The June 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus features information on the New Fiduciary Rule. Regulatory Update includes a FRB final rule on Regulation CC. Information regarding DFI issuing Banking Letter 50 and WBA’s role in this interpretive action can be found in the Compliance Notes section.

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By, Ally Bates

The May 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus is on managing UDAAP risk. Regulatory Update includes a CFPB proposal to amend Regulation C. Information regarding the April 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices can be found in the Compliance Notes section.

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By, Ally Bates

The April 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus features guidance on Wisconsin’s Uniform Transfers to Minors Act. Regulatory Update includes a CFPB proposal to amend Regulation B. Information regarding Same Day ACH Phase 2 implementation can be found in the Compliance Notes section.

Click here to download the full issue.

By, Ally Bates

The July 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus article is an update on loan renewals in Wisconsin. Regulatory Update features final rules on arbitration agreements, TILA-RESPA amendments, and Regulation CC. Information regarding the suspension of the Medicaid Asset Verification Data Matching Program can be found in the Compliance Notes section.

Click here to download the full issue.

By, Ally Bates

While banking as a business has evolved over the decades (albeit gradually), the branch itself has not changed much from the earliest days of banking. Most brick-and-mortar locations still feature long teller lines separating staff from customers, hidden back offices for more complex financial needs, and large but separated spaces for consumers to navigate in their search for solutions. With the advent of digital banking, that model is changing. Banks in the future—and sooner than you think—will look very different from the marble halls of the past. 

New Purpose

The very purpose of the bank branch is changing. Once the central purpose for the branch, the number of in-branch transactions continues to fall as online and mobile transactions become the norm. "Our entire culture is being digitized, and the trend of integrating the physical world with the digital will have a tremendous impact on how we do branching in the future," said Andy Grinstead, vice president of strategic insights at Fiserv. "It's already happening today, and the pace will accelerate." As a result, bank branches must adapt to a new purpose: customer engagement. "People are going to look for expertise on financial services rather than just coming in to conduct a transaction," explained Dan Peterson, president & CEO of the Stephenson National Bank & Trust, Marinette. 

This new customer motivation provides banks an opportunity to become a destination rather than a chore, according to Jennie Sobecki, founder & CEO, Focused Results, LLC. "Be the financial services experts in your community, because you are," she added. "Many bankers don't like to stand out, but they'll need to." As a result of this change, tomorrow's branches will be designed to foster relationships. "Successful bank branches will acquire and develop customer relationships by providing personalized interactions in an easy-to-use multi-channel environment that offers customers the choice of full-, assisted-, or self-service based on their personal preference," said Susan Doyle, senior vice president of retail banking at North Shore Bank, Brookfield. Millennials in particular, Doyle notes, value advice and solutions from bank specialists they trust in addition to digital access to transactions. 

Re-Designed

With a new focus on customer relationships rather than conducting transactions, tomorrow's branches will be more open, with most utilizing the Universal Banker model that is already gaining popularity. "We'll have more open layouts," said Sobecki. "The Universal Banker model is more user-friendly and focused on relationship-building." Peterson also predicts most successful branches will feature teller pods rather than traditional lines. According to Doyle, branch design will promote customer access to bank staff, space for customers to discover and learn about the bank's products and services, and opportunities for consultative discussions and account fulfillment. This, in turn, will require a higher level of expertise from front-line staff. "The knowledge and skill of branch staff is evolving upward," said Doyle. "Staff must be knowledgeable people who can handle complex transactions, engage in conversations about financial needs, provide counsel and connect customers with experts." 

These new design features will allow branch footprints to shrink, reducing the bank's overhead. "With less space dedicated to teller transaction windows, branches need less square footage to serve customers and fewer staff members dedicated to processing transactions," said Doyle. In some cases, excess space may even be leased out to the bank's business clients, or perhaps converted into space where bank customers (and potential customers) can learn about digital offerings. "Branch design will also include open offices and meeting centers, digital media to tell the bank's story, and also provide easy access to eServices with a genius bar or eService Education Center," said Peterson. For example, Stephenson National Bank & Trust has placed an eLab in their main office. "People can come in and use a variety of devices—different brands of tablets and phones—and we can demonstrate how to use our online services," Peterson explained. "We're training our customers how not to come into our branches to conduct basic transactions, but encouraging them to come in for education and financial advice."

