This week we talk all about the concept of “Open Banking”, what it means, and why it matters for community banks. To help us navigate this discussion, we sit down with Lee Wetherington from Jack Henry.

To learn more about Lee, visit https://discover.jackhenry.com/fintalk/author/lee-wetherington

The views, information, or opinions expressed during this show are solely those of the participants involved and do not necessarily represent those of SouthState Bank and its employees. 

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Intro: Helping community bankers grow themselves their team and their profits. This is “The Community Bank Podcast.”

Erik Bagwell: Welcome to “The Community Bank Podcast.” I’m Eric Bagwell, Director of Sales and Marketing for the corresponding division of “South State Bank.” And joining me is Tom Fitzgerald, Director of Strategy in our capital markets area. Tom, how are you?

Tom Fitzgerald: I’m doing well. Eric, I hope you’re as well.

Erik Bagwell: Doing well. Today joining Tom and me, we sat down with Lee Wetherington. Lee is Director of Strategic Insight with Jack Henry, think a lot of you guys listening have probably heard Lee before he speaks at a lot of associations around the country well known in the industry and an expert in kind of all things payments in, we sat down with him and Tom, it was our longest interview, I think we’ve ever done 50 minutes.

Tom Fitzgerald: And it was a lot of topics that you typically would go over our head but Lee, he presents it in a very approachable and entertaining way.

Erik Bagwell: Yes. And it’s just great when I think this might be our best podcast, honestly, that we’ve done so but Lee sat down with us and it’s a great conversation. A lot of technology as Tom said, a lot of banks aren’t even doing right now and stuff that they’re probably going to have to be doing in the future. So if you’re putting together a digital strategy, you’ve got one already you need to listen to this and reach out to Lee at the end, he gives his contact information and he’s a great resource. So let’s just go ahead and cut right to that interview with Lee Wetherington right now. Thank you guys for listening well, Lee, thanks for joining us today. How are you?

Lee Wetherington: I’m great. This is a good morning. There’s sunshine in Atlanta, the weekend is here [cross-talking 01:46] have to be happy.

Erik Bagwell: Everybody’s good on Friday these and I think every podcast we’ve done on Friday, we’ve said everybody’s good on Friday because it’s true everybody’s on a Friday. Well, Lee, we appreciate you coming on the last time or the first time, excuse me that I heard you were that a gotcha conference in Atlanta probably in the year 2000. I was brand new to banking, for the most part, everything you said went so far over my head but I laughed the whole time because you’re a great entertainer and I think with a lot of the material you talk about. You have to be an entertainer and keep the audience focused, which is great for somebody like me, at least, but you sang the Oscar Mayer Wiener song as Dwight Yoakam. So tell us what you’re doing 21 years later, and do it in the voice of Dwight Yoakam, I’m just kidding. How’s everything going? Tell us what you’re doing.

Lee Wetherington: Guitars, Cadillac’s. So yes, that’s great you’re taking me back Gotcha because Gotcha is not even around anymore at least in that in things to make it, it’s first and Peggy Chiesa, who was the CEO of Payments First, for years, she just retired. We just had a sentimental kind of send-off for her not too many months ago and anyway, you’re making me nostalgic, but in the interim since the 2000s, you’re saying, hey, Lee, what’s been up for the last 21 years? At the time I was with Goldleaf Financial Solutions was we didn’t use this language back in the day but Goldleaf was a payments FinTech born out of the backroom of a little community bank down in Hahira, Georgia. My dad was president of that bank and so yes, that’s what we call nepotism and that’s where I cut my teeth I was with Goldleaf and helping get it off the ground in the early years, down in Hahira and then Goldleaf, I’ll spare the long story of the different M&A is it was involved with.

But Goldleaf eventually became a small publicly-traded company called Goldleaf Financial Solutions and that got picked up by Jack Henry in 2009. And so I’ve been along for this whole ride from bootstrap and startup days at Goldleaf wearing four different hats to now I’m Senior Director of Strategy at Jack Henry, putting together and unifying strategy across the enterprise. I have a team of analysts that track every single thing that’s going on in the industry. We are subscribed to all the major analysts and research houses, we’re in conversations with them all the time about what’s going on and the wonderful thing about where I sit is I get to have conversations with a lot of interesting people and analysts before they put anything in the form of a report. So, it’s a nice little window on to what’s going on in real-time and I get the fun job of trying to connect dots and make sense of it all.

Erik Bagwell: Sounds great. Let me ask you this, let me jump in real quick, and let’s say in the year 2000, I was at a large correspondent bank back then. And the de novo wave that was coming was incredible, especially in the state of Georgia; I think we had like 85 banks open for the next probably six and a half years, just in Georgia alone. I was at a de novo or startup bank yesterday down in South Georgia and met those folks and they were just going through kind of their checklist of what’s on the horizon and obviously, banking has changed so much from 2000 to now. What would a bank that’s starting up now? What are they facing that somebody back in the 2000s not? How much has it changed from a digital standpoint and what’s on that horizon?

