Retail banking is at an inflection point.
Together with the obvious pressures from regulations and low interest rates, non-financial institutions such as PayPal and Walmart are threatening banks’ bottom lines. They are under attack in areas they have felt most secure, such as business banking. Walmart’s Sam’s Clubs are offering Small Business Administration (SBA) loans and PayPal has hired a lending team under an executive vice president of business banking. At the same time, customers are also taking greater control of their banking relationships: They are switching banks, changing their behavior and demanding improvements.
Banks need to reestablish their relationships with their current customers and evolve their consultative sales process to be consistent and repeatable throughout all their channels. They need to adopt best practices in sales found in other retail industries, as well as measure results. They also need to embrace technology to survive and remain competitive.
All banking channels, including mobile, branch, and online, are struggling with sales productivity and performance. These reasons include:
Loss of fee income: Ninety-five percent of non-interest, fee generating products are opened in the branch. Due to increased regulation, banks have seen a decline in revenue from these products and need to find ways to recoup fee income that was generated prior to regulation.
Too many expense centers: Banks are facing many challenges managing profitability across their branch network, which happens to be their biggest expense. They haven’t had the insight they needed to determine potential profits from their branch network.
Sales process has not been a priority: Banks have paid little attention to the sales process, and therefore, the buying process. Banking has never had to focus on a comprehensive sales process. Because of healthy margins from loans and fees, banks have historically shied away from proven sales methods found in other industries. However, now that the market has become competitive, the lack of sales infrastructure hurts. More progressive banks have begun to hire experienced sales management from other industries that bring the expertise needed to change this culture.
Making decisions on intuition, not real data: Most banks don’t have methods in place to capture data at the point-of-sale. As a result, management is unable to accurately track what is sold, or determine whether the revenue in each channel or branch is generating fee income or interest income. They have no real data that shows which channels are profitable, and which need coaching or even closing.
Fear of technology: Technology has rapidly evolved over the past several years. It is challenging to keep pace with the rate of change. Banking’s internal culture is slow to accept these changes, giving non-traditional competitors a window to use technology to capture market share from traditional banks.
Tackling each one of these issues is a formidable challenge on its own. Collectively, they become a board level issue. Banks that do not address these issues will continue to struggle or will not be able to remain independent.
The first step is to close the gap between the buying process and the sales process. To do this, banks need to:
- Put successful and repeatable sales processes in place to ensure that the bank is opening profitable accounts and to ensure a consistent customer experience;
- Collect data at the point of sale to be able to measure productivity and profitability in real-time, so that the bank can adjust to changing market conditions;
- Be agile enough to embrace technologies quickly to remain competitive.
Banks that take the first steps in modernizing the sales process and embracing technology will be well on their way to compete in the new age.