Leveraging Digital Channels to Bank Small Businesses

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The small and midsized business banking sector is undergoing a profound evolution. Rising competition, technological disruption and evolving small business expectations are placing new demands on community banks who face a simple choice: innovate to compete or risk losing market share.

Today, small and midsized businesses are challenged by increasing costs, higher interest rates, staffing challenges and depending on industry, major economic headwinds. Business owners are looking across a variety of channels to reduce costs, borrow inexpensively and improve efficiency, as they weather the current economic uncertainties.

Small and midsized businesses have access to an ever-growing range of financial services and can easily find providers that deliver products and services that are tailored to their precise business needs. Financial service options range from traditional national and regional banks with sophisticated treasury management solutions to innovative fintechs that specialize in a niche product offering to challenger banks that emphasize their digital offerings.

The small and midsized business sector is an important customer segment for community banks, with the potential to fuel long-term relationships from both a lending and deposit relationship perspective. It is no longer strictly about rates or fees, but how a banking relationship can create business impact for a small or midsized business.

There are multiple strategies for community banks may consider as they reevaluate their product and service offering, along with the underlying technology and partnerships that deliver enhanced services. Ron Shevlin, chief research officer at Cornerstone Advisors, highlights one such strategy in a recent research report titled What Do SMBs Want In A Small Business Bank Account?

Shevlin highlights the opportunity for community financial institutions to reinvent their business checking accounts, weaving in value added services to further differentiate themselves in the market. Small and midsized businesses are expressing a willingness to consider moving their checking account if it includes a variety of value-added services that drive business impact in safety, security and soundness.

Community banks have an enviable position as a secure, experienced and trusted partner to this customer segment.

As small and midsized businesses are pressured to do more with less, they seek financial service partners that help create efficiency, move quickly, and deliver value added services. Community banks should do a self-assessment and ask:

  • Do we make it easy for a small or midsized business to establish a relationship with us?
  • Is it easy for a small or midsized business to bank with us?
  • Where and how do we create business impact for our small and midsized business clients?

Technology innovation should be a high priority to successfully execute their strategic objectives. Historically, community bank strategies have been limited by technology. With technological innovation, bank strategy can now drive technology decisions.

By focusing on the digital relationship between the bank and the small or midsized business, there may be several opportunities to improve client operating efficiency, deliver value and create an individual relationship through the digital channel.

Here are some examples of how banks can enhance relationships through the digital channel and drive impact for small and midsized business clients:

  • Simple new account and product onboarding
  • New product recommendations
  • Configurable back-office workflows
  • Open application programming interface (API) platform to easily integrate value-added fintechs
  • Comprehensive payments and money movement capabilities

Deploying a platform with a combination of defined works flows, approvals, and preconfigured settings for common or recurring events can significantly improve the back-office operation of the small or midsized business.

The small and midsized business market presents a tremendous opportunity for community banks to grow existing relationships and deliver an innovative set of services and technology that will lead to long-term relationships. A community bank that is seen as a partner will be indispensable to its small and midsized business clients.

Evaluating BOLI in a High Rate Environment

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With the quick rise in interest rates over the past 18 months, a question many bankers ask is “When will my bank-owned life insurance (BOLI) yields increase?”

BOLI is a long-term investment for banks. Banks purchase BOLI as an asset intended to be bought and held on bank balance sheets, often for 30 years or longer, to optimize the tax and diversification advantages of life insurance. BOLI net yields are typically higher than yields on other taxable bank-eligible investments, especially when death benefits are recognized, according to the COLI Consulting Group’s BOLI Tracker in the first quarter. The account value of BOLI policies accumulates on a tax-deferred basis; the death benefit proceeds are generally income tax free.

Insurance carriers have long-term benefit obligations, including BOLI. To match the duration of their liabilities, they invest in long-term assets, typically resulting in intermediate-term portfolio durations. That means the increasing interest rates over the past 18 months have only recently begun to impact the average investment yields of carriers’ portfolios. If rates remain high, insurers’ portfolio returns will increase over time and crediting rates will increase on a lagging basis.

