Embrace change, take risks, and disrupt yourself

Hosted by top 5 banking and fintech influencer, Jim Marous, Banking Transformed highlights the challenges facing the banking industry. Featuring some of the top minds in business, this podcast explores how financial institutions can prepare for the future of banking.

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Banking Strategies to Withstand an Economic Downturn

The banking industry has a once-in-a-generation opportunity to transform legacy business models to become more competitive and more resilient during economic downturns.

By integrating data, analytics, advanced technologies, automation, and an upskilled workforce, banks and credit unions can become more future-ready and agile in a crisis. These firms will also be able to take advantage of unique marketplace opportunities.

I am fortunate to be joined on the Banking Transformed podcast once again by Ron Shevlin, Chief Research Officer at Cornerstone Advisors. We discuss strategies and tactics financial institutions must take today to become more prepared for any economic environment.

This episode of Banking Transformed is sponsored by mParticle.

mParticle believes that better decisions start with better data. Cleanse, visualize, and connect your customer data from any source or system to any API. Better data, better decisions, better outcomes. Visit mparticle.com for more.

This episode of Banking Transformed is sponsored by Q2

Today, digital banking is more than a channel—it’s how financial institutions deliver their brand, manage customer relationships, and grow their business. Q2 helps FIs wherever they are on their digital transformation journey, with a portfolio of consumer and commercial solutions that help customers save, spend, borrow, and engage.

More at https://www.Q2.com

Jim Marous:
Hello, and welcome to Banking Transformed, the number one podcast in banking. I'm your host, Jim Marous, owner and CEO of The Digital Bank Report and co-publisher of the Financial Brand. The banking industry has a once in a lifetime opportunity to transform legacy business models, to become more competitive and more resilient during economic downturns. By integrating data, analytics, advanced technologies, automation, and an upskilled workforce, banks and credit unions can become more future ready and agile in a crisis. These firms will be able to take these advantages of unique marketplace opportunities going forward, making them stronger and more resilient. I am fortunate to be joined today on the Bank Transformed podcast by Ron Shevlin, chief research officer from Cornerstone Advisors. We discuss strategies and tactics financial institutions must take today to become digitally mature tomorrow.

Jim Marous:
You know, some say recession is coming while others will say it's already here. Financial institutions no matter what need to develop a strategy that recession proof and future proof their current business models, and it has to be done now. If the economy takes a deeper dive in action will make it harder to catch up and will put financial institutions further behind the curve as to where the industry is going. It'll also make it hard to keep pace with the chains that's impacting the industry today and forward. Welcome to the show again, Ron. So to get us started, what do you see as the biggest threat to the banking industry as we might be entering a pretty tough recessionary time and how prepared do you see banks and credit unions today?

Ron Shevlin:
Jim, how you doing great to be back. Thanks again for having me, before I even get to your question, we got to go back to your intro. You said that some think the recession's on the way and others think that's here. There are others that don't think we're necessarily going to have a recession, you forgot the third group altogether. Don't know if you saw, but the CEO of Truist seems to be on the more optimistic side of things and doesn't see any short term problems and just thinks that we've got a mild recession in the midterm. I hope I'm not misquoting him on that one. There's a third group there and I don't want you to ignore the third group. And then the other thing to get to your question, why I tell you really get me on these things, we've got to boil it down to the biggest problem, there's a bunch of things that the industry needs to do.

Ron Shevlin:
I'm very hard pressed to kind of boil it down to one, but the biggest or one of the biggest concerns and things that kind of wrestle with here is building the demand and the pipeline for loans. It's the driver of profitability in most financial institutions. It's going to be the thing that's going to be most at risk in a downturn. In the economy is both the demand and the quality of loans and without a strong pipeline, a strong backlog and a strong portfolio from a loan perspective, that's just going to drive so many other decisions for the banks and credit unions. I'm not sure is that the most important, or I don't know, but it's got to be up there.

