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Each November, CSI surveys banking executives from across
the country to gain insight on what they expect will be their
greatest challenges, top opportunities and foremost concerns
for the year ahead, as well as how their strategies will propel
them forward.
Our goal in conducting this annual Banking Priorities
Study is to deliver peer-to-peer insight that can help
financial institutions plan and strengthen their own
tactics for success, or simply verify where they stand in
relation to the rest of the financial industry.
This executive report analyzes the survey feedback on 10
questions answered by 163 banking executives, representing
institutions of various asset sizes and geographic locations.
Detailed demographic information concludes this report.
BP17
BP17: Executive Summary
3
According to survey responses, financial institutions seem relatively optimistic that the U.S. economy will remain strong in 2017—although they acknowledge they’ve got their work cut out for them. The Federal Reserve appears to concur, as evidenced by its Dec. 14 decision to raise interest rates by a modest quarter point, its second hike in a decade. It’s likely that the majority of survey respondents—as well as most in the financial industry—considered the rate hike a certainty well before the Fed’s December meeting.
The Fed also released economic projections on Dec. 14, indicating it expects the economy to grow 2.1% in 2017, and that it plans to increase rates three times this year in an effort to keep the overall inflation rate in check.
Even with the expected rate hike, almost half of survey respondents still think mortgage lending will remain healthy, but they also see fee-based income as a major growth opportunity for 2017. And they’re prepared to pursue—and increase spending on—customer experience initiatives like branch optimization and omnichannel strategies.
So, did the presidential election influence survey responses? Perhaps, but it should be noted that most respondents completed the survey prior to the election. Still, it goes without saying that bankers will keep an active pulse on the regulatory road map, since President Trump promised1 during his campaign platform to eliminate two regulations for every new regulation that takes effect, which would be an enormous task to accomplish.
BP17: Executive Summary
BP17
Financial institutions seem optimistic about the year ahead, with a positive outlook on lending and customer experience initiatives.
4
As expected, driving growth and profitability was named the greatest challenge for 2017, so said 72.2% of respondents.
The second highest answer in the challenges category was mitigating fraud/cybersecurity, at 46.2%, followed closely by
managing compliance (43%). Pursuing an omnichannel experience was named by 23.4% of respondents as their
biggest challenge in 2017; this initiative figured prominently in responses throughout the report.
Bankers listed their top opportunities heading into 2017 as follows:
growing fee-based income and revenue, 55.1%; reaching new customers
through omnichannel initiatives, 46.8% (up from 11.1% last year); and
getting more involved on social media, 37.3%.
Regarding how institutions expect such non-traditional services as
mobile wallets to affect their 2017 profitability, respondents again
foresee a positive impact, at 56.3%. This percentage has risen steadily
over the last three years.
In a new question this year concerning expectations on top lending
growth areas, commercial loans (55.3%) and small business loans
(53.2%) have the healthiest outlook, according to respondents.
Mortgages were a close third at 46.8%.
Respondents were asked to name the areas in which they expect to
increase spending in 2017, and three answers were neck-and-neck:
cybersecurity came out on top at 56.7%, with information technology
(56%) and customer experience initiatives (55.3%) closely behind.
BP17: Executive Summary
BP17
Nearly three-fourths of banking executives see growth and profitability as their greatest challenge in 2017.
5
Customer profitability was the top answer regarding strategic focus
areas for 2017, at 50.4%. Not far behind was branch transformation
(43.3%), which, like omnichannel banking, was selected in a few
survey answers as a strategic push this year. Relatedly, big
data/business intelligence placed third at 32.6%, up from just 12.2%
last year.
Regarding top security concerns for 2017, data breaches still ranked
No.1, but surprisingly, the percentage dropped from 79.2% last year to
56% this year. We again offer our perspective in the detailed review.
Also, a new answer option—ransomware—came in second at 49.6%,
followed by social engineering schemes at 43.2%.