Lee Wetherington: So I’m always zooming out. So I would tell you that to think about well, now, you’ve got sort of a digital-first era and everything that brings to bear to reckon with right as a de novo. But it’s bigger than that because what’s shifted from the time you and I were eating bad desserts at a Gotcha conference in 2000, to where we are now is that we’ve shifted from an environment in which we competed against each other in a well-defined industry. So, you’re a bank, you’re competing against other banks, maybe another credit union or to if that’s in your market, you’ve got the megabank, with its branches in your backyard and that was the purview of your competitive, threat risk vectors. Things are completely different now because we are experiencing ecosystem disruption. So the boundaries that want to find tidy verticals in which competitors vied against each other to get the biggest share of the pie that no longer holds.

In fact, if you’re even thinking that way anymore, I can tell you, you’re already at a disadvantage and you already have several blind spots that you need to reckon with straight away. So, what I mean by that is, is now a de novo has to deal not just with other banks, credit unions, the megabank, down the street, or in the region, or even in the country, that you’re launching a de novo in. You’re competing against competitors, well outside of financial services, who just happen to do financial services stuff, because of a more fundamental shift in the technology stack underpinning banking. And so I want to just take a minute to tell you what I mean by that. So in the past, back in 2000, if you were a bank or a de novo, you would go to a Jack Henry or a FIS or a Fiserv, and you would get a completely vertically integrated, proprietary stack of technology to run your bank on. And that was it, whatever was in there, that’s what you ran the bank with, and good luck trying to get anything added on to that or connected to that, or integrated to that from the outside.

Where we are now is that every layer of that banking stack from your license to the core to the payments to fraud to the UI, every single layer of the banking stack has now been abstracted separately into the cloud and made available for consumption by way of some form of pay as you go or subscription model. Now there’s good news and bad news to that the good news is that it makes it much easier today, to launch a de novo, it makes it faster and easier to get a new bank up and going and in general, over time it’s making running an operating a bank faster, easier, better and cheaper. The bad news is that it’s also making it easy for non-chartered entities to do things that look and feel and smell like banking without having to have the charter, without having to be a de novo at all because of things like banking as a service, where you’ve got banks of various sizes and stripes renting their regulated infrastructure to non-chartered third parties for them to be able to do the chartered stuff like payments, deposit accounts, lending that has blurred the lines now. This goes back to my premise, what’s different between 2000 and where we are now.

You’re now competing against a whole set of new competitors who are not necessarily playing the same game that banks had been playing forever throughout their history in the United States. These are players like PayPal and Venmo and Square, and Varroc and Chime, etcetera. Some of these are technically not banks now Square is technically a Chartered Financial Institution now Varroc, got their charter after wrangling with the OCC for a good two to three years. By the way, things are not looking good for Varroc if you look at their balance sheet, we could talk about that if you wanted to, but you’re competing against all of these competitors. And when you have people like Angela Strange at Andreessen Horowitz, making a fairly convincing case that all companies are FinTechs.

In other words, all companies need to do payments in one form or another and if they can rent that capability, from a bank to put into their native digital UX to make payments, capabilities, in turn, available to whoever they’re serving, well; this is an entirely different ballgame. So, you can win the old game and lose in the new era that’s the bottom line because the lines have blurred between industries, it’s opened up competition. And the real winners now are those who understand how to navigate ecosystem disruption, how to do a partnership, how to execute on platform strategies, where you are coordinating and curating lots of connections and partnerships with very select partners of choice FinTechs of choice, to rebound all banking together in a differentiated way that puts you in good stead against this broader spate of competitors that are coming well outside of what we’ve historically defined as our industry.

Tom Fitzgerald: I’m going to ask you a serious question but before I do that, I want to kind of step back to you’d mentioned Hahira. The one thing that I know about Hahira is the home of the Drew brothers JD and Steven, JD had a very accomplished major league career and then I think Steven, he certainly had a serviceable career. But I just wonder did your dad’s bank get to bank their business that’s they were bringing home those big paychecks?

Lee Wetherington: Well I’m sorry to report that the Drew boys bank that citizen’s Community Bank, not commercial banking company you have opened up a very sore spot for me.

Tom Fitzgerald: I’m sure; they are a much sought-after business.

Lee Wetherington: I’m just kidding much sought after for sure. I will tell you their Uncle Alan Drew was my band teacher and is one of my best friends today. And so I’ve got a connection to the Drew family but it’s through Alan but no, I don’t think my dad ever landed the Drew money.

