Optimistic Forecast for FinTech Providers

A new report, being released today by the William Mills Agency, reveals that spending by financial institutions is recovering as the economy and industry rebounds. The tenth annual ‘Bankers as Buyers’ study shares indepth insights and research from more than thirty individuals and organizations regarding what technology, services and solutions banks and credit unions are expected to invest in 2013. 

This report is a compilation of viewpoints from many of the most influential research and fintech support institutions in the country and is available as a free download here.

In this year's report, IDC Financial Insights projected that technology spending is expected to increase to $57 billion, with much of the spending expected to occur in the ‘second tier’ of financial institutions ($1 billion - $10 billion) as opposed to the largest banks.

"As technology continues to be central to customer interactions and an improved customer experience, we are constantly reminded that technology in not a banking department, but is everywhere . . . including in the hands of consumers”, states Scott Mills, president of the Williams Mills Agency. “Demographic and behavioral changes, combined with changing technology preferences and the need for improved trust and brand loyalty will force banks and credit unions to evaluate the role of technology in the delivery of services", adds Mills.

Additional findings of this year’s ‘Bankers as Buyers’ report include:

• A total of 14,210 financial institutions make up today’s depository landscape, which is down 3.7 percent from 2011 according to the FDIC and CUNA.
• While much of the focus on payments technology is on mobile, organizations are also looking at improvements in online payments, ACH, P2P and prepaid cards to attract customers.
• Mobile banking gained a stronger foothold in 2012, as FIs strived to meet increasing consumer demand for anytime, anywhere financial services.
• Consumer mobile banking is now used by 33% of mobile consumers according to Javelin Strategy and Research.
• According to the 2012 KPMG Community Banking Outlook Survey, 47 percent of responding institutions identified regulatory and legislative pressures as the most significant barrier to growth over the upcoming year.
• Raymond James predicts North American IT spending will continue to grow at a relatively modest three-year compound annual growth rate of 3.1 percent.
• Branch/teller capture will have a 98 percent expected adoption rate in 2013 and 2014 according to Celent.
• Cloud computing has had a rapid acceptance, with many banks inquiring about alternative cloud strategies, according to Dan Holt, president of CSI.
• Being able to leverage ‘big data’ will be increasingly important to profitably serving both retail and small business customers according to Jim Swift, CEO of Cortera.
• Mobile Remote Deposit Capture (RDC) is being considered by 80 percent of financial institutions according to Celent.

Spending Outlook

As mentioned above, IDC Financial Insights expects North American financial institution technology spending to increase to $57 billion, with the largest financial organizations seeing slower growth rates than their smaller counterparts. This trend is expected to continue in 2014 and 2015 as shown below.

This post is recapping some of the spending highlights from the 'Bankers as Buyers' report, including those in the areas of mobile banking, compliance and security and payments. Additional areas of spending covered in the 'Bankers as Buyers' study in significant detail include:

• Analytics/Big Data
• Small Business
• Branch Technology
• Cloud Computing
• Community Banking
• Loyalty Programs
• Personal Financial Management (PFM)

Mobile Spending

This year's report emphasizes that, with the penetration and use of smartphones and tablets continuing to increase, mobile banking technology is expected to impact all aspects of technology spending in financial services in the coming years. “Mobile payments are a major driver behind mobile banking and a potential customer retention and revenue tool for financial institutions”, states Richard Crone, founder of Crone Consulting, LLC.

Ron Shevlin, senior analyst from Aite Group agrees saying, “Aite Group anticipates that mobile banking users will triple between 2012 and 2016 in the U.S.” He continues, “Tablets will become financial management devices, and smartphones will become financial transaction devices. FIs need to invest accordingly.”

Many others in the ‘Bankers as Buyers’ study point to tablet growth as being the foundation for the next phase of mobile investment by banks and credit unions. With growth of this device category far surpassing that of smartphones, financial institutions are currently behind the eight ball, lagging in both offerings and functionality. In fact, some mid-tier banks still do not offer a customized tablet application for tablets, deferring to a reconstructed mobile or web application.

According to David Peterson, executive vice president for Q2 in Austin, TX and a report contributor, “The key for financial institution executives is to understand and leverage the tablet, smartphone and other devices that customers use, and present them with the right capabilities for the right device.”

Additional areas of technology investment for mobile in 2013 will be focused on remote deposit capture capabilities (beyond check capture), improved mobile alert functionality and voice recognition.

