We're single-digit weeks away from the start of 2019, which means banks and credit unions are discussing their goals and strategies for the new year. To help in your planning, we combed research and fintech editorial trends for the most important factors that will impact and shape our industry. Here are our top 5.
As the economy continues to rebound from the Great Recession and inflation rises with the recovery, U.S. financial institutions are watching interest rates. Consumer confidence in the economy has nearly doubled since recession-era lows, and account holders are now choosing from an array of higher return options for their dollars. Long-term CD rates are cresting over 3.50%, and some of the biggest U.S. banks are now rolling out short-term CDs above 2%.
What’s more, rates are projected to continue to rise at a rapid clip, meaning institutions that can re-price the quickest will capture the market at that time. The FDIC has highlighted interest rate risk as a major concern, given low net interest margins and widespread mismatches between asset and funding maturities.
Here are some questions to guide your 2019 strategy setting discussions:
- Are we offering competitive rates?
- Do we have the right deposit mix for this environment?
A whitepaper that addresses this topic in depth explores how reward checking can bring low-cost, core deposits that preserve deep account holder relationships in this rate environment.
Increased Cost of Funds
Raising your promoted rates to be competitive begs the question “How can I afford this increase in cost of funds?” Cost of funds is useful for comparing CDs, savings, and MMAs, but it fails to holistically capture transactional accounts that typically have non-interest income and expenses. For these types of accounts, we recommend you look at the “cost of deposits.”
Through this lens, you will see that offering high-interest checking accounts isn’t just possible – it’s profitable. Some questions to guide your discussion:
- What do our deposits look like through the metric of cost of deposits?
- How will these costs look when rates move higher? Do our accounts help us avoid the risk of margin compression?
For more detailed information on how to use cost-of-deposits, we recommend a whitepaper authored by our Chief Client Officer, Greg Wempe: “Finding the Silver Bullet for Margin Compression.”
The way consumers shop has changed dramatically over the past decade. It used to be that media channels were owned by brands. Only a business could secure air time on television, radio, or even build a quality website. The rise of social media has given everyone a voice, and now businesses find themselves struggling to capture attention. Cutting through the noise in the digital age requires institutions to adopt a multi-channel approach and data-driven strategies. Ask your team these questions to determine if your marketing is competitive.
- Can we reliably control our cost per acquisition and ROI?
- Do we have the right product stack to support multiple channels?
- Can we track and leverage consumer data to market more effectively?
- Do we have access to channel-experts who can run and optimize these campaigns?
Having an in-depth understanding of your market will make these discussions much easier. We're happy to offer a free customized Market Inside Report for your institution.
We’ve discussed how rates will impact your account holder retention, but rates alone won’t command loyalty. You have to provide exceptional service. Traditionally, great service was defined as a friendly and knowledgeable staff, but today’s consumer expects service through digital channels. Your website should be easy to use, you should leverage data to ensure you are suggesting the best products for each account holder, your marketing messages should be relevant and personalized, and you should be easy to reach through a multitude of channels (social, email, and website chat).
Use these questions to get a better understanding of your service.
- Does our website help consumers find the right product in under 5 clicks?
- How long does it take to get a personalized response through email, Facebook, Twitter, and Yelp?
- When is the last time we mystery shopped our frontline staff?
FinTech and Innovation
“The pace of change has never been this fast, yet it will never be this slow again.” This quote from Justin Trudeau, Prime Minister of Canada, perfectly describes the current state of the financial sector. Every week there is a new FinTech company in the headlines who is going to reinvent some aspect of your business. Some institutions see these firms as threats, but success for both FinTech companies and community financial institutions is in partnerships. Kasasa's Chief Innovation Officer, John Waupsh, discussed this topic in detail in this article. He recommends asking the following:
- What can our organization do to scale itself?
- Which target audiences should we focus on?
- Which products or services should we no longer offer?
- How do I condition an entire organization for a future of change?
- Are the right leaders and processes in place?
- What new skills should be brought in-house?
- Does the board have the necessary skills, thinking, connections, and guts to support the organization over a very challenging period to come?
Final Notes for 2019's Strategic Planning Session
These are the most pressing trends that we think will be facing community financial institutions in the short term, and we hope that the questions and resources we've provided will fuel productive dialogue among your leadership. If you have questions or are looking for additional resources, please don't hesitate to reach out to us.