Reopening America responsibly requires revisiting local FI strategies for relevance

America is reopening and the economy is getting back to running on all cylinders!  That’s the official narrative anyway. In reality, the drivers of industry and government are doing their damndest to crank our stalled economic engine. Whether there’s enough lubrication (cash, credit, consumer confidence, commodities supply, etc.) to support revving the engine back to previous outputs without overheating it or ceasing it up . . . well . . . we’ll see.

While some sectors ‘start their engines’, certain trend-setters and industry-innovators aren’t ‘reopening’ and aren’t struggling to start up; because they never shut down! Certain players had strategies in place which supported their resilience and relevance and allowed them to increase engagement with consumers and communities in the face of unprecedented disruption.

The organizations which are shining in these dark and stormy hours are primarily those that understood the actual fuel for digital engagement: data. Not platforms, not physical proximity. Data is dynamic; it’s relevant in any operational environment; it’s valuable as a raw material and resource for understanding shifting consumer demands despite industrial and economic environmental variables; it’s extensible; it’s virtual; it bridges brick-and-mortar and digital.

Tragically, most financial institutions didn’t enter the COVID-19 crisis with data-first strategies or what we call a “core-centric” strategy (though many did enter with a ‘digital first mantra,’ ironically). Most community financial institutions were surprisingly vulnerable and dependent on external, extra-industry, sociological, and governmental factors far beyond their control, despite the fact the financial services industry – community FIs in particular – have long been aware of the probability of disruption within and to their communities. As an industry we’ve probably devoted tens-of-millions of cumulative human hours listening to messages on digital disruption and we’ve discussed (ad-nauseum) realities like ‘Blockbuster conundrum’, the ‘iPhone phenomenon’, the ‘Amazon effect,’ the ‘Starbucks model,’ ‘the Travel Agent industry tragedy,’ the ‘inevitable Google-ization’ of banking, etc.

So, since it’s been nearly two decades that we’ve been discussing these probabilities, now seems like a good time to ask: “What have we learned?”

That’s not rhetorical. As America prepares to ‘open up again,’ what conversation is your institution having regarding relevance and strategic sustainability of the local financial institution in the past 90 days?

A colleague recently sent me a Gonzo Banker article which offered some suggestions on possible conversation topics for leaders of financial institutions.  The article didn’t lack for palatable platitudes; it suggested “strategies” like ‘manage your IT spending more transparently,’ ‘evaluate vendor contracts and costs more intentionally,’ ‘be more surgical and precise with your lending,’ and ‘make bold delivery channel moves.’  What these industry-standard suggestions led me to ponder is . . . “are these really ‘strategies’ for the post-COVID ‘new normal,’ or are these just management tasks and (what should be) ongoing PMO initiatives which one would hope predate our recent pandemic as best practices of a financial institution!?”

Aside from perhaps the last (‘make bold delivery channel moves’) the answer seems obvious.  Yet, even (especially) when it comes to the concept of ‘being bold with delivery channel moves,’ there’s an inherent risk that this ostensibly strategic objective can quickly devolve into mere vendor management – i.e. selection of a platform and dependence on a vendor for relevant digital delivery.

There’s nothing strategic about managing through shrinking margins and collapsing business lines. Just ask the execs formerly employed by Toys ‘R’ Us or Blockbuster about the effectiveness of their ‘strategies’ of cost cutting, vendor bludgeoning, and trying to bolt-on solutions behind the curve to pivot to digital delivery of traditional commodities.  It didn’t work and they didn’t innovate, regardless of the desperation and the compressing margins, because these kinds of actions aren’t actually strategic leadership; they’re managerial tasks. These things aren’t leadership; they’re reactions to stimuli.

What our industry, and our communities, need now is leadership and strategy; and they need it from the institutions which rightfully and historically occupy the place of privilege as economic epicenters in their community: YOUR COMMUNITY FINANCIAL INSTITUTION!  Amongst a manifold of malodorous realities which blossomed this spring is the recent realization that businesses, like most financial institutions, were woefully unprepared for disruption to physical/brick-and-mortar operations.  They, like FIs, believed having a website and being plugged into some ecommerce vendor and platform (i.e. Google, Facebook) for digital marketing would ensure their relevance. They were vulnerable. As a result, our local economies were incredibly susceptible to shut-down.

Thus, as we look to reopen and we confront an almost inevitable (and self-fulfilling) second wave of disruption, we owe it to our communities to be asking authentic, challenging, and self-reflective questions like, “What could our institution have done to prevent our local businesses from imploding; how could we have contributed to the resilience of our community commerce?”

