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Tom Zayko and Ric Carey, Directors at Peak Performance Consulting Group, were interviewed recently by SNL Financial. To them, banks are overemphasizing expense reduction efforts at the cost of engaging with customers — interactions that could lead to greater, more profitable relationships. Zayko and Carey propose leveraging the branch network to make it a more effective transaction point with customers, marrying data about channel usage and current products to customize offerings. They encourage banks that have been focused on cost cutting through branch optimization and investments in technology to try a different tactic: talking to retail and small business customers and tailoring services and packages to their needs.

 

This is a modified version of the SNL Financial article.

 

What is your read on 2013 so far and what do you think will be an area of interest for banks?

 

Tom Zayko: I think 2013 has one distinct advantage in that the direction of regulatory focus is in place and while many of the administrative rules for Dodd-Frank are forthcoming, we know the general direction and focus. The same can be said of the CFPB. So now banks can begin to refocus on the customer. A major theme will be how to manage the multichannel environment — not just how to manage the branches but how to integrate the channels. It’s difficult for banks to step back and figure out how to do a better job integrating channels and leveraging the branch network, given the fact foot traffic is down, to improve opportunities for a selling environment as opposed to a transaction environment.

 

Right, a lot of banks are seeking to optimize their branch networks while pushing into technologies, especially mobile. Is that it for big opportunities in 2013? Is there anything you think banks are overlooking as a way to make gains or grow revenues?

 

Ric Carey: I think bank management would be shocked if they knew how many single-service consumer and small business households they actually have. When someone has only one product, there are a lot of products you can talk to them about. Banks need to utilize delivery channels to personalize the message and execute those marketing opportunities. I’ve seen response rates as high as 6% to 7% utilizing targeted marketing, versus mass mailings that might get half of 1%, or lower, and it really cuts advertising costs.

 

Zayko: The driving reason behind that is banks, historically, have not been good at asking for their customers’ business or explaining why it makes sense to do more business with them. You can reduce advertising expenses and focus on getting more of current customers’ wallet share while reducing attrition levels, because unhappy customers leave. The hard part is this is very easy to say but very difficult to implement, because it takes a great deal of management commitment, reinforcement training and communication.

 

Technology enhancements such as online and mobile banking are in vogue right now with banks. How else can banks be innovative with current customers who maybe already use those channels?

 

Carey: Right now it seems that innovation has been focused on channel usage and ways to simplify it, but I think there’s still opportunity around packages, especially in the small office and home office market. So many banks approach small business by putting together a team of lenders and focusing on loans over $100,000. What’s interesting is 90% of small business loans are under $100,000 and 50% are under $50,000. Analysis shows that 75% of small businesses want credit, but only about 30% borrow it any given time. There are opportunities to penetrate these customers with better deposit products, and to reach non-borrowing customers with backup lines of credit, which helps establish the relationship.

 

How should banks begin this process?

 

Zayko: Banks need to begin asking themselves, “Does our value proposition meet the needs of our key customer segment?” Whether it be product channel, pricing or branding, all of those aspects represent parts of the value proposition. Once they figure that out, they need to figure out how to deliver it.

 

Carey: I think a lot of the banks are ready to do one of two things — figure out how they’re going to grow or figure out how they’re going to sell, so I think you’ll see more acquisitions or mergers. But I also think banks need to rethink what they offer in branches from a technology standpoint, and get branch staff to increase their knowledge of sophisticated products to create more value. That may mean they need to replace some people.

 

I’ve watched banks over the years be successful in different struggles, and they all seem to have one common thread: Everyone in the organization knows what they’re trying to be and how they’re going to do it. Discipline is key. Successful institutions going forward are going to be the ones that know what they’re going after, how they’re going to do it and have a great execution plan.

 

 

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