Category: Branch Strategy

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A Build vs Buy Banking Story

For the first time in a while, I get the sense that members of the boards at financial institutions across the country are not just ready, but also eager, to embrace various strategies that leverage emerging technologies.  Accordingly, what follows are three things I’m thinking about as the week wraps up that have a distinctly tech spin to them.

pyramid-on-the-us-one-dollar-bill

Bringing IT In-House

Kudos to Scott Mills — President of The William Mills Agency — for sharing this American Banker profile of FirstBank, a $13 billion Denver institution.  With more than 115 locations in Colorado, Arizona and California, the bank is unusual in that it develops its own core banking software — made possible by an in-house IT team of 250+, or 12% of the bank’s 2,100 workers.  According to the piece, having a “homegrown core and in-house expertise enables the bank to be nimble and make changes quickly.”  Obviously, banks continue to use technology to generate efficiencies.  In fact, I’m seeing some community banks come up with creative solutions to meet their needs.  Case-in-point, this recent Bank Board & Executive Survey — conducted by Bank Director and sponsored by consulting firm Grant Thornton LLP — shows 84% of bankers surveyed plan investments in new technologies to make their institutions more efficient.  Still, FirstBank’s efforts to build instead of buying from outside vendors trumps any other bank’s effort that I’ve come across this year.  Oh yeah, their blog is pretty darn good too.

Finding the Right Partner(s)

For those more comfortable collaborating with firms who specialize in developing IT solutions, let me pass along an observation from my time with CEOs in San Francisco and Chicago.  Over the last month or so, I’ve talked with at least 13 CEOs about how they plan to stay — or potentially become — relevant in the markets they serve.  I’m not that surprised to hear that many want to get rid of branches — but do wonder as they turn to technology to fill in the gap if they have the right people in leadership positions.  Many smaller banks are focused on C&I lending and serving their business communities, so I don’t wonder about their branching focus, but do wonder about their hiring practices.  Certainly, it will become even more imperative to understand the various technology opportunities — and risks — what with so many “non-technical” executives and board members setting paths forward.

Square Peg, Round Hole?

Finally, I have something of a payments-focused writing streak going on this site, and I’m keeping it going thanks to this WSJ report vis-a-vis Square, the payments startup with a square credit-card reader.  As I found out, the company is eliminating a monthly flat-fee option for smaller businesses in favor of its usual “per swipe” fee.  The change is “prompting concern among some of Square’s more than four million customers, which include small businesses that were attracted to Square because it offered a cheaper alternative to traditional credit-card processors, which charge swipe fees of 1.5% to 3%.”  I wonder if this is opportunity knocking for community banks?  Certainly other point-of-sale vendors have seen it that way.

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To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick.  Aloha Friday!

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A grown up swinging town

San Francisco, CA

I spent the last few days in San Francisco meeting with various companies (think BlackRock, Fortress, Raymond James, Pillsbury, Manatt Phelps, etc.).  Those conversations caught me up on various trends impacting banks on our west coast. As I do each Friday, what follows are three things I heard, read and learned this week — with a big nod towards the bear republic.  Oh yes, thanks to old blue eyes for inspiring today’s title.  Sinatra certainly knew what he was talking about when it came to the bay area.

(1) Every bank has a story, and the old Farmers National Gold Bank (aka the Bank of the West) certainly has a rich one.  Begun in 1874, it was one of just ten banks nationwide authorized to issue paper currency backed by gold reserves.  Long a favorite of mine thanks to an academic / St Louis connection with their CEO, I had the opportunity to sit down with one of their board members on Tuesday and hear more about the $60Bn+ subsidiary of BNP Paribas.  As I reflect on that conversation, it strikes me that the bank’s growth reflects smart credit underwriting, a diversified loan portfolio and careful risk management. Yes, there have been strategic acquisitions (for example, United California Bank in ‘02, Community First Bank in Fargo in ’04 and Commercial Federal Bank in Omaha in ’05); however, their growth has been more organic of late — fitting for a “community bank” that has grown to more than 700 branch banking and commercial office locations in 19 Western and Midwestern states.  While their geographic footprint continues to grow, take a look at their social media presence. In my opinion, it’s one of the best in the banking space.

