The banking sector is on the cusp of a significant shift, led mostly by technology. How can it survive, and thrive?
An all-star team of area bankers gathered in late October to talk about an issue close to their hearts, and careers: the future of banking.
The panel consisted of Joseph Caballero, Seacoast Bank's executive vice president; Rita Lowman, Pilot Bank's executive vice president and COO; Corey Neil, Bank of Tampa's executive vice president and Hillsborough market president; and Alex Sanchez, CEO of the Florida Banking Association. Sanchez moderated the panel at the Oct. 26 event, held at the Union Club in downtown Tampa and presented by the Association for Corporate Growth's Tampa Bay chapter.
Topics the bankers talked about ranged from regulatory reform to cybersecurity to mobile banking. This article contains highlights from the panel's discussion, in addition to a separate interview on the same topics from Bank of America's Tampa Bay Market President Bill Goede.
Sanchez opened the discussion with fiery remarks about the negative impact of federal regulations on Florida's banking sector, and what can be done to provide relief to banks beleaguered by compliance costs. The quotable banking lobbyist specifically cited the Dodd-Frank bill. He adds that national leaders play political games when it comes to how they handle the banking sector.
“I get tired of the bashing” of the nation's big banks, he says. “People like (Vermont U.S. Sen.) Bernie Sanders and (Massachusetts U.S. Sen.) Elizabeth Warren want to break up our big banks. It's all about politics for them. But the day that Caterpillar, Microsoft, Boeing or any other major U.S. corporation has to go the bank of China for credit is the day our country's going to be in real trouble.”
Smaller community banks don't escape the burdens imposed by the federal government, Sanchez adds. A decade ago, the state had 308 community banks. That number has fallen to 137 — and only two new banks have been chartered since 2009. Sanchez blames that trend on capital costs imposed by regulators reaching all-time highs. “For every $100,000 that we are spending on compliance, he says, “that's $1 million less that we are lending in the community.”
Some bankers say the issues bankers face go deeper than regulations. Caballero, for example, who was with GulfShore Bank prior to Stuart-based Seacoast acquiring it, says compliance with cybersecurity regulations was one of the primary factors in GulfShore's decision to sell.
“Cybersecurity is as big, or maybe even bigger, than many of the regulatory issues,” he says. “Every single year we were having to invest significantly in cybersecurity whether it was due to regulatory requirements or, frankly, just good business practices.
“Keeping up with regulations is one thing, but the cost of the shift is coming at a rate that we've never seen before. It takes constant investment, and that comes at a cost.”
Goede, who says Bank of America has 34 million customers who access their accounts via mobile and online banking, believes banks don't have much of a choice when it comes to spending money on cybersecurity. The alternative is to fall behind the pace of innovation that drives consumer behavior.
“Technology and cybersecurity go hand in hand,” Goede says. “You can have a tremendous platform, but if people don't have the confidence in your ability to keep information safe, it's not going to be used. And the cost of getting it wrong is very expensive.”
Neil casts cybersecurity in stark, militaristic terms, calling it “another battlefront in the war that we have to fight” to keep customers' money safe. “It's a front that we have to invest in. That's where the focus has been and why there's so much regulatory attention on it.”
Bank of America has 23.6 million customers who make transactions using mobile banking, Goede says. “Some 340,000 checks a day are deposited via mobile device to Bank of America,” he says. “What we see year over year, quarter over quarter, is that the number of clients who become active users [of mobile and/or online banking] continues to go up.”
Sanchez believes mobile banking is already having a significant impact on banks' decision where to build branches — or whether to build at all. “Times are changing. Your needs are changing. The needs of our children are starting to take shape. Who would have thought that this little thing, the smartphone, would have been created and would allow people to do their banking right here and now?”
Lowman says brick-and-mortar bank branches rarely receive visits from millennial customers. “Mobile banking is the way [of the future],” she says. And not just for personal banking, she adds. “Being able to have most, if not all, banking functions within your reach, you can be sitting on a sandy beach in Boca and you can release your payroll. That's a great luxury, and people love that.”
Potential business clients, Lowman adds, tend to ask about online and mobile banking before any other topic. They want to know “how can we deliver quicker, faster and more effectively and efficiently. I think that will continue. It's not going to diminish. However, I think the enhancements that we're going to see, when you look to the future, you're going to be able to develop applications so [bankers] can be there right with you, virtually, to open an account, have you sign documents, do a loan, everything, right there in your office — that's the future of banking, in my opinion.”
That future isn't entirely rosy, however, contends Caballero.
“Clearly, adoption of mobile banking is going to accelerate. The industry needs it, from a cost perspective. But one of the big challenges is the loss of the ability to touch and see the client. That is disappearing. How are you able to maintain the art of the business versus the science?
“What you are seeing now from the larger institutions — and this is starting to bleed down to smaller institutions — is that they're having to come up with other ways to qualify and identify strengths and needs of clients. Big Data is becoming both a huge opportunity and expense.”
MERGERS & ACQUISITIONS
Florida's community banking sector has shrunk considerably over the past decade, with the number of banks dropping by more than half due in large part to consolidation. The ones remaining, for the most part, enjoy strong ratings and credit quality. Those are positive qualities, to be sure, but they also make those banks targets for bigger fish, which in turn makes regulatory relief even more critical, the panelists say.
“Community banks, why are they important, why should we advocate for them?” Sanchez asks. “Because, according to an FDIC study, 45% of all small business loans in the United States come from community banks.”
Lowman knows all about the ups and downs of mergers and acquisitions — having helped manage 22 such transitions over her 40-year career in banking, starting with the NationsBank-BankAmerica merger in the late 1990s that resulted in the creation of Bank of America. Starting in 2000, she says, “I started going in and helping banks turn around and become profitable for their shareholders. Sometimes that meant selling the bank.”
If anyone was jaded to the harsh reality of banks being snuffed out by larger rivals, you'd think it would be Lowman. But the recent pace of consolidation in Florida's banking sector has her concerned, too. “Community banks are so important to any community,” she says. “Over the past 12 months, actually since July last year, 12 community banks here in the Tampa Bay market have consolidated, sold, been acquired, whatever you want to call it. That's a big loss to the community.”