New Ways of Segmenting and Engaging Small Businesses

Transcription:

Trupti Guzraty (00:09):

Hi, I'm a Partner at Salmon Kucher. I'm part of the financial services practice and I'm excited to be here to talk about how small business customers are getting engaged by bankers through different strategies. I know we've learned a lot over the last couple of hours yesterday about segmentation, about product design, about engaging women segment. Today we're trying to bring it all together in terms of how you deepen the relationship once you acquire the customers. And I have an amazing panel with me and I'll ask all of them to introduce themselves and then we'll kickstart the conversation. Mark.

Mark Pilotti (00:46):

Hey, good morning everybody. I'm Mark Pilotti. I'm with Capital One. I lead our deposits team for our small business bank. I've been in small business for about two years now, so I might be the interloper here amongst the crowd. Before that, I was in commercial bank where I led various risk and strategy functions, and I actually have a little bit of an alternative background as well. I spent a bunch of time at Sally Mae, the student lender running credit risk analytics. So I've gone from consumer to credit or consumer to commercial, and now I'm hitting a rate on the middle in small business, which has been a really interesting adventure.

Dee O'Dell (01:17):

Great. Good morning. I'm Dee O'Dell and I Lead the Business Banking Sales Organization at US Bank. I've been in this role for about a year and a half prior to that, a brief stint and a regional leadership role in consumer and business banking before that, 25 years of corporate and investment banking. I'm excited to be here with you this morning and share some of our perspectives.

Shawn O'Brien (01:40):

Yeah, good morning. My name is Shawn O'Brien. I'm with Atlantic Union Bank. I've been with the bank five years, so on this panel we represent the smaller banks. We're a $20 billion bank headquartered in Virginia and in North Carolina and Maryland. We have a presence and we are in the middle of an acquisition. It'll get us 25 billion. I run consumer business banking operations and the call center for the bank. Prior to that, I worked at Huntington Bank for 10 years and then was at BBVA for 15 years as well.

Niamh Kristufek (02:11):

Hi, my name is Niamh Kristufek. I am the Head of Business Banking for BMO Bank. We used to be BMO Harris, so it still feels a bit awkward to do BMO Bank. We have actually just gone through an integration by purchasing Bank of the West, so that doubled our branch footprint. Now we're in 22 states, so a little PTSD from conversion, but I'm happy to talk about business banking. I have been with the bank for 12 years and been running business banking for five.

Trupti Guzraty (02:41):

Great, thank you so much. So to kick us off, if all of you can share from your vantage point and for your bank, how has 2023 played out, especially the highlights, if there's any high points, low points, and how has this been different from previous years when you have run the segment and maybe Mark, you can kick us off and then we can go one at a time.

Mark Pilotti (03:02):

Yeah, I think it's been an interesting year. I think with a rapid increase in rates, it's caused a lot of our clients to really understand and think deeply about where they're making money on their assets. And so we've seen a lot of customers move funds to alternative assets, whether that's treasuries or money markets, but that opportunity for them to take a step back and think about where they're getting yield has allowed them to really rethink their banking relationships overall and be more open to more providers. And so we've seen a couple different things. One is customers more willing to move, and so there's been a lot of churn in the industry. And then two, there's a willingness to kind of compartmentalize the relationships. And part of that is due to what happened with Silicon Valley Bank, a lot of our clients went back and said, Hey, how do I make sure I'm maximizing my FDIC coverage or just making sure I'm distributing that risk? So either way, there's been a lot of churn where customers are thinking about picking up new bank providers, which has been amazing on an acquisitions front, but it's really challenging on a customer retention and customer management front. So I would say a lot of churn and people waking up to a new reality of much higher rates.

Dee O'Dell (04:07):

Great perspectives at US Bank, we've been very focused on some initiatives to really drive our growth in business banking this year. And I would reflect back over this year and say it was a super exciting year. We launched a healthcare initiative, we launched a business diversity lending initiative. We rolled out a number of new analytics tools for our bankers to really help them optimize how they spend their time. And then we rolled out training and coaching and all of that really was to help us be positioned so that our bankers were optimizing the amount of time that they spent in front of our clients so that we could provide greater advice to them in a very turbulent environment that they're operating in the midst of all of that a rate environment that none of us would've anticipated a year ago. And so we've reacted to that as well, but really tried to stay the course on things that we are could control and that really were trying to drive value for our clients.

Shawn O'Brien (05:11):

And I guess I'll shock everyone by saying what was really different about 23 was the need for deposits. I am sure none of you have recognized that as an issue. And so many of our bankers, especially our business bankers, saw themselves as lenders see themselves as lenders. So deposit gathering now that it's such a focus for us, that's a change. That's something that everyone has to understand the importance of it, why it's so valuable and why we're making it a focus as a bank. So I'd say that was a big change. In addition, our bank had a lot of success with PPP. We were way outsized as far as our percentage of PPP originations, which meant we brought a lot of new business into the bank. So we've had to work to retain that business, grow that business as it has come in. That's been a great windfall for us, but it's something we have to continue to watch and grow.

