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Association Update: WBA Associate Members Support Bankers Across Wisconsin

By Daryll Lund

Every year, the banking industry becomes increasingly competitive and with new trends, technology, and specialized services emerging at rapid speeds, there is no way for one single business to do it all. The Wisconsin Bankers Association is pleased to offer WBA bank members access to the over 150 vetted, dedicated companies that make up the Association’s Associate Member program.

Made up of a broad spectrum of third-party providers from around the country, WBA’s Associate Members program features companies that specialize in specific products and services related to banks. In forming strong partnerships with third-party vendors, many WBA members have found great benefit directly impacting their bank’s growth to the satisfaction of their customers.

Furthermore, Associate Member companies serve as valuable partners of the Association. From sharing their expertise through resources published in our publications to presenting on hot topics at WBA events, our Associate Members help us create meaningful, relevant content that informs bankers throughout Wisconsin. WBA’s Associate Member program offers just the place for banks to locate whatever niche expertise and product specialization they need to stay ahead in our continuously evolving industry. WBA stands ready to identify companies that seek to assist Wisconsin’s banking industry and connect banks with the vendor(s) that will meet their needs.

To learn more about WBA’s Associate Member program and how your bank can make the most of the resources available, please visit wisbank.com/Associates or contact Nick Loppnow, director – associate membership and business development, at nloppnow@wisbank.com.

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Showcasing Careers in Banking

By Hannah Flanders

Most people do not grow up dreaming of a career in banking. In fact, many of today’s bankers look back on their paths that led them to the industry as a “happy accident.” However, with large numbers of retirees leaving the workforces every year and evolution caused by technology, regulation, and customer expectations reshaping the industry, banks across Wisconsin are hoping to inspire and cultivate a new generation of aspiring professionals who see the banking industry as an exciting and rewarding career choice.

“We have to build our bankers from the younger generation,” emphasizes Kari Davis, chief talent officer at Lake Ridge Bank in Madison. “Students don’t know what they don’t see; it is our role to demonstrate to them the business of banking and why our teams feel so passionate about their work.”

Starting Young

For Gwen Schnitzler and the team at Forward Bank, Marshfield, introducing banking as a career opportunity to students long before their high school graduation is a priority.

“Interacting with high schoolers is the greatest way to ‘get into the minds’ of local students,” said Schnitzler, vice president – human resources. “As a bank, we want them to know of the opportunities present in our industry. As a community bank, we want them to know these opportunities are available here in their hometown.”

The Wisconsin Department of Workforce Development’s Youth Apprenticeship (YA) program has helped banks across the state connect with high school juniors and seniors exploring different career paths. The program — which features pathways related to finance/banking, marketing, and business administration — combines classroom instruction with on-the-job training.

Through the YA program, banks, including Forward Bank and Lake Ridge Bank, have found great benefit in introducing students to the careers available to them with hands-on experience. Both Davis and Schnitzler note that YA’s defined paths make it easy for banks to facilitate the most relevant and meaningful experience for both the student and the team. So much so that several apprentices who started at either bank went on to study finance, or another banking-related area, in college and later returned to the same institution for full-time employment.

In addition to apprenticeship opportunities, many banks across the state utilize internships to connect with students in both high school and college. While these opportunities may look different depending on the size and location of the bank, one thing is certain — to keep students engaged, it is important that their work allows them to exercise and expand their skillset. Finding unique ways for students to contribute directly to the institution may just be the difference between a résumé builder and the beginning of a fulfilling career.

“Whether they are students working as apprentices or interns, these individuals aren’t focused on filing and scanning. Our goal is to demonstrate the full experience of what it means to be a banker — operating in a professional environment, getting into the community, meeting with clients. . . that’s what they really want to see and experience,” highlights Davis.

To help recruit for open internship opportunities and raise awareness of the banking industry, many banks across Wisconsin also partner with local colleges and universities. As a partner or sponsor, bankers may attend networking events such as career fairs, take part in career readiness events by hosting mock interviews, and collaborate with students, among the many other benefits of establishing the bank as a trusted employer and advocate for student success.

Creating a Meaningful Experience

At Johnson Financial Group, Racine, the 10-week summer internship program concludes with a group presentation to members of the bank’s senior leadership team. Throughout the program, interns work together on a relevant business challenge. The presentation offers interns the chance to present their findings and share feedback with bank leaders.

“More than anything, we want our interns to feel like they are part of the team,” says Logan Aguilar, human resources specialist – early career. “Within the first week, they are keyed in on our current strategic goals, and by the end of the summer, students have had the opportunity to hear directly from our business partners on their paths into the industry, see firsthand our culture and values, and contribute their skills in various areas of the bank.”

Through the internship program at Lake Ridge Bank, students are not only able to develop practical skills for their future careers, but they are also encouraged to join their mentor on an off-site business visit to meet current clients, learn more about their role in the community, and directly hear the role of the bank from a customer perspective.
“Most students are not coming into banking from a career standpoint; they are attracted by the opportunity to make a difference,” says Davis. “Meeting and hearing from our clients is a great way for interns to broadly see this impact.”

Networking with clients, fellow interns, and current bankers helps students to build valuable connections that can be instrumental in their future careers. In addition, offering hands-on experience, taking time to introduce interns to the various functions of a bank, what departments make up the bank, and the broad range of knowledge and skill sets that lend themselves to a successful career in the industry help students envision a future career.

Johnson Financial Group’s Vice President – Talent Acquisition Manager Nikki Redmond notes that because students may not be aware of the myriad career paths available in the industry, they may mistakenly believe that if one option does not align with their interests, there are no alternative avenues available. “The banking industry offers so many opportunities for growth, and people move around; it’s not uncommon to hear of bankers moving throughout the organization to find the area that fits them best.”
For banks, it is important to make this clear when connecting with or employing students.

Conveying the Benefits

There is no doubt that allowing students to gain hands-on experience in a bank setting is the best way to showcase what career opportunities are available in the banking industry. However, human resource professionals in the banking industry agree that it is equally important to emphasize the broader advantages the industry offers.

“Banks offer a certain level of security that students don’t know — or maybe even consider — when they first begin thinking about their future career,” highlights Schnitzler. “Beyond showcasing what opportunities are available throughout the bank, we must be diligent in emphasizing how students will benefit from pursuing these career opportunities.”

From career advancement opportunities to job stability, banking is set apart from many industries with the ability to be both consistent and ever-changing in positive ways. With a rich history spanning nearly two centuries, Wisconsin’s banking industry has long shown commitment to supporting the economic vitality of the state. Yet, in order to meet the evolving needs of Wisconsinites, banks remain adaptive and resilient to changing conditions allowing for bankers to continually explore new avenues to make meaningful contributions. For the younger generation, a career in banking is not only rewarding but long-lasting.

For many bankers of all experience levels, the greatest benefit of their career is related to involvement in the community. Being present at community events, sharing success stories and donations, and volunteering at local organizations and schools is highly rewarding. Similarly, student employees and interns should be encouraged to be active in the community.
For the summer interns at Johnson Financial Group, this means taking part in a community service activity during the internship program’s annual Service Day and participating in the Light the Hoan Intern Challenge.

