Despite record deposit levels during the peak of the COVID-19 pandemic, deposits are increasingly a focus for our clients in 2023. In 2022 Q2, deposits held by Financial Institutions dropped for the first time since the beginning of the pandemic, and deposits dropped 1.1% in the third quarter. The decline in 2022 presents a potential funding strain for many financial institutions.
Market Entry to Achieve Growth
Growth is essential for all companies to survive and thrive. However, the traditional strategies for growth, particularly in the banking industry, are being reconsidered. The “build it and they will come” strategy is no longer a viable one, especially with the COVID-pandemic changing how so many people do things in their lives. Being all things to all people is no longer obtainable or practical – and it’s expensive. So, what is the best course to achieve that growth?
Market Opportunity Drives Strategy
To be successful – even viable – any business must be seen as valuable by its customers, either by providing advice or solutions, being convenient, or cheap. And to effectively support your company’s value proposition, marketing strategy has to differentiate your company, create competitive advantage, and support profitable growth.
Such strategy doesn’t just write itself. To deliver value you have to understand what is valuable to your customers – what do they need and want? To create competitive advantage, you need to understand how your competition is addressing those same customer needs and do it better – with better product solutions, smarter advice, greater convenience, or a lower price.
2022 Strategic Priorities: Channel Delivery
In spite of digital channel usage rising 55% during the pandemic and 41% of customers now being digital-only, the fact remains that branches are still playing a key role for customers.
Forty-three percent of people still choose their bank or credit union based primarily on its convenient locations. The physical presence of branches contributes to a perception most people have that traditional financial institutions are safer and more secure than their online counterparts. And what about those times when a customer has an issue that can only be satisfactorily resolved with human intervention? In short, while digital channel use is on the rise and will only become more entrenched as the preferred channel for many banking services, customers still want peace of mind and people found at their local branches.
2022 Strategic Priorities: Customer Experience
Accelerated digital adoption and use during the pandemic have created an urgency in enhancing digital channel functionality and performance. For most FIs, and particularly community-based ones, there is a danger that digital banking enhancements will be focused on the commoditized aspects of service – such as speed, access, and convenience. And while providing convenient access to customers is a priority, the pandemic has also highlighted the importance to many customers of having access to and engaging with, financial advisors for a wide range of needs. Balancing transactional efficiency with advisory engagement will be a major strategic challenge for community FIs not only in 2022 but for years beyond. The challenge is to deliver on convenience but to differentiate based on personalized service that delivers real financial benefit to each customer’s specific needs … and to do this across all channels and touchpoints. It’s a huge undertaking but one that is necessary to deliver the CX that can set you apart from your competitors. What are some of the key steps to undertake?
2022 Strategic Priorities: Brand Positioning
The pandemic has impacted the way we think about our finances and our banking behaviors in a myriad of ways. For many of us, it has made us take stock in our lives our careers, even our financial situations. So, it should come as no surprise that we’re taking stock of our financial institutions, as well.
Considering so much change and consumer reflection, community banks and credit unions need to move toward a higher purpose when it comes to branding as customers, especially those in younger segments, have seen their world’s rocked and will be looking to corporations to step up because of a lack of faith in the performance of governments and other social institutions. Transparency is key, communicating who and what your FI supports.
2022 Strategic Priorities: Revenue Growth
Strategic Planning: What Happened During COVID
As Kierkegaard professed: “Life can only be understood backward; but it must be lived forwards.” This sentiment has never been more appropriate as you approach your strategic planning for 2022. The COVID-19 pandemic has had an impact on so many facets of the way we live and work and should provide a significant backdrop to your planning for the year ahead.
Get a Bigger Slice of the New Accounts Pie
A recent study looked at the breakdown of all checking accounts opened in 2020. The research found that: 49% of accounts were opened with megabanks, 19% with regional banks, 18.5% with digital-only banks, 7% at credit unions, and 2.5% at community banks. With community institutions capturing such a dismal portion of new accounts, they must take a closer look at their offerings.
