Welcome To
The Bottom Line

A colleague of mine once said, “God was able to create Heaven and Earth in six days because He did not have an installed base of users.” Anyone who has spent any time in the software business understands this axiom all too well.

This is essentially the premise behind technical debt. As soon as your institution commits to a solution and begins adding customers or members to it, constraints emerge making it difficult to enhance or upgrade the technology.

Each year, SRM interviews a subset of bank and credit union clients to get their perspective on key industry trends rising to the top of their strategic to-do lists. With another decade having drawn to a close, January 2020 serves as a nice vantage point to take things in through a wider lens.

Protecting Share, or Poking the Bear?

I asked a good friend of our firm, Ginger Schmeltzer, owner and principal of GDS Advisors, to comment on the recent announcement that PNC was blocking its customers from using their accounts to fund Venmo transactions. Ginger’s take echoed a number of comments made around the industry concerning the news.

One of the hottest topics in banking – for financial institutions as well as third-party providers – is data sharing. Banks and credit unions possess terabytes of such information; many organizations that are not financial institutions covet access to this data to increase the value they bring to consumers.  This value could manifest in many ways, from a simpler customer experience to providing personalized offerings that anticipate the user’s need. 

Will the United States see a recession in 2020? While the economist and political pundits disagree about the when and why, the overwhelming majority of them agree that our current period of expansion cannot last forever. The last time a significant number of the “experts” believed that the “good days” would last indefinitely, the world experienced an economic meltdown unmatched since The Great Depression.   

Sports are one of America’s greatest pastimes, and anyone spending even half an hour watching them will likely exclaim, “How did that player do that?” Indeed, with the help of science, today’s athletes are dieted and trained to have bodies “made” for their sport. Modern athletes can achieve heights not previously seen. However, science alone does not guarantee the modern athlete’s success. 

Vendors, compliance, risk – OH MY! The burden of vetting vendors and ensuring that they do not introduce unacceptable risk to the organization falls squarely on the shoulders of financial institutions.

The cost of regulatory compliance in financial services is far from stagnant. In a report by Thompson Reuters, 54% of the respondents in the United States expected increases in cost to their compliance budget. As the time and money for regulatory compliance grows, what if vendor contract management could save you money (or even make you money) instead of always being that loud “sucking sound” you hear? 

Vendor invoices in the financial services industry are complicated, with some listing over 500 line items. Further, annually auditing these invoices is a time-consuming task and, in the face of that kind of resource drain, many financial institutions tend to compare one month’s invoice to the last. If the amounts are similar, the invoice is approved. 

This may sound rather casual, but even when banks and credit unions commit the time required to manually review vendor invoices, human error compromises the value of that effort. Further, human errors made during the manual review process can become self-perpetuating, compounding over time without the institution’s knowledge.

Last Tuesday, NCR acquired D3 Banking Technology (D3), a digital banking software company that provides solutions to regional banks. This comes just six years following NCR’s purchase of Digital Insight, a move that NCR explained would allow it to offer financial institutions a complete “omni-channel consumer experience.” Others saw the purchase as part of a “makeover” that NCR needed to survive. Whatever the case, the $1.65 billion paid for DI would suggest this was no trivial action on the part of NCR.

Is D3 another arrow in the quiver as NCR continues to remake itself? Does the acquisition signal a “reboot” to the makeover centered around DI that has stalled? Could the purchase suggest an attempt by NCR to go to market with two technologies, one more fit for smaller institutions and the other an up-market option? In fact, in the July 2 press release announcing the deal, NCR claimed that the latter question could be answered in the affirmative. The news release noted that D3 “immediately expands” NCR into new markets, notably “U.S. large banks and over time, international banks.”

In case you haven’t heard, the digital channel is essential to your financial institution’s future success and perhaps to its very survival. While this point is broadly accepted in concept, an alarming number of banks and credit unions have yet to take concrete steps toward aligning their omnichannel model with customer trends.

In many cases, this inaction is a product of fear. Digital transformation is a daunting undertaking and it can be hard to know where to begin, especially with other priorities competing for bandwidth. As is the case with fitness programs, however, the most important starting point is often to simply begin moving.