Reaching Diverse Talent

Throughout Wisconsin, banks provide a diverse range of services that cater to a wide variety of individuals, businesses, and communities. As such, it is critical that bank outreach efforts are just as inclusive and accessible.

In attempting to connect with the younger generation, human resource managers highlight the importance of utilizing the internet, social media in particular, for recruiting. Posting all available job openings, sharing banker/client success stories, and tailoring content to students and young adults helps expand the bank’s reach. Banks that are members of the Wisconsin Bankers Association (WBA) may post internships on WBA’s job board for free, and other job opportunities may be posted for a modest fee. Additionally, thousands of employers, including banks, utilize Handshake — a commonly used recruiting platform for college and university students — to connect with students throughout the state.

Providing opportunities for students to shadow and explore diverse roles within the bank and build early connections in their career journey are pivotal for success. However, human resource professionals agree that the greatest challenge lies in dispelling preconceived notions about the banking industry.

“There is a certain stigma surrounding the banking industry — that you have to be good at math or like numbers, but the reality is that the banking industry is much more diverse and dynamic than students may realize,” notes Redmond.

For banks seeking new opportunities to reach the next generation of talent, the Association has created a ‘Careers in Banking’ brochure to inform students of the banking industry and its benefits as a career. The brochure is free to all members at their request and may be customizable to reflect the opportunities available at a given institution.

By addressing these misconceptions and fostering an inclusive culture that embraces the varied skills and talents individuals bring, we not only break down barriers but also pave the way for an industry that truly reflects the richness of perspectives and abilities within our society.

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About Forward Bank

Forward Bank is a customer-owned, independent community bank who operates to benefit its depositors while offering no fee deposit options, lower lending fees, and rates. The bank continues to be community-orientated by proudly supporting local clubs, businesses, sports, organizations, and schools.

Forward Bank currently has offices in Athens, Colby, Dorchester, Greenwood, Marshfield, Medford, Park Falls, Phillips, Stanley, Thorp, and Withee. For more information, please visit www.forward.bank.

About Johnson Financial Group

Johnson Financial Group is a privately-owned financial services company offering banking and wealth solutions through its subsidiaries, Johnson Bank and Johnson Wealth. Principal owners of Johnson Financial Group are members of the Samuel C. Johnson family. Helen Johnson-Leipold is Chairman of Johnson Financial Group. For more information visit www.johnsonfinancialgroup.com.

About Lake Ridge Bank

Lake Ridge Bank’s mission is to “create extraordinary banking experiences where everyone prospers.” For more than 100 years, this has meant getting to know each of our clients to offer personalized services to meet their specific financial goals. Lake Ridge Bank offers a full line of financial products and services. We focus on offering products and services to make your banking easy. Our business banking and mortgage lenders are trusted leaders in their field with the expertise to provide the right loan at the best rate possible for our clients. As a community bank, we are dedicated to reinvesting in, and making our communities great places to live, work and raise a family. Visit www.lakeridge.bank to learn more about how we can help you.

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Executive Letter: Boosting Employee Wellbeing

By Rose Oswald Poels

Culture plays an important role in shaping the identity and values of an organization. In much the same way as banks are recognized for their dedication to community wellbeing, they are equally committed to fostering workspaces in which bankers are engaged, empowered, and valued. When a team feels inspired to collaborate and contribute their best, it not only enhances the workplace environment but also propels the bank towards sustained success and growth.

With numerous bankers reaching milestone anniversaries every year, the banking industry is known to cultivate enduring and fulfilling careers. However, in order to ensure that the trend of strong employee satisfaction continues for years to come, it is important that banks are proactive in fostering a sense of belonging among all employees.

On Wednesday, March 13, 2024, from 1–2 p.m., the Wisconsin Bankers Association will host Beth Ridley, a leading, Wisconsin-based consultant, for a one-hour webinar on improving the bank’s ability to recruit and retain top talent, enhance its brand, and increase profitability through building and maintaining a workplace culture committed to belonging. The webinar is free to all WBA-member banks, and a recording will be available following the presentation.

In addition to hosting the WBA all-member webinar, Beth Ridley has been enlisted to facilitate WBA’s employee resource group (ERG) through November 2024. Under her guidance, participants will have the opportunity to build upon the strategies discussed during the free webinar through a nine-part discussion series focused on belonging and building engagement. Participation in the ERG is free and includes access to Ridley’s website with pre-session materials and additional resources. Both the free webinar and the ERG meetings are open to all bankers.

Instilling in your team the value of their contributions and perspectives fosters inclusion that goes beyond day-to-day operations. Actions such as asking team members for input on key decisions, encouraging involvement in employee-led groups, and expressing interest in their personal and professional lives help build trust and boost employee morale. For the bank, these actions contribute to a workplace culture where employees feel able to effectively communicate, collaborate, and contribute to the collective success of the organization.

To learn more and access resources that assist your bank in fostering a culture where everyone feels empowered, please visit wisbank.com/DEI.

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Executive Letter: WBA’s Revised Strategic Plan

By Rose Oswald Poels

Every October, the Wisconsin Bankers Association (WBA) Board of Directors meets for a planning session that always involves extensive discussions about where the industry is heading and the strategic positioning of WBA to maintain its role as a robust resource for our members. WBA staff update our progress on the plan prior to every Board meeting to ensure our strategic priorities remain at the forefront of work done by both the staff and Board.

This past year, we hired Wipfli as our facilitator and Robert Zondag (and his team) helped us revise and refocus our current strategic priorities to take us through the next few years. While some of the concepts were carried over from our current plan, the priorities are more focused to help ensure WBA continues providing value to the ever-evolving banking industry.

WBA’s revised plan is as follows:

Be THE leading state banking association through:

  • MEMBER ENGAGEMENT → Improve engagement across all forms of membership
  • PEOPLE → Build a culture to grow and retain talent
  • EDUCATION → Be the solution for banking education and professional development
  • ADVOCACY → Be the unified voice for Wisconsin Bankers
  • INFRASTRUCTURE → Create a dynamic data infrastructure to best serve our members

Given the rapidly evolving landscape of the financial institution industry, for WBA to continue to be successful, it is imperative that we foster increased member engagement. The successes highlighted in various ‘Executive Letter’ e-publications throughout 2023 illustrate that a more connected and engaged membership only enhances the collective strength of WBA. Staff will work to grow active participation from all member banks, and all levels of bankers, which will help us better target our advocacy efforts, education programs, products, and services to better meet your needs.

WBA has long been an association comprised of top-quality talent and that continues across the organization today. Just like your banks, it is our staff who are essential for the long-term success of your Association. The Board agreed that this priority should be clearly identified in our plan, and we are finalizing various tactics to make sure WBA offers a positive and nurturing work environment not only to attract top talent, but also to encourage staff to stay and invest their skills and dedication into the meaningful work we do on behalf of Wisconsin’s banking industry.

