Taking a Cue from World-Class Athletes—Five Keys to Top Performance in 2013

5-3-13_Fiserv.pngWhat separates a top performing financial institution from others in the field? To find an answer, bank executives can take a cue from elite athletes, who consistently identify and perfect the discrete actions that will give them a competitive edge. To better understand just what banks leading their peers in growth are doing differently compared to lower performing institutions, Fiserv conducted a study that reviewed the performance metrics of banks with assets ranging from $1 billion to $10 billion. (Editor’s Note: This study was slightly different from Bank Director’s own Growth Leaders Ranking, which surveyed all banks and thrifts and ranked top growth institutions by core income, core deposits, noninterest income and loans and leases.)

We examined revenue, non-interest income, loan and core deposit growth over a year from September 2011 to September 2012. Then, Fiserv identified what factors distinguished the leading growth institutions within this group. Across the board, Fiserv research found that strong and growing banks maintained five key attributes: a strong cost foundation, sustained lending volumes, steady non-interest income, decreased reliance on service fees and proven motivation to capture market share.

Some of what Fiserv uncovered in our analysis of this segment was surprising. The leading growth banks were distributed across the country. While the institutions tended to operate in areas with strong local economies, these banks weren’t concentrated in any one particular region. The results did not point to one particular lending product strategy, either. Forty percent of the top performers with assets ranging from $1 billion to $10 billion had well diversified loan portfolios. Most of the remaining 60 percent were fairly equally represented in a number of lending categories, suggesting there are more factors at play than one particular focus. 

So, what gives these leading growth banks such a powerful edge? Fiserv analysis revealed five factors that place elite performers in the winner’s circle:

  1. Strong cost foundation. A lower cost foundation lessens the risk required to generate revenues, and it’s one of the most significant influences on sustained profitability. Cost foundation is a unique metric calculated by adding interest expense and non-interest expense by average earning assets. The study revealed the leading growth banks not only excelled in generating revenue but were also efficient from a cost perspective in generating that revenue.
  2. It’s all about the volume. Top performing banks are simply lending more than their peers. For leading growth banks, total loans as a percentage of average earning assets was nearly 75 percent, compared to an average of 65 percent for all banks studied. But, while top performers lead with higher loan volume, it’s often done with some sacrifice to loan yield. This can be attributed to two factors: aggressive pricing and higher quality of loans.
  3. Optimized non-interest income opportunities. Leading growth banks generate more of their revenue from non-interest income opportunities than the typical bank. Core non-interest income made up nearly 24 percent of revenue for the top performers, significantly more than the 15 percent generated by their lower performing peers. This will be critical to all banks going forward as net-interest margins continue to be squeezed.
  4. Loan production fees over service charge fees. Thanks to greater regulatory scrutiny, highest performers in the study are relying less on service-charge fees to generate income. For all banks evaluated, approximately 34 percent of non-interest income came from deposit service charge fees compared to 17 percent for top performers. Instead, leading growth institutions are becoming decidedly more dependent on loan production fees, which include origination fees and gains on loan sales in the secondary market. The proportion of these fees to overall non-interest income is almost twice as much for top performers.
  5. Motivated to capture market share. Unsurprisingly, leading growth banks operated in markets that had a greater density of households and businesses (1,590 per square mile versus 715 overall). What is surprising, however, is that these high performing institutions do not have overwhelmingly strong market share. The average FDIC market share was just over 6 percent for all banks surveyed, but only 2 percent for leading growth banks. This shows that the top performers are competing fiercely in saturated markets.

In the quest to outperform and outgrow the competition, bank leaders can learn practical lessons from top athletes. Winning a gold medal is less about radical transformation and more about hyper-efficiency—finding the areas of performance where incremental and measurable improvements and adjustments can be made. To perform well in 2013, banks must be hyper-efficient. That means lending more while simultaneously finding new non-interest income opportunities, and capturing market share from the competition. Armed with a strong cost foundation and insight into opportunities of differentiation, banks can find their unique path to growth.

In search of the next great customer experience

In the mid-to-late ‘90s, when companies like InteliData were promoting online bill payment and presentment technologies, I was introduced to a wave of industry optimism that such technologies would dramatically improve our overall banking experience. While the adoption cycle for online banking proved far longer than many forecast, history may be repeating itself. Indeed, we are in another period of technological exuberance, albeit mobile in nature.

Given our growing love affairs with mobile devices of all shapes, sizes and underlying technologies, it’s really no surprise that mobile banking continues to transform the way people manage their finances. Now, I realize I’m just one of many sharing this perspective; indeed, far more experienced voices, such as Fiserv’s CEO Jeff Yabuki, has been known to tweet out thoughts like this:

jeff-tweet.jpg (*April 30, 2011) 

Much like the pre-IT bubble days of online banking, I’m inundated with promotional materials from tech vendors promising to enhance the experience of a bank’s customers while reducing an institution’s costs.

