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E X E C U T I V E R E P O R T :

2017CSI Industry Thought Leadership

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Each November, CSI surveys banking executives from across

the country to gain insight on what they expect will be their

greatest challenges, top opportunities and foremost concerns

for the year ahead, as well as how their strategies will propel

them forward.

Our goal in conducting this annual Banking Priorities

Study is to deliver peer-to-peer insight that can help

financial institutions plan and strengthen their own

tactics for success, or simply verify where they stand in

relation to the rest of the financial industry.

This executive report analyzes the survey feedback on 10

questions answered by 163 banking executives, representing

institutions of various asset sizes and geographic locations.

Detailed demographic information concludes this report.

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BP17: Executive Summary

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According to survey responses, financial institutions seem relatively optimistic that the U.S. economy will remain strong in 2017—although they acknowledge they’ve got their work cut out for them. The Federal Reserve appears to concur, as evidenced by its Dec. 14 decision to raise interest rates by a modest quarter point, its second hike in a decade. It’s likely that the majority of survey respondents—as well as most in the financial industry—considered the rate hike a certainty well before the Fed’s December meeting.

The Fed also released economic projections on Dec. 14, indicating it expects the economy to grow 2.1% in 2017, and that it plans to increase rates three times this year in an effort to keep the overall inflation rate in check.

Even with the expected rate hike, almost half of survey respondents still think mortgage lending will remain healthy, but they also see fee-based income as a major growth opportunity for 2017. And they’re prepared to pursue—and increase spending on—customer experience initiatives like branch optimization and omnichannel strategies.

So, did the presidential election influence survey responses? Perhaps, but it should be noted that most respondents completed the survey prior to the election. Still, it goes without saying that bankers will keep an active pulse on the regulatory road map, since President Trump promised1 during his campaign platform to eliminate two regulations for every new regulation that takes effect, which would be an enormous task to accomplish.

BP17: Executive Summary

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Financial institutions seem optimistic about the year ahead, with a positive outlook on lending and customer experience initiatives.

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As expected, driving growth and profitability was named the greatest challenge for 2017, so said 72.2% of respondents.

The second highest answer in the challenges category was mitigating fraud/cybersecurity, at 46.2%, followed closely by

managing compliance (43%). Pursuing an omnichannel experience was named by 23.4% of respondents as their

biggest challenge in 2017; this initiative figured prominently in responses throughout the report.

Bankers listed their top opportunities heading into 2017 as follows:

growing fee-based income and revenue, 55.1%; reaching new customers

through omnichannel initiatives, 46.8% (up from 11.1% last year); and

getting more involved on social media, 37.3%.

Regarding how institutions expect such non-traditional services as

mobile wallets to affect their 2017 profitability, respondents again

foresee a positive impact, at 56.3%. This percentage has risen steadily

over the last three years.

In a new question this year concerning expectations on top lending

growth areas, commercial loans (55.3%) and small business loans

(53.2%) have the healthiest outlook, according to respondents.

Mortgages were a close third at 46.8%.

Respondents were asked to name the areas in which they expect to

increase spending in 2017, and three answers were neck-and-neck:

cybersecurity came out on top at 56.7%, with information technology

(56%) and customer experience initiatives (55.3%) closely behind.

BP17: Executive Summary

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Nearly three-fourths of banking executives see growth and profitability as their greatest challenge in 2017.

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Customer profitability was the top answer regarding strategic focus

areas for 2017, at 50.4%. Not far behind was branch transformation

(43.3%), which, like omnichannel banking, was selected in a few

survey answers as a strategic push this year. Relatedly, big

data/business intelligence placed third at 32.6%, up from just 12.2%

last year.

Regarding top security concerns for 2017, data breaches still ranked

No.1, but surprisingly, the percentage dropped from 79.2% last year to

56% this year. We again offer our perspective in the detailed review.

Also, a new answer option—ransomware—came in second at 49.6%,

followed by social engineering schemes at 43.2%.

