As banks continue their push for commercial loan growth, they are moving outside of their traditional retail branch footprint. This is driven by a desire to capture opportunities in specialist markets, as well as a realization that bank can establish a strong beachhead in markets even with a light physical presence.
The following table is a summary of commercial banking expansions by leading banks into new geographic markets over the past year:
These new commercial banking locations typically serve as hubs to serve a broad geographic area, and this enables banks to provide quasi-national commercial banking reach. For example:
Santander Bank has opened offices in Dallas, Chicago and Miami in recent months, with each office targeting firms in the surrounding states. For example, the Chicago office aims to serve firms in nine Great Lakes and Midwest states.
PNC’s 2018 opening of commercial banking offices in Denver, Houston and Nashville follow on from 2017 expansions into Dallas, Minneapolis and Kansas City. PNC plans to continue this strategy in 2019 with additional commercial banking offices in Boston and Phoenix.
In addition, some banks are looking to expand an industry specialty nationwide. Two recent examples of this are BB&T (recreational lending for RV and marine vehicles) and SunTrust (aging services).
In choosing markets in which to expand their commercial banking operations, banks need to consider market factors (e.g., size, growth, industry composition), as well as competitive intensity levels. Once a bank has committed to entering a new geographic market, it needs to quickly establish a foothold and ongoing presence in that market. To achieve this, banks should focus on:
Staffing. Recruit and deploy commercial banking teams based on their local market knowledge, ability to work in small teams and experience in building a client base in new markets.
Prospecting. Develop “ideal” prospect criteria (e.g., revenue size, industry, location), then create a prospect list, profile the top prospects (key decision makers, recent activities, perceived financial challenges), and develop and implement a communications plan.
Promotion. Use a range of B2B media to make up for the lack of a dense branch network. This includes participating in/sponsoring events hosted by local business advocacy groups (such as local chambers of commerce), investing judiciously in local B2B media, and developing a philanthropic presence.
Technology. Develop a robust suite of online financial management tools to offset the light physical presence.
Service. Seek to develop a reputation for seamless implementation and proactive customer relationship management, which can make up for the lack of a dense branch network, brand equity, and boots on the ground.
According to the FDIC’s Quarterly Banking Profile, U.S. commercial and industrial loans rose 4.8% y/y to $2,077 billion at the end of June 2018. This marks the third consecutive quarter of accelerating y/y growth since reaching a six-year low of 2% at the end of 3Q17. Evidence from leading banks’ quarterly financials and investor presentations is that this commercial loan growth is often driven by a focus on particular vertical industry sectors. For example, PNC reported commercial loan growth of 4.5% in the year to the end of 2Q18, driven by financial services (+9%) and retail/wholesale trade (+7%)
Vertical industry targeting provides a range of benefits for these banks:
Drives stronger growth in loans to that sector—in particular if that sector has been underserved—which can help push up overall commercial loan growth rates.
Provides a point of differentiation from competitors.
Enables a bank to leverage synergies between traditional or current bank strengths (such as expertise in certain product or service categories, or proximity to industry clusters) and the financial needs of targeted companies.
Creates an opportunity for a bank to expand beyond its traditional retail branch footprint into new geographic markets. Fifth Third recently launched a Financial Institutions Group in New York City.
We recently scanned the commercial banking sections of leading banks’ websites to identify targeted industry sectors, which we have summarized in the following table. Not surprisingly, most of the banks are targeting large sectors (e.g., healthcare, energy and government). However, a number of banks also appear to be targeting more niche sectors, such as aging services (SunTrust), the wine industry (Union Bank) and vacation ownership (Capital One).
We recognize that simply listing industries on their websites does not mean that these banks are fully engaged in targeting these sectors. But if your bank is looking to significant grow clients and assets in particular vertical industry sectors, the following are some key considerations:
First step: size the market opportunity (e.g., how many companies from that industry meet your revenue/other target-size criteria and are located within your traditional retail footprint and nationally). It also important to identify industry clusters.
Use primary and secondary research to identify company characteristics, financial needs and the decision-making process. A key source of primary research should be your front-line salespeople who may already be selling to these companies in your targeted sectors. You should then be able to asses the bank’s current ability—in terms of product suites, number and quality of dedicated personnel, as well as marketing and sales support assets—to effectively serve these segments.
Conduct competitive intelligence to study other financial providers targeting the same segments. Identify you key strengths and limitations relative to these competitors.
Create and deploy dedicated industry teams. If possible, locate your teams in markets where targeted companies are concentrated. Staff the teams with industry experts and support them with training, industry collateral and other sales support tools.
Build awareness and engagement through targeted marketing investment, with a focus on particular in industry-specific marketing media and events.
Further engagement with prospects through industry-specific thought leadership, using a mix of formats and media, such as articles (published in your own content portals or in vertical industry media), blog posts, social media channels, surveys, reports, and client success stories.
As financial institutions seek to position themselves as trusted providers of financial advice and solutions, one of their key areas of focus is financial education. Many of these firms have focused attention on establishing comprehensive financial education programs. However, equal attention should be given to how these programs are communicated. If you want to maximize the impact of your financial education program, consider the following methods to build client awareness and engagement.
Partner with national and local organizations seeking to grow financial literacy. Partnering with these organizations can take many forms, including publishing surveys or providing funding. In June 2017, Wells Fargo announced a $100,000 donation to Junior Achievement of Chicago. Operation Hope has partnerships with a number of leading banks (including SunTrust, Regions Bank and First Tennessee Bank), who all offer the Operation Hope Inside financial well-being program in several of their branches.
Host or sponsor events. Events constitute one of the key ways for firms to build direct engagement with their financial education programs. Firms have many options on how they wish to scale and direct their investment. MassMutual hosts FutureSmart Challenge events to provide financial education to middle school students, reaching 40,000 students in 17 cities to date. In June 2017, SunTrust launched the “onUp on Tour” to promote its onUp movement in 45 cities. And In October 2017, American Century Investments partnered with Investopedia to launch a Financial Fitness Tour, featuring a 45-foot bus, called “The Financial Coach.” These firms have extended the impact of these live events with tweets and postings on online portals, and also host virtual events, including podcasts and webinars.
Generate engagement through games and contests. In our highly interactive world, online games and contests can be very effective in enabling people, especially the younger demographic, to gain important financial knowledge in entertaining ways. For the past four years, H&R Block has been running the H&R Block Budget Challenge, an online game that teachers can use to teach financial concepts to high school students. In December 2017, The Hartford partnered with Junior Achievement USA to launch JA MyBiz Builder, an online experience that teaches entrepreneurial concepts to teens. And GOBankingRates recently launched a competition (with a top prize of $1,000) to identify the best tips, tricks and tactics for navigating one’s personal finances.
Reinforce the financial education message via social media. A number of financial firms are using Twitter hashtags to generate interaction around their financial education programs. Examples include Ally Financial’s #WalletWiseWednesday twitter series and Regions Bank’s @FinancialFitness hashtag (part of its Financial Fitness Fridays program). Other ways of using social media to promote financial education include events (Jump$tart Coalition’s Facebook Live event to discuss deposit insurance) and social communities (Canvas Designed by Citi, a beta-testing community that enables Citi customers to co-create products and digital capabilities promoting financial wellness).
Leverage online and mobile banking platforms. As consumers become comfortable with using online and mobile banking to perform a wide range of financial activities, some providers are starting to incorporate financial education tools into these platforms. Bank of America recently added a money management and financial education tool into its mobile banking platform. And Wells Fargo is planning to launch Greenhouse by Wells Fargo, a mobile banking experience that includes financial management tools.