Webster Bank: Digital Transformation During a Core Conversion

[Music] Welcome to the Fissionaries Podcast sponsored by Alchemy. I'm your host Jim Marousse. The Fissionaries Podcast shines a light on financial institutions at the cutting edge of digital transformation, providing you with the tips and tricks to elevate your digital game. More than ever, financial institutions must think their legacy business models for growth and profitability. This is especially true for mid-tier organizations that can't spend at the pace of their bigger financial leaders. Headquarter in Stanford, Connecticut, Webster Bank is leading bank in the Northeast that provides a wide range of digital and traditional banking services. With $68 billion in assets, its core footprint spans the entire northeastern United States with certain businesses operating in extended geographies. My guest in the Fissionaries Podcast is Matthew Smith, Chief Digital Banking Officer, and head of enterprise product, marketing and transformation at Webster Bank. Matthew will discuss how Webster Bank has marched forward digital transformation while still managing a core conversion. So welcome to Show Matt. I was fortunate to have you on the banking transform podcast last year, and a lot has happened since we last talked. The merger between Webster and Sterling was completed, and you added some responsibilities to your previous role as heading up digital banking and banking in the service. So you're now also the head of enterprise product, marketing and transformation at Webster Bank. How does its expansive responsibilities help you focus on getting things done? Yeah, I think so. First of all, thank you for having me again, and it's great to see you, and I'm very excited to join the conversation again. I will say, I think that the combination of these things together has definitely served to benefit us as a company. What it does is allows us to capitalize on the connective tissues between each one of these organizational components, and make sure that we maximize the efficiencies that we get from working together. One of the things that I think has been beneficial is I've actually over time managed all of these functions at some important time individually over the life of my career at the bank. It's nice to have them all together now, which is a different challenge, and comes with some complexities with it. But I think the organization has found a lot of value in it, and that we're able to connect these groups together and provide enterprise-wide value through a lens that is constantly looking across all the lines of business that we support. You've always had a foot in or more than a foot in both digital banking and the digital banking transformation process, making your organization more future-ready. What were some of the biggest challenges you've had, though, as you put the digital banking, marketing, transformation, product development all under the single organization part of the year in charge of? Yeah, I think there's a couple of things there. We're in a unique circumstance. You mentioned the merger. I think the biggest constraint that we have right now is the time constraint that's placed on other resources, other functional support groups as it relates to us marching towards a core conversion timeline. We recognize that above anything else that we do as an institution, that conversion comes first. As a result of that, it forces us to make some decisions that essentially would delay some of the things that we think are more strategic initiatives that we want to do on a go-forward basin to make sure that we get our foundation ready. That being said, one of the things that I think very positively about is, again, the combination of all these functions together, and then my close working relationships with my counterparts in risk and operations and other functions were in and especially technology. I couldn't forget technology. We're actually all working together to think both strategic and tactical. Not just, okay, we have to get to conversion. That's a moment in time and we understand the importance of that event. But the decisions that we make really examining the second and third-order consequences of those decisions as they play into our strategic plan. I think that's been, again, a real benefit being able to look broader across the organization and make sure we're not making decisions in a silo, but really being comprehensive and thought and inclusive in our actions and the decisions that we take. You know, you're close to a $70 billion organization here. I think in the top 25 of financial institutions, so you're a pretty big organization, but you're nowhere near as big as the biggest. When you're talking about the constraints on time, when you're talking about the constraints on prioritization of initiatives both with conversion and other things, how much do you realize an organization on third-party providers who can probably help you develop things at speed and scale that you wouldn't be able to do yourselves? Yeah, I think that's a great question, right? And this is a very fundamental part of strategy, right? And I think most banks have to develop their identities, right? Especially in times of mergers and things of that nature where you're having strategic shifts in the way things go. I will tell you, and I think we talked about this last time, there was definitely a build versus buy combination that was coming into play when we first started getting to the merger. And I think what we've done is taken a deep look at ourselves and really recognize that like, hey, we are not a technology company, nor do we think that we're going to become a technology company. And we've made strategic shifts in the way that we have set up our organization as well as the strategic partnerships that we put into place to be able to deliver the things that we need to be able to provide a best in class experience for our clients, right? Whether it be products, whether it be experience layer, whether it be tools that kind of help us either sell or conduct operational efficiencies, all of that is coming through strategic partnerships, right? So there's very little things that we would want to take on from a build perspective. And I think our CIO, VickRum has done a fantastic job of aligning his organization and I've done the same with mine to be able to pick the best strategic partners and put ourselves in a position to be able to execute faster and have the best quality of delivery to our to our