With today's rising rate environment and increased competition financial institutions must consider what can differentiate them. Many are finding the answer to be niche commercial verticals. The stickiness that these niche deposits offer can attract and retain accounts that will be crucial amidst inflation. Together, Allan Rayson of Encore Bank and Jill Feiler, Chief Client Officer, of ZSuite Technologies will discuss why banks must accelerate partnerships with platforms built for specific niches that can grow stable deposits, and how innovation in this area could drive the next wave of digital transformation.
- Banks must invest in competitive technology, such as specialized, digital tools that generate low-cost, core deposits in response to the current market. One way this can be done is by supporting the needs of niche commercial clients that can lead to retaining their current customer base and attracting new accounts.
- Digital tools that streamline a niche process can help banks effectively reach a ripe, underserved market already present within their current customer base and communities. This generates new deposits and strengthens the banking relationship and loyalty from those served.
- If a product is not currently available on the market that meets an institutions' needs, executives should consider fintech partnerships to help reach those identified customer segments with a shared, niche need.
Jill Feiler (00:05):
Welcome everyone. My name is Jill Feiler. I'm the Chief Client Officer at ZSuite Technologies, and I'm joined by Allan Rayson, who is the Chief Innovation Officer at Encore Bank. And we're here today to talk to you about commercial deposits. I don't know if anyone out there needs commercial deposits, needs deposits, no.
(00:29)
But we're here specifically to talk to you about niche deposits and how to go about gathering those niche deposits, some strategies involved in that, and then developing FinTech partnerships in order to gain those particular types of deposits. So we, I think will start just by having Allan, Allan at Encore Bank does a fantastic job of focusing on those types of deposits, bringing them into the bank. And I say that not only because we are partners, but also because their growth model, their business model is super unique. And so I think we'd like to start with just having Allan describe that business model a little bit before we get into that particular strategy.
Allan Rayson (01:22):
Yeah, absolutely. That's pretty easy. It is funny, we did this conference a year ago in Austin, Texas when it was about 150 degrees and nobody cared about deposits at the time, so there would've been zero people in this presentation. But things have certainly changed. Quickly, just briefly with respect to Encore, my role is technology and innovation for the bank. We're about a 4 billion bank based out of Little Rock, Arkansas. I happened to be over in Austin, Texas, and happy to be out of there actually right now because it's triple digits. But so the backstory on the bank, because we went out and acquired a charter in 2019, early 2019, stripped it down from a technology and asset perspective knowing that we were going to rebuild the bank with commercial assets.
(02:27)
The other thing that we did alongside that as we were acquiring a charter is we went out and raised about 390 million across roughly 2000 investor partners. So these are all, we have this extensive investor network of roughly 2000. Honestly, people like us in this room, private investors that have invested their own money to invest in the equity of Encore. So where that has left us is many of those partners are business owners themselves. They're smaller, mid-size business owners themselves. So we have a big part of the growth has been a function of us just banking our investor partners for the most part. And where I'm going with all of that is we have no problem deploying capital in the form of commercial loans. We can sort of throttle that up and throttle it back currently, throttle back a little bit as you would expect. But we have no problem deploying capital. But where we are challenged is keeping up from a deposit perspective. So early on we were, I think number 17 on 17th Bank on ZSuite, maybe.
Jill Feiler (03:41):
That would be correct.
Allan Rayson (03:43):
Under 20.
Jill Feiler (03:43):
I do know that. Definitely under 20. Definitely under 20. So that's awesome. That's awesome. And one of the great things about our partnership in particular is one of the platform that we work together in is really there to help with those niche deposits. And so the platform supports three party accounts. I'm sure all of you are very familiar with that in terms of escrow accounts, FBO, surrogate accounts, any type of account that is held on behalf of someone else with an organization that is held at a bank. And so there's a variety of different verticals, different industries out in the market that you can go after in terms of those types of niche and specialty deposits. But I think Encore Bank has a very unique perspective on how to drive those niche deposits. And what I mean by that is you can say as a bank that you're going to go after that particular space without being very targeted about what you're trying to do. And so there's, as I mentioned, a large variety of industries out there that specialize in those types of deposits. And so instead of just kind of throwing it at the wall and seeing what sticks with your sales team, Allan, if you don't mind just sharing a little bit about your approach in terms of gathering these specialty deposits.
