Author: Rob Hudecek, RHudecek@profitstars.com
Whether you are a commercial loan officer, a licensed pilot, or an operator in a small manufacturing firm, every industry seems to have their own set of acronyms to make their language almost indistinguishable to those on the outside. The medical industry is no different and in many ways can be considered the leader in industry specific acronyms, even using an acronym to describe their own acronyms (i.e. CPT - Current Procedural Terminology, the American Medical Association’s accepted language for use to describe medical procedures and services).
WDIMTM (What Does it Mean to Me)
In a time when financial service margins are low and profitable customers are getting harder to come by, the U.S. healthcare system is a trillion dollar market generating over 8 billion claims per year and growing. This growth makes attracting hospitals, clinics, and private practitioners as banking customers a natural fit to a financial organization, not only for deposits and loans but for treasury management services as well (i.e. lockbox processing, document imaging, remote deposit capture, etc.). Healthcare providers, like any commercial customer, want to be assured you have their business needs in mind, and as such, desire (and sometimes require) their banker to understand their language.
Before engaging medical providers as prospects for your financial institution, here are some general terms you should know:
- Provider – Refers to the doctor, physician, clinic, hospital or other health care entity that is assigned a required National Provider ID (NPI).
- Payer – Refers to the entity or individual person paying claim (typically the Insurance Company).
- Clearing houses – Organizations that aggregate and disperse medical claim information between providers and payers in either electronic or paper format.
- Self-Pay/Patient Pay – Refers to the amount paid by the patient either at the time of service or based on bills after the service is provided (e.g. insurance claim denial).
- Revenue Cycle Management – Refers to the automation of financial analytics and payment reconciliation through the conversion of paper EOB, remittance claim matching to payment response, and exception processing management (denials / underpayments), and often includes the ability to research images and electronic data.
Your Medical ABC’s:
- EOB (Explanation of Benefits) – The statement sent by an insurance company to the patient (as a summary) and the provider detailing the services and payments made based on the treatment provided.
- ERA (Electronic Remittance Advice) – The general term referring to the electronic version of payment and denial data (i.e. provider’s EOB).
- EDI (Electronic Data Interchange) – The general term referring to a structured data format for exchanging information electronically.
- EDI 837 (Super Bill) – The government standard remittance file format sent by a provider (doctor, clinic, etc.) to the clearing house for payment by the insurance company (Payer).
- EDI 835 (Electronic EOB) – The standard government payment response file format used as a response from the insurance companies through the clearing houses to the provider containing payment and denial data.
- ICD9/ICD10 codes (International Classification or Disease) – These refer to the diagnostic codes and version. All parties are required to be compliant with ICD-10 which greatly expands the number of codes in use by October 2013.
- PHI (Protected Health Information) – Refers to any information about medical status, type of care, or associated payments that can be linked to a specific individual.
- HIPAA (Health Insurance Portability and Accountability Act) – The 1996 Congressional act that covers the use and disclosure of PHI to protect the confidentiality, integrity, and availability of the data in electronic, written, and oral forms as well as establish uniform standards for Electronic Data Interchange (EDI).
- BAA (Business Associate Agreement) – Refers to the agreement between parties who conduct medical transactions on behalf of covered entities.
- HITECH (Health Information Technology for Economic and Clinical Health Act) – The 2009 Congressional act that covers HIPAA breach notification, enforcement, Electronic Health Record access, and extended HIPAA requirements to Business Associates.
- HIMMS (Healthcare information and Management Systems Society) – The not-for-profit organization that provides leadership in the use of healthcare information technology and practice management systems (provider billing system).
Medical practitioners were educated to become doctors, dentists, pharmacists, and so forth – not to be payment experts. Today many hospitals, clinics, and medical offices will outsource financial and account reconciliation tasks whenever possible. When targeting medical providers for your commercial profile, being able to speak basic “medical” will go a long way in establishing financial service relationships with these often highly profitable customers.
Author: Lee Wetherington, AAP email@example.com
Remember the run up to Dodd-Frank? When community banks joined hands with mega banks in a united front against the inchoate incursions of a heavy-handed regulatory response to the recession?
I do. I was in West Virginia awaiting my turn on stage at a bank conference. The chairman of a national banking association had just whipped the crowd of bank CEOs into a frenzy, i.e., they were nodding their heads a lot. The chairman told them the Durbin amendment—despite its exemption of smaller debit-card issuers from its rate cap—would ultimately devastate all banks’ debit card fee income, regardless of size.
