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  • W.B. King

Cornerstone Advisors 2023 'Lyrical' Report Sings Industry Truths for FIs

Updated: 2 days ago

By W.B. King


Referencing lyrics from Marvin Gaye to Loverboy to The Beatles, Cornerstone Advisors’ What’s Going On In Banking 2023 - Fighting the Headwinds, Riding the Tailwinds report covers topics ranging from real-time payments to lending to digital transformation to fintech partnerships.

“What started as a look into bank and credit union executives’ outlook for the coming year has grown into a detailed dive into the strategic, operational, and technology-related plans of mid-size financial institution,” said Cornerstone Advisors’ Chief Research Officer Ron Shevlin.


Noting that this is the eighth consecutive year he has authored the report, Shevlin, serving as a bard of sorts, explained the sample of some 300 community-based financial institutions (FIs) executives for the 2023 offering is “representative of a set of financial institutions that Cornerstone Advisors refers to as troublemakers.” These FIs, he added, are “forward-thinking regarding their use of technology, aggressive about going after growth and market share, and unafraid to take on the megabanks, upstart fintechs, and anyone else competing with them for mind and market share.”


Lending 2023 – What’s Your Plan?

Providing a perspective from executives working at mid-sized community banks, the report found that commercial and industrial loans will be a priority in 2023, while nearly half reported that commercial real estate as a high priority. The latter figure, Shevlin noted, is far less than the 76% of respondents that listed it as a priority pre-pandemic.


For credit unions, auto loans remain the top priority, but the report noted the “big shifts in credit unions’ lending strategies for 2023 reflect a de-prioritization of commercial real estate, mortgage/refis, and loan participations.”



As a point of comparison, the report found that auto loans were at 69% and 68% in 2020 and 2022, respectively; home equity 64% and 59% in 2020 and 2020, respectively; commercial real estate 57% and 33% in 2020 and 2022, respectively; and mortgage/refi loans 84% and 30%, respectively.


“Pessimism about the lending market is likely to depress investments in new loan origination systems,” the report noted. “For 2023, roughly one in five banks expect to select new or replacement commercial and consumer loan origination systems (LOS).”


Sixteen percent of credit union respondents plan to replace or select a new LOS in 2023, which the report stated is down five percentage points from last year.


“Given the recent surge in interest rates, most lenders have seen a significant decline in volumes. Everyone is trying to understand how to best balance the restructuring of staff, right-sizing loan officer compensation and other expenses to help offset the drop in production,” Cornerstone Advisors Senior Director Daryl Jones stated.


“Some lenders view this as a prime opportunity to re-evaluate their processes, staffing and/or technology stack given the volumes in recent years did not allow adequate time to address these issues,” he continued. “In addition, while many lenders have improved their overall consumer lending technology stack in recent years, most have an eye toward creating better, more intuitive, integrations with third parties such as online banking, CRMs, and workflow automation tools.”


Real-Time Payments – How to Determine ROI?


While the 2022 Cornerstone Advisors report found that 31% of banks and 24% of credit unions planned on implementing real-time payments, these initiatives didn’t all come to fruition.

Ron Shevlin

In the new study, roughly three in 10 financial institutions said “2023 will be the year they deploy real-time payments on top of the 18% of banks and 12% of credit unions already offering them,” the report stated.


“Roughly four in 10 institutions have yet to determine their real-time payments strategy, and a quarter said they will wait for FedNow to deploy,” Shevlin noted. “Compared to smaller institutions, a greater percentage of the bigger institutions (e.g., $3 billion in assets and greater) said they will deploy solutions from both The Clearing House (TCH) and FedNow.”

TCH offers its RTP real-time payments platform; FedNow is an upcoming real-time payments platform from the Federal Reserve. Both rely on ISO 20022 as a messaging standard.