We asked about omnichannel strategies in this year’s second new
question, and implementing a customer relationship management
(CRM) solution ranked first. Mobile banking adoption (46.8%) and
online account opening/funding (46.1%) also will be important to
institutions as they fight to retain—and attract—customers via
omnichannel banking initiatives.
As for 2017’s greatest compliance challenges, the Bank Secrecy Act
(BSA) and Know Your Customer (KYC) came in at a combined 66.4% on
the survey—a 26.8% increase over last year. Consumer protections, at
32.8%, also remained one of bankers’ top concerns, followed closely by
vendor management, enterprise risk management (ERM) and
mortgage compliance.
In our question on the topic of institutions’ greatest anticipated strategy to enhance the
customer experience, digital banking enhancements was hands-down the top
response, at 41%. CRM utilization ranked second at 12%, and omnichannel initiatives
came in third at 10%.
BP17: Executive Summary
BP17
Focus areas include omnichannel strategies, mobile banking adoption and online account opening.
6
The following pages provide detailed summaries and analyses of the responses to each survey question.
BP17
7
Driving growth and profitability was named—by a landslide—as
respondents’ predominant challenge for 2017, at 72.2%. While that’s
an enormous number, it’s not necessarily surprising; growth is always a
major challenge for any institution, no matter how healthy the economy.
Fortunately, according to reliable indicators, the country’s financial health
continues to improve across the board. The FDIC’s Quarterly Banking
Profile for Third Quarter 20162 provides the hard facts for the nation’s
5,980 insured institutions:
• The banking industry reported net income of $45.6 billion
for the third quarter, a strong increase of $5.2 billion, or
12.9%, over this time last year.
• Net operating revenue reached $183.3 billion, up 6.5%. The
FDIC attributes this increase to growth in interest-bearing
assets and improvement in the industry’s aggregate net
interest margin.
• Third-quarter deposit growth was strong, rising by
$270.7 billion (2.2%).
BP17: Greatest Challenges
BP17
(Check all that apply.)
8
And, as we’ve witnessed over the past several years, community financial
institutions performed better, overall, compared to their larger counterparts,3 with
revenue and loan growth that outpaced the industry. These institutions’:
• Net operating revenue increased 8.5% this year to $23 billion. Improvement in net
interest income (up 7.2%) and noninterest income (up $613.5 million, or 13.1%)
were largely attributed to strong loan growth.
• Small loans to businesses grew almost 3% from this time last year, with community
institutions holding 43% of such loans overall.
As for respondents’ other foreseen challenges, it makes sense that mitigating
fraud/cybersecurity was recorded as their second-greatest concern (46.2%). Again, this
statistic stands to reason, since one basic purpose of banks is protecting customers’
money. And although the types of cybersecurity threats ebb and flow (see page 21), their
existence is ever-present, as is regulatory scrutiny.
Managing compliance has become quite more complex in the past few years, so it’s
understandable that 43% of respondents call this a major challenge for 2017 (see
page 18 for a full analysis on compliance challenges).
Rounding out the top challenges was pursuing omnichannel initiatives (23.4%).
BP17: Greatest Challenges
BP17
What are your greatest challenges heading into 2017? (Check all that apply.)
9
Survey respondents’ top answer regarding opportunities this year was
growing fee-based income and revenue, which helps ensure liquidity
and offsets increased default rates.
Since interest rates remain low, institutions will continue to seek ways of
boosting profits through fee-based income, major types of which include
credit and debit card fees as well as charges for deposits, transactions,
insufficient funds, wire transfers, monthly services and overdrafts.
At 46.8%, attracting customers through omnichannel initiatives took
second place for 2017 opportunities.
It makes perfect sense that institutions are getting serious about
implementing an omnichannel platform, because consumer banking
expectations have forever changed, thanks to a digital evolution provoked by
the smartphone. We explore omnichannel strategies in-depth on page 16.
BP17: Greatest Opportunities
BP17
(Check all that apply.)
