TUESDAY3pt AUGUST stroke, 100% 31 size, 2021 for VOL.top of 186newspaper No. 167 = 8.9931 inches AMERICANBANKER.COM Follow us on Twitter @AmerBanker Barclays buying $3.8 billion Gap 5 card portfolio from Synchrony The move is part of CEO Jes Staley’s broader Meet the new boss strategy to beef up the British bank’s U.S. consumer business and strengthen Sandra Thompson, the recently appointed acting FHFA director, relationships with retailers who may has2.5pt tak enstroke se ve= 6.75ral inchesactions to strengthen the agency's housing and eventually need investment banking fair-lending focus, including: services. Page 5 See story on page 2 Brainard’s diaries show calls Issued policy requiring fair-lending reports from Fannie 6 with Warren, Biden-Harris Fed team 2pt stroke = 5.75 inches Mae and Freddie Mac Federal Reserve Gov. Lael Brainard spoke with the Biden-Harris Federal Reserve Eliminated “adverse market” fee meant to recoup transition team in January and with the pandemic-related losses president’s Council of Economic Advisers in May, her calendar shows. Page 5 Announced1.5pt stroke = 4.6667Fannie inches plan to include rental payment history in underwriting Shareholders call on Mexican 7 shadow bank to sell U.S. unit Signed agreement with HUD aimed at improving Shareholders in the troubled Mexican fair-lending enforcement nonbank lender Credito Real will vote 1pt stroke = 3 inches on proposals to sell the company’s U.S. Proposed housing goals with a new category for operations at a meeting on Sept. 10. Page 6 lending in minority communities Credit unions enlist fintechs to 8 vie with commercial, challenger banks Some credit unions are leaning heavily on dailybriefing Amazon jumps on the tech partners to speed payments and loan 3 buy now/pay later train decisions, offer online financial planning The e-commerce giant will partner with sessions and deploy virtual assistant ‘Night and day’: FHFA’s Affirm to offer installment payments as technology developed at MIT. Page 6 1 priorities rapidly changing point-of-sale credit becomes increasingly under new leader popular as a finance option.Page 3 Billionaire-backed stock picker The Federal Housing Finance Agency 9 says bubble talk is for boomers in the Trump administration had been The number of credit unions Blue Whale’s total managed funds recently preoccupied with Fannie Mae and Freddie 4 is shrinking. Can the trend be surpassed 1 billion pounds. Page 7 Mac’s capital position. Acting Director slowed? Sandra Thompson has shifted the agency’s Regulators are calling for creative alternatives Most banks aren’t ‘future focus to affordable housing and fair lending. to the arduous de novo process. Pairing 10 ready’ — and bankers (See chart above.) Page 2 groups that want to open credit unions with know it lagging institutions would be quicker and Just 6% of banks say they’re using cloud Regulators urge banks to could help preserve the sector, one credit computing, artificial intelligence and other 2 assess risk in teaming with union service organization says. Page 4 technologies to improve efficiency and fintechs maximize performance. Here’s what the The Fed, FDIC and OCC have issued other 94% should be doing. Page 8 guidance that says community banks should consider risk factors such as financial strength and business experience when evaluating potential fintech partners. Page 3 TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 2

development at Enterprise Community potential borrowers. AFFORDABLE HOUSING Partners. “It’s just night and day in terms of “We’ve been advocating for this for years, a change in priorities from what it previously because renters need an opportunity to had, as an agency.” build their credit,” said Doug Ryan, interim ‘Night and Since Thompson took the helm, the FHFA vice president for policy at Prosperity Now. has eliminated the adverse market fee on “Often renters, particularly renters of color, day’: FHFA’s most refinanced mortgages that was put in but also immigrant communities and place to protect Fannie and Freddie from others, have nonexistent credit files and pandemic-related losses, but that also raised credit portfolios, and this is an opportunity priorities costs for homeowners. to build it up.” Earlier this month, the FHFA also entered Factoring rental payments into a potential rapidly into an agreement with the Department of borrower’s credit assessment could also be Housing and Urban Development aimed at a step toward addressing the racial gaps in strengthening fair-lending enforcement for homeownership rates, said Jakabovics. changing the GSEs as well as the Federal Home Loan “Incorporating [rental payments] is banks. Also this month, the FHFA proposed really, really powerful, and I think reflects under new affordable housing goals for Fannie and the reality that there are a lot of people Freddie that included a subcategory who could be homeowners [and] should covering lending to minority neighborhoods be homeowners, and that the system isn’t leader for the first time. necessarily well-geared to adapt to the David Dworkin, the president and CEO circumstances that people are dealing with By Hannah Lang of the National Housing Conference, called now,” Jakabovics said. August 27, 2021 the actions the FHFA has taken under The disparity between Black and WASHINGTON — In her two months Thompson “extremely encouraging.” white homeownership has been widely as acting director of the Federal Housing “We absolutely need credit standards to be documented, and is even larger today Finance Agency, Sandra Thompson has relaxed, but they need to be relaxed in a way than it was