Should Your Bank Hire an Influencer?

Banks looking to reach a niche or younger demographic may want to consider partnering with a trusted voice: an influencer.

Capitalizing on the ubiquity of social media, influencer marketing is a way for brands to target groups of younger consumers through a partnership. The size of the influencer industry is expected to grow to $16.4 billion globally in 2022, up from $1.7 billion in 2016, according to a 2022 benchmark report from Influencer Marketing Hub. The explosion of influencers means banks have a variety of potential marketing partners that share their values, needs or concerns — at price points that community banks could afford.

“Engaging influencers, particularly local ones, is a great way to lend their authenticity and local followers to your brand,” writes Flynn Zaiger, CEO of marketing firm Online Optimism, in an email.

Influencers are individuals who affect another’s purchasing decisions, due to their “authority, knowledge, position, or relationship” with their audience, according to the website Influencer Marketing Hub. Influencers have a distinct, often niche, audience, with which they actively cultivate and engage.

Influencer partnerships are an alternative marketing approach that banks can use to highlight specific products or services for targeted audiences: a local business owner could talk about loans or business accounts, or a family blogger can discuss college savings accounts. Some big banks, including Wells Fargo & Co., JPMorgan Chase & Co., American Express Co. and U.S. Bancorp, have partnered with influencers for specific campaigns like charitable food drives, credit cards and savings accounts. But the range of influencers has expanded beyond celebrities and athletes to individuals sharing their lifestyle, creations or cultivating profiles for their pets, giving banks a variety of personalities — and price points — to choose from.

Source: Influencer content on Instagram, sponsored by JPMorgan Chase & Co. and American Express Co.

Influencer partnerships, with Youtubers like MrBeast, have long been part of the business strategy at mobile banking fintech Current. Adam Hadi, vice president of marketing, says using influencers fits in the company’s understanding of its millennial and Generation Z audience. Current is careful to identify influencers that align with the company’s values.

“If you don’t know where [your audience’s] attention is, you’re never going to reach them,” he says. “If you don’t know what they care about, you won’t be able to be impactful with your message.”

Influencer marketing is a relationship between a brand and the content creator, and requires a lot of trust on both ends, he says. Managing influencer relationships takes a number of analytical, creative and business development skills; like all marketing campaigns, it can be tough to strike the balance between commercial appeal and authentic connection. Additionally, influencing partnerships can involve more upfront research and ongoing maintenance and monitoring than running Google Ads or other forms of online advertising, Zaiger writes.

Social Media User Demographics:

  • Instagram: More than 75% of the photo sharing app’s users are between 18 and 34 years old; 43% of the app’s users are women between those age ranges.
  • TikTok: 46% of the video platform’s users are girls and women aged 13 to 24.
  • YouTube: Male millennials make up a fifth of all YouTube viewers — double their female counterparts. Source: Influencer Marketing Hub 2022 benchmark report.

“Influencer campaigns are an interesting option for community banks that are looking for more impact from their digital campaigns, but might not have previously invested in growing their social media audiences,” Zaiger writes.

Before launching an influencer campaign, community bank executives should think about their community — both in the geographic sense but also the identities and affiliations of their current and prospective customers. The bank should have a strong sense of its values and strategic goals and find influencers who speak to both the customer communities and are aligned with the bank.

Once they’ve identified potential influencers, executives will need to conduct due diligence on the individual to address any potential reputational risks. They should also discuss related compliance concerns or other advertising laws that may apply to the agreement. Like all marketing endeavors, executives should set the goals and objectives of an influencer partnership, as well as how they will measure success. Common metrics include views, engagement or conversion metrics like new accounts opened through a referral link or growth in deposits.

The ubiquity of social media means influencer marketing is likely to grow, as more brands try to connect with customers through their devices. Influencer marketing is one way banks can evolve their image, and place in the community, to reach today’s mobile-first consumers.

Using Modern Compliance to Serve Niche Audiences

Financial institutions are increasingly looking beyond their zip code to target niche populations who are demanding better financial services. These forward-thinking institutions recognize the importance of providing the right products and tools to meet the needs of underrepresented and underbanked segments.

