Strategic Priorities of Today’s Banks and Credit Unions

Jim Marous (00:00):

Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, Owner and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:21):

2023 presented many challenges for financial institutions; record breaking inflation, rapidly rising interest rates, reduced loan demand, and declined deposits have created a level of uncertainty that we have not experienced for decades.

Jim Marous (00:36):

These changes have disrupted the status quo assumptions while presenting amazing opportunities for financial institutions willing to reinvent their legacy business models.

Jim Marous (00:47):

I'm excited to have Gregg Tewksbury, President and CEO of the New Hampshire Mutual Bancorp, and Lee Wetherington, Senior Director of Corporate Strategy at Jack Henry on the Banking Transform Podcast.

Jim Marous (00:57):

They discussed the results of the 2023 strategic priorities benchmark study just for released by Jack Henry and put a perspective as to how it's impacting finance institutions of all sizes.

Jim Marous (01:08):

The financial marketplace has never been in such a state of flux for traditional banks and credit unions, fintech firms, and even consumers as everyone tries to navigate a period of change that is really unprecedented.

Jim Marous (01:22):

That said, while there are definite risks associated with this change, this is also time of amazing opportunity where organizations, consumers, and connected organizations such as solution providers can become even better positioned for growth and to become more future ready.

Jim Marous (01:41):

So, welcome to the show Gregg and Lee. Before we start, can you both share a little bit about your background for our listeners as well as your organization's background a little bit. I'm going to start with you, Gregg.

Gregg Tewksbury (01:53):

Sure. Well, thanks for having me, Jim, it's a pleasure to be here. I'm the President and CEO of New Hampshire Mutual Bancorp. We're a multi-bank holding company based in New Hampshire. We've got three individually chartered mutual banks underneath the holding company as well a trust company, a wealth management company.

Gregg Tewksbury (02:12):

We're about 3.6 billion in assets. We have assets under management of about a billion and a half in our wealth management company.

Gregg Tewksbury (02:22):

Been here a long time, seen many different gyrations of our industry, look forward to this conversation today. Thanks for having me.

Jim Marous (02:31):

Lee.

Lee Wetherington (02:32):

So, I'm Lee Wetherington. I'm senior Director of Corporate Strategy at Jack Henry. I am part of a team of analysts who track everything going on in the fintech banking financial services industries. We subscribed all the major research houses. I'm the generalist on that team, putting together and making connections between disparate domains of research and findings that we put together.

Lee Wetherington (03:00):

And then sort of a segue to what we're going to be talking about today, my team also produces each year what we call our Strategic Priorities Benchmark, which is a survey of … this year was about 120 CEOs, both banks and credit unions, about what matters most of them in 2023 and 2024.

Jim Marous (03:23):

So, Lee, what was the date of that actual research conducted? Because with everything changing so fast, to put that in perspective, it's good for a benchmark.

Lee Wetherington (03:33):

So, we filled the survey between January 17th and March 17th of this year. And the big thing that happened, of course, in that window was the failure of Silicon Valley and then the two other big regional banks thereafter. The responses in the survey are primarily pre-SVB failure. But we had about 6 to 7% of our responses that came in that week after before we closed out the survey.

Jim Marous (04:00):

So, Lee, a lot has changed in the past few years in our industry. Could you share some of the top findings of your report?

Lee Wetherington (04:07):

Yeah, so if we zoom way out, Jim, we've been doing our study now for a while. 2021, of course, was all about digital and everything that qualifies as "digital transformation." Given the fast forward that the pandemic put us in.

Lee Wetherington (04:24):

Last year, the number one priority was lending. We all had more deposits than we knew what to do with. Most financial institutions, if you asked them 18 months ago, had enough deposits to fund about three or four years’ worth of loan growth.

Lee Wetherington (04:39):

Then you fast forward to this year and suddenly everybody's scrambling for deposits given this cascade of inflection points that happened in 2022, beginning with inflation that actually started creeping in at the end of 2021.

Lee Wetherington (04:52):

And then the feds, rather delayed response in trying to tamp that down with the rates. That just generated a series of other inflection points that have really shaped the market shifts that are driving 2023, and a lot of the responses we got back in our survey findings.

Jim Marous (05:13):

It is interesting as we look at the industry as a whole, and you and I are very similar in what we end up doing, which is looking at all the research in the marketplace and try to make it into something that's manageable from a mindset standpoint.

Jim Marous (05:24):

But even from the standpoint of the timing of your research until today, the amplification of the need for deposits has gotten even greater. I've been to a couple of events recently, and it's the number one takeaway somewhat caused by the whole situation, the Silicon Valley Bank.

Jim Marous (05:40):

But it's also interesting because for those of you in the listening audience who have not been in banking forever, deposits used to always be a focus, but it hadn't been for the last 12 years. And really, it was interesting how the entire marketplace got disrupted with something that was new again. It's kind of strange.

Jim Marous (06:02):

So, Lee, one more question about the research for a moment here. What was the most surprising takeaway from the research?

Lee Wetherington (06:10):

Yeah. This is just my opinion, but the most surprising result or results that we found were in a couple of places.

