The Bottom Line

Sometimes it seems as if all there is to be said about financial institutions and their response to the digital age is that they are woefully behind and show little sign of “getting it” in the near term when making strategic sourcing decisions.  Certainly, banks and credit unions have struggled with the unique challenges of serving consumer that increasing live their lives through the ubiquitous devices that are available to them. 

Numeric milestones can be great opportunities to celebrate achievement and build team morale. Asset growth is usually a sign of health and prosperity, and attaining thresholds like $1 billion or $5 billion in assets are certainly momentous occasions for many financial institutions. Reaching $10 billion, however, can bring mixed blessings.

As of January 2020, Microsoft will no longer support Windows 7. This event is creating some interesting conversations at financial institutions concerning their ATM strategy. Fourteen months may sound like the distant future, but time is already tight if banks and credit unions wish to avoid a costly, tactical reaction to the sunsetting of Windows 7, as opposed to a more strategic choice with upsides for account holders.

In years past, soliciting digital proposals was a fairly straightforward exercise of reaching out to digital banking vendors and bill payment solution providers. However, things have gotten significantly more complex for financial institutions as touchpoints like mobile must be considered, not to mention P2P, self-service card controls, and advanced cash management options for business customers. Expectations for seamless omnichannel capabilities have increased as well.

Most bank and credit union leaders are familiar with ways to optimize their credit card programs, yet surprisingly few of them apply any transferrable techniques to their debit portfolios. Debit interchange is the first or second largest component of non-interest income for most financial institutions, so even nominal improvements can drive big benefits. Although credit card purchases generate more interchange on a per item basis, the reality for many smaller institutions is that they have more tools at their disposal to influence debit use.

The same PAU metrics (Penetration, Activation, Utilization) familiar to credit card program managers can be applied to debit. Let’s look at how these concepts can improve P&L:

According to recent headlines, the United States is in the midst of one of the strongest economic booms in recent memory. On the other hand, don’t expect that prosperity to translate to a wealth of flexibility during budget season. After all, has it ever? While the austerity of the years immediately following the financial crisis may not have reached everyone, there never seem to be enough new dollars to avoid hard choices among priority initiatives. And with market salaries on an upward trend, any additional funding will likely be quickly absorbed.

Every institution wants its various processes and practices to be best of breed. Most, at minimum, want to know how they stack up against the best in their business. Typically, peer groups are established for this purpose, usually based on a bank or credit union’s asset base.

However, there are countless reasons why the performance of two financial institutions of identical size may not warrant side-by-side comparison. For example, one institution using a service bureau for core processing will have a lower efficiency ratio than one of its peers that does not use one. The retail/corporate mix within loan portfolios will also give rise to operational differences.

A debate has raged for some time as to whether fintech companies are friends or foes to financial institutions. In our view, the question itself is a cynical oversimplification of the situation. While there are some aggressive startups intent on stealing business from financial institutions, there are more fintechs that want to partner with banks and credit unions to help them modernize their service offerings.

The most recent installment of our ongoing series of SRM Academy papers focused on the digital transformation at financial institutions. The latest installment explores the potential of biometrics – voice recognition and authentication in particular –to improve digital banking while also leveling the competitive field for regional and community institutions.

Fall has arrived and the holidays will be here before we know it. What this means for many of us is that Q3 is closing and budget priorities for 2019 are being finalized. In the spirit of this special time of year, SRM wants to revisit a few vendor contract management reminders that may be useful to you at this time.

These tips are not only useful during budget season when the hunt for savings that can be used to fund other initiatives is vital. They can also help you add value to your institution throughout the year. In fact, vendor performance management should be a year-round discipline. We know now that finding ways to reduce costs or enhance revenues can be particularly important.