Sharing a few bank-inspired observations from Asheville, North Carolina on a glorious Saturday evening.
Reduce and Redirect
Push, Push… Push, Push
Last October, I journeyed to Austin, Texas, to watch my first Formula One race. Like many, Netflix’s wildly popular Formula 1: Drive to Survive drew me in. That series dramatically increased the popularity of the sport in the United States, with plenty of drama on track — and off.
Inevitably, the show takes viewers inside a showdown between two cars jostling for points, separated by mere milliseconds.
While being out front has its advantages, so too does drafting your competition. Personally, I love watching/hearing a team’s crew nonchalantly imploring its driver to “push, push… push, push” over the radio. This call to click the push-to-pass mechanism on a race car —which provides a temporary jolt of speed — typically results in the hunter becoming the hunted.
So yes, speed, competition and risk-taking is on my mind as we prepare to host Bank Director’s Experience FinXTech event May 5 and 6 in the same city as the Circuit of The Americas (aka COTA).
Much like Formula One brings some of the most ambitious and creative teams together for a race, Experience FinXTech attracts some of the most inspiring minds from the deeply competitive financial services space.
Now in its seventh year, the event connects a hugely influential audience of U.S. bank leaders with technology partners at the forefront of growth and innovation. Today, as banks continue to transition towards virtual or digital strategies, fintechs become partners rather than just competitors in the race to succeed.
We’ll look not only at fintechs offering efficiencies for banks, but at fintechs offering growth and improved performance as well. As fintech guru Chris Skinner recently noted, “If you only look at technology as a cost reduction process, you never get the market opportunities. If you look at technology as a market opportunity, you get the cost savings naturally as a by-product.”
We’ll consider investor appetites, debate the pros and cons of decentralized finance and share experiences in peer exchanges.
Throughout, we’ll help participants gauge technology companies at a time when new competitors continue to target financial services.
Most Formula One races are won on the margins, with dedicated teams working tirelessly to improve performance. So too are the banks that excel — many of them with dedicated teams working with exceptional partners.
*I am delighted to return to Texas and see so many of my former friends and colleagues at Bank Director. Heck, I’ll tease Naomi Snyder (the editor-in-chief), that I found a way to use my original title for this piece I authored for BankDirector.com.
In addition, I’ll be on stage, rep’ing the team as a member of the company’s board of directors (and as a minority owner), perhaps in boots, maybe without a tie… Saying hello to so many friends from across the industry — like the team at Nymbus who graciously hosted me and some incredibly awesome folks in our industry last October at F1’s COTA race… and yes, flying the skull & crossbones for the team at Cornerstone Advisors.
This is an awesome annual event, and one worth following on social media if you’re unable to join in person. Check out @Fin_X_Tech on Twitter to keep tabs on the provocative conversations that inevitable take place.
Creating Options
Earlier this week, I welcomed officers and directors from across the United States to Nashville, TN. From a stage (and not a Zoom), I asked them:
What are your options as we head into the Fall? No, not your personal ability to buy or sell an asset or security. Rather, the options you, as a leaders of your bank, see for the institution you are a part of today?
Strategically speaking, this is a fundamental issue for those in a leadership position to address.
Sure, there are topics that will dominate boardroom discussions — such as diversifying earnings streams and differentiating the bank’s reputation relative to others.
But let me ask you: who are your competitors? By extension, who are the peer groups that you should be basing your performance against? Once answering these, what options do you know are available, right now, that can put space between your bank and their business? Further, what options do you need to create in order to stay both relevant, and competitive in the months ahead?
Creating “optionality” is a concept that continues to rattle around in my mind. Indeed, it ties into the concept of franchise value and is one that members of a bank’s board need to prioritize. It opens conversations around delivery methods and channels, business relationships and partnerships — and yes, growth opportunities (be it organic or through acquisition).
As we talked about in Nashville, banks are under enormous pressure to prepare for an unknown future. Ahead of this year’s exclusive in-person event, I came up with three basic questions I find timely and relevant. Take a read and let me know if you agree.