Tom Fitzgerald: It’s just but every time I hear Hahira, immediately that connection goes there so.

Lee Wetherington: I’d much rather you sign us for the Drew brothers then, Shriners or old songs about parties being done by Shriners in our one red light town I thought that’s where he was going.

Erik Bagwell: I was going to say I think of Ray Stevens but go ahead.

Lee Wetherington: That’s right Ray Stevens that is exactly right [cross-talking 13:17] I thought that’s where you were going?

Erik Bagwell: Well, we had the nice little segue.

Lee Wetherington: We just lost; by the way, we just lost 80% of your audience with that’s tough.

Erik Bagwell: We lost everybody in Lowndes County.

Tom Fitzgerald: Certainly, the ones that aren’t baseball fans said who was he talking about? Where is Hahira by the way?

Lee Wetherington: So Hahira is about 25 miles due north of the Florida border right off I 75 it is 10 miles north of Valdosta Georgia, which is our little regional center down there. But yes, that’s Hahira and there’s only one of them in the United States there’s not another Hahira, anywhere i the United State.

Tom Fitzgerald: I have family in Florida. So every time we make that trek down to on 75, I see that exit and.

Lee Wetherington: And I’ll tell you this because you guys asked about it, we started in 2000 when Goldleaf was still a gold leaf. Most people don’t know this, and we intentionally didn’t want many people to find out about it but Goldleaf is tobacco. That’s where that name came from and tobacco was the biggest part of the Ag industry in and around Hahira and that’s where I grew up. I grew up in the tobacco fields around Hahira, Georgia, because my dad wasn’t just a banker he was a tobacco farmer. And me and my siblings, we spent almost all of our time in the tobacco fields, not at the banknote at the cushy job we never got to go there.

Tom Fitzgerald: You had to toil in the fields.

Lee Wetherington: Yes, that’s right, that’s exactly right.

Tom Fitzgerald: Okay. Well, let’s try to pull this back onto the subject after that little segue, but let me ask you this. If the banks don’t do X in the next five years, they will be irrelevant or on the road to irrelevancy. What is that X that they have to be doing?

Lee Wetherington: So, here’s the thing and it gets to your first question, which was, what’s different today than 20 years ago? We are in the middle of the fundamental textbook, ecosystem disruption and look, typically, I can tell you, most of the people you have on your podcast, you guys are talking about everything above the application line in the technology stack, what’s new and cool, what new products, features, functions, things that you can do for retail, or commercial customers, all of that’s above the application line. And nobody’s paying a lot of attention to the shift and abstraction of the stack beneath that, and that’s opened up this ecosystem disruption. So in that context, if I’m talking to and I do this, I’m talking to banks all the time. If I’m saying here, if there’s one thing that you’ve got to do within the next five years, you’ve got to become a platform unto yourself, and then I have to define exactly what that means.

And typically today, a modern platform, we all think about Amazon, Amazon is matching producers of things and buyers of things, that’s the bringing them together and that’s where commerce happens. In the context of a bank these days in an ecosystem, an open banking ecosystem, as we have in the United States, by the way, we need to define that word open banking here in just a minute. But in the context of that open ecosystem, how well you do is how well you execute as a platform, and in the example of a bank, of all of the things that are most relevant in the open banking ecosystem to your existing customers. You can now because we have API’s connecting almost all financial accounts, to other accounts, and even accounts outside of the financial ecosystem, if you plug them into that open banking ecosystem, you can invert those rails and bring the best of what’s out there home to your customers, your bank customers inside of your re-bundled, curated, differentiated digital user experience.

Now, me saying that, as I just said, it sounds complicated but if you’ve got the right, a digital platform that is not just open, but open to the extent that it gives the bank the discretion to partner integrate, connect at will, with FinTechs, and third parties of choice to do what I’m describing in terms of re-bundling banking in a differentiated way. And then in addition to that, the community bank levers, it’s a super power, which is local trust and service meaningfully into that digital context, so that you’re providing personal service at the moment of need in a digital context, in addition to having this differentiated digital experience, because you’re executing well on a platform strategy and partnering at will with the right FinTechs at the right time. Now you are in a position not just to compete, but to win, to hunt other competitors and that’s where we get excited where I work is, what kind of technology stack or platform can we bring to bear that gives banks the strategic and technical agility to execute on a platform strategy, so that they can differentiate in meaningful timeframes and then differentiate further by bringing their trust and service and local know-how to bear meaningfully inside of digital context.

Erik Bagwell: So, Lee talks about this real fast. Why is a banker going to hear that and go, yeah, I get that but why would I open up my customers to a FinTech?

Tom Fitzgerald: That’s got to be a big barrier so talk about that real quick and how do you get around it?