in 1960, before the Civil Rights overseen a major shift in the regulator’s that is responsible, and that really embraces Act passed. The U.S. Census Bureau found focus, affordable housing advocates say, the idea of compensating factors,” he said. “I that as of the second quarter of 2020, Black pointing to policies her team has put in place think that certainly, Director Thompson gets homeownership stood at 47%, compared to bolster fair lending and expand access to that, and that we can responsibly expand with 76% for white Americans. credit for first-time homebuyers. the credit box without adding unnecessary That effort by Fannie is indicative of a President Biden named Thompson acting or irresponsible risk.” wider shift at the GSEs that has taken place director of the agency June 23 after removing The FHFA also announced this month as of late, Ryan said. Mark Calabria as head of the agency in that Fannie would begin to incorporate “I also see just from Fannie and Freddie, the wake of a Supreme Court ruling that rental payment history into its mortgage kind of informally, a new vigor in investing said the FHFA’s leadership structure was underwriting process starting in September, and exploring new opportunities to meet unconstitutional. a move that aims to increase access to their mission,” he said. Calabria — appointed by former President homeownership by widening the pool of Dworkin pointed to the FHFA’s new Donald Trump — largely devoted his tenure to putting the government-sponsored enterprises on a path out of conservatorship. Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 Under his leadership, the agency finalized Phone 212-803-8200 AmericanBanker.com a post-conservatorship capital framework 3pt stroke, 100% size for top of newspaper = 8.9931 inches and entered into an agreement with the Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440

Treasury Department to allow Fannie Mae 2.5pt stroke = 6.75 inches and Freddie Mac to retain earnings and hold Managing Editor Dean Anason 770.621.9935 Reporters/Producers significantly more capital. 2pt stroke = 5.75 inches But many expressed concern that Calabria Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 prioritized the safety and soundness of Miriam Cross 571.403.3834 1.5ptWashington stroke = 4.6667 inches Bureau Chief Joe Adler 571.403.3832 the GSEs over the fundamental mission of Jim Dobbs 605.310.7780 Fannie and Freddie: facilitating affordable 1ptExecutive stroke = 3 inches Editor, Technology homeownership. Those same observers are Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 encouraged by what they see as a sea change Hannah Lang 571.403.3855 under Thompson. Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 “The pace of announcements coming Contributing Editor Daniel Wolfe 212.803.8397 out of FHFA is fairly impressive,” said Kevin Wack 626.486.2341 Andrew Jakabovics, vice president of policy

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 3 leadership as one of the reasons behind the “We think, along with lots of other people, guide suggesting that banks consider six announcement of the program at Fannie, that they could do a lot more in the three key pillars of due diligence when evaluating and added that he expected Freddie would components of the three underserved potential fintech partners. Banks should soon follow with a similar program. markets of duty to serve, and I honestly assess a fintech’s: business experience “I think there are two things here,” he said. believe that Fannie and Freddie think that and qualifications; financial condition; “One is the innovation itself is important, but too,” said Ryan. compliance with laws and regulations; the second is that the idea that the regulator Van Tol agreed, adding that Fannie and risk management and control processes; is looking at these kinds of innovations and Freddie have work to do to expand access information security; and operational approving them is also important.” to credit, which could be accomplished resilience, according to the guide. Affordable housing advocates also say through robust affordable housing goals and The regulators said the guide is intended as they are heartened by the memorandum of duty-to-serve plans. a resource — not a mandatory set of new rules understanding that the FHFA reached with “We’re hoping for, when it comes to with which to comply. It is part of ongoing HUD earlier this month that will enable things like the affordable housing goal, or efforts “to promote and support the adoption the two agencies to share information and the duty to serve, an approach that says that of new technologies by financial institutions, coordinate investigations and compliance we have real problems when it comes to particularly community banks,” as they try reviews. Although it’s unclear as of yet what affordable housing, and the role that Fannie to “offer enhanced products and services the implications of that agreement might and Freddie once played more broadly on to their customers, increase efficiency, and be, many agree that it sends a clear message some of these issues, they no longer play, reduce internal costs,” the FDIC said in a that the FHFA is serious about fair lending. and maybe in some cases, they’re part of the statement. “FHFA, while they’re not the front problem,” he said. “Due diligence is an important component and center of fair housing, they have an Ideally, Thompson will get the GSEs of an effective third-party risk management obligation as a regulator to ensure that back to their core mission, “appropriately process,” the regulators noted in the guide. Fannie and