The post-recessionary banking landscape has changed significantly, and community and mid-sized banks that want to drive profitable operations face some stark realities. They need to consider new profitability strategies to combat the impact of fierce competition and rising interest rates.
Diversifying revenue is a key component to fuel growth in the evolving environment. In commercial banking, one potential area for revenue diversification is the cross-selling of noninterest-income generating products and services—traditionally underutilized areas of operation for community and middle-market banks.
Cross-selling capabilities are a key to revenue diversification, which has been a challenge for many institutions. Banks of all sizes struggle with developing a complete picture of customer relationships and leveraging that insight to building stronger, more profitable relationships. That needs to change.
Fortunately, contemporary customer relationship management (CRM) solutions have progressed substantially and provide several new capabilities for achieving this goal—but only when the solution focuses on end-user adoption and becomes a part of employees’ daily routines. This requires identifying motives that will encourage use and integrating appropriate functionality, such as incentives and performance management capabilities.
Let’s take a closer look at how banks can diversify revenue by cross-selling noninterest income generating products—and how CRM capabilities can support this goal.
Why is revenue diversification important? Revenue diversification reduces earnings volatility, which is important to both executives and shareholders. During periods of economic distress, fee-based revenue—for example, treasury and cash management fees for remote deposit capture (RDC), automated clearing house (ACH), and wire transfers—augment revenue by balancing typically slower growth in new loans and interest income.
Banks typically underutilize these sources of noninterest income for various reasons. Many do not implement incentives that align sales culture with business objectives or employ the right tools to facilitate effective referrals and hand-offs. Product and service education is frequently an issue. Frontline staff must be able to recognize opportunities and talk intelligently with customers to originate referrals at the point of contact.
Commercial lenders tend to have less knowledge of noninterest income products and services and quite often less incentive to sell them—since the reward for one commercial loan sale typically far exceeds that for cross-selling the same client a treasury product. A focus on lending volume may deliver exactly that—at the expense of total customer revenue and relationship profitability.
There are other common organizational hurdles: for example, politics, communication between divisions, and improper balances between “top-of-house” performance measures and individual performance measures. All of these lead to greater focus on “what’s best for me” rather than “what’s best for the bank or my business unit.”
Today’s new CRM solutions
Unlocking value in underutilized lines of business, including noninterest income, begins with a clear understanding of where your bank stands and where it can—and must—improve. Customer penetration rates are often a key measure to set your institution’s effectiveness at cross-selling these products and services. From this foundation, management can focus on specific products and service areas—developing target penetration rates, defining clear strategies for boosting fee income, and designing the proper education and incentive plans. A well-designed CRM solution will help tie together the strands of an effective strategy to generate noninterest income.
One of the most important developments in leading contemporary CRM solutions is the ability to deliver greater transparency and accountability at the individual level. This transparency enables a bank to determine causes for underperformance and revise strategies to influence the right behaviors. For example, sales managers have insight into individual cross-selling performance: Is an individual selling only his loan products and not cross-selling certain noninterest income products? Is he making referrals? From this insight, managers can take action to understand why: Is it an education, communication or incentive issue?
In addition, today’s systems create less of an administrative burden, for both managers and frontline employees, who can spend more time gaining insight and determining actions required to achieve goals and less time entering and finding data.
And also help build more effective relationship managers
Conversely, transparency and accountability provide greater motivation for individuals to take expected actions to cross-sell or to make referrals that increase income. And today’s CRM capabilities make it easier for individual relationship managers to recognize events or patterns and pursue relevant cross-selling opportunities. Systematic workflows designed specifically for referrals help facilitate a smooth handoff between relationship managers and treasury management servicing.
A well-designed CRM solution can help facilitate more business and increase the bank’s standing as an expert business adviser—not just a loan shop—by providing a complete and well-organized view of customers’ banking habits. This enables a bank to service their needs better. Consider these examples:
–“I see you regularly visit a branch to drop off monthly deposits from your rental property income. Have you looked into our remote deposit capture or lockbox services to save you the trouble of preparing deposits and coming into a branch?”
–“I see you had a fraudulent check presented against your account. Are you familiar with our positive pay and products and how these help protect you from check fraud?”
— “I see you carry a high balance in advance of disbursing payroll every month. Would you be interested in hearing more about our sweep options to earn interest overnight on funds?” This may also be an opportunity to introduce third-party payroll processing or time and attendance services.
In this case, the bank and the relationship manager use CRM to identify, route, manage and execute cross-selling providing benefits to both the bank and the customer. A well-designed and strategically implemented CRM solution enables the staff to identify cross-sell opportunities based on products that meet existing customer needs—typically a far less costly proposition than acquiring a new customer. This also fosters greater collaboration amongst the sales, treasury, credit, online products, and other customer-facing channels—sharing information and driving a consistent approach that effectively sources and manages referrals from all available channels.
This also allows the bank to create effective incentive programs and use the CRM to align incentives with referrals. The system can track earned incentives, as well as areas of ineffective cross-selling that may warrant better education or revised incentives. It can also be used to influence performance goals.
Using CRM in this way develops an understanding of the customer that transforms relationship managers into trusted business advisers, presenting an “I understand your business and can offer you the right products and services to improve it” expertise to clients. Relationship managers will both act in the interest of customers’ needs and promote the bank’s revenue goals by cross-selling noninterest income products—making it a win/win investment for the bank and the customer.
The key could be your CRM solution
While this article focuses on commercial banking, the same concepts and principles can also apply to retail portfolios for cross-selling other fee-based products such as wealth management—with consideration, of course, for regulatory factors such as limiting access to specific customer data.
So how will your bank unlock the value of underutilized and often undersold treasury management products? A good place to start is by taking a fresh look at your CRM solution.
Neil Hartman is director and Bryan Knops is manager of banking and capital markets for West Monroe Partners, a management and consulting company located in Chicago. Email: nhartman@westmonroepartners.com and bknops@westmonroepartners.com.