To fuel the banks growth effort a small team of people executed on several successful equity capital raises raising ~$350MM over the course of several years (2019-2021). This capital was used primarily to fund commercial asset growth, but some was used to pursue operational efficiencies, deposit gathering strategies and non-interest revenue using technology. At the time of acquisition, the bank had fewer than 10 employees and by FYE 2023 FTE’s numbered around 330.
Over the next few years, from 2019-2022, the bank grew organically across the southeastern part of the U.S. and opened 16-18 new offices in Florida, the Carolina’s, Tennessee, Arkansas, Texas, Colorado and Missouri. Through this growth cycle from $100MM in assets to ~$4b in assets, Encore expanded its technology infrastructure significantly onboarding key technologies including a Loan Origination System (“LOS”), digital consumer account opening, digital banking technology (consumer and commercial), digital commercial escrow, pricing engine and other technologies designed to reduce fraud and risk. By the end of 2023, Encore’s total vendors numbered in the 80’s, many with multi-year contracts staggered between 2-7 years in duration. However, over time the bank ran into common problems faced by many community and regional banks in the U.S.
Overview of the Problems in the Banking Space
Managing Many Vendors
Managing many vendors comes with a multitude of issues related to vendor management, data security, business continuity risk and contract management related issues. Banks often have significant FTE’s dedicated to managing their vendor stack not to mention legal teams to manage legal and contractual related issues associated with their vendor management programs.
Bloated Technology Stacks Due to Point Solutions
Most commercial and retail banks in the United States are offering a variety of different financial products to their clients. These products range from commercial products in the form of loans, commercial deposit accounts, treasury management services, interest rate derivatives, foreign exchange products, merchant services and business spend management platforms. The consumer side is not different with a variety of loan and deposit products. As a result of trying to offer a number of commercial and consumer products, banks have to build extensive technology and data security infrastructure, which leads to huge vendor management problems, data security issues and a plethora of other problems.
High Technology Spend
It is not uncommon for community and small regional banks to have a vendor stack that includes 50-100 different vendors associated with the different products they offer. In addition, there are many different products and vendors required to manage fraud, data security and regulatory requirements present in the banking business. All of these contracts add up to millions of dollars of spend even for the country’s smallest community banks and credit unions.
Data Movement and Reporting is Fragmented
Given so much data in so many different places, data movement and reporting is clumsy and fragmented. For most commercial and consumer banks, data related to loans, deposits and transactions is usually in the banks core banking system, which is commonly hard to access and structure. Further, data related to treasury (account analysis’ information for example) is in a third party system. Same for interest rate derivatives, foreign exchange, card spend and transaction related information and mortgage — all in different places and hard to access and manage.
Slow Implementations (12-24 Months Avg.)
Community banks and small regional banks struggle with slow implementations for a variety of reasons. Some of the reasons are beyond their control and some are well within their control. With respect to the controllables, there is often a lack of technical talent inside a bank (because most of the FTE’s go to the sales, delivery, risk, compliance and/or operations teams). In addition, the vendors a bank often works with do not come to the table with good documentation because they often do not know the complexities of integrating with one of 10-12 different core banking systems. These factors contribute to an incredibly slow, clumsy implementation process that involves many different groups and subject matter experts inside the bank.
Overview of the Solutions to the Problems
Developed a Technical Understanding of the Core Banking System (Key: A Good Technical Team Inhouse)
Developing a technical understanding of a core banking system involves gaining an in-depth knowledge of the architecture, functionalities, and processes that form the backbone of a bank's operations. This includes understanding how the system manages day-to-day banking activities such as account management, transactions processing, loans and mortgages handling, and customer relationship management. In essence, developing a technical understanding of a core banking system is about mastering the intricacies of how the system operates, supports banking operations, interacts with other systems, and adapts to technological advancements and regulatory requirements. This knowledge is crucial for system administrators, IT professionals, and banking executives to ensure the system's reliability, efficiency, and security.
Developed an API Infrastructure To Move Data Efficiently (Key: Reuse API’s)
Developing an API (Application Programming Interface) infrastructure involves creating a robust, scalable, and secure framework that allows different software applications to communicate with each other. Developing an API infrastructure is a comprehensive process that requires careful planning and execution to ensure that it meets the needs of its users and can scale as demand grows.