Freddie and their seller services balancing their mission responsibilities “During due diligence, a community are in compliance with fair housing and fair along with the requirement that they be bank collects and analyzes information to lending laws,” said Ryan. “That’s sending managed in a safe and sound way,” said determine whether third-party relationships a signal that this is important to the new Dworkin. would support its strategic and financial leadership at FHFA, and if nothing else, “If the enterprises aren’t going to be goals and whether the relationship can be that’s pretty important.” involved in expanding this liquidity for the implemented in a safe and sound manner.” Under Thompson in July, the agency affordable housing market, why do they released a policy statement on fair lending, exist at all?” he said. affirming that it will not tolerate illegal CONSUMER LENDING discrimination in mortgage lending. “Broadly speaking,” Thompson “is RISK MANAGEMENT clearly troubled by and trying to find ways Amazon to address the fact that the enterprises are not purchasing very many loans to Black Regulators jumps on the borrowers, and I think that’s been expressed in a variety of ways,” said Jesse Van Tol, CEO urge banks to of the National Community Reinvestment buy now/pay Coalition. Many pointed to Fannie and Freddie’s assess risk in later train “duty-to-serve” plans as next on the agenda for the FHFA. Under the Housing and teaming with By John Adams Economic Recovery Act, the GSEs have a August 27, 2021 “duty to serve” three specific underserved Buy now/pay later financing has emerged markets — manufactured housing, rural fintechs as a major alternative to credit card housing and affordable housing preservation borrowing since the pandemic began, and — and are required to prepare plans as to By Jim Dobbs now Amazon is getting into the act through how they intend to fulfill that requirement. August 27, 2021 a partnership with the fintech Affirm. Fannie and Freddie’s duty-to-serve plans Federal regulators on Friday issued new The e-commerce giant began testing for 2022 through 2024 were unveiled in guidance to help community banks assess Affirm’s point-of-sale credit product on January under Calabria, and the comment risk as they increasingly consider partnering Friday in the U.S., and plans to roll it out period on the plans closed last month. with financial technology companies to meet more broadly in the coming months. Several in the affordable housing space now customers’ evolving digital preferences. Amazon’s customers can split purchases of hope that under new leadership, the FHFA The Federal Reserve, the Federal Deposit $50 or more into monthly installments. will direct the GSEs to craft stronger duty-to- Insurance Corp. and the Office of the Fintechs such as Affirm, PayPal, Klarna serve plans. Comptroller of the Currency released a and Afterpay offer buy now/pay later

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 4 loans that allow consumers to split large chartering process, they can add a field of purchases into a series of payments, usually FIELD OF MEMBERSHIP membership and come out of the cocoon over three or four months. The providers looking like a new butterfly,” Pantea said. pitch the product as having simpler terms The benefits for the credit union would than a credit card, as well as an opportunity The number of include an expansion of the current field of to avoid revolving debt. Affirm’s clients membership, significant funding infusion include Walmart, Amazon’s primary rival, credit unions from those members and a likely shift in and Peloton. strategic direction. The buy now/pay later provider pays And, maybe most important, the group the merchant upfront, with the consumer is shrinking. would only be subject to a new field of paying the installments to the provider. membership approval, which is much less Affirm charges a fixed amount of interest Can the trend cumbersome than the NCUA’s chartering that the consumer agrees to at the time process. of the loan, which the firm says is a way to The hoops interested groups must jump avoid compounding debt. Each transaction be slowed? through to form a de novo credit union are is underwritten when a consumer uses both legendary and dreaded. Affirm at checkout. By Ken McCarthy For example, Clean Energy Federal Credit PayPal is the market leader in buy now/ August 27, 2021 Union in Boulder, Colorado, was one of four pay later lending, controlling about at 45%, The credit union industry has had few credit unions chartered by the NCUA in 2017. according to research published by Arizent, de novos and a flurry of mergers in the past Its chairman, Blake Jones, said in an American Banker’s parent company. few years, so the National Credit Union interview in 2017 that in some situations it Affirm has about a 13% market share, but Administration is exploring ways of breathing took months to even get a response from the its partnership with Amazon, the nation’s new life into the sector. NCUA during the process, or an issue would largest online retailer, should help it narrow The total number of credit unions in the be reassigned to another person and the the gap with PayPal. Most buy now/pay U.S. fell from 5,785 at the end of 2016 to 5,099 credit union would have to redo some of the later transactions take place online, making last year, with most of those losses due to same work. Amazon a natural fit for the service. mergers. Since 2016, the NCUA has granted “In general, the process is incredibly Buy now/pay later lending has become only 10 new charters, including two in 2019 