We asked about omnichannel strategies in this year’s second new

question, and implementing a customer relationship management

(CRM) solution ranked first. Mobile banking adoption (46.8%) and

online account opening/funding (46.1%) also will be important to

institutions as they fight to retain—and attract—customers via

omnichannel banking initiatives.

As for 2017’s greatest compliance challenges, the Bank Secrecy Act

(BSA) and Know Your Customer (KYC) came in at a combined 66.4% on

the survey—a 26.8% increase over last year. Consumer protections, at

32.8%, also remained one of bankers’ top concerns, followed closely by

vendor management, enterprise risk management (ERM) and

mortgage compliance.

In our question on the topic of institutions’ greatest anticipated strategy to enhance the

customer experience, digital banking enhancements was hands-down the top

response, at 41%. CRM utilization ranked second at 12%, and omnichannel initiatives

came in third at 10%.

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Focus areas include omnichannel strategies, mobile banking adoption and online account opening.

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The following pages provide detailed summaries and analyses of the responses to each survey question.

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Driving growth and profitability was named—by a landslide—as

respondents’ predominant challenge for 2017, at 72.2%. While that’s

an enormous number, it’s not necessarily surprising; growth is always a

major challenge for any institution, no matter how healthy the economy.

Fortunately, according to reliable indicators, the country’s financial health

continues to improve across the board. The FDIC’s Quarterly Banking

Profile for Third Quarter 20162 provides the hard facts for the nation’s

5,980 insured institutions:

• The banking industry reported net income of $45.6 billion

for the third quarter, a strong increase of $5.2 billion, or

12.9%, over this time last year.

• Net operating revenue reached $183.3 billion, up 6.5%. The

FDIC attributes this increase to growth in interest-bearing

assets and improvement in the industry’s aggregate net

interest margin.

• Third-quarter deposit growth was strong, rising by

$270.7 billion (2.2%).

BP17: Greatest Challenges

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(Check all that apply.)

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And, as we’ve witnessed over the past several years, community financial

institutions performed better, overall, compared to their larger counterparts,3 with

revenue and loan growth that outpaced the industry. These institutions’:

• Net operating revenue increased 8.5% this year to $23 billion. Improvement in net

interest income (up 7.2%) and noninterest income (up $613.5 million, or 13.1%)

were largely attributed to strong loan growth.

• Small loans to businesses grew almost 3% from this time last year, with community

institutions holding 43% of such loans overall.

As for respondents’ other foreseen challenges, it makes sense that mitigating

fraud/cybersecurity was recorded as their second-greatest concern (46.2%). Again, this

statistic stands to reason, since one basic purpose of banks is protecting customers’

money. And although the types of cybersecurity threats ebb and flow (see page 21), their

existence is ever-present, as is regulatory scrutiny.

Managing compliance has become quite more complex in the past few years, so it’s

understandable that 43% of respondents call this a major challenge for 2017 (see

page 18 for a full analysis on compliance challenges).

Rounding out the top challenges was pursuing omnichannel initiatives (23.4%).

BP17: Greatest Challenges

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What are your greatest challenges heading into 2017? (Check all that apply.)

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Survey respondents’ top answer regarding opportunities this year was

growing fee-based income and revenue, which helps ensure liquidity

and offsets increased default rates.

Since interest rates remain low, institutions will continue to seek ways of

boosting profits through fee-based income, major types of which include

credit and debit card fees as well as charges for deposits, transactions,

insufficient funds, wire transfers, monthly services and overdrafts.

At 46.8%, attracting customers through omnichannel initiatives took

second place for 2017 opportunities.

It makes perfect sense that institutions are getting serious about

implementing an omnichannel platform, because consumer banking

expectations have forever changed, thanks to a digital evolution provoked by

the smartphone. We explore omnichannel strategies in-depth on page 16.

BP17: Greatest Opportunities

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(Check all that apply.)