Lee Wetherington: That’s a great question and, let’s go ahead and talk about open banking because I can tell you we did primary research here at Jack Henry back in March, the beginning of every year we polled both bank and credit union CEOs on several questions about what’s on their strategic radars and roadmaps for the next two to three years. One of the things we asked them about was open banking, is open banking, on your radar in the next two years, 55% of community financial institution CEO said, no, it’s not on my radar. And then we ask them to follow up question, why? Why is it not on your radar? And 19% of that 55% said, well, I don’t know what it is. This is the kicker. I don’t care to learn about it.

These are my favorite people in the world, by the way, the willfully ignorant, who realize what they don’t know and don’t care to do anything about it that’s another thing. And then but 33% of that 55% said, I don’t know what it is, but I’m interested in learning about it. And then another almost a proportionate segment there said, it doesn’t fit our strategy, which is when bells and whistles went off in my Strategy Team Situation Room, we were lively, wait, it doesn’t fit their strategy, what do they think open banking is? Now let’s go and define it. So open banking is the idea that a consumer or a business, a customer of the bank, can share their bank data, their financial data, they can share it with whomever they want. Whether it’s another financial institution, a FinTech, a third party, for whatever reason, they can just share that information at will, they can permission it and share it that’s what open banking is. Now, this gets back to why I want to unpack why I think 55% of CEOs don’t know what it is, and of those who think they have an idea most of them are wrong.

If you go into the origins of open banking, it’s in Europe, and this was by regulatory mandate in Europe, so the European Central Bank, basically several years said if you’re a bank or Credit Union in the European Union, and your account holder wants to share their data with a third party, you’ve got to enable that you have to make that possible that was by regulatory mandate. So, the first thing for a banker that kind of has heard about open banking, many of them think that’s a European thing that doesn’t have anything to do with the United States I don’t have to listen anymore I can just discount that. Well, they’re wrong, because we’ve got an open banking ecosystem that’s not mandate driven, but market-driven in the United States, and it’s driven by one simple fact and that is that financial institutions up to the biggest ones just like Chase have realized they can’t innovate fast enough, in and of themselves, to satisfy every need of every customer in this evolving landscape. So, they have to open themselves up to an ecosystem that can help with that innovation burden. This is where the FinTech ecosystem comes into place that’s exactly what Chase is done and then that set off a competition between Chase and the other megabanks, etcetera.
You have to be realistic, you can’t be all things to all people, by the way, this cow due to your question about, hey, open banking, that just sounds like if I do that, if I plumb my bank into the open banking ecosystem, I’m just making it easier for my customers to leave my bank and go somewhere else. That’s what it sounds like, just on the face of it but look, that cow is already out of the barn 35 to 45% of American consumers now have multiple checking accounts with disparate financial service providers. Some of them are chartered, some of them are not that cow is out of the barn. So the strategic question is, how, as a community bank or just any bank, how can you secure and maintain first app status for your customers be home base be the primary financial institution in reality, not just because they happen to have a checking account with you, by the way, that we need to talk about that too what does that mean to be a primary financial institution these days? But your strategy as a bank is to secure and maintain first app status, across all of the financial relationships that your customers have out there, that cow is out of the barn, acting like it’s not and that if we plumb into open banking, we’re just letting the cow out of the barn means you don’t understand where we already are.

Okay, so that’s the reality that banks are facing that I think that the strategic imperative is very clear. First app status or we want to talk more, we could go into crypto, by the way, first wallet status that’s where you want to be, and the only way to do that is to execute well, on a platform strategy on an open platform strategy. So if you understand where we are, if you understand that there is an open banking ecosystem, the United States if you understand that the plumbing of that ecosystem has emerged by way of financial data exchange platforms like Plaid, Finicity, Akoya, Yodlee, etcetera. Those financial data exchange platforms, which are API hubs that are connecting all financial accounts to all other accounts in the United States. If you understand that you understand one, I’ve got to be plugged into that by the way you asked the question was what do we do in the next five years? You’ve got to be plumbed into the open banking ecosystem and then you need to be focused on an embedded FinTech strategy that’s the bottom line. In other words, get the platform in place to plummet into the open banking ecosystem, do payments flow analysis of the payments data in my bank to understand where my existing customers are already doing stuff with third parties, in other words, what’s already relevant to them, and then inverting the open banking rails and API’s to bring that stuff home literally to aggregate it back into the bank’s native digital user experience. Now, I just said a very dirty word I said aggregation.