client. For you yourself, when you're looking at strategic partnerships, what do you look for? Because again, you come with a lot of experience. You have a you have a vision of what you want to achieve. But what are some of the key components, some overarching things that tell you either thumbs up or thumbs down with regard to a strategic partnership? Yeah, I think so there's two parts to that, right? One is, are you able to kind of keep pace with the changes in the industry, right? So I think when you look at some of the smaller players or some of the up and coming, you know, kind of like fintechs that kind of play in the space, whether it's payments related, whether it's UX related, that's where you tend to find the most innovative, you know, up to speed solutions, right? That you want as an institution, especially if you're going to outsource some of these functions. The downside in that is you've got to be careful about the stability of these companies, right? So, you know, how well capitalized are you? Right? Are you in a position where you're going to be able to achieve long-term growth and success? Right? So I think there's a combination there of the flexibility and nimbleness of a company to be able to adopt new technology, adapt to changes in the market and be able to deliver a blessed and class experience. But then at the same time, also making sure that we're protecting ourselves, that we're not finding ourselves in a situation from a bank perspective where we picked a strategic partner that can no longer provide services because they've, you know, hit some snags in the road, right? And I think that's where, you know, when you kind of get into partnering with some of the bigger players, right? I won't name names, right, but some of the larger companies that plan the space and then versus some of the smaller ones, I think you got to place your bets in specific areas. And so what we've done is kind of a combination of both, right? There are certain areas where we felt, you know, we could get more flexibility and nimbleness with going with somebody who's potentially a smaller provider. But at the same time, we understand their company, they're very well capitalized and they're doing great things and they've got an expanded offering across multiple institutions. And then there's some areas where we say, "Hey, look, you know, it's better for tried and true larger companies support, right, around these specific areas." But I think to each one is an individual use case, but to be able to have the optionality, I think, is very important for most institutions. So when we last talked, we discussed how both Webster and Sterling had very aligned views on where the banking business is going. You both certainly depended on both legacy banking technologies to build deposits loans and business services beyond what was traditionally done in banking. You also both had already in process started to shift your banking business model bit, taking on banking service and other initiatives to make you more future ready. Can you talk a little bit about how you adjusted the traditional banking model to be more future ready? Yeah, I think there's a couple of things there too, right? When you think about the positive gathering strategy, so we're a commercial bank, right? And I think that's the thing that sometimes gets lost, right? When you're predominantly a commercial bank, a lot of the stuff that you're doing specifically on the consumer side is designed to generate funding for commercial loans, right? And because that's the use case for us, right? Just like we have diversification and asset classes, we really set out, and I think both institutions did a nice job of this from the start, really set out to have a diversified funding strategy that gives us multiple levers to be able to pull upon, to generate lower cost deposits to help fund the commercial loans that we have, right? And so, A lot of what we started with is really how do we generate sustainable deposit growth in multiple channels, whether different economic storms, and have lots of different optionality to be able to fund the balance sheet. And then I think where we took it a step further was, and I actually talked about this as part of an API strategy discussion that I was having recently, but a lot of the APIs that we had set up to be able to facilitate those relationships, whether it's through the digital bank, whether it's through banking as a service, or even stuff that we've acquired along the way, we were able to then repurpose those to help facilitate better operational efficiencies and client delivery across the organization, right? So being able to start to take out legacy systems, really examining our processes straight from account opening all the way through to servicing applications. And I think when you take that broader lens, it really creates a great business case and a great return on the investments that we've made both from an API development standpoint as well as strategic partnerships that we've had, because what it's allowed us to do is not just just to create deposit channels, but it also is enabling us to be able to deepen relationships with our clients and help our colleagues deliver a best-in-class product in a much more efficient way. So one of these we discussed the last time we talked was that both banks and your obviously Webster was committed to becoming a developer and provider of banking services to non-traditional providers. How have those efforts changed over the last 12 to 18 months as the Fintech marketplace has certainly been impacted by economic uncertainties, but also organizations realize the strength of those kind of relationships as they go forward from the standpoint of building services for a broader marketplace? Yeah, I think so. That's a great question. I'll answer it 50% company view and then another 50% my personal view because I'm in it a lot. I think that as an organization we see value again in having a diverse funding strategy, where I think we've made strategic shifts and this has been through learnings is that not all Fintech partnerships are created equal. And I think when back in 2018 we launched our banking as a service business, the Nobel Prize, right? So all of the regulatory and compliance work or playbook, all of our technology, it's all like homegrown for us, right? And so what we've essentially started with was an opportunity for us to kind of develop multiple partnerships and the hopes that we would help grow those out. I think what we