Demonstrating Empathy Through Technology

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Many banks are still trying to determine which consumer preferences and behavior changes are permanent, given the shifts that have occurred over the past 24 months.

During this time period, I’ve spoken with hundreds of bankers and the prevalent theme emerged: The need to respond to customers in a timely fashion, and assurance that there is go-forward alignment with the right business model.

At this point, institutions should consider further exploring ways to refresh customer experience or tackle questions about feasibility, with a focus on defining the strategy for a more competitive customer experience and acquisition structure in today’s digital economy. A strategy that successfully addresses customer needs depends on the ability to project empathy. Executing this in an omni-delivery ecosystem requires financial institutions to effectively listen to their customers’ needs and respond with information or options that are relevant and timely.

There are solutions that financial institutions can leverage today to demonstrate empathy through a listen-respond model. This involves embedding “listening posts” within six functional areas including:

  1. Website sensory: Detecting and interpreting customer needs based on digital behavior. Based on this insight, banks can quantify a customer’s intent and propensity-to-purchase and apply decisioning to trigger the “best” engagement, which could include digital advertising, lead capture or engagement campaign deployment through digital or human channels.
  2. Customer engagement responses: Applying analytics and decisioning to quantify and respond appropriately to customer interaction with campaigns. Desired responses include launching a survey, clicking a link to complete a fulfillment or accepting an invitation for other services that offered by the institution.
  3. Personal financial planner: Obtaining self-disclosed information related to customer needs through unique personal financial planning tools. With goal-centric solutions, the customer selects primary and secondary goals that could include meeting monthly expenses, housing, transportation, education or retirement. The user enters financial information such as income, expenses, assets and debt. By listening to customer goals and financial position, the solution can identify segmentation, quantify customer value index and calculate goal achievability.
  4. Omni-channel fulfillment: Tracking fulfillment attempts and automatically deploying abandonment retargeting campaigns to increase conversions. During the fulfillment process, listening posts can detect customer progress through the application. Through fulfillment completion, a bank can use a decision engine to select an appropriate onboarding engagement plan based on the product selected and any additional anticipated needs.
  5. Staff interaction: Quantifying and monitoring customer satisfaction and attrition risk scores related to personal engagement. Branch and contact center staff listen physically, but they also contribute to digital listening. For example, missed service-level agreements and customer complaints contribute negatively to customer experience and impact predictive attrition risk, triggering customer action. Banker-assisted fulfillment, followed by positive customer survey feedback, can increase satisfaction scores.
  6. Attrition risk: Identifying and quantifying attrition risk factors and proactively and reactively mitigating them. Digital environments can lead to increased customer attrition due to decreased face-to-face engagement.

Solutions can quantify behavior and sentiment indicators based on information that is detected through embedded listening posts. Automated decisioning can respond when thresholds are met and deploy appropriate engagement. Leveraging management insight through key performance indicators and reporting allow banks to monitor, track, execute A/B testing, perform trend analysis and optimize the listening-response model so they can better understand and meet customer needs.

Meeting customer needs requires engagement over time. When banks can understand their customers’ needs through listening and respond with relevant engagement, the customer feels heard, and the institution benefits from increased acquisition, relationship expansion and improved customer experience.

Two Traditional Strategies to Supercharge a Bank’s Growth

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strategy-10-26-18.pngBankers would be excused for thinking right now that everything has changed in the industry and nothing is the same—that all of the old rules of banking should be thrown out, replaced by digital strategies catering to the next generation of customers.

There is some truth to this, of course, given how quickly customers have taken to depositing money and checking their account balances on their smartphones. Yet, banks should nevertheless think twice before throwing the proverbial baby out with the bathwater.

This is especially true when it comes to growth strategies.

Make no mistake about it, digital banking channels are thriving. At PNC Financial Services Group, two-thirds of customers are primarily digital, up from roughly a third of customers five years ago. And a quarter of sales at Bank of America Corp., the nation’s second biggest bank by assets, now come by way of its digital channels.

Yet, just because digital banking is transforming the way customers access financial products doesn’t logically mean that the old rules of banking no longer apply.

