Artificial Intelligence Is Taking Over Banking. but What Are Its Limitations — and Is the Industry Prepared for a Future Without Those Limitations?

April 2021 | americanbanker.com

Artificial intelligence is taking over banking. But what are its limitations — and is the industry prepared for a future without those limitations?

BEST FINTECHS TO WORK FOR 2021 P. 20 HOW THE PANDEMIC CHANGED BANK MARKETING P. 26

0C1_ABM0421.indd 1 3/24/21 10:59 AM It’s time to hear their voices Access Denied is a revolutionary podcast featuring more than two dozen professionals providing a comprehensive examination of institutional barriers and outright racism across many sectors of ﬁ nancial services.

ABM_0421.indd 2 3/24/2021 12:55:51 PM 0C4_ABM0121.indd 1 1/13/21 6:09 PM Photo: Gettyimages Photo: Table of Contents

Deposits & Withdrawals: Should banks look beyond FICO? p. 4

Credit reports and credit scores are central to the way consumer credit is determined. But do those scores accurately reflect a borrower’s ability to repay? Photo: Bloomberg News Bloomberg Photo:

The ghosts of AI present and future Teller’s Window: p. 10 Connection interrupted p. 6 Artificial intelligence is transforming the U.S. banking industry, influencing verythinge from customer The pandemic forced many banks to rethink their on- service to credit underwriting. But what areas are out boarding and marketing strategies to serve and retain of AI’s reach, and what risks are there in adopting AI customers. A survey by Arizent finds that omes banks aggressively — or not aggressively enough? are making the change more proactively than others.

Bank Marketing: Changing channels p. 26

Banks have had to switch their marketing strategy rapidly during the pandemic, eschewing TV and billboards and turning to online spots and virtual events.

Book Review: The night they drove Best Fintechs to Work For 2021 old Morgan down p. 20 p. 31

This year’s list of the Best Fintechs to Work For shows In “JPMorgan’s Fall and Revival,” former JPMorgan it’s little stuff that makes some workplaces stand out economist Nicholas P. Sargen examines how the — and it’s not Ping-Pong or free kombucha. storied institution navigated the choppy waters of the late 20th century deftly, but not deftly enough to avoid being bought by Chase Manhattan in 2000.

americanbanker.com April 2021 American Banker 1

001_ABM0421 1 3/24/2021 1:58:48 PM Purpose-driven leadership in 2021

Diverse voices. Dynamic ideas.

Leaders addresses the issues that matter most when they matter most. Experts and innovators deliver hyper-relevant perspectives and insights on crucial topics when the industry needs them.

Session highlights from 2020:

Wells Fargo: How to Reinvent A Culture Mary Mack CEO of Consumer Banking and Small Business Lending Wells Fargo

The Critical Decisions Now Facing All CEOs Bruce Van Saun Chairman and CEO Citizens Financial

Join the conversation at americanbanker.com/leaders

023_LeadersABM_0421.indd Ad_0121.indd 2 1 3/24/20211/13/21 12:55:52 6:42 PM FROM THE EDITOR

Volume 131, No. 3 | americanbanker.com

Established 1836 One State Street Plaza, 27th ﬂ oor, New York, NY 10004 By John Heltman Phone 212-803-8200

rtifi cial intelligence has been a consistent Editor in Chief of American Banker Magazine John Heltman 917-456-6240 Senior Designer Nick Perkins theme in science fi ction for decades. In works Contributors Laura Alix, Penny Crosman, Miriam Cross, from Isaac Asimov’s “I, Robot” to William Jim Dobbs, Kate Berry, Allissa Kline, Hannah Lang, Gibson’s “Neuromancer” — which is to say A Editor in Chief Alan Kline 571-403-3846 nothing of fi lms like “2001: A Space Odyssey,” “The Ter- Managing Editor Dean Anason 770-621-9935 minator” and “The Matrix” — humans have thought a lot Executive Editor Bonnie McGeer 212-803-8430 about what the more fantastic implications of increasing- Technology Editor Penny Crosman 212-803-8673 Washington Bureau Chief Joe Adler 571-403-3832 ly lifelike technology might be. BankThink Editor Rachel Witkowski 571-403-3857 There haven’t been any science fi ction novels about Community Banking Editor Paul Davis 336-852-9496 sentient robot bankers, but perhaps that’s because Contributing Editor Daniel Wolfe 212-803-8397 Digital Managing Editor Christopher Wood 212-803-8437 it isn’t really science fi ction at all. Banks haven’t been Copy Editor Neil Cassidy 212-803-8440 at the forefront of developing AI — certainly not to the degree that the largest technology fi rms have — but they Reporters/Producers Laura Alix 860-836-5431 Hannah Lang 571-403-3855 have been avid consumers of the technology, partnering Kate Berry 562-434-5432 Brendan Pedersen 571-403-3878 with or in some cases acquiring AI tech companies Miriam Cross 571-403-3834 Jon Prior 214-629-5894 to enhance their services and streamline internal Jim Dobbs 605-310-7780 John Reosti 571-403-3864 Neil Haggerty 571-403-3837 Gary Siegel 212-803-1560 processes, often with encouraging results. Allissa Kline 716-243-2679 Kevin Wack 626-486-2341

But as Penny Crosman explains in this month’s Executive Director, Brand Studio Michael Chu 212-803-8313 cover story, banks are also wary of AI — either because ADVERTISING of regulatory concerns, cultural reluctance to adopt new VP, Media Sales Brad Bava 212-803-8829 technology or fears that the technology hasn’t reached Midwest/Southwest Shelly Schmeling 312-932-9392 the point where it can bring them a satisfactory return on West Sara Culley 831-438-8408 Midatlantic/Southeast David Cleworth 843-640-3713 the investment. Senior Marketing Manager Jamie Billington 212-803-6099 Regardless of banks’ misgivings, artiﬁ cial intelligence Group Director Custom Marketing Solutions is continuing to develop rapidly, and if banks don’t adopt Virginia Wiese 704-987-3224 Customer Service/Subscriptions [email protected] 212-803-8500 it to bring more e cient service to customers, someone else will. Fintechs are in many cases pioneering the use Licensing and Reuse of Content: Contact our o cial partner, Wright’s Media, for more information about available usages, license and reprint fees, and award of AI in order to provide those services to banks, but in seal artwork at [email protected] or (877) 652-5295. Please note that other cases they are pioneering AI to draw customers Wright’s Media is the only authorized company that we’ve partnered with for Arizent materials. away from traditional brick-and-mortar banks. For the time being, there are many things that AI can do, but there are many more things that AI cannot do. It can’t make decisions particularly well, at least not without a person checking the results. AI isn’t especially CHIEF EXECUTIVE OFFICER Gemma Postlethwaite good at reading human emotions or responding to them, CHIEF FINANCIAL OFFICER Debra Mason which can be a challenge in handling customer service CHIEF STRATEGY OFFICER Je Mancini issues. And AI will never be a person, able to relate to CHIEF CONTENT OFFICER David Evans human customers and provide the personal touch that CHIEF PEOPLE OFFICER Lee Gavin

people tend to want out of a bank. American Banker (ISSN 2162-3198) Vol. 131 No. 3, is published 9 times per year; January/ February, March, April, May, June, July/August, September, October and November/Decem- At least for now. Google maps and Alexa didn’t ber by Arizent, One State Street Plaza, 27th Floor New York, NY 10004. Subscription price: $149 per year in the U.S.; $229 per year for all other countries. Periodical postage paid at seem possible 20 years ago, but today they’re a part of New York, NY and additional U.S. mailing o ces. POSTMASTER: send all address changes to American Banker, One State Street Plaza, New York, NY 10004. For subscriptions, renew- als, address changes and delivery service issues contact our Customer Service department everyday life. As artiﬁ cial intelligence becomes more and at (212) 803-8500 or email: [email protected]. Send editorial inquires and manuscripts to American Banker, One State Street Plaza, 27th Floor, New York, NY 10004. This publica- more sophisticated, banks — and policymakers — need tion is designed to provide accurate and authoritative information regarding the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering to keep an eye to what jobs should remain the exclusive ﬁ nancial, legal, accounting, tax or other professional service. American Banker is a registered trademark used herein under license. ©2021 Arizent and American Banker. All rights reserved. province of humans and which can go to the cloud. AB www.americanbanker.com.

americanbanker.com April 2021 American Banker 3

Deposits & Withdrawals How should banks think about alternative Credit reports and scores by a handful of companies are the centerpiece of consumer credit data? credit. Should banks start incorporating alternative data into their credit models?