Lee Wetherington (06:18):

One is there were material differences in the priorities of bank CEOs versus credit union CEOs. And this is borne out again by the inflection points and how those impacted those two different segments. For instance, deposits were and are the top strategic priority for banks 2023 and 2024, not the case for credit unions.

Lee Wetherington (06:40):

For credit unions, leveraging data is the number one strategic priority for 2023 and 2024. Now, what I ascribe that to is the fact that in 2022, in the credit union space, you did not have an absolute decline in the total pie of deposits. Whereas you did have that decline for the first time in 80 years, by the way, on the bank side of the house.

Lee Wetherington (07:05):

So, rolling into 2023 way before Silicon Valley failed and the other failures that came after that, we already had deposits, deposit churn, deposit wars raging. And when Silicon Valley failed, it simply accelerated those trends that were already well in process rolling into 2023.

Jim Marous (07:32):

It's interesting too, because some of that inflow outflow took place because of the government cheques. A lot of organizations got very flush in cash, flush in deposits. But what was interesting is organizations didn't do the analysis. Say, "Okay, we got this big influx of deposits, did we retain them?"

Jim Marous (07:51):

And we've seen the silent attrition, what I'll call, where people are actually transferring money between players. And we'll get into that a little bit.

Jim Marous (07:58):

So, Gregg, as with every financial institution, looking back at your last year's financial report or any organization's financial report, it probably in many cases, especially this year, was not a good barometer for what organizations have faced already in 2023, especially when you look at deposits, loans, interest rates in Silicon Valley Bank. Have your strategic priorities shifted in the last 9 or 10 months?

Gregg Tewksbury (08:23):

Yeah, they sure have. We were more probably in line with the credit unions, focused on data, focused on our payment strategy. And we still are, those are important strategies. What was not top of list in our strategies were deposit gathering, retention, acquisition.

Gregg Tewksbury (08:43):

We have good tools in place for that. We got a well diversified deposit base, but the retention and acquiring of those was not a strategic priority. It was because they were coming in, they were coming in through COVID, with those government payments you mentioned, Jim. And we've been successful just over long periods of time in funding our balance sheets with core deposits.

Gregg Tewksbury (09:07):

So, it wasn't a strategy until we got into the fourth quarter of 2022 where interest rates started becoming much higher. Money became worth something, and the industry as a whole became fighting tirelessly to retain those deposits on their balance sheet.

Gregg Tewksbury (09:28):

So, our strategy did pivot to really focused on not only do we have the right tools, product and services in place, but do we really have the internal business development folks to go back out and sell to those small and medium business clients?

Jim Marous (09:44):

It's interesting, Gregg, we take loyalty for granted when it doesn't hit us in the face, we don't look at attrition very much. We don't even look at flow of funds that finitely because we end up in a situation that, as you said, with basically 0% interest rates, there was no reason for people to switch things around.

Jim Marous (10:04):

When things got active, did it challenge your organization? Does it challenge probably every organization to rethink about how loyal your customers are, as opposed to how stable your accounts are.

Jim Marous (10:19):

One thing we've seen in our research is that with the diversification of relationships, I'm sitting here with a personal account of business account, but I also have Acorns, I also have Robinhood, I also have SoFi. And what happens is the diversity of how I manage those accounts changes over time.

Jim Marous (10:35):

And does that put a new focus on not taking … not that you ever took them for granted, but not taking the whole concept of loyalty and retention for granted.

Gregg Tewksbury (10:47):

Yeah, my perspective is that I'm not sure we ever took them for granted. Meaning that we worked hard every day to earn the right to hold these deposits of our customers. But that being said, I mean, your point is that they just came in, we worked hard, we got the right products, hopefully the right pricing and we were able to acquire them as needed.

Gregg Tewksbury (11:10):

And yeah, over the past six to nine months, that's changed. Just in terms of the competitive landscape of where rates have gone and the ease of people. As you mentioned, the attrition, we talk about it going out the back door. Those customers that call us and talk about rate, well, we can work with those and sometimes negotiate their loyalty with higher rates.

Gregg Tewksbury (11:36):

But that's the ones that don't call you and say, "Click here," and they're gone. And yeah, that's been painful for the industry to see that attrition of deposits go out the door. And so, it's changed our focus.

Jim Marous (11:52):

And it makes it more difficult that … I do sometimes big events, and I ask people in an audience, let's say 200, 300 people, "How many of you have closed your primary financial relationship in the last five years?" And almost nobody raised their hand.

Jim Marous (12:07):

I then ask, "How many of you have opened some form of financial relationship in the last two years?" Everybody raised their hand. So, what happens is, the legacy ways of measuring attrition was, do we lose the account?

Jim Marous (12:22):

Now, we have to look things a little bit deeper and say, "Are we having people diversify the relationship where in some way, shape, or form," it's always at risk if we're not, as you mentioned earlier, delivering on that promise and when the ability to diversify, as you mentioned, is a click of a button, it really changes the game. And again, what you have to focus on to a degree," doesn't it?

