BankNews.com Interview: Sean Payant

Sean Payant was recently promoted to president at Lincoln, Neb.-based bank consulting firm Haberfeld. BankNews.com Digital Managing Editor Sam Wilmes recently spoke with Payant to discuss the top issues banks face in the coming months along with M&A trends and digital payments. This interview has been edited for clarity. .SW: What are the top three headwinds bankers face in the fourth quarter of this year? SP: Continued uncertainty due to political pressures. We have much uncertainty and global instability, and that is drilling all the way down to the main street community bank world. In all areas of our economy, people do not want to make decisions. Everybody is holding and waiting. The lack of clarity on the rate environment is the next one. It looks like we are going to get a rate cut next month, but there is no crystal ball. Even with a rate cut, depending on how significant that is, that is an issue, because of the uncertainty. The other one is the health of the consumer. Consumers are spending more, but they are not swiping debit cards more. They are spending more on the same thing. Consumer behavior has not necessarily changed, but having to spend has an impact. SW: Could you describe the current political volatility? SP: Are we going to have tariffs? How are those going to impact the economy, the businesses that we bank? This back-and-forth swinging is causing uncertainty and people do not like uncertainty. SW: What do you make of the stablecoin industry and its potential impact on community banks? What are your views on the GENIUS Act? Passed in July, the GENIUS Act requires stablecoin issuers to keep reserves backing their tokens and defines the status of stablecoins as being under the supervision of the Bank Secrecy Act. SP: The payment system has been evolving forever. I remember when we did not have debit cards, and now we have digital currencies. I am only talking about the GENIUS Act in terms of stablecoin. It had to happen because we finally have a framework for aligning a digital currency to the U.S. dollar or the Euro.It is going to make the dollar more relevant because the volatility in other digital currencies has always been there. At least we have a mark to the dollar, and that was a huge win, because it now makes the dollar and the Euro relevant in the digital world. The thing that I see most advantageous for this payment system is international transactions that can currently take forever to get through, whereas this can be done instantaneously. I am still not understanding how I am going to use this on a daily basis, because I have lots of ways to pay for things. I can tap my iPhone, I can send you a Venmo. The regulations still need to be created, so this is going to be an evolving process. We need to have a regulatory framework around this.The one-to-one reserve requirement with the investment options limited to cash or Treasuries is going to be challenging, and it is going to need to be addressed. Because if a bank is heavily invested in stablecoin, that one-to-one reserve requirement is not going to be available to lend. That is going to impact liquidity as it relates to lending.Core deposits and core funding are going to become even more valuable, particularly as we look at this one-to-one reserve requirement and how that could all change with how this fleshes out. There are going to have to be changes. There are going to have to be parameters, but at least we finally have a digital currency marked to an actual currency. SW: What do you make of the current M&A environment? There has been an uptick of deals this year. What do you attribute the increase to, and will the uptick continue in the next 3 1/2 years under President Trump?SP: The reason we are seeing more M&A is, one, the market is more favorable to it. Two, it creates instant economies of scale. Absent of M&A, the most difficult thing a community financial institution can do is move into a new market. They have no name recognition. They lack convenience. I have one location in Lincoln, Neb., 300,000 people. How convenient is that for most consumers and businesses? The exception to that is a loan production office. You get the right lenders in there, and you can grow loan volume in a new market.Building a deposit franchise is difficult. Now that M&A is at a higher level, it is the easiest way for a community bank to exponentially grow into a new market. When there is M&A going on, we see that people tend to change financial institutions at a higher level. When it happens, the institution that is either merging or acquiring automatically has a footprint in a new community. And they capture the deposits, loans and everything else.M&A also creates economies of scale: I probably do not need two presidents and CEOs anymore. Operations teams, once conversion happens, can be shrunk to manage even more. From an expense side, you do more, you increase your footprint. If we have an institution contact us and they have one location in a major area, they are generally a business bank, because that is the primary way an institution can be successful in a large metropolitan area. With a single-branch model, we cannot help them grow. And even for an institution that may have multiple legacy locations in their legacy markets, I always have to stop them and say, ‘We will help you grow most effectively in your legacy markets. You will do well in those because you have an established footprint. You have name recognition. Your cost of acquisition in those other new markets is going to be much higher, because it is harder to grow in a new market.SW: Why do community banks continue struggling to find core deposits? SP: Competition in our industry for new customers is fierce. The largest institutions in this country are pouring tons of money into marketing. At the end of 2024, Chase put almost $5 billion into marketing. Wells Fargo was at $900 million. I get offers from Chase regularly to open a checking and savings account with them, so they are aggressively going at it. I can be sitting at a rural Iowa location for a bank and I can Google on my phone the term checking accounts in the particular city, and generally the top two paid offers are from Chase and Wells Fargo. There is not a Chase or Wells Fargo within two or three hours. Community banks have to maximize return on investment. Community banks can win deposits, but they have got to have slightly better products than their larger competitors. Their policies need to be friendlier.They should have consistent prospect and customer engagement processes. They need to promote or market in a way that maximizes the return on investment. Using data and analytics, you can look at a community bank's existing data, particularly for checking customers. You can see where their current customers live, where their businesses are. You have got your policies aligned to welcome new customers. You have got the processes to serve them well. Their people have been trained to execute effectively, only now the bank is promoting to people who have not picked them but should have.What we are trying to do to win this game is create top-of-mind awareness. We do not say it this way, but an example I often use is us saying, ‘Hey, we know you are perfectly happy where you're at today, but when you are not, we are here.’ That is really what drives growth, and we have been doing this for almost 38 years. There is lots of stuff you can do without creating complicated products. You can put out a high-interest checking product with no strings attached and pair it with a companion savings or CD that brings in new money. We have seen that be successful. Most institutions are bad at mining their own data for cross-selling or cross-serving opportunities. This is a product we know makes people's lives better. These are the customers who do not have it, who should have it. Let us reach out to them and create a vision for them on how this is going to make their lives better. That is for businesses and retail checking relationships. Once you get customers, you have to keep them. We focus on onboarding in the personal touch, but also we have a ‘set it and forget it’ onboarding program called FisionaryTM to pick up things that may fall through the cracks on a regular basis. That is going, ‘Hey, you opened a checking account. You did not take a debit card. We are going to send you an email inviting you to sign up for a debit card.’ The more customers that an institution has, the more profitability they have. Regardless of what happens from a regulatory standpoint, it provides them with more options because the more customers you have, the more options they have in a changing environment.