found is the juice has not always worked the squeeze, right? And so what ends up happening is, and I think some of the smaller banks that were a little bit ahead of us into the banking as a service base are starting to feel this a little bit, especially with the regulatory pressure that you just mentioned. But a lot of what we're starting to learn is your operational readiness, right? From a Fintech perspective, it's hugely important for us to have a successful partnership, right? And therefore, a lot of our shifts in focus are now on very mature institutions that are looking for strategic partnerships that provide mutually beneficial components to each other, right? So from our standpoint, being able to provide the products and services that they need and being able to also help them in an ever changing regulatory environment by using and leveraging our infrastructure and our expertise in this space to be able to help create a successful partnership. And from their side, it's giving us low cost deposits, right? And so I think we've now found a very isolated niche in an area where we want to play, which then kind of isolates us a little bit from some of the smaller up and coming Fintechs, right? We're potentially not operationally ready. We're really focusing our efforts on more mature relationships that are going to provide substantial deposit relationships for us, as well as our ability to be able to rely on them to be able to fulfill their parts of the obligation, whether it be from a BSA programming perspective or all of the operational and risk components that sit within those constructs. It sounds like there have been obviously some successes and some stories that haven't been successful. Have you actually unwound some of the relationships that didn't go as planned? So thankfully, we've not had the unwigned anybody that we've gone live with, which is good. But we've had some extended diligence on some of the partnerships where it took us a little while to figure out that it's not necessarily going to be a good fit. Now, it's good that we figured that out before we went live, right? But I think that's a testament to the amount of work that we put into our playbook with regards to being able to conduct diligence on each one of the partners and figure out whether or not it's going to make sense for us. But thankfully, we have not been in a position where we need to unwine the partnership. Most of the partners that we have are very well set up and are operating very efficiently and they're deals that we really like and value. So let's take a short break here and recognize the sponsor of this podcast, Alchemy Technologies. Welcome back to the Fish and Area's podcast, sponsored by Alchemy Technology. So from an innovation perspective, what right now, as you look back over your tenure with the joint organization, but even in your tenure before that, what have you seen as being things that you really say, you know what, we did things pretty much completely different from what the industry has a hole looking at. And that's helped to differentiate Webster versus other players. Yeah, I think, look, I think this concept of diversification and strategy is really big, right? It's a nice job, not just on the asset side, but on the deposit side, figuring out how we can position ourselves for longer-term success, right? So we've made some strategic acquisitions, right, that have really helped us with regards to filling in our funding gap. I think from an asset perspective, we've got very clear guidance on areas for which we want to play and we've got diversification in those spaces. So that way they're not all tied to specific economic events, right? So from that standpoint, I think we've been very strategic. The other place where I think we've done well is we've taken the time to really examine what does it take to do things in the proper way and get in sync with our regulators that they're comfortable with the things that we're doing, right? A lot of the horror stories that I hear around specifically banking as a service as an example, but a lot of the stuff that's now coming into play, whether it's around blockchain use cases or crypto or any of these other things, is really more around people who got a little ahead of the regulators and as a result of that had a bad experience, right? Or something went wrong or something to that extent. And now they're kind of unwinding a lot of those things. I think our position has always been let's take the time to conduct proper diligence to make sure that one, we're having an understanding of the space and we're always keeping a pulse on what's new and innovative in the market. But we also make sure that we are very in touch with our regulators and what their view is on specific items and we make sure that we guide them along in our process as we're examining or getting into new spaces, right? So the great example of that would be vast, right? Like, we spent the better part of 18 months building out a very robust risk framework from soup the nuts all the way from, you know, assessing opportunities to ongoing monitoring. We took our regulators through it and as a result of that, I think we've gotten a lot of positive results from audits that we've had or questions that we've gotten. And I think that's the right approach, right? So where I think we've been very strategic is keeping a pulse on the market, making sure that we're entering into areas safely, right, with the proper guidance that we get from our regulators. And then overall just making sure that, you know, we're not, you know, jumping into uncharted territory unnecessarily, we're actually taking the time to examine the opportunities and then keeping a pulse on the space. So when you look at your digital banking environment, obviously we talked about this before too, become a digital bank is more than just put everything on digital. It means change in the way you do things internally so you actually can remove friction and simplify the digital engagement journey. What have you done at Webster that is really simplified processes and made it so that you can grow and pivot easier? So there's some things in flight right now that I'll talk about, right? Because you have to keep in mind, we're one year into the merger. So a lot of this has been merging the cultures, marching towards core conversion, right? So, but what's nice about it is in parallel, we've been working through some things that are going to yield in the short term, the results that you just talked