Jim Marous:
From your research, you get a great feel for how organizations doing how prepared they are, what works, what doesn't work. What are some of the characteristics that you see within organizations that are right now, the most prepared for the future? And again to your point, be it recessionary, non-recessionary times, organizations are prepared but are there certain characteristics that you see as being transcended upon over anything else with regard to how prepared organization is? Is it leadership? Is it core systems? What do you see as being the major characteristics?

Ron Shevlin:
I guess Jim, my mind goes to two things in particular. One kind of being a more hard quantitative-ish measurable type of thing and the other being a softer, more qualitative, less measurable thing. On the less measurable side, I think one of those characteristics is clarity of strategy and focus and understanding who the customer or member base really is. I look at an organization like USAA always kind of amazed at just how well they execute. And I think a good reason for that is because they have in their sites, a very clear picture of who their member is and who they serve. Now it's not that they serve every member is homogenous in that case, I think of it as a bullseye and in the center of their bullseye is the active deployed military member, in the next ring is the active non-deployed military member and the ring after that is the non-active non-deployed military member. And then it's military family members, but they've got that bullseye. And I think for any financial institution, that's starting to get affected by an economic downturn. I think those that are best positioned to deal with that are those that just know who it is they serve need to go after and need to focus on.

Ron Shevlin:
I think the other side and the more measurable, harder side are those institutions that, and this is going to get us into another discussion, which is the nicer word for argument. The degree to which they've accomplished some level of digital transformation, I think the ones that have done the best job so far of providing digital account opening, digital banking capabilities, I think go into this recession or downturn in the economy, whatever it turns out to be or whatever it turns out to be up or down, on a stronger set of legs because they've dealt with some of the efficiency and effectiveness issues around delivery. I just think that means that if they've made the investments already, then they're going to be having a little bit easier time dealing with economic downturn.

Jim Marous:
You know it's interesting mind you, and I go way back in the financial services industry. It's been a long time since we've had what could be a down economy, but even if it's not a down economy, a time when really the cost structure of financial institutions is really being put to a test. I think in the past when the few times that I remember a deep dive in the economy, financial institutions first and foremost cut costs. They immediately cut costs across the board. Marketing became a luxury as opposed to necessity. And basically it was efficiency and cost cutting. I'm wondering, and I'm going to ask you this, is this still the best overarching strategy? It's still probably part of the strategy, but when you look at digital transformation, when you look at core systems, when you look at customer experience, when you look at knowing your customers, all the different elements, is it going to take more than just cost cutting to really be in the position you need to be in the new competitive battlefield in what could be a difficult economy?

Ron Shevlin:
In my mind, the answer to this is just really kind of complex and complicated. In the past I think there's been a very strong focus among banks and really companies in almost every industry, when there's a downturn is to cut back and cut costs. But I think what the industry is kind of recognized with proliferating channels, different mechanisms for customer and business contact that you have to make the investments in better upgraded capabilities to deliver services more efficiently, which means you have to invest in cost cutting. Because the environment calls for just more and more costs as we grow more and more delivery touchpoints. So smart banks have recognized that we actually have to make an investment in delivery capabilities, in able to then reduce costs and have more efficient delivery. If a bank is, this is why I said I think that those that have accomplished some degree of digital transformation go into this with an advantage, because you're not just simply going to be able to let go of people enough to drive cost reduction going into this.

Ron Shevlin:
And I can't imagine that right now that's a palatable strategy for a lot of banks, as they're struggling to hire more people that they're going to let people go that's it seems kind of ridiculous right now. So I think we're in a stage where this recession's different. Now look, there are some things though that have happened in the past really 15 years or so, thanks to the crisis back in the 2008, 2009 timeframe, banks today are required to keep more capital and keep more higher quality capital. So I think that helps buffer the shock a little bit. And I think we're also going into this recession with strong employment, stronger employment numbers. I don't think we're going to see a real decrease in unemployment rates or increase in unemployment rates is probably the negative side of that. So that helps a little bit, but the inflationary pressures are kind of the killer in this economic situation. It's tough for banks, I think the ones that have made the investment in the past five years, not just two years, not the ones that are scrambling post pandemic, but the ones that have been consistently investing and upgrading their digital delivery are the banks and credit unions that are going into this recession on a stronger set of legs.

