Five Digital Banking Initiatives for Second Half of 2020

As the calendar nears the midpoint of 2020 and banks continue adjusting to a new normal, it’s more important than ever to keep pace with planned initiatives.

To get a better understanding of what financial institutions are focusing on, MX surveyed more than 400 financial institution clients for their top initiatives this year and beyond. We believe these priorities will gain even more importance across the industry.

1. Enabling Emerging Technologies, Continued Innovation
Nearly 20% of clients see digital and mobile as their top initiatives for the coming years. Digital and mobile initiatives can help banks limit the traffic into physical locations, as well as reduce volume to your call centers. Your employees can focus on more complex cases or on better alternatives for customers.

Data-led digital experiences allow you to promote attractive interest rates, keep customers informed about upcoming payments and empower them to budget and track expenses in simple and intuitive ways. 

2. Improving Analytics, Insights
Knowing how to leverage data to make smarter business decisions is a key focus for financial institutions; 22% of our clients say this is the top initiative for them this year. There are endless ways to leverage data to serve customers better and become a more strategic organization.

Data insights can indicate customers in industries that are at risk of job loss or layoffs or the concentration of customers who are already in financial crisis or will be if their income stops, using key income, spending and savings ratios. Foreseeing who might be at risk financially can help you be proactive in offering solutions to minimize the long-term impact for both your customers and your institution.

3. Increasing Customer Engagement
Improving and increasing customer engagement is a top priority for 14% of our clients. Financial institutions are well positioned to become advocates for their customers by helping them with the right tools and technologies.

Transaction analytics is one foundational tool for understanding customer behavior and patterns. The insights derived from transactions and customer data can show customers how they can reduce unnecessary spending through personal financial management and expert guidance.

But it’s crucial to offer a great user experience in all your customer-facing tools and technologies. Consumers have become savvier in the way they use and interact with digital channels and apps and expect that experience from your organization. Intuitive, simple, and functional applications could be the difference between your customers choosing your financial institution or switching to a different provider.

4. Leveraging Open Banking, API Partnerships
Open banking and application programming interfaces, or APIs, are fast becoming a new norm in financial services. The future of banking may very well depend on it. Our findings show that 15% of clients are considering these types of solutions as their main initiative this year. Third-party relationships can help financial institutions go to market faster with innovative technologies, can strengthen the customer experience and compete more effectively with big banks and challengers.

Financial institutions can leverage third parties for their agile approach and rapid innovation, allowing them to allocate resources more strategically, expand lines of business, and reduce errors in production. These new innovations will help your financial institution compete more effectively and gives customers better, smarter and more advanced tools to manage their financial lives.

But not all partnerships are created equally. The Office of the Comptroller of the Currency recently released changes surrounding third-party relationships, security and use of customers’ data, requiring financial institutions to provide third-party traffic reports of companies that scrape data. Right now, the vast majority of institutions only have scrape-based connections as the means for customers to give access to their data — another reason why financial institutions should be selective and strategic with third-party providers.

5. Strategically Growing Customer Acquisition, Accounts
As banking continues to transform, so will the need to adapt including the way we grow. Nearly 30% of our clients see this as a primary goal for 2020 and beyond. Growth is a foundational part of success for every organization. And financial institutions generally have relied on the same model for growth: customer acquisitions, increasing accounts and deposits and loan origination. However, the methods to accomplish these growth strategies are changing, and they’re changing fast.

Right now, we’re being faced with one of the hardest times in recent history. The pandemic has fundamentally changed how we do business, halting our day-to-day lives. As we continue to navigate this new environment, financial institutions should lean on strategic partnerships to help fill gaps to facilitate greater focus on their customers.

CECL Delay Opens Window for Risk Improvements

The delay in the current expected credit loss accounting model has created a window of opportunity for small banks.

The delay from the Financial Accounting Standards Board created two buckets of institutions. Most of the former “wave 1” institutions constitute the new bucket 1 group with a 2020 start. The second bucket, which now includes all former “wave 2 and 3” companies are pushed back to 2023 — giving these institutions the time required to optimize their approach to the regulation.

Industry concerns about CECL have focused on two of its six major steps: the requirement of a reasonable and supportable economic forecast and the expected credit loss calculation itself. It’s important to note that most core elements of the process are consistent with current industry best practices. However, they may take more time for banks to do it right than previously thought.

