The potentially warring roles of high-tech efficiency versus personalized customer service dominate the thoughts of those who might one day take on leadership roles in the industry.
But today’s bank leaders are much more concerned about problems in the current economic climate, such as interest-rate margin compression and subprime mortgage lending, than are their next-generation counterparts, many of whom identify customer service and staying ahead of the competition as the most important issues facing banks today.
Banker & Tradesman recently asked current and future leaders at five Massachusetts banks of varying sizes, types and locations what strategies will be necessary to succeed in the immediate future and in the years ahead. The banks were among about 50 from New England who sent up-and-coming staff members to the two-week intensive New England School for Financial Studies in the 2006-07 academic year.
“The school is an ideal way for senior management at banks to bring along their managers that have high potential, but not the classical educational background needed to move into the upper tiers of the bank,” explained Bruce Spitzer, spokesman for the Massachusetts Bankers Association, which co-sponsors the school with the Maine Association of Community Banks and the Maine, New Hampshire, Rhode Island and Vermont bankers associations.
“It’s a terrific vote of confidence when management sends someone to the school,” Spitzer added.
“Graduates are better prepared to understand the challenges bank CEOs and senior management face daily,” according to the school’s brochure.
The CEOs of banks who send students to the program, held on the campus of Babson College in Wellesley, have identified them as future leadership material. Students attend 135 hours of classes in economics, finance, lending, human resources and management issues, retail banking and operations, and complete projects together in small groups. They also work individually on papers and case studies throughout the year.
Banker & Tradesman talked with five bank executives and the students they selected for the program. Their thoughts about banking today and in the future, and what role technology will play, are presented below:
DANVERSBANK
Name & Title: Kevin Bottomley, chairman, president and CEO
Years in banking: 31
Age: 55
Bank asset size: $1.2B
Type of bank: Mutual; converting to stock in 4th quarter 2007
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
Today, it is trying to determine what the fallout might be in our local financial world from the problems of the subprime mortgage market. Most of us think we will remain reasonably unscathed because we haven’t written those mortgages directly. But there does appear to be less current demand for housing, and that could affect the people who provide services to the big developers. We’re concerned about a ripple effect. Ten years from now, who are going to be the senior CEOs and executives of the institutions? The way I phrase it is, ‘Where are the 35-year-old bankers with experience?’ The big training programs are gone. All the banks our size and above are thinking of creating our own training programs. All the senior people in business banking, construction lending, and commercial real estate are age 54-57. I’ve said to all [my colleagues], ‘You have to look for who your successor will be.’ That and the question of will our [interest-rate] margins ever come back to where they were before.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
Certainly the technology that is actually out there right now, like remote deposit capture, is having an incredible impact. The impact will certainly grow, because it allows us to serve customers who are not within a mile or two of a branch. Now, we could just as easily serve someone within another state. We have a customer in Omaha, Neb. While we may not get to a paperless, checkless industry, the imaging side of the business is growing in leaps and bounds. There are banks already experimenting with consumers paying bills using keys on the cell phone. We don’t return checks – we haven’t for years – I think that’s simply going to increase exponentially. That and the use of the debit card. I’d be willing to bet my son writes a check to his landlord and that may be the only check he writes per month. I think imaging technology and electronic banking, cell phones, debit cards and online banking are the growing areas.
What do banks need to do to remain successful in the next 10 years?
You need to find core businesses that you can compete in, and focus on those. Banks my size believe that we can lend money commercially, as well as a bank that has $100 billion or $500 billion in assets. That’s where our primary focus would be. The other thing we have to do is seek enough balance to get sources of non-interest income. If you are too dependent on [interest income], there will be periods where your profits are really under pressure. Banks my size, a lot of us are a 90/10 interest-to-non-interest split on income (interest income is interest received on loan rates minus that paid on deposits; non-interest income includes fees, service charges, etc.). Banks should be trying to make the split 70/30 or 60/40. Buying property and casualty insurance is another way banks are trying to increase non-interest income. We haven’t done that.
