Stacking the Deck: Secrets of High-Performing Banks

Many financial institution executives spend considerable time thinking about strategies to improve overall profitability and create sustainable growth.

The focus on best practices is generally aimed at strategies to cut expenses: using technology, looking at staffing levels and increasing productivity, among others. Although this advice is sound, is that actually what high-performing banks do? To answer this question, we analyzed data for 81 institutions that have been in the top five for return on equity for five consecutive years to peers. These institutions averaged an efficiency ratio of 52.04%.

As the data illustrates, high-performing institutions don’t attempt to save their way to prosperity. They underperform in noninterest expense to assets by 24% and overperform in noninterest income to assets by 325%. So how does your bank stack the deck in its favor?

The key to better results is aligning marketing and execution. High-performing banks invest in growth to create a sustainable advantage that produces superior results. After 35-plus years, here’s what we know:

Get product right. People hate fees. Compressed margins and decreased profitability can lead executives to discuss increasing monthly service fees or minimum balance requirements. Below is recent research on the criteria consumers use when selecting a primary financial institution. Compressed bank earnings have little impact on what consumers want from their banking partner. Your retail and business product considerations must remain compelling if you want the greatest opportunity to grow core customers.

Remove process barriers. Banks must be attuned to compliance-related items; however, over-compliance creates barriers. Look at your customer identification program (CIP), as well as your retail and business account opening policies: Do they create barriers to growth? Is it easy for a consumer to open a retail or business account at your bank? Do you have restrictive scoring metrics that are actually costing you revenue opportunities?

Market to grow. Increase your bank’s spending on strategic marketing.

  • Proactive: According to Novantas, 65% of consumers only consider two options when they decide to change their primary financial institutions. That means that 65% of your current customers already know where they would bank if they didn’t bank with you. Your institution must be top-of-mind before consumers and businesses decide that they want to switch. Your marketing must create the opportunity for them to pick you.
  • Targeted: Your bank needs to use data and analytics to help understand where to market before any campaigns. Your marketing resources should be allocated to target consumers and businesses that haven’t chosen your bank yet — but could and should.
  • ROI Focused: Executives must define what and how the bank will measure success before the marketing campaign, not after. Make sure your marketing investment is working to create tangible, measurable results.

Invest in team training. Too often, banks treat training as an event rather than a way of life. Employees who do not understand your products and services won’t be able to recognize opportunities with customers or discuss the benefits, rather than features. It is crucial your institution commits to regular training initiatives regarding products and services. Once everyone has been trained, begin the process again: knowledge leaks unless it is reinforced regularly.

The actions of high-performing banks tell the story. Banks that invest in growth reap the greatest rewards. While it may not be intuitive, bank executives must ensure they have all of the right strategies to capitalize on growth opportunities that present themselves in any environment.

How Innovative Banks Train Employees in a Pandemic

Until recently, PlainsCapital Bank conducted training like many other banks — in person. 

The $13.8 billion asset institution has branches that stretch from north Texas to Houston, and down to the Rio Grande. The 1,000-mile area is served by just three in-person training facilities; it required immense logistics and expense to get employees there. So when PlainsCapital banking services training manager Jennifer Williams was introduced to microlearning, the concept just clicked.

Microlearning is exactly what it sounds like: short, frequent learning sessions lasting a few minutes each, which are often completed digitally. 

Learning in bite-sized chunks aligns with the speed of modern life. Williams notes “[t]oday’s world is so fast paced. Twitter is 280 characters, TikTok is short videos.” Most people are conditioned to pay attention in short bursts. This is true in learning environments too. Microlearning has been shown to produce a 25% lift in knowledge retention rates compared to traditional, long-form methods like in-person instruction, according to John Findlay, founder and CEO of game-based learning platform LemonadeLXP.

PlainsCapital, a unit of Hilltop Holdings, embraced the concept of microlearning when it launched LemonadeLXP for employee training earlier this spring. The timing was fortuitous; the rollout occurred just as Texas announced a shelter-in-place order that put the kibosh on in-person instruction as a result of the Covid-19 pandemic. 

LemonadeXLP educates bank staff with interactive, microlearning modules and role-play scenarios. The platform provides product simulations that help both employees and customers learn how to use digital banking tools. And learning materials can be repurposed as branded, searchable content for the bank’s website, app or call center reps.

But it’s not what LemonadeLXP does that makes it attractive to banks like PlainsCapital. The magic is in how the company approaches learning: by making it a game.

The dynamic, game-based nature of Lemonade stands in stark contrast to the static experiences provided by traditional learning management systems — even the ones that have been “gamified” by awarding users with accolades. The team at LemonadeLXP is emphatic about the difference between being game-based and gamified. Around the office, they refer to “gamification” as “lame-ification.”

“It’s a lazy approach to try to spice up learning,” says Findlay. “[Gamification] doesn’t change the learning experience. All it does is tack game elements onto it — give you a badge or points for completing the same old crappy learning experience.” 

While these small rewards may have appeal at first, that tends to wane quickly. “Some people might read a couple extra PDFs the first time, but when they see that that badge has no context, no relevance, it quickly loses its enticement factors,” he says. 

That’s why, instead of rewarding task completion with badges, Lemonade rewards actual knowledge with real game scores. 

Scores have power because they challenge the user to learn from their past mistakes. Scores compel people to revisit — and thus retain — information to beat their own record. That pursuit is what makes game-based learning so compelling. 

