How have banks' responses to the pandemic affected the loyalty of their commercial customers? Chris McDonnell shares some eye-opening findings from Greenwich Associates' recent research.
Helpful Links
- Businesses Switching Banks at a Faster Rate (S&P Global)
- Feeling Abandoned During Crisis, Small and Mid-Sized U.S. Companies Switching Banks (Greenwich Associates)
- Chris McDonnell
- COVID-19 Market Updates & Resources
- Risk Levels & Bank Behavior During COVID-19 (Report)
Questions? Comments? Email Jim Young at jyoung@precisionlender.com
Transcript:
Jim Young: Hi, and welcome to The Purposeful Banker. The podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, director of content at Precision Lender. And I'm joined today by Chris McDonnell, managing director at Greenwich Associates. We've asked Chris to come on because Chris recently, as part of putting out an interesting report titled, Key Market Factors as Banks Compete to Finish Strong in 2020. Chris, welcome to the show.
Chris McDonnell: Thanks for having me.
Jim Young: Well, let's start off if you could, by just telling listeners a little bit about yourself and about Greenwich.
Chris McDonnell: Sure. My name is Chris McDonnell. I'm a managing director at Greenwich Associates. I've been with the firm for the better part of the last 23 years. And we focus on assembling data to help banks to navigate the market and competitive environment. And we put our expertise and experience into the context so that we're able to give good counsel to executive teams looking to continue to grow.
Jim Young: All right. And so I guess within that, can you give us a little bit of background about this report specifically about the survey that formed the foundation of the report's data? Is this an annual thing that you guys visit this time of the year or was it prompted by the pandemic and the need to understand its impact?
Chris McDonnell: Greenwich Associates has dozens and dozens, if not more studies going on at any given time. We probably have picked up the cadence a little bit in 2020 just because the appetite for current information is pointed.
Jim Young: Got you. So give us sort of the, if you could, some of the bigger findings that came from this survey.
Chris McDonnell: There are a number of banks that have started to pivot to the front foot in the second half of the year. This is following unprecedented X series of experiences with the pandemic, with the PPP, with a number of people working from home. There's just a lot going on right now. And the reality is that banks have been working incredibly hard. All the bankers that I know have been pushing the pedal to the metal the whole year long. And in some cases it's really resonating with clients. In other cases, there has been some obstacles and the upshot is that we're seeing more companies looking to switch banks than we typically see and by a factor of two or three times what we traditionally see.
So there's going to be a lot of activity or is a lot of activity in terms of churn and it's probably going to continue well into 2021.
Jim Young: Yeah, that was what really grabbed my attention. I think some of the numbers here, I'll throw them out and then you tell me if I get the right ones. But 21% of small and mid-size companies had a more negative view of their primary bank now than they did before the pandemic. And of that group, and this is probably the key part, 85% said they plan to switch banks. Before we get into the why of this, we'd like to talk to you a little bit about the potential impact. What does this mean in terms of, not necessarily an exact dollar figure, but how significant is this, are we talking about in terms of what's potentially moving from bank to bank?
Chris McDonnell: The movement could be in the billions of dollars and you have to be thoughtful about the initial reactions when we interview executives that are fresh out of an experience that was extremely frustrating in a time of exceeding anxiety, the responses can be somewhat emotional. That being said, we've gone back and we've asked several times in the months since April, and it does appear that a number of these executives, be they treasurers, be they chief financial officers are in fact going to change banks. So there is going to be a lot of movement within the industry.
Jim Young: And so you mentioned a little bit of some of that context, but what do you think is at the root of this dissatisfaction, and maybe how much of this is bank failure versus just black swan, act of God, what are you going to do sort of thing for what banks have struggled with during the pandemic?
Chris McDonnell: I think it's a mixture of the two, unfortunately it'd be very satisfying to say that just one was it, the reality is that there were a number of folks that did have to wait their turn, so to speak. Critically with the largest banks, where there were so many applications for the loans that it took a little longer than some would have liked to have resolution. And this ratcheted up that pressure ever further and made folks question whether their bank was as loyal to them as they were to the bank.
Jim Young: Got you. And then I guess within that, there're sort of things, I would imagine to some extent what order you are and that sort of thing is certainly a huge part of it, but was there an executional thing that maybe is a little bit more on the banks' shoulders that has maybe, or some people who may be like, "Listen, I understand this was difficult, but regardless even factoring that in, I'm still really dissatisfied."