10BP17: Greatest Opportunities

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In one of the more surprising, but welcome, findings

from this year’s survey, banks stated that increasing their

social media involvement would be their third-highest

opportunity in 2017.

Banks are realizing they can promote their brand,

products and services to an ever-growing audience,

while strengthening relationships with current

customers.

They would be wise, however, to review the FFIEC’s Social

Media: Consumer Compliance Risk Management

Guidance4 before launching major campaigns.

What are your greatest opportunities heading into 2017? (Check all that apply.)

37.3% plan on getting more

involved on social media in 2017.

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The percentage of respondents expecting non-traditional services to help their profitability in

2017 made a pretty healthy jump this year, climbing to 56.3% from last year’s 40.8%. On the flip

side, those expecting a negative impact dropped to 20.3% this year, from 28.6% a year ago.

This indicates institutions’ continuing realization that these services, particularly mobile wallets, nicely

complement their own offerings. For a small, one-time enrollment fee to such mobile wallets as Apple

Pay, Android Pay and Samsung Pay, banks preserve the sizable interchange income they receive for

each consumer transaction. With digital payment transactions expected to reach $314 billion in 2020,5

banks are understandably embracing these mobile proximity payments.

According to Aite,6 when such mobile wallets as Apple Pay use the existing credit card rails (Visa,

MasterCard, American Express and Discover) it, “simplifies implementation for merchants, issuers,

and everyone involved in the payment stream, and it’s in every participant’s best interest for (these)

payments to succeed.”

But we’ll see changes in non-traditional services beyond mobile proximity this year. Because of

the increased security that tokenization provides, the financial industry will see a shift in how

consumers check out online. By using a token, e-retailers can offer the same level of protection that

EMV cards bring to in-store transactions, with the encrypted token preventing hackers from accessing

consumers’ financial data.

Banks also will benefit from the expanded use of tokenization. Institutions are increasingly using

cloud-based data centers to store confidential customer data, and tokens can replace such unique

identifiers as account numbers and contact information, keeping them safe from cyber criminals.

NEGATIVEIMPACT

NOIMPACT

POSITIVEIMPACT

20.3%

23.4%

56.3%

2016 – 28.6%

2016 – 40.8%

BP17: Non-traditional Services

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2016 – 30.6%

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Commercial

Loans

55.3%

Small

Business

Loans

53.2%

Mortgages

46.8%

Consumer

Credit

34.8%

Agriculture

Loans

31.2%

Automotive

Loans

9.9%

Other

1%

It was good to see that most respondents plan for a healthy, balanced

loan program this year, which helps avoid risks from being too heavily

concentrated in one area. Commercial loans, at 55.3%, took the top

spot, followed by small business loans (53.2%). We can once again look

to the FDIC’s quarterly report to help analyze the survey responses.

According to the report, loan growth for all institutions remained steady,

with total assets rising by $232.6 billion, or 1.4%, during the third quarter.

Also, total loan and lease balances increased by $112 billion. Growth in

loans was led by gains in residential mortgage loans, followed by loans

secured by non-farm non-residential properties, and credit card balances.

But again, community banks outpaced the industry. Small loans to

businesses rose almost 3% over last year, led by non-farm, non-

residential loans (up $3.4 billion) and commercial and industrial loans (up

$3.2 billion). So, survey respondents appear to be right on the mark when

it comes to their 2017 plans for lending growth.

The mortgage lending outlook is still healthy at 46.8%, but automotive

loans accounted for only 9.9% of responses.

Home EquityLOCs24.1%

BP17: Lending Growth

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(Check all that apply.)

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Cybersecurity, at 56.7%, took the top spot for institutions’ planned

spending increases in 2017. This is no surprise—cyberattacks, data

breaches, cybersecurity assessments, and all things related are part of

bankers’ daily vocabulary—and cybercrime numbers increase with each

passing year. According to the Internet Crime Complaint Center’s (IC3)

2015 Internet Crime Report,7 that organization received 288,012

complaints in 2015 (269,422 in 2014) and logged reported losses of

$1,070,711,522.

