Buckle up: we’re in for a ride. Regardless of your political persuasion, all signs point to an extended stretch of market volatility as we head into the 2020 election cycle, which by many measures is already hitting its stride. The 2020 budget season is playing out against this backdrop, with budget-setters up against even greater uncertainty than usual. The question looms, as the political barrage reaches new heights in 2020, how can banks and credit unions remain flexible to the economic variables?
Let’s start from the basics. The objective of budgeting is to develop a clear-eyed view to inform planning for the coming year. With that goal in mind, we can suggest a few options to help your team tune out election year noise and focus on what matters most in vendor management, and what optimizes cost savings for 2020.
A Day Trader’s Paradise
In many ways, election season serves up the raw material for a day trader’s paradise. Depending on which candidate is leading in the most recent poll or who provided the day’s headline quote, sentiments can swing markedly. Never mind a change in the executive branch, a change of just one or two seats in the Congressional balance of power could bring stark differences in the future regulatory environment, which quickly translates to altered investment decisions and the health of the stock market. This uncertainty may even have a cascading effect on the housing market.
Speaking candidly, there’s only so much a financial institution will be able to do in 2020 to control the absolute return of its investment portfolio. Now is a good time to embrace the banker’s equivalent of the Serenity Prayer – channel your energy into the things you can control. Considering a financial institution’s expense categories, these things include optimizing agreements with third-party vendors and payment networks.
Budget season is about taking control and delivering results where you can. Aside from labor costs, third-party expenses are the largest controllable line items for virtually every cost center manager. Recalibrating agreements to ensure your institution enjoys best-in-class terms is a natural opportunity.
The Relentless Pursuit of Intelligence (Artificial or Otherwise)
Another area of investment deserving of serious thought gets into the much-hyped field of AI. These days, besides AI software, financial institutions are also using RPA, OCR, ICR, and other valuable types of data extraction and task execution. We believe the value of a well-planned strategy using smarter software extends well beyond “flavor of the day” buzzwords. We’ve seen it turn around ROI in as few as six weeks. The beauty of automation in an uncertain climate is that it will pay dividends regardless of the economy’s ultimate direction. The same operational efficiencies can be used to support growth in an expansionary cycle, or to create leaner processes during a downturn. Either way, your bank or credit union will be better equipped for the road ahead.
The Bottom Line: With the United States already in the longest stretch of economic expansion in generations and outperforming most of the developed world, a volatile election year is hardly the only factor that could alter the near-term financial services landscape. By proactively addressing vendor contract management and launching targeted technology investment initiatives now, you’ll be better positioned heading into 2020, when things will get really interesting.