Commercial Deal Collaboration: Reality or Fantasy?

As part of our ongoing conversation about Primacy – we delved into commercial bank deal collaboration on a recent Purposeful Banker podcast. Here’s an abridged version of the main points Dallas Wells made during that conversation.

Defining Commercial Deal Collaboration

Any kind of service for a commercial customer takes a small army to carry out. Deal collaboration is simply getting all the different facets of the bank and all the third parties to come together to make a deal happen. But it’s rarely simple. 

If we're just talking about credit, it’s pricing, underwriting, approvals, verification through third parties, lien searches, title work, etc. All those things take communication and collaboration. 

Then once we move outside of credit, we’re talking about the other parts of the bank - deposit services, treasury services, being able to wire money in different places for doing hedging of any kind, etc. 

You start to see where this can touch maybe a dozen different departments within the bank. If you're doing syndicated or participation loans, it could involve the same number of departments at partner banks. It gets really complicated.  

Bankers that are in deal collaborations all day understand the complexity behind it. That's essentially the job. That’s why commercial bankers and relationship managers are well paid; it's a high-stress job keeping a whole lot of balls in the air just to get a deal to a closing table and turn it into a reality.  

Deal Collaboration Problems

Using Tech to Silo, not Share 

In a lot of ways, technology has made collaboration easier and more efficient. We can share information instantly and people can be doing the same thing at the same time from thousands of miles apart. But the communication part of collaboration has actually gotten more difficult.

That's what we hear from a lot of bankers. They feel like they're flying blind more than they used to be. They can see bits and pieces of transactions. But then there are areas where they can’t. Simple things like: “The treasury stuff is priced in and structured in our system but I don't have access to that. I literally can't see it.” And we no longer have that old-school solution of going over to the other banker’s office and having them walk us through what’s being done with the customer. 

It's all kind of assumed this is going to happen in the technology, but a lot of times it just doesn't. Banks have essentially taken their old paper-driven workflow and process and replicated it with a multi-million dollar technology platform. A lot of times that's just not working. We have this tendency now to store things in files, where only certain people have access, instead of creating true collaboration, with an ability to communicate and see what's happening in a deal and be well-informed on it.

Giving It Away at Every Angle 

Here’s what we often observe when bankers are trying to do these deals while only seeing part of the picture. Looking at the profitability of the deals, we’ll see that on the treasury office is saying, “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. We'll even lose a little bit of money if that's what it takes to win alone.” 

But on the loan side of the business, they're doing the exact same calculation. They're saying, “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 earn on the treasury side.

Then they put the deal all together and it’s “Oh my gosh, we gave it all away on every angle.” That sounds ludicrous in the size of the transactions we're talking about, but we see it over and over again. 

Or we'll see the exact opposite tact. They’re not communicating that there needs to be a loss-leader  in the transaction to win it. They're losing deals and they can't understand why it because credit says, “Look, I had to be made whole in my loan. We were going to win it with the fee business.” And vice versa for the treasury deal team. 

A simple plan on how to go after a customer collectively - so that all parties have a good chance of winning and can make a reasonable risk-adjusted return on that deal - that's the core of what commercial banking is supposed to be. That's a lot of what happened when bankers would sit kind of knee to knee at a table or in somebody's office and come up with a game plan. That’s intended to be baked into the technology but a lot of times it doesn't happen in that way. 

Lots of Deals … Not a Lot of Bankers

I don't want to make it sound like the bankers are just failing at this. Nowadays you have maybe a quarter of the employees handling the same transaction volume that they used to. The technology has made it more efficient in terms of how many customers each banker can service. But how many of those deals can you actually take some time to think through, have time to discuss with the other people involved, to get the right strategy? That part’s harder. Often it’s hurry up, get it done, get it put together and move on to the next deal. You input your part of the deal 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. 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.

Making Deal Collaboration a Reality

There are a few banks that have been able to stand out because they are taking strategic approaches to a perspective client: What are we doing? How are we structuring this deal to win it and win it safely and profitably?