Priya D. Bajoria Steve Reiss Sally Taylor Senior Vice President, Associate Managing Director, Vice President and General Manager, Financial Services Publicis Sapient B2B Scores, FICO

he coronavirus pandemic has disrupted through credit risk management models periodically. hen the FICO score was introduced into phone payment data in traditional credit scores and an already overly complicated and legacy Meanwhile, the credit score data may be subject to consumer credit markets more than 30 reports for many years. But unfortunately, very little of this banking system. But it has also spotlighted months of lags, even while some consumers may be trying years ago, it represented a sea change for data is reported to the credit bureaus. Tmajor vulnerabilities and the need to acceler- to improve or correct their scores. Wlenders looking for a more accurate way The use of alternative data (beyond the traditional ate digital transformation in credit scoring models to The standard models also fail to factor in how to evaluate credit risk. credit reports) is not a new concept for FICO. As improve lending. consumers respond to rapidly changing circumstances It provided lenders a tool designed to extend credit to an independent data analytics company, FICO has Despite a recession and global pandemic, the average — such as the pandemic. Banks can make smarter consumers objectively and safely based on relevant credit researched and offered scores based on alternative FICO credit score hit an all-time high decisions by supplementing credit report data, without the influence of data for a number of years, leveraging of 711 in 2020, according to Experian. scores with real-time data concerning subjective human judgment or biases. regulatory-compliant data such as Credit scores somehow managed to “Too many the behaviors and needs of customers In the decades since its introduction, “It is equally cellular, cable and telephone records. soar at the same time unemployment variables while using artificial-intelligence-based the FICO score has evolved to More than 92% of U.S. adults have a levels spiked to 14% in April 2020, models to gain additional insights. incorporate new data sources to help critical that cellphone, according to an independent surpassing the previous 10% peak haven’t been Some lenders are beginning to use more Americans build a credit profile the incorporation report by FinRegLab and Charles River during the financial crisis, according to taken into such an integrated and streamlined and have access to the financial Associates. Leveraging this type of the U.S Bureau of Labor Statistics. view of their customers for specific use system. of alternative alternative data can help generate FICO Stimulus checks and other consideration, cases in recent times. Today, the vast majority of data into scores for millions of consumers who government relief programs used to leaving banks For example, consider a real- Americans have a FICO score, either did not previously have one based on pay down debt, coupled with an overall case scenario in which a national built on traditional credit bureau data underwriting traditional credit bureau data. spending decrease as people remain in without the private-label credit card issuer wanted alone or using alternative data sources, is done in a Another promising area lockdown, may have been contributing full picture of to attract a specific egments of such as cellphone payment records or in alternative data is cash-flow factors to higher scores. But too customers to its premium products. cash-flow data. manner that is information. More than 96% of U.S. the consumer many variables haven’t been taken The PLCC tapped into a partnership As we begin to emerge from the both fair and households have a bank or prepaid into consideration, leaving financial seeking between the outcome-based marketing coronavirus pandemic, it will be more account, according to that same report. institutions without the full picture provider Epsilon and TransUnion important than ever for lenders to have transparent.” In recent years consumers have been about the consumer seeking credit. credit.” to create a scalable, accurate and a more comprehensive and inclusive able to enhance their FICO score by FICO says its credit scores are transparent prescreen solution that picture of how Americans have been demonstrating their positive financial used in more than 90% of lending combined real-time behavioral data managing their financial health — even behavior as reflected in their checking, decisions in the United States, so having a low or bad with finance-related data and credit-active profiles from in extraordinary circumstances — savings and money market accounts. score seals a consumer’s fate with lenders. Banks typically TransUnion. The PLCC could then define a creditworthy, beyond what’s seen in the traditional credit bureau file Still, it is equally critical that the incorporation of rely on credit scores, data supplied by a credit bureau, credit-ready audience to target using direct mail and was alone. alternative data into underwriting is done in a manner recent customer activities with the bank and run that also able to deliver appropriate, relevant offers based on The FICO score has incorporated rental and cell that is both fair and transparent. Vast collections of data

continued page 30 continued page 30

Teller’s Window Q: To what extent is your organization experiencing challenges in customer onboarding as a result of the Connection interrupted Get on board pandemic? 34% Digital onboarding can be difficult. 30% More than three-quarters of bankers 14% The pandemic has cut banks off from one of their main drivers of customer loyalty: face-to-face interactions. surveyed acknowledged moderate 7% That’s forced banks to move many of their account services online, but their marketing technologies are lagging to significant issues in traditional Significant Significant Moderate Moderate to No challenge behind. New research from Arizent highlights some of the advantages and roadblocks banks face in giving their customer onboarding since the onset to moderate no challenge marketing strategies a digital makeover. of the pandemic. But a considerable minority have not initiated a digital customer onboarding solution that of banks surveyed have implemented a digital customer 58% onboarding experience Q: How important is customer acquisition for could better meet customer needs. your bank over the next 12 months? Admitting you have 1% a problem Critical priority 20% Q: Do you have an AI strategy in place to support Most bank marketing specialists High but not critical Moderate customer acquisition and engagement? surveyed said customer acquisition Make your data Low priority is both a top marketing priority and work for you 46% 21% 8% 25% 44% a key pain point. Banks always want One advantage to digital transformation new customers, but challenges Ye s No but evaluating No, no plans to No, but plan rollout this year engaging them, the high cost of is that it gives banks access to troves of acquiring them and poor response 35% data useful for automating processes National banks are leading the way in reporting they already have an AI and identifying business opportunities. strategy in place to support customer acquisition and engagement versus rates make traditional marketing regional or community banks. strategies unattractive. Artificial intelligence and machine learning tools can unlock those of bank marketing decision makers face moderate or significant opportunities, but just under half of 64% 37% 88% challenges acquiring customers as a result of the pandemic bank marketing executives say they are currently employing AI in the customer National Regional or experience. banks community banks

Even so, relatively few banks have Industry adoption of digital-first customer acquisition strategy and automated customer acquisition workflows shifted to automated customer Banks are ahead of the martech curve acquisition workflows or a digital-first

customer acquisition strategy that Digital-first 36% Forward-leaning banks are already taking steps to upgrade marketing technology. Bank marketing executives Banks might alleviate those headaches. Automated 40% report plans to invest in new martech in 2021 by a factor of 2-to-1 over their peers in professional services and wealth management firms. Wealth Digital-first 19% management Automated 27% Martech services in which banks are We are investing in new tools/technologies to build a most often increasing investments: more robust tech stack in 2021 Digital-first 55% Fintechs Automated 18% Email marketing (43%) Social media (43%) Digital-first 33% 61% Financial 45% 42% Services Automated 24% AI/analytics (38%) 25% Marketing automation (35%). Banks Fintech Financial Wealth Services Mgmt

Source: Arizent/American Banker survey of marketing decision makers

6 American Banker April 2021 americanbanker.com April 2021 American Banker 7 Uninvisible

A March 16 rampage in Atlanta that killed six Asian-Americans sparked nationwide calls to clamp down on anti-Asian violence and hate crimes.

Photo: Bloomberg News

Replay | April 2021 A look back at the biggest and most important stories and moments from the past month. To read the full articles, please visit americanbanker.com.

Top Online Stories Photo: Bloomberg News Photo: Gettyimages Photo: Bloomberg News We are a year into Photo: Bloomberg News “We cannot take any COVID and these are the legislative [Libor] solution for granted third emergency direct until it becomes law.” payments Uncle Sam has Randal Quarles, made. Yet the Fed, Treasury Vice Chair of Supervision and Congress have not Federal Reserve Challenger offers first Credit union hit with Truist is first regional solved the problem of how FICO-free credit card pot banking penalty to issue a social bond Photo: Ford Foundation slowly the money actually “It’s sort of like ‘Where’s Waldo?’ You California challenger bank Tomo- A Michigan credit union has Social and ESG bonds have tradi- gets to people.” Credit has become the first bank been cited for cannabis banking tionally been the province of big have to look really hard to to issue a credit card based on violations, a first for a depository banks, but Truist’s $1.25 billion Aaron Klein find any Black people on alternative credit rating data. institution. social bond may change all that. Senior fellow corporate boards.” Brookings Institution Roy Swan, Head, MIssion Investments By Penny Crosman By Kevin Wack, Aaron Passman By Allissa Kline The Ford Foundation March 18 March 16 March 15

8 American Banker April 2021 americanbanker.com April 2021 American Banker 9 The ghosts of AI present and future

Banks have pioneered the use of artificial intelligence for years. But the technology is defined yb its limitations — for now.

