More than a Lane Change: Strategy Advice From the “Growing Revenue” Track

At Jack Henry™ Connect this year, two things were abundantly clear:

1. Everyone is neck-deep in change.
2. You’d better form a banking strategy – fast – if you want to maximize the business opportunities, minimize challenges, and grow revenue.

While that might sound hyperbolic to someone outside the financial services industry, banks and credit unions who are navigating the tsunami of change know it’s not – and they know the seriousness is all too real. Those leaders who explored the topic from a variety of perspectives at the conference (from business banking digital strategy to business development strategies for banks and credit unions) have no doubt been pondering their next steps ever since.

Whether it’s the dawn of artificial intelligence helping fight fraud and fuel financial health, the launch of the instant payments rails that promises to change the way we move money, or the monumental shift of wealth from the Baby Boomers (that’s already begun), change is at every turn.

Pacing Up

In payments, change is being driven by accountholder expectations for simple, safe, and fast anytime payments; an inflationary economy; evolving regulation; competition from all sides; and shifting fraud concerns.

Raksha Bhola, Senior Advisor and Payments Strategist at Jack Henry, explained in her session, Effectively Strategizing for Your Payments Growth, that “financial institutions must begin ‘pacing up’ to build a foundation that can support a modern payments experience and lay the groundwork for future innovation. In an environment where 96% of businesses and consumers say they’re interested in instant payments, not doing anything is a risk.”

And the risk is not small.

According to Ernst and Young, “It is difficult to overstate the importance of payments to the banking industry. Facilitating transactions sits at the center of the customer relationship and bank profitability, accounting, directly or indirectly, for up to 30% of some banks’ income. Now that position is under threat.” Non-bank players have been investing heavily in the payments space and competing well by providing value-added, fee-based services that are eroding bank and credit union revenue.

Those institutions need to develop a solid payments banking strategy.

When they do, some key trends to consider will include an expected rapid increase in A2A transfers and emerging payments like pay-by-bank that will be incentivized by merchants, innovation arising from ISO-20022 data standardization that will simplify data interpretation and reconciliation, and industry efforts (led by the Fed) to better define and classify fraud for improved response and mandates.

Expanding the Value Chain

The changing payments landscape is also forcing financial institutions to look beyond transaction fees to grow revenue.

Following the lead of fintech players, institutions should be keenly focused on providing value through the user experience. An example might be providing turnkey support for the management of multiple digital wallets or leveraging transaction data to provide service for a niche or vertical, such as healthcare. Likewise, while artificial intelligence and machine learning are currently focused on risk management, in the future, they could be employed to provide consumers and businesses with additional data beyond transactions.

Generational Wealth Transfer

While we tend to see change as being mostly driven by technology, sometimes it comes in the form of people – many, many people.

According to the Population Reference Bureau, approximately 71.4 million people in the U.S. will be age 65 or older by 2029 (roughly 20 percent of the population) … which brings us to a big change that was explored by Carlos Lopez, Lead Analyst for Digital, Corporate Strategy at Jack Henry during his session, Generational Wealth Transfer: Growth Opportunity or Existential Crisis? at Jack Henry Connect.

Lopez explained, “In the next 15-20 years, baby boomers are expected to pass on $30T to $68T in assets to their heirs.”

Lopez then pointed out that 75-80% of those heirs plan to move their inherited assets to a new financial institution or wealth advisor. That’s a big challenge for financial institutions that needs to be planned for immediately.

Since the prospective heirs are primarily Gen X and Millennials, it’s vital that you have a strategy for either attracting or retaining the new wealth from this younger demographic.

It’s also important to understand that the real competition for this business is the neobanks, fintechs, big banks, and traditional brokerages.

Your first step in developing a banking strategy will be to understand your risk. How exposed are you to both demographics (consumers passing along assets and consumers inheriting them)? If your demographics skew older, your strategy will likely require greater change and thus be more urgent. Next, you’ll need to understand the asset breakdown of the average inheritance within your institution (including its value based on current market conditions). Once you truly understand your risk, you can begin to build a wealth transfer and asset retention strategy that fits your mission and long-term vision.

No matter your banking strategy, mobile banking needs to be a priority, as it’s the go-to channel for younger consumers. A limited mobile banking offering will only hinder your ability to compete.

Personalization and relationships are terrific tools for attracting younger consumers. It starts with recognizing their needs and pain points. For example, 46% of Gen Z live paycheck to paycheck and worry about paying their expenses, 30% don’t feel financially secure, and 25% don’t believe they’ll be able to retire comfortably. Compound this with rising expenses and student loan debt payments, and you see how providing cash management and wealth advisory tools can go a long way toward attracting their business. They especially want tools that will help them avoid fees, manage expenses, track recurring payments, and find a pathway to home ownership.

Giving community financial institutions a strong advantage, both Gen Z and Millennials have a strong preference for in-person and live phone advice.

Make It Your Own

Every financial institution and every market is different, which means there can be no one-size-fits-all approach.

Building a banking strategy for change will take hard work, input from a variety of perspectives, and a spirit of exploration … these are unchartered territories after all. Fortunately, you can call Jack Henry for help in framing a vision and defining a strategy that supports your financial institution’s unique needs.

Subscribe to our blog and keep an eye out for more conference topics in our Jack Henry Connect key takeaways blog series.

And save the date: Jack Henry Connect 2024 will be held October 7 – 10 in Phoenix, Arizona!