What you'll learn
- How Citizens was the only Top 10 bank to show improvements in their scores on overall bank delight, Net Promoter Score and various brand attributes in Barlow Research's 2024 Small Business Banking study.
- Why it's been important for Citizens to keep a heightened focus on new technology.
- How Citizens Cash Flow Essentials platform is a one-stop-shop for their customers' cash flow management needs, meeting each customer where they are at in their journey.
Transcription:
Sandy Hanson (00:10):
Thanks for coming. I'm Sandy Hanson. I am a Managing Partner at Barlow Research. Barlow Research tracks the pulse of both small business and middle market companies, really tracking the voice of the business banking customer to be able to provide to our clients who are both financial institutions as well as some vendor partners across the financial space. And today we're here to talk about some investments in technology, but also investments in human capital. We know that investments in technology help to really strengthen and deepen the connection that we have and the deepen relationships that we have with our business banking customers. Not only by enhancing the overall customer experience, but also by fostering some stronger connections from offering personalized interactions to our small business customers, as well as streamlining processes with automation technology can really help to connect us with our customers and really solidify that bond that we have with our customers.
(01:15):
So today I'm excited to talk with Manny Tocco, who is the COO leading strategy, credit operations, sales enablement for Citizens Business Banking Group, excuse me. And we're going to be discussing some of the many investments that they've made over the last year or so to really help their customers meet their financial goals. This has in turn helped to deepen the relationships that they have with their customers. And oops, there we go. So Manny is responsible for allotted citizens, not a small job title at all, but he's responsible for all of the credit operations, including portfolio management, underwriting, asset quality, innovation and risk analytics, helping to really set the course for the business line's overarching strategy when it comes to digital capabilities to better serve, deepen and acquire customers. So we are going to cover a lot of ground today. We're going to be talking about what is the segment that we're looking at as far as sales size, as well as where are we assigning relationship managers within the space.
(02:24):
We'll also be looking into some of these investments and product services and technology and investments, as I said in human capital. And then we'll be talking about deepening those customer relationships. So we're going to jump right to it and talk about the number of businesses that are out there. Well, Barlow Research, we define small businesses as companies with a hundred thousand to 10 million in sales. And Dun and Bradstreet would tell us there's about 7 million small businesses in that space. And as you can see here on the slide, a large portion of 'em, nearly 80% fall into what we term micro businesses. Those with a hundred thousand to 500,000 in sales. Now, this 7 million number might seem low to you if you track S-B-A-S-B-A would quote, there's about 33 million small businesses out there, but they're definitely going below our a hundred thousand dollars threshold into what we term the gig economy or small office home office type companies where when we've tracked that market about 10 years or so ago, and they use a lot of personal banking products at that segment to run their business, we like to talk about a hundred thousand dollars and up being serious small businesses.
(03:30):
They're definitely using business banking products at that point to run their business. Now, when we talk about definitions of small business, I know citizens goes up a little bit higher. Can you talk about the segment and how you're defining it?
Manny Tocco (03:42):
Yeah, I mean, it's pretty diverse, which requires us to be fairly nimble around the capabilities that we deliver to the market. We have to be made ready to be able to support customers and different platforms from mom and pop dog walker, somebody that's just a budding enterprise that's micro oriented all the way up to the lower middle market space. So we have three distinct channels around how we end up supporting the market today. So we service some of our customer base virtually. And then we have an RM one channel or sort of an SMB model that goes up to $10 million in terms of their demarcation. And then the upper end of our business banking segment that supports companies up to 50 million in annual revenue, more of almost like an upper business banking, lower middle market ecosystem.
Sandy Hanson (04:27):
Okay, thanks. I was really excited to be able to talk with Manny today and to bring him here on the stage with me because Citizens is one of the only top 10 banks where we've seen some really great scores and great improvements in our syndicated data. So we track, as I mentioned, companies a hundred thousand to 10 on a nationwide basis, and we ask them who their primary bank is for their business, and here we're showing you some of the citizens scores and this deck is available. I know there's a lot on the slide that is available in the app, but what we're seeing at Citizens not only is some very high scores, but also as I said, those improvements. So we've seen improvements on overall bank to light net promoter score if they're being very likely to purchase with the bank the next time, as well as about six different brand attributes, two of them being very important.
(05:17):
Number one, easy to do business with, which is a number one driver of overall bank satisfaction. And the other one that I think is really important is keeping up with innovations to the products and services. So a lot of improvement in the metrics that we're seeing from the voice of the business customer. And I don't think it's a coincidence that you've made a lot of initiatives within the space over the last year, two years or so, really to meet those customers needs, not only where they're at today, but to help them grow and grow with you. So one of those initiatives, of course, is your Cashflow Essentials platform that you released last fall. It actually won the 2024 PayTech award for top innovations for payments by a bank. So great tool that you've offered to your customers there. Can you talk a little bit about Cashflow Essentials?