I disagreed. And I made the potentially career-limiting decision to express my disagreement during my keynote presentation. I explained that, at a minimum, Durbin would create a 2-to-3 year competitive advantage for smaller issuers, one they should leverage to the hilt.
As soon as I descended from the stage, the chairman intercepted me and, as we say in South Georgia, “took me to the woodshed.” He told me in no uncertain terms that my speech threatened to divide the ranks at a time when unity was essential. I politely apologized for being honest.
We are now officially one year into Debit 2.0, the post-Durbin era brought to us by way of the Federal Reserve’s Reg II. So, have all debit card issuers had their interchange income equally decimated? No. Far from it.
According to Oliver Wyman’s 2012 Debit Issuer Study, commissioned by PULSE, debit card growth remains robust. The average consumer debit cardholder spent $8,326 on his debit card in 2011, up from $7,781 in 2010. Active debit users averaged 18.3 debit purchases per month, up from 16.3 the year prior. This year, exempt debit issuers (under $10 billion in assets) expect 14% growth in PIN debit transactions, 13% for signature.
Early studies by both the Federal Reserve and Oliver Wyman indicate that exempt issuers have experienced little if any compression in their signature debit interchange rates and virtually no compression in their PIN rates.
Recently, however, there have been anecdotal reports of some exempt issuers experiencing debit interchange rate declines of 6% to 8%. The good news is that even if exempt issuers experience a 10% decline in their debit interchange rates, this compression is more than offset by current and projected growth in total transaction and dollar volumes per debit card.
Better News: Business Debit Lucrative for Smaller Issuers
An often overlooked aspect of the rate cap in Reg II is its structure. Unlike smaller exempt issuers who still enjoy interchange as a percentage of the transaction amount, regulated issuers (above $10B in assets) labor under what is essentially a fixed cap, one that does not float with the amount of the transaction. The result is that big issuers suffer most on high-dollar transactions, such as those common to business debit cards.
Before Reg II, business debit card transactions commanded a much higher interchange rate than consumer debit card transactions. According to Oliver Wyman, “the revenue per business debit transaction was notably higher… averaging $2.10 (versus $0.52 for consumer signature debit).”
Under Reg II’s interchange cap, however, business debit’s profit margin has dropped drastically for large issuers. “Business signature interchange has declined by 87% for regulated issuers to $0.26 per transaction,” according to Oliver Wyman.
The hit has been so severe for many regulated issuers that business debit is now unprofitable. For these issuers, the average cost of a business debit transaction now exceeds the average revenue. The result is tactical retrenchment from business debit portfolios by large issuers.
For smaller exempt issuers, higher-dollar business debit transactions represent the most attractive interchange revenue because for these issuers interchange remains a percentage of the transaction amount. The higher the dollar amount, the higher the revenue. The bottom line is that exempt issuers have an opportunity to capitalize on the most profitable segment of debit card volume at precisely the time Reg II has made it untenable for regulated issuers.
The Best News: Rewards, Mobile Payments & the Merchant-Funded Gravy
Exempt issuers’ gross margin per debit transaction is now more than double that of regulated institutions. Moreover, PIN debit fraud loss rates are down.
To leverage these advantages fully, exempt issuers should continue to incent penetration, activation, and usage of their debit cards by way of issuer-sponsored and merchant-funded rewards, both of which are now being turbo-charged by the convenience of geo-located, real-time offers on mobile devices. Many merchant-funded mobile reward apps offer revenue-share arrangements with the financial institutions that provision them to their mutual clientele.
Speaking of mobile, exempt issuers should also be looking to further leverage their debit franchises by enabling or supporting mobile wallet models that ride debit rails. Debit-card centric mobile wallets offer another way for smaller community bank and credit union issuers to make the most of their Durbin exemption while it lasts.
Some are concerned that Visa’s PIN-authenticated Visa Debit (PAVD) gateway and Fixed Acquirer Network Fee (FANF) may fuel interchange compression for exempt issuers. Maybe, but only if these new services and fees survive the white-hot scrutiny of the Department of Justice, the Federal Trade Commission, and the Federal Reserve, all of whom are watching Visa closely.