Right-sizing branches and the services they offer will also be a key component in a successful branch strategy by maximizing the impact of each customer touch-point. "Branches should reflect the needs of the consumer and market in terms of size, staff and services offered," said Doyle. The model that North Shore Bank uses includes hub, spoke and kiosk branches, all of which work in combination with the others to create a distribution system that works for the customers and communities they serve. With this system, a large, full-service hub branch supports a regional network of smaller satellite offices (the spokes) and forthcoming video teller/ATM machines that offer customers a direct connection to branch staff (kiosks). 

Integrated Technology

Machines bank customers can use to conduct basic transactions will be central to the branch of the future. Interactive teller machines, depository ATMs and cash recyclers will all help streamline the customer experience. "Technology can do the basic transactions. You need the people to be customer-facing dream-builders," said Sobecki. "The banker's job isn't counting cash well; it's building relationships and finding out what the client wants, then positioning the bank's products and services to help them achieve those dreams." 

Using technology to recognize customers is a perfect example of this partnership between technology and human customer service, and Grinstead predicts its use will continue to grow. For example, a customer books an appointment online and when they arrive at the branch they are identified through geolocation technology (such as a beacon) or a biometric (such as facial recognition), notifying branch staff instantly of who they are and why they're there. "That ability to connect with the person who can answer your question right away will be critical," he said. 

Another common feature will be remote video support, allowing customers to communicate face-to-face with bank staff from anywhere. The concept of "banking from anywhere" will be the primary driver behind many of the changes in branch banking. "Just ten years old, smart phones have and will continue to be a game changer," said Doyle. "They will continue to alter how customers choose to conduct their banking business." However, mobile devices are also a source of competition and drastically transforming customer expectations. "Banks are being matched up against the technology of other industries today, not just the bank up the street," said Grinstead. "You're being compared to Apple and Google."

Implementing Change

The good news is, the transition from the traditional branch model to the future model does not need to be immediate. In fact, bank management should take care not to rush implementation of any new branch strategy. "Embed it into your strategic plan," Sobecki advised. "Technology isn't cheap, so you need to know in advance what your plan is." Both Doyle and Peterson say they sought information from other banks who had installed similar features to learn what went well (and why) as well as how to manage or avoid common challenges. However, discerning the best course of action for your institution also requires dedicated due diligence. "Start with data," Grinstead advised. "Start with intentionality by completing a branch optimization and transformation study." The study will enable bank management to understand the current performance of each branch as well as market opportunities around that branch through customer market research. 

Branches should not be evaluated solely on transaction volume, however. "The number one thing is revenue per square foot," said Sobecki. "You have branches in mature markets and growth markets, so it's also important to look at your year-over-year growth, not just the dollar amounts." At Stephenson National Bank & Trust, Peterson says they have begun evaluating the bank's digital performance, too. "Rather than evaluate the different office locations, we're evaluating our virtual branch," said Peterson. "We've established a general ledger for analyzing how our customers bank with us digitally." Grinstead recommends measuring relative profitability (rather than fixed costs) and analyzing growth based on whether or not the branch is capitalizing on the opportunities present in its market. 

Communication with customers and staff about upcoming changes must also be carefully planned and executed in order for the branch transformation to succeed. "As a high-touch community bank, listening to our customers regarding their preferences is requisite and our most important tool," said Doyle. "The branch needs to provide a platform that takes into account varying rates of change and provide customers with choices on how they want to bank." Staff must also understand their role in any upcoming changes well in advance, not only so they can explain the new features to customers, but to gain their support. "Buy-in from the staff will determine the success of the changes being made," said Peterson. "If not communicated or presented in a positive manner, reputational risk will be an issue."

Envisioning Tomorrow's Branches…. Today!

Left: A view looking from the Knowledge Desk to business partner offices in the branch, which include mortgage, investment and business banking. Center: Jenni Dolata, deposit operations officer, training Stephenson National Bank & Trust employees on the eTeller. Right: View from North Shore Bank's new teller pod in their Green Bay branch. The branch features an interactive kiosk, a fulfilment desk, and a connection area with a personal banker and video conferencing.
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By, Amber Seitz

As the Federal Reserve executes its strategy to slowly raise rates, net-interest margins will continue to compress. That compression makes non-interest income a key element in bank success as the primary source of earnings growth. Wisconsin banks must explore practical strategies to increase non-interest income without alienating customers or experiencing regulatory compliance violations. 