inefficient. It’s incredibly frustrating,” Jones controversial as regulators in the U.K. and one last year. Those aren’t nearly enough said at the time. “It’s a rough process. It’s and California are considering tighter startups to reverse the contraction. painful. It needs a lot of improvement.” controls following studies that have shown One credit union service organization It took Maine Harvest Federal Credit borrowers can accumulate debt quickly. believes the answer may be marrying groups Union more than six years before the NCUA Nonetheless, several tech giants are moving looking to form credit unions with existing finally granted its charter in 2019. into the business, and investors are flocking charters that are in need of a boost, and it is Scott Budde, CEO and co-founder of to it. Square recently announced it is buying now working on its first potential pairing. the Unity, Maine, credit union, said that in Afterpay for $29 billion, and Apple recently Victor Pantea, manager of marketplace fairness to the NCUA, the group was raising debuted a buy now/pay later product of alliances for the CUSO CU* Answers, said grant capital for about three of those years. its own. Meanwhile, Klarna, a Swedish an association in Detroit that represents “We wanted and needed to start with a lender, has raised close to $2.3 billion in more than 200,000 Chaldean Catholics was fair amount, and that takes a while,” he said. three separate funding rounds since last considering launching a de novo but is now “Also, we spent a good year on research — September. looking to partner with an existing credit probably more than most.” union. At least one new credit union started Either a state or a federal charter could down the partnership road but had less than work as a partner for the Catholic association, encouraging results before ultimately going Pantea said. One of the primary benefits of a de novo. federal charter is the ability to branch across The NCUA approved a charter for state lines, but the group is more interested Community First Fund Federal Credit Union in offering services via online and mobile in Lancaster, Pennsylvania, in June. It was channels than it is in traditional brick and just the second federal charter granted this mortar branching. year, and the entire process was completed in The ideal partner would be a credit union less than 12 months. that’s lagging because of a loss of sponsor Joan Brodhead, Community First’s senior group, economic obstacles, insufficient executive vice president and chief strategic capital or maybe even a lack of management initiatives officer, said early in the group’s succession, he said. investigation into starting a credit union “Instead of going through all the rigmarole that it considered merging with existing of starting a de novo and going through the institutions and even contacted state and

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 5 federal regulators to learn how a merger the list that are not going out of business but the terms and price during negotiations with might work. merging because they’ve exhausted all other Gap. NCUA staff members provided guidance, options,” he said at the recent board meeting. The British bank is among the top 10 she said, and the group ultimately approached issuers of credit cards in the U.S., but, about a half dozen existing credit unions and like most lenders, it has seen its credit suggested holding exploratory discussions. CONSUMER LENDING card balances decline sharply during the “But we found there was virtually no pandemic. Barclays Bank Delaware, its U.S. interest on the part of those credit unions,” subsidiary, reported roughly $19.7 billion in Brodhead said. “One group responded to Barclays credit card loans at June 30, down about 9% learn more about our plans, but we were from a year earlier. asked by NCUA to limit our discussions since buying Barclays’ U.S. card partners include the they were working with that credit union on National Football League, American Airlines, undisclosed financial plans.” AARP, JetBlue, Priceline and Wyndham NCUA board Vice Chairman Kyle $3.8 billion Hotels & Resorts. Barclays is also rolling Hauptman said during its most recent out new installment loan products that meeting that helping de novos was one of Gap card merchants can use to offer customers at the his priorities when he joined the agency. He point of sale. said that is partly because the industry loses Barclays CEO Jes Staley has prioritized a “couple hundred” credit unions a year and portfolio from investing in the bank’s U.S. consumer needs to offset those departures. business, telling analysts in July that he “It’s not NCUA’s job to say how many Synchrony believes deeper relationships with big-name [credit unions] there should be, but it is our merchants could bolster its investment job to say if someone can start a stable credit By Polo Rocha banking business here. union, we ought to make that easy to do,” he August 27, 2021 “Corporations definitely look at both their said. “I don’t think we can speak as an agency Barclays is buying a $3.8 billion portfolio wholesale relationships and those that will about financial inclusion and about access of Gap retail credit cards from Synchrony provide something like a co-brand card, and … if we are making the de novo process one Financial, underlining the British bank’s therefore it fits very well within our portfolio,” minute harder, one form harder than it has to ambitions to beef up its U.S. consumer Staley said. b e .” business. Hauptman’s senior advisor Sarah Bang The deal, announced Friday, comes said to her knowledge the