The strategic roadmap for exempt issuers and regulated institutions could not be more different. When it comes to debit, smaller issuers must avoid assuming their fortunes mirror the big boys. For now, the good news is that they don’t.
Author: Dan Roderick, firstname.lastname@example.org
The old “80/20 Rule” is dead. Today in the community banking industry that rule has become the “230/20 Rule” – a pretty startling prospect. ProfitStars has found that 230% of the typical bank’s profit is generated by the top 20% of customers. Looked at from the opposite end of the profitability spectrum, approximately 70% of community bank clients lose money.
Knowing that the top decile of the client base yields 2X the bottom line underscores the importance of protecting these crucial relationships – and identifies the need for focus when sourcing new opportunities. Finding more top 10 percentile clients will have a geometric impact on bottom line results. Possibly just as important, strategy also must reflect the fact that up to 70% of clients actually lose money. In most cases, substantial change in strategy is needed to “grow” these relationships in a way that increases profitability. The $64K question is: what strategic changes are needed and how do we quickly and efficiently implement those changes across the organization?
Pricing Impact on Portfolio Profitability
Looking at current community bank pricing practices provides insight into one main reason why customer profitability has become so concentrated. There are three very important strategic priorities to highlight that have a major impact on bank profitability.
- Strategic Priority #1: implement tactics to increase volume of large commercial loans – The average loan balance of all commercial loans at community banks range from a low of $149 thousand for banks with total assets less than $150 million to over $220 thousand for larger banks. Average commercial loan sizes reflect the fact that larger commercial loans – loans in excess of $1 million – represent a very small proportion of the overall loan portfolio. In fact, less than 7% of loans are larger than $1 million. Not only are these loans highly profitable from an ROE perspective, they are also important in terms of the gross volume of net interest income dollars they bring to the table. Customers with loans in this size range are typically “top 10 percentile” clients.
- Strategic Priority #2: implement tactics to increase volume of “bread and butter” loans – Loans referred to as “bread and butter” are loans that fall in the $150 thousand to $750 thousand size range. These are loans that offer two key advantages: 1) they are typically very profitable, and 2) there are many more opportunities in this size range vs. the larger loan category. Most every community bank commercial lender has the experience and relationship contacts to source loans like these; however, our statistics show that only 19.5% to 25.8% of commercial loans – depending on asset size – fall in this size range. “Bread and Butter” commercial loan customers are also typically in the top two deciles of a bank’s customer profitability distribution.
- Strategic Priority #3: implement tactics to price up small commercial loans – Pricing for size is a key concept that is often overlooked. Small commercial loans – loans smaller than $50 thousand – represent anywhere from 40% to 53% of community bank commercial loan portfolios. All of these loans are marginally profitable or lose money. Many customers that fall in this size category are those among the 70% that lose money for the bank.
What is your bank doing to address these strategic priorities?
Author: Martin Webster, email@example.com
I’m reading a book entitled, “The Compound Effect” by Darren Hardy, publisher of Success Magazine. In it he demonstrates how the decisions we make today, both conscious and unconscious, shape our destiny. Of course, the leaders of financial institutions make choices every day that direct the financial future of their organization. Over the last few years, those that made the wrong choices have paid a severe, if not fatal, price. Others have prospered from their choices. Once again, we have forces looming that will test our decision making and expose our financial management habits. Some looming forces include:
Margin Compression – The community banks and credit unions that survived the credit losses of the last few years have come back strong. However, margins continue to compress; cost of funds can’t seemingly go any lower, existing loan portfolios continue to reprice at lower rates and loan demand is sporadic at best. The Fed has made it clear that they intend to maintain this low rate environment for the foreseeable future.
Basel III – While Basel III has been put on hold, it certainly isn’t dead. The latest version of the plan would have “hindered credit availability, dampened economic growth and harmed the competitiveness of the U.S. banking system,” according to a letter sent by financial industry groups to the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. Although the final ruling on Basel is uncertain, it’s clear that regulators are intent on putting mechanisms in place to ensure the safety and soundness of U.S. financial intuitions. Whether it comes in the form of additional capital requirements, additional regulation or both, it will force financial managers to respond.
The Fiscal Cliff – The Congressional Budget Office estimates that governmental spending and taxation policies set to go into effect on January 1, 2013 would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession. At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs. While the President and Congress wrestle over the final form these policies take, the uncertainty is already impacting business and consumer investments and could further damping loan demand.
