Don’t Rely on Inertia to Manage Deposit Pricing

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After a year of steadily increasing interest rates, bankers may be feeling hopeful that the Federal Open Market Committee will soon slow its pace so deposit pricing can get under control.

But even if the Fed’s rate-setting body eases up on raising the federal funds rate, it’s unlikely that will immediately translate into lower deposit costs, simply because liabilities and assets will reprice at different times and frequencies.

“The Fed may stop raising rates at some point, but the cost of deposits of banks most likely will keep going up, only because they’re catching up,” says Christopher Marinac, director of research at Janney Montgomery Scott. “Some of it is just timing: If you have [certificates of deposits], and they are renewing in the third and fourth quarter, those are generally going to be higher than they were a year ago.”

Deposit betas, or the portion of change in the fed funds rate that banks pass onto their customers, occupy a good deal of bankers’ attention right now. Higher deposit betas mean higher rates paid on deposit accounts, and lower deposit betas mean lower funding costs. Banks that want to improve their net interest margin generally want to know how to keep their deposit betas lower without sacrificing liquidity.

A recent analysis by S&P Global Market Intelligence showed that a sample of 20 banks with lower deposit betas in the fourth quarter of 2022 were generally more likely to let money walk out the door in search of higher rates. That in turn allowed those banks to expand their margins more substantially through the end of the year.

Broadly speaking, however, inertia has worked in a lot of banks’ favor when it comes to deposit pricing, Marinac says. Though some high net-worth or commercial customers with significant deposits are increasingly asking for higher rates, which is leading bankers to implement exception pricing, most deposit clients simply don’t bother.

But some banks already feel that exception pricing has become unsustainable, says Neil Stanley, founder and CEO of The CorePoint, a consulting firm focused on deposit pricing. Because exception pricing decisions are made on an ad hoc basis, it can be difficult for banks to anticipate scenarios and build forward guidance. Exception pricing can become a problem if those decisions are too frequent, and are seen as random and even discriminatory.

Stanley also points out that compared to past periods of Fed tightening, a much larger proportion of bank deposits are now noninterest bearing demand deposits, meaning that while they may cost the bank next to nothing, they can also walk out the door at any moment.

“How long will those deposits stay on your books at no interest? That is a huge question,” Stanley says. “Without a really good answer to that, we’re left in a very vulnerable spot.” The advent of open banking may change the game this time around. Open banking gives people more control over their finances, allowing them to leverage application programming interfaces to move funds. Google and social media also give customers an additional window into which banks offer better rates, adding a new layer of complexity. In response, Stanley generally advises that banks maintain a good mix of time deposits like CDs that have a bit more staying power compared to noninterest bearing checking accounts.

Bank boards play an important oversight role in asset/liability management at their financial institutions. Stanley recommends that directors ask management for a list of the bank’s largest deposit holders, and know who is in charge of tending to those relationships. Bankers should check in with those clients and make sure they aren’t feeling neglected, especially if they could pull their money at a moment’s notice. Directors might also consider establishing a chief deposit officer or otherwise centralizing some authority over the bank’s deposit gathering efforts, including exception pricing decisions. And bankers should have a clear line of communication to that person so they can quickly respond to requests for exception pricing.

Banks have grown accustomed to a low-rate environment with little competition for deposits. That’s changed. “When we had a surplus of deposits, it didn’t make any sense to put time and energy into it,” Stanley says. “Now, [banks] don’t want to be laissez-faire. They want to be intentional.”

Along those lines, bank leaders should evaluate their current suite of deposit products and services, and understand how those compare with nonbank competitors. And they can think about how to emphasize the value of keeping cash in accounts insured by the Federal Deposit Insurance Corp.

Finally, while it’s ostensibly on the other side of the balance sheet, bank leaders could consider the importance of commercial and industrial lending as part of their broader asset/liability management strategy. C&I loans reprice faster, which can prove beneficial in a rising rate environment. Those clients — many of them small businesses — can also become a source of stickier, lower cost deposits.

“C&I customers have deposits, and they tend to put deposits with banks,” Marinac says. “That’s kind of the secret sauce.” And financial institutions should view building core relationships as something that happens in good times and bad. “Some organizations are wired that way, so it’s not a problem,” he says. “Other organizations are not.”