By Penny Crosman | April 5 | 25 Min Read

etecting financial crimes can be painstaking work. Bank investigators have to piece together a paper trail of transactions — a trail that in most cases is intentionally designed to avoid detection — out of a huge trove of data. It’s Deasy for important connections to get missed. “It’s like the old cop shows where people would get the highlighter out and highlight that this thing over here is the same as that one over there,” said Michael Shearer, group head of compliance product management and compliance chief data officer at HSBC. But combating money laundering is a lot easier when you have artificial intelligence in your corner, he says. You can find a single transaction that might be related to another payment or counterparty. And once an AI algorithm knows what patterns to look for, however tenuous, it can find them on its own. “We’ve been able to see connections between seemingly unconnected networks of people, where only one fact links two networks — one fact within thousands of pieces of information,” Shearer said. “When the numbers get big, that’s impossible for a human today, but pretty trivial for a machine to do.” Humans have dreamed of creating machines capable of simulating thinking and feeling since antiquity, and the advent of digital computers in the 20th century made countless computational tasks fast and routine. But it’s only in the last decade or so that computers have become capable of learning and adapting, greatly expanding the range of tasks they can reliably and accurately perform. AI’s core competency — as of right now, anyway — is its ability to comprehend Photo: Gettyimages and spot small changes within a seemingly infinite pool of data. That may seem quaint, but there are countless applications for that capability in the banking industry,

reality. And some of the people using AI in banks — the That could be for many reasons: too many news people who create statistical models, for instance — may “The benefits of AI articles about it (this one included), too many vendors not see it as anything noteworthy, said Tim Cerino, AI for us are about the slapping “AI” on software that doesn’t qualify under any leader for financial ervicess at KPMG. granularity of the definition of artificial intelligence. Some may have no “When we speak to folks who are doing quantitative detection process. experience with it. Some may feel that all the disruptions finance and financial engineering, or credit default of the pandemic have left them with scant energy monitoring, some have said, Isn’t this just old wine in new We can be a lot more and resources to invest in experimenting with new bottles?” he said. “We’ve been doing this stuff orf years. targeted about what technologies. They may take an underwhelmed-sounding perspective.” we are looking for Álvaro Martin, head of data strategy at BBVA, said But those banks buying into the promise of AI are using a machine that the bank is mindful not to rely too heavily on AI in finding everals areas where the technology is making hard its customer interactions because the result can be tasks easier and routine tasks faster. learning approach.” alienating. — Michael Shearer “At some point, it might become even creepy for Alexa, follow the money some people,” he said. “So you need to make sure that Uncovering and combating money laundering is a Compliance chief data people understand what you’re doing, how you’re dealing prime example of where AI can help make a difficultask t officer, HSBC with their data. And eventually create these seamless simpler. And in the case of HSBC, the bank has found flows in which things just happen and customers are that it can use two complementary AI approaches to happy.” detect money laundering — supervised and unsupervised Agnel Kagoo, advisory principal in financial ervicess learning. at KPMG, said bankers’ skepticism could stem from the Supervised learning is where software is taught fact that their experiments with AI have had no tangible to look for particular types of behavior by being fed results. examples of those behaviors. Unsupervised learning, by and many banks are already putting AI to work. AI can banking industry remaining strong and competitive for “We’ve seen a lot of organizations monitor thousands of transactions per second and years to come because it didn’t buy AI’s magic beans. But embrace AI and start to work on compare them against normal patterns to identify fraud it also carries the risk that the banking industry could get it,” he said. “But they have been Tough crowd or other irregularities, as it does at Synchrony Financial. It left behind. in continuous experimentation Far more financial ervicess professionals are skeptical can similarly act as a cybersecurity sentinel, monitoring State of the art mode, so nothing has really gone of AI today than just a year ago network traffic and endpoints for signs of break-ins. And The companies that lead in the development and use into production to drive through that speed at parsing and assigning meaning to data also of AI are Big Tech: Google, IBM, Amazon and Microsoft. business value in terms of new makes innovations like speech recognition and analysis But banks are a logical consumer of that technology, revenue growth, efficiencies or better “Is AI more hype than reality?” possible. because the banking industry is teeming with data — recommendations. So there’s a lot Ye s No AI can shape customers’ experience with a bank balances, transactions, interest rates, loan performance, of money going into it, but no return as well. It can sift through years’ worth of customer market fluctuation and risk are all quantifiable data points coming up.” transaction history and activity to inform financial advice that constitute a complex ecosystem that is difficultor f But there is also a cultural and — perhaps a customer is making more money, and the human beings to comprehend. generational reluctance in the banking 25% bank can suggest opening a Roth IRA. AI is similarly able Banks have been interested in AI for years. industry to count on an AI-centric 42% to recognize customer patterns and use that information “I would say banks are in the upper tier in terms of future, Kagoo said. 75% 58% to show them products and services they might be AI innovation,” said Darrell West, vice president of the “Not everybody in the interested in and not showing them the ones they Brookings Institution in Washington and the author of organization is bought into it because probably aren’t. several books on AI. there are varying levels of literacy,” he But while banks’ adoption of AI is broad, it isn’t But a large swath of traditional banks — especially said. Some banks are trying to help particularly deep. That is in part because of prudence and smaller banks — remain skeptical of AI. In a recent survey everyone to understand what AI is, the 2019 2020 caution, regulatory barriers and uncertainty about the from KPMG, 75% of financial ervicess business leaders pros and cons of it, why it is OK, and efficacy of the technology. That caution could result in the said they think artificial intelligence is more hype than why it is not the be-all end-all, he said. Source: KPMG

contrast, gives the AI software a baseline of activity and directs it to identify novel or unusual behavior. The two approaches together make recognizing patterns and linking networks faster and more precise than a simple rules-based approach, Shearer said. “It makes the front-end machine one of your best investigators,” Shearer said. “You can distill the art of what a great investigator is looking for into an algorithm that the machine learns. Then you can apply that algorithm across your entire population; it’s like a force multiplier for your investigators.” Banks have been experimenting with the use of AI in anti-money-laundering work for years, but in most cases they are reluctant to put those systems into production for fear of regulatory fallout. “I like being In 2018, the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency able to say, and Financial Crimes Enforcement Network issued a ‘Put A in, you statement that gave banks cover to at least pilot the use Photo: Bloomberg News of AI in anti-money-laundering efforts. But the regulators get B out,’ and TD Bank’s AI chief says “it’s been have not given full approval to put such systems into gratifying to see how valuable advanced you can explain production. They also haven’t promised that if a better- machine learning algorithms can be in retail banking and also in our wholesale tuned program finds more real cases of money laundering, initiatives.” how you got banks won’t be penalized for that. there. If you Sultan Meghji, the inaugural chief innovation officer at the FDIC, said regulators are aware of the many potential can’t do that, uses for AI, and sees the technology as an opportunity to you can explain how you got there,” Meghji said. “If you “The benefits of AI for us are about the granularity of the detection process,” then I worry make banks more effective and responsive. can’t do that, then I worry about your ability to implement Shearer said. “We can be a lot more targeted about what we are looking for using a Meghji, who joined the FDIC in February after technology.” machine learning approach than we can be with rules, which catch a lot of behavior about your serving as CEO of the cloud-based core banking software But regulatory concerns can cut both ways. Banks that isn’t of concern.” ability to company Neocova, said AI can be divided into two may be hesitant to adopt AI for fear of regulatory reprisal, implement spheres: probabilistic and deterministic. but at least in HSBC’s case, its adoption of AI was in part An AI-crafted customer experience Deterministic AI applications are ones where a a response to money laundering and sanctions violations Banks have also found that AI is effective in shaping the customer experience, technology.” given input results in a given output, and the results uncovered by the Justice Department in 2012. That action using customer data to offer personalized interactions or just-in-time advice. TD caused the bank to forfeit $1.25 billion. are repeatable and the mechanism demonstrable. Bank Group acquired the AI software company Layer 6 in 2018 for precisely this — Sultan Meghji “We have invested heavily to bring our controls up to reason. Probabilistic AI is more like the AML applications Chief innovation officer, described earlier — flagging ertainc transactions that have set a standard for the industry, and I think we’ve been very Layer 6’s technology can access customers’ transactions and account balances FDIC a higher probability of being important, for example. successful at doing that,” Shearer said. “The bank has a and identify trends — if it sees that a customer might overdraft, it will send the Deterministic AI applications are more likely to get real ambition to be effective in how it manages financial customer an alert, for example. But the full potential of AI in enhancing the customer the blessing of regulators, Meghji said, because the inputs crime risk.” experience has not yet been realized. and outputs are foreseeable and predictable. Probabilistic While AI can make mistakes, people can, too. One of “It’s still early days,” said Tomi Poutanen, chief AI officer at TD Bank. “There’s applications result in a range of possible outputs, which if the biggest advantages to AI over traditional transaction a lot of work in just being able to make AI work in a big enterprise and building up left unchecked by a human could result in a false result — monitoring systems is that AI can look at much more a platform that can have a flywheel effect where you build models and then you flagging the wrong transaction as fraudulent, say. information surrounding a transaction and come up with a accelerate the development of those models. But it’s been gratifying to see how “I like being able to say, ‘Put A in, you get B out,’ and more nuanced evaluation. valuable advanced machine learning algorithms can be in retail banking and also in