about, right? So when you think about, I'll use our consumer bank as actually just a call on this subject, not too long ago today. One of the things that I think is really impressive about how we're thinking about things is, there should not be a huge disconnect between how we onboard a client and assess a client in our digital bank, right? So direct to consumer, right? Or direct to small business for that matter and how we do it in the financial centers, right? We're currently, and this is, again, this is all a result of merger, right? Like, we'll get to one common core, but when we think about the journey, right, we should have the same business rules, we should have the same operational processes, we should have essentially the same technology that's helping to power both experiences, whether it's bank or lead or whether it's direct to consumer, right? Or small business for that matter. And so I think that the fact that we're thinking through that, right, is actually a test through our commitment to creating operational efficiencies and leveraging the technology that we put in place that we know works and is scalable. So we've done a lot of work trying to source that project, figure out what we need to do from a risk and controls perspective, figure out what we need to do from an operations perspective. But what's very interesting and encouraging is every single function is represented on the steering committee for this particular initiative. So we've got up top of the line like management committee. So head of consumer, head of operations, head of technology, head of risk, all of myself, other groups. Everybody is in an alignment with what the goal is and we're working together to create a better experience both for our colleagues or delivering an experience as well as for our clients, right? And we wanted to toggle in both spaces. I see so many different use cases for the same thing across the broader organization, right? We're working very intensely with our commercial teams to figure out, you know, what exactly can we do to kind of help the onboarding experience, right? Or some things that we can leverage through other things that we've done within the bank, right? To be able to create other opportunities to expand our products that and reach new markets within that space. I think there's a tremendous amount of opportunity in the treasury management space, right? So, so we're very aligned, right? And again, one of the things that's great about like having this centralized view is I'm able to kind of look at the technology solutions and figure out alternate use cases across the organization because I have those touch points with a lot of EMC members, which is great. And what it just shows that doesn't matter what size organization are, that data analytics is the foundation upon which better customer experiences, better internal processes, better efficiencies, better revenues are generated. That's not an easy thing. And we we talk about it very as if it is, if we talk about just rolls off our mouth really easily. But in reality, trying to get these things in place and try to make them so they can actually be deployed across the organization is tough. Not to say that it's not even tougher when you're trying to also bring together two organizations. How is Webster Bank addressing issues of data analytics so that can actually be used both internally and externally? There's two parts to that question, right? And I think you hit it on the head. It's not just thinking about the data for you to be able to make decisions, right? And kind of prioritize or deliver a better experience or do these things. But it's also how do I externalize that data in a way where it provides value to our clients, right? And I think you'll find that mostly in like the information reporting space, right on the TM side. I think, look, as a company, we've made a commitment to making decisions that are based on solid data, right? And so first part of that is setting up an infrastructure that's going to enable you to be able to collect data for the decisioning, right? And that's the foundational component. And when I think about areas of like risk, right, like that's a big place where we need data. When I think about operations, that's a place where you need data. When I think about just overall client behavior and data science, that's another place, right? And so we've got individual groups. We have a data team, right? That has an entire governance structure that's helping us build the foundation of how we're going to collect data across the organization. We've got a data science team that's run with some very talented people that is helping us explore client behavior and really understand the needs of our clients better to be able to prioritize what products and services we want to offer or make better decisions about how to service clients. And then we also got a BI group, right, which gives us tactical support mostly, right? In the form of delivery, so that way we can make decisions in the meeting, right? We don't have to wait and go out for three weeks and try and source data. They're giving us tools that enable us to be able to pull up information on the spot and make decisions very quickly to help prioritize the business. I think when I think about some of the stuff that we've been talking about specifically in the Fintech space and specifically in the commercial space, leveraging some of the insights that we have around client activity and just overall information that can be helpful for our clients to be able to digest that information and make better decisions for themselves, I think that that's a really valuable tool, right? And I think looking at stuff like information reporting on the TM side, figuring out how we can do more stuff in the small business space, right? And then partnering with something like the Fintechs or some of the other groups that we partner with to be able to provide them information so that they can better, you know, deepen relationships with their clients has been a huge play, right? So I think it's a multi-layered approach, right? But I think our commitment to it has been, let's get the foundation correct first and then let's build on that concept. We've got great talented individuals in place. We've got the infrastructures in place and I think we're only going to grow that as we kind of get larger as an institution. So your organization has come a long way, especially in light of the fact that you're going through a merger right now. What