Some observations as I leave community banking

It's been almost two months since I last posted anything. Since then, I've left my previous employer and joined a financial services consulting firm and have just completed my first month. I'm going to focus this post on some final thoughts as I leave the community banking space. So here goes:

- The regulatory environment is making it almost impossible for community banks to survive. In a recent article in The Baltimore Sun, Anita Newcomb, a noted community bank consultant, notes that regulatory changes may make it impossible for banks of less than $500 million in assets to survive. In my opinion, this is too low. I think banks need to be of a sufficient size, at least $1 billion in assets, to have the scale to compete and comply with the requirements.
- The primary competitors for many community banks, credit unions, have an unfair advantage. It used to be that credit unions served very specific groups of constituents, like a single employer for example, providing savings and loan products exclusively to them and enjoying the status of non-profits. Now, many CU's have no such restrictions and yet continue to pay no taxes and a much less stringent regulatory environment.
- I believe one of the biggest challenges they face is one of identity. What does a community bank mean, anyway? For customers, their local branch is their community bank. Just like the local Home Depot. Sure, the name over the door has changed a number of times, but many of the people who've waited on you are still there. And now, with all the electronic delivery options, how many people really need a local branch at all? Open your account, get your direct deposit set up and you are good to go.

With all that said, I do think there is a need for community banks. They need to focus on the value they bring to the community. During the recent financial crisis, many small businesses found themselves scrambling for financing when the large banks abruptly pulled their credit lines. A local banker, with roots in the community, is more inclined to work with these customers because they understand the market and know their customer. It's where having local decision makers can really make a big difference. So let's not write the obituary for the community bank just yet.

Debit Card Fees and the Social Media Backlash

As I discussed in my last post, debit card fees have been a hot topic the last 60 days especially for the big banks. Now we see many of these same banks, including SunTrust and Regions Bank, discontinuing their monthly fees and refunding those customers who had paid in previous months. Today, Bank of America finally conceded and are cancelling their plan for the $5 fee scheduled to start in 2012.

What is so fascinating is how much of an impact social media had on these decisions. For example, there was a young woman in D.C. who started a petition on a website, change.org, to "Tell Bank of America: No $5 Debit Card Fees." She's gathered over 300,000 signatures supporting her cause.

There have been thousands of Twitter comments and blog posts expressing outrage over the proposed fee from BOA. One recent post is a pretty good example (with a Halloween theme): ShooterOneSix "What's difference between a vampire & Bank of America? The vampire is only after your blood while BoA wants to suck your CASH too!#ows #p2." It has even spawned a Bank Transfer Day on November 5th when big bank customers are encouraged to move their accounts to a local credit union. Again, this has been spread through social media channels with incredible velocity.

So what's the lesson here? There are many, of course. One that immediately comes to mind is think before you act. While it may sound good sitting around a boardroom and crunching the numbers, this plan should never had made the light of day. If these banks had engaged their customers in a dialogue beforehand, I'm quite sure they would have seen the negative impact immediately. Remember, social media is a two way street. Now they have yet another publicity nightmare to clean up.

Durbin's (over)reaction to the Bank of America Debit Card fee

So Sen. Dick Durbin, D-Ill., is back at it again. As if he hasn't wreaked enough havoc on the banking industry, he's now telling customers to "vote with your feet. Get yourself out of that bank". He is, of course, talking about Bank of America (BOA) and their recent decision to begin charging $5 per month when a customer uses their debit card. The fee goes into effect in 2012.

It was his legislation (the Durbin Amendment) capping the interchange fees on these transactions that started this whole mess in the first place. The legislation was, ostensibly, aimed at helping the consumer. Not quite. What it has done is lowerer what the retailers are paying and reduced the interchange income to the banks. I think it is safe to say that retailers are not going to pass on these savings to consumers. So, do you see any benefit to the consumer? I don't.

