Reinventing community banking

If there is one word that fits the ongoing transition for community banks today, it’s “adaptability.” This concerns not only adaptability of community banks and bankers to new channels and new ways of doing things, but adapting the assets, both financial and nonfinancial, that community banks already possess to that new world.

Speakers at a session at the LendIt Fintech conference April 9 represented three different facets of transition: a venture capital/development operation owned by a regional bank that’s devoted to transforming community banking; a financial lab started under a large savings bank’s roof that was spun off; and a national financial specialist offering deposits nationwide and providing service such as student loan refinancing that operates out of a small community bank charter.

Trio of “transitionalists”

Trish North is senior vice-president, customer success, at Numerated, which began as Eastern Labs, a subsidiary of Eastern Bank, Boston. Since being spun off from the parent, which it originally served exclusively, Numerated has expanded its clientele to eight institutions.

North recalled the earliest days as part of Eastern, when management wanted to find new ways to compete, using technology. The first big task was weighing and sifting all the customer data that Eastern had, which North called “a treasure trove.”

“It's all about the data,” said North. “It resides in your core platform. It’s all about having the right talent in place to translate and interpret that information.”

North said that when the Eastern Labs operation first began, “for four months we sat combing through the data and just slicing and dicing and figuring out what the data was telling us.” Among the eventual fruits was Eastern’s award-winning Express Business Loan product, which provides an instant loan decision and quick funding for approved borrowers.   

Pivotus Ventures, a subsidiary of Umpqua Holdings Corp., describes its mission as “building banking for humans.”

“Community banks back in the day were about relationships,” said Karolina Banna, chief product officer. She believes the key to adapting to the future is making this foundation “relevant for the digital age.”

“It doesn’t always mean replacing your human capital,” she continued, “but scaling it for fantastic relationships.”

At Laurel Road—officially, Laurel Road Bank, a $605.9 million-assets institution in Darien, Conn.—career banker Scott Skorobohaty says he found himself in transition personally. After having spent years in community banking and real estate in the New York tri-state area, Skorobohaty is executive vice-president for community banking and commercial lending at what was founded in 2006 as Darien Rowayton Bank. Today, after acquisition by investors, the bank offers online deposits nationwide and has several specialized lines of business, including student loan refinancing.

This is on top of a legacy community bank with a legacy client base that the organization wants to keep happy while it expands and reinvents itself. At times Skorobohaty may feel a bit “legacy” himself.

“I’ve been a traditional banker for 25 years, and this is my first fintech position,” explains Skorobohaty. He’s had an adjustment to make. As a banker in traditional banks, he was on the fast end of the tech curve. Now that he’s in what’s basically a fintech living in symbiosis with a traditional bank, “I am the slowest guy.”

Making the transition

Skorobohaty said bankers adapting to the future need to understand some fundamentals of the changes going on today.

One is that the old concept of “full-service banking,” once a standard of community banking, may not make sense anymore. Transition “starts with understanding who you want to be,” he explained.

At his own organization, “we’ve made a strategic decision to not be everything to everybody,” said Skorobohaty. “We have instead decided to be the best-in-class for the online platforms that we build.”

Another point to understand is why transition is occurring. “Efficiency is the name of the game,” said Skorobohaty. “Let’s not kid ourselves. We are going down the road of digital for efficiency’s sake.”

Many bankers may find themselves today, or soon, facing the same balancing act that Laurel Road does. Skorobohaty explained that his bank doesn’t want to alienate its current traditional banking customer base, so it must maintain operations that keep those people happy. On the other hand, the bank must design services that meet all the standards of speed and convenience that Millennial customers as well as other demographic groups insist on.

“They won’t be sticking around” at banks that don’t get up to speed, he said.

Because of this balance required, Skorobohaty says staff education is essential so employees can serve both legacy and future customers in the ways they prefer.

Referring to Banna’s comment about relationships, he said the challenge is distilling the essentials of the traditional ways of delivering relationship banking. And then, “how do you bottle it?” said Skorobohaty. He said community banks need to figure out how to deliver that relationship feel digitally.

Skorobohaty sees technology as the tool that will make the transition happen, though he admits to some frustrations.

“I hope sometime in my lifetime we’ll see a core system that is in the cloud,” he said. Presently, there are creative vendors who can provide new services that sit on top of traditional core systems, but not much in community banks’ league that isn’t a combination of new and old.

“Right now,” said Skorobohaty, “it has to be a hybrid solution.” He said it’s important for community banks to be sure that their core vendors understand their long-term strategy. “And they need to know your core client base,” he added.

Keeping customers happy

Pivotus’ Banna said community bankers must understand how today’s consumer typically sees financial services.

“People have low barriers when it comes to banking. People give up very quickly. They see banking as something to go through to get to what they want,” she explained. Thus, what the bank provides, “has to be a beautiful, seamless experience. People will give up if the experience isn’t very good.”

Numerated’s Trish North says her company has found that making customer data more digestible and applicable can help bank staff better at using it to serve more-demanding clientele.

“It’s all about taking the data and making it more simplified for the team members and the bank itself,” she suggested. One approach uses some of the concepts of dashboards, rendering data so that some factor such as a color flags a bit of data that can instantly tell an employee something important about a client.

“You really need to understand who your banking audience is,” said North.

This junction of data, technology, and people supports a point Banna made. She said that while digitalization is moving into more and more of banking, there are major life events involving finances that technology still won’t suffice to meet by itself, such as buying a first home.

“I think,” said Banna, “that there is still very much a taste for humans to guide you through that first journey.”