By Marc Smith
Like any industry, the financial services industry faces a variety of potential risks. And because we have learned from past mistakes, we believe it is best to confront and discuss those risks more openly as a profession, for the benefit of our business and our customers. While the economy appears balanced with no immediate warning signs, it is important that executives be prepared for potential shifts on the horizon that would have a wider impact.
As part of this collective awareness of risk, the Upper South Carolina Chapter of the Risk Management Association recently hosted a panel with three financial services executives to discuss potential risks, including technology and fintech competitors, the economy, and the current cycle. Panelists included Lynn Harton, chairman and chief executive officer of United Community Banks Inc.; Terry M. Turner, president and chief executive officer of Pinnacle Financial Partners, which has six locations in the Upstate; and Neil E. Grayson, chair of the Financial Services Corporate and Regulatory Practice at Nelson Mullins Riley & Scarborough LLP. While all the executives cited different strategies for navigating common threats, all three agreed that talent, strategic decision-making, and a strong company culture are key to navigating risk.
Increasing technology and fintech competitors
With technology advancing daily, banks face constant pressure to keep up with their largest competitors. Both Harton and Turner agreed that as community banks, they are not striving to be on the front lines of innovation. Instead, they are investing in the appropriate technology for their customers.
“We’re more focused on finding ways to develop relationships with the customers that no longer visit the branch,” explained Harton. “We’re studying our data more closely so that we may better understand and connect with these customers even if we never see them in person.”
While banks would be naïve to ignore the increased popularity in companies like PayPal and Square Cash, many are comforted knowing that users still need a bank account to connect to these services. To Harton, the best solution is for banks to open themselves up to partnering with these companies as a benefit to their customers. Grayson agreed, adding that disruptive technology won’t dominate the industry as long as they have to rely on banks. As such, he encourages banks to focus on their authentic values instead of striving to be the most convenient. “The best companies are not profit-driven,” he explained. “They’re purpose-driven.”
The economic cycle
Though in an upward cycle, all three executives agreed that a downturn is soon to come. To Harton, however, much of the necessary preparation for a recession should have already been done.
“No one can predict the future, but if you were looking for a recession to hit 18 months from now, 80% of what is on the books today will be carried into the crisis with you,” he said. “You can’t clean everything up. Instead, focus on concentration risk and only diversifying into things you understand.”
Turner added that he views the economy as relatively strong and does not see any early signs of trouble.
Leaning on corporate culture
The importance of company culture as a risk deterrent was a driving topic throughout the conversation, and one that all three panelists felt passionately about. “Culture is the driver of performance in your organization,” explained Harton. “It’s what you think and do every day.”
Turner attributed the success of Pinnacle’s culture to its strategy of hiring experienced, personally connected bankers. This has helped the company achieve its goal of a 95% employee retention rate for nearly two decades. He also noted that this strategy translates to a better customer experience.
The panelists agreed that attracting, growing, and retaining a talented team can help to mitigate a variety of risks, but there are still many threats that cannot be avoided and must be prepared for in advance. Fostering an open dialogue about these risks as an industry is an important step in helping to prepare as much as possible, even for the unavoidable threats.