Along with an internal focus on our talent, WBA is always focused on the industry’s talent as well. The professional development opportunities offered by WBA’s education programs are second to none. Our members provide input into the development of our programs, and we will continue to improve our content with a focus on fostering leadership skills, and addressing the evolving knowledge and skill set needs of the bankers of tomorrow.

Advocacy on behalf of our members remains a top priority. Our pinnacle achievement of an unprecedented state income tax exemption for certain loans would not have occurred without the continued membership of banks located in Wisconsin which provides us resources, and the collective grassroots and political involvement of bankers over the years. This combination needs to continue well into the future for WBA to remain a strong voice for the industry.

Finally, like many of you, WBA needs to continue our digital transformation and adoption of innovative technologies to become more operationally efficient while providing a better experience for you as individual banker members.

These five strategic priorities build upon the strength of our Association’s more than 130-year history by taking an innovative approach that will keep WBA at the forefront well into the future. The WBA Staff and Board look forward to continuing to collaborate with the membership to ensure that our Association is your premiere partner in ensuring the success of your bank, our industry, and the communities we serve.

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Controlling Your Bank’s Destiny

Owners of family-owned and closely held banks meet at annual strategic retreat

By Hannah Flanders

Pictured (left to right) are: Peter Wilder, Godfrey & Kahn, S.C., Milwaukee; Richard Katz, Resource Bank, DeKalb, Ill.; Paul Foy, Cornerstone Community Bank, Grafton; and Chad Kane, WoodTrust Bank, Wausau.

Across the Midwest, many banks held primarily by a single investor or family face unique challenges in their day-to-day operations and future planning. As competition rises, it is critical that there are resources and networks dedicated to closely held bank owners as they navigate internal and external pressures in an effort to determine their own fate.

“It is important that we treat these banks for what they are first — family businesses,” said Peter Wilder, attorney at Godfrey & Kahn, S.C.

As such, closely held banks must not only consider regulatory, wealth, and succession pressures that all banks must balance, but interpersonal and family dynamics in addition. While challenges throughout the industry mount and opportunities for closely held banks to use their unique position to expand, resources and education pertaining specifically to family-owned or closely held banks remain marginal.

Banking on Family

It is no secret that operating a family business requires communication. While mutual respect between family members is vital, so too is having acknowledgeable peer network and counsel who are understanding of the unique benefits and challenges owners of closely held banks face. The growth and success of a closely held organization is dependent on one’s ability to navigate family dynamics, bank strategy, and the goals of all shareholders. In having the support of the family, educated advisors, and peers that can sympathize and share their perspective, bank owners will not only have the ability to avoid unnecessary difficulties, but gain valuable knowledge to facilitate the bank’s strategic next steps.

Family-owned banks must make special considerations when dealing with wealth and liquidity, succession, and estate planning. It could be, for example, that selling stock to outside investors to raise capital is not an option or that the next generation is not widely interested in running the family business.

While closely held banks face a variety of obstacles, opportunities for these banks are expansive. For one, family banks have the advantage of relating to their family business clients. Owners of family-run banks may not only serve as trusted financial advisors to local family business, but also as a resource for navigating challenges related to such structural ownership. Additionally, the overlap between bank management and bank ownership allows closely held bank owners to maximize efficiency and minimize conflict simply because there are likely fewer non-active owners to consult for every decision.

“It takes real commitment to plan for the future of a family-owned bank,” states Richard Katz, chairman of Resource Bank located in DeKalb, Illinois. “Family-owned banks are oftentimes the conjunction of a lifetime of personal effort, family legacy, and dedication to one’s community. With careful planning — aided by dedicated professionals — it is possible to envision a bright future for generations to come.”

Strategic Success

In order to assist bankers in navigating the unique challenges and possibilities available to closely held institutions, the Wisconsin Bankers Association (WBA), in partnership with the Illinois Bankers Association (IBA) and Godfrey & Kahn, S.C., began offering the Family-owned and Closed Held Strategic Retreat in 2019.

“Issues often seen in family-owned banks are usually not covered in broader events or conferences,” stated Wisconsin’s Cornerstone Community Bank President Paul Foy. “This specific retreat allows institutions to meet with legal and regulatory experts as well as network with peers facing similar challenges.”

“The Family-owned [and Closely Held Strategic] Retreat is specifically targeted at a group of bankers that do not often have access to similar resources,” highlighted Wilder. “The retreat underscores what succession, tax, and wealth planning may look like for each generation and how this planning gives ownership groups more control over their bank’s destiny.”

During the 2022 event, bankers in attendance at the Family-owned and Closely Held Strategic Retreat had the opportunity to hear from several panelists ranging from the ever-important topic of wealth to planning for the future.

Thank you to our 2022 retreat sponsors!

The event opened on Thursday, October 13 with a peer panel featuring Foy, Katz, and Chad Kane of WoodTrust Bank in Wausau. Attendees enjoyed gaining perspective from the banker panelists on why and how their families dealt with wealth transfers and the succession of the bank as it transfers to a new generation or new owners entirely.

Panelists emphasized that the intimate nature of such retreat has allowed attendees to gain a detailed understanding of how their closely held peers tackle the unique benefits and issues brought forth by closely held ownership.

The following day, Godfrey & Kahn S.C. colleagues Wilder and Jeff Billings presented on estate planning and the corresponding regulatory issues that closely held bank owners need to consider as they look ahead and transition bank ownership into new hands.

Eide Bailly’s Michael Holdren followed with an in-depth discussion on valuations specifically highlighting why closely held banks may consider a valuation; what the typical valuation process looks like; and how inflation, potential recession, reliance on net interest income, and regulatory oversight may impact the future of valuations.

The retreat concluded with an advisor panel featuring David Fritz and Patrick Marget of Executive Benefits Network (EBN); Brendan Freeman, First Business Bank; and Andrew Spillane, Godfrey & Kahn, S.C. The panel covered the role of life insurance, tax planning, and private fund investments to arm families with several resources to consider when wealth planning.

In addition to the thorough discussions and panels held at the retreat, many bankers state that the extensive networking opportunities remain the main attraction in returning each year.

“Not only are the various speakers geared specifically at closely held banks, but the intimate discussions I find myself having each year have been increasingly valuable in recognizing our goals as a family and as an institution,” said Foy.

“This event is not simply networking as you may perceive it from other events,” agreed Katz. “It’s partnership, friendship, deep connections, and the ability to share knowledge.”

Overall, the end goal of the Family-owned and Closely Held Retreat is to ensure shareholder value. From preparing the next generation for new responsibilities to understanding what options there are for those no longer keeping the business, the retreat presents bankers with an intimate setting to connect with their banking peers and other advisors who understand the intricacies of closely held banks.

“This program has been invaluable to the continued success of our bank,” stated Katz. “Its niche target has opened my eyes not only to the strategic opportunities that will benefit both the personal and professional aspects of the bank, but to the experts that are able to help us in implementing the change we wish to see.”

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Creating Innovation – A Post-Pandemic Imperative

Nearly every banker I’ve spoken with in the past few months has posed the same basic question: What’s next? With the promise that the pandemic will eventually be behind us, everyone is trying to predict the “next normal” and imagine if they have what it will take to succeed — or even survive — in a post-pandemic economy.  

