ISSUE TWO 2020
THE BIRTH OF NEW BANKING PRACTICES BECAUSE OF COVID-19 Expect A Mix Of Old & New
A PUBLIC ATI O N O F A M E R IC A N B U S IN ES S M ED IA
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ISSUE TWO 2020
COVER STORY The Future of Banking After COVID-19
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TECHNOLOGY Training Analysts to Code and Programmers to Analyze
4 Letter from the
10 Technology
14 Q&A
5 Marketing
12 Cover Story
16 Education
Publisher
Banks Really Need To Be Customer First
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Upstarts Are Coming For Your Cores
Something New, Something Old Thanks To COVID-19
One Lawyer’s Perspective On PPP Fraud
Analysts Must Code And Programmers Must Analyze
On the Move
Bankers Making Their Mark In The Mid Atlantic
CONTENTS
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LE T T E R F RO M T H E P U B LIS H E R
We’re On Banking’s Battleground
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y the time you read this, the world will likely have changed again. The COVID-19 pandemic has blown a shotgun blast of buckshot through the economy. Shuttered businesses whose financials were solid may never re-open. Business bankruptcies and loan defaults are sure to soar. Individuals who’ve lost their employment won’t be saving for retirement, or saving at all – or paying their credit card bills and mortgage loans. Standing at the financial forefront, trying to make decisions on how to help their communities while not endangering their institutions, are community banks and credit unions. But they are businesses, too. Which means they’re VINCE VA LVO also grappling with how to safely re-open their lobbies, meet with customers, provide access consumers and companies need, while keeping their own employees and workspaces safe. Concurrently, banking industry leaders have suddenly faced the social calls for racial justice that have sounded across the nation. Pivoting one day from protecting branches from looting and destruction to proclaiming solidarity with the precept that everyone in this country should be judged equally, bank and CU executives have had to take a look at not just what they can do to show that commitment, but look back at systemic bias that may have been a contributor to the need for protest. HEROES RISE While the general populace loves to make banks the villains of any piece, the reality is that credit unions and community banks only prosper when their communities thrive. That’s why, for example, so many small businesses were able to access Payroll Protection Program loans through community banks when the systems are much large institutions failed them. CUs and community banks are standing on the battleground of our nation’s rebound. They are finding ways to stand with those who demand social justice, support those who are fighting for economic emergence, and be the centers of capital that their communities need to regain prosperity. A decade ago, banking faced one of its darkest moments. Now, it gets to be a light that helps others out of their despair. It’s a challenge, testing the ingenuity and resolve of community bankers. But if there was ever a time we needed community bank heroes, it’s now.
VINCENT M. VALVO Publisher & CEO
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STAFF
CEO, PUBLISHER & EDITOR Vincent M. Valvo ASSOCIATE PUBLISHER Beverly Bolnick MANAGING EDITOR Keith Griffin GRAPHIC DESIGN MANAGER Stacy Murray USER EXPERIENCE DESIGNER Billy Valvo INTERACTIVE DESIGN DIRECTOR Alison Valvo ONLINE CONTENT DIRECTOR Navindra Persaud MARKETING & EVENT ASSOCIATE Melissa Pianin EDITORIAL Eric C. Peck ENGAGEMENT AND OUTREACH Andrew Berman CLIENT SUCCESS COORDINATOR Jaclyn Leitermann
Submit your news to editorial@ambizmedia.com If you would like additional copies of Banking Mid Atlantic Call (860) 719-1991 or email info@ambizmedia.com
www.ambizmedia.com © 2020 American Business Media LLC All rights reserved. Banking Mid Atlantic magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: American Business Media LLC 345 North Main St., Suite 313 West Hartford, CT 06117
M A RK E T ING
Welcome To ‘Business Unusual’ In The Banking World
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Banks Need To Pivot To A Customer-Centric Marketing Model B Y STE V E SA L LO WAY , S P E C I A L TO B A N K I N G MI D AT L A N T I C
n the recent past, the financial industry practiced years of self-centered marketing approaches that ultimately served to commoditize banking products and services. Then COVID-19 hit. In a somewhat ironic development, these anxious times have seen the advent of a new era of consumer-centric marketing opportunities. The extended lockdown has had a tremendous impact and has produced lifestyle changes, a shuttering of businesses, a huge wave of unemployment, and a dramatic hit to many people’s retirement savings. The virus has changed what consumers need and—equally important— what they expect from their financial institutions. To remain competitive, banks would do well to take notice and respond accordingly. Welcome to “business unusual” in the banking world. Change Drives Change A change in consumer expectations demands a change in marketing strategies. While business objectives may remain the same as before the outbreak, the strategies and resulting tactics must change to meet the challenges of the new normal and to meet consumers where they are right now. Consumers are in pain and marketers have the responsibility to cure that pain and lead their institutions through the marketplace revolution that is occurring. While many brands are responding by quickly producing self-centered feel-good messages that speak only about themselves, consumers are left with the nagging question: “What’s in it for me?” Banks and credit unions should use these challenging times to pivot and become customer-centric, relationshipdriven institutions. Financial brands should be seeking to create a sense of stability, adaptability and provide solutions that are based on actual consumer needs. Consumers have long been in control of the purchasedecision journey and now, more than ever, they expect more. What consumers need and are looking for today are personalized solutions to solve the challenges they face within their current circumstances. They are looking for guidance, accessibility and understanding—in other words: security. Migration Needed Success requires that financial institutions migrate from an institution-centric product-oriented marketing approach that is based on the “4P’s” (Product, Pricing,
