What’s Wrong with the Sales Process at Banks?

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3-7-14-Ignite-Sales.pngRetail 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:

  1. Put successful and repeatable sales processes in place to ensure that the bank is opening profitable accounts and to ensure a consistent customer experience;
  2. 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;
  3. 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.

Three Things Bank Boards Can Do to Improve the Use of Technology

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2-26-14-emily-tech.pngThere is little doubt that technology is rapidly changing lifestyles, not to mention banking. More than half of all Americans owned a smartphone in 2013, up from 35 percent just two years prior, according to the Pew Research Center.

Jack Schultz, chairman at Effingham, Illinois-based Midland States Bancorp, which has $1.7 billion in assets, says his bank’s board and management keep an eye on the competition from both inside and outside the banking industry, and then rapidly adapt. He uses mobile banking as an example. “It’s a much quicker game than what it was 5 or 10 years ago,” he says.

Technology moves at a rapid pace, and much of that change could result in better service to potential and current clients, all while making the institution more efficient. Here are some items that bank boards can consider to avoid becoming irrelevant.

  1. Add a board member with expertise in technology or innovation.
    “Because of the way that the industry is changing so quickly, I think that having people who have a background in technology and innovation is a strong attribute for the board,” says Schultz. Not only do these board members need to understand what technology will be important to customers, but they also need to understand the impact of cyber security risk on the institution and, due to the reliance of many small institutions on third-party technology, how to oversee vendor management. “Every single bank is a consumer of technology,” says Ryan Gilbert, himself a technology expert and director at Sacramento-based River City Bank. Gilbert is chief executive officer of BetterFinance Inc. (formerly known as BillFloat), a financial technology company which helps consumers manage their bills and provides small loans to consumers and small businesses through lenders. While many banks have lawyers, real estate professionals and doctors with expertise in areas like business development or compliance, many board members do not fully understand the technology the bank relies on. “There is a significant knowledge gap that’s out there,” Gilbert says.

    But finding these directors can be a challenge. “Most people like me don’t want to be on bank boards,” Gilbert says. Aside from the liability posed by serving on a bank board, he says that the difference between the banking industry, focused on safety and soundness, and the technology sector, focused on innovative problem-solving, can result in a culture clash. “Working with banks as a financial innovator is super difficult,” he says. “Banks and regulators put the ‘no’ into innovation.”

  2. Add a technology committee to the board.
    “I think all boards should have an IT [information technology] committee” focusing on the bank’s technology needs, including external vendors, says Gilbert. Technology is a significant part of the bank’s budget, with industry spending in the U.S. expected to increase by almost 10 percent by 2015, according to research and consulting firm Celent. More than half of spending was allocated to external services and software in 2013, and Celent expects the industry’s reliance on vendors to increase.

    “Unfortunately many banks, or bankers, do not get very involved in IT matters, and prefer to either outsource or really not lend too much attention to these issues,” says Agustin Abalo, who uses his expertise as a former chief information officer at Banco Santander International, a subsidiary of Spanish global bank Banco Santander, to chair the IT committee of BAC Florida Bank, a $1.3 billion-asset institution headquartered in Coral Gables, Florida. This board-level committee is composed of three independent directors and several officers, including the bank’s president, chief risk officer, chief operating officer and chief information officer. Abalo says that just like other committees focus on relevant risks, like large loans, IT committees can help tackle the growing issue of cyber-crime. He recommends that the IT committee keep the board informed about the bank’s technology needs and related budget requirements.

  3. Focus on technology that improves the user experience and makes the bank more efficient.
    “Usability, which is a massive focus for [financial technology] companies and Internet start-ups, really hasn’t been a focus in banking,” says Gilbert, making it critical for boards that want to set the institution apart to ensure that the customer experience—both in person and online—is positive.

    Mobile banking continues to have a big impact on the industry, and when done right, can result in satisfied customers and a more efficient institution. “Access and convenience are key to the customer,” says Dustin Luton, chief executive officer at Covina, California-based Simplicity Bank, a savings bank with $867 million in assets. “They want things on their own timeline.” If more tasks, like cancelling a debit card or stopping payment on a check, can be done through mobile or online banking, it’s convenient for customers. It can also allow branch and call center staff to better focus on customers that need more assistance or want more products and services from the bank. “These little things will make the difference in the long run from a customer perspective, all these little things that [customers] just don’t really think about,” says Luton.

Banker’s View: How Technology is Making the Bank More Efficient

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10-30-technology.pngLast July, Glenn Wilson, chief executive officer of AmeriServ Financial, Inc., a financial holding company with $1 billion in assets based in Johnstown, Pennsylvania, challenged employees to come up with ideas to generate $1 million in cost savings that would go into effect for 2014. Banks always place a priority on cutting costs, but he gives two reasons for making efficiency a key objective for the coming year.