Jim Marous:
You know, it's interesting because as, as you're saying what you just said, it reminds me that the COVID crisis really put financial institutions on notice that their cost structure, their delivery structure, the way they open new accounts, there's a lot of things that had to be fixed. And so in many cases, as you've said at the very beginning, that digital transformation process, that whole attitude of fixing what's been broken has started really well before the economy was suffering. What I've seen and we saw it this week in some announcements made by PNC where they're going to possibly transform 1000 branches into automated branches, which we can get into discuss on whether or not there should be branches all in those cases. But I also had a great discussion with the financial institutions that's 50 billion, a good midsize organization, very competitive.

Jim Marous:
That's also looking at closing branches, closing [inaudible 00:11:35] networks, really keeping on plugging along and saying, we've got to move our customer base into a digital environment that's good for them. So we've got to fix our digital delivery, but we also need to move people into that form of doing banking. So maybe a lot of these organizations are already got a little bit of a runway they're on, which is good. I'm glad to see that. I'm glad to see that overall financial institutions are looking at this, but one thing that's really interesting is that, and I'm sure you've seen it as well, is you can very quickly see which organizations are going to be best positions based on the leadership thinking. Is top leadership really willing to make the major changes that are needed for digital transformation to be future ready, or they just doing what others do to do the least amount.

Jim Marous:
I mean, Jamie Dimon got ridiculed for putting a ton of money into R&D but people within the industry were applauding it because people like us were applauding basically because it still wasn't enough, but at least with somebody saying you know what, we can't keep doing the same thing and expecting better results, let alone the same results. When you look at the organizations as a whole, do you think that the part of the banking industry that we talk about a lot is the FinTech firms. With the possible recession coming and with the sloping downward of FinTech funding by venture capital firms, how much of a threat is the whole funding mechanism right now to FinTech firms in general? We saw this coming possibly, but how big of a challenge to this and on the opposite side, could this be an opportunity for traditional banks to actually possibly acquire or at least partner with FinTech firms to upgrade their capabilities?

Ron Shevlin:
Yeah so a couple of things to that, Jim first, I think there's a real parallel between the banks and the FinTech. I said that the banks, and when I say banks, let's say financial institutions, I don't want to exclude any of the credit unions, but sorry, credit unions I'm getting a little tired of saying banks and credit unions, banks and credit unions. So banks, financial institutions.

Jim Marous:
Members, and customers. Yeah.

Ron Shevlin:
Exactly members and customers, don't ever want to leave them out. I said I think there's a parallel, I said that I think that the banks that are going into this best position are those that already made investments in digitization and those that kind of know their customer base. And I think there's a parallel kind of structure on the FinTech side. I think the FinTechs that have been spending their money wisely in terms of building capabilities, marketing, and those that have a good business model to generate revenue are going into this downturn stronger. Look markets move up and down, valuations move up and down. Yes it's bad news for a Chime who was ready to go public and then kind of pulled back on it. But here's the thing I don't knock them for pulling back on their IPO plans, but I'm not sure they're one of the FinTechs well positioned for this downturn.

Ron Shevlin:
Not because they haven't spent their money wisely. I wouldn't criticize them for that, but on the business model side, heavy reliance on interchange is not a good place to be right now, nor I think ever, but especially right now. But I think the FinTechs that are going into this, having spent their money wisely, having built a business model that's sustainable for the longer term, will number one, survive this better and probably even attract the limited and lesser capital that's out there because they're in a stronger position. I think the FinTechs that may suffer are those that are really at the startup seed stage and may not have proven out capabilities and just I think in general, the VC market's a little bit more pessimistic about FinTech in general, so they may suffer a little bit.

Ron Shevlin:
So the last part of your question about the opportunity from the banking side, I think the banks have been pursuing the partnerships for a good couple years now. I think the potential benefit to them Jim, might be on the human resource, human capital side of the coin as FinTechs start to feel the funding pinch and start letting go people. These may be people that the banks can hire. They've had a hell of a time trying to hire anybody in the past couple years. And especially as the FinTechs have been either throwing out a lot of money or dangling a lot of equity at folks. And now with that being turned down, that makes that a lot less attractive for candidates. And so it might actually be a boon to the banks from a hiring perspective.

