How Experience FinXTech Parallels The NFL Draft

By the time the NFL announced plans to host the draft from various remote locations, nearly every other sports league had postponed or canceled their events.

The decision raised eyebrows.

The NFL draft has become a must-attend in-person event, as evidenced by the record-breaking 600,000 turnout in Nashville, Tennessee, last year. As a fan, I wondered if the league was putting their own interests too far ahead of others by going forward with a new, unproven format just to keep to this activity on the calendar.

It turns out, the digital nature of the three-day event resonated in many positive ways. The draft was viewed by 55 million viewers over the three-day event, according to the league. Naturally, some of the viewership reflected an appetite for new, non-pandemic related content. But from a business perspective, it showed how migrating an in-person event entirely online could, in a pinch, work.

As we all try our best to live normal lives from our homes, the NFL’s success with the draft gives me confidence in our decision to go remote with our annual Experience FinXTech.

Much as the NFL drew a great audience to Music City last year, so too were we excited to welcome a stellar audience to Bank Director’s hometown in early May. Just as the NFL figured out how to provide viewers with new glimpses into their team’s futures, so too will our Experience FinXTech as we move online. Ours will just be in terms of how and where financial technology companies and financial institutions might develop relationships that beget future successes.

Experience FinXTech parallels the NFL draft based on the concept of team-building. Just as every NFL franchise faces its own challenges, so too does every financial institution. Indeed, the ever-expanding digital chasm between the biggest banks and community institutions remains a major strategic challenge in terms of talent, tools and dollars spent.

While there is no one-size-fits-all approach to building a team, there are lessons that executives and leadership teams might entertain from their peers during a program like this one. Indeed, we have heard and seen incredible examples of community banks pulling together to serve their constituents as best they can, however they can, during this time. This program allows us to share examples.

Bank Director’s desire to help community banks succeed in all circumstances provides an impetus for moving to video and webinars instead of waiting until the late fall to meet in person. Helping banks and fintechs get smarter about immediate opportunities to develop meaningful relationships is incredibly relevant. The time is now to assess a business strategy and make decisions that could reshape your institution’s future. Access to timely, verified and reliable information is something we didn’t want to delay in providing.

Indeed, Experience FinXTech will touch on areas where technology can assist banks to provide counseling, assistance and a personal touch to their existing and potential customers. In addition, we talk about authentication. The need to embrace the cloud. Filling in the missing pieces in the digital commercial banking product set.

Beginning on May 5, we take a pragmatic approach to new business relationships, collaborations and strategic investments. We offer virtual demonstrations to help viewers see proven technologies available to banks with regards to security, data and analytics, internal systems, lending, digital banking, payments, compliance and the customer experience.

With so many elements of our economy being challenged, we know our “next normal” will look very different from what we’ve become accustomed to. Connecting interests, and ideas, to help banks and fintechs navigate their futures is why we ultimately decided to offer this year’s experience online, for free, to anyone interested in joining us.

I look forward to welcoming people to this year’s Experience FinXTech and promise that references to certain NFL teams will be kept to a minimum.

Thanks to the support of these companies, we are able to extend complimentary registration for Experience FinXTech. To sign up, please click here.

The Big Banks’ Latest Trends in Mobile Banking

mobile-banking-9-10-15.pngBig banks have been committed to working out their mobile strategies over the past two years and are now unveiling the dramatic results they’ve achieved. According to AlixPartners, big banks controlled 67 percent of the primary banking relationships by the second quarter of 2014, while credit unions had 14 percent. Mid-size banks controlled 11 percent, community banks 4 percent and all others at 4 percent. Plus, 78 percent of people who switched accounts went to a big bank, while only 8 percent went to a credit union and the remaining 14 percent to a community bank, mid-size bank or other. It’s an even bigger gap with young people—82 percent of these switchers went to a big bank, while only 7 percent switched to a credit union, and 11 percent to a community bank, mid-size bank or other. The study also shows that in 2014, 65 percent of the people who switched accounts said that mobile played a role in their decision to switch.

Chase Bank, for example, is one of the biggest retail banks in the country and has seen massive gains in retention and customer engagement, along with a steady loss in attrition and branch expense. Over a four-year period, the number of products and services per household has gone up, and attrition rates have fallen to an astonishing 9 percent this year. According to Chase, mobile app users have increased by 20 percent in the past year, mobile QuickDeposit by 25 percent, mobile QuickPay by 80 percent and mobile bill pay by 30 percent.

Not only are these great things for retention, but they are also business strategies that are saving the bank money. Today at Chase, 10 percent of all deposits are made via mobile. Over a seven-year period, teller transactions have been cut in half, driving a tremendous cost reduction. Since 2010, Chase has cut out over $3 billion in costs.

For the past two years, Chase, as well as other top big banks, including Bank of America, Citi, Wells Fargo and U.S. Bank, have been offering the top five mobile services—mobile banking, mobile bill pay, mobile deposits, ATM/branch locator and P2P payments. The list is growing, as three new services have recently become a standard for all of these banks—Apple Pay, pre-login balances and mobile-friendly websites.

Apple Pay
By January of 2015, 300 financial institutions had been approved for Apple Pay, and in April, that number jumped to 2,500. Today there are about 375 active financial institutions using Apple Pay, 250 of which are credit unions.