Auditors and examiners have long focused on the core of CECL’s six steps — data management and process governance, credit risk assessment, accounting, and disclosure and analytics. Financial institutions that choose to keep their pre-CECL process for these steps do so at their own peril, and risk falling behind competitors or heightened costs in a late rush to compliance. Strategically minded institutions, however, are forging ahead with these core aspects of CECL so they can fully vet all approaches, shore up any deficiencies and maintain business as usual before their effective date.

Discussions over the impact of the CECL standard continue, including the potential for changes as the impacts from CECL bucket 1 filings are analyzed. Unknown changes, coupled with a three-year deadline, could easily lead to procrastination. Acting now to build a framework designed to handle the inevitable accounting and regulatory changes will give your bank the opportunity to begin CECL compliance with confidence and create a competitive advantage over your lagging peers.

Centering CECL practices as the core of a larger management information system gives institutions a way to improve their risk assessment and mitigation strategies and grow business while balancing risk and return. More widely, institutions can align the execution across the organization, engaging both management and shareholders.

Institutions can use their CECL preparations to establish an end-to-end credit risk management framework within the organization and enjoy strategic, incremental improvements across a range of functions — improving decision making and setting the stage for future standards. This can yield benefits in several areas.

Data management and quality: Firms starting to build their data histories with credit risk factors now can improve their current Allowance for Loan and Lease Losses process to ensure the successful implementation of CECL. Financial institutions frequently underestimate the time and effort required to put the required data and data management structures in place, particularly with respect to granularity and quality. For higher quality data, start sourcing data now.

Integration of risk and financial analysis: This can strengthen the risk modeling and provisioning process, leading to an improved understanding and management of credit quality. It also results in more appropriate provisions under the standard and can give an early warning of the potential impact. Improved communication between the risk and finance functions can lead to shared terminologies, methods and approaches, thereby building governance and bridges between the functions.

Analytics and transparency: Firms can run what-if scenario analysis from a risk and finance perspective, and then slice and dice, filter or otherwise decompose the results to understand the drivers of changes in performance. This transparency can then be used to drive firms’ business scenario management processes.

Audit and governance: Firms can leverage their CECL preparations to adopt an end-to-end credit risk management architecture (enterprise class and cloud-enabled) capable not only of handling quantitative compliance to address qualitative concerns and empower institutions to better answer questions from auditors, management and regulators. This approach addresses weaknesses in current processes that have been discovered by audit and regulators.

Business scenario management: Financial institutions can leverage these steps to quantify the impact of CECL on their business before regulatory deadlines, giving them a competitive advantage as others catch up. Mapping risks to potential rewards allows firms to improve returns for the firm.

Firms can benefit from CECL best practices now, since they are equally applicable to the current incurred loss process. Implementing them allows firms to continue building on their integration of risk and finance, improving their ALLL processes as they do. At the same time, they can build a more granular and higher quality historical credit risk database for the transition to the new CECL standards, whatever the timeframe. This ensures a smoother transition to CECL and minimizes the risk of nasty surprises along the way.

Making Strategic Decisions With The Help of Data Analytics

Banks capture a variety of data about their customers, loans and deposits that they can harness in visually effective ways to support strategic decision-making. But to do this successfully, they must have leadership commit to provide the funding and human resources to improve data collection and management.

Bad data or poor data quality costs U.S. businesses about $3 trillion annually, and breeds bad decisions made from having data that is just incorrect, unclean, and ungoverned,” said Ollie East, consulting director of advanced analytics and data engineering at Baker Tilly.

Companies generally have two types of data: structured and unstructured. Structured data is information that can be organized in tables or a database: customer names, age, loan balances and interest rates. Unstructured data is information that exists in written reports, online customer reviews or notes from sales people. It does not fit into a standard database and is not easily relatable to other data.

If data analytics is the engine, then data is the gasoline that powers it,” East said. “Everything starts with data management: getting and cleaning data and putting it into a format where it can be used, governed, controlled and treated as an asset.”

A maturity model for data analytics progresses from descriptive to prescriptive uses for the information. The descriptive level answers questions like, “What happened?” The diagnostic level answers, “Why did it happen?” The predictive level looks at “What will happen?” Finally, at the prescriptive level, a company can apply artificial intelligence, machine learning or robotics on large sets of structured and unstructured data to answer “How can I make it happen?”