good. “They may not be incorporating race or gender That concern led Bank of America to test and retest directly, but you can certainly find actorsf that allow you Erica for more than two years before putting it in front to predict race or gender,” West said. “We want to build an of customers. The service is even trained to pick up on inclusive economy that’s fair to everyone. And so we want signs of frustration — such as a customer trying to do the technology to correspond to basic human values.” something multiple times on the bank’s app and logging TD Bank has been using AI in its credit underwriting out before finishing. process since 2018, and the technology has become “Honestly, it’s really hard,” Kitchell said. “Being able integrated beyond lending decisions to the management to assimilate all of those different pools of data, profiles, of the credit, the handling of nonpayment and the advice metrics — all of those things have to be reconciled. We given to customers along the way, Poutanen said. joke sometimes that AI is very sexy, but a lot of what we do “We’ve seen that over and over again, where we’ve is more akin to connecting pipes and gears. It’s an awfully brought in machine learning algorithms that have replaced ambitious task.” traditional and linear models, the machine learning algorithms are just way more accurate,” he said. Can AI make lending fair? Machine learning is highly dependent on the One of the more promising — and perilous — uses of information it is fed, and AI can learn racism and sexism AI is determining who gets a loan and under what terms. just as people can. If a machine learning model used for

Photo: Bloomberg News Human beings’ track record on credit decisions has lending was trained on a biased dataset — say, it only been mixed. Racial and gender discrimination is illegal contained loan applications from white neighborhoods — and has been for decades, but it still happens. And there is it might favor white borrowers in its decisions. some research that suggests that AI could ultimately do a Another fear is that AI used in lending could better job of assigning credit than people do. run amok, and come up with its own patterns of Meghji of the FDIC said expanding credit access is creditworthiness; that people with the last name “Smith” precisely the kind of application that regulators want to are high risk, for instance, by looking only at last names.

A robot and its handlers at the World AI Conference in Shanghai in July. “AI should be the equivalent of a digital brain,” says Mike Abbott, head of banking at support. Bank regulators have insisted that lending decisions Accenture. “It should be the best universal banker you have. If you think of what great branch managers have been able to do for a hundred years over time, that’s “We want every American to have access to best- can’t be made in a “black box” — every loan approval or ultimately what you want AI to do,” in-class banking products and services,” Meghji said. rejection needs to come with a clear explanation of why “We want every small business, especially minority and that decision was made. Banks and fintechs have learned our wholesale initiatives.” to do for a hundred years over time, that’s ultimately what women-owned businesses, to have access to amazing how to back up the reasoning behind AI lending decisions AI can also provide some financial advice to you want AI to do.” banking products and services that really help them. And — the kind of deterministic AI applications that regulators customers. BBVA, for one, has been using AI to predict AI is also being deployed by several banks in the form these are places where AI has tremendous value.” can get behind. consumers’ financial movements and to tell whether of virtual assistants, most notably Bank of America’s Erica But West at the Brookings Institution a says there is “I strongly feel that machine learning is a better they’ve missed a payment or funds have been wrongly virtual assistant, which launched in 2018. Erica has 18 a risk that AI could pick up on subtle customer behaviors reflection on a customer’s behavior and financial tates diverted. million users, and answers about 12 million questions a that strongly correlate racial and gender identity and steer than, say, solely relying on a FICO score,” Poutanen said. “A “Financial health is a really important strategic month. those customers away from some products and toward FICO score is a lagging indicator of somebody’s financial priority for us,” Martin said. “It’s all about making sure that “When people have fairly targeted questions around others — discriminating in practice, if not in principle. state. Machine learning can incorporate a lot more our customers understand their finances and then we’re things like moving money, status of transactions, paying “Human lenders are forbidden from using race, information about the customer, look at their most recent able to help them improve them.” bills, Erica does a really, really good job,” said Christian gender or marital status” in assessing an applicant’s data, look at their transaction behavior and account data. Mike Abbott, head of banking at Accenture, said that Kitchell, AI solutions executive and head of Erica at Bank creditworthiness, West said. “But with AI, you can find Those are more relevant signals of the behavior of that AI’s ability to look at customers’ current and past activity of America Merrill Lynch. proxies for any of those things and use that to make customer.” across channels and business units can help banks Erica isn’t the only banking virtual assistant out there lending decisions. So it’s a way to bypass some of the understand customers’ needs and solve their problems. — TD Bank and U.S. Bank each have their versions as well. existing legal restrictions.” Where AI fears to tread “AI should be the equivalent of a digital brain,” Abbott But there aren’t many, and part of the reason the service For instance, an analysis of the magazine For all of AI’s applications and for all of its gains, said. “It should be the best universal banker you have. If isn’t more universally adopted is that if AI makes a mistake subscriptions a customer purchases or which stores they there are still far more things that only people are capable you think of what great branch managers have been able with a customer’s money, it could do more harm than frequent could indicate a customer’s race or gender. of. One of them is making big, important decisions —

