By Joshua Siegel
June 27, 2017, marks the 50th anniversary of the first automated teller machine, introduced by Barclays in north London. The ATM as we know it came to America two years later. A large investment was made to support a good idea, and it changed the retail banking landscape forever.
So began a tech revolution that created a large divide in community bankers’ ability to compete effectively within their footprints, with regionals, super regionals and money center banks. And while the spirit of innovation today is stronger than ever, the exclusivity of the deep-pocketed has quickly waned and the great equalizers of supply and demand, access and affordability have effectively ended big bank dominance.
May you bank in interesting times
I’ve been writing articles for a long time now and have been asked to speak about the specifics and the “how to” of community banking. In particular, I’ve spoken at length about capital investment into banks; how banks can raise it smartly and inexpensively, how to use it to buy or be bought, and the details and nuance behind the myriad capital instruments that may or may not make sense for your bank.
While recognizing these traditional topics remain important in any discussion about capital, they only represent the walking that comes after crawling. Today, I twist the prism a bit to look at the uses of capital, rather than the types of capital, that support strategic initiatives. This is a call to community bankers, a shining of a light on the end of an era of big bank exclusivity, the leveling of the playing field and a fresh opportunity and runway to create shareholder and stakeholder value.
We are banking in an unprecedented time. I sincerely can’t recall a better time for community bankers to step up and compete with large banks on a level playing field. Precedent has been set and is being capitalized upon by many forward-thinking community banks across the country. Remote deposit capture, implementation of online transactions and reporting, and many other mobile-friendly capabilities at community banks have dulled the sharp edge that larger banks swiftly wielded for decades. We have reached a definitive inflection point.
Access to technologies that were once wildly cost-prohibitive and nearly impossible to implement for smaller banks is now being shopped to your bank’s doorstep likely dozens of times each month by an increasing number of emerging providers. You spend 24/7 making sure your bank is running smoothly and contributing to the growth of the community. Others spend 24/7 developing technologies that help you not only survive, but thrive in the marketplace in which you live and operate. Individually, these companies provide quality services to community banks for a simple fee, and often it is not an upfront fee. Collectively, this hyper-competitive marketplace of vendors has ended the dominance of the large, and given scale to the small, an opportunity that you cannot afford to squander.
A time for introspection
I recognize that we are first and foremost bankers. We are not technologists, statisticians nor engineers. However, in the reality of raising capital and growing shareholder value, we are fiduciaries and we do need to become storytellers. The most critical step in raising and deploying capital is the story you tell about your bank—where it’s been, where it’s heading and why you think it needs to go in a certain direction.
It is in this introspective narrative that we often reveal the smartest ways to grow. Looking inward is many times more productive than looking outward. Why raise tens of millions in capital to purchase new branches or acquire competitors if more shareholder value can be created by investing $1-2 million in your bank through effective, affordable technologies and the people to properly deploy, manage and calibrate these new tools?
For example:
- Can your customers aggregate all of their financial data, their brokerage accounts and their credit cards at your bank? If not, I assure you those brokerage firms and credit card companies will find ways to take your banking business away.
- Can your best and most specialized staff be available at any branch, for any customer, at any time? If not, maybe it’s time to invest in video conferencing.
- Do your lending officers and tellers have a state-of-the-art customer relationship management platform so that they know on demand a customer’s personal details, such as birthdays, kids’ names or favorite sports teams? All of this info is obtainable through social media or customer service reps entering the data, but you need a system.
- When is the last time you rebranded or refreshed your image, remodeled the branches, or redesigned the website? If you were looking for a bank, by what criteria would you judge it to make a decision?
- Have you automated any of your risk management processes? Are your loan files fully digital? Are you in a position to comply with CECL? Can you automatically update your LTVs on real estate loans?
Often the highly valued “bank customer experience” can stand for significant improvement, and some automated risk management can allow a bank to bring more back office staff to the front office, generating new business and revenues. It is important to note that some of these items of consideration are not capital expenditure-heavy and do not require massive upfront license fees, which equates to less capital expenditure today with an ongoing reduction in net non-interest expenses. For the items that do require some capital expenditure, the payback can be priceless.
Capitalize yourself
The wakeup call for community banks to compete more easily and effectively should be ringing loudly in your ears. The answer is working smarter, not harder. The time has never been more right for making manageable, affordable and accessible changes through front office and back office technologies. Relatively small amounts of capital invested in yourselves can quickly change the perception of the smaller not being able to compete, help you win back valuable local customers, and attract new demographics that otherwise wouldn’t give you a second look.
Being nimble to adapt to change will forever be an advantage community banks have. Now is the time to step forward and make that investment to refine, or redefine, your brand to match or exceed the growing expectations of current and next generation customers and investors.
Joshua Siegel is chairman and CEO of StoneCastle Financial, ABA’s endorsed provider for direct capital investment.
