| Bylined Articles
Creating A New Future for the Community Bank
Small Businesses Mean Big Opportunities
By Allen L. Nielsen
As in business, community banks are most successful when they connect with their target audience. Even the most innovative product or services remain untouched if the message fails to get to those who can benefit from it.
Community banks are often off the mark when it comes to connecting with what may be potentially their most profitable constituency: local businesses. The irony is that with the long string of bank consolidations, these businesses are ready for a choice.
All too often, however, community banks fail to focus on commercial prospects. Or if they are customers, they fail to expand their services beyond commercial real estate lending.
To make matters worse, there's a widespread perception that community banks are unable to meet the needs of local businesses. Nothing could be further from the truth. With today's technology, a community bank can offer many of the same services as a bank 50 times its size.
Clearly, community banks are in the right place at the right time. Local businesses want do to their banking locally. A U.S. Department of Justice study on banking divestiture indicates that businesses want a bank to be 1.5 to 3 miles from where they are located.
Here are some suggested ways to position a community bank for growing commercial accounts.
1. Get out and go to the customer. Even some physicians are discovering the value in making "home calls." Bankers can do the same. Get acquainted with the business from the inside. See where a customer works; understand the environment.
That's the beginning. Get out of the office and into the community by taking services to the customer. Why should a customer always have to go to the bank? On the residential side, many community banks learned the necessity of going to the customer to complete the application. Why not take this same approach with commercial accounts? While the community bank may not have all the bells and whistles of a big competitor, it has a powerful competitive advantage: the ability to go to the customer.
2. Lease as well as lend. Go into any small- to mid-sized business and much of its equipment is leased today. Some is leased directly through manufacturers, while most of it is handled by leasing companies.
For some of these customers, leasing is a way to upgrade equipment every 18 to 30 months. For others, it is a way of protecting their line of credit. Whatever purpose equipment leasing serves, it's just an alternate form of financing. While the interest rates may be higher, it is an easy, quick, and often times flexible way to get the right equipment.
For the most part, businesses do not think of a community bank when they consider leasing options. In fact, it is probably the last place they think about.
Why would community banks not take advantage of an opportunity to use equipment leasing as a way to demonstrate to local companies that they are interested in doing business with them?
A good commercial leasing product with better rates than the leasing companies will save your commercial accounts money-in both the monthly finance charges and at the end of the lease.
Of course, if a company does want to buy equipment outright, banks can offer loans with rates that may actually save them money.
3. Provide merchant services. Where do your commercial accounts conduct their merchant or credit card processing? It's probably through a large bank. Why not provide merchant processing? Why not help them with their daily business activities?
Failing to offer this type of service pushes merchants into the arms of the competition--and denies the community bank a source of continuous fee income. Such a service is more than profitable for the bank. It's also a way to strengthen a bank's relationship with its commercial customers. The customer becomes increasingly reliant on your services.
Just having the service isn't enough. It must be promoted, along with other services. Even banks that offer this service often don't promote it as well as they should.
4. Offer sweep accounts. It's basic and it's easy. Then why do so few community banks demonstrate their commitment to business customers by providing sweep accounts? Ironically, the community bank is in just as good a position to provide sweep accounts as any larger bank.
As the bank based in a community, the community bank can leverage this advantage to establish a sweep account for the town or city.
The sweep account is one of the fastest ways to get to your arms around the customer.
5. Get online with banking. Saving time for the small business owner or manager is critical today. There was a time when taking a walk down the street to make the deposit was an opportunity for the business owner to socialize, catch up on the local gossip, and even make a sale. Not so today. Business is conducted on the computer. Having Internet banking available for regular banking services and for bill payments is essential.
There are also opportunities to serve as an Internet portal by using the bank's Web site to showcase local businesses. What about offering local business an opportunity to connect with others via a business-to-business service on the Web site?
Today, the community bank can be in Internet banking quickly, easily, and at a lower cost utilizing the seamless services of a third-party vendor.
6. Line up lines of credit. From the lending side, many small- to mid-sized businesses want a line of credit that they can access without the effort of applying for a loan. More importantly, they want and need flexibility. This is why so many small businesses are using credit cards as their means of financing.
A lot of community banks don't offer that. They don't like unsecured lending. They're looking for the house or personal guarantees. From a competitive standpoint, large banks extend small business lines of credit by using a scoring system. If a business gets a certain score, they make the loan. What you need to have is a quick turnaround loan product for unsecured lending or a line of credit, maybe a scoring system.
7. Offer a purchase card. Many small to medium businesses need credit cards to buy supplies. MasterCard has a purchase card with larger credit lines. These cards are coded in such a way that they can only be used for purchasing supplies or materials for your business. Businesses will use this card which, in effect, functions like a credit card.
8. Take the bank to them. With consolidation, there are often fewer nearby branches. Yet, many businesses have a need for cash and deposits. Why not provide these merchants with an armored courier service to pick up and deliver coin and currency? And, at the same time, save these customers time by picking up their deposits. This service can be particularly helpful for stores with several locations.
With lean staffing, and a need to reduce overhead costs, "automating" these routine functions can produce greater efficiency.
9. Arrange business seminars . The community bank, perhaps working with an accounting firm, is in a good position to provide periodic seminars on key business issues. The demand for information has never been greater. Whether it's developing a business plan, reading financial statements, buying or selling a business, planning for business succession, or marketing and sales, the community bank can serve a legitimate need.
10. Meet personal banking needs. Building business accounts can be good banking business in another way.
While the businesses are the focus of attention, the potential for doing business with the owners or managers should not be underestimated. Some started their business at 17. Now in their 50s, they have accumulated substantial estates. Programs aimed at targeting wealth transference and trust services can appeal to this group who are looking for the personal attention offered by a community bank.
Getting substantial customers to think first of the community bank is the objective.
11. Share your knowledge. A community bank conducted a focus group with its business customers. At one point, the group was asked how the bank could best serve businesses. A leading merchant spoke up and said that he wanted to sit down once or twice a year with a couple of bank officers and discuss his business issues with them. He was so busy running his business that he had never taken the time to focus on these critical matters. Instantly, the other dozen businesspeople agreed.
While the bank was anticipating a discussion of various products and services, the business owners cut to the core: a community bank is a vital resource for helping them succeed in business.
It's quite possible that it won't be long before commercial accounts may be the largest segment of business for a community bank. The big banks offer such an array of electronic banking services that makes them increasingly attractive to a broad spectrum of customers--not just younger ones.
At the same time, the community bank is uniquely positioned to meet the needs of businesses within a 1.5- to 3-mile radius of its main office or branches. Because these are the people who need the type of banking services a community bank can offer, they are a rich resource for new business.
Allen L. Nielsen is the Chief Financial Officer of Bankers' Bank Northeast, a state-chartered financial institution that provides banking products and services for community banks in NewYork and New England. Bankers' Bank is based in Glastonbury, Conn. and currently serves more than 60 banks. Nationally, there are 18 Bankers' Banks that provide products and services to more than 5,000 community banks in 48 states.