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!

Three Ideas for Banks to Reverse the "Silvering" of Their Customer Base

Are your customers older than your markets? A common theme among students that expressed concern about it during our Executive Development Program (EDP) sessions in Seattle, Montana, and Salt Lake City.

Customers leave their banks for the 4-D's: Death, Divorce, Displacement, or Dissatisfaction. Three of the four are life events outside of our control. And with switch rates that have persistantly hovered around 10% of total customers, how do we get 'em in, and keep 'em in?

Here are three ideas.

What other ideas do you have?

~ Jeff

Barriers to Entry In Banking Spell Opportunity. But Do We Seize It?

There are numerous and significant barriers to entry in banking. Regulation, capital requirements, competition, and the concentration of customers at the largest institutions have all contributed to only one bank charter being granted over the past three years. 

But I rarely hear of opportunity as a result of high barriers to entry in bank strategy sessions. I mostly hear lamentations and gnashing of teeth over the sluggish economy, aggressive regulatory environment, and irrational competition.

We are missing an opportunity, in my opinion. Here are the 10 strategic issues banks should address to position themselves to take advantage of high barriers to entry:

1.  We have thousands of customers, but do we understand who they are and what they want? Don’t believe me, ask your head of retail or commercial for an analysis of your customer base, including trend. If you get it immediately, good for you. I have my doubts.

2.  Do we have employees that grip old habits with white knuckles?  And, if yes, have failed to move them forward or out?

3.  We speak of relationships, but have we defined in detail what that means?

4.  We spend tens of millions in operating expenses, but do we direct expenditures to strategic priorities? Or have we failed to identify strategic priorities?

5.  We talk of service, but have we communicated service expectations?

6.  We expect customer contact staff to reach out to customers, but do we train them to do so?

7.  We speak of sales, but what percent of our staff have sales responsibilities?

8.  We spend millions on technology. But breaking it down, does our budget look like we are more focused on replacing Windows XP than building the distribution network of the future?

9.  Do we focus more on building the bank of the future or making budget?

10.  Do we identify the bank of the future, and the bank we want to become? Or do we remain some slightly modified version of the bank we were in 1950.

It is time for bold thinking to break from our past. We can no longer be some slightly modified version of what we once were. If we don’t bust our business model, someone else will.

And hey, I need community banks to thrive. So do your communities. So let’s get to it.

~ Jeff

Should Banks Jettison Unprofitable Customers?

No.

I will tell you why in a moment, but first why I thought of this question.

Alan Weiss of Summit Consulting penned a book called The Consulting Bible (see my bookshelf if interested in the book). In it, Weiss suggests you jettison the lower end of your client list when you win new clients. His reasons:

• The client is no longer profitable.
• You are bored with the work.
• The client is troublesome.
• The work is unpleasant.

Financial institutions rarely go through such an exercise. In fact, I am currently preparing for a meeting with a client to discuss what to do about unprofitable branches. It has always been challenging to advise clients to reduce rather than to add. But to add value to customer interactions in banking, we have to dedicate time to making our customers situation better, in some way. Continuing to rely on having a nearby branch or a mobile app to add value will solidify our position as a commodity, in my opinion.

Instead, what we can offer customers is hassle free banking, improved financial condition, and peace of mind. To do that, we need talented employees with time. Time cannot be expanded. Giving 110% of your time only makes sense on a t-shirt.

But unlike consulting, financial institutions make most of their revenue on the spread. If an unprofitable customer keeps $10,000 in deposit balances with you and you can re-deploy that money at a 3% spread, then you generate $300 in revenue on very little marginal cost. Letting that customer go to a competitor will not reduce employee or occupancy expense. In fact, you would experience very little cost reduction (FDIC insurance and possibly a small data processing savings). 

But what you can do is push customer service to the appropriate level based on the value of the customer to you. Keep your most talented employees reserved for your most profitable and strategically important customers. Because those customers have the greatest potential to appreciate the value your FI brings to their situation. Growing high value customers while properly serving commodity customers is critical to improving your FI's relevance and breaking the commodity cycle.

Any stories out there about identifying and serving high value customers appropriately?

~ Jeff

Customer Service... blah, blah, blah

My family recently shopped around our homeowners and auto insurance to ensure we were getting a fair shake. We used to use an insurance agent for life, auto, and homeowners. I place value in having an agent because they have access to a number of insurance companies (if an independent agent) and should have our best interests in mind. The owner of the agency is a director at a bank, which is a bonus.

But a past "shop" for auto after a dramatic rate increase led me to go to a "direct" insurer. And now, after our most recent shop, we are leaving to a direct insurer for homeowners. When I notified my agent, he asks me if he could have a chance to look around for me, and to try to win back our homeowners and auto.

My e-mail back to him: "I would have appreciated that service prior to me searching on my own." I was irritated. I expect three things from our insurance agent:

1. An analysis of our needs and recommendations to fit those needs;

2. Periodic reviews of our policies versus what is offered by similarly rated insurance companies in the agent's markets; and

3. Good service when I call with questions and problems.

I received one and three from the agent. But I was pretty disappointed when my shopping resulted in a 20% reduction in my homeowners insurance. I am willing to pay a slight premium above discount insurance companies for the service of an agent. But not 20%. This happened with our auto insurance too.

Our agent clearly dropped the ball on two, and scrambled to make up for it after I notified him I had done it on my own. As Donald Trump would say, "you're fired". When I sounded off to my wife about it, she said "I think you have a blog post." Boom!