Place, Promotion) to a customer/member-centric service model that places an emphasis on their members/customers and consists of Solutions, Information, Value and Access, known as the “SIVA” model. The difference between the two approaches has profound effects that can show real benefits to both customers/members and the institutions that implement them during this crisis and afterward. The service model is entirely based on understanding customer needs and then developing solutions that satisfy them; anything else is just “noise.” Your financial brand can bring about this change and position itself as being a valuable ally to your members/ consumers. How? Start by acquainting yourself with your brand mission, positioning or brand story if you have one. Translate these brand linchpins into customer benefits and solutions and visualize what they look like in a tangible way. Make sure all employees are made aware of what they are and what they mean. Then speak with your customers/members. Take the time to get to know and understand them and identify what they need. Build a bridge between the institution and the customers. This may involve modifying or creating new processes or developing new products or modifying existing ones in the short term. Novel Bundling Reliable access must be guaranteed by leveraging online capabilities and apps, but brands must ensure not only a successful and friction-free environment but a cohesive and consistent user experience across all channels. Remember, customer expectations are higher now and for ISSUE TWO 2020 | BANKING MID ATLANTIC
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many customers, this may be the first time they are using online channels or at least, they may be relying on them more than ever. Banks and credit unions can bundle products and services together in novel and relevant ways to meet the practical needs of customers. People who have lost or fear losing their jobs may want a pool of ready cash for an emergency fund, so maybe a “ready-cash” bundle could include packaging a HELOC product with a deposit product and budgetary tool if offered. Mixing and matching products and services in compelling ways can provide practical offerings and create a unique value proposition against competitors. Investigate the competitive landscape and determine if there are voids that can be filled by a new or revised product/service set. To convey a cohesive message across all channels, banks
engaging and therefore valued messaging directly to your customers/members. Don’t forget the value of a telephone call. Your top 10% of customers and especially small business owners deserve one-to-one personal attention. Marketing budget cuts mean looking at alternative media tactics that cost less. Public relations can be leveraged to garner unpaid media impact. Social media is how brands maintain relationships with their customers. Insights into what customers are feeling right now, what they are sharing and saying can all be used to determine what it is your institution can provide that is useful to your customers/ members. Social is a two-way conversation and should be used to engage your audiences and show how your brand is supporting online and offline communities. All social media tactics should be monitored; messages that are in line with brand missions and values should be developed and coordinated to ensure a cohesive presence and a consistent brand voice across all channels.
Grow Share “Down Economies” are excellent opportunities to grow market share. There are many studies of past recessions that could be cited to prove that. Political advertising, the Olympics and other sporting events have been postponed and these uncertain times may cause many competitors to cut their media budgets. Forward-thinking brands Marketing messages should be personalized should take advantage of unsold media inventory to to be truly beneficial and valuable to your increase their share of voice on existing customers. local media and to negotiate better pricing to lock in longshould leverage their entire tactical ecosystem. We are term media contracts while the media has unanticipated fortunate to have a variety of tactics available today to create excess inventory. Daytime streaming is exploding and now a cohesive and unified brand experience that can be both is the time to take advantage of this tactic. personalized and broad-based to support the brand. As a common thread throughout the fabric of their Retaining members/customers is less expensive than communities, banks and credit unions have a unique role to finding new ones. Focusing on defending the customers you play in supporting and binding the local communities and already have is important. If marketing budgets get slashed economies together during this health and economic crisis. due to crisis-driven budget cuts, preserving and protecting Small business owners are not only commercial customers your existing members/customers becomes even more but retail customers as well. Banks and credit unions should important. Marketing messages should be personalized to be relearning and living their missions. be truly beneficial and valuable to your existing customers. Uncertain times will cause change, but the mission and brand values remain the same. Indeed, they are guideposts Leverage The Tools that are constant and thus are the underpinnings of a solid Internal analytic software, customer relation management brand. systems and other segmentation tools can best be leveraged to provide personalized direct marketing. Data is key in Steve Salloway is director of strategic planning at Davis Advertising. developing an understanding of what is important to your He has over 20 years of experience in putting together strategic customers and in developing messages that would resonate marketing and media mixes designed to achieve client’s business best with them. Email is a great tactic to deliver relevant, objectives.