Further, out-of-nowhere attacks like October’s massive distributed denial-

of-service (DDoS) hits on Twitter, Spotify and others make it clear that

every industry must be prepared for any and all attack vectors.

Coming in second for forecasted expenditures was information

technology (56%), which just barely beat out customer experience

initiatives (55.3%). Various survey responses indicate that banks plan to

deliver better service by implementing omnichannel and branch

transformation strategies.

Spending for regulatory compliance also placed highly, at 44%.

We explore the various challenges that likely shaped this statistic

on page 18.

BP17: Spending Increases

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(Check all that apply.)

14BP17: Strategic Focus Areas

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(Check all that apply.)

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The two top answers—customer profitability (50.4%) and branch transformation (43.3%)—go

hand-in-hand, since banks are increasingly looking to the latter as a crucial strategy for meeting the

demands of multi-generational, profitable consumers. Branch transformation8 entails the

combination of three tactics:

• Training branch staff to be “universal bankers” who specialize in everything and are able to help

customers with complex needs, far beyond the typical teller.

• Opening up the branch layout, allowing these universal bankers to move about freely and assist

customers both physically (taking a deposit) or digitally (assisting with online or mobile banking).

• Implementing technologies, like customer relationship management (CRM) solutions as well as

business intelligence platforms (which placed third on this question, at 32.6%), that let banks offer

customers real-time, individualized services. Further, core platforms that feature tablet

integration allow bankers to maintain core access as they move around the branch.

Customer profitability also depends on simply giving customers what they want.

An ABA survey, Millennials and Banking,9 demonstrates that this fastest-growing demographic should

serve as prime motivation for deploying innovative strategies—especially digital solutions for

managing their money. According to the report:

• 67% of millennials (and 50% of other customers) want digital budgeting tools

• 61% of millennials say that mobile has made tracking and spending their money easier

• 23% cite lack of a mobile app as the main barrier to bank engagement

BP17: Strategic Focus Areas

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Which of the following will be a strategic focus in 2017? (Check all that apply.)

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As mentioned earlier in this report, omnichannel implementation has been

top-of-mind for bankers for a while now, so we thought it fitting to ask

which strategies they plan on pursuing toward their goals. And survey

respondents named CRM implementation as their No. 1 strategy for

making omnichannel a reality (56.7%).

This makes perfect sense, since CRM solutions essentially form the basis of

integrated channel delivery. Banking-specific CRMs that are integrated into

the core platform give institutions a holistic view of the customer across

branches, digital banking, ATMs and call centers. With this information,

banks can better understand customers’ preferred products and services,

behavior patterns, channel preferences and emerging needs.

Not surprisingly, mobile banking adoption (46.8%) and online account

opening/funding (46.1%) also rated highly, as digital banking is an

essential aspect of the omnichannel experience for customers.

Financial institutions must strive to provide their customers with

integrated services without sacrificing the unique functionalities of

each channel. According to Celent,10 “multiple channels—digital channels

in particular—influence the consumer’s choice of banking relationship.

Banks therefore need to close the deal whenever and wherever customers

make the decision to onboard. To do otherwise is not just inconvenient for

potentially profitable prospects, it is bad business.”

BP17: Omnichannel Strategies

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(Check all that apply.)

17BP17: Compliance Challenges

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(Check all that apply.)

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The BSA continued to be a major focus by prudential regulators in

2016, and the attention will equally spill over into 2017 and 2018 as

witnessed by the new Beneficial Ownership and Enhanced Due Diligence

rule finalized last year. Consequently, BSA and KYC (affectionately known as

the Customer Identification Program (CIP) under the BSA) were named as

the year’s foremost compliance challenges.

