JJ Hornblass, Royal Media CEO  

Hi everyone, I’m JJ Hornblass, host of Fintech Unfiltered. Welcome. This is presented by Bank Innovation, the leading digital news service on fintech and banking technology. Welcome to our Weekly Wrap on what’s happening in the FinTech world for the week of October 19, 2020. Before beginning I want to thank our Bank Innovation, advertisers Blend, Mambu, Q2ebanking and Syntellis for their support. So thank you very much to them. And I am so happy to welcome Rick Morgan and Bianca Chan from the Bank Innovation news team. Welcome to you both. It is Friday, October 23 2020. This week the presidential campaign entered its final phase. Remdesivir became the first COVID-19 treatment to receive FDA approval. A new federal stimulus remained pending and locked in political battle. Goldman Sachs agreed to pay $3 billion and to clawback executive pay over its role in the 1MDB corruption scandal. The Justice Department filed an antitrust suit against Google. A good chunk of 3Q bank earnings are in and the results have been better than expected. And finally, Guinness, the de facto national beer of Ireland has launched its first alcohol free beer. Guiness first started brewing beer in, either of you know? 1759. 1759. So other than the Guinness news, we had news from FDX around API adoption. Is this adoption a matter of gravitating away from old school screen scraping technology, or is there something else behind it? What’s the story here, Rick?

Rick Morgan, news editor at Bank Innovation

Yeah, it is sort of a gravitation away from screen scraping. And it’s not something that’s going to happen overnight. The way that Don Cardinal, the managing director of FDX explained it is the same way that online banking took time to roll out. And mobile banking etc. The same thing is going to happen with API based data sharing. So it is happening. But it will happen at a sort of through an adoption curve that will take time. And yeah, screen scraping, you know, definitely has a rep of being less secure, of being maybe a little bit less accurate. But, you know, it was just kind of the 1.0 version of data sharing, and now they’re moving to something that’s more secure and faster.

JJ Hornblass

Do we have a sense for the scope of API adoption across all of financial services?

Rick Morgan 

So I tried to wheedle some numbers out of them. He said, they’re still compiling their numbers. And it’s very difficult. It’s like herding cats. The last number we got from them was in the spring, I think it was April or May, they have converted 12 million end consumers away from screen scraping to API based data sharing. And he said, we can keep an eye out for some updated numbers here in the next couple of months.

JJ Hornblass 

When you say that we did this, what does that mean? 

Rick Morgan 

FDX stands for Financial Data Exchange, they’re a nonprofit that comprise a made up of a lot of big banks, a lot of fintechs, the biggest banks that I mean, pretty much every bank that you can think of JPMorgan Chase, Wells, US Bank, and every Bank of America, as well as fintechs, like Plaid, PayPal, I mean, all the big names that you expect, are all part of their consortium. And their goal is to move the industry away from screen scraping to API based data sharing, they’re doing so by sort of creating this technical standard that everyone will universally agree upon. The way I’ve heard them describe it is that they want to be the Bluetooth of financial services. So in the same way that if you see the Bluetooth symbol or the USB symbol, you know that it’s going to be this universal tech that you know how to use and that you’re familiar with. That’s what they’re trying to do for data sharing and financial services. So that’s the organization that I was referring to.

JJ Hornblass

So in terms of getting back to sort of this scope issue, like where is the did he give you a sense for where are the points of resistance in the process?

Rick Morgan

It just kind of takes time to get people on board. You know, obviously smaller banks that don’t have the same tech budget as your Bank of America has to, you know, build their own API’s for data sharing. It’s harder for them, I think, to get on board with this because they don’t have the same means to build it in house. One of the things that Don mentioned was that one way to sort of increase the adoption and to get more players involved and to get more banks and therefore end consumers on to API based data sharing would be to onboard more core providers. So the core providers, they’re the ones who are offering these out of the box digital solutions for banks. So if you get more, more core providers involved and get more core providers, as members of FDX, you would probably see more banks and therefore end consumers move to API based data sharing. I know Fiserv is a member right now, I’m not sure the other big players like Jack Henry and FIS and Finastra, etc. I’m not sure how many of them are members, but I know Fiserv but I think the goal is to get more core providers and therefore more banks to move over to API based data sharing.

JJ Hornblass 

Bianca, this week you looked at two regional banks and got a little bit of a window into the innovation strategies at two regional banks, Regions, and Umpqua. So maybe give us a little background on what’s happening over there from an innovation standpoint, and maybe some lessons learned from these two institutions, at least.