Banks should focus on the long-term structural characteristics of BOLI that allow it to outperform bank-eligible portfolios of similar credit quality over full market cycles. The ability of insurers to purchase assets unavailable to, and at a scale unachievable by, most banks is a key characteristic of BOLI. The long-term nature of BOLI provides an important hedge to reinvestment risk, which is especially important as many believe rates are nearing a high point in the cycle and reinvestment risk on shorter-term investments is material. Notably, investments in general or hybrid separate account BOLI incur no market value or accumulated other comprehensive income adjustment, or AOCI, unlike most alternate investments. That can be an attractive feature as higher interest rates have caused many banks to sustain significant reductions in equity capital due to AOCI adjustments to their bond portfolios.

Current BOLI Versus Higher-Rate New BOLI
While moving an insurance policy from one carrier to another can be accomplished with a tax-free exchange, provided all applicable state and federal regulations are complied with, policy owners should keep in mind:

  • BOLI is a long-term investment and banks should not be overly swayed by higher new money rates. Sometimes, new money rates will exceed portfolio rates; at other times, portfolio rates will exceed new money rates. Long term, they trend toward equalization.
  • The minimum interest rate guarantee for new BOLI products will likely be lower than the current BOLI policy’s minimum interest rate.
  • Exchange charges, including market value adjustments, could significantly reduce the potential pickup in yield from moving coverage.
  • To qualify as life insurance, the bank must have an insurable interest in each insured on a new policy’s issue date, and this requirement may not be as easy to meet with 1035 exchanged policies.
  • Banks should be encouraged to look at the total return of their BOLI, including expected future death benefits proceeds, rather than solely focusing on cash value growth.
  • Generally, a carrier won’t allow the bank to purchase additional BOLI in the future if the bank moves coverage, limiting the bank’s options for future purchases.

Exceptions where it may be appropriate to consider a 1035 exchange:

  • Credit concerns regarding the current carrier.
  • The carrier has exited the BOLI space and is not meeting customer expectations.
  • Rates have been higher for several years and the carrier has not increased its rates.

With recent increases in interest rates, it’s tempting to expect rapid increases in yields on existing BOLI portfolios. However, BOLI is a long-term investment; crediting rates move up and down gradually, consistent with the duration of carriers’ portfolios. This gradual movement was much appreciated when rates moved down to near 0%, as many BOLI carriers continued to credit interest close to 3%.

Now that rates have increased and the yield curve has inverted, the lag in BOLI crediting rate movement may cause BOLI yields to temporarily be less than yields on some other available investments. But when held to maturity, BOLI typically produces more earnings than other bank-eligible investments. If your bank is considering a 1035 exchange of existing policies, be sure to evaluate the alternatives thoroughly and beware of pressured pitches to chase higher rates.

Insurance services provided through NFP Executive Benefits, LLC. (NFP EB), a subsidiary of NFP Corp. (NFP). Doing business in California as NFP Executive Benefits & Insurance Agency, LLC. (License #OH86767). Securities offered through Kestra Investment Services, LLC, member FINRA/SIPC. Kestra Investment Services, LLC is not affiliated with NFP or NFP EB. Investor Disclosures: https://bit.ly/KF-Disclosures

Life insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) and its subsidiaries, C.M. Life Insurance Company (C. M. Life) and MML Bay State Life Insurance Company (MML Bay State), Springfield, MA 01111-0001. C.M. Life and MML Bay State are non-admitted in New York.

MM202608-306528

2023 Technology Survey: Complete Results

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Bank leaders today must balance the need to meet competitive threats and profitability challenges while operating on what can often feel like a shoestring budget. 

More than 100 senior technology executives, CEOs, chief operating officers and independent directors responded to Bank Director’s 2023 Technology Survey, sponsored by Jack Henry. The survey focuses on U.S. banks below $100 billion in assets, and explores topics including barriers to adoption, emerging technologies and tech expertise on the board. 

