Banking: What We Have Here is a Failure to Communicate

Ron Shevlin: Hey everybody. Ron Chevron here, chief Research Officer at Cornerstone Advisors and author of the FinTech Snark Tank on Forbes. And welcome back to another episode of the What's Going On in Banking podcast, which of course is kind of a joke because when was the last episode of the What's Going on in Banking podcast? It's been about a year. So I think I kind of owe people an explanation, although you probably don't even care. You didn't even miss it, but my marketing team did, and they've been giving me grief for months, if not a year now, to keep doing the podcast. But I'll be honest with you, I didn't like it, didn't enjoy it, didn't want to do it, and that's why we haven't done any. So here's why. When we started this podcast, I was adamant that this was not going to be another talk show format podcast. Hey, everybody. What's going on, man? What's happening in your world? Let's chat a little bit about a podcast. I didn't want that. I wanted it to be hard hitting. I wanted it to be timely. I wanted it to be forceful. I wanted it to be about the truth of what's going on in the industry. And so we really focused more on being kind of newsworthy what was happening in banking, and let's respond to that. Now, the problem is there's a lot of stuff going on in banking, and not all of it really deserves a 15 to 20 minute treatment.

I also found that while I had some amazing guests on, I mean, I had, Nigel Morris, co-founder of, of Capital One, managing director of QED investing on, and he was great. But you know what? It got to the point where it felt too much like an interview talk show. I didn't feel comfortable looking at that person and going, yeah, you're wrong. You're totally wrong about that. I didn't have that level of comfort.

Stacey Bryant: So then we thought, okay, well Ron, why don't you just do it yourself?

Ron Shevlin: Well, I don't think I really want to be talking here for 15, 20 minutes by myself. I could, I could easily do that. I do it.

Stacey Bryant: But I didn't want to do that kind of format. I don't think you want to listen to me for 15, 20 minutes. So what I really needed to do was find somebody who met a couple of criteria. First of all, this person had to have strong opinions about the industry and what's going on. Second, they had to have a personality where they could be forceful. And, and not only take me telling them, nah, you're all wrong, you're washed up, but could look at me and go, Ron, you don't know what you're talking about.

Ron Shevlin: Let me set you straight. And there was really only one person in Cornerstone or really in the industry that I was very comfortable and thought could really do that. And that's my colleague Stacey Bryant. So Stacy, thank you very much for being the co-host. Welcome to what's going on in banking. I'm super excited to relaunch this whole thing with a new format and have you as the co-host.

Stacey Bryant: Well, I'm so excited to join you, Ron. I never thought a girl from Brooklyn, New York would make it, would make it to go ahead and co-host with you. And, I am honored to be part of the team, the good old team of not only being a nerd in our industry, but being spunky and opinionated. So it is my absolute pleasure In the true spirit of what's going on in banking as we record this, in early May, 2025. By the way, I want you everybody to know that we are recording this on my 10th anniversary of joining Cornerstone. I have been with Cornerstone 10 years today.

Ron Shevlin: And I think the only reason I've, I've made it this long is because, I work with a team of people who tolerate me. Listen, I know how difficult I am to work with. I am super amazed and, and gra and gratified that, I work with all you folks. So, so what's going on in banking? First thing I think we should talk about, Stacy, is the FIS Worldpay deal. That was, announced a couple weeks ago. And here's, here's the background on this. FIS is, this is like, you know what? This is like Stacy, this is like a couples swapping, not that I know anything about that, I just hear about it couples swapping. But basically what's happening here is there are three firms who are kind of swapping their, their units. FIS is selling its stake in Worldpay to Global Payments while acquiring global payments issuer solutions business, which is fundamentally reorienting everybody in, in involved in this with their strategic trajectories. And what I really wanted to focus on today was the FIS aspect of this. Because what's happening from an FIS aspect perspective is that they are really doubling down on the issuer, the, the financial institution market. When they got Worldpay a few years ago, it really kind of marked a strategic move for them into more of the merchant world.