Niamh Kristufek (06:04):

To add to the PPP, what is given is also taken away. So I think everyone has seen those PPP funds not be quite so sticky. The free money is being spent as people are paying down their debt. So we have seen the shrinkage on the deposit side from an acquisition standpoint with the focus on deposits. I think we beat our deposit gathering targets, our customer acquisition targets on a really big focus on developing sales leads and sales actual gathering. We had a lot of bankers who were reactionary. We worked a lot on proactive marketing, proactive outreach with our bankers and saw some really good traction this year. Our whole line, I think all year was, yeah, we're going through an integration in a merger, but we can walk and chew gum. And so proud to say our legacy footprint did walk while the rest of us chewed gum and we persevered through it.

(06:54):

I will say, I think we all keep talking about how we have to gather deposits, but lending doesn't go away and we've hit some headwinds on the lending front. Everyone's shrinking in the small business risk appetite. So really the focus was on where do we want to play. I think in a benign economy, you kind of let your bankers hunt where they want to hunt. I think we're doing more specialization and saying, okay, this is where we want you to go and deposit rich industries as well as ones that are a little bit more resilient. So that was kind of the focus as we went into the end of the year.

Trupti Guzraty (07:23):

Awesome. Well, thank you so much for sharing. I think a mix of growth, a mix of protecting what you have gained over the last many years. But we'll talk more about how are you thinking about the future? But I know a lot of different banks of different sizes out in the room maybe help us understand how do you define the chalk lines for acquisition versus deepening and as it playing out in the way you've envisioned it, and how do you measure the success of it that it's playing out? And maybe I think maybe we can start.

Niamh Kristufek (07:57):

Yeah. When we think about when we look at our data, our success in the deepening space is the first six months you have a client, right? Your success rate of actually getting more than one product or two products really hits in that onboarding's needs met conversation in the first six months. So from a sales perspective, even regional leader perspective at the branch level on up, we actually measure onboarding needs met in the first six months of a relationship. And it's on everyone's scorecard because it shows just when you're new in that relationship, how well you step out into that space. The first six months is when you're going to have more key success. We have sales leads and we have other data analytics and deepening, and we do digital campaigns and other if we have a really good offer, we'll do leads into the existing book.

(08:43):

But we see the success in the first six months. So we spent a lot of focus on that. And we have specific tools in the branches, especially when you have turnover and they're not experts, conversation tools that actually go through goaling for what are the goals of the customer and what products would you recommend based on those goals. Does the customer agree with those recommendations? And if it's a yes, but not right now, they end up in following leads campaigns in the future, we can send that goal conversation output document to the customer so that they have it and they have a remembrance of it. We've done enhancements to that, so even our call center can pick it up if the customer calls in and gets insights. So we are working to deepen how we actually connect with the customer, but then also how do we make those permanent parts of our conversation in the future.

(09:30):

But in general, when we look at scorecard and how we scorecard it, we do focus on that first six months because that's where we feel like the success is so deepening. It's really about the new and especially in the branch space. And then for our relationship managed space, we track the onboardings need met and then the deepening there because that is a long tail and we expect them to service that relationship in a different way. And then this year we are much more focusing on one client, especially in our business relationship managed space. And that's more my running line with my team is I should pick up the phone and call any banker and say, who's your wealth partner? Who's your bank at work partner, and who's your commercial partner? I said, if they can't and who's your five branches you cover? If they can't give me those names, I will be calling you. So we're very much focused on how do we make them sticky and how do we take this client and branch it out across the bank.

Trupti Guzraty (10:24):

That's great.

Shawn O'Brien (10:26):

Sure. Yeah. So our chalk lines are probably a little different than the other banks here, probably a little lower. So for us, branches handle anything up to a million dollars in sales size, and then a million to 10 would be business banking, which is a team that obviously works with the branches but sits outside the branches. Then we have our wholesale team that goes 10 to 50 or so and then a corporate team above that. So that's how it breaks down for us. That means that what we call business banking folks that are looking at a million over would be what a lot of people call small business as well. And for them, that's been a change in that a lot of their lending in the past has been real estate specific. We've changed that and that's a challenge for many of them to move into CNI and other lending types.

(11:12):

So that has been a focus, and then I'll talk about it probably in a little bit in a later question, but specialization as you mentioned, I think that's the only way forward, at least for a bank like us. I don't think just having general purpose business bankers is going to work any longer. I don't see that that is differentiated enough. I don't see that you can really find a segment and target it if you're just a general business banker. So I think that will change. On the branch side, we have a lot of work to do. To be honest, today we do well on the deposit gathering side. Lending is not particularly strong in our branch network On the business side, that is something that we will have to solve for. But in the short term, for me, the real focus is making sure we have the right segments addressed in business banking, making sure we have the teams aligned against that and seeing growth there.

Dee O'Dell (11:59):

Shawn, it's interesting to hear you talk about in your bank the movement away from the real estate based lending. I think we're all experiencing that. So at US Bank, for us business banking, the segment that I lead is two and a half million to 25 million in revenue. In addition, we have agriculture that comes from out of a number of our community markets, and we also have real estate up to 10 million investor real estate under two and a half million in sales. And companies that don't have a complex lending need are in our small business group. And that small business group is very closely aligned to our branch network. The business banking group that I lead is very much focused on deepening the existing relationships, but also finding new relationships. And that's been a key focus for us as we have dug into the analytics and data on our existing portfolio to realize we're very underpenetrated in the upper end of what we should be covering in the 10 to 25.

