How do you scale the feel of community banking and still provide consumers and small businesses with the leading edge digital services and personalization they want even if they haven’t spoken with one of your representatives in a couple of years?
This is a key challenge for many community financial institutions as they grow. is one of them. Headquartered in Little Rock, Ark., the bank operates 243 deposit-gathering branches and 11 loan production offices in ten states.
When a young attorney, George Gleason, bought the bank in 1979 it had $28 million in total assets. Through a string of government-assisted and private acquisitions, as well as organic growth, Gleason grew what had been called Bank of the Ozarks to $23 billion in assets. In 2018, the name changed, but not the desire to remain a community bank at heart. But Gleason recognized the urgency of also operating a modern financial institution.
One of the key players to whom Gleason looks to meet that challenge is Marcio deOliveira, President at , the parent company’s innovation laboratory. Based in St. Petersburg, Fla., the lab was acquired as part of the 2016 acquisition of C1 Financial. deOliveira reports directly to Gleason, Chairman and CEO, and works closely with both top management and the bank’s board to prioritize the challenges that he and his team take on.
“By leveraging data to understand more about how to better serve our customers and provide insights to our bankers, then Bank OZK can scale community banking.”
“A key objective given to Labs by management is how to use technology to scale community banking — to do something we were already good at, at greater volume,” says deOliveira. The means to that objective, in brief, is data.
“We realized that by leveraging data to understand more about how to better serve our customers and provide insights to our bankers, then Bank OZK can scale community banking,” deOliveira states.
Innovation is a Necessity, Not an Option
To those bankers and credit union executives who are used to projects that start with a bang and end with definite closure, this kind of challenge will seem foreign. For deOliveira, it’s a neverending story.
“Scaling community banking, delivering applications to our bankers that provide them with insights, evaluating and iterating on those, learning from mistakes,” that’s an ongoing process, says deOliveira.
“There is a gap between what consumers and business customers want from banks and what banks are offering,” says deOliveira. All banks and credit unions face this pressure. While other industry innovation labs and similar efforts could be seen as competitors, deOliveira thinks they are all helping to push traditional financial providers faster down a road on which they absolutely must travel.
“It’s what people are expecting from us,” he explains. “Most other industries, both because of competition and lack of many constraints, have had years of optimization and they now give people what they want. That has not happened yet in the financial services industry.”
He adds that it’s not only banking consumers who are afflicted. Anyone who has gone through the process of applying for a Small Business Administration loan knows about pain points.
“People are looking for an ongoing relationship, with banks being able to offer continuously improving value in addition to traditional commodity products and decent rates,” says deOliveira.
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Practical Role of Innovation Lab: ‘We Ship Products’
deOliveira likes to refer to Labs as a fintech “think tank.” But there is a stress on deliverables, rather than research for its own sake. He tries to maintain a start-up state of mind among the lab staff. In fact, part of his role is to periodically go to the board to make the case for additional funding for Labs. It’s similar to the way fintech startup chiefs periodically hit the venture capitalist circuit, to raise fresh rounds of funding.
To better appreciate the scope involved here, consider that deOliveira’s lab has 39 budgeted positions, chiefly comprising product managers and software engineers.
deOliveira’s people are divided into functional and project-oriented teams. There’s a machine-learning team and a product growth team, for example.
The technologist likes to keep things tight.
“We have a ‘two-pizza’ rule here, which is similar to something they do at Amazon,” says deOliveira. “We rely on small teams, with one product manager and two or three engineers, typically. The idea is that if the team goes out for beer and pizza, if they had to order more than two pies you would know that the team had grown too large.”
Labs has what deOliveira describes as an “engineering-centric” culture, where engineers and product managers have a say in the direction of a new product, feature, or function. And he explains that Labs tends to hire people who are both technologists and entrepreneurial types.
“We look for people who have worked for other start-ups — the kind of people who, if you told them that what they have proposed will be in production three years from now, would quit the next day,” says deOliveira. “Some of our team members came from larger innovation lab environments, where they were working on only a small piece of something bigger. They actually want to see their ideas in action.”
