five things you can do to attract and retain business accounts october 11, 2012 become a business...
TRANSCRIPT
Five things you can do to attract and retain business accounts
October 11, 2012
Become a Business Accounts Superstar
Twitter #HC4Biz
2
Today’s presenters
Stephen Nikitas
Senior Marketing Strategist
Harland Clarke
978.870.5438
Robert Bibb
Director of Analytics & Business Intelligence
Harland Clarke
615.261.7157
Twitter #HC4Biz Webex Q&A:
3
Objectives
● Understand the challenges facing financial institutions Why you should focus on commercial accounts
● Initiatives designed to attract new business accounts Targeted initiatives relying on analytics increase effectiveness
● Initiatives designed to retain current business accounts
4
The Challenges Facing Financial Institutions
5
The Challenges
● An economic recession with the softest of recoveries GDP at 1.3 percent Unemployment at 7.8 percent
● Most new jobs are at minimum wage 77 percent of jobs created since end of recession are in low-
paying sectors: retail, leisure/hospitality, home healthcare 1
● Mortgage issues persist Two million homes are in foreclosure 2 11 million to 16 million homes are underwater 3
• One mortgage in three
Following 1989 housing collapse, prices did not come back until 2000 4
1 Source: Bureau of Labor Statistics2 Source: Harvard Joint Center for Housing Studies3 Source: Zillow4 Source: Case-Shiller Home Price Index
6
The Challenges
2006 2007 2008 2009 2010 2011 201250%
60%
70%
80%
90%
100%
82.23% 83.32% 83.10%
76.05%
71.82%69.50%
66.05%
91.46% 92.73%
85.21%
76.44% 75.81%
71.43% 70.44%
Loan to Deposit/Share Ratio
Credit Unions Banks
Ratios are the lowest in 25 years with $1 trillion in excess deposits.
Source: NovantasSource: NCUA and FDIC
7 Source: FDIC
The number of commercial banks is decreasing
The Challenges
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20124,000
5,000
6,000
7,000
8,000
9,000
7,880 7,770 7,631 7,526 7,401 7,2847,087
6,8406,530
6,291 6,222
Number of Commercial Banks
8 Source: FDIC
Community and regional banks make up the majority of U.S. banks.
The Challenges
34.1%
57.7%
8.2%
Commercial banks under $100 million in assetsCommercial banks with assets between $100 million and $1 billion Commercial banks over $1 billion in assets
9 Source: NCUA
At the same time, the number of credit unions continues to decline.
The Challenges
2006 2007 2008 2009 2010 2011 20124,000
5,000
6,000
7,000
8,000
9,000
8,3628,101
7,8067,554
7,3397,094 6,961
Number of Credit Unions(Federally Insured)
10 Sources: NCUA and FDIC
The Challenges
● About 2,200 credit unions write business loans This is up 10 percent since 2006 The average credit union business loan is $223,000
● Business loans make up 5.7 percent of all credit union loans
● Many credit unions lack the resources to focus on the small- to medium-size business market
The average credit union has $93 million in assets The average bank has $1.53 billion in assets
11
The Challenges
● Increasingly, banks and credit unions need to focus on the financial needs of commercial and small business entities
This will help financial institutions to diversify and weather economic downturns
● Small- and medium-size business loans are a growing portion of a financial institution’s overall loan portfolio
● Managing a financial institution’s business loan portfolio is critical Most bank failures in the 1980s, 1990s and the first decade of this century
were directly related to their inability to adequately manage their commercial real estate loan portfolios
● Credit unions are relatively new to business banking Currently, a credit union’s business loan portfolio can total only 12.25 percent
of its assets For the past several years, credit unions have lobbied Congress to raise the
cap to 27.5 percent Under pressure from banks, Congress has failed to act on credit unions’
request
12 Source: FDIC
The Challenges
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
17,005,467
18,448,477
15,461,741
19,317,043 19,315,245
22,068,041
25,375,955
21,404,066
19,732,645
20,444,053
22,125,148
16,088,508
17,595,900
14,563,891
18,369,20518,380,527
20,931,864
24,365,586
20,387,880
18,833,79719,570,805
21,262,801
Number of Commercial Loans at U.S. Banks
Up to $1 million Under $100k
13 Source: FDIC
Banks have cleaned up their balance sheets.
