Gain Competitive Advantage with a Strong Support Infrastructure: Focus on Credit Underwriting and Risk Management Teams Rather Than on Revenue-Generating Business Development Teams. Your Competitors Can Compete with Products and Services, but Your Culture Is Difficult to Replicate
Berdiev, Dima Neil, The RMA Journal
COMMERCIAL BANKING HAS always been a highly commoditized industry, and there is no reason to think that won't continue.
Typical of commoditization (defined as rendering a good or service widely available and interchangeable with one provided by another company) are customers whose decisions are driven by cost considerations, with little value placed on the quality of products and services. Interestingly, the same customers who look for low cost also seek and expect high quality Another important component of our commoditized industry is that many commercial banks want new business at any cost and do not charge for higher-quality service.
Despite widespread commoditization, practically every business developer in commercial banking sells to prospects and clients the "excellence" of customer service at his or her bank. We hear the same conversations and marketing pitches when we meet our competitors at networking events and annual conferences.
When we drop our guard and are not surrounded by clients or competitors, however, we sometimes feel free to admit that the banking business is getting tougher every year and that we all sell the same "thing." There is just not enough difference among products and services from bank to bank. This includes small community banks, for which service is the main differentiator, and larger banks, which offer every product and service under the sun but not necessarily a customer focus.
Customer-service superiority that we boast about and defend either does not exist or is difficult to differentiate, defend, and price for. For deal after deal, we sprint to match or beat competitors' term sheets and so send a message to the marketplace: "No matter what we say about customer-service excellence, we do not charge for service and want your business no matter the cost or profit margin. Come on in, and get the best the market has to offer for almost no cost."
But if price is the driver in developing new business, why do banks continue to allocate funds for business development? Why employ high-salaried business developers if you can practically automate sourcing of term sheets, price them lower than anybody else, and book new loans using staff costing much less? The answer lies in a lack of willingness to realize times have changed and in a mentality of "I have done it for years and it's always been fine" or "If it ain't broke, don't fix it."
If you look at a summary of key challenges facing the industry (see figure), banks find themselves in a back-office capacity crisis as customer loyalty declines and employee turnover rises. Every institution has been or will be dragged into this crisis. Institutions that can capitalize on the impending industry-wide crisis--and opportunity--will emerge as winners and make money in the process. This article will focus on one key opportunity.
Credit Departments Will Drive Successful Sales Efforts
The industry is on the verge of significant changes, including further consolidations, a continued decline in customer loyalty, and even more employee turnover. These trends are being driven by new technologies (mobile banking, new banking and nonbanking apps, remote deposit, online search engines for best pricing nationwide, automated risk management systems, etc.), generational changes, and rising competition, to name a few factors. It is a perfect storm of drastic changes converging in a single place and time. There is a silver lining, though. Turmoil presents opportunities for the most nimble, flexible, and adaptable.
Not every commercial bank can be the first to market with new technology or new products or services. Nonetheless, your organization can become more competitive without compromising service quality or pricing. The key is to outcompete on quality and efficiency in your support infrastructure. Don't worry about competitors reproducing your successes. …