Name & Title: Nancy Harrison, corporate training and education manager
Years in banking: 25
Age: 45
Bank asset size: $1.2B
Type of bank: Mutual; converting to stock in 4th quarter 2007
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
The most important issue today would be the changing patterns in consumer behavior. Customers aren’t coming into branches so banks are being forced to think outside the box for ways to reach them. Which, from a training perspective, means I need to change from all the traditional programs such as ‘warmly greet the customer when they come in.’ I can’t really put emphasis on that anymore so much as the value of networking, cold-calling and business development as ways to get new customers. Ten years from now, if this trend continues, I truly think that even the role of a teller is going to change. One of the books we needed to read [at the New England School for Financial Studies ] was ‘The World Is Flat.’ It talked about the tearing down of the Berlin Wall and events of Sept. 11, [2001], that there are no more barriers between the Western and Eastern hemispheres, that in the blink of an eye you can have an MRI done in a Boston hospital, and someone can read it overseas. It was the idea of technology changing all companies. What it said is: Technology will play an increasing role and almost the only role, to the point of having virtual tellers and self-service machines. My concern is that service levels will drop.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
Too much technology truly is a concern. Several years ago European banks went to all technology, phone trees, etc., in which you had to go down 16 levels before you could finally get to a human being. They are now switching back to a more ‘concierge’ approach to banking. People suddenly realized, oh my gosh, I realized I haven’t talked to a human being in the 25 years since I had my account open. As people age, they will come to a point in time where they will say, ‘I need to talk to a human being because there is something I don’t understand.’ I think the focus should be on both demographics – you always have to be mindful of both older and younger. My mother, at age 78, uses [online] bill-pay.
What do banks need to do to remain successful in the next 10 years?
A lot of banks will say they are very customer-focused – but are they really?
They could be developing technology at the expense of leaving out the human portion. [Banks should] really take a look at what they’re calling good customer service and compare it to where they have the best customer service: Disney World. Their customer service levels are from the janitors sweeping up the park, to people that do the rides. It’s all about face-to-face interaction. Every person is a valued guest. It is consistently good and they are profitable. They truly, from start to finish, make you feel valued, whether you are staying at the luxury hotel or the economy suite.
BENJAMIN FRANKLIN BANK
Name & Title: Thomas R. Venables, president and CEO
Years in banking: 33
Age: 52
Bank asset size: $900M
Type of bank: Converted to stock-owned in April 2005
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
The most important issue from the perspective of a community bank is the net-interest margin compression. Essentially, as the credit markets become more efficient and there are more options for customers, we need to price our products more competitively. The same thing is happening on the deposit side – we need to price our deposits more competitively. Making it more complex is over the past 18 months or so we’ve had an inverted yield curve. For the most part, the inverted yield curve is behind us. That is today’s biggest challenge: figuring out how to operate a successful bank in an environment where our main sources of revenue and expense – the interest we receive and interest we charge on both sides of the balance sheet – are being squeezed. On the horizon: I don’t think that the margin pressure will ever go away. I think that the world economy is just going to become that much more efficient. We are competing with the international pricing mechanism. We have to make sure that we get paid sufficiently for the credit risk we take. Pricing risk appropriately will be the challenge – developing the models and learning how to live with that risk.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
I have some definite views. I started an Internet-only bank in Waltham. We could not raise secondary capital and ended up merging it into the parent bank [in the early part of the decade]. That is when the dot-com bust happened; there was no market for new things. Now you have ING Direct [a national Internet-only bank]. We were just a little early. As I look at tech changes for today, customers will want all of the convenient access that technology can provide. It’s going to be cell phone banking; instant access in a safe way is what the generation is demanding. It’s exciting. We’re starting to look at cell phone banking pretty carefully and actually started it with our commercial customers. One of the most exciting products is remote deposit capture, used by businesses that don’t physically come to the bank but scan their checks and shoot them over the airwaves. We added that in 2006 and we’re continuing to add customers to it.
What do banks need to do to remain successful in the next 10 years?
The key thing is going to be to increase the efficiency of our operations. When you look at the community bank model today, you have a very interesting development. On the one hand, customers of community banks really want you to be there, they want to bank with real people. [So] on the one hand, we need to support a fairly expensive delivery system – the branch network. On the other, we have to have technology for them to use if they wake up in the middle of the night and want to pay bills. When you think about that, it’s an expensive delivery system; we have to maintain the technology and the physical presence. The only way we can really survive with that is to become extremely efficient at delivering services. That’s the big challenge.
