Consumer Bankers Association (CBA) Live is one of the conferences we hold at the beginning of each year. It is one of the top retail banking conferences and does a great job of attracting bankers from across the country.
The three-day conference began with an opening address by CBA President and CEO Lindsey Johnson (hosting the first CBA Live since Richard Hunt’s retirement), followed by a panel of bank executives sharing their candid thoughts on the current situation. Across the retail banking industry. With SVB, Signature Bank and Credit Suisse included in the news cycle, an attendee poll unsurprisingly ranked the economy as the biggest challenge for 2023. But the panelists went beyond the economy and offered the following insights beyond the recent sharp recession: Events and competition for talent were issues that banks had to address to remain competitive.
I thought this was interesting, considering the recent mass layoffs across the tech industry have freed up a high talent pool. The onus is now on banks to attract this talent and invest in forward-thinking technologies and digital transformation. This can be a win-win for all parties.
Taking a step back from the main stage and talking to bankers on the ground offers an alternative perspective. Here’s what was said in the trenches:
Key tasks ahead of beach season
If your conference bingo card had a “core conversion,” you might be lucky. A common theme throughout the conversation is that many banks are upgrading, migrating or overhauling their core banking systems. This significant upgrade affects almost every part of the bank and places a high level of strain on the bank’s resources. A typical effort can take three to seven years to complete. This means that key transitions can disrupt other innovation opportunities during this period and lead to long-term disruptions in technology investments.
But despite key changes, banks that can continue to invest in innovation and technology will come out ahead. Many banks aim to strike a balance through continuous innovation through technology partnerships that can continue to evolve regardless of core platform development. Completing key transformations to scale loan and deposit growth will certainly give the bank the edge and ability to better serve its customers.
Get to know your customers
Fraud and customer verification remain pressing issues, which is the ongoing impact of fraudulent activity in the pandemic era. The increasing number and sophistication of malicious actors has placed a significant burden on banking risk and AML departments. Digital and synthetic fraud continues to evolve and its cost cannot be underestimated, impacting organizations beyond just lost assets.
Banks are clearly looking for help here, and the development of more sophisticated AI tools and machine learning models has led to a huge amount of innovation in this area. That said, the underlying theme of the conference was less about who can best address fraud and verification and more about what the right strategy is to integrate supplier relationships so that banks can have a cohesive customer identity verification program. Banks are struggling to manage multiple, disparate relationships, and thus (1) manage fewer technology integrations (see “Key Innovations” above), and (2) achieve economies of scale from a pricing and implementation perspective. To achieve this, we are aiming for fewer suppliers. (3) Increase speed to market and reduce vendor due diligence and onboarding, which can typically be a lengthy effort for very conservative institutions.
CRE exposure is a big deal.
For many banks, commercial real estate (CRE) loans make up a large portion of their overall loan portfolio. Demand for CRE loans, which have traditionally been the core business of metropolitan, regional and community banks, has been strong in recent years. However, the recent rapid increase in CRE exposure has presented additional challenges as banks face a new economic environment.
In most markets, banks utilize several key tools: From a macroeconomic perspective, commercial real estate markets are weakening due to remote work and other factors that are lowering demand and achievable rents. At the same time, borrowers of CRE loans with fixed and floating rate interest terms are feeling pressure as their portfolio loans shift to variable terms and seek higher interest rates. Taken together, this places significant strain on overall portfolio performance.
The general sentiment in banking circles is that they need to focus on portfolio diversification to rebalance their loan portfolios into consumer and C&I (corporate, middle market and small and medium-sized enterprise) credit products.
Until next time…
Over the next few quarters, it will be interesting to see how the bank continues to evolve and adapt to both external market conditions and internal technology requirements. CBA 2023 is scheduled for next year in Maryland. Hope to see you there!