Jim Marous:
Yeah. And it's interesting, I wrote that in a recent article that I agree fully with what you just said there. In addition, I think it's not that it hasn't been said before with digital transformation overall in banks, but I think more than ever to achieve the speed and scale that's necessary to be future ready to be prepared no matter what the economic situation is. The importance of third party solution providers is increasing every day. Not only because they have talent, but they also have the experience. I liken it to the GPS system in my car. They have the experience through in many cases, hundreds of clients on things that can go wrong, things that can go right. So instead of a financial institution, let's say building their own core capability on the infrastructure basis, or working on data and analytics and analysis to be able to build better customer experiences, or even the automated back office, this really takes experience. But in order to do it in speed and scale, how important do you think now compared to even two years ago, are these third party providers that have run this race for a while?

Ron Shevlin:
So, Jim, it's funny. You speak a lot at conferences, I don't probably speak as much, but I try to get out there. And when I do, you probably have like a stump speech too. And the one that you feel most comfortable doing and try to wherever you're speaking you try to work that kind of stump speech into it. Well, I have one too. The title of my stump speech is the collaborative future of banking. And if you'll give me a minute, I'll kind of give you a quick background on this. I've done this presentation a couple times this year, so far, and I use the Wizard of Oz as kind of my storyline. And I pretend that I tell the group, well, I'm doing a remake of the Wizard of Oz.

Ron Shevlin:
It's going to be called the FinTech Wizard of Oz. And I go through this whole thing about Wizard of Oz and then at the end, I go all right, why am I telling you all this? And I say it's because the Wizard of Oz is an allegory for the banking industry right now. The Wizard of Oz was a story about how four entities, four characters came together to help each other achieve their very vast and diverse goals and objectives. They couldn't have done it without each other. And in very many ways, that's an allegory for the banking industry, where we have on one side the financial institutions who really can't get it done today without FinTech partnerships or the help of the traditional vendors, as well as the involvement of parties like the regulatory environment. So you can't get it done without the help of partnerships.

Ron Shevlin:
And while there's always going to be consultants out there saying, data analytics is the most important thing. Customer service is the most important thing. Well, at the core of all of these capabilities is the realization you can't build and improve these capabilities unless you are partnering using other third parties, whatever it is, vendors, I don't care what the relationship is. The reality is you can't do it alone. I mean even JP Morgan Chase, a gazillion badillion asset level bank just hired Peggy Mangot to run their FinTech partnerships. Even they're not going it alone. So if they can't go it alone, you better believe a three billion or 10 billion dollar community bank or credit union, can't go it alone. So I kind of see this, Jim, as sort of the core new competency that a financial institution has to build. The ability to partner. If you don't have that ability to identify, vet, negotiate, deploy, and scale partnerships, you're at a serious disadvantage, even before you get to all the important things that you like to talk about around data and analytics and digital delivery and all those things, that's just at the next level, there's a level below it, and that's the competency to partner. And so to me that's the new core competency.

Jim Marous:
Well, and what's interesting, Ron, it goes back now, gosh, three years to 2019, I was at the financial brand forum our event in what used to be in May and now it's in November this year, but I was amazed that there was just much talking, going on between vendors, solution providers, as it was between solution providers and financial institutions. And what became very apparent is these organizations are doing everything possible to find ways to work together with other partners that going to be part of this mix to build a better future and make it easier for financial institutions to engage. So there isn't a solution provider out there that can't work with all four, any of the four core solution providers, the core processing companies. In addition, they all can work with each other to different degrees, even if they're competitive sets and you've seen it because you work with these as many as I do. That it's really admirable how these organizations have said, you know what? We can take data in any form and make it work for you. We can take any problem you have and we can compartmentalize it so that we don't have to have you bite off a big piece. In fact, most of these organizations now more than ever can bring you a solution that you can get your toes wet and bring a positive ROI in the same year you deploy it, so that you can justify future investments.

