Community bankers face many challenges: intense deposit and credit competition, changing demographics, complicated technology, and regulatory obligations, to name just a few.
Conventional wisdom is our adherence to accepted norms and common practices. On the surface, it appears to promise safe, dependable direction when we're confronted with difficult questions and complicated options.
However, a reliance on conventional wisdom often discourages critical thinking and diminishes creative energy. This is especially true for businesses, and particularly true for community banks.
Unfortunately, part of life involves the loss of our loved ones. After recently experiencing the loss of my father-in-law and grandmother, I was reminded that finding a competently staffed, conveniently located funeral home is crucial to the grieving process. In both cases, we were very fortunate; however, I have had friends and business associates in similar situations report that customer service was indifferent. Product knowledge was subpar.
Many morticians report that their businesses aren't at capacity; a large, expensive funeral home may hold as few as 29 funeral services per year. The team and the facility have the capacity to hold more funeral services—perhaps twice as many annually—and doing so would not materially increase the fixed costs of the business. Moreover, holding more services per year would dramatically increase the revenue the funeral home generated each year and would significantly improve the overall profitability of the business.
If the previous is true, why don't all banks focus on attracting as many customers as possible? Could it be "conventional wisdom?"
Accepting this cost model requires that a cascade of flawed decisions follow: (1) marketing – the bank must seek the perfect customer; (2) products – only profitable customers are welcome at the bank; and (3) fees – an aggressive fee structure is required to offset costs.
Critically evaluating and employing new solutions allows the majority of community banks to double new customer acquisition if we understand two important things:
- The true value of each primary financial institution relationship is between $300-$500 per year – including deposits, loans, and non-interest income; and
- The marginal (you aren't building any new branches) costs of each customer is between $30-$50 per year – issuing a debit card, mailing a statement, data processing, and potential write-offs from overdrafts on some.
Your bank has the capacity to serve many more customers – customers that look just like the customers you already serve.
Caution! When you effectively deploy omni-channel marketing strategies, twice as many prospects will be walking in your doors. Are your people, products, policies, and procedures aligned to win them? If not, you might as well plan your own funeral.
Retail banking is not dead! While the mortician's model bears similarities to our banking model, the primary point is this: community banking is alive and well… but could be doing much better.
Sean Payant, Ph. D., is chief consulting officer at Haberfeld Holdings, a data-driven consulting firm specializing in core relationships, customer, and profitability growth for community-based financial institutions. He can be reached at 402-323-3614 or Sean@haberfeld.com. Haberfeld Associates is a WBA Associate Member.