During 2016, Bridgeforce started to notice an adjustment in the industry.
After many years of a seemingly unrelenting focus on compliance and operational
risk expectations, a shift began to take place back towards growth-focused
initiatives. And as 2017 is gearing up, this shift has become more pronounced
– and metrics support this trend.
The University of Michigan’s Consumer Sentiment index reached 98.2
in December of 2016, the highest reading since
January of 2004. The unemployment rate has also continued its downward trend; reaching
a low of 4.6% in November 2016, the lowest rate recorded
since pre-2009. Lastly, a new administration has promised to implement pro-growth policies
and examine the peeling back or revision of regulatory reforms, which
could also accelerate the focus on growth.
What we expect in 2017
In light of a return to growth, we expect many financial services organizations
to focus efforts on three main areas:
- Increasing the efficiency of servicing and operations technology to reduce
- Improving the customer experience to retain customers and increase wallet-share
- Increasing new lending by identifying viable new customer segments and
improving product offerings.
Re-Examining Servicing & Operations
Over the last decade, financial institutions have invested heavily in new
capabilities and digital servicing functions as they fight to meet new
customer experience norms (i.e. mass customization to individual preferences)
set by non-financial industry players such as Amazon and Netflix, as well
as new industry expectations advanced by fintech “competition”
(e.g. Lending Club, Prosper, OnDeck Capital, SoFi). Over the same time
period, organizations have implemented tools to help satisfy new regulatory
requirements. This has resulted in more complex customer touchpoints and
servicing functions – which have, in many cases, been implemented
on top of older, legacy systems.
As growth ramps up, we expect this added complexity to be critically examined
by many organizations – with the goal of consolidating systems and
tools into new platforms. These platforms will allow for increased flexibility
and reduced “speed to market” for new functionality, while
lowering costs by removing un-needed complexity.
Taking an End-to-End View to the Customer Journey
Related to the trends outlined in the section above, there is fierce competition
for the best customer experience. Many large banks and non-banks tend
to operate in silos, which leads to processes becoming disjointed at times.
Now, financial services companies are beginning to look at processes differently.
Rather than review a process from an internal perspective (i.e. IT owns
process steps 1-2, customer service owns process steps 3-4, fraud operations
owns process steps 5-6), firms are increasingly viewing processes from
the customer’s perspective (i.e. the customer experiences process
steps 1-6) to identify where improvements can be made. This requires significant
investment in resources and cross-functional line of business collaboration,
but pays dividends when done effectively. We expect this trend to continue in 2017.
Acquiring New Customers
As consumer confidence rises, which should lead to a continued increase
in loan demand, coupled with rising interest rates, lenders will be looking
for ways to capitalize through 2017. This will be done in various ways
depending on the organization.
Firms that have been tentative to venture into new customer segments following
the financial crisis are likely going to continue to carefully examine
opportunities to expand their customer base. In many cases, this will
require developing new product offerings to target these new segments.
Other firms will more aggressively examine how they can increase acquisition
volume through partnerships with non-bank companies – which could
include some “FinTech” firms looking to refocus on marketing/lead
generation following a few bumpy years. Lastly, other companies will try
to achieve growth by developing new and innovative products with attractive
rewards and/or more compelling value propositions. Some companies may
take an “all of the above” approach.
Regardless of specific strategy, 2017 should be a very growth-focused year,
which means that lenders pursuing big growth should also keep a close
eye on credit risk and ensure their default management capabilities are
ready for the growth as loan losses could also rise throughout 2017.
Bridgeforce has been in the financial services consulting industry for
over 15 years—with our team members working in the industry far
longer—and have experienced many credit cycles. Each credit cycle
presents unique risks and opportunities, which when managed appropriately,
can lead to significant growth and profitability. We expect 2017 to be
no different and look forward to partnering with clients to leverage these
opportunities to achieve their strategic objectives.