By definition, niche banking is intended to serve a unique population of individuals brought together by a commonality that extends beyond location. A big opportunity exists for these banks to create new relationships, resulting in higher returns on investment and increased customer loyalty. But some worry that target marketing and segmentation could bring about new regulatory headaches and increase compliance burdens overall.

“The traditional community bank mindset is to think about the opportunity within a defined geography,” explains Nymbus CEO Jeffery Kendall. “However, the definition of what makes a community has evolved from a geographic term to an identity or affinity to a common cause, brand or goal.”

Distinguishing the defining commonality and building a unique banking experience requires a bank to have in-depth knowledge of the end user, including hobbies, habits, likes, dislikes and a true understanding of what makes them who they are.

Niche concepts are designed to fill a gap. Some examples of niche concepts geared toward specific communities or market segments include:

  • Banking services for immigrant employees and international students who may lack a Social Security number.
  • Banking services geared toward new couples managing their funds together for the first time, like Hitched.
  • Payment and money-management services for long-haul truck drivers or gig economy workers, like Gig Money or Convoy.
  • Banking platforms that provide capital, access and resources to Black-owned businesses.

Targeting prospective niche communities in the digital age is an increasingly complex and risk-driven proposition — not just as a result of financial advertising regulations but also because of new ad requirements from Facebook parent Meta Platforms and Alphabet’s Google. Niche offerings pose a unique opportunity for banks to serve individuals and businesses based on what matters most to them, rather than solely based on where they live. This could impact a bank’s compliance with the Community Reinvestment Act and Home Mortgage Disclosure Acts. The lack of geography challenges compliance teams to ensure that marketing and services catering to specific concepts or customers do not inadvertently fall afoul of CRA, HMDA or other unfair, deceptive or abusive acts or practices.

Niche banking enables financial institutions to innovate beyond the boundaries of traditional banking with minimal risk. Banks can unlock new revenue streams and obtain new growth by acquiring new customers segments and providing the right services at the right time. When developing or evaluating a niche banking concept, compliance officers should consider:

  • Performing a product and services risk assessment to understand how the niche banking concept deviates from existing banking operations.
  • Identifying process, procedure or system enhancements that can be implemented to mitigate any additional compliance risk incurred by offering new solutions to customers.
  • Presenting its overarching risk analysis to cross-functional leads within the organization to obtain alignment and a path forward.

Now is the time for financial institutions to start asking “Did I serve my consumers?” and stop asking, “Did I break any rules?” When I led a risk and compliance team for a small financial institution, these were questions we asked ourselves every day. I now challenge financial institutions to reassess their current models and have open conversations with regulators and compliance leaders about meeting in the middle when it comes to niche banking. With the appropriate safeguards, banks can capitalize on the opportunity to deliver innovative, stable and affordable financial services.

Creating a Better Business Banking Experience

Banks should be positioning themselves to be trusted partners for entrepreneurs, helping their businesses run smoothy, from account onboarding and beyond.

Too often however, what many business owners experience are complex, inefficient processes that require a litany of repetitive details and data points that can take days — or even weeks — to complete. In many cases, small and medium business owners have been forced to look to other institutions as a result of slow, manual process at their existing bank. The industry has seen how those institutions that invested in automation and better business banking experiences actually grew in terms of customers during the pandemic. But the growing number of banks that recognize the need to offer better experiences through enhanced user interfaces and automation must overcome the main hurdle of how best to implement it.

Today’s business owners expect the same quick and simple banking experiences they receive from their personal accounts from their business accounts. Banks that recognize this need often still fail to close the gaps. A major issue is that most of the process is still driven by paper forms. By automating some of these more manual and tedious steps, banks can speed up and streamline the process. Allowing the customer to directly fill out the necessary information online, all at once, rather than have them complete PDFs that need to be rekeyed by a bank employee later can save vast amounts of time.