idea of merging four months after the British banking giant FEDERAL RESERVE a new field of membership into an existing had struck a deal with Gap to become the charter has never been done, but she retailer’s credit card issuer starting in May added that there was a recent situation that 2022. Synchrony currently issues co-branded Brainard’s would have been a perfect fit for such an and private-label credit cards for Gap and its arrangement. affiliates, but the two are parting ways after diaries show A credit union in the District of Columbia talks to renew their partnership faltered. recently merged with another, but its field of Gap’s other brands include Old Navy, membership was almost identical to that of Banana Republic and Athleta, and the total calls with a group trying to form a de novo, according portfolio had about $3.8 billion in average to Bang. “And I thought ‘Dang it, they could receivables as of June 2021. Barclays says it Warren, have stayed up and running and not been expects to complete the portfolio acquisition merged in,’ but no one thought to say, ‘Well, in the second quarter of next year. why don’t we get these two groups together,’ The agreement values the portfolio at Biden-Harris ” she said. roughly $3.9 billion, which amounts to a Pantea has spoken with the Michigan 2.5% premium for Synchrony, or about $100 Fed team Department of Financial Institutions and also million, according to a research note from met last week with the NCUA to talk about the Keefe, Bruyette & Woods analyst Sanjay By Bloomberg News concept and the Detroit-based group’s plans. Sakhrani. The terms of the deal were in line August 27, 2021 “Everybody on the regulator side is kind of with expectations, Sakhrani wrote. The Wall Federal Reserve Gov. Lael Brainard spoke mulling it about,” he said. Street Journal had reported in April that such with the Biden-Harris Federal Reserve NCUA board member Rodney Hood said a a deal was in the works. transition team in January and with the lot of credit unions are being lost because of Synchrony has said it will redeploy the president’s Council of Economic Advisers in a lack of succession planning or competitive capital into share repurchases and investing May, her calendar shows. products and services rather than poor in “higher growth programs.” Speaking on an The meeting with the Fed transition performance. April earnings call, CEO Brian Doubles said team occurred Jan. 8 and included Gary “Nothing hurts me more than when I read Barclays had been “a lot more aggressive” on Gensler, who is now Securities and Exchange

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 6

Commission chairman. Brainard’s diaries called by a group of minority shareholders, were provided to Bloomberg in response whom she declined to name. FINTECH to a request and had not been previously The vote will come a month after Chief released. Executive Carlos Ochoa hyped the division, Brainard is the only Democrat on the Credito Real USA Finance, as a bright spot Credit unions Fed’s Board of Governors in Washington. in its portfolio of loans. Credito Real’s bonds Bloomberg reported Thursday that Biden tumbled earlier this year after it increased enlist fintechs advisors are considering recommending nonperforming loans in its audited 2020 her to President Biden as the next Fed vice accounts, shortly after the collapse of fellow chair for supervision. That post is currently nonbank lender Alpha Holding SA sparked to vie with occupied by Randal Quarles, whose term worries about shadow banks in Mexico. in the role expires in October. Bloomberg In an emailed statement on Thursday, commercial, previously reported that Biden considered the company said that the shareholders’ her for Treasury secretary before picking proposals take up key ideas that Credito former Fed Chair Janet Yellen. Real has expressed as part of its long-term challenger Brainard’s diary also shows she has had strategy. fluid contact congressional members over the “We have already taken initial steps to banks past several months, including Sen. Elizabeth strengthen corporate transparency and Warren, a Massachusetts Democrat and governance and prioritize the company’s top- By Frank Gargano member of the Senate Banking Committee, performing businesses,” the company said. August 27, 2021 to Reps. Maxine Waters and Patrick McHenry, Shareholders will also vote on selling a The ongoing challenge for credit the Democratic chair and Republican Mexican company that is part of the small- unions of how best to upgrade technology ranking member of House Financial Services business portfolio, according to the filing late to compete with traditional banks and Committee. on Wednesday. challenger banks is an internal conflict that Brainard either sits on or leads nearly every Greg Palffy, a trader and portfolio manager many believe has an external resolution. working committee at the Fed board, and her at Cazadores Investments in London, said the Developing new technology and calendar also shows the scope and intensity asset sales could bring in from $150 million integrating it into a credit union’s suite of of her job, including financial-stability calls to $200 million. He called the company’s services is a time-consuming and costly with the Bank of England to a virtual meeting perpetual bonds, which are trading below 77 process. Many small institutions simply with the chief executive of PayPal. cents on the dollar, one of the most interesting don’t have the economies of scale required buying opportunities in emerging-markets to undergo a digital transformation and corporate credit. retrain