10BP17: Greatest Opportunities
BP17
In one of the more surprising, but welcome, findings
from this year’s survey, banks stated that increasing their
social media involvement would be their third-highest
opportunity in 2017.
Banks are realizing they can promote their brand,
products and services to an ever-growing audience,
while strengthening relationships with current
customers.
They would be wise, however, to review the FFIEC’s Social
Media: Consumer Compliance Risk Management
Guidance4 before launching major campaigns.
What are your greatest opportunities heading into 2017? (Check all that apply.)
37.3% plan on getting more
involved on social media in 2017.
11
The percentage of respondents expecting non-traditional services to help their profitability in
2017 made a pretty healthy jump this year, climbing to 56.3% from last year’s 40.8%. On the flip
side, those expecting a negative impact dropped to 20.3% this year, from 28.6% a year ago.
This indicates institutions’ continuing realization that these services, particularly mobile wallets, nicely
complement their own offerings. For a small, one-time enrollment fee to such mobile wallets as Apple
Pay, Android Pay and Samsung Pay, banks preserve the sizable interchange income they receive for
each consumer transaction. With digital payment transactions expected to reach $314 billion in 2020,5
banks are understandably embracing these mobile proximity payments.
According to Aite,6 when such mobile wallets as Apple Pay use the existing credit card rails (Visa,
MasterCard, American Express and Discover) it, “simplifies implementation for merchants, issuers,
and everyone involved in the payment stream, and it’s in every participant’s best interest for (these)
payments to succeed.”
But we’ll see changes in non-traditional services beyond mobile proximity this year. Because of
the increased security that tokenization provides, the financial industry will see a shift in how
consumers check out online. By using a token, e-retailers can offer the same level of protection that
EMV cards bring to in-store transactions, with the encrypted token preventing hackers from accessing
consumers’ financial data.
Banks also will benefit from the expanded use of tokenization. Institutions are increasingly using
cloud-based data centers to store confidential customer data, and tokens can replace such unique
identifiers as account numbers and contact information, keeping them safe from cyber criminals.
NEGATIVEIMPACT
NOIMPACT
POSITIVEIMPACT
20.3%
23.4%
56.3%
2016 – 28.6%
2016 – 40.8%
BP17: Non-traditional Services
BP17
2016 – 30.6%
12
Commercial
Loans
55.3%
Small
Business
Loans
53.2%
Mortgages
46.8%
Consumer
Credit
34.8%
Agriculture
Loans
31.2%
Automotive
Loans
9.9%
Other
1%
It was good to see that most respondents plan for a healthy, balanced
loan program this year, which helps avoid risks from being too heavily
concentrated in one area. Commercial loans, at 55.3%, took the top
spot, followed by small business loans (53.2%). We can once again look
to the FDIC’s quarterly report to help analyze the survey responses.
According to the report, loan growth for all institutions remained steady,
with total assets rising by $232.6 billion, or 1.4%, during the third quarter.
Also, total loan and lease balances increased by $112 billion. Growth in
loans was led by gains in residential mortgage loans, followed by loans
secured by non-farm non-residential properties, and credit card balances.
But again, community banks outpaced the industry. Small loans to
businesses rose almost 3% over last year, led by non-farm, non-
residential loans (up $3.4 billion) and commercial and industrial loans (up
$3.2 billion). So, survey respondents appear to be right on the mark when
it comes to their 2017 plans for lending growth.
The mortgage lending outlook is still healthy at 46.8%, but automotive
loans accounted for only 9.9% of responses.
Home EquityLOCs24.1%
BP17: Lending Growth
BP17
(Check all that apply.)
13
Cybersecurity, at 56.7%, took the top spot for institutions’ planned
spending increases in 2017. This is no surprise—cyberattacks, data
breaches, cybersecurity assessments, and all things related are part of
bankers’ daily vocabulary—and cybercrime numbers increase with each
passing year. According to the Internet Crime Complaint Center’s (IC3)
2015 Internet Crime Report,7 that organization received 288,012
complaints in 2015 (269,422 in 2014) and logged reported losses of
$1,070,711,522.
