Stacking the Deck Against Community Banks

Is bigger really better?

Sure, it’s a loaded question and one with a variety of answers – most of which this family-oriented edition is unable to print.  However, when it comes to banking – and financial services in general — the answer sure appears to be a resounding YES.

The BrandBank has been a loyal advocate of community banking.  As a proud corporate sponsor of two state banking associations, we’ve helped many owners and presidents establish a voice and communicate their comparative advantages within their markets. We, like the thousands of owners and shareholders of smaller banks across the country, believe there are many compelling reasons why the public should consider doing business with their local community bank.

Yet, the current plight of community banking reminds me of the American League East, specifically the Baltimore Orioles. Now, I’m not a huge fan of the Orioles or the American League for that matter (blame it on the ridiculous designated hitter rule), but you have to feel for a proud franchise that no matter how hard it tries, it will almost never win a division title again. Not since 1997, when the Birds went an AL-best 98-64, have they topped their larger, richer rivals from the East.

In fact, since that fateful year, the Orioles have been dreadful. On average, they have finished 28 games behind the eventual division champion. During that 13-year span, the Yankees have won the division 10 times. The Red Sox have won the division once and the Wild Card seven of those 13 years.

While not 100% correlated to performance, team payroll plays a significant role in team performance. Enormous cable contracts and lucrative stadium and corporate deals in their respective markets allow the Yankees and Red Sox to spend at will. To relate it to banking, their cost of funds is almost nil, making it nearly impossible for their divisional rivals to field a competitive team. 

Which brings me back to community banking…If the 2008 financial crisis has taught us anything it’s that the larger financial institutions enjoy an audience, a lobbying effort and a fear factor that community banks cannot (and will never) touch.  The Too Big To Fail exercise, where the U.S. government issued the largest federal bailout in our nation’s history to the 19 biggest financial institutions, was the beginning of the end. As shocking and disappointing as the evidence is, it simply cannot be ignored any longer. (The BrandBank wrote about this topic exactly one year ago.  Read it here.)

In her final testimony before the Senate Banking Committee in June 2011, former FDIC Chairwoman Sheila Bair said it herself.  While calling the remaining 7,000 community banks “one of the strengths of our financial system,” she admitted that “the competitive position of small and mid-sized institutions has been steadily eroded over time by the government subsidy attached to the Too Big to Fail status of the nations largest banks.” She noted that in the first quarter of 2011, the cost of funding earning assets was only about half as high for banks with more that $100 billion in assets as it was for community banks with assets under $1 billion.

To her credit, she then called for “stronger and more uniform capital requirements” and a fair framework that subjects every institution – no matter its size – to the discipline of the marketplace.

But the damage is done.  Bigger banks have already received their Get-Out-of-Jail-Free Card and have made the most of it. The gap is wider than ever. A recent Celent study decried that new capital and regulatory burdens alone make the business of community banking unprofitable and basically untenable. 

Don’t get me wrong, I’m a free-market, free-entreprise, competition-is-great guy. And I’m not here to espouse uniformity or more state or federal oversight to ensure EVERY bank survives. That should not happen in any instance. But when you’re running a franchise for the federal government – and that’s essentially what banking has become – it seems wildly unfair that some banks get special treatment over others.

Until the playing field is leveled and community banks get the same consideration as larger banks, they face a very tough battle, one they are destined to lose.

By the way, after a promising start to the year, the Orioles find themselves in last place in the AL East, trailing the Yankees by a mere 30 games.

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Stand Out or Stand Down

There are just under 8,000 banking institutions in the U.S. and nearly as many credit unions.  Add in retail brokerage and insurance companies and you understand why so many consumers have a hard time distinguishing one from the other. 

Take Minnesota, for example.  Today there are 404 banks in a state of 5.3 million people.  That’s roughly one bank per 13,000 people.  That might not sound like a lot to you but the national average is one bank per 41,000 people. 

So, Minnesota has roughly three times the national average of banks compared to other states.  And if you’re one of those Minnesota banks, you’re competing against not only an oversupplied banking market but also credit unions, Wal-Mart and other financial institutions.

With all of this financial congestion, few financial institutions realize that their brand can separate them from a very crowded field.  In truth, most want a compelling, credible brand but are too distracted, busy or otherwise lazy to dig in and really uncover their true identities. 

And it’s as easy as starting with your customers.  When’s the last time you talked to them or offered a survey to really uncover why they do business with you over everyone else?  Before you invent some brand you’d like to be, find out where you are in your customers’ eyes.  After all, that’s all that really matters.

