Saturday, September 29, 2012

Guest Post: Why Banks Fear Blogs by Dana Dobson

Banks have been dragging their feet about blogging since the beginning, rather than embracing the opportunities it offers. They are consumed by anxious questions:

• How do I protect customers and our technology infrastructure from phishing attacks to get customers to click links that lead to malware?

• What if one of our representative blogged a statement that was used as investment advice by a reader?

• What if I miss a customer’s complaint or I don’t document it properly?

• What if we fail to issue the proper disclosures? Can the bank be cited for a compliance violation?

• What if we get negative comments?

At the same time, bank regulators raise issues that are cause for concern. For instance, fraudsters and hackers become more sophisticated every day and seem to be one step ahead of security gurus. Most users, they fear, do not take into consideration the relative ease with which any form of electronic message can be redistributed in an uncontrolled manner. Alas, some bankers may communicate with customers without full knowledge about regulatory compliance issues.

For example, a business development officer, branch manager or commercial lender, each of whom is tasked to achieve aggressive sales goals, might create a personal LinkedIn account for the purpose of prospecting for new business and innocently promote rates and other features without including the required disclosure language.

All fears about blogging can be put to rest.

All that needs to be done is to present to management how any perceived risks should be addressed. Susquehanna Bank and Arvest do an excellent job of this by posting guidelines directly on their blog sites. Additionally, every bank marketing and compliance officer should work together to create a written policy that answers all the “fear” questions to management’s satisfaction. Marketers who are on top of the compliance issues that arise in print, broadcast and website advertising can easily manage blog content effectively and to the advantage of their organization.

These days, a company is in the minority of it doesn’t blog. People make buying decisions by using the Internet to learn about the products and services that best meet their needs. Banks who are holding out on blogging are missing an important tool to share their brand with prospective and existing customers.

Dana Dobson is an award-winning freelance copywriter who specializes in writing for banks and financial institutions. A former bank marketing executive, Dana has written a white paper entitled, “Banks & Blogging: Why they should, why they don’t, and how to go about it.” For more information, visit

Tuesday, September 25, 2012

Your Branch in Your Pocket

I am attending the annual ABA Marketing Conference, where I spoke on how marketing can focus efforts on improving profitability and moving their bank forward.

The program had plenty of learning opportunities. One was the best attended general session in conference history, Brett King on the future of banking. Brett is the author of Bank 2.0, Branch Today, Gone Tomorrow, and the forthcoming Bank 3.0 and is what I would term an industry futurist, predicting and staying ahead of where he perceives the industry is going.

In the below clip, Brett speaks of the friction in our system that is slowing our adoption of change. He used the example of Compliance friction, that often thwarts efforts for online account opening and other technology adaptations. He makes the point, quite correctly in my opinion, that there is an irreversible trend in our industry away from customers coming to our branch, and calling us on the phone.

That puts a premium on building our bank's team on customer and prospect outreach, visiting them on their turf, with convenient technologies. Because if we wait for them to come to us, they're likely to go somewhere else.

Are you trying to reverse the trend and encourage customers to come to your branch? If not, how do you reach them?

~ Jeff

Saturday, September 15, 2012

Customer Profitabilty in Banking: Do you do it?

According to an ABA survey (see table), I doubt it.

I am speaking at the upcoming ABA Marketing Conference next week. Well, maybe not as much speaking as appearing. Mary Beth Sullivan and I are appearing as guests of Susquehanna Bank's Susan Bergen, in an Oprah like talk show format. I suggested Saturday Night Live's Point-Counterpoint format, but it was rejected. To appease my objection to appearing on Oprah, they orchestrated my entrance to a Pitbull song. I did not know who Pitbull was.

Our discussion will revolve around an ABA survey done this summer regarding actions banks have taken, or intend to take, to improve profitability. One question that didn't make the cut in the interest of time, was the one represented in this post's table: Does everyone in management know profitable versus unprofitable customers the bank serves today?

If you were in the corporate headquarters of McDonald's, you would be alarmed at the results. If you are in banking... not so much alarmed as happy that so many others remain as in the dark as you. I think lack of knowledge of profitable customers comes from three things:

1. Getting such a number requires investment in resources your FI currently does not have:
2. The regulators don't require the information; and
3. Even if you had the information, what would you do about it anyway?

All are related. FIs earn money on the spread. In order to create spread, FIs focus on creating a basket of the highest yielding assets within risk parameters, while funding them with a basket of the lowest costing funding. Why do you need some fancy profitability information to tell you that?

