5 Ways Banks Can Generate Higher Profits With SMEs In the increasingly competitive world of financial services, financial institutions (FIs) can truly differentiate themselves from their local and national competitors by developing strength in serving SMEs (small and medium sized enterprises). From my experience both as a banker and small business owner, I can personally vouch to the fact that SMEs are one of the most overlooked and underserved segments in the banking world. There are three primary reasons for this costly omission: • Fragmented service delivery across the institution; • The complex nature of these entities and their owners; • Senior management’s lack of experience with them. As a frequent attendee of the ABA Small Business Banking Conference I can see an increasing amount of attention being paid to this segment, but it appears to be from the largest banks in the country as well as alternative lenders. To stay competitive, more FIs need to avail themselves of the new technology and practices available to serve this segment. But let’s not just talk about staying competitive. Who wants to stop there? We need to be talking about winning, prospering in this economy by adding enormous value to our SME clients We can do much better, but it starts with our mindsets. In this piece I am going to share with you five ways to generate higher profits with SMEs, and the first one is the most important because it deals with the mindset shift. Copyright CEO Velocity, 2015 1 Here’s a simple diagram to show you where we’re going: Think Beyond Financial Products Let Data Drive Strategy Make SME Clients Successful Develop Knowledgable Employees Easy to Do Business With Let’s go through each one: 1. You Are in the SME Client Success Business This is different than the traditional product vendor approach most FIs have used for decades. Any FI can sell treasury management, but very few have the mindset of helping their clients prosper and grow their businesses. This shift in mindset will dramatically improve your profits. Take it from me, as someone who has owned multiple businesses, the life of an SME owner can be very lonely. SME owners need community, but sometimes it can be hard to find. What better place than a community or regional FI to learn and grow from other clients through workshops, guest speakers, and innovation groups? How else can you help your SME clients succeed? By helping them gain new business! Listen, you’re not there just to lend them money or take their deposits. You have a wide network of important contacts who can either become their clients or refer them business. You should be referring them business as well. Copyright CEO Velocity, 2015 2 Any way you can use your network to help them build their customer base is going to earn you their loyalty and greatly help when a competitor tries to woo them away from you. 2. Think Beyond Financial Products I know you get paid to sell financial products, but if you’re really going to be in the SME client success business you’ve got to take a comprehensive look at all the services they need and find ways to be part of that action. Here’s a brief look at the types of services SME owners need: Accounting Product Development Legal Strategy Development Human Resources Personal Skills Development Sales Training Leadership Development Web Site Development and IT Consulting and Management Maintenance Marketing Services Data Management and Analysis This list leaves most SME owners like myself gasping for breath as we seek best practice providers one by one or try to do these functions ourselves. Why shouldn’t we have the opportunity to purchase these services from our FI and trust that they have vetted the best providers for us? On the other hand, why wouldn’t my financial services providor want to gain the brand strength that comes from partnering with these providers, as well as the additional fee income from revenue sharing? Perhaps you are cringing right now as you consider the regulatory and liability implications in these types of deals, but I have news for you: these arrangements are being made all the time. It’s time to stop the hand-­‐wringing and get on with it. 3. Develop Knowledgeable SME Employees Most SME owners want financial service professionals who understand their business and industry, who can proactively get them to the right products, and who quickly solve problems. Beyond that, SME owners are pleasantly surprised when their bankers demonstrate familiarity with recent industry and marketplace trends, and can point them to best practice experts who can help them with operational, legal, or tax issues. Copyright CEO Velocity, 2015 3 If you really want to surprise and impress an SME owner, develop teams of people who can help the owner maximize the sale of their business, minimize their tax impact, and grow their wealth subsequent to the sale. If achieving this level of expertise seems daunting to you, understand that it is happening in the industry already. Bigger banks have been creating specialized Business Banker positions for years, and applicants go through extensive training to certify their expertise. Is it an investment? Certainly, but consider the alternative of mediocrity. How much will that earn you? 4. Be Easy to Do Business With SME owners have no patience with hassles, and that’s how they view you if you’re not easy to deal with. Here’s a quick and dirty list of what an SME expects to be able to do with you: • Open, manage, and link all their accounts online or via mobile; • Fill out loan applications via online or mobile, have them pre-­‐filled out, and receive loan documents via e-­‐sign and pdf; • Get well-­‐informed answers easily and quickly through phone, email, or social media; • Have a go-­‐to number where they can get knowledgeable help immediately; • Be able to contact you through any channel and have your employees immediately know the extent of their relationship and specifics about their business; • Go to them instead of making them come to you. 5. Let Your Data Guide Your Strategy In a November 2014 American Banker article a study revealed the reticence of many bank CEOs to make customer analytics a key component of their strategy. As someone who has been called “one of the most creative strategic thinkers in the banking industry”, let me assure you that this reluctance to pursue analytics will spell disaster for those who persist. On the other hand, bank CEOs who make customer analytics a competitive advantage for their organizations will realize incredible gains in profitability, customer loyalty, and employee engagement. There’s no question about this as I have been doing it for 25 years. Copyright CEO Velocity, 2015 4 Here are some keys: •
•
•
Understand the traits and characteristics of your best customers ! Not just their industries, sales size, and number of employees; but how their business is doing, how other businesses in their industry are performing, the age and ambitions of the owners, and their likelihood to buy various financial products. ! Know who is growing and at what pace. ! Ask them the tough strategic questions relating to their industry and their company specifically. ! Refer business to them and in turn ask for referrals from them. Not all best customers are equally loyal or visible. Find the invisible ones, the forgotten ones, and start building relationships with them. Identify the ones who are profitable but under-­‐banked and find ways to serve them with more of your product line. Use your understanding of your best clients to find businesses in your database with similar characteristics. Use your marketing to build relationships and sales with them, and move them into the top client group. Challenge Questions These five simple steps will not only make you more profitable, but even more importantly, they will strengthen your brand and position in your markets so you can compete against the money center banks and help strengthen the economies in the communities you serve. Now that you know what to do, here are my challenges questions to you: 1. How much attention are you paying to the important SME market? What data do you have to validate your answer? 2. If you are focused on them, are you a product vendor, or are you in the business of making them successful? Once again, validate your answer with facts. 3. Will you really consider providing non-­‐bank products to your SME clients through third parties, or do you view it as some crazy idea? Give reasons for your answer. 4. Are your people truly knowledgeable about SMEs? What would your clients say? What are you doing to develop their skills and keep them sharp? Copyright CEO Velocity, 2015 5 5. Are you using your database for more than just CRM purposes? Is your analytics team providing your front line Business Bankers with the information they need to become more effective? Scott McClymonds is a veteran leader in the banking industry and expert at increasing profitability. His company, CEO Velocity, is a strategic consulting firm that helps financial service CEOs create greater customer loyalty, profits, and company value. He can be reached at [email protected] or 479.263.0774 Copyright CEO Velocity, 2015 6