staff. M&A If the sales are successful in the fourth Credit unions have partnered with firms quarter and Credito Real can convince like Posh Technologies, which grew from bondholders that it can repay a 170 million MIT’s artificial intelligence lab in 2018 Shareholders ($185 million) Swiss franc bond due as part of the Spoken Language Systems February, Palffy said the perpetual bonds group, and Alacriti, which offers cloud- call on could jump into the mid-90s. Credito Real native payments processing software, to do also needs to roll over nearly 6.5 billion pesos things like increase decision-making speed ($320 million) in bank financing this year. through artificial intelligence and improve Mexican However, Palffy also said pointed to member-facing mobile applications. Credito Real’s disclosure in its 2020 audited “We knew that we wanted to use our own shadow bank statements that showed 46% of its loan data to help augment or help make decisions portfolio was composed of accrued interest. in processes like creditworthiness, and we “That is a really high ratio, so that puts its knew there was a better way to do it,” said to sell U.S. asset quality into question and caused Mark Rowan, chief technology officer at the some investors to sell especially after what $2.2 billion-asset Credit Union of Colorado unit happened with AlphaCredit’s restatement in Denver. and default.” Recently, the credit union partnered with By Bloomberg News It is unclear which shareholders have New York City-based Scienaptic, whose August 27, 2021 called for the Sept. 10 meeting, where there AI platform will allow the institution to Shareholders in the troubled Mexican will also be a vote on reducing the size of the reduce credit decision times and enhance nonbank lender Credito Real will vote board. consumer access to lines of credit. on proposals to sell the company’s U.S. “We came across a fintech that allowed operations at a meeting on Sept. 10. us to use machine learning and artificial A Credito Real spokesperson told intelligence to utilize that data to help with Bloomberg News that the assembly had been that credit scoring,” Rowan said. “We’ve

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 7 definitely seen the value-add of utilizing remotely. our growth,” McAnelly said. a service that could look at thousands of “Our desire at California Credit Union The increasing focus on digital channels data points, and return a decision within is, we’re all about relationships,” CEO from consumers has left credit unions seconds versus the traditional method of Steve O’Connell said. “Since we only have strategizing which areas of infrastructure employees having to look at certain credit 165,000 members when compared to Wells would benefit most from a technological attributes.” Fargo or Bank of America, we can have a boost, and how it will all come together to Partnerships between fintech firms more dedicated relationship team that will benefit the member experience. and credit unions aren’t new, nor are they use Ameriprise’s tools that better allow us “Our members count on us to bring them unique to credit unions. Large banks, to focus on deepening said connections. services they need and new advancements midsize banks, community banks as well as The way we’re going to do that is through in technology, sometimes even before they Visa and Mastercard all work with fintech the tools and the software that Ameriprise know they need it,” said Brett Engstrom, partners. is providing.” chief information officer at the $5.5 billion- In addition to fintechs, credit unions are Strengthening connections, while also asset Veridian Credit Union in Waterloo, also partnering with other types of financial working to foster new ones, means listening Iowa. service firms to aid growth efforts and to feedback from members and pivoting to This month, for instance, the credit union fortify technology. Ameriprise Financial offer new services. According to research announced that it will work with Alacriti, in Minneapolis offers financial planning conducted by American Banker and the a provider of cloud-based payments and technology and services that range from creative experience agency Monigle, money-movement services based in asset management to insurance. Its roughly 61% of consumers in the Generation Piscataway, New Jersey, to enable real- partnerships with credit unions have largely Z age bracket are more comfortable using time payments over The Clearing House’s been a result of the shift in the consumer online and mobile platforms for their RTP network and to accelerate Veridian’s preferences toward digital options. needs, whereas only 39% prefer going into Fedwire modernization. “For the last several years, financial physical branches. Older members from “What’s becoming more and more institutions have been looking for more the baby boomer generation, as a contrast, important for us is the extensibility of our tech-based partners, and a lot of that is still prefer to bank in-person at almost 60%. various partnerships,” Engstrom said. being driven by the membership base,” Peter Duffy, who serves as a managing “A credit union of our size has multiple said Jay McAnelly, group vice president of director at Piper Sandler and assists in partners that we use for the different Ameriprise’s institutional arm, Ameriprise matchmaking credit unions with fintechs, services we offer, and the endgame is to be Financial Institutions Group. Through stressed that arrangements such as these able to blend all those solutions together partnerships, Ameriprise Financial are integral for credit unions seeking and