Archive for February, 2014

Same Industry – Vastly Different Strategies

February 24, 2014   Posted in Uncategorized | No Comments | Email This Post | Print This Post

Financial institutions (FIs) are not standing still in today’s turbulent environment. FIs are pursuing promising opportunities and are well aware of the biggest risks.  Financial institutions, however, rarely choose identical strategies.  Consider the different strategies that FIs are choosing this year.

Two of the most public strategic initiatives are mergers and acquisitions and, for some mutual banks, conversions to stock savings banks. Financial institutions committed to M&A believe that greater asset size is essential for success. Mutual banks converting to stock savings banks believe that the access to capital is necessary for continued financial viability and to take advantage of the best opportunities.

Retail branching strategies are in a state of flux and vary widely. Some banks and credit unions remain strategically committed to the building of new physical branches. These FIs believe that new branches fuel market and business line expansion and new customer acquisition.  Other institutions are pursuing the opposite strategy of closing branches and reducing the number of retail branch staff and hours.  Some FIs are pursuing new 21st Century branch models, such as Wells Fargo’s 1,250 square foot “minibranch,” betting that a new model will increase sales and more cost effectively support lower lobby traffic.  Banks can pursue a number of these branch strategies at the same time.

Many financial institutions are keenly focused on business line growth, most often commercial lending. Some FIs are committed to an electronic future, with investments in mobile technology, mobile payments and virtual branches. Still other banks and credit unions believe that branding initiatives and increased sales and marketing budgets will produce the desired results.

A number of financial institutions are more carefully examining lines of business and product offerings. Some institutions are entering new lines of business while others are eliminating existing business lines. Examples include insurance and wealth management. At the same time a number of firms are adding and eliminating financial products and services based upon profitability studies and forecasts.

Many financial institutions, responding to the increased costs of doing business, have placed a magnifying lens on non-interest expenses. Intense efforts have been undertaken to reduce and combine staffing and reduce other operating costs to lower overhead and efficiency ratios.

Finally, a number of FIs have decided to focus on and highlight their legacy core competencies including local market knowledge, personalized customer service, high credit standards and community commitment.

The reality is that individual banks and credit unions are pursuing a number of these strategies simultaneously. What combination of strategies is best for your company? It depends upon factors such as your FI’s core competencies, culture, legacy, employee expertise, market competition and demographics and available opportunities.  It is clear that many of today’s FIs are not standing still when it comes to new strategies.

The Greatest Strategic Challenges Facing Financial Institutions Today

February 18, 2014   Posted in Uncategorized | No Comments | Email This Post | Print This Post

Financial institutions (FIs) have moved past the Great Recession and are focused on the future.  The future includes addressing potential threats and challenges.  What are the greatest strategic challenges for FIs this year?

The greatest economic challenges are a slow growth economy, continued low interest rates, and higher operating costs.  FIs face several important demographic challenges, including the gradual loss of legacy customers and their large deposits. Another demographic challenge is the emergence of younger generations, many of whom are digital consumers, with vastly different banking preferences and expectations compared to their parents. FIs are also challenged with the difficulty of recruiting and retaining qualified younger generation employees.

Regulation challenges include the remaining implementation of the Dodd-Frank Act (only 50 percent complete) and new regulations issued by the Consumer Financial Protection Bureau. FIs face increases in regulatory costs, higher risks, greater operating complexity and continuous employee training requirements. Some new regulations threaten the viability of traditional business lines such as residential mortgage lending and servicing.

Technology delivers its own set of challenges. Financial institutions face the challenge of trying to keep up with the latest technology, budgetary constraints, increased risks and complexity, the need for more IT staff and continual employee training.

Finally, many executives that we have spoken with recently indicate that competitive challenges have increased this year. Non-bank competition, in particular, is stronger, especially in the areas of electronic banking and payments and alternative lending.

Financial institutions are not lacking meaningful strategic challenges. Banks and credit unions, however, are employing a variety of strategies to solve these challenges and to take advantage of the best opportunities available today. The various strategic approaches chosen by FIs will be the subject of my next blog.

About Jim Jones

James D. Jones, a national speaker for 16 years, has presented to financial services and mortgage audiences for organizations of all sizes.More >

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