And I think a lot of financial institutions concerned that they were now becoming second class citizens from an FIS perspective. So the, this deal now really, puts, FIS into the credit card payments world. They're basically getting what used to be TSIs. And, you know, it, it, it, it reflects a really important shift in strategy for, for the, organization. Now, I've read a lot about it. I know you have as well, and even things that our colleagues have written about this, and there seems to be consensus that this is good news for financial institutions because FIS will be focusing more on them. But, you know, I gotta tell you, there are some unquestion un unanswered questions in my mind and, and some concerns I have. So first of all, from a unanswered question perspective, okay, yeah. Look, this might be great for financial institutions 'cause FIS is going to double down on them. But in my mind, it begs the questions, Stacy, what is it that FIS is betting on in the credit card market that the rest of us don't know? And that's one big question. And then let me get to some of the concerns and have you kind of weigh in and, and get your take on it. There are a few things I'm a bit concerned about here.

First of all, FIS has meant, has said that they're expecting or anticipating about $150 million in net e EBITDA gain over three years. $45 million in incremental revenue synergies. And 125 over long-term perspective. That was the, the, the, the 45 was in the three year timeframe. So clearly they are seeing potential considerable, operational efficiencies and cross selling opportunities. But I have a bit of concern with their, with their pricing on this and, and their estimates. Because if you're a large debit card processing customer for FIS today, and they come to you and say, Hey, you know, we're going to give you a we're, we can now do credit card, well, you're going to ask for some concessions. And so I'm wondering if this is going to actually, IM negatively impact the, their economics, from a cross sell perspective. Second thing is, concerns about, so by doubling down on issuer processing, I think this is going to expose FIS to some issues that will come about from regulatory changes affecting the card networks on interchange fees. There's going to be continued consolidation among large fis, and that might end up hurting them. And, you know, just in general, we're seeing reduced transaction volumes because of the economic, situation.

And that gets to some of the, the points I raised earlier about whether or not, what they're seeing in the market that, we, that the rest of us aren't. And then third, and I'll get to you in a second here, is, you know, they're taking on an $8 billion debt load to, to do this deal. And I wonder if this is going to restrict their capital for other particular tech investments they may want to or need to take. Is this going to expose them to fluctuations in the interest rate from an interest rate perspective, or just in general limit their financial flexibility during, the, during this downturn or potential downturn? So that's some of the issues concerns I have. What was your take on, on this whole thing?

Stacey Bryant: You know, Ron, I, first and foremost, I do agree that this, this whole FIS global payments, you know, even GTCR, the private, equity firm outta Chicago, that's also in the mix. I do agree that it is a complex asset swap. I like your analogy with, with the whole swapping and think about TLC's wife swap, but that's another story. So I do think it's complex. I do think it's all for the headlines. This is just me being as transparent as I can be. You know, you mentioned Ron, what do they know that perhaps we may, we may not be privy to?

Ron Shevlin: Right? So what, what's happening in the merchant space or in the credit card space? And the only thing that I see here is the scale that outpaces competitors like PayPal, right? Like Stripe. You know, that puts them in this dominant force when it, when we think about global payments, that's the only thing that really calls my attention. Outside of that, I, I look at risks, you know, from, from an integration perspective. And I think that given world pays history of multiple ownership, so to speak, and their changes, there's some mixed results right? From past acquisitions. So I'm not sure. I think from a, for a community bank's perspective, yes, perhaps the, the product offering and Suite may be much more, feasible. But I think, you know, I don't know, I don't know if they can actually scale, right? When we think about ROII, I, I think,.

Stacey Bryant: I think it's just headlines, Ron.

