ICBA Products and Services: On Bottom Line Issues

“The future of the ICBA Services Network is tied to the future of community banking. Like the community banks we serve, we are working hard to meet their changing needs and have the tools to grow.” —Gary Teagno, ICBA Services Network
“The future of the ICBA Services Network is tied to the future of community banking. Like the community banks we serve, we are working hard to meet their changing needs and have the tools to grow.”
—Gary Teagno, ICBA Services Network

ICBA’s Gary Teagno on products and services for today and tomorrow

As president and CEO of the ICBA Services Network, Gary Teagno is recognized across the industry for his expertise in building new ventures that drive community bank innovation and profitability. Teagno joined ICBA in 1983 and has helmed the ICBA Services Network since its inception in 1988. He is the author of “Profiting through Association Marketing,” a book that explains the endorsement value of association product and service programs and how they work. 

Under his leadership the Network has expanded to include divisions and service companies such as ICBA Bancard, ICBA Securities, ICBA Mortgage, ICBA Reinsurance and ICBA Strategic Technology Solutions. The Network’s mission is to enhance the franchise value of community banks by providing high-quality products and services that aggregate the buying power of community banks nationwide.

Recently, ICBA Independent Banker sat down with Teagno to discuss how community banks, both large and small, can successfully navigate market, technology and regulatory change to emerge positioned for long-term growth and profitability.

IB: What challenges do you see affecting community bank profitability today?

Teagno: None of these are new challenges, but I would point to regulatory burden, thin lending margins, an ongoing quest for efficiency and consumers who are unaware of the breadth of their bank’s product and service lines.

“There is a real opportunity in payments. We have an extremely low cost of funds and probably the best consumer behavior and historically low loss ratios.”
—Gary Teagno, ICBA Services Network

IB: Regulatory burden and a quest for efficiency are intrinsic to one another, are they not?

Teagno: Absolutely. At the ICBA Services Network, we are seeing more demand for ways that regulatory challenges can be met through software or cloud technology. At the end of the day, a bank always needs to be in compliance, but when you achieve efficiency you can have more income-producing personnel in your community bank versus staff that is focused on compliance and operations.

IB: Until interest rates start to rise bank earnings are going to be suppressed. How can banks boost their margins now?

Teagno: Well, fee income is obviously more important today than it was five or six years ago, but in the next year or so I believe we are going to see interest rates start to rise again. Given this eventuality, banks are going to need to be particularly mindful in their portfolio analysis. Community banks are inherently conservative, but there are probably some opportunities in investments outside of their traditional comfort level, including interest rate risk and hedging and other products.

IB: You stated that many customers are probably unaware of their bank’s product and service offerings. Can you elaborate?

Teagno: Sure. We all know that one of the basic tenets in creating more profitable customers is increasing the number of relationships you have with those customers. Community banks have strong customer loyalty, but customer loyalty doesn’t always translate into customer profitability.

Why?

While some of that can be attributed to lower fees, it also comes down to sales culture and marketing. People only remember you by the last product they purchased from you. This applies to our community bank members as well as to the ICBA Services Network.

IB: We’ve talked about the challenges. Where do you see the opportunities?

Teagno: I’ve seen community banks re-examine a lot of opportunities that I’d almost categorize as “Back to the Future,” like credit cards and mortgage loans. There is a real opportunity in payments. We have an extremely low cost of funds and probably the best consumer behavior and historically low loss ratios. More community banks are also viewing debit and credit cards as the entrée to gather more of the consumer wallet. If they are carrying your card, they are carrying your name. You are creating that recognition that you are a full-service bank they can come to for other lending needs.

The small-business space is also hot. When you tie Small Business Administration lending to the potential of making either receivable loans or day-to-day operating loans, and you combine that with the potential of small-business credit cards—especially as a delivery vehicle—small-business lending offers a very attractive way to expand your business.

Plus, in many parts of the country, small-business lending is not as commoditized as individual lending because you don’t have the credit score sort of algorithms that drive the consumer space and make the out-of-area lenders quite as aggressive perhaps in terms of direct mail and such.

IB: This wouldn’t be a discussion of opportunities if we didn’t touch on mobile banking.

Teagno: Mobile technology is an essential technology. People use mobile to monitor their diet, their home security and their financial health—I would say that phones and tablets are almost more of a monitoring device than a communications device.

Many community banks have robust websites that provide a certain degree of financial health monitoring, but they require the customer or consumer come to them. The ICBA Services Network is presently working with our vendors and providers to find ways community banks can push financial services monitoring applications out to consumers—perhaps as part of their core or payment processing. The challenge for community banks is going to be integrating everything into one platform.

IB: That’s interesting. What else is new at the ICBA Services Network?

Teagno: We are always looking for ways to leverage our collective clout to aggregate solutions that address the challenges of community banks. We’ve very recently unveiled new programs with innovative companies, such as Continuity Control and Insperity, that help community banks with compliance and human resources needs.

IB: What drives the Network’s program and product development?

Teagno: We are always looking for new ideas whether they come from community banker input or vendor suggestions. We are heavily member-driven, and our research and development comes from ICBA’s Bank Services Committee, not to mention the board of the ICBA Services Network and our subsidiaries. These community bankers meet frequently to review our products and programs, not to mention our vendor relationships and quality assurance standards.

“Our most successful users are ones who create a business line versus just offering another product. They monitor the product. They create and set goals and expectations. They incentivize staff. They talk about the product with their customers.”
—Gary Teagno, ICBA Services Network

IB: What common traits do the most successful community banks that use an ICBA Services Network product or service share?

Teagno: That’s easy. Our most successful users are ones who create a business line versus just offering another product. They monitor the product. They create and set goals and expectations. They incentivize staff. They talk about the product with their customers.

In short, the success of the product the ICBA Services Network delivers is bank-driven versus customer-driven. This group also tends to take advantage of resources provided by our ICBA companies or our vendors, such as educational resources and user groups.

IB: What does the future of community banking look like, and how do you think banks can position themselves for a bright future?

Teagno: I’m quite optimistic. There are still a lot of opportunities in the fee income model, and we still think banks are underestimating the needs of their customers. There’s also some optimism regarding efficiencies as we see greater opportunities in the cloud to do more aggregation.

Many community bankers don’t realize the purchasing power ICBA has harnessed on their behalf nor the influence they have collectively. When you look at the ICBA Bancard program today, for example, in its totality it’s the 20th-largest credit card issuer in the country. One member bank might only have a couple hundred cards in its portfolio, but when you aggregate volume of every member’s card program across the industry—it’s amazing the kind of leverage we can harness.

But in the end, the future of the ICBA Services Network is tied to the future of community banking. Like the community banks we serve, we are working hard to meet their changing needs and have the tools to grow.