Kathleen Hesketh

MARKET COMMENTARY Community Banks and Credit Unions have a Specialty Banking Home-Field Advantage in the Small Business Market Small- and mid-sized businesses (SMBs) represent an overlooked opportunity for most community banks and credit unions. Currently, the majority of SMBs, two out of three to be exact, bank with large institutions.1 However, 51 percent said they are likely or extremely likely to consider a smaller local financial institution in the near future.2 99% of all business activity in the U.S. is done by companies with less than 500 employees Small- and mid-sized businesses (SMBs) account for 99 percent of all business activity across the U.S. Comprised of companies with under 500 employees,3 this sector is a growing part of the fabric of the nation, driving economic fortune and offering employment to nearly half the country’s workforce.4 Fortunately, the future looks strong for many SMBs. Revenue growth was up for 35 percent in 2018,5 according to the Small Business Credit Survey (SBCS), a collaboration of the 12 Federal Reserve Banks. In addition, nearly a third of employer firms are growing and 53 percent have ambitions to be larger than they are now.6 Due to the nature of small business, local banks and credit unions have a ready opportunity in the market, particularly as they build upon their specialty lending edge. Understanding the Home-field Edge in Specialty Banking When it comes to selecting a banking partner, SMBs go with what they know. For nearly half of business owners, location is the primary factor in selecting a bank, and 47 percent take their business to the same institution holding their personal accounts.7 Local and nearby resonates for community banks and credit unions as well. 79 percent of SMBs report satisfaction with smaller banks compared to 67 percent for large institutions,8 but familiarity isn’t the only factor turning community banks and credit unions into hometown heroes. Smaller banks are more agile than larger institutions and can react quickly to SMB needs. That’s an important factor for many small- and mid-sized businesses, as they operate lean, and cash flow problems may arise quickly. FINASTRA Market Commentary 1 75% of small- and mid-sized businesses say that personalized advice is key in selecting a banking partner The inherent agility of smaller banks result in faster turnaround times on loans. Community banks and credit unions also approve nearly twice as many SMB loan requests as large banks do,9 an important point as SMBs consider growth options. But in the end, it’s about relationships and shared values. The branch manager’s son may play soccer on the same team as a small business owner’s child. They see each other around town and interact at community events. Beyond practical considerations, community banks and credit unions are more in touch with local culture and business conditions, making them better lending partners for SMBs. This was a critical factor in the wake of the 2018 financial crisis. These deep community connections turn local banks and credit unions into hometown specialty lenders as SMBs search for a financial partner—someone they can trust to advise them on maintaining the economic stability of their business and the best way to handle financial matters. During the initial phase of economic recovery, real estate remained depressed across much of the country. As the economy began to gain traction, however, the real estate market trended upward faster in some areas than others. While large banks were limiting the number of real estate or construction loans based on overall national trends, many community financial institutions were willing to invest in area development projects based on the strength of the local economy and construction market. According to research conducted by JPMorgan Chase and Company, the median SMB holds only 27 cash buffer days in reserve.10 When a SMB needs financing, it’s often for the little things or to float their operations for a short period of time. In these circumstances, specialty lenders are more likely to understand specific SMB woes and be willing to provide loans. In many ways, community banks and credit unions are like specialty lenders, thanks to their deep community ties and connections with the customers and members they serve. Consider a local restaurant in Eugene, Oregon, focused on serving vegan and gluten-free dishes. A bank located in New York City is less likely to understand the unique nuances of the region and may not be as easily convinced of the restaurant’s probability for success. A local bank or credit union, however, is inherently in touch with these community preferences, because they live and work with the same people the business is serving every day. According to 75 percent of SMBs, the ability to obtain personalized advice is key in a banking partner and 40 percent would switch banks to get it.11 How Community Banks and Credit Unions Can Attract and Retain SMB Business Small banks and small business have a lot in common. Executives at community and regional institutions wear many hats. Your CFO might also be your technology expert, while your CEO does double time as your marketing lead. With a small- or mid-sized business, owners are also responsible for multiple moving pieces of daily operation. This connection builds understanding and helps community banks and credit unions to play up their home-field specialty lending edge. However, since most business owners turn first to their own bank when it comes to taking out a loan,12 attracting borrowers starts long before the business considers borrowing. Thanks to technology advancements and the advent of cloud-based services, smalland mid-sized businesses have a host of options for simplifying daily financial tasks. For instance, a business can now go online and in a matter of minutes complete a loan application and receive an approval. “The check is in the mail” has never