Perhaps reflected in the increased technology investment by mid-tier financial institutions, many community banks have lagged their larger counterparts and credit unions in mobile banking offerings. With mobile banking becoming the primary way many consumers interact with their bank on a transactional basis, hesitation to respond to consumer behavioral trends could have a significant impact on customer acquisition growth in the future.

Compliance and Security

Compliance and security costs continue to put a strain on financial institutions of all sizes according to the study. Beyond the extensive investment in human resources required to keep abreast of requirements, data management tools are being used to comply with new regulations and to monitor all areas of the organization for potential security breaches.

Some institutions are adjusting to the new regulatory reality, however, with some costs seemingly being reduced over time. According to report contributor Jimmy Sawyers from Sawyers & Jacobs, LLC, “Some institutions are getting innovative (around the cost of compliance). They are starting to do more with less and adapting to the new playing field.”

Unfortunately, the same can’t be said for security costs, which are increasing and a very high priority for all institutions given the growing threat from a highly creative fraud community. All is not bad news on the security front, however, since the report indicates a direct correlation between superior security and loyalty according to Javelin Research. In other words, the investment in security may have a consumer payback.

Payments Technology

While the majority of the focus around payments technology is on mobile, financial institutions are also looking to improve online payments, ACH, P2P and are spending funds to develop prepaid offerings according to this year’s report.

“The challenge banks have is in trying to better understand how people will transact in the future”, said David Wilkes, CEO of Fuze Networks and one of the report’s contributors. “The reality is that there is really no such thing as an ‘unbanked’ consumer.” While some may interact with their financial provider in a non-traditional manner, there is some form of payments system supporting virtually every consumer.

While many theories of how the payments marketplace will finally settle exist, the competition (and the need to keep up with new entrants and innovation from traditional players) will require significant investment to support the payments process.

“Payments will continue to evolve.” says John Balose from ORCC. “Fifteen years ago, few people were using online payments. Mobile solutions have changed everything. It’s a very fractured market.” According to the report, there are nearly 50 digital wallet providers currently, with more expecting to emerge.

It is clear from the report that financial organizations may want to opt for playing a game of ‘payments roulette’, placing smaller bets on a variety of potential outcomes, hoping to hit the jackpot when the competitive dust settles. One thing is clear, however. Financial institutions should not sit on the sideline and wait for a winner. By then it may be too late.

Additional Insights

Beyond the insights collected for the development of this year’s ‘Bankers as Buyers’ report, Williams Mills provides four feature articles from some of the best minds in the FI space. The titles of these must-read articles and are included in the free download:

‘U.S. Banks and Core Replacement’ - Jeanne Capachin

‘Technology in Wealth Management: Opportunity or Threat?’ – JP Nicols

‘Mobile Payments Offer a Variety of Payment Opportunities’ – Richard Crone and Heidi Liebenguth

‘Top Ten Trends Impacting Bank Technology for 2013’ – Jimmy Sawyers

FREE Downloadable Report

Bankers as Buyers 2013: William Mills Agency (January, 2013) 

Contributors to Report

Aite Group, American Banker, BankInfoSecurity, Banno, Jeanne Capchin, CARDFREE, Clelent, Clientific, Comscore, Cortera, CSI, Credit Union National Association, Crone Consulting, Finovate Group, Federal Deposit Insurance Corporation, Federal Reserve Bank of Cleveland, First Annapolis Consultion, Fuze Networks, IDC Financial Insights, Jack Henry Banking, Javelin Strategy and Research, KPMG, Mercator Advisory Group, MoneyDesktop, Morgan Stanley, Online Banking Report, ORCC, ProfitStars, Q2 Banking, Raymond James, Sawyers & Jacobs, Symitar, Wells Fargo and Zions Bank.

Are Some Banks Too Small to Survive?

With increasing regulatory capital requirements, declining interest margins, a greater need for investment in innovation and new competition, there are many in the industry who believe that smaller banks may have limited opportunity for growth in the future. 

These pressures may lead to an acceleration of consolidation in the banking industry that impacts both small and mid-tier banks and results in a significantly reduced number of institutions in the future.

While attending both the BAI Payments Connect and CBA Live conferences in Phoenix last month, discussions often revolved around the heavy financial and organizational impact of new capital requirements and of regulatory compliance being faced by institutions of all sizes. It was also clear that the investment in advanced technology and the pace of innovation was creating a distinction between the 'haves' and the 'have nots'. While there were some exceptions, this line of demarcation appeared to be defined by the size of organization.