A Tax Savvy Solution for Addressing Liquidity Needs

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Supernova Technology’s Loan Operations Manager, Austin Mead, recently shared trends, and insights that he has seen during tax time, as well as tips on how banks can support their clients as they navigate what solutions are available to them for paying their tax bill.

There is a growing trend of clients expecting more from their financial advisor. The share of investors looking to simplify their financial relationships by having banking and wealth management under one roof has risen from 13% in 2018 to 22% in 2021, according to consultancy McKinsey & Co. It’s increasingly important that banks take a holistic approach and have a wide range of solutions. Clients are looking for more than investment advice; they are looking for proactive tax planning, estate planning and debt planning, to name a few.

A Trending Solution for Taxes
Mead recalls the record number of service requests and new lines or draws that Supernova saw the last couple of years during tax time, particularly last year. “We saw about 50% of all draw requests being used for tax payments from April 1 to April 18.” Since 2020, each tax season has gotten busier and busier for his team. “New lines and balances were growing daily due to the reactive demand for a securities-based line of credit or SBLOC, which was mostly driven by capital gain tax obligations.”

Mead says he’s concerned about the down market but was still optimistic since Supernova data is still showing a steady increase for the first several weeks of the year — though not quite as high as last year.

Typically, in a down market, many advisers encourage their clients to hold on to their investments and ride it out verses selling them off, staying true to investing for the long-term strategy. Regardless of what strategy a client may have, if a client has liquidity needs, securities-based lending has been a trending solution banks can recommend at tax time. When talking about the measures Supernova’s partners put in place to ensure their clients avoid elevated risk, Mead says lending partners have proactive credit policies in place to hedge against their clients falling into a collateral call. Advisers are also in close communication with their clients through the adviser and client portals.

“Advisers can have educated conversations with their clients about where their portfolio stands versus the outstanding loan balance. Having insight to advance rates on certain securities plays a huge role in those conversations around rebalancing, paying down the loan, and even raising cash,” he says.

Mead says the top three most common reasons clients open or use a line during tax season is general liquidity, followed by strategic ways to avoid capital gains from the market and capital gains from real estate sales over the past few years. After the beginning of the year, there is a steady increase for line openings and/or usage through Tax Day, but he says the most active time period was April, leading up to Tax Day.

As Mead says, since the beginning of the year, there has been a steady, weekly increase in line opening and usage. It’s important banks start having conversations early with clients to ensure they are prepared for Tax Day and have access to liquidity when they need it.

The Cannabis Banking Outlook for 2023

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The U.S. cannabis market is expected to continue its growth in 2023, with projected sales of $72 billion a year by 2030. That’s more than double the current market estimation of $32 billion annually. Today, 21 states and the District of Columbia allow adult cannabis use. According to the Pew Research Center, 43% of U.S. adults now live in an area that has legalized cannabis use. While not every state that has legalized cannabis use saw growth last year, the market as a whole continues to expand.

Meanwhile, last fall, President Joe Biden announced pardons for simple cannabis possession at the federal level and ordered a review of federal cannabis scheduling under the Controlled Substances Act. According to a recent survey from Data for Progress, the majority of likely voters support legalizing cannabis at the federal level.

But as the market expands, access to banking continues to lag. Congress has failed to pass the SAFE Banking Act, a bill aimed at normalizing banking for licensed cannabis businesses. Despite the lack of legislative progress, a playbook exists for banks to serve the industry in compliance with FinCEN guidelines; bank examiners continue to recognize the work banks are doing to meet their compliance obligations. Bankers considering this line of business can have confidence that the cannabis use space will continue to grow and keep banking services in high demand.

Three Trends to Watch
As the industry expands and attitudes toward cannabis evolve, financial institutions are facing new competition and pressures on their business models. We are seeing three significant changes.