Regardless of the outcome of these economic forces, it’s critical that financial managers take them seriously and develop strategies for mitigating their effects and taking advantage of opportunities that may arise. Here are some steps you can take now.
- Review and Update your ALM Policy – This is critical to your decision making process. It provides financial risk guidance that has been approved by your board of directors. Ensure that it:
Run multiple what-if scenarios to quantify the impact of your decisions. Include
- Clearly defines responsibilities of the board, the ALCO and senior management as to overall management of interest rate risk and liquidity risk.
- Addresses capital adequacy, policy exceptions, and asset allocation strategies.
- Directs the liquidity management process and the Contingency Funding Plan.
Stress test each scenario to understand the risk associated with each financial decision
- Decreased loan demand and cost of funds (yes, it can get lower)
- Increased loan demand but higher credit risk
- Increased capital requirements
Establish a process for creating rolling forecasts to constantly improve the quality of the information available
- Be sure to include immediate and ramped shocks
- Include up and down scenarios and rate twists
- Forecast at least quarterly
- Extend forecasted time horizons beyond twelve months, to at least 18-24 months
Are you positioned to make the best decisions for your bank or credit union, regardless of the forces on the horizon?
Author: Kathy Wheeler, firstname.lastname@example.org
I live in beautiful Colorado Springs where the sun shines 220 days of the year. One of the things I enjoy on a daily basis is walking to the neighborhood mail commune. It’s a nice break from the day and an opportunity to get a little fresh air and enjoy our amazing mountain views.
Most trips to the mail commune are pretty uneventful. I usually get to say hello to the neighbors who are out and about and sometimes, if he’s being a good boy, I even take my dog along for the walk. I empty our mailbox and as I am walking home I go through what is normally 99% junk mail. Upon returning to the house I usually dump the junk in the trash and then merrily go about my day.
However, on occasion I stumble across a strange-looking envelope that I rarely see these days. Much to my surprise it resembles an invoice. Suddenly dark clouds cover the mountain peaks and my happy outlook on life has now become plagued with doom and gloom.
What is this foreign mail parcel? A bill not delivered to my email? How could that be? With great haste I rip open the envelope forgoing the….what are those things called…oh, yes, letter openers. Carefully I unfold the alien object and discover that yes, this is a bill. Seriously, now what do I do?
I scan the document, but I am not scanning for what you are thinking I am scanning it for. More important than the amount of the bill is the mechanism to which I can pay it.
Wait a minute, are you kidding me? No website address for payments? Mail my check to where? What? This is so ten years ago!
Once my blood pressure returns to normal, I set the bill aside. In three weeks when I login to reconcile my household accounts I’ll take the time to set this merchant up in my bill pay solution and let my provider mail a check to satisfy my debt.
Paper invoices and old-school payment mechanisms are painful to consumers and to the businesses that provide services. The benefits of electronic bill presentment and online payment options keep your clients happy and your business moving forward.
What are the benefits of electronic bill presentment and online payments to a business?
- Growth opportunity
- Accepting online payments expands the reach of your business
- Online payments leaves your business open 24/7
- Competitive edge
- Operational cost reduction
- Eliminates costly paper handling
- Eliminates labor intensive inbound process and reconciliation
- Go Green
- Account management
- Greater visibility to the big picture
- Immediate payment
- Increased cash flow
- Cash management efficiencies
- Data security
- Greater customer satisfaction and retention
What are the benefits of electronic bill presentment and online payments to a consumer?
- Ease of use
- Shop from home
- The gift of time
- Saves time vs. writing a check and preparing an envelope to mail
- Allows consumer to choose payment mechanism (i.e. ACH, eCheck, credit card)
- Peace of mind
- Personal information is secure
So, the moral of this blog comes down to this. If you want to avoid ruining your customer’s day, all while growing your business and improving operational efficiencies, position your business with the automation and conveniences brought by a digital mailbox with online payment capabilities or electronic bill presentment combined with online payment capabilities.
Author: Karen Crumbley, email@example.com
Contrary to those cartoons in popular culture where you see a devil sitting on one shoulder and the angel sitting on the other shoulder, making the best decision is not always evident. As we like to say on a regular basis in the world of IT regulatory compliance, weigh the risks and then base your decision accordingly. Sometimes the risk factors will outweigh the benefit and the decision is unmistakable. On the other hand, there are times when the decision making processing can be confusing, even daunting. Does this sound like a familiar scenario?
