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Penny Crosman: (
Welcome to the American Banker podcast, I'm Penny Crosman. What are the best ways and places for banks to invest in technology and fintech partnerships? We're here today with Frank Sorrentino, CEO of ConnectOne, an $8 billion-asset community bank based in Englewood Cliffs, New Jersey. He's going to share with us some of the things he's been doing at his bank and how he looks at tech investment and FinTech partnerships. So welcome Frank.
Frank Sorrentino: (
Thank you, Penny. Great to be with you again.
Penny Crosman: (
Thank you. So in your latest earnings call, you said that you've built a strong technological foundation and you're well positioned to take advantage of the competitive fintech environment. What were some of the things you had in mind there? What are some of the elements of that technological foundation that you've built?
Frank Sorrentino: (
Well, Penny, you know, ConnectOne Bank has always thought of itself as a technological leader. And I don't mean that in maybe the same way that some banks think about it. We we've always thought about everything we do through the lens of our client and reducing friction in how our client is able to access our bank and our services and the things that they they need in order to make their businesses more successful. And so whether it's, we can get them an answer faster, or we have better products and services or we're available more, all those things reduce friction in the marketplace and have created a culture both inside of ConnectOne, but also this awareness in the market that ConnectOne is really here for the client's benefit. So this reduction of friction has been something that's been a part of ConnectOne since the beginning. We were one of the first banks that went completely into the cloud.
Frank Sorrentino: (
When the COVID environment hit, we virtually had no downtime, whatsoever. We were able to really engage with our clients, with the rest of our employees, to be able to provide our clients services, even when the rest of the world was shutting down, because of the way we thought about how we developed our business. On the other side of that, there are all these newer products and services that are being developed in the fintech space that are taking particular market niches and really going very deep, not so wide, but very deep into particular areas of client demands and client needs. And we took a dive into that couple of years ago with the purchase of our Boefly unit, where Boefly is a marketplace for franchisors and franchisees, and there's a lending opportunity there that's created for these franchisee opportunities. So again, a very, very focused segment of the marketplace that we're developing some expertise around. So when you look at the business today in banking, you have to think about the broader, more traditional banking client, but you also have to think about these various market niches that are being developed.
Penny Crosman: (
So, so just to press you on the original statement, you talked about building a strong technological foundation. Where's the difference between a strong technology foundation and a weak one?
Frank Sorrentino: (
Well, I think it comes down to what would your client say about their experience with your organization? If you have to go through all kinds of hoops and different methodologies to get something done, and you're forcing them to sign 72 pieces of documentation with wet signatures and forcing them to physically show up at your locations, I don't think you can make the claim that you have a technological background, if your staff can't function or operate without having to come into the office and be anywhere anytime, then I don't think you can answer the question either. So for us, it's been developing this backbone of being able to keep the company operating through pretty much any environment and providing a background for all of our employees and our clients to access us in any way at any time.
Frank Sorrentino: (
And so to me, that's what it's all about. And it's about having those products and services that are specifically tailored for a particular industry. You know, if you look at the way ConnectOne does construction lending, it's very different than the way many other organizations do it that only do it as a side business. We're very focused there. We have specific products and services that have been built into our infrastructure to allow for a better delivery of services. We work with companies like nCino and Built to be able to provide a high level of client engagement and service, so much so that those clients we'll generally pick ConnectOne to do their next transaction because of the way in which we do it. And so that's how we think about things. And we think about each one of the verticals that we're involved in.
Penny Crosman: (
So I think nCino has loan software that lets you handle loans online and Built, I believe, is a fintech that helps with construction loans. Is that correct?
Frank Sorrentino: (
So, yeah, Built is a product that streamlines the entire construction part of the program. So after the loan is approved, the ability for a contractor, a developer to request the next funding draw and how that whole process takes place. It's a very, very cumbersome process at many institutions. And typically borrowers complain because it takes a long time from the time they make the request to the time they actually get the funding. And that funding is critically important to keep a job site moving on time. And so we took the initiative very early on to just dramatically improve that whole process. So that funding piece comes sooner than what they would expect that most other organizations, Built has the technology to be able to standardize a lot of that process and be able to do it all in a real-time fashion, all with technology.
