Many banks are now in the midst of their budget and planning seasons, aimed at improving efficiency and performance in 2016. The continued low interest rate environment, limited growth opportunities and more non-traditional competitive threats have increased the pressure on bank managers to set clear, high-impact goals and deliver on them in order to demonstrate success.
As part of the planning process, each bank should establish a targeted and customized set of priorities based on its strengths, areas requiring improvement and other factors such as risk appetite and available investment dollars. In the end, no two banks will have the same goals. However, even as managers focus on specifying and limiting their goals, three areas emerge that virtually all banks need to emphasize next year and beyond: improving cross sell; reconsidering how best to manage technology; and determining whether and how to partner with alternative finance companies (AFCs).
Building excellence in cross sell. This was important 20 years ago; it is even more important today. While hardly a new topic, cross sell continues to provide the biggest near-term payday available to banks.
Recently, I was speaking to a client who was bemoaning his bank’s lack of success in this area over the last few years, despite it being targeted as a key growth area.
Similarly, a September article in the Wall Street Journalhighlighted JPMorgan Chase’s opportunity to grow current small business customer profitability, noting that less than 10% of its customers used the bank for checking and credit cards and merchant processing versus over 40% who, based on a recent survey, use these three products. The article said that Chase “is working on breaking down the silos among those services over the next three years with tactics including the use of a common application for clients to fill out that could qualify them for deposits and loans as well as its ‘ink’ small business credit card and its ‘Paymentech’ payment-processing service.”
Streamlined processes and breaking internal silos are keys to Chase’s program, but silos exist not only at banks of Chase’s size but across all size ranges. The reasons for the lack of cross-sale successes are numerous, often including lack of training, organizational roadblocks and poor compensation incentives. Managers need to identify the key issues at their bank and eliminate them. An internal mantra should exist that emphasizes what we find is typically (although not always) the case: “More products sold equals more profits.”
Cross sell does not get the attention it merits in part because it requires management to influence or even demand cooperation between bank units; bankers need to break past patterns and they resist doing so. Cross sell, based upon understanding and meeting client needs, should permeate a bank’s culture and not be an activity that bankers choose to opt into … or not. In short, cross sell should be the number one priority at most banks. If not, why not?
Reconsidering how best to manage technology. While cross sell should be initiative number one, it cannot be the only bank priority.Within banks, Information Technology (IT) decisions are too important to be left up to the chief information officers (CIOs) and their staffs, and the best CIOs know that. At the same time, IT continues to confound many execs. Too frequently, banks are dependent on large and often unresponsive IT giants that often call the shots and determine when and how banks can offer certain products. Bankers, including senior management, can get lost in jargon and acronyms and retreat back to the decision areas in which they are most comfortable.
Consider a process like the following that has worked for several clients. Prior to a day or half-day meeting, key line and support areas prepare a brief list of their IT requests and requirements for the next year. This summary includes the reasons for the requests and, to the extent possible, each item’s related cost and revenue impact. At the group meeting, each major line and support area presents its requests and answers questions about its business needs. This serves as an effective tool to update attendees about the direction and needs of the bank and complements a bank’s strategic decision-making.
A facilitated discussion both during and at the end of the day generates a list of top areas for investment. A subset of the larger group then reviews all requests and categorizes them by priority, providing their rankings to attendees before finalizing them for the next year. Transparency and an emphasis on communication drive this process.
Determining whether and how to partner with AFCs. Non-bank alternative lenders have become part of the permanent financing landscape, both in the consumer and small business areas. While consolidation within this group will occur over the next few years, a number of major players have emerged with the capital and market presence required to give them staying power.
Increasingly, AFCs want to work with banks, which can provide them with loan leads from potential borrowers that, in many cases, banks will not lend to themselves. The banks can focus on deposits and other cross-sell opportunities. In addition, some AFCs can provide banks with the technology platforms necessary to increase productivity and lower processing costs. AFCs can also help in meeting regulatory challenges to banks such as Community Reinvestment Act requirements, since AFCs can target loans to specific demographics.
Why focus on this now when other near-term priorities may be more pressing? It can take a year or more for a bank to determine how they can best work with AFCs, select the right partner and get the process in place. Banks may be making a mistake by failing to begin to assess this emerging partnership opportunity with AFCs as soon as possible.
A final thought: Banks have limited bandwidth for what they can achieve. Increasingly, they are pulled in multiple directions by stakeholders and also continue to spend time on non-revenue producing compliance and regulatory needs. Nevertheless, addressing cross sell, IT challenges, and opportunities to partner with alternative finance players should enable banks to compete now and in future years. But, again, nothing should divert bank attention from the one area that provides clear and relatively quick profit impact: cross selling to current customers.
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