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02/19/09
Between write-downs, bailouts and reorganization, big banks are struggling to regain a sense of normalcy. But their perfect storm is a perfect opportunity for community banks and credit unions.
Insulated from the housing and credit issues plaguing many large national banks, community banks are being positioned as a safe haven for deposits. Long known for their commitment to intimate customer relationships, community bank operating principles dovetail now with consumers' desire for stability, a personal touch and conservative lending practices.
The events of the last year shattered old banking truisms-consumers are demanding more accountability from their financial institution. Community bankers should act quickly and wisely to capture the consumers fleeing national banks, and revitalize themselves in an era of new banking norms.
Embrace Your Inner Competitor
The 2008 Bank Executive Survey from Grant Thornton found that 76 percent of bankers view other community banks and credit unions as primary competitors. Surprisingly, most community banks don't view large national banks as direct competitors, or wrongly believe they can't compete against them.
National banks have spent many years and advertising dollars convincing the consumer that their array of services eclipse those offered by community banks. The fact is community banks' variety of products and services often match large banks in scope and quality when it comes to retail customers.
Community banks can successfully capture market share by embracing the customer focus that has been their foundation, and performing core functions more efficiently.
For example, community banks typically charge lower fees for deposit services than national banks. Not to suggest that community banks nickel and dime their customers, but not all fees need to be waived and some should even be raised. Community bankers should analyze non-interest income like fees and service charges (including waivers and refunds), and non-interest expenses such as advertising, mailings and printing costs.
Consumers are willing to pay for high-quality service and understand that some fees are necessary-especially if they're presented in a transparent way. Creating a fair, transparent fee structure is part and parcel to running a competitive banking enterprise in today's environment. Focusing more discipline around fees is a simple way to level the playing field among national banks, other community banks and credit unions in the surrounding area. Knowing what the competitive set charges helps community banks maintain a balance between fee income and customer retention.
Adopt a Retailing Mindset
Many bankers have a passive approach to customer acquisition, and typically acquire many of their new customers via a triggering event, such as customer migration resulting from moves or dissatisfaction with their present financial institution.
Research indicates that 20 to 25 percent of bank customers are in flux (switching, or considering switching institutions), but not all banks are capturing their share of those deposits. The issue is that many bankers lack a sales culture, and have focused for years on just accurately processing customer requests. For example, customers expect the teller to count their cash correctly, but would likely be surprised if a front-line employee engaged in conversation designed to introduce a new product that was a fit for the customer's needs.
Overcoming bankers' lack of experience or training in sales and effective customer service won't be done overnight, but can be accomplished with effort from all levels within the bank. An easy step for bankers short on sales experience is to examine their customer database. Look for patterns of use, and tailor products to individual customer needs or their location. Train front-line employees to engage the customer more, and ask the kinds of questions that lead to cross-selling opportunities.
Be an Expert
Community banks possess the advantage of offering personal service economically, which is a strong differentiator in rural, suburban and small metro areas. Most understand that personal service is their most important competitive advantage but haven't figured out how to effectively convert those relationships into revenue. Consumers are looking for a trusted, knowledgeable advisor-one they can talk to face-to-face and count on during times of economic turmoil.
Another challenge is that some bankers believe keeping a customer long-term means waiving fees or giving away services. Fostering long-term relationships stems from providing value to customers in the form of advice or knowledge so they view the bank as their trusted advisor.
Additionally, some community bankers wrestle with the loyalty vs. profitability balance they must strike with customers. The reality is that not all loyal customers are profitable for the bank. Fortunately, many products and services exist that can increase customer loyalty while boosting profitability.
Close the Gap Between Strategy and Execution
New banking norms require a close eye on all facets of operation-particularly understanding why some customers stay while others leave.
Expectations of management and the ability of their front line employees to effectively provide top-notch service are not always in sync. According to the 2005 Retail Delivery Report by the Banking Administration Institute (BAI), when asked about primary issues with relationship-based approaches, consumers most often cite problems relating to the quality of interactions with front-line staff, rather than product or convenience oriented factors.
BAI's study also found that customers most commonly raise issues about whether staff is knowledgeable and well trained and whether it executes transactions and service requests quickly. Bankers should train for and demand appropriate expertise from front line employees too. Consider seeking input from a third-party resource like a mystery shopper that provides an accurate picture of the customer experience provided, and highlights gaps in customer service delivery.
Update Measurement to Fit Today's Environment
Developing new benchmarks for success is particularly important in light of the changes the industry is experiencing.
Internally, community banks need to stray from traditional measures of success like efficiency ratios, which rely too heavily on lending to predict success or failure. With less money to lend and fewer customers to lend it to, bankers must create new benchmarks to measure things like customer retention and front line service that leads to cross-selling opportunities and product line diversification. To succeed, bankers must match their efforts and measurement with customer demand.
Revitalize Operations
Community banks have been the David to the national banks' Goliath for many years, but are presented now with a tangible edge. Transitioning that edge into increased market share and deposit growth requires revitalization-taking a fresh approach to every aspect of bank operations. The old model is broken, and the way we've always done things isn't going to work anymore. Now that the game has officially changed, community bankers must work to establish new success criteria and orient customer service and retention programs to meet customer needs today, tomorrow and beyond.
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