Banking Digital Transformation: Product vs. Ecosystem

Ashley Garrison: All right. Hello everyone. Ashley Garrison here again for week four of the Lending Made Easy podcast at Baker Hill. This week we’re going to be talking about just the vendor partnerships. 

So you’re a bank, you’re a credit union—and, you’re looking for a new, a loan origination system or you’re looking for a new deposit account opening solution. Really, the question here is: Why is it more important to find the right ecosystem for your banking digital transformation than just looking for a vendor or a product?

So, Brian, I’ll let you tee this one-off, but really here, how do we help banks and credit unions understand what type of ecosystem they’re buying and why that’s so important to their purchase?

Bryan Peckinpaugh: Yeah, absolutely Ashley, and one that’s a bit near and dear to my heart. Having worked in this space of financial technology for a lot of years (more than I’d care to admit at this point), it’s one of the most important factors to long-term success with any banking digital transformation software solution. 

We’ve seen shifts in the industry over time—best-in-class versus single provider, you know, all these different ideas, which at their root all come back to the same thing which is we will always need a set of partners to run a bank or credit union. 

You can’t go to one place and get absolutely everything that you want. You’re going to have to have a partner ecosystem and ensure that the ones that you work with work well together are going to be what differentiates a wildly successful from a barely getting by a set of products.

I mean, David, how many times have you seen it where a project gets to the end of the day, you’ve gotten a solution working the last step is integrating it to the stack and either one solution doesn’t have the right set of APIs available, or there’s a prohibitive cost to integrating into it because you’re a quote-unquote competitor. 

How many times have you seen that? Just that relationship between supporting vendors derails a project. 

David Catalano: Yeah. And we’ve actually taken out other competitive vendors because the integration work wasn’t done right. There are two instances I can think of. And it just flat out was not done correctly.

And the level of work required by the bank post-implementation was really high because of the fact that the data was incorrect, and the integrations were not working properly. The boarding wasn’t working, the extract wasn’t working. It’s important that your partners talk to each other and figure out how are we going to connect these things.

How are we going to make our, our joint client happy? The first question I’d have to ask is with these two partners of yours, actually, get in a room together. 

I mean, could you imagine them getting in a room together and actually discussing how they might solve your problem? Because they may be in such competitive positions with each other that that will never ever happen and you should know that before you purchase those two pieces of technology. 

There are lots of situations like that. They’re just not going to talk to each other for one reason, right? 

Bryan Peckinpaugh: Yeah. At this point, it’s a pet peeve of mine related to banking digital transformation. 

The whole concept of open API. Right? You hear it all the time. I’m an open API. I can integrate to anything. Well, you might be, but not everybody is. And just because you have an open API doesn’t mean that it effectively supports what it is you’re trying to do, right? The devil is in the details with this every single time.

And, you know, David, you’re absolutely right. If you’re trying to bring, and sometimes it’s not just two partners together. Sometimes it’s three for a delivery partner. You may have quite a few people that are necessary to make a complete end-to-end process that needs to get together to support you as a financial institution to deliver on that seamless process. And if they can’t, if they won’t, then you’re going to have a disjointed process. 

You’re going to have the workarounds you’re going to have band-aids to keep it running that it’s hard to tease out during the evaluation process because it’s easy to say open API. It’s easy to say oh, I can integrate with that and not know the questions to ask to ensure that these five very specific things I need to run my business are going to be possible.

David Catalano: Yeah—with enough time and money, you can connect anything, right? Well, the reality is you don’t have all the time you need nor all the money, or you prefer not to deploy that much money on this particular banking digital transformation problem.

So understanding that yes, doesn’t always mean, yes, I can connect my solution to anything doesn’t always mean that you have the complete answer, right? So your need to get to the bottom of whatever it is you’re trying to connect together and understand that. We have projects where we work with multiple departments within the core provider.

Your core provider probably provides you with imaging. 

So you’ve got an imaging team, you’ve got a core team. You’ve got to work with these different teams to do an implementation and understanding how those things work to get it right the first time, making sure that there’s communication between those teams is critically important.

And if that’s never happened before, good luck getting that, started as the first institution. 

So, I think the bottom line here is check out who you’re checking out and make sure they’ve got connections into the next partner in the line. So if you’re a lender and you’re buying a loan origination solution, you’ve got a lot of construction lending and you’re looking at draw management software. 

Well, will they talk to each other? Will they work with each other? Are they competitive in any way? Are they at odds with each other or will they talk to each other and facilitate connectivity within your ecosystem? Just an example.

The same thing could be applied to deposit account opening. If you’re going to open up an account, both on the deposit side and the loan side in the same session, those solutions need to talk to each other if you’re going to create an ideal customer experience. 

If they don’t talk to each other or they’ve never talked to each other, you might want to get them talking to see if it’s even possible within your time and budget to facilitate what you’re trying to accomplish with your banking digital transformation. 

One might be really whizzbang, but if it can’t talk to the other one, then that’s not going to help you. Because you’re trying to create this customer experience and it’s predicated on of your tech stack talking to each other and, you know, people that are really, really good at lending don’t necessarily spend a whole lot of time at deposit account opening.

It’s a whole different animal, right? That’s a whole different set of regulatory requirements, docs, et cetera, instead of connectivity. There’s a user experience you need to focus on. 

People that are focused on commercial lending, most of their focus is on the employee experience in facilitating their work, because that’s what the heaviest lift is. It’s not the front end for the commercial borrower. Commercial borrowers aren’t doing a lot in the transactions. It’s the employees. 

