Years ago, I was setting up a meeting with a top ten bank prospect whom I had met at a conference. While on the phone he asked, “Do you have any secret sauce?” Unfortunately, I was out of secret sauce when we spoke and continue to be so.
The good news is that the best bankers don’t have any secret sauce either. Instead, they operate with an emphasis on consistent execution and a willingness to experiment to see what new approaches might give them an edge. I recently met with the head of a banking group who mentioned some of the simple but effective initiatives he had underway to produce revenue growth in a slow growth environment:
* Teaser rates. Just as with credit cards and HELOCS, teasers can attract new commercial customers. However, during the teaser rate period of six months or a year the bank needs to make the relationship sticky by selling other products to tie the customer into the bank. Further, these rates should be used only selectively, when a banker highlights a high potential target.
* External BDOs. Many banks axed the use of brokers during the downturn, citing them as a major source of bad loans. However, banks were not meant to rely on a broker’s analysis, since an obvious conflict existed. An independent and rigorous credit review of any third party is essential. What this bank does as well as others we know involves working closely with a select number of brokers. The bank lays out its criteria to the broker and the broker can lose the referral relationship if he continues to send inappropriate deals (as defined by the bank). Brokers surface new customers who may have been assigned to bankers but without success. The one-time cost is a bargain versus the potential long-term revenues.
Other banks have hired well-connected local business people to act as deal referrers, with most of their compensation tied to business generated. Whether you are in St. Louis, Cleveland, New York, or elsewhere there are local lawyers, accountants, and others who know the local environment. Note that they have no credit authority and also must be trained concerning the bank’s criteria.
* Relationship revival/ Fishing in the barrel. We all know of the 80/20 rule whereby a small number of customers drive most of a business line’s profitability. While 20% percent of customers may generate 80% or more of profits another 20-30% of customers lose money, while the remainder (40-60% of customers) generate mediocre returns. Most banks ignore this phenomenon, avoiding any attempt to improve revenues from their current portfolio while instead focusing on bringing in new customers.
However, an increasing number of bankers, like the one I met with recently, are now taking a different tack. Banks are evaluating customers and developing specific plans (with agreed-to time frames) for increasing the revenues of laggard relationships. Bankers, team leaders, and top management establish a game plan and clear priorities by following a process to determine the business that is leaking out to competitors, the likelihood of capturing it, and the dollar impact of doing so. The alternative to growing account revenue involves moving the customer from a relationship manager to a lower cost servicing channel. Asking the customer to leave, other than for circumstances usually tied to credit quality, is inappropriate in part because little, if any, of the costs leave with the customer.
* Measurement. Metrics are critical to success, but we often find that banks collect too many metrics rather than focusing on no more than a critical few. One basic but effective approach recently mentioned by a manager tracks the success of his bankers trying to convert prospects to clients: how many letters/emails has the banker written to targets; what was the conversion rate from letter to appointment; from appointment to “live” prospect willing to consider a proposal; from proposal to close. Fundamental. No secret sauce. But very informative.
* Round pegs in round holes. Across banks we see a need for “rightsizing.” The branch continues to handle accounts that should be better served by a commercial bank group; the commercial group holds on to small accounts rather than moving them to the branch; wealth managers maintain small accounts in their portfolios, diverting them from the larger clients who can generate larger revenue streams. The list goes on: each unit, whether branch, small business, middle market, wealth management, or other groups maintains accounts that could be better and/or more cost effectively served by another unit.
Why doesn’t management insist on this basic step? Typically, line managers are very good at pushing back (sometimes with reason) to provide examples of why moving an account would be harmful. In the face of banker foot dragging and intransigence, senior management gives in. They would rather find the secret sauce (promised by an IT solution, social media, or a CRM product) rather than deal with the hard realities.
But, perhaps surprisingly, the bankers who deal with the hard realities, day after day, and execute the basics while continually trying to innovate … those are the ones with the secret sauce.