Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewwhat do commercial clients really want?
David Mooney, President and CEO of Alliant Credit Union, pointed out after my last article that "some of that performance (the mega-banks' superior 2006 results) derives from income sources that are now turning out to be generating substantial losses (e.g. sub-prime and near-prime real estate lending and capital market activities, etc.). Aside from the charges, much of that income has permanently evaporated - it won't return when markets improve because these activities have been pared back or eliminated, or the risk premiums have risen.
One lesson here is that we need to be careful about drawing conclusions abuot performance based upon snapshots...Indeed, history suggests that outsized performance is a pretty good predictor of future problems, as it's often achieved by taking outsized risks that only become apparent later." Good observations!
Our Thanksgiving was such fun! All food, including the turkey, has been inhaled by healthy, robust and hungry youths, including the five desserts and the bucket of freshly whipped cream I always put on the table, just in case. The chocolate soufflé bit the dust especially early, possibly because I made it with Isabella, my granddaughter, which must have given it a special touch. (Pictures and menu are posted on www.anatbird.com).
My son Paul, who is a gifted "social director", got us all to play some amazing games he learned in college, and even Dave Volk, our Marine, came with his brother and mom. It was a great night, and I hope yours was too.
WHAT DO COMMERCIAL CLIENTS REALLY WANT?
Small business is "in" for SuperCommunity Banks. They are the best customers one could want: less rate sensitive than larger companies (at least many of them are), less sophisticated in cash management (at least some of them are), they keep higher average balances than consumers by a factor of 5-10 times and they value the advisory approach that is the mantra of SuperCommunity banks.
Unfortunately, most banks have not cracked the business banking code. Several sources of research have identified some major elements to this market segment that might be the key to unlocking that market's potential, if effectively executed.
Small businesses look for more than effective transactional service from their banker. They seek advice, innovation and creativity, plus solid industry knowledge. That's expecting a lot, but makes great sense when it comes to understanding customer value creation and retention. They expect, like many other segments that their banker will be the quarterback of the relationship, applying additional expertise as needed. They wish that the banker will become more than just a transactor. The want the banker to have thorough knowledge of their industry, as well as of the bank's own complex product line, and that the same person will visit and interact frequently with the small business owner.
Equally importantly, small business clients look for a consistent presence of their account executive. Long tenured relationship managers are a major contributor to small business customer retention, especially if the RM has credit quality and impact on credit decisions.
Small business clients don't necessarily look for aggregation, a single bank to do business with. They are reticent to consolidate with one financial institution, perceiving it to be a risk to future credit availability. A strong business banker can overcome this concern and create motivation for relationship consolidation. Such motivation is especially tricky because studies show that business customers are by and large happy customers and are not seeking to switch banks. Only 2% of small business and 7% of middle market customers say they are actively seeking a new provider. How does that impact the aggressive customer acquisition goals I know you all have?
Surprisingly, small business and middle market clients are more price sensitive than other segments. Our own bankers tell us that price is the #1 reason for losing a piece of business or for not winning it, yet surveys defy that assertion time and time again - except when it comes to this target segment. Here, price does talk. Nonetheless, company knowledge and follow up are still the most important elements to win a new customer in this "space". Good old fashioned banking, basic behaviors we all expect and believe we deliver, are a rarity that can wow customers and prospects alike. It's back to execution.
The prize for effective execution is huge, though. Cross-sell opportunities are significant. Our Benchmarking information shows us that successful SuperCommunity Banks sell upwards of eleven products per small business or middle market household, and the opportunity is still growing. Considering the importance of share-of-wallet in predicting customer retention, it becomes a compelling business case to improve the quality of relationship management execution at all levels to yield deeper and longer relationships with businesses.
An important part of the quality of execution is delivering value on the customer's terms, not the banker's perception of what customers value. Business customers want to know how to manage their business better today, what best practices are winning in the marketplace and how can they copy those. They put much lower value on elements that bankers typically cite as the key to relationship building, such as profitability management or exposure to other specialists.
The bottom line is, what really matters to middle market companies or small businesses is the relationship manager himself. The service level, RM continuity, industry knowledge, follow-through and basic execution by the RM is the one overwhelming factor that yields customer retention and active satisfaction. Other channels and value elements are important, but even in today's world of high technology, internet banking and Remote Capture, the RM still rules!
So, in short, small businesses are a good place for Super Community banks to make a profit, and in order to court them (because they have a tendency to spread out their banking business) you have to cater to what is most important to them, like the mentoring relationship.