Pursue Fee Income

Since fee income is a common source of non-interest income, it is a popular first choice for many institutions. The first step in this strategy is to evaluate the bank's current fee structure. "Banks should evaluate loan fees regularly, along with new product and services fees," said Kirsten Spira, banking attorney at Boardman and Clark, LLP. "Banks may determine that their fees are below the market rate, and even a slight adjustment could improve the bottom line without losing your customer base." It's also important for management to monitor the rate at which fees are actually collected. "Management might be surprised at how often fees are waived or not collected," said Spira. "In addition to loss of revenue, this collection issue can raise compliance concerns, as well, such as fair lending, et cetera."

Of course, it is difficult to introduce or raise fees without generating a negative reaction from customers. One way to do so is to use opt-ins, according to Shane Bauer, first vice president/security officer at Bankers' Bank, Madison. "Offer different flavors of a product starting with 'free' and then charge for incremental benefits the customer values," he suggested. One example would be to offer same-day ACH as a paid upgrade to the bank's already-existing payment options. "It's the bank equivalent of Economy Plus seating," Bauer explained.

Expand or Diversify Offerings

Another popular option to generate additional non-interest income is to expand or diversify the bank's current slate of product and/or service offerings. This strategy includes options ranging from fees generated from SBA loan packaging services or secondary market sales to wealth management and trust services, or even add-on products like credit insurance, GAP and debt protection. Because there are so many options, banks must take care to select line(s) of business that match up with their customers' needs and price sensitivity. "The most important thing is offering the right variety of properly priced products," Bauer advised. "Develop products based on a demonstrable need from customers, not just based on what everyone else is doing."

Banks considering this strategy face the key decision of whether to grow their product/service line organically or find an independent company to acquire. The choice between organic growth or acquisition depends on the bank's unique circumstances and how quickly they want to grow, according to Nate Zastrow, executive vice president and CFO, First Bank Financial Centre, Oconomowoc. "For example, we knew that wealth management was an area that needed fast growth, so we found a firm to acquire," he explained. "On the other hand, we grew our mortgage lending from within, over time." 

Another popular source of non-interest income is credit card lines of business. "Card programs offer banks a variety of ways to increase fee income, from interchange fees paid to an issuer for card transactions to profitable pricing in merchant services," said Bauer. Since cards—both on the issuing and merchant side—are volume businesses, Bauer advises banks to grow their card business with the right partner to strengthen relationships. 

Trust companies can also be a good source of non-interest income, but often take a long time to reach profitability when grown organically. If this is an area where the bank has identified opportunity, finding a trust company to purchase may be a better strategy than building from the ground up.

Evaluate the Risks

As with any new strategic direction, bank leadership must carefully evaluate the risks associated with their non-interest income strategy prior to implementing it. Predictably, regulatory compliance is of the highest concern for most institutions. "The current regulatory environment does not leave much room for creativity," said Spira. "Leadership should consider the regulators and make sure the strategic plan takes into account the legal restrictions on products and fees." She recommends that bank management work closely with compliance staff and the bank's attorneys to ensure any new fees, products or services are compliant. "State and federal regulators look closely at fees and add-on products, and the CFPB has a keen eye on strategies employed for the sale of add-on products," she added. 

Not having a well-defined strategy creates massive risk with any new business endeavor, and generating non-interest income is no exception. "It's important to be clear on what you want to accomplish and have a plan for getting there," said Bauer. "Banks need to identify value-added services that customers are willing to pay for and explore ways to offer them." Proper planning allows for flexibility, as well. First Bank Financial Centre has a rolling three- to five-year strategy that is evaluated and adjusted quarterly, according to Zastrow. "If something is working we go deeper and if something isn't we scratch it and move on," he said. Because no bank can be "everything to everyone," it is important for product and service offerings to be consistent with the bank's strategic plan in pricing and delivery. 