Here’s To The Optimists
Fad diets, self-care recommendations and admonishments to “turn the page.”
We all know what’s coming up in our news feeds. But before we give into these New Year’s cliches, let’s take a minute to appreciate how so many were able to pivot in such unexpected ways.
Knowing that one can successfully change should serve many well in this new year.
While resilience — and perseverance — took center stage in 2020, I find culture, technology and growth showed up in new ways as well.
CULTURE, REVEALED
During the darkest of economic times, I was amazed by examples of creativity, commitment and collaboration to roll out the Small Business Administration’s Paycheck Protection Program. When social issues exploded, proud to see industry leaders stand tall against racism, prejudice, discrimination and bigotry. With work-from-home pressures challenging the concepts of teamwork and camaraderie, delighted by how banks embraced new and novel ways to communicate.
TECHNOLOGY, FIRST
Seeing business leaders share their intelligence and experiences to help build others’ confidence stands out. So, too, does how few shied away from technology, which clearly accelerated the transformation of the financial sector. The rush to digital this spring forced banking leaders to assess their capabilities — and embrace new tools and strategies to “do something more.” As the financial sectors’ technology integration continues, this mindset of finding answers — rather than merely identifying barriers — should benefit quite a few.
GROWTH, POSSIBLE
Many banks considered JPMorgan Chase & Co, Bank of America Corp. and Citigroup as their biggest challenges and competitors entering 2020. Now, I’d wager Venmo, Square and Chime command as much attention. However, competition typically brings out the best in executives; with mergers and acquisitions activity poised to resume and new fintech relationships taking root, growing one’s bank is still possible.
##
So here’s to the optimists. Leaders are defined by their actions, and many deserve to take a well-earned bow for making their colleagues’ and clients’ lives better. While we leave a year marked by incredible unemployment, economic uncertainties and political scars, I’ve found a negative mindset never leads to a happy life. Rather than lament all that went sideways this year, I choose to commemorate the unexpected positives. As I do, I extend my best to you and yours.
With appreciation,
Al
*This reflection also appears in Bank Director’s newsletter, The Slant. A new addition to our editorial suite of products in 2020, I invite you to sign up for this free Saturday newsletter here.
Daily Briefing: Sunday at Acquire or Be Acquired
PHOENIX — When Bank Director first introduced our Acquire or Be Acquired Conference 25 years ago, some 15,000 banks operated in the United States. While that number has shrunk considerably — there are 5,120 banks today — the inverse holds true for the importance of this annual event. What follows are two short videos from our first day in the desert that surface a few key ideas shared with our 1,300+ attendees.
Three Interesting Stats:
- Of the 5,120 banks in the U.S., 4,631 are under $1Bn in asset size and 489 are over that amount.
- Two years ago, we talked about the sweet spot of banking being banks between $5B and $10B in asset size; now, its those with assets of $50B+.
- Digital channels drive 35% of primary banking relationship moves, while branches drive only 26%.
_ _ _
10 Questions I Plan To Ask During Acquire Or Be Acquired
Quickly:
- Despite improving economic conditions, the business of banking remains difficult.
By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.
PHOENIX, AZ — For all the talk of bank consolidation, there are still 5,700+ banks in the United States. But let’s not kid ourselves. For many community banks today, earnings pressures + regulatory and compliance costs + the continued impact of technology = a recurring challenge.
While the number of banks in business will inevitably shrink over the next 10 years — perhaps being cut in half — I remain bullish on the overall future of this industry. If December’s tax reform spurs capital spending and job creation by small- and medium-sized businesses, many of the banks joining us here in Arizona stand to benefit. But will the recent tax cut induce companies to invest more than they already planned to? This is but one of a number of questions I look forward to asking on stage through the first day of Bank Director’s Acquire or Be Acquired Conference.
Below, ten more questions I anticipate asking:
- Are FinTechs the industry’s new de novos?
