Marketing Suggestions for Banks Looking to (re)Engage with Small Businesses

October 6, 2016

According to the FDIC, small business lending rose 5.3% between end-2Q15 and end-2Q16. Since falling to a post-Financial Crisis low of $279 billion in the third quarter of 2012, small business loans have risen 18%—to $328 billion—at the end of June 2016.

In the light of this steady loan growth, many banks are refocusing attention on the small business market. But how can banks—many of which virtually abandoned the small business credit market following the 2008 Financial Crisis—rebuild awareness, trust and engagement with small business owners? The following are five marketing approaches for banks to consider in (re)building their small business banking franchise:

Develop a small business brand. In recent years, several leading banks generated significant small business awareness by developing a dedicated small business brand. For some, these brands cover the bank’s entire small business operations. Capital One created the Spark Business brand for its small business solutions, and has launched a number of Spark-branded products and services, the most recent of which is the Spark 401(k) service. Another option is to develop a branded small business portal, and extend that branding into the bank’s small business social media presence. Wells Fargo created the Wells Fargo Works for Small Business portal, and applied this brand to social media platforms, including a dedicated blog and @WellsFargo Works Twitter handle.
Target small business segments. Banks’ commercial banking units tend to target firms based on size and industry sector, as these are seen to have distinct financial needs. In targeting small businesses, banks are better served by focusing on small business life stages, or by targeting underserved segments, such as women-owned businesses. KeyBank has established Key4Women, a nationwide community of women in business.
Create content of interest to small businesses. Banks can build trust and engagement with small businesses by developing and distributing information, news, and advice relevant to small business owners. This content should be focused on addressing common business challenges, and should ideally be brief and easy to scan (to reflect today’s content consumption patterns). Two recent good examples of small business-focused content are five tips from First Republic on how to run a better business, and tips from Capital One on buying or leasing office space. And banks should explore a range of content types, such as case studies, articles and blog posts, webinars, videos and succinct reports/white papers.
Raise awareness through small business surveys. Many leading banks are conducting small business surveys, which aim to both raise awareness and promote their understanding of small business concerns and needs. Many of these surveys are carried out on a quarterly or annual basis, and feature recurring metrics (e.g., Wells Fargo/Gallup Small Business Index and Capital One’s Small Business Confidence Score). Banks also seek to tackle other small business-related topics either in these recurring surveys or in standalone surveys (examples of the latter include TD Bank’s Small Business EMV Survey and Bank of America’s Women Business Owners Spotlight).
Develop a local presence. There are a number of ways for banks to establish a local presence:
1. Partner with key influencers (such as chambers of commerce)
2. Market branch presence. Small businesses tend to have heavier branch usage than consumers, and banks can leverage this branch affinity by promoting small business solutions (including technology tools) in branches, deploying branch-based small business specialists, and hosting small business events.
3. Promote small business-focused community groups or programs. In August 2016, Webster Bank announced a partnership with the University of Connecticut and Connecticut Innovations to establish a $1.5 million UConn Innovation Fund for new business startups.

Before developing and implementing these small business initiatives, banks should conduct research to understand how and how well they are perceived by small business owners, and to identify deficiencies in their product and service capabilities relative to competitors. Banks should also gain insights from key internal stakeholders to assess its ability to address these issues using existing resources. These analyses support investment decision making, and inform small business banking program development and implementation.

Banks’ Branch Strategies Must Involve More Than Just Closing Branches

September 30, 2016

According to the FDIC, U.S. banks have been cutting branches steadily in recent years. Offices in FDIC-insured institutions reached a high of 99,500 at the end of 2Q09, but have declined by almost 8% since then, to less than 92,000.

Bank branch reductions are primarily driven by two factors: cutting costs in a low-revenue-growth environment; and the belief that customers’ increase use of electronic channels for everyday banking needs means that banks need fewer branches. According to the American Bankers Association, 73% of U.S. adults identified the Internet and mobile as their preferred banking methods, with only 14% naming branches. However, customers remain committed to branches. According to a March 2016 Accenture survey, 87% of North American banking customers expect to still use bank branches two years in the future. A branch strategy that simply consists of branch cuts fails to take into account customers’ ongoing branch affinity, as well as ignores the significant role that branches can play in helping banks meet sales and service goals. Here are four strategies that banks can follow to optimize their branch investments:

Create specialist branches. Some banks are opening offices to target specific segments, such as commercial clients or high-net-worth individuals. For example, BMO Harris opened a commercial banking office in Dallas in June 2016, while Wells Fargo opened a Middle Market Banking office in Albany in August 2016. These branches are located, designed and staffed to cater to the characteristics and unique financial needs of these segments. Unlike traditional branches that tend to form part of a network, these specialists branches can operate on a standalone basis, thereby ensuring that costs stay under control.
Use branches to promote digital services. Recognizing the transition to electronic channels for everyday banking transactions, banks can leverage their branch network to demonstrate the ease-of-use and value of these digital services to customers who are slow to embrace technology, while also showcasing innovations to early adopters of new technologies. Bank of America has deployed 3,800 ‘digital ambassadors’ in its branches who help customers understand and use its online and mobile banking services.
Overhaul branch staffing. Smaller branches require fewer personnel, but the staff must be comfortable with performing a range of service and sales activities. Embracing this model, PNC plans that half of its branches will have converted to ‘universal branches’ by 2020 (18% have done so to date)
Scale down the overall branch footprint. As they seek to reduce branch costs, banks need to take into account the benefits of having a physical presence in markets. This can involve using smaller branch formats (one extreme example is PNC’s portable 160-foot “Tiny Branch” on the West Virginia University’s Morganstown campus), reducing branch density, replacing a series of existing branches with one big flagship store, or even opening new branches in high-growth/high-potential markets. Decisions on the number, location and format of branches should be based on analyzing a number of key factors, including: competitive intensity; market size, growth and composition; current branch usage; short-term costs; and longer-term savings.

C&I Loan Growth is Slowing; How Can Banks Maintain Momentum?

September 1, 2016

The FDIC’s Quarterly Banking Profile reported this week that commercial and industrial (C&I) loans rose 7% between 2Q15 and 2Q16. This represents a decline from growth rates in 2Q15 (+8%) and 2Q14 (+9%).

With this decline in commercial loan growth, how can individual banks develop structures and strategies to continue to drive growth in this key area? The following are some key considerations:

Identify and communicate key differentiators. Banks should gain insights from internal (salespeople, product staff, key executives) and external (current clients, suppliers, other partners) on what the bank’s key strengths and limitations are in serving commercial clients. Banks should combine this research with in-depth competitive analysis to identify key differentiators. These key differentiators then need to be consistently communicated across all communications channels.
Identify and leverage opportunities in vertical industry sectors.
- Size and profile the opportunity: identify industry clusters within the bank’s footprint and/or sectors that have strong growth potential and that have traditionally been underserved by other banks. These sectors should be profiled to identify the key business and financial challenges of companies in this sector.
- Develop and implement a plan to target this sector, which may include establishing a dedicated industry group (First Tennessee Bank recently created a dedicated music industry group in Nashville), and engaging with this sector (e.g., by creating industry-specific content and collateral, as well as participating in, sponsoring and even hosting industry events).
Develop thought leadership infrastructure and assets. Banks can develop a competitive advantage by creating compelling content in a mix of formats (reports, newsletters, infographics, blog posts, videos, surveys) and presenting this content in a consistent and visually-appealing format (e.g., using bullet points for quick scanning, images, callouts). Many leading banks have now created branded portals that provide content, tools and advice.
Leverage captive channels and use non-traditional channels for communicating to prospects. Traditional B2B marketing channels are under pressure, as business readership of trade publications is falling and direct mail response rates continue to decline. Banks need to invest in a broader mix of marketing media, including online, email, social media and events. Banks also have significant opportunities to leverage their existing service (and sales) channels, including branch, call center, online, mobile and social media.
Develop a commercial banking presence in non-traditional markets. Unlike retail banking, banks have more scope to develop their commercial banking operations outside their traditional footprint by opening beachhead offices in markets that have growth potential (overall or for specific industries) and where the bank feels it can compete effectively with incumbents.
—BMO Harris recently opened a commercial banking office in Dallas
—Wells Fargo opened a commercial banking office in Portland, Maine.

Although C&I loan growth has slowed, banks remain committed to continuing to grow their commercial loan portfolios. Banks that can clearly articulate and deliver their value proposition (and competitive differentiation) to their commercial clients and prospects will have increased their chances of success in this dynamic environment.