Posted on Wed, Jun 29, 2011 @ 08:27 AM
Author: Dave Foss, dfoss@profitstars.com
Bankers are faced with the most significant regulatory overhaul seen in decades. Simultaneously, rapid technology advancements are requiring them to analyze traditional ways of business. Before making major changes, decision makers must first and foremost identify what they can do to maintain and grow the lifeline of their institutions: profitable clients. Some important strategies to consider include:
1) Know your profitable clients. Bankers should have access to dashboards and reporting tools with real-time intelligence to best analyze and adjust their strategic plans. Don’t be surprised to find that nearly 200 percent of your income comes from only 10 to 20 percent of your clients.
2) Recognize small businesses. Aite Group and Javelin Strategy & Research have reported that small businesses are underbanked and are often lost within consumer services. Meanwhile, their behaviors show tremendous opportunity to become more profitable. Small businesses must be recognized for being unique, and should be offered additional capabilities if a financial institution wishes to retain their business. Furthermore, small businesses need access to self-service strategies, which leads to my next point.
3) View self-service strategies as necessities. Advancements in consumer and small business technology have made self-service strategies a necessity. Banks and credit unions are leveraging solutions for mobile RDC and P2P payments as an acquisition and retention strategy for profitable clients. Javelin reported in its 2011 Mobile Remote Deposit Capture Report that one in every four consumers finds mobile RDC desirable, and 13 percent of those consumers will change their financial institution based on its mobile capabilities. Plus, financial institutions with solid mobile foundations will be well positioned to benefit from mobile payments, a very near reality.
4) Plan for the future. Leaders cannot rely on current accounts for success; a financial institution needs a strategic plan to ensure survival. It should come as no surprise that Gen Y needs to be included in that plan – and that generation of consumers has high demands for self-service. Javelin also reported in its mobile RDC report that 13 percent of Gen Y consumers have switched financial institutions for more ATMs, and seven percent has left for mobile banking capabilities. Conversely, banks and credit unions that attract young individuals gain significant advantages from their self-service preferences. The group tends to be less expensive to bank and their combined incomes will triple by 2025, clearly making them a wise and profitable investment.
Maintaining loyalty and profitability is a heightened challenge for today’s bankers. Both consumers and small business owners have an added sense of financial responsibility and independence since the recession, and they are unlikely to settle for a financial partner who can’t or won’t meet their needs. It is crucial that financial institutions recognize their profitable customers and members and have a strategic plan in place to maintain and expand those relationships.
Please leave a comment with any other strategies that you feel are important.
Posted on Wed, Jun 22, 2011 @ 02:49 PM
Author: Lee Wetherington, lwetherington@profitstars.com
It’s a trope that is trot out all too often. “We’re a community bank…we’re all about relationships.” But relationships can be shallow, as shallow as the small talk that accompanies a typical teller-line transaction.
Most community financial institutions pride themselves on knowing the names of those they serve, but let’s get real. Knowing someone’s name doesn’t mean you know them, much less have a meaningful relationship with them.
Minimize the Mundane to Maximize the Meaningful
The recent legislative failure to delay Durbin has brought new urgency to financial institutions’ search for new fee-income and cost-cutting alternatives. In the branch, this means capitalizing upon service kiosks and cash recyclers to improve efficiency and reduce overhead.
While this scares many, take heart. Fully automating the mechanics of cash and check transactions just might finally free up time for real conversations about real pain points, both of which create opportunities for real relationships and higher profitability. Done right, automation and technology can make room for the meaning that has long been lacking in financial services.
What Have You Done for Me Lately?
Since 2009, many consumers have simply given up on managing their finances. They are exhausted, confused, and overwhelmed. According to Javelin Strategy and Research, 19% of consumers no longer actively manage their money. Worse still, one in every four members of Gen Y makes no effort to monitor, plan or budget finances.
This presents a big opportunity for financial institutions. Instead of providing a balance and a list of transactions, second-generation online banking (a.k.a., online financial management or OFM) visualizes account data to make it meaningful and actionable. At a glance, customers can know how they measure up in terms of spending, saving, and investing.
Once customers know where they stand with their money, they are much more likely to make decisions about what to do next and how to do better, i.e., purchase the right financial products and services. This is good for the customer and good for the financial institution, but it all begins by making the data meaningful by making it visual and understandable.
Relationships Happen Before & After the Transaction
The next step is for financial institutions to provide meaning and help when and where customers need it most: in the moments that precede a purchase or transaction.
Think about it. With unemployment high and the threat of a double dip looming, many consumers must make fiscally responsible decisions. The convergence of mobile banking, e-commerce, and shopping apps will give customers just such help in real time on demand.
Already, consumers use mobile apps like RedLaser and Amazon’s Price Check to scan store items and find better deals elsewhere. The real question is whether the consumer’s budget can accommodate the prospective purchase at all. Can I really afford these $100 shoes right now?