  1. Cannabis industry consolidation is creating businesses that need access to the balance sheets that bigger banks can provide. As a result, larger financial institutions are entering the space. There are more financial institutions in the $1 billion to $10 billion assets space actively serving the industry today, along with a few banks with over $50 billion in assets. Considering just a few years ago these institutions were predominantly less than $1 billion in assets, this is a significant shift that gives cannabis businesses greater choice.
  2. Early entrants that gained cannabis banking expertise in their home market are leveraging that proficiency to provide services across entire regions, or nationally in states with legal cannabis programs. Some of this is driven by consolidation, as bankers follow their customers into other states. Others are seeking new customers in underserved or newly minted cannabis markets.
  3. Lending, both directly to operators and indirectly to landlords or investors, has emerged as a critical component of the cannabis banking portfolio. Not only is this a competitive differentiator for banks, it is also as a prime source of earning assets and a way to gain additional yield. Like all lending, however, it is important to understand the unique credit risks in this industry, which can vary greatly from state to state.

Competition Demands a More Customer-Centric Approach
Competition is creating pressure on financial institutions to operate more efficiently while delivering more client-centric services. When it comes to meeting compliance obligations, banks that employ strategies that achieve greater efficiency can dramatically lessen the burden on both their bankers and their customers. There’s now more clarity about what information offers the most value for risk management teams; bankers can tailor their compliance requirements to reduce risk and avoid creating unnecessary work streams. Technology that automates compliance tasks and aids in ongoing monitoring can also contribute to a better customer experience. As cannabis operators face increased competition and tighter margins, financial institutions that take steps to minimize the compliance burden can gain a competitive advantage.

Financial institutions are also introducing new pricing strategies to attract customers. Historically, banks priced these services strictly to offset or monetize their compliance function. Now, bankers can use pricing tools to benefit customers while creating value for the institution. For example, offering account analysis can encourage customers to maintain higher balances while generating noninterest income on accounts with lower balances.

The past year brought about significant economic and policy changes in the cannabis industry. In 2023, bankers can act with even greater certainty in the industry’s stability, investing in the processes, services and technologies that will improve the customer experience while supporting the institution’s bottom line. As financial institutions and regulators gain a deeper understanding of the compliance requirements for this industry, it is increasingly clear that the industry is not going backward. States that have legalized cannabis and are issuing new licenses offer banks an ever-growing opportunity to tap into the industry’s financial rewards with the confidence that positive momentum is on their side.

Why Attracting and Retaining Talent is No Longer Good Enough

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Every year, Cornerstone Advisors conducts a survey of community-based financial institution CEOs that asks what their top concerns are. The 2022 survey produced the biggest one-year change we have ever seen. A full 63% of executives identified the ability to attract qualified talent as a key concern, up from just 19% the year before.

No doubt this focus on talent is at least partially the result of the sheer number of new topics requiring industry expertise. Think digital currencies. Embedded finance. BaaS. Buy now pay later. Gen 3 core systems. Artificial intelligence and machine learning. How many of those topics would have been on any FI’s training curriculum two years ago? Yet boards now ask about every one of those topics in terms of the financial institution’s strategy.

However, attracting qualified talent won’t be enough. Every financial institution has knowledge and expertise that can only be developed internally, simply because the knowledge build is so unique to the industry, including:

  • Processes unique to a line of business: There is no school or degree for bank processes, front or back office. And they vary by financial institution.
  • Regulations: The practical application of regulations to specific situations at the institution requires deep “inside” knowledge.
  • Vendors and systems: The vendor stack and roadmaps, and the institution’s databases, make its knowledge requirements unique.

In short, there is no university diploma that can be obtained for many areas of the bank – and, in my opinion, the further you get into the back office, the truer this is.

At Cornerstone Advisors, we’re observing that banks need to focus on “build or buy” of key skills and knowledge for the next generation of leaders and managers. Some thoughts about what we see working:

1. Have a clear list of jobs, skills, and knowledge that will need to be developed versus hired. Everybody will have a different list, of course, but four areas where we consistently see the biggest “build” need are:

    • Payments: While there are certainly people that can come to a bank or credit union with a great deal of understanding about payments, there is the entire back-office component – disputes, fraud, reconciliation, vendor configuration options, et al. – that can be learned only on the job.
    • Commercial credit: An institution’s required credit expertise will depend on its business and niches. For example, knowledge of national environmental lending will be unique from that of import/export letter of credit. Unfortunately, peers and competitors don’t have a deep bench to abscond with.
    • Digital marketing: This is simply too new an area for there to be loads of potential applicants with loads of expertise and experience. Even if execs can find candidates with broad digital marketing experience (they’re out there), they will need to understand the nuances of banking and what will constitute meaningful marketing opportunities in particular client segments.
    • Data analytics: There are a growing number of available people with very strong data skills, but even if hired they will need to come to grips with the complexity of the institution’s data structure.