Ron Shevlin: Yeah. So I think we agree that there's some, there's some risks here. It may not be as rosy. I hope we're not going to take too much heat from our colleagues on this, but so far what I've seen is really more focused that this has been good news for financial institutions. And maybe it it is, but just sense tells me, there's some things here that might not be adding up. And, you know, these mergers and acquisitions are always a struggle, especially, when we're a certain size. And, I just find it surprising that they would bail out of the merchant market, you know, from a diversification perspective as well as from a revenue perspective. And especially from a just general trends perspective as look, the merchant community has been doing whatever it possibly can to get away from the networks. And that, I don't know that this helps them any in that maybe it's still, you know, the backend processing regardless of, of where the, the transaction is made, who the in transaction is made with. But, I dunno, this, this feels to me like they, they're making some bets on some projections they have that makes, that's what I wonder about.

Stacey Bryant: I think, I think the last thing I'll add here when you speak about bets is, you know, I mentioned, I mentioned the, the scale and, and thinking about their competitors, right? Let's talk about Stripe, let's talk about PayPal, and you know, and then there's some other challenger banks and fintechs, right? That, that are in this specific space. What, what is that going to, how reactive will they be? So I, I, I don't know. I just, I, I know that this may be, just on a greater scale. I, I, you know, I look at, I look at what they could potentially cross sell, right?

Ron Shevlin: I think about treasury, embedded finances. I just, I, I'm just still stuck wrong with the integration. I, I, I'm really, I'll be curious to have this conversation in a year from now, quite honestly.

Stacey Bryant: Yeah, and I think you're raising a good point there because, you know, they're projecting some big, pretty big impact in a three year timeframe. But if it takes 12 to 18 months for this to be swallowed up organizationally, then they're cutting significantly into that three year timeframe. And I know why they do it, because you've got a pander at Wall Street, and, you know, the, the stock, the, the stock pickers and the stock pricers. So I get it. But, .

Ron Shevlin: I think we both shared some concerns here. So, let's move on. Another topic. Wanted to call your attention to an article that was in the Wall Street Journal last week, and it was titled, companies are Struggling to Drive a Return on Artificial Intelligence, ai. And the article stated that AI adoption among companies is stunningly high, but most are struggling to put it to good use. They intuit that AI is essential to their future, yet intuition alone won't unlock the promise of ai, and it isn't clear to them which key will do the trick. So yeah, little, you know, the keys and the unlocks and all that kind of stuff, I get it. But here's was my issue and what, why it really caught my eye, Stacy. I don't think companies are struggling to quote, drive a return on ai. I think what they're struggling with is measuring the return on ai. And I think that this is going to be a huge challenge for a lot of financial institutions, especially our client base in the mid-sized bank and credit union market for a couple of reasons. First of all, I don't think they have any baseline measurements upon which to compare things to. You know, I think a lot of the impact of the AI work that's going on is really productivity.

It's either, you know, process level stuff like, contact center or loan processing, loan underwriting, but they don't have good metrics for how long things take, in general. So there's no baseline to compare it to. Second of all, I don't think there's really any financial measurable financial impact. Unless you're firing somebody or reducing staff, you don't really have an, financial impact from just general productivity improvement. And then I can't help but wonder if, you know, there really isn't supposed to be an ROI, you know, there is no ROI on infrastructure investments. That's the definite of infrastructure. It enables you to do something else that enables you to have an ROI. So I think a lot of what's happening today with the ROI deployment is really infrastructure. It's just creating capabilities to build on top of, whether it's new data capabilities, processing, decisioning, whatever it might be. And a lot of it, of course, is just personal level stuff. I tell a lot of the, institutions I talked to Stacy, that they've gotta think about AI from two perspectives, personal AI and enterprise ai and the personal stuff are the things that, you know, automate our email, automate our calendaring, create graphs and things like that in Excel and, and, sheets and things like that, that we've never,.

Stacey Bryant: You know, been able to do before. That takes so long to do. There's a lot of personal stuff going on. And so I, I don't think that there's, that it's a, it's a struggle to, to, to, to, to drive the return on ai.

