Banks and Credit Unions are actively marketing Debit Cards without realizing the disastrous consequences including lower engagement, lack of Revenue and ROE
There is lots of talk in the Community Bank and Credit Union circles that GenY are an essential customer base. This is so, insist Bank and Credit Union executives, despite the fact that most GenY expect free services and the vast majority are unlikely to want revenue generating products offered by Banks and Credit Unions. GenY is critical, goes the argument, because of the financial windfall they stand to inherit once the older generation passes. Never mind that an average banking relationship is about 7 years (about as long as a typical marriage) and that the expected windfall (if there is one) is unlikely to occur within this time period. We’ve written on the fool’s gold including Knowing Your Customer Is Essential for Loyalty and Profitability Gen Y Hard Hit By Recession But Youthfully Optimistic Can Gen Y propel Community Banks and Credit Unions? New data from a recent Wall Street Journal article suggests that the windfall is not likely to happen at all! WSJ reports that nearly 50% of the population has less than $10,000 in total savings with nearly 36% of Boomers reporting the same. Another 14% of Boomers have less than $50,000 in savings. In sum, 50% [Read More...]
We have all heard the folklore… Community Banks have been swamped with excess deposits. But it is true? As it turns out, Community Banks – those with less than $1 billion in assets – have actually lost deposits every year since 2008. In fact, only the large Banks – those with assets over $5 billion – have seen a significant increase in deposits since 2008, as could have been predicted by ‘flight to quality’. The loss in deposits for Community Banks is not large – ranging from $7 billion outflow in 2012 to as much as $46 billion in 2010. The much heralded Bank Transfer Day (BTD) apparently did little to bring in deposits into the Community Bank sector. On a percentage basis, Community Banks have lost more than 3% of their deposit base in 2009 and 2010, but the loss has improved to a loss of just a 0.9% and 0.6% in 2011 and 2012, respectively. The stark comparison to the deposit gathering prowess of the large Banks cannot be ignored.
A highly respected Community Bank executives tweeted that Community Banks are survivors in response to an article we wrote entitled Will Small Banks Survive?. That is an interesting observation that inspired a review of the health of the Community Bank. In the past 3 years, the number of Community Banks with assets less than $500 million has decreased by nearly 14% or about 900 institutions. This is in stark contrast to Banks in the larger asset classes, which cumulative saw a decrease of just 36 institutions. My personal belief is that this trend will likely continue as the bigger Community Banks (assets between $500MM – $1b) will continue to bulk up, while the number of small Banks will likely continue to shrink rapidly. So, this brings me back to the original comment posted by a Banking executive: Are Community Banks survivors? I welcome your comments,
Serge Milman, Principal Consultant at SFO Consultants is pleased to present a Free Webinar to Community Bank and Credit Union executives on the importance of Business Strategy to growing revenues, improving loyalty, and enhancing operational performance. Community Banks dominate the industry with 91% of the total institutions, but generate just 8% of the industry’s profits. Intense competitive pressure from traditional and non-bank competitors is exploding with ‘too much money chasing too few good deals’ leading Banks and Credit Unions to sacrifice yields and/or suffer from collapsing loan portfolio both of which result in deteriorating ROE. The panacea is on to find a solution, and many are turning to tactics including serving the un/under-banked, GenY, deploying PFM and P2P capabilities, engaging in the cut-throat game of competition based on price, while some have determined to follow the ‘hope and pray’ strategy. Regardless of the approach, most Community Banks are seeing a deterioration of their value, with trading values (for public Community Banks) and average acquisition multiples (for Community Bank acquisitions) at substantially below 100% Book-to-Value. Deploying tools, capabilities and addressing new customer segments may make sense for some, but does it make sense for all Community Banks? In the landscape of [Read More...]