By tying mobile shopping to OFM budgeting in real time, the consumer will be nudged to make responsible choices in their own best interest as spending takes place. If they spend beyond budget, OFM will alert them afterward and make recommendations to remedy the overreach.
Isn’t this just the kind of candid advice a good friend would give? You bet it is. It’s the mark of a real, meaningful relationship.
Relationships are Social
Financial institutions that continue to conceive their role and purpose as one-way providers of data processing, products, and services will never realize the potential and profit of meaningful, two-way relationships at the core of the community banking ethos.
Nowhere is this more apparent than with financial institutions’ forays into social networking. Most completely forget the “social” in social networking. Success with social media is not about what your bank or credit union says, sells or promotes there. It’s about the quality of the conversations started and engaged. Specifically, it is about what your customers say about you to each other (and prospects) that really matters.
According to recent research by Aite Group and EFMA, of all social media tools available, most financial institutions consider “customer review sites” the most influential of consumer preference. Yet, only 15% of financial institutions offer a forum in which customers can rate, review, and share their feedback on the institutions’ products and services.
In short, financial institutions don’t make the space for true conversation and real two-way relationships.
Can You Relate?
The mobile/social universe into which we are migrating places a high premium on the relational over the transactional. The economic, regulatory, and technological forces fueling this migration give financial institutions the occasion and opportunity to make good on the “community” they claim to exemplify and serve. So, can you relate?
Posted on Wed, Jun 15, 2011 @ 08:40 AM
Author: Milton King, MKing@profitstars.com
While check volume has decreased in the past few years, nearly everyone sees the decrease slowing. Why is that? A few reasons come to mind:
- The FI industry has shrunk to a point where it is pausing, and the volumes are too.
- After finding themselves with unwanted debt, consumers are now a bit credit card weary and are reverting back to traditional means like cash and checks.
- The third, and most intriguing, is that the technology people thought would be the demise of checks may actually be saving checks. A few examples:
- Image ATM - the Image (advanced function) ATM has made check deposits a simple process that is available 24 hours a day. This is good for the consumer and the bank/credit union. The proverbial “win-win!” Customer acceptance is up and so is deployment.
- Mobile Phone Capture - Can you think of a more convenient way to capture an image of a check? I can't! This takes convenience a step further than the ATM as it eliminates going to the branch.
- At-Home Capture or, as I like to call it, the Pajama Branch. This is particularly attractive to the small, mobile business.
- Merchant Capture – Now merchants can accept checks and get immediate feedback on the status of the check and deposit it to their bank. This mitigates the risk associated with checks and gets the money deposited quickly! Two important advantages for a merchant. It also delivers features of the debit card, but with the control of a check.
What do these technological factors all have in common? They all take away the inconvenience of a check. We see that our banking and credit union clients that have seen a steadying (or in some cases an increase) in check volumes all have one or more of these services available to their customers.
The consumer is getting the best of both worlds. They get the security and stability of traditional check-based transactions while also taking advantage of the best in modern technology. No wonder the adoption rates have exceeded expectations.
As more institutions embrace these technologies, it will be interesting to see if technology ultimately saves the check instead of eliminating it.
Your Chance to Speak
What has been the experience at your FI? Any trends, differences…or surprises?
Posted on Wed, Jun 08, 2011 @ 08:10 AM
Author: Martin Webster, mwebster@profitstars.com
Last night I woke with cold sweats, heart palpitations, and grinding my teeth - another nightmare. I wondered, what are the most common nightmares? An Internet search says:
- Spiders
- Health problems
- Running for your life
- Teeth falling out
- Budgeting
Ok, budgeting wasn’t actually in the search results list. Many of you would probably put budgeting in the top five though. (Keep reading to find the real number five.) Here are a few best practices that you can begin now – to help you avoid budgeting nightmares in the Fall.
Budget Beyond the Wall
Most financial managers budget to the end of the next fiscal year (the wall) rather than budgeting to long-term strategic goals. As a result, they continue to fall short of their strategic goals and feel frustrated at their lack of progress toward them. It also can result in poor operational decisions being made throughout the organization.
Best Practice #1 - Use your strategic plan as your guide to creating the fiscal budget. As simple as that may sound, in a recent ProfitStars survey of financial institution managers, nearly 25% of respondents said their strategic plan is out of date and 20% said they don’t tie their budget to their strategic plan. Build your strategies first and then use your budgeting process to align resources and processes to achieve your strategies in the most cost efficient way possible.
Stop and ask for directions!
What would you do if you were on a road trip and you noticed that the road you were driving on isn’t even on the map? Hopefully, you’d stop and ask for directions on how to get back on track. Unfortunately, it is not uncommon for financial managers to ignore that advice. They continue to report budget variances each month without a revised forecast. 78% of organizations choose not to change their budgets within the fiscal cycle leading to managing operations around numbers that no longer apply – like taking a road that doesn’t exist.