Name & Title: Cheryl O’Donnell, assistant branch manager in Medfield
Years in banking: 15
Age: 51
Bank asset size: $900M
Type of bank: Converted to stock-owned in April 2005
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
From where I sit, the most important issue is competition. Not only in your own backyard, but global marketing, the Internet, credit unions. I think that is going to continue to be an issue for the next 10 years. Another important issue is fraud. It has always been an issue in banking, but not at the magnitude it is now. It may even result in departments, or segments of departments, [being] created. Even on the teller line today, they have to be really careful, primarily for check-cashing fraud. But fraud is huge – it goes beyond checks. There’s also all these phishing scams, the TJX incident. It’s expensive if you sustain a loss.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
A lot of the fraud is because of technology. Let’s face it, the Internet has changed the face of banking. I’ve heard statistics, and I think it’s about 50-50 in banks in general, comparing the amount of foot traffic and people that we never see, who are customers. Internet banking has made that possible. I think that banks have to be investing in every type of technology that’s available. Especially to serve Generation Y – ages 29 and under. They are used to all the little gadgets, the latest and greatest, that make their lives easier. I guess we would have to decide who our customers are, and what fits their needs. Gen. Y never uses cash, always a debit card. Many of the Greater Generation (Baby Boomers) are using them too.
What do banks need to do to remain successful in the next 10 years?
I would say [banks must] expand their service to continue to respond to the needs of their customer base. Maybe they know their customer base, maybe they do or maybe they don’t want more gadgets. Customer service [is key]. Let’s face it, the people who do come into a bank today, they want a bank that is friendly and warm. You need to respond to that. But those who don’t come in can go online. If you don’t have all the latest technology, they might take their business elsewhere.
EAST CAMBRIDGE SAVINGS BANK
Name & Title: Arthur Spears, president and CEO
Years in banking: 15 (19 prior as a certified public accountant)
Age: 58
Bank asset size: $780M
Type of bank: State-chartered mutual savings bank
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
The way I see it, it’s for community banks to continue growth [in a period of] declining profitability. First of all, there’s competition from nontraditional, non-local financial service providers. Not to pick on any particular provider but [Internet-only bank] ING doesn’t have a physical presence. They can gather deposits through their newspaper ads; they take them and use them for loans elsewhere in the company. This is like some of the national mortgage companies. It used to be that banks issued the majority of mortgages and now, 10-15 years later, mortgage companies do. The other thing is we’re operating with the yield curve. What we’re paying for new deposits is pretty close to the interest rate we’re getting on loans Â… We are not making profits. The important thing about making profits, as a community bank, is that we need them to grow so we can offer new products, technology and services. If we stopped growing or even gathering deposits, our profit ratios would improve, but we would still have more appetite to spend money on technology and that would really hurt when you are not growing. Growing today – adding new brick-and-mortar branches and deposits – is not all that profitable. What we pay to take in deposits versus what we receive from loans is a very thin margin. The out-of-state competitors without the physical presence, they are also not very good corporate citizens in the cities and towns. The community savings banks, we are typically very good corporate citizens.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
The new technology going forward would be, I would say, the implementation of the mobile banking, as far as a lot of transactions going away from paper checks to debit cards. I see that continuing to go to cell phones or PDAs – BlackBerry, Palm Pilot – where you’ll be able to access your bank account and pay bills. In South Korea, you can punch in a couple of numbers in your cell phone and get a Coke out of a vending machine. We have to broaden the delivery channels, make improvements to online banking and online bill-pay. Most of the folks we have [as customers] still receive paper bills at home and still pay them online.
What do banks need to do to remain successful in the next 10 years?
In the next 10 years, it will be critical for community banks to survive independently. We will have two constituencies to serve. The first wave of baby boomers will be retiring within 10 years – me included. These folks, for the most part, still like to come into the branches and want to speak with the customer service reps. They want to get a cup of coffee and a cookie. In our new Arlington branch you can do that on Wednesdays. We have to maintain relationships with those baby boomers who have retired, and also come up with more retirement-minded products such as investments and mutual funds. We’ve partnered with a firm called Infinex for three years. If someone comes in [with an investments question], we refer them to an Infinex person in our branch. On the other end are the Gen. X and Gen. Ys, who typically prefer banking online. For that group, they do mobile banking, they use direct deposit, they go to ATMs and they do online banking. At ECSB, probably two-thirds of our customers are baby boomers or older, and one-third the Gen. X and Gen. Y.