The results find that while a majority of banks offer digital capabilities such as deposit account opening and payments to retail customers, their offerings for small business clients tend to be less robust. Additionally, just 18% of respondents say they feel their bank has the tools it needs to effectively serve Gen Z customers. Almost half say the same of millennials, while large majorities feel confident in their ability to serve Gen X and baby boomer clients. 

The survey was conducted in June and July 2023. Members of the Bank Services program have exclusive access to the full results, including breakouts by asset category and ownership structure. 

Click here to view complete results. 

Key Findings

The Rising Neobank Threat
Sixty-one percent of respondents identify local banks or credit unions as their bank’s primary competitive threat, followed by big/superregional banks (56%) and neobanks that compete for consumer deposits (42%), such as Chime — a significant increase compared to last year’s survey. 

Barriers To Adoption
Almost three-quarters cite integrating with the bank’s core as a chief obstacle to planned upgrades or implementations, followed by adoption or acceptance by bank staff (53%) and customer adoption (51%). 

Emerging Opportunities
More than half (56%) say their board has discussed allocating budgets or resources to artificial intelligence, while 47% say the same about banking as a service. Smaller percentages have had similar discussions about blockchain (15%) or cryptocurrency and digital assets (24%). 

More Dollars For Tech
A large majority (83%) of survey respondents say their bank’s technology budget increased over the past year, at a median increase of 10%. A median 15% of the technology budget is devoted to new initiatives, bank leaders report. 

Seeking Board Expertise
Fifty-one percent say their board has at least one member they would consider to be a technology expert. Among those who do not, 38% say they are actively seeking a director with technology expertise. 

Emphasizing Digital
This year, 44% of respondents say that digital channels are more critical to their bank’s strategy, compared with 33% who said the same last year. The percentage that rank digital channels and the branch as equally important also dropped, from 57% to 48%.

These topics will be explored at Bank Director’s Acquire or Be Acquired Conference, Jan. 28-30, 2024, in Phoenix, and Experience FinXTech, May 14-15, 2024, in Tampa.

The Final Lessons From HBO’s “Succession”

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I’ve previously written about three “lessons learned” from the hit HBO show “Succession.” As a refresher, those lessons are:

• Succession planning is always vital.
• Where was the board of directors?
• Separate economic ownership from executive leadership.

Now that the final chapter of the show has passed, there are final lessons to be remembered, particularly for boards of directors. One seemingly obvious lesson needs to be reemphasized here, as brilliantly portrayed in the show: Who will take over in a crisis to ensure that the proverbial trains stay on the right track?

In the case of “Succession,” the aging patriarch of the business and family, Logan Roy, dies early in the final season while aboard his private jet, with none of his children present. Once it is established that Logan has indeed passed away, the drama quickly moves to the questions of both who will take over and how this will be communicated, given that their company, Waystar Royco, is publicly traded though tightly controlled.

It was ridiculous to see company executives scrambling and attempting to decode handwritten notes in the margins of the patriarch’s important papers, trying to determine who Logan wanted to succeed him. Even on an interim basis, there is no clear plan — let alone one that provides clarity about succession for the CEO role.

The absurdity of this situation is exacerbated by the fact that while the three of his four children who are active in the business all believe that they should be the successor, none are truly qualified. In early episodes, the eldest son, Ken, appeared to be the most involved in working for the company, but he is emotionally unstable and becomes compromised by external events.

A plan of succession, both short and long-term, is lacking. In the very end, the board — including the siblings — votes to sell the company. This decision comes about because of one sibling’s deciding vote in opposition to the others. What are the parallels to community banking today?

First, there are still too many banks without real succession plans. Many boards acknowledge that there is a proverbial envelope with an interim CEO’s name in it, yet lack confidence in this choice as a longer-term solution.

Second, interim CEO plans need to be revisited annually. While a former CEO who remains on the board may be an excellent crisis solution in the first year or two after retiring, would that still be the case five or six years after stepping down? There is a practical limit to the expediency of this type of move.

