Quick Guide: 2015 Growth Strategy Survey (Bank-specific)

Recently, Business Insider and the Wall Street Journal picked up Bank Director’s 2015 Growth Strategy Survey.  The research project reveals how many financial institutions continue to recognize growth in traditional areas — most notably, loans to businesses and commercial real estate — while struggling to attract a decidedly untraditional digital generation.  So in case you missed it, today’s piece highlights key findings from this annual research project. 

By Al Dominick // @aldominick

Over the weekend, our friends at the Wall Street Journal ran a very telling story about the efforts being made by the San Francisco 49ers to better engage with their millennial employee base.  Clearly, the NFL franchise’s challenge to “relate to a generation — generally described as 18-to-34-year-olds — that has been raised on smartphones and instant information” parallels that of most banks in the U.S.  In addition to being a fascinating behind-the-scenes look at what’s happening out in Santa Clara, it also sparked today’s post.

You see, as a 38-year old who runs a great privately-held company that employs quite a few folks under the age of 30, I have to admit that I am tiring of the broad strokes being used to describe millennials’ needs and ambitions.  However, I will admit to being surprised to learn that there are approximately 75 million people in the U.S. under the age of 34.  This is a huge number, especially when you hear that every day, for the next 15 years, 10,000 people will turn 65 (h/t to the CEO of Boston’s Chamber of Commerce for making me aware of this reality).

Surprisingly, 60% of the executives and board members that responded to Bank Director’s 2015 Growth Strategy Survey say their bank might not have the right products, services and delivery methods to serve the vast majority of this demographic.  While I haven’t run this by our very talented Director of Research (*hello Emily McCormick), to me, this shows that the relationships that community bankers nurtured for decades will be increasingly of less value with this emergingly-influential generation who have grown up in a digital world and who, stereotypically, value the speed with which it operates.

As the Wall Street Journal shared when reporting on our research results, “banks have watched less regulated finance companies ranging from mortgage lenders to private-equity firms encroach on many of their main businesses.  But ask an executive or board member at a bank what nonbank company they most fear, and they’re likely to name the world’s biggest technology company, Apple Inc.”  So what were our key findings?  Glad you asked…

Three key findings (click this title link to access the full report):

  1. Apple is the nonbank competitor respondents worry about most, at 40%  — just 18% of respondents indicate their bank offers Apple Pay.
  2. Bank mobile apps may not keep pace with nonbank competitors. Features such as peer-to-peer payments, indicated by 28% of respondents, or merchant discounts and deals, 9%, are less commonly offered within a traditional bank’s mobile channel. 49% of respondents indicate their bank offers personal financial management tools.
  3. Despite the rise of P2P lenders like Lending Club and Prosper in the consumer lending space, just 35% of respondents express concern that these startup companies will syphon loans from traditional banks.

Instead of millennials, banks have been finding most of their growth in loans to businesses and commercial real estate.  Yes, 75% of respondents want to understand how technology can make their bank more efficient… and 72% want to know how technology can improve the customer experience.  But I find it telling that today, loan growth remains the primary driver of profitability for the majority of responding banks.  In fact, 85% of respondents see opportunities to grow through commercial real estate loans.  As we found, executives and board members also expect to grow through commercial & industrial (C&I) lending, for 56%, and residential mortgages, at 45%.  So for those looking to predict the future of banking, I think findings like these are quite telling.  Indeed, it would appear what’s worked in the past may be what to bet on for the future.

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The 2015 Growth Strategy Survey, sponsored by technology firm CDW, reveals how bankers perceive the opportunities and challenges in today’s marketplace, and technology’s role in strategic growth. The survey was completed by 168 chief executive officers, independent directors and senior executives of U.S. banks with more than $250 million in assets in May, June and July of this year.  Ironically, last year’s survey found that credit unions, not Apple, were the “non-bank” competitor that banks were most worried about.  In fact, can you believe that Apple didn’t even make the cut?  My, how quickly times can change.