Bianca Chan, deputy editor at Bank Innovation

Yeah, there was definitely a clear theme across the two banks. So I guess despite geographies, they’re kind of split across the country. But it basically seems like they’re both trying to reel in spending other parts. And despite that, they’re still trying to continue to invest in technology. So for instance, Regions, one area that they’re pulling back in is headcount. So salary and benefits accounts for 55% of Region’s expenses, which, I mean, I’m not a business owner. But that sounds crazy, to me, very high number. So they’re looking to automation technology, to kind of backfill those positions, as you know, they kind of squeeze out the headcount of their branches. Branch consolidation, of course, going to be another one. And they’re also going to be allocating more spend towards mobile, their mobile app, the mobile capabilities, and then also kind of digital origination, specifically mortgage origination servicing. And then other sort of key priorities are e-signatures across all digital platforms, and then also more self service. So it follows this theme of you know, pulling back on the human capital and putting more effort into the technology that can maybe do that a little bit more cost efficiently. Same strategy over at Umpqua using tech to kind of boost that cost efficiency. And their earnings on Wednesday, they outlined a few key initiatives, which kind of include the expansion of their Go-To app, which we’ve written about pretty extensively before, it’s a really cool kind of Tinder style app where customers can get in touch and choose their personal banker based on your picture, bio personal interests, location. And so they’re expanding that to their business clients and evolving that product. And it’s a very important tool in their human digital strategy. So you know, marrying technology with the human touch. And that app actually saw a 30% spike in usage, and third quarter versus prior quarters and other up to 70,000 users since launching last April. So they’re seeing some adoption there. And it makes sense that they’re putting their money into that tool. And then, and also the other sort of key initiatives as part of their next gen 2.0 strategy. That’s what they call their operational efficiency strategy, branch consolidation, the continual migration from data center to the cloud, more back office simplification, so it’s aligning similar teams of like passions and more, yeah, just more of a sort of back office application.

JJ Hornblass 

I mean, it seems like in both cases, Regions and Umpqua this drive to automation ends up kind of circling back to Rick’s point, which is that without out extensive API, integration and utilization, these endeavors are just going to slow if not become if they’re not even impossible. I mean, would both of you agree with this or disagree? You know, how much of this is going to rely on API integration For banks like Regions, Umpqua and you know, other regional banks?

Bianca Chan 

Yeah, well, this API enabled strategy that was kind of a key call out in earnings is certainly not they’re definitely working towards I think it’s everyone kind of moves more towards real time. And then, of course, with the secure sharing data as well, but from what we’ve heard API’s are, they’re expensive to build, you need that kind of software engineering power. And they’re also I think, expensive to maintain. I mean, if you’re relying on this connection to share data depends on how, you know, if it’s a very critical function, then you need to make sure that the API is stable and remains stable, despite everything that’s changing around the scale, you know, from whatever comes in. And so I think API’s are definitely the golden standard, but I think a lot of the smaller players also still rely on the some file exchange, the kind of batch sharing, you have not on a real time basis, but on a more frequent basis, and let’s say, you know, the paper kind of processes.

JJ Hornblass  

So you’re saying that the less expensive alternative is batch file sharing? Or is there some other technology solution that gives you the best of both worlds, like a real time dynamic, but where it’s less expensive?

Bianca Chan  

No, I think it’s really just for right now, the two more popular ones, the ones that the banks that do have the kind of capital to invest in API’s, they’re going that route, otherwise, it’s this batch file exchange,

JJ Hornblass 

Rick, did you get a sense from FDX, you know, the degree to which at least on the regional banking side, adoption rates or not?

Rick Morgan

I think he didn’t distinguish, Don didn’t distinguish between like big banks and small banks on the call, necessarily, but I mean, if you just look at FDX’s members, you know, there are some regional banks, but obviously, not every regional bank is a member whereas pretty much every big bank is a member. So, I think Yeah, the adoption is going to be a little bit slower for these regional banks that they can’t build stuff in house. It’s funny that we bring up Umpqua though they do actually, sort of made waves for usually it’s the banks acquiring technology companies. Umpqua launched a company called Pivotus Ventures that it developed in house that it then sold to like a Silicon Valley company. So kind of a weird model, because they are this regional bank that you would think would need to look outside for tech when in reality, they built something in house that they sold and kind of turn the tables on the traditional fintech

JJ Hornblass

What’s in store for Bank Innovation readers next week?

Bianca Chan

We’re gonna be taking a look at some new technology out of HSBC. And then also, don’t miss our upcoming edition of five questions with which is coming out next week, the tech lead of a Bank of America’s Erica will be featured so it’ll be a good one.

Rick Morgan

Looking at some new AI startups and some investments in that space as well. So it should be a pretty exciting week.

JJ Hornblass 

Good, good. Well, thank you both. And thank you all for joining us on this episode of Fintech Unfiltered, please read us wherever you can. And follow us on Twitter and LinkedIn. And of course, visit with us at finainews.com. Thank you all so much. We’ll see you next time.