How Valley National’s New ‘Foundry’ Merges Tech Innovation with Business Development
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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N.J.-based Valley National Bank recently launched Valley Foundry, which it describes as a “new technology and innovation capability.” At one time, Valley Foundry might have been dubbed an “innovation lab.” But neither Russ Barrett, chief operating officer, nor Michael Rappaport, Valley Foundry’s leader, like the term.
“When you think about the cachet of ‘innovation labs,’ they tend to be more places where employees get coffee and just talk about things,” says Barrett. “We explicitly don’t want this to be about talking, but instead, really doing.”
Reality check: Early on, some bank innovation functions suffered from “innovation theater” — showplaces set up with gizmos and gadgets to convince the outside world, and the board, that management was taking innovative technologies seriously.
Why this is different: Valley Bank is structuring the Foundry in a multifunctional way, with scope ranging from accelerating adoption of bank-ready fintech technology to supporting the bank’s business lines that serve and invest in the tech sector.
“Our focus is on innovation execution, not innovation stimulation,” Barrett adds.
Need to Know:
- New Jersey-based regional Valley National Bank, at $66 billion in assets, has extensive ties to fintech and other technologies, including tech banking and venture capital activity.
- Valley Foundry, the bank’s new innovation center, will serve as a hub not only for the bank’s own use of technology, but for its growing involvement in financing tech.
- The bank’s own use of AI has been proactive and focused on being a “force multiplier,” according to COO Russ Barrett. The bank employs a relationship bank strategy and management leans into the human element aided by AI.
Timely Innovation Versus Futile Innovation
Barrett says there’s a critical difference between technology in banking and other consumer-oriented technologies. He says it is very easy to get excited about financial tech and to forget that its use and appeal have to be anchored in trust.
Why banking is different. “It’s one thing to create consumer technology and push the envelope, telling customers what they want before they know it themselves,” says Barrett. “But it’s very different when you’re talking about money.”
One of Valley Foundry’s roles will be uncovering what customers really want, and making sure the bank’s innovation efforts match that.
Key insight: “We don’t want to be so far ahead that we’re basically spending our time on things that they’re not asking for — and taking our focus off the things that they are,” says Barrett.
A good example: Talk about stablecoins and tokenized deposits.
“The technology is probably leading the utility,” for now, says Barrett. He says the bank has to avoid “moving for the sake of moving.”
Read more: The Innovation Gap Forcing Banks into Fintech M&A
A Key Mission Behind Creation of The Foundry
Valley Bank’s launch comes at a time of tectonic change for bank technology. The number of fintechs has exploded and more keep coming as the challenges banks face keep growing. Banks like Valley typically deal with hundreds of vendors and their offerings increasingly serve niche needs, according to Barrett. Valley is also cognizant of how the current chartering rush is ushering more fintechs into banking directly, and how that will change the industry.
At the same time, Barrett says, institutions face a more-complicated “build versus buy” decision. More software may be home-grown, he says, “as technology becomes more democratized through AI.”
“It’s a very complex ecosystem,” Barrett says.
Why this matters: This environment creates a challenge both for banks and for tech vendors.
For vendors, the bar is rising higher, says Barrett. He says they have to produce solutions that really create added value beyond what banks like Valley can build themselves.
For banks, third-party offerings must be evaluated and either adopted, adapted or supplanted. Adaptation takes work on the bank’s part, bringing along a vendor whose initial take may not be bank-ready, according to Barrett.
Read more: Building an AI Team Means Hiring Where the Talent Is, Not Where Your Bank Is
How Valley Foundry Will Attack Issues
To head the Foundry, Rappaport came to the bank from Capco, where as a managing principal he specialized in banking and payments in the New York City market. Previously he worked at HSBC in innovation and strategy, among other areas.
Rappaport’s role thus far has been assembling teams drawn both internally and externally for evaluating technology needs and the available solution in key areas.
Rappaport explains that the shape of his organization will evolve according to subject matter and need. As the course changes from time to time, some new people from inside the bank or outside may be brought in. Team members seconded from the bank may go back to their previous roles.
Already, as the team has been taking form, cybersecurity experts have been brought into the Foundry, as have some members of the AI team that functions under Barrett.
Barrett explains that a major concern for Valley is fraud and this will be one of Valley Foundry’s initial focuses. Others, beyond AI, include data and analytics, process improvement, and operational efficiency.
“We need to find better ways to protect our customers, to make them feel very comfortable that their money is going to be secure,” says Barrett, “and that the way we’re going to be delivering those solutions won’t create friction to the extent that it’s no longer convenient to do business with our bank.”
Read more: What AI Is Revealing About Your Bank’s Transformation
Valley Foundry as Internal and External Advisor
Valley’s effort is intended to help bring the products of start-ups and other tech providers up to bank-grade performance, but the Foundry’s reach is meant to go beyond technology for the bank’s own needs.
Key fact: Besides being a technologically advanced bank, Valley has additional interests in understanding tech and tech industries.
Some of this arises from Valley’s 2021 acquisition of the U.S. wing of Israel’s Bank Leumi. The structure of the deal left the parent company with the largest share of Valley’s stock. Bank Leumi is a noted tech bank and Israel is a major fintech hub. Bank Leumi and Valley Bank both own shares of The Garage, a venture capital firm based in Tel Aviv-Yafo. (Barrett was EVP and CIO at Bank Leumi USA prior to shifting to Valley. Two of the bank’s directors are current or former CIOs, with Ally and Bank Leumi.)
Valley Ventures, the bank’s venture capital arm, has investments in 16 young tech firms. Valley also offers tech banking, a niche that Barrett says provides the bank with approximately $4 billion in deposits. These customers include some of the largest venture capital firms as well as startups in the U.S. and those coming to the U.S. from Israel. The company also has a partner banking business, used to provide embedded banking services for fintech firms.
“We’re a $66 billion-assets bank and there’s no one our size or close to us that has this portfolio of tech assets,” says Barrett.
“Now,” he continues, “what we felt was the missing piece was internal structure and organization from which we can bring all of that together in order to maximize our leverage.”
Valley Foundry’s role here is advice, coordination and business intelligence.
With its combination of priorities, Rappaport says, it will be essential that his operation doesn’t lose sight of its roles. He says that can easily happen with innovation functions.
“It’s easy to lose track,” says Rappaport. “You have to stay very disciplined.”
Read next: Retail Bankers Are Adopting AI for All the Wrong Reasons
