Small Business Lending: A Case for Digital Improvement


lending-1-3-18.pngIn a world where we can summon a car to pick us up in five minutes, and pizzas are delivered by drones, banks are being challenged by small business owners to create a secure digital environment to meet all of their customers’ banking needs—including applying for a loan—at their convenience.

Banks today have a great opportunity for digital improvement in the area of lending. For example, in traditional small business lending, the administrative and overhead costs to underwrite a $50,000 loan and a $1 million loan are essentially the same. With the aid of technology, underwriting costs are greatly reduced through a more efficient process.

In addition to reducing the cost to generate a loan, another direct benefit is the reduction in time for both the borrower and bank staff. Banks that implement technology that allows new and existing customers to apply for a small business loan online can reduce end-to-end time for both the borrower and the lender. The borrower can apply for the loan, upload documents and receive all closing documents digitally. If the online borrower has questions, the customer is assigned to a lender who can provide help through the process via phone, email or even in person, if needed. As an added benefit, the banker can focus on the customer in front of him and can start an application in the branch for the borrower, who then can finish the application in their home or office.

We now live in an era where user experience is at the front and center of everything a company does, and a painful process or poor user experience means that a prospective borrower may go elsewhere to apply for a loan. Banks that embrace digital lending technology today can differentiate themselves by delivering exceptional customer service. In addition to reducing costs and streamlining the process, lenders and borrowers can see several additional advantages to a digital experience.

Borrowers complete the application in less time.
Technology is transforming the way banks can accept applications, and can provide borrowers with a secure application that can be completed anywhere on any device, including with their banker in a branch or online.

Documents are managed securely.
Digital lending technology is advantageous because it also enables the borrower to deliver important documents to the lender quickly and securely. Instead of the lender waiting for physical copies, borrowers can upload documents to a secure portal, helping to shorten the process.

A more efficient process increases customer satisfaction.
Paper-based applications take a lot of time to fill out, and can create frustration for the borrower and the lender if a section is missed. The more efficient the lending process is, the greater the borrower satisfaction rate will be—allowing your team to build better and larger relationships.

From slim interest rate margins to competitive alternative lenders, many financial institutions are facing pressure to find a way to make lending profitable again. Leveraging technology to streamline the loan process and improve the borrower experience will lead to increased profitability for financial institutions, which is possible today with the help of technology.

Customer Experience Can Make or Break Your Transaction


mergers-4-11-17.pngStudies evaluating the accomplishment of mergers and acquisitions (M&A) consistently show how difficult it is to have a successful transaction. The statistics remain unchanged year-over-year in academic research: 70 to 90 percent of all deals fail to achieve the deal thesis or intended benefits—financial or operational—in the expected timeframe from the announcement of the deal. Yet, even with the deck stacked against them, financial institutions continue to be a source of significant deal activity for a variety of good reasons. So, how do you avoid becoming a statistic in an activity fraught with risk?

Begin with the end in mind—your customers. Customers in this case aren’t limited to just the acquired and existing customers, but include those who tend to be your most vocal customers: your employees. All too often, the mindset of dealmakers in financial services is focused on financials, the credit portfolio, and the capacity to gather deposits or market share. They completely forget that there are customers and clients behind all of those numbers, even though lip service may be paid.

Keeping customers front and center throughout the deal-making process increases your odds of success because it shifts the mindset in all phases: diligence through day one. Thousands of decisions go into transactions: name changes, product and service realignment, integration of sales practices, consolidation of back-offices, branch rationalization and new reporting relationships. But where do you begin?

Focus on Current and Acquired Customers

  • Analyze and segment the combined customer base during diligence. Not all banks have the same customers. Having an early understanding of the customers who are most important will have one of the greatest impacts on achieving deal benefits for the merger.
  • Build a target service model and identify the customer journey during and after integration, based on your customer segmentation.
  • Spend adequate time developing and executing tailored customer communication strategies based on your customer segmentation. Beyond regulatory requirements on minimum communications, successful institutions go beyond the typical change announcement and effectively communicate changes to customers in the way they want to receive such communication.
  • Develop and monitor customer feedback throughout the integration. Waiting until the call center is slammed over conversion weekend is too late.

