December 4, 2021 / VOLUME NO. 186
Seeing Things Differently

Innovation may be the key to the future of banking, but what is the key to innovation? 

Banks are highly regulated entities, not often associated with the kind of creative thinking and problem-solving that lead to experimentation, breakthroughs and ultimately, new products and services. But innovation and the creative well it draws from could be a matter of perspective, according to Sarah Stein Greenberg, the executive director of Stanford University’s design school and author of the book “Creative Acts for Curious People.” 

In the design school, teachers implore students to think about framing design problems in new ways, Greenberg told the business publication Quartz recently. 

“What is the problem here, or the opportunity worth addressing?” she says. “We don’t just assume that we know what the problem is right off the bat. We really step back and investigate further.” 

Reframing a problem to allow for multiple approaches seemed to work for Chime when it tackled the problem of overdraft fees, wrote Chris Nichols, director of capital markets at SouthState Bank, in a blog post. It has been standard practice at many banks to charge overdraft fees as high as $45 per transaction, leading to customer dissatisfaction. Some banks addressed this dissatisfaction by lowering the fee, connecting accounts to cover an overdraft or offering an emergency line of credit. 

But executives at Chime looked at what led customers to overdraft their accounts, Nichols wrote in his case study. Using data, the digital banking company realized that “most overdrafts came right before the pay period, and the customers needed a bridge to their paycheck.”

This realization led Chime to roll out a feature that makes a customer’s direct deposit available up to two days early. That tweak “not only helped solve part of the problem but is responsible for a considerable number of new customers, thereby dropping customer acquisition costs,” he wrote. It has since been adopted by a number of banks and fintechs alike.

The takeaway, it seems, is that creative thinking and innovation might start by reframing the problem. 

• Kiah Lau Haslett, managing editor of Bank Director
Following a recent accounting change, small banks will miss out on a change on how loan modifications are treated and will need to revert to the onerous accounting and reporting requirements.

“I’m all for it, and good riddance. … TDRs stayed around well beyond their usefulness.” — David Ruffin, IntelliCredit

• Kiah Lau Haslett, managing editor for Bank Director
Banks must decide if they are willing to stay the course and overcome the limited opportunities to grow their business, or accept the favorable multiples they’re offered.
Bank must invest in primacy by fostering broader relationships with their most-valued clients if they want to significantly impact the bottom line.
Bankers can take several steps now to plan ahead and ease the stress of tax season.
Banks can apply the lessons from the coronavirus pandemic around digitization to continue investing in innovations that keep them nimble and agile.