Why are 80% of community bank accounts not making money?
New regulation is consuming valuable time and money from community banks, putting many in survival mode. While it’s critically important to spend the time and assets on regulation, many community banks have made it their primary focus and have forgotten the other side of the equation… Building relationships and growing net profits. In fact, it may be easier to thrive in this current market than in past years. The reason being, is that many of your competitors are equally consumed with regulation. While its obviously important to have that focus, putting a team in place with a focus on customer relationships and revenue can help your bank to trump the competition. Far too many community banks have dropped the ball on building relationships and as a result a large number of customers are not being served at a high level. This is where the opportunity lies for those community banks with a balanced approach.
We have found that there are common reasons why most of your customers bank with you. At the same time, your employees have their focus as well. Let’s take a look at these two areas to pinpoint why up to 80% of your accounts are net losers.
The Customer Perspective
Why do most of your customers bank with you. Most community bankers would say, “because we give the best service”. Unfortunately, this is not the case for most. A simple mystery phone shop will reveal otherwise. (if you would like to test it out, we offer a free shop for banks). Here’s what your customers will say…
- It’s cheap or free – Face it, if you’re selling a free checking account paying 3% or even 1%, and many community banks do, then you’ll get customers. However, what we find is many customers will use that account as a place for CD money. Some will meet the “qualifiers” while using another account as their primary checking. All this while the typical employee misses the opportunity to cross-sell appropriate products.
- It’s convenient – Many will bank with you because they live or work near your location. This may be why they’re refinancing their home with you. But how well are your mortgage lenders referring checking accounts and other banking products? Are you even tracking it or paying incentives for it?
- The bank was bought out by another bank – The customer is there because he’s always been there. It’s not worth the hassle to move the account and based on the service they’re not bringing anything else to you either.
- No better option – You read correctly. I have done business with my community bank for over 20 years. I also bank with a big bank for my primary checking. I’m not going to move any of the accounts because there isn’t another bank (6 in my small town) that offers relationship based banking and service that’s worth my time in moving. Why leave where I am, to get what I already have? I’ll only leave for remarkable service and relationship banking because that is what I don’t currently have.
The Employee Perspective
- Covering myself – Many employees don’t really care about what the customer wants, they care about what they’re told or forced to sell. This comes into play with the aggressive sales culture that places quotas on employees. Trust us, they will most definitely figure out how to work the system and sell to it. But the customer’s needs are not taken into account.
- I’m not a salesperson – If you work in a community bank, you are. But you better sell, based on what the customer needs. The average number of services per household is 1.8. We’re not including things like debit cards and online banking. The average household has 6 banking services. With 1.8 services, you are generally not making money and quite likely losing money.
Here’s the bottom line
As a community bank, why would a customer choose less technology, less convenience, fewer product options and possibly less competitive rates, to bank with you? The answer… The Relationship. Customers want to feel welcome and cared for, and will be receptive to expanding their relationship with you if you cater to their needs. Many banks are either not tracking cross-sells or they are tracking activity. The result is a culture of silos (retail banking, commercial lending, mortgage, and investments/insurance) doing their own thing and watching their own back. This creates a culture of negotiated rates, dormant accounts, and 1.8 service per household.
Where is that 80% stat from? I’ve never seen that before, its eye opening!
It comes from working with CEOs of hundreds of banks and conversations with hundreds more which is a pretty good sample to draw from. Thanks for the comment.