Obviously, there are many factors that will determine the answer to those questions. But if you pay attention to some of our industry’s favorite buzzwords, there are many characteristics that bankers will have to master in order to succeed. Agility. Adaptability. Empathy. I’d say yes to each one. But the core competency that will be critical for every bank’s long-term survival is a familiar term: innovation. 

I know what you’re thinking. Innovation has always been key to sustained success. Yes, that’s true. But if you don’t count big banks and fintechs, you’d rarely find banks on the list of the most innovative companies. Admittedly, this past year saw banks of every size innovate quickly in order to meet the crisis brought about by the pandemic. And while there are many banks that can point to instances where operational efficiencies were achieved or new ideas were implemented, it is important to remember that these innovations were not routine — and they were not always enterprise wide. Too often, innovation is seen as a short-term assignment rather than a long-term mindset.  

Moreover, banks usually equate the term innovation with technology and digital transformation. You may consider yourself innovative if, as an example, you brought in ITMs before your closest competitor or armed your personal bankers with iPads. But innovation must reach way beyond technology. Future success in financial services will require innovation in all areas: customer experience, staffing, remote work, marketing, even business models will need to evolve. In fact, our industry could learn from former Starbucks CEO, Howard Schultz, who said “innovation must be disruptive. And by disruptive, I mean disruptive. You gotta fracture and break the rules.” Let’s face it, banking has a lot of rules. 

But why is innovation so critical now? The answer is found at the intersection of at least three trend lines: humanity, diversity and technology. Let me explain. 

Humanity — I use the word humanity to express the idea that innovation becomes critical as shifts in human needs and human behaviors continue to accelerate. The pandemic and the subsequent recession have prompted changes in human needs on physiological, socioeconomic, and psychological levels. Social isolation, unemployment, and economic uncertainty influence most financial decisions — from daily to long-term. Will the 25-year-old customer need a car loan? Will the 65-year-old be able to retire?  

Think for a moment about how the pandemic caused customers to quickly adopt the digital and mobile behaviors that bankers have been promoting for years. Early indications are that customers have assimilated these new behaviors well and they’ve done it long enough now that new long-term habits are being formed. According to a 2009 study published in Psychology Today, the average length of time required for a new behavior to become a habit is 66 days. The pandemic has gone on for nearly a year and your customers have been making deposits with their mobile app, paying bills online, applying for loans without entering a branch. They have been using your drive through and other self-service options on their terms, often 24/7. What makes you think they will return to pre-pandemic ways of banking?  

Depending on your community, it may take some time before the profile of your average customer returns to pre-pandemic levels. And regardless of demographic profile or degree of affluence, the pandemic has influenced perceptions about convenience, health, safety, and simplicity and consumer needs and behaviors will be in flux for months, if not years, to come. Will your institution be able to adjust products and customer experience to align with those new needs and behaviors? When was the last time you connected with your customers and sought their input in the product development lifecycle? A bank’s ability to provide contextual, personalized, and relevant products and services will require more than collecting Net Promoter Scores and attempting infrequent improvement. 

Diversity — both inherent (ethnicity, gender, etc.) and acquired (life/professional experience) — unlocks innovation by creating an environment where different opinions can be expressed, and new ideas pursued. Diversity enhances creativity. It provides different perspectives and promotes better problem-solving. Diversity helps banks become much more dynamic and able to understand their customer base. Research from Harvard Business School found that a team with a member who shares a customer’s ethnicity is 152% likelier than another team member to understand that customer.  

Technology — Rapidly maturing digital technology will keep pushing the industry forward. The rapid improvements in artificial intelligence for fraud detection, credit risk modelling, etc. will reinvent how banks operate and how bankers spend their time. Enhancements to mobile technologies and expansion of 5G networks will compel banks to find newer, faster ways to bring mobile updates to market. Open banking and blockchain integration will restructure the banking landscape. These are just a few examples of how technology will shape future innovation.  

Netflix is a perfect example of a company that discovered customer-focused innovation at the intersection of humanity, diversity, and technology. As the pandemic hit and shelter-in-place orders were issued, people were looking for entertainment and escapism to get through the early days of the pandemic. They were already in a strong position to meet that need, but they quickly adjusted marketing, repurposed content and added more original programming for streaming. Early in the crisis they launched a $100 million coronavirus relief fund for out-of-work creatives to help ensure their content pipeline. As subscription numbers grew, they adjusted their technological capacity to meet demand and made news when they announced plans (at the height of civil unrest in the US) to put up to $100 million toward financial institutions and other groups that directly support Black communities in the U.S. It is no surprise they were among BCG’s list of the Most Innovative Companies of 2020. 

In the past 23 years, Netflix has gained nearly 200 million subscribers in 190 countries. That growth is directly attributed to their innovation-oriented culture of reinvention. So how can your bank become more like Netflix? Start by creating an innovation culture. When you elevate innovation to the status of a core value — an organizing principle for your bank — you begin to change the outlook and culture of your organization; and you transform the conversation in your board room, and your break room. 

As you begin to consider your institution’s capacity for innovation, take an honest look at how your current culture reflects these four characteristics: 

  • Innovative cultures encourage autonomy. From day one, Netflix focused the culture on employee empowerment and independence. The typical banking leadership style of command-and-control is difficult enough with five generations in the workforce and a talent crisis on the way; and is certainly less viable in the work-from-home era. Let go of the reins and create an environment where individuals and cross-departmental teams have freedom to express ideas, experiment and make decisions. Try identifying one customer-facing problem and give 3-5 people a budget and a deadline and then get out of their way.  
  • Innovative cultures also foster alternative solutions. You have likely heard the old saying that the definition of insanity is doing the same thing and expecting a different result. That thinking is the antithesis of innovation, and unfortunately it is alive and well in banking — but it doesn’t have to be. Tried and tested practices may feel safer, and trusted partners feel comfortable. But new solutions are often found by exploring new approaches and engaging new partners. When was the last time you asked a front-line employee, rather than a senior manager, how they would solve a particular problem?  
  • Innovative cultures give people permission to fail. Your team members will try new things when they know that they will not be fired or reprimanded for giving something a try. Once again, Netflix offers an interesting example. When an employee makes a mistake, they are encouraged to let it be known so fellow employees can learn from the errors and new ideas can be stimulated. Permission to fail allows employees to step outside of their comfort zones, to take more risks and to bring forth an innovative idea.  
  • Innovative cultures promote action. Decisions need to be made quickly and the right actions (based on data, customer feedback, analytics, etc.) must be taken, acknowledged and celebrated. Fast and effective decision-making structures exist, and fast and efficient communication supports implementation.  

A recent report from Accenture noted “Yesterday’s expectations for innovation are out the window. Even though the stakes for innovation in banking were rising even before the coronavirus arrived, now a true culture of innovation is a matter of survival through, and beyond, the pandemic.” 

