Why Digital Transformation Strategies Should Address Financial Wellness

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For banks, financially healthy customers are more profitable and more loyal, sticky customers. That means that effective financial wellness programs are not only the right thing to do for customers — they can also be a powerful tool for growth, even when net interest margins are under pressure.

Consumers who understand the basics of personal finance tend to be more engaged and profitable for the financial institutions they bank with, according to a study by Raddon Research Insights. A thoughtful strategy can make financial wellness programs an important resource for the communities they serve. As a former banker who is passionate about financial wellness and the impact it has on people’s entire life, I want to share my experiences and explain what other bank leaders should consider when strategizing their institutions’ financial wellness offerings.

Rethinking Financial Wellness
First, a financial wellness initiative that resonates for one bank’s customers may not be a good fit for another bank in a different market. Yes, community banks are uniquely positioned to support customers with financial education services and other financial wellness resources. But  a bank located in a college town that primarily serves university students should approach financial wellness and education differently than a bank in an area that’s popular with retirees.

Keep in mind the market and community your bank operates in, and your bank’s budget for its financial wellness program. This makes it much easier for your team to identify the opportunities that will make the greatest impact on customers, without being distracted by the latest digital innovations that may be interesting, but not relevant, to your institution’s needs.

Beyond that, how our industry thinks about financial education needs to change. There is no shortage of content in the market that tells consumers what to do to be financially healthy — but there are very few tools and products that actively help them take steps toward a healthier financial future.

People do not engage their bank with hopes of getting a new buy now, pay later solution, a mortgage or an auto loan. They engage their bank to help them buy a home for their growing family. Or they need to buy a car for the commute to their new job. Today’s customers want their bank to help them reach these important life milestones within their household budget and unique financial situation. Personalization should be a key aspect of any financial wellness program and services that banks roll out.

Personalized Guidance Is Key
A personalized approach gives banks a way to help customers make smarter financial decisions at their exact moment of need. Understanding consumers’ savings priorities and what they are actively saving for can help banks determine where they can make the biggest impact on their customers’ financial health.

Fortunately, Plinqit’s State of Savings Report indicates that an overwhelming majority of Americans — 91% — want to grow their savings and are putting aside at least some money this year. One of the top categories for saving this year was for paying off debt, which is notably different from saving money for the future or for a planned purchase. Yet, this is no surprise, given changes in the economy have led many Americans to rack up additional debt and the Federal Reserve’s interest rate hikes that have made it more expensive to borrow. The State of Savings Report reveals that nearly half of Americans, 42%, are putting money aside to pay down their debt. This is even greater of a focus for consumers between the ages of 18 and 34.

If this group is focused on paying down debt, banks should consider how they suggest personal loans and ways to refinance credit card debt. Credit card debt was the most cited type of debt that consumers are prioritizing paying down this year.

As consumers navigate the complexities of life events, unexpected expenses and economic challenges like inflation, saving money and achieving financial wellness can sometimes feel out of reach. Knowing how much money to put toward savings goals versus debt payments, when to start saving for retirement and other important financial decisions can overwhelm consumers. Banks must meet customers wherever they are in their financial journey to offer personalized financial guidance based on their goals.

Thoughtfully planning your bank’s financial wellness and education strategy will empower your institution to establish healthy financial habits among customers while supporting your bank’s future growth.

Four Interesting Insights From High-Performing Bank CEOs

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insight-1-11-19.pngThere comes a point in the process of mastering a subject (in this case, banking) when reading books or articles, or studying data, begins to offer diminishing returns.

After reaching that point, the best way to maintain a steep learning curve is to speak directly with authorities on the topic.

There are lots of authorities on banking—academics, consultants and lawyers, to name a few—but the ones who know the most are seasoned executives sitting atop high-performing banks.

I had many conversations with top-performing bankers in 2018. Here are four of the most valuable insights I picked up along the way.

1. The benefit of skin in the game
People in business talk all the time about the importance of a long-term mindset. Thinking long-term is especially critical in banking, given the leverage used by banks and the severe cycles that afflict the industry.

Unfortunately, in a world geared toward quarterly performance, maintaining a long-term mindset is easier said than done. When times are good and there are no signs of economic trouble, it’s only natural to relax lending standards to maintain market share.

Steering clear of this requires discipline. And one way to impose discipline is through skin in the game. If executives own large stakes in the institutions they run, they’re less likely to take imprudent risks.

This was one of the takeaways from my conversation with Joe Turner, CEO of Great Southern Bancorp, one of the industry’s top-performing banks over the past four decades.

“There are always going to be cycles in banking, and we think the down cycles give us an opportunity to propel ourselves forward,” he said. “Having a big investment in the company plays into this. It gives you credibility with institutional investors. When we tell them we’re thinking long-term, they believe us. We never meet with an investor that our family doesn’t own at least twice as much stock in the bank as they do.”

2. The pace of innovation in banking
It’s tempting to think the pace of innovation in the banking industry has accelerated over the past few years.

Even most millennials can probably remember when they had to visit a branch to make a deposit or check their account balance. Today, by contrast, three-quarters of deposits at Bank of America Corp., the nation’s second biggest bank by assets, are completed through its digital channels.

But this doesn’t mean bankers are strangers to change, because they aren’t. The industry has been in an acute state of evolution since the 1970s, when laws against branch and interstate banking started to come down.

Furthermore, while change is indeed happening, perhaps even accelerating, one benefit associated with operating in a heavily regulated industry is it won’t change overnight.

This was one of the takeaways from my conversation with John B. McCoy, CEO from 1984-99 of the notoriously innovative Bank One, which is now a part of JPMorgan Chase & Co.

