We’re well into the first quarter of 2017, and there’s no question big changes are in store for the banking industry. With the new administration looking to ease the regulatory burden on the industry, community financial institutions are realigning their priorities — and shifting their focus inward. Our webinar with Ron Shevlin of Cornerstone Advisors in February of 2017, titled What’s Going On in Banking 2017: Cornerstone Advisors’ Perspectives on Community-based FIs’ Priorities and Technology Plans, looked at priority changes and what bankers should be focused on in 2017 and beyond.
On the radar for community bank CEOs
In 2015, just 35 percent of bank CEOs rated efficiency, noninterest expense and costs as top areas of concern, according to the Cornerstone Advisors’ report What’s Going On in Banking 2017. This year, 61 percent view those factors as priorities. What’s more, credit quality and cost of funds concerned just 9 percent of CEOs two years ago, while in 2017, 17 percent and 14 percent, respectively, see them as a point of concern.
Conversely, the regulatory burden now concerns 17 percent fewer CEOs this year than two years ago. Just 19 percent are worried about the strength of the economy and loan demand this year — a staggering drop from 2016 when 64 percent cited those concerns.
What Credit Union CEOs are focusing on
Credit union CEOs are similarly turning their focus to internal issues for 2017. Whereas efficiency, NIE or cost was a concern for just 15 percent of CU CEOs in 2015, this year, more than half cite it as a top concern. The number prioritizing regulatory burden as a concern fell 10 percent from 2015 to this year, as did the percentage worried about a weak economy and loan demand. Meanwhile, the number concerned about credit quality more than tripled, from just 7 percent in 2015 to 22 percent in 2017.
Efficiency and cost savings are clearly emerging as the prime areas of focus for community financial institutions in 2017. So what will FIs be doing to address these priorities in the remaining three-quarters of the year?
To improve efficiency, bank CEOs said they would focus on streamlining workflow (78 percent), improving efficiency ratios (58 percent), reducing reliance on paper (53 percent) and cutting branch expenses (29 percent). Credit union CEOs put even greater emphasis on streamlining workflow and improving efficiency ratios — 91 percent and 69 percent, respectively. However, their priorities diverged from bank CEOs at that point, with credit union leaders saying they were more likely to focus on renegotiating contracts and reducing headcounts (26 and 22 percent, respectively). Just 17 percent of CU CEOs said they would focus on cutting branch expenses — a 3 percent decrease from last year.
“With the re-focusing of concerns from externalities to internal concerns like efficiency and cost, it’s not surprising that streamlining workflow will be a greater priority in 2017 than it was in 2016,” the Cornerstone report notes. “What’s different for 2017, in contrast to previous years, is that the efficiency push is now about removing friction in the customer journey and being positioned for revenue growth.”
The report also points to signs that community financial institutions will continue to turn toward technology to help them achieve greater efficiencies. For a third straight year, bank CEOs said improving efficiency would be their top technology priority in 2017, while credit union CEOs cited it as their second-most important tech priority. Improving service delivery will be the top tech priority for credit unions in 2017.
Vendor relationships will be vital to community FI success
Yet with both bank and credit union CEOs giving low priority to making investments in upgrading infrastructure and investing in new systems — and the majority saying their IT spending will increase only slightly in 2017 — financial institutions will need to find ways to make their current tech work better for them and their customers. Maximizing value from vendor relationships will be key.
Cornerstone Advisors Partner Terence Roche says financial institutions should look to work with vendors that assume ownership of managing interfaces and integration with other vendors. Optimum vendors also share information and feedback with FI customers to help ensure the relationship is working optimally for everyone involved. Finally, vendors should proactively help financial institutions roadmap future technology upgrades.
One noteworthy change in FI tech plans for 2017 is elevated focus on customer relationship management systems. Whereas only a quarter planned to improve their use of CRM systems in 2016, more than four in 10 say they plan to do so in 2017. One in five says they’ll select a new CRM app or replace their existing one.
If you want to hear more about this, listen to our on-demand webinar: What’s Going On in Banking 2017: Cornerstone Advisors’ Perspectives on Community-based FIs’ Priorities and Technology Plans.