Banks need better collaboration on commercial deals in order to win coveted deals and improve profitability. But as we discuss in this Purposeful Banker episode, that's much easier said than done.
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Transcript:
Jim Young: Hi and welcome to the purposeful banker podcast brought to you by PrecisionLender, where we discuss the big topics Minds of Today's Best Bankers. I'm your host, Jim Young with her content PrecisionLender joined again today by Dallas Wells, our EVP of strategic initiatives. Today, we're going to continue our summertime conversation around the broader topic of becoming the primary bank. And previously, we talked about that concept, how to define it, why it's so important now for banks and we'll have a link to that podcast in our show notes.
Today, we're going to talk about a different topic that's key to becoming primary process. It's deal collaboration, or maybe as I was writing this out I thought maybe I'm being a little too presumptive here so I'll back off and we'll see if we can prove that point during the point of this conversation. So let's start off then by first just exploring the concept of deal collaboration in the commercial bank and how that's changed in recent years, then we'll tackle whether it's essential to a bank's pursuit of primary status. Dallas was backing out to the widest angle lens here and asking that broadest question first. When we say deal collaboration in commercial banking, what are we talking about?
Dallas Wells: Well, just to start with the simplest part, putting together any kind of deal so any kind of services to a commercial customer takes a small army and so deal collaboration is just simply the working together of all the different facets of the bank and all the third parties that have to come together for a deal to happen. So that means both things directly involved. If we're talking about credit things directly involved with putting together that credit, so getting it underwritten and approved, all things verified through third parties, appraisers, insurance documents, lien searches, all that kind of stuff, title work, all those things kind of take the communication and collaboration just on the credit side. And then once we move outside of credit, then we started talking about the other parts of the bank to offer deposit services, treasury services, being able to wire money in different places for doing hedging of any kind.
You start to see where this can touch maybe a dozen different departments within the bank and then if you're doing syndicated or participation loans, it could involve the same number of departments Aite partner banks. You could involve the SBA various different subordinated lending partners. It gets really complicated. And so deal collaboration is one of those simple words that to the bankers that are in it all day, they kind of understand the complexity behind it. And that's essentially the job. That's why commercial bankers and relationship managers are well paid and it's a high stress job is because there are a whole lot of balls in the air just to get a deal to a closing table and actually make it happen.
All right. So you mentioned that stress let's take you back to some of those stressful memories then to your days as a commercial banker.
Dallas Wells: Thanks for that, yeah.
Jim Young: Even more expressive when recording a podcast, let's go back to your days as a commercial banker and when you had a deal that is potentially involving the multiple products not just credit and of course you mentioned it's not even just about the products, it's all the project management of it too, but for now that part of hey, we're not just talking about a loan here. How did you make it work or not work?
Dallas Wells: Yeah. So some of this will probably some of the newer bankers seem a little bit a horse and buggy days. And I think, I don't know, maybe a lot of bankers will look on it fondly, but a lot of it was face to face making this stuff work. And it's going to look very different depending on the size and scale of your institution, right? So I'll give a quick rundown of kind of both ends of that spectrum. So, the smaller banks and community banks a lot of times the relationship manager or the loan officer kind of handle all aspects of it so they'll actually do the selling of all the products and kind of put together this package deal. And then they will have to go to kind of coordinate those things actually so like the deposit accounts actually getting open the treasury services actually being turned on by some of the deposits and operational staff, but essentially you have a credit, our loan officer handling both the credit and the deposit side of the business and selling and packaging, both acting as both a relationship manager and the treasury services officer.
That's also because generally you're dealing with smaller customers and the products are fairly straightforward. It's pretty plain vanilla, of course, handling all the people aspects in relationships up. It's never plain vanilla but the products themselves are fairly straightforward as the banks get larger and especially as the clients get larger, the sophistication and complexity goes way up. And so you add more and more specialists to that. And so again, the way this used to work would be that there would essentially be referrals and some banks will do it with ticketing systems and some of them would just be with building relationships across those internal walls.