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Start Building Stronger Business Relationships Today.
Now with coverage across New Jersey, Pennsylvania and Delaware, bankers across the region turn to our magazine, Banking Mid Atlantic, for essential news, information, and analysis in an evolving marketplace. As a source for thought leadership in the banking industry throughout the mid atlantic, banking executives and managers rely on the magazine for vital information on how to better serve their customers, efficiently run their institutions, and adapt in a transforming industry. Advertising in Banking Mid Atlantic will give your brand a significant advantage within a competitive market and increase your exposure among thousands of companies that serve the banking industry. Position your message in front of 400+ financial institutions and over 8,000 industry professionals – 90% of whom are executives, vice presidents, and department managers.
To learn more about BANKING MID ATLANTIC or to customize a marketing program unique to your business needs, call 860-719-1991 or email vvalvo@ambizmedia. ISSUE TWO 2020 | BANKING MID ATLANTIC
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MID TIC ATLAN
TRY TO KEEP UP
LOCAL PROFESSIONALS MAKING THEIR MARK IN MID ATLANTIC BANKING Alban Hired At Customers Bank As SVP, Multicultural Banking Manager
Miguel Alban
Customers Bank, a community bank with operations in Pennsylvania, Illinois, New Jersey, New York and New England, announced the appointment of Miguel Alban as senior vice president, multicultural
banking manager. Alban joins Customers Bank with 13 years of multicultural banking experience. In his new role, Alban will lead a team focused on commercial lending with an emphasis on increasing access to capital for small and minorityowned businesses. Richard Ehst, president and CEO of Customers Bank, said, “We look forward to leveraging Miguel’s experience to help ensure all of our customers have the same access to capital and financial services to assist them in growing their business and achieving their corporate goals.” Previously, Alban was vice president of multicultural banking with Bryn Mawr Trust Company, where he was responsible for assisting customers with a broad range of investment and banking services. Earlier in his career, Alban managed multicultural business development initiatives at AFLG Private Equity and First National Bank of Chester County.
management, real estate services, asset recovery, legal, internal audit, loan review and regulatory compliance. “Michael’s 20year relationship with WSFS and Michael Paul Reed his transparent, collaborative working style make him an ideal cultural fit,” said Levenson. “His strategic thinking, ability to balance measured risk with risk management, and deep knowledge of regulatory and compliance frameworks make him uniquely suited for this role.” Reed joins WSFS with more than
ABA Foundational Certificate in
Bank Mar keting Earning this Certificate will help you develop key skills essential to successful bank marketing and strengthen your knowledge of marketing’s role in a financial institution.
Michael Reed joins WSFS as EVP, Chief Risk Officer
Michael Paul Reed has joined Wilmington-based WSFS Bank, the primary subsidiary of WSFS Financial Corporation, as executive vice president, chief risk officer. Reporting to WSFS’ CEO, President and Chairman Rodger Levenson, Reed will lead all risk management functions including credit risk management, enterprise risk
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23 years’ experience providing legal and strategic advice. Most recently, he served as a partner in the financial services and corporate groups at Covington & Burling, LLP, a global law firm with a significant presence in financial services. Reed said, “Given the growth the bank has experienced the past several years, WSFS is well-positioned going forward for significant and strategic growth in the rapidly changing landscape of the financial services industry.” Reed holds a Masters of Law degree in banking and securities from Boston University, a Law degree from the University of Western Ontario and an undergraduate degree from Wilfrid Laurier University.
aba.com/MarketingCertBMA
Corter Hired As AVP/ Retail Relationship Manager
Diane Corter has been appointed assistant vice president / retail relationship manager at Kearny Bank’s Caldwell branch. In her new role, Corter is responsible for leading a team of sales and service Diane Corter professionals, while managing sales and development operations, delivering financial products both to current and potential clients, and establishing new business relationships. Most recently relationship sales manager for Valley Bank, Corter began her career as a teller and now has three decades of retail banking experience in operations, sales, and financial training. “Diane brings both professional experience and expertise to her new position,” says Heather Moskal, Kearny Bank first vice president / retail banking & sales development. “Our clients at the Caldwell branch will benefit from her knowledge and skills, as will the team of Kearny Bank employees she’s leading.” A member of the Caldwell Kiwanis and the Tri-County Chamber of Commerce, Corter conducts financial literacy instruction at several area high schools, middle schools and grade schools. In addition, she educates senior citizens in Pompton Lakes about fraud awareness and has participated in several annual food and clothing drives, while also volunteering in support of Habitat for Humanity in Paterson.