This is another reason why a lot of bank leadership tune out here because as soon as aggregation comes up, they think screen scraping, and screen scraping sucks. Screen scraping was the way of the past, it is brittle, it violates every best practice security protocol we’ve ever come up with. Screen scraping is indiscriminate these days, a lot of people don’t realize they’re doing this even with Venmo, you sign up for Venmo you don’t realize it but you’ve given Plaid, a third party, your banking credentials for them to log in as you and screen scrape everything, not just what they need for Venmo. Screen scraping and web crawlers are indiscriminate. So this sucks for a lot of different reasons and so a lot of times again, people hear aggregation, they think screen scraping, they tune out, what they don’t know is how much of screen scraping has been replaced with standardized secure API, direct API connections between players. So, the data it’s not brittle, it’s very durable, it’s reliable and it’s permission and specific. So, only the data that’s been permission to be shared is the data that’s being shared, not indiscriminate. By the way, just give you a data point there by the end of this calendar year, 75% of the financial data exchange, that Plaid is facilitating will be being done by secured standardized API’s or Application Programming Interfaces, rather than screen scraping.

So if you thought aggregation was dirty and ugly and broken, for very good reasons, you were right in the past, you’re not right any longer about that. So if you discount that, as a part of the infrastructure and the plumbing for this open banking ecosystem, you’re going to be blindsided by players who do understand that it is not only better today, but it is the only way to plumb into this open banking ecosystem and then be able to invert that with an embedded FinTech strategy.

Erik Bagwell: Alright, quick question, because that’s all that information is great and that’s new to me I bet it’s new to Tom. So I’m thinking about the folks listening, Community Bank, CEO, CFO, we got some lots of ops folks, we got a pretty large audience, listen to this podcast. If these banks, if a banker sitting there going good night, I’m like those guys, I’ve never heard of this hadn’t paid attention and they need to get plugged into a financial data exchange platform. Number one, here my first question, how many banks are doing that? And I say, banks, I’m not talking about Chase, I’m talking about Community Banks, a bank and Hahira, a bank in Valdosta. And if you’re in there, you’re way ahead of the curve how quick you need to get there? I know you said we asked you a five-year question. Is this something a lot of folks are already doing? Is it new that’s going to be very commonplace in a couple of years? Talk about that for folks that are out there?

Lee Wetherington: Well, let me say this, first of all, to answer your first question, not many. There are not many average Community Banks in the United States that are effectively plumbed into this de facto open banking infrastructure in the United States, or these platforms in particular. I’m not here to do a commercial for the people I work for but we’re so convinced of this, that we think that this should be table stakes for any digital banking platform. And by the way, these financial data exchange platforms are not all created equal, some of them do a better job of not just the APIs, but the standards that they use for the API. So, in an optimal world, you would look at these platforms you go okay, it’s not just, who’s got API’s, they’ve all got API’s, how many of them are operating on a standard that might become the de facto interoperable standard for exchanging all financial data in the United States. In the absence of a mandate again, we’re not Europe, right. So who these days is using the FDX standard for exchanging data, who is serious about letting the consumer permission, the share or the business, the sharing their data with third parties, and who makes it most transparent inside of the bank’s digital UX.

So, let me just bottom line this from our standpoint like an individual, customers of banks and other financial institutions, what this is going to look like what it’s already looking like in a handful of places is you’ll be able to log into your mobile banking app, and you’ll be able to just see there a list of all third parties you’ve ever permission or share your data with. So that in the event, you want to stop sharing that data because something bad happened, or you’re not using a particular service for which that particular connection was required, you can simply revoke the permission, right there in your mobile banking app. Okay, for instance, sometimes people will use I say Met, Met the aggregation little PFM app. Now, the US Met, and if you’re like a lot of folks, you use Met for a while and then because a long time ago, Met was all based on screen scraping aggregation. All the links would break, and you’d have to restore them and it was a pain in the butt and it was not reliable and then you stopped using Met you had permitted them to screen scrape all these different accounts of yours, then you stop using Met. Okay, so do you think Met stopped gathering your data?

No, I’ve asked people this question is, yes, I stopped using met, I said, well, how did you make sure they’re not scraping your information anymore? And it was like, well, I just deleted the app off my phone. That means nothing, you didn’t revoke the permission you gave them so these things need to be made transparent, and they need to be made clear permission should be able to be a tap to give the permission, it should be attached to revoke it and it should also be clear inside the bank’s digital UX. And that’s what’s happening now by way of these connections. So I can tell you, and I’ll just tell you from our vantage, is that we think this is table stakes, we think that any digital banking platform that is going to make it has to be fully plumbed into the open banking ecosystem.

And I would say it’s not just plugging into one of these providers, we’ve struck partnerships with all of these data exchange platforms, and are plugging into them all and we’re just baking them into the digital banking platform so that any bank or credit union that’s on that platform, you get to choose, do you want to take advantage of these rails are not? Zero cost, zero lift, it’s just there, it’s just in there. And so, I think every digital banking platform ultimately has to do that because if you’re not plugged into the open banking platform of bank or Credit Unions, not, you can’t, you can’t invert those rails and execute meaningfully on an embedded FinTech strategy, to compete successfully in this kind of disrupted environment.