(13:01):

And so we have put a particular premium on our bankers and generating new revenue and the dashboards that we have for our bankers that's Power BI sitting on top of Salesforce, all sorts of insights for them. But one in particular is new client revenue, so new to the bank clients, and we're tracking that to really drive a focus on the longer term investment of prospecting to get that new relationship in and then to do that in a holistic way. So we're tracking that. And then how deep are those relationships? You make a great point about that happening within the first six months because all of our data would also suggest that once you get past that point, the likelihood of deepening that relationship drops off pretty significantly.

Mark Pilotti (13:50):

Yeah, we're very similar. So for us, small business goes up to 20 million of revenue, and then within that we service through a bunch of different channels. We have in-person bankers, we have a virtual banking team, and then we service through the branches. Each one of those chains is responsible for both acquisitions and deepening. I think what's really interesting for us this year is we continue to push the bounds of a virtual offering. What can a virtual banker do? What kind of customer can they actually service? And it's a little bit, I think we saw during PPP like that the digital readiness of a lot of small businesses was really accelerated during that time. And so we're trying to meet the customer where they are. So some of our customers still like that white glove service, and we're going to give them a banker who's in their market to help them. Other of our customers don't necessarily need it. They're not big enough, they don't want it, and we're going to try to service them digitally. Even on the digital side though, they still have an acquisition target and a retention target, a deepening target. So it all hits the same scorecard, but I think we're trying to figure out what is that right mix as customers shift their expectations from what they want out of a bank.

Trupti Guzraty (14:53):

That's awesome. And it seems like the chalk lines are similar or close enough, but I know that from the conversations we've had yesterday and also some of the conversations I'm having with some of my banking clients, the chalk lines are moving and as the thinking evolve. So I'm curious, you touched on how you are deploying your virtual channel, RM channel and digital. How do you decide on the capacity of where are you going to invest, which channels are going to deploy for acquisition versus deepening, and how do you orchestrate across the three?

Mark Pilotti (15:24):

I wish I had a secret answer to this. It's been really tough. There is a lot of testing. It's a moving target for us. And so I think in the long run we see more digital servicing capabilities are absolutely required, but we're trying to think about it as an omni-channel servicing kind of aspect of how do I bring the bankers, the digital offerings, the branches together in a way that's relatively seamless to our customers? And it's not something we've built a muscle around. I think I mentioned our customers are serviced in different ways and generally we've tried to funnel them down a certain path and we're trying to blow some of the walls out of that with more of an omnichannel experience. But we have seen just really good progress with our virtual bankers and we feel like that is a channel that's very scalable and we've had really good results. And so as we think about the deployment of resources, we don't know really where the bound is on that one. And so we're going to continuously push it until we try to figure out where we hit the wall, but I think digital and bring those digital capabilities as a way for us to scale those contact points with our customers.

Trupti Guzraty (16:25):

That's awesome. We'd love to hear your thoughts on this as to how you deploy your banker in digital capacity. Is there a connection point that is built? Is that a warm handoff that happens? When does a customer move from digital to becoming a more RM managed relationship?

Dee O'Dell (16:42):

So in our small business segment, again below two and a half million, we're very much building tools there to allow customers to have a do it yourself experience with always having the option to connect with a human. So we talk a lot about the digital plus human balance. And so the investment there is to provide the tools for the clients to be able to go down their journey on their own using those digital tools. And we've got financial forecasting tools for them to use. Lots of things that we're continuing to invest in there. There's always the option to talk to a banker. In my segment, we are approaching this much more with a banker led approach where the banker and working with in particular treasury management and payments and card comes around that client with the ability to have a deeper conversation about the full working capital cycle and how to drive efficiencies for them.

(17:41):

And that leads to broader conversation about need for capital and leasing or loans or lines of credit and that sort of thing. The tools are there for the clients once we've got them onboarded to do a lot of things on their own, but we're leading with the human touch in that segment. And I think the line again for us is we try to draw that at two and a half million. I think it blurs a bit there and we'll continue to experiment with where we lead with the digital tools and where we lead with the human interaction.

Trupti Guzraty (18:12):

Got it. Shawn?

Shawn O'Brien (18:14):

Yeah, well, so I think the comments you've heard, I think it does illustrate whether you're a big bank or a smaller bank where your advantages can lie. We can't afford to compete digitally, we just don't have the in-house capability to build the technology, but we can in do put an actual banker against customers of a smaller size right, than the bigger banks can do. So that's kind of where the inflection point is. I think that is where your advantages is a smaller bank and technology certainly is your advantage as a larger bank. So that's our value proposition is that regardless of your size, you will have a banker and that person will work with you in person, whether it's in the branch or as a business banker. So that doesn't mean we can't have or shouldn't have good technology. We are replacing all of our online banking tools. Moving to a Q2 system, that looks like a huge improvement from what we are on today. And so I'm very excited about that. But we won't be building anything out technology wise on our own. We'll mostly partner to have that technology.