Third, if the interim CEO is truly a planned short-timer, what has been done to ensure that the longer-term options are being prepared to step in when the time is right — and even when the time is less than ideal?

Our firm has been involved in over 100 president and/or CEO succession assignments; anywhere from 10% to 15% of these have occurred unexpectedly. These have arisen due to a variety of situations, including:

• Unexpected and untimely death.
• Termination for inappropriate behavior.
• Health reasons.
• Termination for poor performance.
• A change in the CEO’s planned personal timeline.
• Being recruited away for a bigger and better opportunity.

In each of these scenarios, the timeline for a succession plan was upended. In cases where no ready successor was waiting in the wings, the boards were forced to look to the outside. While an external search is always an option — whether for comparison purposes or because of a lack of strong contenders — community banks benefit the most from a well-planned orderly transition of leadership. Continuity of leadership often ensures the continuity of strategy, which is typically a healthy thing.

Boards have an obligation to regularly discuss succession plans with incumbent leadership, demand action on the development of potential long-term successors and regularly revisit the emergency succession plan. Anything less, and the board may find itself in the unenviable situation of Waystar Royco’s board in “Succession.” As we all now know, the lack of succession plans of any kind ultimately impacted the decision to sell the company. It would be a shame for that to happen to your bank.

Embracing Strategies and Overcoming Challenges to Unlock Growth

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Institutions are seeking a multitude of means to stimulate their growth.

Growth is mission-critical for banks but can be difficult to achieve due to various factors. A successful growth goal and outcome needs a systematic approach toward execution. Banks can achieve growth by driving toward metrics that are broken into components across the institution. But to ensure that growth is not merely a board-level catchphrase, banks need to establish a clear set of strategies and plans that lead to sustainable success.

Three variables drive growth at banks:
• Leadership and strategy.
• People and culture.
• Marketing.

Leadership and Strategy
Leadership and strategy are enormously impactful on any organization’s growth — or lack thereof. Winning banks are headed by executives who map out a clear vision and direction, backed by metrics, for where they want to take their organization. What gets measured gets managed. Accompanying this vision are strategies that banks can use to articulate growth goals and objectives throughout their organization.

Clarity of vision, open and transparent employee communication and simple messaging can all align growth objectives to people’s specific roles in the organization. This can boost understanding of their roles in the larger machinery and morale among employees. Finally, management should emphasize how the institution will monitor progress against realistic metrics, with the highest levels of leadership retaining the ability to adjust course when necessary.

People and Culture
The confluence of people and culture is another major impact on the growth of banks. An institution is only as good as the individual. Banks must create a team of motivated employees who are aligned with the vision and values of their leaders. Clear and transparent communication can foster a culture rooted in innovation, collaboration and customer-centricity directed toward growth.

Marketing
The third major impact on growth is marketing, both strategic and tactical. Banks that have a firm understanding of their account holders’ current financial needs, their target markets and how to best serve them can effectively leverage marketing to foster growth. In a world of digital touchpoints, staying competitive means providing personalized and quantified marketing campaigns that aim to reach, connect, engage and ultimately spur action that positively impacts the bank’s growth trajectory.

Banks that work to align all three of these elements have a good chance of achieving their growth goals and sustainable success while gaining a competitive advantage and delivering higher value to their customers. Failure to do so can spell trouble for banks, leading to stagnation, decline and potential closures.

Challenges That Stunt Growth
The financial services industry faces several challenges that broadly hinder its ability to grow. In recent years, the industry has contended with a shortage of skilled employees, turnover and overwhelming ongoing demands. Although digital transformation is essential, it can be expensive and result in banking feeling less personal if the digital element is not fully leveraged for customer communications. This, in turn, clashes with a bank’s growth objectives.

Despite digital transformation being one of the top goals in the financial services industry, banks may not fully grasp how to capitalize on their digital assets. Banks need to utilize their abundance of customer data to humanize digital interactions. Using data and AI insights can lead to increased customer engagement within multiple digital channels, which leads to growth. But how do banks do this with the severe shortage of the skills needed to lead and implement digital strategies?