have it be a seamless experience for helps credit unions and other financial success in the long term. our members.” institutions offer their members services “When I speak at strategic planning like digital tools to track goals, online conferences for credit unions, I talk about storage for important financial documents the three-legged stool of credit union INVESTMENT STRATEGIES and virtual meetings with their advisors. strategic planning, which is to say the “We don’t think we’re competing against credit unions that will be the happiest other financial firms,” McAnelly said. “A lot five years from now are the ones who are Billionaire- of times, we’re competing against Google, performing better than most in organic Netflix and Amazon, who have raised the growth, productive mergers and productive backed stock bar when it comes to delivering compelling partnerships with fintech,” Duffy said. customer experiences where they are “Fintechs have become such a part of wanting their information at their fingertips consumer lending in America in such a picker says and in a matter that’s different from before.” short period of time that to ignore their Recently, the $4.1 billion-asset prowess will be fatal.” bubble talk is California Credit Union in Glendale But for arrangements such as these to teamed up with Ameriprise to continue be truly successful, both parties need to pursuing its focus on cultivating member benefit from the agreement. Credit unions for boomers relationships. Recently, the institution gain access to advanced technology and shifted its investment division to the established marketing channels, and in By Bloomberg News Ameriprise platform to bolster its back-end turn the fintechs gain knowledge from their August 27, 2021 infrastructure and strengthen connections credit union partners to help enhance their The co-founder of London-based with its members through individually offerings. Blue Whale Capital, which has made big tailored financial services. With the new “As we help credit unions enhance consistent gains from Silicon Valley bets, platform, California Credit Union’s advisors the capabilities and experience that they has some advice for market veterans will have the ability to create more diverse provide their members, they acquire more warning of another tech bubble: calm down financial planning models and allow the members in their wealth management and buy the dip. members themselves to keep track of goals programs and grow, which in turn adds to As Stephen Yiu’s main fund nears 1

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 8 billion pounds ($1.4 billion) after doubling a bubble and that technology was one of from higher market valuations, reduced its money in four years, the likes of Michael three sectors at the heart of it. operational costs and the agility to thrive Burry are signaling that investors should Michael Burry of “The Big Short” fame, amid uncertainty. beware of frothiness in parts of the tech who successfully bet against the housing So how can banking leaders adapt to this sector. That doesn’t faze 43 year-old Yiu, market before its collapse in the crisis, has growing trend and what technologies are who prefers the reliability of Google over been building a short position in Cathie at the center of this pandemic-accelerated Netflix or brands that are now so ingrained Woods’ ARK Innovation ETF. Her fund, shift? in the minds of millennials that the dot- which returned 149% last year, invests In a recent Accenture report, banking com crash of two decades ago is a mere blip heavily in tech firms identified as so-called leaders detail where they stand with in their browsing history. disrupters such as Tesla, Coinbase and operational maturity, what technologies People who are “say maybe 10 years Zoom. they’ve implemented (think: automation, older than me, so in their 50s, they probably Blue Whale’s total managed funds artificial operation, blockchain) and how were in the market at the time, and they recently surpassed 1 billion pounds, with they plan to adjust their business models to got burnt,” Yiu said in an interview at his Hargreaves’ own stake now worth around reach a future-ready state. Mayfair office. “They still think that tech 200 million pounds, according to Yiu. Banking leaders recognize they have today is the same thing as what happened Yiu has a team of 12 employees, four of work to do. then, and is going to go bust.” whom joined this year, with an average age Case in point: Only 6% say they are “Google is not going to go bust. Microsoft of about 35. He says the team is relishing future-ready — while 37% expect to be is not going to go bust,” added Yiu. “I mean, being back together after lockdown, citing there by 2023. The vast majority of leaders if the shares go down in any shape or form, its collaborative decision making as a driver have little choice but to undertake a no- you buy it. It’s just like, there is no bubble.” of the firm’s success, as well as lunchtime holds-barred transformation strategy to Yiu was at university during the dot- crazy golf games in the office. inject intelligence and digital capabilities com boom, when feverish speculation “When you have a bunch of younger into their operations. drove valuations of internet-related shares people, I think we probably are a bit more Banks have built their historic to stratospheric heights in the late 1990s, open minded,” said Yiu. “I’ve never really reputations on being steady and solid leading to a punishing bear market that vetoed a decision. That is only possible — traditionally making incremental took years to recover. Now, he