“The new normal is here to stay. Technology is the new normal in banking!”
— Marcia (“Marci”) Malzahn, president & founder of Malzahn Strategic
Banks that had been consistently working to improve and update their online systems and platforms were more prepared for the sudden onslaught of customers, both business clients and consumers, who needed to utilize those tools in order to conduct their banking business during the height of the COVID-19 pandemic.
There are a variety of methodologies to use for innovation, but Malzahn boils it down to three main action steps:
- Adopt an open mindset – “If you’re not open to new ideas and ways of doing things, you won’t be able to move forward and will remain stagnant,” Malzahn explained. “Be open to new ideas from everyone, employees, customers, the community, regulators, and competitors such as fintechs.”
- Form an Innovation Strategic Committee – Malzahn recommends establishing a formal Innovation Strategic Committee charged with sorting through all new ideas and systematically determining which are a good fit for your institution. The Committee may also be responsible for creating the action plan for implementing new ideas.
- Assess each initiative’s risk before committing – For each new potential project, banks should conduct a thorough risk assessment, including implementation timeline and costs, vendors to partner with, and the new risks and opportunities the idea brings.
Of the three, Malzahn says #1 is the most important for banks to be successful at innovation.
With that three-step framework in mind, banks can begin looking for areas of the institution ripe for innovation. Malzahn suggests two possibilities: Enterprise Risk Management (ERM) and Treasury Management.
The pandemic triggered all risk categories into high alert, especially credit, technology (with increased cyber risk), operations, compliance, liquidity, interest rate risk, and human resource risk, according to Malzahn. “Now is the time to complete your ERM program and automate all the processes you can to ensure you stay on top of managing all the risk categories at the same time,” she said.
Banks should integrate ERM into their strategic plan, and Malzahn suggests doing so by including the responses to two questions in the plan:
- What are the new risks coming to our organization because of our new strategic objectives? - This question should be asked when the bank defines its top strategic goals during the planning phase.
- What are our strategies to mitigate the top risks that can impact our bank? - This question should be asked after the bank conducts an ERM Risk Assessment and prioritizes its top risks.
When integrating ERM into the strategic plan, Malzahn advises bankers keep a broad view of their risks, since all risks are connected. “Your reputation, capital, and earnings risk, in the end, are affected by all the other risks,” she said.
Treasury Management is another key area of opportunity for innovation, according to Malzahn. “Treasury Management is one of the most important tools you can use to respond to the increased pressure to grow non-interest fee income and to increase core deposits,” she explained. Another reason to invest in innovative treasury management solutions is to deepen (or build) client relationships with the next generation of business leaders. “The new generation may be more open to utilizing the technology banking products you offer,” Malzahn said. In addition, banks should be prepared to offer at least one digital payment solution via treasury management to their clients as that sector continues to grow.
Malzahn offered one major caveat to innovation. Before launching any new change initiative, bank leadership should pause to assess their staff’s current ability to navigate the challenges of the endeavor. Community banks across the country just underwent a period of massive change and innovation in order to process Paycheck Protection Program (PPP) loans for their customers, stepping up to innovate in operations and systems to accommodate continual changes.
Many bankers worked nights and weekends to ensure their clients would have access to PPP funds while simultaneously adjusting to the pandemic’s disruptions to their personal lives. “I encourage bank leaders to keep an eye on their employees to ensure there is balance between serving the bank clients with excellence and taking care of your most precious assets, your employees,” Malzahn said.