Strategic planning is a vital part of every financial institution’s success, although it has become more challenging than ever with the constant regulatory changes and evolving customer behavior. Add to that the available options to expand services or enter new vertical markets, banks can easily find themselves lost in just trying to keep up. Considering all these factors, community banks must carefully focus their attention down a clear-cut path to achieve effective growth.
While it can be difficult to anticipate and plan what will drive the greatest profitability potential for the institution, it is certainly not impossible. Community banks must evaluate what strategies will maximize their performance while at the same time encourage positive behavioral shifts in customers. In this way, they can narrow their focus to effectively grow revenue, grow customers and grow their impact.
Community banks can achieve all of this by focusing on three components for the coming year: compatibility of online services, segmentation of retail and business customers, and extension of self-directed services.
Mix and Mingle
Online banking and online bill pay are two things that most consumers just get — they are convenient, provide real-time access to account information and help streamline payments. Beyond the obvious cost benefit from offering these services, financial institutions have even more to gain, as there is a lot to be said for how the two can work in tandem. Ensuring an integration of these services makes the channels much more robust, as there is a plethora of information that can be shared between them.
Rather than settling on the notion that online banking and bill pay are commonly used services, community banks can leverage them to grow and evolve customers’ online activity.
The Business of Small Businesses
Small businesses — because of their distinct transactional behavior and unique cash flow needs — require different services than those offered to traditional consumer service accounts. Unfortunately, there is often a disconnect in the strategy to reach this subset with products that actually address those needs. The lack of segmentation between retail and small business customers leaves the latter lumped into consumer services and vastly underserved.
Small businesses are perhaps one of the most underbanked markets for community banks. Their distinct transactional behavior reveals a tremendous opportunity for these businesses to be more profitable for the institution for two reasons. To start, small businesses are accustomed to paying for various services that help streamline cash flow management and payroll functions. They need help managing their accounts payable, accounts receivables and the ability to send payroll deposits. Furthermore, they are willing to pay for those services. Community banks can seize control of that revenue while adding another touch point to that account.
Additionally, community banks are just better positioned than larger financial institutions to take hold of this market. Community banks are highly focused on personal relationships and offer a level of familiarity and community. On the other hand, some larger institutions will place their focus on wealth management and not necessarily play to the needs of small- to mid-sized businesses.
Small businesses have been open about their dissatisfaction with their financial institutions, looking to other non-bank vendors to provide important cash management functions. A better alternative would be for community banks to address those demands with services tailored to small businesses’ needs and take advantage of this low-hanging fruit. It will only add greater penetration into each relationship and contribute to its long-term loyalty to the bank.
Serving With Self Service
Person-to-person payments have been around longer than most people realize, but sadly have only just begun taking hold as a viable payment option among consumers — and there is still a lot of room for improvement. Many community banks have been slow to provide the service, most of them still trying to determine the true revenue potential behind it.
Questions regarding return on investment for P2P as well as addressing its perceived risk among consumers should be considered. When doing the research, factor in the number of people opting to make such payments through one of community banks’ largest competitors, PayPal. Community banks that offer customers a consolidator model of bill pay that incorporates P2P and other alternative payment options will discover the relevance of these services as growing customer retention tools with new fee revenue.
Self-service is a necessity, and the heightened buzz around mobile remote deposit capture is a strong indicator. Extending self-service options and enabling them to complement one another is an ideal strategy to help keep existing customers more profitable and acquire new relationships.
Identify and Prioritize
For community banks to grow their footprints and continue to maximize their performance, they must direct their attention to a few specified areas of growth. Only then can they expand revenue and the profitability of their customers.
Prioritize optimizing the use of existing services, tapping into underserved markets and exploring additional delivery channels as options with the greatest potential. Strategically identifying what services are most relevant, and encouraging effective customer adoption, are necessary steps for a successful 2012.
Jennifer Roth is senior vice president of product management for iPay Technologies, a division of Jack Henry & Associates. Contact her at www.ipaytechnologies.com.
Copyright © September 2011 BankNews Media