Niamh Kristufek (19:22):

So our branch network is focused on customers with 1 million in revenue and lower 1 million up to 10 million is covered either by a remote RM or an infield market, BRM. The focus, regardless of what size you are, is like all small businesses. I don't want to think about my banking day to day. I want you to be invisible because it works so well. But when I do call you, I want you to know my business and have good advice, which is such a polarity, right? I don't want to think about you ever, but when I do think about you, I want you to be spot on and be really good. So we focus on how do we prepare the branches so when that happens, they actually know, do they have the good training, do they at least have the fingertips guides that they can actually add value, which is the constant struggle with they're managing a branch plus we want and we know small business.

(20:11):

So that's what we work on there. Our BRM's, if they're remote, are covering about 300 customers with actual sales goals and have to take sales leads and deepen that book. They do struggle sometimes to grow because there's a retention loss and then they're staying flat. So when you think about resourcing, if you're looking for growth, unfortunately you got to put them in market. We find that it's very hard for a remote team not just to backfill their existing book, but they can cover a broader range of branches and a broader customer base. So that's your, we have a bigger remote book than we've ever had, so we're going to grow and learn and see does it really work? Because what I find is it keeps me flat and then if I want growth, I got to put people in market.

Shawn O'Brien (20:51):

Can you talk a little, I'm just interested. So they have 300 customers. Do they have a portfolio manager as well or no?

Niamh Kristufek (20:56):

They manage it, but it's a retail capital book. So they don't have the annual review requirements, so they're not collecting financials and they are required with the sales leads. We then take that 300, we triangulate them into three different categories of value based on revenue and opportunity. And based on that we tell them, we put analytics in that say, this customer needs to be contacted four times a year, this one twice a year. This one probably is another one to two, unless there's a product attribute that we think we should call them on or there's a red flag. So we put the analytics behind that so they know how often to contact their customer if their customer's not proactively contacting them. More art than science sometimes. And we're learning, always learning and saying what's working. And part of it is, is it the remote model or is the talent in the remote model?

(21:41):

We see some bankers who rock it and they're awesome. You could put them in market and they'd fail. They're just really good in the remote role. So it's a little art and science too to say is it remote or is it the talent you put in remote? And I'm always challenging my remote leaders, what is the secret sauce? What is the attribute that's making this person good and are we looking for it when we're hiring for replacement? Because the human element of being a banker at its core, when I started in the business so many years ago, there's a secret sauce to hiring a really good small business banker that you cannot teach, which is why we're always fighting for that talent, right? Like, oh, where'd you get that one from? He was really good or she was really good. It's the same in the remote space and we all want to build out our remote banker teams, but they're a secret sauce too.

(22:24):

So I always kind of look and say, is it the right role that we funded or is it the right person? And then we still have to build out our in-market teams because they're naturally hunting. I find our customer is willing to move over to you for in-market and they might be willing to move to remote, but it's sometimes harder to get them to take a swing at you and not have a banker face to face to build the trust. So we're always balancing if I want the growth and you pay a little bit more, they cover a little less in market, but I need remote to cover the book. So that's the polarity that we're working through.

Trupti Guzraty (22:55):

That's awesome. Thank you for sharing. And I'm seeing, and from hearing from the panelists, I'm hearing the virtual banker team or the virtual banker model is picking up with a lot of banks. A couple of years ago this was like an alien concept or they thought it was like a call center. And also I think what Neve mentioned is it's how you execute, how do you think about the customer and make sure that when the customer is calling in, you're able to deliver the service. As Ben said yesterday, for those of you who are in the room, you don't have to be big to be great. You can find your niche and be good. And again, from your perspective, Shawn, not everybody needs to pour millions and millions and millions of dollars in digital. You can be amazing at the model that you are adopting and servicing your customers. While we are on the sales and service model concept, let's talk about some of the biggest challenges and opportunities that you're seeing or facing or you foresee for your bank in the future. Maybe I'll ask this question first to Dee and change up the mix of how we are answering the question.

Dee O'Dell (23:52):

So very much focused on the opportunities. We see a huge opportunity in a couple of very specific growth areas. And for one, we have a particular focus that we have kicked off this year, an initiative around healthcare. We realized we did some deep research and realized that we're underpenetrated in providing banking services to doctors, dentists, veterinarians, optometrists and labs. And we have, as a result of that, we've created an initiative around healthcare for this two and a half to 25 million space. But in looking out across the competitive landscape, we realized that one of the things that we could do differently is to very intentionally partner a healthcare business banker with a payments professional and with a wealth management professional in each of the markets that we wanted to do this in. And so we've created that and we can then have this ecosystem of all things banking to be able to go to a doctor or a dentist, a veterinarian, and offer them a holistic approach where we are not only providing the financing for their practice, but we're having a great conversation about the payment flows and the beginning conversation around helping them achieve their goals from a wealth management perspective.

(25:11):

And what's exciting for us on that is it's not only a growth opportunity immediately in the revenue that we'll have there, but I think we're going to learn from that about particularly this relationship between business banking and wealth management because so many of our business banking clients are not yet clients of wealth management. And our wealth client book involves a number of people who have businesses who may not yet bank with us. And so our hope is that not only are we really successful in this initiative in healthcare, but that we learn from it in ways that's going to help us connect and really show up as one bank across the country. I think that is the number one focus that we have that is a unique specialization.

Trupti Guzraty (25:55):

Amazing. Shawn, you want to share something?

