Real-Time Banking: The Risk of Doing Nothing

By Evan Sparks

“I am not a technology person,” Steve Antonakes tells the audience at a national bank technology conference. “I am a risk person. The biggest risk for community banks is to do nothing in this space.”

After a career as a bank regulator, first at the Massachusetts Division and eventually as deputy director of the Consumer Financial Protection Bureau, Antonakes is now firmly embedded in bank innovation/risk nexus as EVP for enterprise risk management at Eastern Bank in Boston.

Eastern became famous for its Eastern Labs unit, launched in 2014 to “disrupt the bank from within,” says Antonakes. Investing 1 percent of annual revenue in the labs, Eastern Bank created an Express Business Loan with a streamlined application—required items in the application dropped from 55 to 8—and “real-time” loan decisions. The goal: balancing “speed and prudence” while charging competitive rates.

Express Business Loans took off like, well, an express train. In 2016, Eastern Bank originated 606 EBLs with an average amount of $42,600 and an average rate of 8.2 percent. The following year, it issued 1,330 loans, with a 9.2 percent average rate and a $37,000 average loan total. The next step: spinning out the Labs unit as a fintech company called Numerated that is bringing the technology to other banks. Meanwhile, Antonakes says, Eastern rebooted its lab unit with a goal to “inform, excite and accelerate the future of Eastern Bank.”

On the consumer side, the real-time friction point has to date often been in person-to-person payments. “Customers could not send money to friends unless they used Venmo,” says Jon Prendergast, SVP for payments strategy at TD Bank—so TD was first to market with Zelle.

“Most of these financial institutions today are losing P2P volume to third parties,” remarks Ravi Loganathan, head of digital strategy and operations at Early Warning, the company that operates the Zelle P2P network, a virtually real-time payment solution. Those losses “take away frontline experience of your customers. What Zelle offers today is… the ability to retain that customer experience inside your environment”—namely, each participating bank’s own mobile app.

Since Zelle launched in 2017, it has processed 330 million transactions totaling $100 billion, and in the first quarter of 2018 alone, it has processed 85 million transactions amounting to $25 billion in volume. Banks in the Zelle network see a 50 percent average increase in P2P enrollment, Loganathan says.

The pace of change in banking mirrors the pace of change in business as a whole. Businesses demand express underwriting; consumers want rocket-fast mortgages and payments; and banks have to upgrade their bank end to meet this demand. “Gone are the days when you can take three to six months to hardcode a new product into your core banking system,” says David Arnott, CEO of Temenos, a global digital core banking provider that emphasizes speed and integration.

Real-time banking is where the market has moved. “Twenty-four/seven banking is no longer viewed as a convenience by banking customers,” Antonakes explains. “It’s a non-negotiable necessity. You have to get beyond the mindset of just improving your existing products.”


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