Three Retail Strategies for the Post-Coronavirus Branch

Technology is key to providing a near touch-free experience in the branch and digitally, but many banks are not ready. Less than 50% of organizations believe they are prepared for competitive threats, customer expectations or technological advancements, according to the 2019 “State of Digital Banking Transformation” report.

It’s a daunting task to take on digital transformation. Financial institution didn’t need a crisis to learn that banking from anywhere is a priority for customers, but it has highlighted the slow rate of mobile adoption. Only 17% of financial institutions believe they have deployed digital transformation at scale, with larger organizations being the most advanced, according to the Digital Banking Report. Even after the coronavirus pandemic has settled down, consumers will value banks that make the investment to provide services digitally.

Onboard Customers to Digital Resources
Transacting from anywhere is important, but that’s not the entire branch experience — banks need to provide highly personal financial education and advisory services from anywhere. Focus marketing and communications on educating customers with resources like blogs, social media posts, financial healthcheck tools or webinars on relevant topics like financial planning in an emergency. Content explaining the details and next steps on payment deferrals, personal loans, and programs like the Paycheck Protection Program are especially helpful during this time. Ensure your compliance officer looks over everything before it’s posted.

Offering tools and resources now will position you as an advising partner rather than a product-focused institution. And video banking gives your customers more access to experts. These platforms put face-to-face interactions in the palm of your customers’ hands by allowing them to connect with a banker right from their phone, securely sign and share documents such as photo IDs, documents for new accounts, loans, and other urgent needs.

Give Customers Access to Experts
Banks also need to invest in technology that allows their experts to work from anywhere — including the corporate campus or headquarters too. These investments allow them to work from anywhere makes transitioning to remote easy; they can also improve productivity when they are in the office.

Adding flex spaces in your headquarters allows you to reduce the number of desks provided to full-time employees while improving productivity, the flex space allows your employees to have a space to focus when they need to, collaborate, and it can be used by others when that employee is remote or off-campus.

Your experts will need to have a well-thought-out space where they can perform their remote expert duties. A clean backdrop, technology, and quiet location are all necessary to make sure your experts can handle any question and transaction. However, the space doesn’t have to be expensive or elaborate. Take an Instagram-versus-reality approach to creating the perfect remote expert set-up. Meaning, focus design dollars on what is on camera instead of spending on the entire space. Offer your experts best practices for video conferencing so your exceptional customer service standards are not altered when your associates are working remotely.

Prepare Your Branch for the Post-Coronavirus Consumer
This is truly the time to prepare your branches for the future and provide an even-better experience than before. Consumers post-coronavirus will be more aware of being in confined spaces, such as private offices. A “service spot” offers a unique workspace for associates that is visibly less “confining” but still private, potentially increasing the appeal of getting advisory services in the branches. Ideally, the spots would be set at counter or bar height.

Teller towers are a retail-friendly twist on the old-school teller line. They remove queue lines and create more distance between customers, while providing a better interaction experience with staff.

Easy-to-clean surfaces for furniture, flooring and more will be the way of the future. Brian Silvester, Head of Design at DBSI, offers several examples of easy to clean and green finish options:

  • Stain-resistant surfaces and PFOA-free upholstery are easy to clean and reduce health concerns linked to PFOA.
  • Easy-to-clean laminate instead of wood veneer offers a realistic natural wood-look without having to worry about scratches and special cleaning procedures.
  • Groutless flooring like luxury vinyl tile reduces maintenance over time. There are even options that are carbon neutral.

The post-coronavirus consumer may be hyperaware of germs on everything they touch, and may not be interested in communal brochure racks to gather information. Digital and interactive signage with hand sanitizer nearby in an option that is easy to clean and update. Interactive digital signage allows customers to still obtain the information they want while collecting emails and data for customer insights. Touch-free screens are a great way to showcase your products and services with virtually no risk of community spread.

To create the perfectly prepared retail strategy that can attract and retain customers in any situation, banks need to fuse design, technology and process. Branch transformation, at any level, is both an art and a science.

Banking on the Fly at Atlantic Union

When the rapidly spreading COVID-19 virus forced CEO John Asbury to send most of Atlantic Union Bankshare Corp.’s 2,000 employees to work from home, it gave him the chills.

After all, the Richmond, Virginia-based bank is hardly a digital-only enterprise. It has a branch-centric strategy that emphasizes face-to-face customer service. And like most traditional companies, it has lots of people working in big offices.

