What will 2019 bring? We’re moving into the longest economic recovery on record and it looks like there’s plenty of room to run. Elevated confidence and a tight labor market will continue to power consumer demand and we expect at most a gradual growth slowdown.
But some things stand out as different. The tax cut impact will diminish, meaning we must focus more on making money “the old fashioned way”: organically. And higher interest rates will certainly lead to further slowdowns in mortgage demand as well as overall consumer lending—which could create some margin compression.
What does it all mean to your financial institution? What should your strategic plan include for 2019? Here are our top five insights.
1. Fix your distribution strategy
The total number of U.S. bank offices continues to drop as financial institutions prune their networks, primarily through mergers and resultant office consolidation. But the picture looks very different depending on whether we look at community banks or larger banks—and rural or metro areas.
The simple fact is this: Almost all reduction in bank offices occurred in metropolitan counties and among larger banks. By contrast, community banks generally opened more branches than they closed, even adjusted for mergers.
As the larger institutions have discovered, you need to seek out growth markets and have enough branches to create convenience. That allows you to operate with fewer total physical locations.
Consumers and businesses still value the convenience of physical location, whether a traditional standalone bank branch or a Capital One Café. But not everyone can muster enough distribution to create the needed leverage to garner their fair share or more (that is, a deposit share equal to or greater than their branch share).
How will you refine your physical and digital distribution strategy to win share from the larger players in your market? That requires an integrated approach to market analytics, sales and marketing strategy.
2. Become a data nerd
Speaking of analytics: A new year heralds a new world where success depends more and more on understanding behavior versus intuition and local market knowledge. Not to diminish the value of local experience, but big data plays (and must play) an increasing role in our success.
Learn to be a data nerd or hire some—and use the tools available to understand behavior patterns. Interest rates are rising; deposit competition is becoming more intense. Do you possess the analytics and models to identify which customers and prospects are more transactional (rate sensitive) or more relationship-oriented (less rate sensitive)? Have you developed one-to-one marketing to attract each group, or do you just respond to competitor rates?
As interest rates rise and housing affordability drops, do you have models to find specific customer groups you can most likely serve? Or will you simply ride a shrinking market down?
Finally: Have you automated the models and processes to provide the simplicity and efficiency to ensure effective sales and marketing execution?
3. Learn to use robotics and AI
That brings us to robotics (RPA or robotic process automation) and AI (artificial intelligence). Tools to automate processes have become cheaper and easier to implement and lie within the grasp of even community banks.
This marks a huge stride. When we wrote our 2018 predictions, RPA and AI weren’t even on the list—that was “Big Bank Stuff.” We now stand at the point where we believe this belongs on the list for every bank (except the very smallest).
Here’s why: First, RPA and AI can easily automate routine tasks whether that includes loan processing, data fill in multiple systems or BSA (Bank Secrecy Act) compliance. Second, it’s become very cheap and easy to do. Finally, it frees up back office and IT costs so you can invest more resources to help front-line staff improve sales and service.
4. Partner with fintechs
OK, so how to get it done? The easy answer is to partner with fintechs. They’re better at using these tools—and all about simplifying processes. They can do the heavy lifting for you.
That noted, you need a strategy. It’s not about the “shiny new object,” the latest hot idea, but focusing on the right business priorities and picking the right partners, not just vendors.
What should your strategy involve? Automate the teller line with interactive teller machines (ITMs)? Automate small business loan decisions to deliver five-minute credit decisions (and thus leverage the power of all your branches to take business loans)? Partner with roboadvisors so you can offer investment products to everyone and not just refer high-net worth households to third-party broker-dealers?
Pick the strategy first, then the right partners. And keep this in mind: Your moves should serve your front-line staff and give them the right tools that build deep, lasting customer relationships
5. Invest in front-line tools
And so follows this final point: Again, make a conscious investment in your front-line staff. Give them the tools they need to be successful.
In some ways this seems obvious. We can run branches now with as few as 3.5 to 4 full-time employees if we use universal bankers. It’s a tight labor market so keeping trained staff can prove problematic. Aside from these internal considerations, customers expect us to actually fulfill our promise of advice as branches transition from transaction points to advice centers.
BAI Banking Outlook findings back this up: Among their top five priorities, customers named “transforming branches for better in-person experience with experts to help achieve financial goals.” That’s true even though we have fewer front-line staff who can possibly offer all the expertise needed.
Now here’s the good news. Effective tools exist to help you deliver on the promise. These range from more intuitive customer journey mapping (which defines the customer interaction); to automated front-line coaching and dynamic skill measurement; to simplified “ask the expert” protocols.
The winds of fortune, 2019: heads or tails?
Where will you find yourself at the end of 2019? Use these five overarching strategies as your guide and you’ll not only reap near-term success but also prepare to outmaneuver your competition, especially when the economic headwinds shift. That’s a factor we cannot control. Here’s to this tailwind proposition, then: Conquer the ones you can.
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David Kerstein is president of Austin, Texas-based Peak Performance Consulting Group, which specializes in community and retail banking strategies. He can be reached at firstname.lastname@example.org.