So you would know somebody in the treasury group that you trusted and depended on and you would refer business to them. Same thing on the deposit side, on the derivative side, if you were doing swaps and hedging. So being a relationship manager was just as much about building relationships inside the institution as it was outside. And being able to kind of bring this small army to bear to properly service that customer. So, that's kind of the essence of the work to be done. Again, much of it was face-to-face lots of meetings, phone calls to kind of coordinate all this stuff.
Jim Young: Got it. I hesitate to even ask what it was like from an information sharing standpoint in terms of ...
Dallas Wells: Oh gosh. Paper files on the customers and a lot of times those would be like physically checked out from places so it'd be like, Hey, who has the Wilson file? And it would literally be sitting on someone's desk and so that's why there was lots of face-to-face collaboration it was kind of one source of that information and you're putting together your write-up or your notes and adding those to the file and putting together these packages that then go before committees, but the information sharing was clunky, but there was generally one source of the truth and banks were pretty good about, about managing that and coordinating that.
Jim Young: So take us back now to modern times here how different or similar when you talk to clients and prospect banks out there and you talk about this process, how different or similar is it to what you're seeing now?
Dallas Wells: There's a lot of banks out there that it works essentially exactly the same. So the files may be kept on a shared drive now within the network, it's an actual paper file although, I'm guessing there's still some out there clutching onto their paper files until they're physically taken from them. But for most institutions, this is an area of the Ted just a ton of technology layered on top of it. And so you have loan origination systems, you have CRM platforms, you have tools like PrecisionLender, you have credit underwriting platforms and collateral tracking systems. All of this stuff is now kind of being managed and stored within technology solutions of some kind, the underlying job to be done is still the same, right? We're still trying to discuss a mutual client across departments of the bank and come to a coordinated response in a package offering for that customer.
And in a lot of ways, the technology has made that easier and more efficient. We can share information sort of instantly and people can be doing the same thing at the same time from thousands of miles apart. But the communication part of it I think is part of what's gotten more difficult and that's what we hear from a lot of bankers is they feel like they're a little bit flying, more blind than they used to so they can see bits and pieces of transactions, but it's simple things like, oh, well, the treasury stuff is priced in and structured in their own system and I don't have access to that. I literally can't see it. And we don't have the sort of established pattern of, Hey, walk me through what you're doing for that customer. I'll come down to your office and we'll walk through it instead.
It's all kind of assumed that it's going to be happening on the technology. But a lot of times it just doesn't. So the basic workflow, so to speak is the same. It's just that instead of moving in paper files across the desk, now banks are trying to have that exact same process happen with the technology. And I think that's part of the struggle is that banks are notorious for just saying, well, we have a paper system that works fine. Let's just replicate that exact same workflow and process with a multi-million dollar technology platform. And a lot of times that's just not working. We have this concept of like storing things in files and only certain people have access instead of a true collaboration and ability to communicate and see what's happening in a deal and be well-informed on it.
Jim Young: Yeah, I guess. And tell me if I'm once again, my unfrozen caveman analogy here outside of making is accurate or way off here. But I think about it in terms of like either flow from progressive or my local cable company, the bundling sort of stuff that they do, but when they bundle it sort of like it's built in priced, right? If you do this, this, this and this, well, then you get this price. And it seems like what we're talking about here is a bundling, but at the same time, it would be like, Hey, the guy who did sells my TV subscription has a price that could be affected by what happens if I also add wireless, if I add phone on it too, but the phone guy also has a price that could be affected by what the TV guy's doing this and their pricing is impacted by each other and they're trying to give you a price at the same time and it makes my head hurt even trying to describe this feels a little bit like you put a pecking order in it, or how does that work?
Dallas Wells: That's a pretty good description of it. And I'll tell you what we see all the time as you actually dig into profitability of these deals after fact is we will see that on the treasury side of the transaction, they discount the heck out of it because they know that like they have this vague awareness, We're trying to win this big loan. Right? So the relationship manager told me we're trying to get this $25 million loan facility done so we need to be really aggressive on this and make sure that, I mean, heck we'll even lose a little bit of money if that's what it takes to win alone. And on the loan side of the business, they're doing the exact same calculation. They're like, man, the loan is wildly competitive, but as long as we can use that to win the deal we'll make it back in all this lucrative fee income that we're going to make on the treasury side.