Tom Fitzgerald: And you had mentioned an interesting term, Lee about First App status and I think that’s important and certainly, the younger customer, they’re very comfortable with Venmo and Zelle and some of the other apps that they view banking, probably as an app, and as you said, you’ve got to be in that space to where they view you, kind of similar. So, it’s critical I think, for our listeners to understand that younger customer is going to gravitate away if they don’t see the benefits that you’re talking about, as far as the app process and just that open banking concept.

Lee Wetherington: That’s right, you’re never going to see my sons, who are 20 and 21, and you’re never going to see them. And so the question is, can you serve them in a way that meets their expectations? That’s one but if you’re a community bank, and you still got a relationship business model and you’re trying to figure out how to translate that relationship-based business model meaningfully into a digital context. What does the relationship look like when it’s mediated digitally? And what I would tell you and this is the blue ocean opportunity for banks everywhere to compete, is just be there, be at their moments of need, with a real human being by the way we could do a different conversation or thread here on AI and conversational AI and Chabot and all that stuff, which I can tell you cause more frustration than they satisfy need at the moment. That is an opportunity for banks to bring to bear their superpower, which is personal service and trust at the moment of need inside of digital context. So what does that look like? That means that if my son is suddenly in overdraft and is panicking and looking at his transaction history and sees a couple of transactions there that he doesn’t recognize and thinks may be a fraud.

Well, he can now if this is done, right, tap a button inside of digital banking to begin a conversation in real-time with someone’s back at the bank. And he doesn’t have to remember his account number, he doesn’t have to re-authenticate in a call center, he doesn’t have to describe the transactions, he can tap the two transactions and attach them to this chat-based, authenticated conversational thread inside of digital banking. And guess what? Because he said the word fraud in his first reach out in that conversation, that conversational thread is immediately triaged and he’s connected to someone in the fraud department. He doesn’t have to be bounced around in a call center and now he’s got somebody saying, I see those transactions, we’ll get these taken care of, we’ll restore your balance, etcetera, we’ll confirm here synchronously once that’s done, okay, great. Now he’s psychologically he has no more cognitive load, his pain point has been resolved, and notices this to the time that elapsed from his moment of need to the resolution of that need has been collapsed.

And the bank is able now to serve personally more efficiently than they’ve ever done before, both in terms of time and cost. And while they’re delivering a better and differentiated UX, because, by the way, you tell me when you’re going to get an experience, like what I just described in Square, or Venmo, or PayPal, or Varroc, or Chime, or Google pay. You tell me and I can tell you, you won’t, you will never get that experience and this is the opportunity because money moments of need are different than any other moments of need for human beings. They’re primal because money underpins everything else and this is why we’re still bullish on banks being able to differentiate in a unique way that these competitors that monopolize the headlines simply can’t. If you’re executing well, on a platform strategy and an embedded FinTech strategy, and you’re going to curating a nicely differentiated digital UX as you go in meaningful timeframes.

Erik Bagwell: Alright, so yesterday, we’re driving down through South Georgia going to see this startup bank and I had not been on the road, I had been below Macon since the pandemic hit so…

Lee Wetherington: You just don’t like, Met’s.

Erik Bagwell: Well, yes it feels like the Met that line might have moved a little bit. We didn’t hit them till deeper South normally make and they’re there, but maybe the pandemic’s driven and back down to where they need to stay down in where [cross-talking 37:34] but so we’re driving through like Tai Chi, Norman Park, Georgia, Tai Chi, Georgia Tifton and I’m driving with a good friend, and we’re both living, around Atlanta, I’ve made a move in the pandemic to kind of get away from traffic in Atlanta. But I think both of us want to try to live in South Georgia, some similar environment where your neighbor, you may not even see him. And but we were just talking having a conversation, man, Amazon has made that move a little easier because Amazon delivers to Tai Chi Georgia, and you don’t have to drive to Valdosta or Tallahassee to go get something, and banking obviously, is the same way. Now I’m a big golfer and watched a golf tournament the other day, and they had a commercial and they said, this Golf Club was created with artificial intelligence.

And I’m like, yes, what nice marketing ploy but you hear artificial intelligence everywhere now. Tell us quickly how as we wrap up how banking and artificial intelligence because we’ve talked about it, hear for like our website? And my first thought is, how much does that cost? Where are we headed? Because I had an experience with Verizon not too long ago, which was, I think, very artificial intelligence. And I was very pleased, didn’t even talk to somebody had my need taken care of through text messaging and I think it’s like you said, there was a keyword and it starts filtering you where you need to go. How are banks and community banks going to have to deal with that or will they? You said, there are some issues, right now, talk about that real fast.

