The Daily Dividend: Industry News

News, notes and insights from around the industry

JUNE 17, 2019
What Mobile Customers Want
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

What Mobile Customers WantCustomers are increasingly turning to banking apps rather than online banking to do things like check their balance – but what else do they want from their app? New research from Business Insider sheds some light on the features customers most desire.

Canvassing more than 1,000 customers, the study found that customers are more interested in security and control than flashy new gimmicks like voice control or chatbots. In fact, the five most desired features included the ability to:

Put a temporary hold on one’s card
Alert the institution of upcoming travel plans
File a card transaction dispute
View the status of a transaction dispute
Log in with a scanned fingerprint 

In contrast, the features that scored lowest involved the capability to:

View account balances before logging in
Use voice commands to control the app
Bank through a smart speaker
Converse with a chatbot in the app
Converse with a chatbot in a messaging app

Customers clearly value the ability to quickly and conveniently resolve security issues from their app over the latest bells and whistles. At many institutions, disputing a transaction or putting a travel note on an account requires a trip to a branch or a phone call, both of which require valuable time that customers would rather spend packing for that trip – or shutting down the scammer who’s using their card fraudulently. This research is a timely reminder that what customers want isn’t always what their institutions think it is.

JUNE 14, 2019
The Rise of Fintech
By Mark Loehrke, Editor, Financial Managers Society

By now, just about every bank and credit union knows the disruptive potential of the growing ranks of fintech competitors – whether they’ve actually seen an exodus of customers or simply fear that one may be just around the corner. So while the latest version of EY’s FinTech Adoption Survey may not hold many true revelations as to fintech’s growing influence, it nevertheless stands as yet another potent reminder that traditional institutions need to be paying attention to the shifting landscape of consumer preferences when it comes to technology and banking habits. And although the survey’s global field may seem far from the day-to-day doings of a bank or credit union’s local community, the trends behind these results are sure to come home to Main Street in the years ahead.

For example, as fintech awareness and comfort continue to grow, consumer fintech adoption in the U.S. has risen from around 17% in 2015 to 46% in this year’s study. And among these adopters, 33% are willing to turn to someone other than their main bank first for more attractive rates or fees, 68% would consider a non-financial services company for their financial needs and 46% are willing to share their bank data with other organizations.

In other words, this is no longer the “cutting edge” or some far-off dystopian banking future. Fintech is here – the question is what traditional banks and credit unions are prepared to do about it.

JUNE 12, 2019
The "How" of Digital Transformation
By Mark Loehrke, Editor, Financial Managers Society

The 'How' of Digital TransformationMost institutions have been aware of the “why” of digital transformation for some time now. Quite simply, more and more of their customers’ and members’ lives are migrating to mobile and online platforms, and to not meet their needs in those places is to likely bid farewell to that business. But having an understanding of the need for digital transformation and having a reasonable idea of how to go about actually pursuing that transformation are two very different and distinct things.

To be sure, Deloitte’s recent study of digital business in conjunction with MIT Sloan Management Review is not exactly a point-to-point roadmap of how to make a digital transformation, but it can be a helpful guide to understanding the kinds of things organizations that are getting transformation right (“digitally maturing companies”) have in common. Not every finding to come out of a survey of 4,800 executives from companies of all shapes, sizes and industries all over the world is going to have real-world parallels to or direct applications for the average bank or credit union, of course, but among the findings to come out of Deloitte’s data are a few salient pieces of advice that can be helpful to almost any organization moving toward a digital transformation, such as:

Look beyond the organization to drive innovation
Reassess how cross-functional teams are cultivated and supported
Loosen formal hierarchies to allow teams to more freely explore and, occasionally, fail
Put ethical guardrails in place upfront to help prevent innovation from blowing past governance

As the study’s authors put it in summarizing their findings, “believing in the importance of innovation isn’t sufficient – taking action is what matters.” Keeping these four recommendations and some of the other key ideas from the data in mind can help an organization know where to go when the question of digital transformation moves from the “why” to the “how.”

JUNE 11, 2019
Data after the Hype
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

Data after the HypeData had its moment in the sun. For a while, it seemed like every decision could be made – and should be made – by analytic programs that would take the guesswork out of everything from targeted marketing to hiring. But we’re starting to see more clearly where data fails and why the human brain remains essential to successful decision-making.

To be clear, data analytics still holds enormous value. But now that the hype has faded, it’s easier to see that data has three key weaknesses where human judgement still needs to step in.

Data is no longer a competitive advantage
John Granato, a veteran finance CFO, compares the enthusiasm surrounding data to the era when the personal computer was first introduced: “It didn’t take long before everyone had one. Then the advantage was gained by those who could use the tool better, not just have it.” Soon almost every organization will have access to sophisticated data analysis, and leaders will need to use their own judgement and knowledge to get ahead.

