Banking Millennials

The Millennial generation comprises 80MM people, the largest in U.S. history.  Born between the years of 1980 and 2000, millennials range in age from 15 to 35 years and are just beginning to gain their foothold in the economy.

By Al Dominick // @aldominick

Do we really want to bank millennials? If I borrowed a crystal ball from one of the soothsayers out at Jackson Square in New Orleans’ French Quarter, I imagine this would be the question on most everyone’s mind that joined me at our annual Bank Board Growth & Innovation conference.  With many community banks making their money through C&I lending, the immediate concern (at least at the board’s level) is how do I grow right now?  While many conversations trended towards the opportunities to engage this demographic by leveraging emerging technologies with a bank’s sales and marketing efforts, I was not surprised to hear a concern about the investment costs of bringing new technologies into a bank.  The rationale, as I understood it, is by the time a bank gets a return from its investment, it may be too late.  I’m not saying this is my way of thinking, but I do think it reflects apprehensions by key officers and directors when the conversations comes to these future business owners, inheritors of wealth and digitally demanding individuals.  As shared in a presentation by Ingo Money, in the next five years, the Millennial generation will have the largest income in U.S. history, and any company that can monetize Millennial spending or data may seek to bank them.  Still, regional and community bankers wrestle with the type of client they might be — both now and in the future.

Key Takeaway

To kick things off, we invited Dave DeFazio from StrategyCorps to “look beyond the basics” in terms of mobile banking.  As he shared, over 75% of people in the U.S. own a smartphone in the year — and most everyone has some sort of addiction to their device.  With all of the big banks offering the “big five” today (mobile banking, mobile bill pay, mobile deposits, ATM/Branch locators and P2P payments), bankers should think beyond basic banking transactions to develop a mobile presence that is a “can’t live without” app.  Some of his tips: provide easy authentication, pre-login balances, voice recognition, budgeting tools and coupon and shopping tools.

Trending Topics

Anecdotally, the issues I took note of were, in no particular order:

  • The four biggest banks in the U.S. are among the 10 least loved brands by Millennials.
  • Millennials want banking services designed for their needs that are instant, simple, fair and transparent… which is why new providers are beginning to emerge.
  • For those not familiar with Moven, GoBank and Simple… take a look at what each has to offer.
  • The cultural divide between banks and FinTech companies is getting smaller for bigger banks, but remains high for regional and community banks.  Nonetheless, these banks are in a better position to collaborate and seriously consider new tools and products as the decision making cycle is considerably shorter then at large institutions.

Picked Up Pieces

While today was “just” a half day, some of the more salient points I made note of:

  • Per Jennifer Burke, a partner at Crowe, “proactively identifying, mitigating, and in some cases, capitalizing on these risks provides a distinct advantage to banks.”
  • In terms of building value, the ability for a bank to grow is as important as a bank’s profitability.
  • It was refreshing to be at a banking conference where talk about regulation was at a minimum; in fact, it seemed that the regulatory environment presents more of a distraction than it poses a threat to bank’s looking to grow.
  • The corollary to this point: competition from non-banks is higher then ever before.

To see what’s being written and said as we wrap up our time in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

Three Observations from the Bank Board Growth & Innovation Conference

Select news and notes from the first day of Bank Director’s annual growth conference at the Ritz-Carlton New Orleans.

By Al Dominick // @aldominick

I mentioned this from the stage earlier today… every January, Bank Director hosts a huge event in Arizona focused on bank mergers and acquisitions.  Known as “AOBA,” our Acquire or Be Acquired conference has grown significantly over the years (this year, we welcomed some 800 to the desert).  After the banking M&A market tumbled to a 20-year low in 2009 of just 109 transactions, it has gradually recovered from the effects of the crisis. In fact, there were 288 bank and thrift deals last year, which was a considerable improvement on volume of 224 deals in 2013.  As our editorial team has noted, the buying and selling of banks has been the industry’s great game for the last couple of decades, but it’s a game that not all banks can — or want to — play.  Indeed, many bank CEOs have a preference to grow organically, and its to these growth efforts that we base today and tomorrow’s program.

