Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewbusiness banking customers' wish list
I continue to be amazed by the disconnect between what we think our customers want and what they find important. A recent Raddon Report reminded me yet again of this phenomenon, which I confess is quite puzzling. This information, which has been produced by Greenwich Research for years, has been consistent over time, and yet our own perceptions of customers' desires haven't changed.
This article is a reminder of the single most important factor in our business' success: giving customers what they want, instead of what we THINK they want.
When asked what factors are extremely important in winning new commercial loan business, 92% of the bankers surveyed rated the power of their personal relationship with the borrower as extremely or very important to winning the business. Only 49% stated that more favorable terms and conditions played a key role in the win, and price is even lower on the list at 31%.
Other important factors as per the RMs were speed of approval (73%), bank's financial stability relative to the competition (71%) and customer's perception of the bank's expertise in their specific line of business (61%).
Raddon also surveyed 1,200 small business owners with sales under $10 million. The respondents were cautiously optimistic about the economy: 57% of those surveyed anticipated sales growth this coming year. This is much improved since 2009, when only 15% of small business owners expected sales to rise, which implies that sentiment regarding the economy is moving in the right direction.
Raddon also found that the rise in sales optimism is accompanied by an increase in loan anticipation, as 39% of the respondents indicated they anticipate seeking a loan from a financial institution this coming year. This surge in demand is great news, but the real question is, who will capture these new loans?
When asked what are the factors that will weigh most heavily in the lender selection decision, the usual mismatch between our own expectations and the market preferences is present. Favorable loan terms, speedy approval and financial stability topped the respondents' list of factors, assuming identical loan rate. Familiarity with the banker ranked 7th out of 8 factors.
Interestingly, the fourth most important factor was confidence in getting the loan from the financial institution in the first place. A better product suite ranked 8th in both surveys.
SuperCommunity banks are in a good position to capture new loan business in 2014. 67% of small business owners identified one of the six largest banks as their primary financial institution, and over half of them anticipate asking for a loan this year. Only 13% of the remaining 33% of small business owners that named any other financial institution as their primary relationship indicate they will seek a loan this year.
Another interesting fact: 80% of the respondents said they are looking for a one-stop-shop provider to take care of all their financial needs, and 74% were looking for customized solutions or unique services to meet those needs. One interpretation, offered by Raddon, is that this indicates that relationships are important to the small business owner, but the meaning of the word is different from our own interpretation. It isn't about who takes care of the customer but more about the products and services that are tailor-made to them.
The business banker remains a critical link in the chain because he or she is the key to effective needs identification and product suite customization. Further, products and services include explaining to the small business how the bank's products can help the business function efficiently and grow. The small business customer is truly looking for the trusted advisor, the position we have been attempting to occupy with little success all along.
The implications to the SuperCommunity bank are profound. We thought we started from a position of strength, where relying on personal relationships was a major competitive advantage. The Raddon survey reports that cold, hard facts such as price and terms now dominate the bank selection considerations, which isn't good news for us. Larger banks can compete more effectively than smaller banks on pure financial firepower.
My interpretation of the Raddon research comes back to our core value proposition: we provide value add for an additional price. Our bankers should be better educated and better paid then their large bank brethren. They should be able to offer customized solutions that are tailored to the customer needs by being better listeners and making the time to fully understand the customer's current business and future aspirations. And, they should remember that most small businesses do not borrow, and especially those who choose to bank with community institutions, as the Raddon survey validated yet again.
The opportunities in this space are still strong and growing. Our "wedge" to snag share should not focus on the loan alone, where our leverage is minimal. It should expand to a broader context, including treasury management services that aren't designed for large corporations and are priced accordingly. I believe all businesses - even small ones - are willing to pay for value. It is on us to demonstrate that the value is there, and then price our products accordingly.