There’s always more data
The only kind of data can be truly useful to leadership is the right data. Because the sheer volume of data that’s available today can be daunting – and it can be tempting to always want more analysis. As data analysis becomes more common, leaders are finding that having too much data is just as bad as having too little.

Data analysis has the same weaknesses as any new technology

Leaders have to balance the need to remain competitive by staying abreast of new technologies with the risks inherent in adopting the latest and greatest tech craze. To find that balance, it is imperative to be highly technologically literate. As Granato says, “A good finance leader needs to be tech-savvy, but it’s just as important to understand which technology adds value and to make sure the company isn’t just chasing the next gadget.”

JUNE 10, 2019
By Mark Loehrke, Editor, Financial Managers Society

2019 got off to an auspicious start for the nation’s federally insured credit unions, as the NCUA’s recently released Q1 data for the three months ended March 31 revealed the continuation of several ongoing positive trends.

Both net income ($14.1 billion, up 11.9% from the first quarter of 2018) and total assets ($1.51 trillion, up 6.3% from the year-earlier period) were among the headline numbers extending multi-year upward trajectories and demonstrating this continued strength. Total credit union membership rose to 117.3 million in the first quarter – an annual gain of 4.6 million members – even as the number of credit unions continued to contract to 5,335, down from 5,530 at the same point in 2018.

Total loans outstanding grew from a year earlier, rising 7.9% to once again hit the $1 trillion mark, with year-over-year gains in every category, led by new auto loans (8.5%), 1- to 4-family residential properties (7.2%) and used auto loans (7.2%). Credit card balances rose by 7.7%, while non-federally guaranteed student loans rose grew by 16.8%. The income statement, meanwhile, took a hit from another spike in interest expense, which totaled $12.2 billion annualized in the first quarter, up 45.3% from a year earlier. Non-interest expenses also grew by 7.2% and labor expenses were up 7.4%.

Consistent with long-running trends, credit unions with assets of at least $1 billion reported the strongest growth among asset categories, with significant gains in loans (11.3%), membership (9.4%) and net worth (13.1%) over the year.

JUNE 5, 2019
The Big Picture on Small Business Lending
By Mark Loehrke, Editor, Financial Managers Society

It shouldn’t really come as breaking news at this point, but small businesses – those longtime, local customers whose loyal borrowing activity has been the reliable bread and butter for many a community bank and credit union – are just as interested in the online and mobile conveniences that individual retail customers are. However, very often they’re not being treated that way by their institutions.

Here’s where this becomes a big problem – big banks and fintech competitors are more than willing to give these small business customers what they want in terms of new technology and faster and easier borrowing thanks to a streamlined underwriting process apart from the typical commercial loan regimen. As a result, many of those loyal small business customers are more likely to drift away from their local community institutions – and once that business is gone, it’s probably not coming back.         

The good news for community banks and credit unions is that they still have an opportunity to hold onto those small business customers – and maybe even strengthen their already solid relationships with them – by recognizing where their current lending processes are falling short and finding ways to bridge the gap with what may be tempting those small businesses elsewhere. While an online loan application portal can be a good place to start, this is not just about customer-facing technology, but also about the ways in which an institution utilizes data and staff training to seek out the best opportunities to reach out to small businesses and anticipate their needs. 

Community institutions have long been the go-to choice of small businesses when it comes to lending, but it’s reckless to believe that it will always be thus. Because resting on those laurels and not keeping up with the changing nature of the competitive marketplace is a surefire way to ensure that those laurels are all your institution has left when the dust settles.

MAY 31, 2019
Another Shiny Quarter
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

A Quarter for Your ThoughtsBanks reported net income of $60.7 billion in the first quarter of 2019, drawing positive comments from FDIC Chairman Jelena McWilliams. “The banking industry reported another positive quarter…Community banks also reported a strong quarter, with annual loan growth and a net interest margin surpassing the overall industry,” she said in an accompanying statement.

McWilliams followed her praise with a word of caution, however, reminding banks that they must maintain prudent risk management in the midst of a challenging economic cycle. As interest rates stabilize, some institutions will struggle in lending and funding.

But that warning was a gentle reminder as by most markers, the nation’s banks are doing well. Net income rose 8.7% from the first quarter of 2018, and the average return on assets rose to 1.35%, up from 1.28% the year before. Total loan and lease balances rose 4.1% from the first quarter of 2018 – slightly down from the 4.4% annual growth rate reported in the fourth quarter of 2019. Net charge-offs increased by 5.5% from the year before and noncurrent loans increased by 0.5%, but overall asset quality indicators are stable and the number of banks on the “problem bank list” fell once again.

The news was positive for community banks as well, with quarterly net income up 10.1% from a year earlier, driven by higher net interest income, higher security gains and lower provision expense. In addition, broad-based improvements in loan interest income drove a 6.4% year-over-year increase in net interest income, as every major loan category in community banks saw year-over-year growth of 10% or more.


Mark Loehrke

Danielle Holland

Hilary Collins
Specialist, Publications and Research