The Tax Cut and Jobs Act of 2017 (TCJA) presented banks with a rare windfall. Of all the industries in America, banking is one of the most rewarded. Because of where banks sit in the economy, the gift of leverage, and the current strength in the economy, banks now have an extremely rare opportunity to place this new found wealth for long-term good. It is an opportunity not to be squandered. Being Valentine’s Day, there is little doubt your bank would like to show all of its stakeholders some love with your tax savings. The question is – where can it do the most good?
“Squirrel!” was a common refrain at meetings when some staff members saw the next shiny technology object that we just had to have – usually because a large bank was rolling it out. Saying “squirrel” became code for “let’s stay focused.” The real problem was that many suggested projects were actually worthy of attention and investment. Further, we had no framework for evaluating innovation and deciding how many projects to tackle in a given year and in what sequence.
Last month we, along with CS Consulting Group and the Banking Exchange, asked bankers to complete the survey on their current challenges and what tactics they are employing to overcome those challenges. An overwhelming 79% of bankers expressed a need to find new strategies, lines of business, methods, or a transformation of their business model, to better compete going forward. While banking faces many challenges, the survey results show that bankers have a clear view of the future and a plan for how to get there.
The key to successful bank spending is having a solid framework to help articulate and execute a set of clear priorities. Since every bank starts at different a place, with different objectives, and with different resources, the best way to do this, that we have found, is to form a scorecard or algorithm and then force each initiative or project through on an annual basis. What emerges should be a prioritized list of projects that the bank can expend resources to achieve that will give them the best return for the least amount of risk.
One common question for banks is how much to spend on innovation and technology. We are not sure that is the right question as it all depends on your vision for your bank and what you are trying to get accomplished. Some banks are sacrificing material current year earnings in order to transform their bank while some banks are spending the bare minimum. For 2018, bank spending on technology is expected to grow 4% over 2017 spending.
This is Part III in our series of articles exploring the concept and implementation of a “trusted advisor” approach to banking. In Part I (HERE), we compared the profitability of a transactional banking model versus a relationship driven model and questioned why so many banks want to be relationship focused given the higher cost and execution risk.
Our contention is that all banks need to get to a sub-45% efficiency ratio over the next five years. We say this based on the current rate of change of operating efficiencies we see at fintech companies and national banks. As these entities become more efficient, they can offer better rates and fees on banking products and spend more money on both customer engagement and customer acquisition. If you roll this concept forward, the model shows that it will be harder and harder for community banks to compete to grab new customers and harder still to retain them.
Many parents have dealt with the issue of how to divide up Halloween candy among siblings. It’s not easy. If all houses gave out the same candy, it wouldn’t be a problem. But houses give out different candy, or they allow you to choose, and those in the front of the pack had different choices as those in the back. Whatever the case, candy is not all the same. As a result, candy is distributed unevenly forcing parents that are concerned with equality to employ some game theory.
This is the second in a series of articles exploring the concept and implementation of a trusted advisor approach in banking. In Part I (HERE), we compared the profitability of a transactional banking model versus a relationship-driven model and questioned why so many banks want to be relationship-focused given the higher cost and execution risk.
Like the red balloon in “It,” frictionless onboarding of customers is an attractant to bankers. Easy and quick account opening is a must have for banking, but like an evil clown in a sewer, if you are not careful, you are in for a world of hurt. Stephen King’s “It” was in the back of our mind when we sent some of our best bankers (We didn’t tell them about the “Loser’s Club” moniker) out into the wilds to test online account opening at some top banks. In this article, we highlight our journey and discuss what we learn to keep bankers safe.