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As part of our ongoing series from Banking Transformation Week, we’re highlighting an interview with Brent Beardall, CEO at WaFd Bank, and John Maxfield, Executive Editor at Bank Director.
Beardall shares his views on the future of regional banking as well as best practices at his bank. For example, as the banking industry evolves and consolidates, WaFd is increasingly focused on winning revenue via improving the customer experience. “In 10 years, I would guess we're going to have half the number of banks we have today,” Beardall says. “If we just keep our head in the sand and let the big banks take market share, there won't be any business for us.”
WaFd has made amazing progress on this front, going from a Net Promoter score of 17 (a number already above the average score of 12 for large banks) to a score of 47 in just three years.
The focus on customer experience has led WaFd to offer MX money management on mobile devices. Beardall says that the smartphone has revolutionized banking, replacing the branch as the go-to banking channel. As such, mobile banking has been essential to improving the banking experience.
In this interview, Beardall also talks about why he thinks open banking is a big deal, why WaFd has an advantage as a large portfolio lender, what technology stands out to him right now, and more.
See the full interview and transcript below.
What about banking has surprised you the most over the past decade?
What’s surprised me is the impact of technology. The impact that the iPhone has had on banking is simply revolutionary. Everybody used to think, “I need to go to my branch to do my banking.” Now you just take out your phone. It has made banking simple, easy, and fast.
Another thing that has surprised me is that you would think money would be more fungible, that people would be more willing to move their accounts. But the opposite is true. Money is stickier today than it ever has been. And that's evidenced by the fact that in the United States today, there's $3.2 trillion dollars sitting in noninterest bearing accounts when they could all open an account online and move it to something earning 2%.
10 years from now, where do you see the industry?
We need to acknowledge that there has been massive consolidation in the last 30 years. Two thirds of all banks have been consolidated in one form or another. We've gone from 15,000 FDIC-insured institutions down to 5,000, and that's going to continue. There are no two ways about it. The bigger banks are getting more deposit market share, and so that you're going to continue to see consolidation.
In 10 years, I would guess we're going to have half the number of banks we have today.
As a regional bank, as a community bank, we have to evolve to survive. If we just keep our head in the sand and let the big banks take market share, there won't be any business for us. So I think that's where the industry is going.
But I think there's still a place for relationships. We like to say we're big enough to be relevant, small enough to be nimble. One thing the megabanks can't do is be nimble, and it turns out that businesses and business owners want to meet with decision makers and have a relationship. That's something that can't be mimicked with an algorithm.
Talk about your growth strategy. How has digital banking impacted that?
We've had a phenomenal story in terms of growth. We went public in 1982. Our compounded annual growth rate from an earnings per share standpoint is around 7%, so we've really had phenomenal growth in earnings per share.
But it's not just about earnings per share. We need to grow revenue. So we have changed our business model to focus less on acquisitions and more on organic growth. How can you deliver a product that your friends and neighbor want to use? And right now, the fintechs are really kicking our tail, right? You look at what PayPal has done —all the millennials bank with PayPal.
And so we're totally focused on organic growth. And if you think about what we have in terms of market share, we're less than 80 basis points of our eight Western States. So there's a huge opportunity for us. I talk to some of our largest clients and I say, “Do your kids bank with us?” And what they tell us is they do bank with us and they have CDs, but when the CDs mature, they take the money away.
So we need to change to offer the product that millennials want to use. And it's a combination of both technology, ease of use, and transparency so people know when, where, and how their banking happens.
It's also about banking with a purpose, and I think we have a great story there. We just don't tell that story very often.
What numbers and trends are you following now that you weren't following, say, a decade ago?
A decade ago, we were hyper-focused on expenses: How do we manage with the least possible amount of operating expenses, which is a great thing. We've had one of the best efficiency ratios in the country. It's what has kept us independent for 103 years.
But I am now less focused on the efficiency ratio and more focused on the customer experience. And we're measuring that with what's called net promoter score: How likely are your clients to promote you to their friends and neighbors?