The Challenges
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120%
1%
2%
3%
1.83%
1.09%
0.58%
0.47%
0.51%
0.88%
1.62%
2.72%
1.54%
0.78%
0.58%
Loan Charge-offs
14
Five things you can do to grow and retain commercial accounts:
Your Business Focus
1. Acquire the right new business accounts
2. Position your financial institution as a thought leader
3. Onboard new business accounts
4. Cross-sell to existing business accounts Strengthen the relationship with them
5. Retain business accounts
15
Your Business Focus
● According to the Small Business Administration, small businesses: Employ 500 or fewer people Depend greatly on credit financing for growth Consist of more than 50 percent of all private sector workers
● Compared to large firms, small businesses have a higher percentage of employees who:
Fall under the age groups younger than 25 and older than 65 Receive public assistance Lack a high school degree Have a doctoral or professional degree
● Many small businesses also: Focus on providing services over goods Reside in rural areas
16
Pause for Q&A
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17
Acquiring Business Accounts
Business Lists Begin With Data
● Multi-sourced nationwide business databases available from a handful of leading suppliers provide tremendous breadth and depth of business coverage
● These databases include 23+ million businesses and 35+ million contacts
● Most re-compiled/updated quarterly (some fields monthly)
FIRMOGRAPHICS = The “Demographics of Businesses”
● Starting Task #1: Match your current business account holder file to a national business database, append firmographic data and profile your account holders — good entry point for targeting prospects!
Contact Title
Sales Volume
Number of Employees
Year Founded Woman-owned Flag
Minority-owned Flag
Franchise Flag
Business Legal Type
Phone Number
SIC Industry Codes
This is Key!
19
Targeting is Key for Small-Business Acquisition Success
● Firmographic profiling and segmentation enables marketers to identify industries that are potential heavy deposit users
Prospects can then be flagged for further net down
● Another effective strategy: focus on businesses in the late growth and mature lifecycle stages
Start-up firms generally use cash flow to fund ongoing operations and typically lack excess cash for savings. This undermines the ability to aggressively cross-sell additional deposit products.
Small-Business Industry Segment
Growth Potential
Bank Experience
Deposit Potential
Ability to Differentiate
Overall Priority
Business services
Health services
Not-for-profit
Government
Food services
Real estate
Insurance
Real estate title
20
Real World Example: Overall Campaign Results
● The 20,000 mailed prospect businesses opened 107 total deposit accounts for an account response rate of 0.54% at an average total cost per new account of $234. Total deposit balances matching the mail file exceeded $1.76 million, yielding an average account balance of $16,505.
Overall Campaign ResultsDeposit AccountsCriterionTotal Mail Quantity 20,000Deposit Accounts Matching Mail File 107Total Current Deposit Balances $1,766,033 Account-Level Response Rate 0.54%Average Balance Per Deposit Account $16,505 Total Campaign Costs $25,000 Cost Per Account $234
0.29%
0.54%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
Industry Account Resp% Client Account Resp%
Response Performance
Campaign delivered a response rate
almost twice the current industry
average
21
Results by Deposit-Rich Versus Non-Rich Industries
● Businesses in “deposit-rich” industries — heavy deposit users with high transaction activity — dramatically outperformed non-deposit-rich businesses
● Account response rate of 64 bps was almost double, and average account balance within the deposit-rich sector was nine times greater than non-deposit-rich industries
Results by Deposit Rich IndustryDeposit AccountsCriterion Deposit Rich OtherTotal Mail Quantity 13,293 6,707Mailed Households Responding 55 18Deposit Accounts Matching Mail File 85 22Total Current Deposit Balances $1,717,033 $49,000 Household-Level Response Rate 0.414% 0.268%Account-Level Response Rate 0.639% 0.328%Average Balance Per Deposit Account $20,200 $2,227
Response Rate and Average Balance
0.64%
0.33%
$20,200
$2,227
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
Deposit Rich Other
Acc
t R
esp
%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Avg
Bal
ance
Acct Resp % Avg Balance
22
Results by Revenue-Size Class
● Account response rate shows moderate differences by revenue-size class, with annual sales of $500,000 or less outperforming companies in revenue categories greater than $500,000
● Businesses with $1 million or less in revenue delivered a significantly higher average account balance than larger companies
Results by Annual RevenueDeposit Accounts
CriterionUnder
$500,000$500,000 to $1.0 Million
More than $1.0 Million Unknown
Total Mail Quantity 7,239 4,787 5,599 2,375Mailed Households Responding 28 18 19 8Deposit Accounts Matching Mail File 47 21 25 14Total Current Deposit Balances $1,151,791 $493,391 $25,778 $84,563 Household-Level Response Rate 0.387% 0.376% 0.339% 0.337%Account-Level Response Rate 0.649% 0.439% 0.447% 0.589%
