Six Ways to Grow Treasury Department Revenue


retail-6-6-19.pngBankers looking to grow revenue from their treasury departments will need the support of branch staff to drive the effort.

Banks large and small sometimes struggle to maximize the lucrative opportunity of their treasury departments. To increase revenue, it is vital that employees in the branch discuss treasury products with new and existing customers. Here are six steps to get started.

Step 1: Create a Top-Down Directive
Everyone from the bank president to newly hired employees should understand the importance that treasury revenue plays in overall operations. Banks should not rely on branch staff to execute this initiative. Leadership must prioritize discussing and promoting treasury products if they hope to see a pickup in demand and improvement in revenue. All employees should be on board, and there should be a top-down directive from upper management on the importance of cross-selling treasury products.

Step 2: Set Goals and Metrics for Employees
After bank leadership has discussed the importance of treasury products and how they can serve customers’ needs, they should set measurable and attainable goals for branches and staff.

Banks should monitor and track the actual performance against the set goals over time and follow up on them. Recognize bank employees that meet or exceed expectations, which will boost motivation.

Step 3: Run an ACH Report
Tap into existing customers by mining Automated Clearing House data. Merchant services providers can provide a list of ACH descriptors that allows banks to identify customers who are using processing services outside the bank. From there, executives will need to determine what other products their existing customers are using. These leads are invaluable, and this is an easy way to identify cross-selling opportunities for existing customers who already have a trusted relationship with the bank. Banks should assign an employee to follow up with all the customers on these reports.

Step 4: Incentivize Referral Activity
Executives should incentivize their employees to promote treasury products through referral bonuses, commissions, referral campaigns and recognition. Use these campaigns regularly, but change them so they remain enticing for employees. One place to start could be with a quarterly referral campaign partnered with the current merchant services provider, which can be mutually beneficial and bolster excitement about treasury department offerings.

Step 5: Require Treasury Products with New Business Loans
Banks can also require customers to add certain treasury products as a loan covenant on new business loans. However, they should take pains to consider the needs of the prospective customer before requiring a product.

Adding this requirement means it will be vital to have treasury management specialists involved in initial meetings with prospective customers. After a proper needs assessment, they can craft a customized proposal that includes treasury products that will be of most use to the customer.

Step 6: Educate Staff
Bank employees will always be hesitant to bring up products that they do not fully understand, and may be concerned about asking questions. Education is central to combatting this, and the success of any effort to promote a bank’s treasury department.

Banks should implement cross-training seminars to educate all employees about product offerings. It should also be ongoing to keep employees engaged, and can include webinars, lunch-and-learns and new employee boot camps, among other approaches.

Retail Checking Realities



Forty percent of retail checking relationships are unprofitable, so crafting retail checking accounts that deepen customer relationships, drive deposit growth and enhance the bottom line is a challenge faced by most financial institutions. How can bank leaders tackle this issue? In this video, StrategyCorps’ Mike Branton shares two common mistakes banks make regarding their retail checking products. He also shares his thoughts on enhancing the appeal of checking products and explains technology’s role as a deposit driver.

  • Driving Deposit Growth
  • Why Big Banks are Winning Customers
  • Making Checking More Profitable

 

How History’s Playbook Can Help You Grow Today


leadership-1-30-19.pngOne might assume that many attendees at Bank Director’s Acquire or Be Acquired Conference in Arizona left town with an M&A game plan focused solely on their next acquisition, but a legendary banker suggested a different strategy.

John B. McCoy, the former chairman and chief executive officer of Banc One Corp., recommended during a presentation on the final day of the conference that bankers consider a strategy his father used that ended up revolutionizing banking.

This year’s conference, which celebrated its 25th anniversary, was held at the JW Marriott Phoenix Desert Ridge resort in Phoenix.

McCoy’s advice is a page taken directly from the playbook of his father, John G. McCoy, who founded Bank One and turned it into a regional powerhouse before it was eventually acquired by JPMorgan Chase & Co. in 2004.

“One of the things he did, which I suggest for all of you, is he set aside that first year 4 percent of the profits, (which) went to (research and development) to do new things, not fix old problems,” McCoy said.

The advice is especially prescient today because the banking industry is being pressured to keep pace with an evolving digital economy and changing customer preferences for how they bank, especially in the retail sector.

Bank One spent that money building an exceptional retail franchise. It was the first bank to place ATMs in every branch, add drive-thru lanes at its branches, offer a Bank of America credit card and essentially invent the country’s first debit card.

