Embracing Change and Managing Uncertainty: A Guide for Financial InstitutionsBy Rebecca Cicarelli, Director of Marketing, BranchServ

If we can recognize that change and uncertainty are basic principles, we can greet the future and the transformation we are undergoing with the understanding that we do not know enough to be pessimistic. - Hazel Henderson

In business, uncertainty is a fact of life. The banking world is no exception. That said, while

changes present their share of challenges, they offer opportunities in equal measure.

Ultimately, in order to facilitate growth, fi nancial institutions are compelled to get comfortable

with the uncomfortable.

Technology, consumer behavior, competitive activity, and regulation are all prompts for

uncertainty. That said, there are always wild card elements in play as well. Case in point: the

COVID-19 pandemic. Ultimately, fi nancial institutions survive and thrive by fi rst recognizing,

then assessing and leveraging changes whether they be in succession or in parallel.

TECHNOLOGICAL CHANGE AND UNCERTAINTY TECHNOLOGICAL CHANGE AND UNCERTAINTY The ChallengeLegacy platforms ultimately cease to be supported with the code modifi cations necessary to manage cyber threats.

This puts fi nancial institutions at tremendous risk as appropriate response becomes diffi cult at best. When faced with

vulnerabilities as potent as Shellshock, Poodle and Ghost, operating systems can crumble without proper defenses.

There have been several successive waves of industrial revolution in our nation; each with an escalating impact on how

we live our lives, how we do business and how we bank. While not apparent at fi rst, the digital revolution of the 1980s

resonated more strongly than any other for the banking industry. It ultimately triggered the adoption of online banking in

1994, opening the virtual channel for fi nancial services customers everywhere. With that, paying bills online and transferring

funds become common practice. A decade later, as Apple revolutionized personal communications, mobile banking became

just as important.

The fourth industrial revolution pushed AI to the forefront, expanding the user experience and many are anticipating that

the next round of innovation will simply improve on that to better meet consumer demands. With that, there have been

repercussions for retail.

How have clicks infl uenced bricks? Very simply, the digital experience has heavily impacted retail expectations. While online

and in-store alignment began with the likes of Apple, there are now no limits to consumer demand for the high-tech, high-

touch in-store experience. Financial institutions are by no means an exception.

How FIs Can RespondBanks and credit unions must evaluate technological advances with a discerning eye and a focus on those things that

offer tangible benefi ts for the institution and importantly for the consumer that it serves. FIs are signifi cant investors in

technology with a primary focus on digital and in-branch innovation. According to Harvard University, FIs spent as much as

15% of non-interest expense on IT twenty years ago. Since then there has been a sizeable uptick in technological investment

for most, nevertheless adopting technology for the sake of technology does not make good business sense for anyone.

What are best practices specifi cally for in-branch technology adoption? Ultimately, there is no ‘one size fi ts all’ for banks and

credit unions. Careful consideration must be given to overall branch strategy and objectives, consumer demand/behavior,

competitive activity, security and of course the bottom line. For example, if improving teller effi ciencies is your primary goal

then cash recycling might be worthy of consideration. If, on the other hand, you are looking for a more signifi cant boost

of the consumer experience to breakthrough competitive clutter, advanced terminals or ITMs should be evaluated. The

targeted outcome and solution capabilities must subsequently be weighed against the investment for justifying outlays of

time and money, but ultimately the right technology can often bolster branch performance.

CONSUMER CHANGE AND UNCERTAINTYCONSUMER CHANGE AND UNCERTAINTYThe Challenge Consumer behavior, preferences, and expectations are everchanging and they are shaped not just by specifi c

market elements but by general trends in consumerism. The overall dynamic surrounding the acquisition of goods and

services is not immune to shifts in response to buyer infl uence. Such is the case with millennials, whom some academics

assert are buying less often and less overall, thus infl uencing entire industries. The US auto industry, for example, has

experienced a seismic change as more opt for leasing vs. buying, led by millennials who in fact lease 34% of the time

according to Edmunds.

