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NXTsoft's webinar series titled Pausing the Pandemic Panic: Ideas and Solutions for Financial Institutions in these Uncertain Times is designed for bank and credit unions to address topics that are affecting financial institutions in these uncertain times.
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'Lowering Your Operating Expenses in A Time Where Liquidity Means Survival' with Rich Longo, President, NXTsoft Omni Platform.
Hi everyone. Thank you for joining our presentation discussing, like Ben said, lowering your operating expenses in a time where a liquidity means survival. Obviously as we go through this challenging time, the impact with COVID-19 and what that is doing to the overall banking market, it is having a significant impact, and either with your commercial clients and how it's affecting their businesses, your consumer clients and how it's affecting them personally in terms of their jobs, whether they work for a large company, small company, whether they're part of the gig economy or whatnot, and with your commercial clients, they're needing you more than ever now as you're probably all experiencing with this SBA paycheck protection program and the process that you're going through.
Really and truly, that's testing a lot of things. It's testing your ability to quickly adapt to the rapid changes that are happening through that application process, both from a technology, operational perspective and whatnot. But from a first concern perspective, obviously liquidity, whether it's the PPP or whether it's your customers hopefully this week getting their stimulus money from the IRS, it's making customers look at their financial institutions with more scrutiny. So what we're seeing is whether it's commercial institution, excuse me, commercial clients or businesses that are going to their institution and they don't have clarity, but there are an online providers that are quickly adapting and having offerings and services, it's putting more pressure than ever on traditional institutions.
It's giving exposure as you see that many of those customers are liquidating stock, going into more of liquidity and then looking at relationships where they offer higher savings rates and money markets. At the end of the day, we talk about the benefits of community banks and credit unions that have that personal relationship where they can come into the branch and talk to them, which a lot of these online banks don't offer. But because of COVID-19, they can't go into branches and they're seeing quicker response times with PPP loans, quicker response times in terms of other services and even higher rates or no fees.
So the question is how do you adjust as an institution? The first step is unlike those companies that you just saw on their logos where they do have a lower overall cost ratio because they don't have that branch process, they focused on automation and channel optimization, we're going to kind of cover areas that you can take into your current model, your business model and you can kind of re-look at and potentially have an impact on.
So six key areas that we're going to focus on today is business realignment, channel optimization, your process costs, your staff productivity, technology and automation, and then finally vendor relationships. So if we focus on our business realignment, what we're seeing from several institutions, and I'm sure a lot of you've already looked at if you're a bank, is that you're making actions like freezing your board fees and employee bonuses, differing interest payments on trust preferred debt and making a lot of those sound decisions. In addition, looking at your overall collateral.
Just like in 2008, being more proactive before the regulators are going out there and putting in place an order or a process to order new appraisals for potential at-risk loans based on your more riskier industries, let's say, or based on the soft hits of the credit reports you're pulling in. Or if you know your, for example, your customer is an airline pilot, that could potentially be a higher risk for you and so you want to mitigate those risks. Some of the things that we're hearing, and again with the liquidity and people are going back to the basics, there's this kind of, and there's been several articles recently written about it, the whole Dave Ramsey approach of envelopes and there's some solutions out there in institutions that are now deploying that digitally.
So if you think about it, one checking account and adding sub-buckets into there where a customer can identify, add that $1,000 they have in their checking account, what are going to utilities, what are going to mortgages or rent, and then prioritizing and understanding where they might be sure and how they can prioritize. There are some small businesses reaching out and looking for advice on cost reduction opportunities. This is an opportunity for you as a business to get ahead of that, build a stronger relationship with that institution, but also have more insight on potential risk from potential defaults, right? Prioritizing what they'd pay first and what they'd pay last.
So for example, some people might not even call the electric company to see if they can have a deferment, which a lot of electric companies are doing right now, and won't pay, for example, their auto payment or they won't pay their mortgage. So this is an opportunity where you can get ahead of that and have your folks kind of focused on proactively helping that. Then because of all the layoffs, what we're seeing, and furloughs, what we're seeing is more people entering at a high into the gig economy. So things like Uber Eats, Grubhub, people are starting to get into those gig opportunities and jobs to cover their bills, but their financial institution aren't offering the products and services that are focusing on someone that gets paid on a daily basis and those can be small loan advances.
If for example, you see for the past two weeks, your customer who was furloughed is now working for Grubhub and they're making 200 a day doing deliveries, they might need a one 200, $300 advance. There are other apps out there that do that and that's an opportunity for the bank where you have a strong ability to repay. The volume is there. It's increasing because people can't go necessarily to restaurants or they're ordering in more. You can just see the trends of those businesses picking up and the activity and understand that your customers are supplementing their income that way. So it's important that have bank products around that.
Some of the areas we've also seen is taking out some of the back office team members and proactively reaching out to the customers, outreach, seeing what other services or what other things they need proactively from your institution. It might be a business that needs to restructure their debt. Again, being more proactive with that. A loan officer might not be able to reach out to all of his commercial clients within a week or two or touch in on a weekly basis, so augmenting that and being proactive with your commercial clients and consumer clients can be, again, something where you can mitigate any potential aging payments and risk to the portfolio.