At 87 percent for the year as of September 30, AmeriServ Financial’s efficiency ratio is higher than its peers, negatively impacting the company’s profitability and stock price. In addition, “given the interest rate environment and the margin squeeze that the industry has had, and we’ve all been thinking it’s going to change; it just became pretty obvious [that] it’s here to stay,” says Wilson. “We just had to get a little more serious about cost savings.”

AmeriServ has already met its cost-cutting goal, finding $1.1 million in cuts so far. The company outsourced several functions to the bank’s core system provider, Jacksonville, Florida-based technology firm Fidelity National Information Services Inc. (FIS). AmeriServ avoided the cost of replacing outdated equipment by outsourcing statement rendering, for example. Moves like those will lead the bank to save $300,000 to $400,000 during the next five years.

Last summer, the Bank Board & Executive Survey, conducted by Bank Director and sponsored by consulting firm Grant Thornton LLP, found that 84 percent of bankers plan investments in new technologies to make their institutions more efficient. How banks use technology to generate efficiencies varies. Bank boards and management should “make sure they’re spending their technology money appropriately, depending on their strategic plan, as to where they’re going product-wise, market-wise and customer-wise,” says Jack Finley, banking industry senior advisor at Grant Thornton.

“There’s almost an unlimited amount you can spend on technology and enabling customer interaction, and certainly there are a lot of ‘like to haves’ that we wouldn’t mind having,” says William Pasenelli, president of Waldorf, Maryland-based Community Bank of the Chesapeake, with $979 million in assets. The bank prioritizes its technology investment on relevant services for its customer base of small businesses and professionals, and plans to launch mobile banking by the end of October.

Community bank boards do face obstacles. Banks must balance automation while still maintaining a level of service that keeps customers satisfied. Slow economic growth will likely remain a challenge, forcing bankers to be even more selective in the investments they make. And while community banks don’t have to be early adopters, they can’t afford to lag when it comes to innovation. “Taking your time and not jumping at every little thing that’s presented is probably a good strategy,” says Finley.

Selective investment means that the technology budget at Community Bank of the Chesapeake hasn’t mushroomed. The budget has grown, but “not as fast as you would think,” says Pasenelli. The cost of providing core banking services continues to decline. Online banking, data storage, cyber security and compliance with regulations like the Bank Secrecy Act are significant drivers of technology costs.

Mark Field, president of Farmers Bank of Liberty, an institution with just $85 million in assets based in small town Liberty, Illinois, faced a dilemma earlier this year when the bank’s core system provider, Waldorf Computer Systems, based in West Des Moines, Iowa, decided to sell. Field spearheaded a move that some may consider a bit unusual: his bank, along with others based in Alabama, Nebraska, Iowa, Virginia and Ohio, decided to buy the software themselves.

Community Bankers Cooperative, a non-profit cooperative of banks with between $15 million and $200 million in assets, will share and support the software, which is called Bancado. The sale of Bancado would have forced the banks to a more expensive core banking system, which Field estimates would add $45,000 in costs to his bank during a five-year period. The six-member board of the cooperative, which includes Field, will represent the interests of member banks and set the direction for the program. BSI Computer Solutions, a technology provider for the banking industry based in Gardendale, Alabama, will provide technical support for member banks, and San Francisco-based Pacific Code Works will do the programming to update the software.

The cooperative should complete the purchase of Bancado in early January. Field declined to reveal how many banks plan to join.

“If community banks would band together and help one another, we could do so much more,” says Field. “We could help each other and save quite a bit of money in the long run.”

The Case for Board Portals: Saving Money While Saving the Environment

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5-16-13_Diligent.pngIn the past, the decision to adopt portal-based solutions for boardroom communications was often driven by efficiency. Banks sought to minimize the manual labor associated with paper-based board pack production and create a seamless flow of critical information to board members. Most directors adapted quickly to digital options. And why not? Doing so allowed them access to volumes of board materials on iPads or tablets and near real-time updates for swifter and better-informed decision-making. For the company secretary, the advantages were equally compelling: With paper-based production, the manual effort of printing, collating and delivering board packs is immense compared with electronically developing and disseminating materials.

Now, however, it is becoming increasingly clear that the greatest benefit of portal approaches goes well beyond the qualitative. Digital solutions can also significantly cut costs. Consider the case of Huntington Asset Services, a mutual fund service provider for clients with combined assets of more than $45 billion. Board meetings for Huntington’s Valued Advisers Trust generated, on average, 1,000-plus page binders that were four or five inches thick. Although the company’s primary motivation for adopting a secure board portal solution was efficiency, the money managers soon discovered that their own capital went a lot further with a portal. In fact, switching from a paper-based approach resulted in a savings of almost $10,000 a year for two funds on original costs of almost $40,000, or 24 percent. The same level of savings can be expected for each additional fund that adopts the portal solution. Beyond sheer material savings, Huntington Asset Services also notes that they save at least two days in the development and delivery process, and resources are freed up to focus on areas of more strategic importance.