Identifying your customers' tolerance for new or higher fees, as well as their appetite for expanded products and services is another key risk. Spira pointed out that many non-bank competitors offer consumers a wide variety of digital services at no charge, and that has transformed bank customers' expectations. "The marketplace is increasingly competitive, consisting of bank and non-bank competitors, and a customer base that expects more for less… including electronic access to all banking products and services without additional fees," she said. One way to mitigate this risk is by placing customer satisfaction at the center. "Our strategy wasn't dollar-driven," Zastrow explained. "It was more focused on delivery channel and product base, building up a complete suite of products for our customers. From that, the non-interest income grew." 

Finally, verifying that the bank has the appropriate infrastructure and staff expertise to capably deliver the new product or service is also essential. "Having the expertise is key, and that's where having the right people comes in," Zastrow said. In order to successfully offer a new fee-generating product or service, the bank must either acquire the expertise needed or grow it over time, according to Bauer. "The bank needs to be clear on what it is willing to devote in time and resources and be realistic in its expectations," he said. "Success will come from the right planning and execution, including tasking the right team internally and contracting with the right vendors where needed."

Bankers' Bank and Boardman and Clark are WBA Gold Associate Members. 

By, Amber Seitz

WBA is commonly asked whether standard loan closing disclosures are required when a lender renews an existing consumer loan. This article is intended to update information regarding loan renewals in Wisconsin found in Notice 2008-2, which appeared in the February 2008 WBA Compliance Journal.

For purposes of this article, a renewal is an extension of the term of an existing closed end loan (without additional advances) by the lender that originally made the loan to the same consumer. Commonly, the interest rate may change to reflect market conditions at the time of renewal and the payment schedule may be modified to reflect the continuing amortization of the loan based on the new interest rate.  The following summarizes disclosure requirements and their applicability to such loan renewals.               

1.  Truth-in-Lending and Regulation Z.  

Under Reg Z, disclosures must be given at or prior to the consummation of a loan. This includes, for example, personal consumer loan disclosures and TRID disclosures. When a loan is renewed, must the lender give these disclosures again? New disclosures will be required only if the renewal is considered a refinancing, as defined in Reg Z. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer. If the renewal is not a refinancing as defined in Reg Z, (that is, the loan to the consumer has not been satisfied and replaced with a new obligation) new disclosures are not required. There are two exceptions. New disclosures are always required for a renewal if:

  • a variable rate feature is added to the obligation at the time of the renewal; or
  • the interest rate is increased based on a variable rate feature that had not been properly disclosed when the loan was made.               

See the section below on Taking Steps to Document a Renewal and Maintaining Priority, for WBA recommendations to avoid having a renewal note characterized as a refinancing.   

The last paragraph just concluded that if the loan is a refinancing – that is, the lender satisfies and replaces an obligation with a new obligation to the same consumer – new disclosures are required. Reg Z includes five exceptions to this rule. Even if the loan meets the definition of a refinancing, new disclosures are not required if the purpose of the new transaction is to:

  • renew a single payment obligation with no change in the original terms;
  • reduce the APR with a corresponding change in the payment schedule;
  • enter into an agreement involving a court proceeding;
  • enter into certain agreements resulting from default or delinquency; and
  • renew optional insurance purchased by the consumer and added to an existing transaction if the initial purchase of insurance was properly disclosed.

In summary, subject to the two exceptions for adding a variable rate feature to the renewal or having incorrectly disclosed a variable rate feature initially, new consummation disclosures are not required unless the original obligation is satisfied and replaced by a new obligation undertaken by the same consumer. Further, even if the obligation is satisfied and replaced by a new obligation by the same consumer, new disclosures are not required if the new obligation falls within one of the five exemptions listed above.

The right of rescission, which applies to credit transactions in which a security interest is or will be taken in the consumer’s principal dwelling, is not required for renewals. However, if the transaction is a refinancing or consolidation by the same creditor of an extension of credit secured by the dwelling, the right of rescission does apply to any new advance of money. Also, for purposes of rescission, if a security interest in a consumer’s principal dwelling is added to the transaction, rescission will apply to the addition of the security interest. Finally, a refinancing by a different lender is always considered a new loan, subject to all of the disclosures and the right of rescission under Reg Z.