Slowikowski Joins Blue Foundry Bank
Blue Foundry Bank, based in Rutherford, N.J., has hired industry veteran Robert Slowikowski as vice president to manage the bank’s commercial real estate lending team. In addition Robert Slowikowski to team oversight, Slowikowski will be responsible for originating and structuring loans, developing relationships and partnerships within Blue Foundry’s footprint and executing strategies to grow the bank’s loan portfolio. “Rob has the leadership proficiency and industry expertise to galvanize our
department of skilled commercial real estate lenders”, said Vincent Micco, EVP/ chief lending officer at Blue Foundry Bank. “I am confident that, under his guidance, our commercial lending team will exceed bank and customer expectations.” Having been in the banking industry for 25 years, and a commercial lending specialist for more than half of that time, Slowikowski brings a breadth of knowledge and experience to his new role. He joins Blue Foundry following tenures at Unity Bank, ConnectOne Bank and Kearny Bank. He held senior level positions at each of these institutions and consistently generated business that surpassed established goals. “I was attracted to Blue Foundry Bank’s innovative, yet personal, approach to serving its commercial customers,” said Slowikowski. “I share Blue Foundry’s roll up your sleeves’ philosophy and look forward to sharing my passion to excel, innovate and serve - so that my team and I can make good things happen for our customers, communities and the bank”. When not creating opportunity through commercial lending, Slowikowski can be found spending time with his wife of 22-years and their four children. Devoted to staying active, he participates in Spartan Races and triathlons, runs 5K races and enjoys skiing.
Spencer Savings Welcomes Vaill as VP, Business Development Team Leader
Spencer Savings Bank recently announced the expansion of its retail banking business team with the addition of a new business development team leader. The bank recently hired vice Richard Vaill president Richard Vaill as business development officer team leader. With over 25 years of experience working in the industry, in both sales and management roles, Vaill will be based in Parsippany and will be responsible for providing deposit and lending solutions, geared to helping businesses grow, to both small and mid-sized companies in the area. He has a strong focus on relationship management, with a background in Escrow and 1031 Exchanges, and has worked with small and middle market clients in a variety
of industries and professions throughout the state. “We are excited to welcome Richard to the Spencer team. He is a dynamic, insightful and experienced business professional with strong leadership skills and strategic planning skills,” says George Celentano, executive and senior vice president of retail banking. Vaill has served as a commissioned officer (major) and logistician in the United States Marine Corps. He was the Marine for Life New Jersey Program director and a Desert Storm veteran. He is a strong advocate for veterans’ transition programs and founder of international LinkedIn group, Jobs for Veterans. He currently resides in Hunterdon County with his wife and children.
Centric Bank Promotes Pavlakovich To Chief Human Resources Officer
Centric Financial Corporation, the parent company of Centric Bank, promoted Christine Pavlakovich, SHRM-SCP, to senior vice president, chief human resources officer, announced Christine Pavlakovich Patricia (Patti) A. Husic, president and CEO. Pavlakovich has been a human resources executive at Centric Bank since 2017. Responsible for the human resources, employee well-being, and workplace environment needs of a 135-person workforce, Pavlakovich’s promotion coincided with the outbreak of COVID-19. The global pandemic has created human resources challenges across every industry, but Pavlakovich serves on the bank’s business continuity team and ensures a continuous flow of health and safety information for employees and their families. “Since the pandemic, Christine and her team are providing more information more frequently and paying even closer attention to mental health awareness and offering stress-reducing and coping strategies to meet the challenges of every work environment,” Husic said. A member of the winning American Banker Most Powerful Women in Banking Top Team for two consecutive years, Pavlakovich has over 26 years’ experience as a human resources professional, 16 years in the financial institution industry, and is certified as a senior-level human resource professional through the Society for Human Resource Management.
