If it weren’t for the occasions when his kids need to borrow some cash, Frank Sorrentino says they’d never set foot in a bank branch.
Sorrentino, the CEO of $4.7 billion asset ConnectOne Bancorp in Union, New Jersey, was one of several senior bank executives who joked about millennials’ tech-savvy lifestyle during a roundtable session, sponsored by Promontory Interfinanical Network (a partner to thousands of banks), at Bank Director’s 2018 Acquire or Be Acquired conference. But the habits of younger consumers and the challenges they present, including how they affect the race for deposits, are among the top concerns of today’s bank leaders.
Technology is a disruptive force that has permeated the banking industry, affecting operations and decisions for directors at all levels. “Today, to me it appears that things are changing right beneath our feet,” Sorrentino says. “The speed of adoption, speed of change, is just something that’s breathtaking.”
An 800-pound gorilla NOT named Amazon
The threat posed by big banks that are competing aggressively for consumers is very real for regional and smaller community banks—though some do see bright spots.
The ability of the largest banks to chart their own courses with technology could hurt regional and community banks, especially if that technology were to become proprietary or exclusive.
“They can decide to turn up or turn down product almost at whim, and very quickly put pressure on anyone in this room in…a very negative way,” Sorrentino says. “I'm not so sure the next-generation 800-pound gorilla is going to be thinking the same way.”
Sorrentino pointed to the widespread adoption of Zelle, a peer-to-peer (P2P) payments product that is currently being offered by 58 banks and credit unions, including ConnectOne. That type of product is helpful, he says, and works as long as banks of all sizes have access to it.
But the disrupting factors of the future may be the tech giants like Amazon or could just be the direction technology is leading customers—which is to say, far away from traditional banks.
Convenience in banking has trumped much of the traditional channels, which are largely based on in-person relationships. “That same experience now has to come through those interactions over the [smart] phone,” says Chuck Shaffer, chief financial officer and head of strategy at Seacoast Bank Corp. in Stuart, Florida, which has $6 billion in assets.
“When my own children, who live in New York City, say that they went and opened up an account at Chase because that's where they can transact their Venmo [a competing P2P service offered by PayPal] without having to pay a fee, it's very concerning,” says David Provost, president and CEO of Chemical Financial Corp., a $20 billion-asset institution headquartered in Midland, Michigan.
Data-fueled growth strategies
Other executives have similar assessments of the competition, though some remain optimistic about the potential for growth through more conventional means and using technology for that purpose, as well.
“I think customers come to you first; [it] doesn't mean they don't get better offers. It doesn't mean that you don't have to maybe match offers that normally you might not, but I think that there is still a degree of loyalty,” says Sally Steele, chairman of the board at Community Bank Systems, a $10 billion-asset bank based in Dewitt, New York. “But on the other hand, as the Zelles of the world roll through the banking industry, we're all going to be beneficiaries of that.”
Nearly two-thirds of directors and CEOs surveyed for Bank Director’s 2018 M&A Survey say they are planning to grow organically, rather than through acquisitions, using strategies rooted in modern technology.
Shaffer’s 90-year-old bank has been around long enough to be familiar with the days before the internet, but Seacoast has been deliberate in investment and integration of data-backed strategies, both internally and purchased. “We operate in one data platform. We built a SAS database over top of that, then built automated marketing over top of that,” he says.
This data-driven approach has generated customized service and marketing pitches tailored to any demographic group and is now yielding significant revenue. “Three years later, we're doing over $300 million; this year we'll do around $400 million largely because we're making the right offer at the right moment to the right customer,” Shaffer says. “We've been explosive in building exponential growth in the organization.”