Last week, The Travillian Group hosted a webinar that I was fortunate to co-moderate along with Brian Love from Travillian. The topic was the ever-increasing convergence of fintech and banking, and panelists included three community bank CEOs that are at the forefront of this discussion: Larry Mazza from MVB Financial Corp. (MVBF); Eric Sprink from Coastal Financial Corp. (CCB); and Chuck Shaffer from Seacoast Banking Corp. of Florida (SBCF). While the specific strategies employed by each company to capitalize on this opportunity are markedly different, at the same time, Brian and I were struck by some of the remarkable similarities in their approach to the business and common vision as to where the sector is headed. In short, it was a fascinating discussion that should prove relevant to all bank sector constituents (community and regional bankers; Boards of Directors; investors; etc.).
Three distinct and different strategies…
Banks that utilize technology as a key aspect of their business model tend to be labeled generically as fintech-oriented, but this characterization obscures the fact that the strategies of most technology-forward banks tend to be very different. So right at the outset of the webinar, we asked each of our panelists to briefly describe their business model relative to more traditional community banks and then also to others that they considered to be more fintech-oriented.
Per CEO Mazza, MVB strives to be a “one stop payment shop” and has built out its technical expertise in the payments space, in essence defining “fintech” as companies that use technology to move or process money. Under Mr. Sprink’s leadership, Coastal has been a pioneer in the concept of “banking as a service”, issuing debit cards, providing deposit accounts and more for various prominent fintechs and other organizations (including a company you may have heard of called Google) seeking access to the regulated banking system. In the opposite corner of the country from CCB in the Puget Sound area, Seacoast in Florida has been very innovative in the utilization of data analytics which in turn has driven remarkable insights into the predictive nature of customer behavior.
…but with many similarities as well, particularly as it relates to the overall approach.
Interestingly, each of these companies started down the path of embracing technology and reinventing their business model at around the same time (2014-2015) but for different reasons.
- Based in the epicenter of the real estate crisis during the Great Recession, Seacoast – a traditional community bank with a highly attractive core deposit franchise – was coming off several very challenging years, and by 2014 had successfully fought for its survival, but was facing apprehension from investors regarding its go-forward strategy. Current CEO Chuck Shaffer noted on the webinar that the pivot toward a technology-centric strategy was led by former CEO (and now Executive Chairman) Denny Hudson, and then implemented by Mr. Shaffer and new recruits to the company from outside the banking sector, including current Chief Digital Officer Jeff Lee.
- Similarly, Coastal started its journey on “an alternative path”, per CEO Sprink, around 2014, following the recapitalization of the company a few years earlier. “Blessed with an attractive franchise” in the Puget Sound area, and with a number of major technology companies operating in their markets, the Board considered its alternatives in 2016, which included a possible sale, balanced against the need to implement a strategy that would enable the company to outperform peers “by 1.5x on any given metric” if the decision was made to remain independent. Obviously having chosen the latter, the company started down the path of what has evolved into its now sector-leading status in providing “banking as a service”.
- While MVB didn’t suffer from material credit issues during the Great Recession, the company was nevertheless in “a tough place” in 2014, according to its CEO Larry Mazza. The company was “a loan machine” but “couldn’t attract deposits”, which translated to a net interest margin that was more than 100 bps lower than peers, prompting a realization from Mazza and the Board that “it had to change and go in a different direction”. The company hired an engineer named Matt West – now its Chief Strategy Officer — who authored a white paper on fintech, which the company then utilized to define what fintech meant to them (“anybody who moves or manages money through technology”) and subsequently informed the strategy that the company then pursued.
There were other notable similarities in the evolution of the three companies since embarking on their respective technology-forward strategies about six years ago. For instance, in onboarding new talent, each company hired and then empowered certain individuals and teams from outside the bank sector, including engineers, data analytics experts, and PhD’s in AI. MVB and Coastal went so far as to establish separate divisions within their company to house these new teams, given the natural inclination for traditional banking to fight fintech, similar to how, in the words of MVB’s Mazza, “the immune system looks to fight off anything foreign that attempts to enter the body”. Rather, Mazza said, MVB wanted the fintech unit outside of the traditional bank so “they can seek their blue ocean opportunities” and also to preserve the option to “break it out” from the bank. As an example, Mazza cited the separation of nCino several years ago from Live Oak.
That said, all three executives were emphatic that separate and distinct divisions do not in any way imply separate and distinct cultures. Mazza analogized it to the differing roles on a football team – offense, defense, special teams etc. are separate units but all are working on behalf of the same unified team – while also noting that MVB “leads with culture”. Coastal’s Sprink specifically noted that core values don’t vary depending on where you work in the company and that separate divisions are “just semantics”, though it can be beneficial from the standpoint of helping regulators to clearly understand the different aspects of the company.