Key Takeaway

To kick things off, we invited Fred Cannon, Executive Vice President & Director of Research at KBW, to share his thoughts on what constitutes franchise value. While he opened with a straight-forward equation to quantify franchise value over time — (ROE – Cost of Equity) × Market Premium — what really stuck with me during his presentation is the fact that a logo does not create franchise value, a brand does.  As he made clear, it is contextual (e.g. by industry’s served, technologies leveraged and clients maintained) and requires focus (e.g. you can’t be all things to all people).  Most notably, small and focused institutions trump small and complex ones.

Trending Topics

Anecdotally, the issues I took note of where, in no particular order:

  • Banks must be selective when integrating new technology into their systems.
  • The ability to analyze data proves fundamental to one’s ability to innovate.
  • When it comes to “data-driven decisions,” the proverbial life cycle can be thought of as (1) capture (2) store (3) analyze (4) act.
  • You don’t need a big deposit franchise to be a strong performing bank (for example, take a look at County Bancorp in Wisconsin)
  • We’ve heard this before, but size does matter… and as the size of bank’s balance sheet progresses to $10 billion, publicly traded banks generate stronger profitability and capture healthier valuations.

Picked Up Pieces

A really full day here in New Orleans, LA — with quite a few spirited discussions/debates.  Here are some of the more salient points I made note of throughout the day:

  • Selling services to large, highly regulated organization is a real challenge to many tech companies.
  • Shadow banking? Maybe its time I start calling them “Challenger banks.”
  • CB Insight’s has a blog called “unbundling the bank” — to understand the FinTech ecosystem, take a look at how they depict how “traditional banks are under attack from a number of emerging specialist startups.”
  • A few sidebar conversations about Wells Fargo’s incubator program, which the San Francisco bank began last August… interest in how the program involves direct investment in a select group of startups and six months of mentoring for their leaders.

To see what’s being written and said here in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

For Banks, the Sky IS Falling

The first in a five part series on emerging threats to banks from non-financial companies.

For bank executives and board members, competition takes many forms.  Not only are banks burdened with regulation, capital requirements and stress testing, they now have the added pressure of competition from non-financial institutions.  In case you haven’t been paying attention, companies such as Paypal, as well as traditional consumer brands such as Walmart, are aggressively chipping away at banks’ customer base and threatening many financial institutions’ core businesses.  So today’s piece tees up my next four columns by acknowledging the changes taking place within — and immediately outside — our $14 trillion industry.

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The race is on…

A few months ago, at Bank Director’s annual Growth Conference in New Orleans, I polled an audience of CEOs, Chairmen and board members and found the vast majority (a whopping 91%) have real concerns about non-banks entering financial services.  These bankers aren’t alone in their concerns about competition from unregulated entities.  Just days after polling this audience, Jamie Dimon, the CEO of JPMorgan Chase, warned an audience of investors that he sees Google and Facebook specifically as potential competition for the banking giant.  As he notes, both offer services, such as P2P, that could chip away at income sources for banks.

…and its not pride coming up the backstretch

As Emily McCormick wrote, Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. Likewise, the retail behemoth Wal-Mart launched Bluebird in partnership with American Express late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks.  This makes the results of a recent TD Bank survey about millennials banking online and on their mobile devices more frequently than in a branch so relevant.  Specifically, 90% of survey respondents said they use online or mobile tools for their everyday banking activities, such as checking balances or paying bills, and 57% said they are using mobile banking more frequently than they were last year.

Along the lines of “what is the industry losing”: eventually you’re going to have a generation that has learned how to live without a bank.  That’s a very sky-is-falling, long-term consequence of not adapting.  But there’s also an opportunity for retail banks to do more than simply allow the same types of services digitally that were once only available in-person.  Banks could actually expand what banking means to consumers by offering online services that go beyond their legacy business model.