Name & Title: Natercia Calisto, Arlington branch manager and assistant vice president
Years in banking: 26
Age: 44
Bank asset size: $780M
Type of bank: State-chartered mutual savings bank
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
I think the most important issue today, and also 10 years from now, is retaining existing customers and attempting to attract new customers. It’s very important to provide customers with a great banking relationship. To me, good service means getting to know your customer, by name. That is what I provide my customers – getting to know them. That means a lot to customers. I think 10 years from now, marketing strategy will change. I think we still need to keep that high profile when it comes to customer service. We need to become highly involved in our banking communities from both the business and neighborly ends. I’ve noticed customer service – such as at CVS – I’ve noticed it changing for the better. I’ve gone in there for years and years, and it used to be you couldn’t find anyone to help you. Now, people are approaching you. These are things that work with customers. I love helping customers; they are No. 1 on my list. The way it is now, it needs to be 10 years from now. Without customers we don’t have jobs.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
It is estimated that now 50 percent of all banking transactions are done online, on the phone or at the ATM. I anticipate this will increase in the future. Banks should work on making these services user-friendly and safer. I think that years from now, there will be so many things happening that we wouldn’t guess today. Service needs to be faster and waiting times need to be reduced. [People can be shown that] they can pay their bills online. I can remember a time, about a dozen years ago, when every month on the first or the fifth of the month people were waiting in line to deposit their paychecks. Now, it’s all direct deposit.
What do banks need to do to remain successful in the next 10 years?
Again, I believe that to remain successful, the most important thing banks can do is to provide exceptional customer service. Their needs should be recognized as a main priority in considering products, location and hours. You have to serve all generations’ needs. I think banks now have so much to offer customers, it’s amazing. There’s online banking, [online] bill payment, debit and ATM cards. Some customers take advantage of it; sometimes they are afraid, but they will do it. Myself, I still write checks. I still like the idea of writing checks. You have a balance of both kinds of people.
CAPE COD COOPERATIVE BANK
Name & Title: Joel Crowell, president and CEO
Years in banking: 38
Age: 57
Bank asset size: $515M
Type of bank: State-chartered mutual
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
I think you have to be relevant. It’s the key with the changes that have gone on in the industry. It can involve so many issues, such as asset issues, a horde of liability issues, community issues, electronic issues. You have to make money. You have to keep in step with what people want. All products can be priced the same, but what distinguishes you is the value you add. On Cape Cod it’s a slightly different geographic target because we are a peninsula. The trend is more and more people want to deal electronically. You need to offer them service that they can’t get anywhere else. When someone has a problem, how do you solve it? Well, and quickly. The competition will send you through an 800-number and variety of Web sites that make you frustrated. If you’re quicker to the punch, and show a little compassion and care, you are going to increase your percentage of a customer’s wallet.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
It’s clear that the demand right now is for 24/7 service. No ifs, ands or buts. Peoples’ lives are complicated. We have a number of people who do their banking at midnight. We need to be prepared to serve that, to have systems in place so that if they need service the following day, they get it. As far as what technology to invest in, it’s a moving target. Five to seven years ago, we were thinking ‘can we afford to offer Internet banking?’ Now it’s a standard-bearer. And we were saying, what are we going to charge for that service? Now, if you don’t give it away, there is too much competition. The technology ahead, although it has huge security concerns, is when will everybody’s banking be done on a PDA? That adds wireless security concerns. To find out what’s the technology of the future, go somewhere and watch people. I will sit and watch kids 5, 6, 7 years old with cell phones. I am sitting there thinking what does that mean, what are the risks and rewards?
What do banks need to do to remain successful in the next 10 years?
Everybody has a different strategy. I am not sure that one size fits all. You have to have core values and within, beyond core values, you have to create value. That value could be price or it could be service. You have to stay true to what you say you will do, and build the structure that supports that. The strategy for me is not the same strategy for a $150 million bank in the Berkshires. But the last thing that a guy at Bank of America cares about is, what is my definition of success. How are we going to reach a customer we have never reached? It is a fascinating discussion. When I came to work here, I was a tender 19 years old. I looked at the lobby and I thought all the people were so old and I thought how am I going to work with all these old people? Generally if you can get people through the door, your service will keep them coming. It’s getting them through the door the first time.