2. Don’t ignore the importance of the apprenticeship model when building talent. Most leaders at FIs can point to on-the-job training they received early in their careers that has been the basis of their success. The apprenticeship model has worked for centuries and still works well at the modern bank.

3. Balance the in-person need for apprenticeship training with the new realities of remote work demands. In a recent Accenture study, over 60% of employees surveyed felt their productivity had increased due to working at home, and only 13% felt it hadn’t. Whether it is a new hire or re-skilling of an existing employee, the message of “five days in the office” won’t sell. Getting the right amount of face time for development while giving the new generation of stars an appealing work-life balance will be a key challenge for HR groups.

A clear, disciplined, focused plan for development of the next generation of talent is more crucial than ever. There are times when buying talent from elsewhere just won’t be an option due to cost, availability, or the risk of retaining those same people. The good news? Some of the best opportunities might be right in front of you in your existing workforce.

How to Protect Against the Downside, Prepare for the Upside

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“If you’re left in a situation where you’re defending, where you’re shrinking your balance sheet, where you’re worried about your capital, where you’re continually cajoling shareholders, or clients to stick with you — you’re not focused on growing.”

Those are wise words from William Demchak, chief executive officer of PNC Financial Services Group. PNC is one of the largest banks in the U.S. and an OakNorth customer.

He said this in an interview with the Financial Times in May 2020 — a couple of months after the country had gone into lockdown under full force of the coronavirus pandemic. At the time, he was discussing PNC’s rationale for selling its stake in asset manager BlackRock, which was prompted in part by increasing concerns about the U.S. economy as a result of the Covid-19 pandemic.

But fast forward the clock two and a half years, and he could just as easily be speaking about the economic situation in the U.S. today. Increasing economic uncertainty and interest rates at their highest point since 2008, many commercial bankers are focused on protecting their downside risk. As a result, many are likely missing the upside opportunity.

Protecting Against Downside Risk

1. Granular data. Most banks tend to lump their borrowers into one of a dozen or so broad sectors: all restaurants, bars, hotels, golf clubs and spas, for example, will be classified as “hospitality and leisure.” This classification approach misses the fundamental differences between how these businesses operate and how their capital and operational expenditures may be impacted by changes in the economy. In order to quickly identify where the most vulnerable credits lie in their portfolio, banks need to get to much more granular industry view — even going as far down as 6-digit NAICS codes — in their analysis.

2. Forward-looking scenario analysis. Banks need to be able to run multiple macroeconomic scenarios on their loan book using forward-looking scenarios to explore how a borrower would perform at different financial and credit metric level. This gives them the ability to plan ahead for market changes such as rate rises and house price fluctuation by formulating targeted risk mitigation strategies that can reduce defaults and charge-offs and better manage capital requirements.

3. Proactive monitoring. Banks need to be able to identify potential credit issues faster and earlier, so they can take proactive steps to reduce the chances of negative outcomes during a downturn.

Effectively Navigating Upside Opportunities

1. Granular data. in an economic downturn, there are always winners and losers that emerge; more often than not, it’s specific businesses or sub-sectors rather than entire industries. As consumer confidence wanes and inflation tightens purse strings, it’s likely that budget retailers and discount stores will see increased demand while their high-end alternatives experience the opposite. Both are classified as “retail” but will have dramatically different experiences in an economic downturn. Banks need the right data and tools to identify businesses that may need additional capital to make it through the economic cycle from the businesses that need additional investment capital to pursue potential growth opportunities arising in it.

2. Forward-looking scenario analysis. Banks need to be able to create configurable scenarios that reflect their internal economic outlook by adjusting macroeconomic variables, such as interest rates and inflation, among others. This means they can make more informed decisions about high risk, high opportunity industries and borrowers in their loan book and adjust their activities accordingly.