Debt Reduction: Delivering Solutions to Meet the Need
During the recession of 2008 – 2009, the financial impacts were many and were felt widely. As the current health crisis continues (and continues and continues…), individuals and businesses are feeling the pinch and their financial picture may look quite different than when 2020 began.
The needs of your customers – business and retail – are changing right now, and it’s essential for FIs to know what those needs are and proactively address them.
Channel Strategy: It's More than Just Better Digital
Let’s begin with an understatement: A lot has changed since March 2020. The way we live, work, and carry out our day-to-day activities has changed. Understandably, all industries have seen varying degrees of change.
Customer banking behaviors have changed out of necessity. As financial institutions were required to limit availability of branches, adoption of digital tools soared, and customers became less branch-dependent. Now that branches are increasing their capacity for in-person visits, traffic has yet to return to pre-March levels.
Growing Revenue in Today’s Environment
So much has changed over the past several months that while revenue growth has likely always been a priority for your organization, the greatest opportunities for growth may look considerably different as a result of the effects of the COVID-19 crisis. As you start to make strategic plans for 2021, consider maximizing new opportunities by meeting unique consumer and business needs that have emerged in the past six months. The climate looks different now because of COVID-19, and so should your planning.
Credit Management: How Your Community FI Should Respond
As you begin planning for 2021 and beyond, it’s crucial to recognize the impact that COVID-19 and the resulting financial impact will have on lending and plan accordingly.
The recession period of 2008 – 2009 affected millions of people and its impacts were felt in many ways. By December 2009, the unemployment rate was 10% and median family net worth dropped 40% to $84,000. During this recession, we also saw 8 million foreclosures, more than 68,000 bankruptcies, small business loans drop 70%, and the number of credit unions and banks decline from 2006 – 2008 (5.3% and 9.3%, respectively).
How COVID-19 Will Drive Customer Experience Changes
Focusing on the customer experience has always been a priority for community financial institutions. As we navigate this new “normal,” the way that experience is delivered must expand. While digital delivery of banking services has been on the rise, the COVID-19 pandemic just may be the tipping point for the digital banking experience.
Your Brand Post-COVID: An Opportunity to Step Up
Unlike 2008-2009, when banks were blamed for playing a lead role in the recession, customers are seeing community banks as part of the solution to the current crisis. A recent JD Power study highlights that 67% of people are satisfied with their bank’s response to the COVID-19 crisis and appreciate the efforts taken to support customers and local communities that are struggling. It’s crucial for financial institutions to leverage this positive perception and to continue the emphasis on raising brand awareness as you focus on your strategic plan for 2021.
Prioritizing Strategic Planning
You’re probably already aware that the 2020-21 strategic cycle will prove to be the most important in more than a decade. Banking – and the world at large – has seen tremendous change because of the COVID-19 global health crisis. Customer behaviors are shifting, as are their needs and expectations. The economy is uncertain. Financial institutions are feeling the earnings pressure and organizations must be agile to address and face these challenges in the months and year ahead. It could mean the difference between success or merely surviving.
Survive to Thrive: Top Ten Initiatives Community Banks Should Consider in the Second Half of 2020
Mid-year is the traditional time to check progress toward your organization’s goals and to adjust plans accordingly. It is especially necessary this year, as community financial institutions around the country have necessarily shifted their planned focus to accommodate for the challenges brought on by the Covid-19 health crisis.
As we enter the second half of 2020, is your organization transitioning out of reactionary mode? Are you able to resume a focus on the goals established for the year? Do you need a proactive return to campaigns and marketing efforts to boost year-end performance? Then we have some suggestions for you.
We’ve identified the top ten initiatives you should consider for the remaining half of the year:
1 - Research customer needs and preferences
Behaviors and attitudes have changed significantly during the pandemic and it’s important to understand and respond to customers’ needs. From April – May, 2020, eCommerce grew from 16% to 27% of total retail spend (CNBC). Only 40% of consumers say they are likely to return to pre-pandemic methods of banking. Leverage surveys, as well as conversations with your key customers. Stay in touch and continue to emphasize friendly, personalized service. Analyze your MCIF data. Keep an eye on balance shifts, channel usage, etc., and then be sure to leverage that data to provide your customers with relevant and proactive advice, contact, and solutions that meet their needs.