Now, according to Durbin, Bank of America is going to "push people away from debit cards into credit cards, which are not regulated..." to increase their interchange rate. What Durbin seems to dismiss is an alternative: using cash for their retail purchases. You see, if you are a BOA debit card holder, there is no monthly charge for using a BOA ATM machine. But that doesn't get mentioned in his grandstanding on the Senate floor.

So here's my personal message to Sen. Durbin. Consumers will make their own decisions about how to deal with this. Believe me, BOA is taking plenty of heat for this from their customers. Maybe, instead of the government getting more involved in everyday banking, they should focus on governing. Seems to be a pretty strong need for that these days.

Randi Zuckerberg interviewed about Social Media and Banking

Randi Zuckerberg, the former marketing exec at FaceBook (and still the sister of Mark), will be one of the keynote speakers at BAI's Retail Delivery Conference in Chicago. She recently sat down with Kenneth Cline, the managing editor of BAI Banking Strategies, and provided a few key takeaways for banks using social media.

• Be creative. Banking isn't the most engaging subject so look to reward customers for their engagement.


• Be willing to let go of some control. Your ability, as an organization, to control the message is limited. Be prepared to respond to both the good and the bad.

To read the complete interview, you can find it at BAI Banking Strategies. More information on the event can be found on the BAI Retail Delivery Conference website.

Getting Started on Twitter

I've had the opportunity to speak at numerous banking conferences on the topic of social media. In fact, I'll be attending the upcoming BAI Retail Delivery Conference in October. I am part of a panel discussion on "How Banks Are Using Social Media Analytics to Drive Product Development & Marketing" along with Aaron Chestnut from First Tennessee and Penny Crossman, Editor in Chief of Bank Technology News. If you happen to attend this event, please stop by and introduce yourself.

Anyway, on of the most common questions (usually after "How did you ever get Legal and Compliance to agree to this?") is how to get started, especially on Twitter. My usual response is that the person try it out individually first, then determine if it made sense for the organization. Unfortunately, that was about as far as my advice went, until now. I recently came across a site, twiends, that provides a an easy to follow process to get started on Twitter. If you are looking to take that first step, check it out. Good luck and feel free to follow me on Twitter: @kplynch.

Borders Closing and Banking: What's the connection?

As many people have heard by now, Borders, a 40 year old retailer of books and music, is closing it's remaining 399 after a last minute attempt to sell itself. It's demise is blamed, in part, on management's strategy to continue building Superstores as people started shopping for books and music online.

So what's this have to do with banking? Borders made the fatal mistake of sticking with it's strategy to expand through physical locations while ignoring the behavior of it's current (and future) customers. They ended up too late to the marketplace and were saddled with large retail locations and no customers.

Over the last couple of years, I've participated in a number of industry events, as either a speaker or panelist, on numerous topics including social media and mobile banking. I find it increasingly apparent that many of the community bankers I talk to are still in the "Borders" mode. While they see traffic declining at the branches, they are unsure if they should get involved in social media or provide a mobile banking solution. They are ignoring the societal trends and taking a "wait and see" attitude. Given the speed at which consumers adopt new technology (how many people even heard of Twitter in 2009?), bankers today won't survive with that attitude.

So here's a message to all my fellow community bankers: I encourage you to take some risks, try new things and stay relevant so you don't become the "Borders" of the banking industry. Your community and, most importantly, your customers, need you.

What happens to Social Media sites when you're no longer around

A friend of mine recently died after a long, close to three year struggle with Ewing's Sarcoma. She was a very brave and inspirational woman and will be missed by many close friends and family.

In addition to knowing her personally, I was friends with her on FaceBook. Which brings me to the title of this post. We continue to be "friends" on FaceBook even though she is no longer here. People continue to post remembrance's on her passing and tag her in pictures. In other instances, I've heard about people who go back to their friends page on the anniversary of their passing. It's a very interesting phenomena. It's almost a living memorial.

