Maz Kothari: The Evolution of Banking
With the recent discovery of the oldest hominid skeleton in Ethiopia, anthropologists now believe they have greater insight into how we as humans have evolved. How about Banking? Being an active patron of the banking industry got me thinking on the evolution, or should I say the de-evolution of banks.
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Cathy Pricco: Time to Re-visit Your Debit Card Strategy
Although debit card programs have been around for decades, many banks underutilize them as a source of sustainable fee income. In fact, while most banks communicate debit card benefits at the time a customer opens an account, few consistently follow up to encourage card activation and card use. For banks, a well-utilized debit card program can be attractive for several key reasons—it can provide a capital-free and recurring source of fee income, and it can provide a means for building customer loyalty and retention by offering a valuable product that carries minimal or no fees to the customer.
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Suggested Reading
Mark Flamme: Is your institution ready to respond to changing card regulations?
David Tilson: Customer Experience: Real Benefits for Financial Institutions.
Maz Kothari: Standardizing lending processes: The key to compliance, risk management, and efficiency.
Op-Ed: George Blanck's Industry Doings
The recovery continues to be news. There have been a few bright spots but the overall strength of the recovery remains less than clear. Take the recovery programs themselves - as these mature beyond the “quick fix” phase, they bring their own issues. An obvious example is in the secondary mortgage market where the Fed remains the primary market force. Its presence in the market has kept rates down and its exit from the secondary mortgage market, will undoubtedly affect the rates in the primary market as well. It is the question of whether this Fed-driven “mini-bubble” will suddenly pop or smoothly deflate. The task at hand for the Fed appears to be determining “What should be left in place after the money is gone to ensure an orderly market?” and then “How to manage the remaining time and funds so that the market moves rationally after the Fed pulls out.?” Does anyone in Washington know how to spell “exit strategy”?
Well, despite all the noise last year about revamping the regulatory process, the regulators are proving to be consistent with the “pre-bubble” world. Regulatory reform remains mired in inter-agency competition and Capitol Hill politics. Standards are slow in coming and potential new consumer credit regulations will undoubtedly increase the cost of compliance.
Meanwhile the FDIC has assured us that the multi-agency approach remains the most effective way to regulate. There must be some concurrence with this view since congress is creating another regulator, the new Consumer Financial Protection Agency (CFPA) in response to the “abusive” practices in primarily in the sub-prime market. But some signs of rationality prevailed with the amendment to exclude community banks from examinations by the new CFPA and while the Minnick Amendment failed to pass, the close vote will add impetus to move the CFPA's enforcement powers to existing regulators. These are certainly steps in the right direction but the struggle for regulatory reasonableness, clarity and consistency remains a challenge.
On a more positive front, the stock market prices in the financial sector continue to improve for healthy firms and the market is valuing capital at more reasonable levels. On the other hand there are scores of community banks teetering under the weight of their non-performers – enough has been said about their continuing struggle. A strong capital base is a cornerstone for the recovery and the relatively steady rise is certainly good news but the threat of higher capital requirements dampens the enthusiasm even at firms with solid capital ratios.
This leads to the question of surviving in the post recovery world. A few days ago a colleague asked (and I believe he was serious) if there really is a post-recovery future for Community Banks? After all, can they really compete? My immediate reaction was “of course”. The task is not going to get any easier but the community Bank’s ability to focus on the local market and to create and develop relationships within the community will not change. The ability to offer local, responsive services will continue to differentiate community banks.
But how much do you really know about these relationships? Are you targeting the marketing budget effectively? Your larger competitors have been “mining” data to understand your markets. To compete, more and more community banks are leveraging their data resources to help retain those profitable customers and to move the less profitable customers up the ladder. Leveraging your position in the community, personalized responsive service, a deep understanding of your customers and markets and then arming the front-lines with the information they need to interact effectively can be a winning formula.
For more information or to comment on this article, please email George Blanck.