If you look at the sensitivity in a bank’s budget, $1 of investment in a new line of business usually doesn’t break even for two to three years. $1 invested in finding a new customer usually returns about 9%, while $1 invested in a new product is usually above 20%. This all compares to about a 40%+ return invested in improving processes (loan, branch, cash management, etc.) and about an 80% plus return spent on reducing customer churn, increasing lifetime value and/or helping cross-sell.
The last quarter in the year is typically a suboptimal time to generate commercial loans. Most bankers have met their annual goals factoring the existing pipeline of credits. Furthermore, banks that have not met their goals for the year are likely to price and structure more aggressively, thereby depressing profitable opportunities for more disciplined lenders.
The largest problem with bank innovation is that we see or hear about a sexy piece of technology at a conference or at another bank and then acquire it. The new piece of technology ends up solving a known problem but in the process actually creates more problems, and risk, than it solves. It’s called the “Shiny Object Syndrome” (SOS), and it could be sowing the seeds of destruction for many banks. In this article, we look at the seven strategic questions you need to answer before acquiring any piece of technology.
In a nutshell, the future of loan, deposit and investment rates look higher, flatter and more competitive. As the Federal Reserve continues to raise rates, investors believe the economy will start to slow. When it does, the yield curve is projected to continue to flatten. Further, systemic changes in banking such as a higher percentage of customers using digital banking, increased media effect and changes in customer behavior are serving to alter some historical relationships.
In 2017, bank marketing expenditures were up. According to financial reports and FDIC data, banks spent an average of 3.5% of total expenditures on marketing and advertising on a year-to-date basis. That is about 6% of total revenues—and up about 0.05% of total expenditures.
As September rolls around, it is time to start updating next year’s strategic and tactical plans plus put a preliminary budget together. For us, marketing in 2018 looks a lot like 2017 with some notable changes. Like this year, next year will continue the trend of more digital advertisement. This means more social media spend, more mobile allocation and more video production. Email and content will remain front and center, and we will be expanding our search term and search engine optimization.
It is an age old tradition in banking that management firsts asks the business lines for their budgets and then takes those budgetary estimates and turns them into revenue and/or profit targets for the sake of compensation. While having sales goals is better than not having goals, basing the goals off budget hurts the budgetary process and results in sub-optimal sales incentive response to drive behavior. Let’s look at what happens.
Yesterday, we covered a set of economic indicators that have proven to be unreliable at predicting the future of rates, credit, loan or deposit growth. The subject is topical as many banks are working through their budget forecasts and instead of just relying on history, many banks seek to increase the accuracy of their predictions by utilizing these indicators. One way to do this is to incorporate forecasts of these economic indicators and then use that as the basis for fine tuning bank budget variables.
Given that it is forecasting time again for next year’s budget, banks often use a variety of economic indicators to help forecast demand for credit, liquidity, and inflation. Often time, we will see many of these indicators in ALCO reports or strategic plans. We have tried a great many indicators and have tracked the effectiveness of each one. Today, we will cover some of the more unreliable ones, while tomorrow we will cover the ones that work.
Three years of kicking the can down the road, striking last minute deals for “Super Committees” and pointing fingers obviously wasn’t enough practice for Congress as our esteemed government is finally shut down. You would think that, when faced with the two options of either cutting down on spending or raising revenues, Congress could have picked one, or at least implemented a combination of the two. Instead, our elected officials (who are still getting paid) decided to go with the age-old strategy of hyperpartisan malfeasance and do nothing.