Chris McDonnell: Yeah. One senior banker explained it to me. It was like funneling Niagara Falls through a straw. And the the reality is that these things all had to be addressed. It does beg the question, is there a better way to do this going forward? And we've seen a number of organizations that have really doubled and tripled down on the technology to be able to process these types of volumes more smoothly. And I think that it was a black swan type event in the sense that the magnitude of applications crunched into a tiny period. One would never have anticipated something like that in the past.
Jim Young: So you mentioned a little bit about that some banks doubling down on this sort of thing. And that goes from a broader sense of what changes do you think that banks will take toward digital transformation because of this? Are those banks that are really going in on that, do they stand out or is that the general wave of how banks, because of what's happened in 2020, how they're going to approach digital transformation going forward?
Chris McDonnell: Banks have been in the transformation process to varying degrees for probably 15 or 20 years. There have been elements of banking that are automated or digital in some way, shape or form. The proportion of it that was as such was really pretty small. If you think about the overall share of work that got done, we are seeing folks that are really, really escalating the proportion of workflows that are done into digital forms. It is primarily led by the largest who have the budget to invest. We see it happening in all sorts of different areas from self guided self-service, to the online channels, to increasingly digitizing the credit process.
We're also seeing, beyond just the client facing, we see a lot of effort being put into giving bankers tools to be more effective in their roles. And that can be in the role as a salesperson, in the role as a service person, but it's all across the range in terms of different elements that can be smoothed out to remove friction even further.
Jim Young: I want to touch on that part, that human digital balance with this sort of thing. Because one of the numbers you guys had from the report was that 43% of businesses that responded, so they want to do more of their banking digitally, but it felt like to me that some of the anger that customers were having towards the primary banks was because they didn't really, it was almost too... Not to digital, but the digital process was maybe a little too automated and not enough of a human touch to it. So I'm curious, what do you... A lot of people, when they think digital, they think automation, and I'm curious what kind of conclusions you draw about where the human element comes into this.
Chris McDonnell: The human element is critically important and it would be a mistake for any entity to try to remove the banker from the equation. The ability to have somebody who is an advocate for you within the bank is essential. And that can all be true at the same time that certain tasks, certain interactions, certain things that need to be done can and should be automated. And the two need not be mutually exclusive.
Jim Young: So let's say, this is the fun part where I put you in the views of having to, the banker view, but let's say I'm one of those banks that has, I've got multiple customers whose views on me have skewed negative because of what's happened. So what kind of competitors should I be most worried about and what steps should I take in the near or long-term to keep those clients from heading out the door?
Chris McDonnell: So right now people need communication. They need information from either their bank or somebody who is willing to provide it. So in most cases, folks are looking for, help me to navigate this crazy time. And if that is somebody from their lead bank, then great. If it is not, then that's going to be a vulnerability for the lead provider if somebody else is bringing information, perspective, insights to the table so that they can have a thoughtful conversation. And while all of the automation needs to continue going on, it can't be viewed as simply a cost savings for the banks.
Jim Young: Yeah. And I think this is where I know banks really struggle with is it's a bit of a sticking your fingers in the dam and trying to figure out which leak to plug first and sort of, how do you have this discussion, okay, we need to do this, this, this, this, this, and this. And then you say, "Okay, well, where do we start?" What would be the first thing that we would tackle that, the quick win that could maybe get us moving to the next thing?
Chris McDonnell: We help a lot of banks to prioritize their development roadmaps. And part of that is looking at what's the expectation in the marketplace? What do others have? Where are we vulnerable? What needs to be shored up as opposed to what would be a differentiator? In some cases, we've got banks that say, "I don't care what other banks are doing. I want to skip ahead of all of them." I don't happen to agree with that as a realistic approach for banks. I think that it's important to understand what others are doing in the space. And the pieces that touch the customer in my view ought to be escalated to the top, because this is where we're going to win or lose relationships going forward is, is my bank making my life easier?
Jim Young: Got you. All right. Again, the report that we were talking about specifically here was called "Key Market Factors as Banks Compete to Finish Strong in 2020." But as Chris mentioned earlier, Greenwich has coming out reports all the time on all sorts of different areas that impact banks. And so certainly encourage our listeners to go and check out what they have to offer. We'll have links within our podcast post. But Chris, thanks so much for coming on the show and giving us your analysis.
Chris McDonnell: Glad to do it. Thanks for having me.
Jim Young: And that'll do it for this week's show. Thanks 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 at precisionlender.com or you can head over to our homepage to learn more about the company behind the content. If you like what you've been hearing, make sure to subscribe to the feed in Apple Podcast, Google Play, or Stitcher. We love to get ratings, feedback on any of those platforms. Until next time, this is Jim Young with Chris McDonnell, and you've been listening to The Purposeful Banker.
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