Gregg Tewksbury (12:45):

It certainly does. I mean, customers are really in the catbird seat demanding features, functionality. We feel internally that we have to be so relevant with products and services and using partners like Jack Henry and others to help look around the corner to say, "This is where you need to be delivering those services," and then complimented with high touch service in the community banking space.

Gregg Tewksbury (13:12):

But it's not as easy as it used to be. The competition is fierce, the swiftness of how payments move in our system is fast. The younger generation, I mean, I know all my kids have multiple accounts, and they do have the Acorn accounts, and they do have Robinhood, and they have a little slice in some digital currency.

Jim Marous (13:37):

And virtually all their transactions are done through Venmo or Zelle or one of these other. And the reality is, the bank of origin is not necessarily their primary financial relationship from the standpoint of activity and engagement, which is crazy.

Jim Marous (13:54):

Lee, you spend a lot of time with your ears to the street and trying to figure out what's going on. What do you hear is the top concerns facing banks and credit unions today? And I know the need to generate deposits, but what are they most concerned about?

Lee Wetherington (14:12):

Yeah, they're concerned ... we actually asked this specific question, and banks are concerned, they're top concerned. In fact, our aggregate top concern was still talent retention and acquisition, that was number one.

Lee Wetherington (14:26):

For banks, it's NIM compression, it's regulatory changes. It's specifically a fear of what the CFPB is going to do under the banner of waging war against what they call "junk fees." What that's going to mean.

Lee Wetherington (14:42):

And then in terms of credit unions, in contrast, they're really worried about when the other shoe's going to fall. They're worried about the economic slowdown, how severe or not it's going to be, the rising rate of delinquencies, the vulnerability of their auto lending portfolios, both direct and indirect to that slowdown. So, there's a lot of things that they're worried about.

Lee Wetherington (15:08):

I want to tag onto a few things that you guys were just talking about. One of the biggest inflection points we experienced in 2022, as you just alluded to, was going from a 13-year zero rate free money environment to a rate in which money is not free anymore. And there were so many inflection points, additional knock on effects that came as a result of that. Including the impact in fintech and you cover that comprehensively, Jim.

Gregg Tewksbury (15:39):

But one of the other things that it's really struck me, and I hear this in boardrooms on both the bank side and the credit union side, is that in a zero rate environment, it was really sometimes very tough to distinguish the difference and/or the value between a chartered financial services provider and a non-chartered financial services provider that was just levering some form or flavor of banking as a service.

Lee Wetherington (16:07):

But in a high rate environment, suddenly we've got a very clear distinction the strengths and the competitive advantages that chartered providers have at hand, their competency and risk management. Their competency in compliance, their competency in managing the balance sheet, trust.

Lee Wetherington (16:27):

All of those things are much more conspicuous differentiators now for banks and other chartered financial institutions, vis-a-vis fintechs and just consumer direct unchartered neobanks versus what they were just 18 months ago. So, it's something to think about.

Jim Marous (16:46):

Or three months ago.

Lee Wetherington (16:48):

Or three months ago, yeah.

Jim Marous (16:50):

I mean, the reality is most consumers were not really well educated as to the risk beyond the simple risks. Silicon Valley Bank made it very clear because of all the heavy duty education that was done by news media around why this made a difference and also why the government saved everybody in that organization.

Jim Marous (17:13):

They become more aware. And I think that differentiation becomes very major. Where it always was, I think now is consumer awareness that really makes a difference.

Lee Wetherington (17:26):

Right, I think you're absolutely right about that. And to tag onto one more piece to going back to the deposit priority for this year and next, especially with banks. There's this issue, and this is not just for banks, this is also for credit unions, is how do we close the deposit gaps generationally with the younger folks, with Gen Y and Gen Z in particular?

Lee Wetherington (17:45):

We now have very clear and clean answers, data driven, results driven answers to that particular problem, and how to close that gap, both in terms of acquisition of the relationship and the deposits those relationships represent.

Lee Wetherington (17:58):

With Gen Y and Gen Z (and I'm preaching to the choir, Jim, I know), you've got to have mobile only account opening that doesn't force or require funding as a part of the opening process. And you've got to be able to offer early paycheck access ... Chime, which is a very easy ACH trick. It's amazing to me that that trick came out in the last few years.

Gregg Tewksbury (18:26):

But if you have those things and you can market effectively at all, you can close those Gen Y and Gen Z relationship gaps and deposit gaps accordingly.

Jim Marous (18:36):

Well, it's interestingly too because it gets to definition. We ask financial institutions, how many of you have digital account opening? And it's around 78, 83%, it's very high. When we say, "How many of you are able to open an account in less than five minutes?" It goes down to less than 20%.

Jim Marous (18:55):

I'm sorry, it's not digital account opening, just because you allow somebody to do something digitally and in many cases make the customer still come into the branch. We get into a definition game, and what's interesting is the awareness, again, the way to be digital is a whole lot different. And it really gets into the back office.

Jim Marous (19:16):

So, Gregg, talking about the back office, the importance of growing deposits and loans, improving the operational efficiency and enhancing the customer experience, basically have been the top three priorities in some order for banks and credit unions.

