Publications & Resources

July/August 2009
Focus: Risk Management

Don’t Put Customer Relationships at Risk by Raising Fees

By John M. Floyd

As uncertainty continues to permeate the financial services industry, banks are faced with new challenges almost daily. From higher than expected loan losses, a nearly 50 percent increase in the number of institutions making the FDIC’s “problem institutions” list and worries over regulatory fee increases, many banks are scrambling to find ways to remain viable.

The good news in all of this is that the current economic downturn has led to an increase in bank deposit growth as consumers curb their spending and look for safe ways to hold onto their cash. And while it may be tempting to consider gaining additional income by raising your service fees, now is not a good time to be seen as “just another financial institution trying to profit at the consumers’ expense.” In the end, the cost of losing customers won’t make up for the “quick fix” of increased fee income from a small pool of accounts.

Banks would be better served by looking objectively at how their institution functions and considering programs that can help them improve operational efficiencies, streamline processes and support employee performance – actions that can strengthen customer relationships and increase bank value.

Ask yourself these questions. What are we trying to achieve? How can we develop more efficient processes and procedures to help us reach our goals? Assessing the overall health of your organization requires that you take a look at the following:

Organizational structure. Start with your organizational chart, if you have one. What departments do you have? Is there a reporting structure at the department head level? Do you have the proper “Span of Control?”

Department workflow. How is the workload distributed among staff? Is there too much or too little work for current employees? Re-examination of all department processes will help you to eliminate work duplication and possibly find cost savings.

Reporting Processes. You may find that not all of your existing reports are necessary and that some can be replaced with more effective documents.

Branch profitability. Do you have branch locations? Determine the cost of each facility, markets served, and branding and loyalty observations. Can technology improve the efficiency and profitability of the branch? Or, as you implement new technology, will you need all of your existing facilities?

Once you have completed this process and re-engineered your basic systems, take a look at both sides of your balance sheet to determine how you might lower your operating expenses and increase your revenue. But as initially stated, don’t just look for the quick fixes that could put your profitability at risk in the long run.

Reviewing your service contracts can cut costs and improve efficiencies

Whether your bank has one location with an ATM or multiple branches serving different cities and states, you may find substantial savings and improved service from your vendors if you take the time to re-negotiate your contract terms and conditions. While it is important to look at all expenses, areas where substantial cost-savings and service efficiencies can be experienced include ATM/debit card processing, core data processing, telecommunications and image/item processing.

New programs and services can set your bank apart from the competition

Are your existing products and services meeting your customers’ needs? Whether they are looking for the convenience of online banking resources, protection from fraud and identity theft, or a safety net in the event they encounter an unexpected emergency, your ability to provide the expertise they need will keep existing customers and attract new business.

Establish a sales and service culture

To get the most from your sales efforts, start by hiring the right people and creating an environment that is truly “sales” oriented. Make sure that all employees have an excellent understanding of the products and services your bank offers by providing thorough, on-going training by a qualified trainer. Whether it’s making commercial sales calls or suggesting a new product to a customer in the teller line, employees who have had proper training are positioned to recognize a sales opportunity and successfully act on it.

Also, make sure your organizational structure supports sales efficiencies. Move all non-customer, operational work to non-sales related employees. But make sure that you transfer responsibilities correctly to avoid swapping inefficiencies between one department and another.

The bottom line

Your commitment to the customers you serve is demonstrated when you can operate at the maximum efficiency while minimizing the customer’s cost of doing business with you. It is this emphasis on organizational efficiency and customer cost-effectiveness that distinguishes you from your competition. Don’t let the risk of easy fixes and quick returns distract you from seeing the big picture of long-term stability and success.

John M. Floyd is chairman and CEO of John M. Floyd & Associates (JMFA) of Baytown, Texas. For more information about JMFA contact Emily Crandall, JMFA Regional Director at 877-879-3136 or Emily.Crandall@JMFA.com.