Jim Marous:
This is a new environment because it used to be, it was all one way or the other. You had to build the whole big thing at once. I think that's really encouraging for the industry and you've written about it as well about how the whole environment of partnerships has changed so much to the benefit of financial institutions. You know, another thing ... And to do a pivot here, you and I have had several conversations recently on the importance of embedded banking and banking as a service and innovation overall. With a potential recession on the horizon, why is embedded finance and innovation, investment in innovation, even more important to not only to the customer, but to non-financial institutions as well as banks and credit unions?

Ron Shevlin:
Jim before I deal into that, let's make sure we're on the same page from a definitional perspective. I see embedded finance as the integration of financial services into the products, apps, deliveries, processes, whatever of non-financial institutions.

Jim Marous:
Yep.

Ron Shevlin:
And those financial institutions might be FinTechs who are financially oriented, but they could be brands like Uber and Lyft, Nike, Walmart, whoever. Okay.

Jim Marous:
Yep.

Ron Shevlin:
Banking as a service is what the financial institution provides to the non-financial institution in order to deliver those services. Now, innovation is just another circle.

Jim Marous:
Much more general.

Ron Shevlin:
That either encompasses it, touches it or butts it, I don't know what, but in banking as a service and embedded finance may be examples of innovation, but let's not go there in that realm.

Jim Marous:
Yep.

Ron Shevlin:
So why is this important to today? Well, for a couple reasons and it almost always starts with consumer demand, is because consumers want it. They want the level of convenience. They have trusted relationships with either FinTechs or non-financial brands that they do business with. And the interest in getting financial related services from these non-financial institutions is very high. I got a report that'll come out today, we won't say what today's date is just for whenever you run this, by summertime 2022, this report will be out. We surveyed 2500 consumers about their interest in getting financial services from brands like Ford, and GM, and Home Depot, and Xbox in various different consumer categories.

Ron Shevlin:
And while the level of interest definitely differs by category of business, there is very strong demand for a wide range of services. Not surprisingly, a lot of consumers would love to have a payment account with an Xbox so they can do in-game purchases and payments. On a Home Depot side, it's much more interest in home equity loan or something like that, obviously. So there's huge interest on it, in it from the consumer perspective and as a result that create creates demand that the bank should be paying attention to. But from the bank perspective, Jim, the growth opportunities is just absolutely immense and huge. There are relatively small banks in this country that most consumers have never heard of that have millions of customers, or I should say millions of accounts because the customer is really the brand. That's who they're serving.

Ron Shevlin:
It's the brand's customers who are the customers to the bank, it's the accounts. And they're able to grow much greater and faster than they could ever dream of growing if they were simply serving a narrow geographic community. But even, and just as importantly, if not more importantly, they're able to grow that business at an acquisition cost that is orders of magnitude lower than what they would have to spend in order to grow to that size business, whether it was within their geography or beyond it. And then on top of that is the revenue opportunity is greater because there's a bunch of different services remember, that they're now providing to the brand or the FinTech. Who for at least right now is a little bit less sensitive, they're going to negotiate the best deal they can, but this is not where the government's going to get involved every time that guy in Illinois is going to jump out of his seat every time a bank levies an one dollar a month charge on somebody, but in the bass world that's not happening.

Ron Shevlin:
So it's just a more conducive environment to gro profitably and to grow fast. This is just going to be absolutely huge for a lot of banks and many of them are thinking about it if not getting into it. I do think there is a limit though, look, we have thousands of financial institutions today. I don't think thousands of financial institutions can be vast providers. There's a decision they have to make. And in my mind, just give me 30 more seconds here, Jim, because I'm going to put out there I think I'm not the crypto guy or the Bitcoin guy, but you know the concept of the hard fork in cryptocurrencies in Bitcoin and Ethereum. And in my mind, I think banking is moving towards a hard fork, which is either moving towards embedded banking where you're really a B2B to C player or towards embedded FinTech where you are embedding more and more FinTech services into your banking environment. There's nothing to say that a bank couldn't pursue both strategies, but you got to be really good at one of the two and I think we're moving to the environment where you're not at the end of the road if you're a banker or a credit union, but you're hitting the fork in the road where you've got to decide, are you going to pursue an embedded banking strategy or embedded FinTech strategy?