Even once the account is live, business banking can still often be a clunky and complicated experience, especially on the back-end where each function lives on a different platform or service hosted by different vendors. Electing these options may take the user out of the bank’s system, with an environment that may look and function very differently than the initial account interface. Banks want systems that are attractive, transparent and user-friendly on the front-end, but still have all the functionality and capabilities users need.

The truth is that there is no single platform currently available that can check every box and solve every issue. However, banks should focus on the full end-to-end experience and look for solutions that can support their most current, important needs and offer the flexibility to adapt as the bank grows. Banks need to build architecture that reflects a more modern, app store that keeps the user in its cultivated experience without an obvious and often jarring transition between functions or screens, creating an overall better experience for the business banking user. Solutions and platforms that are flexible and scalable mean that banks can adjust these looks and functions as both the technologies and user needs shift, changing and controlling the experience to match it.

While some banks would prefer to develop their solutions in house, they may lack the dedicated talent and resources to do so, but “off-the-shelf” solutions may not have the necessary flexibility and scalability. For many community banks, this has increased interested in partnering with fintechs. Banks considering this option must ensure the fintech can meet all their functionality needs, as well as their risk and regulatory requirements — no small feat. A good place to start is by evaluating how a fintech’s level of compatibility with the bank’s existing core system.

Fortunately, there are a growing number of “core agnostic” fintechs that can work effectively with a variety of technology platforms and organizations, offering malleable products that can match the individual rules and procedures of each bank. Banks can then control the user experience and tailor it to their specific client demographic. From a cost-effectiveness standpoint, recent “low-code” or “no-code” solutions from an innovative fintechs give banks the ability to handle these changes in-house, without an extensive IT team. These solutions can bring greater efficiencies for banks that are now able to manage and shape their technology systems to solve complications that once required advanced technology experts.

Building and strengthening the relationships with business account holders is becoming a bigger priority for all banks. Banks that prioritize their needs and expectations by focusing on the end-to-end user experience and offering their business customers a better, faster and seamless experience will be positioned to meet their demands, possibly changing the road map of its technology future.

The Tremendous Opportunity Hiding in Plain Sight

There is a tremendous opportunity for community and regional banks to enhance the international payments, receipts and foreign exchange services they provide their commercial customers.

In 2021, the total amount of U.S. imports and exports totaled $6.5 trillion. In fact, 27.9% of U.S. gross domestic product was imports and exports. What other “new” product line has such an addressable market? According to the census, 76% of U.S.-based companies that import or export have less than 20 employees; 97% have less than 500 employees. These are businesses that community and regional banks are already servicing. But these institutions are hindered by the belief that they lack the size, sophistication and resources to confidently capture the opportunity.

The good news for banks is that there are technology solutions that can enhance their offering to customers that require international payments, receipts and foreign exchange services. These solutions provide more opportunities for sales and service on the bank end and help their business customers mitigate risks more effectively.

Quantifying this opportunity will vary for each institution, and location and asset size alone are not accurate predictors. Cross-border activity occurs across the U.S., not just in the most obvious international trade areas. Financial institutions should start by looking at their existing volumes to determine the opportunity. Within outbound and inbound payments, banks need to examine the number of transactions that took place, the total notional volume, the U.S. dollar and foreign currency split, what origination and destination countries are included and whether these are commercial or consumer payments. This initial analysis leaves out the potential for future growth through enhanced capabilities.

Many financial institutions are surprised to see that this is an opportunity hidden in plain sight. Frankly, it doesn’t take much activity — as little as $1 million a month of international payments going in foreign currency — to make this an interesting capability for executives to consider. That’s because banks can leverage technology to capture it more effectively.

Enhancing international payments capabilities doesn’t mean banks have to give up cultivating the experience that their customers expect. Controlling the customer experience here starts with offering the capability via multiple channels while retaining flexibility and control on pricing. This can lead to capturing more of the customer wallet, which provides additional insight into customer activity and, ultimately, a stronger and deeper relationship.

Community and regional banks that enhance their international capabilities can sell with more confidence, better retain existing business customers and potentially attract new ones in the face of others competing for the same business customers. They can even extend the product offering by offering risk management solutions.

