Wednesday, December 27, 2017

Bankers: Ask What Customers Want. Then Do That.

Steve Jobs showed customers what he thought they would want, and convinced them that they wanted it. An unlikely scenario for bank products, wouldn’t you agree?

So what do your customers want?

This presumes you know who your target customers are. Bankers used to try and be everything banking to everyone in the towns where they had branches. This approach left the legacy of the General Bank. Where the answer to the question on what your bank is known for was “nothing in particular”. Or the most common bromide, “superior service”. We’re still either stuck on this legacy or are shedding it at tortoise pace.

Identifying your target customers does not mean you will not serve others. But who do you want your front line people focused on? What processes do you want to streamline first in your support functions to provide superior service? What technologies do you want implemented right away?

The answer to the above should be based on your strategy. And your strategy should be based on target customers. And target customers should provide sufficient quantity, growth, and margins to serve and meet your desired profitability. 

Next question… what do these customers want? 

Take SoFi as an example. Their desired customers are millennials with college degrees that typically result in higher paying jobs. Pretty specific. They started their company refinancing student loans, because their target audience was graduating college, and many of them with high impact degrees such as lawyers or accountants had mountains of student loans.

As their target audience ages, they are moving on to other financial needs, such as car loans and mortgages. In fact, SoFi applied for an industrial loan bank charter to offer banking services to their target customers. They later withdrew because their CEO left. But still, here is a company focused on their target customers and were building the lineup of products they demanded.

How about you? If your audience is small businesses, do you offer the lineup of products they want? Bankers frequently impose limits on their product set based on what they want to put on their balance sheet. Must this be so?

I marvel at the ROE of the New York City loan broker. Many if not most loans (other than the very large ones) in NYC are handled by loan brokers. They match borrowers and lenders. For a fee. Like 1.25% of the loan balance. So a $3 million loan deal, chump change in NYC, yields a $37,500 fee for a guy/gal that has a storefront in Astoria, Queens. 

Back to the small business. What if they want early stage funding and that type of lending doesn’t fit your bank’s risk appetite? Why can’t you broker it and match them with a partner that does? There are partnerships you can forge with non-competitors to meet this customer demand. It’s not like you haven’t done this before. How about SBA lending, or merchant services? You likely partner with someone to provide these services.

Why not identify all of the financial products and services your target customer segment demands. And figure out how to offer it.

Or, you could send them somewhere else.

How do you meet the financial needs of your target customers?

~ Jeff

Note: This is my last post of 2017. I want to let all of my readers know that I appreciate your readership and comments. Thank you! And have a safe New Year celebration and a blessed 2018!

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