Mercator Blog

Banking Channels Innovations Can Offset the Challenges of a Flattening Yield Curve
Date: July 12, 2016
Ed O'Brien
Director, Banking Channels Advisory Service
With long-term interest rates declining without a corresponding reduction in short-term rates, a flattening of the yield curve is occurring. Financial institutions typically look at changes in the direction and slope of the yield curve to gauge the sentiment of various markets. For example, 10- and 30-year bonds are often used as benchmarks for moderate-to-long horizon lending, such as equipment lending and mortgages.

A flattening yield curve often indicates that markets expect relatively slower, conservative growth in interest rates over time. Conventional wisdom suggests that expectations are subdued for the prospects of robust, long-term growth, causing some FIs to consider plans for potential future economic headwinds affecting banking in the United States. Of course, wildcards in the form of Brexit, Fed actions, and other factors may influence economic growth as well.

Amid all this uncertainty, banks and credit unions are deploying innovative channel solutions in order to better serve their customers and members. These services go beyond teller and customer service representative training, and often include branch and call center reconfiguration efforts, while melding branch, digital, and ATM capabilities.

Branches are now increasingly being used for education, with tellers and customer service representatives trained to better understand banking customer goals and needs and spaces allocated to allow consultation with subject matter experts. The fundamental role of branches and branch personnel continues to be evaluated.

Omnichannel banking is driving improvements in data management and integration capabilities at many FIs, including the introduction of customer and predictive analytics to better serve their customers and members. This includes the sharing of information about appropriate products and services while supporting increased interaction and engagement with today’s banking customers.

So, even though financial institutions can’t control the movement of interest rates and bond and note yields, they can plan for and control the efficiency and effectiveness of their operations by introducing key elements of an omnichannel banking environment. Much can be done by leveraging technology to improve the customer experience and enhance personal service. Banks seek a balance between efficiency and customer-centricity regardless of economic headwinds.