Existing cloud-based computing technology is inexpensive. Companies can import basic data and overlay a Tableau or similar dashboard that creates a compelling visual representation of data easily understood by different management teams. Sean Statz, senior manager of financial services, noted that data visualization tools like Tableau allows banks to create practical visual insights into their loan and deposit portfolios, which in turn will support specific strategic initiatives.

To do a loan portfolio analysis, a simple extraction of a bank’s data at a point in time can generate a variety of visual displays that demonstrate the credit and concentration risks. Repetitive reporting allows the bank to analyze trends like the distribution of credit risk among different time periods and identify new pricing strategies that may be appropriate. Tableau can create a heat map of loans by balance, so bankers can quickly observe the interest rates on different loans. Another view could display loss rates by risk rating, which can help a bank determine the real return or actual yield it is earning on its loans.

Statz said sophisticated analytics of deposit characteristics will help banks understand customer demographics, and adjust their strategies to grow and retain different types of customers. Bank can use this information in their branch opening and closing decisions, or prepare for CD maturities with questions like, “When CDs roll over, what products will we offer? If we retain all or only half of CD customers, but at higher interest rates, how does that affect cost of funds and budget planning?”

Data analytics can help banks undergo more sophisticated key performance indicator comparisons with their peers, not just at an aggregate national or statewide level, but even a more narrow comparison into specific asset sizes.

Banks face many challenges in effective data analytics, including tracking the right data, storing and extracting it, validating it and assigning resources to it correctly. But the biggest challenge banks need to tackle is determining if they have the necessary data to tackle specific problems. For example, the Financial Accounting Standards Board’s new current expected credit loss (CECL) standards require banks to report lifetime credit losses. If banks do not already track the credit quality characteristics they will need for CECL, they need to start capturing that data now.

Banks often store data on different systems: residential real estate loans on one system, commercial loans on another. This makes extracting the data in a way that supports data visualization like Tableau difficult. They must also validate the data for accuracy and identify any gaps in either data collection or inputting through the system. They also need to ensure they have the human resources and tools to extract, scrub and manipulate essential data to build out a meaningful analytic based on each data type.

The key to any successful data analytics undertaking is a leadership team that is committed to developing this data maturity mindset, whether internally or with help from a third party.

Getting your Digital Growth Strategy Right from the Start


Digital growth is only as good as the metrics used to measure it.

Growth is one of an executives’ most important responsibilities, whether that comes from the branch, through mergers and acquisitions or digital channels. Digital growth can be a scalable and predictable way for a bank to grow, if executives can effectively and accurately measure and execute their efforts. By using Net Present Value as the lens to evaluate digital marketing, a bank’s leadership team can make informed decisions on the future of the organization.

Banks need a well-thought-out digital growth strategy because of the changing role of the branch and big bank competition. The branch used to spearhead an institution’s growth efforts, but that is changing as branch sales decline. At the same time, the three biggest banks in the country rang up 50% of the new deposit account openings last year (even though they have only 24% of branches) as they lure depositors away from community banks, given regulators’ prohibition on acquisition.

Physical Branch Decline chart.pngImage courtesy of Ron Shevlin of Cornerstone Advisors

Even in the face of these changes, many institutions are nervous about adopting an aggressive digital growth plan or falter in their execution.

A typical bank’s digital marketing efforts frequently rely on analytics that have been designed for another business altogether. They may want to place a series of ads on digital channels or social media sites, but how will they know if those work? They may use data points such as clicks or views to gauge the effectiveness of a campaign, even if those metrics don’t speak to the conversion process. They will also track metrics such as the number of new accounts opened after the start of a campaign or relate the number of clicks placed in new accounts.

But this approach assumes a direct link between the campaign and the new customers. In addition, acquisition and data teams will spend valuable time creating reports from disparate data sources to get the proper measurement, instead of analyzing generated reports to come up with better strategies.

Additionally, a bank’s CFO can’t really measure the effectiveness of an acquisition campaign if they aren’t able to see how the relationships with these new customers flourish and provides value to the institution. The conversion is not over with a click — it’s continuous.

This leads to another obstacle to measuring digital growth efforts: communication. Banks use three internal teams to generate growth: finance to fund the efforts; marketing to execute and measure it; and operations to provide the workflow to fulfill it.

