Since the end of the financial crisis, bankers have routinely complained that the implementation of
Lately, though, their focus has shifted back to improving the customer experience.
Though satisfying examiners remains a priority, their decisions about how and where to deploy resources such as investing in technology are being mostly driven by the desire to meet customers' changing demands, according to a new survey from the advisory firm KPMG.
This shift stems from a desire to compete with not only other banks but also with nontraditional players that are threatening to disrupt everything from bill payment to small-business lending.
"From a regulatory point of view, nothing has changed," said Douglas Manditch, chairman and chief executive of Empire National Bank in Islandia, N.Y. "But you have to be up to date in the way you deliver service to your customers. That has to be paramount, even if it is somewhat costly at times, especially in this competitive environment."
Asked what will drive transformation at their banks over the next three to five years, 47% of executives cited the shifting demands of customers. That could include expanding their options in mobile banking such as adding mobile deposit or mobile bill pay to appeal to younger consumers. Thirty-seven percent of respondents said that mobile banking and payments would be an area in which they would invest most heavily.
"Banks were consumed with regulation and what they had to do from an IT standpoint to meet that so there wasn't a lot of discretionary spending," said Judd Caplain, KPMG's national advisory industry leader for banking and diversified financials. "That has become more stable, allowing a shift to running the bank as a business and doing the right investments for a business."
Forty-three percent of bankers surveyed said that the need to keep pace with technology would drive transformation. Their challenge, though, is figuring out where they will get the most bang for their buck.
Brad Smith, the president and CEO of consulting firm Abound Resources, said that most customers now research products online before making a decision. As a result, he said, banks need to become more effective at recommending and selling products online.
Smith pointed to an online product recommendation tool used by Fifth Third Bancorp for business checking accounts. Customers are given a recommendation for the type of account they should open after answering a few questions about their needs.
Indeed, banks are feeling immense pressure to simplify everything from opening accounts to making loans to processing payments. While banks can take weeks to process business loan requests, online-only lenders like Lending Club or Kabbage promise to deliver funds within days or even minutes. Meanwhile, payments' services from the likes of Square are also "ridiculously easy to use," motivating bankers to do better, Smith said.
"The benchmark for customer service used to be Nordstrom," he said. "Now it's Amazon where you never meet anyone face to face. That runs counter to how banking has been run forever."
Despite this emphasis on improving new technology, many executives are still interested in opening new branches, according to the KPMG survey. More than 40% of the bankers surveyed said they plan to add branches over the next 12 to 18 months because they still view branches as crucial to acquiring new customers and cross-selling existing ones.
Some are also eager to add branches in new markets in search of new commercial clients.
"Everyone is looking for commercial loans and that's tough to find," said Lynn David, the president of Community Bank Consulting Services. "Banks may think, 'We aren't having any luck in existing markets so let's try some others to see if we can get growth.' I guess the grass is always greener on the other side."
The $489 million-asset Empire National is likely to add to its existing four branches in the future, though it doesn't have any firm plans to do so, Manditch said. If the bank were to open additional branches, they would be smaller, probably around 1,200 square feet, compared with its current branches, which range from about 2,500 to 5,000 square feet. Physical locations are still the best way to open new accounts, he added.
"About 20 years ago, people thought there weren't going to be any more branches," Manditch said. "But since then we've seen the expansion of some large banks, either organically or through acquisitions, when it comes to branches. There still needs to be some branching."
Jackie Stewart is a reporter at American Banker.
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