Jim Marous (19:32):

How are you addressing the issue of updating your back office, making that more digital? Because again, our research and Lee's research has shown that you really aren't digital in the customer facing view unless you fix the things the customer doesn't see. How are you working towards that?

Gregg Tewksbury (19:52):

So, we've been trying to get to a digital first environment inside our company for a great deal of time, COVID accelerated that. DocuSign became now part of everything that we do.

Gregg Tewksbury (20:03):

Here's an interesting thing that just occurred over the past couple of months. We had a courier, paid courier service that went around New Hampshire to our 27 branches and dropped off paper. And we started tracking that a year or so ago in terms of, there were so many stops, they actually had nothing to pick up.

Gregg Tewksbury (20:21):

And so, just two months ago, we were finally able to cancel that courier service. 200,000 bucks a year, not a huge dollar amount, but it's real money. And those types of things of thinking internally about how we can digitize things and make things more efficient.

Gregg Tewksbury (20:41):

We're using robotic process automation. So, we've got programmers that are focused on spending a lot of time thinking about automating some of our processes. Think about your accountant that was doing that reconciliation. They're looking over here for a particular number. They're looking at this ledger for a particular number.

Gregg Tewksbury (20:57):

Well, through robotic process automation, if those agree, we don't need people looking at two different spots in the same spot every day, looking at whether those reconcile. Exception management becomes a part of how we're leveraging our talent inside.

Gregg Tewksbury (21:13):

So, we're spending a great deal of time thinking about efficiencies and digitization inside our organization. We're using with Lee's company to help with workflow automation. There's really good software solutions out there to help improve how you get information from one source to another without human intervention. And staff at one point in time, were probably concerned about this approach.

Gregg Tewksbury (21:43):

What they've seen is they're leveraging their talents by putting in them in different areas and not imaging these documents from a loan file manually. When all of that information we've received electronically in some manner. If we can collect that electronically, we should be able to save it electronically without somebody standing over a scanner for hours on end.

Gregg Tewksbury (22:06):

So, internally, we're really focused on trying to provide some efficiency. So, the back room is a critically important aspect for how we think about things digitally and transferring that to the front end, trying to help them in very different ways.

Jim Marous (22:23):

It's interesting Gregg, because your organizational structure, I don't know how many of my listeners know much about the mutual environment, but in many mutual organizations, they're a combination of a number of organizations working on behalf as one.

Jim Marous (22:39):

And so, you're always being challenged to say, how can we bring more to the overall partnership, the mutual version of what you're doing? But it's interesting too, because you hit something that we talk about often in the podcast, which is, how do you bring your employees along without them feeling that their jobs are at risk when you go digital?

Jim Marous (22:56):

In the same sense, organizations such as yours at 3.5 billion really have to leverage. And you referenced Jack Henry and Lee's company in your discussion. How important now are third-party collaborations with organizations that can bring you solutions that are almost, I'm going to call them turnkey.

Jim Marous (23:17):

Now, mind you, we always make things more difficult than they have to be, but where you can really get these solutions if you had to find a digital new account opening, if you had to find a good way to use robotic automation, how important are third-party collaborations for making it so you can become future ready?

Gregg Tewksbury (23:33):

They are critically important. I mean, we rely on our partners to bring those solutions to us and help us. I mean, we have internal talent that understand how we want to bank our customers, what we want to offer them. But the collaboration with third parties to make that happen, for them to understand how their software works, for them to provide an API for different software solutions, to be able to talk to each other.

Gregg Tewksbury (24:00):

We talk about a frictionless experience for our customer. It's far from frictionless if we don't have third parties working with us and with each other and trying to create those solutions.

Gregg Tewksbury (24:15):

When we think about third parties, so when I think about Jack Henry and we want to use perhaps a different digital online banking solution, the first thing that we look for is how many other banking clients do you have that are using the same solution? Have you been there and done that? Have you ironed out some of those wrinkles? And that's an important part.

Gregg Tewksbury (24:37):

Occasionally, we'll be a pioneer, but most of the time we're looking for solutions that have been tried and tested and worked out. But collaboration with third parties is probably the most important part of what we think about in our company.

Gregg Tewksbury (24:56):

I'll work with the presidents of the affiliate banks. They rely on shared services at New Hampshire Mutual to figure this out. But there's this iterative process where they're the boots on the ground. So, tell me what the customers are looking for.

Gregg Tewksbury (25:10):

We'll look for the solution, we'll present it to them, but would we decide that here's a solution collectively, this is the solution we're using for all of our banks. That's the only way that we're able to gain the efficiencies that this model requires.

Jim Marous (25:27):

It's interestingly, Gregg mentioned the collaboration with third-party solution providers. He also referenced what Jack Henry does, but Jack Henry doesn't work alone in many cases.

Jim Marous (25:38):

I mean, I think one major change that I've seen the last three years is really the integration of all different types of third-party collaborations where everybody says, "We're not going to try to think that it's a pie that we got to get a bigger piece of, but this is only going to work for our clients, the banks and credit unions out there if we really work together with other solution providers who may provide a better specific solution than we can offer."