Jim Marous:
Well you know what's really interesting too, is it doesn't matter what size organization you are. I'm going to do a shameless plug here but couple weeks back, we did an interview with a gentleman from Webster bank and he came from Sterling bank, which they merged together, but it was amazing that this what I'll call midsize organization, 50, 60 billion dollars, really has an aggressive strategy towards embedded banking and BASS. And it's interesting because they're doing it so successfully and a little bit of both what you said, in some cases they're embedding their services within third party non-financial. In the other sense, they're getting some great innovation insights from FinTech firms that are providing them services, that they can provide their customers. So it becomes a scale and an innovation strategy. It's something that once an organization starts to build a mindset along this, it falls right into the whole digital banking mindset, just wouldn't have been possible without digital banking and the whole digital environment.

Jim Marous:
But it's really exciting because it doesn't matter what size you are. Scale is a matter of degree, a scale to a 60 billion or 50 billion dollar organization is a whole lot different than it is to a Chase or Wells Fargo. So I think it provides tremendous opportunities. You said not only from a scale of customer base that you're serving, but even from a revenue standpoint, from a possibility of new fees, new revenue models, completely different than what had been done in the past. So Ron and the research you're doing at Cornerstone, how do traditional financial services organizations remain relevant in a very evolving financial ecosystem?

Ron Shevlin:
Jim, I mentioned this a little bit earlier in the conversation. I think you've given me a good chance to reintroduce the concept of the customer remember focus. The question, how do you remain relevant begs another question, which is relevant to whom. To everybody, that just doesn't play that way. So you've got to really figure out who are you intending to be relevant to. Referencing our embedded finance discussion or banking as a service discussion, what's interesting is that more and more the relevance might be to another business and intermediary providing financial services than necessarily some end consumer group, but for most financial institutions, banks and credit unions today that the question is to whom do you want to be relevant to?

Ron Shevlin:
And then after figuring that out and figuring out that the segments that you're serving, we can get into an argument about this and I know you've commented on some comments that I've made or things I've written in the past. I think it has the answer to the question about the relevance has a lot more to do now with product design and delivery than it does web design or app design. You can have the slickest design and the best kind of looking website out there, but reality is if the product isn't delivering the value that the consumer's looking for, and when I look at some of the FinTechs, like a Chime, like a Square Cash App, Yotta, if you're familiar with them, I'm very much convinced that they're not going after my age because if they were going after people my age they probably would've been called Yada Yada, Yada.

Ron Shevlin:
If I had found a firm like that, I would've put all my money into them right off the bat, but they decided to just call themselves Yotta. But to get back on point, is that when you look at their product offerings, is it a checking account? Not really, is it a savings account? Not really. Is it a brokerage account? Not really, but they're taking capabilities, things that customers want, consumers want from a value perspective and kind of glumming them all together into a single product offering, that include non-traditional things like rewards management, subscription management, just other things that's money related, but it doesn't fit into the traditional boundaries of what a product the banks and credit unions have been offering. So that's why I think what's key to being relevant is being flexible, innovative in the product delivery, and not just sort of trying to turn the needle on online banking design, or mobile banking design.

Jim Marous:
You obviously have to do the basics right, but to your point to be relevant, it means relevant to the people you want to serve. It's getting more and more antiquated if you're trying to serve everybody with the same array of services that your competitor down the street's doing. I'm a huge fan of both PayPal and my business side, as well as Acorns on my personal side, saying, they've come up with solutions that fit my needs perfectly and so much better than my traditional financial institutions have done it. And you brought some other examples and I think it's important for us to realize that if, because these firms have done what they do better than anybody else for a specific market that is asking for those services, and more and more, if you don't pick out a specific segment that you want to serve well, you're going to serve nobody very well because you're going to have watered down services as we've had in the past that don't specifically answer anything that's of value added service that's not offered elsewhere. You look at so many financial institutions of all sizes, and this can be kind of a little bit of a wishy washy question, but hang on for it, is there any characteristic especially since COVID where you see this organization gets it and they're going to be moving forward and going to be a winner, most likely, and this organization, boy, they're, they're struggling for more reasons than one. Are there any characteristics that you find in a legacy financial institutions that you go, you know what, they found to certain degree, at least the magic sauce?

