The Year in Banking

THE YEAR IN BANKING

Here are the milestones and missteps, the wonderful and weird, the best and worst, during a year that will be a powerful force in shaping the future of the industry

0C1_ABM1220.indd 1 11/12/20 11:46 AM Diverse voices. Dynamic ideas. Leaders curates perspectives and insights from industry-shaping experts who have encountered challenges and change ﬁ rsthand. Hear their stories, strategies and analysis — and gain from their experience.

Diversity & Inclusion Disruption & Innovation Automation & AI Policy & Regulation The Future of Money The Future of the Workplace

REALIZING GROWTH BY HOW STARTUPS CHANGING CUSTOMER CAN SURVIVE THE BEHAVIOR PANDEMIC Lou Anne Alexander Jonathan Stein Chief Product Ofﬁ cer, CEO, Early Warning Betterment

Join the conversati on at americanbanker.com/leaders

Leaders0C2_ABM1120 House Ad_WIB2020.indd 2 2 11/12/20209/17/20 9:53:41 12:16 PMAM Contents December 2020 | VOL. 130 | NO. 12

Briefings 3 Consumer credit proves resilient for now 10 The remarkably strong loan repayment rates by U.S. consumers during the first seven months of the pandemic could be a harbinger of durability or the prelude to a collapse

4 Are search funds a good business? One community bank aims to find out, in an example of a trend where more banks are exploring narrow niches in the search for revenue

5 Two rescue programs, one fine mess Businesses that received Paycheck Protection Program loans and Economic Injury Disaster advances discovered later they couldn’t get full forgiveness; lenders want the rules changed

BankTechnology 7 HR turns to AI, just a little Cover Story 17 With help from a growing crop of fintechs, some financial institutions are experimenting with What will replace Libor? using artificial intelligence to strip the bias out 10 of recruiting and hiring. Experts say these tech 18 tools have limits The year in banking Reversing an ‘outrageous’ refi fee Here are 20 things we’ll remember about 2020 9 — the milestones and missteps, the wonderful 18 Cash as carrot and weird, the best and worst in banking during Care for employees? Show it The fintech formed by LendingClub founder a year that will be an unusually powerful force Renaud Laplanche, has rolled out a card in shaping the future of the industry rewards program that will give customers cash 19 back when they pay down their debt, rather Pandemic puts M&A on pause than when they spend

12 19 9 Fed uses its entire toolkit … Billions committed to equality A bigger bet on the blockchain business JPMorgan Chase rebranded its Interbank 12 20 Information Network, launched several new … But one initiative falls short Diversity in leadership prioritized blockchain products and formed a unit to oversee its multiple blockchain-related ventures 13 21 OCC’s revamp of CRA advances Square’s bank charter approved BankThink 13 22 24 Climate stress-testing gets real Mad rush to help small businesses Small banks’ cognitive disconnect Entrenched confirmation bias is at work among 14 22 many community bankers when it comes to customers’ growing preference for digital-first A thick glass ceiling finally breaks Mark Cuban, meet Jill Castilla engagement, Bob Meara of Celent writes 15 22 Louder calls for postal banking A drive-through banking revival BackPorch 16 23 25 Quotes from former National Economic Council Challenger banks are contenders The great coin shortage Director Gary Cohn, the New York Fed’s Denise 17 23 Scott, Citigroup’s Jane Fraser, and more ‘Buy now, pay later’ takes off New FDIC logo is a no-go

americanbanker.com December 2020 American Banker 1

001_ABM1220_001 1 11/12/2020 11:54:27 AM Volume 130, No. 12 What’s going on american banker.com Editor’s View Executive Editor Bonnie McGeer Senior Designer Nick Perkins @americanbanker.com Contributors Joe Adler, Laura Alix, Kate Berry, Penny Crosman, Miriam Cross, Paul Davis, Jim Dobbs, Neil Haggerty, John Heltman, Alan Kline, Allissa Kline, Hannah Lang, Aaron Passman, Brendan Pedersen, Jon Prior, John Reosti, Jackie Stewart, Kevin Wack www.americanbanker.com

Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 Phone 212-803-8200

Editor in Chief Alan Kline 571-403-3846 Managing Editor Dean Anason 770-621-9935 Executive Editor Bonnie McGeer 212-803-8430 Technology Editor Penny Crosman 212-803-8673 Washington Bureau Chief Joe Adler 571-403-3832 BankThink Editor Rachel Witkowski 571-403-3857 Community Banking Editor Paul Davis 336-852-9496 Contributing Editor Daniel Wolfe 212-803-8397 Digital Managing Editor Christopher Wood 212-803-8437 Copy Editor Neil Cassidy 212-803-8440 Reporters/Producers Laura Alix 860-836-5431 Kate Berry 562-434-5432 Miriam Cross 571-403-3834 Jim Dobbs 605-310-7780 Neil Haggerty 571-403-3837 John Heltman 571-403-3847 Allissa Kline 716-243-2679 Hannah Lang 571-403-3855 Brendan Pedersen 571-403-3878 Jon Prior 214-629-5894 John Reosti 571-403-3864 Gary Siegel 212-803-1560 Jackie Stewart 571-403-3852 Kevin Wack 626-486-2341 MOST READ MOST SHARED

Executive Director, Brand Studio Michael Chu 212-803-8313

ADVERTISING VP, Media Sales Brad Bava 212-803-8829 Midwest/Southwest Shelly Schmeling 312-932-9392 West Sara Culley 831-438-8408 Midatlantic/Southeast David Cleworth 843-640-3713 Bloomberg News Senior Marketing Manager First Citizens to buy CIT Group Regulatory troubles for USAA Jamie Billington 212-803-6099 Group Director Custom Marketing Solutions The $2.2 billion deal would create the An $85 million penalty and a “needs Virginia Wiese 704-987-3224 19th largest bank in the country, with to improve” rating on its Community Customer Service/Subscriptions $110 billion of assets. First Citizens’ Reinvestment Act exam were tied [email protected] 212-803-8500 Frank Holding Jr. would keep his chair- to alleged violations of the Military Licensing and Reuse of Content: Contact our official man and CEO titles, with CIT’s Ellen Lending Act and Servicemembers Civil partner, Wright’s Media, for more information about available usages, license and reprint fees, and award seal Alemany, shown here, as vice chair. Relief Act at USAA. artwork at [email protected] or (877) 652-5295. Please note that Wright’s Media is the only authorized company that we’ve partnered with for Arizent materials.

American Banker (ISSN 2162-3198) Vol. 130 No. 12, is published monthly by Arizent, One State Street Plaza, 27th Floor New York, NY 10004. CHIEF EXECUTIVE OFFICER ��Gemma Postlethwaite Subscription price: $149 per year in the U.S.; $229 per year for all other countries. Periodical postage paid at New York, NY and additional CHIEF FINANCIAL OFFICER ��Debra Mason U.S. mailing offices. POSTMASTER: send all address changes to American Banker, One State Street Plaza, New York, NY 10004. For subscriptions, renewals, address changes and delivery service issues contact our Customer Service department at (212) 803-8500 or CHIEF STRATEGY OFFICER ��Jeff Mancini email: [email protected]. Send editorial inquires and manuscripts to American Banker, One State Street Plaza, 27th Floor, New York, NY 10004. This publication is designed to provide accurate and authoritative information regarding the subject matter CHIEF CONTENT OFFICER ��David Evans covered. It is sold with the understanding that the publisher is not engaged in rendering financial, legal, accounting, tax or other professional service. American Banker is a registered trademark used herein under license. ©2020 Arizent and American Banker. CHIEF PEOPLE OFFICER ��Lee Gavin All rights reserved.www.americanbanker.com.

2 American Banker December 2020

002_ABM1220 2 11/11/2020 2:46:05 PM Briefings CONSUMER LENDING | GROWTH STRATEGIES | SMALL BUSINESSES

Will consumer credit hold up? Payments to auto lenders and credit card issuers have remained strong despite a spike in unemployment. ‘It almost feels too good to be true,’ an analyst says

By Kevin Wack

The remarkably strong loan repayment layoffs in December, January and reduction is due to lower loan volumes, rates by U.S. consumers during the first February, then start watching payment since both lenders and borrowers have seven months of the pandemic could be rates very closely,” warned John Hecht, become more cautious, but much of it a harbinger of continuing durability, or an analyst at Jefferies. is due to improved payment trends, they could be the prelude to a collapse. Hecht, who has been covering the which have persisted this fall even after Under one plausible scenario, consumer finance industry for about 20 temporary forbearance offers expired. Congress passes a stimulus package years, has been shocked by how well Wall Street analysts point to a range early next year, which shores up the the sector has performed this year, of factors that have contributed to the finances of unemployed Americans until given the steep rise in unemployment. surprisingly strong loan performance a COVID-19 vaccine is widely available. Historically, defaults on consumer loans not only in the credit card business, but In the bleaker forecast, a cold-weather have tracked closely with joblessness. also in auto lending. The list includes spike in coronavirus cases leads to Delinquent loans at five large U.S. the expanded unemployment benefits another sharp decline in U.S. economic credit card issuers were down by that were part of the federal rescue activity, and ongoing political gridlock roughly 40% in the third quarter, legislation, the $1,200 checks that went prevents a repeat of the rescue that compared with the same period a year to most Americans, the decline in Washington provided in March 2020. earlier, according to an analysis by consumer spending during lockdowns “If you see a wave of white-collar Autonomous Research. Some of that and the fact that deferrals of mortgage

