BankNotes ...

Generation Y consumers primarily look for mobile services and rewards programs when shopping for a new bank, according to a December 2013 study, conducted by Harris Poll among more than 1,000 U.S. adults.

The study found that Generation Y adults (those between age 18 to 34) with a checking account are more likely to say mobile banking is at least somewhat important when choosing a bank (78 percent) than those in the 35-54 age group (66 percent) or those ages 55 and up (44 percent).

Members of Gen Y are also more likely to believe customizable rewards are at least somewhat important (86 percent versus 73 percent of 35-54 year olds and 63 percent of those ages 55 and up) and that cash back options are at least somewhat important (88 percent versus 74 percent and 67 percent, respectively). A recognizable brand name is also more important to Gen Y adults (81 percent say it’s at least somewhat important) than it is to those ages 35-54 (68 percent), the study found.

While 72 percent of Gen Y adults say banking locally is at least somewhat important to them, roughly one-quarter of those same people who have a checking account but do not bank with a community financial institution say they don’t use one because they don’t believe a community bank or credit union will offer the same benefits they’re getting at their current bank. Additionally, 30 percent of these Gen Y consumers say they don’t use a community bank or credit union because they’ve never thought about it.

Are these study results indicative of the U.S. market or does it extend further?

In the eleventh annual World Retail Banking Report (WRBR) released in 2013 by Capgemini more than one-quarter of the countries in the WRBR's Voice of the Customer survey reported a decrease of more than 10 percent in the share of customers with positive experiences, a reversal from the prior year when increases of more than 20 percent were prevalent.

According to the report, since Gen Y consumers make up anywhere from one-quarter to one-third of the population in many markets, catering to their tastes is a key for banks. "This group's expectations of how banks should serve their customers, particularly via digital platforms, are significantly higher than those of the general population thanks to their prolific and sophisticated use of technology," the report adds.

For the first time, the report measured the impact of positive experiences on a number of behaviors linked to increased profits. Specifically, the report found that customers with positive experiences are more than three times more likely to stay with their bank than those who have negative ones. Customers with positive experiences are also three to five times more likely to refer others and purchase another product, the report finds.

In North America, Gen Y consumers are significantly less likely to have a positive experience with their bank, the report found. Only 41.7 percent in North America of those between 18 and 34 years cited positive experiences with their bank, compared to 63.4 percent of those of other ages, a difference of 21.7 percent. In other regions, positive experiences for Gen Y lag those of other age groups by anywhere from only 7 percent to nearly 10 percent.

This downward shift underscores the challenges banks are facing in meeting the evolving demands and high expectations of digitally-savvy Gen Y customers. The balance between traditional channels and the need to address the Gen Y customers will require a transformation for many banks. The new reality - Banks are no longer a branch or a place where customers go, but a collection of services that take place, anywhere, anytime.

Running your bank, you are thinking things are clipping along fairly well, maybe there are a few problems, but hey, who didn’t have problems during the “Great Recession”? Now your recovery is progressing nicely and you get an order or some other requirement to fulfill concerning some of the endless new regulations that are coming out of Washington, D.C., Who is going to help you solve this problem? And help you get and stay compliant? The regulators have a few thoughts on using consultants we believe will help you…

An independent consultant can play a valuable role in assisting a bank’s management and board of directors in correcting significant violations of law, fraud, or harm to consumers. It is the policy of bank regulators to carefully consider whether to require an independent consultant in these cases and to evaluate the consultant’s independence, capacity, resources, and expertise and to monitor the consultant’s performance. This is a critical area when a national bank, federal savings bank, or federal savings association is instructed to employ independent consultants as part of an enforcement action to address significant violations of law, fraud, or harm to consumers.

The bank regulators evaluate the bank’s assessment of the independence of the consultant to establish that the consultant can perform its work with a high level of objectivity such that the results of the engagement are free of any potential bias and that the work is based on the consultant’s own independent and expert judgment. Any direct conflicts or facts that call into question the independent consultant’s integrity will cause the disqualification of the consultant. Examples of such direct conflicts include the use of a consultant that has previously reviewed the transactions that are to be evaluated in the current review or that has previously assessed the specific policies and procedures related to the violations or practices at issue. In addition to a direct conflict of interest, a bank should consider whether there is the potential for an appearance of a conflict of interest such that the consultant’s objectivity could be unduly influenced indirectly.

In particular, the Comptroller of the Currency (“OCC”) has used its enforcement authority to require banks to retain independent consultants in a significant number of cases and for a variety of purposes. For example, as part of enforcement actions, the OCC has required banks to retain independent consultants to assess the banks’ compliance with legal requirements in cases involving material violations of law. The OCC also has required the use of independent consultants when banks are obligated to provide restitution for violations of consumer protection statutes. The OCC has ordered banks of all sizes to retain independent consultants to

• Address significant deficiencies with banks’ programs related to compliance with Bank Secrecy Act and anti-money laundering laws and regulations (BSA), including reviews of banks’ BSA staffing, risk assessment, and internal controls. The OCC has also ordered reviews by independent consultants of the adequacy of actions already taken by banks to address deficiencies in the BSA programs.
• Review transaction activity to determine whether banks must file suspicious activity reports (SAR), whether SARs filed by banks need to be corrected or amended to meet regulatory requirements, or whether additional SARs should be filed to reflect continuing suspicious activity. The OCC has ordered similar reviews by independent consultants of banks’ currency transaction reporting.
• Address significant consumer law violations, including violations of section 5 of the Federal Trade Commission Act regarding unfair or deceptive practices. Banks have also been required to hire independent consultants to identify affected consumers, monitor payments to such consumers, and provide written reports evaluating compliance with remedial provisions in enforcement actions.
• Perform forensic audits in cases where the OCC has concerns about widespread fraud or systemic irregularities in banks’ books and records.

