More than 90 Percent of Bank Directors and Officers Worry About Non-Bank Competition

5-16-14-emilys-growth14-ars.pngBanks increasingly face competition from outside the banking industry.

Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. The retail juggernaut Wal-Mart Stores Inc. launched Bluebird in partnership with American Express Co. late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks. Customers also have access to mobile banking, which includes features like remote deposit capture and person-to-person (P2P) payments. As of August 2013, 1 million customers used Bluebird, according to Walmart Director of Communications Sarah McKinney. Wal-Mart’s Sam’s Clubs also offer small business loans through a non-bank Small Business Administration (SBA) lender. PayPal, which is owned by eBay, Inc., also has gotten into the business of P2P payments.

An audience survey of 120 bank directors and senior executives at Bank Director’s Growth Conference on May 1 found that many felt that their institutions are at least on par with their peers in the industry when it comes to innovation through technology, and just 17 percent said that their bank lags behind. However, the vast majority, at 91 percent, revealed concerns about non-banks entering financial services.

Community bankers aren’t alone in their concerns about competition from unregulated entities. Just days after the audience survey May 1, Jamie Dimon, CEO of JPMorgan Chase & Co., told the audience at the Euromoney Saudi Arabia conference in Riyadh that he sees Google and Facebook specifically as potential competition for the banking giant. Both offer services, such as P2P, that could chip away at income sources for banks. But the regulators could play a role in dampening these innovators’ ability to compete. “There’s no way that Google wants to be a regulated bank,” he said.

Perhaps Google and Facebook won’t pursue a future as regulated banks, but will partner with banks instead. CaixaBank, based in Spain, announced a partnership with Facebook on May 5 that will allow the bank’s customers to view account balances and transfers through their own Facebook profile or the bank’s Facebook page. Users can also make small donations to charities of up to 15 euros (about $20) to charities affiliated with the bank. CaixaBank plans to offer P2P payments through Facebook in the near future.

Half of the attendees surveyed at the Growth Conference said they would be open to a partnership with a financial technology firm. Wilmington, Delaware-based The Bancorp Inc., a financial services company with $4.7 billion in assets, offers private label banking to partners who sell services under the partner’s brand, including PayPal and Simple, which was recently acquired by Banco Bilbao Vizcaya Argentaria (BBVA).

Would your bank consider partnering with or acquiring a fintech firm?


Bill Roop, CEO and president of $1.1-billion asset Alpine Bank & Trust, headquartered in Rockford, Illinois, thinks the banking industry could see an increase in these types of partnerships. “You’re going to see a growing awareness of the different ways that you can touch a customer, and I think the industry has to be very open to partnering and working together to share the wallet…while also maximizing the benefit to the customer,” he says.

Regulations are often cited as constraints on a bank’s ability to innovate, but more attendees at the Growth Conference cited technology investment, at 42 percent, or the vendor relationship, at 31 percent, as greater barriers to innovation.

A little more than one-quarter of the audience blamed regulations for the lack of innovation in the industry. Regulation is just part of a banker’s life, says Roop. “Hire the appropriate individuals as you can, be sure you’re compliant with what the laws are, but our job is to serve the customers.”

The survey also found that one-third of attendees sit on bank boards with at least one member who has technology expertise, and almost half said that their board doesn’t have a technology expert but needs one.

As many community banks rely on core processors for customer-facing technology solutions such as mobile and online banking, the vendor can make or break an institution’s ability to innovate, and determining and investing in the right technology while still running an efficient institution can be a challenging balancing act for community banks.

“I’ve tried to weigh all these products and services out there. Yeah, I’d love to have all [of] these things but there’s a cost to that, and our cost is spread among $140 million in assets and two branches,” says Jim Marshall, CEO and president of blueharbor bank, which is based in Mooresville, North Carolina, and uses all lowercase letters in its name to convey a more contemporary approach to banking. “That’s one of the challenges of a small bank.”

Quizzing Bank Compensation Leaders

11-18-13-ARS.pngPaying executives in a way that keeps shareholders happy and retains top executive talent remains challenging, and 44 percent of attendees of Bank Director’s Bank Executive and Board Compensation Conference in Chicago cited tying compensation to performance as the top compensation challenge they face heading into 2014.