The answer isn’t PPP loans, or hocking merchant/POS processing hardware, and you wouldn’t have been in a more resilient position if you’d prioritized that project to bolt-on that perfect LOS, online banking, or ITM. Sure, all of those are already being tossed around as ‘solutions’ to inoculate your institution against COVID-esque disruptors (coming in 3 months, apparently!).  If your financial institution decides you need ITM, or a new LOS, hopefully that’s a management initiative or a vendor management project; not your strategy.

If you’re looking to go beyond management initiatives for an economic downturn, and you’re looking for strategic differentiators in the new normal, you might consider facts like:

  • America’s restaurants aren’t going to revive and thrive through the ‘next wave’ because your FI spent 6 or 7 figures on ITM/PTMs. Those operational projects for your institution won’t help your local businesses adapt to the new norms of mobile ordering, mobile payments, appointment scheduling, and a myriad of other factors now impacting their consumer patronage and survival and threatening to instantly disrupt their business whenever the ‘next wave’ hits the shores of their local economy.
  • America’s community institutions (schools, clubs, councils, churches, non-profits, NGOs, charities, etc.) won’t survive because you upgrade your online banking. They might stand a chance if you can leverage your capital and technological expertise as the epicenter of the community economy to help them safeguard data, streamline retail interactions, manage appointments/scheduling, digitally support social distancing while functioning as a rail for commerce, payments, donations, etc.
  • America’s many service sector workers, small business, and sole proprietors aren’t going to remain relevant and keep serving their small-but-profitable client bases in a post-cash COVID economic wasteland because you upgraded your LOS. However, they could certainly benefit from your institution sponsoring their access to white-labeled mobile digital wallets for payments, appointments, loyalty rewards, local currency support, etc.

‘Being bold with delivery channels’ requires more than reading the latest pamphlets from platform purveyors. Being bold, being a bright spot of economic innovation and ignition in your community requires a real strategy of controlling data within your core, using your community’s data and its commercial power and value to serve as an epicenter of the local economy, positioning your institution’s physical, technological, financial, and human capital as a collaborative resource to organizations in your civic circle, and leveraging a privileged technological and economic position to catalyze community commerce.  More than just buying a better online/mobile platform, LOS bolt-on, or prison phone inspired PTM/ITM, being bold probably means taking a risk to build something new to extend your business and digitally bridge your brick-and-mortar presence into the community, to do some ‘ground-pounding’ business development, to ask local service providers and retailers “What do you need,” and to use your digital, human, physical, and financial capital to respond authentically to their desperate situation.

Who knows . . . beyond just being an ‘earnings improver’ like IT projects, expense cutting measures, and vendor platform procurements, you might end up with a strategy for relevance regardless what anticipated disruption might catch our industry off-guard in the future.

While we’re at it …

A great example of a strategic questions leading to awareness and relevance would be a something like:

  • “Does our institution believe pumping $10 trillion of debt and cash into our system is going to stabilize rates and the value of the dollar for our consumers?”
  • “Are we ready for/can our core data processor support negative rates as a reality?
  • Would we be ready to support digital currency?”

Your organizational discourse around these types of questions might just keep our industry and your institution ahead of the curve of what could be another associated crisis: inflation, negative rates, and evolution and acceleration of digital currency as a mainstream phenomenon for consumers.

Recent data around cash and banking products, is decisive and depressing: (1) Congressional Budget Office is projecting a 38% decline in GDP through 2020 (2021 TBD); this is the result of (2) unprecedented deceleration and displacement of the American workforce; and (3) where we thought/hoped businesses would ‘restart’ and ‘get back to normal,’ small business owners (especially restaurants and service sector) are now struggling to deal with the stark reality of increased costs and reduced volume/demand as a result of social distancing regulations for reopening and social pressures/fears flowing from the general public.

To sum it up; global experts on financial crises estimate we’re facing at least an 18 month expedition back to ‘normal’– assuming of course one can or wants to wind up back in the same place after an 18 month excursion through a desert!

It’s not so “gonzo” an idea to imagine that banks are in for tight times and collapsing fundamentals of margin and income from traditional product lines. “Gonzo” thinking restructures traditionally objective narratives into subjective ones. By seeing the impact of forced and rapid deceleration of vast swaths of industry at the quantum level: how it impacts at least a third of our workforce in most corners of our economy from their individual perspectives.

So, it is a “gonzo” idea to suggest that financial institutions should be focused on consolidating data inside their core and extending that data to support storing new digital assets, new concepts of digital delivery transcending monetary instruments and physical hardware, etc. in order to provide democratic access to financial services in a way that is perceived as most valuable to the individuals that make up (and depend on) our financial institutions.

Jon Ungerland

Jon Ungerland

Jon Ungerland believes the core philosophy underlying credit unions is the plausible and sustainable model for preserving healthy financial institutions and promoting financially dignified and strong communities in the 21st ... Web: www.dalandsolutions.com Details

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