According to a comprehensive business designation study from The ROIG Group, a 11% of U.S. banks are currently well-positioned to adopt growth activities. Inversely, the research found that 89% of banks should be focused on other challenges to drive value.

“Most executives are wired to grow, resulting in too many companies being hyper-focused on growth activities, such as product and service expansion, growth through acquisitions, attracting new customers, expanding channels, and diversifying product and service offerings through new capabilities, when they are not ready to successfully execute,” Rob Willey, managing partner at The ROIG Group, said. “The customer or top-line revenue and bottom-line or profitability challenges vary widely based on the company’s designation. Getting the strategic direction right really matters and getting it wrong can be disastrous.”

The ROIG Group research uncovered the following about banks and their designations:

• 33% of banks fell into the revive designation.These banks do not deliver profits in excess of their cost of equity capital and may even face liquidity challenges. The relationship with their best customers is fractured. Revive banks must prioritize their efforts on fixing what is broken, pruning non-customer-facing expenses and underperforming assets and improve the earning asset mix. CEOs must be prepared to place large bets to turn the company around.
• 56% of banks fell into the optimize designation. This group of banks is profitable today, but the market believes they will be worth materially less in the future. Some banks may be hemorrhaging customers while other banks are growing. Optimize banks need to invest in improving the customer experience on one side while optimizing expenses and assets on the other. Streamlining is the mantra. It is difficult, but not impossible, to “restart growth” again. Growth efforts outside of existing capabilities should be scrutinized. Acquisitions need to be carefully vetted – there is no room for error.
• 11% of banks fell into the grow designation.Most banks with a grow designation are not only profitable today but the market believes they will be more profitable in the future. The challenge for these companies is to make sure the five-year business plan contemplates the right mix of growth. The type of growth innovation available includes product and services expansion, product and service diversification, acquisitions and exploring new customer markets and channels.

“Banks are jumping into payments innovation out of fear of ‘losing the race’ to fintechs, but how banks expand or diversify their presence in payments or make decisions to build, buy or partner are often more complicated than anticipated,” Sheree Thornsberry, payments and financial services practice lead at the ROIG Group, said. “They can be taken by surprise when they realize what they are trying to build does not fit with the structure, designation, or capabilities of their organization. What a bank should work on, and more importantly, how they should approach the work is materially different depending on designation.”