Once a bank decides to take more control over the customer experience in international payments, the defining characteristic of success is how quickly it can produce revenue from these enhanced capabilities. It starts at the planning stages. The foundation of any transition is a detailed implementation checklist and, as importantly, a timeline that maps out the process.

All bank areas need to be in full support and aligned on the changes. You need both an executive sponsor and a product champion as part of this. Once implemented, institutions that properly incentivize their bankers should generate significant improvements versus the rest of the industry landscape. But it is critical for banks to engage an experienced and trusted partner to accompany them during this journey and guide implementation.

The opportunity for community and regional banks to enhance their international payments, receipts, and foreign exchange services they provide their commercial customers remains one hidden in plain sight. Leveraging technology to capture the value associated with both existing and prospective activity provides benefits to the bottom line and the customer experience. Don’t be surprised by the size of the opportunity, the activity with business customers, and the relative ease with which it can be captured and enhanced.

Why Community Banks Should Use Derivatives to Manage Rate Risk

As bank management teams turn the page to 2022, a few themes stand out: Their institutions are still flush with excess liquidity, loan demand is returning and the rush of large M&A is at a fever pitch.

But the keen observer will note another common theme: hedging. Three superregional banks highlighted their hedging activity in recent earnings calls.

  • Birmingham, Alabama-based Regions Financial Corp. repositioned its hedging book by unwinding $5 billion of receive-fixed swaps and replacing them with shorter-term receive fixed swaps. Doing so allowed the $156 billion bank to lock in gains from their long-term swaps.
  • Columbus, Ohio-based Huntington Bancshares increased its noninterest income in a scenario where rates increase 100 basis point from 2.9% to 4%. The $174 billion bank terminated certain hedges and added $6 billion of forward starting pay fixed swaps.
  • Providence, Rhode Island-based Citizens Financial Group executed $12 billion of receive fixed swaps in 2021, including $1.25 billion since June 30, 2021. The $187 billion bank’s goal is to moderate their asset sensitivity and bring forward income.

These banks use derivatives as a competitive asset and liability management tool to optimize client requests, investment decisions and funding choices, rather than be driven by their associated interest rate risk profile.

Why do banks use derivatives to hedge their balance sheet?

  • Efficiency. Derivatives are efficient from both a timing and capital perspective. In a late 2021 earnings call outlining their hedging strategy, Citizens Financial’s CFO John Woods said, “We think it’s a bit more efficient to do that (manage interest rate risk) off-balance sheet with swaps.”
  • Flexibility. It’s more flexible than changing loan and deposit availability and pricing.
  • Cost. It’s often less expensive when compared to cash products.

Why are some banks hesitant to use swaps?

  • Perception of riskiness. It’s easy for a bank that hasn’t used derivatives to fall into the fallacy that swaps are a bet on rates. In a sense, though, all the bank’s balance sheet is a bet on rates. When layered into the bank’s asset-liability committee conversations and tool kit, swaps are simply another tool to manage rate risk, not add to it.
  • Accounting concerns. Community banks frequently cite accounting concerns about derivatives. But recent changes from the Financial Accounting Standards Board have flipped this script:  Hedge accounting is no longer a foe, but a friend, to community banks.
  • Fear of the unknown. Derivatives can bring an added layer of complexity, but this is often overdone. It’s important to partner with an external service provider for education, as well as the upfront and ongoing heavy lifting. The bank can continue to focus on what it does best: thrilling customers and returning value to shareholders.
  • Competing priorities. Competing priorities are a reality, and if something is working, why bother with it? But growth comes from driving change, especially into areas where the bank can make small incremental adjustments before driving significant overhauls. Banks can transact swaps that are as small as $1 million or less.

For banks that have steered clear of swaps — believing they are too risky or not worth the effort — an education session that identifies the actual risks while providing solutions to manage and minimize those risks can help separate facts from fears and make the best decision for their institution. The reality is community banks can leverage the same strategies that these superregional banks use to enhance yieldincrease lending capacity and manage excess liquidity.

