Banks and Credit Unions are actively marketing Debit Cards without realizing the disastrous consequences including lower engagement, lack of Revenue and ROE
Do Credit Unions, as a group, understand Business Strategy? The findings are not encouraging based on the survey of nearly 500 Credit Unions conducted by Aite Group. Though the focus of the survey was limited to Credit Unions’ Online- and Mobile-Channel business objectives – the findings give us much cause for concern. The survey found that 88% of Credit Unions believe that Up / Cross-Sell of Existing Members is a key business objective for online offering and 87% believe that online is a key business strategy for Acquiring New Members. So far so good… However, just 27% of Credit Unions believe that Generating Revenue was a key online objective. So, just to restate… nearly 90% of Credit Unions want to cross-sell and acquire new members, but less than 30% are interested in generating revenues! In which case, why bother cross selling and trying to acquire new members? Here is another doozy. More than 90% of Credit Unions believe that a key business objective of their online offering is to Maintain Competitive Parity, while at the same time, 85% also believe that Obtaining Competitive Differentiation is a key business objective. Again – how can you ‘keep you with the Joneses’ and differentiate [Read More…]
The following is a guest post by Bruce Klein, Director of CrossCountry Consulting’s Financial Services Practice. ———————————————- Meet Your New Middle MarketLender – His Initials are B.D.C. New regulatory rules and capital constraints have served to make lending to the small mid-market company unattractive to banks. A small but growing group of firms known as Business Development Companies (BDCs) are stepping in to fill the void. These companies can fund their loans by raising money from the public via IPOs or from wealthy investors via a private equity type structure. Banks are also willing to lend to BDCs and even the Small Business Administration has a program to help them. This article will explain how BDCs work, the way they raise capital and how they are starting to change the commercial lending landscape. Market Dynamics A set of market dynamics has come together for which BDCs provide a perfect solution. These market dynamics are: Small company lending is becoming less attractive to banks Asset management firms continue to search for yield Traditionally private capital investment channels are looking to attract retail investors Small middle market lending is becoming less attractive to banks The evolving regulatory landscape, Basel III in particular, [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…]
Community Banks and Small Business. A marriage made in heaven… or so many Community Bankers would have you believe. This may have been the case in the past, but does it still hold true in today’s environment? A recent BAI Banking Strategies article – Small Business Still the Charm – attempted to make the case that, Small Business is just waiting for Community Banks to come calling. The article is an interview with Richard Dailey, CEO of the 3-branch, $215 million-asset Apollo Bank in Miami, who asserts that Community Banks focused on small business customers can still do well. While we don’t doubt that Mr. Daily, Apollo Bank and a handful of others may find success, Small Business banking is not as simple as some may believe; and may require significant planning before most of the 6,500 Community Banks deploy additional resources to pursue this segment. We suggest that there are at least 4 reasons for this: Weak Economy Not too many need convincing that the economy is not doing well, with many Small Businesses struggling. Most of us will also agree that Community Banks and Credit Unions are not exactly “risk takers” (contrary to the notion of banking) thus further diminishing the [Read More…]
Managing a Bank in this environment is an unenviable job. Many have said that wearing a Banker’s hat is ‘no longer fun’. However, difficult decisions must be made; many of which will slaughter many sacred cows.
It appears that some National and Community banks may have been mis-behaving. NY Times reports that Banks lending under the rural loan program – called Section 502, administered by the US Department of Agriculture, “was plagued by lax government oversight and many of the same sloppy banking practices that fed the broader mortgage debacle.” Section 502 loans focused on communities with populations under 20,000 that were outside metropolitan areas. These loans required no down payment for residential housing loans but carried very specific underwriting requirements. A recent report from Inspector General of the US Department of Agriculture uncovered that many loans may have been done improperly and warned that a wave of defaults might be looming. The Agency guaranteed more than $10 billion in rural housing loans with a total administrative budget of over $130 million. The Audit reviewed a small sample of the more than 81,000 guaranteed by the US Government and found that as many as 33% of these loans totaling more than $4 billion may be ineligible. NY Times reports that “Analysts said the problems echoed those exposed earlier in the mortgage crisis, with banks seemingly eager to collect fees for loans in which they retained little or no risk.”