What I am hearing

Of course, non-banks can, conceptually, expand what banking means to consumers by offering online services that go beyond legacy business models too.  However, the sheer complexity of entering this market is one reason why we have yet to see a startup that truly rebuilds the banking industry brick by brick.  At least, that is the perspective shared by Max Levchin, founder and CEO of online payments startup Affirm, a company with the goal of bringing simplicity, transparency, and fair pricing to consumer credit.  As the co-founder and former CTO of PayPal, Levchin is one of the pioneers within the payments industry.   In a recent piece in Wired magazine (The Next Big Thing You Missed: Startup’s Plan to Remake Banks and Replace Credit Cards Just Might Work), he notes

I don’t know if I want to own a bank. But I do want to lend money in a transparent way, and I want to create an institution people love… I want to be the community bank equivalent for the 21st century, where people say: ‘I trust my banker. He’s a good guy who’s looking out for me.’

Coopetition anyone?

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To comment on this piece, click on the grey circle with the white plus sign on the bottom right.  Next up, a look at PayPal, a the e-commerce business that is “eating the banking industry’s lunch.”

In the Face of Intense Competition

Financial institutions face intense competition from non-banks like PayPal, American Express, Walmart and Quicken Loans…  and a rapidly changing demographic that demands new approaches to attract and retain customers (be it individual or business).  Today’s post takes a look at two financial technology companies working to keep banks relevant as customers increasingly expect a“one stop shop” in all areas of their lives.

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Over on FiveThirtyEight.com

On FiveThirtyEight, Nate Silver’s newly launched website at ESPN, the editorial team leverages statistical analysis to tell compelling stories about politics, science and yes, sports.  While much digital ink has been spilled on this week’s NFL draft,  the site’s chief economics writer, Ben Casselman, authored a piece that caught my eye.  Thanks to a keynote presentation by Fox News’ Juan Williams at this January’s Acquire or Be Acquired conference, I’m far more aware of the changing demographics of the United States — and what that means for financial institutions.

 

Based on my conversations with Juan in the desert, I found early inspiration for today’s piece while pouring over Ben’s What Baby Boomers’ Retirement Means For the U.S. Economy.  In combination with economic shifts — both domestically and globally — it is clear that changing demographics are transforming businesses.  As we trend towards a younger populace, Ben writes “all else equal, fewer workers means less economic growth… If more of the population is young or old that leaves fewer working-age people to support them and contribute to the economy.”  Clearly, banks need to be prepared to serve a population that will live longer.  Maybe more importantly, they need to court their most valuable customers — Gen X&Y and Millennials (relationships built, “gulp” through online & mobile experiences).

Putting Checks into the Cloud

In the world of checks, VerifyValid acknowledges that “paper is simply a vessel for holding information. The real check is the data fields it contains: the check number, the amount, the routing number, the recipient, and most important of all, the authorizing action which says that the account holder agrees to pay the stated amount to the payee.”  I had a chance to see Paul Doyle, the company’s Founder & CEO, inspire a crowd of CEOs and board members at The Growth Conference last week.  Flying home from New Orleans, I spent some time learning how the company overcame the challenge in providing this information electronically in such a way that prevents fraud.  As I see it, VerifyValid lowers an organization’s costs while increasing efficiency and financial security with every payment.  IMHO, their 2 minute, 25 second video is worth a watch.

Making Money Simple, Attractive and Intelligent

Located “in the heart of Utah’s Silicon Slopes,” MoneyDesktop is redefining the way millions of people interact with their finances.  As one of the fastest-growing financial technology providers, MoneyDesktop positions banks and credit unions as the financial hub of their account holders — think Mint on steroids — with its personal financial management, data-driven analytics and marketing technologies.  Some 450 financial institutions rely on this software-as-a-service vendor… and I saw last night they have plans to grow significantly in the months to come.  They write, and I agree, that account holders are changing.  “There is an ongoing shift away from traditional brick & mortar banking (and) technology is providing better ways for account holders to interact with their money, and with financial institutions.”  An interesting company delivering a very clean and user-friendly experience.