a human agent who can see the context of what the client The risk of not taking a risk on AI is looking for and help the person more quickly. And the The engineer Gordon Moore, co-founder of Intel, famously said in 1965 that simpler questions that Erica can handle are questions that computational capacity would double every year. That prediction became what a human doesn’t have to. is known as “Moore’s Law,” and while his prediction centered more on economics But because one of the things AI does well is to than technology, it has become synonymous with the idea that the things complete routine processes quickly, it can scale up a computers are capable of doing today will appear quaint when compared to their mistake faster than a human. And the question of legal capabilities tomorrow. liability in the event that something goes wrong — a There is every reason to believe that the capabilities of artificial intelligence and creditworthy borrower rejected for a loan or charged too machine learning will similarly expand in the coming years to be able to perform all high a rate, an account wrongly opened or closed — it of the tasks that they are so conspicuously unable to perform today. could make small problems much bigger than they might AI’s near-term advances seem to be in making human banking employees otherwise be. more efficient. They could help customer service representatives understand the “The more value you’re getting out of AI, the higher context of the client’s situation — or, in the other direction, make sure that anything the liabilities are going to be,” said Andrew Burt, managing the bank tells that customer is accurate. The near-term future of AI is to be more partner at bnh.ai, a Washington law firm ocusedf on AI integrated with the customer experience, BBVA’s Martin said. and analytics. “If you’re making lots and lots of decisions “Ideally you would want as a customer to have seamless interactions between with a particular model, and one of those decisions is different channels, not just in terms of the information being connected behind slightly discriminatory, you’re going to have a whole host the scenes for you, but also that if you get stuck in the process at some point, you of discriminatory decision making accumulate in a very want something to trigger so that eventually someone might ask you, ‘OK, do you short period of time.” want us give you a call?’ ” Martin said. “That kind of interaction is probably the It’s important that banks think ahead of time about way in which AI will most probably shape the way we interact with our financial the legal and ethical risks associated with assigning tasks institutions.” Tomi Poutanen of TD Bank says, “I strongly feel that machine learning is to unaccountable machines, Burt said. From a regulatory perspective, a human-enhancing AI is the most fertile RELATED ONLINE a better reflection on a customer’s behavior and financial tates than, say, STORIES solely relying on a FICO score,” “It is really expensive, time consuming and bad for ground for the technology to grow into, Meghji said. society for companies — financial ervicess in particular “AI is fundamentally about doing one of a couple of things very well,” he said. — to wait to ask for help until the bad thing happens, “Either it’s discovering something that you wouldn’t have discovered necessarily, or Regulators may issue information request on AI something AI can’t do on its own. because usually someone has been harmed,” Burt said. it’s learning how to put efficiency into your organization. So instead of one person adoption, Fed official says For instance, when a wealth management client is Burt added that banks adopting AI should recognize only being able to do 20 transactions in a day, just imagine if they walk in in the Federal Reserve Gov. Lael thinking about making a major change, “Nothing beats that those systems require tweaking and maintenance. morning and they can handle 100 transactions.” Brainard said Jan. 12 that the a conversation with a professional,” Poutanen said. “It’s Meghji worries with the application of all new technology, not just AI, banks, “What I get most concerned about for these large, Fed and other banking regula- no different than going to go see your family physician analytically mature banks is that they’re resting on their especially those that have old core systems, are not always adhering to current tors are considering a formal who deeply understands you. You want to be talking to a laurels and not adjusting their model risk management best practices. request for public feedback human doctor, not a robot.” practices to handle these new, much broader applications “If you just layer on technology after technology after technology, and you about the adoption of artificial AI is also ill-equipped to handle emotionally charged like chatbots and robotic process automation,” he said. aren’t thinking about the macro level value you’re trying to get out of that system, intelligence in the financial situations or complex problems. Bank of America’s Facial recognition is another use of AI that could you can end up with a lot of unintended consequences,” Meghji said. services sector. Erica virtual assistant is trained to intuit certain kinds backfire on banks. There have been instances of facial But there is a danger that banks’ reluctance to adopt AI — whether out of fear of situations — a death in the family, for instance — and recognition systems exhibiting bias after being trained of legal and regulatory restrictions or out of prudence or some other reason — Standard Chartered tests AI quickly pass the customer to a live representative. on data that is not diverse. Many cities have banned their could leave them at a competitive disadvantage with challenger banks and fintechs. to size up young borrowers UK-based Standard Chartered And AI is also not yet capable of answering nuanced police departments from using the technology for this “Not just in banking, but in all industries there is going to be some amount of is developing new AI-assisted or complex questions, Kitchell acknowledged. reason. disruption in terms of customer expectation management, financial institutions underwriting models that “There are certain areas where there’s a much better “Facial recognition is something I warn a friend or a included,” Kagoo said. “If they do not continue to innovate and drive more could help it determine cred- opportunity to provide the right level of service with a hyperpersonalized services and meet their customer where they want to be client about every day,” said Patrick Hall, principal scientist itworthiness of underserved human, as opposed to a virtual assistant,” Kitchell said. at bnh.ai. “It’s very high risk at this stage. I would think very met, they will lose out right in terms of market share, because the consumer is borrowers or those with But Erica’s efforts aren’t wasted in those cases, he carefully about what the actual business benefits of using continuing to get used to, or be introduced to, these kinds of digital models and minimal credit histories. said, because the interactions with Erica are forwarded to this technology are versus the risk.” personalized service.” AB

18 American Banker April 2021 americanbanker.com April 2021 American Banker 19 How the best fintechs get work right

Small, often intangible quality-of-life perks are a big part of what makes some fintechs the best ones to work for

By Miriam Cross | April 2 | 20 Min Read

he dense, single-spaced, 20-odd-page company The best workplaces also foster an environment report that is sent to IntraFi employees each where interpersonal connections can flourish and where month may not be as satisfying as the office employees feel valued as people, not just employees. A Tbreakfast spreads or as soothing as the weekly trusting culture — where team members feel that they can yoga sessions. But the feeling of trust it evokes may be be themselves — is a crucial component of a workplace one of the biggest differentiators in what landed the Arling- where people with choices will choose to stay. ton, Va.-based company at the top of American Banker’s ranking of the best places to work in fintech in 2021. Creating a great place to work — from home “Every department lists exactly what they are doing, The nuances between good and great places to whether they are on schedule or behind and why, and work have become even starker during the pandemic, as where we stand relative to their budget for the year,” said employees have been forced into remote work settings Mark Jacobsen, co-founder and CEO of IntraFi, previously they didn’t necessarily want, or felt increasingly stressed known as Promontory Interfinancial Network. by their personal and professional lives overlapping. Even if some employees only read the executive “This is not remote work,” said Laurel Farrer, CEO of summary, he said, “sometimes just knowing you are in the Distribute Consulting, a management consulting firm in loop is comforting enough.” Granby, Conn., that specializes in telework. “This is an The differences between a good place to work and international contingency plan for a global catastrophe.” a great place to work (or a bad place to work, for that Since the pandemic started, a clear commitment to matter) can seem intangible, but they make all the employees’ physical health and mental well-being counts difference. And in the financial echnologyt industry, the more than ever, whether that means impromptu days off, competition for top-notch talent can be fierce, so those surprise care packages or no-questions-asked stipends so differences can have a big impact. employees can splurge on ergonomic office furniture. Transparency is one of those differences. At IntraFi Less important? Trivia nights, free food or outings that — best known for crafting a reciprocal system where draw people in on the surface but are not backed up by the depositors can hold large sums with their primary aforementioned qualities — although these activities are institution without losing Federal Deposit Insurance still key to nurturing camaraderie when it already exists. Corp. coverage — the average tenure is eight and a half Adaptability to fast-changing situations is one area years. A number of high-level executives have been with where fintechs may have a leg up on traditional banks. the company since its founding 19 years ago. (Two of The companies near the top of our list, including IntraFi, American Banker’s former editors-in-chief, Rob Blackwell Vestwell (No. 3 in our rankings) and Alloy (No. 5), have and Barb Rehm, work at IntraFi.) found ways to generously accommodate their workforce e culture has changed dramatically with the pandemic, but companies like Vestwell (pictured) have found ways to adapt. to ways found have (pictured) Vestwell like but companies with the pandemic, dramatically has changed e culture