Turn Your Employees into Advocates
The biggest failure in an integration is ignoring the employee experience since it is often just as important—if not more so—than the experiences your customers will have. Employees are often your biggest marketing asset and neglecting to include them and keep them informed about the transaction can turn employees into detractors. Don’t do that. Instead:

  • Be deliberate with your cultural integration. All too often, culture is overlooked during due diligence and planning, which results in nightmare scenarios later: decision making or alignment is slowed to a drip, detractors rally the masses and slow progress and unsatisfied staff talk to your customers.
  • Remember change management 101. As soon and as clearly as possible, give your employees the answer to the question “what’s in it for me?” Difficult decisions need to be made on tight timelines and employee communication of key changes and impacts throughout the integration is crucial; only communicating major changes through a press release, close announcement, and core conversion is not enough.
  • Establish a separate team to manage cultural integration and change management related efforts. This team, which is not the human resources department but can include members of it, can focus on identifying potential areas of conflict, assessing leadership strengths and weaknesses, and developing a comprehensive communications plan that engages all levels of the organization.

Create Your Own M&A “Playbook”
Successful institutions have playbooks in place and well defined target operating models ahead of a transaction, which consider all customers, external and internal.

The questions you need to answer to minimize the disruptive and risky nature of a deal are:

  • Do you know your customers? Do you know your target’s customers?
  • Do you know your culture? Do you know your target’s culture?
  • Do you know how you want to serve all customers on day one?

Achieve Tangible Results
By following a customer-centric approach, financial institutions can realize tangible benefits: accelerated decision making, faster integrations and less disruption. Making decisions with a customer-centric view minimizes status quo or one-size-fits-all choices that backfire eventually.

Finally, many banks struggle to meet the expectations of regulators who are looking more intently at integration planning and due diligence during and after the transaction. Robust and thoughtful methodologies around managing the customer experience is something regulators will view as evidence of a well-planned and lower-risk transaction. This can also act as a flywheel for execution speed on transactions for those of you that are serial acquirers.

Experience Radar: Retail Banking Customers Pay For Valued Experiences


PwC’s Shivali Shah explains how our Experience Radar research is different from other customer experience models. Despite many threats to profitability, retail banks have rich opportunities for growth. Customers will pay for banking experiences they value. The challenge lies in delighting customers through experiences they value rather than exhausting resources on offerings they ignore. 

Download Related PwC Publication:
PwC’s Experience radar: 2013, US Retail Banking  

Five Ways Banks Can Build Mutually Rewarding Customer Relationships


thumbs-up.jpgIf you think about the people in your life that you are closest to, chances are they’re the ones that you’ve shared the most experiences with. Those experiences build the involvement needed to grow relationships—between people and also between people and brands. Because there are few things as personal as money, banking is an industry that has a huge opportunity to engage people in experiences that build lasting and mutually rewarding relationships. Yet it’s a segment that has low satisfaction rates (44 percent were extremely or very satisfied with their bank in an October 2011 Harris Poll).

To better understand the opportunity, we commissioned a study on people’s attitudes toward their bank and most importantly, how they felt their bank felt about them.

One big discovery is the difference between the way people feel about their bank and how they perceive their bank feels about them. About 39 percent of people surveyed feel indifferent toward their bank—they neither like, love nor loathe it. But when asked how they feel their bank feels about them, 54 percent feel their bank is indifferent toward them and another 6 percent feel their bank loathes them. I doubt there are many human relationships that could survive under that scenario.

When asked how open to switching banks people were, 30 percent said they are very likely or indifferent/open to switching—that means nearly a third of customers are vulnerable on any given day. A Harris Poll looked even worse for the bigger banks: 46 percent of JP Morgan Chase & Co., 40 percent of Bank of America Corp. and 54 percent of Wells Fargo & Co. customers are extremely or very likely to change their bank. When you consider an American Bankers Association study found that it’s seven times more expensive to replace a customer than to keep them, it seems that the opportunity and the need to build stronger relationships is very real.