2 - Encourage digital adoption
April 2020 saw a 200% increase in new mobile banking registrations and an 85% increase in mobile banking activity (Source: FIS). So much of the way individuals and businesses get things done has now been shifted to digital channels, and it’s important to understand that the customer’s experience with your digital channels is, increasingly, defining how they think of you. Not surprisingly, regional and national banks have taken this time to place heavy emphasis on promoting their online and mobile tools. PNC Bank, for example, has seen its sales via digital channels increase dramatically since January, to a point where, in April, they accounted for 75% of the bank’s total sales. What should you do? First, promote your digital and online solutions! Remind customers about the availability of those tools and the broad range of services you provide. Emphasize exactly what the customer can do using these tools. Promote all of your convenient services – but be smart in your targeting, and don’t just blanket everyone with the same messaging. Introduce customers to the broad range of electronic services available with their accounts and how easy and accessible those tools are. Second: Make sure you offer the best digital customer experience available to you. Think about your online account opening experience or loan application process. Can your customers reach you to answer questions and resolve issues? Now’s the time to make it a priority to investigate alternatives and develop a plan to improve your digital channel experience.
3 - Expand on the Paycheck Protection Program relationship
The SBA’s PPP loans offered a lifeline to many small businesses who were in dire straits as a result of the pandemic. It’s no surprise that community FIs played a vital role in helping small businesses get the funding they needed. We applaud the banks and credit unions who have made these efforts a priority – and now that the Loan Forgiveness process is underway, it’s time to take the next step to nurturing these customer relationships. Some of your PPP Loan clients may be new to your business checking offering – be sure to tell them about the account and its benefits and features. Look at the loan program as not a solo effort, but as one piece of the pie in terms of the expertise and support available to small businesses, then develop a program that continues to promote the tools, resources, and accounts available that makes your FI a valued financial partner and friend of local business. You might also wish to consider a full-on business campaign to target new business prospects by leveraging your FI’s PPP performance. Many small businesses expressed dissatisfaction with large banks during the PPP process, and they felt let down or overlooked by the larger financial institutions that lacked the local commitment and expertise of a community bank. Never before has the benefits of local expertise for local business been more evident.
4 - Talk about your brand
For many community FIs, providing assistance to their customers and community was a primary focus during the second quarter… but it’s up to you to spread the word! Highlight those wins and showcase your commitment to those you serve in your messaging – whether it’s limited to social media or as a full-blown campaign. We helped one bank client develop a campaign to emphasize their local involvement and its impact. The campaign included the development of a custom microsite, billboard advertising, email promotion, and social media content to highlight the bank’s efforts to support the people, businesses, and non-profits in the area. The campaign also invited the bank’s business customers to be included on a local business directory as a sign of the way that the bank honors and provides value to their business customers. This directory provided community members with a variety of local businesses to patronize and support during these times when they are most in need. On a smaller level, but one every bit as beneficial, don’t be afraid to toot your own horn sharing your PPP highlights – even showcasing the number of jobs positively impacted by the funds secured via this program translates your commitment into a tangible number.
5 - Restart customer expansion
It’s understandable if you pressed pause on these communications, but now is the time to restart your efforts to expand customer wallet share. Revisit your calendar for the remainder of the year and, if necessary, reprioritize your efforts based on your evaluation of your current household relationships and goals. And use customer balance and account data to identify potential behavioral triggers that imply a change in the customer’s financial situation due to the pandemic. Customers nearly always state that they want their bank or credit union to offer suggestions proactively that will have a positive impact on their financial situation.
6 - Emphasize financial education and budgeting
Research has shown time and again that when a person has a greater understanding of financial basics, they are better able to make smarter decisions with their money. Being money smart is increasingly important during a period when many people are struggling with the financial impact of the pandemic. Start by developing meaningful content that is applicable to the current state of the world (look at Dave Ramsey, who is producing a wide range of content these days). If your bank has online budgeting tools or calculators, promote them as a means by which customers can better manage their money and stay on top of their finances. Consider developing a webinar series or host live Q&A sessions via Zoom or Facebook Live. We worked with West Michigan-based credit union, Arbor Financial Credit Union, on their Rebound campaign. One key component of this campaign was a landing page featuring a list of tips for members to get more from your money during this period.
