The Single Greatest Constraint on Growth

With the revenue pressures facing the banking industry being some of the most intense in decades, banks need to think more constructively about their businesses. At the same time, changing consumer behavior could drive the industry to reallocate its resources to less traditional growth channels in order to stay ahead.  In my view, the words of an English naturalist reflect the single greatest constraint on growth today.

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Powerful Forces

One of our long-term corporate sponsors, PwC, recently shared their thoughts on the future of the retail banking industry.  In their view, “powerful forces are reshaping the banking industry, creating an imperative for change. Banks need to choose what posture they want to adopt – to lead the change, to follow fast, or to manage for the present. Whatever their chosen strategy, leading banks will need to balance execution against… critical priorities and have a clear sense of the posture they wish to adopt.”  If you, like our friends from PwC, are joining us in New Orleans later this week to dive into this very topic, their compelling “Retail Banking 2020” report might make for good airplane company.

Looking Back in Order to Look Ahead

Last year, John Eggemeyer, a Founder and Managing Principal of Castle Creek Capital LLC, helped me to kick off our inaugural Growth Conference.  As a lead investor in the banking industry since 1990, he shared his views on our “mature industry,” That is, banking follows a historic pattern of other mature industries: excess capacity creates fierce competition for business which in turn makes price, not customer service, the key differentiator.  While offering myriad thoughts on what makes for a great bank,  John did share some hard-to-swallow statistics and opinions for a crowd of nearly 200 bankers and industry executives:

  • Publicly traded banks from $1 billion to $5 billion in assets saw their stock values rise at about half the rate of the broader market as a whole since early 2009.
  • Of the 300 or so publicly traded banks in that size range, only about 60 of them traded at their pre-recession price multiples.
  • In the last 40 years, bank stocks always followed the same pattern in a recession: falling in value quicker than the rest of the market and recovering quicker.

I share these three points to provide context for certain presentations later this week.  Some build on his perspectives while others update market trends and behavior.  Still, an interesting reminder of where we were at this time last year.

Getting Social-er

Yesterday, I shared the hashtag for The Growth Conference (#BDGrow14).  Thanks to our Director of Research — @ehmccormick — and Director of Marketing — @Michelle_M_King — I can tell you that nearly 30% of the attending banks have an active twitter account; 78% of sponsors do.  On the banking side, these include the oldest and largest institution headquartered in Louisiana — @IBERIABANK, a Connecticut bank first chartered in 1825 with over $3.5 billion in assets — @LibertyBank_CT and a Durham, NC-based bank that just went public last month — @Square1Bank.  On the corporate side of things, one of the top marketing and communications firms for financial companies —@wmagency, a tech company that shares Bank Director’s love of orange — @Fiserv and a leading provider of personal financial management — @MoneyDesktop join us.  Just six of many institutions and service providers I’m looking forward to saying hello to.

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More to come — from New Orleans, not D.C. — tomorrow afternoon.

FI Tip Sheet: Is 2014 the Year of the Bank IPO?

Good things come in threes — like insightful/inspiring meetings in New York, Nashville and D.C. this week.  By extension, keep an eye out for a Sunday, Monday and Tuesday post on About That Ratio.  Yes, I’m heading to Chicago for Bank Director’s annual Chairman/CEO Peer Exchange at the Four Seasons (#chair14) and plan to share my thoughts and observations on issues like strategic planning, risk management and leveraging emerging technologies each day.  Finally, I hope the three points I share today (e.g. a look at what the future holds for branches to a rise in public offerings) prove my original sentiment correct.

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I’ve been surprised… by the # of conversations I’ve had about branch banking.

With many of the mega and super-regional banks focused on expense control, I find myself talking fairly regularly about how these institutions are taking a “fresh look” at reducing their branch networks.  Typically, these conversations trend towards well-positioned regional and community banks — and how many now look to branch acquisitions as low risk and cost effectives ways to enter a new market or bolster an existing market.  I expect these conversations to continue next week in Chicago — but thought to share today as it again came to the fore earlier this week in NYC.  While there, I had a chance to catch up on PwC’s latest offerings and perspectives.  Case-in-point, one of their current research pieces shows that, despite the emergence of new competitors and models:

“the traditional bank has a bright future – the fundamental concept of a trusted institution acting as a store of value, a source of finance and as a facilitator of transactions is not about to change. However, much of the landscape will change significantly, in response to the evolving forces of customer expectations, regulatory requirements, technology, demographics, new competitors, and shifting economics.”

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The two images above come from an information-rich micro-site (Retail Banking 2020) PwC shares.  Personally, I found these statistics fascinating and foreshadow my second point about creative approaches to win new business.

I’ve been thinking about… fin’tech companies + their “solutions.”