been more apropos or simple. As a result, demand for digital online services is growing. FINASTRA Market Commentary 2 “ While smaller banks have traditionally been recognized for rapid underwriting, their business is at risk from online-only new financial technology entrants. ” Simultaneously, 40 percent of SMBs would consider switching banks to receive more personalized service.13 Since digital interactions by nature are distant and require little engagement, community banks and credit unions must use digital in a way that builds and strengthens relationships with small business owners. It comes down to finding the digital services that SMB owners want the most as well as those that add value to the bank. Finding the Right Digital Approach SMB owners need to streamline their dayto-day operations and offload tasks where they can, and they’re looking for banks to provide some of the tools they need to save time and improve efficiency: •• 70% of SMBs prefer to open a deposit account via online channels14 •• 50% of SMBs would like to apply for a loan on the web15 •• 67% rank sophisticated online and mobile banking capabilities on their wish list16 •• 67% relish online tools for cash flow management, forecasting and budgeting directly integrated into online banking features to minimize data entry17 •• 64% want to integrate online banking with accounting systems such as Quicken18 Pushing routine tasks to digital channels is one way banks can improve customer or member relationships while also generating cost efficiencies. Change of address, balance inquiries, transaction records and the like can all be accessed via lower-cost online channels or mobile apps. Placing these tasks in an online environment means that they can be completed when it’s most convenient for the business owner, while allowing the bank to dedicate personnel to higher value assignments. Payments is another area where SMBs value services from their bank. Real-time payment solutions simplify the AP cycle for small businesses and their vendors by automating many payment procedures. Digitizing the loan application process and combining it with automation in underwriting is another area where community banks and credit unions can make strides to attract and retain more small business customers. While smaller banks have traditionally been recognized for rapid underwriting, their record is at risk from online-only new financial technology entrants. Lending services from PayPal, for example, have been integrated into the online purchasing transaction so seamlessly that a small business hardly recognizes that they’ve taken out a loan. In contrast, traditional banks require on average a total of 12 non-contiguous hours to process an application and up to 7-10 days before the paperwork is signed and check is in hand.19 Replacing manual loan underwriting with digital decisioning allows banks to process applications faster, with less risk and at a lower cost. Banks have improved and funding turnaround times by as much as 50 percent while boosting internal efficiency by 30-50 percent.20 Consider Connected Banking The concept of connected banking can be simplified in a few words: data sharing. Through the use of an application programming interface (API), data from different, usually unrelated, parties flows seamlessly, allowing the end-user to experience it as if it were coming from a single entity, in this case, the bank. FINASTRA Market Commentary 3 68% of business respondents to Accenture’s global survey would prefer to participate in an open banking ecosystem through their bank By partnering with technology providers that offer a connected banking solution, community banks and credit unions realize a world of opportunity. Not only are they able to gain the functionality of digital services, such as payments processing, but they can integrate their core offerings into the platform, providing a seamless solution to their customers and members. Creating an ecosystem that small- and mid-sized businesses access to fulfill a variety of needs helps time-starved business owners to quickly and efficiently accomplish many of the tasks that eat away at their day. For example, SMBs would be delighted to find that their financial services provider offers online banking, but when that same bank or credit union also provides services that simplify supply chain management, payments or a host of other time-saving implementations, all from the same portal where they do their banking, that’s when loyalty starts to skyrocket. In fact, 68 percent of business respondents to Accenture’s global survey would prefer to participate in an open banking ecosystem through their bank.21 Trust is the main reason SMBs prefer to work with their established financial service provider. Banks also win when connecting customers to open banking portals. As customers and members interact with open platforms they create a wealth of data that provides banks with a more complete view of the financial picture. With such detailed data and the insights from platform analytics, the bank can better advise on financial products and reduce risk when lending to SMBs. Look for a Partner Across the board, digitizing the most important customer journeys can increase bank revenues by as much as 20 percent and decrease costs by 30 percent.22 That alone should be enough to make community banks and credit unions consider the importance of developing a digital strategy. However, just as SMBs need their bank to provide sound financial advice and expertise, community banks and credit unions shouldn’t be afraid to seek out a partner to help them gain the digital and online services they need to maintain their specialty lending edge. A third-party partner can guide community banks and credit unions on a digital journey that meets the needs of SMBs and enhances the financial institution’s community standing as a home-field specialty lender. When looking for a partner in digital