Umpqua’s next transformation

We didn’t ask Cort O’Haver if succeeding Umpqua Bank’s longtime leader, Ray Davis, was tough. The answer seemed obvious: How could it not be?

Davis is an industry icon, particularly in retail banking circles where he inspired many to copy his signature vision of branches as experiential, not just transactional, centers. These “stores” boasted cybercafes, coffee bars, and very unbanklike designs.

Davis, 67, now executive chairman of Umpqua Holdings, handed off the CEO mantle in January 2017 to O’Haver, who was president at the time. O’Haver, 54, has spent most of his nearly nine years at Umpqua running commercial banking.

The commercial bank, which includes the bank’s leasing and private banking units, comprises between 80% and 85% of the balance sheet, the rest being residential mortgages and consumer loans.

Headquartered in Roseburg, in southwestern Oregon, Umpqua Bank has total assets of $25.6 billion and operates in five western states. It has just over 300 branches—down 35 after some recent consolidations.

As O’Haver notes below, the bank’s strategy for years was connected to its physical presence and attracting people into its stores. Yet because of the digital revolution, people were coming in less frequently, relying on mobile and online to conduct much of their routine business.

Clearly, the model needed adjustment. But how? And how much?

O’Haver and the Umpqua senior team have been immersed in those questions for some time. In the following dialogue, edited for clarity and length from an interview, the answer emerges.

Banking Exchange: Umpqua Bank is now in the Cort O’Haver era. What’s your vision for the company in a digital world?

A. The long-term vision of the company has not changed: to provide banking products and services to people when they want it. We call it personalized banking for all—anytime, anywhere.

Having been a commercial banker my entire career, I know the value of a relationship. I don’t care what type of customer you are—a retail customer or a commercial customer borrowing $100 million—having a personal connection with a financial institution is really important, especially when something is going on with your business or your life. Umpqua built a strong reputation for being very service minded

But how do you create a human relationship when more and more business is being done electronically?

So we’ve decided as a long-term strategy to combine the human element with digital components. We call it “human-digital banking.”

What does that mean? We have a new retail application in pilot called BFF—Best Financial Friend—created by Pivotus Ventures [Umpqua’s Palo Alto, Calif.-based fintech/research unit], that customers download on their phones. The first phase of the pilot was a centralized hub. Now we’re rolling it out in stores in the Portland [Ore.] market, training associates to serve as a BFF digitally in addition to working with customers in person. Our intent, as a more robust application becomes available early in 2018, is to introduce it into other metropolitan markets.

Using the app, customers pick a banker in the bank who will be kind of their personal concierge—almost like a personal shopper. They will help the customer do anything with Umpqua except get cash.

We don’t assign the banker. The customer picks the person based on the banker’s background or however they want to decide.

We feel that delivering a human experience through a digital device is a unique offering. Mobile technology is great for ease of use but is pretty sterile when you have an issue and don’t know anybody in the institution. Not having a go-to person who’s got your back can be a real problem. So what we’ve done is take the anxiety out by letting you select a person up front.

The BFF banker knows, through the use of data, what you’re interested in, how you spend your money, what products you have. If we know your kids are getting close to college, we can volunteer related products—not as a sales pitch, but because it’s the right thing to do as part of the relationship—again, like a personal shopper.

Within our private banking function, BFF is just another delivery channel. But most of our private banking customers want to meet with their banker in person and have a conversation over lunch about investment opportunities or recommendations for a trust attorney. It’s a different type of relationship.

So our long-term strategy is to take this very strong brand we’ve got and combine the human aspect with some new digital delivery channels. We think this clearly is a market differentiator for Umpqua, and potentially for other banks if we choose to offer it under some type of use agreement.

Banking Exchange: A call center can function in a similar role. Can you speak to how BFF is different—beyond the fact that it’s app-based?

A. The BFF application could replace the call center someday if the app had AI [artificial intelligence] and machine learning functionality, which it doesn’t yet—although we have people working on that. About 80% of our calls to call centers are password resets and account balance queries, which can be handled pretty much by AI and machine learning.

To me, the difference is in the conversations. The people who are BFFs will tell you the conversations they are having with customers so far—90% of them by text—are more personal, and go another couple of layers deeper than you would have at a call center. For example, “I’m thinking about opening a college savings account; can you give me some suggestions?”

I just met with the BFF team the other day, and they said they don’t get a lot of account balance questions, which I find interesting. Many of these customers right now are digitally sophisticated, so they know how to check their balance through online banking or mobile banking.

Banking Exchange: Where do digital assistants like Alexa, Erica, Siri fit into your strategy?

A. Our premise for BFF is that there is a person you can reach, so it’s not about chatbots, which are driven by AI and robotic kind of learning. Now, when we can provide the answers to the many common types of questions through AI and data, we would certainly consider bots. It’s a much more efficient way to deliver information. But the concept here is there is a human being actually sitting there texting or typing you an answer.

Banking Exchange: Does the BFF program have application for business customers?

