The Daily Dividend: Industry News

News, notes and insights from around the industry

MAY 26, 2017
Friday Hot Links
By Mark Loehrke, Editor, Financial Managers Society

Few weekends on the calendar better match up with our standard Hot Links image than this one – the unofficial gateway to summer. 

So take some time this Memorial Day weekend to thank a service member, to throw a few burgers (or links) on the grill and to read up on a few interesting nuggets from around the industry press:   

As succession planning heats up and regulators begin asking more questions, Patrick Murphy writes that now is the time to reexamine your institution’s compensation policies.    

Is your board sacrificing proper risk oversight in a quest for short-term gains? Protiviti offers a good compendium of the warning signs to keep an eye out for.   

Ed O’Brien isn’t exactly reporting breaking news when he reaffirms the importance of digital banking solutions for today’s consumers, but the results of his firm’s recent survey in this area are nevertheless a timely reminder to keep looking for ways to improve.
 

MAY 24, 2017
Open Market: When Switching Banks Becomes Effortless
By Hilary Collins, Assistant, Research and Publications, Financial Managers Society

What happens when fintech meets an increasingly consumer-determined banking culture? It sounds like the premise for a really bad romantic comedy, but PwC gets serious about what it considers an emerging phenomenon in its new study.

Financial institutions today benefit from the fact that it generally takes a major event to get customers to go through the hassle of transferring their accounts to another institution. This breeds customer loyalty, which allows institutions to focus on cross-selling rather than attracting new customers. However, this movement that PwC refers to as “a la carte banking” is changing how consumers view banking services, and affecting their willingness to make the move.

The three levels of a la carte banking described in the study are:

Product aggregation services
These are services such as NerdWallet that analyze financial products so consumers can easily choose what will best serve them. Services like these, however, do not actually manage cross-institution accounts for consumers.

Personal finance assistance
These are services like Digit or Money Dashboard that go a step further to help consumers understand both their own personal finances and what financial products can offer them.

The combination
The third group is the apex of consumer-driven banking – services such as Varo Money or Bud, which not only educate consumers and analyze account and product benefits for them, but also allow them to manage multiple accounts in one place. In this most advanced version of a la carte banking, consumers can see what’s best for them and immediately act upon it.

A la carte banking is already something of a thing in the UK, where the EU is changing competition rules to benefit consumers. For example, in 2013 a UK company launched a service that allows consumers to effortlessly close old accounts and open new ones, transferring funds from one to the other. 

While the U.S. regulatory environment is not yet as open to this kind of shift, a similar situation unfolded when wireless customers were given the ability to keep their cell phone numbers when switching service providers. Removing the hassle of changing that number made switching service providers for other reasons such as price or poor service a no-brainer – and changed that industry permanently.

Even in the UK, this is just now beginning to make a splash. However, PwC notes that it could be a sign of what the future holds, as technology allows consumers to take more power, and financial institutions will no longer be able to rely on customers being too lazy to leave.

MAY 22, 2017
An Uphill Battle
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

Have you lost some sleep about the slowdown in commercial and industrial lending over the past several months? If so, you’re not alone. The popular theory seems to be that the regulatory burden and increased supervision are the cause of the downturn. However, it’s hard to find those connections in the data, which is why William Lee and Jonathon Adams-Kane at American Banker have crunched the numbers to come up with an alternative hypothesis.

The reason C&I lending is falling is because business investment is falling – and the cause is not the regulatory environment, or at least not entirely. Instead, businesses are fearful, wary and afraid of expansion. Their investment spending has fallen from 1.2% for the period of 2012 to 2015 to a mere fraction 0.4% in the second half of 2016.

However, regulation does create a crunch that contributes to that fearful mood, especially for smaller banks and smaller businesses. Since 2010, the majority of C&I lending was originated in the largest banks, and under the new regulation and supervision, banks favor large borrowers. So while large-scale lending grows, loans under $1 million fall – 17.4% of business investment in 2010 was supported by these small loans, and at the beginning of 2017 it was down to 12.5%. Meanwhile, loans over $1 million have gone from 44% in 2010 to 57% at the beginning of 2017.

The takeaway? Blame regulation, to a degree, but not entirely. Save a little bit of the finger-pointing for the fear that lingers over the business side of things. Even without the added pinch of regulatory concerns, today’s C&I lending environment feels a little like running uphill.
  