“That set us off,” McCoy said. “One took us to the next.”

That investment strategy played an important role in its growth: Bank One’s assets grew from $140 million in 1958—when it was the smallest of three banks in Columbus, Ohio—to more than $8 billion 25 years later, eventually becoming the sixth-largest bank in the country.

Early in its history, Bank One pursued an ambitious M&A strategy where it bought dozens of small banks—first in Ohio and later in surrounding states—using a concept that it called the “Uncommon Partnership,” where it would leave the management team of the acquired bank in place while centralizing many of its back office functions to save money. In fact, McCoy said they would only acquire a bank if the CEO agreed to stay in place.

Bank One also limited the risks of its acquisition program by never buying a bank that was more than 20 percent of its own asset size.

An announcement on Monday that Detroit-based Chemical Financial Corp. was acquiring Minneapolis-based TCF Financial in a $3.6 billion deal, creating the country’s 27th largest bank with $45 billion in assets, also generated a lot of talk during the conference. Chemical and TCF billed the transaction as a merger of equals even though Chemical’s shareholders will own 54 percent of the merged company.

While some some conference presenters suggested that mergers of equals could occur with more frequency given the recent declines in bank valuations, which has made it more difficult for acquirers to pay a big takeover premium, others were more skeptical.

Tom Brown, founder and CEO of the hedge fund Second Curve Capital, which invests exclusively in banks and other financial companies, doubted that those deals will become regular. For one thing, there are significant social issues to resolve, like which CEO will end up running the company, how many directors from the two banks will constitute the new board and what will the new company’s name be. (In the TCF/Chemical deal, the new company’s headquarters will be in Chemical’s hometown of Detroit, but it will take the TCF name.)

“They’re just really tough to do,” Brown said during the conference’s closing session. “Someone who has been a CEO is not going to take a different role. And, while they all make great sense to me as an investor, the amount of work before the deal could even be agreed upon is just too challenging.”

Several speakers at the conference also said that smaller banks will need to gain scale to compete in a consolidating industry. Conventional wisdom says that scale helps improve efficiency, reduces costs and boosts profitability–but the urge to grow bigger purely for the scale must be tempered, Brown said.

“I talk to all sorts of CEO’s who are $250 billion assets and they still think they don’t have scale,” Brown said. “Let’s just stop using the get bigger to get scale idea because I haven’t seen that work yet.”

Bridging the Gap Between Digital Convenience and In-Branch Expertise


digital-11-16-18.pngFor decades, banks needed to add new locations to grow, pushing the number of U.S. branches to a peak in 2009. Following the financial crisis, some banks started to close branches in an effort to lower their costs in the face of declining net interest margins and rising regulatory costs. Along the way, lenders realized they could maintain their deposit levels with fewer locations in a digital world where customers often prefer mobile apps and ATMs.

In fact, over the past two decades, banks have purposefully discouraged customers from visiting their lobbies. Beyond simply driving customers to automated channels such as online banking, mobile apps, and chatbots, some banks have even gone as far as charging their customers fees whenever they use tellers or lobby-related activities.

Digital tools are now being used by almost all bank customers regardless of whether they value in-person interactions or not. However, great banking still needs great relationships, especially for complicated transactions.

Today there are nearly 90,000 bank branches in the United States. Last year, according to a survey by PricewaterhouseCoopers, 46 percent of banking customers said the only way they interacted with their bank was exclusively through digital channels, up from 27 percent in 2012. How do we justify keeping 90,000 bank branches open to support the less than 50 percent of clients who still need to visit a branch for those complicated transactions?

Technology can provide the answer. There are times when banking customers need to work with someone in person, but it’s expensive staffing branches with specific experts who are often underutilized. On top of that, branches are often only open during business hours, a particularly inconvenient time for those of us who are working their day job during those exact same hours and find it difficult to sneak off to the bank.

We think the solution to this problem is a Virtual Banking Expert©—which is a physical system with a video feed and specialized work-station touch-screen that allows anyone to privately interact with an expert at almost any time. This allows customers to work with specialized tools on highly secure channels in their local branches while keeping their personal information private and not requiring that they miss valuable work hours. This also means banks can now bring the benefits of a physical branch to their customers as long as there is a secured room accessible via account-holder cards, biometric security measures, and proper physical safety.

