Whitepapers > The State of 2022 Bank Budget Planning
With the right approach to the annual budgeting cycle, retail and digital leaders can win alignment, create agility, and de-risk spending.
You’re a retail or digital leader, it’s midyear, and you’re asked to justify next year’s budget NOW. You know any plans and asks you make for next year may not age well: situations evolve and priorities shift. But through the annual budget cycle you commit to a work plan and a budget months ahead of time. You’re asked to bet on the future, and months from now your CFO may look skeptically at budget items for which you already won approval and cut them: After all, times have changed.
All retail and digital leaders who have participated in budget planning at a financial institution know the annual budget cycle can be nebulous, tentative, and as subject to revision. Budget holders feel the acute pain of the planning roller coaster, the initial excitement and ambition followed by pulled budgets and crushed plans. Too often, budget holders just go through the motions. T
o turn what seems like a burdensome and fruitless exercise into a genuine opportunity, let’s identify the disconnects between retail and digital leaders and CFOs:
These disconnects make foundational investments hard to sustain, and funds to pursue new enhancements hard to get. Partnerships that should be simple and straightforward end up taking far more time to implement. Projects get stalled and morale plummets.
There’s a better way. With the right approach to the annual budgeting cycle, retail and digital leaders can win alignment, create agility, and de-risk spending. Budgets stay funded, new features and experiences come to market faster and generate higher returns, and the bank gains the agility to to move quickly with the customer.
The right approach is centered in strategic engagement with the whole C-suite and focuses on taking a two-step approach to driving alignment with the CFO:
Let’s look at each step.
Foundational investments are those that raise your game. They make customer and colleague experiences better across the board. They enable faster delivery of new features and experiences. They make partnering easier.
What are the investments that are foundational to your organization? That depends on your organization’s foundational beliefs, that is, how your organization aligns on questions about a changing world and your place in it:
The answers to such questions have something in common: They each impact every function at the financial institution (FI). By asking these specific questions to each individual leader, you may discover that you don’t align as much as you thought. For instance, you might find that a handful of people believe that a specific technology — say, chatbots — are the future of banking, while another handful of people disagree. The disagreement is perfectly fine and reasonable, but you’ll want to find alignment before you commit to foundational investments.
In our experience, FIs that are finding success against their retail and digital KPIs regularly ask and gain alignment on these strategic questions. They may find their foundational assumptions include, among others:
With alignment on these foundational assumptions, retail and digital leaders can identify the investments that are foundational to the FI: that is, given how the FI sees the world and itself changing, the investments that will sustain it now and into an uncertain future. What could these foundational investments look like? At MX, we regularly support FIs in their foundational investments and in our dialogues with leaders at these FIs we see some common themes:
No matter what the future holds, you need clean and enriched data. Building a voice assistant? A chatbot? A financial wellness app? A better mobile experience? In every case, your data will serve as the foundation you can build on. This should be the most basic assumption in your budgeting plans, and if you’re not aligned here yet, the rest of your plans don’t matter.
Once you have the ability to clean and enhance your data, you’ll also need the ability to connect to financial accounts beyond your own. This entails offering secure, tokenized, and credential-free API connections so that you can reliably access permission-based data from a range of sources, including your competitors. Add these sources to your own clean and enriched data, and you’ll set yourself up to outmaneuver your competitors on a range of fronts.
Years ago, consumers used mobile banking when they couldn’t get to their computer or an ATM. Today, consumers will bank on their mobile device even while sitting in front of their computer. To the consumer, that’s “mobile first.” Usage is still growing quickly, especially as a result of the Covid-19 pandemic. Our own research at MX backs this up, revealing that 89% of consumers say they now use mobile banking more often than before the pandemic.