MAY 19, 2017
Friday Hot Links
By Mark Loehrke, Editor, Financial Managers Society

Without question, the hot news story coming into this week (non-Washington division, of course) was the massive cyberattack that crippled computers all around the world. It was yet another disturbing reminder of the growing importance of cybersecurity for companies of all shapes and sizes – including community institutions.

In that spirit, we’ve loaded up the grill with a variety of scary tech stories to get you thinking this weekend:    

When it comes to a malware attack, it’s a matter of if, not when, for financial institutions – which is why preparation is so important

One important part of that preparation is ensuring that your institution is squared away with cybersecurity regulations – and that starts with the board

Last weekend’s attack was a demonstration of the ransomware problem, writ large – here’s how your institution can protect itself from this growing threat    

It’s not the most relaxing batch of reading material for a weekend, but being informed is the first line of defense when it comes to cybersecurity. The second line? Maybe it’s time to change that “password1” you still have hanging around out there.
  

MAY 17, 2017
Great Expectations
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

What do customers really want from their financial institutions these days? Research firm Segmint sought to find out in its online poll of 2201 U.S. adults, 2065 of which had a bank. Here’s what those respondents had to say.

Education and Information
80% of bank customers – and 86% of Millennials – want their institution to educate them and help them make better financial decisions. However, only 28% of bank customers feel their bank provides them with information that helps them reach their personal financial goals and life events, and 24% of bank customers don’t even have a good understanding of what their financial institution offers. 

The Right Amount of Communication
Can too much communication be a bad thing? 11% of bank customers in the survey thought so, tiring of their bank trying to sell them different products and services. Of those who felt they received too much communication, the most popular reason was they found it annoying. While that’s a relatively small number, we’ve seen before that when institutions push their luck with customers, it can backfire and make them more willing to find a new bank.

Access to Automation
Perhaps not surprisingly, 64% of survey respondents indicated they would rather take care of their banking needs online or through a mobile app than visiting their bank’s physical branch or office. Of course, that number is even higher for Millennials, 80% of which prefer using automated banking. However, the number is lower at a local community bank, where 48% of customers prefer automated banking – meaning the majority still want to talk to a person.
 

MAY 15, 2017
Ten Years Later: State of the Industry
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

It’s hard to believe it’s been a decade since the financial crisis. The Economist has an eight-part special report offering a zoomed-out view on the subject. Here’s a taste:

In terms of recovery, America’s banks are outpacing their European counterparts. “Mike Mayo, an independent bank analyst, expects their return on tangible equity soon to exceed their cost of capital (which he, like most banks, puts at 10%) for the first time since the crisis.”

Nevertheless, the recovery continues to take time. Even American banks have not returned to their pre-crisis peaks of February 2017, still holding at about 30% below that marker. 

In news that will shock no one, the demands of regulation set up after the financial crisis are especially hard on community banks. “In particular, community banks’ ability to make loans of under $150,000 has been weakened. Although they are exempt from many of the regulations governing large institutions, such as supervisory stress tests, the fixed costs of regulation weigh more heavily on smaller lenders.”

Forcing banks to carry a thick equity cushion has become the norm, to prevent the “too big to fail” mentality that precipitated the crisis. But the Economist makes the argument that banks are never entirely safe – and maybe that’s for the best. “Capitalism, after all, thrives on risk.”

MAY 12, 2017
Friday Hot Links
By Mark Loehrke, Editor, Financial Managers Society

Instead of arguing with your siblings or complaining about being bored this weekend, take the time to get some reading done. It would make your mom proud.

The CFO Role: Expanding
It isn’t just the many CFOs we chatted with for the Member Spotlight who noted that their role was taking on more of a strategic aspect – Grant Thornton says this shift is the wave of the future.   

CRE Lending: Tightening
The Federal Reserve’s April survey on bank lending practices showed, for the sixth consecutive quarter, a tightening of credit policies for CRE loans. 

Data Analytics: Deepening
Is your institution getting the most out of its customer data? Mark Weber offers three tactics for better utilizing data and behavioral analytics.
 


Contributors


Mark Loehrke
Writer/Editor
Email: markl@fmsinc.org 



Danielle Holland
President/CEO
Email: dholland@fmsinc.org 



Autumn Wolfer
Director, Membership and Marketing
Email: awolfer@FMSinc.org


Hilary Collins
Assistant, Publications and Research
Email: hcollins@FMSinc.org