Steven Buster
President, Chief Executive
Pacific Mercantile Bancorp
Costa Mesa
We’ve seen how disruptive technology has impacted the taxicab and hospitality industries, and now we are seeing it in the financial services industry with the emergence of online lenders.
We’ve seen a proliferation of online lenders in Orange County primarily focusing on loans of $500,000 to $1 million, and they are becoming a significant competitor of community banks. These companies use social media-influenced algorithms to make fast lending decisions and sell the loans to hedge funds. It’s not a coincidence that online lending has emerged during a time of relative economic stability. The model works well in good times, just as aggressive mortgage financing worked well in its time, when securities were sliced, diced and sold to the market.
But we aren’t that far removed from a severe recession, and as history shows, we will eventually face another economic downturn. This is when the flaws in the online lending model will create significant problems for the economy.
During an economic slowdown, community banks work with their customers to help them manage through the challenges they are facing, whether that means restructuring a credit or extending payment terms so that a borrower can continue operating and servicing their debt. This relationship-based approach keeps companies in business and people employed, reducing the severity of a recession.
However, when a business that has chosen to obtain financing from an online lender hits a downturn and has trouble servicing its debt, they are going to find that they aren’t dealing with a financial partner that is interested in nursing them through their challenging time.
Every business goes to great lengths to research its vendors and make sure it’s choosing reliable partners. But for some reason, many small businesses are failing to do this when they choose a financing partner. Our key challenge is helping companies understand that they are better served by doing business with a community bank that is committed to a long-term relationship and whose value is greatest when times get tough.
Bill Cheney
Chief Executive
SchoolsFirst Federal Credit Union
Santa Ana
SchoolsFirst FCU’s success is based on the loyalty and trust we are afforded by our members—a trust that has been built over more than 80 years servicing school employees and their family members. If something were to happen to tarnish this trust, it would compromise the bond we’ve built with them.
Cyber security and data breaches are an ever-present threat to that trust. The danger of cyber attacks and data breaches is an issue for all industries but especially financial services. In the wake of external data breaches at other financial institutions and numerous merchants, this issue has quickly escalated from just an IT matter to a senior-management issue. Not only does a data breach worry our members, but there are also significant costs covered by the credit union, including fraud losses, reissuing cards, increasing staffing, technology, and constant monitoring to keep members’ accounts safe.
Cyber security experts expect data breaches and cyber attacks will become increasingly sophisticated. And the financial services industry will remain a prime target. These types of risks, much like reputational and financial risks, have the ability to severely tarnish a credit union’s brand. Credit unions are unique, in that we consistently rank among the most trustworthy organizations. A cyber attack or breach can be costly, but the ultimate cost would be losing our members’ faith and compromising our ability to achieve our philosophy of “people helping people.” That is why we continue to make investments to upgrade and protect our systems.
Technological advancements like mobile payments and EMV (technical standards for payment cards equipped with chips); new features like fraud alerts; and teaching our members and employees to stay vigilant and aware will help. To solve this persistent threat, however, financial institutions and regulators must come together. Collectively, we can identify potential vulnerabilities, share best practices and pass legislation that includes strong national protection, consumer notification standards, and shared responsibility for all parties involved in the payments system to protect members’ data.
Stephen Gordon
Chief Executive
Opus Bank
Irvine
Regarding where the regulatory environment is right now, I actually think it was necessary and important that the pendulum swung the way it did. There was a lack of regulatory oversight in the previous decade, and there were constituents that contributed to the crisis. I think it’s crucial that bankers recognize the importance of the banking system being healthy and being the pillar of the U.S. economy. That means they’ve got to have a greater degree of respect and recognition of what they do.
The bigger concern for us is the rates being near zero for as long as it’s been near zero. I don’t think it’s healthy for the banking system and the economy, and also in terms of its setting up the potential for the next cycle. There are bubbles emerging under the surface, and there’s too much cash chasing yield and ignoring risk-adjusted returns. There’s a lot of cash as a result of rates being where they are, but that is ignoring that in order to pick up whatever yield someone got in a particular asset class, perhaps there was more risk inherent in that investment at the time. That’s something we watch very closely. That means we need to be good at what we do and have a solid, comprehensive risk-management perspective. We also need to recognize that we may still be in this environment for quite a while. One needs to be disciplined, and a lot of people have forgotten about discipline.