Aloha Friday!

The Growth Conference – Thursday Recap

It is obvious that the most successful banks today have a clear understanding of, and laser-like focus on, their markets, strengths and opportunities.  One big takeaway from the first full day of Bank Director’s Growth Conference (#BDGrow14 via @bankdirector): banking is absolutely an economies of scale business.

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A 2 Minute Recap

 

Creating Revenue Growth

At events like these, our Publisher, Kelsey Weaver, has a habit of saying “well, that’s the elephant in the room” when I least expect it.  Today, I took her quip during a session about the strategic side of growth as her nod to the significant challenges facing most financial institutions — e.g. tepid loan growth, margin compression, higher capital requirements and expense pressure & higher regulatory costs.  While she’s right, I’m feeling encouraged by anecdotes shared by growth-focused bankers considering (or implementing) strategies that create revenue growth from both net interest income and fee-based revenue business lines. Rather than lament the obstacles preventing a business from flourishing, we heard examples of how and why government-guaranteed lending, asset based lending, leasing, trust and wealth management services are contributing to brighter days.

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Overall, the issues I took note of were, in no particular order: bank executives and board members need to fully embrace technology; there is real concern about non-bank competition entering financial services; the board needs to review its offerings based on generational expectations and demands;  and those that fail to marry strategy with execution are doomed. Lastly, Tom Brown noted that Bank of America’s “race to mediocrity” actually makes it an attractive stock to consider.  Who knew being average can pay off?

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To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right.  More tomorrow from the Ritz-Carlton New Orleans.

Let the Good Times Roll

Checking in from a rain-soaked Reagan National airport, where I think I see the plane I’ll take down to New Orleans taxiing towards its gate.  Yes, it’s “Growth Week” at Bank Director, and I’m heading to the Crescent City to host bank CEOs, Chairmen and board members keen to focus on big picture business issues surrounding growth (not necessarily associated with mergers and acquisitions) and profitability.

New Orleans

A Deep Dive

I realize the phrase “let the good times roll” is most frequently heard during Mardi Gras celebrations in New Orleans; I’m using it to tee up Bank Director’s Growth Conference that kicks off tomorrow morning at the Ritz-Carlton.  Once the lights come up, I’ll be interested to hear:

  • How growth is driving pricing;
  • Why efficiency & productivity are both key elements in positioning a bank to grow; and
  • If “overcapacity” in the US banking industry offers opportunities.

I’m particularly excited for our opening session with Thomas Brown, CEO, Second Curve Capital.  We’ve asked him to help us “set the table” for the next two days of conversations with an outlook for banks across the country by reviewing the current capital market and operating conditions, thereby providing financial context to the next two days’ presentations.  If I don’t cover his remarks in my post tomorrow, you can bet our editor, Jack Milligan, will on his must-read blog The Bank Spot.

A Look Back

Much of last year’s conversation revolved around technology and the need to adapt to a changing marketplace, as well as the importance of creating a unique niche in a competitive landscape dominated by the biggest banks.  Many of our bank speakers at the conference had a more nuanced view of technological change. Richard Hill, the chief retail banking officer for the $19-billion asset Hancock Holding Co. in Baton Rouge, Louisiana, said when he got into banking in the 1970s, the prediction was that checks would go away and branch banking would go away. That clearly didn’t happen, or at least not at the accelerated pace that many predicted. The problem for his bank and for many others is that profits are getting squeezed with low interest rates, and the bank needs to make investments that expand revenue. As he said, “a great challenge we have is figuring all this out.”

Take Our Your Crystal Balls

Let me wrap up by sharing a 2 minute video our team compiled on the “future” of banking.  We played it at our Acquire or Be Acquired conference in January and the perspectives of KPMG’s national banking leader, the CEO of Congressional Bank, etc. are worth a watch and listen.

Laissez les bons temps rouler!