Shawn O'Brien (25:57):

Yeah, I think that's right. A specialization, I completely agree with that. And healthcare is an interesting one. There's three things that we're going to look out for next year that we're building teams out for now, because I do believe just having as I do 50 bankers who are out there just doing general business banking probably is an outmoded way of going to market. So we created an SBA capability here two years ago primarily as a second chance alternative lending vehicle for customers. Now we're going to actually create a team that originates SBA specifically. I think that that's the logical next step. I think having originators who are just focused on that makes sense. We're putting a team together for women and minority owned businesses so that we can target that demographic specifically. And then deposit gathering. I know this is a little outmoded, but back in the day there was deposit only RMS. I think it's time to reconsider that for many banks, we certainly need to take the folks that are good at that, have that natural inclination and have that be their primary focus because at the end of the day right now, deposits is the most important and the most important component in banking. So that is probably the segmentations we'll go after next year.

Niamh Kristufek (27:16):

So my brain kind of splits in two to be honest, because we have the branch and we also have the BRM. So from a branch perspective, I think we're doubling down on our partnerships with the community. We have special purpose credit programs focused on black Latin women owned and native owned businesses, and we'll be expanding that into two s, LGBTQ plus and Asian as well as veteran-owned businesses by the end of the year. And we partner with community groups as well as having regionalized bankers that support that from a program level to get the branches in the community. We also work and open our branches to community networking events tied to those which brings the branch back into the heart of the community, which goes to remember when we started banking like your branch banker knew every business in town. It kind of brings that back into the heart of the community.

(28:07):

And similar to what Comerica presented yesterday, it's like how do we bring services act to the community? So we'll be doubling down in that space. From A BRM perspective, it goes back to industries. We're specifically targeting two to three industry verticals. Besides marketing and white papers for our bankers, we're challenging our product partners. So I want specialized products and bundles specific to those industries as proof points that we want them. So it'll be discounted pricing, whether it be on money market, whether it be on merchant, whether it be on credit card rewards. I was like, I need proof points as well as alignment from our risk partners that are we going to have a different risk appetite. So don't just give me marketing and lipstick on a pig. I call it prove to the bankers that we want the space and put actual offers out there that they can feel or differentiated.

Trupti Guzraty (28:53):

That's great. Thank you for sharing. I want to switch gears and talk a little bit about innovation and growth. As again, we've heard you have to constantly innovate to stay at the same place because otherwise you'll be left behind. So maybe I'll ask Mark, how are you embedding innovation within small business segment? It could be beyond banking services, it could be tools, solutions based on what your customers are seeking or asking or what you are seeing as a behavioral pattern within your small business portfolio.

Mark Pilotti (29:21):

Yeah, I think we see the smaller end of small businesses really looking for digital experiences. And so they're looking for something more akin to what you get as a consumer or what they're getting with their fintech's. Like if somebody signs up for stripe, three or four clicks, boom bang, they're up and running. And I think for us, we see a challenge in both the simplicity of the delivery as well as the experience. And so we're bringing on a lot of providers to help us with some of the core basics around getting paid and paying. How do we partner with fintech's to bring those really digital seamless experiences to our customers is one area of innovation we're pushing on. And then the other area of innovation is just self onboarding. I think if you looked at what does it take to bring one of our customers on board, it doesn't look anything like it does for some of our FinTech competitors and there's good reason for that or a much different regulatory environment and they're playing a red orb game a little bit.

(30:17):

But at the same time, I think customers are beginning to expect something a little bit more akin to what they're getting from the fintech's. And so we're spending a disproportionate amount of time and energy trying to figure out can we seamlessly and easily onboard new customers using a self onboarding process? And it's a challenge and we'll see if we can get over the hump, but I think we're seeing some amazing progress right off the bat with a fully digital solution. And that's really appealing to the smaller end of the space while still using the bankers on the upper ending of that white glove service to the more sophisticated needs that they have.

Trupti Guzraty (30:55):

You want to share a bit more about innovation, especially given the acquisition of Bank of the West, now the scale is there, so there's more room to innovate.

Niamh Kristufek (31:02):

There is a little bit more room to innovate. I wouldn't say this year is a huge innovation year is it's more like teaching what we have to a whole new employee base. I think where we're really doubling down is one thing we had spent a good chunk of money on in the last few years is digitizing our branch experience base because small business owners are still opening accounts more in the branches than online. And how do we have a more digital seamless experience? So we have a deposit lending and credit card app all in one. So when you open a deposit account, you can do lending and card at the same time. And we real time decision up to a hundred thousand, that is great for the customer because they don't go away dreaming of the loan they're going to get when they're not going to get it.

(31:42):

And it's like buying a lotto ticket and you're spending your winnings, small business owners who apply for a loan and spend two to three weeks thinking of how they're going to expand and then they decline. The awkward part of that is our bankers are not great at having decline conversations in real time. They don't like it. They don't like telling customers no, they like the safety of getting a decline letter in the mail three weeks from now, and they have no choice because the minute they press the button, the decline email is in the customer's phone in front of them. So they can't avoid the difficult conversation and the value prop that I keep trying to explain to the banker is a no with a real reason why educating the consumer about why they don't qualify for credit is a service to the customer. You are actually helping them make financial progress by educating them on what they need to do.