Jim Marous (26:05):

How does your organization Lee, evaluate who's the best to work with out in the marketplace, but more importantly, how you become ready to partner quickly with these organizations if you don't get the specific business?

Lee Wetherington (26:20):

So, that's a great question. First, just a number, we're closing in on 900 third-party integrations in the Jack Henry ecosystem, 900. And so, we have from the get go had an open philosophy. The beautiful thing about the evolution of the tech stack, the modern cloud native tech stack that we're building on and building out now, is that it allows us to be open in a way that is much more meaningful, much more useful, and much more valuable for the average bank or the average credit union.

Lee Wetherington (26:56):

Our end game is to be the best open banking platform in the industry. And we understand platform economics and we understand what that means is that we've got to be the best and/or easiest platform for a given high grade fintech to plug into, to embed with, and therefore to be accessible to the thousands of financial institutions that we enable.

Lee Wetherington (27:26):

In terms of our process for just really honing in on the highest grade fintechs. By the way, let me give some context here because this question you just posed, Jim, has never been more important, than it is this year in 2023.

Jim Marous (27:44):

Oh, by the way, it doesn't matter how big or small the financial institution is, nobody's doing it alone anymore.

Lee Wetherington (27:51):

That's right. You're right, this is ecosystem strategy now. I beat this drum all the time, but there's a difference between the industry disruption we used to talk about, which presumed a very clear boundary around the financial services industry or chartered providers. But with banking as a service, payments as a service, lending as a service, deposits as a service, that boundary has effectively blurred or just gone away.

Gregg Tewksbury (28:18):

So, you now have to think with a much broader lens. And the trick of winning the new game is really orchestrating new value across this wider ecosystem of fintechs, big tech's for that matter, and other forms of third-party relationships.

Jim Marous (28:36):

And geographies when you look at ...

Lee Wetherington (28:37):

And geographies, yeah.

Jim Marous (28:37):

At the banking as a service. You look at embedded banking, the whole situation is, if I need deposits, I can now build an organization that pulls deposits beyond my typical geography. So, crazy changes.

Lee Wetherington (28:52):

So, to finish answering your question, my team, the corporate strategy team at Jack Henry, this is what we do 24/7 every day. Is we are vetting that fintech universe of thousands of fintechs, and we're breaking them down by category. And then in each category, we're doing a lot of due diligence, a lot of evaluation. We use very heavy-duty tools like the CV Insights, database and mosaic scoring for the fintech ecosystem.

Lee Wetherington (29:19):

To Gregg's point, we also lean very heavily on things like bank directors, fintech tech list. That list is about 700 or 800 fintech's, all of whom have been deeply vetted and have to attest real partnerships, successful ones with either banks, credit unions, or both to even be on that list.

Lee Wetherington (29:41):

So, that narrows the field very quickly from thousands to a few hundred. And then we're going that last mile to really define and identify the highest grade fintechs that are mapped to the most important strategic priorities in the moment. This is exactly why we do our strategic priorities benchmark every year.

Lee Wetherington (30:01):

And then that gets us to a very short list of the highest grade fintechs that then we want to invite, expedite, lure into, embedding into our digital platforms to make them available at scale to the hundreds and thousands of financial institutions that are using our tech stack.

Jim Marous (30:20):

It's interesting, we at some point have to do another podcast simply on the vetting of partners, because we're not just talking to third-party parties. But you look at what happened with Silicon Valley Bank, everything that we thought we knew about the strength of organization and didn't make these organizations less strong, but associations within them changed the dynamics.

Jim Marous (30:42):

When a bank all of a sudden says, "We're not going to make it." Everybody scurried very quickly to say, "Can we make payroll? Are we still as strong as we were a day and a half ago?" And it was only a tweet away.

Jim Marous (30:54):

So, Lee, before we take a quick break, in doing research of organizations globally, I find that the Digital Banking Report, it's become abundantly clear that organizations know what they need to do, know pretty much how to achieve what they need to do, and even in many cases, who they could partner with to get there.

Jim Marous (31:15):

That said, way more organizations than we ever want to consider are falling short of their goals. What do you see as the biggest obstacle to achieving the success that all these organizations pretty much have the roadmap of how to achieve it?

Lee Wetherington (31:32):

Yeah, I think it's leadership blind spots and overwhelm, quite frankly. We just proved out the point when you're starting with an ecosystem of thousands of fintechs, how do you expect an average bank CEO or an average credit union leader to be able to vet that ecosystem reliably or well enough, to put then the resources forward to embed that particular fintech or third-party into a digital banking experience, and be assured that that particular third-party's not going to go away in 6 months, 12 months, 18 months.

Lee Wetherington (32:09):

So, there's also a generational component to that. There's a technical proficiency question about your leadership and your board. Do you have technology expertise, basic proficiency and expertise represented on your board, on your leadership team, so that you can understand how the tech stack is shifting, what opportunities that's creating?

Lee Wetherington (32:34):

And you mentioned before, this gets back to strategic agility. How can we get to a modern tech stack that gives us the option to pull the trigger on meaningful fintechs of choice or third-party partnerships, that can make a difference in a meaningful timeframe? That really, to me, is the biggest challenge facing leadership teams of financial institutions of all stripes.

