The War for Talent in Banking Is Here to Stay

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It seems that everywhere in the banking world these days, people want to talk about the war for talent. It’s been the subject of many recent presentations at industry conferences and a regular topic of conversation at nearly every roundtable discussion. It’s called many things — the Great Resignation, the Great Reshuffling, quiet quitters or the Great Realignment — but it all comes down to talent management.

There are a number of reasons why this challenge has landed squarely on the shoulders of banks and organizations across the country. In the U.S., the workforce is now primarily comprised of members of Generation X and millennials, cohorts that are smaller than the baby boomers that preceded them. And while the rising Gen Z workforce will eventually be larger, its members have only recently begun graduating from college and entering the workforce.

Even outside of the pandemic disruptions the economy and banking industry has weathered, it is easy to forget that the unemployment rate in this country was 3.5% in December 2019, shortly before the pandemic shutdowns. This was an unprecedented modern era low, which the economy has once again returned to in recent months. Helping to keep this rate in check is a labor force participation rate that remains below historical norms. Add it all up and the demographic trends do not favor employers for the foreseeable future.

It is also well known that most banks have phased out training programs, which now mostly exist in very large banks or stealthily in select community institutions. One of the factors that may motivate a smaller community bank to sell is their inability to locate, attract or competitively compensate the talented bankers needed to ensure continued survival. With these industry headwinds, how should a bank’s board and CEO respond? Some thoughts:

  • Banks must adapt and offer more competitive compensation, whether this is the base hourly rate needed to compete in competition with Amazon.com and Walmart for entry-level workers, or six-figure salaries for commercial lenders. Bank management teams need to come to terms with the competitive pressures that make it more expensive to attract and retain employees, particularly those in revenue-generating roles. Saving a few thousand dollars by hiring a B-player who does not drive an annuity revenue stream is not a long-term strategy for growing earning assets.
  • There has been plentiful discourse supporting the concept that younger workers need to experience engagement and “feel the love” from their institution. They see a clear career path to stick with the bank. Yet most community institutions lack a strategic human resource leader or talent development team that can focus on building a plan for high potential and high-demand employees. Bank can elevate their HR team or partner with an outside resource to manage this need; failing to demonstrate a true commitment to the assertion that “our people are our most important asset” may, over time, erode the retention of your most important people.
  • Many community banks lack robust incentive compensation programs or long-term retention plans. Tying key players’ performance and retention to long-term financial incentives increases the odds that they will feel valued and remain — or at least make it cost-prohibitive for a rival bank to steal your talent.
  • Lastly, every banker says “our culture is unique.” While this may be true, many community banks can do a better job of communicating that story. Use the home page of your website to amplify successful employee growth stories, rather than just your mortgage or CD rates. Focus on what resonates with next generation workers: Your bank is a technology business that gives back to its communities and cares deeply about its customers. Survey employees to see what benefits matter most to them: perhaps a student loan repayment program or pet insurance will resonate more with some workers than your 401(k) match will.

The underlying economic and demographic trend lines that banks are experiencing are unlikely to shift significantly in the near term, barring another catastrophic event. Given the human capital climate, executives and boards should take a hard look at the bank’s employment brand, talent development initiatives and compensation structures. A strategic reevaluation and fresh look at how you are approaching the talent wars will likely be an investment that pays off in the future.

What 2022 Holds for Community Banks

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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.

Four Ways Banks Can Cater to Generational Trends

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As earning power among millennials and Generation Z is expected to grow, banks need to develop strategies for drawing customers from these younger cohorts while also continuing to serve their existing customer base.

But serving these younger groups isn’t just about frictionless, technology-enabled offerings. On a deeper level, banks need to understand the shifting perspective these age groups have around money, debt and investing, as well as the importance of institutional transparency and alignment with the customer’s social values. Millennials, for instance, may feel a sense of disillusionment when it comes to traditional financial institutions, given that many members of this generation — born between 1981 and 1996, according to Pew Research Center — entered the workforce during the Great Recession. Banks need to understand how such experiences influence customer expectations.

This will be especially important for banks; Gen Z — members of which were born between 1997 and 2012 — is on track to surpass millennials in spending power by 2031, according to a report from Bank of America Global Research. Here are four ways banks can cater to newer generational trends and maintain a diverse customer base spanning a variety of age groups.

