May 20, 2021

7 Strategies for the Digital-First Banking CEO

by David Wexler and Kirk Drake in Banking Core Integration , Digital Transformation , Fintech 0 comments

“How do I position myself for the CEO role at my bank (or credit union)?” We get this question a lot from high-ranking executives at community-size financial institutions (FIs) who are in line for this promotion. But banking isn’t what it used to be. It’s not even what it was last year. Our customers are scrambling to keep pace with the industry’s massive evolutionary shift towards digital banking. That makes it challenging to provide a straightforward answer. So, our advice centers around two key areas: the reality of banking today and building a strategy. Prospective bank CEOs need to embrace the industry’s progression towards technology and closely align with technical leadership in the FI. Then they need a strategy for managing through the enormous culture change that must take place in the organization.

“Every business is now a tech company”

In the wake of 2020, we’ve all heard this line. There is likely no other industry where this is more true than in financial services. Even before the pandemic, community FIs were up against a new wave of digital banks and payment apps capable of acquiring millions of users essentially overnight. Meanwhile, some of our community bank customers have been in business for over 50 years with fewer than 100,000 customers.

So, they ask us, “How do we compete with the latest tech?”

This is one example of a multitude of tough questions that today’s banking CEO had better be able to answer. Here are some others that we’ve helped our clients think through:

  • How do we enable the FI to innovate at scale to develop products and features that our big bank competitors already offer their customers?
  • How will our organization support cryptocurrencies? 
  • How will our bank respond to cyber threats?
  • What will happen when interchange revenue goes away?
  • How will we support new FinTech services for our customers?
  • How will we meet the demands of our mobile-first consumer?
  • What tactics will our FI implement to appeal to a younger generation of consumers? 
  • How will we market to teens? (That’s the scariest one.)
  • How will we attract and hire software developers?

And, the biggest question of all…

How do we not get left behind?

The quick answer is, if your FI doesn’t already talk, walk, and smell like a software company, you had better digitally transform your organization. Like, yesterday. 

Last year, ModusBox wrote about the criticality for community banks to offer digital payment options or lose their client base. But for most FIs, an inflexible banking core technology hinders their ability to quickly pivot to new digital services for their customers and members. It’s either impossibly expensive to replace the aging core or exorbitantly complex and time prohibitive to integrate technology into it.

Stick up for the CIO

In response, a lot of our customers have packed 2 to 3 years worth of digital transformation efforts into a single year. CIOs are desperately seeking strategies that create a more nimble IT architecture, faster innovation cycle times, and future-proof connectivity to their banking core vendor. We partner with FIs to solve these challenges but consistently find that at the heart of the problem lies a deeper issue. 

Culture. Organizational culture that has been shaped by years of traditional banking. 

Last November, ModusBox hosted a webinar with one of its clients, Kevin Guenthner of Stockman Bank, on the challenges he faced as a CIO driving transformational change in his organization. What struck us was the amount of effort Kevin dedicated to driving cultural change with his executive leadership. Kevin isn’t alone in this.

Over and over, we find that while the CLO, CTO, CIO, CFO, CMO, etc. are all talking about digital transformation, there are wildly different perspectives. We are reminded of a book called “Throwing the Elephant.” It is easy to agree that we need to do something, and then it costs almost nothing to do nothing. Everyone feels good, but nothing happens. The cultural issues require dealing with what, how, when, and most importantly, who. Credit Unions and banks must deal with who they are hiring, who they are incenting, and aligning on the what, when, and how. 

Fortunately, for CIOs everywhere, there is a new wave of change hitting the financial industry. People change. The metamorphosis to a technology company is bringing with it the emergence of a new kind of employee, new customer demands, new partnerships, and more. And, to successfully guide the financial institution into the digital era, CEOs must embrace the FI as a technology company made up of technologists and closely partner with the CIO and other technical leadership.

Strategies for the digital-first bank CEO of the future today

A heavy dose of reality is of first importance when it comes to being prepared for the role of bank CEO. Next, a CEO candidate will need a thoughtful strategy for leading the next-generation FI. Here we’ve condensed the advice given to our customers into seven key points to consider.

Start thinking like the CEO of a software company. Rethink what the culture of the FI will look like. Develop a plan that focuses on decreasing the cycle time of feature releases and unlocking data silos. Leaders need to enable instant access to information for their whole team. The FI must become a tech-forward organization with business and technology leadership that co-own the development and management of operating models and key objectives.

Start with onboarding. Start by ensuring every new person opts into a digital transformation and agile culture as part of the onboarding process. Develop a culture scorecard and identify the behaviors and values that the organization will need to be successful. Then have managers evaluate their teams. Develop strategies to move on from the bad fits. Ultimately you cannot afford to have the slowest, least aligned person hold up the whole organization. 

Create a center of enablement. To survive, the FI must have the organizational capability to build products that respond in real-time to valuable, trending customer data it already owns. Develop a plan that will establish tools to enable employees to learn rapidly and at scale and empower the capability of rapidly building new products. How will you encapsulate technology into reusable assets that the team can quickly build on?

Rethink the banking process and compliance to support the rapid deployment of products addressing everything from the teller experience to digital marketing efforts. Turn process and compliance on its head so that it no longer hinders the ability to deliver products quickly. Consider how the FI will connect to infrastructure. Build on the strategy for creating a center of enablement so that the FI’s data is at your fingertips. This dramatically reduces the time and effort spent with auditors.

Be ready to hire developers and product managers. Remember that you are running a technology company. What is your strategy for hiring in-demand software developers, integration experts, and product managers as your primary skills? There is plenty of competition for these skill sets in the financial industry alone, never mind big tech companies. If it keeps these CEOs awake at night, you’d better believe you need a plan.

Consider FinTech in a new light. The FI must take a new approach to digital financial services. Jamie Dimon, CEO and Chairman JPMorgan Chase, calls FinTechs an “enormous competitive threat.” Don’t view it that way. FinTechs are the future of banking partnerships. They are quickly gaining the same level of consumer trust as traditional banking. Use them to your advantage. Banks should look into new business lines to sponsor FinTechs, providing banking as a service. Evaluate how FinTechs can provide new sources of channel revenue and spread banking services through partnership. Finally, FinTech services should be a budgetary piece of the plan, not an exception. With this in mind and some openness, Fintechs can enable FIs to offer new services faster than ever. Maybe even faster than the big banks that they threaten.

Create value-added services at scale. Community FIs should partner together. The competition has deep pockets. Doing so can produce rapid product evolution cycles and reduce the cost factor between organizations. 

Start a conversation with us

This is the world we live in. If this resonated with you, our door is always open to discuss these concepts in greater depth and share our customer journeys with you. Get in touch with the info below.

Kirk Drake is a lifelong entrepreneur, author, and founder of Credit Union 2.0. He is a credit union and technology enthusiast who built eight successful businesses, notably the Credit Union Service Organization (CUSO) Ongoing Operations, CU Wallet – a mobile wallet venture, and several additional lifestyle e-commerce/mobile platforms. Email: kdrake@cu-2.com

David Wexler is the Founder and CEO of ModusBox. He believes in driving social good through good business. During his business consulting days, he developed a proven track record of generating and executing ideas that led to new multi-million dollar product lines. He drove the product strategy and held P&L responsibility for key clients like Microsoft’s integration product. He went on to build and manage successful campaigns for MuleSoft, one of the leading integration solutions. Email: david@modusbox.com.

 


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