Friday, December 23, 2016

Three Wishes for Bankers

If I had a genie in a bottle that granted me three wishes, I would shoot for grander goals such as world peace, end poverty, and ban Mariah Carey Christmas songs. But this is a bankers' blog, and I want to remain topical.

Most readers are accustomed to me being analytical. Searching for trends and truths in a sea of numbers. And it is true, that numbers weave a tale that should be told. But in this post, I would like to rub the bottle, unleash the genie, and go for three grand wishes for banking.

Wish 1: Banks and Credit Unions - Can We All Get Along?

I believe in compassionate capitalism. In an evolved capitalist society, in my opinion, those "do-ers" would maximize their abilities and their legal/ethical earning power, and give their excess to worthy societal goals. Altruism? Sure. There will be those capitalists that buy gold toilet seats or hold lavish spousal birthday parties on Sardinia to prove they are in love. But let's focus on the good, shall we?

According to a 2015 FDIC National Survey of Unbanked and Underbanked Households, seven percent of US households were unbanked, meaning they had no account at an insured financial institution, and 19% were underbanked, meaning they used non-traditional financial providers like pre-paid cards and/or payday lenders. This is a significant percentage of the populace, and ripe pickings for credit unions, that tend to have better success profitably banking these customers than do banks. 

For example, in my firm's profitability measurement service for community financial institutions, credit unions make 80-90 basis points pre-tax profit on consumer loans, while banks make an anemic 5-10 basis points. And banks' have an average consumer loan account balance of over $40,000, whereas credit unions are around $14,000. 

Credit unions tend to deliver profits on smaller balance accounts. Accounts, dare I say, that bankers are happy to yield to them because they are not well suited to serve those customers.

But the tax thing. Bankers' can't get over it. And with NCUA loosening their definition of who can join credit unions, you can see the point.

So here's my idea: Collaboration in a market between a bank and credit union to cure some social challenge.  For example, what if Schmidlap National Bank and Pipefitters Local CU teamed up to end poverty in their local market? Schmidlap could commit 10% of their pre-tax profit to contribute to local charities whose specific mission is to end poverty. The CU could commit 20% of pre-tax profit to do the same, creating greater parity on the expense side of the ledger, and uniting the one-time foes to make their communities better.

I know one Midwest bank CEO that will disagree. How about you?

Wish 2: Simplify

In every executive meeting, every operations manager meeting, every sales meeting, I wish bankers would ask "how can we simplify?". Simplify their processes, their systems, and for their customers.

We have enough complexity in the world. I spent half a day trying to get my Mom's iPad to interface with Alexa. I was so successful that Alexa gave us the time and the weather, and nothing else. My Mom had to enlist the support of the Geek Squad.

There is enough complexity in everyone's lives. Internally, we have been over-reacting to interpretations of regulation, hyper-complying to avoid an audit finding or, shudder, a matter requiring attention (MRA) on our exam. Externally we have been doing the same to customers. 

Finances, either personal or business, are more complex today than at any time in my life. And quite possibly, in anyone's life. Technologies that have been making finances easier are growing at a rapid rate. I believe customers want to interact with humans about their finances. But we can't heap all this complexity on them and expect them to reject easy to use tech solutions.

Financial institutions that come out on top will be the ones that figure out how to simplify their processes, their infrastructure, and their customers' financial lives.

Goal 3: Automate and Elevate

I did a back of the envelope estimate that a $1 billion in asset financial institution might have 240-250 full-time equivalent (FTE) employees. I also estimate that less than half of them would be customer facing.

The investment financial institutions make in support center functions that scream for automation is not sustainable into the future. In a prior post, I made one slam dunk prediction that robotics was coming. Repetitive tasks will be increasingly performed by an application or a robot. Reconciling the suspense account now done by an accounting clerk? An app. Five point checks on personal check capture images now done by a clerk in Deposit Ops? A robot. 

This will make available significant resources to invest in employees to perform higher level tasks either in support or the front line. How often do I hear executives hope their branch employees would elevate from efficient transaction processing to customer service and advice? Often. How often do senior lenders exhort their lenders to be relationship focused and not solely deal guys/gals? Regularly. And how often do I hear frontline staff wish that support staff would find creative ways to get things done instead of erect road blocks? Every performance improvement engagement team I have ever been on.

So, for financial institutions, always look for ways to reduce paper, automate repetitive processes, and invest greater resources into delivering the financial institution your customers deserve.

Those are my three wishes for bankers. What are yours?

Happy Holidays everyone!

~ Jeff

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