Fall 2015 Banking Newsletter: Planning for the Future of Your Bank

Building Your Next Customer Base

What are you doing to develop your next customer base?

Recently, I saw a statistic that for the first time in our 239-year history, more Americans live in cities of 100,000 and over than do not. This trend, a long time in the making, caused me to begin thinking about the impact on community banks, especially those in rural areas. My question to you is: what are you doing to develop your next customer base?

Complacently serving your current customers, without regard to what the next 5, or 10 years might bring, is a formula for disaster. 

Here are three things that you can do today to proactively build your next customer base:

            First, take steps to understand the demographic changes in your communities – city, county, region – so that you have data. It’s difficult to see change when you are in the middle of it, so step back and assess. Years ago, Al Stewart sang, “In the islands where I grew up, nothing seems the same, still you never see the change from day to day.¹” Think about your current customers and evaluate the “age” of your deposits in terms of the age of deposit holders. Start early to convince the next generation that you can be their bank, as well as “mom and dad’s” bank.

Next, take steps to ensure the viability of your community.  In recent years, I have written and spoken extensively on Generational Transfer and its impact on community banks and the communities they serve.  Read more at www.arkansawriverwriter.blogspot.com.  

Civic and business leaders can influence the viability of a community. Supporting and encouraging local businesses, seeking to attract new business, tourism, and educational opportunities are all ways that you can seek to maintain and improve the health of your communities. If your mayor and alderman are more focused on beautification than economic development, seek to change that by striking a balance with commerce. I’m all in favor of beauty, but it takes commerce to make a community thrive.

These are just a few thoughts for you on this important issue. As always, I stand ready to advise you in these and other matters. Please call on me anytime.

Finally, for your bank, seek to enter new markets with similarities to those that you already successfully serve, and look for new products and services that can enhance your presence in all markets.  Wealth Management, for example, is often overlooked, but can be a powerful way to strengthen and enhance existing customer relationships, forge new ones, and preserve them over time.

 (1) Al Stewart, “On the Border” from the 1976 album Year of the Cat

Upcoming and Recent Speaking Engagements

October 16
Missouri Bankers Association:
Young Bankers Leadership Conference, St. Louis

October 21
Nebraska Bankers Association:
Marketing Conference, Lincoln

October 29
West Virginia Bankers Association:
Operations and CyberSecurity Conference, Charleston 

My speaking schedule for 2016 is filling up -
Updates and booking at trentfleming.com

Trent Fleming is an industry expert on banking strategy. He travels around the country, conducting seminars on a variety of strategic, management, and technology topics. He also serves numerous financial institutions as a trusted adviser in managing today’s regulatory and technology environment. As a consultant, he has worked with hundreds of financial institutions to create strategic plans that are blueprints for success, manage the selection and implementation of new technologies, and provide insight to streamline operations and improve productivity. operations and reduce costs.

 

Trent’s Comments is published six times each year and provides insight into strategic topics facing financial institution executives.

Please feel free to share this with your staff and colleagues.

Should you not wish to receive this newsletter, simply send me an email and I will remove you.

trent@trentfleming.com

Growing Commercial Business for the Community Bank

Growing Commercial Business
Trent Fleming, CEO, Trent Fleming Consulting

The battle in financial services is for the profitable small business.  Business customers are important for three primary reasons, in my estimation:

                            1)     They provide a dependable, low cost source of funds

                            2)     They are willing to pay fees when you can demonstrate value

                            3)     Many are closely or privately held, and provide access to other businesses with common ownership, as well as wealth management opportunities.

Banking options for businesses are often labeled as “Treasury Management” or “Corporate Cash Management.” The name is not important, but the concept is: acquire, promote, and support the banking products and services that your businesses need.

In order to to compete for business banking with regional and national banks,  community banks have to be effective on two fronts: products and perceptions. 

Products are easy.  Virtually any of the core vendor solutions available today support the commercial cash management solutions that your business customers will need.  You may have to acquire some ancillary solutions to address particular needs, but my point is this: you have access to these technologies.  Offering these products and services as bundled solutions for customers of various size and industry specialization is a key to building stronger relationships. 

Perceptions are hard.  Unless you are aggressively meeting with current and prospective business accounts, to promote your offerings, you are falling victim to other banks' marketing efforts that seek to discredit you.  Larger banks have traditionally done a better job of promoting services to business as a comprehensive set of products and services designed to help businesses get their banking done efficiently.  While there are some exceptions, in very large or highly specialized situations, for the most part, community banks have access to all the business account services that larger banks do, and are simply out-marketed.  Build your story and tell it regularly.

My presentation “Packaging and Promoting Bank Services” has been very popular with audiences recently.  I believe I strike a nerve around the importance of formalizing bundles of services for businesses of different sizes or in different industries, and presenting these bundles as solutions for the business.  Doing this says a lot to customers and prospects about the bank's interest in providing viable solutions.

