Pub. 11 2020 Issue 1

www.wvbankers.org 6 West Virginia Banker A MESSAGE FROM THE CHIEF EXECUTIVE By Sally Cline Keeping Pace With the Times F or more than two centuries, banks of all sizes have helped our West Virginia communities thrive, provid- ing financial convenience, security and capital for economic growth. Community banks continue to be successful because they stick to their core business model of taking money in and loaning it out in the very neighborhoods where their depositors live and work, helping to keep local communities vibrant and growing. However, banking as we know it is being challenged by technological innovations taking place in financial services and the corresponding shift in customer expectations. Innovation is certainly not new to banking. Technology and innovation have been shaping financial services for decades. Credit cards were introduced in the 1950s, ATMs in the 1970s, internet banking in the 1990s, and since the turn of the century, mobile point-of-sale devices and remote deposit capture have been added. But with the explosive growth of smartphones and the connectivity they bring, the pace of technological change is accelerating. Banks must adapt to remain relevant and viable. According to Accenture, a company at the forefront of innovation in the digital age, in 2020, community banks could lose up to $15 billion of revenues to fintech companies and other banks going digital. Conversely, banks that invest in fintech stand to gain up to $20 billion in operating income during the next 12 months. Innovation in financial services, particu- larly new, more convenient delivery chan- nels, will continue to benefit customers as it has throughout banking’s history. Today, innovations are emerging from both the traditional banking sector and from non-bank startups. Some of the major banks are deploy- ing digital lending platforms, mobile payment solutions and biometrics. Big banks are also incorporating advance- ments in big data analysis and artificial intelligence to better understand and service their customers’ needs, prefer- ences and expectations. Because community banks often lack the resources to make these types of invest- ments, investment in technology through partnerships with fintech companies is often the way to go. When banks and startups partner, they are able to deliver to customers the best of both worlds: innovative services that customers crave from a partner that they can trust with their financial future. Fintech startups benefit from commu- nity banks’ strengths, including brand recognition, established customer relationships, access to the payment system, deposit insurance and reg- ulatory experience. And community banks gain from fintechs’ technical ex- pertise, freedom from legacy systems and lighter oversight. It should be noted that these part- nerships will work only if the banks’ technology service providers or cores evolve as well. Community banks are in an untenable position to make demands of their large core providers because these contracts are often one-sided. Because of this imbalance, the American Bankers Association has been working to strengthen the relationship between banks and their core providers so banks can deliver the innovative products and services their customers want and need. In October, ABA released a set of principles for Strong Bank and Core Provider Relationships. Developed by ABA’s Core Platforms Committee, the principles offer reasonable standards for quality service, open commu- nication, access to bank data, fair contracts and data security. Another challenge for banks in adopt- ing new technologies is the existing regulatory framework. Before a bank partners with a fintech firm, it first has to consider regulatory and supervisory expectations about third-party risk management and consumer compliance. Banks need some level of regulatory certainty and assurance before they jump into new innovative partnerships. Fortunately, the federal banking agencies recognize the positive role Continued on page 8