Topping the credit union real-time payments list was account-to-account transfers (40%), last-minute consumer payments (39%), recurring bill pay (26%) and payroll or expedited payroll (24%). The report also found that 10% of banks and 7% of credit unions expect to double investments in real-time payments in the coming year.


Citing the Beastie Boys song “The Skills to Pay the Bills,” Shevlin said the research report findings conclude that the reason mid-sized credit unions and banks aren’t making the investment in payment modernization is that these FIs see it from a revenue perspective only, a stance gleaned from a recent Accenture report, which Shevlin said found that a quarter of “respondents cited revenue growth as the primary goal of their organization’s payments modernization program.”


Digital Transformation – What’s Your Definition?


Noting that “digital transformation” will likely be dropped from the report in coming years, Shevlin said the “buzzword still rings loudly” in the industry. As such, he noted that in 2023, 76% of banks and 87% of credit unions polled have launched or enhanced a digital transformation strategy or initiative.


“One in five institutions that launched their digital transformation strategy before 2019 believe they’re almost done with or have completed their digital transformation journey,” he noted.


“For those that launched their strategy in 2019, 43% consider themselves to be three-quarters or more complete. Fourteen percent of institutions that launched in 2021 said they’re three-quarters or more done, and 8% of those that launched in 2022 said they are three-quarters done.”


Defining “digital transformation” is critical, Shevlin contends, as different FIs hold different definitions of the term. Either way, he doesn’t necessarily believe the above statistics ring true.


“We’re not buying these claims. Overall, 25% of institutions said they’re three-quarters or more done with their digital transformation efforts. What do they have to show for their efforts? Not as much as we would expect,” he contends.


“Among these institutions, 42% said they’ve achieved a 5% or better improvement in deposit account opening productivity and a third said they’ve improved loan productivity by 5% or more,” the report continued. “Five percent improvement isn’t exactly a high bar, but not even a majority of institutions have achieved that level of improvement in any of the metrics we asked about. And these are the institutions that think they’re done with or at least significantly down the road on their digital transformation journeys.”


Furthering his stance, Shevlin noted that “it’s hard to believe that a bank or credit union three-quarters of the way (or more) through its digital transformation has yet to deploy cloud computing.” He added that many of these FIs “have yet to deploy emerging technologies like machine learning chatbots, and robotic process automation.”


Referring to respondent polling, the following statistics are FIs that reported that they are three quarters of the way through respective transformations: application programming interfaces (71%), cloud computing (69%), robotic process automation (35%), chatbots (29%), and machine learning (25%).


“It’s hard to believe that a bank or credit union three-quarters of the way (or more) through its digital transformation has yet to deploy cloud computing,” Shevlin noted. “To drive digital transformation, it’s important to eliminate bottlenecks that slow the ability to deliver new customer experiences and business capabilities.”


Fintech Partnerships – What’s Your Approach?


As has been in the case for several years, the report found that “roughly seven in 10 financial institutions said partnerships will be important to their business strategies for the upcoming year.”


The manner in which credit unions and banks approach these partnerships, however, is different.


“A little more than four in 10 banks cited loan productivity as one of their most important fintech partnership objectives, with 36% mentioning deposit volume and 31% listing loan volume,” the report noted. “In contrast, nearly six in 10 credit union execs said increasing loan volume was an important objective.”



Additionally fintech partnership findings include that 43% of banks will look to improve deposit account opening productivity compared to 34% of credit unions and 21% of credit unions will look to expand geographic foot print compared to 13% of banks.


“Despite the importance of fintech partnerships among financial institutions, partnership activity will be largely unchanged in 2023 from 2022 levels,” the report stated. “About half of financial institutions won’t enter into any partnerships, one in five will find one partner, and just a handful will partner with four or more fintechs.”


A statistic for credit union to watch, the report posited, is that banks “will be stepping up their investments in fintech startups in 2023. In both 2022 and 2023, 26% of survey respondents said their institution invested in fintech startups (the report noted that few respondents believe they will be on the acquired end of a transaction).”

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