Having a well-planned and practicable credit union or bank strategy in place can make all the difference when it comes to growing your financial brand. An essential part of setting up banking strategies for growth includes identifying both the potential challenges and opportunities that may arise.
Between changing customer expectations, energized competitors, and economic uncertainty, today’s banks and credit unions face a myriad of challenges in 2022 and over the next few years.
However, now is also a time of great opportunity for financial institutions. Despite the various obstacles, there are also many potential avenues for exponential growth. From optimizing your digital channels to fostering a strong brand culture to enhancing your in-branch customer experiences, there are many ways to set the stage for growth over the next few years.
challenges faced by banks & credit unions
Before diving into growth strategies, it’s important to take inventory of the current challenges facing banks and credit unions. While encountering hardships is not ideal, facing those challenges can help inspire the changes you need for a more prosperous long term. Current obstacles to financial institution (FI) growth include:
Major national banks and fintech competition
Financial technology (fintech) enterprises and major national banks offer stiff competition to smaller local and regional financial institutions. Fintech companies offer customers unbundled options for transferring money, splitting up payments, investing, and more. Although smaller banks and credit unions can offer a more personalized customer or member experience, larger financial institutions may be better equipped to offer more benefits, services, and branch locations.
The COVID-19 pandemic has driven the banking and credit union industries into the digital space, with many customers and members desiring and opting for services they can enjoy without entering the building.
A 2020 Chase Digital Banking Attitudes Study found that 80% of customers prefer to manage their finances digitally as opposed to in person and roughly the same amount use a smartphone and/or desktop or laptop to complete banking activities.
This shifting attitude among FI customers and members has contributed to the closure of many branches, with the Federal Reserve reporting that “Bank branches have closed at high rates during the COVID-19 crisis…with the total number of branches closed in 2020 [exceeding] both the number of branches closed during the most recent recession and the number of branches closed in any year between 2011–2019.”
Faster margin compression
Margin compression is “the result of negative changes in margin ratios resulting in decreased unit profitability per revenue.” This decreased profitability can occur as a result of various factors, including an increase in production costs, supply chain changes, production issues, labor problems, and regulatory changes.
Despite challenges with maintaining and growing profitability, banks and credit unions must determine how to focus on the depositor’s needs while managing interest rate risk.
According to a Forbes analysis of McKinsey’s 2021 Global Banking Annual Review, “Annual gains in productivity have been more modest since 2016, with the average ratio of cost to assets (C/A) as of 2018 reaching 144 bps in developed markets.”
The World Bank notes that COVID-19 is only the latest factor to contribute to declining productivity. Other contributing factors include economic disruptions, natural disasters, and wars. The industry has not fully recovered from the previous economic recession that began in 2008.
Another component of declining productivity is the difficulty in finding and retaining good employee talent. Recruiting for important FI positions has slowed, with many positions unable to be filled.
Selecting a growth strategy: key questions & considerations
Once you have identified the main obstacles your FI needs to address to boost growth, you can begin solidifying your strategy ideas. But before settling on a specific bank strategy or credit union strategy, there are a few questions to consider.
In their book Playing to Win: How Strategy Really Works, Roger Martin and A.G. Lafley (Procter & Gamble CEO) break down the key questions all businesses, regardless of industry, should take into account. These questions apply to banking strategies for growth and include:
- What is our winning aspiration? — Determine your long-term goals by identifying the purpose of your enterprise.
- Where will we play? — Consider expansion goals, such as into new markets, states, countries, etc., the expansion of distribution channels, and the expansion of product and service offerings, including omnichannel sales and fulfillment processes to determine how to cross-sell or offer different services to customers and members who primarily use online banking.
- How will we win? — Identify areas of competitive advantage
- What capabilities/management systems do we require? — Adopt key technologies and digital capabilities to compete with fintech and large established banks. Conduct sales training at all people channels including branches and call centers.
Once you have a handle on where your FI is looking to grow in terms of these questions, you’ll be ready to adopt your growth strategies.
10 growth strategies for banks and credit unions
In light of the overarching challenges currently facing the financial services industry, selecting an effective bank growth strategy is of the utmost importance. Here are our top recommendations for expanding your brand in 2022 and beyond.
1. Embrace digital transformation & fintech
There are a few key ways you can boost your digital presence and impact while increasing customer and member satisfaction, such as:
- Meeting customers and members where they are by allowing them to conduct their business from a distance
- Prioritizing up-to-date website and mobile experiences
- Ensuring your website includes an effective sales funnel
- Implementing products and services that encourage off-site transactions
- Finding opportunities to partner with fintech to give customers and members more innovative technologies and experiences
2. Collaborate & build relationships
To promote future growth, make sure you are prioritizing the most productive relationships. Focus on going after highly transactional primary financial institution accounts like checking accounts instead of CDs and money market accounts, which often include more inconsistent customers and members.