The question I asked several industry thought leaders over the past couple weeks is whether smaller banks are in a position to survive given the massive industry changes on the horizon. While their responses varied regarding the chances of survival for today's community bank (and smaller credit union), there was unanimity in their belief that smaller institutions must quickly adjust to the 'new reality' of increased capital requirements and regulatory pressures, a greater focus on revenue, and a need to innovate for an enhanced customer experience.

"The thing that keeps me up at night is that we will likely see an industry contraction in the next decade like we never experienced", states Bradley Leimer, vice president of the $3.2 billion asset Mechanics Bank in California. We are moving from over 14,000 financial institutions today to less than 5,000 in the next 10 years (maybe sooner). This is due to the changing nature of consumer behavior with the introduction of mobile and social and technological innovation, but also due to systematic changes to the banking model itself."

Also supporting my informal findings, Emily McCormick, director of research and writer for Bank Director, interviewed the risk officer of an $8 billion bank holding company for Bank Director's 2013 Risk Practices Survey. He told her that, while he found a lot of positives in the regulations coming out of Washington, this could be a challenge for smaller banks that lack the resources and staffing to keep up.

McCormick also believes there's a technology challenge, "Internally, smaller banks need the right resources to do things like manage risk, but they also need the resources to compete. While smaller banks have the significant benefit of connections within their local business communities - giving these banks a potential advantage in business lending - customer expectations for services like mobile and online banking will continue to rise."

Increased Capital Pressures

According to an Invictus Consulting Group report entitled, Buyers and Bleeders, more than half of today's institutions will need to participate in some type of M&A activity based on new capital requirements alone. This includes as many as 2,000 banks that should sell due a lack of financial return and/or a lack of capital. In addition, the report believes that as many as 3,500 institutions have enough capital, yet lack loan demand and therefore need to deploy their capital to acquire banks that will grow their business. Unfortunately, even some of these firms with capital may not have enough to spend to grow to the level to be competitive.

An interview of Adam Mustafa, managing director of Invictus, was done by Bank Director Magazine to discuss the research report findings. 

Impact of Increased Compliance

According to an October 2011 research report developed by Aite Group entitled, Reducing Banks' Compliance Toll, the annual cost of compliance for banks well exceeds $1B. Unfortunately, many of these costs (personnel, software, etc.) are 'fixed' infrastructure costs which place a heavier relative burden on smaller organizations who still must comply with many of the same regulations.

According to the Aite report, however, many institutions have failed to take advantage of technology and process improvement steps that could reduce redundancy and paper intensive processes that are a major contributor to these costs. Aite (and many other consultancies noted in the report), believe that the end game is an 'electronified' organization that can eliminate paper and enable real time information management.

Unfortunately, this automation of processes requires a substantial investment that may bring long term benefits, but is not affordable to many smaller institutions today given other priorities.

The Innovation and Distribution Imperative

While we could discuss for days whether or not the improvement of branch-based, web, online and mobile interactions should be considered 'innovation', there is no disputing the fact that the typical banking customer is expecting more services, delivered through more channels than ever before. As I experienced in person at the two conferences in Phoenix, the investment in innovation is both required and substantial.

According to Leimer, "If community based institutions are going to relevant going forward, they need to be much more agile and much more focused on partnerships with technology providers and other similar shaped financial institutions. We must work together to partner and innovate to deliver community based services in a hybrid model - centralizing resources, sharing innovations, riding on non-traditonal service frameworks - the type of cooperation these institutions haven't historically embraced." 

In addition, as consumers embrace the smartphone and do more of their banking online and through mobile devices, additional negative dynamics occur. According to Sherief Meleis, partner at financial consultancy Novantas, the reduced importance of local branching means that banks are moving from being primarily local retailers (where the average community bank could simply out-local the big banks), to product/marketing organizations where there are indeed economies of scale. 

"In an environment where the branch importance is diminishing from a transaction perspective, it’s difficult for smaller banks to afford the required fixed cost (just like with regulation and compliance). Our analysis suggests that super-regionals and national banks have substantially higher returns to branch network position, due to their ability to invest in product innovation and brand marketing."