Ryan Huff
Assistant Vice President, Remote Delivery
Orange County’s Credit Union
Santa Ana
2014 was the mobile tipping point—the first time in our history that more consumers accessed the Internet via mobile than PC. What this rapid adoption of mobile technology means for banking is that a financial institution’s ability to perform in the mobile space is key to winning, serving, and retaining customers.
Today’s mobile revolution dwarfs the PC revolution of the 1980s and continues to be a catalyst for evolving consumer behavior. The highly refined consumer experiences offered by technology companies, such as Uber and Amazon, influence what consumers expect from all businesses, including financial institutions.
While gaps in service delivery through mobile may have been acceptable just a few years ago, consumers today expect mobile to be a first-class channel. Companies with a deep understanding of the mobile channel are entering the financial services space, and so it’s critical that financial institutions commit to mobile and the broader digital channels or cede that portion of the market that considers digital important. The emerging reality is that many consumers will view the digital channels as the face of the business, just as Amazon’s website is the face of Amazon, and that switching to a competitor is just a download away, even for financial institutions.
Orange County’s Credit Union recognizes the consumer’s adoption of mobile and is executing an expansive plan to build out its digital offerings. In 2016, we’ll be transforming our online and mobile banking systems into a more holistic digital member service platform. In addition to providing members with a variety of new banking features, the new platform will give them a greater choice in how they choose to engage with the credit union. While many members enjoy the personal service offered by our branches, we understand that consumers also appreciate the 24/7 convenience that the digital channels can offer.
The new platform will allow the credit union to grow the digital channels beyond transactional services into a full-service experience where members can perform most credit union business through the digital channel if they desire. The extensibility offered by the new platform will also enable the credit union to be more adaptable to changes in the market and allow us to more easily deploy new functionality with fewer vendor constraints.
Plans include a new mobile responsive website, an enhanced mobile banking app, and mobile-friendly loan applications. We have an internal team of experts dedicated to serving mobile users. Mobile will continue to be a valuable delivery channel for marketing and transactional communication.
Robbin Narike Preciado
Regional President, Southern California
MUFG Union Bank
Orange
The challenges facing our bank are similar to those experienced by the broader financial services industry and myriad industries across the country and affect business locally, nationally and even globally.
I recently moderated an enlightening panel surrounding the 2015-2016 Orange County Workforce Indicators Report. The esteemed senior business leaders, elected officials, educators, and I talked about the report’s key findings, which outlined concerns we all face as employers and employees.
One challenge is a persistent skills gap, especially in STEM (science, technology, engineering and math) fields. At Union Bank, we implement robust, ongoing learning and development programs, as well as management training programs to encourage career development, but we need to continue to focus on attracting the right candidates who ultimately benefit from this training. And while women make up 55% of the bank’s work force, we must do better at building a more diverse work force with women and people of color at senior levels across the organization. We cannot succeed without the proper mix of skilled talent.
Another related challenge is attracting, training and retaining millennials, who are increasingly important to the economy, especially as more baby boomers leave the work force and Generation Xers approach retirement. With our Union Bank high school branches, we’ve found that providing young adults with the hands-on experience of working in the student-run branches equips them with leadership and life skills that will assist them long after high school, whether they choose careers in banking or not. Millennials make up 21% of Orange County’s population, and we recognize that we cannot succeed without them.
While many of our employees call Orange County home, some also commute, perhaps because of the shortage of affordable housing—another challenge. The Orange County Workforce report found that fewer than 22% of Orange County residents can afford to buy a home and that renting is similarly unaffordable, concluding that this can “cripple regional economic development by forcing residents to seek employment outside of Orange County, including skilled young adults that permanently move out of state to areas with lower housing prices.”
At Union Bank, we will continue to provide financing and services to create affordable housing in California and across the U.S.
Rick Nogueira
Head of Middle Market Commercial
Banking Group Orange County
JPMorgan Chase & Co.
Irvine
As a global firm, we have heard from our clients around the world that are concerned they cannot find job candidates with the proper skill sets to hire for their open positions. Yet unemployment persists. It’s frustrating.
As a major employer ourselves, we see closing this skills gap and providing meaningful career pathways to good-paying jobs as two of the most crucial issues of our time.
In 2013 JPMorgan Chase launched New Skills at Work, a five-year $250 million global initiative that’s the largest-ever private sector effort aimed at closing the skills gap that exists across many industries, such as healthcare and advanced manufacturing.
