Opening the Next Decade of Community Banking: A Look at 2020 and Beyond - Finastra
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MARKET COMMENTARY
Opening the Next Decade of Community Banking:
A Look at 2020 and Beyond
Nearly twenty years ago, at the start of the new millennium, the internet was still in its
infancy and the Y2K bug threatened to hold financial institutions hostage. Fast forward
nearly 20 years and Y2K is a thing of the past, put to rest by a spirit of relentless
innovation and transformation.
Internet capabilities continued to evolve as He brings more than 30 years of
well, enabling a new means of commerce experience with community banks and
and accelerating the pace of technological credit unions to his role at Finastra where
advancements for years to come. Now, as he is responsible for developing the
we near the end of the second decade company’s go-to-market strategy.
of the millennium and look toward
Together, they are shedding light on
2020, the technology fervor continues,
the priorities that community financial
challenging banks and credit unions to
institutions should consider as they look
evolve in an environment of changing
to 2020 and beyond.
economic indicators.
Mike Dionne
What does 2020 and the dawn of the Clouds Could Be Brewing on the
SVP and GM, North American
next decade hold in store for community Regulation Horizon
Community Markets
banks and credit unions, and where According to Mike Dionne, the regulatory
should they put their focus to achieve the environment has been more permissive
greatest performance? We recently turned in 2019 than at any other time since
to Vincent Pugliese and Mike Dionne of the passing of Dodd-Frank. “When you
Finastra, to weigh in on the most pressing juxtapose 2019 to coming out of the
trends of the upcoming year and to shed financial crisis, which has taken us quite a
light on the priorities that community while from a regulatory standpoint, 2019
financial institutions should consider as was pretty light compared to expectations,”
they look to 2020 and beyond. said Dionne.
Vincent Pugliese is the senior vice He is quick to point out, however, that 2019
president and general manager of U.S. was not devoid of regulatory concerns,
retail and lending solutions at Finastra. as large SEC registrants prepared for the
Vincent Pugliese He leads technology strategy for the implementation of the Current expected
SVP and GM of Solutions company, devising technology to address Credit Loss standard (CECL) in 2020.
North American the modern challenges that banking
Community Markets organizations face. Mike Dionne is the
senior vice president and general manager
of North American community markets.
FINASTRA Market Commentary 1
CECL requires financial institutions to “Considering the current low rate
“
reserve funds against losses at the time environment, inexpensive deposits are
a loan is originated and represents a paramount to a financial institution’s
A top priority for every financial significant regulatory hurdle. success,” says Dionne. “And banks need
to increase their digital footprint to attract
institution right now, in terms “But by and large, the big requirements
and retain new customers or members,
of investment, is creating a that came out of the financial crisis, we’ve
given increasing preferences for online
moved beyond that wave,” said Dionne.
holistic, seamless account and mobile interactions.”
acquisition strategy. ” Unfortunately, election years historically
bring uncertainty to the regulatory
Automation and other digital tools serve
to not only streamline the account
Mike Dionne environment, and 2020 promises more
opening process but can ease the cost
SVP and GM of the same. Just this year, the proposed
of onboarding and managing depositors.
merger of Suntrust and BB&T sparked a
Vincent Pugliese agrees and adds that
spate of controversy, underscoring the
financial institutions can gain traction by
contrast in political viewpoints on the issue
taking a broader approach to technology
of regulation in banking.
enablement in 2020 as well.
While President Trump continues to
“A top priority for every financial institution
express support for easing the regulatory
right now, in terms of investment, is
environment, Elizabeth Warren, a leading
creating a holistic, seamless account
ONE IN THREE financial democratic presidential frontrunner,
acquisition strategy across all sides of
executives report cost of opposed the BB&T-Suntrust merger and
funds and core deposit the business to offer a more seamless
publicly expressed doubt concerning
growth as their top experience for the end customer
the Fed’s past scrutiny of bank mergers.
concern for the future. or member.”
Bernie Sanders seems of like mind, vowing
to uphold and strengthen Dodd-Frank
Catching up to the Quickening Pace
if elected.
of Innovation
While the current outlook on regulation One factor that could interrupt technology
is quieter make deposits could actually adoption by community financial
lose money by the time they withdraw institutions, is the quickening pace of
their funds. innovation. As technology capabilities
continue to proliferate at a rapid pace,
“As crazy as it sounds, there is a real
it becomes increasingly difficult for
possibility that the same negative-rate
community banks and credit unions to
environment could make its way to
keep up with advancements, according
us,” said Dionne. “And banks should be
to Pugliese.
considering the implications of that.”