This position was shared in a recent American Banker article entitled, "Why Regional Banks Are The Right Size Right Now" where the case was made that regional banks benefit from the scale to absorb compliance and regulatory costs better than their smaller brethren, yet are nimble enough to develop new technologies that can improve service delivery and efficiencies. This was evident in their chart showing the ROE for different sized organizations.

Power of Shared Services

As shown above, critical mass is a "sine qua non" for success in today's highly competitive market place. One of the impediments to small size is that it gets difficult to embrace new technologies and improve your operating margin as investments in technology do not give the same payback as it would for the larger banks. Therefore small banks need to take advantage of some one else's strength and critical mass and deal with a service partners and business process outsourcers that are able to improve efficiency ratios.

According to Nicole Sturgill, research director for retail banking and cards for CEB TowerGroup, "Small banks have the opportunity to take advantage of single supplier discounts (i.e. using one solution for branch sales and service, online banking, mobile banking, etc.). In addition, there are a number of solutions that cater to the community bank and credit union markets, which offer lower pricing because they are selling to thousands of institutions (i.e. mobile RDC and PFM)." She adds, "While these solutions may not offer all of the wiz bang functionality of a large bank solution, the increased focus on personal service that a smaller bank provides may give them parity if not an edge on the larger banks."

While there are some very good banks of all sizes, the efficiency ratios get better as we have some critical mass, according to Sankar Krishnan, global banking engagement head for business process outsourcing leader, Sutherland Global. "Companies that provide operations and technology services to banks and are able to improve the operating metrics have a great role to work with the smaller institutions (Community, Regional etc). They can provide industry best-in-class knowledge and help support their efforts to get better on efficiency ratios and operating margins."

Some Small Banks May Survive . . . If They Have a Plan

There is very little doubt that, given the economic environment and the paucity of available capital for smaller banks, the number of banks will certainly decline over the next several years. This decline may simply be a continuation of recent history – or the consolidation of the banking industry could accelerate. While most of the advisors I contacted agreed that small banks must take an aggressive stance to increasing sales and reducing costs to survive, they also believed that some smaller institutions may be positioned to succeed in the future. 

Mary Beth Sullivan, managing partner of Capital Performance Group, thinks that earnings pressures for smaller banks will be even more significant in 2013 than in the past but states that many banks may not simply succumb to the pressures to consolidate. "Smaller banks are sometimes odd characters . . . many will continue to hold onto their independence as long as possible."

Serge Milman from Optirate warns that deploying technology and/or introducing products and services without the benefit of a comprehensive business strategy is an effort that is likely to disappoint.  "Just look at institutions that have deployed these tools and most will show little or no improvement in profitable customer growth, increased wallet-share and certainly, not higher ROE.  This approach is analogous to attempting a cross-country drive without a map (or GPS) --- no one would try this, yet Bankers do exactly this every day of the week!"

Milman continues by saying, "The journey to growth, profitability and customer loyalty must begin with a sound strategy that is supported with a measurable and implementable operational plan.  Community Banks can succeed, but to do this, they must embrace the reality that the world has changed and they must willing to adapt."

"There's only one strategy that makes sense for smaller banks: get more sophisticated about analyzing customer feedback and leverage the voice of the customer to prioritize which initiatives to pursue," stated Steven Ramirez, CEO of communications consulting firm Beyond the Arc in an email interview.

"Smaller banks have the potential to gather deeper insights about their customers, but few of them do. Since small banks can't invest in everything, they need to focus on what really matters in their local market."

Brad Leimer probably summed up the conundrum of smaller banks best when he said, "There is space for community minded institutions in the financial marketplace of the future - but they will look and act much differently than today - simply because the banking model has seen a significant shift."

Additional Resources

Buyers and Bleeders: Invictus Group (March 2013)

Bank Director 2013 Risk Practices Survey: Bank Director (March 2013)

Reducing Banks' Compliance Toll: Aite Group (October 2011)

Why Regional Banks Are The Right Size Right Now: American Banker (April 2013)

Subscribe to Bank Marketing Strategy Via Email

Banking Leaders Discuss 2014 Strategic Planning Priorities

CROWDSOURCING SERIES

As we enter the planning season with a marginally better economy than last year, banks and credit unions are faced with margin compression, high operating expenses, new competitors and channel disruption that challenge even the most efficiently run organizations.