2.  RESPA.

Although certain disclosures previously required under RESPA are now incorporated into Truth-in-Lending/Reg Z (TRID disclosures), RESPA continues to require the provision of certain other disclosures – for example, the Homeownership Counseling Notice. Subject to certain specific exemptions, RESPA applies to loans secured by first or subordinate liens on residential real estate, including the refinancing of any loan secured by residential real estate. RESPA incorporates the basic Reg Z definition of refinancing. That is, if the loan is satisfied and replaced by a new obligation by the same borrower, the transaction is a refinancing and the RESPA rules applicable to refinancings apply. The RESPA disclosures do not apply if the loan is not satisfied and replaced by a new obligation by the same borrower. 

3.  HMDA and Regulation C.  

A HMDA-reportable financial institution is required to report the renewal of a covered loan only to the extent that it is considered a refinancing. Under HMDA and Reg C, a refinancing means a new, dwelling-secured debt obligation that satisfies and replaces an existing dwelling-secured debt obligation by the same borrower. If the loan renewal does not satisfy and replace the existing debt obligation, the loan is not a refinancing. This is true under existing HMDA requirements, as well as the new HMDA rules expanding reportable loans which take effect January 1, 2018. 

4.  Equal Credit Opportunity Act and Regulation B.

Regulation B requires the provision of disclosures and notices, as well as the collection of certain information about applicants. The definition of application under Reg B can include a renewal of credit.  As a result, if a consumer applies for the renewal of a loan, lenders must follow applicable Reg B provisions, including the requirement to provide applicants with the “Right to Receive A Copy of Appraisals” for first-lien, dwelling-secured loans for which the lender conducts a new appraisal or valuation on the property. Additionally, adverse action notice requirements must be followed.

Additionally, collection of government monitoring information under Reg B is only required and permitted for applications for the purchase or refinance of a principal dwelling, and not for loan renewals. Thus, monitoring information may only be collected on a renewal application if the renewal is considered a refinancing. As with Reg Z and HMDA, under Reg B, a renewal is not a refinancing unless the debt is satisfied and replaced by a new obligation to the borrower. Note that even in a refinancing, collection of government monitoring information is optional if it was obtained in an earlier transaction.

5.  Privacy. 

Privacy notices must be provided to individual customers not later than the time the customer relationship is established. Assuming the notice was properly provided in connection with the original loan (or earlier than that if the individual was already a bank customer), a loan renewal does not trigger the requirement to provide an initial privacy notice. 

6.  Flood Insurance. 

Lenders may not renew any loan secured by improved real estate or a mobile home located in a special flood hazard area unless the property is covered by flood insurance. At the time of loan renewal, lenders must determine whether flood insurance must be placed. A lender should order an updated flood determination for loan renewals, unless it is able to rely on a previous determination. The lender may rely on a previous determination if the determination is not more than seven years old and the basis for determination was recorded on the Standard Flood Hazard Determination Form. Prior determination forms may not be relied upon if map revisions or updates show the property is in a special flood hazard area. 

Regardless of whether an updated flood determination is required at the time of renewal, lenders must provide the Notice of Flood Hazards and Availability of Disaster Relief Assistance to borrowers for any loan renewal secured by improved real estate or a mobile home located in a special flood hazard area.

Wisconsin Consumer Act.

  • Tattletale Notice. Lenders must notify a non-applicant spouse of an extension of credit if the loan is governed by the Wisconsin Consumer Act (WCA). This disclosure is generally referred to as the tattletale notice. The tattletale notice is not required in connection with the renewal of a loan.
  • Explanation of Personal Obligation. The WCA does not address disclosures for renewals. The WBA recommends that a lender provide an Explanation of Personal Obligation in connection with renewal notes to any person entitled to an Explanation of Personal Obligation in connection with the initial loan (or provide copies of the documents if that is the way the lender complies with the notice requirement, if applicable, under the WCA).

Taking Steps to Document A Renewal and Maintaining Priority. 

When renewing loans, lenders strive to maintain priority on real estate collateral. To maintain priority, lenders want to treat a loan renewal as a continuation of an existing loan rather than a substitution and replacement of the initial loan with a new loan (a refinance). In general, the priority of an optional loan secured by real estate dates from the time of the loan. So, it is important that the date of a loan secured by real estate remain tied to the initial advance. The lender does not want a court to re-characterize a renewal as a new loan with a new advance date.