(32:30):

So we are spending a lot of time, we've done the innovation, but the innovation is only as good as the humans who use it. You can build a great platform, but it sits on a shelf if the bankers don't want to do it. So while we have great innovation and we're working on payments and we're all doing that, we're actually doubling down on how do we get the humans to use the innovation better because we found there was so much fear of it, they weren't even taking swings at the bat. They were avoiding because even though they were having a great conversation, they were avoiding telling the customer about this because they didn't want to have the awkward part. So probably not the answer anyone wanted to hear. They want to hear about a great innovation story, but I guess I'm like the warning of the innovation is great, but if your humans aren't ready for it. So we've spent a lot of time, we got our legacy teams there, now we have to get twice the footprint there and explain to them this is really a service.

Trupti Guzraty (33:18):

Absolutely. Absolutely. Thank you for sharing. Another area that is top of mind for a lot of customers as well as for a lot of bankers is ESG number one. And then how does your bank represent the underserved or the underrepresented communities? Maybe Dee and then Shawn, do you want to share how your banks are taking actions or initiatives in that area?

Dee O'Dell (33:40):

Yeah, I'm delighted to talk about this. We have a business diversity lending program that we've rolled out across the country this year and it has generated just tremendous response. It's something that we got from part of our acquisition of Union Bank. It's a very successful special purpose credit program that Union Bank had for a number of years. And in acquiring Union Bank and seeing this program, we had years of data to look at that really helped us then sell our credit risk management team on our idea of rolling this out across the whole country. And at a very simple level, it really targets minority or diverse groups by allowing, by promoting a program that allows a slightly lower credit score and a slightly lower coverage ratio and informing our bankers, our humans about this program to drive dialogue. What has happened is fascinating. In the first six months of this program, we have had five times more success in making loans than we thought we would, but even more than that, we have a disproportionate number of companies that are applying that actually don't need those adjustments to our standard process. But by having the program in place, it allows for a dialogue that encourages those to apply who might not have thought they would qualify, and we're seeing great success there. And so to me, it's a great example of how a very specific program targeted, and in this case it's minority women and veterans is driving the outcomes that we want to be able to provide access to credit, but more importantly, to have this broader dialogue about how banks can help companies really achieve their goals. So a combination of innovation in a very specific way.

Shawn O'Brien (35:47):

And so when I joined the bank five years ago, I knew that one of the tasks that I'd have to accomplish was kind of consolidating and making our branch network more efficient. And in my prior bank we'd had a big bank at work program, which many of you're familiar with. A lot of banks have gotten out of that. I'm a strong believer in it. I think that as a financial education and kind of a community outreach arm, it is incredible, especially if you're having to shrink your branch network. So that has been very successful for us. So many banks are no longer in the space and we are out there telling companies we'll give free financial education to all of their teammates. That has been great for Goodwill, it's been great for business development. And then you heard me say that starting this year we'll have a business banking team focused on women and minority owned businesses.

(36:34):

So I think a lot of it's being out in the community, having those teams out there and working on education and making sure you have offerings for the right group. I do want to go back to the prior question too, because on innovation just for a second, the thing that I hear the most, and many of you I'm sure here too, and we call them Gemini customers, you probably call them Gemini customers. So it's folks that have both business and consumer relationships with the bank. It's interesting, if you look at big banks, small banks, it's kind of just 50 50 whether they offer access online and mobile together for those accounts or they require two different logins for those accounts. And that is, from what I hear, one of the biggest concerns of small business customers is they don't want to have two access points, two different ways to deal with their money, have trouble transferring money between account types. So that is something we're looking at heavily. We will be changing that and offering that here in the new year. I think if you're a small business owner, that is actually a value proposition you can create that actually has a lot of value for them. So I don't know what everyone in the room is doing, but that is certainly something we're focused on.

Trupti Guzraty (37:43):

Awesome, thank you. One question before we wrap it up, and this is specifically for Mark. Budgets are shrinking, but growth is always top in mind. So how are you thinking about growing P and l with limited budgets or shrinking budgets?

Mark Pilotti (37:59):

Well, I've spent a lot of time talking about digital offerings and digital services, so maybe I'll start there. The amount of money you can invest in technology is unlimited, and so you can blow giant amounts of budget on that. And so I think one of the ways we are thinking about maintaining our budget and our P and l, I'll frame it an expense thing, is how do you know when to partner with somebody versus build something? And so there's this buy build partner kind of question that's top of mind. And I think that pendulum swings back and forth depending on what's in vogue at the time. But I think we're starting to look at our FinTech frenemy as frenemies, like their friends, their competition. There's a little bit of both going on there, but at the same time, we need to bring them in to provide really fantastic services for our customers. And so that ability to partner with fintech's is a way for us to control our technology budget in times when things are getting tight.

Trupti Guzraty (38:59):

Great. Thank you. Anybody else wants to share their perspective, Shawn, Niamh?

Niamh Kristufek (39:05):

Yeah, I mean, a few of my team members are here and they always come to me with ideas and I always say, okay, so what's the trade off? Am I not hiring bankers? Am I spending less on marketing? I think in these kinds of years it's just a bit mores about trade-offs a little. It's not really a blue sky year, and it's obviously a focus on deposit. So I think we're probably doing a little less on the, we know we're doing less on the technology side in a change year, but it's a little bit more, is it heavy on the offering side? I think we're all going to pay for deposits this year. The money market offers aren't going away. So I think we're getting a little bit more creative on that, but it's a trade off year. I always say to everyone, it's incremental improvement this year. It's not big change. And so the challenge I have in my team is prove to me you're incrementally improving something. So it's going to be more a human year than a tech year for us.