Ron Shevlin:
Jim, I really hate to sound like a broken record, but when you ask me that, I think mind going in my mind, who comes to mind. Again, USAA as a good example, another good example for me is Los Angeles Police Federal Credit Union, not an organization that I think a lot of people know of or think of, but they've been very innovative in their product design in terms of understanding that they serve the law enforcement community. And that law enforcement community has some very unique financial needs and really money management needs. This is a touchy subject, this is a community that tends to have some downsides. It's a dangerous job being a policeman. They've been very innovative in terms of how they design loans when a new police officer joins the force and needs to spend a lot of money to buy equipment and things like that. So they've been very innovative in terms of those loans. In terms of loan forgiveness, in case of death or some other tragedy, but they understand that community.

Ron Shevlin:
And what also strikes me as being really innovative about them is they think about, well, we've built these capabilities for the members of our credit union. There are a lot of law enforcement credit unions out in this country, how can we take what we've learned and capabilities we've developed and bring it out there. Maybe it's a [inaudible 00:36:32], maybe it's some other type of format, but they understand that market that they serve and are innovative from a product delivery and a growth perspective. On the other side of the equation, I am certainly not going to mention anybody's name, but when I think about the ones that aren't well positioned for Jim, it tends to be both the community banks and credit unions that have the narrow geographic focus. In markets where there's no protection or unique need.

Ron Shevlin:
If you're a bank out in West Texas. Great. You've got a very heavy oil and gas industry focus, you've got a lot of unique needs of a lot of the members in that community, both from a consumer and business perspective. But if you're in the suburbs of New York or Boston or Washington DC, very different set of customer base in that geography, a lot more competition. And I think it's the financial institutions that are just too wrapped up in geographic focus that are the ones that are going to struggle and suffer in the next couple of years.

Jim Marous:
You know, it's interesting along the same lines, if you don't know, if you're not committed to the base that you're going to be the best at, you're really not committed to any base. Maybe this is oversimplifying it, but it really becomes a leadership issue. It's interesting, as you mentioned a firm, I'm going to mention one as well, Star One Credit Union. I've visited them out in Silicon Valley and they're relatively small organization, but they have committed to be on the cutting edge of delivering digital services better than anybody else. Their leadership has cut through all the red tape to make it so the digital account opening as fast as I've seen any organization of any size do, digital loan applications same thing. Their first in line on rapid and immediate payments, they're looking at everything and saying, we are in a very digital environment.

Jim Marous:
We are serving a very digital consumer. We've got to build an organization that is the best at that for our size. And again, it's a scaling issue. So they don't have to acquire every person in the Silicon Valley to make a difference for their organization. But again, the underlying theme is you need the leadership to say, we're going to cut through anything to make sure we serve our primary customer better than anybody else, which is what your example of the Los Angeles Police Credit Union and certainly USAA. I'm going to shift finally on something completely off everything else we discussed, but very under foundational to everything in banking. Research has shown and your research as well as ours, that there's a decreasing trust in traditional banking and increasing trust in big tech and FinTech firms. Does the impact of a potential recession give an opportunity to help improve trust, or actually reduce trust in traditional financial institutions or both?