Building Relationships in the Digital Era


Customer expectations have evolved dramatically over the past decade, and they seek much more from their financial institution, including advice. Unfortunately, banks often aren’t meeting these needs in the digital space. Soren Bested of Agent IQ explains how banks can return to one of their core functions — dispensing financial guidance to their customers.

  • What Consumers Expect
  • Alleviating Customer Pain Points
  • Personalizing the Experience

What 2022 Holds for Community Banks

All banks need to prepare now for inevitably more change. As the year draws to a close, a quick look back provides some insightful clues about the road ahead. There are some trends that are well worth watching.

Changing Customer Habits
The coronavirus pandemic accelerated digitalization efforts and adoption. A recent PACE survey reveals that 46% of respondents changed how they interact with their bank in the last year. It is no surprise that consumers across generations continue to use new channels over in-branch banking.

  • The demand for drive-through banking doubled for young millennials.
  • The demand for phone banking tripled for Generation Z.
  • The percentage of young millennials communicating with their banks via email and social media rose by four times over the previous ten months.

Customers are more likely to visit a branch to receive advice, review their financial situation or to purchase a financial product. Many bank branches are being repurposed to reflect this new dynamic, with less emphasis on traditional over-the-counter services.

The way people pay has also changed, probably forever. Businesses encouraged digital and contactless payments, particularly for micropayments such as bus fares or paying for a coffee. In contrast, check use declined by about 44%. Forty-seven percent of community bank customers surveyed say they have mobile payments wallets, according to FIS’ PACE PULSE Survey for 2021.

Bank as a Partner
In addition to providing traditional services, many community banks elevated their position to financial partner, offering temporary services when and where they were needed. The immediate relief including increased spending limits on credit cards, payment deferral options on mortgages, personal loans based on need and penalty fee waivers for dipping below account minimums.

Since then, community banks have continued taking steps to boost financial inclusion. The unbanked and underbanked are prime candidates for new, low-cost financial services delivered through mobile channels and apps. Providing such services is likely to be well rewarded by enduring customer loyalty, but the banks need the right technologies to deliver them.

The State of the Industry
The last year has seen a flurry of M&A deals. Many recent mergers involved banks with mature brands, loyal customers and strong balance sheets. These institutions’ interest in deals reflects a need to reduce the cost of doing business and the universal need to keep pace with technology innovation.

Digital technologies and data are increasingly the baseline of success in banks of all sizes. Merging with a peer can jump-start innovation and provide a bigger footprint for new digital services.

Robotics Process Automation and Data
Although much of the discussion around digitalization has focused on customer services, digital technologies can also boost automation and efficiency. With the right approach, robotic process automation, or RPA, can automate high-volume repeatable tasks that previously required employees to perform, allowing them to be redeployed to more valuable tasks. But to maximize value, RPA should not be considered in isolation but as part of a bank’s overall data strategy.

The Road Ahead
Although the road ahead may be paved with uncertainty, these are things FIS expects to see across the industry:

Customers have rising expectations. They want banking services that are intuitive, frictionless and real time. Big Tech, not banks, are continuing to redefined the customer experience.

Crypto will become mainstream. Many consumers already hold and support cryptocurrencies as investments. Banks must prepare for digital currencies and the distributed ledger technology that supports them.

The branch must evolve. Banks need to reinvent the branch to offer a consistent smooth experience. Human services can be augmented by technologies that automate routine retail banking tasks. For example, video tellers can conduct transactions and banking services with customers, using a centrally based teller in a highly engaging real-time video/audio interaction. Banks must persevere to draw people back into their branches.

Investing in data and technology is essential. Banks must eliminate guesswork and harness data to drive better decisions, increasing engagement and building lifetime loyalty. Smart banks can use customer data to gain unique insight and align banking with life events, such as weddings, school and retirement.

The new age of competition is also one of collaboration. At a time when community banks and their customers are getting more involved with technology, every bank needs to adopt a fintech approach to banking. Few banks can achieve this alone; the right partner can help an institution keep up the latest developments in technology and focus on its core mission to attract and retain customers.

A Look Ahead to 2022: The Year of Digital Lending

2021 has been a year of challenge and change for community bankers, especially when it comes to lending.