Ron Shevlin: I think the struggle is measuring it. Your take.

Stacey Bryant: Yeah. A couple of thoughts here in response to even your article. You mentioned here, and I, I'm looking at the article now, and I, I, I'm smiling because I think you said here, remember when social media started to take hold, when asked, what's the ROI of social media? Social media advocates would reply, what's the ROI of your mother? And that's usually a comeback joke that I have used for, year to date, and since I was, conceived, so to speak. So I, I think I couldn't agree with you more. Ron, I think that I'm going to pluck a card from your favorite ai conversation. AI is so freaking broad, you know, and I think, you know, just to shamelessly pitch or plug rather, your, the latest, what's going on in banking report, you broke it down.

Ron Shevlin: I think you mentioned from a chatbots perspective, right? That conversational ai, I think you mentioned here, gen ai, machine learning, robotic process automation. So I always, and, and we've had this conversation before, but you know, I'm out and about on the road with Stacy speaking with credit union, CEOs and credit union, credit union, CIOs, community bank, CIOs, community bank CEOs, and I ask the same question. Well, what about ai? What are y'all doing here? Some of them look at what other bigger shops are doing and then just get on that bandwagon. Some of them are actually speaking with their team leads and trying to identify pain points. What is the objective? So before we speak about ROI, before jumping on anyone's AI bandwagon, you know, Kevin Martin from schools first, credit union out in the West coast. I always quote him and he says, when it comes to anything automation, and, you know, they implement it for a few months, let's test and learn. So let's test, learn, and scale. You know, and when we double down, we can, and we focus on one area, right? Whether we're automating the call center, whether we're automating payment collections, right?

This is on the enterprise level, you know, whether we're integrating chatbots, you know, whether, whether we're creating a PowerPoint presentation, you know, internally, you know, you mentioned this. How are we, how are we hunkering down and how are we consistently doing it over and over and over again? It reminds me, I'm looking for summer camps for my kids. One kid is into dance, the other kid is into anything else that's creativity, but dance. And I saw like this knitting class that I think she would appreciate, but if she's only going to be there for two weeks, how much knitting can she possibly do? So I think that's a terrible analogy. Going back to AI as far as like, you can't just expect to jump on one, what's working for a, b, c bank and what, what they're doing when they're heavy on the commercial space where I'm a bank who's heavy on direct consumer, right? So I, I think that on a greater scale, we have to really dissect this and focus and maybe use a few months or a period or a quarter and have a team specialize in what may be working and how we could potentially solve this pain point. Does that make sense?

Stacey Bryant: Sure does. I'll tell you another thing that's kind of bugging me about this whole situation too, and get your take on it, but it was about a year ago or so, I, on LinkedIn, I vowed that I would never use the term AI again because it's an brella term that relates to a lot of different types of technologies. And that by re putting everything on, as ai, we're missing the nuances between what's machine learning, what's conversational ai, what's generative ai, or now what's agentic ai? Or what's robotic process automation? And I don't get a lot of pushback on that, but here's where I'm getting pushback talking to somebody and they said, oh, robotic process automation. That's not really ai really. Well, why not?

Ron Shevlin: Well, well, yeah. It just, it's really just rules based stuff.

Stacey Bryant: Okay, well, fine. Then, just a couple weeks ago talking with somebody about this and they go, yeah, well, machine learning's not really ai. I was like, okay, then what is it then? It's just, it's just models, right?

Ron Shevlin: Okay, then what's AI to you? I said, well, generative ai, everything, only thing in AI is generative ai. Yeah, pretty much. I was like, okay, we have a problem of definition. Organizationally, we can't deal with things in the technology or anything new unless we get a handle on what, how we're defining our terms, right? And so I am really, I really push the banks and credit unions I talk to, to say, look, do you do what you want with it? I don't care. But right, God's sake, stop using the term AI to refer to everything and start getting specific. And I always tell them, look, if you're going to have a vendor come in, and I think this is, this is going to be, I, I know where this one's going. This is going where the vendors are going to start touting the ROI of their ai. Hey, yes, you know, we have AI embedded and it's 137% ROI on that investment.

