Bankers Tell Me Their Top Industry Game Changers

If you were asked what one industry trend will change the face of banking forever, what would you say?

I did that very thing to dozens of bankers that attended their respective state banking associations' Executive Development Programs (EDP). And their answers gave me a more positive outlook for our future.

I teach Bank Profitability for the Washington, Utah, and Montana Bankers' Associations EDP programs. Each year I make pilgrimages to Seattle, Salt Lake City, and Helena to meet future leaders of our industry. Each state has its unique flavors of banking. Washington has a more traditional mix of very large and community financial institutions. Utah has many Industrial Loan Companies (ILC's), which are FDIC supervised financial institutions that can be owned by commercial firms not regulated by a federal banking agency, like a utility company. Montana has many small, closely held financial institutions. 

As part of the day-long curriculum, we discuss trends facing our industry and at the end of this discussion, I asked for their opinion regarding our top industry game-changers. Their answers are summarized in the chart below.

This should not be surprising to anyone. Neo banks are investing and moving quickly into creating a banking experience not based on personal relationships or locational convenience. Moven, a banking application that was seeded with $4-5 million, and subsequently raised $8 million more last summer, aspires to remake banking through the smart phone. They see their IT department as a profit center. 

Traditional community bankers see it as a support center, and staff it accordingly. Oddly, if you look at top IT projects for financial institutions, Online, Mobile, and Product Development reigned supreme (see chart). So why do we continue to view the IT Department as a cost center staffed with techies that have little feel, responsibility, or accountability for acquiring customers and improving their experience?

In 2013, I wrote a blog post on a job description for an EVP of Distribution and Service Excellence. Not that I've experienced such a position, but that does not mean it should not exist. Readers of my blog know I like to dabble in how things should be, rather than how they are. Two years and I still haven't seen this position.

There should be no more debate that customers interact with your bank more frequently with technology than any other distribution point. That ship has sailed. It is not only how it is, but I believe it is how customers prefer it. As a society, we are becoming increasingly accustomed to self service, and by our actions deem it more desirable to get a task done on our own time rather than wait for another human being to help us. There are exceptions of course, but in the main, don't you agree?

If you do, then here are some ideas on what to do next:

- Build a technology platform with the right partners that makes our customers' lives simpler that has a distinctive look and feel, even though we are likely to use the same platform that hundreds of other financial institutions use.

- Create a separate profit center for your online/mobile banking center. That means you have a center manager that is responsible for growing customers and balances, and generating profits via your technology platform.

- Implement a rational costing scheme to charge branches for their customers use of the mobile/online banking platform, and for your mobile/online center customers' use of branches. Keep it simple and understandable.

- At the top of the Mobile/Online Banking Center, put an executive with customer acquisition and customer experience know-how. Not a former FORTRAN programmer that wears a pocket-protector that is more comfortable discussing circuits and switches than how to acquire more customers.

Do you think the time to treat our mobile/online banking centers as support centers should end?

~ Jeff

Bankers Tell Me Their Top Industry Game Changers

This week I did my annual tour of the West, teaching Bank Profitability in the Executive Development Program for the Washington, Oregon, and Utah Bankers' Associations. As part of the day-long curriculum, we discuss industry trends. And since I have dozens of next generation leaders in the class, I ask them, what is the next game-changing trend in our industry?

I make them write down the answer prior to going around the room seeking insights so we avoid group think. Their responses, however, were surprisingly cohesive. They were:

1.  Consumer Preferences: The pace that bank customers were adopting new delivery channels and non-traditional financial intermediaries was both concerning and exciting to the students. Banking is not known for being on the cutting edge. And if I had a classroom full of "existing executives" instead of "future executives", my guess is I would not hear this as a game changer. So to hear young talent say they are nervous and excited about it was music to my ears.

2.  Technology Delivery Channels: This goes hand-in-glove with Consumer Preferences, because consumers continue to choose to bank via their device, whatever that device may be. But there was a recognition that customers that tend to carry higher balances continue to demand a nearby branch. And as bankers we know that balances generate most of our revenues. So the transition period, and how we execute on it, are critical to our individual banks' success.

3.  Regulations: Here is where I think future and existing executives would agree. Because I hear this from existing executives all of the time. Look at how regulators impact mortgage financing. They have turned what could be a simple loan with low switching costs into something incredibly complex, with high switching costs, and an invitation for nefarious characters to participate in the business. History is rife with good intentions gone bad. But our regulatory scheme is so wrapped up in their bureaucracy that they are not smart enough or care enough to recognize it. And it will impact our banks and our customers far into the future.

4.  Loss of the Payment System: Here is a crutch that we used to keep customers in the banking system. But disruptors such as Square, pre-loaded cards, and possibly Bitcoin is making it less critical to have a banking account. Could our industry afford to have a greater percentage of our population outside of the banking system?

5.  Societal Mores: This was an interesting observation. Students were concerned about the demonization of financial institutions for collecting on loans when customers stopped making their payments. We reminisced about the days that if our parents or grandparents took a loan (if they took a loan), promising to pay it back, they paid it back unless there was no more blood in the stone. Today, bankruptcy is a business decision. As one banker once told me, "when did bankruptcy stop being embarrassing?". Indeed, when did it?

Special thanks to the talented bankers in Washington, Oregon, and Utah. When I am most cynical about the future of our industry, I think of the faces that were in front of me that will lead us forward.

What do you think are industry game changing trends?

~ Jeff