Dave Kerstein_resized
David Kerstein May 10, 2019

A change of pace: Speeding the pace of change in retail banking

I recently attended two banking conferences and was struck by how much has changed—yet how much has not and needs to. 

Strolling the exhibit hall, I kept thinking, “Where are the hardware vendors?” In the past, these conferences were dominated with companies selling “stuff”: machinery, equipment, ATMs.  I counted only one vendor demonstrating cash recyclers. Everyone else provided data analytics or software to enable simpler, easier customer experience. Some of it was quite innovative and surprisingly affordable, with solutions to support deep insights into customer behavior or enable better integration between branches, call centers and on-line experience.

It’s not news that the fundamental way consumers and small businesses interact with their financial institution has changed. Branches no longer dominate; digital is the future. All common knowledge.

But bank leaders often wrestle with how to react. They wonder, “What does this mean for my organization? And how aggressively should we move forward to change our business model?” For almost all community and mid-size banks the answer is clear: Move faster.

Three Fears: of being wrong,  failure—and success

The pace of change is so fast that we often fear just being wrong and make poor choices. Change surrounds us, not just in our industry but also with retail behaviors in general, politics and social mores. In the past we had more time to adapt. New technology didn’t just seem to come out of nowhere and take flight overnight.                                     

Industry prognosticators often fuel this fear. How many times have we heard that Amazon will take over banking, that AI will make our jobs obsolete, that no one will use branches in the future. Maybe in a galaxy far, far way but certainly not in the near term.  Even if you see these as imminent threats, it still returns to what to do and how fast to do it.

But this doesn’t mean key trends are un-knowable. 

Branches will only continue to change from transaction locales to advice and counsel centers. We can also feel confident that smartphones represent the key interface going forward. It’s already there. Look around your family’s dinner table or the patrons next time you visit a restaurant. Half the people will have their heads buried in their phones. And remember the predictions that smartphones will essentially equal a supercomputer in your pocket?  We’re almost there. As AT&T, Verizon and Sprint implement 5G technology, activities that require a high-speed internet or cable connection today can be done on your phone tomorrow.

We already see fintechs disintermediating broken, cumbersome processes.  A recent Federal Reserve report documented the shift in small business loan applications over the past decade, from less than 1 percent to 33 percent in 2018. We’ve known for a long time that how we’ve always done it is inefficient and overly expensive. We didn’t need the fintech revolution to tell us that it was ripe for change.

Again, many banks leaders suffer from fear of failure—and that they’ll make the wrong decision. 

I often hear what’s best described as “Chase-envy”: the focus on large, deep-pocketed competitors that results in inaction or its close cousin, procrastination. But I believe those who wait too long risk losing control of their destiny.

You can never make expensive, strategic investments the way Chase, Bank of America and other mega-banks do.  But if you think about their investments as a percent of assets, they’re often small bets. You should think the same way.

An equivalent investment for your bank might be $100,000 or even $10,000.  The important thing is to move forward with experimentation.  If you don’t learn how to work social media, leverage deep data insights, test different ways of running your branches, and deliver relevant value propositions for millennials, customers will leave you behind.

And if you wait for certainty in the ROI of a good idea to become certain, or trends to become clear, then you’re failing to experiment and master critical tools to survive in the future.

Finally, fear of success stems from a possibly unstated question: “If we succeed, does that mean our business model will change?” 

The fact is you must change because your customers are changing. You can implement it gradually and manage the transition, or wait and run the very real risk of forfeiting your future.

Establish your north star

Truly, one size never fits all. Different financial institutions sit at different stages in their capabilities and needs. One may benefit more in the near term from changing branch experience, while another may lag in digital capabilities or data analytics.

So establish your north star, a clear goal: where your organization needs to be in five years, for example, to meet emerging competitive challenges and more importantly, deliver what customers want. Only then can you back into an operational plan that ensures success.

Or if you prefer, mull over this metaphor. If you lack a clear destination, you’ll end up in frostbitten Chicago when you hoped to land on the beach in balmy San Diego.

So start. Set a vision to thrive. Ditch the tired platitudes about delivering shareholder value or building strategy through buying smaller, less resourceful institutions.

The truth is that shareholder value wilts without successful organic growth. The pace of change is accelerating. You must deal aggressively with the known challenges, or watch your success and independence vanish.

And start now. Profits remain strong—perhaps as strong as they’ll be. If you can’t afford to make research and development investments in good times, then when is the right time?


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David Kerstein is President of Austin, TX based Peak Performance Consulting Group, which specializes in community and regional bank growth. He can be reached at dkerstein@ppcgroup.com

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