I’ve used Netflix as an example of an innovative company, but there are leaders in our industry who have focused their banks on finding innovative solutions for their customers. And it isn’t just the large national and regional banks. Take the time to learn about institutions like Cross River Bank in New Jersey and discover how they reinvented themselves and deployed APIs to originate loans for Affirm or Rocket Mortgage. Or discover the innovative leadership at Citizens Bank in Oklahoma, who partnered with Shark Tank’s Mark Cuban to create the nation’s first bank exclusively to originate and fund PPP loans for businesses across the country.  

As you take the time to consider your own institution’s capacity for innovation, ask yourself “Do I have it in me?” Innovation requires fearless leadership that doesn’t use legacy technology as an excuse for maintaining the status quo. The pandemic has created an opportunity to break the inertia that has kept innovation from flourishing. Now is the time to commit to innovation and begin the work of reinventing your institution. I’ll admit, some consumers will return to pre-pandemic behaviors, and so will some banks. But given the changes we’ve already seen, I’m confident that banking will continue to evolve as consumers demand more innovation. 

Sullivan will be a keynote speaker at the WBA Management Conference, September 13–14 in Green Bay.

About the Author 

Joe Sullivan is CEO and founder of Seattle-based Market Insights, a consultancy with expertise in strategic planning, delivery optimization, culture transformation and leadership coaching. He can be reached at jsullivan@formarketinsights.com, or on Twitter — @mi_sullivan.

By, Ally Bates

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What’s in a Name? The Intersection of Brand and Community

Bank name changes go beyond charter conversions

What's in a (bank) name? It's branding, but so much more. Competition, growth and expanding markets, local history, M&A, relationship with the community… An inexhaustible list of influences can impact an institution's strategy for its name. Changing names is not a decision made lightly for any business, but when approached strategically it can be an effective way for banks to retain or gain target customers or to deepen its connection with a wider community. 

A bank's motivation to change its name could range from compliance (i.e. a charter conversion), to significant changes in corporate strategy, product/service mix, or the bank's target market, to differentiating or refreshing the bank's current brand, according to John Verre, president and CEO, Leap Strategic Marketing. Regardless of the reason behind the name change, more and more banks are choosing creative, non-traditional names. "What we see reflects banks recognizing the value of a brand and trademark," explained Jason Hunt, attorney at Boardman & Clark, LLP. "Traditionally, many banks picked names reflective of their local geographic community or descriptive of their position in the community, but as they expand they want to have more of a unique trade name or brand." 

Fortifi Bank, formerly known as 1st National Bank of Berlin, is a perfect example. The bank is 142 years old and originally chartered in Berlin, Wis. Over the past two decades, however, it expanded its footprint well beyond its name. "We now reach from Waunakee to Green Bay," said President/CEO Eric Cerbins. "We were being confused with a few other First National Banks within that footprint." The bank rebranded a few years ago in order to differentiate, but the market confusion continued. "It used to be there was just one First National Bank in each community, but as we grew our territories started to overlap," explained SVP – Marketing Loni Meiborg. When the bank decided to convert from a national to a state charter, it also used the opportunity to change its name in order to achieve the market differentiation it was looking for. 

Another bank that recently moved beyond geographic names is Bluff View Bank, formerly Bank of Galesville (as well as Seven Bridges Bank, Holmen and Bank of Trempealeau). "The name change is a larger rebranding of the bank and the result of several years of strategic planning and consultation with our marketing agency," said President/CEO Scott Kopp. "When we first went into new communities we wanted to be part of that community, including the name." However, maintaining separate entities for each community the bank served presented problems. "We found it was difficult to market three different entities with different names and logos," Kopp explained. "It was cumbersome, and some of our customers weren't aware that we were affiliated with our different locations."

4 Steps to a New Name

While changing a bank's name is not a small undertaking, there are several steps you can take to make the transition smoother. 

1. Generate a list of possible names. First, make sure you understand the regulatory constraints on your name. "DFI's Division of Banking interprets Wisconsin law to require a state-chartered Wisconsin bank to include the word 'bank' in its name," explained Patrick Neuman, attorney at Boardman & Clark, LLP. It's also important to keep in mind how important differentiation is to your institution when you begin brainstorming. "Most banks want to use words that reflect their values, but oftentimes banks have similar values," Hunt pointed out. "Banks have to start thinking outside the box." Banks should consider formal research into how its new name or brand can differentiate it from competitors. "Some changes require research involving customers, prospects, and employees," said Verre. "Think of it as a gap analysis. Look at banking in your community and ask what's missing."

The name "Fortifi Bank" began at a facilitated session with 16 bank staff members of different demographics and backgrounds who focused on the bank's present and future identity. From there, they generated a list of 200 different words that the bank's marketing department filtered, combined, and narrowed down. "We got really creative and reviewed everything that was generated," said Meiborg. "We could have stuck with a more traditional name, but we took the opportunity to evaluate our target market and deliver a name that is better aligned." Bluff View Bank used a similar approach, seeking employee opinions very early on. "I asked all of our employees to give us suggestions, and they, along with our marketing agency, really came up with some outstanding names," said Kopp. "We then had to get them vetted and trademarked. We narrowed it down to three, and then had a voting process to get input from employees again." 

2. Conduct an initial screening. As Kopp stated, it is critical to vet the list of potential names before investing any time or money in the new brand or name. "Banks get very far down the road and very excited about a new name before doing an initial screening, and then are disappointed if it's not available," Hunt cautioned. "I highly recommend doing that initial screening first. It's inexpensive to do an initial trademark screening through a law firm and it's better to do it at the beginning than to spend a lot of money creating a new name and brand only to discover a problem down the road." If the bank has plans to expand its market area in the future, Hunt strongly recommends registering the new name with the U.S. Trademark Office. "Assuming the name is available, a U.S. trademark registration will give the bank constructive rights to use that name even in areas where the bank has not yet started doing business or using the name," he explained. "The advantage is, as the bank expands, it can continue to use the name and won't be forced to change."

3. File with the Wisconsin Department of Financial Institutions' Division of Banking. This is the step where the bank formally adopts its new name. "The way a bank changes its name in Wisconsin is to file an amendment to its articles of incorporation," Neuman explained. "That requires a majority vote of the bank's shareholders." Since most Wisconsin banks have a holding company, this requirement is simpler to accomplish than some banks assume, since the holding company board can vote on behalf of its shareholders. Banks also have the option of delaying the effective date of the change up to 90 days, if that fits their rollout strategy better. 

4. Communicate, communicate, communicate! Of the dozens of action steps involved in launching a renaming/rebranding campaign, the most essential is clear, effective, and timely communication with regulators and vendors, customer/clients, and the community. "Make sure you work with your core data processor to have your new legal name on all of your contracts," Neuman advised. Other important considerations include correspondent debt held at the holding company level and the bank's insurance policies. "A legal name change should not affect the validity of your contracts, but it's still a good idea to let all of your vendors and providers know ahead of time," he continued. "Name changes are mostly a state-driven issue. However, the state-chartered banks do need to file a FRY-10 with the Fed and should notify the FDIC in writing of the name change."

