This week we sit down with Matthew Gallman, VP of Strategic Innovation with Dummond Community Bank in Chiefland, FL.  We discuss how they are innovating through strategic fintech partnerships and how to balance both technology and relationships. Click here to access our Loan Pricing & Relationship Profitability Series

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Intro: Helping community bankers grow themselves, their team, and their profits. This is The Community Bank podcast.

Eric Bagwell: Welcome to the Community Bank podcast, I’m Eric Bagwell, director of sales and marketing for the core respondent division of SouthState bank. And joining me, Caleb Stevens. Caleb is a business development officer here at the bank and also the producer host of The Community Bank podcast, you’re listening to Caleb, how are you?

Caleb Stevens: I’m doing great. 72 degrees, a nice day in Atlanta, and good to be back on the show.

Eric Bagwell: Absolutely. I think once this podcast is out, the tree will have bloom, but right now they are just on the verge, but it is a beautiful day. I think everybody’s glad that spring is here and we’ve got a great show today. We have Matthew Gallman. Matthew is the strategic innovation officer for the drum and Community Bank. It’s in north Florida, Caleb you Matthew hooked up through LinkedIn. He’s a regular listener to the podcast and we thought he would be really a great guest to have on the show. So, you guys got him or you got him on and we had him today. Talk about it.

Caleb Stevens: Yeah, I mean, the name of this show is called The Community Bank Podcast, and one of the things we want to do on a somewhat consistent basis is connected our listeners with other banks all over the country that are doing things that are on the forefront from a technology standpoint, from a culture standpoint, but are also truly a Community Bank. We can talk about what a regional bank is doing and that’s great, but we love to talk about what are the everyday Community Banks doing around the country, and Matthew is a part of drum and community bank there and near the Gainesville area in Florida. And so, this was a good discussion about how they’re sort of thinking through their digital roadmap are partners with other fintech and where he kind of sees the bank going over the next five years or so. And so, I think it’s a helpful discussion for any listener out there. Whose part of a smaller bank and they want to stay independent; they want to continue to grow, but they know that there’s some challenges that face them and it’s going to require some strategic partnerships with vendors and with Fintech to get there.

Eric Bagwell: But before we get to the interview with Matthew, we want to talk about a free resource we’ve created for lenders. Caleb, talk about the loan pricing video series that we’ve done.

Caleb Stevens: This has been in the works for a while, but just recently we launched five free videos to help you and your team price more profitable loans. In 2022, it was filmed and recorded with our own Chris Snickers, our director of capital markets and he walks through a number of things it’s really quick. It’s just five videos. They’re about five minutes each, so you can fly through them, but we talk about why just focusing on your net interest margin can actually be counterproductive, we talk about why too many banks mispriced their credit risk, we talk about how to drive the right behavior and goals with your lending team, and we also about the most important element of loan structuring that you need when you’re pricing commercial loans. And so, if you’re thinking about the fed raising rates, what’s going on in the world, inflation, I hope this video series will be helpful to you and to your team, whether you’re on the credit side or the lending side. We made this for you because we believe that community banks need to be taking these five things seriously and we made five videos to help educate you on them and help cover them and Chris did a great job. So, to get that, it’s really simple. Just click the link in the show notes of this episode. Just click the link super simple, or you can go to southstatecorrespondent.com/loanpricing, southstatecorrespondent.com/loanpricing, or just click the link in the show note it’s right there and we would love for you to check it out. So, with that, here is our discussion with Matthew Gallman.

Well, Matthew, thanks for hopping on the podcast today. It’s great to be speaking with you. How are you doing,

Matthew Gallman: Doing great, really excited to be here. I love the podcast. So, thank you so much for having me on looking forward to the discussion today.

Caleb Stevens: Well, you and I have traded LinkedIn messages over the past several months and I’ve really enjoyed a kind of seeing you around the podcast sphere. I feel like you’ve been featured on a number of great banking shows and you’ve written articles and I think people are looking to you as somebody who’s sort of forward-thinking in the banking industry, even yet, you’re still working for a bank that’s around a billion dollars or so. So, it’s a small bank and I think that’s a lot of folks that listen to this show are with smaller banks as well, and so think we just love having guests on like yourself who can kind of bring some perspective of what sort of the typical community bank doing out there in the world today, but that’s trying to stay forward-thinking and forward-focused as we think about FinTech in the future. So, give us a little bit of your story in terms of your role with drumming and community bank and tell us why you’re passionate about all things Community Banking.

