Best Practices for Successful Community Banks
Community banks face significant challenges from compliance costs, capital requirements and changing customer behaviors, all of which require them to reevaluate their business and operating models. As a strategic bank consulting firm, we often see what works well and what does not in terms of best practices. Here is our list of the top five:
Restructure and reduce the branch footprint. With the increased migration of customers from branches to electronic channels, the most profitable banks are transforming their branch strategy to reduce the overhead burden. This is accomplished by analyzing your customer behaviors and competition; performing a strategic analysis on your physical branch network; and staffing models.
Develop a strategic plan to consolidate or eliminate older branches and build smaller ones. It’s also essential to reinvent the branch experience based on customer wants and needs. For example, if the majority of your customers use self-service channels, your branch should include more self-service options. If your bank focuses on commercial lending, maybe you can place a business center in every branch.
Innovative branch experiences will look different at every bank (and maybe even at every branch), but many locations will be smaller in size, offer an open layout design, hire generalist employees as opposed to narrowly focused ones and use teller pods, cash recyclers and tablets as sales and marketing tools.
Attract and retain top talent, and have a succession plan in place. While many banks are reducing headcount, successful banks have the tools and processes in place to attract and retain top talent, only cutting staff where they need to. Especially as banks implement changes in their operating models, the right people must be in place to build and manage customer and prospect relationships effectively.
The old model of opening up a slot for a specific position and only looking for talent when you have a need cannot be relied on today. The more effective strategy is to consistently develop and maintain an active network of colleagues. For example, you can participate in bank trade shows and affiliations in your local area. At these events, it is important to engage with bankers of all kinds, as you never know when a person may want to make a career change. You can also connect with people on social media networks, such as LinkedIn. Then, as changes occur and a sudden hire is needed, you will not be taken by surprise and forced into a quick decision.
But that’s only part of the solution. Once you have the right people in place and an active network of colleagues, a succession plan must be implemented to reduce the risk of disruption when critical employees retire or leave. For example, one of our clients primarily focuses on commercial lending. Although they had a great team of lenders in place, 90% of them planned to retire within two years, and the bank had no succession plan. Another bank had only one technology person on their team, no other employees knew his work, and there was no succession plan to deal with that person’s potential departure. The remedy: create a succession plan by classifying covered individuals (critical positions), identifying competencies, developing strategies to find and assess potential successors (internally and externally) and describing steps to move forward when a succession takes place.
Expand the product mix. We’ve all seen how quickly markets can change. Products that worked well just five years ago may no longer be relevant. Some banks we work with are getting rid of phone banking, since many people no longer use this option, or charging a fee for those who do call in an effort to raise fee income while stimulating customers to move to less expensive channels like online or mobile. Many have also eliminated passbook savings accounts, since they are time consuming to administer and most of today’s technologies do not support passbooks.
A broader mix of products will reduce the impact that market cycles can have on revenue generation, while keeping your target audience interested and up-to-date from a technical perspective. It also allows your bank to serve a broader spectrum of your client’s core financial needs, encompassing income generation, investment growth and other core competencies. New services that we are seeing embraced by banks include cardless ATM access (using your bank’s mobile application to receive money from an ATM through a generated, secure code); video ATMs, so a customer service employee can be available to customers 24/7; mobile wallets, which deliver payment convenience; and person-to-person (P2P) payments delivered via the smartphone.
To broaden your product mix, start by reviewing your current portfolio and making changes based on your customer needs. Then, consider charging fees for certain services. For example, personal banking remote deposit capture is one service many banks are beginning to charge fees for. Others are offering payment products for small businesses through their EFT provider and charging fees, similar to Square.
Build a stronger foundation for mortgage lending. As interest rates creep up, the refinancing market is continuing to slow down. Some banks have lowered costs in order to get the deal, but there is no value of loan growth at the cost of profit. What further complicates the mortgage situation is that compliance burdens are increasing. So, how can you effectively improve your mortgage lending for improved profits?
We see the most successful banks today critically reviewing their portfolio and understanding the profitability of relationships, then developing a strategy to acquire more profitable customers. Think about unique ways to improve these relationships. For example, for commercial lending clients, you could offer a conference room in your branch for meetings or offer select free services like remote deposit capture. Also ensure you have the right mortgage lenders on board. You need the best of breed to attract the best customers.
Make technology work for the bank and its customers. In an effort to curb costs, some banks cut back on their Information Technology (IT) expenditures. However, this move is most likely to put banks at a competitive disadvantage. Customers want innovative products and are willing to change institutions if they don’t get them.
Successful banks create a solid IT infrastructure that aligns with their business goals. If a bank goal is to reduce costs, for example, banks may add more self-service channels to their branches or use videoconferencing ATMs in place of drive-thru employees. If banks are looking to improve efficiency, they may arm in-branch and field employees with tablets to streamline day-to-day operations and deliver improved, convenient customer service. If a bank is looking to create a better user experience, data and analytics can be used for customization. The options are endless.
Mr. Roth is CEO of Mooresville, N.C.-based Vitex, Inc., a community bank consulting firm, focused on helping banks ignite performance, improve efficiencies and increase profitability. He can be reached at [email protected].