In a recent conversation with Bank Director, Tim Spence, the head of consumer banking at Fifth Third Bancorp, observed that digital channels are still not as effective as traditional mergers and acquisitions when it comes to moving into a new geographic market.

If a bank wants to grow at an accelerated rate, in other words, it shouldn’t cast aside the traditional method of doing so. This is why it’s valuable to continue learning from those who have safely and rapidly built banks over the past 30 years—as the barriers to interstate banking came down.

One approach is to wait for a downturn in the credit cycle to make acquisitions.

This strategy has been used repeatedly by $117 billion asset M&T Bank Corp., based in Buffalo, New York. In the most recent cycle, it acquired the largest independent bank in New Jersey, Hudson City Bancorp, as well as one of the nation’s preeminent trust businesses, Wilmington Trust—both at meaningful discounts to their book values.

Great Southern Bancorp, a $4.6 billion asset bank based in Springfield, Missouri, followed a similar strategy in the wake of the financial crisis. Through four FDIC-assisted transactions between 2009 and 2012, Great Southern transformed from a community bank based in southwestern Missouri into a regional bank operating in multiple states along the Mississippi and Missouri Rivers.

A second approach that has proven to be effective is to buy healthy banks in good times and then accelerate their growth.

Bank One did this to grow from the third largest bank in Columbus, Ohio, into the sixth largest bank in the country, at which point it was acquired by JPMorgan Chase & Co.

Its former chief executive officer, John B. McCoy, pioneered what he called the uncommon partnership: a non-confrontational, Warren Buffett-type approach to buying banks, where the acquired bank’s managers remain on board.

Another bank that has applied this acquisition philosophy is Glacier Bancorp, an $11.8 billion asset bank headquartered in Kalispell, Montana. Starting in 1987 under former CEO Michael “Mick” Blodnick, Glacier bought more than two dozen banks throughout the Rocky Mountain region.

Importantly, however, it wasn’t the assets acquired in the deals that helped Glacier grow from $700 million to $9.5 billion in assets in the 18 years Blodnick ran the bank. Rather, it was the subsequent growth of those banks post-acquisition that accounted for the majority of this ascent.

Glacier’s success in this regard boiled down to its model.

Today, it operates more than a dozen banks in cities and towns throughout the West as divisions of the holding company. These banks have retained their original names—First Security Bank, Big Sky Western Bank and Mountain West Bank, among others—as well as a significant amount of autonomy to make decisions locally.

Approaching acquisitions in this way has reduced the customer attrition that tends to follow a traditional acquisition and rebranding. At the same time, because these banks are now within a much larger organization, they have larger lending limits and access to new, often more profitable deposit products, allowing them to expand both sides of their balance sheets.

In short, while it’s true that the financial services industry is changing as a result of the proliferation of digital distribution channels, it isn’t true that these changes render the traditional growth strategies that have worked so well over the years obsolete.

How Midland States Bancorp Develops Its Future Leaders

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talent-7-19-18.pngRoughly a decade after the financial crisis, community banks are introducing, developing and enhancing internal training programs to turn today’s young, millennial employees into the leaders the bank will need in the future. Forty-four percent of bank executives and board members responding to Bank Director’s 2018 Compensation Survey indicate that their bank has been dedicating more resources to employee training over the past three years to attract and retain younger talent. The majority, 74 percent, say their bank offers an in-house training program for some employees, and 80 percent say external training or career development is available as an employee perk.

While there’s no one-size-fits-all approach to employee training for the industry, the program developed by Midland States Bancorp, a $5.7 billion asset financial holding company based in Effingham, Illinois, illustrates how one bank is developing talent at several levels throughout the organization.

The bank had been discussing the development of future leaders, with an eye toward succession planning, for several years, says Sharon Schaubert, senior vice president of banking services at Midland States. Oversight of the bank’s human resources function is one of her primary responsibilities. “Then, as we were going through acquisitions and were growing, that need was becoming more and more apparent,” she says. Midland States Bancorp acquired Centrue Financial Corp. in June 2017, and Alpine Bancorp. last March.