Banks modernized and digitized significant portion of loan activity during the pandemic; as a byproduct, customers have begun to realize the inefficiencies in traditional lending processes. Community financial institutions that hope to stay ahead in 2022 should prioritize the incorporation of digital and automated loan processes.

Although the need to digitize commercial lending has long been a point of discussion, the Paycheck Protection Program (PPP) sparked a fire that turned talk into action for many institutions. Bankers quickly jumped in to help small businesses receive the funding they needed, whether that meant long hours, adopting new technologies or creating new processes. The amount of PPP loans processed in that small window of time would not have been possible without many bankers leveraging trusted technology partners.

One result of this approach was enhancing transparency and boosting efficiencies while helping small businesses at the same time. Many in the banking industry saw firsthand that, despite the commonly held belief, it is possible to digitize lending while maintaining personal, meaningful relationships. Bankers do not have to make a choice between convenience and personal connection, and we expect to see more institutions blend the two going forward.

Bankers also have a newfound familiarity with Small Business Administration programs following the wind down of the PPP. The program marked many institutions’ first time participating in SBA lending. Many now have a greater understanding of government guaranteed lending and are more comfortable with the programs, opening the door for continued involvement.

Embracing digitization in lending enhances efficiencies and creates a more seamless experience not only for the borrower, but for employees institution-wide. This will be especially important as the “Great Retirement” continues and bank executives across the country end their careers with no one in place to succeed them. To make the issue even worse, recruiting and maintaining technology talent has become increasingly difficult — even more so in rural markets. Such issues are leading some banks to sell, disrupting the businesses and communities that rely on them.

Partnering with technology providers can give institutions the bandwidth to effectively serve more small businesses and provide them with the customer experiences they have come to expect without increasing staff. Adopting more digital and automatic aspects in small business lending allows banks to reduce tedious manual processes and optimize efficiencies, freeing up employee time and resources so they can focus on strategy and growth efforts. Not to mention, such a work environment is more likely to attract and retain top talent.

Using technology partners to centralize lending also has benefits from a regulatory compliance standpoint, especially as potential changes loom on the horizon. Incorporating greater digitization across the loan process provides increased transparency into relevant data, which can streamline and strengthen a bank’s documentation and reporting. The most successful institutions deeply integrate lending systems into their cores to enable a holistic, real-time view of borrower relationships and their portfolio.

Community institutions have been a lifeline for their communities and customers over the last two years. If they want to build off that momentum and further grow their customer base, they must continue to lean into technology and innovation for lending practices. Developing a comprehensive small business strategy and digitizing many aspects of commercial, small business and SBA lending will position community banks to optimize their margins, better retain their talent and help their communities thrive.

The Emerging Impacts of Covid Stimulus on Bank Balance Sheets

In the middle of 2020, while some consumers were stockpiling essentials like water and hand sanitizer, many businesses were shoring up their cash reserves. Companies across the country were scrambling to build their war chests by cutting back on expenses, drawing from lines of credit and tapping into the Small Business Administration’s massive new Paycheck Protection Program credit facility.

The prevailing wisdom at the time was that the Covid-19 pandemic was going to be a long and painful journey, and that businesses would need cash in order to remain solvent and survive. Though this was true for some firms, 2020 was a year of record growth and profitability for many others. Further, as the SBA began forgiving PPP loans in 2021, many companies experienced a financial windfall. The result for community banks, though, has been a surplus of deposits on their balance sheets that bankers are struggling to deploy.

This issue is exacerbated by a decrease in loan demand. Prior to the pandemic, community banks could generally count on loan growth keeping up with deposit growth; for many banks, deposits were historically the primary bottleneck to their loan production. At the start of 2020, deposit growth began to rapidly outpace loans. By the second quarter of 2021, loan levels were nearly stagnant compared to the same quarter last year.

Another way to think about this dynamic is through the lens of loan-to-deposit (LTD) ratios. The sector historically maintained LTDs in the mid-1980s, but has recently seen a highly unusual dip under 75%.

