Ten Takeaways from the March 2019 Raddon Performance Analytics Workshops
Raddon recently hit the road for a series of workshops with participants in our Performance Analytics program. We hosted sessions in 17 cities east of the Mississippi, meeting with over 500 financial services executives along the way. (Note: We’ll be visiting the western half of the country in June; registration is now open for those sessions.)
Performance Analytics is a comprehensive benchmarking analysis that incorporates account and financial data from participating financial institutions to measure performance across all areas of the organization. With an eye toward uncovering opportunities for sustainable growth, we use the resulting analysis as a foundation for discussion at these group sessions.
Below are 10 key takeaways from this most recent round of Performance Analytics workshops:
- Deposit strategy was the hot topic of conversation at the March workshops. The industry is battling to acquire and retain deposits from consumers looking to capitalize on rising interest rates. It became clear that financial institutions are becoming even more tactical and targeted in their approach to generating deposit growth. Instead of simply promoting a great rate for CDs, savvy marketers are segmenting their deposit base and markets to identify specific pockets of opportunity for growth.
- New money requirements in deposit campaigns are becoming the norm, not the exception. In an industry where the typical institution controls only 33% of its depositors’ savings, checking, money market and CD dollars (according to Raddon Performance Analytics benchmarking data) and competitors hold the remaining 67% of deposits, the opportunity for deposit growth in the existing account base is huge. To minimize the risk that deposit campaigns will reprice the entire deposit portfolio, the new money ratio has become a critical metric. Workshop attendees also highlighted the importance of having appropriate exception policies in place and developing a household relationship score to aid staff in granting exceptions.
- Although deposit growth is top of mind, workshop attendees also discussed the need to keep the loan engine churning, especially in the face of softening demand in areas such as refinancing auto loans and mortgages.
- First-time home-buyer programs will remain a high priority as the large swath of millennials entering the housing market fuels a significant portion of new mortgage activity in the coming years. Workshop attendees discussed a variety of creative approaches to attract these first-time home buyers, and financial education was a consistent theme across many of the strategies.
- Current expected credit loss (CECL) may not be the sexiest topic (but really, who doesn’t love a good spirited debate on accounting standards?), but it certainly was on the minds of many of the CFOs at the March workshops. As financial institutions start to gather the data and model out the potential impact of this accounting change on the bottom line, it’s heartening to see that many also are taking this as an opportunity to leverage the data being collected to use in other ways (such as portfolio and pricing optimization).
- Remaining a relevant participant in the payments ecosystem was a concern cited by a number of the CEOs in attendance because card interchange is a sizeable portion of total revenue for many financial institutions. Recognizing the increase in usage of mobile wallets and P2P transactions, attendees discussed strategies to remain top of wallet, in both the physical and digital worlds.
- Financial institutions are taking steps to transform branches to make them more relevant to the needs of today’s consumers. The high-level takeaway from these discussions is that branches are not going away anytime soon, but their role in the delivery ecosystem is evolving to be more than just a transaction center. The implications of this transition are being felt in new branch designs (including size and layout), the role of the staff in these branches and the technology being deployed within the branches (both customer facing and back office).
- Even though earnings for the industry have largely returned to pre-crisis levels, some in attendance did express concerns as to what the next year or two might hold if the U.S. economy enters a recession. The recovery that started in June 2009 is approaching the record for longest recovery in U.S. history and is bound to end at some point. Raddon chief economist, Bill Handel, addresses the topic in his recent 2019 predictions article. Many of the workshop attendees reported that loan delinquencies and chargeoffs are starting to creep upward, slowly eating into some of the earnings growth of the last decade.
- The indirect auto portfolio remained a topic of discussion at this round of Performance Analytics workshops. For the average institution in the program, nearly one in four (23%) new loan dollars in the last six months came from indirect households. This reliance on indirect growth was troubling to those seeing a decline in profit from the indirect portfolio as margins compress and chargeoffs increase. Diversifying the loan portfolio and account base was discussed as a means to combat this phenomenon.
- My final takeaway from the March sessions is one of gratitude. We are always humbled and honored by the hundreds of industry leaders who take the time to spend the day with us and their peers to talk about successes and challenges. It is exciting to partner with so many who share our passion, and we leave energized to continue developing fresh content and analytics. On behalf of everyone at Raddon, I sincerely thank you for your participation and support.