Allan Rayson (05:11):
Yeah, of course. And I apologize, I didn't have my mic on earlier, so you heard none of the encore backstory, so I'll fill in as we go. But for us, we're about a 4 billion bank and asset perspective, about 3 billion in loans, a little under that in core deposits. So filling this gap with niche deposits has really been our strategy. So obviously for us, we're trying to manage our deposit franchise, grow that deposit franchise, but not take a lot of risk in the process. So that's kind of banking 101 I think. But as we think about these niche deposit gathering strategies for context, which I think is important, depending on what size bank you're at, a couple hundred million dollars of deposits is gold to us. We will certainly take more than that. But for context, we are not leveraging niche deposit strategies to go raise five or 10 billion in deposits.
(06:18)
We're a kind of mid-size to larger community banks. So I think it's maybe helpful just to share that context right out of the gate. But ZSuite was first for us in the commercial escrow space. And I love to tell the story, especially to Nathan, the CEO of ZSuite as they were pitching to Encore a couple of years ago through one of the incubators. It was a no-brainer. ZSuite had really solved a solve for that niche that we were looking for in that commercial escrow space. Fast forward from there, we've been able to successfully stand up an association banking business, an HSA business, all in the spirit of sourcing lower low to no cost deposits and trying to fill a couple hundred million dollars deposit gap in our franchise. So hope that's helpful.
Jill Feiler (07:22):
Yeah, absolutely. I think what it lends itself to is the fact that you're picking one niche. So while our partnership, we would be able to support any variety of three-party accounts that are out in the market, it's really important to have the staff, the expertise, the subject matter experts to be able to talk about those verticals and have a partner that rides along with you to be able to kind of sell together. So we all say selling is a team sport, and I think that lends itself very well, especially in the commercial space, to have that expertise in each of those niches. So what I love about Encore Bank and our partnership is they're really focusing on the ones that they have the expertise on staff to be able to go get those contacts and bring those dollars into the bank utilizing the system.
Allan Rayson (08:20):
And it's not just, I think one thing I might add to that, it's not, it is the niche deposit strategy worked for us from a, because we had the talent internally to be able to go position that strategy. But alongside of that, we are in the right geographies, I think, to be able to position that strategy. What I mean by that is if you look at our footprint, it's kind of Tampa to Texas at this point. So Florida, the Carolinas through Nashville, several markets in Arkansas, several markets in Texas, and to include Denver and Boulder, Colorado to the north. So if you look at those geographies, ton of commercial real estate, so you got a lot of very active title companies, you have a lot of very active law firms engaged in the 1031 space. So not only to Jill's point, not only was there the talent to be able to push that product through the geography just so happened to work for us pretty well as well.
Jill Feiler (09:30):
Yeah, absolutely. And I think sharing a recent story I think is important about how we were able to capture some of that 1031 business. A couple different things happened where as Allan mentioned, they were an early adopter and an early partner for ZSuite technologies. And so that allowed us to establish that relationship where they had a seat at the table, meaning uncovering verticals together that is a need of these niche deposits and being able to work through features on the platform that is going to be beneficial for those particular niches. And we were able to do that very effectively in the 1031 space. So when we had our recent kind of industry disruption with some of the bank failures, they were able to quickly sweep in and capitalize on some of that. And I think one of the greatest values or benefits that we saw from that was that they were now competing on product versus rate, which in this environment is just so key and critical when you can shave off, even if it's a couple basis points when you're having those conversations because you have something that is going to drive efficiencies within their business.