Growth as a Service
Digital engagement and cross-selling are critical for banks, especially in a hypercompetitive landscape with high consumer expectations. Banks need to invest in the right technologies to do this at scale. And those banks focused on growth have a mandate to find and use these solutions effectively.

The benefit of “growth as a service,” otherwise known as GRaaS, is that it does not just stop at technology. Understanding what technology platforms to use is an important part of the puzzle — but it’s still only a part of the puzzle. With GRaaS, bank leaders can get a robust combination of technology and industry experts who can become an extension of your bank, while putting the tech to good use towards your growth goals.

As a holistic approach that enables the growth of loans and deposits, GRaaS can also support banks’ quest to acquire new customers and digital users. The “service” in GRaaS is what is so pivotal. It delivers that soup-to-nuts value: expertise that can conceptualize, define, implement, measure and optimize multiple, concurrent data-driven campaigns to serve a bank’s growth objectives.

How Top Banks Navigate a Tough Environment

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As interest rates rose in 2022, the best banks focused on meticulous balance sheet management, paying careful attention to funding costs and credit metrics. And they kept capital front of mind, says Kara Baldwin, a partner with Crowe LLP. By focusing on the core fundamentals of banking, those financial institutions weathered a tumultuous landscape, and set themselves up to handle regulatory issues and other challenges that could present themselves in the back half of 2023.

Topics discussed include:

  • Capital Management
  • Regulatory Risk
  • Technology Investment

Click here to read the complete RankingBanking study, sponsored by Crowe.

7 Essential Elements to Integrate Financial Metrics and Risk Strategy

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Banks depend on their financial reporting and performance metrics — but often this data is scattered among multiple systems and spreadsheets at typical community and regional banks, and it is very rarely viewed in conjunction with risk data. As a result, bank executives do not have the visibility they need, while strategic opportunities slip by.

Bank’s risk data is often uncoordinated and confusing, stemming from disjointed risk management processes and poor communication flow. Employees may not have a view of their risk profile or have an established appetite for risk. They view risk as something to react to —not a strategic discipline operating across the entire enterprise.

Banks can no longer simply rely on financial metrics alone, any more than they should view risk as simply a credit issue. Financial data being viewed through a risk lens is necessary if any bank is to have the most accurate profile to make the most effective strategic and forward-looking operational decisions possible.

The largest banks have comprehensive tools, reporting systems and dashboards. Their approach allows several key leaders to pilot the enterprise in a coordinated effort. For the small- to -mid-sized bank seeking to be agile and innovative, the technology to make this possible has been either too expensive or difficult to implement.

This unification of finance and risk on a platform is now possible for banks of all sizes. Banks now can project a heads-up display of financial data onto a crystal clear windshield of risk visibility. Here’s what it’s going to take to see what you bank needs to see:

1. Strategic and Financial Management
Generate detailed, driver-based rolling forecasts to project financial performance over the short and long term. Streamline the budgeting and reporting process to incorporate branch, board and external reporting, complete with allocations and consolidating entries, to bring forecasting and strategic planning together.

2. Risk Appetite Definition
Specifically, the risk appetite framework objectives define and manage the levels and types of risk the board and management are willing to take in order to achieve the bank’s strategic objectives. Executives will want to represent the aggregate view of risk across all risk categories and lines of business and create a dynamic structure that allows for internal and external changes in risk profiles. Because every organization’s risk appetite is different, they should be sure to incorporate the bank’s core values, mission and objectives.

3. Top Risk and Key Risk Indicators
This is where risk appetite merges with financial analytics. Key risk indicators (KRIs) measure and indicate changes in the impact or likelihood of a risk against a risk tolerance range or threshold. Develop an enhanced key risk indicator inventory (KRI) aligned to the risk process structure of the corporation. KRIs not only define your bank’s risk capacity, they also provide early indication of changes to your risk profile. They measure performance targets and goals, and provide visibility to the key risk profiles of the corporation.