Finally, when you do decide what you are, do something different to promote it.  Get noticed.  It’s a big world out there with thousands of competitors, tens of thousands of cable channels and radio stations, millions of Websites and a zillion other distractions that bombard your customers every day. 

So if you’re serious about brand identity, don’t be afraid to stand up and stand out.

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Mobile Banking: A Very Strong Signal

Unless you’ve been living under a car phone for the last year, you know that mobile technology is revolutionizing finance.  And it’s gaining momentum fast.  The latest advances make Internet banking look like a horse and buggy solution.  Mobile deposits, remote deposit capture, banking apps and others are turning the industry on its head.  The revolution is catching the industry by surprise, happening faster than most regulators and bank boards would like. 

Quick message to the luddites out there:  Get over it.  The genie’s out of the bottle and there’s no turning back.   

Take a look at the latest annual retail banking report from J.D. Power & Associates.  The study, which was based on responses from nearly 52,000 retail banking customers regarding their experiences with their banking provider, offers more evidence that the delivery of banking products and services will simply never be the same. 

According to the study, mobile applications represent one of the fastest-growing transaction channels available to banking customers, and while adoption remains sporadic, generational differences have clearly emerged.  For example, 23% of Generate X and Y customers (those born after 1964) report that they use mobile banking, up from just 11% last year.

“Generation X and Y customers embrace opportunities to perform banking activities at their convenience, unrestricted by traditional banking hours,” said Michael Beird, director of banking services at J.D. Power and Associates.

Still not convinced?  How about new data that suggests 1 in 10 Americans — or 30 million — accessed financial services accounts (bank, credit card or brokerage) via their mobile device in the fourth quarter of 2010.  That represents a 54% increase in just 12 months, according to comScore’s quarterly Mobile Financial Advisor report.

“The ubiquitous nature of mobile devices affords financial brands an important channel to reach and engage customers, whether its at home, work or on-the-go,” comScore’s Sarah Lenart told The Financial Brand.  “In this competitive market, marketers will need to focus on continually improving the mobile customer experience to the changing landscape.”

Of course, the ramifications are enormous.  Setting aside the brick-and-mortar issues or the security and fraud concerns, think of how this changes your delivery system. 

Your business is lending, which you fund through deposits.  Your deposits only stick when their owners are happy.  And depositors are happy when they save time by executing routine, mundane banking tasks (pay bills, deposit checks, review statements, etc.) any time, any place they want.

So it appears that making customers happy is the key to banking.

And if you’re not getting this message, you better have your antenna checked.

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Five Marketing Ideas for 2011

In our last edition we analyzed whether community banks are ready to take part in the social media network with their own Facebook or Twitter pages.  Concluding that most community banks are not ready for such a journey, we now offer five to-dos that are worth tackling in 2011.

1. Redesign Your Website — Take a tour of 10 community bank Websites and you’ll be amazed at how user-friendli-less they are.  With Internet and mobile banking becoming the rage, it’s alarming to me that more banks don’t spend a little time and money on making their Websites more attractive and easy to use.

2. Introduce Remote Deposit & Mobile Banking — Nothing is more important than developing better technologies and services for your customers.  Simply make it easier for them to work with you.  That’s your job.  Remote deposit capture and mobile banking are terrific offspring to the now-antique concepts of Internet banking and bill pay.  Unfortunately, most banks are fighting this new paradigm with every ounce of energy they can muster.  Bankers seem to think that the less time customers spend in their branches, the less likely they will be to buy other products or, worse, remain loyal customers.  The exact opposite is true.  The less time users have to spend standing in line or waiting for a customer service rep to get back to them, the more satisfied and loyal they will be.  And these new fancy services aren’t just cool additions to your banking platform; rather, they will become absolute necessities if you plan on banking the next generation of customers.  So, it’s not a question of “if” but “when”.

3. Advertise On-line — Community banks have largely ignored this medium.  After all, they can hardly take care of their own Website, much less worry about posting ads on someone else’s.  Now’s the time to venture into this space.  It signifies to your customers that on-line is the future of banking and you’re ready for it.  Next time you review your advertising budget, consider the effectiveness (or ineffectiveness) of your last print campaign.  With new product and service launches, on-line advertising is the most efficient and effective way to get the word out.

4. Define your brand — Most financial institutions really haven’t identified what their brand is.  An effective brand strategy aligns every aspect of your business around one concept.  If you haven’t defined who you are, what you promise to deliver and how you will do that, now’s the time to discover your core brand elements.  Questions to consider include:

  • How are we different than the rest?
  • How is our brand promise relevant to our customers?
  • Can we back up our brand promise (is it credible)?
  • Can our brand be easily copied or improved upon?