says, it’s when everyone is welcoming to that kind of improvements to the efficiency of their different. While many tech companies open environment.” operations. The pandemic has blown apart are still expensive, they are ubiquitous in their comfort zones, and the demands on most peoples’ lives, backed up by solid them to innovate are never-ending. fundamentals and have numerous lines of BANKTHINK Key integrations are vital to accelerated business that are largely profitable. digital transformation. Blue Whale’s top holdings are more First, banks need to embrace dominated by brands that have become Most banks cloud infrastructure: Future-ready household names over the past two banking leaders integrate cloud-based decades, including Google parent Alphabet, aren’t ‘future infrastructures at scale to better manage Microsoft and Adobe. It also owns payment internal operations and improve customer firms Visa. and Mastercard. That’s served experiences. his investors well, with those that have ready’ — and Second, they need to leverage artificial been there from the start sitting on a more intelligence: AI can support decision- than 110% gain as of Thursday. bankers know making in banking such as automating “I think to the younger generation, most tasks during the lending and approval people actually understand what’s going processes and leveraging algorithm-driven on,” said Yiu, whose firm was started in 2017 it chatbots to improve customer experiences. with a 25 million pound investment from Finally, they need to automate business 73 year-old billionaire Peter Hargreaves. “If By Manish Sharma processes. Digitizing business processes for you look at our top 10, at one point, we are August 27, 2021 better ROI is nothing new, but automation probably direct or indirect users of some After a year in which banks have been at scale drives better outcomes and of these services ourselves, whether it’s forced to grapple with the very present augments human workforces, freeing up personally or through business.” challenge of doing business in a pandemic, workers for more complex tasks. many are now ready to refocus on coming We’ve seen growing adoption of these Bigger short? changes in technology and practice by technologies. For example, a large banking Some well-known investors are waving making themselves “future ready.” group transformed its commercial lending red flags at the sector. Richard Bernstein, Future-ready banking leaders use rich process with new digital capabilities. A a prominent bear leading up to the global data for decision-making, augmenting new cloud-based commercial lending financial crisis, warned in June that the workers with technology and employ agile origination system, 60 automation tools, current market passed all his criteria for workforce models. As a result, they benefit AI-assisted assets and predictive analytics

For up to date and complete coverage go to AmericanBanker.com TUESDAY AUGUST 31, 2021 AMERICANBANKER.COM PAGE 9 transformed the bank’s core systems to natural inclinations to automate and and strengthened customer retention by deepen relationships with customers. predicting loan pre-closure propensity. The future, however, demands they apply Aligning business and technology these strengths in new ways. Becoming has paid off: The bank accelerated loan future-ready means fully embracing digital approval time by 26% and can disburse capabilities, taking big, bold approaches to loans under $350,000 three times faster transformation — and achieving new levels than before. In total, the organization saved of operational maturity for true future- $20 million and avoided a potential loss of readiness. $2 billion. However, pitfalls remain. Manish Sharma is group chief executive of It is hardly surprising banking leaders Accenture Operations. q have so far not taken a top-down, cross- functional view of digital transformation. © 2021 Arizent and American Banker. Ever-changing regulatory environments, All rights reserved. fixed cost structures and heavy investment in legacy systems have delayed comprehensive operational change. Accenture has identified key ways to escape this trap. For example, banking executives can edge closer to becoming future-ready by viewing business and technology as two sides of the same coin, with progress measured by the extent they operate in tandem. An instance demonstrating this is joint governance, where company leaders together create a strategic route aligning technology investments with the business blueprint. We know that in many leading banks the chief technology officer and head of operations now report to a single executive who takes a holistic view of innovation. In addition, recognizing technology can augment human talent by capitalizing on the combination of human ingenuity and machine intelligence can be a game- changer. The optimal way to widen talent pools is by applying agile workforce strategies, something many banks already understand: By 2023, 98% expect to have adopted these. Finally, supply-chain ecosystems are redefining competitiveness as a function of cooperation, and building partnerships is critically important for banks rethinking how they operate. Safeguarding the value of assets is a fundamental task of banking, yet many organizations have overlooked their own operational infrastructure as the ground shifts beneath their feet. Banks must evolve fast if they are to stay on top of rapidly changing markets, technology and customer expectations. Banks have the skills and talent to do so — from a traditional affinity for data

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