Be Intentional About Your Tech

The first step is to back off a little bit from this relentless push towards efficiency.

We see a lot of digital transformations in which banks are stitching together this massive end-to-end platform to help get deals done. That impetus is totally understandable, but sometimes in the push to put these systems together, what gets lost is which tool is responsible for which piece of the deal. 

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? 

All three tools I just mentioned will have places where you can input those things. A lot of times what we find is bits and pieces of those account plans scattered across all three. 

It takes being really intentional about each tool. What is its job in that transaction? What is its highest and best use? Make sure you design the workflow around that. Instead, a lot of times the thought process is: “Well we've spent a ton of money on this platform, it was in first, and it would be kind of complicated to rewire things.” Banks will store deal data there, even though it's not really the right place for it, and not everybody has access to it. So it doesn’t actually end up helping at all. And we lose the collaboration - both internally and externally - in the name of being on time and on budget with these big technology overhauls, in trying to gain some efficiency and in reducing seat licenses for these platforms. 

It's about what you prioritize and what goes above and below the line, as you're making those decisions. Too many banks are letting deal collaboration and strategy fall below the line. And it's harming the outcome for the customers and eventually, for the bank's portfolio.

Get a High-Level View with Workflows

A lot of times the task of putting together workflows gets pushed way down in the organization. You end up with people with a narrow view of the organization making big workflow decisions. They optimize for their own little world, and no one’s optimizing for the customer. No one’s optimizing for the overall cross-departmental view. 

Banks need a senior level executive at the institution to take some ownership of this and make better connections across those silos. They need to make it easier to communicate back and forth and for important deal questions to get answered at the right point in the transaction: How are we approaching this customer? Who's giving what? Who's making up for what?

Establish One Source of Truth

That's one of the reasons why, at PrecisionLender, we've decided to move outside of credit with a lot of stuff we're doing now: Because you do need that one source of truth. 

It's amazing how modeling out even the profitability now lives in silos at most banks. If I'm a relationship manager on the credit side, I literally cannot 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, or how competitive it is. All that context is lost. 

At PrecisionLender, we feel if that information is on a platform and that platform has a specific job to be done, that we can help solve some of that

 

 

Deal Collaboration: The Customer Perspective 

If banks can get this right, it’s not just about the internal benefits. It’s also a better experience for their customers. Ultimately they would rather have one trusted place for their banking business to happen. It's just that quite frankly, many banks have screwed this up. 

They haven't been able to pull that off very effectively. The right hand often doesn't know what the left is doing. Even within the same bank they're trying to send a 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 a customer calls and has to wait for 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 it starts with a philosophical approach that has to come from the top. Just about every bank will say we're customer-centric. To really be that you have to invest in in it. You have to nip in the bud all those silly little turf battles that happen between the departments. When you put walls between them, they're going to act like separate kingdoms. 

You have to build things around the customer first, instead of having these product-centric systems in which the people trying to serve the customers can only see fractions of what's happening. They have to be able to see the whole picture to do their jobs effectively.

It takes some work and some investment, but the banks that are putting in that effort are getting paid off in better performance. 

 

 

 

 

 

 

About the Author

Dallas Wells

Dallas is a writer, speaker and former consultant who has held executive roles at two banks with experience in capital planning, liquidity forecasting, investments, budgeting, financial reporting and mergers and acquisitions.

Follow on Twitter Follow on Linkedin More Content by Dallas Wells
Previous Article
What's Driving the Recent Flurry of Regional Bank M&A?
What's Driving the Recent Flurry of Regional Bank M&A?

Big-bank M&A deals are at their highest levels since the late 90's. In this episode we explore the factors ...

Next Article
What's Behind the Push for Primacy?
What's Behind the Push for Primacy?

Is Primacy just a trendy buzzword in commercial banking? Or should it be a critical area of focus now? Gita...