To Asbury’s immense relief, everyone has quickly adapted to the demands of running a $17.6 billion institution with a distributed workforce. “A month ago, it was quite candidly terrifying, the notion of moving the company to a virtual status,” he says. “But I have to tell you, at this point we’re actually pretty comfortable with it.”

Ninety percent of Atlantic Union’s employees are now working from home, including Asbury and the bank’s senior management team.

As it turned out, working remotely was not the only challenge that Asbury and the bank’s employees would find themselves facing in the early days of the pandemic. Soon thereafter, a second challenge came in the form of an opportunity that hardly anyone was ready for — not just at Atlantic Union but throughout the banking industry.

The Small Business Administration’s Payroll Protection Program, included in a $2.2 trillion stimulus bill passed in late March, was designed to funnel $349 billion in loans to hard hit small businesses that have been forced to close as part of a broad nationwide lockdown intended to curb the virus’ spread. But almost no one was prepared to take loan applications on the program’s April 3 start date, least of all the SBA.

Many banks, including some of the country’s largest, were slow to engage because of their uncertainty about various details in the hastily rolled out program. Asbury, however, decided that Atlantic Union owed it to its small business customers in Virginia, North Carolina and Maryland to quickly embrace the program and help them get funded.

“I think we all feel the weight of our responsibility,” Asbury says. “I never thought we would be an economic first responder. I never thought we would be at the scene of the crash, and here we are. You cannot say to your customers, ‘Sorry, it’s just too much work,’ or ‘Sorry, we just can’t go fast enough,’ or say, ‘Well, we’re going to do this for a privileged few, because the others aren’t worth it.’”

And yet for all of Asbury’s determination to respond quickly, there were many problems that had to be solved along the way. For starters, the bank did not have the right technology to handle the large volume of loan applications that it expected to receive. It had recently licensed an automated workflow solution to build an online account opening system, but the bank’s new head of digital technology concluded that it wasn’t the right solution for account opening. Asbury says she quickly negotiated a credit with the vendor and chose a different technology instead.

“The team literally, in a matter of days, was able to repurpose the solution and stand up an online application web portal and an automated workflow system, which is essentially a virtual assembly line,” Asbury says. Many of the bank’s employees worked 12 hour days and weekends to have the system up and running by April 3. “To be able to build this automated assembly line … recognizing that everyone working on it is sitting in their homes, is unbelievable,” he adds.

Another challenge was the SBA’s failure to provide lenders with a standard note agreement, one reason why some large banks were slow to engage in program. If a bank doesn’t use the SBA’s standard agreement, the agency won’t guarantee the loans. Asbury decided the bank couldn’t afford to wait for the SBA to resolve that issue, so he took a risk. “We used our best educated guess to create our own note, in the spirit of the agreement, and we began to fund,” he says. The agency later said it was okay for banks to use their own note agreements.

Once Atlantic Union began submitting loan applications, the SBA’s “E-Tran” electronic loan processing system kept crashing under the torrent of submissions it was receiving from lenders throughout the industry. The bank had 30 people who manually keyed in data, and is implementing automated technology to import the application data and upload it into the E-Tran system, which will greatly shorten the application process. “We think we can get the cycle time down to one minute for one loan, and that’s really important,” Asbury says.

The bank had 400 employees working full time on the program, including Asbury’s own administrative assistant who was approving loans. Through April 15, 5,717 Atlantic Union customers had been approved for loans totaling $1.42 billion. The program is now out of funds, although the bank has decided to continue accepting application in the hope that Congress will provide additional funding.

The pandemic proved to Atlantic Union that it is both resilient and innovative, traits that will benefit it long after the COVID-19 crisis has passed. “It’s going to cause us to be more courageous,” Asbury says. “I don’t mean we’re going to be hasty [or] impulsive, but I think that we’re going to be able to make big decisions more confidently, and frankly quicker as we’ve proven we can do it.”

Winners Announced for the 2019 Best of FinXTech Awards


Awards-9-10-19.pngBanks face a fundamental paradox: They need to adopt increasingly sophisticated technology to stay competitive, but most have neither the budget nor the risk appetite to develop the technology themselves.

To help banks address this challenge, a legion of fintech companies have sprung up in the past decade. The best of these are solving common problems faced by financial institutions today, from improving the customer experience, growing loans, serving small business customers and protecting against cybersecurity threats.