Matthew Gallman: Absolutely. So, I’ve been with drum and community bank, for about two years. I have a credit union background and during my time in the credit union, I spent a lot of time in enterprise risk management, vendor management, those types of disciplines, and when I came over to drumming, I quickly realized that we could utilize FinTech partnerships to address some strategic shortcomings and so, during 2020, COVID 19 crisis, pandemic, rather we experience an influx of liquidity and we had issues with meeting and exceeding our earnings targets. And so, we quickly turn to consumers as a way to supplement our income and our portfolio. And so, consumers offered short term assets where a lot of the assets that we are heavily invested in terms of the investment portfolio and the loan portfolio are all long-term fixed rate which it’s hard to keep booking those assets and holding them on your books with uncertainty in the interest rate and environment.
And so, we kind of serendipitously fell into the FinTech world. My first project with the bank was actually purchasing a portfolio from a bank that works with Fintech, and that was a whole new world for me because it really opened my eyes to the scale that FinTech can offer Community Bank like ourselves. It helps us address resource constraints that we have as a bank, for example, coming from a credit union to do auto lending, you have entire departments that are devoted to titles, to collections, things like that, which we’re just not set up for that type of scale in order to do retail the way that other institutions are. And so, Bentex by working with them, we can address some of those shortcomings and do more in the retail space, which is typically kind of a shortcoming of many community banks. And so, my first project was again to buy a portfolio of consumer loans that help us from an earning perspective to diversify our portfolio, and from there we quickly realized that man, this is a huge opportunity for us to grow as a bank and to Futureproof our organization. And so, we went out and we partnered with other Fintech directly and we’re continuing to find partnerships and opportunities that we can to set us up for success in the future.

Caleb Stevens: Well, you hear credit unions in the news all the time. A lot of credit unions have bought banks recently for you, what are some things you learned in the credit union world that were helpful as you now have kind of joined the banking side of things? Do you feel like that prepared you in any way for what you’re doing now and how is maybe the world you’re now different from where you came from?

Matthew Gallman: I believe that working in the credit E space have really given me a true belief in the consumer, in the retail space, in terms of a great example is Auto Lending, right? A lot of banks they shy away from Auto Lending, but I firmly believe in Auto Lending and believe in the strength of the consumer. And so, I really feel like banks have an opportunity to serve more of that space, and instead of just saying, oh, well, we don’t have the resources to meet those consumers, we can find ways to serve that customer. When I was at the credit union, I used to get referrals from community banks that would say, hey, I have a customer over here that needs help with an Auto Loan. Can I send them over to you? And I always thought, man, that should be a Cardinal send to send someone you should be able to fully service the needs of your customer. And so, I think that my first goal, when I came over to the bank was, we no longer can send our customers. We need to be able to help them with every single product in service that they could possibly, we want to be full service, we want to help them achieve their goals and improve their financial consciousness. And so, really, I guess the core fundamental thing that it taught me was the belief in consumers.

Caleb Stevens: talk about your bank’s your long-term digital strategy. I was in South Georgia a couple of weeks ago, talking with some banks, and obviously, Amazon’s opened everybody’s eyes as to, hey, this can come to our doorstep digital stuff. And so, every bank now has to have a long-term and a digital strategy. Talk about what you guys are doing at your bank.

Matthew Gallman: Absolutely. So, I think a lot of banks and a lot of credit unions when they think about their digital strategy, they’re kind of lost because they focused on digitizing a process or a product, rather than changing their business model. And so, what I mean by that is we all know that the traditional banking business model is very product or it’s very output-oriented, right? So, someone comes into a branch and they get a loan from us, it’s a very linear distribution channel. So, if you look at the most successful companies, nowadays, if you look outside of the banking space, you look at Amazon, you look at Facebook and Google. The one thing that they have in common is that they’re all platforms and instead of focusing on output, they’re focusing on the outcome. And so, how can we focus on outcomes with our customers rather than output? So, a great example is that people don’t shop for mortgages, they shop to buy a home, people do not shop for a car loan, they shop for a car. So, we have to think about the technology that changes our business model rather than just digitizing a channel.

Caleb Stevens: Talk about it too. What makes a good FinTech? And what do you guys look at when you look at somebody to partner with? What are the key things you’re, you’re wanting to see?

Matthew Gallman: So, if we look at a typical FinTech, partnership model, why a lot of them are becoming so much more are popular. I think you’ve had other guests that have mentioned this as well, but FinTech partnerships are not really new, it’s just the way that the partnerships are being formed are new in that they’re more equitable. When one side of the transaction does well, the other side does well in equal faction, and that equity does it out of line. And so, I think what makes a great partnership is a partnership where there’s alignment on goals. Number one, you have to have confidence in the leadership team and their culture. They have to have risk management and compliance as a foundation of the company, and they have to have continuous touchpoints with us.

