6 de novos explain their tech choices

June 8, 2022 1:54 PM

The technology options for de novo banks are plentiful and, some say, stronger than ever.

“The choices have never been greater,” said Charles Potts, the chief innovation officer for the Independent Community Bankers of America. “What used to be the best-of-breed, bespoke banking solution that fit mid-tier regionals or superregionals is now within reach of banks of all sizes.”

De novos have largely been favoring digital delivery of lending and deposit services as they emerge. They tend to use cloud-based software that supports open application programming interfaces. Their technology integrations can be relatively seamless from the get-go because there is no legacy infrastructure to connect to.

“A brand-new, shiny-object de novo bank with better tools and capabilities can be a challenge to institutions of all shapes and sizes,” Potts said. “It’s something we know our community banks are paying attention to.”

Bank of Burlington, which is set to open in South Burlington, Vermont, this summer, reports that its product implementations are beating the timelines its vendors originally estimated. “Every time we meet we hear, ‘You have no data so we can do this faster,’ ” said Victoria Bronner, vice president of the de novo.

The six de novo banks below, which have either launched within the last three years or have yet to open have found value in everything from purchasing all of their technology needs from one provider to choosing best-of-breed software from multiple vendors. Here are their strategies for building a tech stack from scratch.

Integrity Bank for Business's business development team

Business-oriented community bank takes one-vendor approach

De novo: Integrity Bank for Business in Virginia Beach, Virginia

Launched: May 3, 2021

Integrity Bank for Business

bought all its technology from one core provider.

The leadership team solicited demos and price quotes from the three major players, FIS, Fiserv and Jack Henry. They landed on Fiserv as the best bang for their buck.

Services such as wire origination, business cash management and online security were widely available across all three providers, but “Fiserv appeared to be the most willing to work with us on pricing and de novo assistance, helping us get up and running,” said Nancy McManuels, who came out of retirement to help set up the bank and currently serves as the BSA/OFAC officer, information security officer and compliance officer at Integrity.

Moreover, “They clearly understood what we wanted to do,” she said. “You don’t want to deal with a company that you have to keep reminding that we are a business bank and we are not that concerned with consumer products.”

Fiserv’s Sentry even acts as Integrity’s information technology department, managing its network and workstations and taking care of virus and malware protection.

“If something breaks, we don’t have to crawl on the ground and figure out what’s broken,” said McManuels. “We knew we didn’t have the expertise on hand to be the PC guys.”

While others on this list prefer plugging in hand-selected vendors, Integrity’s team saw the value of putting their eggs in one basket.

When many of Integrity’s leaders were at Heritage Bankshares, "one company handled the phones and Fiserv handled our core and we had a different internet provider,” said McManuels. “There was often a lot of finger-pointing between the three of them when something didn’t work. We liked the idea of being able to point fingers in one direction.”

Environmental sustainability underpins this Florida bank’s purpose

De novo: Climate First Bank in St. Petersburg, Florida

Launched: June 1, 2021

Climate First Bank planted itself in a state often roiled by hurricanes and extreme heat.

“As a native Floridian and lifelong outdoorsman, I have seen the impact of irresponsible legislators on our environment,” said Ken LaRoe, CEO and founder of Climate First.

To further its mission of reducing levels of atmospheric carbon dioxide and promoting sustainability, the community bank offers climate-mindful personal and commercial banking services. For example, a customer opening a Regeneration Checking account and setting up direct deposit of $750 or more prompts a $100 donation to Project Regeneration, a nonprofit advocating for a plan to end the climate crisis; all interest that would have been earned on the balances in these accounts each month is forwarded to Project Regeneration as well. The bank also extends residential and commercial solar energy loans.

“Our niche is small business and professionals with an emphasis on ESG-centric businesses and nonprofits,” said LaRoe.

The bank is concentrating on serving people and entities in Florida during the first three years of its de novo period. Later, it will expand nationwide.

Climate First chose Finastra as its core provider because of the company’s commitment to environmental, social and governance principles and its open banking platform. The software runs on Microsoft’s Azure cloud. The bank is also developing its own fintech subsidiary and selected Azure as the cloud provider, given Microsoft’s commitment to sustainability.

“The main takeaway is that financial institutions should avoid systems that can’t be extended via APIs,” said Marcio deOliveira, chief technology officer and chief digital banking officer of Climate First. “Technology is progressing rapidly, and closed systems can easily become obsolete.”

A hyperlocal community bank for businesses in South Florida

Do novo: Locality Bank in Fort Lauderdale, Florida

Launched: January 12, 2022

Locality Bank, which serves businesses in three South Florida counties, is part of a mini boom of de novos opening in Floridaand filling a void of locally owned community banks in the area.

Locality has one physical branch, but the majority of its services, which include business and personal accounts as well as business and real estate loans, will be delivered digitally. The company selected Nymbus to custom-build its online platform on a cloud-native core with an open API architecture. The server and infrastructure runs on Microsoft Azure. The bank will be taking advantage of Nymbus’s open API system shortly, as it integrates capabilities from Hurdlr, a business expense tracking tool for entrepreneurs.

