How Banks Are Tackling the Primacy Challenge

“Primacy” or becoming the primary bank for your most valued clients, is a topic we’ve talked about a lot recently at PrecisionLender, both on our podcast and our blog.  Our interest reflects what we’re hearing daily from our clients. 

 

That’s why PrecisionLender held a pair of panel discussions this fall, centered around answering the question: “Achieving Primacy: Is Your Bank Invested?” We invited top bankers from around North America, to share what we’re seeing in the market data and to hear how banks are tackling this vital, but difficult, issue. 

 

Below is a recap of our September Primacy discussion, as well as responses from our attendees to several poll questions.

 

Our panelists were: 

Here’s an outline of the topics they covered:

In the broadest terms, a client’s primary bank is the one that meets their most important needs and is most trusted. Traditionally that usually was a status held by the bank that handled the client’s biggest credits. Now though there’s a growing school of thought that Primacy is more than that: Cash management and treasury management are also what’s most important for clients and therefore are the key services to win if a bank wants to achieve Primacy status.

 

Why Primacy Is So Important (What the Data Tells Us)

• Credit-only relationships don’t cut it. Not a great surprise, but the ROE erosion that has occurred with these relationships in the past two years has been stark. 
• Adding deposits hasn’t really helped. Deposits have flooded in during the pandemic, but unfortunately, with rates so low, deposits aren’t as impactful as they once were.
• Broadening relationships is key. Again, no surprise here, but we wanted to find out how much the impact can be when relationships expand to include credit, deposits, and other fee-based business. The cohort of relationships grew nearly 200 bps during a two-year span. (See chart below)
• It can take a long time to expand relationships. Often too long. In fact, about a quarter of relationships that began as credit-only between 2010 and 2015 are still credit-only.

ROE Growth in Relationships with Cross-Sell Growth

(Aug. 2019-Aug. 2021)

Thollesson also found that, while there are certain niches in which credit-only relationships can stand on their own, but they are few and far between. And when you stack up credit-only relationships next to broadened relationships within the same bank, the ROE difference is striking.

Achieving Primacy: Strategy 

While banks recognize the importance of achieving primacy, many still have yet to formulate a concrete strategy for reaching that goal. 

Poll Question #2

One of the keys, according to Max, is to shift the thinking about the sales conversation, moving from a product-centric to a customer-centric approach.  

“Are we pushing the flavor of the month or are we thinking comprehensively about what our customers expect us to provide,” he said, noting that “Every customer can have a different primacy.” 

As part of the culture shift, fnbo has been in work to define more granular customer personas.  

“We’re trying to talk about our customers not from a business line standpoint but from what their business needs are,” Max said. “We no longer think of a Small Business customer. We think of them as an “Ian” (fnbo’s name for one of their customer personas). What does Ian need?”  

For Westenberg, the key to Great Western’s primacy strategy has been increased transparency. He noted that the Relationship Awareness component of PrecisionLender was key in giving “added visibility” to all the bank’s internal business partners. The ability of groups like Treasury Management to see the aggregate reporting has “facilitated a lot more discussions.”  

“It’s re-motivated RMs to start having those conversations with clients, where they say ‘Hey, we see other clients that are in a similar spot that have been taking advantage of these other products,’” Westenberg said.  

Here’s more on that conversation from Westenberg:  

 

 

Max noted that the range of answers to the poll question may be reflective of the different ways Primacy gets defined at institutions, as well as “what data you can get your hands on.” He noted that fnbo has approximately 10 core systems their bankers work out of daily.  

“Getting a full picture of what our customer are, and then having conversations with 10 different people about what a core customer is or what wallet share looks like, can be challenging,” Max said.  

 At fnbo, they have tried to step back and not look at the customers through one of the 10 different business line lenses but through the aforementioned personas. Wallet share for an “Ian” might just be three products they use daily, while a larger client might need a more robust offering.  