For example, how does one make a decision on getting the word out to online banking customers and providing the tools so that they can protect themselves from online fraud? The FFIEC’s Supplemental Guidance on Internet Banking Authentication is clear that a financial institution’s (FI’s) customers should be educated on the risks to online banking transactions. Apart from that, it leaves the details up to the FI to work out. Most FIs will agree that educating customers is an important initiative but beyond that, it is uncertain territory. One thing is apparent; your FI cannot afford to postpone a decision that has so much at stake. Bank News reports in a recent survey that 52% of small to medium sized businesses said that it would only take one fraud incident, whether successful or not, for them to lose confidence in their FI.
Each day that passes without educating your commercial customers and FI staff provides cyber-thieves another opportunity to compromise accounts and commit fraud. Educational and awareness campaigns are capable of preventing sophisticated attacks simply by making businesses aware of the signs to look for when it comes to fraudulent schemes. If your bank has been wondering how to best approach your customer awareness campaign or you are experiencing opposition to moving forward, consider the following important points:
- Fraudulent activity is in on the rise and new viruses and scams are being developed daily.
- The risk of a customer’s account being compromised increases with each day that they do not have the tools to protect themselves.
- Customers are typically the first to alert FIs on fraud.
- Your staff is also at risk for online fraud.
In addition to your customer base, employees also need to be educated on threats to online banking and on the signs of fraud. According to a recent fraud alert issued by the FBI, IC3 and FS-ISAC, there is a new trend in which cyber-criminals are targeting FI employees to obtain their credentials to initiate fraudulent wire transfers.
So make the case to stakeholders within your organization that fraud will not wait. Postponing a decision will put your FI at even greater risk. Just like in those old cartoons with the devil and the angel, you can make them disappear (poof!) by asserting that your FI is committed to providing compelling and accessible security awareness training for online transactions.
Have you already started an education and awareness campaign for online banking security? Share your experience here.
BankNews Congratulates This Year’s Innovative Solutions Awards Winners – ProfitStars eCommercial Security Awareness Training in the category of Best Consulting/Training/Outsourcing Solution
Author: Brandon Kunz, firstname.lastname@example.org
The nature of branch banking is changing. I hope that does not come as a surprise to any of us.
Some predict the demise of the branch altogether. Some predict a long and successful life remaining despite the increasing digitization of our world. None seem to doubt that new and improved communication technologies available to us today are game changers. In them we have immediate access to information; we can share messages instantaneously and at little or no cost, and can even deposit a paper check to our financial institution through a mobile phone. Does this change the future of branch banking? You bet.
New technologies, economic conditions, regulatory and compliance requirements and increasingly demanding customers heighten the imperative that banks have to rethink their branch networks. Many financial institutions are striving to change the focus of the teller, away from the transaction to the development of meaningful relationships, to seeking out the real needs of clients, and helping to solve their problems. They are using technology to help streamline and simplify processes and workflows in order to reduce costs and help empower the success of their people on the front lines.
Buzz words abound to bring these concepts to top of mind. I know I myself can’t be held guiltless for well-meaning but excessive use of the words transformation, interaction, and experience in recent communications; sometimes all in the same sentence.
As such, it was refreshing to hear firsthand the experiences of four ProfitStars’ clients at BAI Retail Delivery this year in Washington, DC regarding the innovation programs they have been involved with to improve the quality of customer engagement in the branch and improve sales effectiveness. The panel discussion was moderated by our own David Foss and was made up of:
- Terrence Schofield, Vice President of Store Systems Delivery and Services, TD Bank
- Tom Malengo, Independent Banking Consultant, Appresso Consulting, Inc. and Former Senior Vice President and Director, Technology Strategy and Transformation, KeyBank
- James Geeslin, Vice Chairman and Chief Sales Officer, Extraco Banks
- Cynthia Purcell, Executive Vice President, Retail Banking & Administration, Banner Bank
The discussion spanned a variety of topics including how staffing needs are changing in the branch, the importance of improving branch sales processes, and how technology can be utilized to effectuate positive change for clients, branch personnel, and the financial institution overall. Of course I was pleased to hear about the successful application of many of the technologies ProfitStars provides. For example, Terrence Schofield mentioned that with teller image capture the transaction experience at TD Bank is, “Consistent, accurate, speedy and simple.” He pointed out that this has been key to improving the branch experience as it enables front line staff to spend more time engaging with customers about what their needs are and how certain bank products may help them, with less time spent with their heads down focusing on the transaction.