The company also landed on Payrailz to run its payment rails, Flexi for its general ledger software and Segmint for transaction data cleansing and categorization. The team recruited UDT, a company in South Florida, to handle back-office infrastructure and information technology.

“It was important for us to find a local relationship,” said Corey LeBlanc, chief technology officer at Locality.

Although technology will play a significant role in serving customers, “we are in the business to help people be successful via good advisors at a bank that they trust with the tools they need,” said LeBlanc. “That means that our use of technology has to be meaningful and iteratively better day over day. We want to use the technology as a tool to enable customers for success," but "we didn’t want the technology to be the business.”

An MDI with an eye toward female entrepreneurs

De novo: Agility Bank in Houston, Texas

Launched May 23, 2022

Lauren Sparks, the CEO of Agility Bank, was intentional about piecing together technology vendors rather than relying on one provider.

“You don’t have the same limitations that you do if you are working around a legacy core,” Sparks said in an earlier interview.

Her team selected DCI, or Data Center Inc., to be the bank’s core processor because of its collaborative approach, and the digital lending platform Numerated to underwrite loans. As the first minority depository institution to be women-owned and women-led by design, Agility’s mission is to serve female entrepreneurs. But it will be inclusive to all small-business owners.

Because there will be one branch to start and future branch growth will be modest, Sparks chose products that could make banking services available after hours or remotely. Digital lockers that open by scanning a QR code, provided by a company called Package Center, are installed in the vestibule of that branch. Customer service technology provider Glia underpins the communication, including live chat, video conferencing and co-browse. Virtual safe deposit boxes, from a company called Virtual StrongBox, let customers store important documents online — something particularly important when the state gets battered by storms.

The approach is particularly suited to entrepreneurs in a sprawling city, as Sparks knows firsthand from her time as a business owner.

“If you live in a city like Houston and have to travel an hour each way to sign a piece of paper, you say wow, this doesn’t make sense,” said Sparks. “And the banker side of me goes, I know there is technology that means we don’t have to do this.”

A commercial bank in Vermont asked its vendors for their input

De novo: Bank of Burlington in South Burlington, Vermont

Set to open in August 2022

Bank of Burlington, currently in organization, took an unusual route to settling on a core provider.

Like other de novos on this list, it wanted to handpick its technology providers. Bank of Burlington’s focus will be commercial lending in Chittenden County and the surrounding areas (it will take consumer and commercial deposits as well) — a county that vice president Victoria Bronner said has a “thriving” business community, even though most people outside of Vermont think of Burlington as the hub. In-person banking is limited to a single brick-and-mortar “financial center” that will function as office space and a retail location, although lenders will also visit businesses in person.

“We decided the best approach is to go with impressive technology companies and work our way backwards,” said Bronner.

The team asked nCino, their pick for loan origination, who it would choose if it could decide on Bank of Burlington’s core provider. The answer was Jack Henry, because of its open API system and ease of integration. Q2, the bank’s choice for customer-facing online banking and treasury management, echoed the same sentiment.

“My sense is that many banks do it the opposite way — they get a core provider and buy its complete product set, while some buy ancillary products and plug them in,” said Geoffrey Hesslink, CEO of Bank of Burlington. “nCino and Q2 will make the business and customer service great, and we need that to work well with the core provider.”

Bronner agrees.

“A lot of banks take the whole package because it’s easier to integrate and is so much more cost-effective,” she said. “The people behind this bank said, we want a superior product and we will spend the money to get the best in class."

An SMB-focused bank aiming to remove bias from lending decisions

De novo: BetaBank in Chicago

Set to open in early 2023

The digitally native BetaBank is using technology to solve for the disparities in how much capital certain businesses receive.

“I believe the problem of bias in lending impacts people across the board, no matter their ethnicity, [but] most acutely felt among women- and minority-owned businesses.” said Seke Ballard, CEO of Beta Financial Services and founder of BetaBank.

At the heart of the bank’s solution for small businesses is a proprietary algorithm. Ballard and his team filed a Freedom of Information Act with the Small Business Administration to request records on every loan it backed between 2000 and 2016. They used that data to build a model that determined which factors predict the likelihood that a business will successfully service a loan or default. Then they developed a probability score to represent the probability of default.

Google Cloud is the cloud infrastructure on which BetaBank runs, but that wasn’t always the plan.

When Ballard started forming the bank in the first quarter of 2020, he chose Amazon Web Services as BetaBank’s cloud provider. In May of 2021, he received a note on LinkedIn from a Google representative who had watched an interview Ballard gave about his algorithm and ambitions for the bank, and wanted to know how Google could help.

“They rolled out the red carpet,” he said. “Google was attracted to our algorithm’s ability to assess the risk of default while avoiding the sorts of factors that typically bias loan decisioning like gender or ethnicity or zip code.”

Deloitte is BetaBank’s systems integrator. The de novo zeroed in on Backbase for an online account opening that would be fast and efficient. Ballard wouldn’t name the bank’s core provider, but he refers to it as a “headless core” that is flexible about which products the bank deploys.