Welcome To
The Bottom Line

This year’s Money 20/20 conference marked a notable return to large-scale in-person industry events, as thousands of professionals gathered in Las Vegas to discuss all things fintech. It’s unsurprising yet ironic that this group, finally able to meet face-to-face, focused on digital solutions enabling remote commerce.

Here’s an overview of key takeaways from four days of in-depth discussions with clients and other experts in this dynamic sector.

Every relationship – even long-term ones – needs an occasional tune-up.

Banks and credit unions that want to stay at the top of their game must change with the times, evaluate longstanding agreements with third parties, and incorporate cost savings whenever and wherever they can. Those efforts can free up funds to pursue growth strategies, including adding or expanding digital capabilities.

Periodic reviews can also help financial institutions determine if their providers are meeting the conditions of their contracts. A fresh set of eyes from an outside advisor can help evaluate exceptions, reduce processing fees, and negotiate potential marketing bonuses.

The global supply chain has drawn more mainstream attention over the past year than in generations – or perhaps ever. Supply chain issues have affected everything from shipping container shortages to automobile production to gaming consoles to, believe it or not, credit and debit cards.

A critical factor in most of the items previously mentioned is an ongoing shortage of silicon chips. Such chips are a building block for virtually all electronic products enjoyed by consumers worldwide.

We believe this supply risk should be on the radar of every financial institution, given the importance of keeping customers equipped with active payment cards. With effective planning, issuers can minimize the potential impact on their organizations.

Although credit unions have been acquiring banks for nearly 20 years, the banking industry has recently intensified its efforts to slow the pace of activity. The pushback is partially due to the aggregate number of credit unions buying banks – roughly 100 have taken place since 2003 – and that the purchases are, on average, becoming more significant.

A case in point is Midwest Community Bank in Freeport, Illinois, which recently became the 12^th bank to agree to be sold to a credit union this year. Overall, the credit union industry could eclipse the all-time high of 16 bank acquisitions announced in 2019.

The Independent Community Bankers of America (ICBA), which has objected to these transactions for years (largely citing the tax-exempt status of credit unions), sent a letter to Treasury Secretary Janet Yellen in July recommending that the federal government assess an exit fee on credit unions when they buy banks.

This proposal represents an interesting shift for the ICBA, one that we will look at more closely below.

Despite concerns about upfront costs, a growing number of community banks are preparing to implement technological upgrades, such as online loan closings and automated underwriting.

As discussed in a previous blog, the Federal Reserve began seeking comments on proposed changes to Reg II of the Durbin Amendment in May. At that time, the Fed said that it felt the changes would be non-substantial and would not include more compliance obligations. Currently, the Fed bars issuers from restricting the number of unaffiliated networks for debit card transactions to fewer than two, including one signature network and one PIN network. The new proposal would make issuers responsible for ensuring that all transactions with US merchants can be routed across two unaffiliated networks.

While the Fed characterized this change as a simple clarification, it is anything but, as evidenced by the over 2,600 comments received. It is clear this issue is complex, substantial, and would increase compliance obligations.

We have sorted through the comments posted on the Fed's website and various government sites to summarize the key points for both sides of this argument.

In late July, the National Credit Union Administration (NCUA) issued a request for comment on the current uses of digital assets and their potential impact on the financial system. The NCUA plans to use this input to help shape its role in safeguarding consumers and the system as these emerging technologies evolve.

The request largely mirrors previous outreach by bank regulators, although the NCUA expanded its scope to include the rapidly growing field of decentralized finance (DeFi). Unfortunately, the credit union response has been muted, so the NCUA extended its deadline for comments to October 27. SRM encourages credit unions to make their voices heard on this strategically important issue.

SRM responded to the NCUA, which you can read here. Our NCUA letter serves as a solid primer on the cryptocurrency topic and includes several examples of existing banking initiatives, the highlights of which we’ll summarize below.

Budgeting and planning season is usually a routine time for evaluating your business priorities and associated costs. However, while some banks and credit unions have already set their 2022 budgets, others are still calculating forecasts or waiting for more data.

Too often, management teams and boards plug vendor costs into their annual budgets and forecasts without questioning whether those contracts can be improved. This is undoubtedly a more complex task than ever as we face the coming winter months and the uncertainties surrounding the lingering impact of COVID-19.

There is, however, one area that is a sure opportunity for cost savings in your budgeting cycle – vendor contracts.

Banks and credit unions tend to plug vendor costs into their budgets and forecasts without questioning whether those contracts can be improved. This is often a mistake.

The truth is, no matter what the economic conditions, it is possible to reduce vendor costs without switching vendors or impacting service levels.

Here are 5 questions to ask when it comes to vendor contracts during this critical budget season:

As discussed in a recent blog post, banks and credit unions of all sizes continue to navigate a bizarre disconnect. Awash in a steady stream of deposit inflows from both businesses and consumers, institutions are hard-pressed to generate sufficient loan demand to put these funds to profitable use.

A crucial part of the challenge stems from account acquisition capabilities not keeping pace with customers’ digital evolution. This trend was already well underway but accelerated during the pandemic. SRM’s recent white paper, How Financial Institutions Can Boost Account Growth to Move with Changing Margins, outlines an actionable methodology for leveraging data analysis and market expertise to identify and act on a consistent stream of opportunities.

Here’s a preview of some of the insights covered in the white paper.

In response to the banking industry’s recent influx of deposits, several recent bank acquisitions show how some banks are responding to the pressure of putting liquidity to work.

Midsize banks like Truist Financial, Fifth Third Bancorp, Regions Financial, and some community banks have announced acquisitions where they plan to hold onto loans that the sellers would typically roll off the balance sheet.

Their objective? To redeploy billions of dollars in deposits held by the acquirers, shore up net interest margins, and boost returns.