It simply isn’t cost effective to staff physical branches with experts who are available for the occasions when customers need to leverage their specialized skills. According to research by the technology company CACI International, the typical consumer will visit a bank branch just four times a year by 2022, compared to an average of seven times today. However, through the use of new technology like the Virtual Banking Expert© kiosk solution, that highly valuable and skilled banker can service customers at multiple locations remotely, privately and securely, providing a tremendous cost savings to the bank. Even the most heavily trafficked branches with experts on staff would be able to remote-in to other branches.

The consumer financial industry is changing–and a digitally evolving customer base continues to push the limits of what banks can do with increasing demands for convenience and ease. But I don’t believe we’re anywhere close to cutting humans out of banking transactions. In fact, as the CEO of a public computing company, I can tell you that is not our goal. We just think the role of humans is going to get a little more personal and less transactional. It’s easy to make those interactions more convenient and affordable for all parties involved. And as more and more customers demand flexibility and options when it comes to how they do business—whether it’s in-person, online, over the phone or through a live chat–it’s more important than ever to get ahead of this growing trend.

Smart Growth: Expanding Your Branch Network


growth-11-15-18.pngBranches play an important—but changing—role in the typical bank’s retail strategy. Increasing digital adoption may make consumers more apt to deposit a check using a smartphone camera than through a teller, but they still want to visit a branch for advice: A Celent survey published in May 2018 found more than three-quarters of customers want to meet a banker face-to-face to discuss a topic in-depth. Very few—just 12 percent of millennials—say branches are unnecessary, and prefer all-digital interactions.

And that has many banks evaluating whether to expand their branch network, even in today’s digital age. In Bank Director’s 2018 Technology Survey, 54 percent of responding executives and directors said their bank plans to add branches.

Before you move forward with building or acquiring your next branch, here’s what you should keep in mind.

Establish goals.

Understand how the role of the branch fits within the institution’s overall delivery channel strategy, advises Jim Burson, a managing director at Cornerstone Advisors. “Start with, what are your growth objectives as an organization, and then second, how do you envision the role of the various channels supporting that growth objective.”

These goals will differ by bank. Burson says one of his clients prizes a branch’s “billboard value”—it lets customers know the bank is physically located in their market. That CEO values a big sign and a tiny lobby. “That’s a very clear objective for a branch. So, when they [build] new branches, if they can’t get the signing ordinance they want from a community or they can’t get the visibility they want when people are driving down the street, it’s off the table—that location is gone,” says Burson.

Before purchasing property and breaking ground on a new branch, a feasibility study should be conducted, advises John Smith, chief executive officer of retail banking consultant DBSI. Understand the deposit and loan opportunities within a desired market, and if there is room to gain market share for your bank.

“Every market we go into, we look at it strategically,” says William Stuard Jr., the CEO of $1.1 billion asset F&M Financial Corp. The branch should be within an hour or two of the bank’s headquarters in Clarksville, Tennessee, so the footprint is easy to manage.

Geographic expansion starts with a lending team. “We don’t go in and just get a building and try to start from scratch,” says Stuard. The bank’s Hendersonville, Tennessee branch started as a mortgage office, then a loan production office before the bank built a full-service branch in the town’s growing commercial area in 2017.

Taking an incremental approach to branch expansion appears to be a common method for testing the viability of a market.

William Chase Jr., the CEO of Memphis, Tennessee-based Triumph Bank, with $784 million in assets, says starting out with a loan production office helps the bank get into a market faster. “It’s a lot easier to go through the process of finding some nice office space and get an LPO approved,” he says. “Time is money.” And a full-service branch takes time to build.

He also credits commercial real estate expertise on the board with making smart financial choices on property.

Bassett, Nebraska-based Sandhills State Bank, with $242 million in assets, seeks to fill in the gaps in its sparsely populated area in Nebraska. When big banks pull back from the market, “it offers a great opportunity for community banks to fill that vacuum and pick up more deposits,” says CEO David Gale.

The bank’s current investors bought what was then a $28 million asset bank in 2010. The bank’s initial expansion occurred by sending lenders into new markets. These lenders’ first offices were, in fact, a pickup truck. “Our first three branches in 2010 out of the gate were built around lending talent and started out as loan production offices out of their pickups,” says Gale. Once lenders hit $5 million in loans, the bank would add an office in the market. At $10 million, they would open a branch and hire more staff.

Recent expansion has occurred through acquisition: Bank of Keystone in 2016, and in early 2019, the bank will purchase three western Nebraska branches from Western States Bank. At that point, Sandhills State Bank will reach $310 million in assets.