transformation, community banks and credit unions should consider the following: •• Can the provider deploy the solution quickly, with minimal downtime and interruption to your current systems and operations? •• Does the provider meet all of your needs while minding your budget? •• Does the partner provide a wide suite of capabilities that can be added over time as needed and budgets permit? •• Are the solutions connected, allowing complete visibility of the customer across all applications? •• Does the provider support the integration of third-parties into the provided platform, to allow seamless operation with your existing software or with new systems that could bring value to SMBs or the bank? •• Is the partner continuously innovating and bringing new capabilities to market? Providers should be looking toward the future and working on how to address the emerging challenges on the horizon. Above all, the partner needs to be flexible and able to meet your needs. They should also understand your position as a home-field specialty lender and work with you on a solution that maintains your standing as a community partner. FINASTRA Market Commentary 4 For More Information Visit finastra.com Telephone - Being the SMB Hometown Hero in Your Community With the right digital capabilities, it isn’t hard for most community banks and credit unions to capture and maintain the home-field specialty lending edge. In the end, it comes down to being true to your brand. Are you the next-door neighbor who welcomes one and all with a friendly face? Or maybe you’re known as a partner to farmers, an institution that goes out of its way to support the heartland? A community bank in Wisconsin will have a different set of core philosophies than a credit union in California, but these core guiding principles should be based on and aligned to the needs of the community it serves. After all, serving the community is at the heart of the home-field specialty lending edge. Footnotes 1. Jeffry Pilcher. “How to Win the Small Business Banking Market.” The Financial Brand, June 13, 2017. Web. 2. Ibid. 3. “Frequently Asked Questions About Small Business.” U.S. Small Business Administration Office of Advocacy, Aug. 2018. Web. 4. “2018 Small Business Profile.” U.S. Small Business Administration Office of Advocacy, 2018. Web. 5. “Small Business Credit Survey: Report on Employer Firms.” Federal Reserve Banks, 2019. Web. 6. ibid. 7. Ben Ashworth. “Nav’s 2018 Business Banking Study.” Nav, Nov. 12, 2018. Web. 8. “Small Business Credit Survey: Report on Employer Firms.” Federal Reserve Banks, 2019. Web. 9. “Dear Bank, Will You Be My Small Business Financial Partner?” Personetics, Mar. 21, 2019. Web. 10. “Cash Is King: Flows, Balances, and Buffer Days.” JPMorgan Chase & Co., Sept. 2016. Web. 11. ibid. 12. “BAI Banking Outlook: Business Banking Insights.” BAI Research. Retrieved from https://www.bai.org/ research/bai-banking-outlook/banking-businessinsights-infographic 13. ibid. 14. Andrew Martins. Business Owners Want More Convenient Banking Services.” Business News Daily, Apr. 12, 2019. Web. 15. ibid. 16. “Five Banks and Credit Unions Rocking the Small Business Market.” The Financial Brand, May 24, 2018. Web. 17. ibid. 18. Ibid. 19. “Total Lending Commercial: End-to-End Lending Solutions.” Finastra, 2019. https://www.finastra. com/solutions/lending/commercial-lending/totallending-commercial. 20. “The Four Pillars of Digital Transformation in Banking.” The Financial Brand, Mar. 27, 2018. Web. 21. “Digital Transformation Readiness Survey.” Center for Creative Leadership, 2018. Web. About Finastra Finastra unlocks the potential of people and businesses in finance, creating a platform for open innovation. Formed in 2017 by the combination of Misys and D+H, we provide the broadest portfolio of financial services software in the world today—spanning retail banking, transaction banking, lending, and treasury and capital markets. Our solutions enable customers to deploy mission critical technology on premises or in the cloud. Our scale and geographical reach means that we can serve customers effectively, regardless of their size or geographic location—from global financial institutions, to community banks and credit unions. Through our open, secure and reliable solutions, customers are empowered to accelerate growth, optimize cost, mitigate risk and continually evolve to meet the changing needs of their customers. 90 of the world’s top 100 banks use Finastra technology. Please visit finastra.com Finastra and the Finastra ‘ribbon’ mark are trademarks of the Finastra group companies. © 2019 Finastra. All rights reserved. US 2323 / 1019 North American Headquarters 744 Primera Boulevard, Suite 2000, Lake Mary, FL 32746 United States T: - MARKET COMMENTARY Opening the Next Decade of Community Banking: A Look at 2020 and Beyond Nearly twenty years ago, at the start of the new millennium, the internet was still in its infancy and the Y2K bug threatened to hold financial institutions hostage. Fast forward nearly 20 years and Y2K is a thing of the past, put to rest by a spirit of relentless innovation and transformation. Mike Dionne SVP and GM, North American Community Markets Vincent Pugliese SVP and GM of Solutions North American Community Markets Internet capabilities continued to evolve as well, enabling a new means of commerce and accelerating the pace of technological advancements for years to come. Now, as we near the end of the second decade of the millennium and look toward 2020, the technology fervor continues, challenging banks and credit unions to evolve in an environment of changing economic indicators. He brings more than 30 years of experience with community banks and credit unions to his role at Finastra where he is responsible for developing the company’s go-to-market strategy. What does 2020 and the dawn of the next decade hold in store for community banks and credit unions, and where should they put their