Fintech 21 August 19

Seven steps to sustainable growth for small commercial banks

Matt Rowntree
By: Matt Rowntree
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In today’s globalized world bigger isn’t often better. When you want reach and cutting-edge service, it might seem that only large-scale commercial banks with the resources to invest in innovation could deliver. But ‘bigger is better’ is not necessarily the case. Large commercial banks can roll out the tools and expand their product range. But they are also bland, impersonal and often intransigent.

Regional, commercial banking providers, on the other hand, still have that personal touch. There is a face behind the name, an understanding of the local customer base, a history and a loyalty to their communities that is hard to replicate in a national or international organization.

But a friendly face is not enough these days. Customers want the efficiencies that a big bank can provide, as well as access to new tools and interesting products. They want their bank to be responsive, to make intelligent, data-based decisions that are bespoke to their individual needs. It is something of an irony that, however impersonal the global bank may feel, it is very likely to have the technology that allows personalization at scale. The assumption is that a regional commercial bank can only do so much.

Smaller banks are always a tempting acquisition prospect for larger institutions. The client base is in place, the local insight gathered. The potential for a mismatch in brand values aside, regional banks are rich pickings for large banks in the mood to buy.

Becoming the target of acquisition isn’t inevitable and, with tools that are much more accessible to companies even on the smaller scale, there is still potential for regional banks to grow and consolidate their customer bases, even in the face of competition. Here are seven steps the leadership of smaller commercial banks should consider if they want to retain and grow their market share.

1. Explore challenges beyond your own sector

It can be very easy when focused on your own direct audience to ignore wider developments in the marketplace. As a regional bank, direct competition doesn’t come in the form of other regionals, but from nationals, global banks and challenger fintechs. It is vital to understand what innovations global players are exploring and why. Today this is their challenge, tomorrow it will be yours and the gap between the two is getting shorter.

2. Listen for signals about new customer demand

Your own customers may tell you they are more than happy with your service, but such responses only paint part of a bigger picture. They may not be unhappy, but they are almost certainly exploring what else the market has to offer. It’s why you should engage in social listening to understand what your customers are interested in. On LinkedIn or local business boards, they may be discussing how many in their network recently installed an Alexa device, or how to integrate Apple Pay into their point of sale. This then indicates a future potential need for voice interaction or mobile payments. If you don’t already offer these services to client now, you can expect to soon.

3. Equip employees to make decisions

There are many high-profile digital solutions being brought on board by larger commercial banks to improve the speed of processing and bring down administrative costs and delays. Regional banks can make efficiency improvements by properly equipping their own staff with the information, tools and autonomy they need to improve the customer experience. The solution often isn’t in fintech, but rather martech. Understanding client histories and points of interaction through a customer relationship management (CRM) system delivers the important contextual information that helps resolve queries quickly. Even simpler,  research which queries send customers further up the management chain and then giving employees the resources to answer those problems directly. Setting aside budget to allow employees to make on-the-spot decisions is another way of removing a customer barrier and improving their experience.

4. Become a partner in customers’ financial  and social health

Making the most of the personal relationship between the regional bank brand and its customers comes down to trust. This tends to be higher for regionals than big bank brands (79.8% versus 69.3%). Trust, however, is not necessarily built on minimizing security or data breaches, but instead on how the organization treats its employees, its corporate social responsibility (CSR – such as philanthropy), and its community engagement. Consider partnering with clients on their own CSR activities, facilitating donations for example.

5. Communicate based on need

Banks have traditionally focused their communications on product features and security when successful relationships are based on understanding customer need. The financial product market, even for non-traditional, so-called ‘challenger’ banks, is largely commoditized. There are few accounts with ground-breaking interest rates or corporate credit-card conditions that differ from the norm. Understanding customer needs and being able to tailor product recommendations and advice to those needs, rather than by arbitrary segment, is another way to build tighter relationships and longer-lasting trust with customers.

6. Adapt to digital needs

There is no getting away from the fact that customers demand a digital experience from their bank that matches the experience not just offered by larger competitors, but by sector leaders such as Uber and Amazon. Mobile use is also rising, with 63% of all web traffic coming from mobile devices at the end of 2017 and that figure is still growing. This doesn’t necessarily mean that regional banks need to offer a mobile experience similar to the market disrupting offerings of Discover or Credit One, but offering a safe, secure and intuitive way to interact with the bank via mobile is fast becoming a basic requirement. Take the lead from the retail banking sector to provide mobile functionalities such as money management functions that answer client needs. This may include expenses logging, tax calculation or currency management. These don’t have to be developed in-house. There are a range of applications that can be sourced from third-parties, such as Currencycloud – that embed seamlessly with existing systems and can be white-labeled for brand consistency.

7. Partner to expand your product offering

Scaling up rapidly is not an option for most regional banks, and this includes radically increasing their product offerings. However, as noted above, customers are demanding more and more functionalities from their bank. Indeed, the middle-market companies that are the core customer base for regional commercial banks look set to perform more strongly than their national and global counterparts. One institution suggested there would be loan growth in this segment between two to four percent in 2018. But, this also has to come with added value services, such as web applications and loan automation. If regional banks don’t provide something to satisfy this, customers are happy to go elsewhere. But this is squandering the higher trust and deeper relationship levels these enjoy.

Working with third-party providers and taking advantage of the range of services available through cloud and API-integrations, regional banks can expand their product set without the upfront cost of embedding them into existing systems. Offering cross-border transaction facilities such as those available via Currencycloud, for example, is much faster and simpler than building a bespoke offering from the ground up. Third-party providers also tend to be specialists in just one or two areas, meaning regulatory compliance such as Know Your Customer (KYC) and data protection are already taken care of at the supplier end.

It is clear that the banking customer, personal or corporate, is something of a challenge. On the one hand, they want to enjoy the personal, one-to-one relationship between themselves and individual branch staff that has been the typical model for decades. On the other, they want the technology-driven, high-accuracy, bespoke and intelligent product offerings that only digital and data-driven systems can provide. Regional banks may be concerned that they are rich pickings for the big banks looking to get even bigger. But, by following the seven steps outlined above, they are uniquely placed to more than hold their own in the face of competition.

Want to see how Currencycloud can help your bank? Click here to find out more

Matt Rowntree
By: Matt Rowntree

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