Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewbusiness deposit sales team
The conventional wisdom that deposits are gathered primarily through the branches has worked for generations. As our world becomes increasingly digitized, and as loans grow faster than deposits, many banks are grazing the 100% loan-to-deposit ratio.
The retail customer continues to be the backbone of most banks’ deposit strategy. At the same time, as one considers the average deposit account characteristics of the typical business banking customer, the opportunity to grow deposits faster is striking. The average small business non-interest bearing DDA balance is typically at least 10X that of the average consumer, as per our forum members. Small business customers are also less rate sensitive, and value relationships more than their larger brethren.
Chase has figured this out, and has simplified its business banking checking product line with clear targets in mind: the small depositor; the average depositor; and the $100,000+ depositor. Both small businesses and the branch staff get greater clarify on account fit, features and functionality.
We can learn from Chase’s crisp and simple product line, but that might not be enough to meet your bank’s core funding needs.
Some banks established a deposit-only, business-only sales force, a group of bankers whose sole job is to bring deposits into the bank from small business customers and prospects. They call on the 70% of the small business universe who do not borrow, and they lead with a simple, non-analysis checking account which fits the prospect’s plain-vanilla needs just fine.
There are several keys to success in executing this strategy.
1. Job clarity.
The typical business banker is expected to generate loans, deposits and fee income. Typically the loan volume should exceed $4 million annually, and deposits must hit $1 million. The message is clear: get the loans, and whatever deposits follow will be welcome.
The message creates two problems:
a. The target market for deposits is often different from the borrowing prospect. For example, large CRE loans are great to fill in the loan book, but most developers do not have much by way of deposits. Conversely, many doctors, such as surgeons, have much cash but not strong equipment needs, and, therefore, no heavy loan demand. A focus on loans often involves prospecting in industries that are not deposit-rich, and vice versa.
b. Loans are implicitly more important than deposits, given the volume expectations.
A deposit salesforce should focus solely on deposits and on the segments that are most likely to generate them. Loans are, of course, welcome, but they cannot distract the banker from their primary mission – BRING IN DEPOSITS.
2. Definition of success.
a. Success must be clearly outlined; for example: bring in $10 million annually of non-interest-bearing checking accounts from businesses not exceeding $3 million in a annual sales.
b. The behaviors which will lead to success should be spelled out:
i. Number of weekly meetings
ii. Number of weekly calls
iii. Number of weekly emails
iv. Number of new relationships per month
c. Sales management should help the banker be successful by adjusting behavior frequency and effectiveness through coaching, behavior modeling and joint calling.
Bank management is typically loathe to take any goal off the table. “We do want deposits”, they say, “but what about the loans that come with them? And fee income too?”. These worthwhile goals can negatively impact the deposit salesperson. Unwavering focus will bring unparalleled results. Resist the temptation to ask for different product categories; ask for more deposits instead.
4. Industry focus.
Certain industries are far more cash-rich than others. Notoriously, real estate developers are known for their cash-poor bank accounts, while certain medical specialties might be less affluent, and certainly less loan-productive, but far more deposit rich. Other examples include homeowners’ associations, small municipal entities that do not have to bid out their deposits, and associations.
Deposit-oriented industry focus is the first step to help the deposit sales team succeed. Arm them with Hoover, First Research or other industry-specific data, give them call goals and lead lists, and set them loose on the target segments.
5. Incentives and other rewards.
Deposits largely do not present risk to the bank, and therefore there should be no need to cap deposit-related incentives. The deposit sales tem is the equivalent to the loan BDO, except there is no credit involved. Generous incentives will attract the best and the brightest to this position, and will give you good return on your investment.
One problem with deposits is that they are not celebrated nearly as much as loans. A bank that is looking for core deposit growth (very few aren’t) should give deposit winners the accolades, publish recognition and cache they deserve. It’s a potent motivator to the very best BDOs, and it’s time to utilize this tool to legitimize further your deposit gatherers.
6. Servicing model.
An effective deposit gatherer is less likely to be as good in onboarding the account and meticulously completing the paperwork. It simply isn’t their strength. Have the branch manager take over the relationship, onboard the customer and become their “go-to” person for trouble-shooting and other needs. The branch manager is also better able to cross-sell the deposit customer and bring other resources to bear when the solution involves more complex products.
This approach has the dual benefit of freeing the sales person to continue doing what they’re good at, while giving the branch team a new customer to advise, service and cross-sell.
7. Well-defined fishing pond.
It is important to be crisp in your definition of the deposit “sweet spot”. Small business deposits are exactly that – deposits from small businesses which, by definition, aren’t huge. An enterprising BDO might start moving up-market for less granular, more rate-sensitive deposits. Those should not be their primary goal, and perhaps not even within their range of prospects. This group isn’t elephant hunters, and they need to know and accept that requirement, especially when deposit granularity is needed.
8. Recruiting the right person, not the right experience.
It is not easy to find the right person for this position. Experience shows that it is better to get the right person with no banking experience than vice versa. Identify the personalities you’re looking for and recruit accordingly, whether they come from the banking ranks or from outside the industry.
9. Quality, fair, simple product line.
Even the best sales people need a good product to sell. An over-complicated or over-priced checking account is very hard to sell. The small business customer’s needs are simple. Respond to those needs with a simplified, fairly priced account and enable your sales team to get the job done.
10. Shared credit with other channels – branch, commercial banker etc.
Channel conflict often plagues our industry: one channel or line-of-business’ gain is another’s loss. We should avoid such situations at all costs, and create mutually beneficial winning opportunities for all involved. A strong deposit sales person can greatly help the branch if their customers are “counted” among the branch’s new customers who present excellent cross-selling opportunities. Similarly, Relationship Managers’ referrals should count for both the business banking person and for the RM. Zero-sum games are the bane of collaboration.
As the war on deposits intensifies, I believe the consumer will be in most banks’ cross-hairs. Small business will be harder to tackle by the larger banks, and is the ideal target for the SuperCommunity bank. Take advantage of this opportunity by dedicating the resources to this effort. The payback will be impactful, significant and long-lasting.