focus to achieve the greatest performance? We recently turned to Vincent Pugliese and Mike Dionne of Finastra, to weigh in on the most pressing trends of the upcoming year and to shed light on the priorities that community financial institutions should consider as they look to 2020 and beyond. Clouds Could Be Brewing on the Regulation Horizon Vincent Pugliese is the senior vice president and general manager of U.S. retail and lending solutions at Finastra. He leads technology strategy for the company, devising technology to address the modern challenges that banking organizations face. Mike Dionne is the senior vice president and general manager of North American community markets. He is quick to point out, however, that 2019 was not devoid of regulatory concerns, as large SEC registrants prepared for the implementation of the Current expected Credit Loss standard (CECL) in 2020. Together, they are shedding light on the priorities that community financial institutions should consider as they look to 2020 and beyond. According to Mike Dionne, the regulatory environment has been more permissive in 2019 than at any other time since the passing of Dodd-Frank. “When you juxtapose 2019 to coming out of the financial crisis, which has taken us quite a while from a regulatory standpoint, 2019 was pretty light compared to expectations,” said Dionne. FINASTRA Market Commentary 1 “ A top priority for every financial institution right now, in terms of investment, is creating a holistic, seamless account acquisition strategy. ” Mike Dionne SVP and GM ONE IN THREE financial executives report cost of funds and core deposit growth as their top concern for the future. CECL requires financial institutions to reserve funds against losses at the time a loan is originated and represents a significant regulatory hurdle. “But by and large, the big requirements that came out of the financial crisis, we’ve moved beyond that wave,” said Dionne. Unfortunately, election years historically bring uncertainty to the regulatory environment, and 2020 promises more of the same. Just this year, the proposed merger of Suntrust and BB&T sparked a spate of controversy, underscoring the contrast in political viewpoints on the issue of regulation in banking. While President Trump continues to express support for easing the regulatory environment, Elizabeth Warren, a leading democratic presidential frontrunner, opposed the BB&T-Suntrust merger and publicly expressed doubt concerning the Fed’s past scrutiny of bank mergers. Bernie Sanders seems of like mind, vowing to uphold and strengthen Dodd-Frank if elected. While the current outlook on regulation is quieter make deposits could actually lose money by the time they withdraw their funds. “As crazy as it sounds, there is a real possibility that the same negative-rate environment could make its way to us,” said Dionne. “And banks should be considering the implications of that.” Funding is now the primary concern for community bankers, outpacing regulation, according to the CSBS 2019 National Survey of Community Banks, with one third of surveyed executives labelling the cost of funds or core deposit growth as their top concern for the future. The survey also revealed that community institutions rely heavily on both transactional and nontransactional core deposits to balance liquidity and gain new loans. “Considering the current low rate environment, inexpensive deposits are paramount to a financial institution’s success,” says Dionne. “And banks need to increase their digital footprint to attract and retain new customers or members, given increasing preferences for online and mobile interactions.” Automation and other digital tools serve to not only streamline the account opening process but can ease the cost of onboarding and managing depositors. Vincent Pugliese agrees and adds that financial institutions can gain traction by taking a broader approach to technology enablement in 2020 as well. “A top priority for every financial institution right now, in terms of investment, is creating a holistic, seamless account acquisition strategy across all sides of the business to offer a more seamless experience for the end customer or member.” Catching up to the Quickening Pace of Innovation One factor that could interrupt technology adoption by community financial institutions, is the quickening pace of innovation. As technology capabilities continue to proliferate at a rapid pace, it becomes increasingly difficult for community banks and credit unions to keep up with advancements, according to Pugliese. Emerging technologies, such as artificial intelligence, machine learning and even big data capabilities seem beyond reach for many community institutions who are still addressing the need for core digital services, such as online and mobile banking. According to the CSBS 2019 National Survey of Community Banks, 34 percent of respondents do not offer online loan applications and have no plans to do so over the course of the next 12 months. FINASTRA Market Commentary 2 “ Open banking is just around the corner, and financial institutions need to be ready to embrace it. ” Vincent Pugliese SVP and GM Meanwhile, new Fintech competitors are offering faster, more integrated options, increasing the competition factor by making it easier for consumers to interact according to their preferences. Straight-through processing automates many key steps in a process, removing the need for human intervention. The result is a cleaner and more efficient way of doing business. Pugliese encourages banks and credit unions to focus on catching up to technology trends. “Open banking is just around the corner, and financial institutions need to be ready to embrace it,” he said. Online lenders are already using automation in the end-to-end application process to speed approvals and reduce risk. According to a report issued by the New York Federal Reserve Board, Fintech lenders are processing