Max also noted that it’s not just about whether their clients have certain products but also about whether they’re using them effectively.   

Finally, fnbo’s measurement is shaped by “Being 100% clear about what the bank offers and what we can help you with. It’s very important in making sure we aren’t losing out on opportunities to fintechs in the money movement space and the payments receivable space.”  

“If you can develop true capabilities that save customers time and make their jobs easier, those conversations broadly have a significant impact on the traditional credit side as well,” Max said.  

Here’s more on that conversation from Max: 

 

Westenberg said that Great Western measures Primacy by looking at credit-only and broader relationships by customer size and region.  

“It’s also about making sure we have a really clear understanding of what the profitability of each of those products really is,” he said.  

Great Western wanted to get that measurement right to ensure their bankers would have buy-in and belief in their pricing and profitability methods in PrecisionLender.  

Target-setting is another key component for Great Western, Westenberg noted, “to drive incentives and behaviors.”  

Achieving Primacy: Mining Insights 

Poll Question #4

Relationship stickiness was the clear winner in this poll. 

“It’s so important,” Thollesson said. “You don’t have to be the cheapest game in town … It’s no guarantee your customers will stay, but they tend to come back to you for a least a last look in those cases, if you’ve got that stickiness.” 

The conversation then turned to data mining efforts to identify prospects for specific products and services (e.g., a client with a certain profile that’s a candidate for Treasury Management services).  

But for Max, opportunity identification is the easy part. The critical piece is figuring out what to do with that information. As he noted, an RM could potentially have to go to 5-6 different groups based on how they want to pursue their next step. Thus, the mantra at fnbo has become “Simplify. Simplify. Simplify.”  

“Make sure RMs know exactly what to do when they see a piece of information they want to take action on,” Andy said. “They may not enjoy it – it may mean going into Salesforce quickly to start a referral - but if we can’t measure anything, we can’t understand if we’re collaborating well.”  

Westenberg added that Great Western has found great value not just in identifying potential new opportunities to add, but also by studying previous opportunities they lost – and what those relationships typically looked like.  

“Most are credit only,” he said. “It really points to that stickiness part. Being able to show that data to RMs helps them realize the value of cross-sell and of adding multiple products.”  

Another key facet: Delivering those insights into bankers’ hands. Westenberg pointed out that Great Western shares that information out not just to RMs but to other business partners, “so they can approach the RM and say ‘Hey, are some opportunities where we can help you deepen your relationships.”  

Here’s more on that conversation from Westenberg:

Max reiterated his earlier point about making sure the insights led to action, adding that it’s critical for the bank’s leadership to establish how the groups will work together.   

“It might seem like a basic conversation to have, but we have a lot of product line experts,” he said. “And they all about their work in their separate ways.”  

Achieving Primacy: Accountability & Collaboration 

Poll Question #5

Thollesson pointed out that, even if RMs are using tools that include product and profitability information while structuring deals, a good faith input at that point could lead to bad results later without proper follow-up. This led to a discussion about Delivery to Promise – ensuring that cross-sell accounts promised during deal negotiations are eventually delivered to the bank. 

Max noted that fnbo uses PrecisionLender’s Delivery to Promise functionality frequently. “It’s a conversation piece at every one of our commercial pricing meetings,” he said. “It’s not intended to be a call-out. It’s an awareness.”  

Max added that the most important time to examine Delivery to Promise data is during renewal conversations.  

The conversation then turned back to collaboration. Max spoke about the need to first build trust between different lines of businesses, to get them having conversations negotiating deals with new customers, not after. Part of that trust is ensuring that, for example, when an RM shares a relationship with another part of the bank, they can be confident in the service model employed by that other line of business.  

As for collaborating on deals with existing customers, Max felt the key was to ensure the insights are shared “broadly, with anyone that’s interested … If we’re pointing out opportunities to RMs, those same opportunities should be pointed out to payment providers.”