While these LTDs are reassuring for regulators from a safety and soundness perspective, underpinning the increased liquidity at banks, they also present a challenge. If bankers can’t deploy these deposits into interest-generating loans, what other options exist to offset their cost of funds?

The unfortunate reality for banks is that most of these new deposits came in the form of demand accounts, which require such a high degree of liquidity that they can’t be invested for any meaningful level of yield. And, if these asset and liability challenges weren’t enough, this surge in demand deposits effectively replaced a stalled demand for more desirable timed deposits.

Banks have approached these challenges from both sides of the balance sheet. On the asset side, it is not surprising that banks have been stuck parking an increasing portion of the sector’s investment assets in low-yield interest-bearing bank accounts.

On the liabilities side, community banks that are flush with cash have prudently trimmed their more expensive sources of funds, including reducing Federal Home Loan Banks short-term borrowings by 53%. This also may be partially attributable to the unusual housing market of high prices and low volumes that stemmed from the pandemic.

As the pandemic subsides and SBA origination fees become a thing of the past, shareholders will be looking for interest income to rebound, while regulators keep a close eye on risk profiles at an institutional level. Though it’s too soon to know how this will all shake out, it’s encouraging to remember that we’re largely looking at a profile of conservative community banks. For every Treasury department at a mega bank that is aggressively chasing yield, there are hundreds of community bank CEOs that are strategically addressing these challenges with their boards as rational and responsible fiduciaries.

Visit https://www.otcmarkets.com/market-data/qaravan-bank-data to learn more about how Qaravan can help banks understand their balance sheets relative to peers and benchmarks.

5 Principles to Improve Financial Benchmarking

In financial analysis, the question of “How are we doing?” should almost always be answered with “Compared to what?”

As directors prepare for year-end meetings, there are a number of key ways executives and directors can improve the bank’s approach to benchmarking. A focused program can decrease workload, reduce information overload and yield strategic insight. Here are five ways banks can start.

1. Reconsider Your Peers
Most bank directors are familiar with the national asset-based peer groups featured in Federal Deposit Insurance Corp.’s Uniform Bank Performance Report, or UBPRs. These peer groups can serve an important purpose when it comes to macro-prudential purposes (such as regulatory monitoring for safety and soundness within the entire banking system). But for bankers trying to extract value from this data, we recommend looking beyond asset sizes toward more relevant factors such as geography, funding strategy and lending portfolio.

2. Look Toward Leaders, Not Averages
Being above average is not the same thing as being a leader. Rather than compare themselves against the mean or median, banks should be more focused on how they stack up to the best of their peers. If they want to set realistic goals for high performance, boards should first understand what excellence looks like across a relevant set of bank peers.

3. Use Multiple Peer Groups
It’s rare that a bank can be purely labeled as an agricultural or commercial or industrial lender, or something similar. By design, most community banks have a balanced and diversified portfolio of loans and services. The same can be said for funding sources, risk tolerances, investments and fiduciary activities, among others. Despite these complexities, many banks tend to benchmark themselves against a single, universal peer group. Executives may find it more productive and insightful to use multiple, targeted peer groups, depending on the context of the analysis.

4. Add Context to Trends
Trend charts are a powerful way to monitor for constant improvement — but they only tell half of the story. Many bankers will close out 2021 celebrating a much deserved “record year;” a smaller group of insightful executives will pause to consider their stellar results in the context of the entire sector’s stellar results. Nearly every bank has been excelling at growing the portfolio, capturing fee income and improving efficiency ratios. Prudent directors should ask for additional context.

5. Limit the Scope
Since Qaravan’s inception in 2014, we have helped hundreds of banks pull together board packs, dashboards, decks, report cards and all sorts of other financial reports. The biggest challenge our clients encounter in this process is the information overload they inflict on the report recipients. In a sincere attempt to arm directors with as much information as possible, bank management ends up sending the board an overwhelming amount of data. Pulling these “kitchen sink” reports together is not easy, and it takes bank staff away from more important things. Directors can help minimize the inefficiencies associated with these data calls by encouraging a more focused review of key performance benchmarks.

To learn more, visit https://www.qaravan.com/.