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.
Banks looking to build awareness and engagement with small business owners should look to leverage strengths in specific markets and develop targeted marketing campaigns and other outreach programs. The following are some of the most popular ways that banks see to engage with small businesses at the local market level.
Leverage the branch network.
- Small businesses continue to be among the heaviest users of bank branches, and leading banks deploy dedicated small business bankers in branches to provide expert advice and support. This past January, as part of a broader commitment to its brand network, Chase announced plans to hire 500 small business bankers.
- Banks use their branch network to bring small business campaigns to life. Last month, Santander Bank rolled out its Small Business Month campaign, which featured in-branch merchandising and in-branch events across its network of more than 600 branches.
- Some banks even allocate space in their branches for small businesses to use. Citizens Bank recently created open space in its Chestnut Hill, Massachusetts, branch that small business clients can use to conduct meetings with customers and business partners.
Target campaigns at local markets.
- Capital One launched its We Work as One campaign, designed to promote and empower local businesses in select markets (New York City, Chicago, San Francisco, Denver and Boston) where it operates local Capital One Cafes.
Foster small business entrepreneurship.
- Some banks include small business entrepreneurship as part of their broader community outreach. For example, Santander Bank’s Cultivate Small Business initiative promotes small business ownership in underserved communities in Greater Boston.
- Banks also recognize small business achievement with contests and awards. In May 2018, Citizens Bank announced Small Business Community Champion Award winners in Boston, Philadelphia and Pittsburgh.
Partner with local groups that promote small businesses.
- Banks look to develop partnership with a host of local organizations that represent small business interests. Prominent among these organizations are the more than 3,000 chambers of commerce located through the U.S. Many banks team up with local chambers to carry out joint initiatives, such as hosting member events and carrying out surveys. Last November, Webster Bank hosted a cybersecurity event in partnership with Greater Boston Chamber of Commerce.
Publish market-specific versions of small business surveys.
- These surveys enable banks to highlight their presence in and commitment to particular markets. In addition, market-specific findings can be leveraged by small business bankers to engage with small business owners in these markets. Banks that have recently published market-specific versions of small business surveys include Bank of America, PNC and U.S. Bank.
To develop and implement an effective small business-focused local market strategy, banks need to:
- Identify and profile key local markets (including the bank’s in-market presence and competitive environment, as well as the size and composition of the small business market)
- Prioritize the markets for targeting
- Tailor marketing programs based on goals and local market conditions
- Gain input and buy-in from key local stakeholders, including branch managers and in-branch small business specialists
- Track campaign performance, and distill learnings for use in other local markets and future campaigns