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BirdsEye View

trends in commercial banking

John Meyer of Harland Financial recently commented on my article on the future of branching. He shared some interesting data, based upon information from 8,000 branches):

  • The average branch opens 120-200 accounts per month; however, the open/close ratio is 1.4...
  • The average branch performs between 9,000-15,000 teller transactions a month
  • He concludes that "The net effect is that only 1-2% of all branch transactions are really "sales" opportunities (I disagree but I'm quoting him now...)
  • As remote deposit capture proliferates, another 12% of teller transactions are likely to be eliminated, thereby freeing nearly 35% of commercial teller time
  • "The question remains", asks John (as would I), "Can the newly found free time be used to better cross sell and conduct customer needs assessment?" In answering his own question, he offers two more pieces of information:

    • Seventy percent of consumers in all age groups research online before they make a purchase
    • Customers claim convenience was the primary reason for bank selection, yet the majority say they prefer online banking to branch banking. Notwithstanding, 80% of the opening occurs at the branch

    John then poses the question, "Will customers still come to the branch in the future?" . His answer: "Only if the branch builds the right skills in the bankers so that prospects and customers feel like the bank is working in their best interest".

    Interesting data and comments; much food for thought...

    PASSOVER SEDER PICTURES HAVE BEEN POSTED ON WWW.ANATBIRD.COM (BETTER LATE THAN NEVER...). CHECK THEM OUT! By the way, there is one photo where everyone appears to be looking for something. They are searching for the Afikoman , which is wickedly hidden (e.g. behind the ice maker in the freezer) each year by my son Guy. The next photo shows Paul waiving his hands in victory; now you know why...

    Last, many of you have asked how is Dave Volk doing. He needed a second surgery on his ruptured kidney, which continued bleeding after the first operation. The second surgey has been painful but successful. He also had his leg repaired yesterday, and it now contains two metal plates that will alert every airport secutiry checkpoint he goes through. He will be on crutches for the coming three months and then the doctors will assess whether he suffered any permanent nerve damage in his leg. Despite all this, he is in fantastic spirits and is an inspiration to us all in courage, conviction and patriotism. I'm so very proud of him! Thanks so much to all of you who have prayed for him and who care. Your thoughts and prayers at times like this give us all much heart.

    Trends in Commercial Banking

    As out industry continues its drive to turn our commercial lenders into relationship bankers, and some of our CRE lenders into C&I professionals, the following trends are emerging early in 2007:

    Transition from subjective to objective incentives

    In the past, many of the industry's incentive programs were, in large part, subjective. Executive management shied away from setting firm and objective criteria for performance, and preferred to retain the freedom to reward folks based upon their personal knowledge of performance and other aspects of individual conduct. As the move toward greater accountability intensified, a shift occurred in incentive compensation across the board, where specific, measurable and non-disputable goals are now being set for commercial relationship managers.

    From transaction to relationship building

    More banks are expecting their bankers to transform from pure lenders to relationship quarterbacks, looking for sales on both sides on the client's balance sheet and for more fee income. Fewer banks are content to have the bankers make loans and abdicate the deposit side of the business.

    More analytics

    As the pressure for results mounts, bankers are looking more and more for the root causes of both successes and failures at the customer and the banker levels. They are seeking to develop a greater understanding of the commercial portfolio's performance and the behaviors needed to achieve the growth targets that we are all facing.

    More sales management

    Commercial bankers are expected to engage in more rigorous sales management practices, managing both leading indicators (behaviors) and lagging indicators (results). Behavior goals that lead to new customer acquisition are much more common today. Management also expects a number of customer touches each year, which are designed to cement the relationship and deepen the bank's share of the customer's wallet.

    More recognition, trips, fun

    The "cheesiness" of retail is rubbing off on the commercial side of the house. Bankers are discovering how powerful recognition is in all its forms, from individual recognition by the CEO to winning trips with guests and banquets for the entire team. All strong sales people thrive on recognition, even commercial bankers, and they deserve it!

    Better definition of a "relationship"

    A one-off loan is not a relationship, we all know that, but then what is? Some banks are focusing on improving their definition of a "relationship", ranging from a simple definition of acquiring the customer's checking account to expecting a certain cross-sell as the threshold for relationship acquisition. Focusing on the relationship isn't new, but becoming better at defining what it means is.

    Niche practices

    Lending to a specific industry or customer group is a growing trend, as bankers look for more ways to differentiate their service and product offering. From ethanol to Home Owners Associations, engineering firms to medical practices, a crisper definition of a target niche is becoming more prevalent. A solid understanding of an industry facilitates better credits, improved advisory services and overall stronger relationships with the clients, and banks are catching on to its value and to the fact that it does not have to be huge (2-3 RMs (Relationship managers) could constitute a niche practice).

    Growing your own vs. hiring

    Banks are focusing more on internal credit training programs that produce well-rounded RMs who understand the company's culture and credit expectations. They are discovering again that this is not necessarily a scale-sensitive effort and that anyone can afford to train folks if they do so effectively and if they manage to retain the trainees after they become bankers.

    Focusing on retention

    Retention on both customers and bankers is a hot topic for most banks, as the premiums for lenders continue to rise and customer loyalty to decline. Banks are running the gamut of retention tools, from lowering RM turnover through better compensation, training and golden handcuffs to looking for relationship pricing solutions.

    Relationship pricing and profitability

    As the industry drives to build relationships, RMs are looking for help from relationship pricing models. While some use such models as a way to reduce loan pricing and ultimately lower the relationship profitability, others use it to truly understand the client potential and where the more profitable activities lie. In addition, relationship profitability analyses are being used as the basis for incentive compensation that aligns shareholder interests with the bankers'.

    This is a difficult year for our industry. Commercial bankers are responding to it by getting more aggressive and more clear on their definition of goals and rewards for a fuller relationship with their customers, and by working harder on becoming bankers, not "just" lenders.