- What does it mean that the banking world is deposit rich yet asset poor?
- Why are certain credit unions thinking about about buying banks?
- In terms of technology spending levels, where are dollars being earmarked and/or spent?
- With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
- What is an appropriate efficiency ratio for a bank today?
- Will big M&A buyers get back in the game this year?
- What are some of the critical items in due diligence that are under appreciated?
- What does an activist investor look for in a bank?
- Is voice recognition the next huge source of growth for banks?
We have an exciting — and full day — coming up at the Arizona Biltmore. To keep track of the conversations via Twitter, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech. In addition, to see all that is shared with (and by) our attendees, we’re using the conference hashtag #AOBA18.
Without A Destination, What Good Is A Map?
Highlight: as executives grapple with a fast-changing operating environment that requires partnerships and collaboration, many wrestle with where they want to be vs. where they need to be.
In this video, I share my thoughts on growing through partnerships (between traditional banks and financial technology firms), becoming “data richer” and enhancing the customer experience you’re delivering.
FWIW, this video lives on FinXTech.com, a site designed to provide authoritative, relevant and trusted content to a hugely influential audience, specifically:
- Fintech companies who view banks as potentially valuable channels or distribution partners;
- Banks looking to grow and/or innovate with fintech companies’ help and support; and
- Institutional investors, venture capitalists, state & federal regulators, government officials and academicians helping to shape the future of banking.
As a platform powered by Bank Director, FinXTech connects this hugely influential audience around shared areas of interest and innovation. FinXTech specializes in (1) bringing valuable bank relationships to fintechs, and (2) offering banks valuable relationships with fintechs in a way no one else does.
Banks Have to Grow to be Competitive
As I reflect on my time at Bank Director’s Growing the Bank conference, I can’t shake the fact that many banks across the United States continue to struggle to grow their deposits and/or expand asset bases. What follows is a piece authored by Tim Melvin, a gifted writer who joined us at the Four Seasons outside of Dallas. Tim specializes in value investing and has written numerous articles in various publications on the subject of value investing, the stock market and the world around us. With his permission, I’m sharing his perspectives on our event.
I just returned from the Bank Director 2016 Growing The Bank Conference in Dallas and I have to say it was one of the more interesting meetings I’ve attended this year. This conference covered everything from the 30,000 foot view of the rapidly changing banking industry to the nuts and bolts of day-to-day stuff and I came away with an even deeper appreciation of the industry and the opportunity.
The threats and potential posed by what are commonly known as Fintech companies was heavily featured during the two-day event. Nobody is quite sure if they’re friend or foe yet and there was a lot of wary circling like a road weary cowboy and an unsure Indian trying to decide to break bread together or lock hands on throats. Mobile and cybersecurity were also topics on everyone’s minds, as both are going to play an enormous role in deciding if a bank grows or withers away to obscurity.
Closer Look At Fintech
The Fintech discussion was perhaps one of the most interesting of the meeting. While banks may see some of the Fintech lenders like LendingClub (NYSE: LC), Sindeo and On Deck Capital (NYSE:ODNK) are seen as a real threat to traditional lenders, I think we will find that it’s not as big a threat as we might currently think.
The first time we have a credit hiccup or recession, these lenders will find out just how important to success a core deposit-based funding source can be. When markets dry up in the bad times, investors aren’t going to as easy a source of funds as they are in the current benign and yield starved markets. I think what’s far more likely to happen is the technology that allows for high-speed decision making, easier underwriting and razor focused marketing will end up being sold to the banks to improve their offering.
As Steven Hovde of the Hovde Group warned the crowd in Dallas, “Fintech and banks are going to end up marrying up. It’s the only way you are both going to survive. If you think you can do it on your own, you are sadly, sadly mistaken.”
Naomi Snyder, the editor at Bank Director, put a little differently when she wrote an article for the magazines website following the conference: “The tech companies have something many banks lack: innovative products and simple, customer-friendly digital solutions for a changing world. Meanwhile, the banks have some things many of the tech companies lack: actual customers and a more stable funding base.”