Allan Rayson (10:44):
And everybody, Jill and I were talking about this earlier, I mean, all of the banks are in, not all, a lot of the banks are in a similar place where compression has certainly been part of the business over the last year as the Fed has been as active as they have been. From our perspective, we're making less money, we're still profitable, but making less money than we budgeted because of margin compression. So I think as we look at the title of this talk, why knits? Why now you're trying to manage the deposit franchise, you're trying to manage the balance sheet, but you're also in a position where every basis point counts right now, which is certainly a feather in the cap of ZSuite. But maybe the other thing that I would add to the conversation, and I don't know the roles in the room, so I'm going to speak kind of generically, but I think one thing we all can agree on is it is a beating to onboard technology.
(11:57)
It is just a long, long process. By the time you identify the partner, vet the partner, negotiate a contract, execute a contract, implement, stand it up, train everybody, you're 18 months in and you're like, we've totally missed our opportunity. It just kind of is what it is right now in the space. And other industries deal with it as well. But as we think about these niche strategies, certainly you got to understand the geography. Does it work for you? Do you have the talent level to deliver the product? But you've also got to identify strategies that you can stand up relatively quickly. So maybe talk a little bit about that.
Jill Feiler (12:36):
Yeah, absolutely. What we can stand up the platform in two months if we move really quickly. So focusing on understanding that that's a strategy that you want to deploy, that can happen very quickly. I think what's important to both of us is during that process, establishing that relationship to make sure that you're onboarding and you're onboarding in a successful manner. And so making sure you're seeing success right out of the gate is critically important and making sure that you're working with a partner that is going to partner with you for the long haul. I know that I'm a former banker. I don't know if I say recovered banker or retired, I dunno, I am kind of playing around with the words there, but I remember when we would onboard a new product and all of a sudden the vendor was nowhere to be found or the partner was nowhere to be found.
(13:35)
Or where it's like if you have questions about support or if you have questions about sales and there's no one there to help you with that platform, and especially if it's a long onboarding process like Allan was talking about, and then you're just kind of fatigued and now my sales team doesn't even want to talk about it. And so just making sure that it's top of mind and that you are working with a partner that is going to actually be a partner with you from start to finish of that relationship and really be invested in your success throughout the entire process as well as your client's success. We were just talking earlier that one of Allan's clients calls my cell phone because I dunno why I, she just does. And it's great. We have a great relationship, but that's really cool that we can have that kind of relationship that I can be like, oh, guess Amy called or whatever. And we had this conversation. And so I think having a seat at the table really lends itself to that kind of partnership.
Allan Rayson (14:37):
Yeah, totally. I mean, to Jill's point, I mean a couple months is completely accurate. And look, I'm an unpaid representative of ZSuite, so I That's true. Have only incentive to.
Jill Feiler (14:51):
I might've bought him a drink.
Allan Rayson (14:54):
But the reality, and especially if we want to talk about the Q2 partnership that you have, I mean, especially if you're Q2 Bank with ZSuite specifically being in the innovation studio, the ability point is the ability to onboard tech, and in this case a white labeled solution is pretty straightforward. And being on the banking side, I can validate that it is a strategy that you can get momentum behind pretty quickly. And then one of the things that I was telling Jill, I mean she was, and maybe I shouldn't say this because it's going to set the expectation for everybody, but she was right there next to our sales teams. And in our case, we were delivering the strategy through treasury management and more sort of generalist treasury management sales folks. Jill was right there, Jill and or someone else, sometimes Nathan actually were right there with us on demos helping us understand how to position the product, some of the hurdles that we were going to face from a sales perspective. So to Jill's point, not only is it a niche strategy, you can get off the ground relatively quickly, but the partnership and the level of just kind of being in the trenches with us was what really helped us get traction.
Jill Feiler (16:35):
And I honestly, it's super selfish on my behalf for doing that because we get to hear not only from bankers about what obstacles they need to overcome in order to drive successful sales and successful deposits into the bank, but we get to hear from the client's mouth what they like, what they don't like. Anything that's going to drive value to the end user is where we want to be, and we want to be in those conversations. And so while it's driving a successful partnership, it's also driving a successful product and product feedback that we're able to get in real time. So it started out being selfish and ended up being a really cool thing.