Emerging technologies, such as artificial
Funding is now the primary concern for
intelligence, machine learning and even
community bankers, outpacing regulation,
big data capabilities seem beyond reach
according to the CSBS 2019 National
for many community institutions who
Survey of Community Banks, with one third
are still addressing the need for core
of surveyed executives labelling the cost
digital services, such as online and mobile
of funds or core deposit growth as their
banking. According to the CSBS 2019
top concern for the future. The survey also
National Survey of Community Banks, 34
revealed that community institutions rely
percent of respondents do not offer online
heavily on both transactional and non-
loan applications and have no plans to do
transactional core deposits to balance
so over the course of the next 12 months.
liquidity and gain new loans.
FINASTRA Market Commentary 2Meanwhile, new Fintech competitors are Straight-through processing automates
offering faster, more integrated options, many key steps in a process, removing the
“
increasing the competition factor by need for human intervention. The result
making it easier for consumers to interact is a cleaner and more efficient way of
Open banking is just around the according to their preferences. doing business.
corner, and financial institutions
Pugliese encourages banks and credit Online lenders are already using
need to be ready to embrace it. ” unions to focus on catching up to automation in the end-to-end application
technology trends. “Open banking is just process to speed approvals and reduce
Vincent Pugliese around the corner, and financial institutions risk. According to a report issued by
SVP and GM need to be ready to embrace it,” he said. the New York Federal Reserve Board,
Fintech lenders are processing loans in 20
Both Dionne and Pugliese agree that for
percent less time with 25 percent lower
the near future, and certainly 2020, big data
default rates.
will prevail.
According to Dionne, it has always been
relatively easy to approve financing for McKinsey views a not-so-distant future
borrowers with top credit scores, but he where machines perform from 10 to 25
is now seeing financial institutions finding percent of work across all bank functions.
and targeting unique market segments, Dionne agrees and predicts strong
Fintech based lenders are because technology allows them to make outcomes for both commercial and retail
processing loans in 20% better use of data. banks who invest in STP in 2020.
less time and with 25%
lower default rates “I had a customer who started working
Achieving the Strength of
with the immigrant market,” said Dionne.
New Technologies
“Through data analysis, he uncovered
Community financial institutions operate at
factors that helped him identify loan
significantly smaller scale and with lower
candidates and determine how to serve
budgets than the big banks, so keeping
this typically underserved segment.”
up with new innovations could remain a
Finastra realized this early on, combining challenging prospect in 2020 and beyond.
the streamlined capabilities of application
“What we see is an industry segment still
automation with big-data analytics to
trying to catch up to the expectations
create Fusion Mortgagebot Data Insights.
set by the big tech companies, such
With Fusion Mortgagebot Data Insights,
as Google and Amazon,” said Dionne.
Finastra united the data from over 1,400
“Banks and credit unions have always
Financial Institutions to create detailed
had a short runway for implementing the
comparisons, allowing lenders to quickly
technologies necessary to provide this
shift strategies when necessary in
type of experience, and that runway is only
order to improve their loan application
getting shorter.”
conversion rates.
One reason for the rapid need for
But data is only part of the equation when
technological adoption, is the emergence
it comes to making faster and smarter
of open banking. Open banking simplifies
lending decisions. According to Dionne,
interactions between third-party
financial institutions should also look to
applications and the financial institution by
automation in 2020, to reduce the number
creating an interconnected web where all
of manual interventions in favor of straight
parties share data.
through processing (STP).
FINASTRA Market Commentary 3The power behind open banking rests These new applications go hand-in-
with Application Programming Interfaces hand with Finastra’s core technology
(APIs). APIs are a set of routines, protocols stack, expanding the capabilities that the
and tools that enable disparate systems company can offer to financial institutions
and applications to communicate. and their customers. According to Pugliese,
community banks and credit unions can
“It’s easy to understand where open
extend their technology budgets by taking
“
banking is taking the industry if you think
a similar approach.
about the Blackberry,” said Dionne. “In the
The future for any organization is early 2000’s, everyone had a Blackberry, “The future for any organization is about
and RIM, the parent company, had a huge partnering and gaining the advantages
about partnering and gaining the
development staff all creating applications. of ecosystems,” he said. “We’re seeing
advantages of ecosystems. ” Soon, Apple came along, opened their a growing number of smaller financial
platform to third-party developers instead institutions, in particular, who are moving
Vincent Pugliese of creating them in-house, and we see who from on-premise software and systems to
SVP and GM the market leader is today.” the cloud, and this is going to continue into
2020 and beyond.”
