Like many industries, banks have to break out from their traditional, transaction role that they’ve played for decades. They cannot take orders — make deposits and withdrawals, write loans — and wait for people to come to them.
“In the past, we haven’t necessarily gotten interactive, asked questions and tried to solve customers’ problems,” says Chad Hoffman, president and CEO of Richwood Bank.
Technology makes it easy to manage finances digitally and turn banking into a commodity. But a race to the bottom in pricing is not a great business model, he says. Community banks are dependent upon the community. They need to interact with their customers in creative ways. If banks become a resource, they can help business leaders improve the status of their company in ways that banks have never done before.
“Community banks are dependent upon people coming in and engaging. If the only person who sees you is the UPS delivery person who drops off your Amazon order, that’s not really a community,” Hoffman says.
Smart Business spoke with Hoffman about nontraditional services from banks that are doing more with the customers they have.
How are banks reacting to today’s market?
There are a couple approaches. Focusing on price — offering the lowest or highest interest rate, depending on the service — often only works for online banks with low overhead. They don’t need to pay for buildings or people. Other financial institutions are growing through mergers and acquisitions, with the idea that they can do more loans and more accounts because of a larger footprint.
Community banks, however, can provide additional value for both their individual and business customers. That can mean payroll services, wealth management, educational classes and even a marketing agency that, among other things, helps small and midsize businesses use geofencing in their digital advertising. (Geofencing creates a virtual geographic boundary, enabling software to trigger a response when a mobile device enters or leaves a particular area.)
These additional services aren’t just available to customers, but bank customers may get discounts for bundling services together. Business leaders like working with people they already know. If these services come from one place, the bank, they know who to call when something isn’t working well or if they have a question.
Progressive banks also serve as connectors, introducing business leaders to each other. A network of companies working together, forming new relationships, helps everyone.
Why are these kinds of services important to community-based companies?
Businesses have to do more with what they have; being non-customer-centric is the most dangerous thing companies can be. For example, retail businesses are under fire from e-commerce, so they have to improve the experience in order to attract customers. Many small and midsize companies don’t have the skills. They haven’t had to hyper-localize an ad campaign to get the most value from their marketing dollars. Technology is changing the game, like it always has, so businesses must adapt or become obsolete.
It’s not always about saving money, it’s often about saving time and adding conveniences. That’s why educational classes that teach management and leadership skills or strategic planning for business can be so helpful.
What does the bank gain in return?
Banks want their customers to do well. Helping companies be successful not only makes their account balances go up and lets them pay back loans easier, it also increases the quality of life. Community banks live, work and play in the same communities as their customers.
The value of the community bank should reach far beyond the deposit, account or loan to create an indispensable relationship for years to come. It’s about improving the overall financial picture, whether that’s educating people to help slow consumer debt, training managers to become better leaders or providing marketing services that get more customers through the door.
If community banks provide payroll services, for example, rather than worrying about payroll taxes and new regulations, executives can focus on strengthening the business itself.
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