Bankers all agree that they need to improve their productivity as operating expenses rise due to diverse factors, including increased compliance costs, continual technology investments, and the need to add more channels while maintaining the old ones. Virtually all of our clients involved with banking small businesses, for example, preach the need to do more with less, with the emphasis on increased sales from line bankers. Yet, many bankers appear to overlook fundamental and powerful disciplines that will enhance productivity, increase revenues and likely result in cost reduction. Here are two:
Call on the appropriate prospects. Management needs to be more rigorous in ensuring that their calling officers are spending time soliciting priority targets. As basic as that seems, too often banks lack rigor in their screening process and allow their bankers to clog up the credit process with deals that will not survive scrutiny. They also fail to take advantage of the quality screening capabilities available today.
Examples of this phenomenon are all too easy to find. In recent weeks, one business unit head of a regional bank told me that their bank operated without any coordinated process to determine and focus on priority targets. At this institution, individual bankers, many but not all with years of experience, were expected to uncover new leads. Similarly, branch personnel, other than being given an un-scrubbed list of names generated by Dun & Bradstreet, were left on their own.
At another bank, management expected branch bankers to find prospects literally by driving around their branch catchment area. This resulted in the discovery of many retail targets (for example, hair dressers and boutiques) but few of the professionals or other specialized industries that management wanted to bank. Not surprisingly, this group hit its call quota numbers but missed on its revenue targets.
Bank leadership demands improved results but often fails to direct the sales efforts of its bankers. Even when they provide training, bankers waste time going after low potential targets. The Marketing group, in partnership with line units, should play a critical role in directing the sales effort by providing the bank’s sales staff with prospects screened by revenue, industry, credit rating and propensity to buy certain products. Banks leveraging that information operate with a huge advantage.
Given the availability of multiple data sources and the maturity of modeling analytics, sales activities can now be more focused. For example, banks can now identify those small businesses that are using consumer demand deposit accounts (DDAs) rather than business checking. Upwards of 8% to 12% of accounts considered branch-based consumer DDAs are being used by small businesses. Identifying these names can increase small business cross sell.
Also related to current customers, banks can quantify potential wallet share by determining loan and deposit dollars that business customers have with other banks. And they can highlight priority business targets by applying screens based on revenues, geography, industry, risk criteria, and/or product needs and identify targets that meet specific risk criteria, meet industry requirements and/or operate near particular branches. The amount of customization available to banks means that the deals going into the sales pipeline should both be of higher quality as well as more likely to close.
Finally, data analytics can provide names based upon their tendency to buy certain products and services. If they specify a certain type of target as “ideal,” for example, by size, industry and loan needs, bankers can screen to identify other customers and targets that match those requirements, or “look-a-likes.” This allows for a very specific and more effective sales process.
This type of screening has long been tested and its impact is demonstrable, resulting in improved targeting and higher close rates. Applying the capabilities of big data to small business cannot be viewed as an option but rather as a necessity.
Clarify concerning who calls on whom. In several recent situations we have found bank units fighting internally with each other to get more prospects rather than fighting with competitors to take more business. It is very difficult to justify having a high-cost middle market banker call on smaller accounts, since it results in a misalignment of resources related both to cost and expertise. Similarly, it is difficult to justify having a business banker call on larger accounts, given the sophistication and customization that many require. Yet, many banks are still arguing internally about organizational and turf issues that should have been resolved long ago.
Bluntly, in some cases, middle market bankers want to increase their available prospect base, believing the more prospects they have the better. However, as we noted previously, the secret to success is not the number of prospects but their quality and appropriateness for a particular bank, given its products and credit philosophy.
This type of misalignment is hardly a new problem. Years ago, we conducted an analysis of a client’s middle market portfolio and concluded that the vast majority of its relationships were with small and micro businesses. I remember being very concerned about the quality of the data and whether the client would explode in reaction to our findings. In fact, I was stunned to encounter virtually no objection to our conclusions, as bankers at this institution captured whatever targets they could, no matter their size. In many cases, given the cost structure involved, these accounts were value destroyers for the bank. Today, when good returns are even more elusive, management needs to make sure it is properly aligning its sales effort.
By the way, it is not only the middle market that poaches outside of its designated turf; small business groups often pursue “whale hunting” in the hope of snagging a major account to achieve sales goals. Of course, whether involving the small business or middle market groups, strong justification always seems to exist for not moving the account to what would appear to an outsider to be the more appropriate unit. The question is whether management can and should intervene.
For banks wishing to improve their sales performance, few issues can be more fundamental than finding the “right” prospects and ensuring that the sales group and the prospect type are aligned. It’s fundamental but still not achieved by many banks.
Mr. Wendel is president of New York City-based Financial Institutions Consulting, Inc. He can be reached at firstname.lastname@example.org.