March 28, 2014
Community banks are in for the fight of their lives.
Together with the obvious pressures from regulations and low interest rates, non-financial institutions are threatening community 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.
Now is the time for community banks to debunk the myths about what is necessary to compete and unlock their profit potential.
Myth: Many consumers and small businesses cannot become profitable for the bank.
Truth: Gaining insight to what could have been sold is much more difficult than tracking what was sold. First you need to understand which products are available for each customer. 84% of prospects, both consumer and business, are eligible for the bank’s most profitable products and on average, prospects qualify for up to 6 bank products. However, the average branch only opens 1.2 products per customer. If you are only opening one or two products per customer then that customer is less likely to become profitable for you and you are leaving interest and fees income from 4 additional products on the table. You are also missing an opportunity to provide a high level of service to your customers who are often unaware you have products that they qualify for and need. By appropriately selling more product of value at the point of sale, the customer / small business becomes profitable for your bank. It’s that simple.
Myth: The segmentation data that you have been buying is accurate.
Truth: Banks spend a significant amount of dollars on demographic data. However, purchased data is old and doesn’t necessarily reflect current conditions or the institution’s actual market. It might tell them some information about their customers but it does not really address prospects sufficiently nor does it address the complete current needs of consumers or businesses. On the other hand, banks have collected data over the years based on the transactions they have made. This data is fundamentally flawed and here is why. At a large regional bank with hundreds of branches, it was recently discovered that nearly 90% of customers in a particular segment were in the free checking account. The most likely reason for this is that free checking is easiest to sell. Needs and eligibility based analysis revealed that over 30% of these customers were not in the optimal account – for the customer or the bank.
Myth: Sales process is a four letter word.
Truth: Community banks have paid too little attention to the sales process, and therefore, the buying process. The industry 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. It is time for banks need to reveal and fulfill the customer’s needs at the POS (Point of Sale). They can no longer be satisfied to sell just a checking account when the customer needs a credit card, a loan or for small businesses a high profit cash management solution. 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.
Community banks need to recognize these myths and make fundamental changes now if they are going to be profitable and survive. Learn more on increasing profits through sales. Call us 972-789-5531 or schedule an online demo to learn how you can win.
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