As we continue to try to estimate the effects the Dodd-Frank Wall Street Reform and Consumer Protection Act will have on banks, we seized an opportunity yesterday to speak to Martin Zorn, chief administrative officer of $1.4 billion-assets Tennessee Commerce Bank, a business bank based in Franklin, Tenn., about the bill as well as his current mobile banking and mobile deposit projects.
BS&T: What's your reaction to the Dodd-Frank bill?
Zorn: My first reaction is that it's overwhelming. The bill is 2,300 pages long and Davis Polk estimated it will require 243 new formal rule-makings by 11 different Federal agencies and 67 studies to be completed before we find out what it really means. Beyond that, the thing that's striking is that it failed to address two issues that were at the heart of the financial crisis: "too big to fail" and Fannie Mae and Freddie Mac, both of which still exist. It will be more regulation for everyone. On a relative basis, the playing field may be leveled a bit, in that it will be more expensive for the big banks than some small banks, but I think it's going to result in overall more expensive banking services.
BS&T: Which provisions do you think will affect your bank the most?
Zorn: Simply more regulation. We really won't know until we start seeing how the regulations are drafted.
BS&T: Experts have told us the key thing for bankers to do is talk to the regulators as they draft these new rules so that you can influence them. Is that good advice, or is that easier said than done?
Zorn: For us, that's easier said than done. Given our size we don't have lobbyists, we don't have contacts in Washington where these things will be drafted. We're trying to take the information as we get it and share it with our customers.
BS&T: Do you expect a lot of these rules to have a big impact on your IT organization? Are you doing anything to get ready for that?
Zorn: We can anticipate, looking at the sheer size of the bill, that there's going to be more regulation, so in preparation we need to go to IT and all other departments to find efficiencies, to do what we're doing more cost-effectively. Our goal is to absorb the increased regulatory costs without passing them on to our customers.
BS&T: Some bankers have said the regulations will force community banks to automate certain things that may not be automated today, such as account openings and loans, to be more efficient and provide real time transactions and reporting.
Zorn: We already are a heavy investor in technology, we do almost everything on an automated basis, we already convert our processes to image as soon as possible.
This will be tough on the smallest banks. I would not be surprised if the new law causes a lot of mergers and acquisitions among the smallest of the community banks because this will be an added expense that a lot of them aren't going to be able to absorb.
BS&T: I just read today that 103 small banks have been shut down this year already. Last year, we didn't get to the 100-failed-banks mark until October. Why do you think that is happening while some economic indicators are improving?
Zorn: From an economic standpoint, banking tends to be a lagging indicator. Even if we're past the worst in the economy, it takes a number of quarters before you see recovery in the banking sector.
BS&T: I Googled you and saw that you became chief administrative officer of Tennessee Commerce Bank in November. How has it been going? Have you already started any projects?
Zorn: Our major initiative has been our deposit strategy. We rolled out a new internet site. We've also been developing mobile banking apps. We are currently in the testing phase for iPhone and in the development stage for Blackberry and Droid.
BS&T: Are you doing this all yourselves or do you have partners?
Zorn: We used a local vendor to redesign our website. For our internet and mobile banking backbone we partner with S1 out of Atlanta.
BS&T: Do you plan to offer the basic mobile banking functions — check balances, funds transfer, bill payment, stop payment, text alerts — or do you think you'll branch out into different things?
Zorn: We'll stick to the basic transactional services.
BS&T: Do you have a sense of which devices your customers use the most? I would think among business customers, the Blackberry would be common.
Zorn: Yes, you would think so, and that's one of the reasons we're doing this on all three of the major platforms. The iPhone and Droid have been trying to get more business from clients and have gotten a lot of press. We want to be agnostic with respect to what type of mobile platform it's delivered through.
BS&T: What's the hardest part of accomplishing that?
Zorn: Because technology is changing so quickly, it's making sure that we're comfortable with the security, reliability and uptime of the mobile banking apps. Most of our customers are small and medium size enterprise customers. We serve Williamson County, which is affluent and well-educated, you have tech savvy professionals. We think this will be important to them.
The other thing we've been focused on is remote deposit. We've seen a lot of growth in the number of customers using our remote deposit features.
BS&T: So you already have remote deposit?
Zorn: We do. We have a little over 150 remote deposit customers today.
BS&T: Is this the version for business, where they have scanners and scan their own checks?
Zorn: That's correct. That's one of the areas where we're most excited. I think over the next year we'll see a lot more companies using it. Part of the advantage for them is they do it from their own office. Somebody doesn't have to spend their time going to the bank, and the way we have ours set up, they get immediate funds availability on it.
BS&T: Are you partnering with a vendor for that?
Zorn: There are three vendors that are connected on that: we receive our Fiserv core banking software through a local provider called Fi-Data. We integrate the deposit capture with Jack Henry software.
BS&T: Are there any security issues with remote deposit?
Zorn: The customer is using a scanner we provide, which scans the MICR line as well as the check image. We receive the check more quickly than we would paper and it's easier for us to get it into the clearing system quickly, so we can detect a forgery quickly.
BS&T: Is there anything else on your drawing board?
Zorn: For this year we'll focus on continuing to develop new internet banking services, via laptop, mobile, and remote deposit.