Scores also help PlainsCapital manage training more effectively. “Before, when we were in-person training, [employees] would leave and we had no real clue, no concrete evidence, of what they retained and what they didn’t,” says Williams. “Now we can see exactly by their scores where our knowledge gaps are.”

The new learning experience makes training less burdensome for employees, without sacrificing efficacy. In the past, employees sequestered at training facilities would feverishly respond to emails at every break in an attempt to stay caught up while out of the office, Williams says. Now, employees train for 5 minutes a day and are retaining more knowledge than ever. PlainsCapital has increased its learning average from 63% to 93% in the first half of this year.

There’s also a financial case to be made for microlearning. In long-form learning models, employees spend about 47 hours a year in training at an average cost of about $654 per employee, according to Findlay. Microlearning cuts training time down to 22 hours — supposing employees engage for just 5 minutes out of each day — resulting in $300 in savings per employee annually. 

Today, PlainsCapital Bank engages employees with Lemonade via prize sweepstakes, scavenger hunts and certificates. They’re exploring a “brag board” idea and launching brand new games every week, regardless of whether they have a new product or service to promote. Next, Williams will focus on expanding the use of LemonadeLXP to reduce call center times.

“Lemonade was a game-changer for us,” she says.

Cultivating the Talent Within

military-formation.jpgHaving trouble finding quality managers that fit your organization’s culture? Maybe it’s time you make them yourself. Bank of Marin, a $1.4-billion asset community bank headquartered in Novato, California, is doing just that.  By applying a similar training concept to those sometimes employed by much larger institutions, Bank of Marin  is wagering that even for a community bank, the long-term benefits of an early investment in employees will be well worth the initial cost.  Bank of Marin CEO Russell Colombo recently spoke with Bank Director about the program.

Why did you start an employee training program? 

We really looked at both our growth and our total employee base. As we’ve been growing, we felt it was important to start building a culture from the bottom up by training people to learn the organization. That way we knew what we were getting.Whereas, when you hire from the outside, there’s a little bit of risk. You can interview all you want, but you don’t necessarily know what you are getting.

The program also sends a very good message to our employees that there are opportunities here for growth.

Can you give us an overview of how the program works?

It’s a nine month program. Each trainee is assigned a mentor who meets with them regularly either at branch locations or at headquarters depending on where they are assigned. These mentors, usually branch managers, provide the trainees with guidance and assistance. 

After they graduate, the mentor who was assigned to them still remains in contact and works with them as they are taking on their full responsibilities in the branches. They help them make that transition. So, it’s a nine month program with three months of additional mentoring. The trainees become pretty close to their mentors.  They can call them anytime for assistance, direction and guidance even after those last three months.

What are some of the qualities you are looking for from trainees?

There are a few things. For educational background, we are looking for a bachelor’s degree or better. We are looking for [people with] leadership qualities: Those that are not afraid to speak up and are open to learning. We are looking for those that can be outgoing and have a sales aptitude. We also want someone who isn’t afraid to ask for business and who can build client relationships with existing customers.

How have you been gauging the success of the program?

It is early yet since we just completed the first year, but we had our first graduation and each [graduate] got up and gave a speech. They felt good about their own careers because the bank had confidence in them and we were willing to spend money to train them for success within the bank.

I think this [program] creates a strong sense of loyalty. These days you have people coming out of college with degrees in business and accounting who are taking jobs as tellers. We pulled our [trainees] out of these ranks because they clearly have the capability and the capacity to do more.  We are giving them their opportunity.

People see this and they say, “If so-and-so can have that opportunity and succeed, I could too,” and maybe they will raise their hand the next time or be chosen the next time. That has a real positive impact on a culture.

Do any of your area competitors have similar programs?

I haven’t seen any others in the area doing this. This is what the big banks used to do. They all had training programs. When I started in banking, every bank had a significant training program where they hired a number of people and put them through a class. You spent a year or two training and learning about the bank before being placed in a job.

With community banks it’s tougher because it’s a matter of cost. Everybody is looking hard at the efficiency ratios. We are adding people who do not have a function other than learning, but I Iook at it from this perspective—even though there is that initial cost, in the long run this is going to be really efficient for us because we don’t have to go through the retraining when we hire people. We are creating a pipeline of people who can take over, who can really be a succession plan for our branch managers. We don’t want it to be a fire drill and have to go out and look for the right person every time a spot opens up.  You want to be able to say, “OK, this person is ready now to take that roll on.” That’s certainly the best way to do it.

What lessons have you learned from the program?

I think one of the things we learned is we have to do a really good job in training our employees who are managing people on the employment laws and regulations in this state. There are a myriad of regulations they need to know about employment issues that go beyond just basic management skills. We don’t want them to either risk their own careers or the bank because they made mistakes regarding the law. It’s not as simple as it used to be. Believe me. 

What advice would you give to CEOs considering a similar training program?

I would say to any other community bank—if you can afford to do something like this, it is well worth it. It’s a great way to build upon the culture that your particular organization has. This program is creating branch managers who will ultimately be doing things the Bank of Marin way. So, there is not a culture clash between the new hires and existing employees. We don’t have people saying, “Oh, we did it like this at x,y,z bank.” No.This is the way we do it, and I think there is a lot of benefit to that.

I look back on my banking career, and I had the opportunity to go through a [training program]. It was terrific because your job was to learn. You have people that are learning the right way to do it. That’s invaluable. It  will save you money in the long run, and it will build a more positive environment and culture for the bank.