Jim Marous (32:58):

Well, and we won't get into it right now, but the reality is you can't buy yourself into being future ready. The reality is you can buy the best technology but if the leadership doesn't understand how to implement against that, if they haven't worked with their employees to get ready to be future ready, they're not going to make it.

Jim Marous (33:13):

So, let's take a short break here and recognize the sponsors of this podcast.

Jim Marous (33:21):

Welcome back to Banking Transformed. I'm joined today by Gregg Tewksbury, President and CEO of New Hampshire Mutual Bancorp, and Lee Wetherington, Senior Director of Corporate Strategy at Jack Henry. We've been discussing the strategic priorities of the banking industry today and how organizations can better achieve success.

Jim Marous (33:37):

So, Gregg, before the break, I asked Lee a little bit about what stands in the way of success when you have so many priorities, but when you all pretty much know what you need to do to become future ready.

Gregg Tewksbury (33:49):

At New Hampshire Mutual Bancorp, what is the greatest impediment to success? Because I know you of all people know what needs to be done, but nothing ever goes completely according to plan. For your organization, is it limited budget? Is it too many competing priorities? Is it lack of time? Is it regulatory constraints? Is it human or technological resources? What is it at your organization?

Gregg Tewksbury (34:14):

Yeah, I would say it's more the human resources, Jim. We all have budget constraints. We don't have a budget like Citigroup no, or Citicorp, or Chase, so budgets do impact it. But as a mutual bank, (and I don't use that as a veil) our capital is unforgiving and we have to put it to good work. But we've just got … it's more patient than maybe perhaps the stock banks.

Gregg Tewksbury (34:40):

So, we look at budgets, but we'll never allow that to be the reason why we don't do something that we think is strategically important. Oftentimes it just comes down to internal resources, have the bandwidth to be able to take on another project.

Gregg Tewksbury (34:53):

The last several years are an example. We did an awful lot, but some of it was just dealing with the growth, double digit growth for three years in a row.

Gregg Tewksbury (35:04):

We were putting in structures to deal with just the number of accounts when you think about the servicing, and everything that comes with going from a two and a half billion to a three and a half billion dollar institution. Making sure that the risk profile is there.

Gregg Tewksbury (35:21):

But it comes down to do we have the resources, where they have the human resources to be able to understand, reach out to the leads and say, "Gosh, we're looking at these three different options, but we only need one of them, which is the right one for us?" And taking the time and bringing our company through a process to evaluate the right solution.

Gregg Tewksbury (35:44):

Our company gets a little more complicated because I got to bring three bank presidents through that process. But it's more just having the resources available that can be a limiting factor.

Jim Marous (35:55):

It's interesting because that gets back to the need for collaborations. Doesn't make it easier, but when you have a limited amount of time, and you said at the very beginning of this podcast, Gregg, the need for speed and scalability, I need to get to market quickly as possible with what I need to do. I need my priorities be in line.

Jim Marous (36:13):

And I really, I mean, speaking for you rely on my partners to tell me what direction should I go? Maybe what partners should I pick and what's the easiest way to get to my future destination.

Jim Marous (36:27):

Now, Gregg, we talked about before with your organization that you really need a team of leaders that are moving the same direction. But actually for an organization, your size, you need all employees to be moving the same direction.

Jim Marous (36:39):

How do you work as a leader, not just with your other mutual affiliates, but with your employees directly to make sure that they feel comfortable in their roles, that they're striving to move forward to meet your why, and that you're doing the best you can to build innovation into their mindset?

Gregg Tewksbury (37:01):

So, it starts with the hiring process. So, we want people that are intellectually curious, and technology is talked about all the time. Internally, from my pulpit, I talk about two things that are going to make us successful over the long run, talent and technology, T and T.

Gregg Tewksbury (37:19):

We brought these banks together; we squeezed some efficiencies out of it. That doesn't go to shareholders, this is not meant to be just a mutual show here. But we take all of those savings and we put it back into two things, talent and technology.

Gregg Tewksbury (37:34):

So, internally, making sure that we're all thinking about how technology plays a role and us being sustainable and relevant over long periods of time is part of the culture. So, I think part of my role and part of my leadership team's role is to ensure that the individuals embrace technology as who we are as a company.

Gregg Tewksbury (37:54):

Oftentimes, I start with conversations that we're a technology company delivering financial services. It's far different than that but it creates a mindset that if you don't embrace technology, then probably there's not a long-term opportunity for you here. So, part of it's just setting the tone and using the right partners.

Gregg Tewksbury (38:19):

I mean, you can't say that and not align yourselves with the right partners. We do feel we use best of breed partners. We don't skimp on who we choose to partner with. We think that in the long run that's going to provide us a better, more efficient, and least cost solution even though it may be a little more expensive upfront.

Gregg Tewksbury (38:40):

And we stick with them a long time because the institutional knowledge of our employees, knowing that product, knowing their counterparts on the other side, provide value, not only to the employee experience, but hopefully over long periods of time to the customer experience.