And you put the deal all together and you're like oh my gosh, we gave it all away on every angle. And that sounds ludicrous for this kinds of dollars in the size of the transactions we're talking about, but we see it over and over and over again, or we'll see the exact opposite tact of they're not communicating that there doesn't need to be a LOS leader in a transaction to try to win it. And they're losing deals and they can't understand why it because look, I had to be made whole in my loan, we were going to win it with the feed business or vice versa. So simple decision on what the strategy is what's the plan to go after a customer collectively so that we both have a good chance of winning and can make a reasonable risk adjusted return on that deal.
Once we win it, that's kind of the core of what commercial banking is supposed to be and I think that's a lot of what happened when bankers would sit kind of knee to knee at a table and somebody's office and come up with a game plan on that yellow legal pad. That part is it's intended to be baked into the technology but a lot of times it's just not the communication doesn't happen in that same way. And the other reality is cause I don't want to make it sound like the bankers are just failing at this you're talking about a quarter of the employees handling the same transaction volume that they used to so the technology has made it more efficient. If you just look at sheer head count how many deals can I handle?
How many customers can I service? That number has gone way up, but how many can you actually take some time to think through and have time to discuss with the other people involved, what the right strategy is that part's a little harder. So as they're doing hurry up, get it done and get it put together and move on to the next deal. You kind of put your stuff into your own system, trust that the folks on the other side will do what they're supposed to do and then you move on to the next one. And at some point the bank management teams have to step in and help with that. They have to clean that up for the bankers to be able to navigate that mess.
Jim Young: Yeah. I'm not going to lie to you. My chest is like tightening listening in this discussion because it sounds like, because the other thing I'm thinking about just right now current state right we know that credit side is being pushed for volume. Right? They're being pushed to put out a lot of I don't know exactly what treasury is being told, but if they're not being told the same thing then you mentioned about sorting that out and I get almost it's a weird sort of state. It's almost the technology makes things more possible but also in a way makes it and I say technology in general in terms of digitization, right? Speeds things up makes it more possible,
Dallas Wells: Yeah.
Jim Young: But also adds a layer of difficulty and how do you get people aligned on what they're incentivized to do in it? So we've really just come up with a whole lot of really valid reasons for why collaboration is difficult. So can you then do a 180 on this and take us to sort of a panacea ideal state where a bank has sort of sorted this out and what that would look like if this concept is put into reality?
Dallas Wells: Yeah. So I think the first step is to step back a little bit from this relentless push towards efficiency. And Bank earnings reports in every quarter when they come out who cut costs, who got more efficient and they get rewarded for it on the street. So, I understand the incentive but it's also kind of how the industry landing where it is where you've got declining margins and sort of the commoditization of the so much of the business. And I think there's a few banks that are able to stand out because they do that strategy really well and when I say strategy, that's a vague word. What I'm talking about is that strategic approach to a perspective client, what is our approach with this customer? What are we doing? How are we structuring this deal to win it and win it safely and profitably? And we're right in the middle of a lot of these and again, I understand the impetus for it where banks are trying to stitch together this massive end to end platform to get a deal done.
And in all of the inner workings of that, and the just massive technical challenges of kind of getting a deal from front to back on some shared technology not having to keep things multiple times and all that sort of stuff, what gets lost is which tool is responsible for which piece of this deal. So if you're deciding strategy for a customer, Do you do that in the loan origination system as you're underwriting it? Is that tracked in the CRM? What's our account plan is that tracked within a pricing and profitability tool like PrecisionLender where you actually see the numbers for it? By the way, all three tools will have places where you can input those things.