When renewing loans, the WBA recommends following procedures to avoid a re-characterization of a renewal loan as a refinancing or a new loan. These procedures include:

  1. Clarifying the party’s intent that the initial note is renewed by the renewal note and not replaced, by marking the initial note “renewed but not paid” and by retaining the initial note in the file until the obligation has been paid and satisfied.  
  2. Completing any provision in the renewal note that indicates that the loan renews a prior note by referring to the prior note(s).
  3. Recognizing the risk that a loan may more likely be characterized as a refinancing rather than a renewal to the extent that the terms of the renewal note deviate from the terms of the initial obligation. Wisconsin cases have established a doctrine that a renewal of an existing note is not a discharge of an original obligation and the creation of a new obligation, unless it appears that the parties agreed that it should be destruction of the old and the creation of a new obligation. However, the cases address extension of the term, and do not specifically address other amendments made at the time of the renewal loan.

When the terms of the renewal note deviate from the initial note, the lender may decrease the risk of losing priority at the time of renewal by using title insurance to insure continuing priority. For example, an existing title insurance policy may be brought current with a date down endorsement or other update. Alternatively, a lender could consider obtaining a title search at the time of renewal to determine if there are junior creditors that the lender should consider contacting for consent or a subordination to lender’s mortgage. Lenders may choose to be more or less conservative when priority could be affected by the determination of whether a loan is renewed or refinanced.                   

Charging a Renewal Fee.  

Lenders may collect a fee paid in cash by the consumer as a condition to renewing a note. The lender should document the consumer’s obligation to pay the fee in writing, perhaps by adding the consumer’s agreement to additional provisions in the renewal note or via a separate agreement outside the note. Lenders considering financing renewal fees should consider the consequences. If a renewal fee is financed (rather than paid by the consumer in cash), the lender increases the loan amount. Lenders that increase the loan amount on a renewal note, including by financing fees, without treating the loan as a full refinancing, may have additional disclosure and priority issues and should obtain legal advice as to the consequences.

By, Ally Bates

The accelerated pace of change in today's banking industry means that every institution must adapt in order to survive. However, while new customer demands—especially for technology products and services—are transforming the industry as a whole, the pressure points vary by market region, consumer demographics and customer behaviors. For this reason, bank leadership must look to their institution's strategic plan for guidance when determining which changes to implement. 

To Change or Not To Change?

While most institutions will find it necessary to evolve in order to thrive in today's new banking environment, every bank's market and goals are unique. "While adapting to change is critical for every bank, the pace and extent to which the bank changes should be a function of local market and strategy," said Lee Wetherington, director of strategic insight at Jack Henry & Associates. "There's not one right answer."

"Certain banks have established niches or operate in communities which are relatively insulated from many of the changes impacting the industry," explained Kyle Manny, CPA, CGMA, senior manager, financial services at Plante Moran. "Those in communities with consumers who demand innovative products and services will need to innovate in order to maintain and expand their market share." 

Different institutions also have different thresholds for risk which will impact the speed and degree of their technology changes; it's not always about keeping up with the bank up the street. "Your technology can be on the bleeding edge, but if your risk management isn't, that could be a problem," cautioned Ken Schweiger, COO at Community First Bank, Boscobel. "Many times organizations make changes for competitive reasons, and while that is often appropriate, it can also lead to strategic and other types of risk that the institution is not prepared to handle."

Like with any other high-impact decision, the board and bank management should look to their institution's overall strategic plan when making strategic technology decisions in order to ensure the new technology product or service fits holistically. "Having and updating a strategic plan is absolutely critical to determining which investments in technology should be made," said Manny. "Without that plan it is extremely difficult because banks are thrown new opportunities all the time." Wetherington cautions against the natural tendency to haphazardly go after those "shiny objects" rather than pursue innovations that fit the bank's overall strategy. "Begin with strategy," he said. "Never change for change's sake."

An initial assessment of the bank's strategic goals is the best starting point for any technology planning. "You have to decide what you want to achieve from an organizational standpoint," Schweiger advised. "Then take an inventory of where you're at and decide if you need to fill in holes in your product offerings, or if you want to advance on the curve with a market-leading product." Then, management and the board can begin evaluating specific opportunities. 

Evaluation Before Evolution

Using the strategic plan as a guide, the board and management must evaluate the wide array of technology investments available to financial institutions and select the few that will help the bank accomplish those strategic goals. That winnowing process can be difficult, and there are four elements to keep in mind during each evaluation: data, infrastructure, metrics and partnerships. 