1. Understand the customer base. In order to provide a range of services that effectively target various demographics, financial institutions first need to understand the different segments of their customer base. Banks should use data to map out a complete picture of the demographics they serve, and then think about how to build products that address the varying needs of those groups.

Some millennials, for instance, prioritize spending on experiences over possessions compared to other generations. Another demographic difference is that 42% of millennials own homes at age 30, versus 48% of Generation X and 51% of baby boomers at the same age, according to Bloomberg. Banks need to factor these distinctions into their offerings so they can continue serving customers who want to go into a branch and engage with a teller, while developing tech-driven solutions that make digital interactions seamless and intuitive. But banks can’t determine which solutions to prioritize until they have a firm grasp on how their customer base breaks down.

2. Understand the shifting approach to money. Younger generations are keeping less cash on hand, opting to keep their funds in platforms such as Venmo and PayPal for peer-to-peer transfers, investing in Bitcoin and other cryptocurrencies and other savings and investment apps. All of these digital options are changing the way people think about the concepts of money and investing.

Legacy institutions are paying attention. Bank of New York Mellon Corp. announced in February a new digital assets unit “that will accelerate the development of solutions and capabilities to help clients address growing and evolving needs related to the growth of digital assets, including cryptocurrencies.”

Financial institutions more broadly will need to evaluate what these changing attitudes toward money will mean for their services, offerings and the way they communicate with customers.

3. Be strategic about customer-facing technology. The way many fintech companies use technology to help customers automatically save money, assess whether they are on track to hit their financial goals or know when their balance is lower than usual has underscored the fact that many traditional banks are behind the curve when it comes to using technology to its full potential. Institutions should be particularly aggressive about exploring ways technology can customize offerings for each customer.

Companies should think strategically about which tech functions will be a competitive asset in the marketplace. Many banks have an artificial intelligence-powered chatbot, for instance, to respond to customer questions without involving a live customer service agent. But that doesn’t mean all those chatbots provide a good customer experience; plenty of banks likely implemented them simply because they saw their competitors doing the same. Leadership teams should think holistically about the best ways to engage with customers when rolling out new technologies.

4. Assess when it makes sense to partner. Banks need to determine whether the current state of their financial stack allows them to partner with fintechs, and should assess scenarios where it might make sense — financially and strategically — to enter into such partnerships. The specialization of fintech companies means they can often put greater resources into streamlining and perfecting a specific function, which can greatly enhance the customer experience if a bank can adopt that function.

The relationship between a bank and fintech can also be symbiotic: fintech companies can benefit from having a trusted bank partner use its expertise to navigate a highly regulated environment.

Offering financial products and services that meet the needs of today’s younger generations is an ever-evolving effort, especially as companies in other sectors outside of banking raise the bar for expectations around tailored products and services. A focus on the key areas outlined above can help banks in their efforts to win these customers over.

Attracting Talent in a Brave New World

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Getting the talent your bank needs — even just getting candidates to apply and turn up for an interview — has increasingly challenged financial institutions as the country emerges from the Covid-19 pandemic. And the cost to pay them a competitive wage — and benefits — keeps climbing.

Every year in Bank Director’s annual Compensation Survey — which is sponsored by our firm, Newcleus Compensation Advisors — bank executives and directors identify managing compensation and benefit costs as a key challenge for their institution. In this year’s survey, it rates as the second-highest challenge for bank leaders, behind tying compensation to performance.

These tensions are particularly felt by community banks. Those located in urban or suburban markets face stiff competition from large employers like Bank of America Corp., which recently announced plans to increase its minimum wage over the next few years to $25 an hour. Rural banks face similar challenges along with a smaller pool of talent, particularly in high-demand areas including technology, lending, and risk and compliance.

How can your bank attract and retain the talent it needs to survive in today’s environment? We suggest that you consider the following questions as you weigh how to become an employer of choice in your community.

How flexible is your bank willing to be?
Most banks introduced or expanded remote work options and flexible scheduling in 2020. Now that operations are returning “back to normal,” more or less, bank leaders are left to question what worked and what didn’t from a nationwide experiment that occurred during abnormal conditions.