Frank Sorrentino: (
So there isn't a lot of paperwork going back and forth and signatures and documents being sent all over creation. It's all done on a common platform on our nCino platform or loan underwriting loan administration. The capture of client documents, the ability to approve loans through various layers of the organization is dramatically improved in a system that's available full-time real time on the cloud, on the Salesforce or force.com cloud out. And to us, that's been a dramatic improvement in our ability to service our clients, to be there when they want us to be there, close things on time, never miss a deadline. To me that's been incredibly important and our clients see it and they seek it out when they look for their next transaction.
Penny Crosman: (
You also said on your earnings call that you're going continue to make continued strategic investments in technology and talent acquisition. Can you share what some of your forthcoming strategic investments in technology might be?
Frank Sorrentino: (
Well, we talked a little bit about, what we're doing at Boefly and we've spent a fair amount of time, energy and financial investment in building out that platform to really take advantage of what I think is a market niche. That's exciting to us, and that's in the franchisor franchisee space and be able to both vertically and horizontally expand what we're thinking about there at Boefly. So certainly that's one area where we are definitely looking at building infrastructure, building muscularity and having capability. That's probably not commonplace in the market today. I think we're making some successes there and things are going quite well. We have a record number of franchisors that now access the platform. I think even our franchisee count is at near records, even before COVID, that are accessing the platform for service through the Boefly platform.
Frank Sorrentino: (
So we're pretty excited about all the various investments that we're putting into Boefly and what it is being constructed there. On the more traditional side of the bank, the technology and infrastructure improvements there go across a vast spectrum of what we do at ConnectOne from risk management to loan origination, to operations, to standardized products and services for our clients. We're looking at each one of these areas and making investments either directly or in conjunction with a particular partner, whether it's a fintech partner or one of the larger technology infrastructure players, to be able to come up with a better way to service our clients. At the end of the day, we want our clients to feel like they're in a very different environment when they work with ConnectOne. And I think we're able to accomplish that in a number of areas. We just described the whole construction area. There are many others that are just like that.
Penny Crosman: (
So just to sort of complete the picture of Boefly in case people aren't aware, you actually purchased this company. And can you tell us a little bit about what the company was doing and what your hopes are for it going forward under the ConnectOne umbrella?
Frank Sorrentino: (
Yeah. In simple terms, Boefly is a marketplace that provided a service primarily for franchisors. So think of any franchise that you may come in contact with or buy services from, whether it's Dunkin' Donuts or Meineke muffler shops or whatever. So the franchisor will hire Boefly to validate their franchise applicants. And in the process of that validation, Boefly runs those folks through a model to figure out if they are able to actually sustain one of these franchise opportunities. And in the process of doing that, we generally uncover the idea that they're going to need a loan in order to get that business audited if they're awarded that franchise. And so the marketplace comes into being where Boefly turns to that franchisee and says, Hey, we have your data, we have your information. We can put you together with a financial institution or a series of financial institutions that are willing to do that loan for you, predominantly in the SBA base.
Frank Sorrentino: (
And so there are also some 35 banks that are on the Boefly platform, which will compete for that business depending on where it is geographically or what business segment it's in, or any other particulars that some banks particularly like or don't like. And so we basically are a dating service where I'm matching up banks with these franchisees, and we're matching up those franchisees with the franchisors, but there's a big data play here. And there's a lot of information that's gathered. And there are a lot of products and services that we believe may be opportune for that marketplace to be able to deliver in the future.
Penny Crosman: (
Does ConnectOne not have an advantage in owning the platform, or do you keep it really democratic?
Frank Sorrentino: (
We have endeavored incredibly hard to make certain that there is the so-called Chinese wall and that ConnectOne is not treated any differently than any other bank on that platform once that client is out looking for a lending opportunity. And we think that's important because banks are just as important clients of ours as these franchisee opportunities. So from our perspective, it's important to the business that we don't cherry pick any of the opportunities there, but we provide for a high level of integrity and service for the banks and for the clients that access the platform.
