It was back in 2014 when researchers at DeepMind directed their nascent artificial intelligence application to the game Breakout. Instead of programming DeepMind on how to play the game, the researchers programmed DeepMind to learn about learning to play the game. That is a meta level that isn’t normally programmed but the result of that effort, combined with many others, was in the back of our mind when we turned some artificial intelligent tools towards customer data.
Every bank should send their new employees out and mystery shop at least one other competitor and report back. Further, every senior manager should do the same once per year. If they did that, most banks would find that the account opening process leaves much to be desired and the act of mystery shopping would create a desire to improve. Most banks don’t improve because their customers put up with the opening process so no one realizes that something is wrong. But, something is wrong. As an industry, our account opening process leaves much to be desired.
If you think the economy is going to muddle along, then you should skip this post as our analysis isn’t going to make a difference in your future - 2021 will be much the same as 2016. However, if you think the economy is going to pick up steam, or if you think the economy will get weaker, then today’s data could make a difference over the next couple of years. As can be seen by the graph below, commercial real estate risk continues to increase and the risk on new community bank loan production is up 6.5% during the first half of this year compared to last year.
Once you hit about $500mm in total asset size, your bank should be asking what organizational architecture it wants – centralized or decentralized. A smart bank lays the ground work at $500mm, and then by $750mm can start to reap the benefits of design. By $3B, the bank should be fully leveraging the results of the decision. In banking, success has been had both ways. We can point to many banks that centralize management, credit, marketing and many other functions.
We recently blogged about the experience at two banks (HERE). We highlighted that both banks demonstrated suboptimal performance (for different reasons) and that the compensation plans for their lenders may be one of the causes for their depressed return. To build on that post, we will now go deeper into solutions and discuss the building blocks for successful compensation plans.
We are not sure if fintech companies are from Venus or Mars and where banks fit into the universe, but there are differences in how these groups think. Pricewaterhouse Coopers just did a study on the cultural and understanding issues that frustrate banks in dealing with fintech firms and fintech firms dealing with banks. By the graphs below you can see the points of frustration for each party.
If you have an MBA or have any corporate strategy training, undoubtedly you have been exposed to the famous Boston Consulting Group’s Boston Matrix. McKinsey & Company promoted their version of it and Jack Welsh at General Electric made it an art form. The framework is used by many banks today and charts each line of business along the twin dimensions of growth potential and market share. The problem is, this framework can get a community bank in trouble.
We recently talked to two banks about their loan strategies and actual performance. Both management teams were not satisfied with their lending performance year-to-date, and both were looking to alter the banks performance for the remainder of the year.
To be clear, earlier this week, we already had people in our bushes hunting around for small fictional characters, so the idea of being proactive and actually purchasing the "Lures" wasn’t that much of a stretch. The real hilarity ensues when you find yourself explaining why your avatar needs to go to the “Pokémon Gym” because there is an important battle with Charizard on the horizon instead of talking about BSA regulatory issues - but, this is the new world we find ourselves in.
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