The pending branch acquisition (which is awaiting regulatory approval) will help the bank diversify its agricultural loan portfolio and acquire more deposits to fuel its loan growth. Like many in the industry, the impetus on deposit growth makes a branch acquisition more attractive than starting out organically with a lender in the market—though Gale does express a preference for organic growth.

Bank leaders hungry to acquire branches need to pay attention to opportunities in their markets. Gale has worked to build relationships with other bank CEOs, and this directly led to the the bank’s upcoming branch acquisition. In today’s competitive M&A market, bank CEOs need to be proactive to position their bank to pick up branches.

Improve the branch experience.

More consumers would switch banking providers over a poor branch experience (47 percent) than a poor digital experience (36 percent), according to the Celent survey.

When asked about specific branch experiences that would prompt them to switch, 68 percent cited ill-equipped banking associates, 55 percent long wait times and 49 percent impersonal service, meaning the bank doesn’t know the customer or understand what they need. Wealthier customers are even more sensitive to these oversights.

Some banks are solving this problem by adopting a universal associate or universal banker model.

“[Create] a relevant environment where you’re viewed as a place to get advice from,” says Smith of DBSI. “Today’s financial institutions are primarily still transactional.”

Because universal associates are capable of doing more for the customer—from service to advice—the customer has a better experience, and the bank can reduce its headcount in the branch. The universal banker model can also present a better career path for the employee, which should result in lower employee turnover.

But to make it work, universal associates should be properly trained, and the branch should be designed to make the most of the new model.

At Triumph Bank, universal bankers are “empowered to do almost anything that a customer would need,” from cashing a check to opening an account to financial planning options, says the bank’s human resources officer, Catherine Duncan. “We’ve got people that want to stick around and want to grow with the company. You empower them to make decisions … it keeps them engaged, it keeps them feeling valued.”

In addition to training these employees, the bank created an manual that serves as a go-to guide for any questions the associate might have, so they don’t have to run to a supervisor or another employee, and instead can help the customer confidently and immediately.

Triumph’s newer branches are designed without teller rows, and universal associates greet customers at the door.

At Sandhills, a lightly-staffed model works better in its sparsely populated market. The bank leverages technology to reach its rural customers—mobile adoption exceeds 50 percent, says Gale, which is on par with JPMorgan Chase & Co.—and you won’t find a drive-thru lane. “We want to talk to our customers,” he says.

Branch transformation initiatives should align with the bank’s overall objectives for its branch network, says Burson. And banks should evaluate their branches—old and new—to determine they’re meeting these goals. Too frequently, a branch is built, and the business case for that expansion isn’t revisited. “They don’t manage to the objectives,” he says. And that’s a big mistake.

Five Lessons You Can Learn from Tech-Savvy Banks


technology-9-20-18.pngFew directors and executives responding to Bank Director’s 2018 Technology Survey believe their bank to be industry-leading when it comes to how they strategically approach technology—just five percent, compared to 70 percent who identify their bank as a fast follower, and 25 percent who say their bank is slow to implement or struggles to adopt new technology.

While most banks understand the need to enhance their technological capabilities and digital offerings, the leaders of more tech-savvy banks reveal they’re seeking outside help, as well as focusing greater internal resources and more board attention to the technological conundrum faced by the industry; that is, how to make their banks more efficient, and better serve customers so they don’t take their deposit dollars or loan business to another competitor—whether that’s the local credit union, one of the big banks or a digital challenger.

Based on the survey, we uncovered five lessons from these banks that you should consider adopting in your own institution. At the very least, you should be discussing these issues at your next board meeting.

1. Tech-savvy banks see a primarily digital future for their organizations.
While innovation leaders and laggards are equally as likely to cite the improvement of the digital user experience as a top goal over the next two years, respondents from tech-savvy banks are less likely to focus on the branch channel. Just 14 percent plan to upgrade their branch technology in the next two years, and 14 percent plan to add new technology in their branches, compared to roughly half of respondents from fast follower or technologically struggling banks.

Goals-chart.png

Tech-savvy banks are also more likely to indicate that they plan to close branches—29 percent, compared to 8 percent of their peers—and they’re slightly more likely add branches that are smaller—57 percent, compared to 45 percent.