Banks that truly grasp “mobile first” understand true mobile convenience. They refuse to confuse a high number of mobile logins with happy customers. (After all, that metric could just mean someone constantly checking to see if they might overdraw their balance because the bank hasn’t figured out how to just warn them with an alert.) It also means that you think of mobile as the leading part of the money experience you offer your customers. With consumers relying on mobile so heavily these days, if they aren’t using your mobile app, they’re using someone else’s and you’re losing your most frequent touchpoint.
Banking customers crave convenience. After all, time not spent on banking is time they can spend on everything else. But what it means for a bank to be convenient is changing. Now, it means making it easy for a customer using a fintech app to connect the bank account they have with you. It also means sending alerts to the customer when what you have to say is important to them, and leaving them alone when it’s not. For that matter, some customers will want to review a budget for the coming month, while others just want you to flag dramatic shifts in spending and transactions that appear fraudulent or redundant (such as a forgotten or repeated subscription). It’s all about proactively helping your customers by helping them where they need and when they need it. Since that looks different for each customer, personalization will be foundational across your experiences.
With rare exception, every financial institution says that they want to help their customers improve their financial habits at some level. Unfortunately, it’s one thing to say you want to help and another thing to actually help. To be truly committed to financial wellness, banks need to first connect, clean, and enrich data, as we outlined above. Then they need to put that data to use by offering financial notifications and nudges. But that’s still not enough. To truly commit to financial wellness, banks and credit unions should offer financial literacy tied directly to personalized spending habits and decisions within the mobile experience.
In short, this is the culmination of each of these five assumptions. And the ROI potential for such a move is enormous. For instance, Boston Consulting Group (BCG) estimates that “for every $100 billion in assets that a bank has, it can achieve as much as $300 million in revenue growth by personalizing its customer interactions.” They add that they “expect personalized banking to drive material competitive advantage for first movers that embrace it over the next five years.”
Foundational investments can take significant investments of time, money and leadership attention. Since you’ve gained alignment on the need for these foundational investments, you stand a good chance of sustaining these investments over time and delivering results. You will also have a list of enhancements in mind. It might start like this:
The answer is to ask what objectives you’re trying to achieve. Why are you redesigning the application flow? What metrics are you looking to lift with a new financial literacy center? Achievement of these objectives is what you’re really fighting for. And when you consider these objectives, ask yourself: would you even be satisfied with achieving them? Is a 12% increase in checking application conversion rates your point of arrival? Or is it simply a guess in a business case--a guess the CFO may not really buy if pressed--as to what one approach to lifting conversion might bring? Your goal will always be to boost conversion, even if the objectives vary year to year. Your recast list might now start like this:
If you recast the work to achieve these goals as experimental and goal-oriented, you’re acknowledging the CFO’s suspicion the business case for any approach is speculative at best, but you’re offering something better: You agree to be held accountable for the budget applied to increase conversion rates doing just that. You may have different approaches in mind, and you will maintain the flexibility to find the best approach. Your ask to the CFO: a shared commitment to the goal of always increasing conversion.
Before you have this conversation with the CFO about what you’re really trying to achieve, you must prepare to walk the walk of true business agility. It may manifest itself in Agile approaches such as pods and sprints-- we’re fans of Agile here at MX. But what really matters is demonstrating you can act with agility. Ask yourself:
So, how do you sell this budgeting approach to your CFO and CEO? It starts with humility. No one knows, especially in an ongoing pandemic, what banking will look like in two to three years. We can guess, but we’ll likely all be wrong at some level. Given this, it’s essential to make investments around the core foundational assumptions above and then only work with partners that can pivot to meet changing demands.
By choosing such partners, you’re taking away the risk that comes with committing to a long-term year plan that’s cemented as soon as the contract is signed. Instead, your plans account for an ever-evolving environment and customer demands, which is a good thing because change is certain.
In essence, you’ll want partners who you can check in repeatedly with and who have the skills and tools to adapt to what you need when you need it (preferably without charging crippling fees to do so). When expectations of change are built into a partner contract, you know that your budget is aligned with the future. It’s the least risky bet you can make.