The Daily Dividend

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 25, 2017
The Road to Vegas, Part X: Dealing with Disruption
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

The Road to Vegas is getting shorter – with roughly one month to go until the FMS Forum, we reached out to Joe Sullivan, President and CEO of Market Insights, to get some of his thoughts on the state of retail banking:

FMS: What are some of the big disruptors you’ve been seeing in the industry?

JS: The disruptors themselves are things like blockchain, artificial intelligence, and P2P payment systems like Venmo and Paypal. Technology is controlling the flow of money. Whether people are paying, sending money to another country or getting robo-advice, the common denominator is how technology is changing the way money flows between businesses and between individual people. Blockchain and P2P are ways to do that, and artificial intelligence is another layer of that technology and knowledge – those are the main disruptors that are removing banks from the equation.

FMS: What can institutions do to predict disruptions and changes, and how can they best address them?

JS: Quit trying to predict the changes – that’s not where you need to spend your time. Instead, you should be asking ‘what are we doing to position our bank or credit union to compete in a climate where new types of competitors are working nonstop, and where the consumer is the one with all the power?’ To survive and successfully navigate disruption, you’ve got to pay attention to the Three A’s:

Alignment with the marketplace means understanding the needs of your customers, understanding the products, technology and trends in your marketplace and understanding what you need to be doing.

Agility is the ability to think and act quickly, but it’s a function of strategic responsiveness to the marketplace, and having the organizational bandwidth to make things happen. Banks and credit unions need to make decisions faster, and they need to use better data to do so. 

Adaptability is changing everything we’re doing – from our physical branches to our culture to our processes to our people – to be in sync with the rest of the world. For instance, how quickly can people open an account on a mobile device? Or can they do it at all – do they still have to go into a branch? 

All Apple or Google or any of those places have done is simply take the pain out of the customer journey.
So don’t predict – take action with the Three A’s.

FMS: What are some of the biggest mistakes community institutions are making in terms of assessing their retail delivery channels, and how can they fix these?

JS: There are a few mistakes that come to mind:

Making decisions without getting data, and not aligning your decisions to the needs of your marketplace.
Obsessing over the branch of the future. There’s no doubt that institutions need to adapt the physical space and the branch format for a more customer-friendly experience, but the branch of the future is just a buzzword and I’m sick to death of hearing about it.
Random execution – be it ITM, universal bankers, cash recyclers or branch remodels. Instead, you should start by asking yourself where on the continuum of self-service to full-service a particular branch needs to be, given the demographics of the market and given the potential that’s out there.
Copycat transformation. An institution sees the bank down the street doing something and they want to do it too. But you shouldn’t put an ITM in a market where the customers are technophobic, for example.

There is no magic bullet for community banks or credit unions. The important thing is to do your homework on the marketplace, understand the ability of your organization and be willing to adapt and create as part of your culture. 

Tap into more of Joe’s insight during his session “Top Trends Shaping Retail Banking” at the FMS Forum this June in Las Vegas. Register now!

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 23, 2017
Extra! Extra! New FMS Update now available!
By Mark Loehrke, Editor, Financial Managers Society

If you’re a regular reader of this blog, you probably know that the occasional headline above has usually been accompanied by an image of a paperboy on a bike getting ready to toss another copy of the printed news (probably into the sprinkler). 

So what’s with the smartphone?

Consider it a quick reminder that today’s edition of FMS Update is not sitting in the inbox on your desk. Rather, the May 23, 2017 issue of our new members-only e-newsletter is conveniently waiting on your computer, tablet or phone, with links to the latest news and analysis from around the industry. We hope you enjoy it.

As for the fate of that paperboy and his ink-stained hands? Let’s face it, these days he’s probably getting rich off the technology that’s making this all possible anyway.

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 18, 2017
The Road to Vegas, Part IX: Temperatures Are Rising, and So Are Rates
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

The excitement around our upcoming FMS Forum in Vegas is heating up, and so is the interest rate environment. In fact, if you’re looking to tap into the mind of an expert to find out what your institution should be doing about rising rates, the Forum is your chance!

In our Tuesday morning general session, veteran industry educator James Johannes from the Puelicher Center for Banking Education and the University of Wisconsin in Madison will be addressing “The Economics and Politics of Rising Rates.” Jim is a widely published thought leader who will undoubtedly have plenty of thoughts to share about the current environment, so come prepared to learn a lot about what it all means for the balance sheets of community institutions.

This is just one of dozens of great education session scheduled for next month in the desert, so be sure to register for the FMS Forum today!

Catch up with the rest of the Road to Vegas series: Part I // Part II // Part III // Part IV // Part V // Part VI // Part VII // Part VIII


Mark Loehrke
Editor and Director, Publications and Research

Danielle Holland

Autumn Wolfer
Director, Membership and Marketing

Hilary Collins
Assistant, Publications and Research