Each team measures and expresses success differently, and each has its inherent shortcomings. Finance would like to know the cost and profitability of the new deposits generated, to assess the efficiency of the spend. Marketing might consider clicks or views. Operations will report on the number of accounts opened, but do not know definitively if existing workflows support the market segmentation that the bank seeks.

There is not a single group of metrics shared by the teams. However, the CEO will be most interested in cost of acquisition, the long-term profitability of the accounts and the return on investment of the total efforts.

But it’s now possible for banks to see the full measurement of their digital campaigns, from the disbursement of funds provided by the finance group to the success of these campaigns, in terms of deposits raised and net present value generated. These ads entice prospects into the account origination funnel, managed by operations, who open accounts and deposit initial funds. Those new customers then go through an onboarding process to switch their direct deposits and bill pay accounts. The new customer’s engagement can be measured six to 12 months later for value, and tied back to the original investment that brought them in the first place.

Bank leadership needs to be able to make decisions for the long-term health of their organizations. CEOs tell us they have a “data problem” when it comes to empowering their decisions. For this to work, the core system, the account origination funnel and the marketing channels all need to be tied together. This is true Integrated Value Measurement.

A Top-Performing Bank Explains Why It Sponsors Three NFL Teams


Best-Performing Stadium Sponsorships

Sponsoring a local sports team is an effective way to resonate with a community.

It’s something M&T Bank Corp. takes so seriously that it sponsors three NFL teams: the Buffalo Bills, in the bank’s hometown of Buffalo, New York; the New York Jets, who play out of Metlife Stadium in East Rutherford, New Jersey, and the Baltimore Ravens.

Since 2003, the $121.6 billion asset bank has held naming rights for the Ravens’ home field, M&T Bank Stadium in Baltimore, Maryland. It’s a relationship the bank extended in 2014, for a cool $60 million, keeping M&T’s logo on the stadium until 2027.

“We are embedded in the communities where we live and work, [and] we understand that those teams are important to their communities, including our employees, customers and prospects,” says Betsey Locke, senior vice president of brand, advertising and sponsorships at M&T.

Back in 2003, M&T was relatively unknown in the Baltimore market, she says. Holding the naming rights for the Ravens’ stadium “gave us immediate credibility. We’re now perceived as a hometown bank.”

Placing a bank’s logo on a local stadium and aligning the brand with a well-loved team can make an impact; that’s what drives even efficiency-conscious companies like M&T to spend millions on these sponsorships. It’s a unique relationship that Bank Director sought to understand by looking at the recent records of major sports teams.

In addition to win/loss records, the ranking accounts for the popularity of the sport, based on survey data from Gallup.

“Football remains the biggest and most popular sport,” says Locke. “The NFL draws the largest, strongest partnership ROI and the greatest fan affinity.”

Sponsoring sports teams is a tactic embraced by banks nationwide. There are more than 250 minor league baseball teams in the U.S., for example, and naming-rights sponsorships with these teams include big regional banks like Cincinnati-based Fifth Third Bancorp (the $168.8 billion asset company sponsors the Toledo Mud Hens) as well as smaller banks like $9.6 billion asset NBT Bancorp, in Norwich, New York, which sponsors the Syracuse Mets.

College teams offer another popular option. Through its Centennial Bank brand, Home Bancshares, based in Conway, Arkansas, has naming rights on the stadium that’s home to Arkansas State University’s Red Wolves football team – John Allison, the chairman of the $15.3 billion asset company, is an alumnus of the school.

M&T gets hundreds of sponsorship requests from sports teams to arts and cultural activities, says Locke. Her team uses a scorecard to conduct an initial review and determine whether a request meets the minimum requirements for M&T to seriously consider it. They look at things like alignment with the bank’s target audience, whether the opportunity will effectively promote M&T’s brand and differentiate the company in the marketplace, and if the bank will be able to promote its products and services to new audiences. Requests that pass this initial review are then handed off to a committee that meets quarterly to decide which requests to ultimately pursue.

Sponsoring the Ravens is a good fit, says Locke, because M&T doesn’t just cut a check. “We do community efforts together,” she says. For example, 150 employees from both organizations worked together to rehab a Boys & Girls Club of America in Baltimore earlier this year. Showing that both organizations are “deeply embedded in the community” is an important piece of the partnership, says Locke.