Here, I want to give major props to our friends at the William Mills Agency in Atlanta.  Their annual “Bankers as Buyers” report shares ideas, concepts and research about financial technology from 30 of the top influencers in the country and those forces driving change today.  This year’s report lays out trends for the coming year, including:

  • Branch Network Transformation;
  • Mobile 3.0;
  • Big Data Drives Marketing & Fights Fraud;
  • Payments Technology Stampede;
  • Banks Focus on Underbanked and Wealthy; and
  • Compliance Strategies.

Take a look at their work and download the free report if you’re interested.

I’ve been talking about… the number of banks going public.

Is 2014 the year of the bank IPO? According to Tom Michaud, the president and CEO of Stifel Financial’s KBW, it just might be.  I had a chance to get together with Tom earlier this week and he got me thinking about how many are going to pursue a public market to raise capital versus doing so privately.  He shared the story of Talmer Bancorp (TLMR), which went public on Valentine’s Day.  When it did, it marked the biggest bank IPO in three years (yes, KBW’s Banking & Capital Markets teams completed the $232 million Initial Public Offering, acting as joint bookrunner).  As he shared their story with me, it became clear that as more banks go public, we will see more buyers entering into the M&A market — since most bank deals are being done with stock these days.  It strikes me that going public presents an alternative for private banks… rather than sell now, they might find a more receptive market should their story be a good one.

Aloha Friday!

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.

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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!

Disrupt (or die trying)

Georgia peaches...
Georgia peaches…

If you’ve been on this site before, you probably recognize a pattern to my writing. Each Friday, I share three things I heard, learned or saw during the week.  In past posts, I’ve penned a number of “disruptive” stories that ranged from Brett King’s perspectives on banks (“Does Banking Need a Re-boot”) to John Cantarella’s on Time Inc.’s digital strategies (“Dass de Thing”).  So it should come as no surprise that I furiously began writing today’s column on a flight home from Atlanta on Wednesday evening.  I’d just spent several hours in the offices of the William Mills Agency, one of the nation’s preeminent financial public relations and marketing firms, and left inspired.  What follows are just three of the many Fintech companies the agency represents that are doing some pretty cool things.  IMHO, banks of all sizes might pay attention to these tech companies if they want to disrupt the status quo rather than have their status quo disrupted.

(1) In Bank Director’s home town of Nashville, TN resides the corporate marketing team for CSI, a leading provider of end-to-end technology solutions.  The public company delivers core processing, managed services, mobile and Internet solutions, payments processing along with print and electronic distribution & regulatory compliance solutions to financial institutions.  I like their resource center, but really appreciate their blog that highlights myriad client success stories.  For instance, “How One Bank “does” Social Media Right” shines a light on First Kentucky’s one and only social media strategy.  To wit: not a word about CSI’s involvement with the bank in favor of why the bank decided not to sell things to its social fans and followers.  A “fun and light” client example that shows a more intimate side of the bank vis-a-vis one of their preferred service providers.

(2) For many financial institutions, the gap between the strategy set by the board and subsequent execution can be quite wide.  As Steve Hovde (an investment banker and regular speaker at some of our larger events) shared with us, “bankers are conservative by nature, and the credit crisis served as a stark reminder why they should be. Still, many banks—particularly smaller, community banks—are reluctant to take advantage of strategic opportunities that could significantly enhance shareholder value.” So when First Midwest Bank (a not-so-small $9 billion institution based in Illinois) needed to measure product and customer profitability to support pricing and product offering decisions with accurate contribution margin results, I learned they turned to Axiom EPM.  The company, a provider of financial planning and performance management software, affords “visibility into profitability across the organization.” If you’re keen to learn how First Midwest analyzes profitability at their bank, you might take a look at this on-demand video.

(3) To wrap things up, let me pose a question: how fast would you switch to a different bank if you were the victim of online banking fraud?  Before you answer below (hint, hint), can you guess the percentage of your peers that would immediately?  From a banker’s perspective, such cyber risk poses a real threat to a business model.  Having worked in the IT space for 5+ years, I was curious if its possible to offer online and mobile banking with no possibility of this happening to a customer… ever.  Entersekt, a South African company with designs on the U.S. market, believes it is.  According to a few of the good folks at William Mills, the folks there are the pioneers in transaction authentication.  That is, the company “harnesses the power of electronic certificate technology with the convenience of mobile phones” to provide financial institutions and their customers with full protection from online banking fraud.  Authenticating millions of transactions globally, none of Entersekt’s clients have experienced a successful phishing attack on their systems since implementing the company’s technology.  A pretty impressive accomplishment, and nice way for me to wrap up this week’s column.

Aloha Friday!