With branch traffic down but customers still expecting great service from their financial provider—in a digital format—many banks will need to rethink branch strategies. “There is a newer branch model that, to me, more resembles an office environment that you would go to get advice, to sit down and meet with people, but it’s really not a place where transactions are going to be taking place,” says Frank Sorrentino, the chief executive of $5.3 billion asset ConnectOne Bancorp, based in Englewood Cliffs, New Jersey. The branch still has a place in the banking ecosystem, but “people want a high level of accessibility, and the highest form of accessibility is going to be through the digital channel.”

2. Industry-leading banks are more likely to seek newer technology startups to work with, rather than established providers.
Seventy-one percent of tech-savvy banks have a board and management team who are open to working with newer technology providers that were founded within the past five years, to help implement new products and services, or create efficiencies within the organization. In contrast, 31 percent of their peers haven’t considered working with a startup, and 10 percent aren’t open to the idea.

“We in the smaller end of the banking space find ourselves constrained in how much investment we can make in technology,” says Scott Blake, the chief information officer at $4.3 billion asset Bangor Savings Bank, in Bangor, Maine. “So, we have to find creative ways to leverage the investments that we are able to make, and one of the ways that we’re able to do that is in looking at some of these earlier-stage companies that are on the right track and trying to find strategic ways that we can connect with them.”

Working with newer providers could require extra due diligence, and banks leading the field when it comes to technological adoption indicate they’re willing to take a little more time to get to know the companies with which they plan to work. This means meeting with the vendor’s executive team (100 percent of respondents from tech-savvy organizations, versus 62 percent of their peers) and visiting the vendor’s headquarters to meet its staff and understand its culture (71 percent, compared to 51 percent of peers).

“I’m a pretty big believer in trying to have these relationships be partnerships whenever possible, and that doesn’t happen if we don’t have a company-to-company relationship, and a person-to-person relationship,” says Blake. By partnership, he means the bank actively works with the startup to produce a better product or service, which benefits Bangor Savings and its customers, as well as the bank’s technology partner and its clients.

3. Tech-savvy banks dedicate a high-level executive to technology and innovation.
Eighty-three percent of respondents from tech-savvy banks say a high-level executive focuses on innovation, compared to 53 percent of their peers. They’re also more likely to report that their bank has developed an innovation lab or team, and are more likely to participate in hackathons and startup accelerators.

Strategy-chart.png

But Blake doesn’t believe that establishing an innovation unit that functions separately from the bank is culturally healthy for his organization, though it can be effective tool to attack select projects or problems. Instead, Bangor Savings has invested in additional training and education for staff who have the interest and the aptitude for innovation. “We want everyone, to some extent, to think about, ‘how can I do this task that I have to do better,’ and that will hopefully yield longer-term benefits for us,” he says.

4. The board discusses technology at every meeting.
Eighty-three percent of respondents from tech-savvy banks say directors discuss technology at every board meeting, compared to 57 percent of fast followers and one-quarter of respondents whose banks are slow or struggle to adopt technology. They’re also more likely to have a board-level technology committee that regularly presents to the board—50 percent, compared to 28 percent of their peers.

Larry Sterrs, the chairman of the board at $4.2 billion asset Camden National Corp. in Camden, Maine, says with technology driving so many changes, a committee was needed to address the issue to ensure significant items were reviewed and discussed. The committee focuses on items related to the bank’s budget around technology, including status updates on key projects, and stays on top of enhancing products, services and delivery channels, as well as back-office improvements and cybersecurity. It’s a lot to discuss, he says.

The board receives minutes and other information from the committee in advance of every board meeting, and technology is a regular line item on the agenda.

Technology committees have yet to be widely adopted by the industry: Bank Director’s 2018 Compensation Survey, published earlier this year, found 20 percent of boards have a technology committee. Bank boards also struggle to add technology expertise, with 44 percent citing the recruitment of tech-savvy directors as a top governance challenge.

5. Tech-savvy banks still recognize the need to enhance board expertise on the issue.
Individual directors of tech-savvy banks are no more likely to be early adopters of technology in their personal lives when compared to their peers, so education on the topic is still needed.

Not every director on the board can—or should—be a technology expert, but boards still need a baseline understanding of the issue. Camden National provides one or two technology-focused educational opportunities a year, in addition to written materials and videos from outside sources. If a specific technology will be addressed on the agenda, educational materials will be provided, for example. This impacts the quality of board discussion. “We always get a good dialogue and conversation going, [and] we always get a lot of really good questions,” says Sterrs.

Bank Director’s 2018 Technology Survey is sponsored by CDW. Click here to view the full results.