3. Proactive monitoring. In times of turmoil, most banks tend to segment their portfolio from highest to lowest exposure, starting with their largest and working their way down. Not only is this approach incredibly time consuming, it also means a lot of team time is spent running analysis on credits that don’t end up presenting a credit issue. Banks need to be able to segment credits on a high to low risk spectrum within a matter of hours, so they can identify the credits that require intensive versus light touch reviews, freeing up resources to pursue new loan origination.

Focusing on 4 Key Trends for 2023

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The current market presents unique challenges for financial institutions.

As we navigate a complex environment during a time of significant industry change, recessionary pressure and geopolitical uncertainty, it’s crucial that banks focus on a realistic number of strategic priorities. Entering the first quarter of 2023, I see four key trends impacting the financial services industry that boards and executives need to focus on to survive and thrive amid economic uncertainty.

Talent
Having the best bankers, treasury management officers, middle office talent and banking center managers is always critical. But it’s also vitally important to have those unique individuals who can take an innovative idea and turn it into reality.

Your bank needs people who can work well with your partners and vendors to make sure you’re delivering the right kinds of capabilities to customers, and leaders who can see around the corner and anticipate the capabilities you’ll need in the future. That talent can be hard to come by; the turbulent labor market presents some challenges, but also opportunities.

There have already been some significant layoffs at large tech companies, but they aren’t the only ones. Smaller tech companies have also had to cut back — and that could be a chance to hire talent that has historically been out of reach or acquire a superstar that left for an early-stage company and is ready to come back. Lastly, banks should look for high-performing people at lower-performing companies and see if they might be ready for a change. Successful talent strategies will have an outsized impact on future performance.

Strategic Clarity
Reaching strategic clarity with all of your stakeholders will be crucial. Scarce resources and changing investment environments means financial institutions must make clear and deliberate decisions when it comes to their strategies.

Not only is it important to know your customers, your market and how you will differentiate and win, but it’s imperative to guard against strategic drift or succumbing to the temptation to be all things to all customers.

Pressure to Innovate, Simplify
The marketplace has been noisy. The substantial amount of funds invested in new financial technology firms over the past five years has made it feel like there are endless opportunities to innovate. Stakeholders in all directions may be making suggestions and recommendations. This has helped move the banking industry forward in important ways and helped power some of the digital leaps we experienced during the pandemic.

However, bankers seem to gravitate toward complexity. Now is the right time to take a step back, take stock of your organization’s investments and determine whether they have helped you simplify your business and operations.

Could you rethink entire lines of business based on the digital capabilities that you now have? Where can your institution make incremental, but important, moves toward simplification? What are the bank’s most important innovation priorities that need to move forward regardless, or because of, the turbulent macroeconomic environment? These are critical questions that every management team should be addressing.

Deposit Strategy
Not too long ago, it seemed every bank was flush with deposits. Today, even financial institutions with favorable loan-to-deposit ratios are figuring out how their deposit base is changing, what effect higher and rising rates are having, where they’re experiencing attrition and churn within their customer base, and what parts of their funding strategy need to be reworked.

It will be critical to develop a long-term sustainable deposit strategy and identify advantages specific to your institution. For example, in which industries does your bank have lending expertise? Use that experience to develop working capital solutions for those same customers. If your bank has developed your digital banking capabilities, explore where you have untapped potential in the existing customer base with targeted campaigns and marketing messages. Haven’t revisited your compensation strategy? Now is the right time to be addressing incentives for developing a commercial deposits business. Actions that a bank takes today will have a lasting positive impact.

It’s easy for directors and executives to become overwhelmed in such a fluctuating environment but the financial institutions focused on strengthening talent, clarifying critical priorities, accelerating innovation and maximizing their deposit strategies will be ready to take advantage of growth opportunities in this new year.

Commit to Process and Framework in the New Year

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The challenging last three years have done nothing but reinforce our belief that the best-performing community banks, over the long run, anchor their balance sheet management in a set of principles — not in divining the future.

They organize their principles into a coherent decision-making methodology that evaluates all capital allocation alternatives across multiple scenarios, over time, on a level playing field. Unfortunately, however, far too many community bankers rely on forecasts of interest rates and economic conditions, which are then engraved into budgets, compensation programs and guidance provided to stock analysts and asset-liability providers.