For the Ravens and other partners, M&T tracks the return on its investment through a number of key metrics, including impressions and engagement on traditional and social media. The bank also offers branded checking accounts for fans of the Ravens, Jets and Bills. These affinity accounts are promoted alongside the sponsorship, and M&T tracks their growth as part of the checking portfolio.

Fans’ love of the game goes beyond the numbers. A team’s record doesn’t account for its history, and teams that perform well one year can break fans’ hearts the next.

Locke says M&T is with fans through the good times and the bad. “Fans are deeply engaged and support [their] teams year-round,” she says. And football promotes values that M&T wants to align itself with. “[It’s] about teamwork, love for the sport, love for the community,” she says.

Best-Performing Stadium Sponsorships

Rank Sponsoring Bank Team League Win/Loss Record Score*
#1 M&T Bank Corp. Baltimore Ravens NFL 62.5% 1.2
#2 Wells Fargo & Co. Philadelphia 76ers NBA 62.2% 1.8
#3 TD Bank Boston Celtics NBA 59.8% 2.8
#4 U.S. Bancorp Minnesota Vikings NFL 53.1% 5.0
#5 Barclays New York Islanders NHL 58.5% 5.6
#5 Capital One Financial Corp. Washington Capitals NHL 58.5% 5.6
#7 PNC Financial Services Group Carolina Hurricanes NHL 56.1% 6.4
#8 SunTrust Banks Atlanta Braves MLB 55.6% 7.2
#9 Citizens Financial Group Philadelphia Phillies MLB 49.4% 7.8
#10 Bank of America Corp. Carolina Panthers NFL 43.8% 8.6

Source: Source: Gallup, NFL, MLB, NHL, MLS
*The score is based on the popularity of the sport as well as the win/loss records for each team. Where the bank sponsors an arena that hosts two sports teams, the best-performing team appears in the ranking.

The 10 Most Successful Financial Advertisers Right Now


advertising-11-23-18.pngFinancial institutions have long struggled to stand out in the marketplace and build their brand.

This is because they offer very similar products and services to consumers. But a clear strategy and well-defined corporate culture—and a story told with an effective advertising campaign—can help prospective clients understand what makes a bank special.

We’ve put together a list of banks that do that well.

To identify successful advertisers in the banking space, Bank Director focused on two key metrics: number of impressions—how many times a company’s ads were viewed on TV—and the average estimated cost per impression for each brand. This second metric is weighted to account for peak vs. non-peak advertising times. Together, the two metrics reward a balance between brand reach and an effective use of ad dollars.

Each metric was ranked, and the final score represents an average of the two ranks. In cases where the average of the two was a tie, the bank with the most impressions earned the higher score.

Credit unions and lenders that compete directly with banks are included, along with retail and commercial banks.

Bellevue, Washington-based iSpot.tv, an analytics firm that uses smart televisions to track ad activity, provided the data. The measurement was based on national ad activity from Jan. 1 through Sept. 10, 2018.

The ranking doesn’t account for the creativity of each bank’s advertising, but a compelling, creative ad with clear messaging can be effective in achieving the bank’s strategic goals.

Fifth Third Bancorp was savvy with its ad dollars, at $0.12 per 1,000 impressions, and placed second in the ranking. Its ad campaigns during the time period generated 442 million impressions.

The most buzz for the regional bank came from is its “Fee Sharks” ad, part of the “Banking a Fifth Third Better” branding campaign.

“The overall goal of [the Fifth Third Better] campaign is to build the Fifth Third Bank brand,” says Matt Jauchius, the bank’s chief marketing officer. “We believe that a stronger brand leads to growth and profitability for the bank overall.”

The campaign has been effective, resulting in a 21-percent increase in brand consideration over a roughly one-year period. Brand consideration is a metric Fifth Third and other companies use to measure the likelihood customers would consider the brand the next time they’re looking for a particular product or service. In banking, that tends to be whether a customer would consider the institution for their primary banking relationship—usually a checking account.

“Effective advertising needs to be rooted in a truth about the brand itself,” says Robert Lambrechts, the chief creative officer at Pereira & O’Dell. The San Francisco-based advertising agency worked with Fifth Third on the brand campaign.

“Find the thing that is true about your brand,” he advises. “[Be] honest with yourselves about who you are [and] what you want to do.”