Financial institutions will now have to collect the name, address, date of

birth and social security number for beneficial owners of certain legal entity

customers (business customers), and core banking systems must first be

updated to ensure accurate tracking of beneficial owners.

In addition, bankers must update their CIP policies and procedures to

ensure ongoing, satisfactory compliance. Though not required to be

compliant until May 2018, bankers must ensure adequate implementation

throughout 2017.

BP17: Compliance Challenges

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(Check all that apply.)

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Coming in second was consumer protections, which is equivalent to cybersecurity and

identity theft—the thief with no face. Consumers are becoming numb to the fact that their

personally identifiable information continues to be compromised, as it seems we almost daily learn

of a different merchant breach. Nonetheless, consumer protections bring a significant level of

reputational risk to an institution should they have a breach. Therefore, ensuring adequate

protections should be an area of concern for bankers.

In the same way, vendor management and ERM each came in at 31.2%. Prudential regulators

continue to pressure financial institutions to monitor third-party vendor relationships to ensure

the safety of their customers’ sensitive information. Likewise, when it comes to risk management,

examiners like to see an active management and an engaged board.

Though the TILA-RESPA Integrated Disclosures (TRID) Rule came and went, it left financial

institutions with a hefty hangover—accounting for the 30.4% of respondents citing

mortgage compliance as a continuing challenge. Although the CFPB assured institutions it

would be sensitive to those that showed a good-faith effort to come into compliance, new

mortgage rules and regulations are again on the slate for 2017. Incidentally, even though HMDA

was not identified in the survey, financial institutions must ensure proper implementation in 2017

since collecting updated government monitoring information will be required on applicable

applications beginning Jan. 1, 2018.

BP17: Compliance Challenges

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What are your greatest compliance challenges heading into 2017? (Check all that apply.)

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Though data breaches again topped the

list of bankers’ security concerns (56%),

that answer saw a drop of 23.2% from last

year. That, along with a slight drop for

account takeovers—from 35.4% last year to

33.6% this year—were the most surprising

responses in this category by far.

It’s possible that the relative lack of data

breaches this year—as opposed to the last

couple years—accounts for that area

registering as less concerning, and

complacency could be setting in. But even

though we’re not hearing as much about

them, data breaches continue to proliferate.

BP17: Security Threats

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(Check all that apply.)

Note: Ransomware and Interbank Payment Network Attack were added as answer options this year.

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In security news throughout 2016, ransomware11

grabbed the most headlines, so it makes sense that

49.6% of respondents harbor related anxiety. The FBI12

recently warned that, “Ransomware attacks are not only

proliferating, they’re becoming more sophisticated … if

the first three months of (2016) are any indication, the

number of ransomware incidents—and the ensuing

damage they cause—will grow even more … if

individuals and organizations don’t prepare for these

attacks in advance.”

Also, DDoS attack concerns rose slightly, possibly due to

the aforementioned widespread attacks in October.

Again, financial institutions should remain vigilant

regarding data breaches, although there has been a

related shift in mentality from examiners and security

professionals: today, it’s not about being bullet-proof;

it’s about being resilient. Institutions should operate

under the assumption that breaches are going to

happen, and focus on how quickly they can recover

from the punch and get back up.

BP17: Security Threats

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“Ransomware attacks are not only

proliferating, they’re becoming

more sophisticated … if the first

three months of (2016) are any

indication, the number of

ransomware incidents—and the

ensuing damage they cause—will

grow even more … if individuals

and organizations don’t prepare for

these attacks in advance.”

What are your greatest security threats heading into 2017? (Check all that apply.)

22BP17: Customer Experience

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What One Strategy Will You Pursue in the Next 12 Months to Enhance the Customer Experience?

BP17: Customer Experience

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For this question, digital banking enhancements came in first by

a landslide, at 41%. It’s no wonder—improved digital banking

experiences are a key factor to achieving customer loyalty. According

to Javelin Strategy and Research,13 81% of U.S. adults will use mobile

banking by 2020, and in 2015 alone, 28 million more consumers

adopted smartphones and 29 million more adopted tablets.