So, that can help us succeed. We can help foster open communication and at the end of the day, each side must be willing to learn and to share best practices with each other. So, in a particular FinTech arrangement, they may be good at doing a certain thing. A lot of them are hyper-focused on certain areas of banking. So, maybe they’re focused on personal loans, maybe they’re focused on the mortgage industry so we can learn from them. But we have a rich experience when it comes to compliance risk management, dealing with regulators, building the trust of our customers. And so, there’s a lot to be learned on each side of the equation. So, I think that’s fundamental to finding a good FinTech partner, but also, as I mentioned, there are two kinds of business models that have emerged.

And for anyone listening to this podcast, I highly recommend that you pick up the book Banks and FinTech on Platform Economies again. The author Palo talks about how our business model in banking really needs to change, and there are kind of two new business models that have emerged. You’ve probably heard them a lot in media, but number one is contextual banking. You may have also heard of it referred to as embedded finance and what that is the integration of banking into non-banking-related services. So, earlier we mentioned Amazon and finance can be a huge friction point and a customer journey and it can be removed, and many cases and the experience can be made that much better. And so, I’ll give you an example of how we have implemented embedded finance or contextual banking arrangement with one of our FinTech partners.

And so, we work with this company that does point-of-sale home improvement lending. So, they have a network of merchants, for example, some could be looking to get a new roof on their home. And so, that merchant is then able to offer their consumer financing at the point of need. So, now we’ve integrated a banking service into a non-banking-related transaction. So, someone is looking to get a new roof, they’re not looking to get a home improvement loan. So, we have now entered the realm of embedded finance and that’s its own ecosystem outside the traditional banking sphere. So, there are all kinds of other verticals where we have opportunities to do this, but it requires new ways of thinking and we have to give up that traditional output-oriented business model, where we’re just trying to digitize the process. We have to really think about how we can meet our customers at their point of need.

So, there’s hundreds of different, if not thousands of different applications where you’re going to see that continuing to evolve healthcare, things like that, healthcare, education, travel. There’s so many other verticals where finance can be a friction point where we can help alleviate that and enhance the customer journey. So, that’s one of the different platform models mentioned in the book, another is conscious banking. So, when someone goes into digital banking, for example, you hear a lot of people talk about embedding FinTech offerings into online banking, but what’s the ultimate goal, and what are you trying to achieve as the real question? And our answer to that is we want to help our customers enhance their overall financial wellbeing and enhance their financial consciousness. Meaning how can we truly understand our customers? How can we develop a relationship with them and help them achieve their goals?

Because at the end of the day, banking is still a relationship-oriented business. And so, we have to really understand our customers, leverage new insights and help them reach their goals, whether that be through insurance, FinTech’s. FinTech’s that help them save, FinTech’s that can help them invest, purchase cryptocurrency. These are all things we’re looking to do, but in order to get the proper buying, they have to be aligned to that. That idea that we want to use these things to ultimately enhance our customer’s wellbeing, and that will help us again, shift from that output-oriented business model to more outcome-oriented. So, we’re not focusing on product, we’re focusing on outcomes.

Caleb Stevens: When you talk about the changing business model, it reminds me of the famous quote that we don’t make drill bits. We make holes, and whenever there’s a new or better way to make a hole, we’re going to do that. A lot of people think I make drill bits and it’s like, oh, you actually make holes and I guess you could go a level deeper and say, well, the hole hangs a nail, which hangs a picture, which you could kind of run the thread down a little bit more, I guess, but Matthew for you, when you look out, say five years from now, are there any initiatives or big picture things that you want to see happen at Drummond? Are there any, hey, here are the two or three things that I’m working on now that I’m thinking about now that in five years if we can get here as a bank, that would be a game-changer for us?

Because I think a lot of folks are in your shoes at their community bank thinking the same thing. Here are some things I know we need to be doing, but to your point, there are so many applications here. How do I stay focused on the two or three things that I really want to see happen at my bank? And I know that’s going to be different for every community bank, but for you, what are some of those two or three things that you say, if we can accomplish these things say within three to five years, that would be huge for us.

Matthew Gallman: I think what I’d like to see happen is banks, our size, having more flexibility when it comes to integrating with the core, I think that’s a common challenge that banks our size have to deal with. And so, thankfully there are many companies that are popping up. I’m not going to mention the names specifically, but they will essentially work with the bank to build a platform that then allows nonbank FinTech’s to connect to. And so, I’d like to see us continue to evolve so that we can be a platform for FinTech’s to operate on so that we can become involved in more verticals. Like I mentioned before and get involved into new ecosystems that are outside of banking. So, to answer your question, I hope that in the future we’ll have more flexibility when it comes to integrations and be able to do more and work with exponential technologies a lot easier.

Caleb Stevens: Matthew, talk about how you introduced some of these changes in this innovation to the bank and was there buy-in and if not, did you have to was it a hard sales job or what was that like?