The Fifth Third team found ties between its core value to go above and beyond and the bank’s unique name: Fifth Third employees give more than 100 percent—166.7 percent, to be precise—to help their customers.

Ads like the fee shark are quirky, memorable ways to highlight products, services and features—like fee-free ATMs. All the ads in the branding campaign feature a plucky young woman clad in a blue suit, with a Fifth Third pin and distinctive glasses, who serves as a brand ambassador and a proxy for the bank’s employees. She communicates the brand promise: that the bank works hard to meet the customer’s needs.

Fifth Third uses internal and third-party data to better understand what prospective customers want, how to motivate them, and when and where to place the ad effort—whether that’s on TV or radio, in print, on a billboard or on social media.

JPMorgan Chase & Co. topped the ranking, generating more than 5 billion impressions and spending a little more than an estimated $7 per 1,000 impressions—the fifth most cost-effective of the financial institutions examined in the ranking. The bank has run a number of TV spots in 2018. The ad with the most impressions—“Michaela’s Way,” featuring ballerina Michaela DePrince—promotes Chase QuickPay, which includes the real-time payments solution Zelle.

Donna Veira, chief marketing officer for Chase’s consumer banking and wealth management divisions, told AdAge: “We looked at all of the day-to-day, practical ways in which our customers are using QuickPay and brought those to life.”

Other spots show how easily tennis star Serena Williams uses the bank’s cash-free ATMs, or promote the bank’s business solutions and investment advice.

Most Successful Financial Advertisers

      # of Impressions Estimated cost per 1,000 impressions
  1 JPMorgan Chase & Co. 5,371,208,561 $7.36
  2 Fifth Third Bancorp 441,698,444 $0.12
  3 Citigroup 3,862,125,267 $13.44
  4 PNC Financial Services Group 1,400,939,671 $12.64
  5 Capital One Financial Corp. 545,702,921 $12.56
  6 Regions Financial Corp. 210,530,040 $12.29
  7 PenFed Federal Credit Union 144,093,408 $1.77
  8 Purepoint Financial
(division of MUFG Union Bank, N.A.)
46,254,915 $1.11
  9 SoFi 1,477,462,492 $15.60
  10 Ally Bank 1,495,976,740 $16.20

Data source: iSpot.tv

Six Things To Know About CECL Right Now


CECL-11-13-18.pngMany banks began the transition to CECL in earnest when the final version was issued in 2016. While banks are in various stages, some are already working through more nuanced aspects of the transition.

Many lessons have been learned from actual CECL implementations, and here are some tips to assist bank directors as they guide management through the transition.

1. The quantitative impact of CECL adoption may be less straightforward than initially expected. Even before the final CECL standard was issued, industry observers tried to predict just how much the allowance would increase upon adoption. In truth, it will be almost impossible to estimate the impact of the transition for an individual institution. The actual impact will depend upon many bank-specific factors, the estimation method, the length of the reasonable supportable forecast, the size of today’s qualitative adjustment, and management’s outlook, to name a few. Additionally, some banks with short-term portfolios have been surprised to discover the CECL estimate may be lower than the current allowance due to a shift from an estimate based on a loss emergence period to one that considers the next contractual maturity date.

2. CECL may result in a requirement to manage model risk for unsuspecting institutions. Similar to reserving practices today, banks are employing a variety of approaches. General trends include the largest institutions employing statistical software to build custom in-house models, while the smallest institutions favor a less complex approach that relies on adjusting historical averages. Many institutions who are not using models are relying on “correlations” to support their adjustments. However, this practice needs to be managed carefully, as per regulatory definition, any method that applies a statistical approach, economic, financial, or mathematical theory to derive a quantitative estimate is considered a “model.” Therefore, using a correlation – regardless of whether it is identified in a spreadsheet, vendor solution, or anywhere else – to quantify the impact of a factor is by definition a model, and subject to model risk management. Institutions taking this approach to CECL should carefully consider the scope of model risk management, and avoid accidentally creating or misusing models.

3. Qualitative adjustments will still be necessary. Regardless of the method used to estimate the impact of forecasted conditions, there will still be a need to apply expert judgment for factors not considered in the quantitative (modeled) estimate. Even the most sophisticated models used by the largest banks will not consider every factor. Further, many banks prefer the flexibility to exercise judgment in their reserving process. While it’s not yet clear which factors the industry will use or how to quantify the lifetime impact, as it relates to regulatory and auditor oversight, the level of scrutiny around qualitative adjustments will not decrease from existing practice. Again, accidentally creating models is particularly important given the scrutiny on management judgment and the overall impetus to quantify it.