Allan Rayson (17:20):
It all worked.
Jill Feiler (17:21):
Exactly, exactly. So we were told that we should stop at 20 after to see if there are any questions out there that potentially we can field. And we'd love to answer any of those. Great, thank you.
Audience Member 1 (17:46):
You were talking about the two months, and Allan, you were talking about different niches that you were implementing. So what I heard you saying is that the two months was to get the platform going and then you're able to add, you do association another niche. Did I hear that right?
Allan Rayson (18:10):
Yeah.
Audience Member 1 (18:12):
Cutting it down then cutting it down even further.
Allan Rayson (18:14):
Yeah, I mean, with respect to ZSuite specifically, that is a niche strategy that can be not only implemented, but the bank should start seeing deposits hit their balance sheet, which is obviously the name of the game in a short period of time. I think one thing that's important about that, that we sort of learned is, as you think about tech is just an enabler, I think we can all agree with that, but we're utilizing ZSuite's Tech as an enabler for a certain outcome that we're trying to get. But you also have to figure out the sales strategy and how you're going to deploy that product, which we learned several things along the way. And to contrast commercial escrow with association banking on the association banking side, we went out and hired a subject matter expert, somebody that literally, I'm going to use the word Rolodex, is that still relevant? I don't know if that's still relevant. I use it. Some may know what a Rolodex is. I personally do not have one, but you get the idea. Patty is a subject matter expert. Patty runs our association banking business. She is a subject matter expert in association banking. She knows all the association management companies, she knows the software that those companies used, sync Vantaa, several others.
(19:52)
We were able to launch our association banking business while the tech took longer to deliver. We sort of short circuited the process from a sales perspective. The opposite is sort of true on the ZSuite side, meaning we delivered the product through our treasury management sales. And it took a little while for those TM sales folks to get from a place where it's like, because our minds always go, if we're talking about escrow, our minds as consumers always go to, oh, well, that must mean we're talking about our PITI associated with our mortgage. Our personal mortgage doesn't out, we're talking about talking escrows associated with large real estate transactions, sizable deposits. But our sales teams, this is the point. Our sales teams had to figure that out. What is the product? How is it being used by the title companies, law firms, etcetera. But once we got that figured out, we were rolling.
Jill Feiler (21:01):
And I think that's a function of the fact that you are, I think our sixth bank that was live with C Escrow. So we learned together, which is also great to form a partnership. But one thing that I think is important to look with FinTech partners is to make sure you're getting that good sales information upfront. So today, sorry, but today we've changed our strategy so that we're actually meeting with prospects during the implementation process because it's obviously super important to make sure that you're onboarding immediately to experience all of that success right away so you're not losing momentum. And so we're getting more knowledgeable about the niches and the different drivers of commercial deposits and what drives in the biggest average balances, for instance. So as we learn, we learn together and are able to deploy that. So if Allan came today and said, Hey, what do we think about this type of niche? Cool, either we have or haven't, and let's learn about it together. So just from a FinTech partnership perspective, I think that's really important to get all of that stuff early on.
Allan Rayson (22:18):
That's a great point. I mean, in all honesty, some of our best referrals came from ZSuite. Like I said earlier, they were in the trenches with us and figuring things out right alongside us. And then over time, we've been working together for several years. Over time, some of the best referrals, the best new client opportunities that we've been able to onboard have come straight from ZSuite. So it's nice. It's nice to get a phone call every once in a while. And again, I hope I'm not setting everybody's expectations.
Jill Feiler (22:55):
I'm just kidding.
Allan Rayson (22:57):
It's like, Hey, you got a spot for 50 million in deposits?
Jill Feiler (23:00):
Yeah, exactly. He's going to take that call.
