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Commercial Loan Automation
Credit - Small Loans
Real Time Payments
Converting Home Equity Lines to Loans
A dime is too small to turn your entire retail network around, but, thanks to insights and approach courtesy of Joe Culos, EVP at First Commonwealth, I believe that you can turn the sales focus of an entire salesforce very quickly. It takes coordination, vision and meticulous execution, and it can be done.
Joe’s bank, like so many others, is in need of loans. Those are harder to come by than ever, as PPP, stimuli and general economic conditions meaningfully reduced loan demand, as well as line utilization. Utilization of home equity lines of credit (HELOCs), for example, has dropped 12-15% from 45-50% to the lower 30% in the past year. Ditto for commercial working capital lines, and even credit card balances.
One step in the right direction is to shift emphasis from HELOCS to home equity loans HEL). The bank benefits from an outstanding asset, and the customer starts chipping at their debt using an amortizable borrowing vehicle. This is another example of “do good and do well” all at the same time.
The First Commonwealth team set out to achieve this shift by taking advantage of the current environment while making meaningful changes to the bank’s HEL product offering, salesforce mandates and incentives, and the product value proposition.
• Capitalize upon environmental factors. We are experience a confluence of factors that make HELs particularly attractive these days. Among these factors are:
o Rates are at or near all-time low, which is an excellent “call-to-action” for current and potential borrowers.
o Home values are growing quite rapidly almost across the board, including areas that have not experienced much growth or economic excitement for many years. This newly found equity can be liquified using a HEL to meet current needs.
o Customers are much more interested in their homes and their gardens, since the pandemic lockdowns compelled us all to spend much more time at our homes than usual. We now notice deficiencies and opportunities more than ever before, and are more motivated to deal with them.
o Demand for more solitary vacation type and the toys that come with them (camping gear; boats; RVs) has been growing steadily over the pandemic, and equity in your home is an effective way of financing such purchases.
Banks can “ride the wave” created by these changes by offering possible tax deductible debt through HELs.
• Change the product. HELOCs and HELs are typically medium-term debt instruments. Extending the maturity of the HELs makes them a viable competing product to the mortgage in terms of rate, maturity and monthly payment.
o Extend the maturity. The bank extended HEL maturities up to 20 years to reposition the product in the market.
o Allow lock-in of rate and period within the HELOC to encourage borrowers to capitalize upon the currently low rates and to start paying their loan back.
o Ensure amortization occurs, because it is in the best interest of borrowers who can afford paying a little bit of principal each month to start digging themselves out of the debt hole.
• Change the narrative. HELOCs were typically sold as a “just in case” liquidity. They are lines of credit to be used for temporary needs, such as tax payments or overspending over the holidays. Repositioning HELs as a mortgage alternative or a debt consolidation vehicle is quite a different approach. Prudent borrowers would use the loan proceeds toward longer-term projects (home improvement, RV etc.) with an amortization feature, or consolidate their other debts while fixing them with a low rate.
• Eliminate salesforce distractions. One of our weaknesses as bankers was our reluctance to accept super performance in one area only, even for a short period of time. Yet this is essential if you want to grab the full attention of the salesforce and create momentum toward action.
o Focus incentives only on the HELOC and HEL, away from all other competing loan products including mortgage. Exclusivity is the best way to give the product appropriate attention, which can be eased later on as performance improves and the sales force can see the impact of their focus on results.
o Make incentives meaningful. All too often incentives are too small to bring about behavior change. Use your incentive pool wisely, and make sure the amounts paid are large enough to impact what people do.
• Educate the banker; not just about the product features and functionality, but also about its value to the customer and to the bank. A central shift in performance measurement that is easily understood by branch managers is the shift from measuring units, or even growth volumes, to balance sheet growth, which is better aligned with shareholder interests. Such a shift helps the entire team move away from widget counting and toward managing the branch as a “mini-bank” with its own assets and liabilities, which is a step closer to “run it like you own it”.
o Teach bankers the way they like to be taught/trained, using short bursts of information, such as YouTube short videos, to share principles and tactics for the campaign.
o Inject as much fun and interest into the training process.
o Explain to bankers how the bank makes money, and why this shift to HELs makes sense to both the customer and the bank.
o Spend more time in your training on the why and how, less on the operational aspects. Those are critically important, but harder to learn, and might be better executed by support specialists within or outside the branch.
• Maintain the momentum. Campaigns are typically short, with the assumption that banker attention is short as well. At the same time, bankers like to leverage learning anything new over a longer period of time. Think through how you plan to maintain the momentum beyond the initial sprint to maximize campaign effectiveness.
In sum, there are six themes to a successful retail sales campaign or initiative.
1. Collaboration between the product people and the sales team from the onset of the process is essential
2. Advantageous environmental circumstances can and should be leveraged
3. Product features and functionality need adaptation to the customer needs that are at the center of the initiative
4. Meaningful incentives and clear direction (focus)
5. Education on your employees’ terms
6. Celebrate success early and often
7. Continue to feed the momentum after initial launch
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