To this end, we at Bank Director and FinXTech have spent the past few months analyzing the most innovative solutions deployed by banks today. We evaluated the performance results and feedback from banks about their work with fintech companies, as well as the opinions of a panel of industry experts. These fintechs had already been vetted further for inclusion in our FinXTech Connect platform. We sought to identify technology companies that are tried and true — those that have successfully cultivated relationships with banks and delivered value to their clients.

Then, we highlighted those companies at this year’s Experience FinXTech event, co-hosted by Bank Director and FinXTech this week at the JW Marriott in Chicago.

At our awards luncheon on Tuesday, we announced the winning technology solutions in six categories that cover a spectrum of important challenges faced by banks today: customer experience, revenue growth, loan growth, operations, small business solutions and security.

We also announced the Best of FinXTech Connect award, a technology-agnostic category that recognizes technology firms that work closely with bank clients to co-create or customize a solution, or demonstrated consistent collaboration with financial institutions.

The winners in each category are below:

Best Solution for Customer Experience: Apiture

Apiture uses application programming interfaces (APIs) to upgrade a bank’s digital banking experience. Its platform includes digital account opening, personal financial management, cash flow management for businesses and payments services. Each feature can be unbundled from the platform.

Best Solution for Revenue Growth: Mantl

MANTL developed an account-opening tool that works with a bank’s existing core infrastructure. Its Core Wrapper API reads and writes directly to the core, allowing banks to set up, configure and maintain the account-opening product

Best Solution for Loan Growth: ProPair

ProPair helps banks pair the right loan officer with the right lead. It integrates with a bank’s systems to analyze the bank’s data for insights into behaviors, patterns and lender performance to predict which officer should be connected with a particular client.

Best Small Business Solution: P2BInvestor

P2Binvestor provides an asset-based lending solution for banks that helps them monitor risk, track collateral and administer loans. It partners with banks to give them a pipeline of qualified borrowers.

Best Solution for Improving Operations: Sandbox Banking

Sandbox Banking builds custom APIs that communicate between a bank’s legacy core systems like core processors, loan origination, customer relationship management software and data warehouses. It also builds APIs that integrate new products and automate data flow.

Best Solution for Protecting the Bank: Illusive Networks

Illusive Networks uses an approach called “endpoint-focused deception” to detect breaches into a bank’s IT system. It plants false information across a bank’s network endpoints, detects when an attacker acts on the information and captures forensics from the compromised machine. It also detects unnecessary files that could serve as tools for hackers.

Best of FinXTech Connect: Sandbox Banking

The middleware platform, which also won the “Best Solution for Improving Operations” category, was also noted for working hand-in-hand with bank staff to create custom API connections to solve specific bank issues. In addition, banks can access three-hour blocks of developer time each month to work on special projects outside of regular technical support.

How to Deliver a Full Customer Experience Over Mobile Banking


mobile-8-21-19.pngWith most banking activity taking place on mobile, banks must innovate in order to deliver the full customer experience straight to customers’ fingertips.

With more people using their phones to access banking services, banks cannot afford to miss out on the massive opportunity to go beyond transactions and offer the sales and service customers seek. A Citigroup study found that mobile banking is among the top three most-used applications on a consumers’ phone, increasing 50% from 2017 to 2018.

Many banks still have a siloed mindset, considering in-branch, mobile and online experiences as separate and distinct entities. But their customers don’t differentiate between channels; they view banking as an omni-channel experience.

Their expectations are the same, whether they go to a branch, visit their bank’s webpage at home or open an app on their phone. If they have questions, they expect the ability to ask their bank within the mobile app just as easily as they would in branch. And if they are interested in learning about savings accounts or loan rates, they expect to easily find that information within the mobile banking space.

Banks have long thrived by delivering seamless transactions, competitive and unique products and outstanding service. They have responded to the growing popularity of mobile banking by investing in technology to build out robust transactional experiences for their customers. From mobile deposit to transferring funds to bill pay, the ability to conduct fundamental banking transactions is available to and frequently used by customers.

Where bank mobile apps are lacking, however, is in providing the sales and service that they excel at delivering in their branches to the mobile devices of their customers. This is a huge opportunity many banks are missing. Based on our data, there are about 2,000 opportunities per every 25,000 accounts where a customer expresses an intent to inquire about how to do something or how to adopt a new product that is entirely uncaptured in mobile banking.

With the advent of digital transformation and more activity moving to mobile channels, the sales and service aspects of banking have gradually become more diluted. Banking has become less sales and service oriented and increasingly more transactional.

There is only one direction for banks to go: give consumers what they want and demand. Banks need to offer customers the ability to connect with them on their phone anytime, anywhere, and to receive the same level of sales and service they do at a branch. Mobile banking provides a plethora of opportunities to do just that.

