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?