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T E C H N OLOGY
Upstarts Covet Your Core They Claim Switching Is Difficult, But Not Impossible B Y G E O RG E YACI K, S P E C I AL TO B A N K I N G MI D AT L A N T I C
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or years, community banks have complained that their core banking technology is being held hostage by the oligopoly held by the Big Four providers – FIS, Fiserv, Jack Henry and Finastra – which they say have failed to update their platforms despite charging high fees and exorbitant contract breakup fees. Now a group of financial technology startups is trying to gain what small market share is left to them by the Big Four, which many in the industry say hold a market share of well over 90% between them. This small group of upstarts includes St. Louisbased Neocova, which has raised about $3 million in capital from community banks, including The Provident Bank in Amesbury, Mass., and Finxact, which last year raised $30 million in funding from the American Bankers Association and a group of banks. But the leader of this small pack of fintechs may be five-year-old NYMBUS, which according to president David Mitchell has helped 12 banks go live with its core banking solution over the past two years – 10 of
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them in 2019 – with another 15 scheduled for this year. According to its website, “financial institutions are having a hard time meeting customer demand due to their dependency on legacy technology solutions that were built to serve a brick and mortar banking model.” David Mitchell NYMBUS’s SmartCore “is a digital-first technology platform that enables financial institutions to offer a customercentric banking experience. The platform unifies all the required banking functions into one system, enabling an omnichannel customer experience with automation and simplification of back-end processes and workflows.” “The core is one of the biggest problems that this industry has,” Mitchell says, echoing comments from many others in the community banking industry. “If a banking customer needs support, it will take six
months and cost $50,000 to get it, because it’s all legacy core provider with newer technology, they often are locked code and it touches everything else – it’s not cordoned into long-term contracts that are expensive to get out of off. With the old cores, if you download a new feature or unless there is a material breach of contract terms, both function, you have to touch everything to make it all talk Mitchell and Silva said. to each other. Consumers want an Amazon and Google “The problem the new core fintechs have is three-fold,” experience when they go to a bank website but these older Silva said. “One, they don’t have the resources to convert technologies don’t allow that.” banks to their systems as fast as banks would sign up. Aaron Silva, president and CEO Two, they lack ‘take-away’ capital to help the banks pay off of Paladin fs in Austin, Texas, the multi-million-dollar termination fees from the legacy which helps community banks find providers. The fintechs don’t have that kind of money. technology providers, says the big Third, the banks are risk-averse. They’re reluctant to sign legacy core providers, as they are up with the fintechs. They don’t want to be first.” known, “have stopped innovating NYMBUS, which was financed with $400 million of because they don’t have to.” He says startup capital, is willing to help banks painlessly switch. they only spend about 4% to 6% of “If they have two years left on their contract, we will their free cash flow on innovation help them buy out their contract,” Mitchell says. “Instead each year, with most of that money of signing a five-year contract, we’ll sign a seven-year Aaron Silva being used to buy fintechs that are deal and give them the first two years for free, so they are innovating. paying their existing vendor but not using them. We can’t Mitchell – who was executive vice president and chief buy out every agreement, but we are happy to do it if we product officer at Open Solutions, which was acquired by can, but they have to understand it’s going to be a longFiserv in 2013, before joining NYMBUS in 2016 – says term partnership.” his company’s core banking offering “was originally built “We think there is such an opportunity to help for media companies for digital marketing. Most of the community banks,” he adds. “It’s a perfect storm of legacy cores were built for banking, and then they tried bad legacy technology, a shrinking number of financial to put CRM and artificial intelligence, all the buzzwords institutions, and the additional threat of non-traditional for marketing and automation, on top of their banking challenger banks popping up every day and gaining market platform. share. Banks are having a hard time fighting for deposits “NYMBUS was built for marketing first, and then and getting new customers because their technology is so we put all the banking workflows on top of it. It’s a outdated.” big differentiator, because our secret sauce is our push marketing capabilities and our robotic automation.” “In addition,” he says, “all the legacy cores were built with middleware, while all the new cores, especially ours, include the API layer, which solves a lot of problems. API, which stands for application programming interface, acts as a bridge between the existing core and new ancillary fintech apps, such as mobile and internet banking. “You can do new releases much faster” as a result, Mitchell says. “Typically, when the legacy cores upgrade, it inevitably breaks something, because their underlying technology is old. We don’t have to touch our core code. Having an API layer that allows for seamless and quick upgrades of features and functions is unique. If you want to offer CRM or bill pay or remote deposit capture, it’s all in a portfolio of apps that you Marketing messages should be personalized can turn on or turn off.” to be truly beneficial and valuable to your While many banks would existing customers. gladly switch to a more nimble ISSUE TWO 2020 | BANKING MID ATLANTIC
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COV E R STORY
What The Future Holds For Banking After COVID-19
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It Could Be A Mixture Of Old and New Practices B Y G E O RG E YACI K, SP E C I AL TO B A N K I N G MI D AT L A N T I C
he coronavirus pandemic has upended the banking business much more so than the 2008 financial crisis. While banks may be in a better financial condition to weather this storm, the current crisis has had a more profound effect on how they operate and how their customers use their services: thousands of branch and call center employees are working from home. Branches are open only during limited operating hours or by appointment, forcing customers to bank online or through their phones. What are the long-term ramifications from the virus on the banking business? Will banking return to normal after the virus runs its course, or will many of these changes remain permanent fixtures? The answers appear to lie in digital banking, more customer engagement, remote work, and maybe most surprisingly, drive-thrus. Digital Banking Top Trend
What does seem to be the case is that several trends that were already ongoing and expected to play out over the next several years have been accelerated over just the past few months, with digital banking being number one. “People who knew about digital services but never took the time to learn are all learning now,” says Barry R. Sloane, chairman, president and CEO of Century Bank in Medford Mass., which describes itself as New England’s largest familyrun bank, with 27 full-service branches. “There has been a gigantic leap forward in the digitization in our industry. It will never look the same again.” “Our annual report for last year came out recently and the cover was on the digital transformation of banking,” he says. “We said it would be a thoughtful, organized, incremental process. Now all of us have been dumped in the digital pool.” “Clearly this almost forced movement of customers out of branches is going to cause a good number of them to be happy with digital channels, and stay on them,” agrees Terence Roche, a partner at Cornerstone Advisors in Scottsdale, Arizona. “People are beginning to
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be much more comfortable doing servicing transactions like remote check deposit and external transfers, and I think they’re slowly becoming more comfortable opening a new account online.” Is Video Banking Next?
