Welcome To
The Bottom Line

We are now living through a highly unusual economic scenario.

Dubbed a K-shaped recovery by some, a severe economic downturn has arrived hand-in-hand with a sudden and significant inflow of consumer deposits.

The reasons behind this phenomenon are debatable. The broad-brush US approach to government stimulus/relief certainly plays a role, but no bank or credit union leaders saw this coming as PPP funding scenarios began to unfold. The result is a bizarre banking dynamic that’s a far cry from the challenges of recent years. Gone are the days of fighting to grow deposits by more than low single digits per annum. In 2020, it was not unusual for institutions to have registered checking balance growth of 15-25%. One client we’re aware of saw deposits grow unexpectedly by $1 billion.

From a bank or credit union’s perspective, a historic, pandemic-grade deposit influx may be the proverbial good problem to have, but it’s a problem nonetheless.

Raise your hand if you miss in-person conferences.

SRM has attended hundreds of state, regional, and national events over the years. Still, last year’s GAC (Government Affairs Conference hosted by CUNA) was especially memorable because it was the last major destination event we attended before social-distancing measures went into effect.

Since then, the credit union conference scene and SRM’s participation has had to adapt to the virtual world.

In a recent blog post, we elaborated on several trends that our payments experts expect will impact the banking industry in 2021 - including trends regarding digital banking investments and the branch’s evolving role with consumers.

Let’s continue that conversation by exploring additional factors directly related to the retail banking industry’s current environment, specifically:

• The ongoing shifts in payments preferences
• Battening down for the next economic wave
• Changes in the regulatory climate

Now that we’ve closed the book on 2020, we can count on a swift change to the financial services landscape, right? The answer is yes…and no.

With the ongoing vaccine distributions and a new administration in Washington, there’s even more reason to expect the new year to bring new behavior. On the other hand, conditions don’t turn on a dime simply because the calendar flipped to January.

With that in mind, SRM’s payments experts have identified several trends we expect to drive financial services dynamics in 2021. Although their full effect is unlikely to be visible early in the year, banks and credit unions must consider these trends in setting priorities for 2021 and beyond.

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.

If you work at a bank or credit union and are the worrying type, there is no shortage of things to occupy your mind. However, it’s not what you know that should make you worry. Most often it is what we don’t know that creates more challenges.

For example, there’s a decent chance that for most financial institutions (FIs), vendor contracts are not the source of concern they should be, especially if the supplier is a company you feel does a good job for your institution. Given the numerous issues that must be addressed in the course of business at a bank or credit union, the axiom “if it isn’t broken, don’t fix it” often serves as a default. This may make it easy to rationalize letting contracts automatically renew with incumbents who are providing satisfactory levels of service.

For anyone working at a company with a calendar-based fiscal year, the August dog days of summer also mean the advent of the annual planning cycle. Odds are that department heads are being asked to “do more with less,” or at least to increase output at a faster rate than costs. As anyone with budget responsibility is well aware, it’s no easy task to fund reasonable pay increases for valued employees let alone accommodate growth in other expense areas.

In recent posts, we have offered words of caution concerning the perils of free money when considering a proposal, contract or addendum from a vendor. As part of our work, we are continuously monitoring the market to remain current on the trends that impact our clients. Lately, we have seen a real-time case study playing out in the market that reinforces why every proposed vendor contract amendment should be reviewed carefully.

SRM was honored to be the signature sponsor at this year’s National Association of Federally Insured Credit Unions’ (NAFCU) 50^th annual conference. Given that more than a quarter of the roughly 250 credit unions in attendance are SRM clients, this was clearly an event our company wanted to help support. For anyone who missed the details, NAFCU hosted the four-day annual gathering in Honolulu, Hawaii drawing more than a thousand leaders from credit unions and service providers.

The negotiation process for expiring vendor contracts at a financial institution (FI) often poses unique challenges. For example, those that have an existing relationship with the incumbent supplier need that relationship to remain constructive, especially since it will be ongoing once the contract is signed.  This can prove particularly difficult when negotiating topics like pricing must be addressed.