and maintain strong ties throughout the past year — for Jacobsen. “He was constantly pinged with: What do you “If you can’t talk about puppies, you can’t talk about profit margins,” said Farrer. “When companies example, replicating in-person food and office supply need? Can we send you water, more plumbing materials?” At IntraFi, participation in virtual activities typically ranges from a handful of perks with stipends, maintaining a steady stream of social This kind of concern is not just reserved for those in attendees to 50, but the company continues to offer events so employees always try to dictate how, events even when attendance falters, and allowing total the thick of a natural disaster. “We do that for everyone have an opportunity to bond with colleagues. when and where flexibility to care for family matters during work hours, who gets sick or has a death in the family,” said Jacobsen. Nicholas says holding these events is important because “it’s hard to be employees should such as transporting parents to a COVID-19 vaccine When colleagues suffer severe personal setbacks, the engaged in your work if you’re not doing it with people you have a relationship with. work, you don’t appointment. company makes it clear they can return to work whenever Having fun is one of the baseline ways to know each other as people.” “There are plenty of the more conventional banks they’re ready. It may seem counterintuitive, but Farrer says it’s essential for fintechs to forge see employees’ that thought by putting a Ping-Pong table or having a “I think there is an element of gratitude that’s felt their own professional atmosphere rather than adopting the trappings and style of buy-in.” Tuesday afternoon happy hour, they would get cool, but more by folks who weren’t affected than the ones who tech companies or startups that might seem like a logical peer. Social activities need that doesn’t work,” said Rob Dicks, a North American lead were,” said Jacobsen. “They see we stick by people.” to fit the personality of the workplace, she said. — Rob Dicks, in the financial ervicess talent and organization practice at Katie Waynick, a marketing manager who began as “We’re doing a big disservice by looking to tech companies in Silicon Valley as Financial talent lead Accenture. “When companies try to dictate how, when and a part-time receptionist at IntraFi nearly 10 years ago, the icon of cool culture,” said Farrer. Accenture where employees should work and then sugarcoat it with a articulated the value of the whole-person approach to Dicks recalls an exercise he went through with his own team, where he realized free lunch, you don’t see employees’ buy-in.” company culture in a Facebook post in early February. that his employees were largely introverts and responded better to one-on-one In some workplaces, the sudden move to remote “My team assures me they love seeing my daughter coffee chats than massive video calls. Or, says Farrer, employees may prefer their work last March uncovered fissures in communication in meetings,” she wrote. “That time I showed up to a leaders invest in continuing education rather than parties. that had previously existed below the surface. corporate meeting with a major partner basically in At Vestwell, the well-being committee — which is in charge of social events “Managers have felt like they were unified because sweats?... No one batted an eye. The times I show up to and wellness initiatives, as well as suggesting changes to employment policies — is they were in the office together all day, every day,” said meetings literally in my kitchen cooking? They ask what’s intentionally made up of employees across all levels of the company, including lower- Farrer. “But proximity is not a substitute for unity.” for lunch and move on.” level employees. That makes transparency even more important, “There is no sense of hierarchy, in the sense that junior employees are not being because it’s harder to tell when people feel disconnected Treats, trivia and trips valued for their input or opinions,” said Brecher. from company news. Before the pandemic, IntraFi laid out complimentary Company activities don’t have to be limited to traditionally defined“fun,” either. IntraFi solves that with its monthly reports. At breakfast spreads in the office cafe on Mondays, bagels Vestwell’s well-being committee has organized community service events, such as Vestwell, a fintech that provides a digital recordkeeping and toppings on Wednesdays, and handpicked bakery writing cards to seniors during quarantine, and planned virtual game nights and platform for workplace retirement plans, statistics goodies for Sweet Fridays. museum tours. detailing progress toward company goals (say, the “It’s about community,” said Jacobsen. “You want number of plans Vestwell aims to have on its platform) people to have an excuse to get together.” Healthy = happy were visible to all on a large screen in the office before the Like many companies, IntraFi has transitioned to Vestwell will also periodically deliver care packages to employees; last summer, pandemic; these indicators live in a Slack channel now virtual social activities, including bake-offs, cartoon- they received a Vestwell water bottle, gummy vitamins and more as a wellness- that the company is remote. caption contests and a book club. themed treat. Such care packages are one of many ways companies can make “That level of transparency was something very new Alloy, a New York company that helps financial it clear that they value their employees’ well-being at a particularly trying time in to me,” said Allison Brecher, general counsel at Vestwell. services firms afelys onboard customers digitally, people’s lives. Like others on the management team, she comes from a replaced Color Factory tours and Poconos retreats with “It’s a nice way to remind our employees that we are all part of a team and we more traditional financial ervicess company, where “you virtual events that go beyond typical happy hours, “which care about them,” she said. had no idea how you were making a difference,” she said. we learned quickly doesn’t work on Zoom,” said Tommy Many companies on our list hold virtual exercise or meditation classes. IntraFi “At Vestwell, there is a direct line of sight into exactly what Nicholas, Alloy’s CEO. Instead, the company has hired organizes wellness competitions that encourage employees to get more steps the company’s priorities are.” drag queens to teach employees how to make sangria and or drink more water. Alloy offers an exercise Slack group with reminders to meet Team members also respond well when they feel organized tours of farms and a beekeeping site. daily push-up goals and a $100 wellness credit for employees to spend on gym cared for as a whole person, rather than only for their Energizing snacks and quirky classes are not enough membership or classes. professional contributions. to forge a collegial atmosphere. But at a company that During the pandemic, the company also provided mental health benefits for When an IntraFi employee based in Houston was hit already has a collegial atmosphere, they can deepen social their employees, allowing four free therapy sessions apiece through Samata Health, hard by the February snowstorm, “every management ties by drawing employees together and strengthening a digital platform that connects employees with therapists. Kim Nguyen, director meeting would start with, What’s the latest on Chris?” said professional connections. of people operations at Alloy, says Samata Health data shows that the average

utilization for this type of benefit across the board is “I have a client who has two no-meeting times during “We’ve taken full days off multiple times throughout Ranking methodology 2% to 3% , but Alloy’s participation rates hovered the day,” said Dicks. “I have clients that have their leaders COVID,” he said. The 2021 Best Fintechs to Work For ranking was around 20% in January and February. take meetings walking outside to communicate that is Small perks that employees have been particularly compiled by Best Companies Group. Participating “We have a high engagement rate because we fine.” grateful for include $120 per month in Seamless food organizations must complete a two-part process to be work to normalize the need to recharge mentally, When Jacobsen sends emails on Friday afternoons, delivery credits, a $500 stipend to furnish their home considered for inclusion on the list. The first part consists emotionally and physically for all of our team he intentionally delays delivery so his recipient won’t see offices and $200 matches for charitable donations — of an independent evaluation of participating organizations’ members,” said Nguyen. the email until Monday. something that nourishes the soul if not the body. workplace policies, practices, and demographics and Health and wellness benefits “are a great At Alloy, Nicholas notes that managers regularly The idea that perks should extend beyond the office is worth approximately 25% of the total evaluation. The indicator of a great place to work because it signifies check in with employees to ensure they’ve taken vacation space was echoed by a number of companies on our list. second part consists of an employee survey to measure the that the leadership recognizes people are their time. Or on particularly stressful days, such as Jan. 6, “We kept a lot of benefits in place that were in the employee experience and is worth approximately 75% of the professional and personal selves at the same place when insurrectionists stormed the U.S. Capitol, managers office because we’re not seeing COVID as a moneymaking total evaluation. The combined scores determine inclusion and the same time right now,” said Farrer. make it clear that employees can leave early or cancel opportunity,” said Nicholas. “We don’t want to dry up the and ranking on the list. That also means leading by example. meetings. resources, because life is getting harder.” AB

Rank Company name Location Prior Ranking Rank Company name Location Prior Ranking 1 IntraFi Network LLC Arlington, Va. 6 26 Alkami Plano, Taxas n/a 2 Smiley Technologies, Inc. Little Rock, Ark. n/a 27 Nova Credit New York 30 3 Vestwell New York n/a 28 PeerStreet El Segundo, Calif. 27 4 Braviant Holdings Chicago 31 29 Bank OZK Innovation Labs St. Petersburg, Fla. 24 5 Alloy New York n/a 30 Kasasa Austin, Texas 22 6 Pipe Los Angeles n/a 31 Cross River Fort Lee, NJ 33 7 Payrailz Glastonbury, Conn. 8 32 SmartBiz Austin, Texas 23 8 Snappy Kraken Ormond Beach, Fla. 7 33 PayTrace Spokane Valley, Wash. 21 9 Apiture Wilmington, NC 14 34 Flyhomes Seattle n/a 10 ActiFi St. Louis Park, Minn. 2 35 Promontory Mortgage Path LLC Danbury, Conn. n/a 11 T-REX New York 9 36 Jack Henry & Associates Williamsburg, Va. 28 12 Redtail Technology Sacramento, Calif. 11 37 CSI Amarillo, Texas 37 13 Member Driven Technologies Farmington Hills, Mich. 18 38 StrategyCorps Brentwood, Tenn. 43 14 Bankers Healthcare Group Syracuse, NY 15 39 Abrigo Austin, Texas 26 15 Ethic New York n/a 40 Advyzon Chicago 34 16 MPOWER Financing Washington 17 41 Envestnet Financial Technologies Denver n/a 17 Halo Investing Chicago n/a 42 Allied Payment Network Fort Wayne, Ind. 39 18 MX Lehi, Utah 25 43 ClickSWITCH, LLC Minneapolis n/a 19 YCharts Chicago 1 44 Urban FT Group, Inc. White Plains, NY n/a 20 Sila Money Portland, Ore. n/a 45 Plaid San Francisco n/a 21 Teslar Software Springdale, Ark. n/a 46 Baker Hill Carmel, Ind. n/a 22 FourQ Cincinnati n/a 47 BlueVine Redwood City, Calif. n/a 23 280 CapMarkets New York 13 48 Finicity Murray, Utah 32 24 Facet Wealth Baltimore 16 49 United Wholesale Mortgage Pontiac, Mich. n/a 25 Self Financial Inc. Austin, Texas 10

24 American Banker April 2021 americanbanker.com April 2021 American Banker 25 Changing channels

Bank marketing strategies had to adapt quickly to the work-from-home realities of the pandemic. But as cases decline, marketing professionals are thinking about how to readapt to the old normal.