In addition, banking regulators have required banks to retain independent consultants to provide expertise needed to correct operational and management deficiencies rather than to address significant violations of law, fraud, or harm to consumers. By retaining consultants to perform these “functional” engagements, banks gain the additional knowledge, experience, and resources required to address deficiencies identified through the supervisory process. These engagements have been particularly valuable for community banks that may lack the necessary expertise and resources to correct the problems on their own.

When evaluating the independence of a consultant, including whether an actual or potential conflict of interest exists, the bank’s assessments should address the following factors:

• Scope and volume of other contracts or services provided by the independent consultant to the bank. Specialized expertise of the consultant and availability of other consultants,
• Proposed mitigating factors to address any potential conflict or appearance of conflict.
• Any financial relationship, including the amount of fees to be paid, or previously paid to the person or company as a percentage of total revenue of that person or company, and any other financial interest between the bank and the proposed consultant.
• Any business or personal relationship of the consultant, or employees of the consultant, with a member of the board or executive officer of the bank.
• Prior employment of consultant staff by the bank.

It is important to remember that no single factor determines the outcome of the regulatory acceptance of a bank’s selection of consultant. It is all the factors collectively that are evaluated with the goal of ensuring that the services performed by the consultant, including its findings and recommendations, are expert and free of bias.

During the October, 2007 speech made before the Subcommittee on Oversight and investigations Committee on Financial Services, U.S. House of Representatives, Sandra F Braunstein, The Federal Reserve, Director of Community and Consumer Affairs, stated “that nationally there about 200 minority-owned financial institutions that serve a broad range of communities and populations. The Federal Reserve recognizes the important role that minority-owned banks play in the financial services market through the services they provide to their communities.”

Mergers and acquisitions have taken a toll on minority-owned institutions and despite the development of the Federal Reserve System’s Minority-Owned Institutions (MOI) Program, the total number of designated[1] “Minority-Owned Financial Institutions” has been on the decline. As of December 31, 2013 there were only 174. Many of these institutions provide access to credit and financial services in markets that have historically been underserved and as a group they play a unique and important role that extends beyond their particular markets. They are diverse in terms of their minority ownership (e.g., African American, Native American, Asian, and Hispanic) and the markets they serve.  Some are quite profitable and operate in higher-income markets, while others serve lower-income communities and, in some cases, struggle to achieve earnings commensurate with their peers.  African Americans, Hispanics and Asian Americans have increasingly looked toward financial institutions to help them build wealth, purchase homes, meet everyday needs and plan for the future.

Minority-owned and de novo institutions that remain stable, operate in a safe and sound manner, and grow to a size that allows them to continue providing capital and financial services to a growing population add strength and vitality to the local communities they serve and help provide economic stability to the U.S. economy. Minority banks are important to the communities they serve and vital to many inner cities. Many minority banks also follow a mission to help communities that are challenged with demographic and economic weaknesses. These successful institutions have identified that importance of customers being able to communicate in their own language which is a particular focus of the minority owned Asian banks.  After Spanish, Chinese is the most widely spoken non-English language in the country at about 2.3 million. The languages of Tagalog and Vietnamese are spoken by about 1 million.

The Federal Reserve System has worked to support minority-owned financial institutions since congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) section 308 which among others goals established goals to promote and encourage creation of new minority depository institutions; preserve the number of minority depository institutions and preserve the minority character in cases of merger or acquisition.

The Minority Bank Deposit Program (MBDP) was created as a voluntary program by Executive Order to encourage greater participation by minority and women-owned financial institutions and credit unions serving low-income communities as depositaries and financial agents. In August, 2013, the Board of Governors of the Federal Reserve System reaffirmed their ongoing commitment to preserving the existence of minority depository institutions (MDIs), consistent with statutory mandates, and to highlight the Federal Reserve’s resources available to MDIs. These resources include the Community Development Financial Institutions (CDFI) Fund; Minority Bank Deposit Program; and Minority Business Development Agency.

Today the growth market in banking is being driven in large part by the large influx of the vary people that FIRREA was developed to help. However as the minority–owned banks become successful they become likely candidates for a merger or acquisition often leaving a gap typically in the personal relationships between customer and banker and the services and products offered. Data compiled from the FFIEC website for the most current Peer Group statistics for total Minority-Owned banks as of December 31, 2013 are lead by Asian-Owned banks for a total of 87, followed by Hispanic-Owned banks at 39, African-American-Owned banks at 28, and Native American-Owned banks at 18.    

The services and products offered today and in the future must reflect the needs of a younger (GEN Y), more mobile and more ethnic customer base. Although both big banks and small banks are working to find ways to attract these consumers, it has often been the Minority-Owned bank that offers the personalized services and products that this group has been seeking in the past and may be the successful leverage for future Minority-Owned Banks in this country. Ownership and running of Minority-Owned banks will need to grow as these populations grow in the country.