Best Practice #2 – Develop rolling forecasts - Routinely forecasting your financial position over a twelve to twenty four month horizon will enable your organization to take advantage of future opportunities to improve your financial performance rather than constantly reacting – and it will make budgeting much easier.
Get Buy-In
Nearly half of the survey respondents reported that their budget is developed from the top down. While that process may have some advantages, its disadvantages far outweigh them. One financial manager, on the receiving end of a top down approach, stated, “Our budgeting process is fine. Management tells us what our number [goal] is supposed to be and we enter it into our budgeting system. Of course, who knows if we can meet our target? It’s not like we were involved in setting it.” Lack of buy-in is the most common cause of budget and strategy failure.
Best Practice #3 – Decentralize and humanize the budgeting process. Start with a corporate-wide review of the organization’s strategic goals. Then, discuss specific tactics with managers to get a front line perspective. Finally, ask for budget input for only those line items they can control. Integrate their submissions with executive management assumptions about current cashflows and capital expenditures to produce the comprehensive budget. The result will be higher morale, increased fiscal responsibility and a commitment to organizational goals.
What are your budgeting best practices? Please share them with me by commenting on my blog post. These nightmares have got to end!
By the way, the fifth most common nightmare is “the end of the world”.
Sweet Dreams!
Posted on Wed, Jun 01, 2011 @ 08:04 AM
Author: Lee Wetherington, lwetherington@profitstars.com
In my line of work, it’s tempting to defer to conventional wisdom, so it’s a rare joy, a thrill even, to see that “wisdom” challenged by new realities on the ground. Given the ever shortening cycles in which disruptive technologies reach mass adoption, the ability to let go of ‘received truth’ when confronted with new facts is critical.
Over the past 12 months, mobile remote deposit capture has transformed from a marginal, niche application to a technology for the times, and here’s why:
1. The more change, the more options, the higher the premium on simplicity…a 4% premium to be exact. According to Siegel+Gale, U.S. consumers are willing to pay $2.6B for simplicity—an attractive fee income opportunity in the age of Durbin. Having access to everything all of the time everywhere we are via mobile can be overwhelming, even paralyzing, and this pervasive saturation is the defining challenge for today’s time-poor consumer. The antidote? Make it simple. Would you rather know your current balance, or the actual amount of discretionary income available after the remainder of the month’s bill obligations have been met? Would you like a list of transactions, or a graphic summary of what you’ve earned, spent, and saved month-to-date compared to previous months? And what about that one-off insurance reimbursement check you just received in the mail? Would you rather drive it to the branch or just deposit it right now using your smartphone?
2. The fewer the checks, the more important remote deposit capture (RDC). Some pundits see the accelerating decline of check volumes as sufficient reason to second guess RDC. With 96% of checks being cleared electronically via image, why invest further in the automation of a declining method of payment, right? Wrong. It’s just the opposite. The fewer the checks you receive, the more inconvenient and frustrating it is to have to deposit each of them manually. This simple fact, combined with the heightened expectations that accompany smartphones (which will overtake feature phones in the U.S. by the end of the year) is making mobile RDC one of the hottest technologies of 2011. According to Javelin Strategy & Research, one in every four consumers desires mobile RDC, and, since 87% of the 20+ billion checks out there are still deposited in person on paper at the financial institution of first deposit, this party is just getting started.
3. Mobile banking may not significantly reduce expensive branch traffic, but mobile RDC will. Recent studies by Novantas LLC and Forrester Research find that most tech-savvy, "ultraconnected" customers use in-branch services more than their less connected peers. Moreover, these same customers also tend to value their personal relationships with branch staff more than others. These findings lead some to question whether mobile can deliver the potential cost-savings promised by the $.08 mobile (vs. $4.00 branch) transaction. This skepticism makes sense in light of the history of PC-based online banking, which taught us that giving customers a new, convenient channel doesn’t mean they will stop using existing channels. Rather, customers transact more with the financial institution in total using whichever channel is most expedient in the moment for the task at hand. So, yes, mobile banking does not cannibalize branch visits one-to-one, but mobile RDC does. Unlike PC-based online banking (most versions of which today still lack an RDC option), mobile RDC specifically preempts branch visits by allowing customers to deposit checks whenever and wherever the customer encounters the check. And since the majority of branch activity still revolves around checks, mobile RDC is the catalyst not only for significant cost-efficiencies for the financial institution but significant simplicity for today’s time-poor consumers and businesses.
By 2014, according to Javelin Strategy and Research, 100 million U.S. consumers will be mobile banking, and half of these will deem mobile RDC highly desirable. Moreover, creative bundling of mobile RDC with new account offerings may drive new fee revenue opportunities post-Durbin.
In a world where many techs have yet to prove their place, mobile remote deposit has found its mojo.