5. Attack the Weak — You read the quarterly Call Reports like everyone else.  You know your competitors and their financial strengths or weaknesses.  Now’s the time to develop a strategy to capitalize on the realities of this economy: some will make it and others will not.  Strategies can range from an entire takeover or branch purchase to a simple calling program to introduce their customers to your services.  But act fast – your healthy competitors are thinking the same thing.

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Are Small Banks Ready for Social Media?

Within the last six months, we’ve seen an increase in the number of client and prospect banks asking about tapping into the growing network of social media.  Of all the marketing strategies available to them, some banking professionals believe Twitter and Facebook might solve their sagging loan demand and bottom lines.  Call me old school, but after more than 20 years in the marketing and financial services industries, I’m having a hard time wrapping my arms around how a small community bank would even consider such a notion – much less dedicate precious resources toward it.

Don’t get me wrong.  Anytime a bank shows interest in marketing or reaching out to customers and prospects is a red-letter day.  After all, most bankers put traditional marketing right up there with “taking out the trash” when they list their day’s priorities.  But with all of the issues surrounding most banks today, is Twitter really the answer to a more profitable tomorrow?

The irony is not lost on me.  A community bank with a Facebook page is like a student driver asking to take his test in a Ferrari.  Easy, laddie.  Let’s make sure you have the basics of communications down first before we upgrade you into a vehicle that is extremely fast, requires a ton of maintenance and, if you’re not careful, can get you into a lot of trouble.

Here are five reasons why I think banks under $500 million should seriously reconsider any ideas of launching a social networking initiative.

1.  Internal Resources

Banks have been misled into believing that it’s easy.  Anyone can have a Twitter, Facebook or YouTube account up and running in minutes.  Creating a social media presence, however, is the easy part.  Finding social media success is hard.  It takes care and feeding and a ton of quality writing.  And most community banks I’ve visited in the last 10 years don’t employ professional writers.  Marketing departments are already stretched thin.  To find any success with social media, most banks will need to create at least one fulltime position.  And remember, if your social media projects don’t take a lot of time, you’re doing it wrong.

2.  Cost

Some community banks seem to think that social media is immune to the fundamentals of marketing.  As the great showman P.T. Barnum once said, “Without promotion something terrible happens — nothing!”  Too many believe in a Field of Dreams approach:  “If I build it they will come.”  No they won’t.  You will have to spend time, money and resources to direct people to your social media.  It doesn’t just happen with a cool video or blog idea.  Self-promotion is a big part of getting the word out.  Add on the sweepstakes, promotions, mailings and giveaways you’ll need just to promote your initiative and you’re talking a pretty big expenditure for a risky (and likely unprofitable) first step into social media.

3.  Wrong Reason

Before you launch your social media initiative, ask yourself a simple quesiton:  “Why are we doing this?”  The majority of financial institutions embarking on these projects aren’t really sure.  Maybe they heard someone talk about how important it is at the last tradeshow.  Maybe they’re feeling peer pressure from the fear of being left behind.  Maybe they’re bored and they just want to do something.  Yes, young consumers are online.  Yes, social media is growing.  Yes, other financial institutions have social media projects.  But no, none of those are sound reasons to launch a social media project.

4.  Less Is More

The most precious commodity on earth is time. People’s time and attention have become so severely strained that people don’t even have the time to do the things they really want to do — like spending time with their kids.  And yet financial institutions presume that consumers will spend 10 minutes reading their blog or engaging via Facebook.  To consumers, the deluge of brands competing for their attention blurs into a deafening white noise.  Instead, find ways to help people spend less time interacting with your organization, not more.  Freeing up people’s time is a benefit to them.  Consuming more of their time really only benefits the bank.

5.  Track Record

Think about your previous communications efforts with your customers.  Do you have a newsletter right now?  If so, when’s the last time you published?  More importantly, when’s the last time you published something interesting and useful for your customers?  (And, no, that soccer team car wash you sponsored in 2009 doesn’t count.)  Banks, like other businesses, think customer communications are a great idea.  The first issue is paraded out with much fanfare.  Everyone is so proud of themselves.  What a crowning achievement.  Fast forward two quarters from now, and you’ll see lethargy and dread on the faces of the newsletter guy.  “We have to publish another one?”  That’s right.  You started this mess and you’re going to finish it.  So if you already have a lousy track record with a quarterly newsletter, think how stale your Facebook page will get when you’re expected to add something meaningful and interesting every day or week!