And so a lot of times what we find is bits and pieces of those scattered across all three and so it takes being really intentional about each tool. What's its job in that transaction, what's its highest and best use and make sure that you design the workflow around that instead of a lot of times there will be a well we've spent a ton of money on this platform it was in first it would be kind of complicated to rewire things. So like just store it there and it's not really the right place for it, not everybody has access to it and so it doesn't actually end up happening. And so we kind of lose the collaboration relationship building both internally and externally we lose that in the name of being on time and on budget with these big technology overhauls and in trying to gain some efficiency and in doing things like reducing seat licenses for these platforms. Everybody has budget challenges.
It's just kind of where you prioritize and what goes above and below the line, as you're making those decisions. And too many banks are letting that, how do we approach clients and how do we communicate with each other about that? They're letting that fall below the line. And I think it's harming the outcome for the customers and eventually for the bank's performance so that's kind of the soap boxy philosophical view of it but I would say more pragmatically spend some time on those workflows and that needs to be done at a fairly senior level of the bank. A lot of times that stuff gets pushed way down in the organization. And you've got people making workflow decisions and they have such a narrow view of the organization.
They can kind of see their own piece other than a couple offices in either direction. And so they kind of optimize it for their own little world and nobody's optimizing for the customer and nobody's optimizing for the overall cross departmental view of this so you have the treasury group, who's kind of built their own little world that functions just fine for them.
And you have the credit group that's done the same and you have the relationship management group that's done the same and it's really messy as you try to wire those together. So it takes a senior level executive at the institution to take some ownership of this and to make better connections across those silos so that things communicate back and forth more easily and decisions get made at the right point and at the right time in that transaction early on right when you're deciding, how are we approaching this customer? Who's giving what? Who's making up for what? And we come with a collective approach and that's kind of why we've decided to move so far outside of credit with a lot of stuff we're doing now is because you do need that one I mentioned it earlier sources of truth. It's amazing how modeling out even the profitability can now live in silos and most banks.
If I'm a relationship manager on the credit side, I literally can not see what the treasury side views as the profitability of what they're putting together. They might give me a net bottom line number, but I have no idea how they got there, or if there's room to move that in either direction how competitive is it, all that context is lost and so we feel like if that's on a platform and again, that platform has a specific job to be done that we can help solve some of that.
Jim Young: Yeah. So, wow there's a lot to unpack there and, but I want to try to connect it now back to sort of the original thing which is okay now we talked about becoming a primary bank. And again, I'm going to try to jam through my cable analogy here because it's by God I'm not with them.
Dallas Wells: Let's go, yeah.
Jim Young: But I thought about it you got a lot of people that are taking their that setup of cable modem and cable TV and phone and all that sort of thing. And they're unpacking it all and saying, I can do better for each one of these things individually, but I am and hopefully they're not listening so I'll lose leverage in my next negotiations with them, but I'm one of those people, that's like an ideal world I'd rather keep it all in one place.
It takes work to go do that it's work to go find all that other stuff and keep it sorted on what do I have here and there, if you can give me a pretty good experience it doesn't even have to be the best price, but just a pretty good experience so that I know if I'm getting this, this and this I'm getting it at a better rate than if you unpacked all of that sort of thing and I'm thinking about this from a primary bank sort of thing, like if you can do it so when we do a loan we can have treasury involved in this and we can have the other products that I'm going to need and I feel like I'm being given pretty good service and a competitive price.
I'd probably rather do it in one place than say, let's go here and find this here and let's go here and find this there and then we're just trying to remember when would renewing what, where, and if we do this how does that, I mean from their side of it, the sort of the deal collaboration on the client side, it seems to me like there's an incentive here for just give me something that I can understand as you're doing it. What's going on? Does that make sense?
Dallas Wells: Yeah. Let me give you a hypothetical from the banking world where I think this kind of stuff actually becomes reality. So let's say that you have a commercial customer and they need to make a big mysterious purchase. So they're going to wire out $5 million. Well, they have in their operating account at the moment, let's say a million bucks, right. What they're going to do is they're going to draw on their line of credit the revolving line of credit, we've done it in the checking account, wired out to pay for their stuff. If that all happens at one bank then it can be pretty smooth, right? Drawing the line and it goes right into the checking account on it can go out immediately. And the customer can either do that stuff online all in one place draw transfer wire or they make one phone call, Hey, can you draw this on my line and then get it wired to here?