Jim Marous (38:57):

It's interesting Gregg, because your organization is what you do with partnerships. You mentioned about the long-term partnerships. But you also, and we've seen this with a lot of really good organizations are defined by who they don't pick sometimes as much as by who they do pick.

Jim Marous (39:12):

So, what happens is, I've seen it in doing research for the organization, you'll find a partner that may do something that's exactly the same as another partner you already are in a relationship with, but don't do it as well. You don't get strangled by existing partnerships in much the same way that you're strong on loyalty, but you're not hampered by that loyalty.

Jim Marous (39:34):

And that's a big differentiator we've seen recently that organizations that say, "Yeah, my partner is X, Y, Z, but they don't provide the best solution for what I'm looking for today. I've got to realize some people in my organization may think I'm double investing, but the reality is I'm smartly investing."

Jim Marous (39:53):

So, it's a great credit to your organization and the way you lead as a leader. So, Lee, what is the biggest opportunity you see as you look forward?

Lee Wetherington (40:02):

In two words, it's open banking and levering the open banking rails that we have in the United States to solve for what I see as the biggest challenge and also opportunity, which is financial fragmentation. We've been talking about the fragmentation that Gregg has to navigate in terms of partnerships, third-parties, fintechs, the ecosystem disruption he and other banks are undergoing.

Lee Wetherington (40:27):

If you take that however to the UX level, the average American has relationships with between 15 and 20 different financial service providers. The average smartphone in the United States has 14 different financial apps on it.

Lee Wetherington (40:41):

And what's happening, and we saw that in the financial health numbers kind of take a plunge along with inflation and other drivers last year, is that we've got all these apps and all these relationships and we don't know exactly where we stand with our money and when we don't know where we stand with our money, we can't possibly know or have any assurance about what to do next or how to do better. So, the biggest opportunity is solving for fragmentation.

Lee Wetherington (41:07):

And I think banks like Gregg's are in the perfect position to be able to do that by levering what most people don't realize it, the most mature open banking rails in the world are here in the United States in the way of the biggest financial data exchange providers we have. Finicity, Plaid, Akoya, Yodlee, Intuit, et cetera.

Lee Wetherington (41:27):

So, plumbing into those open banking rails and then bringing back over those more standardized and secured open banking APIs, bringing back to the bank, back to the customer, a comprehensive and comprehensible picture of their entire money situation across all those otherwise hopelessly fragmented apps and relationships, puts the bank, puts Gregg's banks, into the position of what we call first app status.

Lee Wetherington (41:55):

You mentioned earlier, Jim, who is the primary financial institution and how do we measure that? How do we quantify and/or qualify that? It is not by account anymore, it's about what's going on inside those accounts and what those accounts are being used for by your customers.

Jim Marous (42:12):

Yeah, exactly.

Lee Wetherington (42:12):

Or whether they're just a zombie account. I mean, we did some research with the fintech auto books a couple of years ago and discovered first of all that in the average bank, they're between 13 and 35% of retail checking accounts are actually being used to run micro and small businesses.

Lee Wetherington (42:32):

And because they can't get everything out of that retail account relationship at the bank that they need to run that small business, they go to third parties like PayPal, Square, and now Block. And when they do that, they're using those third-party apps to collect the payments they need to collect as a smaller micro business, but only one out of every $8 collected in those third-party apps makes its way back to the bank account.

Lee Wetherington (42:58):

Meanwhile, the bank thinks I'm still the primary financial institution with the primary checking account, but it's a zombie account.

Lee Wetherington (43:04):

So, being able to aggregate a full picture of finances, being able to lever those open banking rails to do that reliably, to do that well, it not only sows for this financial fragmentation issue, which is a real pull down on financial health in the United States, but it also puts the bank in the driver's seat in terms of the business intelligence about where customers are doing what with whom and why.

Lee Wetherington (43:30):

And now you can make your own choices as a bank about what next best product or service do we need to embed from a fintech partner, or do we need to upgrade in terms of existing partnerships to bring more of that functionality and/or money management back home natively to the bank.

Jim Marous (43:50):

I'm laughing in the background mainly because my story of my life is my relationship for the small business that I have. And to your point, all the payments to me come via PayPal, all the expenditures go out via PayPal.

Jim Marous (44:07):

And the reality is, PayPal gives me instant access to bridge loans all the time. They know everything about my business, they know where I'm getting the revenue from, how often it comes in, how frequently I pay out, who I pay out, they know everything. And my legacy bank only sees a bunch of PayPal transactions. That is a zombie account in the best sense.

Jim Marous (44:28):

In many ways, what's interesting is … we will do a show, you've got me on, I'm writing these down as I go along, on business intelligence, the importance of business intelligence.

Jim Marous (44:38):

Because I think as legacy finance institutions, we tend to look at banking the way it was 20 years ago and forget about the instant transfer of money and how money flows and how much we don't see but we think we know. And that's really — we talked about during the beginning of COVID when they gave you a relief on your mortgage loan.

Jim Marous (45:00):

There's two types of people that took relief on their mortgage loan. Those that took the relief because they couldn't eat if they didn't. And those that took the relief so they could put money away in savings for a rainy day. Those are vastly different consumers that look exactly the same. To the bank, this has the mortgage loan.