That said, higher tech industries have fared better. Smart phone ownership among millennials is at its highest – 93%

according to Pew Research. As a result, we are starting to see others ‘borrow’ from smart phone successes. For instance,

Volvo recently introduced its Care program with one easy payment for leasing, insurance and maintenance, in addition to

auto upgrades that seems to mimic phone upgrades.

So how has this infl uential generation shaped fi nancial services? JD Power recently affi rmed what many of us already know

– millennials take a digital fi rst, branch second approach to banking. This does not bode to the end of the branch, however,

if fi nancial institutions make smart adjustments.

How FIs Can RespondFinancial institutions need to, as Forbes recently recommended, keep the branch relevant. Creating an experience is a sure

winner with millennials, thus the importance of consumer engagement efforts. This is complemented by the adoption of

‘big tech’ to solidify a consistent omnichannel experience. As part of this, utilizing sophisticated consumer-facing technology

to boost the branch experience can create a win-win situation, allowing banks and credit unions to compete against other

retail priorities.

Indeed, banks and credit unions contend with an increasingly sophisticated overall customer/member base, and this is not

limited to one generation. The fact of the matter is that there is now much to compete against in the minds of all consumers.

Customer mindshare has become a critical gauge for bank success. An aggregate of four components – customer/member

experience, physical footprint, digital sophistication, and marketing presence – customer mindshare helps differentiate

banks from the consumer perspective. Notably, the branch itself has signifi cant prominence in this equation.

REGULATORY CHANGE AND UNCERTAINTYREGULATORY CHANGE AND UNCERTAINTYThe ChallengeThe US banking industry has long been one of the nation’s most highly regulated. This culminated perhaps most

dramatically in 2010 with the Dodd-Frank Act which was in essence a regulatory response to the fi nancial crisis and

associated misconduct issues. While in itself a substantial piece of legislation, Dodd-Frank’s impact has been infl uenced

by the powers of interpretation and enforcement as triggered by new administrations. Such is the ebb and fl ow of

government induced change.

Financial institutions are forced to play catch up as the rules of one are rescinded by another. Case in point, almost six

years after the passage of Dodd-Frank, it seemed likely that stronger overall implementation of guidelines including the

regulation of shadow banks was imminent under Obama. Indeed, some alluded to a regulatory legacy. Fast forward from

2016 to 2018 when Trump took offi ce. The new President signed the biggest rollback of bank regulations since the global

fi nancial crisis and eased restrictions on all but the largest banks. Now there is a new game in town - a dual focus on

fi ntechs and cyber security.

How FIs Can RespondBanks and credit unions are somewhat at the mercy of the government when it comes to regulation, so how can they

anticipate and respond to changes? They must begin by fostering a culture of compliance and dedicate appropriate

resources to monitor change with diligence. This positions them as proactive instead of reactive. But how?

Remaining connected to both friends and enemies via trade groups and tapping into key online resources e.g., ATM

Marketplace can be essential to staying on top of regulatory change on the horizon. There is also something to be

said for leveraging your partners and vendors for insight. Ultimately, you want to buy yourself time to gather, digest

and determine the relevance of upcoming change in order to respond in a more timely, methodical way. Feeding the

framework creates a structured compliance management process.

COMPETITIVE CHANGE AND UNCERTAINTYCOMPETITIVE CHANGE AND UNCERTAINTYThe ChallengeBank merger activity was rampant at the turn of the century and at its highest with nearly 300 deals in 2006. When the bubble

fi nally popped in 2008, the landscape of the banking industry was forever changed. Four key leading institutions were now in

possession of 40% of bank assets, namely Chase, Bank of America, Citigroup and Wells Fargo. Weaker industry players had

long been gobbled up by these powerhouses.

As M&A activity began to regain strength, though not quite at pre-crisis numbers, the focus shifted to regional and

community banks, and super-regional entities emerged. This has continued through today with one of the largest deals in

2019 tied to the BB&T and SunTrust formation of Truist.

