Thursday, January 6, 2022 | Caroline Vahrenkamp
2020 and 2021 threw the consumer banking industry for a loop, and 2022 looks to be just as exciting. Four key strategic issues seem to deserve our particular focus.
One of the more unexpected impacts of the COVID-19 pandemic has been the Great Resignation, in which record numbers of employees have left their jobs. According to the U.S. Bureau of Labor Statistics, a seasonally adjusted 4.4 million Americans, 3 percent of the entire U.S. workforce, quit their jobs in September 2021 alone. Financial institutions have not been immune, even though the monthly quit rate in our industry is 1.5 percent, half that of the national average.
For many banks and credit unions, the stress of managing staff appears most strongly in client-facing positions. Between the desire of people to work remotely (what Derek Thompson call the “Great Reset” in an October article in The Atlantic) and the increased rage of consumers (the “Great Rudeness”), branch and call-center personnel are calling it quits in higher-than-expected numbers, exactly at a time when the branch has become a more critical delivery point for institutions. Raddon Research shows the percentage of accountholders visiting a branch at least once in the past year has increased from 81 percent to 90 percent, with the greatest increase coming among millennials (76 percent to 92 percent).
Accountholder needs have shifted, though. Fewer than half of all millennials view the branch as a place to perform transactions. For them, it’s where they open accounts and, increasingly, get advice. As institutions face turnover on their front lines, they also face a wholesale change in what those employees do.
Instead of being excellent at performing transactions, staff must now excel at more complicated questions about borrowing, saving and even investing (as permitted by regulations). Sixty-eight percent of accountholders prefer to do at least some of their banking self-service, which frees up those staff positions to provide that higher level of financial advice. That higher level requires more training, more skill and, ultimately, a higher salary than what institutions may currently pay tellers.
Banks and credit unions will need to invest in attracting, training and retaining a workforce focused on relationship-building and financial advice. That will require more expense and rethinking the existing roles in the organization.
In order to attract and retain such quality talent, financial institutions must be committed to actively managing their culture. While a company mission and vision help direct your actions toward success and achieving goals, the company culture influences an employee’s relationship with their employer. Most people need to feel valued and recognized for their ability to make an impact, as well as feeling heard. If a culture is built around collaboration and innovation, employees are more likely to feel engaged. As a result, employees will be willing to stick around and put the additional discretionary effort into their work in the form of brainpower, extra time and energy.
As I’ve mentioned, 68 percent of accountholders prefer to do at least some banking self-service through ATM, online banking or mobile. That percentage is up from 62 percent in 2014. Even more dramatically, the percentage of consumers preferring to do most of their banking self-service has grown from 17 percent to 33 percent. These changes point to consumer demand for banking at their fingertips and on their schedule.
Yet the pandemic has pointed consumers back toward the branches and put pressure on institutions to offer service that is both high-tech and high-touch. From video chat on mobile devices to interactive branch kiosks, institutions are merging their people and their technology. The key will be using this trend to reduce costs, especially as expenses rise in other areas (such as personnel, as noted above). One way to do this will be to reevaluate branch footprints to focus on smaller, retail-focused branches rather than standalone 5,000-square-foot buildings with obsolete teller lines.
Time keeps on ticking into the future, as Steve Miller once said, and he wasn’t a joker about that. The accountholders on whom many credit unions and community banks built their franchises are moving on. Baby boomers are leaving the workforce and entering the next phase of their lives – a phase that involves living off their savings and reducing their debt load.
At the same time, younger Gen X and millennial consumers are beginning to inherit wealth and are looking for investment opportunities. The October 2021 Raddon Research Insights, “Deposits and Investments Insights: Into the New Frontier,” reports that while a record 61 percent of consumers say they have nonretirement investments, only 35 percent have a primary financial advisor. That means over 40 percent of investors are navigating those waters on their own.
Banks and credit unions are well positioned to deliver that financial advice, but only if they can also meet the convenience demands of investors by offering mobile trading, partial share purchases, low fees and low minimum balances. The balances will come, but building and retaining loyalty will require institutions and financial advisors to rethink how they handle wealth management. They cannot do what one of my colleagues experienced: Hold events forbidding people younger than 40. That might have made sense in 1995, but it’s a first-class ticket to irrelevance today.
Finally, after nearly 15 years of mostly near-zero rates, we should expect rates to rise to help manage the inflation we are starting to see. While that increase will be welcome relief to savers and institutions looking to manage their margins, rising rates will put pressure on institutions with large fixed-rate loan portfolios. More importantly, it will put pressure on the large liquid deposit balances that most institutions have accumulated since early 2020.
Millennials are far more rate-sensitive than past generations, and they have very few self-imposed barriers to switch institutions to get a better rate. As rates rise, they can easily move money from one institution to another without looking up from their phones. The current standard is five minutes to find, apply, open and fund an account. Banks and credit unions should be aware of the risk in their deposit portfolio, especially if they fail to raise rates as quickly as their competitors – not their local competitors, but the fintechs and online banks that will gladly lead the increase in hopes of capturing dollars.
2022 will likely be another challenging year for financial institutions, but focusing on culture, delivery and generational shifts can allow your bank or credit union to push on into 2023 and beyond.