Early Mover Regionals are Going to The Show

Baseballs.jpegEditor's Note: Virtually every child that has played baseball has had the dream of making it to The Show. For a few, that dream comes true. In today's blog we take a look at financial institutions and the steps that they can take if they want to work their way through the minors and make it to The Show.

Even if you are not a fan of baseball, at some point in your life you may have been coerced into going to a movie about baseball and found, perhaps to your surprise, that you liked it. There have been some movies hailed as classics by baseball aficionados that also were, well, just good flicks. That is not so surprising since the American interest in sports is based on far more than entertainment. In fact, if that were not so, how could anyone explain the ongoing existence of baseball in any form since it goes against some of the most sacred of our society's desires (e.g., instant gratification). 

My list of baseball movies that were solid movies is dated. It includes such movies as Field of Dreams, The Natural, and Bull Durham. In most of these movies, as well as in any minor league locker room, the major leagues are referred to as "The Show." When you are called up, you are "going to The Show." 

As you may know, if you are a baseball geek, a player typically enters professional baseball through the minor league farm club system of the major league team that drafted him. Most players start out on a single A club, then, if merited, move to AA and then to AAA. From there, the only place to go, if you are both lucky and very talented, is to The Show. The numbers of those who go to The Show compared to those who do not are fractional.

In banking, The Show could be defined by the TBTF (Too big to fail) institutions and a few others. Regional and mid-tier institutions would equate to AAA. In AA league, we would find larger community banks and in A would be all the remaining institutions down to the smallest. On the credit union side of the industry, a similar typography would apply though asset sizes would differ somewhat. 

In baseball, the difference between the majors and the minors is vast, as Kevin Costner's character in Bull Durham explains to his teammates. Many people in our industry feel the same kind of vastness exists between the largest institutions in banking and all other banks and credit unions. This point of view is not only parochial but it has a limited shelf life. There are changes being made in the industry by some financial institutions that will allow them to compete at the major league level. These banks and credit unions show major league prowess. Most of the organizations making these changes are AAA level but there will be others all along the spectrum of asset size that will step up to the plate and make some noise. 

Anyone who read the American Banker interview with Kevin Karrels, an SVP at First Tennessee Bank (FTB), should have noticed the first evidence of this trend. Instead of simply deferring to the major league institutions in his market, Karrels speaks directly to how FTB is positioning itself to challenge those TBTF players. Karrels states: "We don't have the budget to keep up with banks spending 10 or 100 times more than us per year on digital. But we still have to be competitive in digital." That may hardly sound like a throw down on the biggest of the bigs unless you know a good deal about how slowly regional institutions have been responding to the changes in the market and the threats those changes pose to their attempts to attract and retain customers. Peter Wannemacher does know a lot about regional banks and their digital progress or lack of thereof. Wannemacher was quoted in the same American Banker article as Karrels stating, "It's not uncommon for regional banks to have antiquated digital services, even in 2017. It's common for a customer of a regional to also have a relationship with a big bank or direct bank, and a big reason for that is because the digital services (at the regionals) are poor.

That is why Karrels and FTB stand out from most of their peers. They believe they are in competition with not only the other bank or credit union down the street but also with the TBTF bank with its latest mobile app just released in the app stores. According to Karrels, it is technology that is leveling the playing field. "We don't look at FinTech as a competitor; it's more about how do we partner with them," Karrels says. "The API-based processes these companies offer have made it much quicker to implement changes and add new functionalities to keep up with the latest digital innovations in a cost-effective manner." In other words, no more spending years in the minor leagues trying to learn how to hit or throw curve balls. Now, with technology, institutions like FTB can step up to the plate (or take the mound - you pick the analogy) and compete. 

To extend the baseball comparison further, FTB and others now do not have to have the millions (or even billions) of dollars of resources that the major league clubs have at their disposal. FTB doesn't need the battalion of coders the TBTF teams can dedicate to a new project or pilot. FTB and others instead can watch what works and what doesn't in the major leagues, then, using technology, and that innovation.  And the entire process can be repeated and scaled as needed.

FTB and all other institutions "playing in the minors" have another advantage that is undervalued too often by those of us who spend time thinking about the dynamics in the banking industry. Ironically perhaps, this advantage is based on a fact that marketers and researchers in many verticals fail to appreciate; i.e., humans are notoriously irrational when it comes to decision making. For that reason, the choices we make are seldom impacted solely by offers targeting our common sense. 

For "minor league" financial institutions, this fact is key to their ability to compete successfully in The Show as their customers and members are not customers and members based on an appeal to reason (e.g., no fee accounts, low-interest rates, etc.) alone but rather because they do not want to be customers or members at one of the "big league" FIs. They will remain loyal fans of these minor league organizations as long as they are not given a "reason" to leave: e.g., poor digital banking experiences. In addition, they will influence others predisposed as they are about monolithic institutions that do not know or care to know their names. 

It is technology, extensible, scalable, API-driven technology - that will keep FTB, and others who decide the time has come to develop a strategy for competing in "the bigs," in the ballgame, giving them the ability to deliver what their customers and members want and when they want it. They do not have to be first to market with these innovations but they do have to be fast followers. If that is achieved, the loyalty of their customers and members along with their attractiveness to others looking for something other than the anonymity of the TBTF, will drive their success.