How One Midsized Regional Bank Separates Itself From the Competition

Written by

When Ira Robbins took over in 2018 as CEO of Valley National Bancorp, one of his highest priorities was to broaden the bank’s strategic focus into new product and customer segments where it could be a meaningful player.

“When we started changing the organization’s direction five years ago, we said we weren’t going to be everything to everyone,” Robbins says. “We were going to be everything to someone and understand who that someone was and what the overall relationship looked like.”

Diversification and differentiation is a two-pronged strategy that should be on the minds of all bank CEOs and their boards of directors today. Continued pressure on the industry’s net interest margin is a threat to the banking industry’s long-term profitability that’s not going to ease anytime soon. Unless banks are able to develop new sources of revenue to counteract that pressure, “We’re left to think about cost reductions as opposed to building things because as the revenue side of the balance sheet comes down, all you’re able to do is focus on contracting expenses,” Robbins says.

And cutting costs is never as much fun as building a new business.

Robbins offered his views on the importance of diversification and differentiation to Bank Director Editor-at-Large Jack Milligan in advance of a panel discussion session Monday at Bank Director’s Acquire or Be Acquired Conference. The conference runs Jan. 30 to Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

The core niche at Valley National, a $41 billion asset regional bank headquartered in Wayne, New Jersey, is commercial real estate. “That’s who we are,” says Robbins. “And I think as an organization, most of the balance sheets that we understand are from a relationship perspective. People aren’t coming to us because we’re the cheapest in town. We have an ability to execute unlike any other organization that’s embedded in who we are from a credit perspective.” In other words, borrowers go to Valley National because they know their deals will get done.

Robbins wanted to replicate this approach in other customer segments, and in recent years the bank has diversified into auto lending, as well as banking for homeowners’ associations and cannabis businesses. But moving into a new customer segment or product line isn’t enough. Banks also have to find ways of differentiating themselves from their competitors in that niche. Increasingly, that is through the customer experience — with technology as the point of the spear.

A good example is Valley National’s push into cannabis banking, an initiative that began about three years ago. The bank spent the first year and a half studying the market from a strategic and operational risk perspective before it finally launched a treasury platform solution focused on marijuana-related businesses including dispensaries, cultivators, wholesalers and testing labs. The program is currently available in 13 states, and Valley National worked closely with several regtech companies to understand — from “seed to sale,” as Robbins puts it — the regulatory compliance requirements in each jurisdiction.

“We’ve been in the business for about a year and a half,” Robbins says. “It’s getting to be a decent-sized business for us. And it’s one that we think aligns with our risk appetite. It’s an opportunity in an industry that really isn’t being served today.”

But merely entering an underserved market doesn’t guarantee success if you’re not providing a differentiated customer experience. The cannabis business tends to be cash intensive. Producers and sellers need ways to get that cash to their bank, so Valley National set up a separate armored car service to handle collection. The bank also developed a mobile app called “ValleyPay” that is linked to a Valley National debit card and can be used to make purchases in a dispensary or retail store. “It’s the first ability to have a digital payment come in,” Robbins says. “And we’re the only bank in the country that’s beginning to offer it, so that’s pretty neat.”

Providing a differentiated customer experience is very much at the heart of Valley National’s diversification effort.

“To be honest with you, it’s…understanding what the customer experience looks like,” Robbins says. “What was the customer challenge? And what was the experience that we wanted to create?” While other banks are in the cannabis space as well, “ours is a specific niche [that is] focused on an experience that really isn’t being delivered.”

[You can read more about Valley National Bancorp and cannabis banking in the Q3 2021 issue of Bank Director magazine, available to subscribers.]

Myth-Busting: Data & Analytics is a Big Bank Game

Written by


data.png

Consumers today are increasingly reliant on having data at their fingertips to make decisions and, most importantly, to simplify their lives. Companies like Amazon and Starbucks have set the gold-star standard when it comes to using analytics to understand customer preferences, as well as simplifying the purchase experience. Now those expectations are carrying into every aspect of our life, and several industries, including banking, find themselves playing catch up.

Banks of all sizes are struggling to meet these expectations, but mid-tier Banks (defined as $10-$50 billion in total assets) in particular find themselves at an inflection point with regard to data and analytics. Data and analytics are central not only to building a more loyal customer base, but also to creating greater efficiency to compete more effectively. However, mid-tier banks have the advantage of being more nimble relative to their larger competitors, allowing them to create better customer experiences and greater efficiency—even with smaller technology budgets.

For any financial institution, there are four levels of data and analytics maturity:

Limited. Many of these banks still rely heavily on intuition to make decisions. This is due primarily to lack of leadership involvement or support; lack of technology spend on architecture, talent or tools; and overreliance on ineffective legacy systems. These institutions need to get beyond those daily challenges to realize strategic benefits that will grow revenue, cut costs, mitigate risk and improve customer experiences.

Recognized importance. This level is likely the most difficult achievement, and will take more time than other transitions. These institutions have successfully garnered executive support, established a shared vision across the organization, and analytics use cases are taking shape with some small victories. But don’t bite off more than you can chew. The most successful banks start with small, focused use cases and build on what they have learned.

More advanced. For most institutions, achieving this level would be sufficient for the long-term. It takes approximately six to eight years to get here and at this level, the volume, variety and velocity of data begin to “explode” within the organization. New roles are required to manage this process, there is typically a centralized data warehouse in place, and analytics are a core part of strategic planning and budget processes. And notably, there is a strong understanding and receptiveness for data and analytics from the front lines all the way to the board of directors.

Culturally ingrained. While everyone will strive to achieve this, few will get to this level—and that’s okay. The benchmarks are set by a cross section of both banks, and non-bank powerhouses like Amazon and Nordstrom. At this level, the institution is well known for their analytics prowess. Predictive analytics are firmly in place, they are looking at using unstructured data, exploring more advanced analytics techniques (i.e. AI, IoT, blockchain), and are heavily focused on insight generation. Impressively, much of their analytics are real-time and alerting is in place to help decision makers better interact and please customers and prospects.

So how do you successfully progress forward on your data and analytics maturity journey? By focusing on the five data and analytics essentials:

  • Strategic Support and Adoption. For analytics to progress, it needs to be part of the fabric of the institution’s vision, strategic planning and day-to-day activity for decision makers.
  • Information Architecture and Governance. The most significant decisions are made here, but it is also where most institutions make mistakes. It requires a long-term view, significant investment over time, and both management and technical talent to execute properly.
  • Data and Analytics Capabilities. This area encompasses both the volume and types of data sources, the scope of the data requirements, the integration necessary to properly turn the data into analysis, and the toolsets used to organize, report and deliver the analysis.
  • Data needs to be both timely and available to succeed. Naturally, both the timeliness and accessibility should increase as the organization progresses on its analytics journey.
  • Organization and Cooperation. While often a roadblock, collaboration and cooperation for data and analytics across the organization is critical to success.

To be sure, the data and analytics journey is a long-term process. Levels can’t be skipped and progress must be “learned and earned.” So is this worth it? Is the ROI for these capabilities going to be meaningful? The answer is a resounding “yes.” Mid-tier banks that have achieved even the “recognized importance” level are seeing as much as a 20 percent improvement to efficiency ratios and 15 percent improvement in return on assets, respectively, as compared to less mature banks over the last three-year period.

Rob Rubin, director at Novantas, is the co-author of this piece.