Banks need to do more to provide the same support and service in their mobile channels as they do within their branches. There are three easy ways they can begin to leverage mobile banking to go beyond transactions to deliver sales and service to their customers.

1. Embed a robust help center within mobile banking.
Make finding and accessing digital support a breeze. Embed support content from your website within your mobile banking application to allow customers easy access to help content like resetting passwords and fund transfers. Make sure the most frequently asked questions are answered in a manner that answers the questions, provides additional information and creates a call to action.

2. Utilize chatbot to further engage customers.
Add live chat or an automated chatbot for an additional avenue to engage with your mobile customers. Banks can use chat to suggest relevant content or products and services, help point customers in the right direction and to learn more about their financial goals and needs.

It’s not uncommon for chat usage to double once it is added to mobile banking, which can put a sizeable strain on contact centers. Use support content in the form of a chatbot to allow customers the ability to self-answer common support questions, and offer live chat for more complex questions and issues.

3. Provide clear, concise product information.
Customers no longer consider mobile banking to be purely transactional. They think of it as an extension of a branch, where they’ve come to expect support and sales information. Providing links to your key products within mobile banking can encourage customers to explore your offerings.

When banks fail to go beyond transactions in mobile banking, they miss out on a vast opportunity to provide sales and service through the channel customers are the most present. The consequences of not doing so can result in greater contact center volume, and missed opportunities to increase wallet share.

Three Ways Directors Can Solve the 3,000-Year-Old Credit Problem


credit-7-9-19.pngHistory has shown that knowledge is power. One place that could use the benefit of that knowledge is commercial credit.

Banks have been lending to businesses for 3,000 years and has yet to figure out the commercial credit process. But executives and directors have an opportunity to fix this problem using data and digital capabilities to make the process more efficient and faster, and become the lending legends of their institutions.

In 1300 B.C. Egypt, the credit process looked something like this: A seafaring trader would trade bronze bowls with a local bronze merchant for cloth and garments. But to make this transaction, the bronze merchant would need to borrow from multiple merchant lenders. This process required lenders to understand the business plans of the borrower, go “door to door,” have community knowledge and know the value of all those goods. There were a lot of moving pieces—and a great deal of time—involved for that one transaction.

Fast-forward to today. A lot has changed in 3,000 years, but the commercial credit process has actually gone backwards. It can take a lender 60 to 90 days and more than $10,000 per lead to identify potential leads—and that’s before they review the application. After a borrower applies, the lender must look up credit reports, collect and spread financial statements and decide on the terms and conditions. Finally, the application goes through the credit department, which can take another 30 to 45 days and cost $5,000 per application.

Lenders will have spent all that time and effort to process the loan—but may not end up with a new customer to show for it. Meanwhile, borrowers will have spent time and effort to apply and wait—and may not have a loan to show for it.

While this problem has persisted for 3,000 years, the good news is that executives and directors have an opportunity to fix the problem by turning their manual-lending process into a digital-lending one. This evolution entails three steps that transform the current process from weeks of work into days.

First, a bank would use a digital-lending portal to gather applicable demographics to identify prospective borrowers. In researching prospects, they see critical borrower information such as name, address, years in business, legal structure, taxpayer identification number, history, business description and management team. Rather than having to wait until later in the process to uncover this critical information, they can immediately identify whether to pursue this lead and quickly move on.

Second, a bank uses a credit-decision engine to gather and analyze the applicable borrower data. Not only can the engine pull in consumer and credit bureau information, but it can also include automated financial collection, credit score and industry data for comparison. The bank can use data from this tool to determine terms and conditions, credit structure, purpose of credit facility, pricing, relationship models and cross-sell strategies.

Third and finally, the bank’s credit policy and process integrate with its credit-decision engine to enable an automated review of a loan application. This would include compliance checks, terms and conditions and credit structure. Since the data gathering and analysis has already taken place and automatically factored into the decision, there is no need to review all those pieces, as would be required with a manual process.

These three steps of this digital lending process have distilled a weeks-long process into about five days. Executives and directors can not only grow their institution in a shortened time period; they can do so without adding any risk. A bank I worked with that had $250 million in assets was able to add $20 million in loan volume without taking on any additional risk.

By using knowledge to their advantage and implementing a digital lending solution, bankers can save not just time and costs, but their institutions as well as their communities. They can now spend their limited time and resources where they matter most: growing relationships along with their banks. Having fixed the 3,000-year-old credit problem, they can place those challenges firmly in the past and focus on their future.