Expectations have shifted over the past year, particularly for younger, digitally-native employees — resulting in a generational divide between staff and management teams. Consider the following from MetLife’s 2021 U.S. Employee Benefit Trends Study:

  • More than two-thirds of employees who can work remotely believe that they should be allowed to choose where they work — not their employer.
  • Half of young employees in their 20s — young millennials and Gen Z — say their work/life balance has improved during the pandemic, and they’re happier as a result. Just a quarter of baby boomers agree.
  • And, crucially: More than three-quarters of employees say they want more flexible scheduling, perhaps splitting their time between remote work and the office. Conversely, the majority of companies surveyed by MetLife expect staff to return to their pre-Covid status quo.

Some employees are interested in returning to the office, but others aren’t. They’ve had months to enjoy a break from long commutes and create an environment that’s comfortable for them.

Will remote work be a passing fad, or a permanent part of the talent landscape? Even if you believe that remote work isn’t a cultural fit for your bank, be aware that you’re competing against it.

Can talented employees from outside the industry strengthen your organization?
Opening your bank up to remote work can broaden the talent pool; so can having an open mind to hiring talent from outside the financial sector. Employees can be educated on the fundamentals of banking; there are training programs all across the country. But a skilled salesperson or someone with deep technology or cybersecurity expertise can fill critical roles at your institution — no matter their background.

 Do you have a good reputation?
Bank leaders often tout the value of their culture — but it can be difficult for leadership teams to truly understand how staff down the ranks view the organization. Conducting employee engagement surveys can help bridge this gap, but also consider how your current and former employees rate your company on external review sites such as Glassdoor, Indeed and Monster.com.

While these websites often attract more negative comments than positive ones, they still can provide a clearer picture of how you’re viewed as an employer — and the perception that prospective employees may have of your organization.

Does your compensation package really stack up?
Your bank isn’t competing solely with other financial institutions for talent — it’s competing against all kinds of companies in your market. We received several comments touching on this in the 2021 Compensation Survey:

“Competing employers (not just banks) in our markets can sometimes offer better benefits. We now participate in an internship program at a major state university to develop a pipeline of young talent.” —  Chief executive of a public bank between $1 billion and $10 billion in assets 

“We operate in a highly competitive market, so retaining and attracting technology talent is always an issue. We are competing with Amazon[.com] — hiring 50[,000] workers in our market, as an example.” —  Director of a public bank between $1 billion and $10 billion in assets

Compensation surveys help banks compare their pay packages to peer institutions, but your leadership and human resources teams need to know how your bank compares to local competitors outside the industry, too. This is where boards can provide valuable insights based on their networks and experience, since they’re likely facing the same challenges in their own industries. Leverage that advice.

And consider asking your employees what they value. We’ve found this information to be invaluable to banks, allowing them to review compensation benefits and culture from the employee’s perspective.

How America’s Newest Adults are Changing Banking

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Believe it or not, Generation Z is already dipping their toes into the banking world. Are banks ready?

With the oldest Gen Z members reaching their mid-20s, America’s newest adults are starting to generate their own forms of income, graduate from college, budget for large financial decisions and even learn the basics of money management from their favorite TikTok creators. Banks must prepare for this mass generational shift in wealth and personal financing.

For years, financial institutions have adjusted their core offerings to accommodate millennials’ financial preferences and patterns in spending behavior. These 73-million-strong tech-savvy adults have become the most populous generation in U.S. history, surpassing baby boomers.

Entering the job market during the Great Recession, which forced millennials to make more risk-averse spending decisions. With the exception of outstanding student loans, many avoid debt and prioritize spending on life experiences over material possessions to avoid regretting financial decisions down the line.

Millennials are now the largest driver of net new loan demand, according to Morgan Stanley loan forecasts and historical household information. This lending “sweet spot” falls between the ages of 25 and 40, and could persist for to a decade. But seemingly unbeknownst to the majority of banks, Gen Z is nearing — and entering — their early 20s.