To assist with this year's strategic planning process, I asked some of the foremost global leaders in the banking and credit union industry to provide thoughts on what they believe are the 2014 strategic planning priorities. This blog post is a companion to the post done at the beginning of the year regarding trends expected in 2013.

Understanding that each financial institution and market is different, it was interesting the uniformity of priorities offered to bank and credit union management by the more than 30 industry leaders I interviewed for this post. And while the ability to execute against these strategic priorities may be impacted by size of organization and other dynamics, there was a consensus among those who I spoke with that 2014 may be one of the most important planning cycles ever.

Enhance the Customer Experience

Improving the customer experience was the foundation of almost all of the responses I received around 2014 strategic priorities. Whether we are talking about branch reconfiguration, mobile banking applications, back office operations, etc. banking industry leaders believe an improved customer experience is the key to growth. 

As was said by Mary Beth Sullivan and the team from Capital Performance Group in their May/June Newsletter, "Many banks have a long way to go to get the basics right, so banks and credit unions should focus first on the basics. Once the basics are humming, ask yourselves: What can we do to be sure that our customers are better off banking with us than with our competition? What will make our customers lives better? How can we help them solve specific problems they are dealing with? Answers to these questions will define the experience you seek to create."

Beyond 'the basics', other specific strategic initiatives were recommended by Steven J. Ramirez, CEO of Beyond the Arc. "Developing a proactive complain management process that goes beyond regulatory requirements can drive new customer experience projects", says Ramirez. He also believes financial institutions need to determine how they can be a finger swipe away from providing guidance and support through mobile devices.

Financial industry futurist and blogger Scott Bales believes bankers need to get out of the office and talk to real customers, developing empathy for their problems, behaviors and desires if they want to develop offerings that align with the needs of the market. According to Bales, "The goal is to build experiences, not products".

Sankar Krishnan from Sutherland Global sees customer experience as the 'X factor' across all channels and interactions the customer has with their financial institution. Comparing what banks need to strive for with customer experience leaders Apple, Amazon and Quicken Loans, Krishman believes banks need to excel at aligning people, process and technology. 

Sam Maule from Carlisle & Gallagher Consulting Group believes that recent start-upssuch as Moven and Simple (and perennial cx leader USAA) are the best at visual engagement and customer experience. He quoted one of his banking clients as saying, "I would pay $500K for ONE great user experience designer. FSI's are horrible at this. We have massive data systems, huge BI tools, and more, but none of that means jack for consumers if there isn't an amazing user experience."

Finally, best selling author and acclaimed management advisor Joe Pine believes banks and credit unions must go beyond providing just checking accounts and loans.

Define Mobile Positioning

In response to the growth in smartphone adoption and customer demand, most financial institutions offer basic mobile services. But those are just table stakes. Going forward, banks and credit unions now need to determine how to position this channel for the future. 

Senior Aite analyst and Snarketing 2.0 blogger Ron Shevlin states, "The most important strategic question banks and credit unions need to address is how will the mobile channel help FIs add more value to the customer relationship, help differentiate the institution, and create a strategic advantage". He adds, "If the 2014 strategic planning process can answer these questions, it will drive decisions regarding pricing, product offerings and customer segmentation."

Noted technologist Bradley Leimer from Mechanics Bank agrees that banks need to move beyond 'mobile banking 1.0' and adopt a mobile-first mindset in regard to application development, marketing, service and transactional functionality. According to Leimer, "Banks need to build simplified journeys similar to those offered by Moven, Simple, Bluebird, GoBank and USAA." (Leimer expands on his strategic planning thoughts on his Discerning Technologist blog here). 

Senior marketing professional, Lori Philo-Cook from InnovoMarketing believes that financial institutions also need to improve the marketing of the mobile channel to customers, including enhanced training of employees and one-on-one demonstrations to customers. "The key is to better understand the needs of customers and provide personal demonstrations on how mobile banking can meet these needs", says Philo-Cook.

Multimedia and special projects editor of Finextra, Elizabeth Lumley believes it is time for banks to go beyond just mobile banking improvements and to place their bets on mobile payment partnerships. While the winners in payments have not been determined, she believes waiting is not an option.

Integrate Delivery Channels

As noted by Capital Performance Group in their May/June newsletter strategic planning article, everyone is talking about the future of branches because there is so much fixed cost tied up in this channel where fewer and fewer transactions are taking place. The challenge is not the opening or closing of a branch, however. It is the ability to integrate capabilities and information across channels, delivering an consistent experience.

