Accelerate Commercial Loan Growth Through Vertical Industry Targeting

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.

Strategies for Marketing Your Financial Literacy Program

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.

 

Advisor Fintech: Three Ideas for Capturing the Promise and Avoiding the Perils

TD Ameritrade Institutional’s FA Insights study (summary here) offers the following nugget regarding firm profitability:

Firms that focused on adding younger clients (under 55 years old) grew 2x faster than other firms…but were 1/3 less profitable than those serving older clients.

This is hardly surprising, as older clients have more assets and are likely to have settled into a consistent servicing process. The challenge is that attracting younger clients is necessary for the long-term health of the firm. Moreover, the asset profile of younger clients is not really something that firms can control so it’s difficult to affect the revenue side of the profit equation. That leaves firms with a need to reduce the costs of acquisition and servicing.

Fintech to the rescue?

The promise of fintech offerings – software that handles functions like client onboarding, risk assessment, financial planning and portfolio management – is to deliver cost savings through automation and digitization of these manual, time-consuming processes. The result: improved profitability.

The problem is that fintech only solves problems once it is successfully implemented. Until that point, it is an investment without a clear return. Even more importantly, software represents a solution for advisory firms, not necessarily their clients. There is a lot of wishful thinking behind the assumption that younger investors will universally embrace technology solutions. In fact, a recent survey of millennials (supported by other surveys as well) reveals that they WANT human interaction.

This isn’t to say that there aren’t plenty of opportunities for firms to introduce cost-saving technology AND enhance the client experience. The client onboarding process – e.g., capturing and transferring of financial documents – is a great example how software can facilitate a quick, smooth transition and lead to greater client satisfaction. But one example does not make the case. Moreover, even software that sits at the “sweet spot” of client experience enhancement and firm cost savings can be a false idol if it is difficult for clients to use.

Pre-empting fintech failure

The point is that just because technology offers the potential for benefits doesn’t mean that it automatically will. Firms need to have a realistic view of the potential benefits and risks and have a game plan for minimizing the possible disruption of valuable client relationships.

We recommend the following as key elements of that plan:

  1. Form a “technology council” – develop a list of trusted and valued clients who represent a cross-section of your client base and solicit their feedback on technology options
  2. Invest in onboarding and training – don’t assume that clients will be able to figure it out themselves; develop materials to make it easy to get started and provide ongoing support
  3. Monitor usage and satisfaction – just because you’re not hearing complaints doesn’t mean they like it; actively seek out information and feedback that can identify issues and best practices

These efforts will go a long way to ensuring that the benefits that should accrue from technology don’t get eroded by unanticipated problems.