Stacey Bryant: Well, it's nonsense. There's always been nonsense. But, you know, we're going to get to the point where, the vendors come in and go, yeah, well, we've embedded ai. And I always tell the, the bankers go, when we they say that, ask them, well, what kind of ai? Show me, show me list. Yeah. And if they can't answer that question, kick 'em out.

Ron Shevlin: Yeah. And I think in the world of ai,.

Stacey Bryant: I think this is a perfect segue, Ron, to chat about data, right? You recently, released a commission paper on Data iq, and it reminded me of, to your point, my conversations on the road, and I'm having conversations with shops, whether they're 400 million in assets, a billion in assets, 5 billion in assets, and some of them may, some of them have a common denominator, right? We have all this data, what do we do with it now, right? How do we become a smarter bank? How do we become a smarter credit union? How do we leverage the data that we have? We have a lot of crap data. And, you know, from whether it's data strategy where, and then, you know, then data governance follows, right? Then data warehousing follows, and I'm working with this one specific shop in the Midwest, and they, you know, they're all for data strategy, but with that, down the line comes data w Warehouse, and they, they want to stop because of the fact that a lot of these data warehousing, folks or vendors, so to speak, most of their, most of how they keep this data is basically on the cloud. And this is a financial institution whose board is extra ultra conservative, so to speak. And, and they're cloud averse, you know, they want to keep things on prem. But then I think to myself, Ron and I, I, I may need your help here, but when I think about even on the core processing side,.

Ron Shevlin: You know, from Jack Henry, you know, Fiserv, they, their modern banking, a lot of these now more than ever, for those shops that are re, that have renewed their core in the past couple of years, are doing that now, a, a good portion of their core is automatically going on the cloud. So how do we enlighten these influencers behind the scenes, right? That, that have this myopic way of thinking, that are literally stopping these financial institutions, these community financial institutions from, from literally becoming much more innovative, right? Because when we think about that holistically, we have to think about those three pillars. The whole data strategy, the data governance, and the data warehouse thoughts, It's, it's a mess, is my thought. And it's a mess. Because the, I think, and I'm going to, you know, make a sweeping statement here, but I think too many senior management teams, the business side, delegate this to it and just say, basically, it's your problem. Or maybe they now have a chief data officer. Nice, great, great. That's what every company needs, right? Is another chief something officer with no budget to get anything done, or no team.

So, I think this is part of the problem, and I think it even stems back further from the point that, you know, unless you really have strategic clarity about where your business is going, where you want it to go, what capabilities you need, what competencies you need to have, what products and services you need to build and improve, then you are leaving yourself with a prioritization mess of, okay, we, we don't have our data in order, we need better data governance and strategy, but where do we start?

Stacey Bryant: Well, nobody knows where to start because there's no strategic direction to kind of help them figure out, this is where we gotta go first.

Ron Shevlin: Yes. That other stuff, it's important. Hey, Stacy, your business unit is very important, don't worry, but it's not the biggest problem we've got right now, so we have to focus here. And so there's, there's, that's missing in a, in a lot of companies, not just financial institutions, but it's really tough, especially in the community, financial institution space because, you know, they're struggling with so many different things. The regulatory, the technology environment, the competitive environment, the generational changes, the new technologies and touch points. And, you know, I joke that, you know, if I had a nickel for every time a smart ass consultant said, data is important, I'd be a rich man. Then I realized, well, oh shoot, if I had a nickel for every time I said that, I'd be a rich man. So, not sure what that says about me as a consultant, but it's, it's just, it, it's a, it's a, what you think of as a sticky problem. 'cause there's so many dependencies here, but it's even more important now going back to our AI conversation. 'cause we actually just completed some research that'll be put out in the next couple weeks looking at the impact of AI on productivity in banks and credit unions.

