Does your bank know how every client impacts your shareholders’ value?
Answering this question is challenging for many financial institutions, both regional and community-sized — if they don’t have a holistic view of their data. Banks that have a holistic view can truly understand and improve the three-way link between banker activities, customer relationship profitability and shareholder return. Making those links visible and giving bankers the tools, training and incentives to make positive changes to those relationships are how banks can remain competitive today.
Sorting the Data
Understanding profitability starts with data. Strategic partners can help banks combine, curate and standardize data across the organization, then use that “cleaned” data to build accurate relationships by household. Those relationships should be constructed to provide insights into every customer’s critical metrics: pricing, risk expense, capital consumption, direct expense, revenue and return on capital.
Knowing these numbers will determine how a banker should proceed with the relationship; improving any of those metrics can directly impact shareholder return. This gives a banker more avenues to incrementally improve shareholder return, compared to simply selling an additional product. Over time, every relationship can become more profitable as the bank finds opportunities both large and small to provide better products and services that their customers need — at better prices. Having this kind of holistic view of their customers also enables leaders to measure, inspect, coach and incentivize bankers to optimal performance, driving great gains in shareholder returns.
First Keystone Corp., headquartered in Berwick, Pennsylvania, is one example of how understanding profitability and pricing can grow revenue. Historically, its subsidiary, First Keystone Community Bank, did not have a dedicated platform for profitability or pricing, instead relying on manual processes that resulted in a missed opportunity.
Since investing in third-party technologies, the $1.4 billion bank now has a unified way of reporting this data, significantly boosting efficiencies and optimizing revenue. The data automatically shows shifts in portfolios, customer profitability and pricing, as well as branch profitability, allowing bankers to spend time cross-selling products that make existing and new customer relationships more profitable and ultimately increase revenue. Having this data now readily available also makes it easier to coach bankers and measure their performance.
There’s never been a better time to invest in data, especially with the recent spike in merger and acquisition activity. Data is a profound concern for community and regional institutions that are completing or planning for a merger in 2022. Combining data across disparate systems in a meaningful way can impact the newly formed organization, both culturally and operationally.
Bankers need full visibility into the relationship, loan pricing that includes a 6-to-12 month look back to see if a customer delivered all the promised products and associated revenue, and client segmentation based on transactional and behavioral activity. Banks need an enterprise-level view of bankers’ performance and revenue opportunities. Such an environment makes it easier to execute, create accountability and coach, helping to drive revenue.
The world of regional bank mergers means there are a number of sizable institutions that need a consolidated way of viewing the data across the newly formed organization. With the help of third-party technologies, bankers can now have a complete view of their customers’ financial journeys and provide them with a better, more personalized banking experience, while also cross-selling new products and services gained during the merger. These banks can be equipped with the data and insights needed to drive revenue and foster strong relationships.
Banks like First Keystone understand their profitability better, allowing them to increase revenue and ultimately deliver additional value to their shareholders. Knowing how each customer impacts the bank’s bottom line is key to competing in today’s ever-evolving landscape. While there’s value in establishing new customer relationships, those can be hard to come by; sometimes the most profitable ones are already at your institution, waiting to be tapped.