It is time for banks to update their reality: America’s youngest adults – Gen Z – are about to age into that lending sweet spot. Combined, millennials and Gen Z will reach the largest generational demographic in the country: 140 million adults whose loyalty to existing financial institutions is very much in flux. This wealth shift will undoubtedly be the impetus for an industry-wise reimaging of consumer banking and lending.

Reports from Morgan Stanley’s population forecasts suggest that Gen Z will comprise of the most populous American generation ever by 2034, with an estimated peak of 78 million. By that time, this generation of “kids” are expected to have increased their aggregated borrowing levels, eventually accounting for a third of all consumer debt in the U.S.

Still thinking of them as kids? It’s understandable, but they could set the tone for how the entire banking industry evolves in the coming years — including your company. When it comes to generational and demographic shifts, there is no recipe for success, especially in banking. However, the tools needed to survive are readily available for the banks that are willing to seize them.

At a bare minimum, banks will need to redesign their legacy systems and offerings by adding digital enhancements, similar to the industry-wide digitization brought on by millennials in recent years. Though the behavioral characteristics of millennials and Gen Z overlap, don’t make the mistake of thinking that they are the same teams playing the same game.

Some Gen Zers are given a smartphone before they are even the age of 10, according to The Harris Poll. Furthermore, those children are allowed to create their own social media accounts by the age of 13, oftentimes earlier. During these formative years, Gen Z kids begin to develop their own personalities, live their own lives and form digital relationships with people, communities and brands alike.

Why does this matter? Because banks have relegated themselves to the adult world, where you must be 18 or older to open your own account. They are losing out on the most influential years of America’s youngest adults — when they begin to associate with their favorite brands and subsequently spend money to engage with them.

The same digitized offerings that banks have spent years formulating for millennials are simply not going to cut it for Gen Z. Banks will need to redefine the concept of “traditional” banking and create a “neo-normal” standard if they have any hopes of engaging this massively influential generation of young Americans. Don’t simply market differently to them. It’s time to shift the strategy – design differently for them.

Gen Z isn’t just about TikTok dance challenges and viral memes. Most of them were seeking answers to their curiosities via search engines around the same age we were reading “Curious George.” This generation is the most diverse and well educated to date, and they are very keen on being treated like adults — especially when it comes to managing their personal finances. How does your bank plan to greet them?

Connecting with Millennials By Going Beyond Traditional Services

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technology-8-28-19.pngBanks are at a crossroads.

They have an opportunity to expand beyond traditional financial services, especially with younger customers that are used to top-notch user experiences from large technology companies. This may mean they need to revisit their strategy and approach to dealing with this customer segment, in response to changing consumer tastes.

Banks need to adjust their strategies in order to stay relevant among new competition: Accenture predicts that new business models could impact 80% of existing bank revenues by 2020. Many firms employ a “push” strategy, offering customers pre-determined bundles and services that align more with the institution’s corporate financial goals.

What’s missing, however, is an extensive “pull” strategy, where they take the time to understand their customers’ needs. By doing this, banks can make informed decisions about what to recommend to customers, based on their major consumer life milestones.

Only four in 10 millennials say that they would bundle services with financial institutions. Customers clearly do not feel that banks are putting them first. To re-attract customers, banks need to look at what they are truly willing to pay for — starting with subscription-based services. U.S consumers age 25 to 34 would be interested in paying subscription fees for the financial services they bundle through their bank such as loans, identity protection, checking accounts and more, according to a report from EY. With banks already providing incentives like lower interest rates or other perks to bundle their services, customers are likely to view a subscription of bundled services with a monthly or annual fee as the best value.

Subscription-based services are a model that’s already found success in the technology and lifestyle sector. This approach could increase revenue while re-engaging younger generations in a way that feels personal to them. Banks that decide to offer subscription-based services may be able to significantly improve relationships with their millennial customers.

But in order to gain a deeper understanding of what services millennials desire, banks will need to look at their current customer data. Banks can leverage this data with digital technology and partnerships with companies in sectors such as automotive, education or real estate, to create service offerings that capitalize on life events and ultimately increasing loyalty.

Student loans are one area where financial institutions could apply this approach. If a bank has customers going through medical school, they can offer a loan that doesn’t need to be repaid until after graduation. To take the relationship even further, banks can connect customers who are established medical professionals to those medical students to network and share advice, creating a more personal experience for everyone.