Further, out-of-nowhere attacks like October’s massive distributed denial-
of-service (DDoS) hits on Twitter, Spotify and others make it clear that
every industry must be prepared for any and all attack vectors.
Coming in second for forecasted expenditures was information
technology (56%), which just barely beat out customer experience
initiatives (55.3%). Various survey responses indicate that banks plan to
deliver better service by implementing omnichannel and branch
transformation strategies.
Spending for regulatory compliance also placed highly, at 44%.
We explore the various challenges that likely shaped this statistic
on page 18.
BP17: Spending Increases
BP17
(Check all that apply.)
15
The two top answers—customer profitability (50.4%) and branch transformation (43.3%)—go
hand-in-hand, since banks are increasingly looking to the latter as a crucial strategy for meeting the
demands of multi-generational, profitable consumers. Branch transformation8 entails the
combination of three tactics:
• Training branch staff to be “universal bankers” who specialize in everything and are able to help
customers with complex needs, far beyond the typical teller.
• Opening up the branch layout, allowing these universal bankers to move about freely and assist
customers both physically (taking a deposit) or digitally (assisting with online or mobile banking).
• Implementing technologies, like customer relationship management (CRM) solutions as well as
business intelligence platforms (which placed third on this question, at 32.6%), that let banks offer
customers real-time, individualized services. Further, core platforms that feature tablet
integration allow bankers to maintain core access as they move around the branch.
Customer profitability also depends on simply giving customers what they want.
An ABA survey, Millennials and Banking,9 demonstrates that this fastest-growing demographic should
serve as prime motivation for deploying innovative strategies—especially digital solutions for
managing their money. According to the report:
• 67% of millennials (and 50% of other customers) want digital budgeting tools
• 61% of millennials say that mobile has made tracking and spending their money easier
• 23% cite lack of a mobile app as the main barrier to bank engagement
BP17: Strategic Focus Areas
BP17
Which of the following will be a strategic focus in 2017? (Check all that apply.)
16
As mentioned earlier in this report, omnichannel implementation has been
top-of-mind for bankers for a while now, so we thought it fitting to ask
which strategies they plan on pursuing toward their goals. And survey
respondents named CRM implementation as their No. 1 strategy for
making omnichannel a reality (56.7%).
This makes perfect sense, since CRM solutions essentially form the basis of
integrated channel delivery. Banking-specific CRMs that are integrated into
the core platform give institutions a holistic view of the customer across
branches, digital banking, ATMs and call centers. With this information,
banks can better understand customers’ preferred products and services,
behavior patterns, channel preferences and emerging needs.
Not surprisingly, mobile banking adoption (46.8%) and online account
opening/funding (46.1%) also rated highly, as digital banking is an
essential aspect of the omnichannel experience for customers.
Financial institutions must strive to provide their customers with
integrated services without sacrificing the unique functionalities of
each channel. According to Celent,10 “multiple channels—digital channels
in particular—influence the consumer’s choice of banking relationship.
Banks therefore need to close the deal whenever and wherever customers
make the decision to onboard. To do otherwise is not just inconvenient for
potentially profitable prospects, it is bad business.”
BP17: Omnichannel Strategies
BP17
(Check all that apply.)
18
The BSA continued to be a major focus by prudential regulators in
2016, and the attention will equally spill over into 2017 and 2018 as
witnessed by the new Beneficial Ownership and Enhanced Due Diligence
rule finalized last year. Consequently, BSA and KYC (affectionately known as
the Customer Identification Program (CIP) under the BSA) were named as
the year’s foremost compliance challenges.
Financial institutions will now have to collect the name, address, date of
birth and social security number for beneficial owners of certain legal entity
customers (business customers), and core banking systems must first be
updated to ensure accurate tracking of beneficial owners.