If we’ve learned anything recently, it’s that nobody can predict rates — not even the members of the Federal Open Market Committee. A year ago, its median forecast for fed funds today was approximately 0.80%; the reality of 4.50% is 370 basis points above this “prediction.”

Even slight differences between predicted and actual rates can result in significant variances from a bank’s budget, which can pressure management towards reactive strategies based on near-term accounting income, liquidity or capital. We’ve long argued that this approach will usually accumulate less reward, and more risk, than proponents ever expect.

Community banking is challenging, but it needn’t be bewildering. The following decision-making principles can clarify your path and energize your execution:

Know where you are.
Net interest income and economic value simulations in isolation present incomplete and often conflicting portrayals of a bank’s risk and reward profile. To know where your bank is, hold yourself accountable to all cash flows across multiple rate scenarios over time, incorporating both dividends paid to a horizon and the economic value of the bank at that horizon. This framework produces a multi-scenario view of returns to shareholders , across a range of possible futures. Making capital allocation decisions in the context of this profile is everything; developing and consulting it is far more inspiring and leverageable than a mere asset-liability exercise.

Refuse to speculate on rates.
Plenty of wealth has been lost looking through the wrong end of the kaleidoscope. Nobody can predict rates with any utility — not economists, not even the FOMC. Make each marginal capital allocation in the context of your shareholder return profile, avoiding unacceptable risk in any scenario while seeking asymmetric reward in others. The idea is to stack the deck in the bank’s favor, not to guess the next card.

For example, imagine your institution is poised to create more shareholder wealth in rates down scenarios than up, a common reality in the current environment. Should you consider trading some of this for outsized benefits in the opposite direction, or not? Assess potential approaches across multiple scenarios: compare short assets versus long liabilities, test combinations or turn the dial through simple derivative strategies to asymmetrically adjust returns or create functional liquidity.

Price options appropriately.
Banks sell options continually, but seldom consider their compensation. They often price loans to win the business, rather than in comparison to wholesale alternatives, and they often forgo enforceable prepayment penalties. Less forgivably, many banks sell options too cheaply in their securities portfolios, in obtaining wholesale funding or in setting servicing rates. Know who owns each option the bank is short, and determine whether it is priced appropriately by comparing it to possible alternatives and measuring the impact on the bank’s forward-looking return profile.

Evaluate risk and regulatory positions.
To make capital allocation decisions prospectively, principle-based decision-makers assess their risk and regulatory positions prospectively as well. The bank’s enterprise risk management platform should offer an objective assessment of its current capital, asset quality, liquidity and sensitivity to market risk positions, and simulate these on a prospective basis also. The only way to determine if a strategy aligns with management’s specific risk tolerance is to have clarity and confidence in its pro forma impact on risk and regulatory positions. For many, establishing secured borrowing lines and reviewing contingency funding plans in 2023 will be prudent steps.

These principles are timeless — only the conclusions they lead to will vary over time. Those institutions that have already woven them into their organizational fabric are facing 2023 and beyond with confidence; those adopting them now for the first time can soon experience the same.

Evaluating Digital Banking In 2023

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Platforms that offer future flexibility, as opposed to products with a fixed shelf life, should be part of any bank’s digital transformation strategy for 2023, says Stephen Bohanon, co-founder and chief strategy and product officer at Alkami Technology. Chatbots and artificial intelligence can deflect many simple, time-consuming customer queries — saving time and costs — but digital channels can go further to drive revenue for the organization. To do that, bankers need to invest in data-based marketing and account opening capabilities.

Topics include:

  • Platforms Vs. Products
  • Sales Via Digital Channels
  • Advantages of Live Service

As Economic Uncertainty Looms, Control What You Can Control

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With an economic downturn taking shape on the horizon, financial institutions must look inward to maintain margins and the health of their banks. In doing so, they will be able to serve customers better.

Astute executives I meet with realize the intrinsic value of “controlling what they can control.”
Banks can help customers optimize their cash and working capital. But to be able to serve customers with the best services at the most competitive prices, banks must first focus on the efficiency of their own organizations.

