Enhancing Bank Value Through Improved Performance

By William J. McNamara, Timothy Reimink
| 1/24/2020
Enhancing Bank Value Through Improved Performance

Banks today are facing tremendous pressures from changing customer expectations, shrinking margins, slow deposit growth, new digital competitors, and stronger competition from large financial institutions. To compete in this environment, successful banks must find new ways to improve performance, adapt strategies, streamline processes, make better use of technology, and generally strengthen their overall organizations.

Rethinking bank strategies

For the banking industry, one of the most far-reaching consequences of the past few decades’ revolutionary advances is a fundamental change in the way customers interact with their financial institutions. As author Brett King observed in the title of one of his recent books, “banking is no longer somewhere you go, but something you do.”1

The impact of technology can be seen in the steady annual declines in check processing volumes as reported by the Federal Reserve. In 2000, the Fed processed nearly 17 billion commercial checks, with a total value of $13.8 trillion. By 2018, check volumes had declined to 4.7 billion, and total values were down to $8.5 trillion.2

Studies by banking technology providers show comparable trends. For example, the annual FIS Pace Findings by FIS Global report that nearly three-quarters (73%) of today’s consumer banking interactions are digital in nature. Of the various channels that customers use to interact with their banks, only mobile banking has shown growth in recent years, nearly doubling (from 22% to 42%) from 2015 to 2019. During the same period, ATM, branch, and telephone banking usage remained nearly flat, showing no incremental growth.3

Banks’ fundamental operating models are changing in response to these trends. Beyond rethinking the role of the branch, banks also must address a variety of other process, system, and human resource issues, such as improving the customer experience in online and mobile platforms and streamlining commercial lending. These changes, in turn, require operational improvements in the way workflows are managed, and restructuring of core systems to enable greater flexibility. Real-time transaction processing and fraud detection capabilities are also critical.

Among the many specific strategies banks are pursuing, the following stand out as prominent examples:

  • Channel optimization. Most banks today recognize they need to address the legacy costs associated with their branch networks in terms of both real estate and human resources. In addition to consolidation, redeployment, physical downsizing, and outright sales of branch facilities, banks also are reevaluating how call centers and digital platforms can be further integrated into the customer experience.
  • Digital transformation. In addition to shifting resources from physical to digital channels, this transformation also involves dramatic improvements in how operational workflows are automated and how data analytics are used to enhance decisions and processes.
  • Digital marketing. Industry-leading banks are increasingly turning to digital strategies including social media to build their brands, generate customer interest, and drive new accounts.
  • Improving the basics. Despite the dramatic changes driven by digital platforms, basic sales and service capabilities are still critical. Successful banks practice customer service fundamentals such as contacting customers regularly and actively looking for opportunities to provide solutions.
  • Relationship management. Developing specialized capabilities such as relationship management teams, commercial relationship managers, and treasury management specialists allows banks to focus on building stronger relationships with targeted customer segments.
  • Enhanced customer experience. Rethinking processes to improve customer perceptions of interactions using techniques such as customer journey mapping can help banks understand customer impacts and identify ways to improve that experience.
  • Competitive parity. Maintaining competitive market position typically involves making investments in online account opening, person-to-person payment systems, online loan offerings, contact or call center technology, and other similar tools needed to remain competitive.
  • Fintech collaboration. Some banks have found it advantageous to build relationships with financial technology companies that enable them to offer better online or digital experiences and specific digital services or capabilities.

Changing roles, responsibilities, and mindsets

Of the three commonly recognized performance improvement domains – people, process, and technology – implementing and managing changes involving people is typically the most difficult. For example, when bank executives participating in a recent Crowe webinar were asked about their greatest concerns about improving performance, the leading response was a “lack of willingness to change” on the part of bank personnel. As the exhibit illustrates, responses related to strategic, process, or technology issues scored markedly lower.