americanbanker.com December 2020 American Banker 3

003_ABM1220 3 11/11/2020 3:35:32 PM Briefings

payments have allowed many consum- were at least 30 days past due was tration lending platform, and it has ers to keep paying their other bills. 40% lower than it had been a year In search done search fund lending since 2017. On average, Americans used more earlier. The firm’s loss allowance grew Those efforts often require hiring the than 70% of the proceeds from their by just 4% between June and October. of revenue right person to oversee an expansion. Small Florida bank finds a new stimulus checks either to pay down debt Other consumer lenders are also in a Professional brought in Duprey, who business niche in ‘search funds’ or to save, according to research by the holding pattern after large reserve spent nearly seven years as director of Federal Reserve Bank of New York. builds earlier this year. Across the credit Professional Holding in Coral Gables, Provident’s Search Fund Lending But it remains to be seen if people card industry, issuers have established Fla., is taking the road less traveled as it Center, where he helped finance $250 out of work can keep meeting their debt reserves that assume loss rates will looks to add revenue in the midst of the million on more than 60 acquisitions. obligations. The JPMorgan Chase nearly double over the next 18 months, pandemic. Duprey said he was impressed by Institute’s research showed that the according to Sanjay Sakhrani, a Keefe, The $2.1 billion-asset parent of Professional’s digital platform and unemployed roughly doubled their liquid Bruyette & Woods analyst. Sakhrani Professional Bank plans to open a loan Sheehan’s grasp of the business. “I liked savings between March and July, while wrote in a Nov. 2 research note that production office in Bedford, N.H., an the fact Dan was in tune with the getting $600 a week in supplemental issuers’ assumptions are conservative, hour north of Boston, to target search community, so I wasn’t trying to explain benefits, but then spent two-thirds of though he acknowledged questions funds, where an aspiring chief executive, what search funds were,” Duprey said. that new savings in August. “Eventually, about additional government stimulus often a recent business school graduate, Sheehan, who sees Professional without further government support or spending, white-collar unemployment identifies and buys an existing business. emerging as an “active capital provider” significant labor market improvements, trends and the spread of the virus. Professional entered the Boston in the search fund community, declined jobless workers may exhaust their The credit outlook for 2021 may be market after hiring Zach Duprey, who to disclose any lending targets. accumulated savings buffer, leaving rosier for auto lenders than for card had worked previously at Provident Search funds were pioneered in the them with a choice to further cut issuers. The pandemic has led to Bancorp in Amesbury, Mass. The South mid-1980s by Irving Grousbeck, a cable spending or fall behind on debt or rent changes in transportation patterns that Florida bank had been looking to enter television executive. He later taught at payments,” the authors wrote. are benefiting the car industry and search fund lending for over a year. the Harvard and Stanford business Hecht expressed little confidence in figure to be at least somewhat endur- Duprey’s “track record in the space schools, which became incubators for his own ability to predict how strong ing. The use of both public transit and was a big part of making the move to the industry. The way traditional search U.S. consumer credit performance will apps like Uber and Lyft has declined get into this,” said Daniel Sheehan, funds work, a newly graduated profes- be a year from now. Normally he would sharply amid fears about the virus. Professional’s chairman and CEO, sional will assemble an investor group, establish a 12-to-18-month stock price One result has been unusually strong who first learned of search funds often including professors and other target for the lenders he covers, but he demand for used cars, which has from a friend who actively invests in academics. The goal is to raise capital, is now only trying to look out three to boosted vehicle prices and reduced the early-stage companies. identify and buy a small business where six months. “I feel like that might be as size of losses that lenders take when “You’ve got to have a team with the the graduate becomes CEO. Members good a visibility as we have,” Hecht said. they repossess vehicles. In mid-October, reputational capital inside the ecosys- of the investor group join the board to Executives at various consumer the used-car value index from Manheim tem to generate deal flow,” Sheehan provide counsel and oversight. lenders expressed similar sentiments was 16.7% higher than a year earlier. said. “I’ve been kicking around the idea Variants of that model have devel- during third-quarter earnings calls. Ally Financial, the Detroit-based of different ways to enter the market, oped in recent years, including some “There’s a tremendous amount of auto lender, established a $3.25 billion figuring out the right entry point.” where the prospective CEO largely uncertainty ahead, including whether allowance for credit losses at the end of Professional joins a list of banks self-funds a deal, often relying on SBA further stimulus measures will be March, up from $1.26 billion just three entering or expanding into narrow loans. Deep academic and investor enacted,” said Brian Wenzel, the chief months earlier. But since then its niches at a time when traditional involvement is a common thread. financial officer at Synchrony Financial. allowance has grown only by about businesses have become overcrowded “Obviously, that gives a young CEO a Synchrony, which specializes in $130 million. Charged-off loans at Ally and lending opportunities have become support system and a better chance of store-branded credit cards, added $4.2 were down by more than 50% in the scarcer. BOK Financial is providing success,” Duprey said. billion to its allowance for credit losses third quarter compared with the same financing to private investors looking to Search fund lending requires during the first half of 2020, a 64% period a year earlier. buy senior housing facilities from real extensive due diligence on the part of increase, as the Stamford, Conn.-based “Until now, the performance has estate investment trusts. Live Oak the lender to reduce risk. company anticipated a spike in losses. been shockingly good,” said Brian Bancshares in Wilmington, N.C., is “These are asset-light transactions,” But during the third quarter, the Foran, an analyst at Autonomous. “It constantly evaluating niche industries said Lisa Forrest, a director of sponsor percentage of Synchrony loans that almost feels too good to be true.” as part of its Small Business Adminis- finance at the $8 billion-asset Live Oak.

4 American Banker December 2020 americanbanker.com

004_ABM1220 4 11/11/2020 3:35:32 PM tration lending platform, and it has “You have to be very comfortable these young entrepreneurs in a In search done search fund lending since 2017. and competent with cash-flow lending,” leveraged buyout deal?’ Most are going Those efforts often require hiring the Forrest added. “It’s important we get to to think you’re crazy.” of revenue right person to oversee an expansion. spend some time and actually get to Counterintuitive moves are common- Small Florida bank finds a new Professional brought in Duprey, who know [a potential CEO] before we have place for Professional. The company business niche in ‘search funds’ spent nearly seven years as director of a deal on the table. The investor and raised eyebrows in May 2019 when it Professional Holding in Coral Gables, Provident’s Search Fund Lending director sides are also critical.” was revealed that it made a loan to Fla., is taking the road less traveled as it Center, where he helped finance $250 Lenders’ risk is mitigated by the over- President Trump. In November 2018, looks to add revenue in the midst of the million on more than 60 acquisitions. sight provided by the boards of search Professional opened a digital lab in pandemic. Duprey said he was impressed by fund companies, said Chuck Withee, Cleveland to enhance its virtual The $2.1 billion-asset parent of Professional’s digital platform and president and chief lending officer at banking platform. It acquired crosstown Professional Bank plans to open a loan Sheehan’s grasp of the business. “I liked Provident, which continues to operate rival Marquis Bank in March. production office in Bedford, N.H., an the fact Dan was in tune with the in that space. Withee said Provident The company is currently working hour north of Boston, to target search community, so I wasn’t trying to explain has built a strong team to evaluate and through a problem with a loan it shares funds, where an aspiring chief executive, what search funds were,” Duprey said. underwrite deals. with other banks, including Amerant often a recent business school graduate, Sheehan, who sees Professional “We were three years into it when we Bancorp, for Coex Coffee International, identifies and buys an existing business. emerging as an “active capital provider” launched nationally. We got our sea which is going through an orderly Professional entered the Boston in the search fund community, declined legs,” Withee added. “I would advise liquidation. Professional recorded a $7.6 market after hiring Zach Duprey, who to disclose any lending targets. any peer if they’re exploring [search million impairment in the third quarter had worked previously at Provident Search funds were pioneered in the funds] to take their time, do it right, tied to its share of the loan. Bancorp in Amesbury, Mass. The South mid-1980s by Irving Grousbeck, a cable study, talk to their regulators. If you do While the search fund sector is small Florida bank had been looking to enter television executive. He later taught at it right, it’s great lending.” in absolute terms, it is growing. Withee search fund lending for over a year. the Harvard and Stanford business A total of 88 traditional search funds said deal flow has increased over the Duprey’s “track record in the space schools, which became incubators for were launched in 2018 and 2019, nearly seven years Provident has been was a big part of making the move to the industry. The way traditional search including a record 51 last year, accord- active, and Endresen said she expects get into this,” said Daniel Sheehan, funds work, a newly graduated profes- ing to an August 2020 study published the growth highlighted in the Stanford Professional’s chairman and CEO, sional will assemble an investor group, by Stanford University. Of deals struck study to continue. “Macroeconomics who first learned of search funds often including professors and other during those two years, the median don’t just suggest, it sort of screams from a friend who actively invests in academics. The goal is to raise capital, revenue of targeted businesses was $6.7 that [search funds are] a great place to early-stage companies. identify and buy a small business where million, while the median acquisition be,” Endresen said. “There’s more supply “You’ve got to have a team with the the graduate becomes CEO. Members price was $10 million. The aggregate of businesses that need to change reputational capital inside the ecosys- of the investor group join the board to pretax internal rate of return on search hands than there are qualified people tem to generate deal flow,” Sheehan provide counsel and oversight. fund deals has topped 30% over the to take them over.” — John Reosti said. “I’ve been kicking around the idea Variants of that model have devel- past three decades, the study found. of different ways to enter the market, oped in recent years, including some Most of the capital raised for search figuring out the right entry point.” where the prospective CEO largely fund acquisitions comes from private An SOS on Professional joins a list of banks self-funds a deal, often relying on SBA sources. Only a handful of banks have entering or expanding into narrow loans. Deep academic and investor been involved, including Provident, Live rescue efforts niches at a time when traditional involvement is a common thread. Oak — and now Professional. Bankers ask Congress to clean businesses have become overcrowded “Obviously, that gives a young CEO a “There’s a group of maybe 200 to up PPP loan forgiveness mess and lending opportunities have become support system and a better chance of 300 people that are serial investors” in Banks are urging Congress to address scarcer. BOK Financial is providing success,” Duprey said. search fund acquisitions, said Heather more confusion about the Paycheck financing to private investors looking to Search fund lending requires Endresen, another director of sponsor Protection Program, this time as it buy senior housing facilities from real extensive due diligence on the part of finance at Live Oak. relates to the impact of another estate investment trusts. Live Oak the lender to reduce risk. “A traditional bank credit person coronavirus relief initiative. Bancshares in Wilmington, N.C., is “These are asset-light transactions,” might perceive this as very high risk,” As lenders process PPP forgiveness constantly evaluating niche industries said Lisa Forrest, a director of sponsor Endresen said. “You take a smaller bank applications, they are being hit with the as part of its Small Business Adminis- finance at the $8 billion-asset Live Oak. and say, `’How would you like to lend to surprise that a certain amount of PPP

americanbanker.com December 2020 American Banker 5

005_ABM1220 5 11/11/2020 3:35:33 PM Briefings

loans cannot be forgiven if a borrower up to 500 employees, and established ate to stay afloat that they applied for also sought aid from the Small Business the EIDL advances that totaled $20 any assistance available, she said. Administration’s pre-existing Economic billion. Borrowers could seek an “Most small businesses owners I know Injury Disaster Loans program. advance totaling $1,000 per employee, are just doing anything they can to stay In addition to establishing the PPP, up to $10,000. alive during this time,” Rosenfeld said. the Coronavirus Aid, Relief, and “The advance is where people got “So they are going to take that paper Economic Security Act allowed the SBA confused, because if you applied for the and they are going to sign it and they to provide up to $10,000 of a borrower’s EIDL program, you will get an emergen- are not going to read the details of it.” EIDL financing upfront as a grant. cy advance and anybody who applied But borrowers aren’t the only ones However, borrowers receiving the under the CARES Act, regardless of dealing with the burden of an unex- advance must have it deducted from whether you get approved or not, you pected loan of up to $10,000 that they their PPP forgiveness and converted to get this emergency advance and it was must pay back. Banks are now dealing a loan payable to the PPP lender. up to $10,000,” said Margaret Rosen- with an influx of new unforgivable loans While SBA says this policy was feld, a partner at K&L Gates. “That on their books that were originally clearly communicated through guid- advance never has to be paid back … administered by the SBA. ance, banks say they had no clue if a except if you also got a PPP. If you got “The PPP lending banks are scratch- PPP borrower also had an EIDL a PPP, that advance gets rolled into the ing their heads, saying, ‘Wait a minute, advance. The SBA clarified the restric- calculation for forgiveness under that.” why do I have an EIDL loan now on my tions in an interim rule in June and Because the PPP program was books for up to five years?’ ” said Merski. updated guidelines in August, but that administered through banks and the “And some of them are rather small, it was well after banks started receiving a EIDL program was administered by the could be $1,000 that the bank has to flood of PPP applications. The CARES SBA, banks say they weren’t able to service for the next five years. It’s kind Act was enacted in March. alert their borrowers that the EIDL of a hot mess and probably over a “What’s happening is the amount of advances would be deducted from the million of these situations exist.” forgiveness on PPP is reduced and amount of the PPP loan that could be Wilcox said that his bank has on its basically the SBA is putting the amount forgiven because they didn’t know books between $140,000 and $150,000 of the EIDL [advance] that they whether businesses were participating in unforgivable loans from the PPP and originated directly with the borrower in both programs. EIDL programs as of now. onto my balance sheet,” said Noah “The PPP lenders had no idea if the “This is the SBA’s $20 billion problem, Wilcox, chairman of the Independent borrower had an EIDL loan or would get not mine, but I’m the messenger, and I Community Bankers of America and an EIDL loan in the future. They are don’t think that’s a fair position to put chief executive of the $278 million-asset operating kind of blind, independently community banks in,” he said. Grand Rapids State Bank in Minnesota. of each other,” said Paul Merski, group The ICBA, the American Bankers “It doesn’t make any sense.” executive vice president for congressio- Association and other banking and Sen. Ben Cardin, D-Md., the ranking nal relations and strategy at the ICBA. small-business trade groups have urged member of the Senate Small Business Confusion over the impact of EIDL the House and Senate small business Committee, has drafted legislation to advances is yet another complaint by committees to address the issues with repeal the requirement that SBA deduct banks about the PPP forgiveness EIDL advances getting deducted from the amount of any EIDL advance from process. The industry has previously the PPP forgiveness calculation, saying a borrower’s PPP forgiveness amount. raised concerns about the lag time it that bankers are dealing with confused Banks are also urging the SBA to halt takes SBA to approve forgiveness for borrowers who feel deceived. implementing the requirement to avoid borrowers and has long sought They are asking Congress to either the financial shock for small businesses legislative fixes to make the forgiveness allocate leftover PPP funds that have not already reeling from the pandemic. application simpler. been distributed yet to cover the EIDL The EIDL program was originally Borrowers have also missed certain advances so that borrowers don’t have authorized under the Small Business details about the rules for forgiveness of to pay them back, or to remove residual Act. The CARES Act expanded eligibility PPP and EIDL advances, Rosenfeld said. EIDL balances from banks’ books and to allow EIDL loans for businesses with Most small businesses were so desper- return them to the SBA. — Neil Haggerty

