There’s a saying that “some things never change,” and when it comes to mid-size banks’ and credit unions’ technology priorities, there’s some truth there. “Improving the customer experience” has been financial institutions’ (FIs) top tech priority for the past three years with roughly three-quarters of institutions citing it as a top priority.
But some things do change, and according to Cornerstone Advisors’ 2021 What’s Going On In Banking study, the change in three priorities signal a shift in how FIs are managing technology:
The percentage of FIs citing this as one of their top priorities has grown steadily over the past three years from 34% in 2019 to 43% in 2020 and 48% in 2021. There are really two components to this objective: getting more value 1) from existing technologies and 2) from vendor relationships. The first part isn’t particularly surprising (or newsworthy), but the second part is. While FIs have a tendency to complain about their vendors (oh, come on, you know you do), they also realize that their vendor relationships are critical to their ability to innovate, digitally transform and deploy new technologies.
Historically, the standard response from financial institutions during tough economic times is to tighten their belts and look for cost-reduction opportunities and other efficiency improvements. Yet, in these tough economic times, the percentage of FIs citing this as a top priority has declined from nearly six in 10 to four in 10. The shift in the next priority offers one clue behind this drop.
It’s not a huge jump, but the increase in the percentage of FIs citing revenue generation as a top priority, from 17% in 2020 to 28% in 2021, is a sign that banks and credit unions want to grow their way out of tough times, not cut back. This puts more pressure on the “getting more value from existing technologies and vendor relationships” objective, as the “value” we’re talking about is additional revenue, not cost reduction.
At the risk of outing myself as an “old guy,” back in the 1970s Robert Palmer sung, “There’s no telling where the money went.” These days, community banks and credit unions are mostly clear about where their IT dollars went over the past few years and where their institutions will spend their technology dollars in 2021 to achieve their priorities.
For the 23rd straight year (well, it seems like it’s been that long), digital account opening — both consumer and commercial — topped the list of planned new selections or replacements for 2021. Customer relationship management and digital loan origination systems (both consumer and commercial) will also be popular new selection/replacements for banks in 2021.
The common thread: revenue generation.
In addition, a little more than half of financial institutions (54%) intend to launch new products or services in 2021. That’s good news (and in line with the focus on revenue generation).
There are some interesting new product/service plans in the works. A few institutions indicated they’ll roll out new treasury management services in 2021. We also heard of plans to launch airplane and yacht loans, checking and savings products tied to financial health, a teen/youth app, and products for underserved consumers.
The renewed focus on revenue generation, vendor relationships and new product development is a good thing. But there are a couple of troubling signs.
Of the institutions planning to introduce new products or services, about a quarter cited enhancements to existing systems and digital account opening systems as new product launches. How is digital account opening a new product or service? It’s just a new way of applying for an existing product or service.
In addition, there are some concerns regarding the effectiveness of FIs’ fintech partnerships. Roughly half (48%) of banks and about four in 10 (42%) credit unions have partnered with fintech startups over the past three years.
Yet, just 11% of banks and 4% of credit unions say they’ve seen significant (defined as 5% or greater increase) improvement in non-interest income.
Just as troublesome is the shockingly low percentage of institutions interested in revenue-generating services like subscription management, bill negotiation services, and cryptocurrency investing services that they could partner with fintechs to provide.
A Google search for “chief revenue officer in banks” resulted in 161 million hits. In the first three pages of results, only three links actually mentioned chief revenue officers in banks (and one I would disqualify because it referred to a “chief revenue/lending officer — there’s more to revenue than just loans, you know).
The time has come for mid-size banks and credit unions to create a chief revenue officer position — someone to create and instill a new product design and development process, someone to focus on creating a sales process for non-lending products and services, and someone to be accountable for non-lending (but not just non-interest) income in the institution.
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For more on mid-size financial institutions’ priorities, fintech plans and future forecasts for 2021, download What’s Going On In Banking here: https://hs.crnrstone.com/banking-2021
Good insight! I’d rather see a Chief Customer Experience officer. The problems banks have with generating revenue is that they think they are delivering a great customer experience and most aren’t. Note that Chase grew loans this year. Chase’s online experience still isn’t Amazon but it’s way better than most of the pack. Go to a growing Fintech website and then go to a bank website. Guess which one is BORING. Ask most banks about their digital marketing strategy and you’ll get a blank stare. There is a lot of opportunity but it starts with understanding how the customer wants to do business with you and using new channels for business development.
Ron – I agree with your point. But many of the characteristics that you are looking for would work coming from a Director of Product Management. Perhaps CUs need to consider that role as well who would report to the CRO.
Ron – I totally agree! Someone within the institution needs to own the combined process of product R&D, technology (principally integration and data), marketing/sales and the strategy to support it. In our organization we have created a Chief Strategy Officer position with responsibility for organizational strategy, technology, product management, marketing and business development. We are making a concerted effort to match up the areas that have the most impact on the consumer experience and the sale of that experience to more consumers.