Bluff View Bank and Fortifi were both pleasantly surprised by how positively their customers and clients reacted to their bank's new name. One thing that likely influenced that reaction: both institutions also had board members and/or staff, including loan officers, reach out to clients in advance to notify them of the upcoming name change. If the name change is not the result of a merger, Verre strongly recommends over-communicating that to your customers. "Take the same steps to communicate to customers and employees as you would if it were a merger, so you ensure they know it's not a change in ownership," he said. "Many consumers will assume when you change your name there might be M&A involved, so you need to communicate that it's the same ownership, locations, employees, and products and services." 

The key, according to Meiborg, is to make sure your customers and community know only the bank's name is changing, not its commitment to them. "We work very hard for our communities to know we're part of them," she explained. "Throughout the process it's important to remind the community that you're not changing what you stand for or interrupting your service. You're changing so you can be around longer and stronger to keep serving the community."

Boardman & Clark, LLP is a WBA Gold Associate Member.
Leap Strategic Marketing is a WBA Associate Member.

By, Amber Seitz

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Staying on Track: 5 Key Factors to Consider When Calibrating Your Capital Plan

Tactical allocation of capital is an integral component of success for every financial institution, so capital planning and strategic planning should be closely tied. Just as bank management and the board must regularly review their institution's strategic plan and make adjustments, an effective capital plan should be reviewed and recalibrated at least annually. That assessment has never been more critical, as the financial services industry approaches what could be a tumultuous period. "The full rollout of the capital conservation buffer under Basel III, CECL, and a potentially completely different economic cycle will be hitting at about the same time, so banks need to be considering and planning for that now," said Nick Hahn, director of risk advisory services at RSM US LLP. "It's a bit of a perfect storm." To adequately prepare, bank management and directors should consider the following five key factors as they look back at 2017 and forward to 2018 during the capital planning process: 

1: Strategy
The bank's strategic plan is the most significant influence on the capital plan, since different strategic goals require different capital strategies. According to Jon Bruss, managing principal and CEO of Fortress Partners Capital Management, there are several situations common to our industry that drive the need for capital: growth in assets exceeding the ability of the bank to retain earnings to support the growth, asset quality problems wiping out a large block of capital, or preparation for an acquisition as a buyer are among them. "There is no one solution that works for all banks in all situations," he said. Banks dealing with rapid growth in assets driven primarily by loan growth can fund a capital shortfall with common equity or with debt issued by a bank's holding company. "Any bank that's in the market for an acquisition and doesn't have a quote symbol for its stock is going to need to make that purchase for cash," Bruss explained. There are several options bank leadership should consider for sourcing those funds. "Cash at the holding company level can be sourced with debt raised via an investment banking firm, lent by a correspondent bank or by an offering in the communities served by the bank, each approach carrying a different cost," Bruss advised. Common equity can be used to raise cash to fund that purchase, "by selling shares to members of the community or via an investment banker-assisted community offering," he continued. "That requires thoughtful planning today, because tomorrow you may be an acquirer." 

2: Unexpected Occurrences
In addition to a yearly review, sudden, unplanned-for incidences should trigger a reassessment of the bank's capital plan. "If there's an unexpected loan charge-off that impacts your capital, for example, review your plan again then," said Lee Christensen, partner, financial institutions practice at Wipfli. "That way you know if you're on track or if you need to change the way you operate in order to get back on track." A cybersecurity breach or unanticipated findings during ALM routines and/or liquidity forecasting should also trigger a review. 

3: Competition
Today's financial services industry is highly competitive, and banks need to win against more than just their peers—credit unions, farm credit lenders, and even financial technology companies are all vying for the same customers. That can lead to dangerous choices. "You can sacrifice on term, price, or structure, and for many institutions pricing has reached the bottom, so now they're making decisions to sacrifice on term or credit risk monitoring controls, which ultimately increases credit risk," Hahn explained. "Financial institutions need to be very aware of the role competition in the market has played and how that could impact credit losses going forward and, ultimately, capital." To address this risk, Hahn recommends bank leadership maintain a thorough understanding of how potential losses could impact the balance sheet. "If we see any upticks in losses, you need to understand what's driving it and know if you need to extrapolate or do broader analysis of the portfolio in general to see if it will spread," he advised. 

4: Legislation and Regulation
Looking forward to 2018 and beyond, there are several legislative and/or regulatory factors to consider when doing capital planning. First is tax reform, which Christensen says will be a big event for banks if it comes to fruition because many banks currently hold a large amount of tax-deferred assets on their books. If Congress follows through on the plan to drop the tax rate from 34 percent to 20 percent, those assets will need to be revalued. "That will be a good thing in the long run, but it may have a negative impact in year one because the offset goes into expense, which ultimately flows into capital," Christensen explained.

Another factor to consider is Basel III's phase-in. In mid-October, the Basel Committee on Banking Supervision announced a plan to break the year-long deadlock that has delayed the capital standards' implementation: setting capital floors at 72.5 percent. The measure has yet to be approved by the central bank governors and supervisors on the Basel Committee's oversight body. 

Finally, the regulatory factor looming largest over the industry: CECL. "In the year of adoption, banks will be allowed to look at their allowance as it's calculated under the old and new methods and the difference will be a one-time charge to equity," said Christensen. "We'd recommend banks preserve capital for that hit, rather than maintaining excessive allowance." However, there is still some uncertainty, as banks seem to be waiting for guidance from regulators on how to build their new models, but the regulators seem to be waiting to offer guidance until they see the models. 

5: Economic Cycle
Banks should review their capital plan more frequently during times of economic turbulence or market instability, and the next period of such agitation is on the horizon. "We're likely closer to the next recession than we are to the last one," Hahn declared. "Many institutions are making the loans that will be their next losses right now." One sector in particular where the coming downturn is apparent is in the highly cyclical agri-business arena; while not yet as severe as some previous dips, ag credits are becoming more stressed. "If and when charge-offs become necessary, the banks need to have the capital available," said Christensen. "We've gone five or six years with very minimal charge-offs. The economy has been on a relatively long upturn during that period, but it doesn't feel like it because we haven't seen the sharp incline that we had in the early 2000s."

Take Action

With these factors in mind, bank management and directors should consider the following action steps (all suggested by one or more of the experts interviewed for this article) to ensure a comprehensive, effective review of their capital plan:

  • Refer back to your original capital plan and your projections. Compare that data with what your current reports tell you.
  • Closely evaluate the 30- and 60-day reports to see if there is potential for those to extend into the 90-day past due report.
  • Adjust your approach to stress testing. Relying on probability of default—looking at what causes borrowers to default—isn't as valuable from a capital planning perspective as using loss-given testing to anticipate the bank's exposure if certain loans go bad. 
  • Understand the capital sources available to your bank in its current state and also in anticipated future states. In other words, verify that your capital plan is realistic. If your institution isn't attractive to capital markets at the time when you need capital the most, know what your alternative source of funding will be. Leveraging your third-party relationships is an important component in maintaining an accurate understanding of today's capital markets.
  • Avoid a siloed approach to reviewing capital. Other risk management exercises and models, including interest rate risk and liquidity, should all impact your capital planning process.
  • Adhere to your loan policies. Amid fierce competition and an economic expansion, it is essential for bank leadership to enforce loyalty to the bank's policies in order to prevent taking on excessive risk.

