John Waupsh is a renowned speaker at top fintech and banking conferences. With one hand in community banking and the other in fintech, he is well‐regarded for balancing straight‐talk consultation with research‐backed ideation.
John is Chief Innovation Officer at Kasasa®, the company formerly known as BancVue®. Waupsh has pioneered integrated fintech and financial marketing solutions for over a decade, including Kasasa, the first national brand of financial products offered exclusively at hundreds of community financial institutions around the United States.
John is Austin Chapter Lead of Next Money, a global fintech networking organization, and a mentor with Bank Innovation's global fintech accelerator, INV.
His work has helped Kasasa grab three Finovate “Best of Show” titles, recognition in Fast Company's “10 Most Innovative Companies in Finance,” standing in the FinTech Top 100, as well as numerous MarCom Awards.
In his spare time, Waupsh runs a music conservancy called The Preservation Project, which discovers, restores, and releases previously unpublished music from the 1920s through the 1970s. He lives in Austin, Texas, with his wife and two children.
This book includes a companion website, which can be found at www.wiley.com/go/waupsh. Enter the password: bankruption17. This website includes the charts and figures in this book as well as many additional charts to support the bankruption story.
“Money can't buy life.”
—Bob Marley (final words before death)
Community banks overdosed on arrogance and comfort in the status quo. The vice of Pride plays the long game. She starts harmless enough—young and reckless. Discerning and punctual. But Pride, a generation or three down the line, quite deeply cataracts and sloths. Bankers' kids become loan officers become CEOs become chairmen become barnacle board members of their grandkids' banks.
By and large, community banks are family‐begun businesses that have only lasted this long because banking competition was light, with controlled access points. The ultimate problem with family businesses, perhaps, is not pride—it's that blood overrules brains.
Credit unions, you're not off the hook, either.
Quite a bit of legacy thinking going on there, too, with far too many inefficiencies, a model the average consumer doesn't know or care about, and a belief system that outstrips capability. Oh and your boards are typically full of people who have no experience in banking or technology, and zero financial interest in the health or future of the credit union.
If any of that cut a bit too close to home, pay attention, it gets worse.
Because despite the tireless work of many thousands of passionate employees who sought to advance their community institutions from the inside, community banks and credit unions are bloated, outdated, human‐powered, ego‐driven, know‐it‐all, do‐it‐all, whiny, tired, overregulated, underappreciated customer experience nightmares.
Of course, that's the easy part to fix. Community institutions still have to thrive within the ever‐changing banking landscape. And with pole shifts occurring to every foregone conclusion in their business models, top financial institutions today are defining winning strategies that acknowledge and respect these transformative forces.
Although there are a few community banks and credit unions committing to the difficult process of re‐examining and changing their business based upon the realities of today, there's not enough to make a difference. Not enough to save the industry from its own damned self.
This is where my brain sat for about a year. My heart crushed; my soul smashed, until I became absolutely obsessed with finding any possible cure to the terminal illness. It only makes sense that incumbents should have one or more advantages. We just need to find them, exploit them, and shore up the weaknesses.
Years ago, people in towns across America needed access to capital and a safer place to store their money. Customers lacked the capability to travel too far from home, and bankers didn't want the money they lent to go too far from the safe, so they established a nearby physical location to perform these services. This nearness worked both ways, positioned around the ideal of convenience.
Proximity manufactured a false sense of trust between the two parties. Either side trusting the other not to take its money and run—because they have a big, heavy, unmovable structure with columns, or because they live nearby.
And the mutual lie worked pretty well.
This falsehood of belief became further twisted when people learned that the attire they wore to the bank directly impacted how they were treated (e.g., more favorable loan rates). In perhaps an early form of identity fraud, customers would don their Sunday best to get the banker's best.
Somehow, this lie of convenience between the two parties became known as a relationship, and mistaken for intimacy—a word that connotes personal and honest, shared knowledge—even though the association was, and has remained for decades, anything but intimate.
And over the years, with few exceptions, regulation has reinforced the false benefits of human touch–powered banking by, among other things, raising insurance rates on deposits originated in areas beyond an FI's local branch network. Their assumption: Deposits and accounts sourced digitally (or otherwise outside physical branches) are more inclined to travel to other FIs at a whim.
In 2015, we left behind five exabytes of data exhaust every two minutes: from Periscoped hip‐hop concerts to Snapchatted high school homecomings to YouTubed cat videos to less important things like emojiied business emails (see Figure 1.1).
Figure 1.1 Creating Five Exabytes of Data
SOURCE: Berkeley School of Information, 2015
The time, in minutes, it takes humans to create the amount of data from the dawn of time to 2003. Another way to look at it is if you wanted to watch a video of everything that was sent across our global networks in one second of 2015, it would take you about five years of 24×7 screen time.
Not only does each of us leave behind gigabytes‐thick data residue daily, but we also have become—consciously and subconsciously—comfortable, and nearly dependent, on our data streams.
These days, well‐timed, well‐placed, well‐modeled informed digital interactions build relationships, trust, and understanding. This all but ensures that any strategy relying solely on physical proximity is a liability.
As Americans begin to taste and feel the ease and fluidity of omni‐channel in retail, theme parks, and so on, they learn that innocuous data, like that which sat in ink on paper shopping lists, can greatly enhance their lives. They see how we can talk to devices, and they will do things for us (“Alexa, play some Violent Femmes”). They see how devices can talk to other devices (via Internet of Things) and turn on lamps or adjust the temperature for us (see Figure 1.2). Consumers see all of this happening today, and understand that it is no longer science fiction.
Figure 1.2 Forecast: Internet of Things Devices (in Billions)
SOURCE: Juniper Research, 2015
The forecasted explosion of networked physical devices, buildings, et al. embedded with sensors and software that collect and exchange data.
Conversely, my friendly community bank teller “helped me” get $450 cash out of an account in a face‐to‐face transaction, but then wished me a “Bye, Steve” as I began to walk away.
The obvious question then follows, “Why can't the place that houses my most important data, my bank or credit union, use the information I give it all the time (e.g., credit card, bill payments, balance data, timing of future bills, timing of future deposits, etc.) to help me? Why can't banking be easy and protective? Why doesn't my financial provider know me?”
And so today, American consumers bounce between two totally different worlds:
| Normal World | Banking World |
| Digital. | Analog (e.g., paper and wet signatures). |
| Fast (e.g., sending a letter to another country is now instantaneous). | Slow (e.g., answering an email complaint takes a business day). |
| Accessible (e.g., I can download a movie on my phone and watch it while sitting on a beach). | Unpredictable accessibility (e.g., I can check my credit card balance on the website, but not in the branch or in an app). |
| Open communication between people (e.g., Twitter, Facebook Messenger). | Departmental silos (e.g., I have to repeat my concern several times to several different people when I call customer service—even during the same phone call). |
| Open communication between software (e.g., Slack uses APIs to infinitely extend its capabilities to work with hundreds of other software). | Little to no communication between software (e.g., my bank's investment app cannot share data with my bank's credit card app). |
| Regular upgrades. | Upgrades? |
Community bankers have always stayed behind the curve, in an attempt to moderate risk and lessen unnecessary expense.
But where does risk mitigation end and enterprise risk begin? When does doing the thing you've always done become the riskiest thing you could do? Welcome to the bankruption—the watershed for community banks and credit unions.