Banks are initiating aggressive customer acquisition programs, and a recent Fed reports helps with the finding that household wealth rose by $3 trillion in the first quarter, to $70.3 trillion. On average, household wealth at the end of the quarter was $613,635, about 11% below the 2007 peak but a sharp rebound from the lows set just a few years ago. That’s the good news… The bad news is that the Net Worth of the older generations has recovered and in some cases exceeded previous peaks, the case is far from the same for the younger generation (those under the age of 40). As can be seen in the chart below, the Net Worth of those under the age of 40 has declined and remained depressed at around $100,000, while the older generations average Net Worth has risen to ~$700,000 for 40-61 year olds and over $900,000 for those over 62 years of age. This information is crucial to Bank and Credit Union executives focused on customer acquisition, customer retention, cross-sell strategies and more generally, value creation for customers and growth / profitability for the Bank. Understanding customer segments is essential. Understanding customer preferences, needs, and wants is a pre-requisite for succeeding [Read More...]
Numerous news stories and common folklore continues to tell us that Community Banks are the lifeline of financial support for Community Banks. ICBA tells us that Community Banks provide 60% of all Small Business Loans while a recent article in Bank Investment Consultant publication stated that Community Banks are “making hefty commitments” to Small Business Lending and quoted a Community Bank executive stating that “Small-business lending is a rounding error at big banks” but a “livelihood” for Community Banks. Truth be told, on the surface this seems plausible. Yet, we decided to do a bit of fact-checking, and you will not be surprised that certain industry organizations, publications and executives have been taking “poetic license” to describe reality. According to FDIC, 37% of Small Business Lending is provided by Community Banks. As the chart below shows, Community Banks (those with assets of less than $1b) dominate Farmland and Agricultural Lending categories, but taken together these categories total less than $70MM. Community Banks were responsible for just 25% of total commitments of Small Business C&I and 40% of Small Business Nonfarm / Non-Residential Loans. The chart below compares the total Number of Loans Made with the Total Amounts Lent by subcategory of [Read More...]
Brett King discusses how customer behavior and technology are changing the future of financial services. The reality will challenge the thinking of traditional Bankers through a discussion of topics including: · Why customer behavior is so rapidly changing, including the four phases of disruptive change; · How community financial institutions and their branches must evolve; · Why checks are rapidly disappearing and cash is next; · Why your mobile phone will replace your wallet in the next 2-3 years; and · How financial institutions must reinvent themselves or become irrelevant
Should Community Bankers care about TAG!? Do they need it? Do they use it? Some would have you believe that TAG, and its renewal are central to the survival of Community Banks… without it, deposits would evaporate… Luckily, that isn’t the case. Not at all. Just take a look at FDIC Quarterly Banking Profile report for 3rd Quarter 2012. Data shows that Community Banks use TAG to insure just $50 billion of deposits (~3% of the total TAG deposits), with a typical Community Bank insuring an average of just 17 accounts. Not surprisingly, the primary users of TAG are a small number of very large banks… just 108 banks to be precise that cumulatively hold more than 90% of the TAG insured deposits. Should Community Bankers care about TAG? Is it important to their business? The numbers very clearly demonstrate that TAG is only important to 108 large banks. Community Banks derive little benefit from the program.
Most Americans have little or no cash. Most, it appears live paycheck to paycheck. Schwab’s OnInvesting magazine published a story summarizing the findings of a Bankrate survey conducted in June 2012 which shows that just 25% of Americans have enough cash to support at least 6 months of living expenses. Why is this relevant to Banks and Credit Unions? Well, for one, it validates other findings that suggest that most consumers hold less than $1,000 in deposits. But perhaps more importantly, it suggests that the vast majority of consumers are unlikely to be interested or approvable for the vast majority of products and services that Banks and Credit Unions wish to sell. For example, we all recognize that Banks and Credit Unions typically have a good track record in lending to individuals with high credit scores, ample income, and high net worth — the traditional ‘A paper’ credit. On the other hand, Chief Credit Officers tend to frown upon applications that slip into the realm of ‘B paper’ or below which are the credit ratings occupied by the majority of Americans. The key point – it is essential for Banks and Credit Unions to proactively and deliberatively focus on specific customer [Read More...]