In an age of technical innovation and new revenue from banking as a service, Evolve Bank & Trust of West Memphis has been living its name.
Founded in Parkin in 1925, it became Evolve after a group led by Chairman Scot Lenoir bought it in 2005 and then moved its banking charter to West Memphis, putting its corporate headquarters across the Mississippi.
“We have been working with them on and off since they bought it, and they’re one of the most entrepreneurial banks in the state, especially when it comes to partnering with fintech and offering banking as a service,” said Randy Dennis, a banking expert and president and managing partner of DD&F Consulting in Little Rock.
Evolve’s total assets essentially doubled in 18 months, from $691 million at the end of 2020 to $1.3 billion on June 30, 2022. And most of that came this year: The bank ended 2020 with $788 million in assets, growing 65% in the next six months even though Evolve made no acquisitions.
The bank has also been building trust assets rapidly. It was No. 3 among Arkansas banks with $2.65 billion in trust assets under management at the end of 2020, but that number ballooned to $9.75 billion a year later and now stands at more than $12 billion, the largest total in the state, topping perennial trust asset leader Simmons Bank of Pine Bluff.
Deposits grew more than 135% from June 2021, when they totaled $425 million, to $1.06 billion at the end of June 2022. All that growth is related in some way to technology offerings or partnerships, said W. Scott Stafford, the bank’s president and CEO.
“We’re a community bank with a significant mortgage presence and small-business lending development officers around the country,” he said. Evolve also has longstanding businesses like a specialty finance company called Physicians Capital, which helps doctors finance surgery centers and medical equipment, and a trust and wealth management group that Stafford considers a core competency.
But Stafford said banking itself has evolved. “We’re cutting edge because we felt banking was changing, and we’ve embraced that.”
The byword at Evolve has become open banking. “We’ve been offering banking as a service for approximately five years, and preparing for it even longer,” Stafford said.
Essentially, Evolve offers services that power more than 400 fintech partners “around the country and beyond,” Stafford said in a conference call that included the bank’s former chief technical officer and current president of open banking, Hank Word.
“We have a technology stack including ACH [a computer-based electronic network for processing transactions], remote deposit capture, domestic and international wires, virtual accounts and other products and services,” Stafford said.
“All of these are accessible via API [a software interface] and our fintech partners offer them out to their users,” Stafford continued. “It has increased our non-interest income, and now that rates are increasing, we’re reaping the benefits of the deposits that we’ve aggregated. It definitely moved the needle for us.”
Stafford also attributed much of the trust growth to open banking.
“We power these fintechs, who in turn offer financial services to their users, so they’re both consumers and commercial clients,” he explained. “So we either retain those on our balance sheet or sweep them into our trust division. So as a result, we’ve experienced growth that’s reflected, in a very positive way, both on the balance sheet as well as the assets that we hold in custody in our trust division.”
Over the past year, Evolve has joined the Banking-as-a-Service Association, a new trade group, and announced partnerships with fintech brands Marqeta and Bond Financial Technologies. Marqueta is a Bay Area startup specializing in digital-only credit cards, and it recently teamed with JPMorgan Chase to let corporate card holders use their accounts in mobile apps without awaiting a physical card. Bond Financial Technologies is an embedded finance platform that helps clients build, launch and operate their own financial products.
Bond represents one of two general customer types that Evolve serves in open banking, Word said. “We work with BaaS [banking as a service] providers, which generally have a set of API services built around or on top of the services we offer. They sell their services to the fintech customers, who integrate with them and use their APIs, with the bank in the background, providing account and transaction services to those BaaS providers and ultimately to those fintech platforms,” Word said.
“But if the fintech platform is of a certain size, has a certain level of experience or complexity, then we may work with that fintech directly. Bond is what we call an aggregator, and it falls into that first category of BaaS providers.”
Fintech companies known as neobanks need banks like Evolve as partners to properly serve their users, said Dennis, the Little Rock bank consultant.
“They’re not banks; they’re bank lookalikes,” he said. “They have to have a standup bank as a backbone, something that gives them access to the payment system that they can connect all these services to to make them look like a bank. That’s banking-as-a-service in a nutshell. The standup bank provides the customer-facing functions. With neobanks that don’t have these relationships, if you have a problem it’s your worst nightmare. You go through endless telephone systems trying to find a human being.”
Expanded Community Mission
Word said Evolve remains firmly rooted in its communities. “We’re definitely a community bank, but to survive in a world where regional and national banks continue to get larger and squeeze the smaller institutions, open banking is a way for us to continue to offer the services and benefits of a community bank, but doing it through our fintech partners,” Word said. “We’re expanding our mission as a community bank.”
Stafford said Evolve’s fintech partners have been crucial in modern efforts to reach unbanked customers looking for financial providers. “For decades, banks have tried to find an efficient way to serve the underserved, and I think through technology, many of our fintech partners have quite frankly done a better job at customer acquisition and customer onboarding,” the CEO said. “I think they have found a way to distribute financial services to a much larger market, candidly, than traditional banks.”
Compliance and fraud risks arise with open banking, as noted in a recent warning directed at all banks from the Office of the Comptroller of the Currency. But those risks have been managable at Evolve, which has made significant investments in compliance systems and its Bank Secrecy Act framework.
“There is risk around BSA/KYC/AML compliance as well,” Stafford said, referring to “know your customer” requirements for verifying customers’ identity and anti-money laundering safeguards. “That is something regulators are very focused on, as we are. And for those who are considering this space, they need to make sure they have the right people to manage the risk. We’ve certainly done that.”
Evolve has branches in West Memphis, Memphis, Marion, Parkin, Jonesboro, Highland (Sharp County) and Wynne. It also has home loan centers in nine states beyond Arkansas and Tennessee.
“We are customer-centric, first and foremost,” Stafford said. “We fully believe that technology is here to stay, and we hope to be a leader taking financial services to a broader group, ultimately benefiting our consumers. We look forward to seeing other banks get involved, and we see more banks starting to consider this type of business. We encourage that, but we want people to be thoughtful about it, and to understand what they’re getting into.”