The innovative technology focus of this year’s Annual Banking Symposium could have taken its cue from the daily headlines. The day the conference was held at Goodwin’s Boston office, no fewer than four articles appeared in that day’s Wall Street Journal about bitcoin. The cryptocurrency’s meteoric rise in value in recent months had captured the attention of just about everyone, but banks and those who run them arguably have much more at stake than the speculators driving up bitcoin’s price.
The industry’s vested interest has everything to do with blockchain, the underlying technology behind bitcoin and dozens of other cryptocurrencies. No other innovation has as great a potential to shake up the business of banking, as it could allow people and companies to bypass intermediaries and transact directly with one another. During the Symposium’s first session, the more than 100 in attendance were asked to think about blockchain as a public or private ledger that can track anything, whether it be movie tickets, digital songs, health care files or land titles. Overnight, companies may be able to replicate the functionality of existing services that act as go-betweens. At the same time, the technology could bring millions of unbanked into the financial system, creating new business opportunities.
For now, banks are actively pursuing many other forms of innovation as they work to make sense of blockchain and how they might adopt the technology in the near future. For many, these new investments are being driven by a desire to be responsive to their customers’ ever-changing needs in an increasingly digital world.
“What’s really remarkable is how customer-centric the banks are when they talk about innovation,” said Regina Pisa, Chairman Emeritus at Goodwin. “Profits aren’t the goal – they are the byproduct.”
Leveling the playing field
Today, the traditional products and services that banks still provide are not all that differentiated. In an increasingly commoditized industry, whether you land a new account or not may simply come down to whether you can beat your competitors on price. But innovation offers a different path forward by building stronger relationships with customers, said Reetika Grewal, Head of Payments Strategy and Solutions at Silicon Valley Bank.
“We need to innovate to keep up with our clients, not to keep up with our competition,” Grewal said during the Symposium’s first panel discussion. “We’re building an ecosystem. That’s how we differentiate ourselves.”
Two years ago, one of Silicon Valley Bank’s clients came to the bank with a challenge: the company was increasingly doing business with online retailers outside the United States, and needed a platform to be able to accept their payments. Rather than search for a solution, Silicon Valley Bank created its own. It worked with the company to co-develop a new online platform to guide vendors through the process of getting incorporated and obtaining an employment identification number. In addition, the client gained tools to evaluate credit and other risks when onboarding the businesses “in a very low-cost way,” Grewal said. “It shows how far we’re willing to go for a client.”
In today’s operating environment, innovation is the great equalizer, enabling companies of any size to leapfrog the competition through new products, better service and greater efficiencies. Leader Bank is one of them. The Arlington, Massachusetts-based bank has grown rapidly since its founding in 2002, and innovation has been a key contributor. When the global financial crisis hit, Leader Bank doubled down on its residential mortgage business, snatching up an origination team from a large, beleaguered competitor. But it needed new ways to attract deposits to make loans. It found a solution in Zrent, an internally developed online portal that allows landlords to receive payments automatically. Today, the bank partners with other community banks who want to offer the service to their customers.
“As a de novo bank, that forced us to try new things and embrace an entrepreneurial spirit,” Jay Tuli, Leader Bank’s Senior Vice President for Residential Lending and Retail Banking, said during the session. “It’s a lot easier to do that when you have nothing to lose.”
For most banks, innovation is a constant learning process. But it’s about more than just adopting technologies competitors are using – it’s about deploying them in new ways as well. In recent years, Northern Bank & Trust Co. dedicated itself to adding software focused on small business and residential lending to help its portfolio management team better manage those assets once they were acquired.
But President and CEO James Mawn said he and his colleagues realized they could use the same technologies to hunt for new assets in desired geographies and industries. One such opportunity arose in 2017 when Hurricane Irma was bearing down on the state of Florida. Mawn and his colleagues at the bank sat in a room full of monitors, employing visualization software to analyze the potential impact to the bank’s collateral in the state. With the “touch of a button,” they could see how different tracks the storm took could affect their loss exposure. They then took it a step further, working with the bank’s insurance partners to identify gaps in clients’ coverage and win new business.
“We have really embraced this attitude of not sticking to the script when it comes to using new technologies,” Mawn said. “We know that if we’re not moving forward, we’re going backwards.”
Everyone’s a target
As banking leaders grapple with the best approaches for bringing new technologies on board—through acquisition, partnership or internal development—they’re spending more time focused on the risks involved with their digital evolution. Identity theft now surpasses physical theft every year, and cyberattacks have become regular flashpoints for corporate boards to address. In addition to the costs of breaches, companies face serious reputational harm, government fines, and other liabilities.
“This is the number one thing our clients want to talk about: privacy and cybersecurity,” said a Chair of Goodwin’s Privacy and Cybersecurity practice. They shared a screen capture of a ransomware attack that demanded a payment be made within 96 hours or the attackers would permanently encrypt all of the company’s compromised files. “It’s this kind of thing that keeps people up at night.”
Jim Satterfield, CEO and Co-Founder of crisis communications firm Firestorm, said companies should be on the lookout for clues of a cyber intrusion, including systems running slower than normal, large data transfer from non-routine associates, and social media disclosures of leaked information. He advised banking leaders to think about “what story they want to tell” when an incident invariably arises. Alexander Greenberg, Head of Intellectual Property and Cybersecurity Legal at Barclays for the Americas, said banks need to take concerted steps before, during and after a breach to control the situation and limit the damage. These include having an incident response and communications plan in place, conducting regular faux phishing attacks to test employees, getting counsel immediately involved, and documenting all measures taken for potential government enforcement actions.
“It used to be there were two types of companies: those that have been hacked and those that have not been hacked yet,” Greenberg said. “Now the two types of companies are those who have been hacked and those that don’t know they’ve been hacked.”
But it is readily apparent from the participation of banking leaders among the Symposium’s panels and audience that most in the industry recognize that innovative technology is well worth the investment of time and resources. Throughout the sessions, speakers highlighted the importance of talent—both inside and out—in addressing the challenges and threats that new technologies bring. At Goodwin we are proud to support our banking partners in this important effort, and we hope you will join us at next year’s Annual Banking Symposium for what promises to be another scintillating discussion.