Across Southern California, grants have been given to nonprofit organizations, such as Taller San Jose and Growth Sector, which are providing work force readiness training to the community. This training is focused on middle-skill jobs, which require at least a high school degree but not a college degree. These jobs include radiology technicians, physical assistants, pharmacy technicians, respiratory therapists, payroll specialists and billing clerks.
Some of these jobs pay $30 an hour or more and can lead to advancement.
JPMorgan Chase also is producing Workforce Readiness Gap Reports in various U.S. cities and European countries to explore work force deficiencies and challenges specific to those regions. The data will be used to inform program development efforts with local work force training groups. The JPMorgan Chase Skills Gap Report for Orange County, produced with the Orange County Business Council, will be available early next year.
We know that helping workers gain the skills they need is only one part of the solution to the unemployment challenge, but it is an area we can do something about right now. Our data-driven approach will better equip organizations to serve the community and help people get the skills they need to succeed. As a corporate citizen, we feel it is critical that the private sector step forward and help.
Scott Rains
President, Chief Executive
Eagle Community Credit Union
Lake Forest
We see several challenges on the horizon. Aside from continued economic concerns, member growth and changing demographics in the work force are some that we are already planning for.
The millennial generation, which has the largest buying power of any generation, poses new challenges in the way credit unions gain members and deliver products. This is a generation that is technology driven, at ease with conducting financial transactions via the Internet and mobile, and is driving enhancements in technology based on their requirements. They are also changing some of the core philosophies of being a primary financial institution, as this generation is more likely to maintain accounts at several financial institutions, driven by account aggregator programs and access at their fingertips.
The cost of providing the latest technology can be challenging for small to midsize financial institutions. Mobile banking, remote deposit capture, and other new mobile enhancements can be costly to implement and require a significant amount of transaction volume to support the cost. Eagle continues to find creative ways of including technology and beyond to attract this demographic.
Changes in the work force are another issue. Research has shown that 65% of new jobs hired in the past year were contingent workers, making up 20% of the work force. They’re projected to make up 50% of the work force by 2020.
In addition, this is the first time in history that three generations have been in the work force during the same time span. These contingent workers are more likely to be less loyal to a single employer and could require a greater degree of flexibility in terms of hours and work location. Many of these employees will be seeking part-time employment. While there may be some cost savings that accrue to employers in terms of benefits savings, the cost of hiring and training can be significant. To attract and retain quality employees, we must find creative ways to motivate and retain this part of the work force. Eagle is taking all of this into consideration and getting creative with ways to attract and retain this heterogeneous work force.
Rick Sowers
Executive Vice President, Chief Strategy Officer
Plaza Bank
Irvine
One of the biggest challenges facing the banking industry today is the aging population of well-trained and knowledgeable commercial bankers. Formal training programs traditionally run by larger banks disappeared decades ago. The result is a lack of qualified lenders and executives with the experience and knowledge to run complex financial institutions and deliver comprehensive credit solutions to clients. The signs are there—the average ages of executives (and directors) in the banking space is the mid-60s. So what is happening here, and how is it going to be addressed? How do we as an industry attract and retain talented young people who know not only how to run our banks but also can connect with a new generation of clients?
Banks, particularly community banks, are experiencing consolidation partly because traditional succession planning has not yielded enough qualified bankers to fill the void of those executives and directors who are ready to retire and enjoy the fruits of their labor. This creates opportunities for those companies ready to grow through merger and acquisition as long as the capital and the economics are there to create shareholder value. It also solves part of the problem—those executives and boards willing to stay in the game will benefit in the long term from the acquisition of clients and also of new talent. Smart companies that know they are in it for the long haul are looking deeper into potential transactions—who is on the bench that we want on our team? What skill sets and specialization can we acquire to meet any gaps we have and make us a more formidable competitor?
Some in the industry are realizing that what worked with an older generation of clients is not the way that millennials and even Gen X want to do business. The pace and the tools used are different, and attracting younger talent with a pulse on the market will become essential to continued growth. I am not talking just about mobile banking. Shifts in payment solutions, peer to peer, and crowd-source lending are all threats to our core business. Turning a blind eye to them because we don’t understand them or what ‘those kids are doing’ are not going to make them go away. It does not mean that each community bank is going to rush into these new products and service channels. It does mean that we all need to be aware of them and figure out how get to the next level instead of turning into dinosaurs.