Here are five ways banks can build mutually rewarding customer relationships and become a champion for them:

Champion customer needs by focusing conversations on “what they want to do” rather than “what we have to sell you” which just furthers the feeling that the customer doesn’t matter. Banks can rewrite the language used by everyone in the bank to reflect the needs and the power of their customers. One example is Opus Bank. The bank was founded on the belief that strong businesses build strong communities and everything they do supports people with the vision to drive job growth, including their tagline, which is a call to “Build Your Masterpiece.”  

Give people credit for knowing how they like to use their money by creating a culture of choice that allows people to customize their accounts and services.  While many aspects of financial products are regulated, banks could let people choose the other services they value. Where one person might value free wire transfers, another might prefer something entirely different.

Be a valuable resource that champions people’s desire to do something with their money. Think Nike+ for money. Offer financial management tools that help people set goals, track their progress using their account data, and get rewarded for their achievement. This could be a great opportunity to tie in commercial banking partners like retailers and restaurants in each geographic area. We are beginning to see new banks (e.g., Simple) emerge that leverage technology to not just make transactions easier but to actually empower the consumer.

Create communities for customers to share financial advice with each other and with the bank. Banks can show that they embrace customers as people (not just their money) by adopting the behaviors of sociable people, i.e. by being accessible, interested in what people have to say, and providing inspiration to help them achieve what they want to with their money. Regional banks like Umpqua Bank have done a great job of using technology to create a personal touch outside the bank. In contrast to the 98 percent of social media commentary about banks that is negative, theirs is 99 percent positive and almost to the point of fostering a “my bank is better than your bank” pride.

Empower employees to act in the best interest of their customers and reward them based on their personal contributions to the relationships they have. This is particularly important as customers switch to online banking and each interaction takes on more importance.

While creating these kinds of experiences may not directly sell more banking products, they have real business value. They build involvement with your customers and that involvement will lead to deeper relationships that are more mutually rewarding and profitable.

Face-to-Face Still Trumps Technology

cornerstone.jpgUpon reading the news and listening to industry experts, you may think bank branches are going the way of the buggy whip.  News reports claim: “For the first time in 15 years, banks across the United States are closing branches faster than they are opening them,” and “Bank Branches Are Closing; People Using Nearby ATMs Don’t Notice”(time.com).

In November 2010, analyst Meredith Whitney predicted 5,000 branches would close in the next 18 months (fortune.cnn.com) and according to author and consultant Brett King, “The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years,” (banking4tomorrow.com).  To paraphrase a quote from Mark Twain, reports of the death of the branch have been greatly exaggerated.

As part of the 2011 Bank and Credit Union Satisfaction Survey, Prime Performance surveyed more than 12,000 retail bank customers.  The findings from this survey show that the branch continues to play a vital role in the customer experience. 

4 Reasons Why the Branch Remains the Cornerstone
of the Retail Banking Relationship

1. 59 percent of customers performed a teller transaction at a branch within the last two weeks
Even though branch transactions are declining, branches continue to be highly visited. In 2011, 59 percent of customers performed a teller transaction at a branch within the last two weeks. While younger customers make more use of self-service channels, they still frequently visit the branch.  Among Gen Y customers, 56 percent performed a teller transaction at a branch within the last two weeks.

2. 74 percent of bank customers said they opened their most recent account in a branch
Most customers still choose to open their bank accounts in a branch.  Almost 3 out of 4 (74 percent) bank customers said they opened their most recent account in a branch.  This compares to 19 percent opened on-line and 6 percent by phone.  As expected, older customers (born before 1965) were more likely to open their account in a branch, and 81 percent did so.  Among Gen X, 69 percent opened their account in a branch, and surprisingly 74 percent of Gen Y did so as well.

3. 52 percent say branch location is the top reason why they selected a bank
Customers claim convenient branch locations is the primary factor in selecting a bank.  Fifty-two percent of new customers who opened their account in a branch rated convenient branch locations as the number one reason for selecting the bank and 74 percent said it was one of the top three reasons. New customers who opened their most recent account online also rated convenient branch locations as the number one reason why they selected the bank, even though they chose not to open the account in a branch.  Twenty-seven percent of customers who opened their account online rated branch locations as the number one reason why they selected the bank and 43 percent ranked it in the top three reasons (35 percent and 49 percent among Gen Y).