Capital planning is one of the executive team and board's most important duties, so frequent assessment and adjustment of the plan is not only a good practice from a risk management perspective, but also from a strategic perspective. 

Fortress Partners Capital Management is a WBA Associate Member. 
RSM US LLP is a WBA Gold Associate Member.
Wipfli is a WBA Silver Associate Member. 

By, Amber Seitz

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Channel Surfing: Banks Adapt to Shifting Customer Preferences with Multiple Delivery Channels

When it comes to delivery channels, the quantity over quality strategy is ineffective, Gallup research shows. In studies and surveys conducted from 2013-2016, Gallup has found that some banks have focused on aggressively expanding the number of channels they offer their customers without first researching how to choose the channels that best fit their customers and their overall strategic goals. Channel satisfaction is the key to increasing engagement and deepening the bank's relationship with its customers, and the key to channel satisfaction is identifying how and where your customers want to interact with you. 

The list of channel options for product delivery and marketing seems endless—but rather than having 500 channels and nothing good on, a strategic channel approach can effectively engage your audience. When the focus shifts from individual channels to the overall customer experience, it can be easier to identify where to focus. In general, channels can be classified as either traditional or digital and used for product delivery or marketing. Wisconsin Banker interviewed four experts to highlight current popular channels for banks to consider. 

Branches
"Branches are not dead, they're just changing from transaction centers to sales centers," said Mark Arnold, president of On the Mark Strategies. The bank branch is still a key channel because customers still want to know their banker and value the experience they have with the bank—regardless of whether that experience is online or in person, according to Sara Baker, vice president, Ladysmith Federal Savings & Loan. "Customers still demand that high-touch personal service from their community bank," said Baker. "Balancing the digital versus human touch relationships with our customers is key to the future of community banking."

Interactive Teller Machines
"Interactive teller—or video teller—machines are something every bank should study," said Jay Coakley, president of Coakley Strategic Solutions, LLC. "You can reduce delivery cost and provide great customer service, especially in a small community, by utilizing employees in one location to service customers in another location. It's great technology." These machines can help banks maintain strong service relationships even in locations where a full-scale branch is inefficient or prohibitively expensive to operate. 

Core Processors
Banks should consider the delivery channels offered through their core vendor, according to Jim Pannos, president and principal of the Pannos Marketing Agency. "Many of our clients are getting involved with their core processors to get their most recent release because there are so many more capabilities within the newer core processing platforms," he explained. 

Email 
"Don't forget the power of email," said Arnold. "Email is still a great channel to use to deliver products and services. Think about how scalable they are and how they look on mobile." For example, with the growing number of emails viewed on mobile phones, the format needs to be designed to allow readers to scroll through content easily.

Content marketing
In all digital marketing, but email especially, good content is a critical component. "Consumers today really want content and not sales pitches," said Arnold. "It's what you're saying as opposed to how you're saying it." Banks can position themselves as expert advisors by offering useful information to their customers through blogs, their website and emailed newsletters. However, Arnold cautions against too much verbosity: "People are consuming more information than they ever have before, but in smaller bites. Information you send out needs to be digestible," he said. 

Online
Technology that allows customers to access answers when the bank's doors aren't open will become increasingly important, according to Pannos. "Your bank doesn't have to be open 24 hours, but people are focused on accessing at their leisure versus when the bank is open," he said. The convenience of online banking appeals to many customers who previously performed transactions in the branch. "Consumers are not increasing the number of transactions each month," Coakley said of the growth in online and mobile transactions. "They're just interacting with the bank in a way that's more convenient for them."

Mobile
"Mobile has the strongest trend line," said Coakley. "From the studies we've done, mobile banking's trend line is going up at a steep increase while online, in-branch and phone systems are declining." However, it is important that the bank dedicate enough resources to their mobile app to make it both functional and intuitive or many customers will not adopt it as a preferred channel. "Customers expect a bank's mobile app to be vibrant, easy-to-use, and fast," Pannos explained. 

P2P Payments
Person-to-person payment applications like Vimeo are becoming the preferred tool for younger consumers, which makes these types of delivery channels a potential market for banks that choose to target younger customers. "Usage of [these apps] isn't going to shrink," said Pannos. "Banks should be aware of that as they're looking at their technology and how they're going to serve the millennial generation and Gen Z. They're looking to those types of platforms as currency."

Remote Deposit Capture
This service allows customers to deposit checks via their mobile phones by simply snapping a picture of it, and while it's becoming very popular, banks should be cautious. "It's a great service, but it can be costly, especially for smaller banks," said Pannos. Due to the diminishing number of checks being written across the industry, he advises banks to assess the overall market demand and competition for the product, as well as examine their own customer base demographics to ensure the product will assist in the bank's overall customer satisfaction and retention. 

Before Diving In…

So which channel(s) should your bank invest in? There are four main areas to consider when investigating a channel strategy upgrade: your customer base, cost, marketing and training. "It's important for banks to understand their market and their customer base," said Baker, pointing out that customer demands for a bank in metropolitan Milwaukee will be very different from those at a bank in rural northern Wisconsin. "Just because the bank down the street offers a certain product doesn't mean your bank needs to offer that same product. Ask your customers what they want before diving in." Coakley recommends defining not only what the bank's current customers want for delivery channels, but also the preferences of the bank's targeted future customers. "It's about what your current customers want and what your future customers want, and those can be two vastly different answers," he said.

While upgrading or purchasing new delivery channels can be costly, banks need to consider their options from all angles. For example, purchasing new video tellers may reduce branch overhead expenses enough to offset the initial cost. "Investing in new technology and solutions can overall reduce the cost of operations, so this is important to look at too," said Baker. Intentionally migrating your customers to digital channels can also lead to staffing changes. "Long-term reduction in FTEs pays for the new technology," Coakley explained.

Additionally, the bank must plan to market any new channels in order to optimize usage rates. "You may have great products and technology, but if you don't communicate that to your customers and your community, they won't adopt it," said Coakley. A review of the bank's current marketing channel strategies is also essential. "The very first thing every bank needs to do is conduct a marketing audit," said Arnold. "You need to look at each of your channels and how successful they are, then come back with strategic and tactical recommendations for changes." Finally, as with any major operational or product changes, the bank must offer training to its staff. "Banks need to invest in their staff, training them on ways to provide quality customer experiences at all touchpoints," Baker advised. 

Whether your bank has three delivery channels or 30, it's important that your customer experience is consistent across them. "Rather than thinking about just one channel, think about the experience," Arnold advised. So, when a customer visits a branch they experience the same level of service and style of messaging as when they visit your mobile app or website. "That's the challenge that banks face today," said Pannos. "You have to be old-fashioned in some aspects and cutting-edge in others." Because consumer preferences are so capricious, it's essential for banks to constantly reevaluate their channel strategy and adapt to what they learn. "Customers will continue to crave whatever technology is available which offers them convenience and a personal experience," said Baker. "As the technology evolves, banks too need to evolve."

