Raddon Report

As the foundation of the financial services industry, banks and credit unions must continue to manage day-to-day operations but also keep an eye toward the future, as the world feels its way through life during and after COVID-19. With the industry changing before our eyes, strategic planning in 2020 is even more critical to financial institutions.

By: Jan Trifts and Marcy Scanlin, Strategic Advisors

As the financial strain of shelter-in-place mandates wears on consumers, Raddon experts expect to see two divergent consumer deposit behaviors that financial institutions will need to address soon. First, some consumers will be looking for liquidity as they need immediate access to their money for living expenses. Second, some will be looking for longer-term options as a flight to safety as financial markets fluctuate.

Although there are differing opinions and predictions about the long-term effects of COVID-19 on the economy, there is one undeniable truth: Right now, the consumer is in quite a state of concern. The focus and actions of financial institutions over the next several months – and perhaps longer – will be critical to our economic recovery process.

As many small businesses struggle to navigate the COVID-19 pandemic, financial institutions have an opportunity to step in and extend a lifeline to small business owners, many of whom are relying on their financial institutions to provide resources, insight and stability.

By proactively reaching out to small business owners, instituting provisions to provide them relief, and connecting them with local, state and federal programs, financial institutions can make a meaningful difference now and create long-term loyalty among small business accountholders.

In the midst of “stay at home” mandates and social distancing strategies to limit the spread of COVID-19, leaders of financial services institutions are facing new management challenges.

2019 turned out to be a year of solid if not spectacular economic growth coupled with continuing challenges for our industry.  Earnings were stronger for many financial institutions even in the face of flat or even declining margins.  Loan loss experience was at historically low levels for many institutions, while others were beginning to see slight upticks in this area.  Challenges to non-interest income continue to be apparent as the younger generations find less value in historically strong contributors such as overdraft protection programs. 

When the Great Recession ended in June 2009, financial institutions and the consumers they serve were eager for brighter days, after living through a period of staggering unemployment, unprecedented decline in real estate values, record levels of foreclosures, and an implosion of automobile sales. While there have been 11 recessions since the end of World War II in 1945, none impacted the consumer or financial institutions as significantly as the 2007-08 financial crisis.

One thing is certain: uncertainty

For credit unions, a major theme in 2020 will be how well they contend with uncertainty.

Ambiguity and insecurity will come from an evolving economic environment, emerging demographic concerns and nontraditional providers' entry into key product areas, including checking accounts by Google and credit cards from Apple. Contending effectively with uncertainty will become the hallmark of well-managed credit unions.

Here are three trends we're watching for credit unions:

Gathering intelligence is the first step in a successful campaign
 

Among the trends we saw in 2019, one theme was constant: The financial services industry is as competitive as ever. 

New technologies, channels and competitors continually disrupted the market, creating considerable noise for credit unions to break through. Nontraditional players forced credit unions to compete on multiple fronts – technology, lifestyle and branding – in addition to having competitive products and rates.