Turning your “Lenders” into Fierce Deposit Warriors
For the last twenty years or more, banks of all stripes have been encouraging their commercial bankers to break out of the mindset that they are purely commercial lenders and work with business customers more holistically to ascertain and serve a broader set of needs.
This process was hastened by two industry developments. After the financial crisis of 2008/2009, partially in response to regulators’ concerns, there was a push to deconcentrate in commercial real estate (“CRE”) within customer portfolios. Also, the SVB/Signature/First Republic meltdowns in 2023 created a deposit crisis as core commercial deposits left the banking system at the same time as the glut of PPP funds worked their way through and out of many banks.
What’s in a name?
The first thing that many banks did to address this issue was to change the title of their commercial bankers from “Lenders” to “Relationship Managers”(RMs) or something close thereto. This symbolic gesture did little to change behavior or self-perception. For some banks that implemented this change ten years or more ago, their bankers are officially referred to as RMs but the bankers still think of and call themselves lenders.
Culture eats strategy for breakfast
No matter what they are called or call themselves, it is how they see themselves and their roles that is paramount. Self-perception can be enormously important in creating behavior. The annals of business history are strewn with examples of industry-leading companies that almost faded into oblivion because they never quite figured out what business they were in. Examples are:
The Pennsylvania Railroad thought it was in the railroad business rather than the transportation business
The Saturday Evening Post thought was in the magazine business rather than the advertising business
Kodak thought it was in the film business rather than the imaging business
No matter what the strategy or how much authority is put behind its implementation, culture virtually always prevails. The classic example of this phenomenon is the fact that, despite the outcome of the Civil War and the passage of the thirteenth, fourteenth and fifteenth amendments, Reconstruction in the South was a miserable failure and finally officially fizzled in the mid-1870s with the removal of federal troops. It took another hundred years to achieve even a semblance of racial equality thanks to cultural resistance.
For the successful commercial banker today the primary mission should be to help their customers grow and be successful. That success will likely depend on a variety of banking services including loans, deposits, payments, treasury services and, depending on the bank’s offerings, insurance and investment products.
Building a better banker; the holistic approach
It’s essential for commercial bankers to have at least a working knowledge of the breadth of products that the bank offers. Because we know that loans are usually the lead product in a banking relationship, lending expertise is important but far from the only priority. The institution should ensure that the commercial team receives regular cross-training on all commercial products and services.
That training should include direct questions to ask when meeting with the prospect. For instance, an effective question is “You probably know what your borrowing interest rate is, but do you know what you’re paying in fees each month for cash management services?” The typical business owner/controller/CFO is often clueless when this question is posed.
Targeting wisely
Most commercial bankers have a very good grasp and abiding knowledge of the traditional industries that produce the bulk of C&I deals: manufacturing, wholesale, and business services. When it comes to mining deposits, however, the mother lodes are often found in those industries that are deposit-rich, often to the exclusion of any lending relationship. Topping the list are property management, title companies, homeowners’ associations, attorneys, education, not-for-profits and municipalities. Many C&I bankers have neither the industry knowledge nor the contacts in these highly productive industries.
Virtually all commercially available databases have industry segmentation, using either SIC codes or NAICS codes. Developing profiles of deposit-rich industries and pulling data based on those profiles can be a very effective way to target deposits.
Speaking of data, one of the real silver linings that resulted from the Covid-19 pandemic is the availability of PPP loan data. The good news is that the SBA makes this data available at no charge. The bad news is that it requires significant improvement as the only data points that the SBA provides are borrower, lender, industry and loan size. The data needs to be enriched by appending the other information essential to wage a business development campaign: revenue, industry, contact information, year founded, corporate structure, importer or exporter, headquarters vs. branch, parent/subsidiary, etc.
In the past, the only way to target a particular competitor that was being acquired or in some other way stumbling was to secure UCC filings for that secured party. With no significant lending relationship, there would often not be a UCC, so adding PPP data to the mix has proved a tremendous benefit, especially when targeting deposits.
Differentiation- the keys to the kingdom
At the end of the day, every prospect has to be able to answer the same question- “Why should I endure the pain (real or perceived) of switching banks.” The decision has to come down to a very simple concept. The prospect has to believe that he or she will be measurably better off with your bank than with the incumbent. This brings us back full circle to the questions that every banker should be able to answer:
What are you going to do to help my business flourish?
How important will I be to you and your bank?
If I have a problem or need an issue addressed quickly, who would I call?
How available will they be?
Will they have the motivation and authority to address my issue in a timely manner?
What matters motivates
Our firm has spent the last 31 years helping commercial bankers get in front of decision-makers (owners and CFOs) who are open to exploring an alternative or supplemental banking relationship. We have a team of seasoned professionals who reach out to those prospects by phone. Each year we have about 40,000 well-documented conversations with decision-makers. Through those conversations we get a very clear sense of what motivates these folks to want to get together with our client. While rates and fees are always an issue, by far the greatest motivator, based on thousands of conversations, is relationship, or, more accurately, lack of or broken relationship. Unless you’re dealing with a large corporate client where a few basis points can make a big difference, many of these decision-makers tell us that what they appreciate is a banking partner that can answer the five questions above as they would want them answered.
As many community and regional banks are making investments in infrastructure, technology and better and more appealing solutions for their commercial customers, perhaps the most direct and cost-effective path to commercial growth is developing and fine-tuning the relationship-building skills of their sales team. By helping and encouraging your sales team to focus on creating customer success, the path from “lender” to “leader” may be as easy as swapping out a letter.