“Clearly one thing banks are going to have to talk about is what this does to branch traffic,” he adds. “We have had an event that has forced customers out of branches. I think over the long-term this behavior would have happened anyway – it’s just going to happen a lot faster. What was probably going to happen over three years has been compressed into three months.” James Robert Lay, founder and CEO of the Digital Growth Institute in Houston, agrees that people have been forced into using mobile banking. “But does that mean the mobile app is the be-all and end-all? No,” he says. “People will still have questions. People still want to do business with people. If I was a community bank, I would be figuring out how to use a video communication platform to schedule appointments remotely, so if people want to talk to a banker face to face they can do that. You could remove the fear of a digital-only platform.” Indeed, according to Rutger van Faassen, vice president of consumer lending at Informa Financial Intelligence, while more banking services have moved online because of the virus, that doesn’t mean it will be all digital or nothing. “The current situation is forcing customer segments that prefer to engage with bank through a branch channel to use other channels, like phone, web, mobile, and chat. Once we get through this crisis the key question is if those people will change their preference after their experience with these other channels,” he says. How To Engage
“It also forces employees at financial institutions to think through how to engage and communicate with customers and colleagues through virtual channels and get comfortable with this way of engaging. On the
other hand, it also shows us how important in-person communication is and how not everything can be replaced with remote communications. This crisis is showing how important it is to have multiple options, including digital ones,” said van Faassen. “I think video conferencing could grow because we’re getting so comfortable with it,” Roche said. “But the question for me is, to whatever extent I do video conferencing, I don’t have to do that with a branch employee. I can do that with a bank employee who is anywhere.” Remote Working
That opens two big cans of worms: Permanent remote work and the future of the bank branch. “Banking has traditionally been viewed as a business
that would not accommodate remote work models due to the various regulatory constraints that define how things operate,” notes Michael Carter, executive vice president at Strategic Resource Management in Memphis. “However, it would seem that there is a considerable part of bank and credit union operations that can utilize a remote work model. “Given the occupancy costs associated with commercial real estate, remote work, specifically working from home, may become particularly attractive to organizations across most verticals, including banking. For banking, this shift would have implications for branch density, further accelerating the elimination of branches.” “We are going to see some permanent move to remote employees who were not remote before,” Roche says. “Working from home was something that was coming to banking anyway, but I think it’s really going to accelerate now. I can’t imagine those employees who are working from home now are going to want to go back to the office, at least a couple of days a week. I think what you might see is some kind of grand compromise with a lot of employees about working from home a few days a week.” “Why would people want to come back to the office if they don’t have to?” Lay adds. “We’re not just changing consumer behavior, we’re changing worker behavior. That’s a really hard conversation to have at the management level.” Old-Fashion Banking
Ironically, while the virus has pushed more customers into digital banking, it has also made old-fashioned banking methods fashionable – if not critical – again. Century Bank, for example, had to close half of its branches and rely solely on those that had drive-thrus, Sloan says. “The lowly drive-thru that many in the banking business had given up on has become the principal mechanism to conduct branch banking,” he says. “We have actually closed mortgage loans through the drive-thru drawer. It was kind of a laugh the first few times but now it’s become standard procedure and it works for both sides.” “I think the companies that sold drive-thrus were going into decline, but I suspect they are going to be back-ordered now,” he adds. “In many cases the drive-thrus had been removed and replaced with a drive-thru ATM. I suspect now they’ll be putting the window back.” The crisis will also force banks to rethink their resiliency and redundancy plans compared to how they used to in the past, Sloane says. “We always prepared for hurricanes, floods, fires and anthrax, but nobody really ever thought that you wouldn’t have any people,” he says. “This is an outside-the-box set of problems that we have to address on one level or another. The shutdown of the restaurant, travel and hotel industries all at once was extraordinarily difficult to predict. Certainly, our risk management thinking has to move well beyond how high housing prices are.” ISSUE TWO 2020 | BANKING MID ATLANTIC
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Q& A
Fraud Will Be A ‘Significant Problem’ With SBA’s Paycheck Protection Program Treasury Secretary Mnuchin announced plans to scrutinize the largest recipients of emergency small business loans and indicated potential criminal penalties for big companies that misrepresent their financial situation to secure the money. How prevalent of an issue is fraud with the PPP program? Do you think it will be a major issue?
Terence M. Grugan
Terry Grugan is a whitecollar defense lawyer with the Philadelphia-based law firm. Grugan has represented countless businesses that have been the target of government investigations for fraud. He spoke with Banking Mid Atlantic about the potential fraud and liability associated with the Small Business Administration’s Paycheck Protection Program.
