Relationships That Drive Profitability

By Gauri Sharma

Relationship building is a critical piece of your profitability equation.

Over the last two years, fintech has emerged as the biggest perceived threat to banks. These largely unregulated companies offer high-tech, low-cost, self-service financial services to today’s hyper-connected consumers, and many of the community banks are crying foul. The banks believe that their business models have neither the revenue nor the agility required to constantly research, develop, and adopt new technologies. Faced with the growing cost of regulatory compliance, community banks feel they are at a distinct disadvantage in being able to compete on technology.  However, most of them also realize that a more strategic approach is to collaborate with fintech companies.  There are several examples nationwide of community banks of all sizes that have partnered with fintech companies to develop and deliver modern, cutting-edge financial solutions.  This investment in technology is now a part of their overall growth strategy.

I would offer, though, that this is only one part of the equation. In September 2015, the Government Accountability Office (GAO) was asked to review the effects of the changes in mortgage servicing rules on community banks.  In its report released in June 2016, the GAO found that despite the additional burden presented by these servicing rules, the share of mortgages serviced by community banks doubled from 6% to 13% between 2008 and 2015.  These community banks contend that the cost to service these mortgages is offset by the indirect revenue that is generated by this customer-centric business model.

Why does this matter?

A mortgage binds a customer to your bank for at least 8-10 years. That gives you 8-10 years of opportunities to deepen your share of wallet with that customer.  It translates to 8-10 years of opportunities to provide consistently superior service and earn new business by way of referrals from your customer.  To 8-10 years of opportunities to provide diverse products and services to the customer as their financial needs evolve. The list is endless.

Our nation’s community banks sit in a unique position of influence, visibility, and outreach in our towns and cities. As they find their happy place on the fintech spectrum, they must not lose sight of the formidable power they have—the power of relationships.  As the next generation of customers mature financially, it is erroneous to believe that all they are looking for is the next cool app.  This generation is in the process of benefitting from the largest wealth transfer in the history of our country, and they are looking for advice.  And who better to provide it than the banks where this transfer is occurring?

There is no doubt that technology is critical to driving efficiency and overall success of today’s financial institutions. But equally important are the people in these institutions.  Ensuring that your bankers have the relationship skills that will help them become trusted advisors is what will help you retain your clients.  While customers like a cool online banking interface, they also look for a trusted banker to help them manage their finances.  The mobile app is important, but they would still rather come in and speak to their banker when it comes to applying for a mortgage, or a retirement plan, or a college plan.

Here are a few facts about the customers who walk into your branches today:

  • 65% of them are homeowners, but less than half of them have their mortgage with you.
  • Over 50% of them do not even know that your bank offers mortgages.
  • 25% of them are business owners, or have a small business on the side.
  • Business owners typically have banking relationships with 2-3 different institutions.
  • 8 in 10 of them will leave your branch after completing only a teller transaction.
  • 5 in 10 will actually agree to sit with a personal banker or make an appointment if appropriately engaged.
  • An overwhelming majority of them will have at least one of these financial needs:
    –Retirement/estate planning
    –College Debt
    –Home purchase
    –Business Loan

The list goes on, but you get the gist. Unless we take the time to develop our bankers to have better, value-added conversations, our customers will continue to walk away.  As will the opportunities, mobile app non-withstanding.  The banks that will be successful tomorrow are the ones that see the benefit of training and upskilling their associates to build relationships.  The most innovative products are certainly part of a winning recipe, but the true differentiator continues to be the relationships that our bankers build and the service they provide.  Technology is a critical driver of efficiency and value, but relationship skills are what will build trust.   And when our customers trust us to steer them right, success is inevitable.

Gauri Sharma is vice president of retail markets at the American Bankers Association. Email: [email protected].