And, to a person that we interviewed, Stacy, we said, if there's anything you could have done differently, about deploying ai, what would it be? And to a person, they said, we would've gotten our data in order years before we did this. And I said, okay, what would you have done? And they're like, well, I'm not really sure. So there's this uncertainty about what to do with it. Although there's this at least heightened awareness that yeah, this is going to get really, really important now because the, the ability to utilize and leverage the AI tools coming, there I go again, ai, what am I talking about? Utilizing the AI tools is going to be dependent on the quality of the data. So, right. We're looking at a mess in the next couple years,.

Stacey Bryant: I think as, as, and I think the, the, the, the successful financial institutions will not just be those that kind of dig themselves out from under it, but figure out how to do the prioritization and get the strategic clarity to figure out, we gotta do this first, then we can take care of the, all this other stuff. But, but Ron, let's, let's uns scary this, right? Let's think about the people who, who, who listen to,.

Ron Shevlin: You know, to listen to you have been following you. And yes, I think, having a scared straight moment when it comes to data and everything and anything, AI is important. But I think that just now with everything going on in the economy, how do we simplify this, right? Like, I, I look at it from a perspective, and I get asked this, you know, more times than, than none. But Stacy, all right, what about all this data? What about these efficiencies? What about, you know, being able to execute with all this information? And I just, I like to really dumb it down respectfully, and I just look like to look at it at, you know, you mentioned CIOs earlier, you mentioned, you know, these, all these whole new chief product or whatever it is, new roles with no budget. But I think if we can peel this back and say, all right, let's look at it from a tech assessment, right? Let's look at it from a people process and technology. Let's start there. So I think that my, my hope and my wish is that we can go ahead and maybe provide something tangible amidst the scared straightness of, of what's happening in banking today. Would you add anything else? Like if we were to dumb it down and, and say, all right, well what are the, what's the next step here? What would you do?

So I like the construct of people, process, technology, but what I think is missing in it, and where I like to go is organizational approach. And you know, I look at what some of the leading banks and credit unions who are focusing on growth and doing, and not, not even just the data or AI now, but focusing on growth and things like that. There's a couple of, you know, common patterns. Number one, they're creating new products for very specific target markets. So I'm thinking of like alumni Fi from Michigan State University Credit Union, or, hustle from Vantage West. People's bank has, has won as well, Zilo. And what, what characterizes a lot of that. It's not just simply a new product, new technology. They go after it by kind of carving out a very dedicated part of the organization and say, okay, you're the team that's going to lead this. You can't do it all by yourself. You're going to have to get internal resources, you're going to have to get external resources and partner and do this stuff. But I think it's about in making an investment in an organizational group who's going to go do this and create something and start a, a, a path that gets them down, some revenue generation efficiencies, focus, pivoting to a new strategy, new strategy. I think it's the org structure that is the key, key step to this.

Stacey Bryant: Yeah, I think the only thing I would say about that, Ron, would be, it just reminds me of stick to your niche or uncover these opportunities in your communities, or what this potential, what the potential could be, and hunker down, double down, tackle and do your thing there. So that's the only thing I would say. And I couldn't agree more.

Ron Shevlin: I would only add and tweak that, for some institutions it's not just doubling down on the niche, it's figuring out what that niche is. Right. Stacy, I'm looking at the clock and I, we promise we were going to keep this short and sweet, so we got a million other things to talk about. We'll put that in the next episode. Thanks a lot for doing this. I'm, course I'm loving this. This is going to, this is going to be good. And for everybody, listen in. I hope you enjoy the new format and we look forward to seeing you on another episode of what's going on in banking. Please like this, download it. I don't know what, refer it, follow in, follow, follow, whatever. Thanks a lot for listening and we'll see you next time.