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  • Mobilizing Capital Investments

    Posted on January 17, 2017 by in Capital Investments

    Mobilizing Capital Investments
    Now that it’s 2017, let’s pause and remember the many well-intentioned executives whose efforts to hike spending on mobile banking were as welcome by their CEO as a Friday afternoon visit from the FDIC.
    It’s easy to understand the temptation to cut budget requests for mobile banking enhancements. After all, fixed and regulatory costs are rising faster than revenue. Meanwhile, the banking industry has struggled to come up with an infallible ROI calculation for mobile banking – and we know how important getting a quantifiable return is to our industry.

    Given this backdrop, it’s a wonder how many executives threw up their hands and surrendered – without even trying to bring any new technology investments to the 2017 budget discussion.
    That would certainly be bad for many community banks and credit unions. If any of those who cut tech spending has a chance to revisit the decision, they should do so. Quickly. Very quickly.
    Each day, smaller financial services firms are at risk of falling further behind Bank of America (BofA), Citibank and a handful of other banks whose technology is helping them win new customers.
    It’s time to put aside old approaches to assessing new technologies – an opinion that became even clearer after reading a recent article from a technology firm that claimed to have proven that a mobile banking user “represents $200 in incremental annual revenue.”
    The article didn’t detail the formula that led to that ROI calculation. However, the revenue projection is at least partially attributed to improved retention rates among active mobile users, and the multiple products such as Bill Pay, Direct Deposit, etc. that further enhance a banking relationship.
    Mobile banking has value. How much is debatable. BofA’s recent success, however, is indisputable. Between June 30, 2011 and June 30, 2016, the bank took two steps that would ordinarily appear to hinder deposit growth: it closed nearly 20 percent of its branches and it didn’t offer high interest rates on deposits. The result? BofA’s deposits increased 27 percent over that five-year span – well ahead of most banks.
    It’s not just BofA making the investment in technology. Citibank now allows consumers to dispute credit card charges through its mobile app. Wells Fargo is getting ready to roll out retina scan for businesses to authorize transactions via an app.
    According to the J.D. Power 2016 U.S. Retail Banking Satisfaction Study, these and other investments are paying off for big banks. The nation’s largest banks scored highest in mobile, ATM and online satisfaction, with J.D. Power concluding that “Mobile banking in particular has a direct impact on overall satisfaction.”
    There’s no real surprise here. Convenience has always been an important factor in selecting a bank. Convenience used to be defined as proximity to the nearest branch. Today, it’s also defined as digital access to services.
    Branches have historically provided access to core deposit growth – something existing and carefully selected de novo branches will continue to do for the foreseeable future.
    However, a comprehensive mobile banking program has now joined that traditional approach on the list of options for banks looking to grow deposits.
    A new branch can easily cost seven figures, plus multiple hundreds of thousands in annual operation costs. Would an equal investment in mobile produce equal or even better results? Again, there’s no infallible formula to answer that question, but trends and consumer behavior are unquestionably toward mobile conveniences.
    However, there is one guarantee: the technology advantage that some larger banks may have can be purchased and deployed quickly. And if it’s popular among the big bank customers, it will be popular among customers of a community bank or credit union.
    Joe Bartolotta is an Executive Managing Director for The NBS Group, focused on helping community banks develop corporate and consumer delivery strategies.