4. Expected Loss Credit Risk Measurement
Making loans is at the heart of what banks do. Visibility here is key. Banks need to accurately assess credit risk with scorecards that rate both the borrower and collateral, and quantify expected loss for risk rating, pricing and portfolio risk management. This lets executives see the potential impact on charge-offs and the provision for loan losses while identifying higher risk profile segments of the loan portfolio. Good credit portfolio analytics allow the bank to see the trends before they’re impacted by them, so the bank can act instead of react.

5. Stress Testing
This entails a consolidated risk tool set that includes credit and non-credit stress testing, based on prospective economic scenarios. Banks can simulate prospective economic scenarios and see the potential impact on capital and financial performance, while gaining visibility to the organization’s risk profile. They can also obtain visibility to the potential impact on charge-offs rates and the provision for loan losses, while identifying higher risk profile segments of the loan portfolio. If the bank grows too quickly, will it run out of liquidity and capital? What if earnings aren’t what’s expected? What if the economy slows and interest rates increase? What ultimately happens to credit risk exposure?

6. Monitoring and Visibility
Compare the bank’s risk appetite to its risk profiles across the enterprise, both real time and periodically, with your organization’s strategic plan and movements. This includes loan and deposits performance reporting, analytics and branch reporting. Capture instrument-level loan and deposit data to analyze profitability and activity by customer, product, loan officer and more. This will reveal the bank’s growth potential.

7. Real-Time Prospective Reporting
Where it all comes together: The ability to monitor and manage the business day-to-day using a highly graphical and intuitive interface for operating, performance and risk metrics. This is about making risk-adjusted decisions to optimize your organization’s strategic plan.

Embracing automation that unifies real-time financial optimization and risk quantification allows banks of all sizes to see much further, because the risk outlook and forecasting are driven by a shared and goal-oriented risk language and key risk indicators. Banks can finally look through a windshield that is crystal clear because their finance and risk metrics are comprehensive and true.

This all adds up to freedom, freedom to spend less time guessing, gathering and reacting, and more time executing strategy, optimizing risk and achieving goals.

2023 Governance Best Practices Survey Results: Equipping the Board for a Tough Environment

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The vast majority of bank board members and CEOs believe their board proactively addresses the risks and opportunities facing their institutions, and that issues and challenges are adequately reflected in the board’s agenda. But a lack of various skill sets and knowledge could mean the board is ill-equipped to ask questions about key risks or business opportunities at a time when the operating environment looks increasingly tough.

Many boards, particularly at smaller banks, could be lacking expertise in critical areas that may be needed to address today’s challenges, according to Bank Director’s 2023 Governance Best Practices Survey, sponsored by Barack Ferrazzano’s Financial Institutions Group. Many respondents representing banks below $1 billion in assets see gaps in board-level expertise around risk, regulations and technology. Overall, just a third say their board possesses cybersecurity expertise, while 95% say their board has finance and accounting experience.

Given the nature of the industry, accounting and audit expertise aren’t likely to be overrepresented on bank boards, says Robert Fleetwood, a partner in the Financial Institutions Group at Barack Ferrazzano.“The risk of not having specific technology or cyber expertise is that you don’t have someone overseeing management that understands the lingo and knows if what’s getting done is appropriate,” he adds. “You’re gonna have a board that might not have a true understanding of the possible significance of [data breaches or email hacks] and the practical effects of how to fix it if there is an issue.”

Respondents feel confident about their board’s ability to monitor risk, with 94% calling their board very or somewhat effective at executing that responsibility. When asked about duties specific to risk oversight, 81% say the board reviews, approves and monitors the bank’s risk limits, and 73% say they hold management accountable for adhering to the risk governance framework. Two-thirds say their board reviews and approves the bank’s risk appetite statement, which defines the level and types of risk a bank will take on.