(2) From Bank of the West to US Bancorp, First Republic to BofA, bank branches dominate the streets of San Francisco.  As competition for business intensifies, I thought back to an article written by Robin Sidel (Regulatory Move Inhibits Bank Deals) that ran in last week’s Wall Street Journal.  I’m a big fan of her writing, and found myself re-reading her piece on a move by regulators “that put the biggest bank merger of 2012 on ice (and) is sending a chill through midsize financial institutions.”  Her story focuses on M&T, the nation’s 16th-largest bank (and like Bank of the West, operates more than 700 branches) and its $3.8 billion purchase of Hudson City Bancorp.  According to Robin, the deal that was announced last August is on hold after the Federal Reserve raised concerns about M&T’s anti-money-laundering program.  The fallout? Since the Fed’s decision, CEOs of other regional banks “have shelved internal discussions about potential transactions.”  For those interested in bank M&A, this article comes highly recommended.

(3) So if certain deals aren’t going to be considered (let alone closed), it naturally begs the question about how how and where banks can add new customers and increase “share of wallet” to improve profitability.  I brought this up in a conversation with Microsoft on Wednesday and found myself nodding in agreement that financial institutions should “audit their customer knowledge capabilities” to provide an optimal experience.  “Customer centricity” is a big focus for the tech giant, and it is interesting to consider how things like marketing, credit management and compliance might benefit from a well-designed strategy for managing customer knowledge.  I know some smaller banks are doing this (Avenue Bank in Nashville comes to mind) and I’m curious to hear how others might be taking advantage of tools and techniques to out-smart the BofA’s of the world.  If you know of some interesting stories, please feel free to weigh in below.

Aloha Friday!

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Financially Focused on Aloha Friday

From Kona, a reminder about Aloha Fridays...
Hula dancers in Kona

Each Friday morning, I do my best to share three things I heard, watched, discussed or read.  If you’re game to share in the comment section below, I’d be really interested to read what you consider noteworthy from the week-that-was.  And before I forget, the tradition continues: Aloha Friday!

(1) Who says there’s no growth in banking? Certainly not our editor, Jack Milligan, although the lead in to his cover story in the current issue of Bank Director magazine might suggest otherwise:

If you’re not growing, you’re dying. It’s an often-used aphorism that has been attributed to such disparate sources as former college football coach Lou Holtz, the legendary Bob Dylan and a character played by the actor Morgan Freeman in “The Shawshank Redemption.” Unfortunately, it’s also a painful truth that a lot of bankers are living with nowadays as they search for growth in an environment that seems specifically designed to strangle it.

If you’re not familiar with Bank Director, the 23-year old publication reaches over 24,000 officers and directors — a community of virtually every leader in banking.  Published on a quarterly basis, the articles focus on issues fundamental to a bank’s CEO, senior leadership team, chairman and independent directors.  Think big, risky and expensive.  For the last three years, many in this audience struggled to grow their bank’s revenue and sustain a level of profitability.  However, not all are struggling to produce top line growth.  Take a read if you’re interested to learn how some banks today are building their businesses.

(2) Bank Director magazineWhile Jack’s cover article looks at four categories of non-M&A growth*, I’m afraid that our low growth economy looks like it will persist for a while longer.  Not surprisingly, some wonder if its possible to develop a sustainable, differentiable business strategy that has strong organic growth.  This is will be just one of many topics and trends addressed in New Orleans next week during our inaugural Growth Conference at the Ritz-Carlton.  I’ll be sharing my thoughts on the strategies and tactics banks might consider to expand their franchises’ value via twitter (@aldominick) — and know most of our team will as well. If you’re interested, let me suggest a follow of @BankDirectorAP, @BankDirectorEd, @NaomiSnyder and of course, @bankdirector.