Open banking uses the same premise
of platform sharing, allowing financial Cloud systems provide community
institutions to expand their offerings financial institutions with the technology
through third-party development. assets they need to remain competitive,
While some big U.S. banks have but with less of the cost and fewer
started to implement APIs, it is largely challenges. With cloud solutions, banks
beyond the capabilities of most small and credit unions can adopt the latest
financial institutions. technology without the need to develop
or maintain systems and infrastructure.
“The cost associated with developing
The costs of replacing outdated software
and implementing these ground-breaking
or hardware are also reduced.
innovations is likely to be prohibitive for
the community financial institutions,” By working with cloud providers, banks
said Pugliese. “But there are other ways and credit unions can head off another
for smaller banks and credit unions deterrent to technology innovation, that of
to keep pace with technology and acquiring technology talent.
remain competitive.”
“I’ve had conversations with financial
To facilitate technology enablement, institutions where they might be using
financial institutions of all sizes are a legacy type product, maybe even as
beginning to partner with Fintechs old as a green screen product, and the
and leverage existing APIs. Finastra new millennial or gen Z talent coming in
is leading the way in this respect and the door doesn’t know what to do with
setting an example for banks and credit that,” says Pugliese. “In these situations,
unions to follow with the advent of the institution’s available talent pool is
FusionFabric.cloud. significantly minimized.”
“Early on, we realized that we could do On the other hand, cloud services are built
more and create products faster by on the latest technology, increasing the
partnering within the Fintech developer bank’s odds of finding employees with the
space,” said Pugliese. “So, we invested right skills to join their ranks.
in an open and collaborative platform
where third-parties can produce innovative
solutions to solve many of the market
challenges financial institutions face today.”
FINASTRA Market Commentary 4For More Information Visit What Key Tech Trends Should Banks Both Dionne and Pugliese agree that
finastra.com and Credit Unions Watch? Fintech collaboration like this will play an
When asked which technological increasing role in the future of banking,
innovations banks and credit unions should helping community banks and credit
expect to see more of in 2020, both Dionne unions to build stronger and longer
Telephone
and Pugliese agree. Beyond the near lasting relationships with their customers
+1 (0) 800 989 9009
advent of an opening banking environment, and members.
it is AI and machine learning.
“Utilizing Fintech offerings, community
“AI and machine learning are going to financial institutions can produce a group
improve the customer experience in so of capabilities,” says Dionne. “Allowing their
many ways,” says Pugliese. “For example, customers and members to create the
by making it possible for customers banking experience they want to have and
or members to have money move to maximize their relationship with their
automatically from a savings account financial services provider.”
to a checking account based on their
spending habits.”
Finastra has made significant investment
in AI in 2019, leveraging the collaborative
properties of FusionFabric.cloud (FFDC).
As example, a partnership with Monotto,
an automated savings platform called
Robosave. Monotto’s RoboSave helps
account holders increase their individual
financial stability by analyzing transaction
history to determine how much money can
be saved on a daily basis. The program
then automatically transfers that money
out of the user’s checking account and
into their savings.
About Finastra North American Headquarters
Finastra is building an open platform that accelerates collaboration and innovation in financial services, creating better 744 Primera Boulevard,
experiences for people, businesses and communities. Supported by the broadest and deepest portfolio of financial services Suite 2000, Lake Mary,
software, Finastra delivers this vitally important technology to financial institutions of all sizes across the globe, including 90 of FL 32746
the world’s top100 banks. Our open architecture approach brings together a number of partners and innovators. Together we are United States
leading the way in which applications are written, deployed and consumed in financial services to evolve with the changing needs T: +1 800 989 9009
of customers. Learn more at finastra.com
Finastra and the Finastra ‘ribbon’ mark are trademarks of the Finastra group companies.
© 2020 Finastra. All rights reserved.
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