I suspect financial institutions think they have great customer service too. But in my experience, what FIs mean by great service is "3" above. After my wife planted the seed of this post in my mind, I asked the marketing director of a multi billion FI if they had "service level agreements" (SLAs). She said that they are required to respond to customer inquiries within a certain amount of time, etc. In other words, "3".

But what of one and two? I know it is an insurance list, but don't we have similar demands from our FI? Don't FIs want to be considered for more than a deposit counter or a money machine? Based on my experience, I think they do. In fact, a competitor of my firm did a survey of FI customers that concluded that both businesses and individuals wanted advice from their FI.

Are we giving them what they want? Are we really good at customer service?

What do you think customer service is?

~ Jeff

Is customer service your bank's difference maker?... Really?

My non-scientific estimate of how many community financial institutions (FIs) claim "customer service" as the factor that differentiates them from their competition: nine out of ten.

But if 90% of banks have superior customer service, then no banks have superior customer service and 10% of banks are inferior. So, in this respect, it may be the perception that a community FI has great service, not the reality.

If a community FI truly has superior service, then it should be able to: 1) charge higher prices, 2) improve customer acquisition, and/or 3) improve customer retention and wallet share.  I can think of no other reason why an FI would invest in having superior customer service. When challenged, FI executives tend to go to the commodity argument... "We can't charge higher prices because money is a commodity. Our money is no different than another FI's." 

To that argument, I offer the following story, sent to me by a bank CEO from The Simple Truths of Service:

'When a cab pulled up, the first thing Harvey noticed was that the taxi was polished to a bright shine. Smartly dressed in a white shirt, black tie, and freshly pressed black slacks, the cab driver jumped out and rounded the car to open the back passenger door for Harvey. He handed my friend a laminated card and said: “I’m Wally, your driver. While I’m loading your bags in the trunk I’d like you to read my mission statement.”

Taken aback, Harvey read the card. It said:

Wally’s Mission Statement:

To get my customers to their destination in the quickest,

Safest and cheapest way possible in a friendly environment.

This blew Harvey away. Especially when he noticed that the inside of the cab matched the outside. Spotlessly clean!

As he slid behind the wheel, Wally said, “Would you like a cup of coffee? I have a thermos of regular and one of decaf.” My friend said jokingly, “No, I’d prefer a soft drink.”

Wally smiled and said, “No problem. I have a cooler up front with regular and Diet Coke, water and orange juice.” Almost stuttering, Harvey said, “I’ll take a Diet Coke.”

Handing him his drink, Wally said, “If you’d like something to read, I have The Wall Street Journal, Time, Sports Illustrated and USA Today.”

As they were pulling away, Wally handed my friend another laminated card. “These are the stations I get and the music they play, if you’d like to listen to the radio.”

And as if that weren’t enough, Wally told Harvey that he had the air conditioning on and asked if the temperature was comfortable for him. Then he advised Harvey of the best route to his destination for that time of day. He also let him know that he’d be happy to chat and tell him about some of the sights or, if Harvey preferred, to leave him with his own thoughts.

“Tell me, Wally,” my amazed friend asked the driver, “have you always served customers like this?”

Wally smiled into the rearview mirror. “No, not always. In fact, it’s only been in the last two years. My first five years driving, I spent most of my time complaining like all the rest of the cabbies do.

Then I heard the personal growth guru, Wayne Dyer, on the radio one day. He had just written a book called You’ll See It When You Believe It.

Dyer said: If you get up in the morning expecting to have a bad day, you’ll rarely disappoint yourself. He said, ‘Stop complaining!

Differentiate yourself from your competition. Don’t be a duck. Be an eagle. Ducks quack and complain. Eagles soar above the crowd.’”

“That hit me right between the eyes,” said Wally. “Dyer was really talking about me. I was always quacking and complaining, so I decided to change my attitude and become an eagle. I looked around at the other cabs and their drivers. The cabs were dirty, the drivers were unfriendly, and the customers were unhappy. So I decided to make some changes. I put in a few at a time. When my customers responded well, I did more.”

“I take it that has paid off for you,” Harvey said.

“It sure has,” Wally replied. “My first year as an eagle, I doubled my income from the previous year. This year I’ll probably quadruple it. You were lucky to get me today. I don’t sit at cabstands anymore. My customers call me for appointments on my cell phone or leave a message on my answering machine. If I can’t pick them up myself, I get a reliable cabbie friend to do it and I take a piece of the action.”

Wally was phenomenal. He was running a limo service out of a Yellow Cab. I’ve probably told that story to more than fifty cab drivers over the years, and only two took the idea and ran with it. Whenever I go to their cities, I give them a call. The rest of the drivers quacked like ducks and told me all the reasons they couldn’t do any of what I was suggesting.'

 

Long story, I know. But worth telling because I perceive a taxi ride as a commodity too. In fact, in most cities, taxis are subject to price fixing, charging the same fare per mile. But if Wally delivers his commodity in a manner that is valued by his customers, they will call him more often and tip him better. If Wally can do it, so can we.

 

We are so "in the weeds" in our day to day business we may not view the long-term decline in customer service. A recent Carmax commercial, aired during the Super Bowl, exemplifies how such service has declined over the generations (see below). But if community FIs determine to develop strategies focused on differentiation and not price, then we must take a serious look at our service and implement strategies to elevate our performance, build our brand, and sustain our future.

 

What is your FI doing to improve service?

 

~ Jeff