Five Takeaways From the 2021 Raddon Conference
The 2020s look to be a challenging environment for financial institutions. Here are five strategic takeaways from the 2021 Raddon Conference to help banks and credit unions navigate a path to prosperity.
We at Raddon just held our fourth annual Raddon Conference, and this one was quite a departure from our previous three. Thanks to the pandemic, this conference was virtual, meaning that while we didn’t subject anyone to Chicago in the winter, we also welcomed more than 1.700 industry professionals from 52 states and territories. Over the course of 10 sessions, we laid out our view of the challenges and opportunities ahead.
Focus on Efficiency, Not Cost-Cutting
The low-rate environment that plagued most of the 2010s is back, and the yield curve is even lower now than it was then. While this environment will make loans attractive to many borrowers, as seen from the industry’s perspective, it puts immense pressure on margins and, as a result, profitability.
Financial institutions will need to be aggressive about efficiency, but that does not mean cutting expenses to the bone. Raddon analysis shows that revenue is the key to efficiency, especially depth of relationship or share of wallet. In the Raddon Performance Analytics program, we find that the higher wallet share an institution has, the higher its earnings per household, the higher its assets per employee and the stronger its efficiency ratio, even though it spends more on a per-household basis.
Generating balances through cross-sales is the key to efficiency, and institutions that focus their efforts there as opposed to cost-cutting may find significantly more success in the 2020s.
Integrate Your Delivery System
While the COVID-19 pandemic has accelerated adoption of digital services among groups that may previously have resisted, increased digital usage is only one side of the delivery coin. Consumers have also shown a persistent and rebounding desire to use branches and other in-person delivery channels.
Given the need for efficiencies and revenue growth, institutions should balance their in-person and digital delivery channels to ensure their branches are optimized for sales and service, not for transactions that can be automated. Younger consumers, in particular, are looking for customer service, technology integration and a community feel. This desire fits seamlessly into the needs of the institution to be more efficient, automating transactions and providing in-person, face-to-face service for revenue opportunities.
Process Replaces Product and Price
In a low-rate, low-margin environment, competing on price is challenging. Fortunately, for many consumers, process trumps price, as many consumers are willing to select an option that might be slightly more expensive if they get something easy and available in return.
2020 and 2021 could shape up to be the strongest years for consumer lending in well over a decade as stated demand, particularly for credit cards, is higher than before the Great Recession. In addition, low long-term rates have sparked interest in auto and home purchases. To capitalize on this demand, lenders must improve their application, approval and funding processes, especially as 60 percent of millennials agree that “getting a loan is a long and difficult process.” More troublingly for banks and credit unions, 56 percent agree that “it is easier to obtain financing through an online lender than a traditional financial institution.”
By making processes easy and available across delivery channels, institutions give accountholders fewer reasons to seek other providers.
Be Relevant to Younger Consumers
Younger consumers are affiliating themselves with major banks in record numbers.
While part of this shift is due to the perception of better technology, part seems to come also from perceived superior customer service. To combat this threat, financial institutions should focus on becoming more relevant to younger consumers. Some community institutions have found success by blending financial education with gamification, investment offerings via their mobile app, improved loan application processes and even mergers.
The simplest tactic, and perhaps the most successful, is evaluating naming conventions and adapting language to a younger audience. Consumers under age 55 do not know what a “certificate” is, nor do “checking” accounts have much value in a checkless world. So many other products have names that do not make sense to the average consumer: money market, demand deposit accounts, share draft. Using language that makes sense and speaking to consumers where they are can make a significant difference.
Using Data Is Better Than Having Data
Ninety percent of the world’s data was created in the past two years. Every minute, we send 188 million emails, download 390,000 apps, send 18 million texts and watch 4.5 million videos. This proliferation of information impacts financial institutions, as well. There is more data at your disposal than ever before, making the need to harness it and contextualize it even more important. While many institutions have built data warehouses and have data scientists and analysts to sift through the bits and bytes, the more important objective is using that data for successful accountholder interaction. The more information there is, the harder it becomes to filter out the noise.
Institutions that can use their accountholder data to offer the right solution at the right time in the right language with the right process via the right channel will be more efficient and better able to find growth and success in this challenging environment.
Financial institutions can navigate the 2020s by embracing innovative approaches to delivery, data management, and process improvement, all with an eye to staying relevant to consumers.