In addition, bankers must update their CIP policies and procedures to
ensure ongoing, satisfactory compliance. Though not required to be
compliant until May 2018, bankers must ensure adequate implementation
throughout 2017.
BP17: Compliance Challenges
BP17
(Check all that apply.)
19
Coming in second was consumer protections, which is equivalent to cybersecurity and
identity theft—the thief with no face. Consumers are becoming numb to the fact that their
personally identifiable information continues to be compromised, as it seems we almost daily learn
of a different merchant breach. Nonetheless, consumer protections bring a significant level of
reputational risk to an institution should they have a breach. Therefore, ensuring adequate
protections should be an area of concern for bankers.
In the same way, vendor management and ERM each came in at 31.2%. Prudential regulators
continue to pressure financial institutions to monitor third-party vendor relationships to ensure
the safety of their customers’ sensitive information. Likewise, when it comes to risk management,
examiners like to see an active management and an engaged board.
Though the TILA-RESPA Integrated Disclosures (TRID) Rule came and went, it left financial
institutions with a hefty hangover—accounting for the 30.4% of respondents citing
mortgage compliance as a continuing challenge. Although the CFPB assured institutions it
would be sensitive to those that showed a good-faith effort to come into compliance, new
mortgage rules and regulations are again on the slate for 2017. Incidentally, even though HMDA
was not identified in the survey, financial institutions must ensure proper implementation in 2017
since collecting updated government monitoring information will be required on applicable
applications beginning Jan. 1, 2018.
BP17: Compliance Challenges
BP17
What are your greatest compliance challenges heading into 2017? (Check all that apply.)
20
Though data breaches again topped the
list of bankers’ security concerns (56%),
that answer saw a drop of 23.2% from last
year. That, along with a slight drop for
account takeovers—from 35.4% last year to
33.6% this year—were the most surprising
responses in this category by far.
It’s possible that the relative lack of data
breaches this year—as opposed to the last
couple years—accounts for that area
registering as less concerning, and
complacency could be setting in. But even
though we’re not hearing as much about
them, data breaches continue to proliferate.
BP17: Security Threats
BP17
(Check all that apply.)
Note: Ransomware and Interbank Payment Network Attack were added as answer options this year.
21
In security news throughout 2016, ransomware11
grabbed the most headlines, so it makes sense that
49.6% of respondents harbor related anxiety. The FBI12
recently warned that, “Ransomware attacks are not only
proliferating, they’re becoming more sophisticated … if
the first three months of (2016) are any indication, the
number of ransomware incidents—and the ensuing
damage they cause—will grow even more … if
individuals and organizations don’t prepare for these
attacks in advance.”
Also, DDoS attack concerns rose slightly, possibly due to
the aforementioned widespread attacks in October.
Again, financial institutions should remain vigilant
regarding data breaches, although there has been a
related shift in mentality from examiners and security
professionals: today, it’s not about being bullet-proof;
it’s about being resilient. Institutions should operate
under the assumption that breaches are going to
happen, and focus on how quickly they can recover
from the punch and get back up.
BP17: Security Threats
BP17
“Ransomware attacks are not only
proliferating, they’re becoming
more sophisticated … if the first
three months of (2016) are any
indication, the number of
ransomware incidents—and the
ensuing damage they cause—will
grow even more … if individuals
and organizations don’t prepare for
these attacks in advance.”
What are your greatest security threats heading into 2017? (Check all that apply.)
23
What One Strategy Will You Pursue in the Next 12 Months to Enhance the Customer Experience?
BP17: Customer Experience
BP17
For this question, digital banking enhancements came in first by
a landslide, at 41%. It’s no wonder—improved digital banking
experiences are a key factor to achieving customer loyalty. According
to Javelin Strategy and Research,13 81% of U.S. adults will use mobile
banking by 2020, and in 2015 alone, 28 million more consumers
adopted smartphones and 29 million more adopted tablets.
