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The Bottom Line

I recently had the privilege of speaking on a Minnesota Credit Union Network’s panel with some of the region’s local leaders about what they’re facing as a consequence of the pandemic. Although the venue was tailored to credit unions, I believe the perspectives apply to all financial institutions.

Four key points that stood out are noted below - some completely novel; some we can’t say often enough.

The banking industry’s biggest service providers, sometimes referred to as “battleships,”  have grown largely  through acquisitions. When market demand moves toward a new channel for delivering financial services (e.g., smartphones) or potential for a replacement solution opens up a new market tier (e.g., digital banking among regionals), these “battleships” acquire other entities to keep pace and/or unlock a new opportunity for revenue growth. Often, they wait for an upstart to gain some market traction then give its investors an exit strategy worth multiples of their initial stake.

Let’s begin by stating the obvious: this will not be a normal election season. As it has for so many aspects of everyday life, COVID has radically altered the basics of voting- from a huge uptick in advance and absentee ballots to the near-elimination of traditional campaign rallies.

We know that markets hate uncertainty – and that’s one thing in ample supply these days. Uncertainty creates hesitancy to invest in initiatives that could be upended based on the election outcome. This is especially problematic in our current environment, with so many critical issues clamoring to be addressed.

In the early stages of the US coronavirus pandemic, SRM reached out to banks and credit unions to gather insights on initial FI reactions and changes in customer behavior. A previous blog detailed the findings of that March survey.

In late June-mid July, SRM again collected responses on how perspectives had evolved once leaders had more time - and a bit more information - to assess their options. We received an even greater response, with impressive diversity in geographic footprint, asset size, and credit union/bank participation.

Google continues to make progress toward the launch of its much-anticipated checking product, recently announcing partnerships with six more financial institutions for a total of eight, so far. Both large banks and credit unions have signed on, with well-known names like Citi, BMO Harris, and BBVA on one end of that spectrum and the $2 billion asset Stanford Federal Credit Union and $800 million Coastal Community Bank on the other.

At SRM, we often receive questions about how our services can deliver cost savings without harming existing vendor relationships which have taken years to cultivate. Our answer is simple: We do not believe antagonistic, adversarial negotiations are in the best interest of anyone – be it the client, the vendor, or our firm. And we have validated this point of view with the thousands of contracts we’ve negotiated, while also adding over $3.6 billion of value to the financial institutions we have served. A recent engagement with 1^st Bank of Sea Isle City in New Jersey is an example of this conviction in action.

By now, Americans across the country have seen makeshift signs at cash registers requiring exact change or “offering” to change coins for bills, free of charge.

A few Chick-Fil-A locations have even begun offering a free sandwich to customers who bring in $10 of coins, to replenish their cash drawers. There have also been reports of some institutions offering an extra $5 for every $100 of rolled coins.

The “national coin shortage” has become so severe, the Fed has convened a task force to identify solutions and limit the economic impact.

Top-of-wallet status is highly coveted because, once achieved, the incumbent – in this case the card issuer - has the advantage. Old habits die hard. Once a consumer develops a “go-to” card for certain types of purchases, they tend to repeat that pattern of behavior.

Those habits can be cultivated by offering benefits to the user via a rewards program. Sometimes the choice can be situational, with cardholders designating certain cards for specific types of purposes. This may extend to the type of card – e.g., debit or credit – and/or a workflow established by the merchant which makes it easier to use one card rather than another – e.g., Walgreens Express Pay.

Knowledge is power and most bankers have figured out that they’re sitting on a treasure trove of information about the consumers and businesses they serve.  However, using this information to empower their account holders and deliver services tailored to their needs has been a difficult goal for banks and credit unions to achieve. 

One of the many changes brought by COVID-19 was an acceleration in the participation of the delivery economy.  This level of participation is likely to continue to rise as more businesses develop viable online ordering and delivery offerings.  Companies such as Amazon, Google, and Apple have made personalization of offers and the anticipation of the consumers’ needs prerequisites to any successful online engagement.  So, as the delivery economy expands, successful offerings will need to reflect these same characteristics delivering the convenience and speed consumers now consider mandatory as a basis for loyalty. 

In 2018, SRM expanded its operations to Ireland, the United Kingdom, and Europe. This division of our firm, known as SRM Europe (srmeurope.com), services a diverse set of industries, including financial services, music entertainment, food retailing, and architecture. While these are different markets, all have been affected by the pandemic and reports across these varied verticals virtually tell the same story.

The overarching message is that organizations, of all types, need to successfully adapt to change. As we’ve recently experienced, change happens, regardless of one’s level of preparedness. However, organizations often shy away from changing course, even after the tides have shifted. As change is the only constant businesses can rely upon, a culture of adaptability, clear communications, and good relationships will help ready any organization for the challenges ahead.