Suppose, however, you didn't want to live on forever on FaceBook or LinkedIn. As I think about this, I'm not sure I know what I'd want to do when I'm gone. Is it better, for those around you, to have a place that keeps your memory alive for them? Would you prefer to have it all wiped clean and let the memories fade away? Just another unintended consequence of this thing we call Social Media. Frankly, it makes my head hurt thinking about it.

Mobile Channel Focus Day at Net.Finance Conference

As I'm watching the tweets from the Mobile Banking and Emerging Applications Summit in New Orleans this week, it prompted me to highlight some of my impressions from the Mobile Channel Focus Day at Net.Finance back in May. Here are a few of the highlights:

Jeff Dennes, SVP Chief Digital Officer of Huntington National Bank (and formerly with USAA), gave the Keynote address. His presentation was full of interesting observations including:

• The economics of Mobile are compelling. Mobile transactions cost $.08 per transaction versus a branch cost of $4.00 per transaction.




• The expansion of the 4G network over the next 2 years will increase bandwidth equal to a cable modem at home.




• Mobility is driving convergence. The gap between the traditional web and related services is closing, with the increase in smart phones and the movement of the Gen Y's into the workforce.

Secil Tabli Watson, SVP of Internet and Mobile Banking from Wells Fargo discussed using ethnographic data to determine how and when customers are using their mobile services.The results will identified "convenience" as the driver of adoption and use. This will ultimately help them focus future enhancements around this approach.

Jennifer Wilson, SVP Internet Channel Director, BBVA Compass shared her experience with the introduction of ZashPay, a Person to Person payments service from Fiserv. From an adoption perspective, they found that building a web page with a simple enrollment process was key. When they looked at the user base, they found a surprising number of small business customers who were using as an alternative to more expensive ACH services. Given these pilot results, they may develop a mobile invoicing service for their business customers.

Mobile continues to be a hot topic among financial services providers and may prove to be the most signficant game changer in the next couple of years.

Notes from Net.Finance- Personal Financial Management (PFM)

I recently had the opportunity to attend the Net.Finance Conference in Chicago. It is, by far, one of the best conferences for those of us focused on the digital channels of financial services. Over the next couple of weeks, I'll be writing about some of the main themes from the conference.
When I was there, I was fortunate enough to be part of a panel discussion on Personal Financial Management (PFM) along with Patrick Smith of Wells Fargo, Eric Connors of Yodlee, and Edward Chang of Strands.
We had a lively discussion about the benefits of PFM for our customers, the challenges of getting people to use it, and the pros and con's of aggregation services. While the benefits are pretty clear (better financial management) the biggest challenge, as noted by Patrick, is inertia. Managing your finances is certainly important, but not critical. Setting up goals and budgets falls somewhere around cleaning out the gutters on the "to do" list. The key, perhaps, is to help educate the consumers about the benefits to make it move up that list.
One of the classic differences between my organization, a smaller community bank, and Wells is the approach to aggregation. Wells provides tools that help manage those accounts that are with Wells while we offer a service to add all your accounts, even from other institutions. Perhaps this highlights the major difference between big and small banks. We see this as a service that is the right thing for the customer, while they look at it from an internal perspective of what is right for the organization. We (of course) think ours is the better approach.

Mobile Banking and Customer Behavior

There have been a number of recent articles and studies focusing on customer behavior and mobile banking. The most recent was in the American Banker entitled"Tech-Savvy Crowd Demands More Personal Service from Banks, Not Less". (By the way, you've gotta love any article that uses the term Luddite)It suggests that increased mobile use by customers may not translate into decreased branch traffic and less phone calls. My question is: Who said it would?

As my friend Ron Shevlin noted on his blog, Marketing Tea Party, the mobile channel is so new, "it doesn't exist for the vast majority of customers." Given the limited adoption (much less banks offering the service), how can anyone make any inferences about how it will impact FI's and their customers?

