In December 2012 I wrote a story on what motivated our founders to create Bankless Times. In their own way each person I spoke to mentioned the detached relationship most people have with their banks.
These were not naive laments for days when you could walk in to see your George Bailey who would immediately ask about Wally and the Beav. They were acknowledgements of what had been lost, which was any sense of personal service, that you were more than, in one person’s words, “an algorithm” that could be dealt with or ignored without even one face-to-face interaction.
Everything in the modern banking system is geared to the immediate. This is easily traced back to quick profits to be made on swaps, securities, short term corporate loans, and speculative mechanisms. Even corporate bonus structures, the devil that made so many of them do it, reward short-term visible gains regardless of their longer-term ramifications. Individual bank accounts, low interest mortgages, small business loans and other items that once formed the backbone of the industry have become the small fish thrown back into the lake while the banks wait to land the big one. The traditional rite of passage where you bring in Junior with his paper route money to open his first bank account and get the calendar and toaster has been seemingly dulled by the cost benefit analysis of whether it is even worth it to deal with the little gaffer.
This disconnect has not been lost on everyone. Small regional and community banks have an opportunity to solidify their positions as community institutions by meeting these unmet needs in more cost effective ways than ever before. Thanks to new innovations, small banks can both meet a need while making a buck.
One of these innovators is Kyle Enger. Kyle is the founder of Relationship Banking Academy. An expert in the field of relationship banking, Mr. Enger has been traveling the country for 15 years providing leading edge training sessions to bankers and business owners. A top ranked faculty member at the nation’s leading graduate level banking programs, Mr. Enger feels that by employing financial intelligence and other customer facing software solutions, banks are able to efficiently deploy resources while allowing Americans to participate in a crucial aspect of modern life – the financial system.
Mr. Enger took some time to answer questions and to discuss relationship banking.
With loan spreads remaining stagnant, banks need to be more vigilant as the competition for high quality borrowers increases. Who are the high quality borrowers?
Typically, high quality business borrowers have low leverage and high profits. Those businesses that have don’t really have much of a borrowing need. Like the old adage goes you give someone an umbrella when the sun is shining and take it away when it starts to rain. Banking is a zero-sum game, a good client for another bank is probably the client you are looking for as well.
What should banks have learned from the events leading up to the recession and the recession itself?
That banking is not transactional but rather relationship based. With the real estate boom leading up to the recession, banks focused on turning the next deal. Real estate was abundant and profitable yet transactional. There was no need to be a trusted financial advisor. Before the real estate boom, business owners usually sought out a good attorney, accountant and a banker to fill the role of a trusted advisor team. After the recession, bankers fell to number 7 on that list of advisors behind other family members. Bankers moved away from the core skills required for a good banker. There is a whole generation of bankers raised on the transactional real estate model. Banking is personal, and the core skills of being a good banker are relationship based, which means working with a business on a monthly and quarterly basis. Coming to the table with ideas for their clients rather then waiting for the client to ask for a new product.
Many of the benefactors of decreased spreads are medium and large businesses. What is the climate like for new and small businesses and what can be done to create a more welcome environment for them?
Outside of SBA lending, the options for small and new businesses have been fairly limited, which is why 85% of these companies are financed through credit cards. The climate has started to shift to a rate increasing environment, which means that small business owners need to focus on locking in rates today and terming out long-term debt to avoid mis-financing which is one of the silent killers of business.
Banks and hedge funds are getting into peer lending and are even packaging some of the loans not unlike what happened with toxic mortgages leading up to the recession. Are we at risk of a repeat of some of the issues that contributed to the last recession?
Yes, the further away you move from the core concepts that banks were founded on to increase margins, the more likely we are to repeat past mistakes.
Many people in the finance industry worked under reward systems that encourage short term gains, without consideration for long term impacts. Has that system been changed at all and can the industry realistically move forward if it hasn’t?
Some banks have begun to reassess they way they incentivize their sales force and have begun to weight incentive packages to reward sound lending practices and discourage riskier loans within the portfolio. One bank we have worked with has taken that to the next level by requiring each individual banker to account for any losses that they incur in their portfolio and explain what they learned from the experience.
What should banks do to regain customers?
Banks need to get in front of their clients face-to-face and work on rebuilding trust one relationship at a time. Even in the digital banking age, business customers still want to have that in person contact with their bank. The only way to do that is to put feet on the street and begin having conversations with clients. One important caveat is that the banker must come to the table with knowledge about the customer that is why it is so important for banks to work on developing the business acumen of their sales force.