Trupti Guzraty (39:56):

Got it.

Shawn O'Brien (39:57):

Yep. And I would just add, I spent part of my career acquiring fintech's. I've worked with a lot of fintech's. I would just say remember that they are trying to sell a product and solve a problem. Make sure you understand what problem you're trying to solve, make sure you understand actually what your customers need because it's easy to get confused. If you have your customer needs really well identified, then you can figure out if there's a FinTech solution that solves for that. But don't just go looking at fintech's and look at something cool and try and acquire it and build it in, and then you'll be disappointed. You'll find that it doesn't really resolve any of the issues you had.

Trupti Guzraty (40:30):

Absolutely.

Dee O'Dell (40:31):

If I could just add one other comment to that, and as I've witnessed what we've done at US Bank, and to Mark's point, you can build it yourself. You can partner with someone else. We've actually, in addition to both of those, we have bought fintech's who have brought us immediately certain technology. But the other thing is, and we are only on the very beginning of this work, if we can bring in the FinTech mindset and then use that to help change the way that things are done in other parts of our organization. So fully integrate, and that is a dance to be able to hold onto what's really important and the reason those employees wanted to be a part of that FinTech, but then to help them see their opportunity to help the bank continue to evolve very quickly. And we're doing more and more of that.

Mark Pilotti (41:19):

Squashing that butterfly is always the risk.

Dee O'Dell (41:22):

Exactly. Yeah.

Trupti Guzraty (41:24):

Great. So we talked about the high points to close the conversation, then open it up for Q&A. What's the one thing that's top of mind or what's the one thing that's keeping you up?

Mark Pilotti (41:36):

I will take a decidedly old school thing here and say I think the range of outcomes on the economy is really wide right now. And with the path of interest rates, I think there's a lot of uncertainty around rates. There's a lot of uncertainty on the impact of quantitative tightening, and where that plays out is uncertain for ourselves and for our customers. And so in a world where you control what you can control and kind of monitor the rest of it, I think we just do a lot of scenario planning and sensitivity around the various outcomes of the economy. But it's in a position we haven't been in 40 ish years, and so we'll just cross our fingers and hope the Fed can engineer that soft landing that they're looking for.

Trupti Guzraty (42:18):

Dee?

Dee O'Dell (42:19):

Yeah, so mine is very simple. I have a relentless focus on making it easier for our bankers to serve our clients. And so anything that we can do to make our processes faster, easier, getting to yes more often, that really allows our bankers to, with confidence, spend more time in the market in front of clients, I think that's going to drive our success. And so much focus for us is on making all of those processes work really, really well for the bankers and for the clients.

Shawn O'Brien (42:50):

That was a great answer. I was going to say something so similar to that. So I'll just say value proposition, I guess. So I think making sure we understand our value proposition, making sure that we really know what our customers need, what we're going to deliver, how we're differentiated. I mean, there is ways for all of us to differentiate in the market regardless of what size bank we are. And if we're not differentiated, then we won't succeed. So that's top of mind for me.

Niamh Kristufek (43:15):

Yeah, I think mine's a little old school too. It's still very banker focused. I'm hyper aware that there is still a war on talent. Anyone who's been trying to hire bankers lately knows that. And so it goes to, do I make it easy enough that they still want to work here? Everyone is fighting for those deposit dollars. So when we turn them overnight from lenders into deposit, gatherers, A, it's uncomfortable. B, they're not used to it, and C, everyone else is doing it. So are we taking care of our bankers? Do they feel like they're still valued? I always worry top of house when we're messaging and we're talking about this great digital innovation and that great digital innovation, what about our human element and are they still feeling valued and important? So whether that's in the branch manager, I always say, where are we on the grocery shelf?

(43:55):

Am I in the middle of I made it easy, or are they going to go sell the consumer mortgage because I made it so hard? So what are we doing to please and make it easy for the branch banker who's already dealing with so much and what am I doing for the BMS that they feel inspired and they really feel like I have a value prop they can be proud of and they're taken care of. So for me, it's like it's going to be a rough year. So put your arms around your bankers because if they stick with you, you're going to survive it.

Trupti Guzraty (44:18):

Great. Thank you for sharing really, really thoughtful perspectives. I'm going to open it up for Q&A if folks have any questions.

Audience Member 1 (44:36):

Hi. I was actually, it's a great point that you made, and I actually had this question written down for a while during the panel, but what are some areas that you would actually push for empowerment to the small bankers to go and ask those questions to you of how do they start talking and driving more engagement with their customers in their region? And what does that feedback typically look like to anyone on the panel really.

Niamh Kristufek (45:04):

I think what I always tell my branch bankers when I go out and visit is the most important question you can ask is an open-ended question to a business customer. And I always say the most powerful one is, what do you want from your bank? Instead of saying, how are you doing? What's going on? What do you want from your bank? And then go, why? And then they really tell you what they need or what their wishlist is. And half the time you already have that. But people don't ask very simply, what do you want from your bank? And you can just take notes and notes and notes. And then I always say to them, and send them to me. I have the weirdest name in the bank, Neve Chris Neve, chris. like Neve chris effect.com. Tell me what's not working. Tell me what your customers are complaining about, and then we'll put it in the job jar. And so I just always say to them, just open. Just think about the most open question you can ask, and it'll just give you a font of information.