Although the fast-moving high tech kids of Fintech and the stuffy old bankers may at first appear to be as mismatched, as James Carville and Mary Matalin may need to find a partnership that has worked out as well as theirs has. They may not initially like each other but they need each other.
Mobile Banking
I think Dave Defazio of Strategycorps scared a lot of community bankers when he talked about the future of mobile banking in his session. He pointed out the tremendous lead that the bigger banks have in this space and the competition from apps like Apple Pay, Venmo and other apps that, to be honest, I’ve never even heard of before but are increasingly popular for managing finances and making payments among the millennial set. For folks who think the ATM and drive-up window are newfangled innovations the world of mobile banking is a bit frightening. What makes it even more frightening is that if you don’t compete well in the mobile space, you won’t retain the next generation of customer. They expect everything to be done on the fly and right now using mobile devices.
The millennial customer is just different. The use their mobile device to pay for their Starbucks (NASDAQ: SBUX), pay their share of the bar tab, watch movies, read books, pay bills and manage their finances. Apparently you can even use an app to collect your boarding pass, as I found out after running out of the bar after the first day to get to the business center and print out my boarding pass exactly 24 hours before takeoff. When I returned and expressed my disappointment at getting a B slotting on Southwest (NYSE: LUV) I was told that I should just get the app to avoid this in the future.
I didn’t even know there was an airplane app, but now I can count myself among the airplane app aristocracy thank to my slightly younger and far more tech savvy friends at Bank Director.
I caught up with Defazio on Tuesday morning and we chatted a bit more about the challenges and opportunities of mobile banking. He told me over coffee, “Banks are not just competing against other banks’ mobile apps, but instead against the very best apps on the planet, apps like Uber to Amazon (NASDAQ: AMZN) to Waze. Customer expectations are very high, and banks must make it their mission to have an app that people can’t live without. Community banks must do a better job of responding to changes in customer behaviors and expectations. The big banks have raced out to a big lead. The time is now for banks to go beyond transactions and do a better job of connecting with their customers’ mobile lifestyles. In particular, I’m seeing the big banks add mobile tools that assist people with their shopping tasks. They know that helping people save a dollar is just as good as helping them make a dollar of interest.”
I chatted with several bankers and the discussion of mobile frankly scares many of them. One banker said if this is the future of banking, then community banking is just dead. I think he overstated the case, but community banks are going to have to aggressively look for partners like Strategycorps to build and offer a much better mobile experience. Those that can’t, or don’t want to, should consider hanging out the for sale sign right away as they simply won’t be competitive in the future. They can probably get a better multiple in a deal now than in a few years when deposits are bleeding out to more mobile sensitive banks at a rapid rate.
Steven Hovde gave a talk on the search for efficiency in the industry. Hovde is an investment banker serving community banks, a majority owner of several smaller banks and is part owner of a real estate development company that borrows from banks so he sees all sides of the industry. He pointed out that the more efficient a bank is the higher then returns on assets and the higher valuation of the institutions stock. Both of these make for happier shareholders. He said the best way to gain efficiency in the banking industry today is to grow the size of the bank.
Right now, we have historically low net interest margins, growing regulatory costs and a huge need to spend money on technology, especially in mobile and cyber security. GDP growth is slow and there are no real signs that it will improve dramatically anytime soon. The loan markets are increasingly competitive and the regulators are focusing on the one area where community banks had an edge, commercial real estate. It really is a “grow or die” world and the majority of banks need to get to $1 billion in assets to quit operating in survival mode and the $5 billion level to thrive in the current economy.
The best way to grow remain via mergers and acquisitions. Hovde told us, “As the regulatory environment becomes increasingly difficult to maneuver for smaller banks, we expect deal activity for smaller institutions to continue as they search for greater efficiencies.” While this is not necessarily great news for bankers running smaller banks, it’s good news for me as bank stock investor and I continue to seek out and buy smaller publicly traded banks.