loans in 20 percent less time with 25 percent lower default rates. Both Dionne and Pugliese agree that for the near future, and certainly 2020, big data will prevail. Fintech based lenders are processing loans in 20% less time and with 25% lower default rates According to Dionne, it has always been relatively easy to approve financing for borrowers with top credit scores, but he is now seeing financial institutions finding and targeting unique market segments, because technology allows them to make better use of data. “I had a customer who started working with the immigrant market,” said Dionne. “Through data analysis, he uncovered factors that helped him identify loan candidates and determine how to serve this typically underserved segment.” Finastra realized this early on, combining the streamlined capabilities of application automation with big-data analytics to create Fusion Mortgagebot Data Insights. With Fusion Mortgagebot Data Insights, Finastra united the data from over 1,400 Financial Institutions to create detailed comparisons, allowing lenders to quickly shift strategies when necessary in order to improve their loan application conversion rates. But data is only part of the equation when it comes to making faster and smarter lending decisions. According to Dionne, financial institutions should also look to automation in 2020, to reduce the number of manual interventions in favor of straight through processing (STP). McKinsey views a not-so-distant future where machines perform from 10 to 25 percent of work across all bank functions. Dionne agrees and predicts strong outcomes for both commercial and retail banks who invest in STP in 2020. Achieving the Strength of New Technologies Community financial institutions operate at significantly smaller scale and with lower budgets than the big banks, so keeping up with new innovations could remain a challenging prospect in 2020 and beyond. “What we see is an industry segment still trying to catch up to the expectations set by the big tech companies, such as Google and Amazon,” said Dionne. “Banks and credit unions have always had a short runway for implementing the technologies necessary to provide this type of experience, and that runway is only getting shorter.” One reason for the rapid need for technological adoption, is the emergence of open banking. Open banking simplifies interactions between third-party applications and the financial institution by creating an interconnected web where all parties share data. FINASTRA Market Commentary 3 The power behind open banking rests with Application Programming Interfaces (APIs). APIs are a set of routines, protocols and tools that enable disparate systems and applications to communicate. “ The future for any organization is about partnering and gaining the advantages of ecosystems. Vincent Pugliese SVP and GM ” “It’s easy to understand where open banking is taking the industry if you think about the Blackberry,” said Dionne. “In the early 2000’s, everyone had a Blackberry, and RIM, the parent company, had a huge development staff all creating applications. Soon, Apple came along, opened their platform to third-party developers instead of creating them in-house, and we see who the market leader is today.” Open banking uses the same premise of platform sharing, allowing financial institutions to expand their offerings through third-party development. While some big U.S. banks have started to implement APIs, it is largely beyond the capabilities of most small financial institutions. “The cost associated with developing and implementing these ground-breaking innovations is likely to be prohibitive for the community financial institutions,” said Pugliese. “But there are other ways for smaller banks and credit unions to keep pace with technology and remain competitive.” To facilitate technology enablement, financial institutions of all sizes are beginning to partner with Fintechs and leverage existing APIs. Finastra is leading the way in this respect and setting an example for banks and credit unions to follow with the advent of FusionFabric.cloud. “Early on, we realized that we could do more and create products faster by partnering within the Fintech developer space,” said Pugliese. “So, we invested in an open and collaborative platform where third-parties can produce innovative solutions to solve many of the market challenges financial institutions face today.” These new applications go hand-inhand with Finastra’s core technology stack, expanding the capabilities that the company can offer to financial institutions and their customers. According to Pugliese, community banks and credit unions can extend their technology budgets by taking a similar approach. “The future for any organization is about partnering and gaining the advantages of ecosystems,” he said. “We’re seeing a growing number of smaller financial institutions, in particular, who are moving from on-premise software and systems to the cloud, and this is going to continue into 2020 and beyond.” Cloud systems provide community financial institutions with the technology assets they need to remain competitive, but with less of the cost and fewer challenges. With cloud solutions, banks and credit unions can adopt the latest technology without the need to develop or maintain systems and infrastructure. The costs of replacing outdated software or hardware are also reduced. By working with cloud providers, banks and credit unions can head off another deterrent to technology innovation, that of acquiring technology talent. “I’ve had conversations with financial institutions where they might be using a legacy type product, maybe even as old as a green screen product, and the new millennial or gen Z talent coming in the door doesn’t know what to do with that,” says Pugliese. “In these situations, the institution’s available talent pool is significantly minimized.” On the other hand, cloud services are built on the latest