Similarly, FirstRand is a leading international financial services group. FirstRand conducts a robust calendar of meetings—upwards of 600 a year between its main board and all of the subsidiaries requiring the production of more than 8,700 individual board packs for its directors. Moving from paper-based to digital production of boardroom materials was prompted at first by a need to mitigate the tremendous burden inherent in manual report processing.

After using Diligent Boardbooks for nearly a year, FirstRand measured savings obtained by moving to the solution. The bank discovered that the portal had cut their costs by nearly half. Previously, FirstRand spent almost $1.5 million per year on the production, assembly and delivery of board packs. After adopting a portal, the company achieved a saving of $748,000 in their first year alone, a reduction of an estimated 50 percent of overall costs. The majority of these savings were attributed to a 78 percent reduction in staff costs. And more than four million sheets of paper—the equivalent of 527 trees—were saved last year as a result of switching to a paperless solution, so there was measureable environmental impact as well.

A clear case for digital

While banks often initially adopt board portals to gain efficiencies, many also discover significant bottom-line savings. And they have proven that there is a clear business case for going digital. In many cases, a secure board portal solution can literally pay for itself. 

What Can the Banking Industry Learn from a Fake Pop Star?

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5-10-13_Growth_Postcard.pngWhat does a pop star hologram drawing thousands to her concerts have to do with banking? Well, I’ll get to that in a minute.

Hatsune Miku, a non-human creation of a Japanese media company, is even better than a real singer, if you believe some of her young fans. She’s “post-human being,” according to the media company who created her.

As banking guru Brett King described it at Bank Director’s inaugural The Growth Conference in New Orleans last week, Hatsune Miku is a sign that the banking industry’s assumptions about the value of face-to-face contact may not hold true for the next generation.

Do you really think a generation that will pay to see a hologram perform will go to a bank branch to get financial advice? That was a question King posed to the audience of nearly 200 bank directors, bank officers and industry executives who attended the conference at The Ritz Carlton in the French Quarter.

Part of the theme emerging from The Growth Conference was the need for the industry to transform itself in the coming years with technological and generational changes. However, bankers, especially commercial bankers, tend to be inherently conservative. Jumping into the latest thing and throwing money at unproven ideas is not behavior typical of most bankers. Branches were supposed to have disappeared at least 20 years ago, but they haven’t, because most bankers prefer human tellers to distribution channels that rely solely on technology.  In my conversations with bank directors and bank officers at the conference, I was struck by the healthy skepticism toward technological change. One bank CEO asked me how often people are really going to want to remotely deposit checks through their smartphones. It’s a good question. As with all investments, management and boards are going to have to decide what the smartest and most appropriate technological investments are for their particular banks. Will it be remote deposit capture for commercial accounts? Maybe. Mobile check deposits for consumers? Maybe not. It depends on the bank.

“Predictions about the pace and magnitude of change are inherently very difficult, but the case for its inevitability was very well made,’’ said Michael Kubacki, the chairman and chief executive officer of Lake City Bank in Warsaw, Indiana, who attended the conference. “We need to think more about what might work for us and our clients in the future, and less about what worked in the past.”

Tied with that theme at the conference was the consistent message that community banks need to have a niche or multiple niches to help them compete with bigger banks. Bigger banks have a lower cost of funds, branches on every other corner, and an ability to invest in lots of technology.

5-10-13_Growth_Postcard_2.pngThe special niches that community banks develop will also determine the technology they need, whether it is St. Louis-based Enterprise Financial Services’ private banking business and life insurance policies for family offices, or Bethesda, Maryland-based Congressional Bank’s specialization in medical offices.

The slow growth economy and low interest rate environment have not been kind to bank income statements. Loan growth is minimal. Small businesses are still reluctant to borrow. Consumers are still deleveraging. Banks will need whatever they can do to improve their profitability in the years ahead.

“You must do an authentic self-assessment,” said Jay Sidhu, the chairman and chief executive officer of Customers Bancorp Inc., in Wyomissing, Pennsylvania, who was the keynote speaker at the conference. “You must think differently and take advantage of technology and your unique market position. You have something that big banks don’t have and you can take advantage of that. If you don’t, you’re going to be eaten up.”

Is Bigger Better?

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5-1-13_Sutherland.pngThe title of the E.F. Schumacher book “Small is Beautiful” best articulates the argument that bigger may not be better. There’s no mistaking the fact that efficiency ratios and size have a negative correlation. Surprised?