6 American Banker December 2020

006_ABM1220 6 11/11/2020 3:35:34 PM Bank Technology

Can AI eliminate bias in hiring? Companies such as eFinancialCareers and Paradox work with banks to assess job applicants based on skills. But the technology has its limits

By Miriam Cross

BOK Financial has spent the last few inclusion and unconscious bias. In January, BOK deployed a conver- years refining its recruitment strategy. Now, the $45.6 billion-asset company sational artificial intelligence assistant One motivation is to diversify its is using technology to smooth out the from the recruiting software company employee base. application process and give it a Paradox. The assistant, named Olivia The Tulsa, Okla., company has competitive edge among job seekers. after the Paradox founder’s wife, is on updated job descriptions to remove BOK is one of several financial the BOK careers homepage, ready to language that has a gender bias and institutions that have turned to recommend open positions and help revamped its interview process to be technology-driven recruitment and job seekers complete applications. more structured. assessment tools in recent years. Some Paradox’s interview scheduling module It also enhanced its training: In 2016, of these tools are expressly designed to integrates with Microsoft Outlook every recruiter completed a Certified diversify hiring decisions. Others are calendars to automatically arrange Diversity and Inclusion Recruiter designed to eliminate any type of bias interviews. One plus of initially screen- training program run by AIRS, a division by highlighting skills over factors that ing candidates using Olivia, according of payroll company ADP. BOK rolled out could suggest age, gender or race, such to Paradox, is that the assistant can its own six-month diversity and as name and location. But the technol- prequalify candidates without inten- inclusion accreditation program last ogy has its limits and is no replacement tional or subconscious judging of year, which focuses on understanding for human decision-making, experts say. names or other background details.

americanbanker.com December 2020 American Banker 7

007_ABM1220 7 11/11/2020 3:37:13 PM Bank Technology

company tests them against reference Roxanna Maciel, director of talent and common networks in decisions, and details that wouldn’t normally groups to ensure they meet legal acquisition and attraction at BOK, likes said Rieke. Technology that focuses on appear on a resume, such as whether standards of fairness, such as recom- that Olivia can answer questions at any skills and job-related factors can help an applicant can work certain hours. mending a mix of women and men. time of day or on the weekends. She remove those barriers. Citizens Financial Group in Provi- On its careers site, JPMorgan Chase reports that customer feedback has EFinancialCareers is a global careers dence, R.I., and Desert Financial Credit mentions that it will invite prospects to been excellent so far. But, “we remain site that connects financial services Union in Phoenix, are among the play the Pymetrics games after very selective with what we hand off to professionals with recruiters, and counts financial institutions that use Paradox reviewing their applications. artificial intelligence,” she said. HSBC, JPMorgan Chase, Morgan on their careers sites — though with Rieke is cautious about vendors that Paradox is one vendor that employs Stanley and Wells Fargo among its different nicknames for the assistant. model their assessments on an existing artificial intelligence or other forms of clients. When recruiters search its pool of candidates, because gender technology to try to strip racial, ethnic, marketplace for candidates, they won’t Beyond the resume and racial biases may already be gender and other biases from the necessarily find names on the resumes. Other vendors have emerged in the last embedded in the workplace. He said recruiting and hiring process, which can (Site users can choose whether to reveal few years that use machine learning to companies that use this approach creep in through people’s names, names in search results.) train assessment models and strip out should ask, “Is the existing population addresses and other background The site uses AI and predictive bias. Pymetrics is one such platform of employees or recruits representative details. Others include Pymetrics, which analytics for a process it calls “candi- that has 15 clients in financial services, of where we want to be as a company?” builds assessment tools that focus on date match,” where it connects skills including nine in the United States. Polli’s response is that the behavioral candidates’ soft skills, and eFinancial- and requirements from a job posting to Early in the application process, data Pymetrics collects is largely Careers, which, like Paradox, helps an application and indicates to candidates will be assigned 12 to 16 unbiased, because memory, altruism, screen prospects or match them with recruiters how closely a candidate online games that evaluate their decision-making and other traits don’t recruiters based on their qualifications matches their desired qualifications. cognitive and emotional attributes and, differ across gender or ethnicity. The rather than their personal information. Art Zeile, the chief executive of sometimes, numerical and logical company also tests every model to These vendors all count financial eFinancialCareers, which is based near reasoning. To test memory, one game make sure different genders and ethnic institutions among their clients. Still, Denver, said these decisions are quickly flashes a series of numbers on groups aren’t receiving different scores. while technology can help speed up important because they eliminate the screen and asks users to retype the At BOK, Maciel said the company certain processes and emphasize skills unconscious biases that may seep in. sequences. Another game rewards users will test some of its processes with AI over less meaningful data, human “The process has nothing to do with with escalating sums of money to pump and look for areas of improvement. oversight is still vital in recruiting, where they are from or the nature of balloons as large as they can before “AI seems promising for the recruiting attracting and retaining diverse talent. their last name,” said Zeile. “It lets skills they burst, gauging the player’s field,” she said, “but the verdict on its Aaron Rieke, managing director of dictate who moves forward.” approach to risk. Other activities look impact on diversity is still out.” Upturn, a nonprofit that advocates for The site is also working on an at planning and attentional styles. equity and justice in technology, said automated process to find discrimina- “These features are known to be, if that companies first need to ask tory language in job postings and not completely unbiased, far less so Pay debt, themselves what abilities are required resumes. The goal is to scan postings than resume data,” said Frida Polli, CEO for a position, what their goals are for and resumes for certain phrases, such and co-founder of Pymetrics, which is earn cash diversity, how they will hold themselves as “early stage in your career” (which based in New York City. The names, Upgrade rewards customers accountable and where they will look could indicate latent ageism) or “must schools and even activities listed on ‘for doing the right thing’ for underrepresented candidates. Once have U.S. citizenship,” that could open a resumes can introduce bias, she said. Upgrade, the fintech formed by companies have set these goals, candidate up to bias, and flag them to After candidates complete the LendingClub founder Renaud technology can help deliver on them the poster as well as to the compliance games, the platform matches them with Laplanche, has launched an unusual more consistently. “Technology can’t do team. Currently, this process is manual. roles it believes they are best suited for. card rewards program that will give that hard work for you,” Rieke said. “AI is Adam Godson, the chief product Pymetrics builds its algorithms based customers cash back when they pay not a panacea or a solution to bias.” officer at Paradox, in Scottsdale, Ariz., on training data gathered from millions down their debt, rather than when they said his product also emphasizes skills. of people who have been successful in spend. How technology helps The Olivia conversational AI assistant their fields, or is customized to a Users will earn 1.5% cash back on Hiring managers for highly paid screens candidates by asking about company based on top performers in every purchase they make with the finance, consulting and legal jobs have their qualifications, such as licenses and the roles that company is hiring for. To card. But instead of being credited at traditionally weighed pedigree schools certifications or previous experience, mitigate bias in its algorithms, the the time of purchase, the rewards will

8 American Banker December 2020 americanbanker.com

008_ABM1220 8 11/11/2020 3:37:13 PM company tests them against reference be credited when cardholders make and details that wouldn’t normally groups to ensure they meet legal their monthly balance payments. The Liinked in appear on a resume, such as whether standards of fairness, such as recom- faster cardholders pay off their an applicant can work certain hours. mending a mix of women and men. balances, the sooner they will receive at JPMorgan Its early bet on blockchain Citizens Financial Group in Provi- On its careers site, JPMorgan Chase their cash back. dence, R.I., and Desert Financial Credit mentions that it will invite prospects to “Instead of rewarding people for becomes a bigger business Union in Phoenix, are among the play the Pymetrics games after spending more, which is not very JPMorgan Chase has created two financial institutions that use Paradox reviewing their applications. responsible, we wanted to reward them business units to concentrate on on their careers sites — though with Rieke is cautious about vendors that for doing the right thing, which is paying building blockchain-based software different nicknames for the assistant. model their assessments on an existing down their debt,” Laplanche said. and services, and potentially to pool of candidates, because gender The rewards align with the overall promote use of the JPM Coin digital Beyond the resume and racial biases may already be intent behind Upgrade’s card, which is a currency. Other vendors have emerged in the last embedded in the workplace. He said hybrid between a credit card and an The bank has announced a new few years that use machine learning to companies that use this approach installment loan. “It was designed as a brand name, Liink, for its block- train assessment models and strip out should ask, “Is the existing population credit card that’s good for you, in the chain-based Interbank Information bias. Pymetrics is one such platform of employees or recruits representative sense that it gives you credit when you Network. JPMorgan describes that that has 15 clients in financial services, of where we want to be as a company?” need it, but the balance turns into an network as an “ecosystem of bank users including nine in the United States. Polli’s response is that the behavioral installment plan with the enforced focused on harnessing emerging Early in the application process, data Pymetrics collects is largely discipline of having to pay down the technologies such as blockchain to candidates will be assigned 12 to 16 unbiased, because memory, altruism, balance every month over one, two, better address the complex cross online games that evaluate their decision-making and other traits don’t three or five years,” Laplanche said. “So border payments industry.” cognitive and emotional attributes and, differ across gender or ethnicity. The it avoids that never-ending, revolving The network has 400 bank members. sometimes, numerical and logical company also tests every model to cycle that so many people fall into with In North America, those members are reasoning. To test memory, one game make sure different genders and ethnic traditional credit cards.” Bank of Montreal, First Horizon Bank, quickly flashes a series of numbers on groups aren’t receiving different scores. Upgrade has lower costs than most National Bank of Canada, Royal Bank the screen and asks users to retype the At BOK, Maciel said the company traditional banks, Laplanche said, of Canada and TD Bank. sequences. Another game rewards users will test some of its processes with AI which allows it to forgo the interest The bank also started a group called with escalating sums of money to pump and look for areas of improvement. income yielded by high revolving card Onyx as a broader venture overseeing balloons as large as they can before “AI seems promising for the recruiting balances. multiple blockchain-related ventures. they burst, gauging the player’s field,” she said, “but the verdict on its The cash-back card is a new They include Liink, JPM Coin, other approach to risk. Other activities look impact on diversity is still out.” product, but existing Upgrade card- initiatives previously handled by the at planning and attentional styles. holders can enroll in it at no additional bank’s Blockchain Center of Excellence, “These features are known to be, if charge, without having to change their and certain payment platforms. not completely unbiased, far less so Pay debt, account number or physical card. Liink creates Quorum-based software than resume data,” said Frida Polli, CEO To date, Upgrade, which in June and services to facilitate cross-border and co-founder of Pymetrics, which is earn cash closed a $40 Million Series D round of payments processed through tradition- based in New York City. The names, Upgrade rewards customers funding led by Santander InnoVentures, al channels such as Swift. The Liink schools and even activities listed on ‘for doing the right thing’ has issued more than $3.5 billion in applications mostly center on trouble- resumes can introduce bias, she said. Upgrade, the fintech formed by credit through cards and loans. shooting international payments. After candidates complete the LendingClub founder Renaud According to Laplanche, the company In November, Liink launched two games, the platform matches them with Laplanche, has launched an unusual just reached a $125 million annual new products: Confirm, which enables roles it believes they are best suited for. card rewards program that will give revenue run rate and is profitable. bank members to validate account Pymetrics builds its algorithms based customers cash back when they pay “We’re growing at a triple-digit rate information for other parties before on training data gathered from millions down their debt, rather than when they and are hoping this rewards program sending payments to banks in other of people who have been successful in spend. will accelerate our growth,” he said. countries, in the interest of catching their fields, or is customized to a Users will earn 1.5% cash back on In the future, Upgrade plans to roll fraudsters; and Format, which checks company based on top performers in every purchase they make with the out a suite of basic banking products, potential payments to make sure they the roles that company is hiring for. To card. But instead of being credited at including a checking account. adhere to proper currency formats. mitigate bias in its algorithms, the the time of purchase, the rewards will — Penny Crosman — Penny Crosman

americanbanker.com December 2020 American Banker 9

009_ABM1220 9 11/11/2020 3:37:14 PM THE YEAR IN BANKING Here are 20 things we’ll remember about 2020 — the milestones and the missteps, the wonderful and the weird, the best and the worst in banking during a year that will be an unusually powerful force in shaping the future of the industry.