technology, increasing the bank’s odds of finding employees with the right skills to join their ranks. FINASTRA Market Commentary 4 For More Information Visit finastra.com Telephone +1 - What Key Tech Trends Should Banks and Credit Unions Watch? When asked which technological innovations banks and credit unions should expect to see more of in 2020, both Dionne and Pugliese agree. Beyond the near advent of an opening banking environment, it is AI and machine learning. “AI and machine learning are going to improve the customer experience in so many ways,” says Pugliese. “For example, by making it possible for customers or members to have money move automatically from a savings account to a checking account based on their spending habits.” Both Dionne and Pugliese agree that Fintech collaboration like this will play an increasing role in the future of banking, helping community banks and credit unions to build stronger and longer lasting relationships with their customers and members. “Utilizing Fintech offerings, community financial institutions can produce a group of capabilities,” says Dionne. “Allowing their customers and members to create the banking experience they want to have and to maximize their relationship with their financial services provider.” Finastra has made significant investment in AI in 2019, leveraging the collaborative properties of FusionFabric.cloud (FFDC). As example, a partnership with Monotto, an automated savings platform called Robosave. Monotto’s RoboSave helps account holders increase their individual financial stability by analyzing transaction history to determine how much money can be saved on a daily basis. The program then automatically transfers that money out of the user’s checking account and into their savings. About Finastra Finastra is building an open platform that accelerates collaboration and innovation in financial services, creating better experiences for people, businesses and communities. Supported by the broadest and deepest portfolio of financial services software, Finastra delivers this vitally important technology to financial institutions of all sizes across the globe, including 90 of the world’s top100 banks. Our open architecture approach brings together a number of partners and innovators. Together we are leading the way in which applications are written, deployed and consumed in financial services to evolve with the changing needs of customers. Learn more at finastra.com Finastra and the Finastra ‘ribbon’ mark are trademarks of the Finastra group companies. © 2020 Finastra. All rights reserved. US 2586 / 0120 North American Headquarters 744 Primera Boulevard, Suite 2000, Lake Mary, FL 32746 United States T: - Buying a New Home? Understand the Mortgage Process Before You Start Housing prices closed out 2019 up 7.8 percent over the previous year as home sales rose across nearly every region. Simultaneously, the number of available homes tumbled over 8 percent, creating a competitive environment for home buyers. If you’re looking to purchase a home, it’s important to have your ducks in a row to seize upon available opportunities. That means understanding the mortgage process and what you’ll need to do to get into the home of your dreams. Mortgage Basics - Start Well before You Intend to Buy You may be able to envision the home of your dreams, but can you afford it? Amid low interest rates and a booming economy, home prices are rising. By some reports, 71 percent of Americans don’t think that they can afford the purchase price of a home. That’s why your first step when thinking about buying a house, should be to find a trusted loan advisor. A qualified individual can help you assess your financial situation and determine what’s affordable. They can also help you find special incentives or products that could make buying a home a reality for you. Too often, potential home buyers look up rates online and use digital calculators to help them determine their monthly mortgage payment. While these tools are great as a guideline, they don’t take into account your individual situation and any special rates or programs for which you may qualify. A seasoned loan advisor, on the other hand, will take a vested interest in you personally and work to find you the right combination of financing to fit your needs. To find the right loan advisor, focus on seeking someone who takes an interest in you as an individual, has access to a full range of loan products and financing, and is willing to walk you through the process step-by-step. No matter how many questions you may have, your loan advisor should be willing to take the time to make you feel comfortable about securing financing as well as making a buying decision. Understanding the Mortgage Process Once you find the perfect partner in a qualified loan advisor, you will be able to start the prequalification process. Depending upon where you live, this process can take an hour to a few days. Ideally, you’ll bring the necessary documents to the first meeting with your loan advisor. Many people are unprepared for the depth of scrutiny required to obtain a mortgage and fail to bring the breadth of information they need. Having the following documents in hand when you meet with your loan advisor can help to ensure a speedy turnaround on your application: • • • • Tax returns from the past two years Pay stubs from the past 30 days or W-2 forms to provide proof of employment Bank statements from the past 60-90 days Proof of down payment If all documents are in place, you could receive a prequalification letter the same day. In some locations, however, sellers and agents require a full pre-approval, which means your application will need to undergo the underwriting process and could take a little longer. Sometimes, a deeper inspection will reveal issues that need to be resolved. By seeking prequalification before you begin shopping for a new home and working with a competent loan advisor, you