Stay engaged with customers and members, since engaged consumers show higher levels of:
- Non-interest income
- A higher likelihood of cross-selling
- A higher likelihood to increase loan relationships
3. Build trust with customers
Maintaining transparent, honest interactions and offering simple and secure processes can go far in building your credibility with your customer base. A few actions you can take to accomplish this goal include:
- Ensuring digital touchpoints provide positive experiences for customers and members
- Adding value to customers and members’ lives by simplifying processes and making it easier to conduct their financial business
- Reducing friction by incorporating transparent, straightforward communication processes and simplified workflows
4. Improve the customer experience
Keeping your customers and members happy should be a key element of any growth strategy. Not only should you plan to expand your client base, but you should also prioritize satisfying existing customers and members. Work to improve the customer experience by:
- Using customer and member surveys to gauge satisfaction and look for opportunities to better meet their needs
- Offering unique services
- Implementing innovative services that help make the customer and member experience better, e.g. virtual financial assistants, payment reminders, credit score monitoring, etc.
5. Increase productivity using modular utilities
When your financial institution lacks the bandwidth, expertise, or expense required to maintain certain services on your own, an effective solution is to outsource certain functions to other experts. Examples of commonly outsourced operations include IT, web development, online/mobile banking application development, and mortgage servicing.
As per McKinsey’s Global Banking Annual Review, “outsourcing non-differentiating activities (e.g., application development/maintenance, risk) to modular industry utilities” could help banks and credit unions “improve return on equity by 60 to 100 basis points.”
6. Upgrade in-branch messaging with digital signage
Branch optimization is another critical component of growing your financial institution by providing unbeatable customer experiences. One way to enhance in-branch messaging is via digital signage, i.e. displays that show up-to-the-minute wait times, who is next in line, documents needed when checking in, finance and banking tips, etc.
Digital signage helps improve the in-branch experience by keeping branding consistent across all channels and communicating with customers and members more effectively.
7. Utilize multiple distribution channels
Meeting your customers and members where they are includes offering a variety of distribution channels. A successful banking growth strategy includes:
- Connecting in-branch services to digital channels, including website, social media, mobile applications, customer-relationship (CRM) management tools, chatbots, etc.
- The adoption of a custom mobile application for your institution
Mobile banking applications, in particular, are integral to developing a competitive advantage in the FI space. McKinsey reports, “high mobile usage enabled top performers to grow total customer touch five times faster than slow adopters and to generate over a third of all their digital sales via the mobile app.”
8. Utilize data-driven marketing & analytic tools
To better understand the needs and wants of existing and future customers and tailor your services to them, your growth strategy should include tracking and analyzing data. One specific action your FI could take to accomplish this goal is by developing microsegments of customers and members to determine the best ways of communicating with them.
According to Oracle, “Both digital and traditional banks need to leverage data insights via agile technology stacks (including cloud databases, middleware, and software as a service) to reshape their business models and achieve hyper-personalization.”
9. Adopt digital & non-digital capabilities
While some customers and members prefer in-branch services and interactions, others would rather conduct their financial business digitally. Focus on optimizing both sides to give your FI a competitive edge. Optimize your digital and non-digital channels in the following ways:
- Emphasize the importance of both in-branch capabilities and digital capabilities
- Drive relationships with customers and members with innovative and engaging in-branch experiences
- Provide both types of experiences for the customer/member’s preferred financial institution experience
- Develop an omnichannel banking infrastructure that promotes interactions between multiple channels
10. Foster a strong employee culture
Your bank or credit union is only as good as its weakest link. Build a strong employee culture that empowers everyone no matter their position to play key roles in the growth of your FI. Establish a robust team culture by:
- Prioritizing remote worker considerations and implications
- Emphasizing a strong code of conduct that prioritizes transparency, honesty, and empathy for customers and members
- Incorporating streamlined systematic processes
- Continuously seeking feedback from your team in the form of surveys, suggestions, etc. to ensure that actionable changes can and do occur
bank strategy FAQs
What are the differences between omnichannel and multichannel banking when it comes to growth strategies?
While omnichannel banking allows customers and members access to the same range of tools available in multichannel banking, the former offers a more seamless and integrated process, resulting in a more efficient banking experience.
Does every bank or credit union need to have a strategic growth plan?
Yes, no matter your financial institution’s size, geographic location, or history, it is essential for all banks and credit unions to adopt a strategic growth plan if they want to continue offering products and services for years to come.
Can smaller financial institutions afford to implement significant growth strategies?
Yes, there are many steps smaller financial institutions can implement that do not require exorbitant amounts of money upfront, but can play a big role in long-term growth. For example, developing a strong employee culture and improving the recruiting and onboarding of new talent are two lower-cost examples.
Since the start of the pandemic, many FI customers and members have transitioned to conducting much of their banking via digital channels. Furthermore, fintech platforms are also drawing away traditional FI customers with unbundled, convenient digital solutions. If banks and credit unions want to remain competitive and meet customers and members where they are, they should prioritize using digital platforms, specifically mobile apps, to accelerate growth.
banking strategies for growth & branch optimization
With challenges such as economic uncertainty, disruptions from the pandemic, and competition from fintech and industry giants, smaller banks and credit unions need to adopt specific, action-oriented banking strategies for growth.
Having bold and innovative ideas is a start, but those ideas can only be effective if partnered with actionable strategies. From branch optimization measures like implementing digital signage and superb onsite interactions to using big data for customer insights and trends, we are here to help you find the retail banking strategies you need. To determine the best growth strategy for your financial institution in 2022 and beyond, contact The Element Group today.