“The digital thing is happening—it’s changing things—but it’s not going at warp speed or anything,” said McCoy “Maybe one of the reasons is that banks are still highly regulated, so it’s hard for an outsider to come in and disrupt the whole system. … But absolutely it’s going to make a difference, and in 10 years things will look totally different than they look today. But I don’t see any one thing that will change things overnight.”

3. Continuous self-improvement
In 2015, Phil Tetlock, a Wharton Business School professor, published his book, Superforecasting: The Art and Science of Prediction.

Don’t let the corny title fool you. Tetlock is a leading authority on the accuracy of predictions. The book walks readers through an experiment he conducted to determine whether some people can forecast more accurately than others.

Not only did Tetlock find some people were in fact better at forecasting than others—the so-called superforecasters—he also found those people shared certain traits.

Foremost among those traits is perpetual beta, “the degree to which one is committed to belief updating and self-improvement.” According to Tetlock, perpetual beta was nearly three times as powerful a predictor as its closest rival, intelligence.

It should be no surprise then that many top executives at top-performing banks share a similar trait, dedicating large amounts of time to learning and self-improvement.

Here’s how Brian Moynihan, chairman and CEO of Bank of America, answered my question about what he reads:

“It’s an eclectic mix, but basically newspapers, periodicals and I get a lot of books sent to me. It’s mainly just a lot of articles. The world has changed. It used to be when I delivered papers in college that I’d read The Boston Globe, The New York Times and The Providence Journal because I delivered them every morning. I still read them, but where I pick up most stuff now is from the article flow on a given day coming through all the feeds.”

He went on:

“Reading is a bit of a short hand for a broader type of curiosity. The reason I attend conferences is to listen to other people, to pick up what they’re thinking and talking about. So it’s broader than reading. It’s about being willing to listen to people and think about what they say. It’s about being curious and trying to learn. That’s what we try to instill in our people. The minute you quit being educated formally your brain power starts to shrink unless you educate yourself informally.”

4. Continuity of leadership
Some sort of panic, crash or credit crisis has struck the banking industry an average of once every decade going back to the Civil War. Yet, every time a crisis strikes, it catches bankers by surprise and leads to legions of bank failures.

The problem is that each new generation of banker has to re-learn the lessons of history. And these lessons are often learned the hard way.

This is why it’s important for banks to maintain institutional consciousness, passing lessons learned from the older generation of bankers down to the younger generation.

One bank that’s done this particularly well is First Financial Bankshares, the dominant locally owned bank in West Texas and one of the top-performing regional banks in the country over the past two decades.

There are a number of explanations for First Financial’s success during this time, which encompasses the financial crisis, but one is that its current chairman and CEO Scott Dueser lived through an acute banking crisis in Texas in the 1980s and is determined to avoid doing so again.

“The 1980s was this super education,” said Dueser. “I learned what not to do. And I learned how to get out of problem loans. I’m so glad I went through it because I remember it today and am not ever going to go through it again. And that’s why in the 90’s [and through the financial crisis] we did so well. That’s the value of having somebody like me in a bank that remembers. All these young guys, they don’t remember that. So how do you teach them? Well, you just tell them this is what happens when you do that.”

What You Don’t Know Can Hurt You

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3-4-15-Jack.pngOn March 5 and March 6, Bank Director will hold its second annual Bank Board Training Forum at the Hermitage Hotel in Nashville. The day-and-a-half event was designed to augment Bank Director’s other conferences, which tend to focus on a specific topic, like mergers and acquisitions, audit, risk or compensation, and appeal to a more targeted audience. Instead, the Training Forum was designed for the entire board, and it covers a wide range of topics that all bank directors need to understand.

We are expecting a standing-room only crowd with about 120 people, which speaks to the pressure that directors feel to keep up with the changes that are occurring throughout the industry. Whether it’s something to do with technology, like the advance of mobile or the impact of social media, the rise of nonbank competitors like Google and Apple, or the growing impact that millennials are having on the U.S. economy, the pace of change seems to have accelerated. Staying on top of it all almost seems like a full-time job.

I’ve always thought that bank directors face a unique challenge because banking is a highly regulated industry and it takes time for a new director to grasp just the major requirements, let alone the entire rule book. (I wonder how many bank CEOs who grew up in the industry know the entire rule book.) Banking is also a complex business (as is finance generally) and a new director whose background is in, say, manufacturing or retail can end up having a pretty steep learning curve. The fact that most bank directors come from outside of the industry only adds to the challenge. 

Ultimately, directors’ effectiveness will depend on how much they know about the business of banking and, specifically, their own bank. How can a board exercise their fiduciary duties to shareholders, or be a valuable resource to management, if its members don’t understand the industry, its issues and how those are changing?  

There are a variety of ways that directors can keep themselves informed. Attending events like the Training Forum, or those offered by other industry organizations, is certainly one approach. I would also strongly suggest that directors read a variety of industry publications on a regular basis. Bank Director magazine is one of them, obviously, but there are others. I think it would be extremely helpful if there was someone on the board, perhaps the lead director or independent director, or even the corporate secretary, who could flag important articles, research reports and webcasts and push that content out to the entire board.

I have come across a number of bank boards that make it a regular practice to have a member of senior management brief the board on a particular topic, say, credit trends throughout the industry, or the latest developments in cybersecurity. I think it’s entirely reasonable for the board to expect management to help keep it informed on important industry trends as well as what’s going on inside the bank. But the management team can’t do it all. Directors themselves have to make a personal commitment to training and education for as long as they serve on the board. Basic intelligence, life experience and sound judgment are important qualities for a director, but they can only take you so far.