Fintech Century Advisors Weekly

Welcome to the second edition of the weekly Fintech Century Advisors newsletter.

Editors Comments

June 13, 2022

Last week was another very slow week with regard to banking news. Combined with the Memorial Day weekend, Washington D.C. must have taken the rest of the week off. Nothing of any real importance was published by any of the Federal Banking regulatory agencies during the entire week.

We can expect more of this relatively slow activity on the part of the D.C. based regulatory agencies as many of them probably don't admit that they have had air-conditioned office since at least the 1960's.

Tough to beat a culture that says you take June-September off every year.

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Items we are watching out for:

1. Federal Reserve is expected to raise the Fed Funds rate another 50bps this week with an outside chance that they could move rates 75bps. That announcement is scheduled for Wednesday of this week. Additional increases are expected at least into the Fall.
2. Final rule for initial implementation of the Dodd-Frank Act Section 1071. Comment period is closed and we are waiting on the final rule.
3. Final rule of changes to the Community Reinvestment Act. Comments are due on or before August 5, 2022.
4. Banking regulatory agencies have been very passive in their enforcement efforts since the onset of Covid-19. We expected to see increased efforts in this area but perhaps not starting until October as budgetary issues may be impeding current efforts. We are looking for an increase in the number of formal agreements issued by the FDIC, OCC and Federal Reserve.
5. We are expecting to see a significant decline in the level of deposits in the U.S. as inflation continues and depositors seek other alternatives other than savings accounts and Certificates of Deposits. The Federal Reserve will have a significant effect on this transition based upon how fast and by how much they increase rates.

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Fintech Strategic Planning

In many community banks, June is a time to begin the annual budgeting process for the upcoming calendar year. Well run banks attempt to have their budgets approved during the months of October and November.

We would suggest that now is the time for Executive Management and the Board of Directors of your bank to clearly communicate expectations for the next 18 months regarding Fintech investments and expected financial and performance outcomes.

As part of those expectations, we would suggest the following for consideration:

1. Management expects to see an improvement in employee productivity to counter the national trend of rapidly increasing wage and salary expense coupled with static or declining employee productivity. We would suggest targeting a minimum of 5% overall increase in employee productivity in 2023 as a good target for your bank.
2. Customer service is an important metric in attracting and retaining new customers. The new account opening process in most branches is notoriously in most banks. We would suggest that your bank target a 25% reduction in the amount of time necessary to add a new account.
3. While deposit levels are at near historically high levels today, it is likely that we will see a significant decline in those balances over the next 18 months as interest rates increase and customers begin to more aggressively evaluate their options with regard to deposits currently held in CDs. We would recommend that your bank develop and operate an integrated marketing, sales, and portfolio management strategy with regard to retaining and opening new deposit relationships with CD customers.

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Artificial Intelligence

A few weeks ago, the Consumer Financial Protection Bureau (CFPB) released a statement that they have concerns about the use of artificial intelligence (AI) in banking applications. We would advise that bankers introduce AI applications cautiously until the "smoke" clears with regard to CFPB concerns. They stated that they will need to see complete transparency and will be looking to incidences of discrimination, whether intentional or inadvertent, that might be imbedded in your technology decision making.

We would suggest that a good place to start this type of automation would be the use of robotic process automation (RPA) combined with some electronic workflow as a way to seek improved productivity while still retaining an ability to be largely transparent.

---------------------------------------------------------------------------------------------------------------If you have any questions as to where to start in your Fintech plan, give me a call at (314) 221-1640.