Further, the ABA’s millennials survey contends that banks offering
advanced digital services now—including mobile payments, budgeting
tools, mobile banking and wealth management—are better positioned
to engage millennial customers today and keep them loyal as their
wealth grows. And, this generation is set to inherit $30 trillion over the
next three to four decades.
In addition, CRM solutions, branch transformation and
omnichannel initiatives (a combined 29% of responses) all figured
prominently throughout this year’s report, and mesh inextricably
with digital banking innovations. It’s a welcome sign that bankers seem
more committed than ever to implementing new and innovative
technologies—and taking the latest strategic routes to get there.
24
BP17
The following pages provide details on the more than 160 survey respondents who participated in the study.
25BP17: Demographics
BP17
22.8%
16.3%
21.1%
9.8%
22.0%
8.1% C-level Executive
SVP
VP
Director
Manager
Other
16.3%
20.3%
17.9%
15.4%
8.9%
21.1%25 or less
26-50
51-100
101-200
201-500
501 or more
EMPLOYEE POPULATION
Also, 54.5% of respondents indicate they work in an institution with 100
or fewer full-time employees, while the remainder are in an institution
with more than 100 FTEs.
LEADERSHIP TITLES
The Executive Report: 2017 Banking Priorities Study represents feedback
from 163 respondents, 60.2% of whom identified themselves as a vice
president or higher at U.S. financial institutions. Another 31.8% of
respondents are either a director or manager at a financial institution.
A closer look at the financial leaders who completed this year’s survey.
26BP17: Demographics
BP17
22.0%
32.5%17.1%
13.0%
15.4%
Less than $100M
$100M -- $249M$250M -- $499M
$500M -- $1B
Greater than $1B
INSTITUTIONAL ASSETS
Of this year’s respondents, 54.5% work at institutions with up
to $249 million in assets. Another 17.1% are from institutions
with an asset size between $250 million and $499 million; 13%
are from institutions with $500 million to $1 billion in assets,
and 15.4% stated their asset size as greater than $1 billion.
A closer look at the financial leaders who completed this year’s survey.
27
Computer Services, Inc. (CSI) delivers core
processing, managed services, mobile and Internet
solutions, payments processing, print and
electronic distribution, and regulatory compliance
solutions to financial institutions and corporate
customers across the nation. Exceptional service,
dynamic solutions and superior results are the
foundation of CSI’s reputation and have resulted in
the company’s inclusion in such top industry-wide
rankings as the FinTech 100, Talkin’ Cloud 100 and
MSPmentor Top 501 Global Managed Service
Providers List. CSI’s stock is traded on OTCQX under
the symbol CSVI. For more information about CSI,
visit www.csiweb.com.
1https://www.youtube.com/watch?v=7xX_KaStFT8
2https://www.fdic.gov/bank/analytical/qbp/2016sep/qbpall.html
3https://www.fdic.gov/bank/analytical/qbp/2016sep/qbpcb.html
4FFIEC’s Social Media: Consumer Compliance Risk Management Guidance
5https://www.emarketer.com/Article/Newer-Smartphone-Models-Help-Drive-Mobile-Payments-Usage/1014736
6http://aitegroup.com/report/mobile-proximity-payments-disruption-force
7https://pdf.ic3.gov/2015_IC3Report.pdf
8http://www.csiweb.com/resources/white-papers/branch-strategy-determines-the-future-of-your-financial-institution
9http://www.aba.com/Tools/Documents/Millennials-Banking-Infographic.pdf
10http://celent.com
11http://www.csiweb.com/resources/blog/post/2016/09/07/ransomware-threatens-us-all
12https://www.fbi.gov/news/stories/incidents-of-ransomware-on-the-rise
13https://www.javelinstrategy.com/coverage-area/2015-mobile-banking-smartphone-and-tablet-forecast
BP17: References
BP17