Disruption could open opportunities for banks

Encouraging bankers to “play big” in technology, from left, are: Vincent Hui, Cornerstone Advisors; Denny Hudson, Seacoast National Bank; Alexandra Villarreal O’Rourke, McGuireWoods, and Anthony Morris, Salesforce.

Technology is disrupting the banking industry, but that does not have to be a bad thing, according to experts who gathered for a panel presentation Jan. 30 at the Acquire or Be Acquired conference in Phoenix. “Where there is anarchy, there is opportunity,” observed Vincent Hui of Cornerstone Advisors, who led the discussion.

Dennis Hudson, CEO and chairman of Seacoast National Bank, said it is important to have tech buy-in at the top. For his shop, that has meant a number of changes in the boardroom. He said half of his board has intentionally turned in order to bring technological expertise into his bank’s governance and board leadership.

Alexandra Villarreal O’Rourke, a partner with the McGuireWoods consulting firm, said regulators have a duty to signal how they feel about certain technologies. Bankers should be able to look to regulatory agencies to gain clues about which technologies are likely to align with regulatory objectives and which are likely to run into roadblocks. “Regulatory clarity is a huge issue,” she said.

O’Rourke, who previously worked at the Consumer Financial Protection Bureau, helps clients navigate issues related to the use of technology. She explained that when there is uncertainty about a regulatory agency’s tolerance for a particular technology, she will accompany clients to Washington D.C., where they will meet with representatives from the regulatory agencies.

While horrendously outspent by the largest banks, community banks have an advantage because their size allows them to be agile and innovative in ways large banks simply can’t be, commented Anthony Morris, global head of retail banking at Salesforce.

While investing in technology is costly, Hudson said technology is comparatively affordable. He said his bank uses technology that cost millions of dollars five years ago but is available off the shelf for a few hundred thousand dollars today. He said it is encouraging that “the highest cost delivery channels in banking are in decline while the lowest-cost delivery channels are exploding in volume.”

Bankers often express bewilderment at the array of tech options, leaving them unsure about which opportunities to pursue. O’Rourke encouraged bankers to telegraph their interests so tech entrepreneurs will find them. “You are the buyer, so you are in control,” she said, “but they will find you if they know of your interest.”

She said it is important that potential tech partners be able to thoroughly explain their products. “Don’t accept the line that the product is too complex to explain,” she said. “You better be able to explain it because the regulators are going to ask you to.”

Artificial intelligence is being married with bank databases to provide many new insights into customers, the speakers commented. Bankers who use the information effectively will have a distinct advantage over other financial services providers, the panelists agreed. “Data is the new oil,” O’Rourke commented. “[Artificial intelligence] is the drill. You are sitting on a gold mine.”

Furthermore, she said the market has evolved to the point where customers expect banks to have extensive information about them. For example, she said customers expect a bank to know about products he or she may have used at the bank, even if it was years ago.

Morris said the banking industry has only begun to scratch the surface on all the uses for artificial intelligence. Working with about 200 banks around the globe, Morris said: “Two years ago hardly anyone was talking about AI. Today, I do not have a conversation at a bank where AI doesn’t come up. Bankers are asking questions: What does it look like? How do I monetize it?” Morris said his company is conceptualizing uses for technology, writing use cases, and approaching banks on a targeted basis to test them.

The panel closed with each member offering a piece of advice:

Hudson: Call Experion and explore ways you can obtain more information about your customers.

O’Rourke: Hire a technology officer. Let them do big picture thinking.

Morris: Make digital, agility and innovation part of your bank’s culture.