Monthly Archives: April 2011

Small business lending trends from banks’ 1Q11 financials

Most banks do not break out small business lending data in any greater detail in their quarterly financials, but Bank of America and Chase both provided some interesting (and contrasting) small business lending-related metrics when they published their first quarter 2011 results last week:

  • Chase grew business banking originations 57% y/y, to $1.4 billion.  In addition, end-of-period business banking loans rose for the second consecutive quarter, to $17.0 billion.  In presenting the quarterly financials, JPMorgan Chase CEO Jamie Dimon claims that the bank is starting to see real small business loan demand
  • Bank of America’s small business loan charge-off rate fell for the sixth consecutive quarter, declining 45 bps from 4Q10 to 8.68% (this is the lowest rate since 1Q08).  However, its small business loan portfolio continued to decline, falling 2.8% in the quarter to $14.3 billion at the end of 1Q11 (although the rate of decline is falling)

So while Bank of America remains focused on getting credit quality under control, Chase has forged ahead and is growing its small business franchise.  As other national and regional banks publish their quarterly financials over the next week, it will be interesting if any other bank has started to grow its small business loan portfolio.

Growth top of the agenda in banks’ upcoming quarterly financials

Since the onset of the financial crisis in the second half of 2008, much of the coverage of banks’ quarterly financials has focused on the quality of their loan books. With key credit quality metrics starting to come under control, banks have reported profitability growth in recent quarters, with much of the profitability coming from lower provisions for loan losses.  With credit quality metrics starting to return to normalized levels, the focus of attention is now starting to shift towards revenue generation (both net interest income and noninterest income).

Net interest income of course is dependent on loan growth, as well as the net interest margin.  For many banks, the net interest margin has risen in recent quarters, as the deposit mix has shifted to non-interest and low-interest deposits.  However, banks now also need to show evidence that of growth in their loan portfolios.   Leading bank card issuers have indicated that credit card outstandings will grow in 2011.  In recent quarters, banks have reported significant growth in small business loan originations (although overall small business loan portfolios continue to shrink).   And banks are indicating growth in other lending categories, such as auto lending.  So, for 1Q11 financials, industry experts will be looking closely at banks’ loan portfolio details to find evidence of loan growth.  They will also be listening closely to bank executive statements on the prospects for loan growth for the remainder of 2011.

Industry observes will also be looking at noninterest revenue closely, focusing on overall revenue growth, composition of noninterest revenue and statements by bank executives on their plans to accelerate noninterest revenue growth in the coming quarters.

1 + 1 < 2: Connecting Customer Retention to Customer Experience Optimization

When it comes to customer retention, all too often companies think of it as a transaction and seek to optimize performance at a decision point—for example, at the time of a contract renewal—but this is too little, too late. Many of the experiences that influence customer decisions occur long before the time of the renewal/re-purchase decision.

Maximizing the retention opportunity requires not only a strategic, well-executed retention marketing campaign, but also a comprehensive customer experience optimization strategy. Moreover, to be successful and efficient, these efforts must be coordinated, rather than siloed in functional areas. Look at the following three examples and decide which one you would want your company to be:

  • A company charging an annual membership fee promotes renewal of its program through a combination of email and inside sales outreach to existing customers. Almost 50% of the customers do not renew because they were dissatisfied with their experience.
  • A company markets its offering and brand to existing customers and also conducts semi-annual NPS surveys with organizational support and follow-through leading to extensive investment of resources to improve issues highlighted in NPS. However, the company never mentions these improvements in its customer marketing communications, nor does it take any measure of the degree to which improvements have led to a share-of-wallet increase among existing customers.
  • A company with a complex product conducts voice-of-the-customer research including NPS to understand drivers of follow-on purchases. This research leads to the creation of a new customer onboarding program focused on driving training attendance and an outbound marketing campaign emphasizing the benefits of loyalty. The two efforts in tandem produce an 84% lift in revenue from existing customers and a 60% decrease in customer churn.

Our point: You can’t retain customers if you don’t understand what drives their loyalty and satisfaction. And if you do have this understanding but don’t use it to make your retention marketing more effective, you’re wasting your money.