Dominic Venturo, chief innovation officer at U.S. Bank believes banks and credit unions need to quickly adjust to the disruption in financial delivery channels. "Now that the majority of consumers in the US are carrying a smart-phone of some type and the technology has been used to eliminate the need to visit a branch for many activities (opening account, depositing a check, paying a bill, sending a gift card, etc) how will the delivery model of your institution change to remain relevant?", says Venturo. He adds, "The mobile wave started just a few short years ago and has already changed how we do business. Planning for the future of delivery should have already started, but if it hasn't, now is a good time."

Another retail banking executive at a top 5 financial institution believes FIs need to move to omnichannel banking which maximizes cross-channel consistency and provides a seamless user experience where and when the customers desires. This includes scenarios where the customer may begin their transaction using one channel and finish it with another.

To this end, Nicole Sturgill, research director for retail banking at CEB TowerGroup recommends, "Adjust channel strategy from ‘all transactions in all channels’ to ‘seamless integration across channels’. Our research shows that consumers prefer reduced effort over choice. They’d rather know which channels will be fastest and work best than try a channel that doesn’t work for what they’re trying to achieve. Instead banks and credit unions should focus efforts on ensuring that customers can move easily from one channel to another without degrading the experience."

Industry recognized innovator Matthew Wilcox also believes 2014 should be the year of breaking down internal channel silos and to determine how banks and credit unions can leverage channels to not just allow the client to self-serve, but to provide a positive full-service experience regardless of the channel.

Unfortunately, the back office of many financial institutions makes it difficult to break down silos that have been in place for years says Fred Hagerman, chief marketing officer of Firstmark Credit Union. He still believes that a disconnected experience has risks.

Both Virginia-based chief marketing officer of Geezeo, Bryan Clagett, and Market Insights' senior strategist Jim Perry from Chicago agree that financials should get out of their branch-based comfort zone.

London-based mobile/digital consultant for Keatan and publisher of The Bold War blog, Michael Nuciforo may state it best when he says that banks must move from a perspective of self-service (getting customers to do hated tasks themselves) to selfless service (where we focus on how the customer wants to interact). "New technology and changing customer behaviors mean that there are widening gaps between the processes of the past and the expectations of the new", says Nuciforo.

Reduce Enterprise Costs

It is no surprise to financial institutions of all sizes and in all countries that costs must be reduced as revenues have decreased and margins remain low. Many banks and credit unions have made cost reduction a perennial foundation of their strategic planning process, but more needs to be done in 2014.

"Banks must manage the cost base of the physical infrastructure and staff costs in branches to ensure that overhead of traditional operations are minimized while effectiveness of such operations are maximized", offers the Chairman of the London-based Financial Services Club, Chris Skinner. 

Bob Palmer, global financial services marketing lead at IBM agrees that there needs to be a continuation of the enterprise cost reduction strategies that are already in place. He believes these initiatives need to include a more aggressive reduction in workforce with a correlated reconfiguration/reduction of branch networks.

Melanie Friedrichs, analyst at Andera feels automation of core banking services also needs to occur. "For most institutions, I think that cost cutting through the better application of existing technology is the easiest path to a better margin", stated Friedrichs. Specific examples she provided include: increasing the percentage of deposit accounts and loans originated online, creating incentives to use online or mobile banking over branches and call centers, and investing in technology, perhaps even branch automation technology, to improve staff efficiency.

Author, 2012 American Banker Innovator of the Year, 'Breaking Banks' radio host and founder of Moven Brett King believes that banks need to dig even deeper for cost reductions. In his normal disruptive style, he challenges traditional financial organizations to make a significant paradigm shift.

Fellow disruptive thinker Deva Annamalai from Zions Bank agrees that banks need to identify processes that are outdated and archaic and get rid of them. "There is nothing more dangerous than sticking to things that we have done in the past because we are too lazy to change them," says Annamalai. "Your customers' tolerance for unneeded traditions like signature cards and other long and costly processes is wearing thin. Competitors who provide simplified, frictionless banking are ready to serve these customers."

Optirate CEO, Serge Milman adds that the future of banking may require additional scale. "Scale is needed to diversify 'concentration risk' (customer, geographic and product), attain lower funding costs, reduce unit costs, absorb regulatory burden and gain access to a broader base of potential customers," says Milman. "Options include organic growth and acquisitions."

