The Commercial LOB continues to compete in a highly challenging environment. The result is both loan and deposit growth continue to decelerate — and in fact, a majority of banks are showing deposit declines for the first time in this cycle. With slower balance sheet growth and reduced NIM, returns are lower. The list of challenges includes: rising rate environment, customers demanding an enhanced user experience, disintermediation driven by fintechs and non-bank lenders, corporate’s desire for advice, and the increasing need to invest in technology (digitization, AI, robotics, analytics).We strongly believe banks can address some of these challenges by being more selective in the clients they serve and improving their primacy position.
The benefits to customer primacy are clear and significant:
- Reduced cost of acquisition and longer relationship duration
- Increased profitability and share of the customer wallet in which primacy means doubling or tripling fees and deposits
- Greater brand advocacy
- Increased profitability and share of the customer wallet to
potentially double or triple fees and deposits
In fact, defining and measuring primacy is a key first step. Many banks are challenged to truly understand their position with a client (i.e., wallet share) and don’t have actionable plans to get to a position of primacy.
To be clear, pivoting towards a customer primacy strategy is a significant decision. It should be positioned as both evolutionary and transformational.
A customer primacy strategy needs to incorporate an articulation of the value proposition (including proof points), as well as the alignment of products, sales and customer service models.
Of course, the measurement and rewards systems must support the customer primacy strategy.
Q1 2018 PERFORMANCE
Pre-tax ROA and NIM Both Decreased Slightly: Profitability fell by 5bp this quarter as NIM fell by 3bp. This decline follows last quarter’s decline after seeing ROA improvement in 2Q and 3Q last year. Primary driver of these declines is the deceleration of balance sheet growth and a reduction in NIM. On page 4, you will see a dramatic change in the number of banks that had deposit and revenue growth. Only seven banks showed deposit growth this quarter compared with 11 banks in the previous quarter. Another eight banks showed deposit declines in this quarter. Revenue growth showed similar results. Eight banks saw revenue growth this quarter compared with 11 in the previous quarter.
Managing Director, Chicago