That said, M&A is no longer the only game in town. Welcome fi nancial technology, or fi ntech for short, which arrived with the

banking crisis of 2008. Fintech describes any company that provides fi nancial services through software or other technology

and includes anything from mobile payment apps to cryptocurrency. Some experts describe it as the missing link between

fi nancial traditionalism and the future of fi nance. Ultimately, fi ntech has created shifts in the industry’s job market and

expanded the fi nancial product portfolio available to consumers and business alike.

How FIs Can RespondFintech’s rise to power has prompted many traditional institutions to adapt and offer new solutions to customers/members in

order to remain competitive. Banks and credit unions have opted for one of two approaches. The fi rst is the ‘if you can’t beat

‘em, join ‘em’ strategy involving a purchase, start-up or alliance with a fi ntech. Notably, larger institutions have been more

disposed to succeed with this approach given greater resources and enhanced experience. The other option is to leverage

your strengths with an emphasis on the differential in service and relationships. Community banks are fi nding that they can

leverage what they do best by making the most of the personal banking experience. This is something that fi ntechs very

simply cannot replicate.

Every institution needs to determine a best fi t approach to managing both fi ntechs and rising competitors. A thorough SWOT

(strengths/weaknesses/opportunities/threats) is usually a helpful exercise and one worth repeating on a regular basis to

ensure that competitive strategy is managed to leverage the capabilities and the opportunities that surround a particular bank

or credit union.

THE WILDCARD OR UNKNOWNTHE WILDCARD OR UNKNOWNThe ChallengeThe fi nal challenge is what I like to call ‘The Wild Card’. Not all of life is predictable, and unforeseen circumstances can put

fi nancial institutions under the greatest pressure of all. Fortunately, most have mainly short or mid-term effects, allowing time

and space for long-term recovery. Natural disasters like hurricanes, wildfi res and fl oods are a good example of this at play.

Those institutions affected are usually concentrated geographically and ultimately resume business as usual.

COVID-19 has been a different kind of wild card with a national impact that will likely resonate for years to come. The

economic and physical repercussions for the neighborhood branch are yet to be fully felt but will surely be signifi cant.

How FIs Can RespondBusiness continuity plans are critical to managing immediate response to wild card situations. Standard operating

procedures must be evaluated and adjusted to adapt, and investments prioritized to manage the bottom line. The more

nimble an institution, the better.

In the case of COVID-19, fi nancial institutions have universally adopted best practices in the course of the pandemic that

include hygiene protocol and a reliance on drive-up and customer-facing technology (ATMs, advanced terminals, ITMs) at the

branch, combined with digital resources to manage necessary lobby closures. That said, as banks and credit unions emerge

from the pandemic, returning to business as usual appears to be highly questionable.

Most will modify business continuity plans to capture new lessons learned. These will surely include a renewed focus on

proper drive-up investment and maintenance given the key role that this equipment played in pandemic management. Many

banks and credit unions will also give a second look to customer facing technology, especially that which is integrated with

the core in order to manage demands on call centers. Touchless access control will likely be weighed heavily, as institutions

seek to monitor common touch points and institute permanent hygiene maintenance protocol and equipment. Given all of

these factors, some branches may ultimately emerge looking a bit different in terms of both size and layout. Some may not

emerge at all.

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CONCLUSIONCONCLUSIONChange takes many forms, and those that cannot adjust successfully will lose in the long-run. The key to effective

change management is creating the internal structure and external alliances and partnerships that help you

succeed.

What should you look for in outside partners? The first thing to consider is their understanding of industry

challenges and the hurdles specific to your institution. Real thought leadership is a rare and valuable quality

that can support your ability to make good decisions for your bank or credit union. Secondly, you must evaluate

how they can support you. How do their resources complement yours? What commitments are they willing to

make on your behalf? Third, and perhaps most importantly, pay close attention to how invested they are in your

success. Are your needs a priority?

Change can be difficult to manage, but when approached in the right way, with the right people, it can translate

into tangible opportunity for your institution.