Mining for Gold in Bank Data


data-5-9-19.pngCommunity banks are drowning in customer data.

Every debit card swipe, every ACH and every online bill pay produces data that provides insight into their customers’ relationship with the institution, as well as their lifestyle and potential needs. Banks should prioritize using their proliferation of customer data to open up new service and revenue opportunities. The potential to identify untapped opportunities is enormous.

The amount of data generated by the digitization of services and customer interactions has grown exponentially in recent years. By 2020, about 1.7 megabytes of new information will be created every second for every person on the planet, according to a 2017 McKinsey & Co. report. This figure is only expected to increase: By 2021, half of adults worldwide will use a smartphone, tablet, PC or smartwatch to access financial services. The mindboggling amount of data comes at a time when companies must “fundamentally rethink how the analysis of data can create value for themselves and their customers,” according to a Harvard Business Review article by Thomas Davenport, a professor at Babson College and a fellow at the MIT Initiative on the Digital Economy.

Amazon is often cited as the model for capitalizing on data to increase sales and improve consumers’ experience. The company tracks each customer interaction—from site searches and purchases, from Alexa commands to song or movie downloads—to develop a holistic view of that consumer’s preferences and buying habits. For instance, if a consumer purchases prenatal vitamins from Amazon, she will soon see pop-up ads for other pregnancy and baby-related items. Amazon will also send her offers and reminders to repurchase the vitamins at the exact time they run out.

Banks should try to emulate Amazon’s ability to highly personalize a consumer’s experience. Organizations that leverage customer behavioral insights outperform peers by 85 percent in sales growth and more than 25 percent in gross margin, according to Gallup. And personalization based on customer data can deliver 5 to 8 times the return on investment on marketing expenses and increase sales by 10 percent or more, according to McKinsey.

But in order for banks to use the data produced by their internal systems, they need to create a structure and plan around it. Institutions need to direct information to one location, figure out how to analyze it and—most importantly—develop an actionable plan. This is a challenge because many banks partner with a myriad of vendors to provide the different consumer services such as debit and credit card processing, online banking and bill pay vendors. To consumers, these disparate systems may appear to work together reasonably well; behind the scenes, they may not communicate with each other.

This is an overwhelming imperative for many community banks. Fifty-seven percent of financial institutions say their biggest impediment to capitalizing on their data is that it is siloed and not pooled for the benefit of the entire organization, according to a July 2016 report from The Financial Brand. Other impediments include the time it takes to analyze large data sets and a lack of skilled data analysts.

But banks can remove these impediments with an “intelligent” data management technology platform that aggregates information from unlimited sources and makes it available enterprise-wide, from frontline staff to marketing to management. Platforms analyze data from sources like the core processor, online banking and lending systems, as well as peer and demographic data, and develop automated revenue- and service-enhancing strategies that capitalize on the findings.

The results are better, automated and even instantaneous decisions that generate greater sales opportunities and improve customer experience.

Banks can use the data to generate personalized, targeted marketing and communications campaigns that are triggered by an increase or decrease in customer transactional activity. Reduced activity can indicate an account might leave the institution; proactive communication can reengage the customer and retain the account.

This data can improve cross-selling objectives, generate sales opportunities and track onboarding activities to facilitate the customer’s experience. The data could identify customers who use payday or other non-bank lenders, and generate omni-channel offers for in-house products. It could also flag follow-up communications on products or services that consumers expressed interest in, but did not open.

Centralizing institutional data into one platform also creates efficiencies by automating manual processes like new account onboarding, loan origination and underwriting—even customer complaint resolution. It can also introduce additional customer services provided by third-party vendors by requiring them to integrate with only one data source, instead of many.

Banks need to leverage their customer data in order to create highly personalized and meaningful offers that improve engagement and overall performance. With the assistance of a comprehensive data management platform, community banks can overcome the hurdles of unlocking the value of their data and achieve Amazon-like success.

Three Tech Strategies for Banks, Based on Size


strategy-5-3-19.pngHow should you position your bank for the future—or, for that matter, the present?

This is one of the most perplexing questions challenging leadership teams right now. It is not a new consideration; indeed, the industry has been in a constant state of evolution for as long as anyone on our team can remember. Yet lately, it has taken on a new, possibly more existential sense of urgency.

Fortunately, there are examples of banks, of different sizes and a variety of business models, keeping pace with changing consumer expectations and commercial clients’ needs. The industry seems to be responding to the ongoing digital revolution in banking in three ways.