Community banks are doing a bang-up job when it comes to controlling the largest expense line in a bank—people. Unlike the larger global banks that seem inclined to hire-and-fire as a knee-jerk approach to controlling staff costs, community banks are a shining example of how to get it right. In fact, the big banks have a few lessons to learn from their smaller counterparts in this area.

This is evident when you compare the efficiency ratios of community banks to the larger banks.

Efficiency ratios are a good way of measuring how a bank is doing from a revenue-to-expense perspective and here the community banks have done an outstanding job of managing costs well. Also, their locational advantage in the burbs and serving the communities there in a focused manner needs to be acknowledged and large banks can learn from this approach to the small- and medium-sized customers.

The average efficiency ratio of the top 200 community banks in the third quarter 2012 at 50 percent was significantly better than JPMorgan Chase & Co. (63 percent), Bank of America (77 percent), Citi (73 percent) and Wells Fargo & Co. (58 percent) at the end of 2012.

That said, lack of size and lack of a critical mass of transactions are drawbacks when it comes to optimizing operations and technology costs. In general, since people and real estate costs tend to be low in the locales where community banks operate, the strategy has been to replace people with people instead of people with technology. While this approach has withstood the test of time, it remains to be seen whether it will continue to be successful – especially in a world where consumers are demanding better banking products and savvier technologies, and millennials are emerging as the largest customer base for retail banking.

Let’s consider the cost of technology and how size affects strategy. Take the case of voice biometrics, a multi-channel approach to customer service whereby one platform self-serves customers’ needs for voice, email, text, chat and fax. It costs between $100,000 to $150,000 to deploy a voice biometrics technology. But in the absence of a large transaction base that can benefit from this technology, it becomes a wasteful mechanism to bring this type of technology in-house and smaller banks end up hiring more internal staff to service customers. While that is not a bad move from a short term return perspective, it’s not a strategy for the long haul. Customers today (thanks to Apple and similar companies) are gradually demanding better ways to be served by institutions that offer the latest technologies and enable day-to-day tasks like mobile banking.

Consider, too, how size affects the ability to incorporate an analytics platform, an essential tool that provides everything from customer lifetime value to pricing sensitivities or churn management. Again, this technology costs a few hundred thousand dollars, an expense that many community banks cannot justify. Unable to embrace these techniques, these institution remain locked in the same orbit while bigger banks are able to more accurately price, segment and gather key information about their customers. This helps them better serve their target customers.

While it is tough to assign a number to what size is right, it seems that banks at $5 billion and above have a better chance at embracing leading-edge technologies and operations processes—and, as an outcome of deploying superior processes, are able to achieve significant operations and technology improvements. So, what is the solution for smaller community banks? Here are some suggestions:

  • Look for size elsewhere.  If M&A is not an option to pool resources, look into a variety of service providers, such as Fiserv and Sutherland Global Services, which are able to extend their efficiencies of scale and operations to smaller community banks, based on global aggregated demand for these services.
  • Look at buying a service wrapped with a technology, rather than buying a technology. This ensures the blended unit cost of getting both the service and the technology is low.
  • Use long-term variable contracts as a technique to keep short-term pricing low, but build into the contract the language to ensure poor performance is penalized.
  • Ensure that a Project Management Office (PMO) that will serve your needs in operations and technology is part of any technology service contract.

Community banks have consistently been the most important driver of economic activity in the US. When they become more efficient from an operations and technology perspective, they are a growing tide that buoys other small banks across the industry. Size and efficiencies do have a correlation, and it is very important for community banks to embrace modern techniques of managing operations and technology. By definition, community banks are small and “Small is Beautiful” indeed.

Mobile Payment Revenue Opportunities for Financial Institutions

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Mobile payments will create the most significant revenue opportunities of the decade for financial institutions.  It’s estimated that mobile payments will reach $20 billion in annual revenue opportunities for financial institutions. PwC’s Mike Heindl discusses the risks and opportunities for industry players.

Download Related PwC Publication:
PwC Viewpoint: Opportunity calls – An update on the evolution of mobile payments 

Eight Changes To Expect in 2013

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The past year saw the banking industry recover significantly from the fallout of bad loans and poor asset quality. While profitability improved, the impact of new banking regulations began to take effect, including provisions that cut debit fee income for banks above $10 billion in assets. So what is in store for 2013? Bank Director asked industry experts to answer the question: What will be the biggest change in banking in 2013? Here are their responses:

Going Paperless in the Boardroom

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If your board is considering moving away from paper and towards the convenience and security of tablets, this video from BOARDVantages’s Eastern Region Director Aisha Wallace-Wyche can help guide you in the process. Aisha discusses both the benefits and obstacles of going paperless, as well as how to set a transitional strategy in place that ensures your directors will be adequately prepared for the switch. 

Highlights include:

  • The advantages of going paperless
  •  Instituting training programs for devices
  • Setting a strategy for success

Click on the arrow to start the video.