The ability to lure away talent from local bank competitors had become increasingly difficult and expensive, and the bank had talented potential leaders in its own ranks that just needed the right training. “Any time that you bring somebody in from outside of your own company, you’re bringing in the culture that they come from [and] how they’ve been developed as leaders, so we felt that we could have more success with developing our own,” says Schaubert.

To develop the curriculum, the bank hired an experienced learning and development director from a California utility company, who expanded Schaubert’s initial vision into a three-tiered employee development program that trains staff at different stages of their careers. The program is in its second year, and each level takes one year to complete.

The first tier is designed for individual employees who don’t currently supervise anyone within the bank but have potential to grow within the organization. Each class is comprised of roughly 15 employees. Along with additional reading and one-on-one time with their own mentor within the bank, participants work on banking and project management simulations.

Applicants must be employed by Midland States for at least one year to be considered for the program.
They are interviewed by a panel of managers and must have the endorsement of their immediate supervisor.

Midland States initially had managers identify and recommend employees, but found that employees were better able to participate and displayed a greater level of commitment if they applied themselves. “We learned some really good lessons, because people also have to have an active interest in their own self development and the ability to make the time commitment,” says Schaubert. The bank put an application process in place, effective with the second first-tier class.

The second tier of the program launched recently and is designed for managers and supervisors, with a focus on how to lead and manage a team. The project management and banking simulations are more intensive, and trainees are coached on presentation skills.

Almost all of the employees who participated in the initial first-tier program have received some sort of promotion or additional responsibilities within the bank, but Schaubert says these employees can’t go straight to the second-tier program—at least a year must pass between the two levels. Since the program is new, no employee has participated in multiple tiers, yet.

Participants are each matched with a mentor, with whom they meet quarterly to discuss their progress, in line with their personal development goals. While face-to-face meetings are encouraged, the geographic footprint of the bank sometimes requires that those meetings occur by phone. The mentor provides guidance and ensures the participant is on track to meet their goals. Participants have some say in the selection of a mentor—the bank provides a list of potential mentors with a brief biography about each, and trainees can pick their top three choices. Members of the senior management team tend to be reserved as mentors for the higher levels of the program.

Mentorship programs are rarely used by the banking industry, according to the 2018 Compensation Survey. Just 15 percent of respondents say their bank has one in place.

The third tier of the training program hasn’t been formally launched but is intended for members of senior management or just below. The program will be one-on-one and won’t be classroom-based like the other tiers. External, rather than internal, mentors will work with participants at this level.

The training program isn’t just the responsibility of the human resources team, according to Schaubert. Subject matter experts and senior leaders, including the CEO, are brought in to present to trainees. And an all-day graduation—which includes presentations from training participants—is attended by each trainee’s mentor and immediate supervisor, as well as members of the executive team.

Some of the resources developed so far have been made available to other managers to encourage self-development. A one-day class is also available for new managers biannually.

Schaubert reports to the board twice a year about the bank’s training initiatives, and shares details about the participants and the curriculum. “The board is actively engaged,” says Schaubert. She adds that the full impact of the program won’t be felt for several years. “The big success of this will come a few years down the road, when we’re able to build a strong pool of candidates for significant roles in the future,” she says. “That takes time.”

One of the more immediate challenges banks face in training employees in today’s competitive talent environment is ensuring that those same employees don’t jump ship for a better opportunity. “You can either manage out of fear, or you can manage for growth and opportunities for the future,” says Schaubert. “We would much rather risk losing a good employee than not developing the employees.”

While some attrition is unavoidable, Midland States is actively working to engage and promote its most promising employees. Most trainees have been promoted or received additional responsibilities, though the bank did lose one trainee that it wasn’t able to promote as quickly as that employee may have expected.

But the bank puts considerable focus toward ensuring that its trained employees are engaged within the organization. For example, the CEO hosted a senior management meeting at his home in August of last year and asked senior managers to invite someone on their team. All graduates and current participants of the training program were invited, as well. “We’re challenging ourselves to find opportunities” to engage and grow talented staff, says Schaubert.

As banks are increasingly challenged to attract and retain experienced employees, more banks like Midland States could be apt to enhance their training programs to build the talent they need.