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Ten years to digital or else?

Book Review: Race isn’t over—but you’d better start running

Bankruption: How Community Banking Can Survive Fintech. By John Waupsh. Wiley. 312 pp. Bankruption: How Community Banking Can Survive Fintech. By John Waupsh. Wiley. 312 pp.

Community banker Jane Haskin, one of our leading book reviewers, has reviewed many of the most notable books on financial disruption, written by such thought leaders as Brett King and Chris Skinner, for this website. Now she reviews one of the first books to look at this rapidly moving issue from the community banking perspective, something often not treated with by other authors.—Steve Cocheo, executive editor and digital content manager

Two things stood out immediately for me that made Bankruption different from other bank technology books I’ve read.

First, the book was written specifically for community banks and credit unions. Second, the book is full of meaningful suggestions to help your bank progress with its technology strategies, no matter where you are in the process.

Not only does the author, John Waupsh of Kasasa, provide suggestions based upon his many years of experience in banking and fintech, but he asked over 20 other successful industry thinkers to contribute. They give their ideas on the next steps community banks should take toward becoming digital banks.

The key point made by numerous experts over and over in this book is critical to understand:

The one thing banks can’t afford—if they hope to survive into the future—is to do nothing.

I highly recommend this book because it will give you good guidance on where to start.

The book has a companion website full of charts and other information to support the “bankruption” concept. Plus, when you visit, you can subscribe to the author’s newsletter. During the subscription process, you are asked to complete a short survey that provides feedback on how your bank is progressing with the adoption of digital products.

Where most community banks stand now

Most community banks have a long history of serving the community where they are located. Many are family owned. Historically, the consumer needed a local source of capital and a convenient place to securely maintain their cash resources. This built a trusted relationship between local customer and local bank that worked well for over 100 years.

Today, customers want their bank to provide services to them how, where, and when they want to do their banking. This customer demand is what fintech companies see as an opportunity. They seek to be the provider of these services to bank customers because the bank doesn’t offer the product or service that customers want.

I often hear my fellow community bankers state that their customers just don’t want all of the digital banking products. This belief is especially present among banks located in rural areas.

Unfortunately, their customers have the option to bank anywhere they want via other banks’ digital offering. Physical location is no longer a banking barrier. Anywhere the internet can reach qualifies.

There has been much publicity suggesting that fintech competition is the driving force behind bank consolidation. However, the author disputes this claim.

“Back in 1980, banks numbered around 14,000 and credit unions around 21,000. Almost 40 years later, it’s around 5,500 and 6,500 respectively,” Waupsh states. “Six-sevenths of the decline in financial institution numbers since 1980 is due to merger or other, nonfailure, consolidation. Hardly new-age competition—moreso evolution.”

In fact, the author quotes a study by eMarketer done in 2016 in which U.S. financial institution executives were asked to name their greatest challenges. That study reflects regulation as the number-two challenge cited by 28.7% of executives only after the number one growth and profitability challenge, which ranked 29.3%.

Adding new technology and products was considered as a challenge only 6.7% of the time.

At a time when community banks need to be focused on spending to add new digital products, they continue to be bogged down in an extended low-interest-rate environment that hampers their profitability.

And instead of researching and focusing on which new products to add to their digital offerings, they are focused on waves of new compliance rules courtesy of the Dodd-Frank Act.

All is not lost

So, what are the prospects for the future of community banking? John Waupsh believes community banks can compete—if they listen to the customer and respond to their request for new digital products.

One of the greatest protests heard from community bankers is the fear of reputational risk when adopting new products. Waupsh makes three suggestions to overcome this risk:

1. Let end-users know they are part of an experiment.

2. Make sure end-users are clear on any risks involved.

3. Have end-users proactively opt-in to your experiment.

By working hard to be transparent with users who want to be on the bleeding edge of their banking experience, community banks can experiment and evolve, and not be left in the cold.