Invest in RPA, ITM Automation
Prudent investments in high-return technology can offer immediate benefits to bank efficiency. One such high-impact technology is robotic process automation, or RPA. RPA has evolved from a futuristic discussion at trade shows to a robust, enabling technology that can lower operating expenses raise productivity and reduce errors.

Automating labor-intensive processes enables banks to save time, leverage scarce resources and focus on creating unique customer experiences, while eliminating redundant work and tedious tasks. Getting started in RPA has become easier. A technical partner should offer pre-bots that are pre-designed, pre-built and developed from common industry-driven use cases. Pre-bots offer financial institutions an immediate, low-risk entry into RPA. These ready-to-run bots can offer a bridgehead and potential early success into RPA, along with providing an easier avenue toward more comprehensive automation.

Another high- and immediate-impact technology progressive banks are taking advantage of is integrated teller machines, or ITMs. ITMs provide an in-branch banking experience without customers ever having to leave their car. Consumers can interact with tellers via live video to make deposits, cash checks, make loan and credit card payments, withdraw funds and transfer funds. Exact change is available for check cashing.

Video teller technology gives customers the ability to interact with a live video teller from a centralized location, extending the reach of a bank’s most capable client-facing staff. This can help banks efficiently expand into new, alternative markets.

Determine, Execute Your Strategy
Highly efficient banks identify their strategy and then execute the supporting tactics with a single-minded purpose. Smart bankers don’t try to be all things to all customers; instead, their focus is on one or two overriding objectives, such as becoming a low-cost provider, an exceptional service organization or a leader in innovation. While these goals are not mutually exclusive, in practice, few banks can progress them all in parallel.

The best bank leaders, choose their primary objectives wisely, then seek outside expertise in areas that help them accelerate strategic objectives and plans. They actively network with peers in industry events and conferences, they learn from best-in-class partners and they seek the advice of experienced banking experts. They never stop the learning process and apply a wide range of experiences to their own plans.

Continuously Improve Business Processes
Well defined, repeatable business processes provide the foundation for how work gets done within a financial institution. This allows for tasks, technology and tools supporting a process to be redefined or implement an entirely new process based on automation.

Business process improvement (BPI) actions, undertaken by subject matter experts, deliver the insight required to execute more efficiently, create value for customers or enhance revenue for the institution — or provide all three. Tactics for growing bonds that crossover business lines with BPI include:

• Establish cross-functional teams to participate in collaborative facilitated sessions to identify and help institute process changes.
• Have leaders “walk- he walk” by inviting peers from other business units to participate regularly in staff meetings.
• Distribute regular internal communications as widely as possible within an organization.
• Create centers of excellence for sharing and knowledge transfer.
• Reward collaborative efforts that produce tangible results.

BPI helps financial institutions uncover opportunities to eliminate non-value manual tasks while digitizing and removing paper from manual processes.

Align Skills With Strategy, Needs
The culture and people of today’s banks are critical in executing an organization’s strategy and tactics. As automation replaces mundane tasks, bankers must become universal relationship managers and problem solvers. Continuous training, like continuous process improvement, is the norm for well-functioning financial institutions.

Technology partners with robust training methodologies — which are also familiar with the newest business processes — can help bank personnel ensure they’re using procedures, workflows and technology that best meet their clients’ needs with the greatest efficiency.

Even in uncertain economic times, savvy bankers who invest in automation, determine and execute a well-defined strategy, continuously improve their business processes and ensure their staff have the correct skills will develop the framework that characterizes high-efficiency financial institutions. Those efficiencies will, in turn, empower banks to serve customers better and at lower cost.

RankingBanking: Fueling Successful Strategies

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Bank Director’s recent RankingBanking study, sponsored by Crowe LLP, identified the best public banks in the U.S. While their strategies may vary, these banks share a few common traits that enable their success. These include a consistent strategy and a laser focus on customer experience, says Kara Baldwin, a partner and financial services audit leader at Crowe. Training and organizational efficiency also allow these bankers to retain that customer focus through challenging times. In the year ahead, banks will need to manage through myriad issues, including credit quality, net interest margin management and new regulatory concerns. 

Topics include: 

  • Cultural Consistency 
  • Organizational Efficiencies 
  • Customer Centricity  

Click here to read the complete RankingBanking study.