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Articles

Banks and their partners need to face up a set of realities to manage successfully

Banks and their partners need to face up a set of realities to manage successfully

Sometimes it is valuable to rethink basic assumptions and hopes to consider the reality of working within a bank or credit union.

Example: Small Business. The small business segment offers exceptional economic value to banks. We work with one small business-focused bank whose customers provide deposits that exceed loans by 5X. That allows the bank to build other credit intensive businesses with actual funding costs at close to zero percent. Banks can also benefit from CRA related credits from this group. It seems undeniable that, run properly, the small business segment provides sustainable benefits to a bank.

Reality: Despite the positive economics (and my decades long preaching on this topic) most banks will never “get” small business. They move it around organizationally and often put too much focus on lending. Given the high costs entailed in lending, banks with a lending orientation are going down the wrong path with this group.

The So What: The banks that do “get” small business can and will use their success with that segment to fuel success with other business lines. Many will work with third-parties to provide loans while reaping the benefit of deposits and other non-credit areas.

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