Under normal circumstances, this would be the mortgage refinancings, while looking ahead at how the issue of American Banker Magazine showcasing our year’s events — including a historic election — could selections for Banker of the Year, Community Bankers shape banking and banking policy in the future. of the Year and Lifetime Achievement. With Democrat Joe Biden in the White House, But 2020 was disruptive in a profound and pervasive expect progressive ideas — like allowing the U.S. way that is bound to transcend time, so we’re taking a Postal Service to offer banking services and requiring break from tradition to reflect on the powerful banks to stress-test for climate change — to gain cumulative impact of it all, particularly how the traction, though how far they will advance in what industry responded to the coronavirus outbreak and might turn out to be a Republican-controlled Senate the protests over racial equality. Rather than honor is anyone’s guess. the achievements of a few individuals, we wanted to Finally, we wanted to have some fun, by celebrating recognize the regulatory agencies, banks, credit the year’s milestones — a female chief executive at unions and individuals who stepped up to help one of the four largest U.S. banks! — and highlighting households and businesses weather the economic some of the oddities. Who would have guessed that shocks of the pandemic and took meaningful action drive-through banking would make a comeback this to help close the racial wealth gap. year or that stay-at-home orders early in the pan- We also wanted to recall some of the stumbles, demic would have triggered a national coin shortage? such as the Federal Housing Finance Agency’s widely With that, we present the year in banking — the panned decision to impose an “adverse market fee” on good, the bad and the just plain weird. — Alan Kline

10 American Banker December 2020 americanbanker.com

010_ABM1220 10 11/12/2020 10:45:46 AM THE YEAR IN BANKING Here are 20 things we’ll remember about 2020 — the milestones and the missteps, the wonderful and the weird, the best and the worst in banking during a year that will be an unusually powerful force in shaping the future of the industry.

americanbanker.com December 2020 American Banker 11

011_ABM1220 11 11/12/2020 10:45:48 AM THE YEAR IN BANKING

The Fed uses its entire toolkit to get the economy policy and fiscal policy continue to work side by side to Banks, meanwhile, have been scared off by through the pandemic … provide support to the economy until it is clearly out of the the terms. The Fed, through a special-purpos e woods.” — Hannah Lang vehicle, purchases 95% of a loan made under The Federal Reserve’s first big move in response to the the Main Street terms, but banks remain on the coronavirus outbreak came on March 3, when it announced … But one Fed stimulus effort falls short hook for the other 5% of the loan, making some its first emergency interest rate cut since 2007. lenders apprehensive. Days later, even before the outbreak was officially While the Paycheck Protection Program was designed to In fact, a recent Fed survey found that bank- declared a pandemic, the Fed cut rates further, to zero, and help companies with fewer than 500 employees, the Fed’s ers do no t e xpect lending thr ough the mid - urged banks to use its discount window and even dip into $600 billion Main Street Lending Program, which rolled out dle-market business rescue program to pick up anytime soon. capital reserves to access funds they might need to make over the summer, was intended to provide a lifeline to The Fed had purchased just $3.95 billion worth of loans as of emergency loans to customers. companies with fewer than 15,000 employees or less than early November. — Hannah Lang It then began purchasing record amounts of Treasury $5 billion in annual revenue. securities and mortgage-backed securities, helped to buoy But unlike the PPP — which ran out of funds so quickly in Square gets a bank charter. Will there be more? those markets, and would go on to deploy nearly a dozen its first go-round in April that Congress had to allot another emergency lending facilities under section 13(3) of the $310 billion — the Main Street Lending Program has drawn After a two-year-plus pursuit of an industrial bank charter, Federal Reserve Act, which included dusting off financial little interest from borrowers or lenders. Main Street loans which included having to withdraw and reapply, the crisis-era programs like the Commercial Paper Funding also have to be paid back, whereas PPP loans don’t if payment processor Square finally secured approval this past Facility and the Term Asset-Backed Securities Loan Facility. borrowers meet certain requirements. spring from the Federal Deposit Insurance Corp. Chairman Jerome Powell emerged as the public face of The minimum loan amount, which the Fed has already It was quite a hurdle to clear. The last time the FDIC had the crisis response effort, making rare appearances on “The twice lowered, is $250,000, and many smaller businesses signed off on an industrial loan company was June 2008. Today Show” and “60 Minutes” to explain the Fed’s actions. don’t qualify for a loan of that size, bankers have reported. The success of Square, which got a green light along with Still, the Fed can only do so much to prop up the econo- Larger companies that do qualify have to contend with the student loan servicer Nelnet, could emerge as a road my, and Powell has become increasingly vocal in urging restrictions on dividends and bonus payments if they choose map for other like-minded fintechs trying to enter the Congress to provide more relief to struggling businesses and to accept a loan, which many have said is a nonstarter. banking system. households. The program, funded by the Federal Reserve and Treasury Square’s road to approval was long and bumpy. Ever “Even if policy actions ultimately prove to be greater than Department from congressional appropriations in the CARES since the company filed its first application, in 2017, Square’s needed, they will not go to waste,” Powell said in October. Act, also isn’t available to certain asset-based borrowers in bid drew fierce opposition, particularly from community “The recovery will be stronger and move faster if monetary dire need of cash, including commercial real estate firms. banks. FDIC board member Martin Gruenberg, who dissent-

12 American Banker December 2020 americanbanker.com

012_ABM1220 12 11/12/2020 10:45:49 AM policy and fiscal policy continue to work side by side to Banks, meanwhile, have been scared off by The ILC ed from the agency’s approval, cited Square’s provide support to the economy until it is clearly out of the the terms. The Fed, through a special-purpos e limited profitability as a possible safety and woods.” — Hannah Lang vehicle, purchases 95% of a loan made under charter may be soundness risk for the new bank. But those the Main Street terms, but banks remain on the fintechs’ most concerns weren’t enough to convince FDIC staff. … But one Fed stimulus effort falls short hook for the other 5% of the loan, making some viable route to Still, it’s an open question whether the FDIC lenders apprehensive. will continue to approve industrial bank applica- While the Paycheck Protection Program was designed to In fact, a recent Fed survey found that bank- bankhood. tions in the years to come. The agency may take help companies with fewer than 500 employees, the Fed’s ers do no t e xpect lending thr ough the mid - each pending and future bid on a case-by-case $600 billion Main Street Lending Program, which rolled out dle-market business rescue program to pick up anytime soon. basis. But controversial or not, the ILC charter may be over the summer, was intended to provide a lifeline to The Fed had purchased just $3.95 billion worth of loans as of fintechs’ most viable route to bankhood of all the options. companies with fewer than 15,000 employees or less than early November. — Hannah Lang Square’s industrial bank, headquartered in Salt Lake City, $5 billion in annual revenue. is expected to launch sometime in 2021. It will focus primarily But unlike the PPP — which ran out of funds so quickly in Square gets a bank charter. Will there be more? on making small-business loans to customers via Square its first go-round in April that Congress had to allot another Capital, the company’s commercial lending subsidiary. $310 billion — the Main Street Lending Program has drawn After a two-year-plus pursuit of an industrial bank charter, Square is well positioned for further growth. Even though little interest from borrowers or lenders. Main Street loans which included having to withdraw and reapply, the the pandemic reduced foot traffic for small businesses using also have to be paid back, whereas PPP loans don’t if payment processor Square finally secured approval this past Square’s payments service, its peer-to-peer Cash App has borrowers meet certain requirements. spring from the Federal Deposit Insurance Corp. helped pick up the slack. — Brendan Pedersen The minimum loan amount, which the Fed has already It was quite a hurdle to clear. The last time the FDIC had twice lowered, is $250,000, and many smaller businesses signed off on an industrial loan company was June 2008. Stress-testing for climate change gets real don’t qualify for a loan of that size, bankers have reported. The success of Square, which got a green light along with Larger companies that do qualify have to contend with the student loan servicer Nelnet, could emerge as a road As if a global pandemic wasn’t enough to contend with, restrictions on dividends and bonus payments if they choose map for other like-minded fintechs trying to enter the bankers received intensified warnings this year about to accept a loan, which many have said is a nonstarter. banking system. another risk confronting their businesses: climate change. The program, funded by the Federal Reserve and Treasury Square’s road to approval was long and bumpy. Ever Increasingly frequent and severe weather events can pose Department from congressional appropriations in the CARES since the company filed its first application, in 2017, Square’s a serious threat to the stability of the U.S. financial system, Act, also isn’t available to certain asset-based borrowers in bid drew fierce opposition, particularly from community government officials and outside experts warned on multiple dire need of cash, including commercial real estate firms. banks. FDIC board member Martin Gruenberg, who dissent- occasions. It was the beginning of a drumbeat for