Banks, in general, have all the high-quality data they need in order to determine which products and/or services will bring the highest return based on their current customer base. However, many institutions don't have the means or the inclination to fully leverage that information. "I recommend community banks harvest the data available to them in order to determine which investments will have the most meaningful impact to the retention and development of customer relationships," said Manny. 

It's also critical to factor in the bank's current technology capabilities based on its infrastructure. "Your technology infrastructure needs to be able to handle the new product or service, especially from a risk management perspective," said Schweiger. "A good strategic planning process should help ensure the infrastructure is in place to bring new products and services to market when the organization is ready to implement them."

Metrics are essential because they provide concrete, measurable goals and benchmarks for the success of the new offering, whether it's customer adoption rates, usage statistics or profit. "The best strategic objectives are measurable, so pursue technologies that will give you the results you're looking for," Wetherington advised. "Optimally, you want to be able to measure before and after implementation." 

As for partnerships, fintechs are no longer generating business models designed to replace banks. In fact, 60 percent of fintech venture capital goes to collaborative business models (rather than disruptive), according to Wetherington. "The real challenge is navigating the complexity of opportunity banks have in working with these new fintechs," he said. "The highest-performing banks will be those who best navigate, curate and leverage the opportunities and innovations offered by fintechs, and it starts with the strategic plan."

Smooth and Strategic

Strategic technology plan in place, the board then typically steps back and management must implement the new or updated product or service. Rolling out a new product, no matter how large or small, is a complex process. By focusing on small changes and relying on standard procedures, management can help ensure a smooth strategic change process. 

For most banks, the most appropriate strategy for change will not involve trailblazing, according to Manny. He described it using a baseball metaphor, recommending banks focus on singles rather than homeruns. "Incremental improvements to the community bank's value proposition will keep customers loyal and attract those from other institutions," Manny explained. "It's always been the community bank model to deliver excellent customer service over and above the latest technology." For this reason, even when implementing a large change—such as the launch of a new website or mobile app—focusing on smaller improvements is essential to stay ahead of the competition. "There are so many options that can differentiate you incrementally from direct competitors that the real challenge isn't putting in any one technology, it's sustaining a systematic effort to incrementally differentiate from your competitors," said Wetherington. "That's the key to long-term viability."

Putting a standard procedure in place will help manage change at the bank by ensuring that not only are all the essential operational steps followed, but also that all potential risks are recognized. "Since essentially all new product and service offerings require a several-step risk assessment today, having a well-defined process for product and service development is helpful," Schweiger explained. "Creating standard procedures and templates to facilitate things like model risk, vendor risk, and IT risk assessments as part of the product development cycle can be very helpful." 

Finally, no significant technology change at any institution will go smoothly without open and active communication between the bank and its regulator. "Be proactive in communicating your strategic plans with your regulators, especially your technology plans," Wetherington advised. "Familiarize yourself with your regulators' innovation posture and outreach. It's one thing to assume, but it's better to know."

By placing the strategic plan at the center of all technology changes, banks can evolve and thrive in today's tumultuous industry by investing in the right products for their customers and implementing those changes smoothly. Finding the right fit in technology is the only way community banks can keep up with the pace of change; technology is one more tool they can use to define their brand for their customers and their community. "There are so many options out there, the challenge is to figure out where to put your assets," said Schweiger. "You can't do everything in every market, but that doesn't matter because not every market requires the same products."

On Trend: What the Experts See
The three experts interviewed for this article shared their thoughts on top trends in the banking industry that you should pay attention to: 

"From an operational standpoint, it's very important for small community banks to consider developing a shared services arrangement," said Manny. "That could be the last frontier in cost-saving opportunities for banks."

"If we're going to stay relevant we have to make payments faster and more convenient for customers while still controlling risks," said Schweiger. "For mainstream consumers, we'll need to look more like a fintech solution than the traditional banking model."

"The advent of real-time payments will create opportunities to re-engineer existing products and services, and create new ones as well," said Wetherington. "Imagine how real-time money movement will enable banks to do things like onboard new accounts faster or offer instant loans."

Plante Moran is a WBA Silver Associate Member.

By, Amber Seitz