The biggest banks—those like JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co.—have the resources to forge their own paths on the digital frontier.

These banks spend as much as $11 billion a year each on technology. They hire thousands of programmers to conceptualize digital solutions for customers.

The results are impressive.

As many as three-quarters of deposit transactions are completed digitally at these banks. A growing share of sales, account openings and money transfers take place over these banks’ digital channels as well. This allows these banks to winnow down their branch networks meaningfully while still gaining retail deposit market share.

The next step in their evolution is to combine digital delivery channels with insights gleaned from data. It’s by marrying the two, we believe, that banks can gain a competitive advantage by improving the financial lives of their customers.

Just below the biggest banks are super-regional and regional banks.

They too are fully embracing technology, although they tend to look outside their organizations for tailored solutions that will help them compete in this new era rather than develop the solutions themselves.

These banks talk about integration as a competitive advantage. They argue that they can quickly and nimbly integrate digital solutions developed elsewhere—growing without a burdensome branch network while also benefiting from the latest technologies without bearing the risk and cost of developing many of those solutions themselves. It is a way, in other words, for them to have their cake and eat it too.

U.S. Bancorp and PNC Financial Services Group fall into this category. Both are reconfiguring their delivery channels, reallocating funds that would be spent on expanding and updating their branch networks to digital investments.

In theory, this makes it possible for these banks to expand into new geographic markets with far fewer branches.

U.S. Bancorp announced recently that it will use a combination of digital channels and new branches to establish a physical retail beachhead in Charlotte, North Carolina. PNC Financial is doing the same in Dallas, Texas, among other markets.

Finally, smaller community banks are adopting off-the-shelf solutions offered by their core providers—Fidelity National Information Services (FIS), Fiserv and Jack Henry & Associates.

This approach can be both a blessing and a curse. It is a blessing because these solutions have enabled upwards of 90 percent of community banks to offer mobile banking applications—table stakes nowadays in the industry. It is a curse because it further concentrates the reliance of community banks on a triumvirate of service providers.

In the final analysis, however, it is important to appreciate that smaller banks based outside of major metropolitan areas still have a leg up when it comes to tried-and-true relationship banking. Their share of loans and deposits in their local markets could even grow if the major money-center banks continue fleeing smaller markets in favor of big cities.

Smaller regional and community banks dominate small business loans in their markets—a fact that was recently underscored by LendingClub Corp.’s decision to close its small business lending unit. These loans still require local expertise—the type of expertise that resides in their hometown banks. The same is true of agriculture loans.

Banks are still banks, after all. Trust is still the top factor cited by customers in the selection process. And loans must still be underwritten in a responsible way if a bank wants to survive the irregular, but not infrequent, cycles that define our economy. The net result is that some community banks are not only surviving in this new digital era, they are thriving.

But this isn’t a call to complacency—far from it.

To compete in this new era of heightened digital competition, it is more important than ever for banks of all sizes to stay committed to the quest of constant improvement. That is why our team at Bank Director is thrilled to host bank executives and board members at the JW Marriott Nashville on May 9 and 10 for our annual Bank Board Training Forum, where we will talk about how to tackle these challenges and remain relevant in the years ahead.

Why Checking Products Matter More Than Ever


checking-4-17-19.pngThe battle is on among all banks to acquire new customers and their low-cost deposits. The key to winning the battle for low-cost deposits is owning the primary banking relationship and, in particular, the consumer checking account relationship.

The checking account is the central way consumers identify “their bank.” It is the only banking product that consumers use daily to navigate the intersection of their life and their money.

If this navigation is smooth, your bank is in the best position to collect even more deposits, loans and fee income.

Banks that understand this best have been successful at capturing primary banking relationships, which in recent years have been the four biggest U.S. banks. They are the ones investing the most to continue this trend and defend their success.

If you’re a community bank or even a regional one, a recent AT Kearney survey detailed the ways you are being attacked.

  • The four biggest banks (Bank of America Corp., JPMorgan Chase & Co., Citigroup and Wells Fargo & Co.) have 40 percent of the U.S. consumers’ primary banking relationships. Superregional banks have 19 percent. The remaining 41 percent is split between other institution types, with credit unions at 14 percent, community banks at 12 percent, regional banks at 8 percent and relatively new direct banks like Marcus and Ally already at 5 percent.
  • The four biggest banks are collectively budgeting more than $30 billion in technology investments, about one-third of which is on digital banking around the checking account.
  • Digital channels drive 35 percent of primary banking relationship moves, while branches only drive 26 percent. The Big Four banks are capturing 41 percent of consumers that do switch their primary relationship. Superregional banks are capturing 28 percent. This leaves 31 percent for everyone else, and the new digital-only banks have 11 percent of that remainder.

