Executive Summary: To a large and surprising extent, banks focusing on the business banking segment face similar issues whether they are operating in Illinois or India. Many also suffer from a lack of management commitment to this segment and an inability to implement required changes.
Last week, I received a call from a colleague who was about to go to Africa to provide a local bank with consulting advice. Having never travelled to that region of the world, he was understandably concerned about whether the U.S. practices and approaches in which he was expert would translate to a lesser developed area.
Most business banking issues transcend borders.
While most of FIC’s work has been in the U.S., we have also worked in Austria, China, Egypt, Kenya, India, Indonesia, Mexico, New Zealand, Nigeria, Russia, Singapore, Spain, and the UK, among other countries in the developing and developed world. When we began to work overseas, I too was concerned that my experience might not apply; however, the similarities across nations are fundamental and far outweigh the differences.
Some clear differences do exist, including:
* Credit scoring. Many emerging markets lack the credit bureaus and credit scoring systems of more developed countries.
* Technology. The developing country’s technology infrastructure is often inadequate; for example, many branches need their own generators.
* Poor productivity. In some countries, banks are viewed as a key employer; a bank’s productivity takes second place to the country’s employment goals.
* Insufficient knowledge by personnel. Training and personnel capabilities are limited.
* Segmentation. Segmentation strategies need to be simple and limited to one or two highlighted areas.
Of course, in the developed Western world problems may exist in each of these areas:
* Credit scoring, while it exists, “failed” many lenders during the recent downturn
* Technology “solutions” offered by consultants and tech firms have often disappointed buyers.
* Many banks (particularly community players) appear incapable or unwilling to improve the quality of their employee base and improve productivity.
* Despite increasing training costs, many bankers’ product knowledge beyond lending is rudimentary at best, and many banks do not follow any rigorous salesmanagement processes.
* Relatively few U.S. banks operate with a well structured approach to segmentation despite its value to the bottom line.
For all the differences in language and culture, many more similarities than differences exist within banks operating in the business banking space, no matter their world location.
What are some of the common issues we hear from bankers around the world?
* Management fails to understand and support the small business effort. In many cases, business banking is the odd man out organizationally, falling between the cracks of retail and corporate banking. Further, it is often moved back and forth within the bank between those two units, being treated like a ping pong ball rather than a major growth opportunity for the bank. (We have seen that fight in several countries.) Further, management does not understand the profit and return potential of this segment and, therefore, under invests in it.
* Geographic versus functional control. All over the world we have witnessed internal warfare over who within a bank should control the sales force. At community and regional banks in the U.S. disagreement exists between market presidents and small business heads. The regions want control because they believe they know their markets. However, each region differs in the extent of its local small business opportunity, the interest of local leadership in small business, and the capability of local staff to serve that segment. Therefore, some regions miss opportunities.
The small business segment head is often unable to instill consistency across the bank’s footprint and ensure that both internal bank and industry best practices are disseminated bank wide. The net impact is that the bank underperforms in the business banking space, losing revenues to better organized competitors. This same friction exists within countries far from the U.S. and even occurs between countries in those banks operating within a multi-country footprint.
* Inadequate business bankers. In the U.S. many business relationship managers are, in effect, lenders who fail to develop a true relationship that captures opportunities with the company, the owner, and employees. Based on our non-U.S. work, getting lenders to become bankers appears to be a worldwide problem. Further, both in the U.S. and overseas, in some cases being a small business banker serves as a short-term way station to a more prestigious bank position.
* The role of the branch and branch manager. The branch manager is critical to success in business banking whether in New York or New Dehli. As credit decisions become centralized, the U.S. branch manager should be transitioning to a sales leader. Outside the U.S., the branch manager in many instances remains the first line of defense related to risk management; his “on the ground” knowledge of a potential borrower is a key decision determinant. But, both in the U.S. and elsewhere the branch manager plays a key role in customer service. We have found this area is oftentimes a major performance gap both in the U.S. and overseas, as branch managers focus on the consumer rather than the more profitable business customer.
Concluding thought.
In recent weeks I have had spoken or met with bankers in Europe, Oceania, and Africa. The issues that we discussed related to the product offer, approaches to distribution, sales management, and organization were remarkably similar. Each of the countries we have worked in has a unique culture and unique problems and opportunities. But the fundamentals are just that, fundamental, no matter where the bank is headquartered. Unfortunately, we have yet to find a country in which its bankers have a clear bias to action rather than consensus and bureaucracy.