So just understanding all the different players and what you’re trying to put together and making sure that it’s architected appropriately is kind of the key to our segment today. It’s all about picking the right commercial lending partners. 

Ashley Garrison: The other thing I would say is, if you find the right product today, you want something that’s going to grow with you, right? You want something where you’re buying a solution today where either there’s a plan to evolve, there’s a plan to enhance it, or there are other solutions within the platform itself where you can grow. So any thoughts on that digital journey that a bank might be going through? 

Bryan Peckinpaugh: Absolutely. And I think that’s an important idea, Ashley, because we’ve kind of grown accustomed in this space to talking about things like minimum viable product. We look at phased project deployments and it’s easy to lose sight when you’re in an evaluation of what I really want my end state to be and what’s important in that end state. 

I’ve seen it where people get talked off of integrations in the first iteration and thus it’s kind of out of sight out of mind and I don’t realize I have a problem until I get there. And, and not knowing that, oh, I’m going to have extra costs because the vendor told me that they’ve integrated with this solution before, but I’m not able to reuse any of that. It’s still a custom integration and I have a check to write for hundreds of thousands of dollars.

I’m going to steal this from a client of ours, rather than talking about minimum viable product, they actually talk about minimum consumable product meaning what is the minimum set of things I have to have that it’s something that my constituency will consider and that may include some integrations. 

There may be table stakes. I may be coming off a system that allowed me to fully board a loan to the core at the end of the process. Well, a minimum consumable replacement would have the exact same functionality and I can’t be dissuade from that as part of my project plan.

That’s what I’m coming from. I would rather see a shift to that consumable idea because now the banks and credit unions can talk about what do they have today, what’s must have for a current state and then grow from there. It is important to figure all of those things out upfront. The last thing you want to do is get caught with unbudgeted expense in banking digital transformation. 

Once you move past an initial phase, it’s all well and good to try to move fast and try to get a small solution in place to get started. But what does that mean to my total cost of ownership? Am I missing big gaps down the road because I’m not considering my overall ecosystem? You need to make sure you hold vendors accountable, hold us to task. 

When you’re putting together the longterm roadmap and understand it’s not enough to say that, oh, I’ve integrated with that before, because it may have been for a wildly different concept.

I may have integrated with product X in the past, but it was only to pull a data extract from them. And that was my integration. Well, if your need is to push data to that digital lending platform, my experience with that other partner means nothing in this equation. So being specific, understanding what are those needs, what are those pushes and pulls?

You know, David mentioned it that integration of any two things is possible. It’s just at what cost and is it relevant from a business perspective? I always use the example of we have our workflow solution integrated to turn your coffee pot on in the morning, but nobody’s going to want to pay for that. 

It doesn’t bring business value. But getting all of those things out on the table, even if it is turning the coffee pot on, if that’s important to you, you need to make sure you understand exactly how the vendors are going to do that. And that it’s a compliant coffee manufacturer may be Keurig’s not the answer, I don’t know.

Ashley Garrison: Awesome. Any final thoughts from you David on this particular topic?

David Catalano: Yeah, I mean, many of the community banks that we see every day haven’t gone through a banking digital transformation and are using a fairly manual process. 

They may have some solutions with respect to commercial lending or small business lending, but they’re point solutions, meaning they’re not connected to anything else or much else. 

So moving to a platform where you’ve got lots and lots of automation is appealing, but can be daunting. The idea there that you’re talking about, which is being able to expand your digital lending technology as you expand or move yourself up the learning curve is critically important to be thinking about as you’re selecting technology.

So, what you’re going to automate today is likely not going to be the same as what you’re going to automate in three years or four years or five years. And what you don’t want to do is have to replace your digital lending platform because what you purchased won’t grow with you. The paper and pen that you’re using, the Excel spreadsheet, the SharePoint, the Word documents, those are not growing.

As you decide to go more digital with more automation, those are examples of technologies that work really, really well until they don’t. And then they will not grow with you any further, an isolated doc prep solution that all you do is prep docs with that’s not going to grow. 

So, as you think about the digital experience for your employees, which is the critical component for a community bank that does commercial lending, if you think about that, what level of automation ultimately will you get to? 

You aren’t going to get there today if you’re using the toolkit I just mentioned, but you need to be able to contemplate that as you think about growing and moving up that digital experience curve. And the digital experience curve just starts with pen and paper on the left and full automation on the right. And as you move up that curve, you increase the levels of automation, yourself, preferably with a configurable approach. But that’s possible, but only as you become more and more accustomed to it. 

The day your analyst built his spreadsheet, it wasn’t as good as it is today, right? It evolved over time. The same thing is going to happen with your loan processing platform. It will evolve over time with more and more automation. You don’t start day one with pivot tables, do you Bryan?

Bryan Peckinpaugh: It’d be awfully difficult.

David Catalano: But eventually you figure out how to build a pivot table in Excel. And it’s like, wow, that’s really cool. And if ...

Ashley Garrison: And, we all read the Toyota way, I’m sure.

And so one of the things, the key concept is Kaizen or Kaizan, depending on how you pronounce it, but the idea is continuous improvement, right? So you need a solution. Ultimately, that’s going to continue to iterate as you grow because the companies that stand still are the ones that are going to get left behind in this digital age, for sure.

So, great talk about banking digital transformation, as always. I’m sure we’ll have a great episode next week. Thanks for tuning in.