Big Banks Rule
The reality is the biggest banks have the upper hand. The resources they are investing in digital platforms to maintain and increase market share can’t be replicated by community or regional banks.

But let’s not confuse the upper hand with the winning hand. Community and regional banks can fight back, because there is a chink in the armor of big banks.

While the digital experience provided by the four biggest banks may be superior, a review of the actual product benefits their consumer checking accounts provide isn’t that impressive. They are as ordinary as the checking accounts at most other banks.

Their checking lineups, terms and conditions are complicated with significant product overlap. They mask this weakness with an allure in the marketing and digital delivery of these ordinary benefits.

When smaller banks discuss growing consumer retail accounts, they talk more about acquisition pricing and marketing strategy, and not enough about first improving and simplifying products and lineups. Many banks start by spending on the promotion of unappealing, undifferentiated checking products at the lowest price in a confusing lineup. This isn’t a winning battle plan.

Smaller banks should first make their lineup simple for consumers to understand. The best practice here is a good, better, best methodology, which we have previously discussed in my article, Use Good/Better/Best for Checking Success.

While doing this, why not offer checking products as good, modern and different as you can afford?

Nontraditional Benefits Work
Recent research by Cornerstone Advisors, titled “Reinventing Checking Accounts,” shows how positively consumers respond to switching to checking accounts that include nontraditional benefits like cell phone insurance, roadside assistance and pharmacy/vision discounts alongside traditional benefits.

These nontraditional benefits are central to consumers’ lives away from the bank but can be captured in their checking account.

There’s no debating the importance of acquiring new checking relationships in gathering low-cost deposits. While the biggest banks dominate currently, are investing heavily in technology and paying handsome incentives to attract even more new customers, smaller banks can attack where these big banks are vulnerable.

Don’t fight them toe-to-toe with a complex lineup of look-a-like checking products. That’s a losing battle. Instead, focus on the appeal of a simple lineup and products that competing banks don’t offer. That’s a battle worth fighting, and one that can be won.

How Spreadsheets Add Risk to Construction Lending


lending-4-11-19.pngMillennials are entering the housing market with a force, yet low inventory across the country is stalling their dreams of homeownership. Now is the time for lenders to either begin or ramp up their construction loan programs. These niche loan products are a great addition to any book of business, but to be successful you have to be able to manage and service the loan after it closes.

Post close actions have traditionally been done with spreadsheets. This method, while fairly understood, is actually limiting and prone to formula errors. Additionally, spreadsheets naturally reach a tipping point in a team’s ability to scale and share reportable data with management and others in the organization. This puts loan completion in jeopardy and creates more risk to the lender.

The Limits of Spreadsheets to Manage Construction Lending
Spreadsheets can only do what they are designed to do—no more and no less. As your program grows, you are bound to reach the point where a spreadsheet is no longer functionally efficient and becomes a risky way to manage your pipeline.

  • Limited Visibility Into the Life of the Loan: Each loan has many different data points and touches over time, and housing them in a spreadsheet is basically burying important and vital information every time the loan is touched. It’s nearly impossible to see history, anticipate the future—and most importantly, clearly see problems before they arise. Spreadsheets force a reactive instead of a proactive method, which means a lender who is using spreadsheets is always playing catch-up.
  • No Reporting: Can you open up the spreadsheet right now and easily and accurately report on the pipeline, draw reports or consultant reports? The answer is probably no. And what do you do when you need to produce 1098 or 1099 reports? How do spreadsheets support these requirements? Getting your 1098s or 1099s from spreadsheets is a tedious, manual process prone to error. If you have a good quantity of construction loans, this is a large undertaking, and is difficult to scale. As you consider spreadsheets, consider the additional work that those spreadsheets will cost you over time.
  • A Finite Number Of Loans One Person Can Manage: Spreadsheets require a lot of time to properly manage one loan, and we have found that dedicated and experienced construction loan administrators can typically manage 35 to 50 loans using spreadsheets at one time. Any more than this usually adds to poor customer service.
  • Drains In-house Resources: If your program is doing well and your origination volume is growing, team members are limited in scale before a new hire must be acquired to take on more loans. Throwing bodies at the problem is not the best solution.
  • Location, Location, Location: Spreadsheets, no matter if they are stored on the cloud or on desktops, are still accessed by individual devices. You are now limited to these single failure points. What are the implications of losing this data, or the individual that knows how it works?
  • No Tracking: A spreadsheet does not offer tracking, task automation, complaint management, event monitoring, risk analysis and draw validations to ensure that the loan is meeting all of its milestones and risk requirements. As a workaround, lenders turn to the sticky note to help them keep track of important dates and actions. We all know the ineffective nature of this system, especially as key factors such as deadlines for draws, inspections, liens or permit expirations often get lost in the sticky note shuffle.
  • No Compliance Monitoring: Spreadsheets cannot keep you in compliance with government regulations, state statutes, loan program requirements, internal compliance, in-house policies/procedures or industry best practices. In order to maintain strict compliance, spreadsheets require constant vigilance. This may be their biggest limitation.