These structured customer interactions will give banks even more data they can use to improve their pull strategy. Banks gain a more holistic view of customers, can expand their menu of services with relevant products and services and improve the customer experience. Embracing a “pull” strategy allows banks to go above and beyond, offering products that foster loyalty with existing customers and drawing new ones in through expanded services. The banks that choose to evolve now will own the market, and demonstrate their value to customers early on.

The Secret To Marketing To Gen Z and Millennials

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millennials-3-26-19.pngIt’s a constant surprise to see how much opportunity still exists within a customer base for increasing revenue via timely and effective cross-selling. Growing revenue by meeting a greater share of an existing customer’s needs is almost always more cost-efficient than seeking out new customers.

We also see many questions about how best to attract and relate to younger consumers among the millennials and Generation Z.

Fortunately, a well-executed digital marketing strategy can be beneficial in expanding your service to existing customers and attracting new business from among the millennials and Gen Z.

Content Marketing
It all starts with a story. While “content marketing” is a common buzzword, the concept is as old as writing itself: good stories get people’s attention. Content marketing is nothing more than informative and entertaining solutions to your customers’ challenges.

Developing an outstanding content marketing program requires deep understanding of the consumer buying cycle. Referred to as the “buyer journey,” this roadmap of consumer behavior outlines the prominent questions and issues at each stage of the buying cycle.

For example, according to a Harris Poll conducted for the Transamerica Center for Retirement Studies, 71 percent of millennial workers are saving for retirement and 39 percent of millennials are saving more than 10 percent of their salary. Imagine your bank is selling this group IRA’s and want them to come in for a financial planning session.

It would seem like a perfect fit. But not so fast.

A Charles Schwab study showed that millennials hold 25 percent of their portfolios in cash due to worry about the stock market and investing. Bank marketers have an opportunity to educate potential customers on ways to make those savings grow rather than just promoting the “end point” IRA product.

Savvy marketers prepare a range of content for each stage in the cycle and for each channel of their marketing efforts. Blog posts, social media content, video and podcasts work together to place your bank at the forefront of the consumer’s mind through the process.

Paid Online Advertising Combined With Machine Learning
The world of paid online advertising has expanded dramatically in the last two decades. Commonly referred to as “pay-per-click” or “PPC” advertising, there are tools that allow bank marketers to target specific consumer and business populations with uncanny accuracy. This combined with advances in machine learning technology allows banks to deploy efficient campaigns that deliver targeted content and offers when they are most likely to capture attention.

Paid advertising is measurable in ways traditional advertising is not. PPC advertising allows bank marketers to run campaigns on the basis of Return on Ad Spend (ROAS) nearly in real time. Budgets can be increased or decreased if lead costs are favorable. Offers and creative can be tested on the fly using financial results.

User Experience Design
Many articles gloss over the significance of user experience design in favor of touting the virtues of “online banking.” Marketers ignore this facet of customer acquisition and retention at their peril.

The user experience, or UX, does not need to be pretty in order to be effective.

For banks, UX is important in reducing the friction of any financial transaction where consumers spend most of their time online. Rather than simply think of “having online banking,” bank marketers need to measure the rate of sign-up abandonment, transaction cancellation, and other indicators that a bank’s online tools are difficult to use.

Banks that lack the brand strength of large national or regional players and rely on high-quality customer service need to be relentless in making their online banking options easy to use. Asking customers to download three different apps and carry multiple logins is a far cry from the face recognition and one-button interface offered by some of the nation’s largest banks.

Tying it All Together
The need for financial services is lifelong. Consumers pass through a variety of financial stages throughout their lives. Each of these stages contains its own, unique buyer journey.

Surveys and regular email and social media communication can help current customers find answers to their questions at the right time. Intelligent remarketing that drives paid advertising can help your results appear in their web searches and expand their understanding of the full range of services you offer. Thoughtful UX can enable customers to discover new products that solve problems when they first encounter them.

All of these benefits apply to your prospective clients. Being able to precisely target consumers when they are searching for answers means you can capture their attention earlier in the buying cycle.

Frictionless and “invisible” UX allows you to bring those new customers into your product and service ecosystem with the ease that younger consumers expect.

