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Business Observer Friday, Sep. 21, 2018 8 months ago

Semi-national bank, with $22 billion in assets, relies on area tech unit

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A fast-growing group of area tech employees, well-versed in finance, has become a rapidly-growing bank’s best (not-so-secret) asset.
by: Mark Gordon Managing Editor

At least from the outside, OZK Labs seemingly sits nondescriptly among a cadre of hipster-cool downtown St. Petersburg tech companies. But with digs that include a culture doodle wall drawn by noted area artist Chad Mize, cushy couches and a nap pod, OZK Labs diligently holds its own among its techie peers.

Far from technology or funky office features, there is instead something else that makes OZK Labs really standout. That factor? OZK Labs is actually a division of a $22 billion Arkansas bank.

With four patents and 10 more pending, OZK Labs — beyond the murals and free Starbucks — is doing some cool work for Little Rock-based Bank OZK, formerly Bank of the Ozarks. But this isn’t technology for technology’s sake. The overarching goal of the unit, says OZK Labs President Marcio deOliveira, is to create practical applications that make the bank a better bank.

“How can we create value for our consumers and do it better than any other bank does it?” asks deOliveira. “That’s what we think about here every day.”

‘How can we create value for our consumers and do it better than any other bank does it? That’s what we think about here every day.’ Marcio deOliveira, OZK Labs

Take plain old vanilla new customer accounts. The goal at OZK Labs, says deOliveira, is to make opening an online account as simple “as signing up for Amazon Prime.” The bank redesigned and launched its online portal for new customers in February, and has since seen a large rise in new accounts, says Bank OZK Chief Banking Officer and COO Tyler Vance.

Other work at OZK Labs includes apps and software for branches to do more small business loans; business lending apps, including data analysis of new loan targets; and, more recently, an emphasis on artificial intelligence. OZK Labs also announced recently a partnership with Google on machine learning technology.       

One of its patents is a method for "distributed real time authorization of payment transactions," or handling payments over a mobile device, while another patent, according to federal records, is for "securely integrating third-party applications with banking systems." That latter patent covers a system that allows a bank's computers to safely interact with outside computer programs.  

The work at OZK Labs is a microcosm of a larger trend in banking to rely on a heavy concentration in innovative technologies to retain customers and secure new ones. In banking, too, where many executives bemoan the high cost of regulation compliance and other margin-eating factors, creating and growing a nonrevenue generating department is particularly notable.

‘Best in Class’

OZK Labs has some 40 employees, with 20 software engineers. That's up from one software engineer in 2012, when the bank, then St. Petersburg-based C1 Bank, launched the unit, and an increase from 11 employees and four software engineers in 2015. 

It's a big push, in payroll and resources, into technology, in a division that’s 1,000 miles away from Bank OZK’s corporate headquarters. While officials decline to put a price tag on the total investment, it ranges from the office perks to modern IT infrastructure, including building an internal private cloud, says a bank spokeswoman. 

Vance says the labs output is worth the investment — and was a key factor in Bank OZK’s 2016 acquisition of C1. (The $402 million deal was one of the largest in a decade for a community bank in the region.)

OZK Labs' main office is in downtown St. Petersburg.

“Bankers know things aren’t going to be happening in branches anymore,” says Vance, who is based in Little Rock but visits the OZK Labs often. “They have to bring the bank to customers. We feel like we have best in class technology products here, and we are untethering our bankers from the branches.”

Other banks and financial institutions are jumping on the technology investment trend, including fintech startups that aren’t event banks. A June story in American Banker, for one, says advances in financial technology leads some industry observers to predict that within a decade “the biggest bank will be a technology firm.”  

Even more ominous, at least for community and some regional banks, without the resources of say, Bank of America or Wells Fargo, is the fickle nature of the ever-important millennial demographic. A pair of surveys, from Oracle and Accenture, according to American Banker, found that one-third of young consumers would consider banking with Google, Amazon or Facebook, if the tech behemoths offered such services.   

Vance and other top Bank OZK officials saw the early stages of that trend in 2015, which drew them to target C1 for acquisition. “C1 Labs innovations are expected to be deployed to all (Bank OZK) branches over time, which is expected to further improve the bank’s excellent efficiency ratio,” states a Nov. 9, 2015, report from the bank to shareholders on the acquisition. “C1 Labs innovations are (also) expected to play an important role in the design and operation of the next generation of (Bank OZK) de novo branches…(Bank OZK) expects to devote additional resources to expand these research and development efforts.”

Get an edge

One of the top C1 executives to remain with the bank after the acquisition, deOliveira says from Bank OZK CEO George Gleason on down, the “bank believed in this group and wanted us. That really says a lot.”

Part of what drives the success at OZK Labs, say bank officials, is its broad directive to hyperfocus all its projects and assignments on practical ways of making the bank better. That comes from the field: nearly every week a different Bank OZK department travels to the OZK Labs office, meeting with deOliveira and his team about up-to-the minute issues.

About 60% of the work at OZK Labs, says Vance, goes toward customer-facing applications; 20% is for its large real estate lending office in Dallas; and 20% is to improve the branch experience.

The idea at the bank to use technology to become more efficient, for employees and customers, goes back more than five years. A web developer who had been chief technology officer at C1, deOliveira and former C1 President and CEO Trevor Burgess founded the labs unit. It was designed not to be an extension of an IT department or a tech help desk, but to create bank efficiencies and provide an edge in the marketplace.

“If we can do a loan in three weeks,” Burgess said in a 2015 interview with the Business Observer, down from several months, “that gives us a competitive advantage.”

Burgess, who left C1 shortly after the Bank OZK acquisition, declined to comment for this story. He referred questions to deOliveira, who he says has done a great job leading and building OZK Labs.

Solve the problem

OZK Labs’ success, says deOliveira, stems partially from treating most ideas and topics like a complicated puzzle. It’s also an engineer-heavy environment, with a close eye on banking regulations guiding the way. “Our developers look at many things like an equation,” deOliveira says. “They have this big challenge in front of them and we tell them they have to figure out how to do it.”

That not only helps solve problems for Bank OZK clients and employees, deOliveira says, but it helps with recruiting and retaining OZK Labs personnel. Top software developers, he’s found in eight years of hiring tech people at the bank, seek top-flight work with a deeper meaning — not just unlimited vacations and game rooms. “We have an engineer-centric culture here,” says deOliveira, adding the company operates similar to a fintech startup. (A key difference between OZK Labs and most other fintechs, deOliveira points out, is only OZK Labs has to comply with a litany of federal banking regulations.)

Other have noticed OZK Lab’s success. The unit, for example, was named to American Banker’s 2018 Best Fintechs to Work for List — a source of pride for deOliveira, given the list has several Silicon Valley firms and few banks.

The rest of 2018 and into 2019 promises some big shifts at Labs OZK. In addition to the new partnership with Google, the unit recently named former Microsoft executive Gordon Chang head of artificial intelligence  and machine learning strategy. A Microsoft product manager for Bing ads and an official with the firm’s AI research unit, Chang will work with data and algorithms at OZK Labs. His focus, says deOliveira, will be on consumer products.    

Chang is part of an overall effort at OZK Labs to do more work that goes directly to the customer. That includes updating its main customer app, and adding new features, such as rewards at local businesses. “We believe the industry is changing so rapidly,” says deOliveira. “We can support a lot more people and we can really scale.”

(This story was updated to reflect the correct number of patents and patents pending at OZK Labs.) 

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