Photo by Bill Oxford on Unsplash
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Based on historical experience with government spending programs, we can expect fraud to be a significant problem with the PPP, as it likely will be with other components of the COVID-19 stimulus bills. Though it is impossible by the very nature of fraud to know with certainty its general scope, experts estimate that anywhere from 3-10% of all government spending is subject to fraud. The PPP will be no different. What will set it apart are two characteristics of it that make it (and the other stimulus spending programs) unique: (1) the speed with which it was enacted and money disbursed under it; and (2) the incredible scrutiny it is and will continue to be under. As to the first characteristic, because the CARES Act was crafted and passed and money disbursed under it so quickly, there are likely features of it that will be exploited that might not otherwise have existed had the legislation been subject to typical legislative scrutiny. In fact, we are seeing this occur already with public companies and other large borrowers who probably were not intended recipients applying for and receiving PPP loans. The legitimacy of those loans will be evaluated according to how “necessary” they were for the recipients to receive. While from a lay standpoint we all may have an idea what “necessary” means, from a legal standpoint and, certainly from a criminal standpoint, which Constitutionally requires real precision, that standard is notably vague. The second feature in many ways relates to the first:
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there has been a great deal of scrutiny over these bills already as we are in the throes of this crisis. Once the crisis has passed and the check comes due for these programs, there will be an additional level of scrutiny both by regulators and the public to ensure these funds went where they were supposed to go. Are only big companies going to be targeted? What do you think the threshold is going to be? How big does a company have to be to grab the government’s attention? The size of a recipient may drive government oversight to some extent, but it won’t be the only determinative factor. Regulators, whether the SBA while auditing loans or the IRS when analyzing corporate tax returns, or other agencies, will be looking for red flags that might indicate fraud. If it appears that a company retained loans while its payroll decreased, the government will likely target that company. If it appears that a company had sufficient liquidity, yet still applied for and received a loan, the government will likely target that company. If there is evidence a company overstated its number of employees in its loan application, the government will likely target that company. These are only examples and we can be sure investigators will look for any indicator that a company took money from the PPP under false pretenses. What type of penalties do you envision against companies that misrepresent their financial situation? If the government believes that a company made misrepresentations to receive a PPP loan, it will not hesitate to pursue criminal charges. While a company itself is a legal entity that can face criminal, civil, and administrative penalties, the individuals running the company who made the
misrepresentations will be charged personally. These are incredibly high-profile programs so prosecutions of fraud under them will be very high profile. The government will be significantly incentivized to bring charges against potential fraudsters. And if the government wins convictions, people will go to jail and people and companies will owe restitution and additional penalties. The SBA and Treasury were notoriously slow with guidance on PPP. Is that a defense? Can people say they were following guidance known when they applied? Or do the rules apply to when the loan comes due and not when it was executed? Fraud occurs when a person commits a deception to get something from someone else. The deception is the fraud, not the receipt of money or property. And fraud prosecutions ultimately come down to intent; when an individual makes a statement, was that statement knowingly false and was
it made for the purpose of deceiving the listener. With that said, the lack of guidance on the PPP initially will certainly be a defense to fraud charges down the line. If Treasury and SBA refine the lending criteria over time, a borrower cannot be said to have lied concerning that criteria if it didn’t exist at the time they made their representations. On the other hand, Treasury and SBA’s guidance is not necessarily changing criteria as much as it is explaining what Treasury and SBA intended when the criteria was initially created, so there will be an element of “should have known” applied to borrowers. At the end of the day, as noted above, potential charges will come down to intent. If someone knowingly lied to receive a loan, that person would not have needed guidance to know that was wrong. It is the instances between outright deception and fully aboveboard borrowing where what exactly the lending criteria is and what borrowers believed it to be at the time they applied for loans will come into play.
Do you think enforcement will vary depending on the U.S. Attorney? Will sum prosecute these cases simply to grab attention? Fraud in the PPP and other stimulus programs will be a Justice Department priority going forward because of the size of these programs and their high profiles. And every U.S. Attorney’s Office will bring cases against PPP fraudsters. The high profile of these cases and the potential or likely political pressure that will come to pursue fraud and recoup as much money from fraudsters as possible might incentivize some United States Attorneys to bring cases. But, mostly, I believe United States Attorneys will bring cases against PPP fraudsters because it is their job to do so. Defrauding the government is a crime. Terence M. Grugan is a member of the Ballard Spahr’s white collar defense/internal investigations, securities enforcement and corporate governance litigation, and antimoney laundering practice groups. He is based in Philadelphia, Pennsylvania.