The driving force for change in banks has to come from the top of the organization. This can be a challenge for community banks since most of today’s CEOs are baby boomers within ten years of retirement. It is important for everyone in the organization to understand why change is needed and for the CEO to lead the charge.

Equally important, according to Waupsh, the board of directors must understand and support the need for change. If directors don’t, it may be the time to look for new board members who will embrace change. He also suggests this as an opportunity to add female directors to the board, if that is an area where your bank is lacking. A study by Catalyst Experts, reflecting all company boards from 2007-2012 in the U.S., found that those that had in excess of three women had a 14% return on equity compared to 10% for those with fewer than three women.

Service—a matter of differing definitions

Almost every community banker, myself included, will tell you one of the strengths of their bank is that it provides excellent customer service.

The problem the author sees with this statement is that a banker’s definition of excellent customer service is not the same as the customers’.

Banks hold much data on how their customers spend their money, but we don’t use it to design products for the consumer that meet their financial needs.

This is where the fintechs are light years ahead of banks.

They are using customers’ banking data to anticipate what services the customer will need in the future. For example, they are providing coupons to a customer who uses a certain retail store. They may be sending auto loan offers if a customer has been having a lot of car repairs.

Of course, the customer must opt in for these services, but bankers don’t understand the value of the data they have on their customers.

Waupsh states, “If your customer experience is not continuously informed and upgraded by each particular user’s data, you will insult his intelligence and force him into the hands of your competition.”

Waupsh points out that fintech companies have the new products banks need and banks have all of the data and trust that fintechs need. This should make for a good partnership.

Your present customers may not be clamoring for these products, but if you want to bank the next generations of digital native customers, you will have to have them.

Where you begin the digital journey

What are the necessary steps to becoming a digital bank? Ron Shevlin of Cornerstone Advisors, a contributor to this book and author of the blog, Snarketing 2.0, suggests the best place to start is to develop a technology strategy.

The next steps are to evaluate if that strategy will work; communicate it throughout the organization; and then execute the strategy.

Almost all of the consultants who contributed to this book recommend taking small steps—but keep moving forward with your strategy.

“The path to success in the future of the banking industry for community banks is competing on customer intimacy,” Shevlin states in the book. “It means putting that intimacy to work by providing advice and guidance that other financial institutions can’t because they don’t know your customers as well as you do.”

Meanwhile, in Innovation, Kan. …

My favorite contributor to the book was Suresh Ramamurthi. Suresh is the chairman and chief technology officer of CBW Bank in Weir, Kan., population 661. More importantly Ramamurthi is the founder and CEO of Yantra Financial Technologies. He bought CBW Bank during the height of the financial crisis. 

Ramamurthi was previously a development engineer for Google. Out of his own frustrations with working with his core processor to develop products for his bank, he formed his own technology company. The products are impressive.

The digital banking platform Ramamurthi built allows the bank to do the following:

• Open an account online in less than a minute, with comprehensive KYC and CIP.

• Create multiple cards per account with support for multiple types, such as debit, gift, incentive, and gas cards.

• Access the bank’s payment gateways to send money almost instantly (where applicable) globally.

• Access debit rails to send money instantly within the U.S.

• Ensure compliance with AML regulations as well as BSA.

This isn’t a comprehensive list of all of the many ways Ramamurthi has found ways to enable his customers—and it all resides on top of his legacy core platform.

Bankers have a deadline

One last and critical note: John Waupsh estimates that banks have about ten years to get on board with digital banking.

If you haven’t started, it’s not too late.

But you don’t have time to waste. A good place to start is to buy and read this book. It was well done and one of the most helpful books I’ve read as a community banker.

You can read a guest blog by John Waupsh, “Avoiding damage by disruption”

Jane Haskin

Jane Haskin is president & CEO, First Bethany Bank, Okla. Haskin, is a member of the Banking Exchange Editorial Advisory Board and a former member of ABA's Community Bankers Council. She is a frequent reviewer for

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