Most community banks under $500 million in assets probably lack the budget and staff to sustain any kind of serious, long-term investment in social media.  In all likelihood, there are probably other things more important than social media — things with more immediate relevance to your organization’s brand and, ultimately, bottom line.  Our next entry will outline some of the more important and pressing tactics that community banks should be doing to connect with their customers.

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Keys to being good at delivering bad news

No one likes bad news.  You don’t like hearing it. You don’t like delivering it.  Unfortunately, it’s a fact of life.  Nothing ever good has come from bad news, right?

Today, most financial institutions face bad news every day.  Whether it’s performance disappointments, sagging earnings, regulatory sanctions or, worse, criminal investigations, financial companies are bearing the brunt of the troubled economy.  Unfortunately, rather than dealing with the issues immediately most companies go into bunker-mode or spin control.  Too often boards and executive teams try to control the news by not saying anything or offering “no comment” when asked directly about the problem.

I see two problems with this tact.  First, generally news gets out – especially if it’s related to poor performance, an enforcement action or improprieties of any kind.  The world is filled with too many “cub reporters”.  In addition to the usual local newspaper and the TV and radio stations, companies now have to worry about blogs, YouTube, Facebook, Twitter and dozens of other media sources.  Chances are these new media will break a story or spread a rumor faster than you can say, “Call the attorneys.”

Secondly, if you don’t stand up and tell your story, someone else will.  If they do, you have lost control of your story and whoever is reporting it might not get it right.  The last thing you want on top of the bad news getting out is erroneous information filling the airwaves.  That’s like pouring salt into an open wound.

Next time you’re facing bad news or a brewing PR storm, remember these simple tips:

  1. Tell the truth. Amazingly simple advice that is so often ignored.
  2. Contact key constituents first. Employees, shareholders, key clients and vendor partners deserve a call from your company before it hits the paper or Internet.  They undoubtedly will be affected by this, too.  Show them that they’re important to you and tell them yourself first.
  3. Develop a central message. This is your script from which all answers to questions reside.  Make sure to avoid phrases like never, won’t or can’t.  Negative imperatives like that simply are untrue.  Rephrase your point in a positive way.  (Example: Instead of saying, “We never could have envisioned this type of economic collapse,” try something less negative like, “The economic collapse was more significant than we had planned or envisioned.”)
  4. One spokesman/woman. Control your outgoing messaging.  Appoint someone who can control the various avenues of communications, including internally to employees, an often forgotten but important constituency.
  5. Act quickly. The sooner you address the news the better.  Misinformation and swirling rumors will not subside until you take control with the truth.

Remember, bad news is bad for business.  But not reacting to bad news could be fatal.  Limit your damage and get out in front of the news by proactively tackling it head on.

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Shortening the Sales Cycle

Whether you sell door to door, in a mall kiosk or to a Fortune 500 company, the signals prospects emit are usually as bright and strong as a lightning bolt.  Verbal cues (what they say and how they say it) and nonverbal cues (body language) abound in most meetings.  Unfortunately, most of us are so focused on getting the order, we don’t take the time or have the discipline to watch and listen for their clues.

In his highly intuitive and useful book, Let’s Get Real or Let’s Not Play, Mahan Khalsa expertly illustrates how recognizing these not-so-subtle signals are critical to moving the sales process forward. In the book, Mahan describes that even when we as salespeople sense a propsect’s hesitation, confusion or apprehension, we rarely have the guts to stop the process and confront the issues immediately.  Khalsa calls these signals “yellow lights”. Like most drivers on a busy road, salespeople usually speed up and blow right through them instead of slowing down.  Unfortunately, Khalsa argues, if you don’t address a yellow light immediately, you soon will find yourself at a red light (a.k.a. the deal is dead).

More specifically, the author believes that most salespeople, who are inherently professional communicators, identify these signals but don’t have the guts to really ask the most relevant — and often difficult — questions.  In the PR business, I called these the “killer questions” (stolen from my PR mentor Jim Lukaszewski (  These were the questions you hoped the reporters wouldn’t ask you but knew that they would.  Actually, it’s not the questions that are so difficult. The answers to those questions are what make salespeople terrified.  Nonetheless, any good salesperson knows that a “quick no” is much easier — not to mention cheaper and more efficient — than a “slow no”.

Most sales professionals are paid to find, engage, present and close.  That’s it.  From that perspective, it’s easy to see why we want to go from find to close as soon as possible.  Unfortunately, most prospects don’t share our agenda and, in fact, might have very little interest in us completing our mission.  That’s why identifying and confronting yellow lights head-on can save you and them a lot of time and needless frustration.

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