Postgame with Amount: CBA Live

By: Dan Cuddy

The Consumer Bankers Association (CBA) Live is one of those conferences that we pencil in early each year - it’s one of the best retail banking conferences and does a heck of a good job attracting bankers from around the country.  

Getting right into it, the 3-day conference kicked off with opening remarks from CBA President and CEO Lindsey Johnson (hosting her first CBA Live following the retirement of Richard Hunt) alongside a panel of bank executives who shared candid thoughts on the state of the retail banking industry at large. With the backdrop of the SVB, Signature Bank and Credit Suisse in the news cycle, unsurprisingly, an attendee poll cited the economy as the greatest challenge for 2023. But looking beyond the economy, panelists provided the insight that, outside of the recent flurry of events, competition for talent was the problem to solve for banks to remain competitive.

I thought this was interesting, given the recent spate of layoffs across the tech industry which have opened up a highly qualified talent pool. The ball is now in the banks’ courts to invest in forward-thinking technology and digital transformation by attracting this talent - which could be a win-win for all parties.

Taking a step away from the mainstage and speaking with bankers on the ground offers an alternative perspective. Here’s what was being talked about in the trenches.

Core work ahead of beach season

If “Core Transformation” was on your conference bingo card, you were in luck. A common theme across conversations was that so many banks are in the midst of upgrading, migrating or overhauling their core banking systems. This critical upgrade comes with a high level of strain on bank resources because it touches nearly every corner of the bank. The typical endeavor can take anywhere from three to seven years for completion–meaning a core conversion will likely hamper other innovation opportunities during this time, putting technology investments on a lengthy pause. 

But the banks that are able to continue to invest in innovation and technology, despite taking on a core transformation, are going to get ahead. Many banks are aiming to strike a balance by continuing to innovate through technology partnerships that can continue to move forward regardless of any core platform development. Coming out of a core conversion primed to scale lending and deposit growth will certainly give banks an edge and the ability to better serve clients. 

Getting to know your customer

Fraud and customer verification remains a pressing issue, a lingering effect of pandemic-era fraud activity. The rise in the number, as well as the sophistication, of bad actors has weighed heavily on bank risk and AML departments. Digital and synthetic fraud practices continue to evolve and their costs are not to be understated, impacting an organization far beyond the lost asset. 

Banks are clearly looking for help here, and there has been an incredible amount of innovation in this space with the development of more sophisticated AI tools and machine learning models. With that said, the underlying theme from the conference was less centered on who can solve fraud and verification best but, rather, what is the right strategy to consolidate vendor relationships so banks can have a cohesive customer identity program. Bank’s are struggling to manage multiple disparate relationships and, as such, are pushing toward fewer vendors in order to (1) manage fewer technology integrations (see “Core Transformation” above), (2) achieve economies of scale from a pricing and implementation perspective and (3) gain speed to market, reducing vendor due diligence and onboarding, which for typically very conservative institutions, can be a long endeavor. 

CRE exposure weighs heavily

For many banks, commercial real estate (CRE) loans comprise a heavy portion of the total loan portfolio. Demand for CRE lending, traditionally a core business for super regional, regional and community banks, has been strong in recent years. But the rapid growth in CRE exposure, more recently, has presented additional challenges for banks as they face a new economic environment. 

In most markets, banks are seeing a couple of key levers at play. From a macroeconomic viewpoint, there’s a softening of the commercial real estate market due to remote work and other factors driving down demand and achievable rents. At the same time, borrowers of CRE loans structured with fixed-to-variable rate interest terms are feeling pressure as the portfolio loans roll into the variable term and emerge to find higher rates. Put together, there’s a material strain placed on the overall portfolio performance.

The general sentiment from the banking community is that there needs to be a shift in focus on portfolio diversification to re-balance loan portfolios into consumer and C&I (corporate, middle market and small business) credit products. 

Until next time…

It’s going to be interesting to watch how banks continue to evolve and adjust to both the external market conditions as well as internal technology demands over the next few quarters. We have CBA 2024 penciled-in for next year in Maryland - hope to see you there!

Dan Cuddy is a Business Development Director for Amount. Dan works with banks and non-bank lenders to develop consumer, small business, and embedded lending strategies that provide a competitive advantage in the marketplace.