In game theory, there is what is called the “dominant strategy.” A dominant strategy for a bank is a position that no matter what other competitors do, that bank will earn a larger return. Now, few strategic decisions facing a bank have a dominant position, so when a bank finds a choice that results in a dominant decision it is imperative that they take it. Thus, when we get asked “What is the one thing that a bank must do to ensure its future,” this one strategy is on the top of our list.
As we all know, things aren’t always as they appear. In the classic image below on the left, the two horizontal lines are of equal length. In the below image on the right, you can see both a young fashionable woman looking away and an old woman’s left profile (which one do you see?). We won’t even get into the blue/black/gold/white dress debate. Similar illusions can be found in commercial lending.
It is understandable that banks are confused on how to use the new Apple iOS 8.3 emojis that just came out on the iPhone. We see all sorts of improper use. Like the one to the left. Some banks use this as if to say everything is Ok. The reality is that this emoji has the complete opposite meaning. Notice the gap between the fingers? What this really says is “I am this close to slapping someone in management for screwing up the account.” See – totally different meaning.
Dad used to always ask us – “What is more important – your mind or your body?” It was a trick question and the lesson he was trying to impart was that both are equally important. One is no good without the other and both need to be developed to be equally strong and in concert. The philosophy can be applied to banking as the discipline of pricing is equally important to credit, asset-liability management, risk and strategy. Unfortunately, many banks don’t devote enough resources to pricing loans, deposits and services, and it impacts their earnings.
On this Earth Day, we are happy to report that doing right by the Earth can also help your borrowers and shareholders. When you underwrite your next loan on a commercial property, it might make sense to understand the property’s “walkability” or ability to walk from the property to nearby amenities such as public transportation, markets, parks and shops. The easier it is to get from your collateral the more likely that property will appreciate in a good market and hold its value in a down market. This goes for office, retail and multifamily.
In branch banking, there was always the dilemma in gathering customers. The number of customers a branch would attract was a mathematical function based on location of the nearest competing branch, services/products, brand and price. All things being equal, customers tend to choose the branch that is the closest. Lower the price of a product, increase the brand value (marketing) or offer some unique services/products, and a branch could pull from a wider service area and increase market share.
Happy Birthday! While statistically it is likely your birthday is today for approximately 0.376% of you (birthdays are not evenly dispersed throughout the year), we apologize to the rest for missing your special day. We endeavor to improve and hope to collect your birth date as soon as we can figure out a way to ask for your date of birth without being creepy. Our dream is to one day send you a special card or at least an email with a gift inside as when it comes to marketing, that is one of the best campaigns a bank can do.
JD Power’s 2015 US Retail Banking Satisfaction Study that was released in part several weeks ago had some interesting information that might impact the strategy and tactics for community banks. While the full report will not be out until the end of this month, we were highlighting some points for our management so we wanted to share. The overarching good news is that, in general, satisfaction with banking continues to increase and once again community banks led the way with a score of 802 compared to large banks at 786.
Every day, there is a banker somewhere in the country that declines to make a low margin loan for fear of hurting the profitability of the bank. While we have discussed in the past (HERE) why that lower margin loan you are giving up may be more profitable than a higher margin loan (especially where that loan is an existing customer that is looking to refinance), today we look at the math in order to give bankers a quantitative framework for making that decision.
The question came up the other day in our branch if we should equip it with customer wifi. What we thought was an easy question to answer, seemed to have some debate starting with the cost and how often customers that walk into a branch will stop and use wifi. After all, if we do our service job right, the customer is in and out of the branch and on their way, so who has time to connect to wifi? While partially true, there are several other reasons why banks may want to equip their branch with wifi that may not be obvious but should be considered.
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