By, Amber Seitz

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Innovation and Identity: How to Embrace Change Without Changing Who You Are

Hint: It's not all about technology

Sometimes change is driven by a fundamental shift in the industry (think ATMs, internet banking, or today's pairing of cloud storage and mobile devices). Other times it is born from necessity, as banks fight to stay profitable in a persistent low-rate, high-regulation environment. The one certainty is change itself. The challenge for banks is to transform in a way that fits their identity rather than jump to extremes – so pump the brakes on buying that fintech startup. The best way to innovate without losing your identity is to foster a culture of innovation grounded in the bank's strategic goals, both with regard to internal processes and customer-facing technology.

Hone Internal Processes

Innovation, to have the greatest positive impact, must permeate the institution. That requires support from the top: the board of directors and CEO. "It starts with the CEO and the board including innovation discussions in their strategic planning," said David Peterson, CSO and Founder of i7Strategies. "Then, they can form a cross-functional group in the bank to work on specific innovative ideas." That cross-functional group should involve representatives from all areas of the bank. "Innovation, like serving customers, is really the job of all areas of the bank," explained Bob Giltner, Chairman, RCGILTNER Services, Inc. "Some banks establish committees or define a specific person to spearhead the effort as a way to build buy-in for the organization across functions." It's also a good strategy to look outside the bank for ideas. Jack Vonder Heide, president of Technology Briefing Centers, Inc. recommends designating a high-level bank employee as the primary researcher, and when they find an article about a bank in another state doing something innovative, to call that bank up. "They're happy to share that information as long as you're not a direct competitor," he pointed out. 

Whether an individual or a team is in charge of innovation at the institution, the first step is evaluating and updating the bank's processes. "Innovation should be directed to both customer-facing and internal operations," Peterson explained. This kind of procedural innovation involves identifying processes and procedures that occur simply because they've always occurred and streamlining them as much as possible. Giltner recommends constructing a process map for each of the bank's service processes for products and deliver channels. That typically involves placing the delivery of the product on one end of a whiteboard and the need for the product on the other end, and then filling in all of the execution steps in the middle. For example, on one side you have a customer using their checking account, and on the other a customer requesting information about the types of checking accounts the bank offers. "Innovation looks at the entire process and asks where improvements can happen," Giltner said. "Look for areas of greatest friction." Procedural innovation should be an enterprise-wide effort, too. "Banks should start encouraging innovation internally," Peterson advised. "Ask your employees to be innovative, no matter what their role is."

"Innovation does not have to use new technology," Giltner said. "Innovation can be accomplished simply by defining new processes or organizational structure." For example, before the mid-1980s, the idea of "giving away" checking accounts was anathema in banking. Later, free checking became one of the most popular methods banks use to begin relationships with new customers. "That was a huge delivery and customer service innovation that was not technologically driven at all," Giltner explained.

Team Up for Technology

When it comes to the more visible side of innovation (technology), banks have more of an upper hand in the market than many think. "If you step back for a minute and look at the data banks have, they know where and when people spend their money," said David Furnace, CEO of Haberfeld Associates. "That's an incredibly valuable data asset." That data, combined with the pre-established trusted relationship with customers, means banks are in a good position to partner with technology vendors. "The key thing banks need to see is that they have competitive advantages in fintech with a lower cost of funds and established customer relationships in comparison to non-banks," said Giltner. In other words, banks have already developed the client networks and compliance processes that lie beneath the technology and allow the industry to function.

On the other hand, fintech companies and technology vendors have the expertise and products to unlock bank data and leverage it to deepen customer relationships. "This will be an area where banks can partner with technology vendors in the future in order to leverage all of that data and make it actionable," said Furnace. If management determines that adding or updating technology to the bank's offerings is the right strategic direction to move in, partnering is a viable option. "What fintechs do is create 'shiny objects' for consumers, but because they themselves are not banks, they still have to work with banks in order to facilitate transactions," Peterson explained. "So banks can effectively compete by educating their customers on the types of services they offer, and then partnering to offer customers those shiny bits while still keeping their accounts with the bank." 

There are a wide range of benefits for banks that choose to partner with fintech companies rather than go it alone. "The rewards for community banks to focus on this and partner are very substantial," Vonder Heide explained. "You're making it possible for very small or new businesses to do business with your bank in a profitable way." Furnace says lending is also an area of opportunity for these partnerships. "Scale is difficult to achieve for some community banks, and deploying technology can allow for that scale." 

Of course, banks must weigh the risks with the rewards of all potential partnerships, particularly regulatory risk. "You have to put it together in a way that passes regulatory muster," Vonder Heide cautioned. "You also need to have a process for vetting your partners, especially considering most of them are very new." For most Wisconsin banks, however, the benefits of establishing a partnership with a fintech company outweigh the risks because of the sheer volume of resources required to initiate technological innovation solo. "Many community banks don't have the resources to go out and invent new technologies," said Furnace. "What they have is a trusted relationship with their customers." 

Take a Focused Approach

Those established customer relationships are the bedrock of community banking, and true innovation requires an approach focused on that identity. The first step in determining your bank's unique innovation ID is to define your appetite for change. "The first thing that the board of directors needs to do is decide what kind of a bank they want to be in terms of innovation," Vonder Heide advised. That means identifying where on the spectrum of innovation and implementation the bank should be. Do you want to be the first institution in town with every new product or feature? Do you want to be a fast follower, learning from other institutions' mistakes? Or do you want to hold off on change until your customers demand it? "Once you decide what type of bank you want to be, that will drive everything else," said Vonder Heide.

Next, management must determine which potential innovations to implement, because in today's banking environment no one has a lot of room to experiment. "It's tough for community banks in a time of zero interest rates, always increasing regulatory pressure and expenses," said Furnace. "It's important to choose wisely, but there are absolutely innovations that can make community banks more profitable." Winnowing down the list of possibilities should revolve around the bank's stakeholders. "Innovation should be focused on where it can make the biggest impact on the bank's stakeholders: customers, employees and shareholders," Giltner said. "Ideas should be prioritized based on the ratings of value for these stakeholders." 

To maximize value for shareholders, return on the investment must be part of the decision-making process when selecting ideas to implement. "It's trite but it's true: it has to be ROI," said Furnace. "The world of innovation is so broad, at the end of the day it has to contribute to your bottom line." To incorporate the customer perspective, Vonder Heide recommends forming an advisory group consisting of customers to help vet new ideas. "A lot of community banks make the mistake of introducing technology initiatives based on what they hear or observe from other banks," he said. "Your customer base is where you should go for technology initiatives."

Finally, don't assume cost when you're narrowing down your list of ideas to implement. Many impactful changes are also cost-effective. "The biggest fallacy right now is that innovation is a high-cost effort," said Peterson. "Particularly with branch transformation, innovation doesn't have to be expensive." It can be as simple as redecorating a branch office or removing a duplicative step from a back-office process. The most critical component of identity-centric innovation is to remember you probably won't get it 100 percent right on the first try. "You can't just decide you're going to innovate and suddenly be good at it," said Peterson. "In order to have perfected innovation in the coming years, you need to start now."

By, Amber Seitz

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