Ron Shevlin:
Well, first I want to see your numbers because I look at the JP, the JD power numbers, and they seem to be going up in terms of satisfaction among mid-size financial institutions and trust. I just think that's a very ephemeral type of thing that goes up and down almost with the economy. But I don't doubt in my mind, Jim, anything that a downturn in the economy gives traditional financial institutions, a huge opportunity to improve that trust. And actually anybody does because in a downturn is when going the extra mile to take care of your customer or member base is what makes a difference. It's weird thing in consumers, people's minds. It's not just consumers, but it's in people's minds. It's they'll remember the things, a couple years ago, actually this is more than a couple years ago. This is going back a while, but I was still with Forrester Research at the time so that tells you how far back it was.

Ron Shevlin:
I had done some work and wrote about what I call the stories that loyal customers tell. And the idea was that it isn't about the interest rate you got or the price you got on a product or a service. It was something much more qualitative and hard to describe. And a great example of that was I had actually got a call from a reporter from CRM magazine, who said I was reading the stuff you were writing it really resonated with me, my partner and I were looking to adopt a child. We got a call from the adoption agency that there was a child in China, and we needed a short term loan to pay for the trip.

Ron Shevlin:
And she said, my bank bent over backwards to get us that loan within 24 hours. And for that, I will never forget them. Well, reality is that over time, she'll forget them, but it's that impact. And so the opportunity to exceed expectations in the downturn, people are going to say, well, my credit score is down my ability to pay back is going to be bad. Nobody's going to give me a loan, but the bank that steps up and says, nope, we're going to do this for you because we believe in you kind of a thing is that qualitative thing that changes people's minds. And so it's the down environment that just more broadly speaking gives any provider, whether we're talking a traditional bank, a FinTech or a big tech company, that ability to do it. I don't see the big techs really even thinking about that, Jim, and so the FinTechs I think are a little more attuned tuned to that, but with the downturn they're struggling to even keep and hold people. So I think this could be a big opportunity for banks to sway the public perception back towards them.

Jim Marous:
And certainly, I meant it more in perspective of traditional banks versus FinTech. And I think you're right, that this provides a great opportunity. And I think it's interesting because I usually look at, as you know, the glass is half full, if not half empty. I do believe that organizations that do the right thing during this period especially and have done the right thing actually since COVID, because I think this is a transitional period that continues what we saw during COVID time. But those organizations that invest wisely that do manage costs, but really use this as an opportunity to show their customer base that they're looking out for ... As you know, I use no me look out for me and reward me if you do that, the reward's going to be greater now, as you just said, during a down economy than it would ever be during a vibrant economy when you don't have to look at these things. So Ron, great to have you on show again, I'm going to give you one last chance to wrap this up the way you'd like to wrap it up with regard to organizations and the response to a potential, if not already in place down economy.

Ron Shevlin:
Here's my take is if you're a financial institution and you're looking at the situation right now saying, gee, what do we do if there's a downturn, how should we do it? You're already too late. Oliver Wyman actually published a research report or a white paper back in Q1 2019 saying, what should you do if there's a downturn or recession. And that was the time to ponder that question, not Q2 going into Q3 2022. If you're in that situation where you haven't planned, I think my advice is probably hang on, just hang on for dear life, but.

Jim Marous:
Going to be a rough ride.

Ron Shevlin:
This is not the time, it's going to be a rough ride, but hang on, because you probably will make it through. It's not like this is always life and death kinds of things, but it's too late to respond to that. Now the banks that have gone into this and made the investments, I think are the ones that are going to come out on top and have a better, stronger competitive advantage at the other side of the downturn.

Jim Marous:
Ron, it's always a pleasure. It's good to get back together again, we got to start doing this in person again, hopefully we can do that soon, but again, thank you so much for being on the show.

Ron Shevlin:
Thanks Jim.

Jim Marous:
Thanks for listening to Banking Transformed, recipient of three international awards for podcast excellence. If you enjoy what we're doing, please be sure to provide a favorable review on your favorite podcast app. Finally, be sure to catch the recent articles we're doing on the financial brand and the research we're doing for the digital bank report. This has been a production of the Evergreen podcast, a special thank you to our producer, Leah Longbrake, audio engineer, Sean Rule Hoffman and video producer Will Pritts. I'm your host, Jim Marous, until next time remember many great innovations and business transformations were born out of a time of economic crisis.

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