The proper application of technology, of course, is just one part of a much larger story. Each of the panelists emphasized the importance of defining and reinforcing financial institution culture, commitment to the customer, and getting the right people in the right place at the right time as critical to improving sales effectiveness in the branch. Tom Malengo advised, “The system is going to be there, it will make the transactions work, worry about getting the information that is going to be important to your people to them so they can engage with the client.”
James Geeslin spoke keenly about the importance of “hiring the right folks, providing adequate training and coaching for results.” He spoke about how Extraco Banks has been able to improve the talent pool available to the entire financial institution by making good hiring decisions at the front lines and implementing a very rigid training schedule he compared to “flight training school.” New and previous employees are required to complete the new training program and this has improved talent levels, reduced turnover, and improved customer survey results.
Cynthia Purcell emphasized that getting “the right people, the right seat on the bus” has been a number one focus for Banner Bank. She stated, “Investment in people is the highest priority, it’s through our people that we deliver on our brand promise and that builds the long-term value of our company.” She spoke to “training to the head, teaching to the heart, and coaching to success.”
It is encouraging for us at ProfitStars to be associated with so many clients that can be held up as such fantastic examples of success. Your examples in doing the right thing and doing whatever it takes for your customers and having fun in the process, help and encourage us to do the same for you. Thank you for allowing us the opportunity to be a part of your success.
Author: Brad Dahlman, email@example.com
In ancient times, sailing ships used the sun and stars as guides to find their way. A change came in the 1300s, when the compass became the most advanced navigation device. This was a major improvement and allowed ship captains the ability to navigate even in cloudy conditions when the sun and stars were not in view.
In the 1990s, GPS systems became a common navigation tool found on ships. They provide pinpoint accuracy. The increasing sophistication of navigation tools makes the captain’s job considerably easier.
By now you may be wondering what navigating a ship and managing a bank have in common. Well, both the ship captain and “captain of the bank” must understand the following questions:
- What is our current location?
- Where are we headed?
- What is our current velocity?
- What is the best path (and are obstacles in our way)?
- When will we reach our destination?
For bank management, the goal is to understand the current balance sheet/ income statement and to chart a course toward financial health.
The Past Five Years – Rough Seas
Over the past five years the bank industry has had some significant challenges, but there is a strong financial recovery occurring today. Below are graphs illustrating the recovery.
Net Income - Banking Industry (Source: FDIC)
Margin and Fee Income - Banking Industry (Source: FDIC)
Charge-offs - Banking Industry (Source: FDIC)
Clear Sailing Ahead – Outlook Good
Today we have stronger balance sheets, lots of liquidity, a returned to historic profitability levels, wider margins, and reduced charge-off/provisions expense. I believe the worst is behind us and for those banks that have survived the last storm (1,177 fewer banks now than in 2007) it is time to survey the damage from the past storm and chart a path forward using 21st century navigation tools.
The key financial management tools that banks need in the 21st century are those that help them better understand the details of their organization. It is no longer enough to know you are headed north! We need tools like turn-by-turn GPS navigation – detailed data about our branches, products, delivery channels, and customers.
From a profitability prospective, there are three dimensions that progressive banks examine:
New tools enable us to understand profitability, set profitability goals/objectives, develop and execute tactics for improvement, and monitor results.
Profitability Systems that help organizations better understand profitability of branches, products and customers are important tools and used by several different groups.
Bank management - Management uses them to understand profit, see trends, and evaluate branch/product decisions. It is actively involved both in setting direction for how profitability data will be used and also involved with the configuration of business rules associated with each application. Senior management’s support of these applications is essential for success.
Bank sales/service staff - We commonly find that banks are installing customer profitability systems and feeding “profit ranks” to their front-line staff. Armed with this information, front-line staff is better equipped to determine if fee waivers or rate concessions are justified.
Having strong profitability systems in place can help banks better manage any turbulent waters that may lie ahead. Do you have the 21st century navigation tools that you need or are you still using a compass?