americanbanker.com December 2020 American Banker 13

013_ABM1220 13 11/12/2020 10:45:51 AM THE YEAR IN BANKING

stress-testing balance sheets for climate-related risks. Recent years have seen large tracts of the United States devastated by wildfires, hurricanes and flooding, with losses running well into the hundreds of billions of dollars. So, the rationale goes, banks should perform risk analyses that account for the financial exposure tied to serious climate events and from an abrupt transition away from fossil fuels. The results could ultimately lead banks to set aside more capital for certain types of loans, work with commercial clients to minimize their own environmental impact or even exit certain businesses altogether. Central bankers abroad have already embraced the idea of stress-testing for climate risk, but it’s been a tougher sell here. Though some U.S. bank regulators have voiced concerns about climate risk, they had largely stopped short of calling for stress-testing. That began to change in 2020. Early in the year, some lawmakers pressed federal regulators over climate risk to the financial system. Then, in a nearly 200-page report issued in September, a subcommittee of the Commodity But what a step forward it is. her appointment to president in October 2019. Reports had Futures Trading Commission outlined what a climate Fraser will be the first woman to lead one of the four said she won the job after Wells Fargo had tried to recruit stress-test pilot should look like. It argued that banking largest U.S. banking companies when CEO Michael Corbat her to be its CEO. regulators already have the authority to mandate such retires in February, a shattered glass ceiling that deserves Since joining the $2.2 trillion-asset bank in 2004, Fraser stress tests. celebration. has built an impressive resume as a fixer by taking on The New York State Department of Financial Services In some of her first public remarks since the announce- businesses in turmoil, including handling the mortgage appeared to take its advice. Shortly after the CFTC’s report, ment, Fraser shared her achievement with all women in operation in the wake of the financial crisis and overhauling the department issued guidance directing state-chartered banking. operations and controls in Latin America following scandals banks and credit unions to start factoring in the financial “This first is an accomplishment for us all,” she said. “And at its Banamex unit. risks linked to serious climate events, adjusting their capital with the extraordinary cadre of women in our industry, I’m Lately she has been leading the company’s response to and credit mixes and keeping investors fully informed. very certain it’s the first of many, many more to come.” the coronavirus pandemic. Bankers might also reflect on the events of the past year Skeptics might disagree. After all, while Fraser’s promo- It was widely believed that Corbat would stay in the job and ask themselves whether a year or two ago they had tion has rightly been hailed, it comes as two of banking’s for another few years, but he announced his pending seriously considered a global pandemic among their risks. most prominent female leaders exit CEO roles. departure just weeks after Citi accidentally paid $900 The CFTC report made a point that may resonate with Former KeyCorp Chairman and CEO Beth Mooney, who million to lenders of the cosmetics company Revlon and pandemic-weary bankers: “Science clearly indicates that the was the first woman to lead a top 20 U.S. bank when she blamed human error. Citi officials have dismissed questions cost of delay in responding to the risk can be devastating.” was appointed in 2011, was succeeded by Chris Gorman about the timing, saying Corbat always planned to retire — Laura Alix when she retired from the Cleveland-based company in in 2021. April, while CIT Group’s Ellen Alemany will vacate the But it has left some to wonder if Fraser is perched on Thickest glass ceiling in banking finally breaks chairman and CEO roles at her New York company when it what’s known as a “glass cliff,” referring to instances where completes a merger of equals with First Citizens BancShares women in business are promoted to leadership jobs at For decades it’s been one step forward, two steps back when in 2021. Frank Holding Jr., First Citizens’ chairman and CEO, moments of crisis. it comes to gender diversity at the top in the banking will retain those titles at the newly combined company, with If that is the case, though, it is hard to imagine anyone industry, and Jane Fraser’s ascension to chief executive at Alemany serving as vice chair. whose experience would have better prepared them for it Citigroup is no exception. Fraser has been viewed as the heir apparent at Citi since than Fraser. — Allissa Kline

14 American Banker December 2020 americanbanker.com

014_ABM1220 14 11/12/2020 10:45:52 AM Calls for postal banking get louder

For years, progressives have been advocating for the U.S. Postal Services to make financial offerings available in local post offices as a way to meet the needs of underserved consumers. But conservatives, as well as banking and credit union executives, have repeatedly scoffed at the idea, arguing that banks and credit unions already have the infrastructure in place to serve underbanked households and that the agency responsible for delivering mail to U.S. citizens is simply not equipped to offer financial services. Leave banking to bankers, bankers say. In the era of COVID-19, though, the idea of postal banking appears to be gaining traction. It started early in the pandemic when Congress passed legislation to give many individuals earning less than $75,000 a year up to $1,200 in federal aid. Many Americans with bank accounts received their payments quickly through direct deposit, but millions more without bank accounts But what a step forward it is. her appointment to president in October 2019. Reports had waited much longer to receive their checks in the mail. Fraser will be the first woman to lead one of the four said she won the job after Wells Fargo had tried to recruit So Sen. Sherrod Brown of Ohio, the top Democrat on the largest U.S. banking companies when CEO Michael Corbat her to be its CEO. Senate Banking Committee, proposed offering govern- retires in February, a shattered glass ceiling that deserves Since joining the $2.2 trillion-asset bank in 2004, Fraser ment-backed FedAccount digital wallets to individuals. These celebration. has built an impressive resume as a fixer by taking on bank accounts would have no account fees or minimum In some of her first public remarks since the announce- businesses in turmoil, including handling the mortgage balance requirements and would be opened at banks and ment, Fraser shared her achievement with all women in operation in the wake of the financial crisis and overhauling post offices. Americans would be able to receive government banking. operations and controls in Latin America following scandals stimulus funds quickly and inexpensively via FedAccounts. “This first is an accomplishment for us all,” she said. “And at its Banamex unit. Postal banking has also been endorsed by former with the extraordinary cadre of women in our industry, I’m Lately she has been leading the company’s response to Vice President Joe Biden, a Democrat who is now the very certain it’s the first of many, many more to come.” the coronavirus pandemic. president-elect. His unity task force with Sen. Bernie Skeptics might disagree. After all, while Fraser’s promo- It was widely believed that Corbat would stay in the job Sanders, I-Vt., recommended implementing a postal tion has rightly been hailed, it comes as two of banking’s for another few years, but he announced his pending banking system as a way to expand access to physical most prominent female leaders exit CEO roles. departure just weeks after Citi accidentally paid $900 banking locations at a time when the number of branches Former KeyCorp Chairman and CEO Beth Mooney, who million to lenders of the cosmetics company Revlon and is shrinking, creating more so-called banking deserts. was the first woman to lead a top 20 U.S. bank when she blamed human error. Citi officials have dismissed questions Meanwhile, another postal banking idea is starting to was appointed in 2011, was succeeded by Chris Gorman about the timing, saying Corbat always planned to retire gain some acceptance, even among banks and credit when she retired from the Cleveland-based company in in 2021. unions. It was reported over the summer that JPMorgan April, while CIT Group’s Ellen Alemany will vacate the But it has left some to wonder if Fraser is perched on Chase had held preliminary discussions with the USPS to chairman and CEO roles at her New York company when it what’s known as a “glass cliff,” referring to instances where offer ATMs and other banking services at post office completes a merger of equals with First Citizens BancShares women in business are promoted to leadership jobs at locations, and while those talks didn’t get far, the idea of in 2021. Frank Holding Jr., First Citizens’ chairman and CEO, moments of crisis. some sort of public/private partnership has piqued the will retain those titles at the newly combined company, with If that is the case, though, it is hard to imagine anyone industry’s interest. Some bankers have said they would be Alemany serving as vice chair. whose experience would have better prepared them for it open to such partnerships as long as there’s a competitive Fraser has been viewed as the heir apparent at Citi since than Fraser. — Allissa Kline bidding process. — Neil Haggerty

americanbanker.com December 2020 American Banker 15

015_ABM1220 15 11/12/2020 10:45:54 AM THE YEAR IN BANKING

Challenger banks become contenders charter from the Office of the Comptroller of the Currency. ‘Buy now, pay later’ emerges as hot payments trend Current, one of the newer entrants, hit 1 million users in The growth of challenger banks accelerated in 2020 and June. That number had ballooned to 1.75 million as of early It started as a way for young adults without much money bankers should take note. Several surpassed the million-user November and the fintech expects to reach 2 million before to pay for sunglasses, clothes and cosmetics. With a few mark at which they are considered true contenders in the the end of 2020. It’s added more than 100,000 users each clicks, an $80 purchase became four interest-free payments financial services industry. month this year since April. Last October, by contrast, of $20. Many of these shoppers couldn’t qualify for a credit In part, this was because these startups were already on Current had 500,000 users. card, and they were already spending a lot of time on their a trajectory of growth. But they also got a “You don’t want to see a global crisis phones. tailwind from the pandemic and resulting Current expects validate your business model, but we were able So they turned to the likes of Afterpay and Klarna, fueling quarantine restrictions in the spring, which 2 million users to serve people in a time of a need and the strong growth at so-called buy now, pay later lenders. forced banks to close some branches and this year, four economic trends we saw are a signal of a Then came COVID-19. Shopping malls — those vast limit access to others, and drove some larger, fundamental shift in the workforce that temples to an earlier era of commerce — were closed for customers to check out alternative online times what it highlighted the need for faster access to months. Issuers of store-branded credit cards, which banking options. had a year ago. money, which can be solved through financial consumers typically associated with swiping a plastic card Varo, for one, has seen 200% growth in its technology,” said Stuart Sopp, founder and at a cash register, suffered revenue declines. customer base this year, roughly the same percentage chief executive of Current. “I believe the disruption in finance Suddenly, the target audience for installment loans at growth as in 2019, but last year’s base number was much and banking is just beginning.” the digital point of sale wasn’t just 22-year-olds. It was all smaller. It now has 2 million customers. At the largest U.S. challenger bank, Chime, transaction of us. “The lockdowns and social distancing made people more volume and revenue is three times higher than it was in 2019, “In light of COVID-19, there have been changes in comfortable with digital solutions of all kinds,” said Wesley the company said. Chime now has more than 8 million consumers’ spending priorities and behaviors and a sharp Wright, Varo’s chief operating officer. “Just as people accounts and it’s opening hundreds of thousands of shift from offline to online shopping,” Klarna, which is based became more comfortable with online grocery shopping and accounts each month. in Sweden, said in a recent financial report. “The attractive- online ordering from restaurants and other local businesses, Another challenger bank, Dave, now has 7 million users. ness of our services opposed to credit cards has accelerated.” they also became more comfortable with fully digital MoneyLion passed the 5-million-user mark this year. So far this year, shares in Australia-listed Afterpay have banking, designed specifically to serve customers virtually, Most of these providers work with a traditional bank climbed by 233%. Affirm, the largest U.S. entrant in the with no need to visit a branch in person.” partner and are limited in what they can offer, so far. But nascent category, is eyeing an initial public offering that Varo also marked another significant milestone in 2020. they are gaining momentum, brand recognition and could value the company at $10 billion. After three years of trying, it finally received a banking popularity. — Penny Crosman Meanwhile, large incumbents like Synchrony Financial

16 American Banker December 2020 americanbanker.com

016_ABM1220 16 11/12/2020 10:45:56 AM charter from the Office of the Comptroller of the Currency. ‘Buy now, pay later’ emerges as hot payments trend and PayPal are rolling out their own competing products. Current, one of the newer entrants, hit 1 million users in The buy now, pay later companies earn money by getting June. That number had ballooned to 1.75 million as of early It started as a way for young adults without much money a cut of the merchants’ revenue, as well as late fees from November and the fintech expects to reach 2 million before to pay for sunglasses, clothes and cosmetics. With a few borrowers and, in some cases, interest income. They have yet the end of 2020. It’s added more than 100,000 users each clicks, an $80 purchase became four interest-free payments to prove their long-term staying power, but they have month this year since April. Last October, by contrast, of $20. Many of these shoppers couldn’t qualify for a credit achieved a feat that’s rare in the consumer finance industry: Current had 500,000 users. card, and they were already spending a lot of time on their growing at a rapid clip during a decline in the credit cycle. “You don’t want to see a global crisis phones. — Kevin Wack validate your business model, but we were able So they turned to the likes of Afterpay and Klarna, fueling to serve people in a time of a need and the strong growth at so-called buy now, pay later lenders. Libor is on its way out, but what will replace it? economic trends we saw are a signal of a Then came COVID-19. Shopping malls — those vast larger, fundamental shift in the workforce that temples to an earlier era of commerce — were closed for Like it or not, the global financial system has only a year left highlighted the need for faster access to months. Issuers of store-branded credit cards, which to transition away from the London interbank offered rate money, which can be solved through financial consumers typically associated with swiping a plastic card before the longtime floating-rate benchmark ceases to float technology,” said Stuart Sopp, founder and at a cash register, suffered revenue declines. on Jan. 1, 2022. If banks aren’t prepared for the shift, it could chief executive of Current. “I believe the disruption in finance Suddenly, the target audience for installment loans at spell big trouble for everyone. and banking is just beginning.” the digital point of sale wasn’t just 22-year-olds. It was all Libor is based on the rate at which London-based banks At the largest U.S. challenger bank, Chime, transaction of us. make unsecured cash loans to each other, and over the volume and revenue is three times higher than it was in 2019, “In light of COVID-19, there have been changes in course of several decades it became a near-universal the company said. Chime now has more than 8 million consumers’ spending priorities and behaviors and a sharp component in trillions of dollars’ worth of interest rate swaps, accounts and it’s opening hundreds of thousands of shift from offline to online shopping,” Klarna, which is based adjustable-rate mortgages, business loans and other accounts each month. in Sweden, said in a recent financial report. “The attractive- products. But when it was revealed in 2012 that banks were Another challenger bank, Dave, now has 7 million users. ness of our services opposed to credit cards has accelerated.” manipulating Libor, its days were numbered. MoneyLion passed the 5-million-user mark this year. So far this year, shares in Australia-listed Afterpay have There are several viable alternatives to Libor, and Federal Most of these providers work with a traditional bank climbed by 233%. Affirm, the largest U.S. entrant in the Reserve Chairman Jerome Powell said in February that the partner and are limited in what they can offer, so far. But nascent category, is eyeing an initial public offering that central bank is supportive of all bank efforts to transition they are gaining momentum, brand recognition and could value the company at $10 billion. away from the ubiquitous benchmark. But the Alternative popularity. — Penny Crosman Meanwhile, large incumbents like Synchrony Financial Reference Rates Committee — a group convened by the