15 Banks and Fintechs Doing it Right

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Many bank CEOs and their executive teams are looking for emerging methods, products and services to reach new customer segments to drive growth. Today, I identify fifteen banks in the United States, all under $20Bn in asset size, that are growing with the help of fintech companies.

By Al Dominick // @aldominick

With the rise of many innovative, non-traditional financial services companies, leaders of financial institutions can find themselves overwhelmed when it comes to selecting the right partners.  If you are running a bank that doesn’t have multiple incubators, accelerators and skunk work projects already under way, knowing where to participate with the fintech community can prove quite the challenge.  Should it be with an upstart touting a new credit decisioning models?  What about one with a new lending model?  In the quest to become more “nimble” and responsive to consumer demands, do you partner? Refer business? Accept referrals?  The list of not-so-rhretorical questions goes on and on…

Now, quite a bit of digital ink has been spilled over the creativity and aspirations of the fintech community (and its many investors) to transform banking.  But not nearly as much for banks looking to do the same.  While the efforts of major players like Wells Fargo and Capital One garner well-deserved attention, it is my belief that for fintech companies keen to collaborate (and not compete) with banks, developing relationships with banks from $1Bn to $10Bn — there are approximately 550 — and those from $10Bn to $50Bn — there are approximately 75 — may prove as lucrative over the next few years as working with the 30 banks that have assets from $50Bn up.

With this parameter in mind, I polled a few of my team at Bank Director to compile a list of banks, all under $20Bn in asset size, that “play well” with fintechs to show that you don’t have to be the biggest of the big to benefit from this wave of new market participants.  Here, in no particular order, are fifteen banks with notable relationships and/or efforts.

  1. Eastern Bank checks in at $9.7B in asset size, and the Massachusetts-based bank stands out for bringing on some great fintech talent; notably, hiring ex-Perkstreet CEO Dan O’Malley and several of his colleagues to lead its innovation unit;
  2. California’s Fremont Bank ($2.7B) caught our eye, as the bank was a fast adopter of Apple Pay;
  3. River City Bank ($1.3B, Sacramento) has a fintech guy — Ryan Gilbert, Better Finance — on their board;
  4. The Bancorp ($4.5B) backs a lot of fintech/nonbank firms like Moven and Simple;
  5. Radius Bank (just under $1Bn) is a Boston institution with just two physical locations — but is forming alliances with fintech startups to be “everywhere;”
  6. Union Bank & Trust in Nebraska works with Betterment, an automated investing service, to offer its customers a smart, simple and easy way to invest;
  7. A real pioneer, CBW Bank ($14.5B) is a community bank in Kansas and one of the first U.S. banks to use the Ripple protocol for modern, real-time payments between the U.S. and other countries globally;
  8. In the Pacific Northwest, Washington Trust ($4B) is vocal on being tech-friendly;
  9. In Texas, First Financial ($6B) is big on mobile and being innovative — working with Mitek, they are the first regional bank to offer mobile photo bill pay);
  10. Banc of California ($6B) uses nCino to automate and standardize its commercial and SBA lending;
  11. PacWest ($16B) are all about lending to technology and fintech companies;
  12. The Bank of the Internet, BofI, is a full-service internet bank with $5 billion in assets;
  13. Everbank ($16B) plays well with Fintech while adorning the stadium of the NFL’s Jacksonville Jaguars;
  14. Rockland Trust has a SVP of digital and payments innovation, which is unusual for a $5.6 billion dollar bank; and
  15. The $17 billion-asset First National Bank of Omaha hosts a weekend-long hackathon, a competition common in the tech world but rarely hosted by banks, to attract talent into its ranks.

By no means is this a complete list of community banks collaborating with fintechs in the U.S.  If I was to expand the list up in size, you can bet larger regional standouts like KeyBank would merit recognition for their work with companies like HelloWallet.  In the spirit of learning/sharing, who else should be added to this list?  Let me know via twitter or by leaving a comment below.