Name & Title: Jason Bordun, senior assistant vice president/information systems manager
Years in banking: 4
Age: 36
Bank asset size: $515M
Type of bank: State-chartered mutual
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
I think the important issue is making sure that we offer the right products and services for our customers. That’s in light of all the advances in technology; demographics, which are a major issue; and regulations. What’s happening right now in the mortgage industry – because we offer the right products and services for our customers, we haven’t run into the same problems. A service we offer: we call customers. One of our service representatives calls customers each morning if they have insufficient funds to tell them [an account is overdrawn], based on a daily list drawn up in the morning. Technology and regulations are key today, but 10 years from now demographics will be key. My generation doesn’t bank, as far as keeping savings, as much as the baby boomers. They don’t have savings accounts. I don’t think they’re as interested in the physical interaction, it’s more about 24-hour access to the cash. My job is to figure out how we can offer the same as the big banks.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
The first thing you’d say is the Internet, but that’s been around for awhile. What I’d say today is that there are so many access points that we have, and we have to try to figure out which will be the most popular for the customer. There’s the Internet, cell phone banking, self-serve kiosks – the real key is which one to invest in. You’re starting to see self-serve kiosks. One bank has kiosks where you can do a lot more at than at a traditional ATM. If you need assistance you can actually get it remotely. We don’t have that. It’s the customer who is going to drive it. If one becomes prevalent you have to be able to get on top of it. Other than the Internet, I don’t see any one of them that is going to be prevalent. It’s going to be away from the traditional brick-and-mortar [branches].
What do banks need to do to remain successful in the next 10 years?
I think we have to continue to focus on the customer. A lot of times, from what I see, we are being told what the customer wants, what they are going to want. But the customer is going to dictate to us. I think we are in a reactionary position. You have to know who your customer is and focus on them. A prime example, something that is very hot, is [remote deposit capture]. Vendors are saying, ‘you have to get on, you have to get on.’ We do offer it through a partnership with a company that does credit card transactions for individual businesses. It was something we were told that people would want, but until it comes down in price Â… It’s ideal in some other areas of the country from what I’m gathering, where a branch is an hour to an hour and a half away. That’s not as much of an issue with our customers. We have more branches. Being an IT guy, I always hear this is going to be hot, but you need to know your customers.
MECHANICS COOPERATIVE BANK
Name & Title: Joseph Baptista Jr., president and CEO
Years in banking: 11 as banker; 6 as FDIC regulator
Age: 37
Bank asset size: $170M (pending merger with Bridgewater Co-operative Bank would increase assets to $185 million)
Type of bank: State-chartered mutual cooperative
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
The housing issues that we face now are among the most important. The threat of a recession, the problems in the subprime market and the effects that could potentially have for the industry is our biggest concern at the bank today. We have a construction portfolio; any time you add inventory to the market in terms of real estate, houses stay on the market longer. The prospect of properties going to market at less than their fair value, at foreclosure, could put a strain on pricing. For anyone trying to sell their house, looking to move, or a builder looking to sell, if a property sells at less than fair value, it pushes loan amounts down. It might make the difference between showing a profit and taking a loss. I’m not saying it’s going to get worse before it gets better, but if it does get worse, fortunately for us we have extremely low [loan repayment] delinquency ratios. Ten years in the future, I think [the winners will be] those who do the best job at embracing technology while at the same time being able to offer a high level of personal service.
Which of today’s technology changes or advances will have the biggest effect on banking practices going forward? In what type of technology should banks be investing?
It’s a balance. In order to compete with the large institutions, the super-regionals, you have to be able to deliver products and services, but what can set you apart is the ability to be able to meet with the customer one-on-one. As to what technology banks should in invest in today – remote deposit capture. It takes away from the physical boundaries. I think for us, as a smaller bank with four branches, technology is a way for us to expand our footprint. We’ve offered Internet banking and bill payment since 1999; we were one of the first banks that was offering that service to their customers. So if I look at what the next big step is for us, for almost a year now we’ve transmitted our cash letter to the Fed electronically. The previous way, all the checks we would get during the course of the day would be bundled and either physically delivered to the Federal Reserve or your processor, and now we scan them and deliver them electronically.
What do banks need to do to remain successful in the next 10 years?
I think for us to remain competitive, we need to be accessible as a community bank, meaning to be accessible for our customers. We need to offer competitive products and services and to be a face they can see behind the name, giving them the ability they need to talk to somebody, to call and talk to somebody Â… really valuing our customers because without them, we wouldn’t be here.
Name & Title: Melissa S. DaCosta, commercial loan officer
Years in banking: 7
Age: 29
Bank asset size: $170M (pending merger with Bridgewater Co-operative Bank would increase assets to $185 million)
Type of bank: State-chartered mutual cooperative
What is the most important issue in banking today, what will be the most important issue 10 years from now, and why?
I would say the most important issue is privacy. The protection of customer information, with the rise in identity theft, and potential for compromise. As folks are using th