Its Growth Week

Its finally here… “Growth Week” at Bank Director.  Yes Discovery Channel, you can keep your shark week.  What we’re about to get into is far more interesting (at least, to some): what’s working in banking today.  Most of our team heads down to the Ritz-Carlton in New Orleans tomorrow and Wednesday for our 2014 Growth Conference.  Before they do, the first of five posts dedicated to building a business.

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Think Distinct

Innovation means doing things differently.  Not just offering new products or offerings — but doing things differently across the entire business model.  Going into this event, I know many believe there are simply too many banks offering similar products and services.  I tend to think institutions are challenged when it comes to being distinctive compared with the competitor across the street.  This is not a new issue; however, there are more and more strategies emerging and enablers coming to market that can drive brand value, customer satisfaction and profitable growth.  Case-in-point: the work of our friends at StrategyCorps, whose idea is “be bold… go beyond basic mobile banking.”  One of the sponsors of the conference, I am excited to hear how  financial institutions, like First Financial, benefit from their mobile & online consumer checking solutions in order to enhance customer engagement and increase fee income.

Looking Back in Order to Look Ahead

While easy to frame the dynamics of our industry in terms of asset size, competing for business today is more of a “smart vs. not-so-smart” story than a “big vs. small.” During one of my favorite sessions last year — David AND Goliath — Peter Benoist, the president and CEO of St. Louis-based Enterprise Financial Services Corp, reminded his peers that as more banks put their liquidity to work, fierce competition puts pressures on rates and elevates risk.  As I went back to my notes in advance of this week’s event, my biggest takeaway from his presentation was we all talk about scale and net interest margins… but it’s clear that you need growth today regardless of who you are.  It is growth for the sake of existence.

Getting Social

To keep track of the conversation pre-, on-site and post-event on Twitter, use #BDGrow14 and/or @bankdirector + @aldominick.  In addition, I plan to post every day this week to About That Ratio, with tomorrow’s piece touching on the diminished importance of branch networks to underscore the importance of investments in technology.

Since You Can’t Own a Car Dealership

As my colleague Jack Milligan writes in our 2nd quarter issue of Bank Director magazine, just because a bank can’t own a car dealership doesn’t mean there isn’t “enormous flexibility in determining a bank’s strategy.” Curious what this means? Read on.

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A Sneak Peek at the Core Revenue Champs

Each year, Bank Director magazine looks at all U.S. banks and thrifts to identify the strongest growth banks. We rank the top performers across four separate categories: core deposits, core noninterest income, net loans and leases and the most important, core revenue. Since the magazine mails today, I thought to offer a sneak peek of the results:

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What I find interesting about the top two banks on this very strong list: both Customers Bank and EverBank Financial designed their business models around technology from their very beginnings.

Find Your Balance

As I read through an advance copy of the issue, it strikes me that many business areas that historically provided revenue growth are simply not growing fast enough to overcome new capital and regulatory requirements.  In this light, you can understand why many say times couldn’t be more challenging for growth in community or regional banking. The corollary to this? Balancing organic and external growth is a key focus area for bank management and boards.

Increasingly, I hear that growth-focused banks are considering (or implementing) strategies that create revenue growth from both net interest income and fee based revenue business lines — think government guaranteed lending, asset based lending, leasing, trust and wealth management services. Clearly, as interest margins and loan volumes remain subject to compression and intense competition, the “optimization” of fee-based revenue is becoming pivotal in enhancing shareholder value.

‘Sup Big Easy

True, a number of banks seek to extend their footprint and franchise value through acquisition. Yet, many more aspire to build the bank internally.  Some show organic growth as they build their base of core deposits and expand their customer relationships; others leverage product innovation or focus on their branch network. I bring these approaches up in advance of next week’s Growth Conference at the Ritz-Carlton, New Orleans. We designed this event to showcase strategies, structures, processes and technologies that a bank’s CEO and board might consider to fuel their own growth.

