Managing Growth in a Changing Economy


New circumstances require financial institutions to adopt new strategies.


The economic changes in the wake of the COVID-19 pandemic are only now becoming fully understood. The resulting risks for financial institutions are continuing to evolve. Consider these challenges:

  • LendingReal estate lending is moving from a refinance to a purchase focus, home equity lending has rapidly accelerated to fill growth gaps for many banks and credit unions, and new consumer lending models such as BNPL are having an impact
  • Deposits While short-term liquidity concerns have lessened, there’s a new challenge: How do we retain deposits as Baby-Boomer wealth transfers to the next generation?
  • MarginsWith rates rising rapidly, net interest margins will be influenced by the rate of loan growth and the ability to raise loan rates and manage deposit rates
  • Non-Interest IncomeRegulatory oversight and market changes in NSF/overdraft services and payments could severely impact business models grounded in fee income
  • Delivery SystemsLarge financial institutions are rapidly reducing branch networks and building digital consumer relationships
  • Household Growth and ProfitabilityThese metrics still remain below prepandemic levels. How do we attract younger consumers and meet their expectations to promote growth?
  • EmployeesDo we have the relevance to attract potential Millennial and Gen Z staff who can adapt to our changing industry?

In the face of these evolving risks, financial institutions must think strategically in order to grow and compete. And good knowledge management, with thorough data and analytics capabilities, will be needed to get desired results.



The five strategic imperatives

The following “must-do” list may seem like a “back-to-basics” approach, but if your organization follows and executes on them, they will move you forward.


1. Create a culture of innovation

Innovation isn’t just about technology. New market challenges and opportunities require new thinking, new products and new approaches. Everyone in the organization can contribute.

For example, how is your institution responding to the NSF trend? NSF/overdraft income per checking account continues to decline, and this trend is likely to persist due to consumer attitudes and the regulatory environment.

Encourage your team to think creatively about programs you might launch in response. For example, these options concentrate more on consumer needs than fee income: 

  • A less stringent overdraft fee policy – One financial institution offers a $10 buffer (fee free) as well as a six-day grace period for its accountholders to bring their accounts current
  • An NSF reduction program – Some financial institutions use preemptive technology tools and education for accountholders who heavily use overdraft protection
  • New account types – Preserve existing NSF income by leaving existing accounts untouched, while creating a new account that avoids overdraft charges 

There are opportunities to serve consumers in new ways during the NSF decline. You just have to innovate.


2. Manage to your business model

Know your core competencies – you can’t be all things to all people.

This is especially important in evaluating your branch network. Large financial institutions have been closing branches rapidly to reduce their overbuilt footprints, be more focused and enhance their financial results. Some have fully adopted a digital model.

What’s the future of the brick-and-mortar branch? Raddon research indicates that branches must increase assets/loans/deposits by 40% (or reduce the size of branches) to achieve ROI comparable to historical norms So, analyze your own branch network to eliminate redundancies and ascertain the amount of growth needed in your case. Data points to consider:

  • Makeup of your branch marketsBusinesses, households, total deposits, total loans, market size, market share, penetration, competitors
  • How your branch markets are changingGrowth rates (consumer and commercial), volumes and transactions
  • Performance factorsExpenses, number of employees



3. Disciplined management and metrics

You can’t manage what you don’t know.

One of the most powerful tools your team can wield is knowing how to use your current data more effectively. Consumer needs are very apparent in the data you already manage for your accountholders.

To build wallet share, for instance, start by looking at checking account and card activity, and noting who your accountholders are doing business with beyond your institution. These payments are often going to competitors. This analysis can inform you of a significant risk, but also of a significant opportunity.

For example, if you know which of your accountholders are making credit card or mortgage payments to other institutions, you can promote your own credit card programs and competitive loan rates to them. Mining the data you already have enables you to target accountholders very specifically. That can build wallet share for you.


4. Identify and manage emerging risks

Economic, demographic and competitive risks all need to be addressed, including the following, into the foreseeable future: 

  • Margins Even with rising interest rates, margins will face continued pressure due to loan demand, competition and consumer demands
  • Non-interest income As NSF declines, you have to develop new competencies for non-interest income; wealth management is the greatest untapped opportunity, with a lot of non-interest income potential
  • Operating expenseExpenses will continue to grow with investments in technology and branch optimization. Getting the best ROI will require learning to use tools like mobile banking to build relationships, not simply facilitate a transaction
  • Loan loss Deploying sophisticated pricing mechanisms will be required to manage risk and optimize margins as loan losses likely escalate


5. Market with strategic focus for brand development

Marketing and brand are your critical differentiators. Among financial institutions, marketing has often had a very tactical focus – PR and direct mail, and maybe some type of media advertising. But there’s so much marketing communication going out today that it’s easy for consumers to tune out.

Marketing needs to be much more strategic. It may be better to communicate with accountholders less frequently but use your knowledge about them to do so on a much more targeted basis. Every time you reach out, your message should be specifically relevant to them.


The importance of knowledge management

In all of these five imperatives, data analysis is essential to identifying risks and opportunities, and better understanding your current and potential customers and members, so you can be sure you’re targeting the right segments of the market. That means your organization should have “one source of truth.” You need a reliable, comprehensive data source that lends itself to good knowledge management – knowledge that is accurate, timely, efficient, insightful, transparent and distributed throughout the organization.