might be able to work through these issues. At a minimum, a good loan advisor can give you tips to repair your credit and get on track for home ownership. I’ve Put in an Offer, Now What? Having an offer accepted on a new home is an exciting time. It can also be a stressful experience. If you’ve put the time in up front to find the perfect loan advisor, much of the headache associated with purchasing your home will be reduced. Once your offer is accepted and you notify your loan advisor, they will begin the financing process on your behalf. This will include ordering a home appraisal to make sure that the buying price and what you plan to finance is in line with the value of the property. A good lender will also guide you through the process and alert you to the steps that you need to take personally. For example, you will want to schedule a home inspection to ensure there are no liabilities associated with the property, and secure homeowners insurance. A final walk through of the property should also be arranged before the closing. The loan closing process itself can take 45 days or more, but the right loan advisor will keep you in the loop during that time, offering regular and frequent updates. As the closing day approaches, your loan advisor will schedule the final meeting, advise you on how to handle your down payment, and answer any questions you may have. He or she should also be present at the closing to make sure that things are finalized according to plan and your expectations. Congratulations! You Are a Homeowner Once you’ve received the keys to your new home, count on your loan advisor to stay in touch. He or she is a great resource if you have questions about your loan, including payments in escrow. The repercussions of expanding regulations and worldwide economic uncertainty continue to resonate throughout the banking and financial services industry and negatively impact the potential for improved profitability. To make strides in the current environment, financial firms need operating models that are designed to shave costs through enhanced efficiency and provide margin improvements through greater productivity. When determining where to focus efforts to optimize operations, some financial services organizations have discovered the greatest opportunities in the finance and accounting (F&A) function. F&A is a critical component of any organization, and operational inefficiencies can significantly impact the bottom line. Core activities – including accounting, transaction processing, financial information management, tax, cash management and financial controls, as well as mid-level functions like general management and control, and strategy and risk – all provide ideal areas for optimization. By reengineering or retooling current processes, implementing shared-services capabilities, or outsourcing, organizations can implement operating and business models that simplify work streams and deliver better results from internal data. These approaches raise productivity and enhance process efficiency, resulting in lower costs and improved operating margins. Process Reengineering Improves Performance and Productivity Measurable improvements in efficiency can be gained by reengineering existing processes to improve operational effectiveness. Assessing performance utilizing analytics-driven business intelligence allows organizations to identify gaps and inefficiencies, plan and model solutions and then determine the optimal methods to improve productivity and effectiveness while making the best use of technology enhancements and human resources. The financial enterprises recognizing the greatest benefit from reengineering engagements have often employed Lean and Six Sigma methodologies to improve the reliability of performance outcomes. Data from current functions, such as accounts receivables, is collected and analyzed to reveal gaps and bottlenecks that lead to low productivity, long cycle times and errors. Comparing current process metrics to best-in-class standards isolates inefficiencies at a granular level, allowing for improvements that strengthen process effectiveness and generate greater process accuracy. Critical business process improvements, including automation of key steps, have accounted for a 20 percent increase in capacity for some organizations. Tighter Process Performance Supports Compliance As the remaining rules related to Dodd-Frank are finalized, it is increasingly important for controllers to have clear insight into their own internal data and be assured of accurate information to avoid issues with compliance. The traditional method for storing and processing information required for reporting often occurs in silos across banking product systems. Transferring data from one finance repository to another can introduce inefficiencies and errors. To ensure data quality, continuous monitoring and multiple reconciliations are required. Reengineering can eliminate informational silos and the process redundancies that drive up error rates, reporting cycle times and costs. Improved data access and tracking enables cleaner and faster close-to-report cycles and has reduced the delivery time on financial reports by up to 20 percent in some cases. Optimizing core functions enables CFOs to make quicker and more insightful decisions regarding business planning and regulations. Tighter cost management through better resource allocation and stronger reporting to improve regulatory compliance will continue to deliver significant value to banks and financial services organizations in the years to come. Shared-Service Models Prove Critical to Improving Operational Efficiency In addition to reengineering, companies have generally tried one of two different approaches to improving operations – either external outsourcing or internal shared services. These methods help financial enterprises create a center of excellence to meet tactical requirements such as accounts