If Not Spreadsheets, Then What?
Spreadsheets just don’t cut it for construction loan management. Lenders who want to increase revenue while adding fewer additional resources need a digital construction loan management solution. Digital solutions reduce risk, improve efficiencies, allow scale and provide a better customer experience. Not to mention it keeps track of every small, yet critical, part of the construction loan. Never again will you be questioning if you are over-dispersing funds. Digital solutions, especially those that are cloud-based, can alleviate all the limitations of spreadsheets and the tipping point will be a thing of the past. Once you are running on this new level, you can bring more revenue and smart growth to your organization.

The Big Banks Are Back


banks-1-28-19.pngIs it now a big bank world that the rest of the industry is just living in?

One could justifiably come to that conclusion based on comments by Tom Michaud, president and chief executive officer at the investment bank Keefe Bruyette & Woods during a presentation on the opening day of Bank Director’s Acquire or Be Acquired conference Sunday in Phoenix.

Approximately 1,300 people are attending the 25th anniversary of Bank Director’s Acquire or Be Acquired event at the JW Marriott Phoenix Desert Ridge resort, which will run through Tuesday.

It’s no secret the four largest U.S. banks—JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup—hold dominant positions in the country’s banking market. These four megabanks control approximately 45 percent of the U.S. deposits. But historically, large institutions have been less profitable than much smaller ones in part because their size and complexity have made them more difficult to manage.

That is now changing, according to Michaud.

Bank of America, for example, posted a return on tangible common equity (ROTCE) in 2017 of 10.8 percent. The bank’s ROTCE rose to 15.4 percent in 2018 and is projected to hit 15.9 and 16.5 percent in 2019 and 2020, respectively.

Similar ROTCE increases are forecasted for JPMorgan, Wells and Citi through 2020.

The reason these banks are now operating at a much higher level of profitability is in part because their management teams have figured out how to turn their enormous size into an advantage. Although analysts, consultants and the banks themselves have often touted the advantage of size, it has had an averaging effect on their financial performance as they have grown increasingly larger in recent years.

“It seems now that the scale argument has a lot more traction,” said Michaud.

Just three years ago, the most profitable U.S. banks based on their performance metrics were in the $5 billion to $10 billion asset category—just large enough to gain some benefits from scale but still small enough to escape the averaging effect. This so-called “sweet spot” shifted in 2017 to banks with assets greater than $40 billion, and Michaud expects these large institutions to again claim the sweet spot in 2018 by an even wider margin once the industry’s profitability data are finalized.

One important place large banks have been able to use scale to their advantage is in technology. The U.S. economy is in the midst of a digital revolution, and the banking industry is being forced to embrace digital distribution of consumer products like checking accounts and mortgages. “Consumers really like the digital delivery of retail banking services,” Michaud said.

And it’s the national and super-regional banks that are capturing the greatest share of “switchers”—consumers who are leaving their current bank for another institution that offers a better digital experience. Michaud cited data from the consulting firm AT Kearney showing that national banks are capturing about 41 percent of the digital switchers, with super-regionals taking 28 percent. Even direct banks at 11 percent have been gaining a larger share of switchers than regional banks, local banks and credit unions.

The advantage of scale becomes most apparent when you look at the amount of money large banks are able to invest to upgrade their digital capabilities. Each of the big four banks are expected to invest a minimum of $3 billion a year over the next few years in technology—and some of them will invest significantly more. For instance, JPMorgan’s annual technology spend is expected to average around $10.8 billion.

While not all of that will be invested in digital distribution, the country’s largest bank is investing heavily to build a digital banking capability capable of penetrating any consumer market anywhere in the country.