While the board can’t be expected to be experts on everything, a diversity of professional backgrounds can help the board as a whole ask better questions and provide a credible challenge to management. In anonymous comments, an independent director at a Midwest public bank offered this view: “Director expertise is essential.”

Key Findings:

Focus On Asset/Liability Management
A majority of respondents (83%) say their board revisited its asset/liability management policy over the past 12 months. Almost all (93%) believe their board is somewhat or very effective at monitoring asset/liability risk.

Stamp Of Approval
Sixty-four percent — primarily representing banks below $10 billion in assets — say their board approves individual loans, either as an entity or via a board-level committee, while 36% say their board approves policies and limits but not individual loans.

Finding New Board Members
Fifty-six percent say their board or governance/nominating committee cultivates an active pool of potential board candidates, while over a third (34%) say it does not. When asked what their board does to attract new potential directors, many share in anonymous comments that they rely on personal networks or referrals from existing board members.

Turnover In The Boardroom
Almost half (49%) say that one or two new directors have joined their board since January 2020, while 22% say that three or four new directors joined in that time. Twenty percent say that no new directors have joined their board in that three-year period.

Dialing Up Diversity
More than half (57%) of respondents say their board has three or more diverse directors, as defined by gender, race or ethnicity — up slightly from last year’s survey. Another 36% this year say their board has one or two directors who fit that definition.

Zooming In
Eighty-three percent of all respondents say their board has established guidelines around virtual meeting attendance.

To view the high-level findings, click here. Governance issues like these will be covered during Bank Director’s Bank Board Training Forum in Nashville Sept. 11-12, 2023.

Bank Services members can access a deeper exploration of the survey results. Members can click here to view the complete results, broken out by asset category and other relevant attributes. To find out how your bank can gain access to this exclusive report, contact [email protected].

Blueprint for Operations Center Success

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Architects and contractors can design and construct an operations center for a bank, but ensuring that it caters to the institution’s unique growth trajectory requires meticulous planning.

The facility’s usage must justify the investment — whether it aims to streamline operations, serve new consumers, attract top talent or achieve a combination of these objectives. That means boards and executives need to carefully consider considerations that go into planning and data-backed insights into large-scale builds.

When considering an operations center, executives should focus on three primary categories of considerations: strategy, culture and scale. In order to develop a strategy, executives should determine the growth trajectory and the sources of growth. Additionally, it’s crucial that they assess technological changes and anticipated regulatory requirements. Understanding the bank’s organizational culture informs how the workforce collaborates and interacts and should influence the design and work style of the center. And the scale of a project like this involves setting a timeline, investment and organizational impact, which helps with aligning for future needs.

It’s essential that executives evaluate the current conditions of the institution to shed light on available resources and set the foundation for the planning process. Financial considerations involve assessing affordability, including capital expenditure, additional depreciation and operating expenses, which impacts the bank’s return on assets and return on equity. Planners should map out employee conveniences, such as commute times and preferred modes of transportation. They must examine existing administrative facilities and land options to determine their potential for accommodating additional employees. Market evaluations should consider future hiring potential and the market’s ability to support the new facility’s value.

Assessing employee growth potential is a critical calculation for executives and boards that relies on historical trends and insights from department leaders. Planners should project and predict the number of administrative employees needed over an anticipated timeframe, which can provide valuable guidance. Market conditions also play a significant role in positioning the operations center: executives should consider factors such as market size, demographics, socioeconomics, traffic patterns and real estate conditions when determining the center’s location.

Banks should evaluate deployment strategies with a comprehensive understanding of their future needs and market conditions. Lease, build or purchase and renovate each have their own costs and benefits that should align with a bank’s specific criteria. Planners should evaluate the time value of money, cost versus opportunity and the market impact to compare these options and identify the best value for the organization.

Bringing a project like this to life requires addressing the most important aspects early on by aligning the planning team’s objectives with the organization’s goals. Although perfection is rare, a thorough planning process ensures a bank leverages informed decision-making and maximizes the investment’s value. Once the bank makes a deployment decision, they can shift their focus to the exciting task of designing the new space.