(3) While tempted to complete the hat trick with a final point from Bank Director, I defer to Fiserv’s President and CEO Jeff Yabuki remarks as he opened their client conference last week.  In his kickoff, he asked their attendees to “re-imagine the financial experience of the future.”  While the short video is unfortunately more sales speak than suggestion, the firm does post several good related reads.  In particular, one entitled To Better Serve Small Business, Define Their Needs.  The gist?  With “profitability from retail lines of businesses under pressure, many institutions are reviewing their strategies for addressing the small business market. For regional and community institutions, which often serve communities where small businesses play an outsized role in economic development, effectively reaching small business is an imperative.”  Being that I work in a small business that interacts with numerous community banks, two thumbs up to the author and company for this perspective.

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*The four categories in Bank Director’s inaugural Growth Leaders Ranking are core income (defined as net-interest income plus non-interest income, excluding available-for-sale gains and losses and other-real-estate-owned gains and losses), core deposits, net loans and leases and core non-interest income. Of the four categories, the most important is core income since it is inclusive of the other three revenue sources.

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Snowquester’d

The White House on 12/18/09
My attempts at photography: the White House on 12/18/09…

Summary: Yes, it’s snowing in the DMV… no, this picture of the White House doesn’t capture today’s totals just yet.  Nonetheless, the run on gas, food and firewood started early yesterday.  So what better time to post something new to About That Ratio than with the snow coming down and the power and wi-fi still on?

I’ve already touched on “Rebooting the Bank;” with today’s piece, I’m taking a look at “rebooting the branch.”  Whereas Brett King inspired my previous entry, credit for today’s falls to PwC.

Recently, I’ve had the chance to talk with several of the firm’s partners about the rise of the digitally driven consumer and commensurate high-cost infrastructure of physical banking locations.  I believe we’re in agreement that if the branch model stays on its current course, it will become a financial burden to banks; ultimately, cutting deep into cross-channel profitability.  So today, I thought to share some information produced by PwC that looks at reinventing branch banking in a multi-channel, global environment.

Yes, the branch of the future has a critical place in banks’ overall channel strategy.  However, in its December “FS Viewpoint,” the professional services firm cites the cost of a branch transaction being approximately 20x higher than a mobile transaction… and more than 40x higher than an online one.  Consequently, banks are beginning to adopt a mix of the following five branch models in order to compete and improve their ROI:

  1. Assisted self-service branches that cater to retail and small-business customers on the go with high-function kiosks;
  2. In-store and corporate branches; for example, in grocery stores and corporate office buildings;
  3. Full-service branches that provide one-stop banking (sales and service) to retail and small-business customers who prefer privacy and face-to-face interactions;
  4. Community centers that have a smaller footprint than traditional branches; and
  5. Flagship stores that deliver sales and advisory expertise while showcasing emerging capabilities to sophisticated customers.

The logic behind a mixed approach?  It increases the bank’s geographic relevance to consumers and balances customer needs, revenue opportunities and cost to achieve growth.

Anecdotally, I’ve recently talked with two CEOs, Ray Davis from Umpqua and Stephen Steinour from Huntington, about their branching strategies in advance of keynote speeches they’ve made at our Acquire or Be Acquired and Lending conferences.  It strikes me that when banks like theirs assess a prospective branching opportunity, they deliberate on things like:

  • How do you develop specific financial criteria for measuring branch performance;
  • How do you decide whether the best path to building customers is adding branches, or operating with a more centralized marketing strategy; and
  • What are the advantages — and potential pitfalls — of growing a branch network.

So as the snow continues to fall outside, I’m digging deeper into PwC’s perspectives.  As a “bonus” to the white paper referenced about, let me also share a video from the firm “Look Before You Leap: Analyze Customer and Business Impact Carefully Before Implementing Product Change.”  While the title is a mouthful, the message, pretty succinct.

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