Leverage Data

The discussion of 'big data' permeates our industry trade publication, industry meetings and blogs like mine (see here, here and here). This is because most financials sit on some of the richest sources of data of any industry, yet we rarely leverage it as effectively as possible. 

Recognized top innovator Matthew Wilcox states that while investments in innovation data management are up, banks still lag behind other disruptive companies in recognizing payoffs. "Banks have a strong hold on massive amounts of customer data and understand that their data is truly a gold mine", says Wilcox. He adds, "Initially, banks should avoid major new data initiatives until they get good at using the data they already have". 

Scott Bales suggests that banks may want to look outside their organization for help. "Bankers may want to look to data scientists, who can create stories from data to derive patterns, trends, insights and add context to interactions with consumers. The bank who best leverages their data best will ultimately win." 

Fred Hagerman from Firstmark Credit Union agrees. 

Understanding and processing data from various internal systems is imperative according to Zions' Deva Annamalai. "Break down data silos within the organization and facilitate information flow which will lead to a better customer experience," states Annamalai.

A strategic priority for banks should include the delivery of a mature enterprise data management structure that provides true parity based reporting between operational, performance and financial information", offers Jeff Fisher, director at Perficient. "From here, banks should build capabilities to further extend a bank’s ability to segment customer data and create a solid foundation to execute on a strategy to monetize customer data".

Sam Maule from Carlisle & Gallagher Consulting Group agrees and adds, "We all must be better at drilling into the contextual data that matters for customer engagement and not on creating executive dashboards for PowerPoint decks. Data analytics must lead to actual application and engagement with consumers, from customer acquisition to origination, marketing, education, collections, fraud, etc."

Nicole Sturgill from CEB TowerGroup believes that channel preference would be a great starting place for many financial institutions. "Know a customer’s preferred channels, both individually and in the aggregate. At the individual level, understanding how a customer wants to bank can drive how they are served, what products are offered, and how they are offered. At the macro level, understanding the channel preferences of the customer base can drive strategic decisions on channel investments as well as management structure."

Improve Marketing and Sales Effectiveness

As I discussed last month in my blog, the consumer purchasing funnel has changed forever, with the majority of consumers beginning their purchase process using online channels and less and less frequently preferring to visit a branch to open a new account. This new paradigm requires a shift in marketing emphasis from 'push' marketing, where mass media would bombard a consumer with messages, to 'pull' marketing, where time, place, offer and channel become much more important. 

This significant change in the purchase process requires a rethinking of strategic priorities for bank marketers in 2014 and beyond. 

James Robert Lay, president of PTP New Media and advisor to the credit union industry is a strong advocate of building a digital strategy that will lead to increased leads and sales. According to Lay, "Moving to digital channels requires banks and credit unions to stop thinking about digital as a tool that works independently of other channels and processes, but instead works together as part of a system or process." Lay continues, "Once banks and credit unions accept that the business model will need to change when dealing in a digital world, banks and credit unions need to explore how digital can align with people and products around a unified purpose."

London-based retail channel director at Misys, Alex Bray emphasizes that the future reduction in branches across the globe will require digital marketing acumen. "Banks and credit unions need to build relationships, differentiate brands and identify customer needs through digital channels instead of face to face as branches disappear," states Bray. "I think gamification and social media marketing will also play a big role here as will the importance of 'one-touch' mobile marketing."

Financial Services Club's Chris Skinner also believes that a strategic priority for 2014 will be to find ways to leverage social media and mobile for growing share of wallet through deepening customer relationships.

Finally, Elizabeth Dias, financial services and retail marketing manager at Perficient speaks for many of the banking leaders interviewed around the new strategic direction of marketing. "Successful financial services innovators will start to leverage a more integrated portfolio of technologies to be where their customers are today and identify new ways to create utility with their digital marketing strategies for tomorrow," says Dias. "There is a great opportunity for marketers to use tools like Vine, Instagram, Twitter, Facebook and Google or to develop a mobile app to solve a problem, make life easier, and of course engage with the customer as they map the digital customer journey."

Define a Differentiation Strategy

According to the list of strategic planning priorities developed by Capital Performance Group, there has never been a better (or more important) time to identify your institution's niche. How do you become the 'go to' financial provider for a specific retail or business segment? And how can you increase revenues (and potentially reduce costs) through this differentiation at a time when the consumer thinks all financial providers look pretty much the same?