americanbanker.com December 2020 American Banker 17

017_ABM1220 17 11/12/2020 10:45:57 AM THE YEAR IN BANKING

New York Fed to identify an alternative — has settled on the to a $1,400 fee on every refinance is outrageous,” Mortgage Ariz., completed a massive order from Costco so workers Secured Overnight Financing Rate, known as SOFR, as its Bankers Association Chief Executive Robert Broeksmit said wouldn’t have to venture out for groceries. It even threw in preferred choice. in August, when the policy was announced. $50 for each worker to spend on whatever they needed. Fixing Libor in a contract is relatively simple: Banks just Not to mention, lenders’ bottom lines are especially American Savings Bank in Honolulu has provided more include fallback language that identifies an alternative rate vulnerable right now to anything that could dampen the refi than 206,000 meals to employees. The bank catered that would go into effect in the event that Libor ceases to be market. Refinancings have produced strong noninterest breakfast, lunch and dinner for workers seven days a week published. And a great deal of progress has already been income in recent quarters to offset tight margins and weak for two months. made to smooth the transition, particularly in the derivatives commercial borrowing — conditions that could linger. Vista Bank is thinking about the emotional and spiritual market, which accounts for the vast majority of Libor-facing Some analysts said the fee would add only a modest cost needs of its employees. John Steinmetz, the Dallas bank’s contracts. But the extent of the Libor-facing market that is for borrowers. But House Financial Services Committee president and chief executive, was considering hiring a still out there is unknown, and likely is in the members from both parties clashed with FHFA part-time chaplain for workers who need additional support tens of billions of dollars of notional value. The MBA Director Mark Calabria when the fee came up right now. The risk that banks are trying to avoid here called a refi fee at a September hearing. Credit Union of Texas in Allen has added a benefit that is litigation. Federal law requires that contracts from Fannie Rep. Maxine Waters, D-Calif., who chairs addresses the pandemic more directly. It started providing with multiple counterparties — which includes the panel, said it would “redirect” the savings free COVID-19 antibody tests for all of its employees in July. many Libor-facing contracts — have the and Freddie homeowners could gain from low interest rates The process takes about 90 seconds with a medical techni- approval of all counterparties to be binding, an outrage. “into the pockets of Fannie and Freddie.” cian drawing a small amount of blood with a finger stick. and that can be impractical or impossible in Rep. Patrick McHenry of North Carolina, The results are ready about 15 minutes later. some cases. That could lead to a wave of lawsuits in 2022 the committee’s ranking Republican, said the fee’s rollout Keeping workers safe and healthy and supporting them that could take several years to sort out. in mid-August was problematic but that he understood emotionally have been high priorities for bank and credit For bankers hoping to put the headaches of 2020 behind the GSEs’ need to manage financial risks. union leaders because it’s the right thing to do and because them next year, it’s important to make sure they don’t invite “The way this was announced, and the initial three-week staffers are likely to spread the word that their employers a new one in 2022. — John Heltman timing for its implementation, doomed it from the start,” are being helpful during these difficult times. he said. “I believe our next generation of workers is looking at how Surprise Fannie and Freddie fee is ‘doomed from Calabria countered that he “can’t simply ignore instabili- companies and institutions responded to COVID-19 and it the start’ ty” in the mortgage market. may be the deciding factor if they want to build a career “This fee amounts to about 5 basis points annually on here,” said Patricia Husic, the president and CEO of Centric To Fannie Mae, Freddie Mac and their regulator, a 0.5% fee the loan,” he said. “That’s less than mortgage rates have Financial in Harrisburg, Pa. —Jackie Stewart on most refinance mortgages is necessary to prevent been fluctuating during the time this hearing has been catastrophic losses resulting from the pandemic. But lenders going on.” — Joe Adler Pandemic puts bank M&A on pause and some lawmakers reacted as if the fee itself were a catastrophe. Catered meals and COVID tests: Taking care of Merger and acquisition activity proved robust in 2019, as The point of the adverse market fee is to build an extra employees takes on urgency buyers searched for scale and efficiencies. Banks announced loan-loss cushion for Fannie and Freddie in case the 257 deals, driving one of the liveliest years of the past economic slowdown carries well into next year and home- This year has forced banks and credit unions to get creative decade. owners, with grace periods expired, begin to default in with their employee benefits. Expectations ran high early in 2020 for another banner droves. The government-sponsored enterprises imposed a Some institutions have become makeshift day care run as buyers announced 17 deals in January alone. But then similar fee in 2008 to recoup losses from the mortgage crisis. centers for employees who have children learning virtually the pandemic arrived in March and “brought almost The fee was originally set to take effect in September, but because of the coronavirus. United Bank in Atmore, Ala., everything to a standstill — M&A included,” said Jacob the Federal Housing Finance Agency delayed the start date converted spare offices into computer labs to let parents Thompson, a managing director of investment banking at to Dec. 1 following criticism that the cost will badly hurt bring their school-age children to work while ensuring the SAMCO Capital Markets. homeowners. students could still participate in their virtual classes. Deal activity has yet to recover — a few notable deals “At a time when consumers are struggling in the worst Others have taken it upon themselves to make sure aside — and may not do so until deep into 2021, Thompson economy since the Great Depression, to add what amounts employees are well fed. Landings Credit Union in Tempe, and others say.

18 American Banker December 2020 americanbanker.com

018_ABM1220 18 11/12/2020 10:45:58 AM to a $1,400 fee on every refinance is outrageous,” Mortgage Ariz., completed a massive order from Costco so workers Several deals announced late last year or early this year Bankers Association Chief Executive Robert Broeksmit said wouldn’t have to venture out for groceries. It even threw in have been called off and many would-be buyers are staying in August, when the policy was announced. $50 for each worker to spend on whatever they needed. on the sidelines because they say it’s simply too difficult Not to mention, lenders’ bottom lines are especially American Savings Bank in Honolulu has provided more to assess what troubles could be lurking in sellers’ loan vulnerable right now to anything that could dampen the refi than 206,000 meals to employees. The bank catered portfolios. Banks made clear in third-quarter earnings calls market. Refinancings have produced strong noninterest breakfast, lunch and dinner for workers seven days a week that they did not know how the health crisis would affect income in recent quarters to offset tight margins and weak for two months. credit quality because there was no telling how long it commercial borrowing — conditions that could linger. Vista Bank is thinking about the emotional and spiritual would last. Some analysts said the fee would add only a modest cost needs of its employees. John Steinmetz, the Dallas bank’s “We could see the worst of the impact on banks next for borrowers. But House Financial Services Committee president and chief executive, was considering hiring a year,” said Jon Winick, chief executive of Clark Street members from both parties clashed with FHFA part-time chaplain for workers who need additional support Capital. Director Mark Calabria when the fee came up right now. Winick and others say that once clarity returns, bank at a September hearing. Credit Union of Texas in Allen has added a benefit that M&A is bound to increase to the pace of 2019 — or perhaps Rep. Maxine Waters, D-Calif., who chairs addresses the pandemic more directly. It started providing exceed it because of pent-up demand. The principal the panel, said it would “redirect” the savings free COVID-19 antibody tests for all of its employees in July. motivators for M&A, scale and cost savings, have only homeowners could gain from low interest rates The process takes about 90 seconds with a medical techni- become more important amid the economic malaise “into the pockets of Fannie and Freddie.” cian drawing a small amount of blood with a finger stick. of 2020. Rep. Patrick McHenry of North Carolina, The results are ready about 15 minutes later. The few deals announced this year touted those benefits. the committee’s ranking Republican, said the fee’s rollout Keeping workers safe and healthy and supporting them The $489 million merger of Bridge Bancorp in Bridgehamp- in mid-August was problematic but that he understood emotionally have been high priorities for bank and credit ton, N.Y., and Dime Community Bancshares in Brooklyn, N.Y., the GSEs’ need to manage financial risks. union leaders because it’s the right thing to do and because announced in July, is a case in point. The combined “The way this was announced, and the initial three-week staffers are likely to spread the word that their employers company would instantly double its assets, to more than timing for its implementation, doomed it from the start,” are being helpful during these difficult times. $12 billion, and the plan is to carve out more than $30 he said. “I believe our next generation of workers is looking at how million in overlapping expenses. Calabria countered that he “can’t simply ignore instabili- companies and institutions responded to COVID-19 and it “Increased size and scale cannot be scoffed at,” Kevin ty” in the mortgage market. may be the deciding factor if they want to build a career O’Connor, Bridge’s president and CEO, said shortly after “This fee amounts to about 5 basis points annually on here,” said Patricia Husic, the president and CEO of Centric announcing the deal. “We’d be able to use the scale to invest the loan,” he said. “That’s less than mortgage rates have Financial in Harrisburg, Pa. —Jackie Stewart in some revenue-generating areas.” — Jim Dobbs been fluctuating during the time this hearing has been going on.” — Joe Adler Pandemic puts bank M&A on pause Banks commit billions of dollars to address racial and income inequality … Catered meals and COVID tests: Taking care of Merger and acquisition activity proved robust in 2019, as employees takes on urgency buyers searched for scale and efficiencies. Banks announced In October, when JPMorgan Chase pledged $30 billion to 257 deals, driving one of the liveliest years of the past advance racial equity, the largest U.S. bank joined a long This year has forced banks and credit unions to get creative decade. line of other banks that, in 2020, made major financial with their employee benefits. Expectations ran high early in 2020 for another banner commitments to fighting structural racism. Some institutions have become makeshift day care run as buyers announced 17 deals in January alone. But then “We can do more and do better to break down systems centers for employees who have children learning virtually the pandemic arrived in March and “brought almost that have propagated racism and widespread economic because of the coronavirus. United Bank in Atmore, Ala., everything to a standstill — M&A included,” said Jacob inequality, especially for Black and Latinx people,” Chairman converted spare offices into computer labs to let parents Thompson, a managing director of investment banking at and Chief Executive Jamie Dimon said in a press release. “It’s bring their school-age children to work while ensuring the SAMCO Capital Markets. long past time that society addresses racial inequities in a students could still participate in their virtual classes. Deal activity has yet to recover — a few notable deals more tangible, meaningful way.” Others have taken it upon themselves to make sure aside — and may not do so until deep into 2021, Thompson In a year when the country experienced the largest employees are well fed. Landings Credit Union in Tempe, and others say. swelling of racial justice protests since the 1960s, and people