Another piece we've been seeing in small community institutions helping, more proactive business partnerships. So if someone gets alone, maybe it's to the local barbecue place and you're doing dinner, take out dinner for two. A local community bank here saw, and I was talking to the president of that community bank, saw that a business that they've had a business relationship with a small restaurant for years was in financial trouble because they weren't in the best residential location. So what they did to help them is anyone that closed them a loan amount over $25,000 got a $75 certificate on them for dinner from the barbecue place. So that was a way where the financial institution was helping the business and the business was able then to pay its obligations to the financial institution. So it kind of all worked out and seeing positive things like that.
So anyways, so the other piece that we're seeing a focus on is customer channel optimization. So today, if you look at your online banking or mobile banking solutions, a lot of your vendors today, it doesn't matter who you have, but a lot of your vendors have different automation tools that you can select as options. Once again, because your customers cannot come into the branch, more than likely they're overwhelming your call center or your customer service or the people that are picking up the phone system. So this is a perfect time to kind of look at your solutions, see where your call volumes are coming in. But here's an example of some like chat bots where you know if they're looking and have a question and they can't get ahold of someone, they can ask a question and the system will automatically give them those options, validate them from a security perspective pretty easily and be able to process that for their customer.
So at the end of the day, what it does is it limits to the need to have overtime for your employees. It increases the retention levels for your customers and it lowers your overall cost, so you can focus on things that do require more time intensity areas in your business. Some simple areas that are very common could be card disputes. Some basic payment extensions maybe if you have a general program that allows a onetime 30 day or payment extension, debit card orders or disputes. You would be surprised with your current vendors today to activate those types of enhanced functionality is not as hard and it could help reduce your overall costs in servicing the customer, being more responsive to the customer and not losing that customer because they don't feel you're being responsive.
From a process cost perspective, what we've seen too is a lot of institutions looking at all their procedures and policies, right? So really and truly, even in our own business, we never kind of reevaluated a lot of our processes and procedures and how we service our clients or what the cost was to service our clients, because at the end of the day, our clients were happy, it was meeting the needs and and so we progress forward. So now, there are a ton of potentials on the way you're doing business procedures that have existed for 15 years, not because they were the most efficient, not because they took into account some of the additional new processes that you had, but just because they've existed that there are potential areas to being more efficient.
The easiest areas to focus on is to get feedback from the frontline, areas where they have the highest process areas and defects. So things that are coming back in the process, people that are having to readdress any type of process and correct it or reach out to the customer again, I'm sure there are two or three things that come top to mind and you say, "Well, we have to do it because it's part of the procedures or policies." Well, again, this is an opportunity to have significant or impactful, meaningful impact, your overall costs. At the end of the day, whenever you do that and if you want to get traction across the entire organization, you measure for those successful outcomes on reducing times.
So you set the baseline of the process always and you show a quantifiable result, right? The quantifiable result, which usually always grabs the attention of a CFO is you take the average time effort of let's say 10 minutes and or let's say, yeah, 10 minutes and you pay the person $50 a day or an hour, or excuse me, $15 an hour, and you divide up that cost and you factor it in, and you would be surprised by shaving off that amount of time or effort or the amount of time, let's say in that process 30% of the time, let's say on an application reject, it comes back to you and you have to review it or the information is incorrect or it was miskeyed or whatever it may be, that has an underlying cost that is integral to the organization.
That can extend to things too where you service your customers and you're supporting them on on simple questions like internet or mobile banking, and looking at the processes is that, or the data and how you're laying it out, and being proactive to fix those sorts of things.
The next piece you know is focused around staff productivity. Really and truly, if you think about it, a lot of us have different types of collaboration and productivity tools. So for example, here we use Microsoft and Office 365. Well if you in your organization use for example Microsoft today and Office 365, there is an application on there that everyone have access to and doesn't cost your organization additional amounts of money on the Office 365 platform, that's called My Analytics and basically it shows how you interact. So My Analytics is tracking your calendar, your email activity, the things that you normally do in a day with the Microsoft products and it looks at and provides recommendations on how you can be more productive. In addition, My Analytics represents the individual, but then you have Workplace Analytics which helps the organization overall look at productivity issues.
There are also additional tools out there that, if you're not using Microsoft that are out there like Timely and others, you might be using Microsoft Teams for communication, Slack, Zoom, whatever, all those tools today have layers of productivity tools in them to help you understand how to work better. So I kind of listed the other tools down there, Salesforce, SharePoint. For example, if again you're using Microsoft email, instead of sending emails back and forth to find a time to meet, they have a free tool on there called them Find Time and it's a voting thing and you can quickly get an assessment of what the best time is. All these individual things add quantifiable reduction in costs. So you're being more effective to things that are proactively bringing stuff back to your business and adding to bottom line liquidity in the business.