So, how do you get started?  First, decide that business customers are important to your bank.  While you may maintain a retail or mortgage lending focus, you still need business customers, for the reasons outlined above.  Second, assess the extent to which your business customers are using your services now.  The list is virtually endless, but here's a start:

                            1)     Business Internet Banking                                         

                            2)     Bill Pay

                            3)     ACH Origination

                            4)     Remote Deposit Capture

                            5)     Sweep Accounting

                            6)     Interest Bearing Options

                            7)     Lending Products

                            8)     Merchant Services

                            9)     Business Debit and Credit Card solutions

Third, look for gaps: both in under-utilization of things you already offer, and in your failure to offer products and services required to compete in your market.  Fourth, begin assembling these products into categories.  A very small business, with limited needs, may only need basic business Internet to manage their accounts, transfer funds, and pay bills.  Business with a larger staff may have a need for ACH origination for payroll, and billing, and perhaps RDC if they receive a high volume of checks.  You get the idea.  The intent is to develop suggested bundles of solutions that you can then present to businesses in order to suggest solutions.  Don't over-think this.  The important thing is to get started. 

Once you have basic info about what customers are using today, and have assessed the gaps mentioned above, it's time to get moving.  Meeting with your officers with commercial account responsibility and discussing these findings is a good start. 

You'll also want to meet with your business customers:

Hold meetings with customers, in groups, or at their offices, to introduce the current state of banking technology, and get their feedback. Listening is critical . . . such a meeting should only be 25-30% presentation, the rest should be discussion and listening. In a relaxed environment, customers will open up and discuss pain points (which may not be directly related to the topics you introduced)

This is how you will learn what your customers really need and how you can best help them.

As you begin to execute your plan, there's no doubt that you will have relatively immediate success with some of your existing accounts – strengthening those relationships by better promoting your products and services.  Leverage that into testimonial ads, and continue mining your own customer base, while aggressively looking for new business accounts that seem to fit the profile of businesses you are effectively serving.

What I want to do is help you to change the way you approach business banking.  For the better, and for the long run.  Perhaps these thoughts will get you moving in that direction.  As always, I'm available to assist should you have questions or need some outside guidance. 

Trent Fleming advises executives on management and strategy issues.  He can be reached at trent@trentfleming.com or on twitter @techadvisor

Four Ways CEOs Can Easily Manage Technology

For many CEOs, technology is an increasingly complex and frustrating part of running a business.  Two things are certain, though: customers desire to interact with your company via electronic channels, and this technology can significantly impact your productivity and profitability if properly managed.  Here are some thoughts to help non-technical executives manage technology well.

First, manage your people well.  Clear job descriptions and regular performance reviews are the key to setting expectations and monitoring performance.  Remember: it is impossible to fairly evaluate someone’s performance if you haven’t clearly set out your expectations.  While “tekkies” are a bit different to manage, starting with the fundamentals build a great foundation.

Second, incorporate technology into your enterprise strategic plan.  For many CEOs, strategic planning for technology is an afterthought, or a dreaded task.  Moving discussions of technology into your overall strategic planning efforts will help you to leverage technology by embracing its value and clearly defining how technology will support your business lines, both customer facing and internal.  Transparency about the strategic goals of your organization will help your technology managers to support those goals.

Third, demand a business focus from your staff.  Work to help them understand that technology without a clearly defined business purpose is of little value.  A simple business case document can be a great teaching tool to help your staff communicate the benefits of technology they propose to invest in.  Tying these efforts back to the clearly communicated strategic plan will pay great benefits in terms of having your team focused on the things that are important to you.  Keep it simple.  Insist that your IT staff communicate in plain language.  Challenge them to explain the workings and impacts of their systems in practical terms, rather than relying on buzzwords.

Finally, keep it safe.  Insist on a security and business continuity focus.  Efforts by criminals to gain access to your company’s data (and that of your customers) are never-ending.  Your security efforts must keep pace.  In addition, place an emphasis on contingency planning and disaster recovery.  Your ability to preserve and/or recover internal operations and customer facing systems is critical to the success of your business.  Insist on written and tested plans that address the three main components of such planning:  prevention, impact minimization, and expedited recovery.  Businesses that suffer technology outages of three days or more are at risk of failure.  It’s that important.

Instead of shirking away from technology, embrace it, and seek to actively manage it for the benefit of your employees and customers.

Trent Fleming advises executives on management and strategy issues.  He can be reached at trent@trentfleming.com or on twitter @techadvisor

Staffing and Succession Planning at Vacation Time

Summer is upon us, along with vacation schedules.  As many of you know, I’ve been asking you to focus on improving your management of staffing levels.  Vacation time is a great opportunity to observe which employees are doing well, and which are not.  Evaluate the efforts of your staff across the bank when managers or other key employees are on vacation.  Do errors increase? Are there compatibility issues that come to the fore? In addition, look for signs that the vacationing employees or managers have dangerously high concentrations of knowledge . . . inquire as to whether the remaining staff is reaching out to those employees for help during the day or in the evenings.  One key to a high performing organization is a level of cross training that anticipates and overcomes temporary and permanent absences.  Finally, use managerial absences to more fully evaluate staff that you have earmarked for promotions.  Succession planning is important at all levels of the organization, not just Board and C-level.   I’m eager to hear what your learn from your observations.

