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5 min read

The Retail Bank Inside the Commercial Bank

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Since the “Trump Bump” lifted the market early in 2017, mid-size banks have held on to nice stock price appreciation with continued solid profitability.

For the most part, the consolidating mid-size banks have led their growth strategies with the commercial line of business, doing bigger deals and riding a nice wave of commercial real estate appreciation for the past seven years.

Data: Yahoo Finance

Interestingly, mid-size banks’ commercial focus has shown improved efficiency ratios, which on average have dropped to roughly 55%. Balance sheet growth from larger commercial clients does not consume the same headcount and resources that the retail business requires. Yet, these commercially focused banks should think twice before they think they can survive without retail. In fact, as rates rise and competition for funds becomes more intense, banks may wish they had thought through many things in their retail strategies before things got hot.

“We just use our retail branches to fund our commercial loans,” commercial executives often say, but these executives are using assumptions from a predictable world that doesn’t exist anymore.

The upcoming Cornerstone Performance Report for Mid-Size Banks indicates that banks are not moving fast enough on strategies that will support solid deposit growth in a rising-rate environment. Deposits per branch has stalled at about $57 million, and the median number of new checking accounts opened per branch per month is down to a miserable 14. What’s more, these mid-size banks are essentially driving no material deposit growth through contact centers and digital channels today.

While no mid-size bank can go toe to toe with national banks on physical, digital and marketing firepower, it’s important to recognize that inside every $1 billion of assets for a commercially focused bank lurks at least 25,000 retail checking accounts and 50,000 savings/CD accounts that need to be leveraged. Mid-size banks cannot dominate the retail banking sector, but they can and should play harder for their fair share of this market.

Importantly, the playbook for retail inside a commercial bank is much different than that of the national banks. Instead of winning a war with resources, the mid-size banks need to be focused and clever in how they grow and maintain profitable retail relationships. In addition, with branch traffic edging down consistently, mid-size banks cannot just pull out the sales culture and marketing promotion tactics used in the heady days of Commerce Bank of New Jersey, the WAMU free checking machine, and the “8 is great” Wells Fargo frenzy. Those days are over. Instead, mid-size banks need to pursue growth strategies with the following focused playbook.

Play #1: Get serious about data inside the retail base and in the sub-markets where there is a fighting chance.

Any commercially focused bank trying to grow retail funding must be a data player – period. Most banks are not pushing their teams hard enough to better organize and leverage existing retail customer data. Nor are they engaging third parties more actively to leverage market data, especially in sub-markets where they have strong visibility and branches. Many mid-size banks don’t have a prayer to gain meaningful market share in a huge metro market, but they can bloody some noses within their own branch submarkets. Mid-size banks need to fight this street war with data.

Play #2: Upgrade digital and social marketing capability and tightly connect this with retail bankers.

In addition to being data players, mid-size banks need to upgrade their capabilities to drive the “Deposit Funnel” and move potential customers from awareness to consideration to selling new accounts. Every bank manages a visible versus mythical pipeline. Yet only the progressive institutions are leveraging tools such as Salesforce, Marketo and HubSpot to drive the ongoing prospecting of retail households in the deposit pipeline.

Play #3: Find a few customer segments with potential and come with targeted “shock and awe” marketing.

Forget the trendy Millennial banter. Mid-size banks will have a better shot at deposit growth by focusing on a few key segments, including the Baby Boomers. In many markets, there is a trove of Boomer liquidity in the form of money market balances that will be open for bidding when rates rise. Smart mid-size banks will start to build awareness and engagement with these households now.

Play #4: Modernize the digital front door and begin to test and learn direct marketing for digital accounts.

There is a big ugly elephant in the living room when it comes to mid-size bank retail businesses: opening an account through the digital channel is either a horrible or non-existent customer experience. In this year’s Cornerstone Performance Report, the median percentage of deposit accounts opened through the digital channel remains a flat 0% – zero! While consumers have not yet made the shift to digital account opening, leading digital banks and credit unions are proving this type of production is possible, and mid-size banks will need several years to move down the learning curve in this area. Cornerstone’s Terence Roche has a mandate for mid-size banks: Set a digital account opening goal for three years out right now and start driving toward that goal.

Play #5: More clearly define the retail bank’s role in small business deposit growth.

In our annual What’s Going On in Banking survey of bank CEOs, growth in small business deposits was viewed as a low priority, primarily because loan growth has been the focus and our industry has been somewhat fat, dumb and happy with cheap, stable deposits. In the process, mid-size banks have lost their edge in pursuing small business deposits. Branch outbound calling programs to small businesses are less active, and many banks are struggling to provide a sufficient mobile experience for small business owners. From Cornerstone’s first-hand experience, branch staff are eager to play in the small business world and just want a more clear strategy and the products and digital offerings to have a fighting chance. Improved product and channel offerings for small businesses are “no regrets” investments for banks hoping to avoid a future funding challenge.

The Red Headed Retail Banker

It’s just plain tough being the retail executive inside the commercially focused bank. Fellow executives want your funds and they want them cheap, but they don’t want to get “bogged down” in the investment and time needed to build a long-term retail strategy. Smart executives will realize that a retail strategy that is modernized and complimentary to the bank’s commercial focus is how the institution will stay alive in the funding wars ahead.

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