And we've had a great story in the last three years. We went from a positive 17 to a 34, all the way to a 47. So that tells me that all of the initiatives we're working on are delivering.
Do you see the source of competitive advantage in banking changing right now?
Very much so. There had been a huge paradigm shift. Now your source of competitive advantage is how easy and good it is to use your mobile product and your online banking. Banking needs to be simple, reliable, and fast. It doesn't need to be earth shattering. People want to get in and do their business and know they can do it. And so to me that is the real competitive advantage you can have.
But if you compare that with relationships and why, right? Because millennials care about more than the bottom line. They care more than, “Okay, can I have two extra basis points on my deposit accounts?” They ask, “What are you doing to give back to society?” And we have a great story. We are the largest bank in the country that's a portfolio lender. We keep every one of our loans. What does that do for us? That allows us to work with you if you have a loan. If you were to have troubled times, you can come to us and we say, “Okay, tell us about the situation. What are you doing to help yourself?” And so we can help you.
If you go back to the great recession, we modified some 3000 mortgages. We didn't have to follow any of the government programs. We simply sat down with our borrowers across the desk, had a conversation like this. We looked each other in the eye and said, “Are you helping yourself?” We figured out who was the strategic defaulter and who really had need. And for those that had need, we took their interest rates down from, you know, 5% to 3%. We capitalized old payments and maybe did an interest-only period. And 96% of those 3000 loans are performing. More than that, we have customers for life because we stepped up and helped people in their time of need. And I think that's one of the great lessons of the great recession that not a lot of people focus on. People want to do what's right, but banks need to be in a position to allow them time to work through it. When you force someone to make a decision at the worst possible time, they're not always gonna make the best decision.
But if you can give them the flexibility — and that's what capital allows you to do, that's been one of the secret sauces to Washington Federal Bank over the years. We are one of the best capitalized banks in the country. If you look at the common equity tier one ratio, we'd be in the top 15% of the largest 100 banks. It allows us to be more patient with our borrowers in those troubled times.
So open banking: Big deal or much ado about nothing?
You know, I think it's a big deal. I think we have to be careful with it because of privacy concerns, but data is everywhere. And at first you think, “Well, this is creepy. Why should they know what I'm doing and where I'm doing it?” But it makes sense when we're on Amazon and all of a sudden the suggestion comes up, “Oh, by the way, you just booked a Hawaii vacation. You might be interested in some sunscreen or new swimsuit.” That makes sense.
If we can do the same thing in the banking sphere that makes all the sense in the world. For example, if we know that you have $2,000 in your checking account and you're paying 22% on your Nordstrom checking account or your Nordstrom credit card, wouldn't it be helpful if we came to you and said, “Hey, take some of that balance down, pay off the credit card and we'll give you a line of credit to cover off the tough times that might come in the future.”
Are there any cool technology products that you've implemented that you've really seen a lot of success with?
There's a lot that we're really excited about. MX is one of the great vendors that we're working with, and they have the financial Pulse that really helps people understand how they are doing in terms of their goals. One of the big things that I believe in is that financial stress is one of the leading causes of suicide. That's huge in our society. That is huge. If we can make just a small dent in alleviating that financial stress by providing certainty, then that will be helpful.
So MX is a great aggregator of data, and in their mobile platform you say, “Wow, okay, I don't need three different Netflix accounts or Apple music accounts.” That makes a huge difference.
One of the things we did that's not so much technology but a product set was the government relief loan program, where when the government shut down. We said, “These people are really in trouble.” And call me old fashioned, but I believe banking is to help people provide certainty in uncertain times. You talk about uncertain times, they didn't know when or if they were going to get paid. We all thought the government would open back up and at some time the government would pay them their back pay, but there was no contractual obligation.
So in the span of two days, we launched a product that gave them a line of credit for up to six paychecks and we did it at no cost, no origination fees and no credit check. That's making a difference. That's helping people's lives. But the scary part is we had to do it without technology because our technology today isn't nimble enough to be able to access it online. If we were going to do it with technology, it would have been a matter of weeks and it would've been too late.
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