Right? So either way it's kind of a one-stop shop. If those things are divided between two places, then I've heard this frustration from commercial customers. They have to draw on the line from one place and then get it sent to another institution to go out. And so It can be really messy and so the bank where they have the operating accounts they kind of get some almost attitude about like how you're $4 million short we can't send that wire. While they were supposed to send over the draw from my line and it's inefficient on the customer side too. And so those sorts of simple things of being able to kind of have this seamless approach to their financial world to be able to move things around where they need to, to be able to have quick access and to be able to have a bank, frankly, that sees the full picture.
I've also heard frustration where someone only has a real estate loan because they shop for rates since they've got the real estate loan that one bank and when they want to call and have any discussion they land at the switchboard and they're on hold for 45 minutes and they're like at the other place I have the special concierge number or I have my relationship manager cell phone number because I'm one of their most profitable customers. Like I get quick attended service and I kind of get the white glove treatment. And over here, I'm just trying to find out what my rate just reset to and it took me an hour because you don't care about me and I'm just another loan only customer in your books. So if banks can get this right, it is a better experience for their customer.
And I think that's what the customers ultimately would rather have is a one trusted place for their banking business to happen. It's just a quite frankly, the exit screwed this up. They haven't been able to pull that off very effectively and the right hand often doesn't know what the left is doing. So even within the same bank they're trying to send that wire out and the money hasn't been put in the right account or somebody didn't get the ticket put in right yet, or they call and have to wait for that 45 minutes when they want to deal with their deposit account because the loan officer can't do anything about it. Those walls have to be broken down and sometimes that's as simple as tearing your customers and knowing who's who and who should get answered on the first ring and who it's okay to put on hold.
That's a maybe an ugly way of describing it but it's the reality take care of your best costumers, but there's a lot of banks that just are not very good at that. I would say, in fact, most banks are not very good at that.
So it starts with a philosophical approach and again, it has to start from the top of lots of banks. In fact, just about everyone will say we're a customer centric bank. Well, that's what it means is to actually, you have to invest in that has to be a cultural thing. You have to nip in the bud all those silly little turf battles that happened between the departments because you put walls between them, they're going to act like that. And so you have to kind of build things around the customer first instead of having these products, centric or charts and product centric systems where the people trying to serve the customers can only see fractions of what's happening.
They have to be able to see the whole, the whole puzzle to be able to do their jobs effectively, take some work and some investment but the banks that are doing that well are the ones that show it in their performance.
Jim Young: Oh boy, somewhere I'm sure he's listening. Carl Ryden is smiling. Cause I'm just asking here PrecisionLender, we started the customer and it's one of those mantras where but it's true, right? You start it when whatever you're doing whether it's a piece of software or it's how you set up a commercial banking experience, we start at the customer, started what they need and you build backwards rather than, okay I'm at this line of business and how do we do this so that we can get this customer sort of part. Right? So,
Dallas Wells: Yeah.
Jim Young: All right. Well, thanks Dallas for that discussion, my the ball of stress, my chest is loosening up just a little bit here, but it is,
Dallas Wells: Good to hear.
Jim Young: Yeah. This is not an easy thing. It's always sort of the empathy thing. We're not sitting, I don't want to feel like we're on a soap box and wagging our finger like it you do this, this is not easy, but the reward part of it is also there. It might be the key part. It's pretty clear that price
Dallas Wells: Absolutely. It's a hard work but worth it in the end.
Jim Young: Yeah. Okay well that'll do it for today's show in Dallas. Thanks again for coming on.
Dallas Wells: Yeah, thanks.
Jim Young: And thank you so much for listening now for a few friendly reminders if you want to listen to more podcasts check out more of our content, you can visit the resource page, PrecisionLender.com or head over to our homepage to learn more about the company behind the content, like what you've been hearing. Please make sure to subscribe to the feed in apple podcasts, Google play or Stitcher. We love to get ratings and feedback on any of those platforms. Until next time this is Jim young, Dallas Wells and you've been listening to purpose of the bank.
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