How To Manage Talent in a Parfait Organization

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talent-11-7-18.pngThe banking industry sits at an interesting crossroads from a talent management perspective. Demographically, many banks are layered like a parfait, with as many as four distinct generations working in the organization, each with its own set of personality traits, likes and dislikes.

The oldest generation—the baby boomer generation, now running the bank for several years—is beginning to retire in increasing numbers. The Generation X cohort, which follows the boomers, is moving into senior management, the best and brightest among them soon to rise to the CEO and CFO level, if they haven’t already.

Generation Y, otherwise known as millennials, are now far enough along in their careers to have gained some meaningful experience, and the really talented ones are identifiable to the bank. Most members of the final and largest cohort, Generation Z, are still in high school and college, although the oldest ones are entering the workforce. At 26 percent of the population, Gen Z will be a force for the next several decades.

This dramatic generational shift is forcing banks to become more proactive in how they manage their talent, particularly millennials, who will comprise a significant part of the industry’s workforce in the near future. The importance of creating opportunities for those individuals was a significant theme in day two of Bank Director’s 2018 Bank Compensation and Talent Conference, held at the Four Seasons Resort and Club at Las Colinas in Dallas, Texas.

In a session on talent management, Beth Bauman, an executive vice president and head of human resources at the Bank of Butterfield, a NYSE-listed $11 billion asset bank domiciled in Bermuda, described the situation at the bank when she joined it in 2015. Butterfield had frozen salaries and done relatively little hiring for several years as it struggled to recover from the financial crisis. So Bauman, along with senior management, has worked to bring in new talent so the bank can continue to grow.

A key element of that hiring effort has been to create a talent management program so Butterfield’s younger employees can have their careers guided, with the most talented groomed for higher positions within the bank.

Bauman sees this as a key to successfully managing the generational change occurring now throughout the industry. “Regardless of the size of your bank, you can have an effective talent management program,” she says.

Talent management has been very much on the minds of the conference attendees. In an audience survey that polled the 300-plus people who were there, 45 percent said it has become both more difficult and costly to attract and retain talented staff—a result not surprising in an economy where the unemployment rate is just 3.7 percent. Banking also has the disadvantage of not being perceived as an exciting employment opportunity for many job seekers, particularly millennials.

Sixty-one percent of the survey respondents said their bank is actively and intentionally recruiting younger employees like millennials and Gen Z’ers.

Similarly, more than 70 percent said in the last two years their bank has expanded its internal training programs to develop younger leaders within the organization.

As increasing numbers of baby boomers approach retirement (the youngest boomers are in their mid-50’s), and Gen X’ers take their place in the management hierarchy, it will create an opportunity for millennials to move up as well. Gen X’ers are the smallest of the four demographic groups at just 20 percent of the population, so the banking industry will be forced to rely disproportionately on millennials as this generational shift occurs.

This is why training programs that focus on talented younger employees in the organization are so important.

We’ve all heard the jibes about millennials’ self-absorption, or their refusal to return voicemail messages, but the fact is the oldest among them are already buying homes and raising families, and when the day comes to run the bank, they’ll need to be ready.

Is It Time to Get Aboard the Zelle Train?

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zelle-8-3-18.pngConsumers moved $25 billion in the first quarter of this year using Zelle, the peer-to-peer (P2P) real-time mobile payments service introduced late last year. That puts consumers on track to spend an estimated $100 billion through Zelle this year, a 33-percent increase from 2017. While this indicates an impressive level of growth, it is less clear whether consumer acceptance will be widespread enough to fuel mass adoption by the nation’s financial institutions. But bank leaders can’t ignore the important role payments could play in their organizations.

Few financial institutions offer Zelle to their customers. Zelle lists 113 financial partners, a fraction of the more than 10,000 U.S. banks and credit unions. Twenty-nine banks have launched the service so far, including the seven big banks that partnered together to form Early Warning, the company that owns Zelle. (The consortium also owned Zelle’s predecessor, clearXchange, which was deactivated shortly following Zelle’s September 2017 launch; Zelle’s transaction data includes clearXchange.)