Banks’ performance improvement concerns

Exhibit: Banks’ performance improvement concerns

Among the people-related challenges banks face, attracting and retaining talent with needed skills is a consistent priority. To be effective, new digital tools and systems often depend on staff members with specialized training in data analytics, predictive modeling, and digital marketing. At the same time, today’s more proactive, outbound relationship development programs require staff members with the relevant relationship-building, problem-solving, and sales skills.

Banks also must address succession issues and the challenges of managing a new generation of workers who are seeking future growth opportunities and flexible working environments. Through it all, of course, banks must take steps to build cultures that encourage innovation while also offering employees empowerment and adaptability.

In addition to addressing these general cultural issues, banks also must handle practical, day-to-day personnel challenges, particularly involving the redeployment of resources to support growth and increase productivity. In retail operations, for example, the industry is seeing increased use of flexible staffing models, reduced staffing levels, and new approaches to goals and incentives. Leading banks are identifying particular areas of focus, such as small business accounts or private banking, as well as greater use of universal banker or relationship manager positions.

Similar personnel changes can be seen in other areas, including commercial lending, treasury management, and operations. Some current commercial trends worth noting include the development of distinct roles for relationship managers, loan assistants, portfolio managers, and underwriters, along with the need for new skills in the deployment of automation and customer relationship management (CRM) software. In the operations area, meanwhile, more flexible staffing models and a growing reliance on automation are shifting work away from manual tasks and increasing the demand for enhanced judgment and management skill sets.

Deploying new technologies and streamlined processes

The technological advances driving today’s urgent need for performance improvement in banks are particularly visible in retail banking, where tools such as self-service kiosks, interactive information displays, and cash recycling machines are becoming familiar features in the branch environment. Mobility tools such as tablets and remote access devices are adding further flexibility to the traditional customer-teller interaction. Outside the branch, new CRM and call management systems are reshaping online and call center interactions as well.

Leading banks also are applying new technology in their lending operations. Customers are increasingly comfortable engaging with digital online application and loan origination systems, including secure document delivery platforms with electronic signature capabilities. Behind the scenes, the industry is also seeing greater use of automation in portfolio management and reporting systems, along with focused solutions for such tasks as workflow management, portfolio analytics, and calculation of loss reserves.

Beyond such task-specific applications, successful banks also are investing in upgrades to their underlying technology infrastructures to enable greater use of cloud-based applications, along with thin-client tools and remote support technology. These various solutions are essential tools for streamlining business processes to improve performance and efficiency.

But tools are only part of the answer. Competing successfully also requires fresh perspectives and a willingness to embrace the automation of many processes that traditionally have been handled manually. Such openness to change must begin at the top, with senior management leadership and commitment.

Ultimately, the banks that survive and prosper in today’s challenging environment will be those that are able – and even eager – to make fundamental changes in how they work. Successful institutions will evolve from traditional approaches and transform as organizations, with flattened hierarchies, improved collaboration across departments, and significantly less reliance on bureaucratic processes and rigid rules. They will see increased use of process-oriented teams, multidimensional work duties, and built-in quality and compliance functions.

To spark or accelerate that evolution, banks should begin with a thorough self-assessment to identify areas of needed change, and then select a strategic path forward, tackling such legacy issues as branch operating models and paper-based systems, while building a new talent base that can speed the digitization of work processes, decision-making, and workflow management.

1 Brett King, “Bank 3.0: Why Banking Is No Longer Somewhere You Go, but Something You Do,” John Wiley & Sons Inc., 2012.
2 Federal Reserve, “Commercial Checks Collected Through the Federal Reserve – Annual Data,” Feb. 25, 2019, https://www.federalreserve.gov/paymentsystems/check_commcheckcolannual.htm
3 FIS Global, “Information to Insights: PACE Findings 2019,” 2019, p. 3, https://empower1.fisglobal.com/rs/650-KGE-239/images/PACE_2019_US_Consumer.pdf


Contact us

John Epperson
John Epperson
Chief Risk Officer
Stephanie White
Stephanie White
Financial Services Consulting