Jim Marous (45:17):

So, Greg, as we finish up here with some quick questions, you are not, I don't believe, I haven't been in New Hampshire lately, but I don't think you're the only financial institution in New Hampshire, and I bet you're not the biggest.

Jim Marous (45:29):

So, how are you looking to differentiate New Hampshire Mutual Bancorp in the future against competition that comes from all sides and many times is not even located within your state?

Gregg Tewksbury (45:41):

Sure. Well, our goal, as Lee talked about the number of apps that are on your mobile device, that are financial institutions, we want to be that one that people click, we think that's really the primary account.

Jim Marous (45:55):

You want to be the fingerprint on the screen.

Gregg Tewksbury (45:57):

We want to be the fingerprint. And if we do it well, so to differentiate ourselves, we need to be that aggregator. We've had aggregation solutions that I think have fallen way short of what the customer experience is really looking for.

Gregg Tewksbury (46:14):

If we can be that aggregator and bring that full picture relationship of their financial wellbeing, I think we can gain more and more of that wallet share if we're that fingerprint on the mobile device. So, that's one way to differentiate.

Gregg Tewksbury (46:30):

We also have to personalize it, and we have data. We know that your account has got PayPal, how can we personalize your experience with our financial institution to be able to grab more of that? We have the information to be able to do a better job and selling you a different alternative than PayPal.

Gregg Tewksbury (46:49):

Because we have B2B payment options, we have P2P payment options. Why would you use the third-party if your fingerprint goes here and we give you the same options, so that's the differentiator.

Gregg Tewksbury (47:01):

In the community banking space, if we can partner with best of breed companies like Jack Henry and really have a good understanding of what that customer is looking for from a technology, and then compliment that with true on foot leather relationships, being available to answer those questions that customers really have.

Gregg Tewksbury (47:27):

If we can have really good technology and compliment it with high levels of personal touch, I think there's a place for community banking for a long period of time. And as long as there's human beings that are looking for some type of relationship, and you give them the right solutions with technology, we'll be relevant. There'll be fewer of us but we’ll be relevant.

Jim Marous (47:51):

Gregg, that is so key in that what I have found, I talked about it before we got on the air today. Is that some of the most innovative, most progressive, most exciting organization that I'm seeing in the marketplace today are the smaller financial institutions that can move quickly, are agile, can build things at scale and at speed, and are using partnerships to get where bigger financial institutions are having a hard time doing just because they can't get out of their own way.

Jim Marous (48:19):

It's exciting to see what you're doing at New Hampshire Mutual Bancorp, it's exciting to see the partnerships and the way you view the partnerships to move forward. And it's interesting, very quickly in conversations like this on the podcast, I can see just in faces who's successful and who's not based on the enthusiasm and who would get me to move off of not wanting to change what I do if I work for you, it's exciting.

Jim Marous (48:45):

We have not even scratched the surface Lee, on the research you did, on the research you've done and it's an excellent report that I recommend everybody get ahold of. How do people get ahold of the Jack Henry 2023 Strategic Priorities Report?

Lee Wetherington (49:02):

Yeah, you just said it. I think the easiest way is just to google Jack Henry Strategic Priorities Benchmark, that'll take you to the download page and have at it.

Lee Wetherington (49:12):

There's a lot in there and we're very proud of it. We try to ask questions no one else is asking, and it's very helpful directionally for us and for our clients, but we've decided we really want to make it available to everybody, so that everybody can benefit.

Gregg Tewksbury (49:29):

And Lee, the plug that I'll give, if you take the time to read that report, you'll get the survey of the CEOs, the results of the survey, but the context that is provided to help interpret those results is invaluable.

Lee Wetherington (49:44):

Well, I'm going to take that compliment. I wrote that, so thank you.

Jim Marous (49:48):

It's great though, because what that says for anybody that's listening and doesn't think below the surface here, is that Gregg participated in the survey, but he also reads it to continue educate. And this is one of the most important components of leadership today is, are you sitting on your laurels or you continually educating yourself to make your organization better.

[Music Playing]

Jim Marous (50:11):

Gregg, Lee, it has been a massive pleasure today. This could have gone on — my team knows I'm hitting the limit on what we ever do on a podcast from a standpoint of time, and we didn't do everything we could. We could easily do a second part two of this, we are going to get together again. Gregg, Lee, thank you so much for being on the show today and sharing your insight.

Lee Wetherington (50:34):

My pleasure, thanks for having us.

Gregg Tewksbury (50:36):

Thank you, Jim.

Jim Marous (50:38):

Thanks for listening to Banking Transformed, winner of three international awards for podcast excellence. If you enjoy what we're doing, please take some time to give some love in the form of a review. It helps us to continue to get great guests like today.

Jim Marous (50:51):

Finally, be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report.

Jim Marous (50:58):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Sean Rule-Hoffman, and video producer Will Pritts.

Jim Marous (51:07):

I'm your host, Jim Marous. Remember, change is a given, your response to that change is what defines winners and losers.

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