Compared to many of U.S.-based banking innovation labs, “we are crazy small,” says deOliveira. There isn’t any luxury of getting embedded in some project that doesn’t look like it has a definite payoff.
“There’s a lot of research and development going on out there and a lot of prototyping,” says deOliveira. “I guess there are benefits to that. But our motto is different here: ‘We ship products.’ That’s how we measure our success.”
deOliveira explains that while the lab’s approaches are engineering-centric and the staff’s location separate from Bank OZK’s headquarters, there is close collaboration on lab priorities and on development of the features to meet those priorities. This is not a tech ivory tower. Bank OZK officials, such as Chief Technology Officer Jeff Starke, work with teams at the lab for extended periods, on site. Functions such as Marketing also visit the innovation labs regularly.
“It’s pretty cool to be able to come down here to contribute, share ideas, push back, and learn,” says Philip Pearlman, Director of Marketing for Bank OZK.
“Management usually comes to us with a strategic initiative where it might not have an off-the-shelf tool to execute that strategy,” deOliveira explains. “So management provides the strategic direction, and the ideas on execution come from our team.” This ongoing collaboration can help speed development, ultimately, says deOliveira, because it eliminates “gates” that a new idea ordinarily would have to pass through. End users have been close to the ongoing work.
In 2018 Labs built a specialized online account opening system for the commercial real estate team. Labs also launched a very user friendly online deposit account enrollment system.
“When we build prototypes, they are initially based on data. They are minimal but viable products that come after we use the data to develop a thesis,” says deOliveira. “We are not spending 12 to 24 months on development before a tryout. We work in two-week ‘sprint cycles’ and try to pass or fail different features and capabilities as early in the process as possible.”
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Building a Dynamic Banking Environment
The rough split for Labs resources runs like this, according to a Bank OZK investor presentation:
- 60% go to digital channels and emerging technologies.
- 20% goes to the Real Estate Specialties Group, which is Bank OZK’s largest growth source and where CRE lives.
- 20% goes to process transformation and efficiency efforts, to untether bankers from branches.
The Labs staff focuses as much as possible on building platforms that can support new and additional initiatives as bankers grow used to them. A key element is Labs’ “banking as a service platform” called Bank IQ. This is a layer built to integrate with third-party core systems that provides paths for deliverables for different banking groups within Bank OZK. These include a mix of traditional community banking lines as well as specialized credit areas like commercial real estate and RV and marine financing.
Bank OZK’s core processing is built on Fiserv’s Premiere core. “What we’re often building are products and features that cannot be purchased off the shelf,” says deOliveira. This gives Bank OZK an advantage in the short term. In the mid-term future, if and as mainstream vendors add such functionality, it’s conceivable the bank would retire its own add ons in favor of those newly made by the core vendor.
“In the meantime,” says deOliveira, “we were three to five years ahead of any other community bank, because our development team can build such capabilities faster than a core provider can.”
How to Know Innovation is on the Right Track
There’s a certain beauty to the “managed chaos” that can come out of a huge labs enterprise like the old Bell Labs, deOliveira says, but he takes pride in having been a key part of developing a fintech-like innovation environment within a highly regulated industry that is producing useful work as needed.
There was a lot of skepticism back in 2010-12 when Labs was being formed about the viability and sustainability of building a think tank inside a bank, says deOliveira. He’s pleased that each time bank examiners visit OZK Labs, they exhibit greater confidence in the organization’s balance between innovation and safety and soundness.
“It defines a new baseline that allows us to do more,” says deOliveira.
OZK Labs has five patents approved, and others in the hopper. The romantic idea of inventing the next iPhone is just that. Most innovation proceeds in small steps.
It’s neat to have teammate names and your own on patents, deOliveira states, “but how we define success here at Labs is getting products into the hands of our users as fast as we possibly can, just like in the startup world.”