Is Business Banking Leaving Money on the Table?

Most people would describe banking as a data-driven and analytics-intensive business. The recent mortgage debacle, notwithstanding, banks are supposed to be top-notch players in analytics. It permeates the entire organization, from evaluating and pricing a loan’s credit risk, to enforcing Anti-Money Laundering protocols, to executing profitable trading strategies.

Yet, for all of that analytic sophistication, banks have not adopted the state-of-the-art when it comes to sales intelligence: using data and analytics to help front-line bankers and relationship managers increase sales productivity. The biggest gap is often in Small Business Banking realm, often viewed as the orphan Line of Business. While the segment definitions vary from bank to bank, Small Business typically covers businesses with annual revenue of $0 – $10 million. There are over 10 million ‘marketable’ small businesses in the U.S. (i.e., the total number of company registrations is actually over 20 million, but ½ are not real operating companies). The Small Business segment often reports to the Retail side of the house, even though Small Business Banking needs diverge significantly from the consumer market. It doesn’t get the same attention as the Retail crown jewel. At the same time, it is not as sexy as the Corporate and Investment Banking businesses.

The business of Small Business banking has gone through some real turmoil in recent years. Many banks, especially those without sophisticated, proprietary credit scoring models, got badly burned making loans to Small Businesses. Over the past two years, some banks have hesitated to return to the segment in full-force. Providing credit alone is becoming a less profitable venture, with more rigorous underwriting standards, higher loan servicing costs and rising costs of capital. Yet, banks face regulatory pressure to resume lending to small businesses, the engines of economic growth. Ignoring the segment is not a viable strategy, and the recent hiring announcements at Bank of America and Citibank attest to the renewed interest in the space.

Yet, if credit alone is not a profitable approach to winning in Small Business Banking, many banks lack the sales intelligence analytics to increase the profitability of small business relationships and increase share of wallet across the entire relationship (i.e., business, owner, employees). Let’s be specific. Some banks are able to create 360⁰ views of their customers (i.e., what products does this business own across my Lines of Business), and some can even create rules-based alerts for prompting tellers, bankers and through other channels (e.g., offer a CD when for checking balances over $15,000). Yet, these solutions are often incomplete and reactive. They are incomplete because they make use of mostly internal bank data (i.e., products owned, balances, etc.) with a meager sprinkling of firmographics (e.g., company revenue, SIC code). They are reactive because they rely on decision rules, as opposed to predictive analytics that could enable a business banker to anticipate key business events. Here are some examples of how banks could be using sales intelligence to drive share-of-wallet in Small Business:

Leading with cash management in the hunt for new customers: Credit is a critical need for many, but not all, small businesses. A business banker would be better served by knowing which prospects are or are not credit-intensive. Imagine how much more effective she would be by leading an introductory conversation with cash management for a company that recently received Venture Capital funding. In this case, a banker would be wasting her time pushing credit, but would succeed by recognizing the company’s context and needs around managing the fresh cash inflow.

Uncovering ‘hidden’ cross-sell opportunities: Business bankers will have to look beyond credit to improve the profitability of small business accounts. And, that means selling-in the broader portfolio of the bank’s products and capabilities. Cross-selling is not new but doing it well has never been easy. Think of needles in a haystack when considering cross-selling into small business customers. First, most small businesses have straightforward banking needs. You’re looking for the minority of companies that have some type of more complex need. For example, what would you propose to a business that just opened an international location, has several overseas employees, and shows up as an exporter in import/export public records? A likely answer is an FX payments solution.

Proactively managing the portfolio: Business bankers covering 100-200 clients do not have the time to know the ins and outs of each company. Yet, bankers would be significantly more productive if they could anticipate two types of change in the portfolio: (i) impending withdrawals of funds to other financial institutions, and (ii) increasing likelihood of financial distress. Laser-focusing on these types of needles in their haystacks would enable bankers to substantially increase the profitability of their territories. Today’s sales intelligence systems provide the front-line with just this type of insight. By correlating a bank’s historic incidents of withdrawals and defaults to external business events (e.g., company X is being sued) and internal activity with the bank (e.g., higher use of credit lines correlate strongly to near-term financial distress), sales intelligence software transforms reams of data into client-specific recommendations for action.

The next-generation of data, analytics and sales intelligence software are being actively used in other industries for accelerating new customer acquisition, increasing cross-sell effectiveness and improving retention efforts. Given their existing familiarity with analytics and goldmines of data, banks are sure to start deploying sales intelligence tools to their bankers and relationship managers. It’s an imperative for winning in the small business market.

If you have perspectives on how banks should be using sales intelligence solutions to drive sales productivity, we’d love to hear from you.

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