is on your to-do list for next year and what would stand in the way of success? Really, we're the only thing that could get in our own way, right? I think we've got very talented people that work here. I think we've got dedicated people and we've got experts in these spaces, right? And so from my perspective, there's a couple of things here, right? One is we want to continue obviously to prioritize conversion and make sure that that goes smoothly because that ultimately could be a very big disruptor if we didn't get that right, right? And you've seen examples of that, you know, from some other institutions that have had some struggles with it. So we're trying to make sure that we keep our client mindset on first, make sure that we deliver that in the best possible way. And I think beyond that, again, it's about being strategic and tactical, right? So for us, first examining within, right, what do we want to do to be able to leverage the technology and the partnerships that we have to better provide tools for our colleagues to be able to do their jobs? And then also how do we provide a better experience, right? That is ultimately combining all of the components for which we provide servicing in one easy to digest UX, right, for every individual or business that we service, right? And I think that that is our main objective in the short term. On top of that, it's what we talked about before, which is making sure that we're keeping pace with the market, right? Looking at what's happening in the way of payments, what's happening in the way of products and services, what's happening in the way of partnerships, right? And making sure that we're strategically ready, right, for major shifts in market, right? And so keeping a pulse on what's happening is going to be a big concept for us. But I also think, again, going back to my point that I made earlier, it's not about being a first mover, it's about being in the position to not be such a lagger, right, in the space, right? And so for us, the strategy is more around making sure that we understand what's happening, placing strategic bets that are based on data and intelligence that we have and where we think we want to go as an institution. And I think that comes from knowing who we are as an institution, which I think we've got a good feel for at this point. And then making sure that we execute in a way where it continues to provide benefit to the holistic bank. That's our job for the next 12 to 18 months. So there's a lot of financial issues right now that are in the process of merger, or conversion, either one of them. With that in mind, a lot of organizations have to fix things as they're running. You can't stop everything and go forward with it. I don't recommend days and for you give to financial institutions when they are in the process of conversion and still have to go through the digital transformation journey. How do you fix the car's transmission when it's already running? It is a tough one, right? And it's the thing that I think we've struggled with. And there's certain areas where we felt like, hey, we need to kind of deprioritize some of these things. And there's some things where we said, look, we just can't, right? We have to walk into going at the same time. I think there's always a decision, right? There's a decision to do nothing and there's a decision to do something, right? And so if you think hard about it, there's always going to be a happy medium that provides some kind of clarity in what you need to focus on and what potentially could be pushed off. Where I think we're starting to get to a place where we're doing a really good job is we're being very pointed about, hey, these are the areas of focus that we think are where we need to drive the car and fix it at the same time. And these are things where we're like, let's just rest this thing down and create capacity for us to be able to do that, right? I also think that making sure that you understand the second and third over consequences of the decision that you're making is very important, right? And so a lot of the things that we're doing, right? In the short term, have impacts on things like conversion and vice versa, right? The decisions that we're making as part of conversion have impacts on the longer term approach that we want to take to solving a business problem or launching a new initiative or things of that nature, right? So I think, again, biggest thing that you can do if you're going to try and go down on that path is everybody has to be in sync, right? So decisions can't be made in a silo and you can't have specific groups that, you know, kind of like take it upon themselves, like drive specific initiatives. I think we have a really good governance structure here at the bank, right? Where we're constantly working cross-functionally to make sure we're all connected to the decisions that we're making. And as a result of that, I think we get better results, right? And so my advice would be make sure that you're prioritizing appropriately, create as much capacity as you can. And then at the same time, make sure that all of your functional counterparts are in sync with the design and understand the second and third of the consequences of the thing you're executing against. Great answer. You know it's interesting because you look at it and say, right now we have so many moving parts. If we can manage this well, then one thing's got back to whatever normal is, but normal. We're going to be in a lot better position than a lot of organizations because we've had to continually modernize at the same time we're doing through a conversion. It's tough. Now it is. Matt, thank you so much for being on this show. I really appreciate it. And I appreciate you sharing the insights on how you can actually just be transformed in an organization while still going through. conversion. Thank you very much. Now appreciate it. Thank you. It's great to see you again. Thanks for listening to the Fissionary's podcast. We hope you enjoy our deep dive into all tips and tricks you can use to help elevate your digital gain. If you enjoyed this episode and would like to support the podcast, please share with others in your organization and outside your organization post about on social media or simply give it a thumbs up and comment. This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslidge, audio engineer, Sean Roehl Hoffman, and video producer Chris Follios. Thanks again and we hope you can join us the next time on the Fissionary's podcast.