Developed a Data Strategy To Centralize Data (Key: Leverage API’s, but Be Prepared for Batch Files)
Developing a data strategy and centralizing data involves creating a cohesive approach to managing and utilizing an organization's data assets to achieve its strategic goals. The ultimate goal of developing a data strategy and centralizing data is to enable an organization to leverage its data assets efficiently and effectively, thereby enhancing decision-making, improving operational efficiency, driving innovation, and gaining competitive advantages. It requires a well-thought-out plan, investment in technology and people, and a commitment to a data-centric organizational culture.
Developed a Data Governance Strategy (Key: Good Documentation)
Developing a data governance strategy involves creating a framework to ensure that data across an organization is accurate, available, and secure. It sets the policies, procedures, standards, and metrics that manage the organization's data assets to support its business strategy and objectives. By developing a comprehensive data governance strategy, organizations can ensure that their data assets are managed effectively and efficiently, supporting informed decision-making and strategic objectives.
Developed a Product Strategy (Key: Rigorous Vetting and Onboarding Process)
Developing a technology product strategy involves outlining a comprehensive plan that guides the creation and evolution of a technology product to meet specific business goals and user needs. This strategy is critical in aligning the product's development path with the company's overall objectives and market demands. Developing a technology product strategy is an ongoing process that requires constant evaluation and adjustment as market conditions, customer needs, and technologies evolve. It's about making informed decisions that balance innovation, user satisfaction, and business viability.
Renegotiated Contracts and Expanded Relationships with Key Vendors (Key: Solid Relationships with Vendors)
Renegotiating a technology contract involves revisiting the terms and conditions of an existing agreement between two parties, typically involving the provision of technology products, services, or both. The purpose of renegotiation can vary, but often it's driven by changes in business needs, market conditions, technology advancements, or the performance of the contracted services or products. Renegotiating a technology contract is a strategic process that allows businesses to adapt to changing circumstances, optimize costs, and leverage technological advancements, thereby ensuring that the contract continues to meet their evolving needs.
Results of the Solutions
Better Documentation for Regulators
Having better technical documentation for banking regulators means creating clear, comprehensive, and accessible resources that explain the regulatory framework, procedures, and compliance requirements in the banking sector.
Faster Implementations
Faster technology implementations can bring numerous benefits to organizations and society as a whole. In summary, faster technology implementations can transform businesses and societies by driving innovation, efficiency, and growth while fostering a culture of agility and continuous improvement.
Quicker Path To Revenue
Developing a quicker path to revenue refers to strategies and practices aimed at accelerating the process through which a business or project begins generating income. This concept is crucial for startups, new product launches, or any business seeking to improve its financial health. The emphasis is on minimizing the time between initial investment and the moment revenue starts flowing in. By focusing on these areas, businesses can reduce the time and resources required to reach profitability, enhance their competitiveness, and improve their overall financial sustainability.
Ability to Leverage Data Internally
Leveraging data internally means effectively using the data that an organization collects and maintains to improve its operations, make informed decisions, and gain competitive advantages. In essence, leveraging data internally is about transforming raw data into actionable intelligence that can drive improvement and innovation across all aspects of an organization. It requires not just the right technology and tools, but also a culture that values data-driven decision-making.
Ability to Stand Up Niche Deposit and Lending Strategies
Leveraging the banks infrastructure and ability to manage implementations more quickly the bank was able to execute on key strategies including niche deposit gathering strategies designed to focus on title companies, property managers, homeowners associations and management companies and law firms. The banks ability to implement the necessary technologies in ~30% less time allowed the bank to realize deposits more quickly and thus bring better profitability to the bank more quickly.
Fewer FTE’s Necessary Due to Reduced Manual Work
Having fewer full-time employees due to reduced manual work can have several implications for both businesses and the workforce. This trend often arises from advancements in technology, automation, and process efficiencies that decrease the need for manual labor in many industries.
In summary, Encore, at one point the fastest growing bank in the country from an asset growth perspective, encountered several common challenges faced by many community and regional banks. However, with the right solutions and a willingness to invest in technology, the bank realized significant cost savings, was able to bring revenue to the organization faster and ultimately achieve its objective of better profitability overall.
More information read, "The Visionary Behind a Tech-Savvy Commercial Bank" by Miriam Cross while at American Banker.