The Daily Dividend

News, notes and insights from around the industry

JUNE 18, 2019
FMS Perspectives: CECL Status Check
By Mark Loehrke, Editor, Financial Managers Society

Despite the fast-approaching effective dates for CECL (as early as Q1 2020 for public SEC filers), many financial institutions still don’t have the historical data in place to calculate life-of-loan losses as required by the new standard. More concerning still are those organizations that don’t even have a plan in place for how to go about getting that data – or what to do once they have it. 

So the time is clearly right for the new FMS Perspectives piece, CECL Status Check: How Prepared is Your Financial Institution?, wherein Rick Martin of Fiserv lays out seven key tasks that will not only help banks and credit unions ensure they have the right CECL data (and enough of it), but also offer the potential to save time and money down the road.
 

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 13, 2019
2019 FMS Forum: Funding for the Times
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

The 2019 FMS Forum is almost here and Shawn O’Brien from QwickRate was happy to check in ahead of the happenings in Boston to share a sneak peak of his breakout session, “Funding for the Times: All Options on the Table.” 

FMS: What are some of the unique funding pressures that financial institutions are facing in 2019?

O’Brien: For most of the last decade, every financial institution experienced continuing increases in deposits – often to the point of not wanting more. However, that situation began to change over the last year or two. In 2018 and certainly into 2019, institutions have seen the availability of funding diminish, while the cost of funding has increased. 

Further compounding the problem is the fact that over the same 24 months or so, many institutions also experienced an erosion of their net margins. Now, as deposit prices continue to climb, it’s very difficult for these institutions to pass along increases in loan rates to their customer base – a base, it should be noted, that’s being threatened by a growing number of highly competitive fintech companies and neo-banks. 

So most of today’s community institutions are being squeezed. On one side sit the larger banks that are heavily investing in technology, and therefore not offering customers better deposit rates. On the other side are fintech companies offering higher rates (and often better technology, too), but with no regard for personal relationships. Occupying the space in between are the community institutions dealing with customers asking for both higher deposit returns and costly improvements in technology.  

FMS: How do examiner expectations play into these pressures?

O’Brien: Examiner expectations are always important. If asked, examiners would say that currently most banks (more than 80%) merit either a 1 or 2 liquidity rating, meaning that the institution has satisfactory liquidity levels and funds management practices, has access to enough sources of funds with acceptable terms and has only modest weaknesses (if any) in its management of funds. As examiners foresee the industry moving from an expansion state to a peak point (perhaps already reached) and then moving closer to a downturn, the regulators begin to become more concerned about banks sliding to a liquidity ranking of 3. This would indicate that an institution’s liquidity levels and funds management practices need improvement, that the institution may lack ready access to funds with reasonable terms and that it may even have significant weakness in its processes for managing funds. 

In that case, the financial institution can expect examiners to scrutinize its liquidity management processes more sharply – making sure the institution is utilizing multiple funding sources, is maintaining ready access to contingency funding, is stress testing its liquidity sources and is strictly monitoring its capital to keep from slipping below well-capitalized status during a possible downturn. 

FMS: What are a few things attendees should take away from your session?

O’Brien: I would like them to leave with a better understanding of their funding sources and how to best utilize them all. I would like for them to know the examiners’ perspective of where we are in the current banking cycle, and how that perspective might affect the evaluation of their institution at exam time. I also want them to understand the different points of pressure that can weaken their institution’s overall liquidity position. 

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!
 

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
CU 1Q
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.
 



Contributors


Mark Loehrke
Editor and Director, Publications and Research
Email: mloehrke@FMSinc.org




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