The Consumer Bankers Association in late March hosted its 15th annual CBA LIVE event in Washington, D.C. Billed as retail banking’s must-attend event, CBA LIVE provides programming to help industry professionals learn about emerging banking trends and share ideas with influential decision makers.
Here are several themes that generated significant interest among those attending this year:Â
1. This year’s #1 challenge: deposit growth.
Deposit managers are feeling the heat – branch banks are losing share to online banks, which in turn are struggling with high deposit costs to sustain growth. High front-book pricing and the unprecedented scale of CD maturities are creating significant short-term risk to balance sheets, durations and interest income. Forecasting and pricing deposits will require much greater attention and sophistication to minimize even half that risk.
2. Sustainable growth depends on acquiring primary customer relationships.
Beneath the roiling waters of deposit growth, banking leaders are pivoting to the long game of gaining new customers/members and deepening wallet share of those they already have. Key to this will be finding and affirming brand identity and value proposition, rethinking network design and delivering products, service and advice that align with growth strategies. In addition to product innovation, FIs will need to reallocate investments across digital, convenience and marketing platforms, which will require better customer segmentation and targeting. Gen Z, for example, is 30% of the population but quite distinct from other segments. They may not be profitable now, but they’re the core customers of the future, so FIs will need to figure out how to attract and retain them.
3. Home equity is changing faster than the traditional institutions offering it.
Customer preferences for home equity have changed considerably from five years ago, but traditional banks have been slow to adapt their product structure. Not so direct banks and fintechs, which are making it easy to apply and are requiring balance usage even as they shrink their credit lines. But rather than considering them invaders, banks might be better served to consider them friends because they’re creating excitement for a product category that’s been waning for years. While most banks can’t quickly replicate the fintech customer model, they do have the advantage of knowing deposit behavior. When applied properly, that can help identify most opportune customers and help minimize underwriting risk.
4. Design for the need, not the network.
Barriers to entry in banking are crumbling – fintechs and direct banks are meeting customer needs with a variety of innovations that include small-dollar lending and frictionless payments. Many traditional banks have their priorities backward: They’re protecting their existing distribution structures (including branches and payment rails) rather than adopting delivery systems to respond to emerging customer needs. Knowing your customer is more important than ever and not just to check the regulatory box. For future success, institutions will need to identify what customers and members want and establish the connections, trust and value to deliver it.
5. AI has a towering upside but also many risks.
Generative AI is likely to bring fundamental changes to how consumers interact with their banks and their financial information. It could very well move us from software-driven navigation and workflow in apps to reasoning-driven, unstructured navigation that simulates human thought. To train AI models to drive value, data access and availability will be crucial. Aside from privacy risks, potential downsides include embedding unintended bias from past data used to train the AI models. Amid the rush to monetize AI, it will be essential that banking institutions retain the same human wisdom that has established guardrails for reducing banking biases.
6. Regulations will make the mass market less viable.
For most large and mid-size banks, aggressive regulatory changes like reduced overdraft, late-charge and interchange fees, will challenge serving the mass market profitability. FIs will likely need to rethink the balance they strike between profit and community, and reassess their target segments, products and fees. Possible unintended consequences include lower rates on deposits and reduced access to credit that push more lower-income customers to non-banks. Meantime, competition for higher-income customers will increase. And even though institutions below $10 billion in assets will mostly be exempt from these changes, many will need to bend to the competitive pressures affecting their larger rivals.
7. In courting small business, traditional banks should play to their strengths.
More than 140 fintechs currently serve the banking needs of small businesses, with many owners citing faster delivery of products and services as the reason why. But traditional banks have an advantage – the primary checking account, which is a gateway to securing the full relationship. To attract and retain small-business clients, these institutions need to offer personalized omnichannel experiences that make it easier for owners to run their businesses. The deposit-based opportunity is vast – 55% of owners have more than $50,000 on deposit, and close to a quarter of them have more than $250,000. The loyalty they show to their FI is far greater than that of retail and commercial clients, making their deposits far stickier.