americanbanker.com December 2020 American Banker 19

019_ABM1220 19 11/12/2020 10:46:00 AM THE YEAR IN BANKING

of color were disproportionately affected by the coronavirus Large and small institutions, from Wells Fargo to Pied- The trend is part of a broader one across many industries. pandemic and resulting job losses, banks have pledged mont Federal Savings Bank in North Carolina, have an- A September study by the nonprofit group 2020 Women on billions of dollars to community development, diversity hiring, nounced plans to work more closely with historically Black Boards found that this year women gained board seats at a small-business lending and affordable housing initiatives. colleges and universities to recruit job candidates from those faster rate than men among companies in the Russell 3000 Bank of America was among the first to act. A week after schools. index. Women of color advanced faster than any other George Floyd died at the hands of Minneapolis police on Under Chief Executive Charlie Scharf, Wells has pledged group, though they still hold the fewest board seats overall. May 25, BofA pledged to invest $1 billion over four years to to increase Black representation in its leadership from 6% For public companies in at least one state, legislation is a address racial and income inequality. U.S. Bancorp, PNC currently to 12% within five years. contributing factor. In September, California followed up on Financial Services Group, Capital One Financial, Huntington Banks and credit unions alike announced plans in the its 2018 board mandate on gender diversity by adding a Bancshares and many other large and regional banks summer and fall to increase their internal diversity, with requirement that at least one director be from an underrep- followed up with significant commitments of their own. many making hires at the C-level to focus on these height- resented group, whether by race or sexual orientation. JPMorgan will spread its dollars out over several areas: ened equity and inclusion efforts. PNC Financial Services — Aaron Passman affordable housing and homeownership; financial support of Group and JPMorgan Chase both added officers at the Black and Latinx-owned businesses; financial health and executive level to focus on diversity, and a number of midsize Despite resistance, OCC forges on with CRA revamp access to banking in Black and Latinx communities; and large credit unions have taken similar steps. Some rulemaking is propelled by the passion of a proponent, philanthropic capital; and internal workforce diversity. The Such measures aim not just to broaden the perspectives one who doggedly plows forward in the face of extraordinary latest effort also holds managers throughout the bank more of these institutions’ executive teams, but also to ensure odds. Such was the case for former Comptroller of the accountable to ensure they diversify their employee base. financial services providers reflect the broader demograph- Currency Joseph Otting, who championed reforming the Now it’s time to see if those dollars will make a difference. ics of the communities they serve. Community Reinvestment Act immediately after taking — Allissa Kline Some financial institutions are diversifying their boards as office in November 2017. His two-year effort to update the well. SchoolsFirst Federal Credit Union, one of the nation’s CRA seemingly met resistance at every turn. ... And diverse leadership becomes a true priority largest credit unions, recently added a Black member, a The CRA encourages banks to meet the credit needs of Hispanic member and an Asian member to its board after low-to-moderate-income communities and is meant to The financial services sector responded to a summer of coming under fire earlier in the year for its lack of diversity. combat redlining. This law, passed in 1977, requires federal social justice protests by taking steps to diversify their own Banks ranging from Fifth Third Bancorp to smaller ones regulators to assess how well each bank fulfills its obligations. workforces, with an emphasis on their leadership ranks and like Emprise Bank have recently announced the addition of Otting, who spent 35 years as a banker, said he witnessed boards of directors. a Black female director to their boards.

20 American Banker December 2020 americanbanker.com

020_ABM1220 20 11/12/2020 10:46:02 AM Large and small institutions, from Wells Fargo to Pied- The trend is part of a broader one across many industries. firsthand the lack of progress made by the CRA over mont Federal Savings Bank in North Carolina, have an- A September study by the nonprofit group 2020 Women on decades on many economic indicators spanning wealth, nounced plans to work more closely with historically Black Boards found that this year women gained board seats at a income and housing. colleges and universities to recruit job candidates from those faster rate than men among companies in the Russell 3000 When he released a proposal in December that called for schools. index. Women of color advanced faster than any other changing some metrics for how the CRA gets assessed, the Under Chief Executive Charlie Scharf, Wells has pledged group, though they still hold the fewest board seats overall. plan became mired in politics. Though the Federal Deposit to increase Black representation in its leadership from 6% For public companies in at least one state, legislation is a Insurance Corp. signed on initially, the Federal Reserve currently to 12% within five years. contributing factor. In September, California followed up on refused, setting up the possibility of competing regulatory Banks and credit unions alike announced plans in the its 2018 board mandate on gender diversity by adding a frameworks. summer and fall to increase their internal diversity, with requirement that at least one director be from an underrep- Community groups assailed the plan, arguing that a new many making hires at the C-level to focus on these height- resented group, whether by race or sexual orientation. scoring framework and its emphasis on the dollar value of ened equity and inclusion efforts. PNC Financial Services — Aaron Passman CRA activity would lead banks to prioritize financing big Group and JPMorgan Chase both added officers at the projects, such as sports stadiums, over smaller community executive level to focus on diversity, and a number of midsize Despite resistance, OCC forges on with CRA revamp development projects. and large credit unions have taken similar steps. FDIC board member Martin Gruenberg called the Some rulemaking is propelled by the passion of a proponent, Such measures aim not just to broaden the perspectives proposal “misconceived, unworkable and damaging.” one who doggedly plows forward in the face of extraordinary of these institutions’ executive teams, but also to ensure Fed Gov. Lael Brainard, who was assigned by Fed Chair odds. Such was the case for former Comptroller of the financial services providers reflect the broader demograph- Jerome Powell to coordinate the approach to CRA, took Currency Joseph Otting, who championed reforming the ics of the communities they serve. issue with the proposal’s scoring methodology as well. Community Reinvestment Act immediately after taking Some financial institutions are diversifying their boards as With tensions running high, Otting called Brainard, a office in November 2017. His two-year effort to update the well. SchoolsFirst Federal Credit Union, one of the nation’s Democratic appointee confirmed to the Fed under the CRA seemingly met resistance at every turn. largest credit unions, recently added a Black member, a Obama administration, “partisan.” The CRA encourages banks to meet the credit needs of Hispanic member and an Asian member to its board after By the time the pandemic hit, it appeared Otting’s low-to-moderate-income communities and is meant to coming under fire earlier in the year for its lack of diversity. proposal would be shelved. Bankers and trade groups said combat redlining. This law, passed in 1977, requires federal Banks ranging from Fifth Third Bancorp to smaller ones that they were too busy helping businesses and consumers regulators to assess how well each bank fulfills its obligations. like Emprise Bank have recently announced the addition of deal with the economic fallout of COVID-19 to handle Otting, who spent 35 years as a banker, said he witnessed a Black female director to their boards. compliance changes for a revamped CRA.

americanbanker.com December 2020 American Banker 21

021_ABM1220 21 11/12/2020 10:46:03 AM THE YEAR IN BANKING

But Otting would not back down and the OCC ended up An unlikely pair teams up on creative — and speedy contact. Drive-ups were also better for spontaneous visits going it alone, releasing a narrower but final CRA rule in — pandemic relief when banks required appointments to enter the lobby. May without the backing of any other regulator. Then, “In March and April, customers were lining up around the suddenly, Otting was gone — he resigned in late May Jill Castilla and Mark Cuban, at first glance, make for an corner,” said Jim DeLapa, general manager of Kiran — leaving it to acting Comptroller Brian Brooks to hash out unusual pairing. Castilla is the chief executive of Citizens Analytics, part of the customer engagement company the details. — Kate Berry Bank of Edmond, a small community bank in Oklahoma, Verint. and Cuban is the high-profile owner the NBA’s Dallas Banks that were set to close their drive-throughs put Employees take pride in helping small businesses Mavericks and an investor on ABC’s “Shark Tank.” those plans on hold. Fifth Third Bancorp, for one, plans to It took a pandemic to bring them together. keep drive-up windows in its new branches or even add A centerpiece of the Coronavirus Aid, Relief and Economic Their first collaboration came about in March, after walk-up windows to inner-city branches. Securities Act Congressed passed in March was the Cuban urged banks in a tweet to get creative in helping Still, there are doubts about the long-term viability of Paycheck Protection Program, and it fell on banks and cash-strapped customers get through the early days of the these services. Some customers who were resistant to digital credit unions to quickly get the hundreds of billions of coronavirus crisis. banking before the pandemic have gotten the hang of dollars in federal aid to small businesses that desperately Castilla saw the Twitter post, reached out to Cuban for depositing checks and doing other tasks from their smart- needed the funds to ride out the pandemic. advice, and together they quickly drew up plans for Citizens phones. Banks large and small needed all hands on deck first to to create a no-fee overdraft program to advance cash to So the renewed surge may not translate into a full get the program up and running and then to process what customers waiting on stimulus checks from the Internal comeback in a post-pandemic future. ended up being about 4.5 million loans totaling more than Revenue Service. “I don’t think the banks that don’t have them will start $500 billion. “It was around the clock,” recalled Sharon Castilla and Cuban next set their sights on helping looking,” DeLapa said. —Miriam Cross Miller, head of small business at Bank of America. borrowers navigate the Paycheck Protection Program’s The Herculean effort went beyond just the small-business complicated forgiveness process. As consumers curtail spending, coin supply dwindles team at many banks, including BofA, which made more than With help from Teslar Software, they created ppp.bank, a 345,000 PPP loans in a matter of weeks. website borrowers can use to prepare forgiveness applica- When banking executives scrambled to overhaul their “It was 10,000 of our teammates coming together, tions. The site went live in late May — just 10 days after business for a socially distanced world, so much emphasis redeployed to our space saying, ‘How can we help?’ ” Miller Cuban emailed Castilla to brainstorm solutions. “Mark set was put on — and so many congratulations shared over said. “Everyone was focused on this 24/7. That meant no the challenge — I just responded to it,” Castilla said. — electronic payments. Easter weekend, no Memorial Day, no weekends. … I didn’t “I called a couple of fintech friends and found one willing It was at that moment that old money bit back. hear any complaints either.” to write a guided application,” she added. “Mark ended up As small businesses struggled to stay afloat while Jennifer Roberts, the chief executive of business banking bankrolling the hosting costs associated with it. We’ve got consumers stayed home, about $40 billion in change went at JPMorgan Chase, said PPP applications hit her bank like hundreds of thousands of small businesses that are able to dormant in American households, cutting coin circulation to a tidal wave. On the program’s first day, April 3, Chase rolled use it.” — Paul Davis a trickle. Suddenly, takeout restaurants and retailers couldn’t out an online form to collect basic information from make change, and laundromat users were out of luck. borrowers. Within an hour, more than 75,000 had completed Drive-through banking recovers Banking industry representatives and government officials it, Roberts said. led by the Federal Reserve and the U.S. Mint assembled over The $27.5 billion-asset Flagstar Bancorp handled more Drive-through teller windows were a ubiquitous feature at the summer to develop a plan while new coin deliveries were than 3,000 PPP applications totaling $400 million, a level of branches for decades, but their popularity waned as digital rationed. Major retailers like Kroger and 7-Eleven, along with volume Executive Vice President Brian Dunn called an banking became more sophisticated and customers no many banks, started awareness campaigns and offered cash avalanche. “It was so overwhelming,” yet there was no longer had to leave home to deposit a check. incentives and even Slurpees to anyone who brought in their griping about long hours or weekend work, Dunn said. Though some survived, many ended up being converted coins. “This program was helping our friends, our neighbors, our into drive-through ATMs. The Fed’s coin inventories were at their lowest in June, a communities get a paycheck during the dark days in April This year, drive-through windows are back. spokesperson for the central bank said. Coin allocations to and May,” he said. “It demonstrated our ability and the Particularly at the beginning of the pandemic, customers financial institutions have increased steadily since local entire banking industry’s ability to be there for our customers who would typically visit branch lobbies flocked to drive- economies began to reopen, but order limits remained in and communities when we were needed most.” — John Reosti throughs, getting an extra layer of protection from human place on banks late in the year. The Fed spokesperson said

