(Part 1 of 2)
As new and innovative technology continues to disrupt
long standing businesses functions, banking is proving to be no exception. The days of simply opening up a branch and
expecting new commercial prospects to flood your location are becoming a thing
of the past. Online lenders,
crowdfunding sites, private lender investment funds and non-bank financial
centers, among others, continue to chip away at the traditional commercial
banking model. While technology is
impacting every facet of commercial banking, I want to focus on one area:
compliance. Then discuss how technology can transform the role of compliance in
your financial institution.
The
compliance stigma
Traditional complaints about the role of banking
compliance are well known: “Compliance is a layered expense.” “Compliance costs
are a financial drain.” “Compliance is an obstacle to business expansion and
risk taking.” These negative perceptions
about compliance have hardened into conventional norms that banks seem resigned
to accept and rarely question.
Consistent and effective compliance is essential to
the safety and soundness of every institution. It keeps institutions accountable
and protects the assets of stockholders, managers and customers. But effective compliance comes at a
price. With a seemingly ever-demanding
regulatory climate, the cost of compliance has increased dramatically in recent
years. At the same time, the penalty for
compliance breakdowns has never been higher, with significant fines and other
penalties on the rise.
This dynamic creates a dilemma for financial
institutions: continue to devote more resources towards compliance, or withdraw
from markets and customers deemed high risk.
Either way, the result for financial institutions is inevitably less
revenue, at a time when the need for non-interest revenue has never been
higher. Is it any wonder why compliance
has become stigmatized as an anchor on the bottom line?
I speak here from firsthand experience, as that was my
view of compliance when I worked at financial institutions in various
leadership positions. But as the role
of compliance has begun to change, so too have my views— specifically about how
banks can turn compliance to their advantage.
Changing
perceptions of compliance
Two years ago, I joined a young Fintech/Regtech
company called Hypur, which is dedicated to assisting banks service
cash-intensive businesses—precisely the type of “high risk” customers so many
banks have been avoiding because of perceived compliances challenges and costs.
Now, I regularly travel across the country to meet with banks about how to conduct
compliance more effectively and efficiently with the Hypur technology. And
while negative perceptions of compliance remain widely held, we are slowly
starting to see a change in that perception as banks recognize how the right
technology can transform the compliance landscape.
To give just one example, I recently met with the
senior leadership of a bank— CEO, COO, and Chief Compliance Officer (CCO)— to
discuss how to improve their institution’s compliance capabilities. Like so
many other institutions, they had refrained from banking certain verticals,
despite the revenue potential, because of perceived compliance costs and
challenges. But after I walked through
the compliance technology Hypur provides, the CCO immediately recognized the
potential and spent half an hour explaining to her CEO and COO how it would
enable their bank to enter several new and lucrative verticals.
The CEO sat back in his chair with a grin on his face
and said, “So it sounds to me like our compliance team just went from being a
layered expense to a new revenue department for our institution.” Everyone in the room immediately grasped the
significance of that statement.
Stay tuned for the second part of this article in the
next issue where I share the trend of compliance barriers slowly but surely
coming down along with my seven-step challenge that every financial institution
should consider.
This
article was authored by Hypur’s Executive Vice President of Sales Todd Fuller
in collaboration with Hypur’s Executive Vice President & General Counsel
John W. Vardman and Executive Vice President of Banking & Compliance Andre
G. Herrera. For more information about compliance or Hypur, please email banking@hypur.com.