IBJ: How is technology changing the banking business?
Toll: I use the word transformational. Banking is not alone in that regard but it is moving at warp speed. There is a lot happening. Not necessarily in the traditional banking space but in the periphery of the new entrants to the market and that change is influencing traditional banking.
Hickman: ATMs actually go back to the 1960s. Everybody said that they weren’t going to work because customers want to deal with real people. It took years for it to take off. That was the first alternative to customers walking in to a bank to do what they needed to do. In the early ’90s came phone banking, and that added another channel in addition to the branch. People could dial up and make transfers, etc. In the mid to late ’90s, along came computer banking where customers had some ability to conduct some transactions but it wasn’t until later in the ’90s when the Internet became prevalent that you had online banking. That added another channel and, of course, around 2007 or so, came full banking capabilities via your iPhone. Now you’ve got five or six channels to bank and all of them enhance the customer experience. The consumer determines which they want to use. It increases the customer’s touch points, it increases the flexibility of how they do their banking and it increases our cost. We have to find ways to improve the technology constantly to get our efficiency down and deliver on our side so we can make the customer experience better on their side.
IBJ: You said that technology increases your cost but isn’t one of the byproducts of the technology less requirement for manpower?
Hickman: It is, but in some cases a different kind of manpower. You have more back-room people and less front-room people. Most customers do use multiple channels, which drives down the traffic in the branches. We find that 75 percent of people will do their research online, but 90 percent still come into the bank to physically open an account. Even though they can open accounts online, only about 10 percent do. Our corporate budget for technology this year is probably $70 or $80 million dollars. But, we are certainly smaller than JP Morgan Chase, which is about $70 billion dollars.
IBJ: That’s a tremendous investment. What is driving it?
Hickman: Millennials are driving a lot of this. They are the largest demographic group, which is why everything is really driving to mobile. We are seeing double-digit increases in mobile adaptation in the last couple of years and it is continuing to go there. Again, people are going to use multiple channels. Mobile banking to do things with iPhone and iPad is going to be where everything is. And if you don’t have that capability with a bank, they’re going to go somewhere else. But, at the same time, they also want to be able to go to the branch when they want to talk to somebody.
DeVasto: It’s important for the client to be able to get all their information online every day — balance their accounts, reconcile their accounts. They’re looking at them daily to monitor activity. And, with deposits being done electronically and payments being done electronically, the number of checks written is gradually reducing every year. 15 years ago, you might have thought that checks would have been gone by now but they stuck around and probably will be around for a while longer.
Toll: Approximately three years ago, I became a customer of a new banking entrant that was a non-traditional model — a non-brick and mortar bank. It’s called Moven. I did that very deliberately to expand my horizons beyond the traditional understanding of banking — as a consumer and as a professional. It was important for me to benchmark that experience because it was accessible to our customers. Understanding how the customer is able to engage that technology and that financial service was very interesting to me because I was able to open an account without walking into a physical bank. I was able to have access to my banking information instantaneously and able to transfer money in a more rapid way. That’s an area that’s changing dramatically. The world of ACH – Automatic Clearing House —transactions is going under tremendous change. It’s going to be a whole new world for banking.
In traditional banking, trying to make sure institutions still appeal to the model of trust you are accustomed to is still a very important space for banks to function in. Banks need to obtain and sustain the customer trust. That’s done through people and through effectiveness. And so, in community banking the ‘know you’ part is one of the most appealing things as to why a customer may select a local banking institution. Now when we move into the space of our larger institutions in the U.S., we may run into spaces where people say they feel like a number. That’s where community banks can separate themselves.
IBJ: Don’t reports of computer viruses and hacking and so forth make people nervous about digital banking?
DeVasto: If you have a paper check that check is floating around with a routing number and account number on there. There is significant opportunity for it to be stolen out of the mail. With electronic payments, it’s bank to bank and the banks are very good about electronic security and dual approval and there are different security aspects running that make the electronic payments a more secure avenue to make a payment than paper. Because of that I think that the deposit companies are much more likely to try to collect money electronically if they can. If not, a lot of companies will do their deposits through a remote deposits scanner. I think companies would love to — as much as possible — eliminate checks and bank electronically just because it’s a much more efficient.
Hickman: We need to have all kinds of technology in place to protect the business or the consumer. Even something as simple as emails, we screen emails around our company and 88 percent of them get blocked. There’s another 6 to 8 percent — what we call gray area — that are allowed to get through.
DeVasto: Electronic banking is more efficient and more secure. I think it’s important that bank clients take advantage of the fraud protection features. If they’re using checks for payment, they’re using positive pay or some form of positive pay to make those check payments. It’s important that bank clients are taking advantage of that. Any way to protect themselves both in the paper environment and the digital environment.
IBJ: What is the future of banking in terms of bricks and mortar?
DeVasto: I think the trend is probably for fewer locations. But again, I think people still like to be able to walk in and meet somebody face to face. It’s important to have that face-to-face interaction. The client has to be comfortable with the banker; see their banker as a partner with them; and that they’re going to help them with ideas to run their business, make it more efficient, make it more secure. I think that face to face is still very important on the commercial side. Having that personal relationship with the banker, if the client needs something, they know they can reach out and talk to that person and work through the issue or get what they need. The banker has probably seen a similar situation with other clients so they can offer ideas or solutions.
Hickman: Today’s branch looks very different than it used to look. You need a whole lot less space both inside and outside. In a modern branch you need about 1,500 square feet, unless you are going to have a lot of mortgage officers or something like that. What you are going to see more and more of when you walk into the branches is fewer employees and more kiosks, more ITMS — Interactive Teller Machines — or things like that. Again, the customer can choose how they want to bank. Similarly, when they call on the phone, do they want to chat or do they want to go online? What it is that they want to do? If you were to take a graph and draw branch versus mobile activity on the same chart, mobile activity started at zero in 2007 and its now crossing down on the branch activity. They have reached that equilibrium. The mobile activity is going to continue to go up. There will be other channels as a result of that, too.
IBJ: Aren’t there financial institutions that have no branches?
Hickman: There are, but I wonder how successful they are. People still want to deal with people when they need them. Those institutions are stripping out a lot of cost we have and the people who don’t rely on trust, they will strip them out right away. Some people don’t even care if it is a bank. I think that is dangerous. There are financial technology companies that are kind of running a shadow banking system. Google or Apple or one of these Silicon Valley companies all want a piece of our business. They want the payments part like PayPal, for example. PayPal is not a bank. They rely on the banking system to get their business done but they are outside of the banking industry.
IBJ: So, what is the future of bank technology?
Hickman: I think biometrics like thumb prints and voice recognition will take the place of passwords.
DeVasto: I think the trend of the paper environment will continue to diminish. The electronic environment will continue to increase. But, the personal relationship won’t go away. Especially on the commercial side you’ve got to have that face-to-face interaction. Personal relationships are very important. I don’t think that ever goes away.
Toll: Customer service, quick delivery and precision is everything in the future of financial services. Technology will grow exponentially in my opinion. I think you’ll see fewer branches, you’ll see more automation. Technology will be taking over some of the jobs, on the front end in particular. Every industry faces an evolution. We are facing that as an industry now and trying to understand how we function. Doing it proactively is absolutely critical at this time. When we are weighed down by the regulatory pressures it makes it that much harder for banks to make the necessary investments in doing what we are talking about. That’s why you’re seeing some contraction in banking through mergers and acquisitions.