When the term “superregionals” was first coined, it struck fear into the hearts of community financial institutions and even among some larger banks that had to go up against these aggressive multi-regional players. Now even the Comptroller of the Currency is among those worried about them.
Not about their solvency, but about their competitive position in a fast-changing banking world where even the largest superregional is dwarfed by Chase, Bank of America, Citibank and Wells Fargo while also facing a raft of fintech competitors.
KeyBank is one of about eight institutions for whom the superregional label still fits. At $171 billion in assets, it is the 18th largest bank in the U.S. Its 1,077 branches are located primarily in the Northeast/Midwest and the Pacific Northwest plus Utah and Colorado. That branch network is shrinking, however. Already it’s down from a peak of about 1,600 in 2016-17 following its acquisition of First Niagara Bank. With more trims being planned.
KeyBank falls within the category of banks considered by some to be too large to have the local connections of community institutions and yet too small to keep up with the megabanks. How is this large banking institution changing to remain competitive in an era dominated so much by digital technology?
The Financial Brand interviewed Jamie Warder, EVP, Head of Digital Banking, and a member of KeyCorp’s executive leadership team. He also runs KeyBank’s national digital lending business, Laurel Road. Warder came to KeyBank in 2017 following stints at USAA — where he was President of USAA Bank — Capital One and PNC Bank. He also spent three years at McKinsey and was a Captain in the U.S. Army.
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Who’s the Toughest Competition (for Now)?
With experience at three quite different institutions prior to joining Key, Warder believes that each of them — and really the entire banking industry — faces the same two main challenges: 1. Customers who want to bank, shop and pay differently than was the case only a few years ago; 2. Dealing with a growing mix of traditional and new competitors including fintechs who, per Warder, are “constantly forcing us to innovate.”
Warder likes that challenge: “It’s fun to watch how the various institutions are choosing to compete as the industry has become much more competitive.”
Fun or not, however, he knows what he’s up against. Asked who he regards as the toughest competition he faces in his areas of responsibility, he says traditional financial institutions, fintechs and “uber techs” (his term for Google, Amazon, Apple et al), are all “very healthy” competitors.
But one type of competitor stands out.
“We know from industry data that many switchers are choosing the largest banks,” Warder explains. “They’re choosing them because of their products and capabilities and their physical networks. So, if I were to say who is our biggest competition, it’s the ‘trillionaire banks’.
Warder doesn’t dismiss the significance of Apple’s growing position in the credit card business, Amazon’s presence in small business lending or Google’s entry into checking, but simply observes that they’re all relatively new to the game. Down the road a bit may be a very different story, however. “What’s scary about them is that their customer bases are numbered in the billions in some cases,” says Warder.
Further, he points out a key difference with big-tech competitors.
“Apple, Amazon and Google consider banking a value-add as opposed to a core part of their business, which effectively changes the competitive paradigm,” Warder maintains. ‘Their ability to offer banking products as loss leaders to sell other products or services they offer, or to collect data, puts traditional institutions in a tough spot.”
Warder says he can see that happening with payments, credit cards and other areas of lending and savings. “In each of those areas if the banking product is just an add-on, not a fundamental source of revenue, it changes the competitive landscape of banking,” Warder states.
Can a Big Regional Compete in the New Banking Arena?
Given the scenario Warder just described perhaps Brian Brooks, Acting Comptroller of the Currency, was on the money when he told The Financial Brand that banks between roughly $150 billion and $600 billion worry him because they’re neither large enough to have scale nor small enough to have the local loyalty of community institutions.
Warder doesn’t see it that way, at least not for KeyBank. He believes big regionals enjoy some advantages.
Take the matter of scale. He agrees that banking is a scale industry, particularly in regard to technology marketing and brand. However, he believes regionals and superregionals have that scale. At the same time, they often do not have the same complexity of markets, products and client types as the largest banks do. “Those regionals that can find the right balance between scale and complexity actually create an advantage over both the larger and smaller institutions,” he maintains.
That said, he agrees that regionals and superregionals are going to have to continue to find differentiated business strategies to stand out from their competitors. But he doesn’t think the situation is as desperate as others sometimes describe it.
One Way KeyBank Sets Itself Apart
KeyBank may be considered a “traditional” financial institution, but the bank has been moving away from the all-things-to-all people approach for some time by building niche specialties. Its growing healthcare expertise is one example as is its more recent foray into national digital lending through the acquisition of the fintech Laurel Road, initially a student loan refinancing specialist started out of a community bank shell. At the same time, the bank is also walking away from businesses that are no longer a good strategic fit. It is exiting the indirect auto lending business, for example.
The healthcare and Laurel Road endeavors have become quite symbiotic for Key. As an outgrowth of student loan refinancing, Laurel Road has forged partnerships with all of the largest healthcare associations, Warder states. “We do thousands of doctor student loan refinances digitally end-to-end.” The platform also digitally originates mortgages for doctors and dentists, according to Warder. Laurel Road also provides personal lending digitally nationwide, and Warder states that they will continue to look for opportunities — both lending and non-lending — to better serve the healthcare community.
“We are really trying to put a stake in the ground around healthcare,” says Warder.
How the Bank Grapples with Digital Impact on Branching
During the Barclays Global Financial Services Conference in September 2020, KeyCorp CEO Chris Gorman told analysts that the pandemic has accelerated the institution’s digital transformation by five years
The CEO also indicated that further branch closures were being planned, and that recent events had also impacted the nature of what branches would be used for. Warder filled in some more of the picture during his interview with The Financial Brand.
In its approach to consumer banking, KeyBank has strongly embraced the digital+human approach, says Warder. “We believe that when we mix our digital capabilities with our terrific sales teams that actually is a great formula for the future.” Going further, he states: “We fundamentally believe this will not become a digital-only industry anytime soon.”
That has led the bank to give consumers and other clients the option to self-serve, Warder continues, “but at the same time, we want to give them the option to be able to have this hybrid approach where they can do things with a human — with our sales and service teams. And we’re giving our teams enhanced digital capabilities to do that.”
One example is the bank’s financial wellness reviews. These are normally done in person at a branch, but now occur remotely with the banker on video when in-branch isn’t possible or desired. An important element of these reviews is that the bankers are able to use artificial intelligence tools to facilitate the conversation and make recommendations, according to Warder. He notes that the bank’s acquisition of the financial management app HelloWallet in 2017 gave them additional capabilities in this area.
One final point about branches: “All across the demographic spectrum, we continue to see our clients use both digital and human channels,” Warder states. Backing this up, he says that 33% of the bank’s clients, in both the “less than 25” and the “25-35” age brackets, use the branch. Hence the bank’s emphasis on an evolving digital+human strategy.