Mobile payments have a slow usage growth though—only 0.5 percent of people in 2014 with near-field communication (NFC) equipped phones were doing mobile payments regularly, meaning they did at least one mobile transaction per month. According to Deloitte, that number is forecasted to jump to 5 percent by the end of 2015.

Pre-login Balances
All five of the top big banks now offer the ability to check your balance without logging into mobile banking, and it’s a feature that is proving to be one more way to drive engagement and remove a barrier to mobile usage. Customers using Citi’s Snapshot, for example, sign in to mobile banking three times as often as those who don’t.

Mobile-Friendly Websites
Google announced in May of this year that there are now more Google searches on mobile than there are on desktop computers, a trend that greatly influences how people are making decisions to buy products.

In about six out of 10 cases, when people are shopping for bank products, they’re doing online comparisons, meaning banks now have to anticipate the growing percentage of website traffic coming from mobile. Currently, about 15% of banks’ website traffic is coming from mobile, which will only continue to grow.

Not only did Google announce the state of mobile search, but also starting in April, they’ve put a requirement in place that if your website is not mobile friendly, they’ll move the placement down on Google’s search results.

Of the top 10 banks, every single one has a mobile friendly website. Four out of the top 10 credit unions have passed the mobile friendly test.

As customers are flocking to digital services, the big banks are growing stronger. Credit unions and community banks can stay competitive, though, by continuously training their team to have a mobile mission and being disciplined enough to innovate constantly.

What Behavior Does Your Incentive Plan Reward?

Nearly all banks, regardless of size, view growth as a key driver of success. What differentiates Bank A from Bank B are the unique strategies they have formulated to achieve that growth. However, when it comes to compensation, regardless of business strategy, there’s often just a single question asked: “How do my peers pay?”

While it is important to understand market norms regarding pay levels and practices, this information is most impactful when followed by additional questions including “What implications do those practices have for us?” and “How can we use compensation in a way that draws the right talent and ensures success?”

Assessing whether or not an executive compensation program is working requires going beyond market data and compliance to determine the program’s degree of alignment with the bank’s business and talent strategies. The following steps can help compensation committees think through this alignment with their program design.

Step 1: Define Path to Success
The ultimate goal of all banks is to create value for stakeholders over the long term. But in the interim, “success” can be defined as the effective execution of the bank’s chosen strategy. For example, an acquisition strategy often seeks to create higher returns and shareholder value through market share and economies of scale. Examples of strategies include:

Strategy Measure of Success
 Acquisition  Higher returns through market share and economies of scale
 Exit/Liquidity (e.g., Sale, IPO)  Maximize growth through capital infusion
 Organic Growth  Stable and growing returns
 Niche  Profitability through higher margin business

Step 2: Consider Compensation Implications
Compensation committees should consider whether the compensation structure is helping execute the strategy and deliver results. Let’s stay with the example of an acquiring bank. When an acquisition is made, there can be significant noise in the financial statements along with one-time merger costs. If the annual incentive program is formulaic and heavily based on income-related metrics, it could very well discourage management from seeking acquisitions. Further, the plan may not be designed to reward key elements that can determine whether or not the benefits of the strategy are realized. For example, in the near term, it may be entirely appropriate to reward executives for bringing quality deals to the board for consideration. Later, executives should be rewarded for ensuring merger integration is timely and efficient.

The following outlines common compensation design challenges and considerations:

Strategy Challenges Considerations
Acquisition Financial results during the acquisition stage are highly variable Does the annual plan include qualitative measurement to account for variability?

Are there adjustments or exclusions for incentive calculations?

Is there greater weight on equity compensation to reward long-term results?

Exit/Liquidity (e.g., Sale, IPO) Short-term profitability and results related to franchise value are important Does the annual plan focus on profitability and results related to franchise value (e.g., deposit and loan growth)?

Is there greater weight on equity compensation to align interests?

Are implications of the change-in-control agreement terms clear?

Organic Growth Results are driven through increases in market share and cost reduction Is the annual plan focused on profitability and moderate growth in key areas?

Is wealth accumulation through equity, retirement benefits or both?

Niche Achieving profitability through higher margin business Is the annual plan appropriately customized for business lines?

Is differentiation in compensation required to hire and retain specialized talent?

Step 3: Tailor the Program
Using our acquisition strategy example, a compensation program might be redesigned so equity encompasses a larger portion of incentive pay, taking pressure off immediate financial results and incenting deals that are accretive over time.  The annual incentives could play a lesser role and continue to use profitability of the legacy lines of business, but would be complemented with measures that focus on deal flow and integration.

Step 4: Revisit and Refine
Compensation committees should test the outcomes of the compensation program annually and refine as necessary:

  • Did the program attract talent and retain our best people?
  • Were pay and performance aligned?
  • Did our results move us toward our strategic goal? If not, did the compensation program play an unintended role in not achieving objectives?
  • Have milestones and objectives changed in a way that the program should be refined?

Moving beyond market practices to align compensation programs to a specific strategy can provide a competitive advantage when it comes to attracting and retaining your best people and driving business results.  Being mindful of the alignment of strategy and the compensation programs that support those efforts ensures that the bank has the best probability for success.