The biggest banks hold the lion’s share of deposits—the consortium accounts for more than 40 percent of domestic deposits, according to an analysis of Federal Deposit Insurance Corp. data—so many consumers already have access to Zelle.

“P2P really works when all of your friends and family can use it,” says Jimmy Stead, the chief consumer banking officer at $31.5 billion asset Frost Bank. Frost was an early Zelle adopter, signing on with clearXchange in September 2016. He says customers love it, and use of the service has grown by roughly 300 percent over the past year.

Zelle is free for consumers and easily accessible through their bank’s online and mobile banking channels. (Consumers can use the Zelle app if their bank hasn’t launched the service.)

Early Warning’s efforts to generate buzz around the Zelle brand—most notably through a series of TV ads featuring Hamilton actor Daveed Diggs—help partner banks get their customers on board. And Zelle only has to convert existing bank customers to the service, while services like Venmo have to attract individual new users, notes Ron Shevlin, director of research at Cornerstone Advisors.

A lack of interoperability between payments services has dampened mobile P2P adoption by consumers, says Talie Baker, a senior analyst at Aite Group. “[Zelle] will be the only interoperable network for mobile P2P payments once all the banks get on board with it—and it basically is right now because of their partnership” with Visa and Mastercard, she says. Eventually, “a bank that’s not participating in [Zelle] is going to have a hard time being in business.”

Eighty-four of the financial institutions partnering with Zelle have yet to launch the service, and the rest of the industry is waiting in the wings. But implementation isn’t as easy as just flipping a switch.

“This is a very complex system—it’s spread across multiple banking platforms, multiple electronic data providers,” says Frank Sorrentino, CEO of $5.2 billion asset ConnectOne Bancorp in Englewood Cliffs, New Jersey. The bank plans to launch Zelle in August. A Zelle spokesperson confirms the payments system must be integrated with the bank’s core, which includes integrating messaging, and putting policies and procedures in place around risk management and customer support.

It’s interesting to note that the Zelle TV spots feature a diverse cast of actors, not just millennials. Stead says that adoption leans toward Frost Bank’s younger customers, but older customers are using the service, too. Cross-generational payments—a college kid getting rent money from mom and dad, for example—are common. This sets Zelle apart from the millennial-heavy Venmo, which doesn’t put funds directly into a bank account (users have a Venmo balance) and has a lower average transaction compared to Zelle.

But the payments space isn’t poised to end like Highlander, the 1986 Sean Connery film in which immortal beings fought until only one survived. Connery may have said “there can be only one,” but there doesn’t have to be—and there’s unlikely to be—one winner here. Venmo is also growing with consumers, with its social media-like feed, debit card and new partnership with Uber. “[Venmo is] hardly suffering as a result of the launch of Zelle,” says Shevlin.

In today’s competitive deposit market, payments should be a part of any bank’s core deposits strategy, says Shevlin. Services like Zelle can help keep deposits in the bank, while an institution that offers an outdated solution—or doesn’t offer one at all—may find its deposits lured away by a competitor, whether that’s a Zelle bank or a fintech account like Venmo.

How Midland States Bancorp Develops Its Future Leaders

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talent-7-19-18.pngRoughly a decade after the financial crisis, community banks are introducing, developing and enhancing internal training programs to turn today’s young, millennial employees into the leaders the bank will need in the future. Forty-four percent of bank executives and board members responding to Bank Director’s 2018 Compensation Survey indicate that their bank has been dedicating more resources to employee training over the past three years to attract and retain younger talent. The majority, 74 percent, say their bank offers an in-house training program for some employees, and 80 percent say external training or career development is available as an employee perk.

While there’s no one-size-fits-all approach to employee training for the industry, the program developed by Midland States Bancorp, a $5.7 billion asset financial holding company based in Effingham, Illinois, illustrates how one bank is developing talent at several levels throughout the organization.

The bank had been discussing the development of future leaders, with an eye toward succession planning, for several years, says Sharon Schaubert, senior vice president of banking services at Midland States. Oversight of the bank’s human resources function is one of her primary responsibilities. “Then, as we were going through acquisitions and were growing, that need was becoming more and more apparent,” she says. Midland States Bancorp acquired Centrue Financial Corp. in June 2017, and Alpine Bancorp. last March.