Author: Pat True, firstname.lastname@example.org
It often seems that the more devices we have to facilitate communication, the less we engage in meaningful conversation. The quality of communication seems to suffer as the quantity of e-mails, voice mails, texts and IM’s has soared. While these tools offer significant efficiencies, we need to make sure they do not impact the credit quality of our business relationships.
Most small business lenders were trained to recognize the “5 C’s” of credit. Given the fast pace of the information age, it may be time to add a sixth. While the first five C’s (character, capacity, capital, collateral, and conditions) are still important to credit analysis, they should be accompanied by one more to ensure long term success. The sixth C is the quality of communication that takes place between the business owner and the underwriting credit officer. During initial phases of credit analysis, the sixth C is critical in defining the:
- The strategic vision of the business
- The growth plan
- Succession planning
- The owner’s opinion of what financial services would help move the business forward
- The site tour to see how the business functions day-to-day
Much has been written about the benefits of credit scoring for business loans, but this is one area where credit scoring is insufficient. It is hard to communicate vision and growth objectives through a credit score. Most lenders have had the experience of being on the fence over a deal until they were able to go on a site visit, meet the owner and key employees, and see how the business was run.
Communication is important for several reasons. First, it serves as evidence that the business owner does indeed have a vision and plan for the organization. Second, it allows the business owner to think through the elements of success in moving from point A to point B on that plan. Third, it allows the credit officer to see that vision, and to develop a strategy to help the business owners meet their plans. Most importantly, it defines the nature of the relationship during the coming year.
This communication does not stop once the deal is approved. For existing relationships, communication becomes your primary business retention tool. Lenders who consistently make retention site visits will likely find that:
- Clients utilize a wider variety of your financial services
- Your organization experiences longer retention rates
- Owners tell others about their positive experiences, resulting in referrals
- The financial institution can often expand the business relationship to offer financial services to employees of the business
Face to face communication is something that some larger organizations have lost over the years. It should be a key competitive advantage for smaller financial institutions. Are your lenders making regular onsite visits to your small business customers? Are they engaging them in conversation about the business? Are they asking for referrals? If not, you may not be maximizing a significant advantage.
Author: Dave Foss,DFoss@profitstars.com
Our mission at ProfitStars is to provide solutions that can improve the performance of financial institutions ranging from the largest banks to the smallest community institutions. With such a charge comes the responsibility to closely monitor and analyze news and events that can help prepare us for the future. There is no sure way to know who will win November’s election or what will happen with banking regulations. Our hope, of course, is that after the election season is over, banks and credit unions will have a more certain path forward for the next four years. Regardless of what happens in the election, we are fully prepared to make long-term commitments to online and mobile banking innovations. Trends regarding consumer adoption, security and payments are no longer vague, leaving us in a position to advance with confidence.
This year, Apple surpassed Exxon to become the world’s most highly valued company, and its stocks have continued to soar. The release of the iPhone 5 may slow NFC adoption, but selling about 6 million devices in the first weekend says a lot about market demand. Today, nearly 90 percent of the U.S. population has a mobile phone, half of which are smartphones, and that trend is rising. As far as banking is concerned, an estimated 20 percent of mobile subscribers use their phone to access mobile banking services and by the end of next year, that number is expected to rise to one in three. You’ve read the headlines, the list goes on.
In an effort to help our clients best benefit from comprehensive, bundled online and mobile solutions, ProfitStars is increasing its commitment to these offerings and launching an independent solution category: Online & Mobile solutions. The lineup includes website design and hosting, Internet banking, mobile web site conversion, online security services, mobile platforms and payment processing solutions. We boast strong leadership and mature solutions in this category that continue to grow under careful guidance and consistent R&D.
To further strengthen this grouping, iPay Technologies is now iPay Solutions™, joining the ProfitStars Online & Mobile solutions lineup with its fully integrated retail bill pay, small business tools, person-to-person electronic payments, smartphone apps and more. Integrating iPay Solutions with ProfitStars is a smart, natural progression for us and one we hope will benefit the financial institutions we serve in a number of ways.
Please join me in welcoming the newly organized Online & Mobile category to our organization. Combining the efforts of so many independently successful products and services will help us address evolving business challenges both now and in years to come. Our commitment is to support you with expert talent and leading technology that boosts your bottom line and powers you ahead of your competition.
As we complete this transition, please let us know how we can best serve your institution.