Last month, Inc. reported that small business owners are more optimistic than they were a year ago, and “owner optimism tends to spur hiring and expanding … As many as 76 percent of small business owners said the second quarter met or exceeded expectations, and half expect the third quarter to be even better than the second.”
The clear implication is that small business owners are ready to start borrowing again and a number of banks have voiced their renewed interest in lending to them. But if extending credit is the extent of banks’ ambition, it’s going to be difficult to maximize the potential profit.
For most small businesses, the bank relationship starts with setting up their operating accounts and over time establishing credit, but these products barely scratch the surface of the customer’s overall financial needs. To maximize the mutual value of the relationship, the banks need to go for the trifecta: the small business relationship, the personal relationship and the wealth management relationship.
The Same Customer
For many businesses, that’s one and the same customer! It is important to recognize that in many cases, the business account is the source of funds in the customer’s other banking relationships. Understanding these other relationships, which may or may not be at your bank, is critical to developing an informed view of their overall needs. With this broader view, banks may be able to accelerate a discussion on lending needs, thereby solidifying the relationship.
In addition, wealth management represents an underappreciated opportunity in the small business strategy. Despite their history of building wealth, small business owners tend to be notoriously lax in seeking out investment advice. The more successful the business, the greater the opportunity for the wealth management component to grow.
Bringing the overall relationship into one institution is a win/win for both the customer and the bank. Remember that for a business owner, time is the most precious commodity that they have, so if you can make their lives simpler and easier, you can win the “Trifecta.”
The benefits you will reap are also significant: reducing the high cost of customer acquisition, the foregone revenue from the unsold products and the higher defection rates of single-service customers. In addition, the broader understanding of the customer’s overall financial position reduces your bank’s lending and operational risk.
But it takes more than a warm hand-off from the loan officer to another expert in the bank to deepen the relationship. In fact, that kind of hand-off can dilute the relationship by exposing the busy owner to fragmented structures and policies of the bank. A better approach is to establish your own “Trifecta Relationship Manager” model.
You may find that your existing incentive systems, organizational structures and Management Information Systems (MIS) do not currently support this model. Therefore, empowering the Trifecta Relationship Manager across the organization combined with a fundamental re-engineering of these systems must take place if the model is to be successful.
If the customer asks the lender about cash management, for example, and the lender is neither versed in the bank’s products nor incented to expand the relationship, the customer ends up dealing directly with the bank’s Treasury Management people who may not be familiar with his business, and may end up with complicated services beyond his needs.
Deepening the relationship should mean using that information to choose the best products to offer the owner (and his family members and employees) and saving them time in the onboarding process, rather than making him feel like a new customer each time.
Banks like to talk about “integrating the customer relationship,” but that’s bank jargon. Customer talk is, “You’re my banker; here’s my problem.” Again, after credit, one of the scarcest resources for a small business owner is time. Small business owners don’t have the time or the appetite to become experts on your products and policies, let alone your organization chart.
Integrating the experience means removing all obstacles that make the customer feel like he is the connection between different parts of the bank for you. If your employees are charged with cross-selling, make sure they are appropriately cross-trained, not just on your products but on what they can and should know about the customer already.Make sure that if you have a team selling approach, it is not your customers’ job to be the coach, filling in the gaps.
On the technology front, integrating the customer experience means delivering a single view of the relationship across all channels, enabling the customer and the relationship manager to see how the Trifecta is paying off. It means paying meticulous attention to optimizing the right channel for the right purpose.
The customer benefits of this internal reengineering are obvious, but they extend to the bank as well. You will make better product and pricing decisions for the customer, you will reach the market faster and your costs to acquire, expand and service the relationship will be lower.
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