Believe in Banking Podcast: Episode #9

Banking Realizes Opportunity through Challenge

Whether you’re a community bank, a regional bank, a credit union or a national bank, being embedded  in the neighborhood and connected to the people you’re serving represents your opportunity, now and in the future. Even through challenging times, banking has found its way with a customer-centric, purpose driven approach, especially in the consumer lending space. And it’s bearing fruit, as evidenced by the latest FDIC report showing community banks are experiencing modest growth while the rest of the banking industry is sharply contracting.

Text Transcript

Intro: This is Believe in Banking, a podcast series for decision-makers, influencers, and leaders featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcast features information and conversations designed to enlighten and empower. Here are your Believe in Banking hosts, Sean Keathley and Gina Bleedorn.

Sean Keathley: Welcome to our Believe in Banking podcast. This is Sean Keathley, President and CEO of Adrenaline.

Gina Bleedorn: And I’m Gina Bleedorn, Chief Experience Officer at Adrenaline.

Sean Keathley: So Gina, we were talking about this notion that we’ve long believed, these bankers are heroes and you maybe never need a hero more than in times like these.

Gina Bleedorn: They were like saviors of small businesses across America, across rural America to urban America in markets large and small. And there was a difference in how community banks attacked PPP versus how large banks, mega banks attacked PPP, and it’s very much a function of the size of the organization and the makeup. If we just take Texas, for instance, B of A did 1000 loans and Frost did 10,600, and Frost did them in the order they were received, B of A did them in the order of largest loans top-down. The reality is that B of A’s ratio of employees to customers is a lot different than a community bank’s where they have more one-on-one personalized relationships with fewer customers, but maybe closer or more meaningful relationships.

Gina Bleedorn: Frost had people from all over the organization, 500 people across departments, contact every single person that submitted a loan application to get every single loan processed. They completed 99 and a half percent of all their applicants, and that’s really a big difference between community banking versus big bank banking. Both have upsides and downsides, but in the case of PPP, the upside of that relationship banking really came through.

Sean Keathley: This is where their stated goal of the deep desire to help the customer really shines through. 82% of their loans, 35 people are smaller. So they were using their 24/7 call center to help people that submitted things a 1:30 in the morning with a missing field. That customer was contacted, even if that organization had 11 employees and it was a small loan. They did not look at the size of the deal. They processed things as they came in. So I think that’s where even a $32 billion community bank is acting and behaving like a true community organization. And I think whether you’re a community bank, a regional bank, a credit union, a national bank, it’s really about in the neighborhood you’re serving acting as if you are part of the neighborhood.

Gina Bleedorn: So we’re talking about this now because of the result that it had. So overall, while U.S. banks’ income had collapsed by about 70% in Q2 of this year, community banks actually grew slightly instead of decreasing. So the result of the PPP activity bore fruit for community banks. Now, as we look forward into what the loan forgiveness is going to look like and the impending crisis of credit that we might be facing, we think some of the same strategies might be able to be deployed thinking about customer centric, personalized support and guidance.

Sean Keathley: Gina, it’s a good point. In a lot of ways, the script has been flipped. We talked last year about the technology spends of the big banks, the scale, and you really had to make sure you didn’t feel hopeless in fighting against them. And many community banks and credit unions did not, but certainly did not think they were going to get in a technology arms race. They were going to do it in a different way. And if you fast forward seven or eight months, I think the tables have been evened out a bit. And let’s just take Chase, for example. We think Jamie Diamond is one of the godfathers of banking. We have a lot of community clients that worked in the Chase organization. Really think their strategy of balancing technology and branching is dead on, but they’re still the largest U.S. bank in the country.

Sean Keathley: So if you just think about Q2, 33.8 billion in earnings, up 15%, but a year ago, they only had 1.2 billion set aside for credit reserves or uncertainty. Q2 of 2020. 10.5 billion setback for credit reserves and uncertainty. So we’re not really sure, are we going to get more relief from the government? Are we going to have a solution to the pandemic? Can we solve the economy, which in the U.S. is largely based on the consumers’ overall financial health and spending? And a lot of community bankers are in the relationship game and they don’t have their own card portfolios. They are more about small business lending. They’re not retail clients. So it is interesting to think about how this is changing the dynamics across financial services. It’s not one size fits all. And so that’s a very interesting dynamic to think about and could give hope to a lot of community bankers, even with credit reserves being a risk, maybe their portfolio could even grow in a downturn if they have right strategies.

Gina Bleedorn: So beyond the doom and gloom of what could be to come, one interesting sign, bank branches in the U.S. openings are actually outpacing closings for the first time in almost nine years. So every year there’s been a 5% to 6% decrease in overall net branches, and right now there’s actually an increase.