Average Balance Per Deposit Account $24,506 $23,495 $1,031 $6,040
0.649%
0.439% 0.447%
0.589%
0.000%
0.100%
0.200%
0.300%
0.400%
0.500%
0.600%
0.700%
Under $500,000 $500,000 to $1.0Million
More than $1.0Million
Unknown
Account Response Rate by Revenue
23
Results by Employment-Size Class
● Fewer than 20 employee firms produced strong account response performance, while those with more than 20 employees fell substantially short of the campaign average
● Although these larger firms received more than eight percent of the total DM spend, they contributed less than one percent of new account openings
Results by Number of EmployeesDeposit Accounts
Criterion1 to 4
Employees5 to 19
Employees20 or More Employees
None Reported
Total Mail Quantity 12,154 5,153 1,665 1,028Mailed Households Responding 43 23 1 6Deposit Accounts Matching Mail File 69 30 1 7Total Current Deposit Balances $1,261,204 $493,303 $25,778 $11,527 Household-Level Response Rate 0.354% 0.446% 0.060% 0.584%Account-Level Response Rate 0.568% 0.582% 0.060% 0.681%Average Balance Per Deposit Account $18,278 $16,443 $25,778 $1,647
Account Response Rate by Distance
0.568% 0.582%
0.060%
0.681%
0.000%
0.100%
0.200%
0.300%
0.400%
0.500%
0.600%
0.700%
0.800%
1 to 4 Employees 5 to 19 Employees 20 or MoreEmployees
None Reported
24
Results by Other Firmographic Characteristics
● Strongest DM performance for both response rate and average balance was delivered by businesses founded within the past five years (0.71% and $23,277 respectively)
● Response rate of companies in the 6- to 15-year old range was substantially lower with an average balance of less than $2,500
● Response-wise, single-location firms slightly outperformed multi-location headquartered companies and delivered an average account balance that was 2.5 times higher
Results by Years in Business
Criterion5 Years or
Less6 to 15 Years
More than 15 Years
Total Mail Quantity 6,316 6,722 6,962Mailed Households Responding 29 20 24Deposit Accounts Matching Mail File 45 26 36Total Current Deposit Balances $1,047,457 $64,507 $654,069 Household-Level Response Rate 0.459% 0.298% 0.345%Account-Level Response Rate 0.712% 0.387% 0.517%Average Balance Per Deposit Account $23,277 $2,481 $18,169
Results by Type of Company
CriterionMulti-Location Headquarters
Single Location Firm
Total Mail Quantity 2,611 17,389Mailed Households Responding 10 63Deposit Accounts Matching Mail File 13 94Total Current Deposit Balances $82,371 $1,683,662 Household-Level Response Rate 0.383% 0.362%Account-Level Response Rate 0.498% 0.541%Average Balance Per Deposit Account $6,336 $17,911
25
Using “Business PMAs” for Geo-Targeting Leverages Location Proximity and Business Affinities
Drive geographic selection of business prospects with custom Primary Market Area (PMA) solution
Addresses of business account holders acquired in past 24 months are geo-coded and mapped for each branch
Polygonal trade areas are created around affinity neighborhoods
Replaces sub-optimal radius pulls and aligns mail geography with areas from which your branches draw new business account holders
Reduces wasted mail by 5-15% and refocuses mail on known opportunity areas
Missed Opportunity
Wasted Mail
26
Suppress areas where your FI has achieved no meaningful business penetration
Further Refine Business PMAs
Branch
27
Precision Targeting Through the Modeling Journey
● Developing and deploying custom small-business models represents an evolutionary journey in acquiring greater targeting precision and ever-improving campaign results
● Initial use of “clone models” delivers strong DM results while accumulating a sufficient base of campaign responders to build even more predictive business acquisition models
Reserve a portion of each campaign mail quantity for random “widecast” mailing
Product profile “clone” models
Direct mail response models
Quality optimization
models
Incremental lift models
Acquire closest look-alikes to
current business account holders
Build new models based on gross response rates
Optimize trade-off between response rate and account
holder quality
Maximize ROI on direct marketing
spent
Offers Must Resonate With the Business Audience
● Most business deposit relationships begin with opening a business checking account, which establishes a primary financial institution
Provides a base from which to cross-sell additional products and services
● Articulating an overall superior checking value proposition is critical to the success of direct mail programs
Our experience in the small-business acquisition space has been that “Cash is (still) King”
29
Hiding in Plain Sight — Small Businesses Within Your Retail Account Holder Base
● Many FIs have discovered that a significant number of their supposedly “pure retail” account holders own and operate small businesses
These account holders only have consumer accounts with us, but have their business relationships with competitors — they should have ALL their accounts with us!
