Executive Summary: While the current banking environment seems uncertain, attractive growth opportunities still exist for banks that address the needs of both the business owner and the business.
A recent survey of business owners, conducted for American Banker, underscores the extent to which they link their business banking decisions to their personal bank relationships. The survey results also indicate that many bankers fail to appreciate and respond to what may be a key determinant in customer decision making.
The survey asked both commercial bankers and 640 owners of small-to-midsized businesses (SMEs) to rank ten attributes based on the degree to which they drive the customer loyalty of business banking customers. Among the ten items were: low-priced loans, speed of response, satisfaction with bank branches, satisfaction with personal services, and customer service.
The Customer and the Banker Diverge in What They Believe Is Important
Both the bankers and the customers agree on the preeminent importance of customer service, each giving top ranking (10, the most important) to this attribute. However, while many of the other areas align, two significant disparities in the view of the banker versus the customer underscore both a performance gap and a revenue opportunity.
Bankers state they believe business customers rank “satisfaction with personal banking services” as “5” out of ten in importance, viewing it as less important than flexible loan terms (9), speed of response (8), and other areas. In addition, they view “satisfaction with bank branches” as only third in importance.
What does the customer say? For them, satisfaction with personal banking services merits a “9” out of ten ranking, close to the most important criteria. As for branch satisfaction, businesses rank it as “8,” very high in importance.
The opportunity surfaces from the contrast between the banker and the customer in their view of these areas. Bankers fail to understand and exploit the importance of personal banking in their business banking sales. Reasons include internal organizational and accounting silos that fail to incent business and middle market bankers for personal sales. Further, business bankers are often uncomfortable or unknowledgeable about the personal banking product set, focusing instead on areas in which they have more personal interest and which they believe offer opportunities for differentiation.
The branch disconnect seems even more disturbing since multiple business customer surveys going back well over a decade point to the same view: branches continue to matter. While the role of the branches in developed markets like the U.S. is undergoing some fundamental changes, the branch (or a fixed location that customers can visit to complete transactions) remains a critically important channel for many. The bottom line is that branch staff need to be business sensitive for a bank to succeed with this segment. Ideally, they should serve as leaders in ensuring that the business owner’s requirements are receiving sufficient attention.
The Opportunity: Doubling Your SME-Related Profits
Banks should not be “resigned” (in the words of the banker quoted above) to poor earnings, even in the current environment. One practical, near-term step involves developing a strong focus on the personal banking requirements of business owners and their employees.
Our client experience indicates that most banks are missing this opportunity. When we analyze portfolios to determine the extent to which a bank captures both the business and owner relationships, typically, the percentage of overlap or “twin” accounts is as low as 20 percent and seldom higher than 40-50 percent. The likely maximum penetration is in the 65-70 percent range due to a variety of factors, highlighting a major performance gap.
The economic potential being left on the table is enormous. Our client data supports a McKinsey & Co. analysis stating that small and mid-sized businesses (companies from $50,000 to $20 million in revenues) generate about 14 percent of U.S. financial services pre-tax profit (estimated to total $420 B in 2003). Business owners generate another 12%, with business employees accounting for 15% more. Non-business income that is related to the business itself approaches two times the business-only profit pool. Yet, banks rarely operate with a coordinated sales focus.
Approaches for Capturing the Upside
In this more volatile economic environment, few opportunities can be viewed as “no brainers;” this one is. Money is being left on the table by banks failing to focus on the owner, with much of the upside tied to deposits and investments, two particularly attractive product areas.
How should banks approach this opportunity? Some of the key actions include:
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Dimension the upside. We recommend beginning by quantifying the number of business/personal accounts in common and the potential upside. Quantifying the opportunity should create a clear priority and contribute to a sense of urgency.
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Select a leader. Succeeding in this effort is as much about cultural change as product sales. Management should select a highly-respected employee to lead this effort and provide that person with the responsibility/authority/direct reporting lines to get things done.
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Determine the right approach. Some organizations operate with a two-person client team in which one member leads the business relationship while another focuses on the personal and employees. Other banks operate with one person handling both. The right approach depends upon the bank’s capabilities, customer type, product sets to be offered, and other factors. The point is that the best go-to-market approach for one bank will differ from another’s.
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Change compensation. Bankers probably need an economic incentive to focus on personal banking issues, even if it is important to the customer. The business banker can be incented to sell/introduce personal products while the retail banker needs as reason to uncover “hidden” businesses within the branch.
Concluding Thought
Growth opportunities continue to exist in the SME space. In its search for pockets of undiscovered revenue, management should insist that bankers evaluate each business and personal relationship to determine the cross-sell opportunities available to the bank. “Resignation” can take a back seat to a revived marketing focus.