Moving a bank forward with digital transformation sometimes requires working backward, says Laura Merling, Arvest Bank’s chief transformation and operations officer.
That’s not as counterintuitive as it sounds.
Her point is that it can be helpful to decide where a bank wants to end up, and then figure out what must be put in place to arrive there.
Merling, who had been Google Cloud’s chief transformation officer before jumping to Arvest in early 2022, thinks it makes sense for banks in general and Arvest in particular.
“Sometimes innovation simply means ‘We want to play with the new technology and see how it works,'” says Merling. “I could say, ‘I want to see how biometrics fits into our future.’ That’s different from saying, ‘I want to serve this customer, so what are their pain points?’ It’s a very different approach.”
Merling prefers to execute on practical applications. She joined Arvest intent on making changes that matter.
Digital Transformation That Touches Every Business Line
Merling’s work is touching on all aspects of the $26 billion-asset bank, far beyond the retail banking area where digital transformation efforts often focus. She is overseeing tech initiatives related to agriculture lending, commercial banking and more.
Though this is her first banking role, she has years of experience in other fields that are also highly regulated. Before Google, she had worked in aerospace, automotive and telecommunications.
“I’ve done innovation programs before, and you’ve got to always make sure that they’re tied back to the business,” Merling says. “So we’re trying to be sure anything that we do with innovation ties back to our transformation goals.”
Arvest has an innovation lab, but its projects are typically focused on specific problems that the bank needs solved to accomplish a bigger goal.
For Merling, digital transformation is really about the bigger picture and what Arvest wants to look like in the future. “It’s actually about business transformation, where we want to take the business,” she says.
Arvest’s transformation process involves not only technology, but a hard look at the business lines where investment can have the best payoff. That entails understanding audiences the bank serves or wants to serve, their needs, new products and processes the bank wants to implement, and, finally, how the bank will use technology to accomplish that.
Once Arvest has a vision for a particular business line, then technology can be used to support that change and foster growth. “Simply nurturing the technology doesn’t help us make the forward leap, right?” says Merling.
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Arvest Views Ag Banking as an Innovation Priority
Retail banking transformation is table stakes. Arvest’s intent is a more thorough overhaul.
When asked for an example of how Arvest’s transformation process works, Merling picked an atypical area: agricultural banking.
Arvest, which is based in Fayetteville, Ark., is one of the largest ag lenders in the United States and the goal is to expand further. So the first task is determining how to solve headaches that ag clients encounter in their business, and then enabling Arvest’s ag operation to provide this solution.
The bank serves many types of agriculture, Merling says, citing the poultry farms that tend to be concentrated in northwestern Arkansas as an example. “Cow-calf” operations — which produce young cattle for sale — as well as farms growing corn and soybeans are common throughout the four states Arvest serves, she adds. (Besides Arkansas, the bank’s footprint includes Kansas, Missouri and Oklahoma.)
Arvest has been scrutinizing such operations to think about how to serve them beyond providing a crop loan or an equipment loan. This has generated ideas for how to create new services for the ag sector. And that’s where digital transformation comes in. “Technology is the means to the end, the foundation for change,” Merling explains.
To illustrate how the future is full of as yet unexplored possibilities, she shares an idea from a conference.
Some members of the Arvest team attended the Consumer Electronics Show in early 2023 and Merling says one of the highlights was a major presentation by John Deere, the farming equipment manufacturer. Deere said its technology now enables herbicide sprayers to pinpoint a single weed, rather than dousing everything in a field.
Merling says this got her thinking about the data Deere’s machinery needs to perform that function and how a bank might capture and apply this data to better serve farmers.
But it’s not all futuristic fun. Her work entails a lot of basic improvements too.
She cites an example from commercial banking, another area that Merling’s team will work to improve through technology. Business owners and managers shouldn’t have to send off paper copies of tax records to their banks, Merling says. “There are tons of services that have digitized all of that,” she says. “It’s nothing new or innovative, but it solves a problem for a process flow in lending.”
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How the Digital Transformation Effort Is Like an Iceberg
One common pitfall of digital transformation is known as “innovation theater” — showing off innovative toys and dramatic applications that may have little or nothing to do with actual banking services for customers. It all looks very cool, and that’s as far as it ever goes — good optics.
Arvest gives the impression it is doing the opposite. Merling hasn’t exactly been engaged in “stealth innovation.” But the progress, while meaningful, is unlikely to be apparent to most customers for an extended period of time. It’s like an iceberg, in that most of what’s going on is below the surface, at least initially. In time, more of the transformation “iceberg” will become visible.
Merling estimates that only 10% of the work accomplished so far is visible to customers. Much more was done behind the scenes to make products and processes function more smoothly. Going forward, Merling says more change will be visible, in stages. In 2023 she expects a 20% visible/80% invisible split, in 2024 a 40%/60% split and so on.
“It’s a graduated model. You start by building a lot of foundation, but you want to start having an immediate customer impact so the bank feels the value of the investment,” she says.
This is all part of the five-year plan the bank solidified shortly after Merling arrived. One initiative in the plan is to develop the capability to have a single view of each customer.
“That takes a lot of work because most banks’ systems are so siloed, which leads to a siloed experience to products, which creates a siloed experience for customers,” Merling says, adding that Arvest’s customers should start to feel a difference in the experience towards the end of 2023, then moreso in 2024.
But the overall transformation has many moving parts and, by design, it incorporates 90-day sprints with some products to produce “quick wins,” Merling said in a separate interview on the “Banking Transformed” podcast.
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Real-Time Payments? ‘Sometimes You Don’t Want to Be on the Leading Edge’
The five-year plan has flexibility built in. “Things change over time, as you test things and try stuff,” Merling says.
“Things change over time, as you test things and try stuff.”
— Laura Merling, Arvest
Developments in the banking industry have the potential to prompt some changes too. “You always want to be sure you’re watching things, but you don’t want to be constantly changing the technology stack, right? You have to consider whether something is too early.”
Real-time payments, including FedNow, which will begin phasing in as of July 2023, is an example of the latter. “It’s not that I don’t believe in real-time payments — I do,” says Merling. “But you have to think about the impact of a switch to real-time payments on a small business.”
She says many still rely on the cash-flow advantage of a delay in a check or automated clearinghouse transaction. “It’s great that the new technology is here, but there’s a whole lot of change that you have to get a whole lot of small businesses comfortable with. Sometimes you don’t want to be on the leading edge.”
Nonetheless, you still need to be ready for it and able to accommodate it, she says. Arvest must design its infrastructure so that real-time payments and other technologies can be added when appropriate.
But nothing is one and done. Ongoing technology assessments are part of the process.
“You always have surprises,” Merling says.