By Laura Alix | April 2 | 20 Min Read

hen the coronavirus pandemic struck in March 2020, the marketing team at Citizens Financial Group sprang into action. In its marketing materials, it ditched a lot of imagery that featured Wpeople gathered together around dinner tables — behavior that was suddenly discouraged by public health authorities. It also moved much of its creative work in-house, experimenting with new illustrator-style ads the bank ran on streaming services like Hulu, instead of producing spots that required actors. Not only was this easier to do while maintaining physical distancing, but it also lent the ads a homegrown touch that felt more relevant for the moment, said Lori Dillon, head of enterprise marketing at the $183 billion-asset Citizens. The Providence, R.I., company also turned off direct mail marketing for every product except for its education refinance loan. “We literally had to ask ourselves, were people even opening mail? People were scared,” Dillon said. Many banks made these kinds of marketing choices early in the pandemic. They had to quickly figure out what tone ads should take while reevaluating how to best get those messages out. That sometimes meant pulling more traditional ads and producing more new spots for social media and streaming services, or learning to navigate virtual networking events and social media to nurture business prospects. As marketers do, they looked at widespread behavioral changes — like people turning to online gaming instead of going out, or saving more money because they weren’t traveling — and adjusted marketing messages accordingly. Now, a year later, the country and the industry are in a very different place. Tens of millions of Americans have been vaccinated against COVID-19. and every shot in an arm brings us closer to the life we knew before the pandemic. Marketing executives told American Banker they’re looking forward to bringing back sports sponsorships, commuter-rail ads and community events, like first-time-homebuyer seminars.

But they also said the experiences of the past year Shifting budgets, shifting priorities forced them to get more creative in reaching customers Banks didn’t tighten their marketing budgets in 2020 Sending a message who were suddenly spending the bulk of their time in front so much as shift dollars around. The pandemic has changed both the medium and the message in banks’ marketing strategies, of screens. According to a recent survey of 300 marketing emphasizing community involvement, supporting customers and corporate responsibility. Avidia Bank in Hudson, Mass., canceled a number decision makers in financial ervices,s a little over half of events and sponsorships early in the pandemic and of banking respondents reported that C-level support Which, if any, Customer financial ellnessw resources and tools 61% also pulled advertising at commuter rails because people for marketing actually increased last year. The survey, of the following values is your Purpose-driven business focus just weren’t commuting as much, said Kate Cwieka, its conducted by American Banker’s parent company Arizent, 50% bank promoting Organizational commitment to diversity communications manager. found that more resources were devoted to virtual events, in its 2021 47% “We’ll bring that back as commuting returns, but right email and social media marketing, and digital advertising marketing Corporate social responsibility initiatives strategy? 48% now there’s nobody on the platforms seeing our ads, so in the coming year. Recognition of most impacted consumer groups 46% it’s not worth the money,” she said. The survey also found that 55% of all financial firms None of the above In the meantime, the $2 billion-asset Avidia plan to boost their marketing budgets this year and 72% 1% Other ramped up its use of a social selling program for its of banking industry respondents said increased marketing 1% business bankers — that is, the practice of cultivating through digital channels would be a top priority. Source: Arizent/American Banker sales prospects via social media sites like LinkedIn. Digital marketing can often be cheaper to produce Avidia provides those bankers with a special app and and faster to test than more traditional channels. But preapproved content they can post for social selling. a more fragmented media landscape also means that probably come back as things get back to normal.” of a barbecue joint in Pittsburgh talk about providing It also participated in more virtual events, including marketers often need to be more precise in how they Cwieka said she expects Avidia to continue to pursue takeout bags and picnic tables outside to stay in business a virtual conference that allowed the bank to set up a target those digital ads. a predominantly digital strategy for the near term, but safely during the pandemic. “booth” complete with a raffle and Q&A. In both of those Juliet D’Ambrosio, head of strategy at the branding plans to reassess that strategy as the pace of vaccinations The bank’s name and logo feature only briefly during cases, Cwieka said, it’s even easier for bankers to track agency Adrenaline, described one client, Town & Country and reopenings picks up. the ads, which don’t mention any kind of banking product and follow up with prospective sales leads than it can be Federal Credit Union in Maine, that had identified oodiesf “Maybe in May or June we’ll reevaluate if we want to or service. But the ads are not intended to promote any after an in-person event. and pet lovers as two of its most likely audiences for a new bring something back like those train station ads or start particular offering so much as to marry Huntington’s Even digital banks, which were gaining ground on their personal loan offering. The $469 million-asset credit union doing some events again,” she said. “We’re prepared either brand to messages of resiliency and optimism, said Julie brick-and-mortar counterparts before 2020, had to adapt bought banner ads on sites those audiences were likely w a y.” Tutkovics, chief marketing and communications officer. their marketing strategies to these new and different to frequent, like culinary websites or the pet supplies site “We felt good because we were a part of that. We circumstances. Chewy.com. Messaging still matters helped them financially make it through,” Tutkovics said. Ally Financial in Detroit, for instance, usually runs With people stuck at home and driving less frequently, Marketing executives said the events of 2020 Huntington also saw an opportunity to accelerate some type of live “disruptor” event in major cities to call Citizens pulled much of its radio advertising during the underscored the importance of reading the room and the launch of a new savings tool it had in development attention to its brand. One year, it scattered special “lucky pandemic and shifted its spending to increasingly popular striking the right tone and message in outreach efforts. before the pandemic, she said. That tool, Money Scout, pennies” across 10 U.S. cities, and another year, it created streaming services like Hulu, said Dillon. She added that According to the Arizent Financial Services Marketing uses artificial intelligence to analyze saving and spending a Monopoly-style scavenger hunt across six cities using the Illustrator-style ads were not only cheaper and faster Survey 2021, banks were much more likely than others patterns and suggests nominal amounts for a customer to augmented reality. So when the $182 billion-asset Ally had to produce, but also tested better with consumers. in the financial ervicess industry to emphasize corporate set aside. to scrap several in-person promotions planned for 2020, it Still, bankers say they’re looking forward to bringing social responsibility and recognition of consumer groups The company had originally planned to release Money turned to online gaming to reach potential new customers, back some physical marketing — in branches, on hit hard by the pandemic in their messaging. It also found Scout late in 2020 or early 2021, but moved that launch said Andrea Brimmer, the chief marketing and public billboards or via sponsorships — when the pandemic is that financial ellnessw was the top value the industry up to September. Tutkovics said the company took its relations officer. over. promoted in its messaging last year. cues from search trends throughout the pandemic, finding Ally sponsored iRacing (instead of NASCAR) and Cullen/Frost Bankers in San Antonio, for example, Huntington Bancshares in Columbus, Ohio, decided that even consumers who hadn’t necessarily lost a job Twitch streamers (video gamers who livestream their continued a branch expansion plan in the Houston area to turn the camera on some of its small-business clients. were still seriously reassessing their spending and saving gameplay on the platform Twitch). It also built an island that it announced well before the pandemic and plans to The $123 billion-asset Huntington sent its in-house ad habits. on Animal Crossing, a social simulation video game that add still more branches, said spokesman Bill Day. And agency, Greenhouse, on the road to interview small- “I think we all took 2020 as a moment to inventory enjoyed a surge in popularity early in the pandemic. while it paused much of its marketing for in-person events business owners about how they were coping with what was important,” she said. “Whether you lost your job “We went to where people were,” Brimmer said. “It and sports in particular (the company is a sponsor of the COVID-19. Those road trips resulted in a series of spots or not, or whether you face tremendous financial hardship, was a pretty simple strategy.” NBA’s San Antonio Spurs), Day said that spending “will encouraging viewers to shop local. In one, the co-owners which so many did, we wanted to be there.” AB

Deposits & Withdrawals How should banks think about alternative credit data?(continued) The night they drove old Morgan down

When Chase Manhattan bought JPMorgan in 2000, it was seen as the downfall of the Priya D. Bajoria/ Steve Reiss Sally Taylor most prestigious U.S. bank. But it didn’t have to be that way.

