Already engaged in deep systemic changes, Global Finance’s top US regional banks are now moving to preserve their businesses.
The twin medical and economic crises caused by the novel coronavirus have sent US banks, including Global Finance’s 2020 Best Regional Bank winners, in some extraordinary new directions.
In recent weeks we’ve seen them work to alleviate customers’ financial hardships in a host of ways including suspending loan payments, offering relief with late fees and service-charge rebates, lowering interest rates on personal loans and granting interest-free financing on credit cards, and allowing penalty-free access to funds such as certificates of deposits. Many banks are suspending share repurchases in order to moderate the impact of the outbreak by making capital and liquidity available to individual, small-business and corporate customers. They are also contributing to relief efforts by donating millions of dollars.
Last fall, very few US regionals would have guessed that these would be priority activities in 2020.
Not that these banks haven’t been experiencing a period of upheaval; a common denominator for this year’s Best Regional Bank winners is systemic change. All are engaged in a strategic revamp (MUFG Union Bank, Citizens Bank, US Bancorp), a technological transformation (Zions Bancorporation) or a consolidation following a merger (Truist). They share many of the same strategic objectives as well: to create efficiencies and reduce costs; improve customer service along with their pipeline of new products and services; and, to bolster these projects, bring their digital systems up to date. Whether these changes will help them weather the current crisis remains to be seen.
In the Far West, Union Bank is modernizing its banking franchise and technology and expanding its expense-reduction initiatives. Its strategy focuses on core banking transformation, improved data analytics and technology modernization via APIs and cloud capabilities. This multiyear transformation involves a number of goals including providing an improved, differentiated user experience; fostering greater business agility to more rapidly develop products; delivering a flexible, secure, and scalable technology platform; and promoting a collaborative workplace and culture that emphasizes knowledge sharing. The bank plans to use the FIS Modern Banking Platform to co-develop and co-engineer the systems that will be at the core of its banking transformation.
Union Bank’s corporate clients benefit from the global scale of parent Mitsubishi UFJ Financial Group’s corporate and investment bank in areas including leveraged finance, securitized products and supply chain finance. The latter was expanded with the 2019 acquisition of Trade Payable Services, a provider of working capital to business customers. Union Bank expects to achieve $250 million to $300 million in cost reductions through its Rewiring Program, which is leveraging strategic locations to reduce the bank’s high-cost footprint and promote organizational efficiencies by utilizing shared service centers and by outsourcing some activities to third parties.
Citizens Bank, this year’s winner in both the New England and Mid-Atlantic regions, is strengthening its management team to facilitate strategic initiatives that rely on transforming its technological infrastructure. Key management additions include the newly created enterprise role of Chief Experience Officer to lead the bank’s effort to advance its digital capabilities and within consumer banking, the firm named a new CIO and a director of software engineering to improve technological capabilities and services. Firmwide, Citizens added 30% more engineering talent last year. Moreover, it established an advanced training program that incorporates artificial intelligence and machine learning for more-effective employee development.
Citizens recognizes the importance of speed to market for new products, and it promoting innovation by empowering cross-functional networks of teams to more quickly roll out new customer services and technological enhancements. Success will depend on its ability to invest in next-generation technologies, leverage cloud capabilities and utilize agile methodology to create an adaptive, flexible and secure technology environment. Partnerships are an important growth component, and Citizens is leveraging relationships with 20 fintechs to bolster consumer, small business and commercial banking in the areas of merchant finance, trade finance, residential construction, digital mortgages and digital payments.
US Bancorp (USB), is strong across a swath of the central US, winning in the Great Lakes, Plains, and Southwest regions. It has made significant progress becoming a more nimble institution, able to create products that broaden its relationships with consumer and commercial banking clients. Its online capabilities are central to its success, as digital transactions now represent 70% of the bank’s total transactions and 36% of its loan originations are made online.
A newly created chief digital officer leads a strategic plan centered on developing innovative products and services underpinned by cutting-edge digital solutions, while a dedicated team leverages data science and artificial intelligence to better identify and understand customer behavior.
USB has been successful at creating a corporate culture that embraces collaboration to drive innovation across the company. An example: its Experience Studios, which drive innovation by drawing expertise from key areas such as technology, design, finance, ethics, risk and customer service with input from customers. The result is a more responsive institution that can quickly move from concept to launch of new products and services. This model allowed the bank to relaunch its mobile application in only nine months last year, thanks in part to input and feedback from over 5,000 customers on improvements and new features. USB plans to continue scaling up Experience Studios across the company during 2020.
In addition to its online offerings, USB launched a Physical Asset Optimization program to right-size its branch network—closing, relocating and redesigning branches that could impact upward of 80 locations. USB is also leveraging partnerships with fintech companies through its participation in Plug and Play, a program that connects startups and financial institutions.
Payment Services is an important segment for the bank, representing 29% of revenue, and USB is enhancing its ability to move money for clients through a series of initiatives and strategic acquisitions. Its eBill service offers a simple and secure electronic bill-paying system for businesses customers to bill their clients with greater speed and efficiency. Last year, its merchant payments subsidiary, Elavon, acquired talech, a supplier of point-of-sales software, to increase the operational efficiency of its offering to small and medium-size enterprises (SMEs), while the acquisition of UK-based Sage Pay aimed to bolster USB’s payments-processing capabilities for business customers.
In the Rocky Mountain states, Zions, a collection of regional community banks, differentiates itself through a combination of services and technology. Its small-business and middle-market customers have ranked it above larger banks with a national footprint in a number of key categories, including overall satisfaction; digital product capabilities; satisfaction with relationship managers and cash management specialists; and speed in extending credit.
Zions leverages this strong service culture with initiatives to drive growth by streamlining underwriting and account opening, and providing more effective digital offerings for small business. It has developed similar strategies in capital markets, wealth management and retail banking.
On the technology side, Zions is restructuring one of its core platforms to offer a comprehensive suite of digital-banking services that streamline the credit process for new loans. Priorities going forward include enhancements to the bank’s treasury management services, refinements to small-business online banking and streamlining business account enrollment and onboarding.
The December merger of BB&T and SunTrust created Truist, the sixth-largest US bank with $473 billion in assets serving over 10 million households, and this year’s Best Bank in the Southeast. Truist must now deliver merger synergies during 2020 and beyond. Next steps include completing branch divestitures, developing the new brand, completing IT systems conversion and prioritizing investment in digital technology—all while joining the employees of the two predecessors in a single culture.
Customer attrition following regional bank mergers is always a risk. Truist has outlined a mission to provide a seamless transition. This includes creating an inclusive and energizing environment that helps employees to better serve clients. Town hall–style meetings across the franchise during the first quarter conveyed a unifying message to employees on these themes and were well received by Truist’s 59,000 employees, officials say.
The bank expects investments in technology and digital innovation, branding and marketing will be offset by $1.6 billion in cost savings through operational integration, branch consolidation and reduction in third-party spending. Maintaining a strong credit and risk-management culture is crucial, as the combined entity currently exhibits a sound balance sheet and solid loan portfolio credit quality. Truist’s diversified loan portfolio across a range of consumer and commercial customers provides balanced revenue and fee income. Progress with merger integration and executing on these priorities will strengthen its position as a leading bank in the Southeast region.
US Regional Winners
|Far West||Union Bank|
|Great Lakes||US Bancorp|
|New England||Citizens Bank|
|Rocky Mountain||Zions Bancorp|
|Southeast||Trust Corp. (formerly SunTrust)*|
*Formed by the merger of Suntrust and BB&T.