Further, the ABA’s millennials survey contends that banks offering

advanced digital services now—including mobile payments, budgeting

tools, mobile banking and wealth management—are better positioned

to engage millennial customers today and keep them loyal as their

wealth grows. And, this generation is set to inherit $30 trillion over the

next three to four decades.

In addition, CRM solutions, branch transformation and

omnichannel initiatives (a combined 29% of responses) all figured

prominently throughout this year’s report, and mesh inextricably

with digital banking innovations. It’s a welcome sign that bankers seem

more committed than ever to implementing new and innovative

technologies—and taking the latest strategic routes to get there.

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The following pages provide details on the more than 160 survey respondents who participated in the study.

25BP17: Demographics

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22.8%

16.3%

21.1%

9.8%

22.0%

8.1% C-level Executive

SVP

VP

Director

Manager

Other

16.3%

20.3%

17.9%

15.4%

8.9%

21.1%25 or less

26-50

51-100

101-200

201-500

501 or more

EMPLOYEE POPULATION

Also, 54.5% of respondents indicate they work in an institution with 100

or fewer full-time employees, while the remainder are in an institution

with more than 100 FTEs.

LEADERSHIP TITLES

The Executive Report: 2017 Banking Priorities Study represents feedback

from 163 respondents, 60.2% of whom identified themselves as a vice

president or higher at U.S. financial institutions. Another 31.8% of

respondents are either a director or manager at a financial institution.

A closer look at the financial leaders who completed this year’s survey.

26BP17: Demographics

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22.0%

32.5%17.1%

13.0%

15.4%

Less than $100M

$100M -- $249M$250M -- $499M

$500M -- $1B

Greater than $1B

INSTITUTIONAL ASSETS

Of this year’s respondents, 54.5% work at institutions with up

to $249 million in assets. Another 17.1% are from institutions

with an asset size between $250 million and $499 million; 13%

are from institutions with $500 million to $1 billion in assets,

and 15.4% stated their asset size as greater than $1 billion.

A closer look at the financial leaders who completed this year’s survey.

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Computer Services, Inc. (CSI) delivers core

processing, managed services, mobile and Internet

solutions, payments processing, print and

electronic distribution, and regulatory compliance

solutions to financial institutions and corporate

customers across the nation. Exceptional service,

dynamic solutions and superior results are the

foundation of CSI’s reputation and have resulted in

the company’s inclusion in such top industry-wide

rankings as the FinTech 100, Talkin’ Cloud 100 and

MSPmentor Top 501 Global Managed Service

Providers List. CSI’s stock is traded on OTCQX under

the symbol CSVI. For more information about CSI,

visit www.csiweb.com.

1https://www.youtube.com/watch?v=7xX_KaStFT8

2https://www.fdic.gov/bank/analytical/qbp/2016sep/qbpall.html

3https://www.fdic.gov/bank/analytical/qbp/2016sep/qbpcb.html

4FFIEC’s Social Media: Consumer Compliance Risk Management Guidance

5https://www.emarketer.com/Article/Newer-Smartphone-Models-Help-Drive-Mobile-Payments-Usage/1014736

6http://aitegroup.com/report/mobile-proximity-payments-disruption-force

7https://pdf.ic3.gov/2015_IC3Report.pdf

8http://www.csiweb.com/resources/white-papers/branch-strategy-determines-the-future-of-your-financial-institution

9http://www.aba.com/Tools/Documents/Millennials-Banking-Infographic.pdf

10http://celent.com

11http://www.csiweb.com/resources/blog/post/2016/09/07/ransomware-threatens-us-all

12https://www.fbi.gov/news/stories/incidents-of-ransomware-on-the-rise

13https://www.javelinstrategy.com/coverage-area/2015-mobile-banking-smartphone-and-tablet-forecast

BP17: References

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