Lee Wetherington: I would tell you that the first thing you got to do, too, is fundamental to everything we’ve been talking about is you’ve got to have a data strategy, and more specifically, you’ve got to have a real-time data strategy. And what that means is a couple of things, first of all, your data has to be cleaned, normalized, categorized, auto-tagged, and I will tell you this, that in addition to all of that, it’s got to be provisioned in push streams, rather than ask Intel API. So what we call rest APIs today, and I don’t want to lose people technically but think about it this way. Today, the way rest APIs work is that you’ve got one system out there and it’s waiting for an event to happen and another system before it does something or notifies somebody of something, etcetera. And so that other system is asking the primary system all day long. Hey, did anything happen yet? Hey, did anything happen? Hey, did anything happen yet? Hey, right, it is one of the dumbest things, why can’t the primary system just tell the secondary system when something happens so that the secondary system doesn’t have to ask all day long and pull that first system all day long. So this is what we call streaming API’s and this is what’s going to undergird real-time banking.

We talked about real-time and payments but undergirding all of this is you’ve got to get to real-time data, not just payments, data, real-time data to where your data is cleaned, normalized, and auto-tagged. In other words, it’s easy to analyze on and you’ve got to get to that before you can do anything meaningful with machine learning AI and I will tell you that in terms of where AI intersects banking, it gets back right to your example with Verizon, that’s how do you get to conversational AI in banking, that doesn’t piss people off. That’s it because you’re in a high-stakes situation when somebody is in the context psychologically of a money moment of need. And you let them wrangle with a Chabot until they get pissed off before you disclose to them how they can talk to a real live human being. You tell me how long are those relationship business models going to last? It’s not. So, I would tell you in general, we’re not anywhere near close to the quality necessary to unleash conversational AI, open-ended to our customer bases. Now, that’s not to say that there’s not a hybrid approach, which is to say, Chabot are great for narrow, specific, high volume inquiries, what my balance is, or that those kinds of things but whenever you start to get into anything much more complex than that, that conversation immediately needs to be facilitated by a real human being.

And by the way, that’s what Community Banks are known for, real people live local personal service when I need it and the great thing is, we can do that, as community banks, even better, faster and cheaper, by the way, today than we’ve ever been able to do that by way of branches and call centers or just people calling the bank in the past. So this gets to personalization, this is another buzzword we talked about open banking earlier, personalization is another one of these things. It turns out, when you ask consumers, like what form of personalization is most important to you, is it important in showing you relevant ads? Is it important for one-way sort of notifications and messages to you? And by the way, they say no, that’s not the most important that’s not, do you want to the most important area of personalization is the average consumer in the United States? Support and do you know what they mean when these studies are asking about support? They’re talking about conversations with real human beings to resolve problems. Well, that’s what banks do best hurt service is what banks do best and is what differentiates them from all these other competitors.

So the thing is, I would caution banks, you’ve got to get your data house in order first, then you’ve got to get your analytics in order, you want to get some modeling going. So you’re asking of your data, the right questions, so that ultimately you have algorithms that are surfacing personalized insights to your customers, both consumer and business in the digital channel. Hey, Lee, did you know that your spending on the X category tripled within the last four weeks? And if you’d like to talk to somebody about that we might have, some kind of, credit mechanism that might help you with that just tap here and now you tap that, and now you’re in a real live augmented chat conversation with someone at the bank. Let me also define what I mean by augmented chat.

Sometimes we say chat, and as you know, everybody’s yes, chat, like text messaging, just chat. Okay. Generic chat is fine. In the context of digital banking it doesn’t do you much good if it’s a third party, if it’s not, within already baked in within the context of an authenticated environment, because now what are you having to do? People want to chat about their problems, you immediately tell them sorry, shut up. We need to authenticate who you are, click here or call this number and now we’ll start this process all over again, and don’t you love us? No, I don’t I hate you, I hate you very much. So, you want to when I say augmented chat. What I mean by that is the ability inside of digital banking to be able to tap and attach to the conversation whatever’s going wrong. So, that any noun inside the digital banking I can be attached to a conversation so At the person at the bank, who’s got a 360-degree view, if the data strategy has also been done in the back end integration, and this is that we talk about the front end openness of digital banking and API. But the back end is just as important for it to be API open enabled because all of these partnerships if you’re doing an embedded FinTech strategy, and you’ve got multiples of partners you’re working with overtime, how do you support any given moment of need when you’re working with 14 different third parties or FinTechs?