According to Keatan's Michael Nuciforo, it may be as 'simple' (or difficult) as being the firm that executes the best against their plan. "The banks that are winning are the banks that are delivering," says Nuciforo. "They have refocused not on analysis paralysis, but on quality and speed of delivery." 

Serge Milman from Optirate and Melanie Friedrichs from Andera voice a similar warning around building differentiation in a crowded marketplace. While they agree that banks and credit unions need to develop strategies to set themselves apart in the marketplace, they both emphasize that there needs to be a highly focused commitment to the strategy.

Amber Farley, director of interactive services and media at Financial Marketing Solutions in Nashville, reminds us that, "Companies that usually do the best are ones that have a brand that permeates throughout the entire organization. The best companies value customer service and they make consumers want to be a part of their story". She suggests that more time and investment should be spent on internal branding initiatives by improving internal communication and energizing the organization. 

"Once each member of the entire team (from executives to the front line staff) is a brand ambassador for the bank, I think it is equally important to communicate the brand message in a consistent and aesthetically pleasing manner so that community members desire to be a part of the story. That's how life-long customers are made". 

Finally, fintech technologist Bradley Leimer emphasizes that differentiation (and innovation) do not need to be created internally or in a vacuum. Instead, he emphasizes the power of partnership with outside providers. If your firm is not able to address all of the external requirements of your customers and the marketplace, are unable to test, iterate or develop agile or lean processes that can help differentiate your organization, or simplify the customer journey and build a unique customer experience, partnering with an outside disrupter that can lead the way may be a better option. (read more about Bradley's perspective here).

Revenue, Security and Regulation

As was very profoundly offered by SourceMedia's Editor in Chief Penny Crosman, the financial services industry can't ignore the 'elephants in the room' . . . the ongoing need for revenue, the increasing importance of improved security and the reality of a heightened compliance environment. The negative impact of neglecting any of any of these strategic priorities could easily offset any benefits from the strategies discussed above.

Finding new ways to generate fees from new innovations or established products, testing new security options which will allow for greater acceptance of mobile banking and mobile payments and finding ways to improve compliance with fewer dedicated resources will be 'must haves' in 2014.

Keys to a Successful Planning Process

Whatever strategic initiatives are agreed to by a bank's or credit union's management, it should be shared and communicated with bank employees so they understand the organizations’s mission, vision, goals, and objectives and the employees’ role in achieving the objectives.

In its simplest form, a bank’s strategic planning process should answer the following four questions:

1. Where are we now?
2. Where do we want to be?
3. How do we get there?
4. How do we measure our progress?

In today's marketplace the strategic planning process must be dynamic and focused. Unfortunately, at many institutions I visit, the process becomes nothing more than an adjustment to the prior year's plan without adjustments that reflect the rapidly changing industry dynamics. In others, there is a lack of unified focus that can lead to disruption and competing priorities.

Simply going through the motions is a recipe for disaster as articulated by credit union advocate Tim McAlpine, president of Canadian-based Currency Marketing and Jeff Marsico, EVP of bank strategy at The Kafafian Group and fellow blogger.

Fintech advisor and CEO of Clientific, J.P. Nicols cautions, "Too many banks try to be all things to all people, and the universal bank model really needs significant scale to work. Bank executives should spend a a good share of their strategic planning time evaluating all of the businesses they are in (or not in) and make an honest assessment of potential growth rates and the investments and scale needed for success".  He adds, "Business lines not making the grade should be divested or closed and the investments diverted to lines where they can legitimately compete and win". 

I hope some of these suggested strategic priorities help in your 2014 planning process. Thanks to the dozens of financial service leaders that were so kind to share their thoughts.

If you have other priorities that you believe will help your fellow FI associates, I would love to have you post these in the comments section.

Additional Resources

Strategic Priorities for 2014 Planning - Capital Performance Group (June 2013)

Banking Leaders Predict Major 2013 Trends - Bank Marketing Strategy (January 2013)

Strategic Plans That Make A Difference - Mary Beth Sullivan for BAI Banking Strategies (August 2012)

Semiannual Risk Assessment: Spring 2013 - Comptroller of the Currency (June 2013)

Ten Keys to a Solid Strategic Plan For Banks - Sageworks Blog (July 2012)

Meaningful Strategic Planning Can Happen - ABA Banking Journal (May 2012)