7 - Emphasize Mortgage and Refi opportunities
It’s likely that your mortgage department has stayed pretty busy over the past few months, even without intentional marketing messaging. Many banks and credit unions are still experiencing high volumes of applications, so it makes sense to continue to strike while the iron is hot. Consider tailoring your messages to the different customer needs we are seeing in the marketplace. For example, refinancing to consolidate debt or to lower payments to improve monthly cashflow, or to cash out equity, or to accelerate pay off. Careful analysis of your customer data will help to define very targeted segments to reach, improving overall marketing ROI.
8 - Offer advice on retirement Planning and Investment
For many, the fluctuating roller coaster of their 401(k) savings this year has been overwhelming. People are wondering how to pick up the pieces of planning for the future and may not be sure how they can salvage their plans for retirement. Overwhelmed by client calls and perhaps experiencing their own state of depression caused by tumbling and volatile markets, many brokers haven’t been able to reassure their clients with timely and tailored advice. Banks and credit unions have an opportunity here to step up and provide guidance and trusted expertise to mid-tier investors.
9 - The community bank difference
Let’s face it: There’s probably not a single one of us who remains unchanged by the events of the last four months. Some people have been hunkering down at home and truly have been quite isolated during this time. We have entered what sociologists are calling the “Isolation Economy.” And while consumers are choosing digital channels more frequently, they do still prefer humans over machines when advice is needed. Social distancing has resulted in skin hunger for many and while we’re not advocating that your tellers dole out hugs and handshakes, it’s beneficial to consider your customer experience and to make sure interactions are personable and friendly – perhaps even more than usual.
10 - Acquisition is possible
If your competitors did little to nothing to support their customers through the last few months, remember: Those customers saw their FI’s true colors and those customers may be more primed than ever for a switch. An aggressive acquisition campaign is not off the table during this time. While your competitors’ efforts have quieted, this is an advantageous time for you to execute a highly targeted direct mail campaign effort. Studies of the marketing activity of financial institutions during the 2008 recession show that those maintaining or increasing their budgets during that period significantly outperformed peers and saw sales increase by an average of 6.5%. Though many companies have shifted to a strictly digital approach, there are numerous studies highlighting the advantages of using a multi-channel approach in your efforts.
Once you determine the approach that best aligns with your organization’s goals, put a plan in place and get started. Your FI has provided an excellent and necessary resource over the past several months, and with some planning you can leverage your efforts and resume forward motion toward accomplishing the goals established for 2020.
Thank you for showing up for your communities
By now you’ve made it through one, almost two, rounds of the Paycheck Protection Program. For many of our clients, serving as a participating lender for the Small Business Administration’s program has been a trial by fire requiring numerous last-minute updates, application changes, technical hiccups, and funds being depleted far sooner than anticipated.
Galapagos has heard numerous stories of lenders and their colleagues working late nights and weekends to prepare applications for submission to the SBA – and why wouldn’t you? You’re community bankers. When times are tough, it’s you, not the big guys, who have stepped up to the plate to offer support, guidance, expertise, and a level of personalized service that sets you apart from the nationals.
You stepped up because you always have – so what will you do about it next?
If you haven’t already, consider an awareness campaign that reminds the community of your drive to serve, and highlights the results your efforts have generated for businesses. Your parents may have raised you to think it’s impolite to brag, but we’re here to tell you that when your team’s long days result in relief to hundreds or even thousands of local businesses, it’s more than okay to shine a spotlight on your organization and what sets your community bank apart.
Showcase your commitment to your communities and applaud the partnership you provide as a financial partner. If you need a partner to help draft a news release, or create your awareness campaign, give us a call.
2020 Vision Before the Fact
At the beginning of each year, every trade organization, Association and Think Tank issues its predictions and forecasts for the coming year. The team here at Galapagos has reviewed the collective punditry to identify the likely key issues that will shape marketing opportunities and challenges in 2020.