Sean Keathley: Gina, when I saw that stat I initially was shocked, but the more I thought about it, it really makes sense. And it makes sense for two reasons. One, as you mentioned, branches have been declining for some time. So I think a lot of banks and credit unions have closed the branches they needed to close entering this year. Secondly, I think after this pandemic there is more going to be a relationship of branches and opportunity, which is how it used to be before digital and the iPhone and all of the convenience factors of digital banking. I think you’re going to see a resurgence of that, that is largely made possible by the reconfiguring of the network. It’s been right-sized already. I think there is still opportunity to update, downsize, as you talk about, the network effect. But as I thought more about it, it didn’t shock me that those closures have stemmed a little bit.

Sean Keathley: I just go back to this hero aspect, neighborhood banking, people helping people. It’s really hard to pay that off if you’re picking up and leaving a town. So I think that is going to be a key part of our path forward, is getting the right balance.

Gina Bleedorn: Novantas continues to report on actual behavior and intent of customers and employees in banking regarding all things COVID. The branch traditionalists, most of them state they will return to banking when they get the opportunity. And we’ve previously reported that about 80% of in-branch transactions are occurring by about 20% of customers. We’ve also said that it’s not about the transactions at all. It’s about the opportunities for relationship touchpoints, and regardless of what people are saying they’re going to do transaction wise, whether they do or not in the full future remains to be seen, since still many banks are not open with the hours they used to be are by appointment only or drive through only. What we do know is that the shift to doing less routine transactions and having fewer but more valuable relationship touchpoints absolutely is where everything is headed. And so opening new branch formats that are designed for that future purpose is on everyone’s list.

Sean Keathley: And I would add, Gina, I think you were talking in late October, November about the number of people changing banks had been at an all time low, largely driven by the ubiquity achieved by major banks, their mobile apps, their ATM and branch networks. You had to really upset someone to have them switch banks. Fast forward to summer’s ending in 2020, there’s going to be a lot more switching of banks than there was the year before. And it gets back to what you were saying, who is going to be there to help me? Who can help me bridge this incredible challenge I’m facing? And when the relationships matter the most is in these times of need, and I think that’s going to be a change as we think about what’s transpired over the last six months.

Gina Bleedorn: And a new time of need that is likely to come, which may come in the form of a pretty significant credit crisis, given all that’s happened. But the learnings from what has just happened we believe can be applied as we think about the credit crisis and what to do and how you can legitimately help customers with personalization, with one-on-one tailored strategies, and with treating every customer equally. Not just high net worth or commercial, but very small businesses and mass retail customers, if you do so in the short term at the time that matters most to them, it will pay longterm dividends in trust, in loyalty, and ultimately revenue growth from that customer.

Sean Keathley: It reminds me of Ryan in Origin and something he said. Not sure that this would have been the top of their strategy if things were normal this year, but they have bankers writing handwritten notes to small business clients reminding them they’re here, asking about their families. And those are the little types of things that make lasting impressions when people’s needs are the greatest.

Gina Bleedorn: And that bridges into the idea of brand and brand reputation and your culture and what brand means inside and outside of your organization in how you represent yourself. Interestingly, brand strategy just has overtaken analytics, and that is huge as analytics has been at the top of the list for years. But suddenly the need to really think about what your organization’s purpose is and how you clarify that purpose to your people and how you make that purpose known to your customers and your communities has taken heightened importance, in some cases, the utmost of importance. And that is the essence of relationships and focusing on what matters most for people, for your employees, but especially for your customers and how you deliver it.

Sean Keathley: And Gina, as you talk about, the importance of purpose in these times, it is going to be critically important that people lean into that and make sure they live that now more than ever.

Gina Bleedorn: What’s most fascinating to me in all of this is that consumers’ awareness of and sensitivity to their financial situation has become an elevated importance Post-COVID. Accenture published a research report last week that said financial security is a top concern for over 50% of the population. So what banks can really do to meet customers where they now are is really significant. Something else that’s a bit of silver lining, so to speak, of the situation is that people are more open to changes in brand loyalty. People have changed what they think of a lot of different companies in different capacities because of either what the company has done or not done post-COVID or different levels of awareness and changing preferences of themselves.

Gina Bleedorn: So that means that what was previously a very low percentage of people being willing to switch primary financial institutions, mostly because of the hassle it requires and complacency and wanting to not upset the status quo, is maybe turning around in that people are changing preferences in brand loyalty. A study by Ketchum revealed that 45% of the population had changed preferences on at least one brand since the pandemic started and another 62% think that, that will be a permanent change. That is new opportunity for you to potentially gain a new segment of the market if you have a solid strategy that is rooted in your purpose.

Sean Keathley: We’ve covered a lot of ground in this episode and we’re looking forward to bringing in more experts. What we really want to continue to do is have the audience tweet us in questions. What are you thinking? Do you agree with this? Are there topics we have not covered?

Gina Bleedorn: We started Believe in Banking to be a place for conversation and sharing. Please tweet us at #BelieveinBanking. We want to be here to help the industry advance.

Sean Keathley: It is that two-way conversation we’re looking for. And it may just be that some of these questions will be answered by some of our upcoming experts we’re going to have on future podcasts.

Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision-makers, influencers, and industry leaders in financial services. Be sure to also join us on our flagship site,