Our organization rolled out a mobile about eight months ago. It wasn't in the hope that it would offset any costs by reducing interactions in other channels. It's about customer convenience and acknowledging the ubiquitous nature of mobile devices across all generations. Perhaps some services will, in fact, reduce bank visits. The depositing of checks through your mobile device would certainly qualify as one example. Until there is mass adoption of the technology, mobile is just another channel for our customers to use. No more, no less.

Eight Tracks, The Dead, Banking, and Technology

As I sit here listening to a streaming audio of the soundboard recording of a Grateful Dead concert I attended in high school, it reminds me of how much technology has changed since then. I first heard the song "Mexicali Blues" on my Eight Track Player in my room. Remember those things? Eventually, if you played the tape enough (which I usually did), you'd start hearing other tracks bleeding into the song you were listening to. Pretty lousy technology, in retrospect.

Okay, so what does that have in common with banking? I've just spent twelve days over the last four weeks with a team of folks looking at bank technology vendors. So technology and the progress we've made as an industry is front and center. While we've made tremendous strides since our bank last looked at a new core provider over 11 years ago, we are still living with many systems that were built during the height of the Eight Track era. Now it isn't only the core data that's critical (just like the music), it's how it is delivered to the end customer (streaming on demand versus an Eight Track Cassette).

I think I like the current "on demand" era better, but it sure does make it a more difficult decision. Frankly, we have to evaluate our partners even more closely to see if they are thinking about the next, new thing that will replace the current channels. Because the technology today, like the Eight Track Cassette, may not be the long term solution tomorrow.

Customers demand more real time banking, Banks face more risks

As our organization looks at a new core banking solution, it's more and more apparent that the days of stand alone solutions are over. From the beginning, when we started with self service channels like ATM's and Telephone Banking, to the current mobile banking offerings, the landscape has changed forever. We've gone from providing customers with monthly data (paper statements), to day old information (online banking) to instantaneous capture of a debit transaction so it's available through any channel, including mobile. We can even proactively alert you when something happens on your account.

The difficulty this presents, as any bank technology guy will tell you, is that we are living in a real time world when our core systems are still built for a one time, batch processing environment. Customers, for example, no longer accept that deposits can only be credited to their account before two every afternoon. So the systems that support the banks, whether in-house or outsourced, have to adapt to this new paradigm. It's one of the reasons we are looking at other solutions (besides the fact that our current provider is sunsetting our core).

As we move to a more real time environment, we also open ourselves up to more transactional risk and fraud. Evaluating these risks in real time will be challenging and lead to even more automated systems to identify these individual items. It will prove to be a major challenge for banks over the next few years.

My, How Times have Changed

This has been one long, but very good, week. We just finished the first of four, two- day demonstrations from Core Banking systems vendors. As an organization, we last went through this process in 2000. What's interesting is the types of things we are looking for from a vendor today compared to then. Here's a highlight of just a few:

• Online Banking and Bill Pay- This customer facing service was still in it's infancy in 2000 while limited bill pay services were only offered through the largest financial institutions. Today, that is a standard requirement for any bank, large or small.
• Online Account Opening- All deposit or loan accounts were opened through a traditional channel, a branch or perhaps a call center. Now, in addition to supporting these channels, an online application is required and, oh yeah, you better support it with a online chat feature so they can chat with you from your website.
• Mobile Banking- The most recent entry to the self service channel is now a requirement as well. With the proliferation of smart phones and other devices, customers expect to have access to their banking services anytime and anywhere.

As we meet with these vendors, it is no longer acceptable to provide functional systems. We are looking for partners who are following trends in the industry and spending money on new technologies, anticipating the next customer need. With the speed of change, we can't go it alone.

Some Random Social Media items

Here are a few random items that I came across over the last week. Happy St. Patrick's Day to everyone!

• From The Financial Brand, an article outlining the results of a the Edelman survey on Trust in US Financial Services. Not surprisingly, consumers still showed little faith in their financial institutions. For those of you in social media, the good news is that consumers value "honest communication" and "open and transparent" as the most important factors affecting reputation. Isn't that what social media is really all about?