You’ve got to have a back-end that is also extensible and consolidated by way of open APIs from the admin systems of all those other 14 partners so that is a clean 360 view. So, when that attachment, of the two troublesome transactions, comes over, and by the way, here’s the other thing. This is a data collection tool, this is what a lot of people don’t understand and Ron Shevlin just wrote about this in his last column at Forbes, I’m so glad he did this because this is what drove our data strategy beginning seven years ago. Chat is a data collection method, think about it, if you’re on the phone, or if you’re on a video call, there’s a lot of talk about that. First of all, you’ve got to transcribe all of that in real-time to capture whatever that exchange was between the bank and the customer. With chat, it’s already in text form moreover, if you’re doing augmented chat, where hey, I’m concerned about tap these two fraudulent looking transactions, the fact that those two attachments have been made a part of that augmented chat between the bank and the customer means that not only do you have data now that you’re collecting and these conversations, its structured and labeled by way of what’s being attached in the context of those conversations. That means that that’s a new source and I can tell you a valuable source of data to put into a feedback loop into your back end system so that well, the last 100 times, or 1000 times or 10,000 times this has happened with the customer.

The answer to this problem or question back on the bank side is this. Now, you could either just let the Chabot go ahead and say that in real-time, roll the dice, and hope it doesn’t piss off the customer. Or you can let that be mediated by a real-life person at the bank is going to okay, yes; I think that is the right answer pop. Yes, that goes into the chat and now you’ve got a human AI, sort of hybrid approach to real personal conversation that’s going to be spawned by personalized insights. Again, this is the other thing, not just, hey, I have a problem, and I need it solved but hey, you don’t have a problem where our algorithms are surfacing, personalized insights that are actionable and conversational, you can tap them and begin a conversation with the bank. And if in the context of that conversation, a need is surfaced and we’ve got a product to meet that need, guess what, now banks do what they’re good at, which is selling in the context of service. And when that all happens, now you’ve closed the loop and you’ve converted your historically self-service cost-based digital channel into a full-service revenue-generating engine. If you did it in a way that’s consistent with the bank ethos of personal service and trust.

Erik Bagwell: Yes, in dealing with the just back to my Verizon example, you could tell they said, hey, do you want to wait on hold for 15 minutes? I didn’t on the phone or do you want to chat with us? And literally, you could tell like, Okay, well, somebody is going to sit there and text me back and forth. After a couple of texts, you’re like, no, this is automated, but they’re asking you question, how’s your day? What have you been up to? You can tell it’s that data gathering, for later, I’m sure, I’m going to get some kind of personalized message from Verizon at some point, but it was a very pleasant experience and it was me and a computer it wasn’t anything hard.

Lee Wetherington: What you’ve zeroed on is the most powerful thing about chat is its implicit, asynchronous assumption. When if I text you, and you don’t text me right back, I’m not insulted, I’ve told you what I need to tell you and I expect that you’re going to get back to me within a reasonable amount of time, and I’ll see it, I’ll be being a painter dinged or whatever. And I’ll say, yes, okay, now that’s done but once I’ve told you what I need to tell you, I’m already now psychologically resolved, even if you haven’t fixed my problem yet. That’s the beautiful thing about an asynchronous mechanism you don’t have that in the telephone channel, the call center, you don’t have that in the video. And by the way, if you try to do that in chat in a way that sucks that can go bad too I had to have a windshield replaced so I did a safelight, you’ve seen the Safelite commercials. So, I use the app, it’s easy to schedule, they’re going to come on-site, good luck trying to talk to a human being though before whoever shows up to fix it. So, I had a question about how much the insurance was going to reimburse on that, etcetera, I couldn’t find a human being I thought I was in a call line on their app or I was about to be taken into a phone call. It turns out I was just in a chat session it said this Lee, hang in there you’re number 40 in line. If I’m number 40, in line, don’t tell me I’m 40 in line, tell me that you’re gonna reach out to me later when you’re available. Who tells people that they’re 40 in line?

Erik Bagwell: Well Lee this has been so good I think we’re at like 50 minutes in we could go on and we should have made this like a two-partner but it’s been great information. For those listening and you don’t understand minutes five through nine go to YouTube and type in Ray Stevens Shriners convention, listen to the song and it’ll make a little more sense. And then type in JD Drew and look at all the stats, you can see those two. But Lee, thanks for coming on I know, there’s a lot of folks out there. You’re very well known in the industry, though but for those that may not tell everybody how to get in touch with you I’m sure there may be some questions generated through this and I know you want to…

Lee Wetherington: You can Google me Lee Wetherington to make it easy probably the best way to reach out to me is just to send me a DM on LinkedIn. If you Google me, you’ll see. I’ve got a little speaker, site, hub site, App spot site out there but I’m on Twitter as well. You can DM me on Twitter if you like, and, yes, just Google me you’ll see me.

Erik Bagwell: Man. Thanks for coming on with us again, and we appreciate it and hope you have a great weekend.

Lee Wetherington: Yes, thank you, guys. It’s been a lot of fun.

 

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