Bank Board Letter March 2015 : Page 2

Bankers will also need to have a clear understanding of the business case and changing payments economics. Beyond direct costs, community bankers need to be sensitive to changes in marketing, servicing and operational costs. Banks need to de-termine which marketing tactics need to be employed to posi-tion their cards as “top of wallet” within Apple Pay’s platform, and then, which messages need to be reinforced. Should com-munication focus on richer rewards, higher credit lines, digital coupons, zero liability or something else? In our view, community banks will need to actively make marketing investments and regear communication campaigns to build awareness, drive mobile payments usage and position themselves as innovative. They will also need to develop robust servicing and operational capabilities to align with their cus-tomers’ mobile payments needs. This could take the shape of in-branch payment card wallet provisioning support, informa-tional videos and online banking, chat and phone help. At the back end, community banks will need to provide easy-to-use and easy-to-access channels to respond to customer que-ries related to incomplete transactions and other system-related issues. As basic as it is, thorough testing of actual transactions versus statement descriptors for both in-person and in app pur-chases will go a long way in minimizing customer frustration and customer service calls. While potentially more challenging, community banks need to work with their merchants and mer-chant acquirers/processors to broaden Apple Pay acceptance in their local communities. The key is to ensure that Apple Pay proves to be a rich experience for customers Ð one in keeping with the “high-touch” relationship-oriented philosophy that is the hallmark of community banks. Apple Pay provides a superb customer engagement platform. Beyond using the phone as a form factor to make payments, Apple Pay provides community banks a highly effective me-dium to interact with their customers in a relevant, targeted and timely fashion. We see significant upside in the bank’s ability to bring customers and merchants closer together within their communities through creative marketing that drives business to merchants while providing unique value to customers. And it is all possible with geo-locational targeting, real-time preference-based offers and frequent shopper recognition programs. For example, a campaign built in conjunction with a town or city, focused on growing local commerce, can yield rich dividends. A page from the “locavore” playbook is apt here. The power of the smart phone combined with advances in data analytics and knowledge-based marketing ushers in a whole new world of possibilities. Community banks should leverage this opening Ð t heir customers will thank them. Ali Raza is a principal and payments leader at CCG Catalyst, a bank consulting firm working with clients on their strategy, business and operating issues. Contact him at consultant@ccg-catalyst.com or 800-439-8710. The Three C’s: Conversion, Compression, ComplianCe By Pierre Naudé E ver since the financial crisis permanently changed the regulatory landscape, examiners from all governing bod-ies have changed their expectations of bank management. Requirements under the Consumer Financial Protection Bureau and other empowered agencies have imposed daunting mandates, drastically changing how basic operational functions must be handled and documented. The seemingly ongoing in-troduction of heightened banking regulation often leaves com-munity institutions facing greater compliance burdens without the necessary resources to address them. Considering that this regulatory trend is not likely to reverse itself, banks need tools to prepare for and respond to regulations that can have a signifi-cant impact on them. Banks can satisfy, and actually exceed, many of their com-pliance woes with a basic technological framework that assists with everyday process flows and recordkeeping. The ability to Next moNth: here Comes emV meet ICBA’s New Chairman track various transactional phases not only creates a sense of awareness and accountability, but also helps ensure items such as forms or disclosures move through the right stages at the right time, every time. This allows banks to better deal with regulatory change by maximizing all available resources to minimize the impact on day-to-day business, improve efficiency and generate optimal financial results. One community institution that has applied this framework to its business lending processes is the $330 million Farmers State Bank, Darby, Mont., which recognized the need to auto-mate its loan origination and processing to gain stronger overall control of the loan lifecycle. Not long ago, it was nearly impos-sible for the bank to know what stage any loan was in or if it was progressing on time. With seven locations across a 70-mile radius, Farmers State has now essentially united multiple pro-cessors and loan officers in a single platform, enabling an equal, transparent view of each loan file. For starters, this approach grants clarity into who is working a loan and how well it is moving toward closing and funding. The story, however, encompasses more than the bank’s con-sumer and commercial loan teams. Kay Clevidence, CEO of Farmers State, noted that employees are now even more mind-ful of loan timeframes and disclosures. Turning to electronic documentation and storage and automating all loan document workflows from origination through closing in a single system

The Three C’S: Conversion, Compression, Compliance

Pierre Naudé


Ever since the financial crisis permanently changed the regulatory landscape, examiners from all governing bodies have changed their expectations of bank management. Requirements under the Consumer Financial Protection Bureau and other empowered agencies have imposed daunting mandates, drastically changing how basic operational functions must be handled and documented. The seemingly ongoing introduction of heightened banking regulation often leaves community institutions facing greater compliance burdens without the necessary resources to address them. Considering that this regulatory trend is not likely to reverse itself, banks need tools to prepare for and respond to regulations that can have a significant impact on them.

