I’m sure it is really simple for those not invested in the future of banking to write that CEOs, their boards and executive teams should cut branches and full-time employees to make their banks more efficient. But I’m of the belief that you can’t save your way to long-term profitability and viability — and not everyone can be like Capital One and reinvent their business model from digital to analog on the fly.
Last October, Richard Fairbank, the Chairman and CEO of Capital One, expressed the following opinion on an earnings call: “Ultimately, the winners in banking will have the capabilities of a world-class software company. Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company. To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.” Now, I am a big believer that many banks have immediate opportunities to expand what banking means to individual and business customers. Heck, I wrote as much to open a special supplement to Bank Director magazine that highlights a number of interesting technologies that have re-shaped the fortunes of banks across the U.S. As you can see in the graphic above (produced for and by our team), the intersection of financial services with technology tools is immense.
Nonetheless, the interaction, communication, coordination and decision-making in regulated banks is vastly different than those of an up-and-coming technology company. No matter how much both sides want to work with the other (to gain access to a wider customer footprint, to incorporate emerging technologies, etc.), the barriers to both entry and innovation are high.
Keep in mind that there has been an enormous shift in asset concentration and customer loyalty during the past two decades. Today, the ten biggest banks in the U.S. now have more assets than all of the other institutions combined. Concurrently, major consumer brands such as Apple and Google have emerged as significant non-bank competitors while “upstarts” like LendingClub and OnDeck jockey to provide loans to traditional bank customers.
So to stay both relevant and competitive, I believe a bank’s leadership team needs to develop a culture of disciplined growth that encourages creativity and yes, risk taking. For a leadership team, this requires a combination of knowledge, skill and courage — all things we designed our annual Bank Board Growth & Innovation Conference at the Ritz-Carlton New Orleans to provide (*fwiw, this is a complement to our annual M&A conference — Acquire or Be Acquired).
In the coming days, I’ll be looking at how the processes of interaction, communication, coordination and decision-making in a regulated bank are vastly different than those of a tech firm. Cleary, the fight for relevancy is on in the banking space… and to see what’s being written and said, I invite you to follow @bankdirector, @aldominick + #BDGrow15.
About That Ratio 