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E DUCAT I O N
BREAKING DOWN THE SILOS:
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Training Analysts to Code and Programmers to Analyze B Y P RE MA NA ND D HE E NA DAYALAN, S P E C I AL TO B A N K I N G MI D AT L A N T I C
n spite of the COVID-19 environment, artificial intelligence and machine learning are rapidly spreading through the financial services section. With this in mind, it is important for financial institutions to prioritize training for their people, or they will be left behind. The days when programming could be left to the engineers in the IT department are already gone. Some of the best software applications in finance were developed by people outside of IT. They had a problem, and technology was the tool they used to solve it. Take the story of a stock analyst who decided to learn Python—a skill that is becoming a minimum requirement for people at all levels of finance. As he developed his programming skills, he eventually created an artificial intelligence platform used today to buy and sell fixed-income instruments. He had a problem, saw a solution and used technology as a bridge to get him from Point A to Point B. Basic Understanding Of Programming A basic understanding of programming is crucial for analysts to effectively use the tools they have been given, even if they never create an application of their own. Over the past several years, programming literacy has become an increasingly common core requirement sought by job recruiters in the financial industry. Workers
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who do not have this core literacy will soon be outpaced by those who do. Knowing how to create and run a basic query can save time and energy spent on manual research and prevent human errors that work their way into manual processes. Think of it like driving a car. Drivers don’t need to be mechanical engineers, but if they have a basic understanding of how the engine, the transmission and the safety systems work, they will be faster, safer and better drivers. Even the technologically fearful can learn Python, a language so simple it is often taught in elementary schools as an introduction to coding. Reassure employees that artificial intelligence is not some soulless robot coming to take away the vital human element of investment and trading decisions. It is instead the most efficient assistant you can imagine, handling time consuming manual tasks in an instant and providing the research and data points analysts and traders need to do their job. Machine Learning: The Analyst’s Best Friend In markets where data is moving quickly, machine learning platforms are an analyst’s best friend. Machine learning algorithms automatically adjust as the data changes, providing accurate predictions of market behavior and eliminating human foibles like loss aversion
and confirmation bias while still giving humans the space to interpret and act on the data. While the vision for many platforms is for trades to be possible computer to computer, today most machine-assisted trades still require human review of the data and the software’s recommended course of action. Programming can be used in asset management, risk management and trade management. It can automate routine research queries, finding data in seconds that manual research would take hours to put together. Analysts who thought they were doing just fine using Microsoft Excel will be amazed at how much more robust and efficient their financial models can become and how much valuable time they will get back using a more advanced platform.
calculated. If the error causes the program to project too low, the manager might miss an opportunity to invest. If the program projects too high a number, the manager might overinvest and incur an overdraft fee. A large investment could result in overdraft fees up to $40,000. If the programmer understands these potential impacts from the outset, they can carefully design the system to avoid them.
Technology-Driven Environments Programmers who understand how their systems are being used and what could happen if something goes wrong are better equipped to create the kind of robust platforms that can compete in markets increasingly driven by technology. From a worker development standpoint, these professionals are also likely to become loyal employees Cross-Training Bandwagon willing to work hard for a company Big firms including Citi, JP Morgan that gives them opportunities to and Goldman Sachs have already expand their skills and advance their jumped on the cross-training careers. The days when bandwagon, creating internal Imagine if the software developers training curricula to teach computer who created the anti-stall software programming could programming to employees in in the Boeing 737 Max had better be left to the departments outside of IT. This understood what would happen kind of corporate investment is after their software prevented a stall. engineers in the IT important, both to make training The software worked by repeatedly available to workers who want forcing the nose of the plane down, department are to deepen their skills and to a common maneuver to get out of a already gone. demonstrate to the entire company stall. However, investigators said, the that cross training and technical system did not stop quickly enough literacy are corporate priorities. to allow human pilots to recover the In addition to teaching its aircraft’s flight pattern. This error traders how to code, Goldman Sachs launched an initiative has been partially blamed for two deadly plane crashes. several years ago to teach IT gurus how to trade. After all, This year promises to be one of great upheaval in a programmer who understands the needs and goals of a financial markets. The companies who come out ahead will company’s trading system is better positioned to see its undoubtedly be those with the most agile, efficient and weaknesses and innovate new solutions. cross trained work force. When consumers look up their bank balance, sometimes they see a notice that the number “may not reflect the Premanand Dheenadayalan is a highly skilled professional latest balance.” This technical delay is inconvenient to working as an Assistant Vice President with a leading investment individuals. For portfolio managers, however, it could management firm. He has 13+ years’ experience in providing be disastrous. Imagine a technical error occurs while software engineering solutions in the financial services industry. For data projecting the cash balance of a portfolio is being more information, please contact premthecoder@gmail.com
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Ion Bank
Mutual Security Credit Union
Wakefield Co-operative Bank
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ISSUE TWO 2020 | BANKING MID ATLANTIC
BUILDING A BRIGHTER FUTURE FOR BANKING TODAY BANK DESIGN ARCHITECTURE PROJECT MANAGEMENT