Trent’s Comments 

Fall 2014 Germantown, Tennessee 

Thoughts on Cost Control

Insights into cost control and efficiencies

The rules of profitably continue to change   We are in the midst of an historic period of low rates, with corresponding narrow Net Interest Margin.  Improving your cost control, in a number of areas, can make a significant impact on your profitability.   While your attention naturally turns to cost control in difficult economic times, a better approach is to build a culture of cost control that permeates your organization. In effect, it is a type of fiscal discipline.  As you strive to elevate your entire staff's awareness of the importance of cost control, you will instill habits that extend to current and future business practices, for matters large and small. Let’s look at a few key areas you should address in order to succeed at cost control and revenue improvement.

Stop giving things away.  Your loan and deposit agreements with customers provide for certain types of fees . . . for research, overdraft charges, and late fees, for example. One of our struggles in community banking is that we have given away so much, for so long, that customers have come to expect it.  By the way, doing so greatly devalues the services you provide.  Implement a review of fees you are due, and put in place new practices that make it much harder for employees to waive such fees.  Late fees on loans, for example.  Unless the bank has made an error, why would you waive such a fee, that the customer has contractually agreed to?  

Remember that employees are the key to successfully implementing this change. Education and training to help employees enforce the rules are key.  On occasion, you may have to remind your staff that it is revenue that allows you to keep the lights on and pay salaries.  An employee who charges a fee, but whispers “I’m sorry THEY are making me charge you” is not carrying a message of the value of the service rendered. As you’ve heard from me before, “knowledgeable, enthusiastic” employees are the key to success.  These are costs in the sense that potential revenue is slipping out the door instead of going to your bottom line.

Staffing remains a significant cost for all banks.  It is my humble opinion that many of you are overstaffed.  Before you doth protest much, let me explain.  By failing to properly utilize the technology that you have invested in, you are creating undue costs via manual or automated work arounds.  One of my “tricks” for identifying gaps and improving utilization is to look for the use of spreadsheets.  Often, spreadsheets are used by employees to overcome perceived gaps in product capabilities, when in reality these are often gaps in training on how to use the core system more effectively.  Have your staff fess up to the spreadsheets they are using, and consult with your core vendor about ways to accomplish the same things using the core system.  One key danger with spreadsheets is that they don’t travel well.  If the person who wrote the spreadsheet isn’t around to modify and maintain it, it often becomes useless, posing the risk that important work won’t get done.

Encouraging and preserving mediocrity, by failing to establish performance standards and holding employees accountable, adds to your salary cost.  An example of this is the impact on employee morale, as those who are doing their own work become resentful of those who are not pulling their weight.

Contracts and relationships associated with Information Technology services are often overlooked.  Especially for those of you who choose to outsource data processing, there are long term contracts that reflect significant costs to your bank.  These costs include day to day costs, and extraordinary costs that might be associated with acquisitions, early terminations, or conversions to other systems.

Overall management of these contracts is an important subject.  I have written and spoken about it extensively.  For our purposes, however, I want to focus on the ongoing cost elements of these contracts, as they are significant and persistent.  Complex services, such as core account processing, involve complex pricing, and I often find errors in monthly billing associated with these contracts. Failure to correct an error the first time means it is likely to persist.

To ensure that your bills are accurate, evaluate them in light of the terms and conditions, and pricing schedules of the contract.  It's important to look at these bills every period (whether monthly, annually, or otherwise)  in a timely manner.  Such familiarity will cause your staff to better understand what is “normal” and quickly identify errors. 

 You'll also find that many such contracts preclude your recovering all of the over-billing or other errors, if you wait too long.  One such contract I saw recently limited the vendor's liability to the last three months of overages and errors.

One final area.  As we’ve discussed, our industry has given away so much, for so long, that it is hard to convince both customers and employees that we need to charge for services rendered.  One way to break this cycle is to intentionally attach fees to any new services you offer.  The “iTunes Store” concept of pricing is not that different from J.C. Penney’s original fractional pricing method. It works well.  Consider such pricing for products and services you introduce, such as 99 cents for mobile check capture, or $7.95 for a specially branded or photo debit card.  Doing so communicates value to your customers, and acclimates them to paying for value.

I could go on, but I’ll save the rest for another time.  Please take a few minutes to investigate at least a couple of the suggestions above.  It is my hope you can enter the New Year with a newfound focus on controlling your costs, and thus improving your bottom line.

My best to you and your families for a wonderful Holiday Season! As always, please let me know how I can help you.

Recent and Upcoming Speaking Engagements

November 6th 

Western Independent Bankers: Director’s Conference, San Francisco

November 14th

Connecticut Bankers Association: Annual Conference, Scottsdale

November 19th

Arkansas Bankers Association: Technology Conference, Little Rock

November 20th

Tennessee Bankers Association: Directors Retreat, Nashville

January 13th (2015)

 Tennessee Bankers Association: Retail Sales and Bank Marketing Conference, Nashville

Trent's Comments is published six times each year and provides insight into strategic topics facing financial institution executives. Please feel free to share this with your staff and colleagues. 

Should you not wish to receive this newsletter, simply send me an email and I will remove you. 

trent@trentfleming.com