By Jeff Marsico
Banks that grow revenue do it in spread or fees. To grow spread, increase your net interest margin or grow earning assets while maintaining net interest margin. To grow fees, either increase your fee schedule, or the activities that generate fees, or grow fee-based lines of business.
Since 2007, banks have been challenged to grow revenues. And if the bank strategic planning sessions I attend are an indicator, bankers think small-business account acquisition and growth will be a significant driver of revenues.
SBA loans not an option for our hypothetical engineering firm? How about a partnership with a peer-to-peer lending platform such as Prosper that can be co-branded with your financial institution? Prosper will pay an affiliate fee for each loan offered. OnDeck Capital, which specializes in business cash flow lending, will also affiliate with financial institutions, providing another avenue to fund our hypothetical engineering firm.
It’s not necessarily the affiliate fees that will move our revenue needle. It is, rather, the fact that providing budding businesses the needed capital to succeed will build loyalty, deposit balances, and eventually “bankable” loans should these businesses succeed. By being shortsighted, we send them elsewhere, giving a potential competitor the opportunity to win these businesses’ relationships.
Imagine the “Your Bank” small-business loan platform, with multiple opportunities for the local business person to help fund their growth. You start with the least expensive, such as “bankable” real-estate secured loans from your bank, and work through the other options such as SBA, OnDeck, Prosper, and even equity platforms such as Kickstarter. That would be a bank dedicated to small-business capital formation and growth within its communities.
And a growing community usually leads to revenue growth at your bank.
Or you could stick to business as usual and hope small businesses come your way. Your choice.
Jeff Marsico, is executive vice president and a founding shareholder at The Kafafian Group, Inc., a strategy, profitability, and advisory firm specializing in community financial institutions. Jeff is currently a faculty member for the ABA Bank Marketing School. Email: [email protected]