4. Live interactions continue to drive customer satisfaction and loyalty
While self service channels can play an important role in the customer experience, interactions with bank representatives are, by far, the primary drivers of customer satisfaction.  Regression analysis on over 12,000 customer surveys showed that customer satisfaction with the branch had the greatest influence on their overall satisfaction with the bank, how likely they are to recommend the bank and how likely they are to return to the bank first for future financial needs.  Still in its infancy, at this point in time, mobile banking is showing virtually no impact on customers’ overall satisfaction.  The branch has over three times the influence on overall satisfaction than both the internet and ATM channels.  Customers value self-service channels, but don’t see them as significant differentiators between banks. Ultimately, their interaction with humans has the greatest affect on how they feel about their bank, for good or ill.

Ron Johnson, who left Target to build the Apple Store from scratch and now is the CEO of J.C. Penney Co.,  said in a recent Harvard Business Review interview, “The only way to really build a relationship is face-to-face.  That’s human nature (hbr.org).”  As long as customers continue to place significant value on the locations of branches and the interactions they have with representatives in branches, banks needs to continue to make the branch the cornerstone of their retail strategy.

Banks must recognize that strong customer relationships are the key differentiator that will drive long-term growth and the branch is the key to developing and nurturing those relationships. Successful banks listen to their customers and use that feedback to energize behavior change and create a shared vision of consistent service excellence, and then deliver on that vision on each and every customer interaction.

Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions


mystery.jpgCustomer satisfaction has become a hot topic in banking.  Recent studies have concluded:  “Delivering a positive customer experience is one of the few levers banks can use to stand out in today’s market (Capgemini 2011 World Retail Banking Report)” and “organic growth rooted in strong customer relationships, and the economic rewards they deliver, will be the best path forward for retail banks in the years ahead (Bain & Company Customer Loyalty in Retail Banking: North America 2010)  and from J.D. Power and Novantas, 2009: “Across all driving factors, satisfaction provides the most sustainable competitive advantage.”

With all of the advantages that come with high levels of customer satisfaction, it is no wonder that most banks and credit unions want to measure their customer satisfaction.  According to the Capgemini World Retail Banking Report:  “Banks are taking a closer look at the ways in which they incent and reward branch employees. Increasingly, they are using customer satisfaction as a key measure of employee performance. This process requires more frequent measurement of customer satisfaction and clear communication of the results to branch staffers.”  Many banks today will claim that they measure customer satisfaction through mystery shops.  While mystery shopping can play a role in improving the customer experience, it does not measure customer satisfaction.  To help banks and credit unions understand the limitations of mystery shopping, Prime Performance has published a white paper entitled “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions.” 

Available as a free download here, the “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions” white paper outlines the seven major reasons why mystery shopping fails to accurately measure customer satisfaction.

  1. Mystery Shoppers Cannot Accurately Gauge Customer Satisfaction
  2. Mystery Shoppers Do Not Represent Typical Customers
  3. Mystery Shoppers are Not Representative of the Entire Customer Base
  4. Mystery Shops Do Not Reflect Variations in Service Based on Time of Day or Day of Week or Month
  5. Mystery Shops Do Not Reflect Levels of Service Provided by Different Employees
  6. Substantial Variation between Shops Diminishes Value of Results
  7. Mystery Shops Do Not Provide Enough Observations to Draw Accurate Conclusions

The white paper discusses other challenges with mystery shopping including mystery shoppers being identified by bank employees and the unintended consequences of a mystery shop program.  The paper also describes when mystery shopping makes sense, such as when customer contact information is not available or when it is used to supplement a robust customer satisfaction survey program.

The paper goes on to explain why telephone customer surveys are a superior approach for banks and credit unions, “based on decades of experience, we believe strongly that phone surveys are vastly superior to mystery shopping as a way for banks to gauge the quality of their customer service. Phone surveys are fast, efficient, effective and relatively inexpensive. They deliver data that is reliable, consistent and actionable. Clients welcome phone surveys that allow them to praise – or criticize – companies they know well. In fact, greater customer loyalty is an unexpected benefit of phone surveys.”