A. I think the way customers—retail or commercial—want to do business is more alike than it’s ever been. In this day and age, no one has to go anywhere. The consumer can bank from home in their pajamas and the $100 million borrower can stay in his office, and everything gets done electronically. It’s kind of dehumanized banking and makes it easy for customers not to have a connection, but I think customers like a connection.

I’ll give you an example of how the BFF program relates to commercial banking. We want our lenders out with customers. So when their books of business grow big enough, we’ll transfer some of the loans to a service center to make sure taxes are paid, insurance is paid, and so forth. There’s no reason to have a lender working on these sorts of things for a ten-year term loan.

What happens, however, because of lender turnover or other reasons, when these loans come up for maturity, sometimes they will pay off because the customer doesn’t feel like there is a connection anymore with the bank. But what if when we transferred those loans to the service center, the customer could choose a BFF? The customer may never use the banker, but the BFF could communicate with the customer once in a while. That way, it’s not just mail or email that prompts a customer to make a payment. There is a real person at the bank that has the customer’s back. And we have more of a connection with these customers than just a check or ACH payment.

It humanizes what otherwise can be more of a transactional commercial experience. There are applications like that for BFF all over the company.

Banking Exchange: How do you view the impact of fintech competition—both on the retail and commercial sides of the business?

A. Speaking from the perspective of the industry as a whole, retail banking has probably seen the largest disruption from fintech competition. But you know, fintech impact can also be bank to bank, right? If you’re a $500 million community bank competing for customers against Chase, Wells, Bank of America, the technology they have makes it very difficult to compete against them. I’ve already mentioned fewer people coming into stores anymore, and that’s what community banks really sell.

The advent of the smartphone and all that it can do—whether that capability comes from a fintech company, a mature core aggregator, or from a bank—is what has disrupted the retail side of banking.

On the commercial side, many fintech companies were formed to put liquidity back into small business by online and peer-to-peer lending. Most banks would tell you, I think, that that trend hasn’t really disrupted them. Many of those start-ups just didn’t have the access to capital that traditional lenders did.

But I think commercial impact from fintech is coming. Innovators are asking, “How can we add value? What can we do to improve the scalability and efficiency of back room workflows?”

So far, everybody’s been focused on the lending side. No fintech has come up with a really cool mobile application for small business deposits. But there’s a company in Portland working on a small business online deposit tool. I can’t mention the name because it’s in the start-up phase.

Banking Exchange: Does the bank’s culture need to change to embrace human-digital banking?

A. It’s going to have to transform, but I don’t want to leave behind our basic core tenets. That’s the biggest challenge as we create a different means of delivery.

Right now we’re so physical, right? Our whole reputation and service pledge is based on “come across the threshold of our store,” which has worked very, very well. But now it’s going to morph into “press the app on your phone and we’ll chat.” So how do you hang onto what we’ve got and do it in that channel?

Keeping the core culture value proposition we have today is more difficult as we shift delivery to digital, but vital. I’ve spent more time studying that, honestly, over the last six months than I have worrying about the technology.

The first thing we did is write down our core values. At the beginning of the year, Eve Callahan [executive vice-president of corporate communications] and I wrote down the values. All companies have these, but sometimes, they are just kind of created over time without being written down. One, for example, is “be curious.” We want our people to ask questions and be curious about customers and about each other.

Then we spent several months visiting every location and talking about the core values, and making sure people understood that those values will be rooted in all the decisions we make—even on this human-digital experience.

For management’s part, we must not waver on our commitment to not compromise those values even with the fundamental change in the way we serve our customers.

We challenge each other by saying, “How does that project fit with our core values?” That helps us realize, “Yeah, you’re right. We’d be compromising a core value if we did that.”

Give me another year at this, and I’ll write a book about it!

Banking Exchange: As your delivery strategy changes, have your recruiting and training changed, or will they?

A. Speaking generally first, as a significantly bigger organization than we were even five years ago, we have customers today who we could never have banked before. So we’ve been hiring people with different levels of experience than we previously needed.

Talking about BFF specifically, there’s clearly a new type of role here at Umpqua Bank—bankers who have a medium-to-high level of understanding of all types of banking products and services, which is kind of cool, right? It’s about knowing how to talk to a customer and knowing that they may have a mortgage need, or maybe their kids are getting ready to go to college, or maybe a parent just died and they might need an estate attorney. Creating this capability is going to take training on our part.

But hiring clearly goes back to our core values. We’re not going to make decisions here on the executive floor about how we’re going to run the company without making sure the people we hire aspire to and have the strengths of our core values. I give Ray Davis a lot of credit for that. Before I even got here, he was nonnegotiable on the kind of people we hire. So the type of experience may change, but not the alignment with core values.

One last comment on this subject. I just hired a new chief strategy officer from a large bank. She has already commented how much she enjoys working at a place where people genuinely are in it for the good of all—the bank and those whom it serves. We have this sense of camaraderie here that’s part of the culture. The bank has this living breath to it, and it’s so cool. Having people that believe “We’re doing something right,” is really what we look for.