Allan Rayson (23:03):
We are definitely going to take that call. Can I ask a related question, please? Yeah,
Audience Member 1 (23:07):
Yeah. So you've got escrow, you've got HSA, homeowner Association.
Audience Member 1 (23:13):
What else is interesting?
Allan Rayson (23:15):
Yeah, I mean, that's a great question. For us, we skew very commercial, and certainly Lee knows this, but we're probably 90% commercial, 10% consumer. So skewing very commercial, you've got to be able to deliver sort of best in class treasury and cash management ops and services. So alongside all of this, we've been alongside these niche strategies, I should say. We've been working hard to deliver really best in class treasury and specifically treasury tech. How, and for us, Q2 is that Q2 is that partner. So Q2 delivers the UI for a middle market and small business company to be able to move money, obviously the most important function, but alongside that, reduce our operational load, meaning that a lot of the entitlements and maintenance that takes place on those big treasury platforms takes place on the client side versus on the bank side. So certainly helps us from an FTE perspective. So those four specifically, those kind of three niche strategies in commercial escrow, HSA association, banking, and then the broad brush is treasury. At least for where we stand today. And we're always part of our culture is let's always be searching and trying to innovate, but be able to find the riches and the niches. I guess that's what I was always taught.
Jill Feiler (25:05):
Anything else? Yeah, I got two hands. Go ahead.
Audience Member 2 (25:11):
So is the customer management component life?
Allan Rayson (25:26):
Yes. And I couldn't hear all the whole question, but I think you were asking about sourcing deposits through digital channels and short answer, absolutely yes. But the way that we looked at treasury or the way that we look at treasury is in four components. The first is digital account opening. That's kind of table stakes I think for all of us probably at this point. The second is digital onboarding. I mean, the product that Q2 specifically has, and others have comparable products. But that digital onboarding product is very, very important to us because again, we're to reduce, we're trying to reduce operational load, trying to run the bank at around 400 FTEs. So that second one is very important. The third one is money movement and working towards instant money movement and being able to monetize payments on some level. And then last, are those that kind of maintenance bucket. But absolutely, yes, digital deposit is a huge one and a mission critical component of treasury, not only on the user side, but for the back end of the bank as well. Automating a lot of that stuff, a lot of the diligence that it takes place to open up a commercial account.
(27:03)
I didn't see the other hand's
Jill Feiler (27:04):
Question right here.
Audience Member 3 (27:06):
I was just wondering, can you just describe more about what's the FinTech in this case? What is C Suite accounts?
Jill Feiler (27:13):
What are we doing to, I'm sorry,
Audience Member 3 (27:15):
What are you guys doing? What is your solution for?
Jill Feiler (27:18):
Oh, sure, sure, sure, sure. So we have a general purpose digital escrow platform that ties into the core. So all the balances are on your balance sheet. And then we're really that virtual escrow account system where the user, whatever vertical that is, if it's a attorney's, nursing homes, funeral homes, any industry out there that needs escrow can manage those accounts digitally. So open, close money movement, all reporting statements, complex interest configurations is all done on the platform. And so that platform is the system of record for all escrow accounts. So it creates efficiencies not only within the bank, but then within that customer as well.
Allan Rayson (28:04):
And importantly, and we have certainly been asked by the regulatory community these questions, but our commercial escrow strategy is not a bass strategy with the important kind of distinguishing factor being we know exactly who our client is and we have a direct line to that client. So we know that same client that's on commercial escrow just like we would if we had made a loan to them. Same level of diligence. So in this environment especially, that is a pretty important kind of distinguishing factor.
Jill Feiler (28:49):
It is because all onboarding is still done at the bank level, and so utilizing our platform for those kind of virtual accounts that they need keeps compliance at the bank level, which makes compliance officers extremely happy when it comes to that. Yep.
Allan Rayson (29:07):
It's a great solution for all of the reasons that we've talked about, not the least of which is it works from a compliance and regulatory perspective as well. A hundred percent.
Jill Feiler (29:21):
Well good. Well, thanks for the questions everyone. Appreciate your attendance.