform, they have made compromising decisions. And a lot of times those decisions were made by the technology people who are just looking at how data flows. They don't necessarily is able to make that connection between what that impact may look like. And now that you are trying to implement new technology or determining, okay, should this new platform that we are onboarding get connected with the core, then the problem is that well along the way, there are all those additional platforms that they may not talk to each other well, and the resources and the investments that goes into untangle those platforms and making them talk to each other is actually very significant.

(17:11)

And I think that that's why we see banks a lot of times built on layers and layers of different technology, or they try to overlay a mini core on top of a core. I think that sometimes it's easy for those of us who are in banks to blame our core providers and say that they don't do X, Y, and Z, because usually it's like, it's just like our customers calling us. They usually call us because there's a problem. We usually call our court because there's a problem. So it's really the same, and I think that we are, but at the end of the day, we are the ones that should define what that user experience look like. So it's not always about what the accordion do. It's also about did we make some of the decisions and move on and forget about them? Did not go back to revisit. And now that decision at the time has snowballed into a much bigger problem. But I think that to me, people on the technology side should not make that decision, but it should be driven by CX. I think CX is probably the common theme that we can get all the departments on board and make sure that here is that angle here is that final experience, should like, and let's all work towards that goal.

Panel Member (18:33):

Yeah, yeah. Gotcha. So I kind of want to talk about peer mind in particular. So you're the chief growth officer. The thing that I'm interested in, just for you to share maybe some of the key parts of the growth framework that you use at the bank, what are the things that are most important in your job and the things that you're thinking about on a daily basis to help the bank grow?

Winnie Wu (18:58):

So I started as the Head of Customer Experience and Marketing. And to me, customer experience is really in the forefront of how the bank is growing and how we are determining that growth strategy. And I think that for Piermont, one thing we do is that we're very focused. We are not trying to be a bank for everyone. We do a few sectors. We serve a few sectors such as commercial real estate, such as FinTech, that those are the sectors that we know how to do and we try to do it well. So I think that to continue the growth trajectory for PMIF it really is about the customer relationship and how to build a stickier customer relationship in today's world. I think that with digital deposits, it makes the moving part of the money transmission a lot quicker and a lot easier.

(19:57)

So it's easier for us to acquire new customers. I think I was reading the report that American Banker did the top three things that banks are thinking about as an objective to achieve for digital banking is acquire new customer acquisition, retention and also competing against the competitors. So all those three things are important, but I think that how to also make sure that we build a customer relationship that's sticky, because I think that banks all have different differentiations and value propositions. There are 4,000 some banks, if we're purely looking at a technology, I mean, no banks can compete with JPMorgan Chase or some of the big banks in terms of their technology budget, the amount of investment that they can make in. But the smaller banks still survive all this year. So that must mean that there are something that the smaller banks are doing that are very good, that we are able to continue to gain market share and continue to grow. So for us is that we need to find what that differentiation is for the bank. What is the true value proposition that we're offering to our customer? And that's what I spend a lot of my time thinking.

Panel Member (21:21):

Sure. Yeah. So I have kind a background in software engineering and there there's a lot of premium on the values of interoperability, scalability, and modularity. And so especially since you're serving Fintechs primarily, how do you think about the way that you have set yourself up for scaling when you have a prospect to be able to take on a lot of new customers? What do you do to make sure that you're actually able to do that?

Winnie Wu (21:52):

Well, I think that obviously when we talk about scalability, technology is a big part of it. How do we scale utilizing technology? And I think the other part is about what matters to our customer and to the clientele that we are trying to serve. Meaning that what is the relevant product? Because if you think about it from Ben A to bank z, banking products and services are more or less the same. But why do you choose to go to bank A versus Bank Z? Then really it's about product delivery. It's about how do you innovate in your product delivery and who are the people? Because I think that at the end of the day, banking is a people business. So how do we make sure that we have the right talent that continue to help us achieve the operational excellence, so they allow us to grow at a smoother and better, faster way.

Panel Member (22:51):

Sure. Yeah. I've got one more question for you and then I want to see if there are any questions in the audience. But the other thing I wanted to ask about was the modularity and interoperability part of it. So when you have a FinTech who's coming to you as a customer and they're looking for different things out of the product, as I mentioned, sometimes that thing is they just want a bank, what do you do to, you were talking about stickiness earlier. What do you do to make yourself make your offering something that they want to stick with, that they want to continue using?

Winnie Wu (23:29):

Are you referring to us serving as the fintechs bank or your, well, I think that is about, this comes down to also what your product roadmap is, meaning that how do you continue to innovate in terms of your products and services? So that in a way, for us, I think it's easier because we can incorporate our customers as a lot easier, meaning that we are nimble. So for us to make the pivot is a lot quicker. We don't have layers of tech that, or bureaucracy internally that we have to navigate through. So I think that is an advantage of being small, is that if we decided to pivot, if we are pivot alongside our customer, it's a lot easier. Yeah.

Panel Member (24:19):

Cool. Do we have any Yeah, go ahead.

Audience Member (24:25):

Speaking specifically about your account for customers not, but actually the customers were signed up by the how are you able to manage scale customer experience requirements as you grow at that kind of volume.

Winnie Wu (24:45):

That's actually offered by technology and the data that is available is that, I think the question that you've asked is very specific to banking as a service business is that how do we make sure that our FinTech partners are doing the same KYC that's required? And I think a lot of that has to do with how we build that FinTech partnership model since the beginning. Because when PMA launched the banking as a service business, it was never about renting a charter. We did not outsource anything to our vendors. We actually all partners. We actually decided to do everything on our own. And we also from the beginning understand that you cannot just say that they're the end user, they're the fintech's customer, because at the end of the day, we are on the hook for it. So I think that having that framework set up since the beginning was very important and it also helped drive that success. And I think a lot of that has to do with the visibility and the data that we have on those FinTech customers.

Panel Member (25:59):

Any other questions? So something else that I wanted to ask you about, Piermont has very interesting history that I got to write about for a profile last year, but you're also very new. You mentioned you're reaching your four year birthday basically. Yes.

Winnie Wu (26:18):

Next month.

Panel Member (26:19):

Yeah. Yeah. So I guess we were talking about this a little bit earlier, but I wanted to ask you about just how you're doing in this stage of your existence given the banking crisis that's been going on.

Winnie Wu (26:35):

Well, in a weird way, I think we were talking about this earlier as well, that the net impact for amount is actually positive. And I would not say that if you look at what happened with some of the bank failure, I think this also gives us a demonstration of what a modern day bank run can look like. And this all prompt the rest of us to think about how do we increase our risks and in control to make sure that the same thing doesn't happen. And I think that educating our customers about what F D I C insurance is important. We actually have the product since the beginning is we can ensure up to 50 million in deposits for a lot of our customers. And that has been helpful.

Panel Member (27:28):

Yeah. Yeah. Cool. Well, if there aren't any other questions, I think we can go ahead and wrap up. Really, thank you so much for your time and insights. Thank

Winnie Wu (27:36):

You. Thank you.