Ray Davis has already seemingly done it all, at least when it comes to banking.
He grew Umpqua Bank from a small community bank to a $26 billion institution, transformed its branches into "stores" with free coffee, Wi-Fi and hot yoga classes, and formed a Silicon Valley tech startup subsidiary called Pivotus Ventures that was sold in October.
Davis retired nearly a year ago, but he has been hard at work on his next act — serving as an adviser to what might be the next incarnation of Pivotus, technology that can be used to forge human bonds between customers and bankers through digital channels. The software, under the aegis of a fintech startup called Agent IQ, lets customers select a “personal banker” with whom they can text chat all their questions, just as Pivotus’ Engage software did. (The customer-facing portion was originally named BFF and later renamed Go-To.)
The reason Davis is focused on the idea is simple. He believes banks have to do something like this to survive.
From digital branches to human digital
During his final years at Umpqua, Davis felt that if he didn’t do something different within 10 years, the bank would be gone because it would no longer be able to compete.
Customers were becoming more self-serving and not coming to branches. Banking was becoming a commodity that consumers would buy for the lowest price. And competition was happening in digital channels, where Umpqua had to compete with large banks like JPMorgan Chase that have $10 billion tech budgets.
“When we transformed Umpqua back in the '90s through the store network, it was very successful and it created a competitive gap for Umpqua for a long time,” Davis said. “But competitive gaps over time shrink, they grow old, people copy them, they lose some of their spunk. The name of the game for me was, how do we recreate the competitive gap and sustain the relevance of our company in the future.”
The next competitive edge, he realized, would have to come through technology.
“The one thing we did not have in the '90s in banking was technology. Technology was sort of blah,” Davis said. “The one big change in today’s environment is the technology revolution. Recreating that competitive gap to me meant taking technology and using it to enhance the customer experience in light of the changes that customer preferences have been going through rapidly.”
He set up Pivotus to explore ways of transforming Umpqua to become relevant in the future. The technology Pivotus came up with, which
According to Davis, Agent IQ is Pivotus on steroids. (Davis is not on Agent IQ’s payroll but acts as an adviser to it. He also joined USAA’s board of directors a few months ago. “I keep pretty busy,” he said.)
“It’s very good technology and does all the things and more that Pivotus can do,” Davis said. “The question is, will bankers use it to transform their institutions? That’s the $64,000 question. It’s a hard one.”
Soren Bested, chief revenue officer of Agent IQ and former chief operations officer of Pivotus, gave me a demo of the technology. It looks a lot like Go-To. Consumers can thumb through profiles of bank staff that feature their photos and a mix of professional and personal tidbits, such as a fondness for cats. There’s a virtual assistant built in, so consumers can ask simple questions, such as how to order checks, and get automated answers. There are built-in workflows for handling requests like replacing a lost credit card.
The software will also automatically route the chat to a person if the AI engine senses the customer needs more help. The word “confused” is a trigger, for instance. Customers can also ask to talk to a banker at any time. The banker will receive the transcript of the conversation up to that point. The banker can also draw another banker into the chat, similar to Go-To.
Agent IQ can be used to let AI or a banker guide a new customer through online onboarding. Because of the typically low success rate of online account opening, investing human effort in the process can be worthwhile, Bested noted.
An admin console lets managers see what’s happening — how many consumers are being served, which agents are working, how many conversations are unresolved, and so forth.
According to Bested, what’s transformational about this is that it can change the way branches work.
“If a bank has 230 branches with 1,100 people sitting in those branches, those people are underutilized,” Bested said. “We can now Uberize our warehouse. We can start managing our customer base from the branch. The branches become fulfillment centers rather than places to withdraw money.”
In a small town, instead of having a branch, a bank could have one local person working from home who engages with people in the community using the platform. Davis considers its artificial intelligence a key strength for Agent IQ's software, because it can easily understand simple questions in an automated way.
“If you’re looking for pure efficiencies, AI can help dramatically,” he said.
With the use of customer-facing AI, there is always the risk of an epic fail — that a customer could be given a horribly wrong answer that has negative consequences for the bank.
“When it comes to AI, I’m not going to turn it on and let it do everything,” Davis said. “That’s too much risk. But I am going to turn it on and say these are simple, everyday requests that are, what’s my balance, how do I get more checks.”
For anything more complicated, a human takes over.
“There has to be a human element to it,” Davis said. “I’m totally anti these fully automated, no-human-available programs. I think they’re terrible.”
Another risk of customer-facing AI, as well as any AI used in a bank, is how regulators will react. Regulators have sent mixed messages about the use of the technology, publicly encouraging banks to try it, but behind the scenes questioning and sometimes kiboshing it.
“You’re going to have to take regulators along with for the ride,” Davis said to this. “They know it’s coming. Regulators get it.”
What happened to Pivotus
Pivotus was short-lived. The unit launched in December 2015 and was sold to Kony three years later.
"From a cultural point of view, it was difficult for Umpqua at that time to get their arms around dealing with these technology guys from Silicon Valley,” Davis said. “The technology product was good, they’re using it like crazy. I think the test for Umpqua was, could they use it to transform the bank?”
At the time, Eve Callahan, executive vice president at Umpqua, described the sale of Pivotus as a shift from in-house development to partnering with a software company.
“As the pace of technological change continues to pick up, Umpqua is evolving our approach to innovation and building out a network of strategic partners that will help us continue advancing our human digital strategy across all segments,” she said. “At the same time, with the Engage platform successfully launched, now was an important moment to find a strategic partner with the capital and technical expertise to continue building out its capabilities.”
A former Pivotus employee said Ray Davis’ successor, Cort O’Haver, wanted Pivotus to focus on Umpqua and wanted to take the subsidiary in a different direction.
Industry analysts welcome the sale to Kony.
“This is an unexpurgated success,” said Ron Shevlin, director of research at Cornerstone Advisors. “A bank set out to innovate and create new capabilities, and succeeded at doing that, but discovered that the best home for it to grow and flourish was a technology vendor. As an added benefit, the vendor the bank sold it to recognizes the strategic importance of the product, and has already integrated key personnel from Pivotus into its organization.”
If he had to do it over again, Davis said he would have set up Pivotus more quickly.
“One thing we did right was we created Pivotus as a separate entity out of the bank,” Davis said. “That was a smart thing to do because we didn’t have to queue up the bureaucracy of a $26 billion bank. We let the technologists go to town in Silicon Valley and Palo Alto. That was good.”
Long-term s
urvival
Banks could use technology like Agent IQ’s or the Engage platform to reduce the number of staff in each branch, improve the customer experience, let customers talk to experts, and position themselves for survival, Davis said.
“If you want to figure out how to transform your bank, imagine a room full of dominoes set up to topple over if you knock the first one over,” Davis said. “To be successful you’ve got to hit the first domino and the first domino to me is, tell me how you want your branches to operate. It’s very possible that walking into a branch will be like walking up to a concierge of a hotel. I come in and say I need help, they get me an expert on the phone. There are ways to run branches like that.”
If banks don’t adopt something like this, they may be doomed, he suggested.
“The question I would ask if I were you would be, Mr. Banker, if you don’t do anything, what’s your risk? You go out of business,” Davis said. “And it’s not because you failed financially. It’s because your customers don’t want to do this anymore.”
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