Harland Clarke’s research shows that anywhere from 7 to 15% of consumers operate small businesses, but their retail FIs are often not aware of this
● Strategy: Identify and profile potential small-business owners among our retail account holders by matching our retail MCIF with a national business database
Results can drive idea generation around business-focused contacts with our retail account holders likely to have business account relationships with competitors
This represents a great “quick win” in the business banking space
30
Business Match Approach
● Most recent MCIF is cleansed, householded, purged of businesses and foreign addresses, then matched against two multi-sourced proprietary databases
Third Party Databases
Retail Customers with 1 or More Matches:
38,070 (15.8%)
Total Households in 7/31/2012 MCIF:
358,166
Net Cleansed Retail HHs Available for Matching:
241,062CASS, Dupe, Business
and Foreign Purges Consumer Database SOHO
Business Database
31
Growing Business Accounts
32
Position Your Financial Institution as a Thought Leader
● Regularly communicate advice to business owners and executives on how their businesses can grow
Email campaigns focused on providing information
● Provide best practice information surrounding marketing and retail endeavors
Remain abreast of general business events
● Inform accounts of your products and services – be proactive
33 Source: Small Business Administration
Position Your Financial Institution as a Thought Leader
● When businesses grow to approximately seven employees, they see their roles change. The more employees they have, the more likely they are to:
Expect their financial institution to reach out to them
View the financial institution’s staff as critical to their success
Feel a need to take care of employees
Spend more time managing and worrying about hiring the right people
34
Where do businesses search for help?
Position Your Financial Institution as a Thought Leader
Score, SBA, Chambers of Commerce
Media
Trade Associations
Financial Institutions/Suppliers
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
55%
64%
66%
84%
Source: Bredin Business Info
35 Source: ESCB
Sixty-six percent of small businesses want you to communicate with them via email.
Position Your Financial Institution as a Thought Leader
66%
16%
14%
4%
Email Direct Mail Telephone In Person
36
How to onboard new business accounts:
Growing Business Accounts
● Conduct multi-touch communication campaigns utilizing multiple channels
Direct mail/email/outbound teleconsulting
● Make businesses aware of your products and services Welcome 30-day – loans 60-day – deposits 90-day – business services Follow-up is imperative – telephone or knock on the door
● Encourage product/service activation and usage
● Inspect what you expect
37
How to cross-sell to existing business accounts:
Growing Business AccountsConduct multi-touch communication campaigns utilizing multiple channels• Direct mail/email/outbound teleconsulting
Make businesses aware of products and services• Follow-up is imperative
Eight in 10 small business account holders have a personal account with their primary checking account’s financial institution (Synergistics)
• Two-thirds report the personal account came first• One in six say the business and personal accounts were opened together
Inspect what you expect
38
How to retain business accounts:
Growing Business Accounts
Reach out frequently to commercial clients to ensure they are: • Satisfied with the FI
• Receiving the right product and services
• Provided email/direct mail/outbound teleconsulting services
Make businesses aware of products and services• Follow-up is imperative
Revisit denied loans
Inspect what you expect
39
Five things you can do to grow and retain commercial accounts:
Your Business Focus
Acquire the right new business accounts
Position your financial institution as a thought leader
Onboard new business accounts
Cross-sell to existing business accounts
Retain business accounts
40
Thank you!
Q&A
40 Twitter #HC4Biz Webex Q&A: