Chief Investment Officer
Commercial Loan Automation
BirdsEye View2017 - the year of business banking?
We all know that competition is intensifying across all segments in our industry, borty from our brethren as well as FinTech firm. I can also feel it in my bones that competition for deposits will meaningfully intensify this year for the first time since the financial crisis. The answer to both issues is a renewed focus on Business Banking: organization, products, distribution and pricing.
Business Banking (the definition among SuperCommunity banks varies widely, from loans up to $250K to loans up to $5MM) is a business that banks have not solved for fully. There are some fundamental misconceptions about the segment to begin with:
· They want to borrow money. While small businesses do want access to credit, most (the figure most quoted is 70%) do not borrow. They all have deposits and cash management needs, and prefer credit availability as an add-on.
· They won’t pay for banking services. Even though the majority of small businesses elect free, no-frills basic banking service packages, ACI offers evidence that, on average, they generate $451 in fees per year, and they upgrade to premium services when needed.
· They are “small potatoes” and pale by comparison to the big borrowers. Barlow Research estimates that small businesses represent a $56.9 billion revenue opportunity for financial institutions. They pay fees to their banks and to FinTechs. A recent Aite study shows that 72% of small businesses are paying for banking services. The opportunity is there for the taking, but it is also evaporating as we speak with greater FinTech responsiveness.
· They are expensive to service. A recent survey from a typical mid-size bank shows that over half of their business banking customers access their website, while only 30% touch the branch each month. Out of an average of roughly 20 touches per month, the business banker contact (AND their assistant) accounted for only 8% of all touches. Adding that to the branch touches, almost 2/3rds of the business banking customers’ touches were remote. They continue to increase use of digital channels and decrease the use of non-digital channels, including the phone.
· They are focused on their business banker. That same survey indicated that small businesses that were assigned to a business banker were equally likely to go to the branch manager, the business banker of the 800 number for problem resolution. This flies in the face of the presumption that the business banker “owns” the relationship and provides the value-add element customers desire. Of course, much depends on the business banker, but the fact that the branch manager played such an important role in the customer relationship building and servicing, coupled with the rapid growth of digital channel preferences, is an interesting combination.
NOTE: When asked “Whom do you perceive as your main point of contact at the bank?”, only 27% responded their business banker, and 66% named their branch manager or teller.
What is important to the business banking community hasn’t changed much in recent years. They are looking for basic service tenets:
· Quick follow up on their requests
· Accessibility when needed
· Dealing with the person that has the necessary authority to make decisions
· Have sufficient back-up to address issues when the main point of contact is unavailable
· Proactive in suggesting solutions to the business’ financial needs
· Sharing openly the client’s financial picture with their executives and showing them how the bank evaluates their capital availability and credit worthiness
The main attributes of the ideal business banker also haven’t changed much:
· Thoroughly knowledgeable of the banking services of the customer
· Deep understanding of the client’s objectives
· Effective engagement of other bank resources to meet the client’s needs
· Understanding of how cash flows throughout the company
· Knowledgeable about the industry
These facts should have profound implications on how banks approach their business banking customers. Several come immediately to mind:
1. Utilize the branch staff more effectively to handle a broad range of the small business servicing needs.
2. Dedicate the business banker to a value-add role, focusing on the companies they service, and proactively and frequently offering solutions, services and pure information to their executives.
3. Leverage the treasury management team to further add value and deliver a unique set of products to meet the customers’ cash flow needs.
4. Improve digital functionality to appeal to the self-service aspect of the relationship and improve service efficiency.
Such an approach can help transition the branch staff to a more advisory and business-like role from the transaction focus of the past, a goal we all share. It can also further leverage the branch staff as traffic continues to plummet in most markets and segments. And it then leverages the professionalism of the business banker to focus on value-add and sales activities that can further anchor the client to the bank, build loyalty to the organization and enhance customer satisfaction.
The information offered above supports the general assertion that small businesses behave much like consumers, with an additional layer of needs. Accordingly, banks should work on bridging the gap between the retail delivery network and the small business needs in a deliberate and methodical manner through business bankers and treasury management officers to build a long-term, mutually beneficial relationship and bond between the bank and the customer.