The topic of Business Strategy and implications to Customer (Member) Loyalty, Revenue Growth and Profitability are rather timely as Banks and Credit Unions prepare for the Annual Strategic sessions. Specifically related to checking accounts, every Bank and Credit Union ought to be asking questions including: How effective and efficient has the customer acquisition program led by checking account product sales been? How effective is the cross-sale plan that is based on WOWing the checking account customer into additional product sales? How much products have been upsold, on average, to a checking account led acquisition? How much revenue and profit have the checking account led acquisition customers generated for the Bank or Credit Union? Perhaps the experience of your Bank or Credit Union is an outlier, but the data is overwhelmingly and unequivocally negative. That is, checking accounts are effective only at increasing the count of checking accounts (and perhaps the wallets of certain vendors who continue to sell the value of the checking account). 10 years ago, the checking account may have been the gateway to a broader wallet-share, revenue and profit growth, but circumstances have changed and the checking account is a liability – in all senses of the [Read More...]
There is lots of talk in the Community Bank and Credit Union circles that GenY are an essential customer base. This is so, insist Bank and Credit Union executives, despite the fact that most GenY expect free services and the vast majority are unlikely to want revenue generating products offered by Banks and Credit Unions. GenY is critical, goes the argument, because of the financial windfall they stand to inherit once the older generation passes. Never mind that an average banking relationship is about 7 years (about as long as a typical marriage) and that the expected windfall (if there is one) is unlikely to occur within this time period. We’ve written on the fool’s gold including Knowing Your Customer Is Essential for Loyalty and Profitability Gen Y Hard Hit By Recession But Youthfully Optimistic Can Gen Y propel Community Banks and Credit Unions? New data from a recent Wall Street Journal article suggests that the windfall is not likely to happen at all! WSJ reports that nearly 50% of the population has less than $10,000 in total savings with nearly 36% of Boomers reporting the same. Another 14% of Boomers have less than $50,000 in savings. In sum, 50% [Read More...]
Do Credit Unions, as a group, understand Business Strategy? The findings are not encouraging based on the survey of nearly 500 Credit Unions conducted by Aite Group. Though the focus of the survey was limited to Credit Unions’ Online- and Mobile-Channel business objectives – the findings give us much cause for concern. The survey found that 88% of Credit Unions believe that Up / Cross-Sell of Existing Members is a key business objective for online offering and 87% believe that online is a key business strategy for Acquiring New Members. So far so good… However, just 27% of Credit Unions believe that Generating Revenue was a key online objective. So, just to restate… nearly 90% of Credit Unions want to cross-sell and acquire new members, but less than 30% are interested in generating revenues! In which case, why bother cross selling and trying to acquire new members? Here is another doozy. More than 90% of Credit Unions believe that a key business objective of their online offering is to Maintain Competitive Parity, while at the same time, 85% also believe that Obtaining Competitive Differentiation is a key business objective. Again – how can you ‘keep you with the Joneses’ and differentiate [Read More...]
Cross-selling, despite significant focus and investment, is ineffective at most Banks. Based on Deloitte survey conducted in August 2012, just 54% of consumers have more than just a basic checking account at their Primary Financial Institution (PFI) or elsewhere. Of those that own multiple banking products, only19% owned 3 or more products in addition to the checking account with their PFI compared to 49% who have 3 or more products with another Bank or Credit Union. Bank and Credit Union executives must therefore ask themselves questions including: - Why are consumers not purchasing banking products (in addition to the checking account)? - Why are consumers not purchasing banking products with their PFI? Customer Satisfaction with Banks and Credit Unions Nearly 90% of consumers are satisfied with their Bank and Credit Union. The high customer satisfaction has resulted in the average tenure of nearly 6.5 years, with 40% of the customers staying with their Bank or Credit Union for more than 10 years. Contrary to popular belief, consumer trust in Banks is neither weak nor waning and an average banking relationship lasting about as long as an average marriage in the US. Ownership of Banking Products Excluding Checking [Read More...]
Banks and Credit Unions executives continue to be challenged to improve effectiveness of product and service pricing. Never more so is true than when it applies to Checking Accounts – the staple of a banking relationship and the stepping-stone to a deeper Banking relationship. Consumers are Satisfied with their Bank or Credit Union Although many surveys seem to indicate that the vast majority of consumers hold a negative view of Banks and Credit Unions (FIs) and their practices, the reality of consumers’ actions are very different. 88% of consumers are satisfied with their Primary Financial Institution (FI) according to Deloitte’s Retail Bank Pricing survey conducted in August 2012 with over 4,200 checking account customers. Just 7% of consumers expressed some level of dissatisfaction. This figure correlates well to the historical trend of 8% – 10% of consumers who switch their Primary Financial Institution annually. Consumers Disinterested in Paying for Previously Free Products & Services Not surprisingly, most consumers are very sensitive to price increases, especially for products and services that were previously offered at no charge. Given same level of service and same products, consumer reaction to fee increases is … not positive. After all, very few of us enjoy [Read More...]