each prospect’s current need. are now available about American consumers, including Another use case could involve proactively manag- everything from where they attended college to what kinds By Dean Anason | April 5 | 15 Min ing and supporting customers who are still paying their of websites they visit. bills on time but facing financial difficulty or uncertainty. Along with these new sources of data are emerging en- Since they are not yet delinquent, their financial difficulty terprises touting their ability to use new and nontraditional JPMorgan’s Fall and Revival were absent from desktops, and Sargen and his colleagues would not impact their FICO scores. During the pandem- data to evaluate consumer credit, and issue loans to millions By Nicholas P. Sargen chowed on free, five-course meals each day “as a means of ic, lenders have typically offered payment deferrals or of new borrowers. discouraging employees from drinking at lunch.” other types of support to their customers who called in or But not all data is equal. And without applying tested I was fully prepared to be underwhelmed by Nicholas P. The onset of oil shocks and runaway inflation in the emailed seeking help. This outreach program could have safeguards, using such data can run the risk of worsening Sargen’s new book about the demise of the old JPMorgan, late 1970s and Latin American debt crises in the early ’80s been made more targeted if the lenders had additional the very problems of credit access that we seek to solve. a forerunner of today’s JPMorgan Chase. brought that private-club atmosphere to a close. Loans insights to identify the specific customers who were most For example, FICO administers a six-point test designed “JPMorgan’s Fall and Revival: How the Wave of Consol- to so-called less developed countries were an important challenged to pay. to ensure data is compliant, deep, broad, accurate, predic- idation Changed America’s Premier growth area for money center banks — es- In the case of customers who had turned delinquent tive and adds value beyond data sources that are already Bank” sounded a little out of step. The pecially Morgan, which had no retail banking and might be worried about escalating debt and high available. narrative more or less ends in 2000, operation and, like other commercial banks, interest rates, banks would typically offer a hardship By integrating these new data sources into the score when Chase Manhattan agreed to was mostly barred from the securities busi- program. By leveraging data and insights, banks can that the majority of lenders use and consumers understand, buy JPMorgan. The “fall” that Sargen ness by the Glass-Steagall Act. potentially determine customers that are most likely to the credit ecosystem can evolve in a way that benefits all describes is the genesis of the largest By the early ‘80s, debt service ratios repay and proactively enroll them into targeted hardship stakeholders. U.S. bank, and the legendary fortress exceeded 20% among many Latin Ameri- programs. This way, banks can ensure a strong customer As the recovery from the pandemic continues, it is balance sheet that towers over the can borrowers, but U.S. banks kept lending. experience and appropriate payment structures while critically important for Americans to have an opportunity to financial ervicess industry. By the end of 1982, banks had lent nearly reducing the level of credit risks that they have to take on. learn about their FICO score and how their financial behavior But Sargen’s book is an engaging $190 billion to Mexico, Brazil, Argentina and For example, American Express recently launched affects it. memoir, a brisk roundup of decades Venezuela. an Amex financial eliefr program to allow millions of its Since 2013, consumers have been able to check their of banking history and a case study Concerns about overexposure weren’t cardholders to have access to reduced annual percentage FICO score free through their financial provider. Now, more of management adjusting to change. heeded; Sargen admits that he himself rates and payment amounts, and it waived late fees and than 200 financial institutions participate in that program. Viewed through the lens of the author ignored warning signs from a risk model annual fees. A key to the improved success of such finan- With 90% of top lenders using the FICO score, pro- — a former economist and global that he himself designed. “I had constructed cial relief programs is for lenders to draw upon real-time, grams like this are essential to helping consumers see markets strategist at the company a credible early warning system, but I lacked in-depth and wide-reaching data to target the offers to the same score that their lenders use. FICO also partners — the story of “Morgan” is a sobering the courage of my convictions,” he writes. the customers most in need instead of solely looking at with nonprofits to provide free credit counseling to more tale of smart, mostly ethical bankers U.S. banks were highly exposed when credit scores and bureau data. Americans, prioritizing diverse communities that have been who played their cards right, but still got bought. economic conditions became shaky and defaults loomed. Through a broader data lens, banks can pick up on historically underserved. The plain-vanilla commercial lender had a good diver- “Morgan had loans outstanding to the four borrowers total- default signals earlier than they would have with simply a Millions of consumers rely on their FICO score for their sification plan, avoided the missteps of rivals like Citibank ing $4.1 billion, representing most of its capital,” he writes. traditional credit score modeling. Lenders should look to financial future, and we don’t take that responsibility lightly. and weathered several crises without a bailout. But two Morgan worked with other lenders to negotiate stop- leverage a broader set of data sources, apart from credit Alternative data, when integrated with traditional credit things management didn’t do sealed the company’s fate. gap measures with help from the federal government and scores alone, to make better lending decisions that pro- scoring, holds the key to responsibly expanding access to Sargen’s early days in the international economics the International Monetary Fund, though it eventually had vide more credit access to consumers while preventing credit for more Americans. The challenge for policymakers is research department of what was then called Morgan to take a painful write-down. The bank came out in better unforeseen credit risks to their portfolios. AB how to incorporate it in a safe, regulated manner. AB Guaranty Trust Co. are hard to imagine anymore. Officers shape than others, Sargen writes, but leaders took the wore suitcoats even on restroom breaks, computer screens incident as a wake-up call that the bank had to transform

30 American Banker April 2021 americanbanker.com April 2021 American Banker 31 D&W | 4 TELLER | 6 REPLAY | 8 GHOSTS OF AI | 10

Morgan and find new, more diversified ourcess of income. Further Competitive forces spurred diversification as well. Securities firms like Sa- Reading lomon Brothers were paying top dollar for talent and rolling out a range of lucra- tive new products, including leveraged buyout transactions to fund M&A. Large investment banks were leaner and meaner, with a return on equity of 24% in 1983, compared with 13% at the 10 largest bank holding companies. But Glass-Steagall — the Depression-era law that separated commercial and investment banking — was still in effect in the United States. The company seized on what it saw as a loophole in Glass-Steagall that banks should be “engaged principally” — but not exclusively — in the commercial banking business. It saw this as an avenue into the U.S. corporate bond business. Borrowed Time Eventually, Congress would eliminate Glass-Steagall in the Gramm-Leach-Bli- by James Freeman and ley Act of 1999 — less than a year before Chase Manhattan would buy JPMorgan for Vern McKinley $30.9 billion. © 2018, But despite maintaining a AAA credit rating during turbulent years and diversi- HarperCollins fying beyond traditional banking, Sargen says, Morgan made several critical errors. First, it was too timid about M&A. Morgan’s overhaul plan had contemplated targeted acquisitions in areas where the company had expertise such as global custody, investment management and private banking. “These areas had more predictable earnings streams that could have been used to finance the expansion into investment banking and securities.” Bank leadership also was focused on preserving the bank’s prized corporate culture that valued collegiality, prudence and a customer-first approach. Some younger bankers “viewed Morgan’s adherence to its culture as an impediment to change that was necessary,” Sargen writes. That mindset and the opportunities missed put Morgan at a disadvantage when the forces of consolidation arrived in the late 20th century, spurred by a com- The Fed and Lehman bination of market, deregulatory and technological forces. Brothers There were 10 money-center banks at the start of the 1980s and only three — by Laurence M. Ball JPMorgan Chase, Bank of America and Citigroup — by the early 2000s; Wells Fargo © 2018, joined the group later. And from 1988 to 1997, there were 140 large mergers by the Cambridge University standards of the time, Sargen says in citing a Federal Reserve study. Press Still, Goldman Sachs and Morgan Stanley remain standing, and the old Morgan could have survived, too, the author suggests, if the bank had been willing to grow and welcome the internal changes that growth would bring. Jamie Dimon, the chairman and CEO of JPMorgan Chase, deserves credit, Sargen writes, for building on the foundations of the six main business lines he inherited and “integrating diverse cultures into a productive whole.” The company entered the financial crisis with a trongs balance sheet, he writes, and made oppor- tunistic acquisitions of Bear Stearns and Washington Mutual that contributed to a tremendous increase in assets under management. In some ways, Dimon fulfilled the vision fo the Morgan-era CEOs by making Dean Anason is managing editor of JPMorgan a strong company that will remain strong for years to come. American Banker. He has covered However, Sargen says, “it remains to be seen whether Dimon’s successors will the banking industry since 1996. He lives in Atlanta. be equally adept in overseeing a large and highly complex organization.” AB

32 American Banker April 2021 More than a resource — your ally for advancement

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