So we talked about you how you're using them today, but more importantly, how you could be using and improving them. What we found super helpful too is with the tools you have, you would be amazed by the amount of YouTube videos that are out there on productivity tools, especially for smaller institutions. You don't want the cost of paying for an advisor or consultant or whatnot. But there are self education tools and self content out there that really can help you and understand how to better utilize those tools. Then from workflows and how you're doing it and when you're tracking the amount of time, you could then create some rewards and contests within the company to look at better productivity. You would be amazed the amount of feedback you would get. Once again, this is an opportunity to get input, buy-in, bring your staff into the journey and again, once again, reduce costs.
So some things that we're seeing on the technology and automation side is there was never really a focus on connections like API, SDK, whatever interfaces that you might utilize today. To certain extent, you are okay with a manually reentering things or because of the processes or because you're not a big staff, you never looked at automation tools. Well, one area where we're seeing can easily add to the bottom line for an institution is increasing your ability to fund, for example, SBA, PPP months. So there are tools out there, and I threw out like for example here a workflow where you have your digital application and user interface, user experience, whatever vendor that is, and there are tools that can take that instead of a human touching it, move that data into SBA E-Tran for example, get you your approval with your number then transfer that data into your LOS.
Once you have your SBA E-Tran application approval number and then go into the LOS, go into the final underwriting, and once again the system automatically transferring that data into your loan docs system, whoever that might be. Then finally for funding, bringing them into a core system. So taking this process, if you were approximately a $150 million asset institution focused on let's say commercial lending, you could go from eight to 10 applications to over 100 applications by automating a process like this, and that's how quantifiable and that obviously means bottom line revenue to you as an institution based on the fees that you can collect from SBA, and then obviously helping your customer too.
There are also other things that you can leverage today too. Again, almost every system out there has different layers of business rules and decision configuration models, even some base systems. So it might be helpful to dig into that a little bit more and see what other tools that you can automate. There are also tools that are self service tools that you can push out to your customer. Then there are some educational tools and content tools that you can create while you're educating one customer, you can post it on your website and give your customer the opportunity to educate themselves too. Obviously, incentivizing them. Again, once again, lowering your overall costs.
So one example I wanted to give too, and again when we talk about APIs, which are interfaces, and RPA, which stands for robotic process automation, and again, a lot of tools have this out here. This is just an example of ACH stop payments. Obviously, almost every institution on a daily basis processes ACH stop payments. So for example here, this just talks about the different applications, in this case it's FIS. FIS necessarily doesn't have all the integration components necessarily out of the box, but there are processes and tools that you can utilize to automate that to go from a 10 minute process to a workflow where no human touches it and it's less than one minute process and then take it from a 10% error rate to a 0% error rate.
Some other areas that we've seen recently in terms of cost impact and cost savings has been on the consumer loan processing side, going beyond SBA. So this can be to mortgages, consumer loans, refinance, whatever you're doing where you don't have to just copy and paste the data over and automatically transfer it over. Email automation use cases. So again, when you're sending out communications that are approved by your customer to communicate that way or text communications or whatever those communications are required, that that's all being done automatically with the templates in place.
Then data validation automation. So there are tons of free tools out there, whether it's connecting into the interfaces to your DMV, to tax payments, to property appraisal websites, governmental websites that you can port that data in rather than you have humans go and do that, and again, reduce your overall costs.
Then finally, focus on vendor relationships. So there are tons of opportunities where you can broaden and grow that relationship where you're extracting more value for your institution, and again, it's impacting your bottom line. So some of you might have automated vendor management processes or vendor management tools. So if your vendor is not complying with SLAs or whatnot, there are usually contingencies across where you get some type of refund. What we're seeing a lot of right now is if you're willing to renegotiate your contracts and extend out terms, that vendors are offering meaningful concessions in those contracts. So if you're willing to extend out your contract another two or three years or whatever, you're seeing your monthly payments drop.
We're seeing companies too offer complimentary assessments on how they're utilizing your system. So you're a Salesforce vendor, excuse me, company that's using, or bank that's using Salesforce, they're offering free classes to kind of study how you're using their tools. FIS has been offering it to other vendors out there too. So that could be super helpful for you. Requesting a presentation of new updates. Because in a lot of these updates, especially the investments that a lot of these technology vendors or other vendors are offering, they're automating tasks. Again, that helps take out costs.
Offer to be a reference site. So what we're seeing with a lot of these vendors is they're offering financial concessions of some sort, especially your core vendors for example, financial concessions if you're willing to be a reference site for them. That could help lower your overall bill or maybe get additional functionality that'll help you automate things. Then finally, question the value of every single vendor. I think we have one institution question how they used phones. We did it here too, but they went from using a relationship like Century Link and going to a voice over IP, which was able to lower their overall costs by about 70%. So this is the opportunity to really dig in and see where else you could cut cost and don't only focus on your most critical vendors, focus on every single vendor.