That’s A Wrap
The Growing the Bank Conference is more of a nuts and bolts, but I walked away with two overriding insights. First banks must look to partner with or even buy the innovative aggressive fintech companies. They cannot compete with them without disastrous consequences so they must partner with them. For their part, most of the fintech competitors need the banks and their large customer base and deposit funding. It may be a shotgun wedding in some cases, but nuptials will be needed for both to survive and thrive.
My second takeaway is that although it sounds like a slogan, “Grow or Die” is a real thing. To thrive in today’s difficult markets, banks need to grow to at least that $5 billion asset level. With the exception of a few niche small town and rural banks the $1 billion asset level is really needed just to be a viable competitor. The best way to grow in a slow growth economy is to buy smaller banks or engage in a merger of equals that increases returns for the ban, as well as shareholders. All of this is good news for us as small bank investors.
The Trade of the decade in community bank stock rolls on.
##
To read more of Tim’s work on Benzinga, click here and to follow Tim on Twitter, his handle is @timmelvin.
Early Takeaways from Bank Director’s Growing the Bank Conference
With continuous pressure on bankers to grow earnings, developing clear strategies, repeatable practices and incorporating exceptional user-experience technologies has to be high on almost every executives to-do list.
How do you bank?
By taking a pause before answering this question, you will appreciate how, regardless of age, we all expect greater pricing transparency, ease of use and always-on access to personal information as part of an integrated banking experience. The challenge for most bankers? What many consider state-of-the-art today — in terms of features and services — quickly becomes part of the norm that will be expected and insisted upon in the coming years.
At this morning’s Growing the Bank Conference, I jotted down a few thoughts that builds on this “how do you bank” query.
- When it comes to the classic build or buy technology decision, partnerships are now de rigueur — with 87% of our 240+ person audience indicating they see technology as presenting opportunities to banks (and not threats).
- Historically, banks organize themselves along a line of products; however, many have suggested re-orienting operations around customer needs and expectations.
- To retain deposits, banks should ramp up their customer relationship programs, increase cross-selling efforts and invest in product lines that attract stable deposits.
While we haven’t gotten deep into the payments space (yet), I do encourage bank executives to think about the dramatic growth in that area of banking — which continues to transform how efficiently banks connect with their customers. Likewise, I wasn’t kidding when I suggested attendees spend some time reading the OCC’s “Supporting Responsible Innovation” white paper.
Finally, a “did-you-know” that I meant to share from the stage during my conversation with Brian Read, Executive Vice President, Retail Banking, Umpqua Holdings Corp. and Umpqua Bank. According to the Federal Reserve, 85% of mobile banking users — a bank’s “most advanced” clients — still use branches from time to time. So as he shared with us, there really is a place for a physical presence in banking today.
##
*FWIW, we’re in Dallas at the Four Seasons Resort and Club Las Colinas in Dallas, Texas where the annual Byron Nelson golf tournament wrapped up yesterday evening. The picture above is of Jordan Spieth — the former number one player in the Official World Golf Ranking and two-time major winner — a gift to some of my team who were intent on getting a photo of him. As a former student of St. Marks, I will not hold it against him that he went to Jesuit, a rival high school.
A Bank’s Future Is _____
Today’s pop quiz
A bank’s future is:
(a) Bright
(b) Non-existent
(c) Technology-dependent
(d) Unclear
By deliberating before answering this question (and subsequently leaving a reply below), you will better understand how + why my team at Bank Director developed the agenda for our Growing the Bank Conference.
Next Monday and Tuesday, at the Four Seasons Resort and Club Las Colinas in Dallas, we are excited to welcome 230+ executives from traditional and emerging financial services companies to explore:
- The power of partnerships between banks and fintechs;
- How to embrace change; and
- Intelligently experimenting with emerging tools and products.