Ah, the promise of mobile banking.  All upside, right?  Well, the Boston-based Aite Group offers an interesting counterpoint.  Last month, the research and advisory firm published its analysis of the group’s mobile banking consumer behavior survey. Its big takeaway: Banks will have to make significant investments to improve or develop their mobile marketing capabilities based on:

  • The lack of retention benefits from the mobile banking channel;
  • Potential losses of overdraft fees from balance monitoring; and
  • Shift in consumer attention towards mobile banking capabilities.

Juxtapose Aite’s observation with a recent TowerGroup forecast. There will be 53 million mobile banking users by 2013, which represents an annual growth rate of more than 50 percent.  Clearly, this is a huge opportunity for financial institutions to use mobile banking as a growth strategy.  According to FIS, another leading technology firm in our industry, those institutions that are not waiting on the sidelines are benefitting in a number of ways:

  • Attracting new market segments;
  • Reducing operating costs;
  • Creating brand differentiation;
  • Deepening account relationships;
  • Increasing satisfaction and loyalty; and
  • Generating revenue.

Despite the promise of these benefits, far more financial institutions have yet to go mobile. For those who haven’t, what are you waiting for? And no, this is not a rhetorical question. We’d like to know as we prepare to roll out our new digital platform for the financial community next month, so we might better help you understand the benefits and drawbacks of products and services.

Bonus question:
How often does your board hear from your CIO, head of Transaction Services, Mobile Banking and/or Internet Banking?  I’ve posted this question on our LinkedIn group so feel free to chime in there or leave a message below.

Social Media Series: A little bird told me…

Part one of our Social Media & Financial Services Series

Last week, Fiserv released a white paper on the current and future interests consumers have in connecting with financial institutions through social media. At a time where everyone seems to hype the promise of social media, I admit I read through the report with a degree of analytical scrutiny and yes, intellectual skepticism. While I’m not alone in questioning certain elements of the survey (most notably, that 11% are socially connected to their bank), can we all agree that this “social media fad” just ain’t going away?

twitter-birds-icons.jpgCase-in-point, at our last two conferences, I found myself talking about the various uses of social media today with outside directors of mid-size financial institutions, community bank CEOs and service providers that work with some of the largest banks in the country. Some people get it. Others questioned my lack of concern for privacy and opening myself up to something dastardly.  

Sadly, I think some of the confusion around social media is borne from the rise of the so-called gurus and self-proclaimed experts that have sprouted up in every nook and cranny of the country. While there are quite a few talented professionals supporting our industry, so too are the snake oil salesmen preying on the less informed.

Personally, I turn to sites like Twitter as a business intelligence tool (I want to see what people are saying about us or people we work with) and Facebook to stay connected with friends and family (keeping business totally separate). But these are only two social networking sites available; yet they seem to represent all things good and/or bad when it comes to social media.

I’m here to tell you it ain’t so.

While other articles share technical or tactical advice, I’ve decided to write my next five posts about social media from the perspective of a CEO and the key leadership team at a financial institution. So let’s start with the basics: social networking platforms present a powerful new way to connect with consumers of all generations.  

According to Fiserv, “more Gen Y (ages 21 – 30) and Gen X (ages 31 – 45) consumers utilize these sites; however, a high percentage of the Boomer (ages 46 – 64) and Senior (ages 65 and up) populations also engage in social media. Want some big numbers? Try these on:

  • 94% of Gen Y engage in social media;
  • 90% of Gen X engage in social media;
  • 78% of Boomers engage in social media; and 
  • 65% of Seniors engage in social media.

So according to the technology firm, that shiny new iPad for Grandma might actually be put to good use this winter.

As I said, I don’t blindly accept these numbers. I do, however, think they are relevant to our community. For as technology capabilities continue to expand and evolve — and an ever increasing number of your customers connect to brands and businesses online — I have to ask: are you ready?  

This is not a rhetorical question; to-date, social media is a communication channel that many banks have failed to leverage. So why should today’s financial executives and directors care about social media — and how can they make it work for their institutions? The easy answer? There is gold in them hills: social media blends technology and social interaction; done right, such networking co-creates value for both the bank and it’s customer.  

Social media can take many different forms — not just Facebook and Twitter. The space is ever growing, and incorporates online forums (think the early days of AOL), blogs like this one (or DCSpring21), wikis (hopefully more wikipedia than wikileaks), photo sharing sites like Flicker, video sites like Vimeo and YouTube, and rating or social bookmarking ones like Digg.

social-media-connect.jpgFor financial services companies, social media allows for collaborative projects within an organization (e.g using a twitter-for-the-enterprise tool like Yammer), micro-blogs (e.g. Lincoln Financial’s amazing future self site), and yes, social networking sites (e.g. Facebook).  

But like most things in life, what you and your institution get out of social media coincides with what you put in. Because the big thing you need to come to grips with is the fact that you no longer wholly control your message…at best, you influence it. So as the use of social media tools become even more ingrained in so many consumers’ everyday lives, these are channels you can no longer afford to ignore.

For more on the social media series, please read the following posts:

  • Part 2: Is your bank using social media?
  • Part 3: Authentic – true to one’s personality, spirit, character…
  • Part 4: Getting Up and Running
  • Part 5: A Look Ahead