Planning plays a vital role in designing an operations center that supports a financial institution’s distinctive growth trajectory. Considering a bank’s strategy, culture, scale, current conditions, employee growth potential, market conditions and deployment strategies allows organizations to make informed decisions and optimize their investment. A well-planned operations center sets the stage for success and helps a bank thrive in the future.

How Banks Can Make Their Boards More Effective

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Bank boards can’t operate in 2023 the way they did in 1993, 2019, or even 2022. The world moves too quickly, and bank boards that stay in place will fall behind.

In OnBoard’s 2023 Board Effectiveness Survey, boards across several industries shared their thoughts on how they could operate more efficiently and effectively. Financial institutions were well-represented in the survey. They accounted for 19% of survey respondents, ranking second among all industry types.

The results? Too many boards aren’t as effective as they should be, for a variety of reasons.

The problems bank boards face are easy to identify, and solutions exist. The first step is identifying those problems.

Survey respondents listed the following pitfalls among boards where they sit:

  • Lack of diversity on boards: A whopping 95% of respondents said a lack of diversity and new ideas was the main driver of an ineffective board environment, and 69% said their boards need more turnover. Nearly three-fourths (73%) said their boards also struggle with collaboration and engagement.
  • Lack of focus on mission: Another decisive majority (84%) claimed their boards lack a clear mission or measurable objectives. Seventy-nine percent said their boards needed more governance maturity, and 77% cited poor planning and preparation for meetings as top concerns.
  • Outdated technology: Eighty-three percent were frustrated about their inability to access board resources from a single, centralized location. Meanwhile, three-fourths said board members and staff rely too much on email as a primary communication method, and 56% of respondents lamented their boards’ lack of digital security and limited use of technology.

Survey respondents also revealed some strengths they see on their boards. Compared to a similar survey in 2022, 62% of respondents said their boards were more collaborative than they were 12 months ago, and 71% said their boards were more effective. The same percentage (71%) expressed greater confidence in their board security.

What else are boards doing well? Survey respondents cited:

  • Board continuity: This, of course, would conflict with concerns about board diversity and lack of board turnover, but plenty of respondents (76%) said board continuity is essential to maintaining effective board operations.
  • Environmental, Social and Governance (ESG) issues: A majority (58%) of respondents were satisfied with their boards’ management of ESG issues as they relate to sustainability and ethics.
  • Board recruitment: Most respondents (58%) also believe their boards are effective at recruiting new members. Another 52% rated their boards as strong at ensuring a diverse board.

So what makes a board effective? Survey respondents cited three main drivers:

  1. Having a more engaged board
  2. Having a better prepared board
  3. Increasing use of board management software

As for the three main problems cited above, respondents offered solutions to each:

1. Lack of diversity on boards: In addition to bringing on board members with diverse ages, genders, and backgrounds, board members suggested seeking board members with expanded skill sets and experience; nurturing current board members’ development and maturity; replacing disengaged members and backfill turnover; and gaining modern perspectives and overcoming rigid mindsets.

2. Lack of focus on mission: While ensuring a clearer focus on mission and strategy would be an obvious approach, respondents also requested that boards remove red tape/bureaucracy; clarify roles and responsibilities; build more accountability and greater efficiencies; track key performance indicators (KPIs) and objectives; and ensure greater consistency and repeatable processes.

3. Outdated technology: Survey respondents wished their boards would maximize investment in existing board management technologies; improve organization of information; improve scheduling and minutes approval processes; automate processes and avoid use of paper, phone, and email; and build confidence in security.

Bank board members want change in how they operate. Fortunately, solutions are available and easily reachable. Also, there’s plenty that bank boards do well. As technology continues to evolve, artificial intelligence (AI) will likely be a focal point in the future. How will banks utilize it to their advantage? How should they?

As the survey results indicate, technological advances will continue to be a key driver of how bank boards function. The good ones will evolve and remain effective for their organizations, customers and investors.