22 American Banker December 2020 americanbanker.com

022_ABM1220 22 11/12/2020 10:46:04 AM An unlikely pair teams up on creative — and speedy contact. Drive-ups were also better for spontaneous visits coins were rotating more quickly through the economy, — pandemic relief when banks required appointments to enter the lobby. though not as fast as usual. “In March and April, customers were lining up around the “It is actually better for us” than earlier in the year, said Jill Castilla and Mark Cuban, at first glance, make for an corner,” said Jim DeLapa, general manager of Kiran Chris Nichols, director of capital markets at South State in unusual pairing. Castilla is the chief executive of Citizens Analytics, part of the customer engagement company Winter Haven, Fla. “We have been able to order and receive Bank of Edmond, a small community bank in Oklahoma, Verint. a little more from the Fed. We are not back to normal, but and Cuban is the high-profile owner the NBA’s Dallas Banks that were set to close their drive-throughs put getting there.” Mavericks and an investor on ABC’s “Shark Tank.” those plans on hold. Fifth Third Bancorp, for one, plans to “No one saw this coming,” Nichols added, “but it now It took a pandemic to bring them together. keep drive-up windows in its new branches or even add should be in every bank’s pandemic plan.” — Jon Prior Their first collaboration came about in March, after walk-up windows to inner-city branches. Cuban urged banks in a tweet to get creative in helping Still, there are doubts about the long-term viability of FDIC shelves plans to modernize its logo cash-strapped customers get through the early days of the these services. Some customers who were resistant to digital coronavirus crisis. banking before the pandemic have gotten the hang of Most bank regulation is — how should we put it? — not cool. Castilla saw the Twitter post, reached out to Cuban for depositing checks and doing other tasks from their smart- Important? Sure. But cool? Not so much. advice, and together they quickly drew up plans for Citizens phones. Still, for a brief moment in February, it looked as though to create a no-fee overdraft program to advance cash to So the renewed surge may not translate into a full the Federal Deposit Insurance Corp. was prepared to customers waiting on stimulus checks from the Internal comeback in a post-pandemic future. do something that passes for cool in the world of bank Revenue Service. “I don’t think the banks that don’t have them will start supervision: modernize its sign for the digital age. Castilla and Cuban next set their sights on helping looking,” DeLapa said. —Miriam Cross When the idea of deposit insurance was first introduced borrowers navigate the Paycheck Protection Program’s in the United States, the government needed a way to complicated forgiveness process. As consumers curtail spending, coin supply dwindles convince customers that their savings would be safe from With help from Teslar Software, they created ppp.bank, a financial panics. website borrowers can use to prepare forgiveness applica- When banking executives scrambled to overhaul their In 1934, regulators eventually settled on a heavy, brass tions. The site went live in late May — just 10 days after business for a socially distanced world, so much emphasis sign to be displayed inside branches that read, in all caps Cuban emailed Castilla to brainstorm solutions. “Mark set was put on — and so many congratulations shared over and somewhat long-windedly: “Deposits in this bank insured the challenge — I just responded to it,” Castilla said. — electronic payments. under U.S. government insurance plan.” “I called a couple of fintech friends and found one willing It was at that moment that old money bit back. Ever since, deposit-taking banks have been required to to write a guided application,” she added. “Mark ended up As small businesses struggled to stay afloat while display an official “symbol of confidence” from the FDIC, and bankrolling the hosting costs associated with it. We’ve got consumers stayed home, about $40 billion in change went over time, the agency’s bold, block-lettered shorthand name hundreds of thousands of small businesses that are able to dormant in American households, cutting coin circulation to became synonymous with the full faith and backing of the use it.” — Paul Davis a trickle. Suddenly, takeout restaurants and retailers couldn’t U.S. government. make change, and laundromat users were out of luck. But with fewer customers using traditional bank branches, Drive-through banking recovers Banking industry representatives and government officials that big metal placard feels a bit dated. Agency officials led by the Federal Reserve and the U.S. Mint assembled over decided it was time to change the FDIC sign to reflect the Drive-through teller windows were a ubiquitous feature at the summer to develop a plan while new coin deliveries were fact that many day-to-day banking transactions now take branches for decades, but their popularity waned as digital rationed. Major retailers like Kroger and 7-Eleven, along with place online or in hip coffee-shop-style cafes. banking became more sophisticated and customers no many banks, started awareness campaigns and offered cash Notably, in its regulatory filing, the FDIC asked if it should longer had to leave home to deposit a check. incentives and even Slurpees to anyone who brought in their consider modifying its sign “beyond a two-dimensional Though some survived, many ended up being converted coins. placard.” into drive-through ATMs. The Fed’s coin inventories were at their lowest in June, a What that means, we’re not sure, because in April the This year, drive-through windows are back. spokesperson for the central bank said. Coin allocations to FDIC suspended its modernization process, citing the Particularly at the beginning of the pandemic, customers financial institutions have increased steadily since local pandemic. But whenever the process starts back up again, who would typically visit branch lobbies flocked to drive- economies began to reopen, but order limits remained in we’ll have suggestions at the ready. A hologram perhaps? throughs, getting an extra layer of protection from human place on banks late in the year. The Fed spokesperson said — Brendan Pedersen

americanbanker.com December 2020 American Banker 23

023_ABM1220 23 11/12/2020 10:46:05 AM BankThink

Don’t let confirmation bias steer you wrong

By Bob Meara

We’ve all read them: confidently written distancing guidelines” is a challenge, articles by researchers presuming that a versus 25% of regional banks and 9% single survey constitutes the definitive of national banks. In our view, this last word on a topic. I’ve been the guilty clearly shows that CFIs are too reliant party too but learned my lesson (I think) on the branch channel for service and and machine learning are just a few from a community banker a few years support. It could be that branch footfall examples. ago. After patiently listening to my declined more among larger institu- Now, believing a given technology is summary of findings, he responded with tions. Social distancing is less challeng- important doesn’t mean a banker is something like, “But, my customers …”. ing when lobbies aren’t crowded. investing in it. In fact, a minority of In other words, “Your fancy research Large banks, which lead the industry banks have implemented the technolo- doesn’t apply to my market.” in customers’ use of digital, are yet the gy that most say is “important” to We all are susceptible to confirma- most concerned about achieving even furthering industry disruption. Consider tion bias — a tendency to interpret and higher levels of digital engagement cloud services: While 83% of surveyed recall information that supports our (30%). Large banks get it; digital return banks assert that cloud is “critically beliefs. I think entrenched confirmation on investment is maximized only when important” or “very important,” just 44% bias is at work among many community customer use is also maximized. CFIs say they have implemented a cloud bankers when it comes to customers’ are far less concerned (18%) about migration strategy (34% among CFIs), changing preference for digital-first increasing their customers’ digital use. and another 16% plan to do so. engagement. Let me explain. The survey also asked, “How import- Lastly, perceived obstacles to the In July, Celent collaborated with ant will the following technologies be in investment in digital customer engage- Arizent, the parent company of advancing future industry disruption?” ment technologies weren’t as we American Banker, on research to gauge Three things stood out. expected. Beyond the usual barriers of how COVID-19 has disrupted customer The first is the sheer number of cost and data privacy concerns, some interactions. The results provide stark technologies banks consider important. of the most frequently cited obstacles evidence that large banks and commu- A majority of banks deemed 14 of the 18 by CFIs remind me of that “But, my nity financial institutions are worlds surveyed technologies critically or very customers … ” comment. Only this time, apart in their understanding of the important. For example, enhanced I’m not buying it. Nearly two-thirds of seismic changes in consumer behavior security and fraud mitigation was CFIs cite “customer preference for accelerated by the pandemic. CFIs “critically important” to two-thirds of in-person engagement” as a reason not don’t seem to appreciate just how far banks — the most of any technology. to invest, followed by 55% citing behind the large and midsize banks Banks broadly understand the impera- “problems with customer access to they already are. The pivot to digital is tive of safeguarding customer informa- technology,” implying a persistent a big one, yet they seem unconcerned. tion in an increasingly digital world. digital divide. In other words, customers Here are examples from the July survey. The second is that CFIs don’t value wouldn’t use the stuff even if CFIs made The survey asked, “What are the top technology the same way larger banks it available. This sounds like confirma- 3 challenges your organization is facing do. In nearly every case, fewer CFIs tion bias to me — or wishful thinking. in its efforts to engage and support rated the technologies important customers during the pandemic?” 42% compared to larger institutions. Cloud Bob Meara is a senior analyst in Celent’s of CFIs indicate “adhering to social services, analytics, artificial intelligence banking practice.

24 American Banker December 2020

024_ABM1220 24 11/11/2020 9:09:30 AM BackPorch

DAVID KUSLER SCOTT “It’s a huge flare-up right now. It’s not unheard BROWN of to have a wedding with 500 people invited “We can’t even get and everyone shows up. It doesn’t take a rocket people to properly wear scientist to figure this out: Some of the spike is masks, which is by far the our own doing.” most effective means of President and CEO of the $54 million-asset Bank of Hazleton containing the virus.” in North Dakota, fretting about the economic impact as the Upper Midwest becomes a hot spot for coronavirus cases Chief economist for Raymond James, predicting a coronavirus drag on the economy will last “a lot longer” in some states DENISE GARY COHN SCOTT “I just don’t think you can really be “They targeted Black a one- or two- or three-branch JOHN W. communities and regional bank in this world with the ROGERS JR. dumped debt and said, legal component, regulatory and “You see your grandpar- ‘Look at those stupid digital needs that you have today.” ents not treated fairly, and people who took on costs your parents, and your they could not afford.’ “ resentment builds. I don’t New York Fed board member, see white supremacy. saying home sales since the But many well-meaning 2008 recession have bounced back for all but Black families whites don’t understand because past risky mortgages the challenges.” drained their wealth Founder, chairman and CEO of Ariel Investments, who is Black, on his impatience BILL with CEOs claiming to have DEMCHAK vanquished bias “We’re going to have to get back to charging basic SHERROD fees for basic products and be less reliant on BROWN some of the gotcha fees “I think if some bankers that historically have go to jail, that stuff stops supported the industry.” Former National Economic Council happening.” PNC Financial chairman director, who angered community U.S. senator, D-Ohio, calling and CEO, saying he expects bankers by saying they must merge for bigger penalties against

overdraft charges to attract or invest in technology to survive GETTY IMAGES banks that repeatedly violate more regulatory scrutiny anti-money-laundering laws JENNIFER JANE FRASER LACLAIR “We bankers like to focus on return on equity as a number that measures financial performance. But “Our reserves suggest for society today, the word ‘equity’ doesn’t appear that we are expecting on a balance sheet. Equity is about the changes credit to deteriorate we need to make to deliver social justice.” pretty precipitously.” President and incoming CEO of Citigroup, arguing that it Ally Financial’s chief financial is outdated to think about a corporation’s duty to society officer, predicting rising losses separately from its duty to shareholders next year

americanbanker.com December 2020 American Banker 25

025_ABM1220 25 11/11/2020 3:41:33 PM The ideas you need. The issues that matter. Leaders is a forum where the most inﬂ uential minds weigh in on the topics shaping your industry. Participate in livestreams, view on-demand videos and listen to podcasts — shape your own strategies with these insightful perspectives.

Ira Robbins John Asbury Diversity & Inclusion Ronald Oliveira Stuart Sopp Disruption & Innovation Rosilyn Houston Dr. Tanu Luke Automation & AI Javier Rodriguez Soler Karen Elinski Policy & Regulation Stephanie Epstein Claudine Gallagher Erminia Johannson The Future of Money Michal Katz The Future of the Workplace Oliver Jenkyn

CALIFORNIA STATE HOW BANKS TREASURER MA TALKS CAN LEAD POSITIVE DIVERSITY CHANGE Fiona Ma Malia Lazu California State Treasurer Chief Experience & Culture Ofﬁ cer, Berkshire Bank

Join the conversati on at americanbanker.com/leaders

Leaders0C4_ABM1120 House Ad_WIB2020.indd 4 3 11/12/20209/17/20 9:53:41 12:16 PMAM