Bank directors tell me they worry most about the increasing intensity of competition and change in the market.
Looking at the performance data of commercial bankers — the heart of the bank — it’s not hard to see why. Based on our daily conversations with banks, across asset sizes and geographies, they today lose upwards of 80% of their term sheets for commercial loans. Bankers sometimes build and underwrite five relationships just to win one. It’s a tough way to grow.
But the pain doesn’t stop there. Commercial real estate portfolios, bankers tell us, have an average turnover rate of 25% — meaning that losing even a few bankers could shrink a bank’s book of business. Further, referral volume from centers of influence and branches are both down, according to Kehrer Bielan Research & Consulting.
These facts indicate an alarming, underlying trend: 74% of banks —a shockingly high number — are seeing a shrinking number of relationships on one or both sides of their balance sheets. They are losing relationships because, in the context of the modern economy, they’re providing inferior service at a time when customer expectations for speed and convenience have increased. In a world where Apple, Google, and Amazon.com have made it incredibly easy to purchase seemingly anything with a single click, banks are among the only companies that still expect their customers to do work in order to buy what they’re selling.
Take the traditional banking experience, for example. Bankers have always been tasked with selling complicated products that require a substantial amount of information from consumers to process. Businesses and consumers applying for loans historically have been asked to provide their banks with income statements, tax returns, personal financial statements, ownership information, proof of insurance and other paperwork that can take hours, if not days, to gather. Applicants must gather all these files themselves, often in paper format and deliver them in person, to their banker. This is a lot of work for the customer, and it takes a lot of time.
Technology has exacerbated this problem by removing the number of natural touchpoints a banker has with their customers. Opportunities for bankers to obtain information they need, without creating extra work for the customer, are lost because servicing happens digitally rather than face to face.
Without this information, bankers are flying blind. The relationship-building that banks once counted on as a differentiator is now seen as a detractor to the time-crunched consumer. But technology can, and must be, a part of the answer.
Banks need to ensure they’re using technology to remove the blinders and empower their people. Bankers need access to the types of data and tools that can help them identify lendable businesses, sell products in real-time and support customers across channels. That means replacing the data they once collected from a customer inside the branch with new sources of data, and using the right technology to make that data useful to bankers.
For example, all banks have access to data from their respective secretary of state offices, listing every business in the state. Applying the right technology to that data can allow a bank to determine which of those businesses qualify within their credit policies.
In Massachusetts, there are about 1 million registered businesses, but only about 18% of them are eligible for credit under a conservative policy. Bankers that are flying blind have no idea who those eligible businesses are, and may waste their time trying to work with those that are not.
Similar opportunities exist within a bank’s core system, but bankers miss them because they don’t have the technology to make sense of the internal information. On average, 17% of businesses at banks are currently borrowing from another lender, according to our data. Technology can extract this information so bankers can identify these customers and offer products to win them back. This is an essential tool in a world where bankers have fewer touch points with customers.
Today’s consumers expect a lot from technology and they expect their banks to leverage it in a way that makes them easy to work with. Companies like Apple, Google and Amazon have figured this out in retail, and are increasingly looking to do the same in banking.
As interactions between bankers and customers dwindle, it’s the financial institutions that can find ways to leverage data and technology to work for them, that will win business and grow. Those banks will buck current trends and competition, and thrive independently for years to come.