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BirdsEye View

customer-centric commercial banking

 Community banks pride themselves on out-servicing their larger brethren, and especially so in the commercial banking space. Yet, year after year, both small business and mid-sized companies do not find their Relationship Managers (RMs) engaged enough to address customers' cash flow needs and present value-added ideas, say Greenwich Associates.

 

The competition for commercial relationships is fiercer than ever, with too many dollars chasing too few credit-worthy loans. Banks can and should differentiate themselves by anticipating their customer needs in both the small business and mid-size markets and by focusing on adding value where the customers need it the most. Banks can further differentiate by making it easier to do business with them.

 

When asked by Greenwich, companies of all sizes named two business issues as topping their lists: Achieving revenue or sales growth, and cash flow issues. For small businesses, the third concern involved employee benefits and other health insurance issues, in part due to Obamacare. Bankers should focus their conversations with clients and prospects around these issues, as well as on capital investment needs; both large and small companies anticipate their capital to be primarily invested in technology and equipment, and expect to borrow more to do so.

 

When it comes to ease of doing business, a single point of contact is the number one factor for both small business and mid-sized companies. It was mentioned by almost twice as many respondents to Greenwich than the next factor for small business. This is something all community banks should be able to execute on flawlessly, given that their turnover is so much lower than larger banks. And yet, only two thirds do it well. Other important factors include local decision making and a broad range of products and services, both aspects where SuperCommunity Banks can excel. Interestingly, branch location was only the fifth most important factor in the small business space; innovative mobile and online tools were number eight on the list of priorities. Nonetheless, about a third of midsized companies and almost half of small businesses do see branches as important or very important to their bank relationships and bank selection - so don't close them yet! About 2/3 of small businesses and about ½ of mid-sized companies visit a branch at least once a week, primarily to make deposits. Only 18% of small business and 23% of larger companies said branches are not important.

 

The implications are profound: customers of all sizes still find a single point of contact to be the most valuable aspect in their banking relationships and the single most important factor to make banking easy for them. Technology is important, but it is no substitute. This also means that banks have a golden opportunity to differentiate themselves, especially when it comes to managing cash flows. This is not only valuable to the customer, but also (obviously) to the bank.

 

Greenwich small business respondents asked for suggestions of bank products to help increase their efficiency, and sought specific ideas to save them time and money. Banks have such products, but only 25% of the respondents received advice from their bankers on such issues.

 

While half of the midsized companies received advice from their banks on improving their cash flow situation, those were predominantly product recommendations, i.e. sales, and not cost saving or cash conversion ideas tailored to the client. Of those companies that did receive advice from their bank, action was taken on that advice half the time. Again, executives suggested that bank ideas could be more tailored to specific client needs.

 

Most customers express satisfaction with their primary bank, but about a third are potentially "in play" at any given time. For small businesses, the main switching factor was the primary point of contact, underscoring again the importance of the RM. More midsized companies (30%) switched for better pricing, but the lack of satisfaction with their RM was the second most important switching factor (20%), and the third - lack of knowledge of their business - is closely related to that as well.

 

In conclusion, differentiation opportunities beyond pricing are still abundant:

  • Train and retain excellent RMs and pay them for relationship building

  • Make it easy for customer to do business with you, where, when and how they choose (for a price!)

  • Add value to the relationship through solid advice and not just product sales

  • Focus scarce and expensive sales resources on high-potential small businesses for better returns on your investment

Through differentiation you can achieve greater market share, customer retention and value-added to all constituents - a win-win for all.