Penny Crosman: (
So we've actually written a bit about some of the things that can go wrong with a fintech partnership. We've had some stories recently about fintechs that have exorbitant lending rates that could be called exploitative or abusive, almost. There have been fintechs that have struggled with fraud, with both setting their fraud controls too high and setting them too low and either way, having a lot of difficulties. And then they don't always have the customer service support to handle that. Most recently we've seen
Frank Sorrentino: (
Penny, I couldn't agree more with this concept that not all that's going on in the fintech world is good for the banks, the clients, or even the fintechs themselves. Just because you can do something doesn't mean we should. And I think one of the guiding principles here at ConnectOne has been this concept that we're always here to manage for the sake of our client, and we want our client to be right at the forefront of every decision we make. It's part of our culture, it's built into our logo. It's part of what we think about when we consider how we're going to go about doing things. And I think if you think about what's good for clients, and you sit in their shoes and you walk in their shoes and understand their businesses, you don't get into those issues that you just described.
Frank Sorrentino: (
And so charging exorbitant rates or getting involved in businesses that just aren't, in our opinion, good businesses to be involved with is something we generally don't face here at ConnectOne or face with our Boefly platform, because that's not what it's about. It's genuinely about helping the small business owner, a small business entrepreneur, get a head start in their business. And it's about giving them access to products and services that are already in the marketplace, whether it's through the SBA or the conventional marketplace. And so we're not about charging exorbitant rates because we can do something in 24 hours or 36 hours that should take three weeks. We've seen a lot of that in the marketplace. And honestly I don't think that's a sustainable business. A lot of what's going on in the fintech space is to take advantage of clients and generate high levels of fees and returns for their investors.
Frank Sorrentino: (
That's not what we're here at ConnectOne to do. We're here to provide primary support for our clients, people who are going to be our clients. One of the issues with fintech is that the fintech itself controls the client. The bank really doesn't have the capability to access the client directly. And so it doesn't have a direct say in how that client is being treated here at ConnectOne, everything we do revolves around our clients and how we treat them. And I think that's a good guiding principle for us to have.
Penny Crosman: (
Yeah, of course. It seems like sometimes these risks are a little bit hidden. A fintech can look altruistic, can look like its aim is financial inclusion. And then you look at the actual interest rates being charged, and you're kind of like, holy cow. So sometimes it's a matter of really discerning the reality from the, the pitch, which I'm sure is part of what you and others are always trying to do.
Frank Sorrentino: (
Well, I'm always, I'm fascinated by, even when I speak to small business owners who potentially couldn't get a loan at a banking institution or were turned down for a loan yet, they were able to get a loan at one of these fintech lenders and they were able to get it in 36 hours and they sort of rub it in your face. Like, oh, I could get a loan someplace where your bank wouldn't even talk to me. And my response in some cases is something as simple as yeah, but should you have that loan? And that's part of our responsibility as a bank is to educate you about whether or not this is the right thing for you to be doing. We learned a very valuable lesson back in 2008, as an industry and as a society, that just because you could find a way to do homeowner loans at 110% of value doesn't mean we should. And so some of these small business owners are actually purchasing the rope to go and hang themselves. I don't want to be the vendor of that.
Penny Crosman: (
That makes sense. Are there any fintech partnerships or types of fintech partnerships that you're thinking about for the coming year or that you might be interested in thinking about for the coming year?
Frank Sorrentino: (
So there's a number that we're constantly looking at as we think about more verticals that we want to be involved in at ConnectOne. And some of the other places that we have interest in providing support for various segments of the economy. I think there are fintechs who do have specialized skills, specialized capabilities that will allow us, and I think you'll see over time, as we either announce things or make public some of the initiatives that we have here at ConnectOne, but you'll see that they're very targeted. They're going to be very client focused. We're going to be going after a particular type of client in a particular type of business, and we're going to be doing it with the support of other partners that are as committed to the success of our client, not just to our own internal successes.
Penny Crosman: (
All right. Well, Frank Sorrentino, thanks so much for joining us today and thank you all for listening to the American Banker podcast. I produced this episode with audio production by Wen-Wyst Jeanmary. Special thanks this week to Frank Sorrentino at ConnectOne. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. From American Banker, I'm Penny Crosman and thanks for listening.