Matthew Gallman: I think number one you have to have buy-in from the top, your board of directors has to understand the importance of and what’s going on in the digital space and disruption and how we can Futureproof our business model and why that’s so important. And so, thankfully, a drum I’ve had that from the beginning, our management is fully invested in our digital strategy. So, that makes it a lot easier not to say that it’s easy, but I think that one of the most important pieces of advice that I would give for something like a huge project where you’re working with a FinTech, that’s going to introduce new challenges is get as many people involved as early as in the process, as you possibly can get there from the beginning because they can offer valuable insights that you may not be thinking of or you may be viewing in isolation in your department.

That’s really what my background here and taught me is that we have to continue to break down silos and have cross-functional teams because it truly adds value at the end of the day because these projects really do affect every part of the organization in terms of liquidity compliance, interest rate risk, reputational risk. There strategy with your front-line training. There’s so many different aspects of these types of initiatives that you have to get those people involved as early as you possibly can get their buy-in, but also, it’s really important to explain the behind what you’re doing. If you ever read any books or any of the posts from Simon Sinek. He’s very influential, in the business community, but one of his books start with why is something that I’ve always tried to make sure that we’re being fully transparent in the why behind what we’re doing, and that ultimately boils down to future-proofing our organization and meeting our customer demands because nowadays most customers expect that Amazon-like experience wherever they go frictionless. And so, we have to continue to work towards that and find initiatives that ultimately remove friction and make the customer journey that much easier.

Caleb Stevens: Any innovations that you see on the commercial banking side, I feel like the FinTech shows that we’ve had in the past typically center around digital mobile app embedded finance, like you talked about open banking, that sort of thing, maybe some mortgage or related stuff, and that’s all great and maybe this is just me not being very educated on what all is going on in the FinTech space, but do you see any innovations happening for commercial lending that’s helping commercial bankers do their jobs more effectively helping small businesses gain access to credit more easily or with less friction? What are some things that you’re maybe seeing on that side of things?

Matthew Gallman: I think a lot of the innovation, when you look at a lot of the buzz words like AI automation, machine learning most of that is, most of the enhancements or improvements that you see in the customer journeys are in retail, like, right. Like you mentioned there’s not a whole lot that you see in business. I think that’s starting to change. But the challenge with that is commercial and business remains. So, relationship-oriented, and a lot of those relationships are very customized. They’re very you know the banker has to have a firm understanding of their customer’s business, the community that they’re in. And so, I think that makes it a lot harder because it’s not a mechanistic thing. It’s very fluid. I think where you’ll see the change occur is we’ll be able to leverage technologies to provide them new insights and interpret them, but I don’t think it’s ever going to be replaced in the near term. So, I think it’ll just enhance and add to those conversations that we’re having with commercial customers. But I don’t think it’s going to ever replace that one-on-one human interaction. So, there’s still value that can be unlocked there.

Caleb Stevens: So, what you’re saying is relationships are not going away anytime soon, and in fact, I mean, if you think about it, commercial lending is the main driver for most banks of their profitability and their revenue. I mean, the consumer is something that’s important. You shouldn’t ignore it, but I know for most of the banks that we serve, it’s commercial lending CRE that whole world that’s really moving the needle forward, and to your point, it’s still based upon relationships. Which I think it is comforting to hear for a lot of folks that, hey, all this FinTech stuff, pay attention to it, keep up with it, have great vendors and partners that you work with, but don’t sacrifice relationships in the process.

Matthew Gallman: Yeah, absolutely. A hundred percent. I think relationships are still paramount to that business. I don’t think that you can ignore digital technologies and exponential technologies, but you can leverage them to enhance that conversation that you’re having with the business, you can introduce new data sets, new insights that you’re going to add to unlock new value for that customer. So, absolutely relationships are paramount.

Caleb Stevens: Well, if folks want to learn more about yourself and everything you’re doing at drumming, how can they contact you reach out to you, learn more about your bank all those things.

Matthew Gallman: LinkedIn’s a great place to send me a message. Shoot me an email@almandrummingbank.com be more than happy to talk to you about FinTech or digital banking anytime.

Caleb Stevens: And I don’t know if there’s many, banks out there that are your size that have a dedicated strategic innovation officer. So, kudos to you and your leadership team for being focused on that. Because I’m a professional correspondent banker, so to speak, and that means my job is to meet with people like you all the time, and I do, not many of them have a position, like yourself. So, keep up the great work.

Matthew Gallman: Thank you. Yeah. I think you’ll start to see that changing really soon, but I’m thankful for the opportunity to get to do what I love every single day.

Caleb Stevens: Awesome. We appreciate your time. Thanks for joining us.

Eric Bagwell: Thanks, Matthew.

 

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