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Today’s guest is Michael Butler, CEO of Radius Bank in Boston. As with our recent show with Bob Rivers of Eastern Bank (which is also based in Boston), Mike belongs to a small, but growing, group of CEOs who are truly transforming their community banks through technology. When conversation turns to the tech future for community institutions, these two banks’ names always come up.

We’ll link in the show notes to the Eastern episode and you’ll notice many common themes -- especially that both CEOs focus first and foremost on full embrace of a tech culture. Not a mixed culture, not one that’s hampered by pockets of resistance, but full embrace.

We all know it’s hard for smaller banks to keep up with cutting edge technology. I know some community bankers who say they have given up. I know many others -- maybe most -- who hope they are keeping up enough to please their customers, but can’t tell for sure how well they’re doing. And I think many worry that they have no clear idea of what the road ahead looks like. For Radius Bank, Mike explains how they analyzed this challenge. Their conclusion was that in today’s market, in which customers expect Amazon-type technology, their small bank was not going to be able to offer fully competitive full-service retail banking products. As a result, they shifted quite radically to a new strategy.

In this show, Mike tells the story of that journey, beginning in 2008 at the height of the Great Recession. He shares their reasoning that a full-service, branch-based, locally-confined strategy would actually be more risky than offering a narrow product set to a wide market, with a very low cost structure. He argues that a small bank like Radius has powerful advantages over larger ones that have more complex and rigid systems that slow them down. And he talks about how they tackled the task of building, as he puts it, a great tech platform, including for attracting deposits from a very specific niche of customers -- those who don’t want a branch, and actually prefer to bank through their phone, if the experience is wonderful.

You’ll enjoy listening to Mike describe the internal debates they undertook, including the fears around offering something like, for example, a free ATM. He says they concluded that the whole banking industry’s platform is wrong, if you want to offer a virtual product. They also realized that a key to their future is fintech companies, both as customers and as partners. He says they now think of their “branches” as being located at the “corner of Radius” and the partner company, not on a physical street intersection where they would be competing with other banks’ street. Mike says it’s “a beautiful place to be.”

He also talks in depth about making the tech great. For example, he describes getting the deposit account opening process streamlined from fifteen or twenty minutes down to three or four. He says that, behind the scenes, Radius Bank does things like Amazon, and delivers an Amazon-like experience. He also has tips on how to attract tech talent (hint -- it includes empowering young employees).

Mike has thoughts on how to modernize the Community Reinvestment Act for the digital age. More broadly, he shares insights on overall regulatory challenges which, as he says, are “not easy.” He describes tasking the bank’s risk people to figure out how to work with new-generation vendors, because, as he puts it, “we can’t just go with the big guys that look good and look safe,” if they have old and inferior technology. He describes the checklist they’ve developed to handle this modernized third-party risk management for partnering with fintechs and regtechs. He says one secret is to have a “rock star compliance person.” Another is to interact constantly with the regulators.

Listen especially closely to how he thinks about the risk in these partnerships, and specifically his thought process on how these newer tech partners are able to make any needed course corrections quickly and nimbly, and at low cost, so that even if things don’t work perfectly the first time, the bank is still ahead for having experimented or for trying a new approach. I’m hearing this thinking more and more from innovative banks, including the point that while older technology may look safe, it’s actually high-risk because much of it is too rigid, and changes too slowly, to keep up with the market.

I’ve long believed that the two top challenges facing banks, and especially community institutions, are, first, keeping up with technology and second, regulatory burden. The good news, which is sometimes hard to see, is that new technology can be the answer to both.

Radius bank is pioneering a new pathway to reaching those solutions. I know you’ll enjoy my conversation with Mike Butler.

More Links

Link to Full Transcription

Radius Bank Website

Podcast with Citi Fintech - Citi Fintech Global Head of Policy, Andres Wolberg Stock

Podcast with Eastern Bank CEO Bob Rivers

More on Michael Butler

Michael Butler is the President and Chief Executive Officer of Radius Bank. Since joining Radius Bank in March 2008, he has transformed Radius into an innovative leader in the financial services industry, focused on delivering superior customer service and leading-edge technology to its clients. He is an experienced banking executive with an extensive background in all facets of commercial and consumer banking. Prior to joining the Bank, Mike served as President for National Consumer Finance at KeyCorp in Cleveland, Ohio. He is a graduate of Providence College and the ABA's Stonier Graduate School of Banking. Mike serves as a member of the Financial Services Committee for the Greater Boston Chamber of Commerce, on the Board of Trustees for Thompson Island Outward Bound, on the Advisory Board for FinXTech, and has been active with the Habitat for Humanity program.

More for our listeners

We have many more great podcasts in the queue. They include a number of leading government officials, including Congressman Gregory Meeks and Jan Owen, the banking commissioner of California, as well as World Bank official Harish Natarajan. We’ll have an amazing show with Greg Kidd, Founder of Global ID; a show with the co-founders of EarnUp, and two regtech firms -- Alloy and Compliance.AI.

The fall events schedule is filling up. Some of the places I’ll be speaking are:

• Get Smart On Blockchain, US Chamber of Commerce, August 1 in Washington

• Finovate Fall, September 26, 2018, New York, NY

• NFCC Connect, October 2, 2018, Dallas, TX

• Money 2020, October 21-24. Among other things, I’ll be speaking on the Revolution Stage about the regulation revolution

• LendIt Europe, November 19-20, 2018 in London.

• Regtech Rising, December 3-5, London

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please do leave a five star rating on the show to help us build it. Also please remember to send in your “buck a show” to keep it going, and come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

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And tell me what you’re thinking about digitizing regulation. We want to widen this dialogue.

Until next time, keep innovating!

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