M&A as a “tech-forward” organization.
In response to a question on employing a technology-centric strategy as an acquisitive bank, Chuck Shaffer noted that having completed ten acquisitions in the last five years, the Seacoast team is very well-versed in the process. Specifically, the focus on technology has helped the company to employ robotic process automation through the integration, rather than relying on the core providers, which the CEO indicated has allowed them to “move faster and easier”.
The tech-forward approach has also driven revenue synergies in the sense that the automated predictive models employed by Seacoast can help to move smaller target banks from around two products per customer to “five or six over a several year period”. The Seacoast team spends quite a bit of time working with the acquired company at an early stage to explain the culture, and also looks to quickly assimilate the target by closing, converting, and consolidating on a Friday and opening fully enmeshed in the Seacoast environment by the following Monday.
All three companies have evidenced significant and tangible signs of progress, and are now well-established as thought leaders in the space.
Perhaps most notably to us, it’s not as though these strategies are merely concepts, with no discernible results as of yet. Through the use of data-driven analytics, automated cross-sell and other techniques that it has pioneered (the company also has several patents pending), Seacoast performs fundamentally in the very upper echelon of community and regional banks nationwide, and perhaps not surprisingly, was among the banks that were quickest to mobilize and adjust to new operating conditions at the onset of COVID.
Similarly, Coastal has been among the most active banks of any size in the country with respect to its participation in PPP, has continued to advance its leading standing in the “banking as a service” segment, earlier this summer announced its partnership with Google, all while continuing to maintain a top tier profitability profile.
MVB has literally transformed its funding base, as evidenced by non-interest bearing deposits now representing nearly 40% of total deposits compared to just under 10% roughly six years ago, while net interest margin is now more closely aligned with peers, and more recently, has proven relatively more resilient.
While it’s not too late to start, it’s increasingly clear that standing pat is no longer an option.
As noted above, each of these three companies started on their current path about six years ago. While each was also clear that it’s not too late for others to reinvent themselves, the window to do so is closing rapidly, to the point where standing in place is no longer an option for those that wish to maintain long-term independence. Seacoast’s CEO, Chuck Shaffer, was very emphatic on this point, noting that “things are happening so fast, with larger banks increasingly using technology to deliver better customer experience” and as a result smaller banks will need to either “get it done, or you won’t be around”. That said, half-measures won’t do, as the pivot to a tech-centric model will require an almost complete transformation of the traditional community bank model, with all constituencies (senior management, employees, Board, etc.) required to be on board – in other words, for those contemplating such a move, be prepared for a complete overhaul. In terms of what to expect, Eric Sprink noted other world-famous brands with “great loyal customer bases” that will increasingly look to “flip on the fin” and get into financial services in the coming years, further heightening competition in the process.
What’s next for these industry pioneers and who do they most admire?
MVB’s CEO Larry Mazza simply stated the need for “tech, tech, and more tech”, noting a desire for MVB to eventually be known as a “tech company that happens to own a bank.” Coastal’s Sprink cited an intention to continue to reinvest and optimize the franchise, with an eye toward Coastal serving as a “central repository of data, adding value to all of their front-end participants”, with “some of the best product suites in the country, via the company’s various fintech and related partnerships”. Operating in one of the best banking markets in the country, Chuck Shaffer indicated that Seacoast will remain laser-focused on Florida, where it intends to further its edge and “remain very relevant” amidst heightened competition from the largest banks.
The conversation then turned to others that these industry leaders admire, and, fortunately for our audience, each was very specific. Chuck Shaffer cited the “national banks” – in particular JPMorganChase and Bank of America – noting the massive amount of investment in technology and a clear step-up in customer service quality from even just five years ago. Mr. Shaffer expects significant consolidation across the industry with “fintechs being a big part of that”. Eric Sprink pointed to Silvergate, which “got into banking as a service, were committed to their mission (crypto), had challenges, stuck to their guns, and time has proven them right”. Larry Mazza said other than the other banks on the panel, Live Oak was the “most exciting” bank he had encountered, specifically noting their development of nCino, while on the pure fintech side, “BillGO has developed a technology that can do same-day bill pay” and is a “pure hockey stock” in terms of growth.
The Travillian Group’s Banks and Credit Unions practice provides Search and Talent Advisory (TTG|Align) services to depository institutions across the country. Established in 1998, the firm has built a unique platform that touches every corner of the industry.
Our search and advisory professionals focus on building long-term, trust-based relationships with Boards, Executives and HR professionals. They assist our clients in the hiring of high quality, hard to find talent and provide full-life cycle consulting in such areas as succession management, leadership development, employee engagement, recruitment strategies and compensation.