Banks can satisfy, and actually exceed, many of their compliance woes with a basic technological framework that assists with everyday process flows and record keeping. The ability to track various transactional phases not only creates a sense of awareness and accountability, but also helps ensure items such as forms or disclosures move through the right stages at the right time, every time. This allows banks to better deal with regulatory change by maximizing all available resources to minimize the impact on day-to-day business, improve efficiency and generate optimal financial results.

One community institution that has applied this framework to its business lending processes is the $330 million Farmers State Bank, Darby, Mont., which recognized the need to automate its loan origination and processing to gain stronger overall control of the loan lifecycle. Not long ago, it was nearly impossible for the bank to know what stage any loan was in or if it was progressing on time. With seven locations across a 70-mile radius, Farmers State has now essentially united multiple processors and loan officers in a single platform, enabling an equal, transparent view of each loan file. For starters, this approach grants clarity into who is working a loan and how well it is moving toward closing and funding.

The story, however, encompasses more than the bank’s consumer and commercial loan teams. Kay Clevidence, CEO of Farmers State, noted that employees are now even more mindful of loan timeframes and disclosures. Turning to electronic documentation and storage and automating all loan document workflows from origination through closing in a single system has made the bank take notice of how individuals would manage processes differently. Today, loan performance is much timelier and orchestrated in a controlled fashion.

“Each stage of the loan file is fully documented and time stamped, giving us an accurate audit log of every action, by whom and when,” says Clevidence. “We can be assured that all required forms are collected and approved, never missing any steps. Additionally, we have the insight to ensure any disclosures are distributed as needed.”

This documentation enables Farmers State to not only have the confidence in complying with loan policy and procedures, but also creates a better exam environment for the bank and its regulators. Before an exam, management can now quickly and easily prepare exam packages, no longer requiring a fleet of resources. Once on site, regulators can review robust reports and logs of the information they require. Such documentation provides the examiners insight into management’s decision making, resulting in a greater understanding of the loan portfolio as well as loan concentrations and risks. This, in turn, shows how well the bank is equipped to mitigate that risk.

Similarly, the $2 billion Lone Star National Bank based in McAllen, Texas, acknowledged the value of converting manual files to digital. Sandra Dimas, vice president of Lone Star National, explains that by using a single automated platform, each of the bank’s files now follows specific queues that are visible to appropriate stakeholders, enabling them to know the exact status of each loan and increasing the lender’s accountability for his or her loans.

Dimas adds, “Seeing the maturity of each loan and its relevance to the portfolio’s performance over time enables our lenders to be better relationship managers, and significantly decreases turn times and document timeframes.”

Lone Star was recently asked by a regulating agency to see evidence of policy exceptions being monitored. Electronic record keeping of tasks allowed the bank to examine concentration reports and create a robust pipeline report to forecast funding needs, project changes in concentrations and assess future portfolio yield. Proactive use of these capabilities, shared transparently with regulators, has fostered a stronger relationship between the bank and the examiners. It has also significantly reduced examination time due to the consistent organization of the digital files paired with integration of the approval process.

Complete document workflow automation leads to a more productive and streamlined lending environment while also giving the bank increased transparency into loan production. In an industry cluttered with regulatory actions, seeking out technologies to better manage the risks of the bank exam process is critical. Safety and soundness exams are lasting longer and more examiners are on site with unprecedented requests for documentation. Continually changing rules have created pressure for institutions to hire additional compliance staff as opposed to consumer-facing staff Ð reducing resources that could otherwise help serve the bank’s customers and broader prospective community. For example, with the 82 new regulations that took effect in the third quarter 2014, the number of hours and employees needed to meet compliance demands increased 26 percent, according to Continuity’s Banking Compliance Index.

Compliance has become everyone’s responsibility: There is no avoiding it. However, there is good news. Many of the changes banks implement to provide efficiencies and cost savings, not to mention a leg-up on customer service, also provide the toolset to prove and ensure their compliance with legislation and regulations. Banks have the power to ease this compliance environment for all Ð and that is something regulators should appreciate.

Pierre Naudé is CEO of nCino, developer of Bank Operating System lending platform. For more information, go to ncino.com.

Read the full article at http://omagdigital.com/article/The+Three+C%E2%80%99S%3A+Conversion%2C+Compression%2C+Compliance/1952207/249847/article.html.

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