In advance of this year’s Annual Strategic Planning session, we urge Bank and Credit Union executives to spend a little time on post-mortem of past Strategic Planning activities. Specifically, we encourage executives to conduct a brief assessment to determine of the effectiveness of past Planing sessions based on the answers to questions including: What action items and activities resulted from the Strategic Planning sessions held last year or even better last 5 years? Looking back, which of these action items / activities were implemented? Of the implemented activities, which created value to customers (members for Credit Unions)? How? What factors lead you to believe that customers noticed the change and that they value the change? Did the Financial Institution (Bank or Credit Union) recognize value based on Customer (Member) Acquisition: How has the customer acquisition effectiveness & efficiency improved? Retention of Existing Customers (Members): How has the retention of existing customer base changed? Wallet-Share / Cross-Sell: What is the impact in the wallet-share and/or household product cross-sell? Revenue Growth: What caused change in revenue growth? Operating Income: What is the impact of each initiative on operating income? For each, quantify the change (even if it’s on the [Read More...]
The following is a guest post by Bruce Klein, Director of CrossCountry Consulting’s Financial Services Practice. ———————————————- Meet Your New Middle MarketLender – His Initials are B.D.C. New regulatory rules and capital constraints have served to make lending to the small mid-market company unattractive to banks. A small but growing group of firms known as Business Development Companies (BDCs) are stepping in to fill the void. These companies can fund their loans by raising money from the public via IPOs or from wealthy investors via a private equity type structure. Banks are also willing to lend to BDCs and even the Small Business Administration has a program to help them. This article will explain how BDCs work, the way they raise capital and how they are starting to change the commercial lending landscape. Market Dynamics A set of market dynamics has come together for which BDCs provide a perfect solution. These market dynamics are: Small company lending is becoming less attractive to banks Asset management firms continue to search for yield Traditionally private capital investment channels are looking to attract retail investors Small middle market lending is becoming less attractive to banks The evolving regulatory landscape, Basel III in particular, [Read More...]
We have all heard the folklore… Community Banks have been swamped with excess deposits. But it is true? As it turns out, Community Banks – those with less than $1 billion in assets – have actually lost deposits every year since 2008. In fact, only the large Banks – those with assets over $5 billion – have seen a significant increase in deposits since 2008, as could have been predicted by ‘flight to quality’. The loss in deposits for Community Banks is not large – ranging from $7 billion outflow in 2012 to as much as $46 billion in 2010. The much heralded Bank Transfer Day (BTD) apparently did little to bring in deposits into the Community Bank sector. On a percentage basis, Community Banks have lost more than 3% of their deposit base in 2009 and 2010, but the loss has improved to a loss of just a 0.9% and 0.6% in 2011 and 2012, respectively. The stark comparison to the deposit gathering prowess of the large Banks cannot be ignored.
Business Strategy is what sets apart the leaders from the pack. Given the sharp changes in the competitive environment facing Community Banks and Credit Unions, a coherent and executable Business Strategy is more important than ever. A recording of a recent webinar and presentation slides presented on the topic of Why Business Strategy is Essential for Every Community Bank and Credit Union are provided below. Recorded Webinar Video: Presentation Slides: As always, we welcome your comments.
You too have probably heard that customers are loyal to their Banks. Especially so for Small Business customers. And especially so when the Financial Services provider is a Community Bank. We’ve previously written about the Aite Group survey which indicated that less than a third of Small Business Customers are satisfied with their primary Bank, and a Greenwich Associates survey that found that nearly 70% of Small Business Customers receive little or no value added from their Bank and Bankers. Therefore, it should come as no surprise that loyalty by Small Business owners to Bankers is non-existent. John Barlow, President of Barlow Research presented The Five Things No One Told You About Small Business Banking in the West at the WIB’s 2013 Annual Conference for Bank Presidents, Senior Officers and Directors in March 2013 which shows that 94% of Small Businesses did not switch Banks when their Banker left for another institution. These findings challenge the long-standing belief of the value for the Banker / Relationship Manager with significant strategic go-to-market considerations for Community Banks focused on the Small Business market. How strong is the loyalty of your Small Business [Read More...]