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March 13, 2018

Bankers See Opportunities in Tax Reform – Which Ones Will They Take? (article)

Bankers are optimistic about the next few years, and why not? The dynamics set in place by the 2017 tax cuts could easily produce a 50% increase in profitability when you factor in reduced tax burden, expected increases in lending to small businesses and the potential for increased net interest margins should the Fed find it necessary to raise rates to offset inflation.

Contributing further to this upbeat vibe, bank stocks and valuations have soared. With profits up and shareholders happy, why was there a note of caution at the recent Bank Director’s “Acquire or Be Acquired” conference? In a nutshell, it was fear that good fortune would contribute to complacency.

Perhaps no industry has felt the convergence of changing consumer behavior and technological innovation more than the banking sector. With more money hitting the bottom line from a historic tax cut, there may never be a better opportunity to accelerate investment in ways that assure banks remain competitive by offering what their customers demand. 

Or will banks follow the apparent route of major corporations, reportedly authorizing $200 billion in share buybacks in the two months since the passage of the new tax law? No less tempting is the opportunity to offer a substantial salary bump for key executives or a one-time bonus to employees.

More than likely your leadership and management team is considering a combination of factors and options, and much will depend on how the tax package actually plays out. Focusing on your customers and your staff is never a bad play, though. This article shares thoughts on those specific opportunities.

Focus on the Customer

There is no time like the present to invest in development of in-house applications to provide the conveniences expected by today’s consumers of financial services. Times truly have changed over the last decade. Customers have become less sticky, with younger generations in particular now valuing banks more as the means to facilitate secure, real-time payments than for the ability to store money or finance a purchase. 

Failure to provide expected features and anticipate the next customer “ask” can spell trouble. Intuitive interfaces, visually appealing presentation of information, quick balances, mobile bill pay, debit card on/off and, of course, mobile photo check deposit are winning the day in the competition for customers. Go from great to awesome by adding advisory features like the “safe-to-spend” advisory (considering scheduled payments and savings goals) and trackable spending (insights into spending habits).

Creating true convenience may include expanding services to become a comfortable platform for more-than–bill-pay financial activity. Notably, digital investment advice is spreading to regionals. Connecticut-based Webster Bank’s hybrid model (pairing human advisors and software) was featured recently by American Banker. Initially provided as a standalone app, the plan is to bring all the bank’s offerings together on mobile, effectively building “a new online ecosystem of services, including mobile banking, digital investment advice and personal finance management, to stay competitive” and uniquely create cross-sell opportunities.

Peter Wannemacher, senior analyst at Forrester, specializes in digital strategy, bank branding, and digital and mobile banking, as well as market research and channel strategy. (See his suggested features banks should offer here.) In the AB article, Wannemacher notes that “many banks want to become a platform, but that is very difficult, for a variety of reasons,” primarily technological and economic. One could reasonably expect anticipated increased profitability would assign investment in this direction.

Focus on Staff & Management

“Federal Reserve Bank of New York President William Dudley plans to retire . . . .” “Old Line Bank announced the retirement of Joseph E. Burnett . . . .” “Signature Bank announcements retirement of George M. Klett . . . .” “Longtime Webster Bank CEO (and son of the founder) to retire . . . .”

It’s no secret that a generational transition of leadership is in the works. The opportunity to invest in your current team by offering coaching and development opportunities for high-potential employees who are currently on your bench may be just in time, as retirement hits key leadership levels in the banking industry. 

The time may be right to attract new talent, as well. Expanding your staff at key positions while the economy and dynamics in the financial industry are in an upswing seems a prudent course of action. Top talent in today’s job market are seeking more than a title; they crave opportunity for career advancement. To attract high-performing prospective employees and retain current employees, it’s essential to offer professional development.

A concerted plan to attract the right leaders and managers for the next generation of your organization could include offering better benefits or a sign-on bonus. Experienced, tech-savvy and service-oriented talent is out there and likely being approached by competitors in banking and other industries. There may be no better opportunity to make that recruiting investment than now.

Bottom Line

Perhaps the most obvious strategic investment combines focus on the customer and executive staff – i.e., bringing on an experienced executive to lead those initiatives that focus on consumer conveniences and customer expectations. 

So what will it be? Buy back stock? Pave the way for smooth leadership succession? Transform into the financial institutions of the future? Choosing well may tell the story in the coming decade.

ADDITIONAL RESOURCES and interesting reads:

Optimistic About Loans But Worried About Deposits by Paul Weinstein Jr. (Promontory Interfinancial Network)

How to Give Employees a Slice of the Tax Reform Pie by Michael Blanchard (Blanchard Consulting Group)

Risk Management Pitfalls in Bank M&A by Kris St. Martin (CBIZ Insurance Bank Program)

Aligning Bank Compensation Plans with Bank Profitability by Amber Duncan and Jay Meschke (CBIZ Talent & Compensation Solutions)

Bank Directors 2017 Compensation Survey: Procrastination About CEO Succession (6/5/2017)

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