In recent years banking has changed in fundamental ways, but most bankers still have not caught on. Just as “generals fight the last war,” many bankers continue to compete with an approach and focus that is outdated and ultimately doomed to failure. Many senior bankers seem not to care, as they are personally more concerned about getting by for another few years until retirement without rocking the boat or threatening their status. Of course, the best banks don’t let themselves become complaisant. They realize that they are operating in a new world and are working fiercely not only to adapt but also to anticipate the future. Let’s look at five ways in which the fundamentals are shifting under some bank’s feet.
The customer set has changed.
The growth of banking tracks with the growth of the baby boomer generation. But, baby boomers are disappearing and decreasing in importance to banks as boomers move to a risk avoidance and maintenance mode from a growth emphasis. Boomers are reducing their borrowings and shifting their focus to asset preservation. Too many banks are focusing where their customers are not. At the same time relatively few banks have developed a meaningful approach to attract Gen X or Millennials. These groups have a very different view of banks, one in which for many “relationship” means little. In many cases inertia rather than loyalty keeps these customers at a bank.
Cross sales are happening.
Cross selling is an impossible goal; we all know that. Well, actually, many banks have shown that cross sell does work, with the right level of management commitment and, not incidentally, compensation. Some of FIC’s recent work related to the growth of equipment finance groups within banks demonstrates that top performers are benefiting from referrals moving across the bank. This both increases revenues and also creates a one-bank culture that has long been an elusive goal.
The best cross-selling banks succeed by: senior management commitment to making cross sell work (walking the talk rather than just talking); one person responsible for cross-sell (some product-oriented groups have a team that focuses on cross sell with their salespeople embedded in commercial banking regions); and a compensation structure that encourages commercial bankers to bring in colleagues from other areas such as leasing. Commercial bankers tend to be defensive and protective at the best of times. If they lose income or earnings credits by bringing in an outside product specialist, they will avoid doing so. But, if the situation is at least revenue neutral and the other area takes on much of the work involved in getting a deal done, they will cooperate. Basic human nature.
Personal franchises can build bank sales.
Many banks do all they can to institutionalize a customer. They want customers to view themselves as part of the bank and not be overly aligned with an individual banker. In contrast, brokerage firms have allowed their salespeople to build personal franchises with the support of the larger firm. Why don’t these brokers move? Some do, but many more remain because of the annuity structure of their compensation. If the broker leaves, he has to rebuild his income, at best a time consuming process. Signature Bank is one of the leaders in bringing a similar approach to banking. They lock in good performers not with contracts or threats of legal action but by compensation and a cooperative culture.
Branch personnel CAN sell.
The branch, once viewed as critically important for many banks, is now in the proverbial doghouse. More branches are failing to show a good ROE and per branch transaction levels continue to spiral down (and by the way they are NEVER going back up). Branch personnel have more time than ever to be outbound salespeople. Many get rudimentary training but then have no idea who to call on. However, today, a remarkable level of specific prospecting information is available and being used by branch personnel. Compiled using over 100 data bases and screened for preferred industry type, credit quality, geography, revenue size and other factors, these target lists go way beyond the often incorrect information provided by the best known data houses. Alternative providers create a rigorous set of prospects that can be handed to a branch manager and, then, reviewed on a weekly basis. Basically, the quality of this information leads the banker to selling and eliminates an overused excuse for not doing so.
Nonbankers bring strengths.
I recently interviewed a person who had worked in a specialty product area of a bank. He said that he never considered himself a banker and that if he was called a banker, he would feel insulted. Tough words, but indicative of a mindset that is probably more entrepreneurial than today’s typical banker. Here’s the surprise: more banks want employees with this attitude. They exist in investment management, specialty commercial business lines, commercial finance, and treasury management, among other areas. Banks need to attract and retain these “nonbankers” if they are to generate the growth they require. My guess is that 10-15% of banks can retain these types of people. That percentage has to increase.
Whether you consider the shifting customer set, altered product needs, a huge gap between the qualities of the best bank employees and the mediocre middle, fundamental changes have come to banking. Yet, most banks operate with far from a crisis mentality, except when it comes to satisfying compliance personnel or regulators. The attitude appears to be that the customer and other stakeholders can wait…but they cannot.