Bank Director and consulting firm Compensation Advisors by Meyer-Chatfield polled more than 175 members of the audience at the conference, which occurred Nov. 4-5.

Bill MacDonald, chairman of the advisory board at Meyer-Chatfield, said he’s not surprised by the challenges faced by compensation committee members and human resources executives attending the conference. Many banks tie compensation to performance indicators like return on assets or return on equity, which for many banks have not been great in a flat economy. MacDonald recommended that boards should not rely solely on these metrics. They should also compare pay to peer groups and base incentives on strategic goals, “coming up with measurements of improvement that the executive and directors can control,” he said. Strategic goals might include revenue growth, opening new branches or improving loan quality.

Forty-one percent of attendees said that the development of competitive compensation packages is their board’s biggest challenge when it comes to attracting and retaining talent for the bank. When asked about specific challenges in offering competitive compensation packages, 30 percent of attendees said that their bank simply cannot afford to pay as much as other financial institutions. “I don’t think affordability should be an objection to not putting in a performance-based plan, because if the performance is there, the economics are there [and] the shareholders will be rewarded,” said MacDonald.

What do you see as the most challenging aspect in attracting and retaining talent for your bank?


James Dent, an attendee of the event and chairman of the compensation committee at Old Line Bancshares Inc., a $1.2 billion-asset holding company headquartered in Bowie, Maryland, said it’s important to stay competitive with the market in order to attract and retain talented staff. “If you want good talent, you’re going to have to pay for it,” he said. “It’s just a question of whether you want to step up to the plate and do the number that’s required.”

Thirty-nine percent of attendees said there is a lack of talented candidates, while 15 percent cited a talent vacuum caused by the retirement of experienced executives. MacDonald said that many executives have been unable to retire due to the economic downturn and its impact on retirement plans. “The stock didn’t perform, they can’t leave, and we’ve got a great group of middle management stuck behind this group of Baby Boomers,” he said. “So the challenge really is, how do you continue to retain and grow this middle management talent?”

Forty-two percent of attendees expressed satisfaction with their bank’s succession plan, while 36 percent were unhappy with the bank’s succession plan and 15 percent said that their banks don’t have a plan in place. Dent said that his bank is more comfortable with succession planning than they were two years ago, with a plan in place not just for the chief executive officer, but also for executives like the bank’s chief financial officer, senior lender and credit officer. “We have the talent in place to move forward if something were to happen,” he said.

Are you satisfied with your bank’s succession plan?


Bob Greer, chairman of Business First Bank, based in Baton Rouge, Louisiana, with $684 million in assets, said that his bank doesn’t have a formal succession plan in place. Business First’s president and CEO, Jude Melville, is under 40, but if Melville left the bank, “We have very good bankers right under him,” he said. “I don’t think our bank would miss a beat, so I’m not that concerned.”

When asked about board pay, 40 percent of attendees expected to see director compensation increase in 2014, while 58 percent expected pay to remain the same. So are directors fairly compensated? Fifty-three percent of attendees said yes, while 43 percent said no.

After spending two years gradually raising the board’s pay to better meet peer averages, Dent believed that Old Line’s board is fairly paid. “We have brought on some new talent,” he said. “They’re very busy people and we feel we should be paid for the time and the responsibility,” he said.

Do you believe you are fairly compensated for the amount of time you devote to your role as a director?


MacDonald said board compensation differs based on the maturity and structure of the board, as well as what phase of growth the bank is in. Community bank board members, already large shareholders at their banks, are focused on protecting their investment and less likely to crave a cash reward. A larger bank may favor a blend of cash compensation and restricted stock.

Greer said that Business First just started to compensate the board, in cash, in 2012. Right now he expects board pay to remain steady in 2014, and said that board pay will likely never be enough to compensate for the time, liability and responsibility of being a director. “It’s taking so much more time,” he said. “Most people own stock in their particular bank and want their bank to do well, so [they] don’t mind giving the time. I think the only problem is… I don’t see it slowing down any.”