Problem: Various assets and liabilities take differing amount of operating expenses to accumulate. Also, based on risk, different assets and liabilities require different equity allocations. If your attitude is that the "incremental" cost of chasing this business or that is minimal, you may very well be mis-allocating your precious resources to low profit customers.

For example, we have a client that served the bar/restaurant business in a college town. These establishments brought decent balances to the bank. The problem: we found employees that spent half their day sorting through the bag-fulls of cash delivered every day. Could the bank allocate that operating expense to a campaign to acquire and serve higher profit customers? Without determining the profitability of those customers, we would never know about the opportunity lost.

I think it's time to change the paradigm from acquiring the highest yielding assets and the lowest costing liabilities based solely on interest earned or cost of funds. We should instead focus on acquiring and serving baskets of the highest profit customers. Doing so will efficiently allocate resources, improve our profitability, and enhance our FIs value.

~ Jeff

Monday, September 03, 2012

Banker Quotes: As Told to Me v4

I learn a lot from bankers and industry experts as I visit their offices, speak to them on the phone or at industry events. Occasionally they will offer an insight that I think my Twitter followers would find interesting. Since I estimate my Twitter community only reads about 10% of their tweet stream, and so many of my blog readers do not follow Twitter, below are selected quotes that I tweeted since version 3.

Note that if the quotes exceeded 140 characters, I would have abbreviated or substituted some words to make them fit. So if you are a CPA and want to count, a few of the quotes may exceed the 140 here, but not on Twitter. I quote bankers anonymously to protect the innocent.

1. Bank Senior Lender on branch traffic: It's like groundhog day. They see the same people every week.

In addition to declining branch transactions, in-branch sales opportunities are pressured by the above reality.

2. ALCO Consultant: If your bank is making loans, forget about retail and fund with an FHLB advance.

Sad but true that the combination of operating expense and interest expense to generate retail deposits exceeds the cost of getting on the phone and calling your FHLB. But does it make your bank more valuable? In lieu of Hudson City Savings Bank sale price, I’m not so sure.

3. Me to bank credit consultant: What's the best leading indicator of a loan problem? Consultant: The borrower doesn't return your call.

How do you fit that square peg in your ERM round hole?

4. Bank chairman to me: It's difficult to have vision when you're fighting alligators.

This short-term thinking may be a key driver in future consolidation… community FIs with no vision for a sustainable future.

5. Bank chief credit officer relaying to me an OCC comment: "We haven't issued an asset quality upgrade in quite some time."

This is a telling statement since industry credit metrics have been improving for at least a year.

6. Bank exec to me: The public is starting to come around that community banks do not have to be thrown under the bus like big banks.

Thank you, public.

7. Bank CEO: That bad loan is in Seaside Hts. Me: Maybe it's Snooki. CEO: You know she's pregnant.

Who says bankers are out of touch?

8. Bank chairman to me: It would be interesting to know our branch's profitability.

Do you think?

9. Me to Chief Credit Officer/CCO: Isn't having a 3% delinquency rate on a 7% yield portfolio OK? CCO: The 7% thing would never happen.

Sad, but true. If you can’t get the yield for the risk, perhaps you should let the next guy/gal do the loan.

10. Bank retail chief: Saying customer service is our differentiator is a 'me too' position.

You mean everybody doesn’t have superior customer service?

11. Bank CEO: I think 4 FTE's is the right number for future branches.

Note that he was thinking out loud in a session designed to improve branch profitability.

12.  Bank CEO: My most demanding job is playing pen pal with my examiners.

To say that we have been forced to engage in flattery with our regulators is an understatement.

13. Bank loan consultant: There is too little a difference on yields between the best and worst rated credits in bank loan portfolios.

See my comment on getting paid for risk.

14. Bank consultant: Your strategic plan projections should drill down to a value proposition.

Agreed! Your plan should deliver increasing shareholder value, discounting projected earnings to present day value.

15. Bank examiner: When evaluating an acquisition, assume that every loan portfolio is worse than you think it is.

Told to a CEO who relayed it to me... and perhaps the Day 1 loan mark will be worse than you estimated.

16. Senior lender to me: Does it make sense to have my lenders calling on businesses for operating accounts when we are so liquid?

My answer was to hunt when the hunting is good, not when you’re hungry.

17. Me: Maybe Dodd-Frank will result in reduced compliance costs because CFPB streamlines regs. Bank CEO: That's not going to happen.

But the Treasury Department said it was going to happen.

What are bankers telling you?

~ Jeff