Why Keeping Up with Your Banking Competition Keeps Getting Tougher

I love the annual Barlow Research Conference because the content is based upon thoughtful research. This year’s event in Chicago was no exception. Entitled “The Next Big Thing,” the forum speakers emphasized the rapidly changing banking environment. Banks better keep up or move aside!

In his keynote presentation, Trendspotting 2017: Finding the Signal Through the Noise, John Barlow (pictured above), president of Barlow Research, Inc., spoke about the forces that are changing business banking. In case you missed it, here’s an overview of what I learned from his insightful, fascinating session.

Trend #1: Large banks are focusing on the middle market

• Loan demand is higher in the middle market.
• Delivering credit in the small business market continues to be challenging.
• Small business owners continue to age and remain conservative.

Key takeaway: Focus on deposits because the middle market is not self-funding.

Trend #2: We are experiencing a cyclical change in housing.

• Student loans are preventing many young adults from buying a home.
• The value of older multi-family buildings will decline.
• Current expected credit loss (CECL) rules will reduce the supply of credit to developers.

Key takeaway: Increasing housing values will create collateral for new business owners.

Trend #3: Consolidation is accelerating among community banks.

• The price multiples make selling a bank attractive.
• Aging bank owners are reluctant to invest in new technologies.
• Acquisitions create a one-time gain for core processors.

Key takeaway: The banking industry will become even more concentrated.

Trend #4: Paper check volumes will remain steady.

• All payment volumes increase as the economy recovers.
• Treasurers still believe that it is easier to write a check than create an electronic transaction.
• Accounting systems and internet banking have not been successfully integrated.

Key takeaway: New systems will handle paper more efficiently.

>> Barlow Soundbite: “Fifty-one percent of businesses say that ‘increasing efficiency’ has been or would be the main reason for switching to electronic payments.”

Trend #5: The primary bank relationship is becoming less important.

• The intent to repurchase at the primary bank continues to trend lower.
• New bank strategy departments help focus the line of business on selling.
• Online know-your-customer (KYC) has not been mastered.

Key takeaway: Treasurers and consumers are loyal to convenience.

>> Barlow Soundbite: “Only 54 percent of customers say they are likely to use their primary bank the next time their company needs new financial products or services.”

Trend #6: Banks are searching for solutions using artificial intelligence (AI).

• AI is replacing block chain, big data, and internet of things (IoT) as the next big thing.
• AI has the opportunity to replace time-consuming manual functions.

Key takeaway: More data may create more outputs and higher workload.

Additional soundbites from the 2017 Barlow conference:

“Engineers and product managers that spend time in the field have the ability to solve problems at a deep, deep level.”
–Joe O'Sullivan, V.P., User Experience Design, Small Business Banking, Capital One

“I believe the next big thing for small business banking is absolute control over the customer user experience.”
“We go out and visit every client that we lend money to.”
“When we pick a new vertical, we pick someone who has lots of experience in that vertical.”
–Daniel Haisley, Head of Product, Live Oak Bank

“The four trends in innovation are: (1) improve and speed up access to financing, (2) streamline payments, (3) use analytics for advice, and (4) uniquely serve a niche segment you choose to target.”    
–Deborah L. Bianucci, President & Chief Executive Officer, BAI

The annual Barlow conference is a great chance to get caught up on the latest trends within the business banking industry. It’s a truly unique experience. I learned so much about our industry and can’t wait to attend again next year!

Bobby Martin | Cofounder & Active Chairman