Trupti Guzraty (45:54):

Thank you. Anybody else?

Niamh Kristufek (45:55):

It's pretty basic.

Shawn O'Brien (45:57):

I would just say if you want to empower bankers, one of the things that I've been thinking about recently is we as bankers have been taught forever, establish your centers of influence. Understand who the players are in your market, meet them, cultivate them. But we don't talk a lot about becoming centers of influence ourselves. And I really think that is something that any banker can do. They can empower that on themselves to start having lunches with leaders in their community, become that center of influence. That's something that I think all of us can do. Certainly branch managers can do it, business bankers can do it, and that's something that kind of creates power for them.

Dee O'Dell (46:32):

I like those answers. I think the other piece that I would add is just having our bankers engaged in a dialogue where we get a client or a prospect to tell us their dreams. Where do they really want to go with their business? Why are they in this business? What do they want to achieve? And when they feel like we listen really well, I think they're, they're more inclined to let us be a partner with them on that journey.

Mark Pilotti (46:57):

Yeah, I would've said something very similar. Somebody was standing up here yesterday talking about the diversity and products and understanding needs. And when you can lead with that openness and that empathy to really understand what the customer needs, maybe our products serve them, maybe not, but maybe we can help guide them to the right place to help meet those needs and that builds a really deep relationship. That'll last the test of time.

Niamh Kristufek (47:16):

Thank you. Good question.

Trupti Guzraty (47:17):

I think there was a question over here.

Audience Member 2 (47:25):

If you were starting this business from scratch today, what are the three areas you'd focus on and why?

Niamh Kristufek (47:34):

Three areas.

(47:39):

I think the first one I would probably focus on is data. I think anyone who's in a big organization with a lot of legacy systems realize how disparate data could be. So I always have to say I'm a little jealous of the FinTech that starts with the white paper because everything kind of works seamlessly. So I think I would focus on data and then that would feed into better tools for the bankers to have real time conversations. And so I think I would focus on those two things. Data empowering bankers. We always say the digital is there to free up time for the human because human is at the center of small business. So those are probably the two I would probably focus on. The third one would probably just be informing our locations and centers based on not just what you purchased in the past, but on opportunity. That's your go to the white space. Sometimes we're all lacked into where we are, so those are probably, so data I guess is at the heart of it. So I don't know, it's probably not as strategic, but off the cuff, that's probably where I would go.

Dee O'Dell (48:39):

I would just add to that, and I think Mark touched on it, this seamless onboarding of everything. I mean, wow, we could get to that. We have great products, we can provide great service for you, but it's going to be really painful to get it all on boarded for you.

Niamh Kristufek (48:55):

You're going to love us until you don't love us, and then you love us again.

Shawn O'Brien (49:01):

And I'd probably reset and have folks never consider themselves lenders. I'd have them be bankers, think of themselves as bankers, providing financial solutions to their customers, not just lending.

Mark Pilotti (49:15):

I might pair onto the acquisitions thing, like you mentioned, start with the white page. Sometimes we acquire things along the way that you look back and you're like, we're trying to be a whole bunch of things to a whole bunch of people and maybe spread ourselves a little too thin. And so to the point around the vel prop earlier, kind of know your lane and know how you're going to win and what you can deliver for your customer and be the best you can be at that thing. So there's some legacy baggage that a lot of us carry around. But yeah, being really clear with yourselves around why you think your customer should be with you.

Trupti Guzraty (49:48):

Great. Thank you. Any other questions? We have probably time for one more.

Shawn O'Brien (49:53):

We have 58 seconds.

Niamh Kristufek (49:55):

It gave us another minute.

Trupti Guzraty (49:59):

No. Okay. Nope. Well, thank you so much.

Niamh Kristufek (50:01):

We had one, but that's it.

Trupti Guzraty (50:02):

Is there one more at the back? No.

(50:06):

Oh, there is one. Okay.

Audience Member 3 (50:09):

How do you think about lending into the franchise space, either through Professional Pass or through s, you have dedicated teams to it?

Niamh Kristufek (50:20):

We have dedicated teams in the commercial space. We are exploring moving down to the small business space. I have the legacy bias of being in commercial when we did franchise, and I really like it because the discipline of a really good franchise enterprise puts discipline into the franchise owner. And if you get the right franchise, they do a really good background check and support model around it. So I think lending into franchise is a really nice way of taking the guesswork sometimes out of realigning what this business does, what does it really mean? What's the value prop of it in your risk segments? We haven't determined which franchises in the small business space we think have a ton of value because the smaller you go the more risk you have because a lot of times it's their first business enterprise, but we are exploring it. I think anytime you can put a lens of standardization on top of what is custom, it gives you a little bit less friction. And so I find it to be an attractive space that we are exploring, but we're not yet matured in the small space. Okay.

Trupti Guzraty (51:23):

Thank you so much. And thank you. You guys, the panelists will be around, so if you have any other questions, feel free to come and ask. But thank you again for joining and really appreciate your time and perspective.

Mark Pilotti (51:34):

Thank you.