4. Think beyond compliance. One of the overarching goals of CECL is to better align credit loss measurement with underwriting and risk management practices. The transition to CECL presents banks with an opportunity to have unprecedented insight into the credit portfolio. For example, a comparison between the CECL estimate and the interest margin can provide insight into underwriting practices. But this can only happen if banks take a holistic approach to the transition and make the necessary investment in systems and reporting.

5. Reporting and analytics will be more important than ever. Bank directors will be responsible for answering shareholder questions related to the CECL reserve, which will be sensitive to changes in forecasted conditions. As a key constituent of the disclosures and internal management reports, bank directors have a responsibility to ensure a proper reporting framework is in place – one that integrates the data inputs and quantifies the change in expected credit losses at the instrument level. Attribution reports, for example, will be especially helpful in explaining why the allowance changed because they isolate and quantify the impact of individual variables affecting the reserve.

6. Be prepared for an iterative process, even after adoption. Translating the conceptual to operational can reveal unintended consequences and further questions. The industry has continued to work through implementation concerns since the final version was issued in 2016, including several meetings of the CECL Transition Resource Group. Industry best practices will evolve well after initial adoption.

Four New Revenue Streams for Banks


revenue-10-10-18.pngCreating a healthy bottom line is the biggest goal for most financial institutions. If your bank can’t consistently turn a profit, you’ll quickly be out of business.

Maintaining a profitable bottom line requires a consistent flow of revenue. This can be difficult, especially for financial institutions that rely on both retail banking and enterprise customers to generate revenue.

Why is that? Because 40 to 60 percent of all retail banking customers are not profitable, according to a report by Zafin. Combined with the fact enterprise customers are consistently asking for a more robust product suite with high-tech payment options, turning a profit becomes difficult. Banks can alleviate the pressure by finding new ways of generating revenue that will improve the organization’s profitability.

Here are four ways you can create new revenue streams:

1. Reloadable Cards
If revenue has stagnated, it may be time to reinvigorate your product offerings. A good place to start for retail customers is reloadable cards. A report published by Allied Market Research, titled, “Prepaid Card Market – Global Opportunity Analysis and Industry Forecast, 2014 – 2022” predicts the global market for reloadable cards will reach $3.6 billion in 2022.

The benefits customers receive from reloadable cards are exceptional—fraud protection, no credit risk, and spending limits—and the profits financial institutions can reap are even better.

With reloadable cards, financial institutions can charge customers a variety of fees, including a fee to purchase and use the card, and a fee to withdraw funds for PIN-based transactions. Reloadable cards can also provide depository income.

2. White Labeling
White labeling can be a great way to generate new revenue streams by letting bank treasury departments resell funds disbursement platforms to their business customers. This makes payments more convenient for customers by speeding up and streamlining the process.

By reselling the right platform, banks can gain a competitive advantage by offering multiple emerging payment methods, such as virtual cards and real-time payments, to business customers. These high-tech payment methods are becoming more and more popular, helping financial institutions win new customers and retain established accounts.

3. Mobile Device Payments
The demand for mobile payment capability has been steadily growing since early 2000. Now, with digital natives like Gen Z entering the workforce, financial institutions have an opportunity to create mobile payment strategies that focus on customer satisfaction and retention.

This is a still an emerging space, but one that holds many possibilities for delivering products and services customers want and need. White labeling and reselling a funds disbursement platform, including mobile payment options, can help treasury clients in this area.

4. Improve Data Analytics
While not a revenue stream per se, analyzing data more effectively can help you identify new ways of increasing revenue unique to your business. For instance, if your analytics reveal many of your customers are small businesses struggling with treasury management, consider launching products and services that help.

The more you know about your consumers and the way they interact with your organization, the better equipped you’ll be to address their needs. Advanced customer data analytics will allow you to improve performance and add products in multiple areas of your financial institution, including:

  • Credit revolvers
  • Credit cards
  • Lending programs

Thoroughly analyzing customer data can also improve your ability to target new services and products to customers who want them.