In a story I recently filed, The Canadian Banking Association talked about how cash payments are the most inefficient method of payment because of the amount of time that is lost in counting change and bills. Implicit in my conversations with officials was that customer service itself can be expensive. What can be done to maximize its efficiency while also making the customer feel like a person not a number?
It is a challenge that banks definitely have to walk a fine line on. Commercial and industrial lending is an expensive delivery strategy, because it means the banker is constantly working with a business owner on a regular basis, monitoring inventory, understanding the financials, making recommendations to improve the financial health of a business. This is a big reason that the transactional nature of real estate lending was so attractive. However, if banks leverage technology to provide bankers with the tools needed to be more effective in their interactions with clients then they can create a winning combination. Today, there are great financial technologies developed for banks, such as Finagraph, BBC Easy and First Research that help bankers evaluate financial health and provide informed recommendations.
Can you talk about those technologies and how they help?
BBC Easy automates the C & I loan financial reporting process by securely extracting financial data from customer accounting systems to help banks calculate the amount of a Borrowing Bank Certificate (a document used in asset-based loan transactions) based on the customer’s current financials and the bank’s lending parameters.
Finagraph is a financial intelligence tool that displays detailed analytics and information in an easy-to-read visual format. The software securely transmits the last three months of income, expenses, receivables and payables data to the banker or investor by electronically capturing data contained in the most widely used accounting systems.
First Research provides profiles of over 100 industries and highlights risks and opportunities as well as call preparation questions. When used in conjunction with Finagraph, it allows bankers to have a complete understanding of a potential loan customer’s financial performance in relation to industry analysis.
These three tools are pieces of the same loan assessment puzzle that when used together provide bankers with a greater capability to advise and engage with a potential loan customer.
You speak of value proposition, which is perceived benefits-perceived price. Much of this equation rests with the values of the individual. Are there certain qualities you advise people to develop that will increase their value proposition? Does this translate well to human resource departments and what type of people they should be screening for?
Value proposition definitely rests with the values of an individual. Bankers are in a commodity business. There is not a product that banks offer that is not provided by another bank for about the same price, about the same quality, with about the same features. If you were to look out your window right now, chances are there are at least 6 other banks within walking distance that are all tasked with the same thing, generating more business. Value proposition is about what differentiates the individual banker from the one next door. It goes beyond statements such as “I provide the best service.” Value proposition is about what it is that inspires you to get out of bed each morning and how that relates to being a banker. Tapping into that passion is really what resonates with clients. Bankers are in the unique position of helping people see their possibility. They provide a path to achieving dreams. They help companies grow, hire new employees and build that new facility. That’s exciting stuff!
Human resource departments really have a challenge, because in banking you need an individual that has a mix of business and financial skills as well sales and relationship management. These opposite competencies are hard to find, particularly when banking is a happenstance career. What I mean by that is bankers typically end up in banking by accident. There is no banking major in college. There isn’t even a standardized and meaningful professional designation like there would be for accountants or attorneys.
You mention Simon Sinek and a phenomenon called the Golden Circle. He says people don’t buy what you do they buy why you do it. Can you expand on that?
It’s the same concept as value proposition. What Simon did is examine why some companies and individuals are more successful, inspiring and profitable then others. In studying those who have the most influence in the world, Simon was able to establish that they all communicate and act in the same way. He quantifies this in the phenomenon he calls the Golden Circle. While most organizations focus on communicating what they do or how they do it (features and benefits), those that are the most successful and inspiring lead with their “Why” or value proposition. People want to work with others who believe in the same things. One of my favorite quotes that really sums his Golden Circle concept up is:
“People don’t buy what you do, they buy why you do it. “
Who are some of your other influences? What are some of the resources or authors for people who are serious about exploring their value proposition should access?
The Talent Code by Daniel Coyle is another great resource that explores the concept of deep practice and applies to anyone really trying to master the profession. I also have been a student of the innovation, outside the box thinking of Steve Jobs.
So many of the companies in the new economy operate in more an electronic world than a physical one. What can they take from your teachings and do those teachings need to be modified in any to adjust to the electronic medium?
Sure, we are all impacted by what I refer to as the 5 driving forces in this country. How can bankers stay relevant in world that is driven by:
For me the answer is by coming to the table with ideas. Being educated about clients and prospects and leveraging the best that technology has to offer to help be that trusted advisor that is interested and invested in the financial health of a business. Being that true relationship banker.