• On a related note, one of my co-workers shared an article on Financial Planning.com about the limited adoption of social media in financial services. There is one particular quote that was spot on, "The downside for many is compliance. 'It takes five minutes to sign up for Facebook, but three to four months to make a social media plan that makes your legal and compliance departments satisfied,' said Hadley Stern of Fidelity Investments." Sound all too familiar? I think this is one of the biggest hurdles many organizations face as they consider engaging in these channels.


• From the "How not to use Social Media in B2B Sales", I recently received a tweet from some random guy asking me if I wanted to see a demo of his company's "Actionable Alert" product. I had no idea who he is, where he's from, or even how he found me. This kind of approach is like asking a girl out on a first date when you haven't even been introduced. The least he could have done was provide some context for why I would even be interested. Not cool. He should talk to @Clagett from Geezeo about how to use social media to engage prospects.

The real story behind the Merrill Lynch,Bank of America merger

On a rather long, often delayed trip to the West Coast, I had the opportunity to read Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America by Greg Farrell. While it is a fascinating tale of the clash of two very different organizations, one about to fail and another on life support, it was of particular interest to me as a former BofA employee. The descriptions of the culture of the bank and in Charlotte was spot on.

I became an employee through the merger of a bank in Baltimore to NationsBank in 1993 , the predecessor of BofA. I remember the teams pouring in from Charlotte to help us "learn" the bank's way of doing things. Even then, it was clear that we were the acquired and they were in charge. It was described as a meritocracy and it was; if you hailed from Charlotte. Based on this story, that appears to still be the case today.

With even a slight understanding of the history of Merrill Lynch, you can only imagine the conflict. This is a great read and gives a good behind the scenes look at the near collapse of the financial system.

Commonwealth Bank and the social media policy debacle

If you are involved in social media, you've probably heard about the recent blow up on Commonwealth Bank of Australia's social media policy. A copy was obtained by a news organization and published last week.

As noted in the article, most of the policy is pretty benign. Where they got in hot water was the reference to "Inappropriate or disparaging content and information stored or posted by others..." and then specifically gave the example of a friend posting an inappropriate comment about the bank on a FaceBook page. In that event, it is incumbent on the employee to notify others in the bank or face the possibility of disciplinary action.

Our organization has a social media policy. Every organization should have one. However, it is a huge leap from managing employees and their social media presence to the actions of their "friends". I use the quotes intentionally because many "friends" in social media would not be considered friends in the true sense of the word. In this case, the organization has set unrealistic expectations and, quite frankly, an extremely difficult policy to monitor.

Doonesbury, Gen Y'ers and Banking

I've really been enjoying the recent Doonesbury comic strip this week. For those of you who don't follow it, here's the one for today.

The basic premise is two twenty-somethings meet for lunch and spend the entire time on their mobile devices. Anyone who has kids or young adults knows that this isn't that far fetched.

So what does that have to do with banking? These are the current/future banking customer's of today. How can you hope to engage them in something as mundane as banking if you aren't meeting them in the social media space? Let's face it: if they aren't talking to each other face to face, how will you ever get them to talk to you?

Ravens Football and Social Media

This past weekend marked the end of the 2010 football season for me. My local team, the Baltimore Ravens couldn't get past their rivals, the Pittsburgh Steelers, in the 2nd round of the AFC Playoffs. I still feel an emptiness.

As I reflected on the season, I realized how much social media played into it. In addition to generating my own tweets from our tailgate or during the game, I had just as much fun following other Twitter users. Whether it was other local fans, local sports writers like @mattvensel, @jamisonhensley, or @wbalpete, or even Ravens players like @rayrice27 and @WillisMcGahee. I even had the chance to interact with out of state friends as our teams clashed on the gridiron. It truly made it a more rich and enjoyable experience. Now if we had only beaten the damn Steelers......