As I wrote in 3 Quick Takeaways from #fintech16 (aka Bank Director’s FinTech Day at Nasdaq’s MarketSite), many technology companies have developed strategies, practices and new technologies that will dramatically influence how banking gets done in the future. For example:
- Nymbus is transforming the way traditional banks and financial institutions support and interact with their customers through its core processing solution;
- nCino is a leader in cloud banking with a dynamic bank operating system; and
- Geezeo offers an integrated suite of online tools and services; notably, a sleek Personal Financial Management (PFM) solution.
However, within this period of upheaval — where considerable market share will be up for grabs — ambitious banks can leapfrog both traditional and new rivals. So if you are joining us, be advised that this is not a place to sit quietly and be told what’s not working in banking. This two-day exchange of ideas allowed for candid conversations and presentations banking leaders from around the United States eager to address challenging issues and emerging opportunities. If you are interested in following the conversation via Twitter, @bankdirector uses #BDGrow16. In addition, we will share various takeaways via LinkedIn and I’ll be posting regularly to this site.
P.S. – I’ll read the best answer to today’s question to open the conference, so don’t be shy in sharing your answer below.
The Digitization of Banking
TransferWise, a fintech not shy in touting its “Bye Bye Banks” slogan, recently announced it is shifting course and now intends to partner with banks. From anti-bank to partnership ready. Hmm… the times really are a-changin’
Since I filmed this recap at Nasdaq, it has become more and more clear that innovation knows no size. Depending on a given business strategy, it can either be enhanced — or yes, constrained. As new technologies and approaches to delivering financial services emerge, bank CEOs and their teams will be challenged to meet the future expectations of their customers as well as to assess the additional risks, costs, resources and supervisory concerns associated with providing new financial services and products.
While technology enables change, the evolution and digitization of banking is a business issue. Banks of all sizes are investing more heavily in order to present more sophisticated capabilities to their clientele. However, we are still in the early stages of this shift, which is why new technology players will continue to emerge while traditional participants transform their underlying business models to better participate and compete in the coming years.
##
For those champions & evangelists for innovation within a bank, take a look at Bank Director’s recently launched FinXTech. Think of this new platform as a catalyst — one that brings together a highly influential group of people who (1) care about the future of financial services, (2) are committed to meaningful transformation and (3) are empowered to make change happen.
Banking on Fintech DNA
As we talked about at FinTech Day last Tuesday, technology will play a fundamental role in changing the dynamics of banking, be it shining a light on out-dated practices to dramatically enriching the services and experiences being offered to customers.
By Al Dominick, President & CEO, Bank Director
As our editor-in-chief recently wrote, “technology has always been integral to banking, bringing both speed and efficiency to a transaction-intensive business. But in recent years, technology has stepped onto center stage as a prime component in every bank’s growth and distribution strategy. Technology has, in effect, gone from being a way to save money (a crucial function that it still fulfills) to a way to make money. Much of this activity is being driven by the continued growth of mobile and online banking.”
During a panel session entitled “Banking’s New DNA,” I noted how numerous financial technology companies are developing new strategies, practices and products that will dramatically influence the future of banking. Within this period of transformation, where considerable market share is up for grabs, I believe ambitious banks can leapfrog both traditional and new rivals.
I find the narrative that relates to banks and fintech companies has changed from the confrontational talk that existed just a year or two ago. As we found at this year’s FinTech Day in New York City, far more fintech players are expressing their enthusiasm to partner and collaborate with banking institutions who count their strengths and advantages as strong adherence to regulations, brand visibility, size, scale, trust and security. For me, considering such a partnership affords a bank’s leadership team an important chance to look in the mirror and ask:
- Are we exceeding our customer’s digital experience expectations?
- How do we know if we’re staying relevant?
- Do we have a “Department of No” mindset?
I elaborate on these pieces in an article now up on BankDirector.com; to read it, please click here. Likewise, take a look at the seven facets of building a digital bank. When it comes to the DNA one needs to compete in the future, I find these elements essential to any operation. 
Feel free to comment on these questions and the elements shared above. What else do you think could/should be added and considered?
About That Ratio 