It’s common for financial institutions to benchmark their financial performance against peers. But what about their technological maturity? That type of benchmarking, it appears, is far less common.
The proliferation of technology companies over the last several years means there is a large variation in how different financial institutions manage these partnerships. Two groups have released maturity models designed to help financial institutions understand and benchmark their stages better, especially on their organization’s due diligence and digital capabilities, as well as what the next level of maturity looks like as they grow and scale.
Digital banking solutions firm Alkami Technology created a digital sales and service maturity model built on survey data from more than 200 banks, credit unions and neobanks that asked about their digital capabilities, investment and culture. The firm partnered with Emerald Research Group to analyze the responses, group them by maturity and compare their financial performance.
Alkami does sell digital banking services, which is one area of the model’s focus. Still, its findings give financial institutions one approach to evaluating their maturity levels. Ultimately the data produced four groups: “patiently exploring” was the least mature, followed by “innovation ready” and “digital forward,” with “data first” being the most mature. The model found a correlation between digital maturity and revenue growth. Institutions that prioritize using data had annual revenue growth of 20%, “which is directionally higher compared to others,” the report found. Only 9% of institutions in the analysis were considered “data first.” Most of those were banks or credit unions; a quarter of them had less than $500 million in assets.
“That’s not an insignificant share,” says Allison Cerra, chief marketing officer, of these smaller institutions punching above their weight. “It is about their mindset as much as it is their tool set. They approach this culturally first. … It’s about setting the tone from the top.”
Alkami released the model and its findings in February; financial institutions can take the assessment for free.
Banking consortium Alloy Labs and Crowe LLP also published a different sort of maturity model, with the latest update in September. It outlines minimum acceptable standards for due diligence of third parties and compliance. Third parties are integral to many banks’ digital transformation strategies. The lowest level of the model is an “ad hoc” approach that manages risk as it happens, advancing through “inconsistent,” “developed,” “advanced” and, finally, “optimized” approaches. The model outlines what the people, processes, technology and data look like at each stage and how an institution could improve and formalize its process.
“The real magic behind it was recognizing that you have to make incremental investments as these programs launch and scale,” says Clayton Mitchell, managing principal in Crowe’s fintech consulting practice. “[Banks] have to invest in talent; they have to pay for technologies; they have to integrate or have consistent access to their data.”
The model acts as a growth chart and a road map for bank programs. Executives can use it to figure out where their institution currently resides within the different levels of enterprise risk management, as well as what more complex and mature approaches look like.
“It’s not easy,” Mitchell says of the model’s guidance and outlined expectations. “But the story that you are able to tell your regulators is that you understand the risk, that this activity is core to your strategy and you understand that you have to invest in people, process, technology and data.”
While Omaha, Nebraska-based FNBO doesn’t use those particular maturity models, it is following a continuous improvement mindset. In the past, the $31 billion bank used a “traditional request-for-proposal model” outlining a product or service it wanted to add before soliciting a handful of vendors, says James Goodman, fintech engagement manager.
That has changed since the bank, which is a unit of First National of Nebraska, formed its innovation and disruption group in 2018. Goodman describes a night and day difference for the leaders and their respective business lines, who have shifted away from an RFP model and reliance on the core for services, he says. The organization now considers proof-of-concepts from lesser-known organizations.
“Innovation is one of our guiding stars, with efficiency and customers,” he says. “So the thought is: How do we continue to explore new technologies, innovate within what we’re doing well and look towards the future?”
But the innovation group has also adjusted over that time based on its own maturation, including becoming more cognizant of who the bank works with, he says. Outside of technology that improves the bank’s processes or fulfills a need, the group looks for fintech partners with strong leadership teams that will work alongside them if problems arise, are based in the U.S. and are financially viable.
The bank is still thinking about how important continuous improvement and refinement will be as it considers how to manage projects like installing and modifying an integration layer to take advantage of cloud-based solutions. It’s also tackling how to modernize legacy infrastructure to meet business goals, such as leveraging customer information for lending or cross-sell opportunities.
Like the processes they attempt the measure, the models will need to change as the regulatory and technology environment does. Already, Mitchell says examiner expectations for banks with complex technology partnerships have increased. Examiners may expect banks involved in tech partnerships to be above the ad hoc maturity level and jump directly to the defined maturity level at program launch and scale from there, for example. But ultimately, he hopes benchmark performance models help banks execute their fintech partnerships sustainability, profitably and fairly.
“I think success is being able to execute your strategy, and part of your strategy needs to be ‘How do we control and balance that risk and reward? And how do we manage the risk that is present in our business?’” he says.
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