Unlike trade shows and other events, we limit participation to a financial institution’s key officers and directors to ensure those joining us are not just committed to distinguishing their performance and reputation, but also are appropriate peers to share time and ideas with. From companies like StrategyCorps, Ignite Sales and VerifyValid to PwC, Fiserv and IBM, we have a tremendous roster of companies joining us in Louisiana to share “what’s working” at the myriad banks they support. As I’ve done for our other events (e.g. the sister conference to Growth, Acquire or Be Acquired), I’ll be posting a number of pieces next week from the Crescent City and invite you to follow along on Twitter via @aldominick, @bankdirector and using #BDGrow14.

Aloha Friday!

Mele Kalikimaka

The banking marketplace today is dramatically different from what it was just three years ago.  Since returning to the industry in 2010, I’ve seen a lot of change — and not all good.  Nonetheless, I am bullish on the future of banking.  While some in the media tend to criticize financial institutions and harp on measures like one’s Texas ratio (which models a bank’s risk profile to fail — and also inspired this site’s name), I prefer to focus on financial institutions as the fabric of our neighborhoods and communities.  When I write About That Ratio it is in stark contrast to those who deride the importance of banks.  I am not blind to the problems facing many bankers today, nor ignorant of errors and indiscretions made by some of our larger names.  Still, count me an optimist that better times are ahead.  So before my family and I take off for Christmas in Tulum, Mexico, one last About That Ratio for 2013 that shares three things from the week that was.

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(1) While many year-end blogs take a look back,  Jim Marous authored a comprehensive forward-looking post on his “Bank Marketing Strategies” blog.  His 2014 Top 10 Retail Banking Trends and Predictions compiles opinions from 60 global financial services leaders — including bankers, credit union executives, industry providers, financial publishers, editors and bloggers, advisors, analysts and fintech followers.  I appreciated his invitation to contribute and thought to share the crowd’s top three trends for 2014:

  1. The “Drive-to-Digital” trend will impact delivery, marketing and service usage;
  2. Payment disruption will increase vis-a-vis new players, technologies and innovations; and
  3. Increased competition from “neobanks” and non-traditional players will accelerate.

Take a read through these and the subsequent seven points offered up.  As Jim writes, “disruption will continue at an unprecedented pace and that the industry will look different this time next year.”

(2) It is hard to escape the reshaping of the banking industry through merger activity; in particular, the return of negotiated, strategic bank combinations.  While in San Francisco a few months ago, I wrote about Heritage Financial’s combination with Washington Banking Co.  Forgive the use of “merger of equals” to describe the deal; however, that misnomer best represents the agreement.  Some see these deals becoming more popular as bankers seek to build value for the next few years in order to sell at higher multiples.  Others cite a desire to create more immediate value through cost cuts and efficiencies.  Regardless of who’s driving and who’s riding, there were quite a few notable deals in 2013; for example, Umpqua and Sterling and the recent “51/49” deal between United Financial Bancorp and Rockville Financial.  I get the sense that more boards will consider deals structured like these to accelerate “scaling up” without utilizing cash as the currency for an acquisition.  Time will tell if I’m right.

(3) Finally, I readily admit my excitement to welcoming men and women from across the country to various Bank Director events next year.  From our BIG M&A conference at the Arizona Biltmore in January to The Growth Conference at the Ritz-Carlton New Orleans in May to a peer exchange for officers & directors at the Ritz-Carlton in San Francisco, we have a lot planned.  These events are a big part of our 23 year-old company’s business — and its pretty darn cool to participate in various conversations that relate to growth, innovation and “what’s working.”  I’m not alone in thinking it is time for bank CEOs and their boards to go on the offensive.  Competing successfully in a marketplace, managing shareholder expectations, overcoming regulatory obstacles, developing talent and leadership for the next generation, and, most of all, ensuring that one’s institution has the option of choosing whether to “acquire or be acquired”… yup, topics galore for me to cover here in 2014.

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I end every Friday post with a nod to my mother-in-law (who passed away four years ago).  She lived on the Big Island for several years and became quite fond of the “Aloha Friday” tradition; hence, the sign off.  The only Hawaiian saying that puts a bigger smile on my face is today’s title: Mele Kalikimaka!