The ability to lure away talent from local bank competitors had become increasingly difficult and expensive, and the bank had talented potential leaders in its own ranks that just needed the right training. “Any time that you bring somebody in from outside of your own company, you’re bringing in the culture that they come from [and] how they’ve been developed as leaders, so we felt that we could have more success with developing our own,” says Schaubert.

To develop the curriculum, the bank hired an experienced learning and development director from a California utility company, who expanded Schaubert’s initial vision into a three-tiered employee development program that trains staff at different stages of their careers. The program is in its second year, and each level takes one year to complete.

The first tier is designed for individual employees who don’t currently supervise anyone within the bank but have potential to grow within the organization. Each class is comprised of roughly 15 employees. Along with additional reading and one-on-one time with their own mentor within the bank, participants work on banking and project management simulations.

Applicants must be employed by Midland States for at least one year to be considered for the program.
They are interviewed by a panel of managers and must have the endorsement of their immediate supervisor.

Midland States initially had managers identify and recommend employees, but found that employees were better able to participate and displayed a greater level of commitment if they applied themselves. “We learned some really good lessons, because people also have to have an active interest in their own self development and the ability to make the time commitment,” says Schaubert. The bank put an application process in place, effective with the second first-tier class.

The second tier of the program launched recently and is designed for managers and supervisors, with a focus on how to lead and manage a team. The project management and banking simulations are more intensive, and trainees are coached on presentation skills.

Almost all of the employees who participated in the initial first-tier program have received some sort of promotion or additional responsibilities within the bank, but Schaubert says these employees can’t go straight to the second-tier program—at least a year must pass between the two levels. Since the program is new, no employee has participated in multiple tiers, yet.

Participants are each matched with a mentor, with whom they meet quarterly to discuss their progress, in line with their personal development goals. While face-to-face meetings are encouraged, the geographic footprint of the bank sometimes requires that those meetings occur by phone. The mentor provides guidance and ensures the participant is on track to meet their goals. Participants have some say in the selection of a mentor—the bank provides a list of potential mentors with a brief biography about each, and trainees can pick their top three choices. Members of the senior management team tend to be reserved as mentors for the higher levels of the program.

Mentorship programs are rarely used by the banking industry, according to the 2018 Compensation Survey. Just 15 percent of respondents say their bank has one in place.

The third tier of the training program hasn’t been formally launched but is intended for members of senior management or just below. The program will be one-on-one and won’t be classroom-based like the other tiers. External, rather than internal, mentors will work with participants at this level.

The training program isn’t just the responsibility of the human resources team, according to Schaubert. Subject matter experts and senior leaders, including the CEO, are brought in to present to trainees. And an all-day graduation—which includes presentations from training participants—is attended by each trainee’s mentor and immediate supervisor, as well as members of the executive team.

Some of the resources developed so far have been made available to other managers to encourage self-development. A one-day class is also available for new managers biannually.

Schaubert reports to the board twice a year about the bank’s training initiatives, and shares details about the participants and the curriculum. “The board is actively engaged,” says Schaubert. She adds that the full impact of the program won’t be felt for several years. “The big success of this will come a few years down the road, when we’re able to build a strong pool of candidates for significant roles in the future,” she says. “That takes time.”

One of the more immediate challenges banks face in training employees in today’s competitive talent environment is ensuring that those same employees don’t jump ship for a better opportunity. “You can either manage out of fear, or you can manage for growth and opportunities for the future,” says Schaubert. “We would much rather risk losing a good employee than not developing the employees.”

While some attrition is unavoidable, Midland States is actively working to engage and promote its most promising employees. Most trainees have been promoted or received additional responsibilities, though the bank did lose one trainee that it wasn’t able to promote as quickly as that employee may have expected.

But the bank puts considerable focus toward ensuring that its trained employees are engaged within the organization. For example, the CEO hosted a senior management meeting at his home in August of last year and asked senior managers to invite someone on their team. All graduates and current participants of the training program were invited, as well. “We’re challenging ourselves to find opportunities” to engage and grow talented staff, says Schaubert.

As banks are increasingly challenged to attract and retain experienced employees, more banks like Midland States could be apt to enhance their training programs to build the talent they need.