payable, accounts receivable, collections, etc., leaving the core team free to focus on higher-level F&A functions that support the business and organizational goals. Financial services organizations that move routine work to outsourced centers gain access to dedicated specialists capable of completing tasks more efficiently, thereby reducing errors and improving straight-through processing rates. The immediate advantage is seen in lower processing costs and stronger compliance, as well as in the added benefits associated with increased capacity across internal teams and the ability for CFOs to concentrate more fully on initiatives that drive growth. ENHANCED CONTROLLERSHIP IMPROVED PROCESS STABILITY BETTER RESOURCE ALLOCATION Shared service centers (SSCs) offer many of the same advantages as traditional outsourcing, but are seen as a way to more efficiently manage core finance-related services as well. Routine finance work and core functions By providing F&A expertise to multiple divisions of the same company, the SSC delivers excellence in critical process performance as Business Business Business well as access to top-of-the-line technology Unit Unit Unit at a reduced or “shared” cost. With a view across more than one function of the bank or financial services organization, SSCs standardize processes and can even make adjustments where necessary to better accommodate up and better resource allocation. These savings can downstream functions in the operational flow. Improved operational performance allows CFOs then be used to generate growth in other areas. to reduce their operating costs and better plan for improved profitability. Aligning Business Objectives and Shared Services SSCs give global companies the opportunity to centralize components of their operations for faster and more efficient outcomes. Large financial institutions challenged with disjointed reconciliation practices across divisions and an uneven use of personnel benefit from the process standardization and staff consolidation that comes through the implementation of the SSC. Through improved skill matching, organizations are able to allocate resources with lower skills to perform more routine functions while highly skilled employees are tasked with analytical processes. As a result, some organizations have realized significant P&L impact resulting from enhanced controllership, process stability and Reducing Costs through Global Business Services (GBS) Initially, shared services and outsourcing delivery methods traveled down separate and distinct paths. However, during the past few years, many financial institutions have realized tremendous benefit through implementing a hybrid approach – referred to as global business services (GBS) – that exploits the best of both sourcing options. GBS uses outsourcing to harness the skills of F&A professionals who are expert at standardizing and transforming routine transaction processes, while employing shared services to transform and standardize finance-related processes that the company views as too risky or too core to outsource. In a GBS, all F&A operations, including processes that are internal, outsourced and those operated by a Shared Service Center, are brought under one internal umbrella. This alignment can relate to a single business unit or incorporate multiple functions into its design such as human resources and F&A. The primary advantage associated with a GBS model is the ability to get an entire enterprise behind organizational goals and to implement process and technology improvements with an overview of the needs of the entire organization. The ultimate result is better alignment within the organization and with overall business objectives. Because it is integrated into corporate strategies and shares a drive toward the same outcomes, an F&A GBS model receives superior collaboration from across the enterprise. While not yet as widely utilized as outsourcing and reengineering, those organizations that have mastered the art of global business services have realized dramatic outcomes. When aligned with the enterprise strategy, improvements in operational effectiveness of at least 15 percent have been reported, leading to cost savings of as much as 23 percent.1 Results like these are noteworthy in an era when financial institutions grapple with increasing cost complexities and slow revenue growth. The current regulatory environment, waning interest rates and changing customer habits all take a toll on an organization’s ability to maintain market share and meet customer demands. A GBS model affords the opportunity to reduce costs and improve internal operating efficiencies across the enterprise. Through the support of an experienced management team and the implementation of clear goals, CFOs can help to gain a competitive advantage against continuing market challenges. Achieving Transformation While uncertainty still reigns over the economy as issues surrounding new and current regulations continue to play out, CFOs are taking the situation in hand by implementing improvements that allow them to operate more effective organizations while controlling costs. F&A is critical to a bank or financial service organization’s overall health, but needs to be optimized in order to receive the best benefits and the greatest returns. Companies should consider the pros and cons of reengineering and outsourcing as well as those related to implementing a shared services or GBS model. By making strategic decisions based on a thorough understanding of the expected results, financial institutions will be able to select the option most aligned to their operational needs and business goals. This will allow them realize greater profitability by transforming the F&A function. “Partnering for Successful Execution in Global Business Services,” Genpact, 2013, http://www.genpact.com/docs/resource-/partnering-for-successful-execution-in-global-business-services.pdf?sfvrsn=2. 1