Find New Products and Services that Appeal to Your Customers
Use your data and experiences with current customers to find areas where they’re struggling. Can you step in with a new offer that solves their problems? Options for improvement with existing customer accounts are the best new revenue streams for your financial institutions.

We’ve seen many banks succeed specifically by optimizing fee collections, delivering white-labeled products to improve customer convenience, and taking advantage of emerging payments technology. Use these revenue streams as a starting point, customizing them for what’s right for you and your customers.

Offline Versus Real-Time Analytics: Where Is the Industry Heading?


analytics-11-22-17.pngFinancial institutions are demanding real-time analytics at their point of customer interactions. Why? Sophisticated analytics applied in real time and at the point of customer contact can deliver better customer experience as well as increase the financial results of the institution. For example:

  • An insurance company can match different combinations of coverages and add-ons that can fit within a customer’s given constraints on price.
  • A banker receiving a phone call can see on screen the updated Life Time Value (LTV) of the customer and hold the discussion accordingly.

For years, we have been advising our clients to connect their front-end, customer- facing systems with real-time pricing analytical capabilities, or at least lay the foundations to enable this capability in the near future.

According to a September 2016 report from the research firm Gartner, “Between 2016 and 2019, spending on real-time analytics will grow three times faster than spending on non-real-time analytics.” Getting the right real-time analytics at the right time can deliver great value. Yet, from my company’s standpoint, most of the questions we get about real-time pricing engines are from vendors of front-end systems and other stakeholders. They are approaching us to enable the integration of their systems with their client’s back-end pricing structures. These are providers of insurance rating engines and underwriting solutions, as well as providers of core systems, revenue management and onboarding systems.

It seems that the driver for this vendor interest is explicit demand from the banks and insurance companies themselves. These institutions are increasingly investing in off-line pricing analytics to improve performance, software that can be used to optimize pricing and decision making.

Why Is This Happening Now?
The rush to utilize real-time analytics in customer-facing processes and decisions is not unique to pricing nor to the financial services industries. It has been growing for several years as part of the broader big data and advanced analytics trends.

Banks and insurers are now raising real-time pricing analytics as a requirement from suppliers of pricing systems, and have been defining such capabilities, or connectivity to such systems, as must have “add-ons” in requests for proposals for core and front-end systems. For example, banks and insurers are demanding real-time analytics for systems that offer customer relationship management, underwriting, onboarding, rating and pricing. Of course, the level of demand for such pre-integration differs between countries and sub-industries, and it is highly influenced by regulatory requirements, however, in most segments we have noticed the pull in this direction.

Moving From Off-Line Analytics to Real-Time Analytics
Today, it is even easier for financial organizations to get their budgets to include expenses of adopting real-time analytics. Replacement of core systems is accelerating as more resources are available to buy and implement these systems. This is enabling companies to re-evaluate all related processes, including pricing. Coupled with the surge in analytical know-how and advances in analytics technologies, including real-time capabilities and faster optimization, real-time analytics is becoming more widely feasible.

But the underlying benefits of real-time analytics is what is really driving the demand. Financial institutions realize that connecting their offline analytics to the customer facing process brings uplift not only in numbers but in the customer experience itself. According to a December 2016 report from the research firm Gartner, real-time analytics at firms is facilitating faster, more accurate decisions, especially for complex digital business initiatives such as online and mobile banking. Below are some of the benefits we have seen customers enjoying after migrating to real-time analytics:

  1. The ability to react quickly to aggressive competition, especially given the rise of direct channels and players.
  2. Improvement in the efficiency of price execution processes as well as a reduction in time-to-market of new pricing strategies.
  3. Improvement in customer-facing decisions. Once a company has a system in place to analyze real-time data, their ability to understand the customer significantly increases, translating into improvement in key performance indicators such as annual increases in pricing, as well as being able to anticipate and meet customer expectations.

Is Real-Time Analytics on Your Roadmap for 2018 or Beyond?
Regardless of what the reasons might be, we have been receiving more and stronger indications that real-time analytics is catching on in the insurance and banking markets in which we operate. Offline advanced analytics are already mainstream investments in financial organizations, and the focus seems to be progressing very practically to the next logical extension of real-time application of these analytics. Implementing real- time analytics that is connected to customer-facing systems requires forethought and planning. Even if this is something you are considering doing three years from now, the planning should start today.

To discuss how these topics impact your business, feel free to contact us at info@earnix.com.