Manny Tocco (06:06):
Yeah, so Cashflow Essentials is a great, I would say in-between money movement platform. It's not quite our robust, more commercial oriented platform with various different modules. It's at a price point that's fair and reasonable, and it's the in between our online banking sort of like no frills platform that's more basic and rudimentary in nature, but it allows companies at a very fair price point to be able to have money movement capability and very, I would say granular visibility in terms of their cashflow. So you can do things like ACH origination, wires, stop payments, things that you would not necessarily get and something that would be more native to online banking. So again, sort of that middle of the road to be able to support that SMB customer. And we're really starting to contemplate how does this start to end up showing up as a distinctive value proposition for that SMB between a million dollar operator up to 10 million.
Sandy Hanson (07:07):
And you mentioned the competitive price point. I do want to mention Citizens was the only one of the top 10 banks to actually improve on the metric of having competitive service charges. Many of the other top 10 banks over the last year have declined on that metric. So with the current environment that we're in, I think our business customers are very fee sensitive. They're watching every penny, so that's very important to them.
Manny Tocco (07:30):
Agreed.
Sandy Hanson (07:31):
Can you talk a little bit about why it was important for citizens to really contemplate this robust system?
Manny Tocco (07:37):
Yeah, I would say not even just exclusive to CFE, I'm going to pull back a little bit and just talk about our digital journey just in general. Over the course of the last couple of years, I think payment capabilities are starting to become more and more table stakes over time and citizens. A couple of years ago we were investing but not investing at the clip that we really needed to get to at parity with our peer groups and then start to outpace and really take poll position. So it's been over the last two and a half years, we actually were able to end up improving our digitally engaged customer base by 14 points, which is I think starting to show up in some of the Barlow metrics that you're outlining here, Sandy. But it's a little bit of investment within our online banking platform around digital invoicing, mobile Zelle, being able to end up transacting and having Bill pay mobile and then also the CFE platform, which we very quickly were able to end up discerning that without that capability, we weren't really meeting the SMB where they needed to be. It was either something that was incredibly robust, big implementation process, and quite frankly, very arduous with very different user entitlements and dual authentication and things of that nature. It just really wasn't fit for purpose for somebody that doesn't have the back office infrastructure and CFE stepped in to fill that void.
Sandy Hanson (09:01):
Yeah, and I think that's important too, is that small business owners tend to do things the way they've always done them. So you have to really show them the value proposition, not only the cost, the hard costs of it, but their time as well.
Manny Tocco (09:15):
Agreed.
Sandy Hanson (09:16):
So really you're not stopping here though with your investments and continuing to innovate. You're planning to add different features, you've added features to Cashflow as early as just, or excuse me, as recent as just last May, including the ERP software integration for that. Can you talk a little bit about that?
Manny Tocco (09:36):
Yeah, so it's a cashflow forecasting tool. It sits in our unified portal for cashflow essentials. And again, kind of going back to SMBs, not really having the back office infrastructure related to having a CFO or even a controller. I mean, let's face it, they are the chief cook and bottle washer a lot of times, but they do have an insatiable appetite to end up getting insights and benchmarking that's related to their specific sector even within their own geography. And so this cashflow forecasting tool not only ends up giving them the ability to plot out what their cashflow needs are, plan for things around working capital optimization or CapEx financing, but also gives them valuable real-time insights in concert with benchmarking. So value add service, there's not a revenue component to this, but it's another reason as to why we're trying to end up needling at the point of why citizens and putting this in and baking it into a more comprehensive platform that people want to end up banking with us. It's a good destination and it creates that sticky relationship.
Sandy Hanson (10:43):
And you talked a lot about that. Not all customers are kind of at the same point in their cashflow management needs, and you have various solutions that help with that. Obviously from simple digital invoicing that's in your online banking platform to some of those robust new bill pay features that are going to be coming out soon. And you talked a little bit when we were prepping that embedded payroll might be something that will come out down the line. What about the evolution of the customer and why do you feel that and why did citizens feel that it's really important to meet them where they're at?
Manny Tocco (11:14):
Yeah, look, I think you've got companies that, and Amy talked about this in the first track today with JPM around digital capabilities. And micros have the ability to start to end up scaling fairly significantly in today's environment than any other. And citizens has the full breadth of capability, whether it's around a money movement platform, whether it's around banker sophistication, we've bolted on a myriad of different boutique m and a firms along the way. So the concept is if we can end up getting the customer, and we do have diverse customer needs, hence these various different money movement platforms, meet them where they are, deliver primacy, good service, be consultative, provide thought leadership. We all talk about digital journeys here, and it's to no surprise being small business, there is a digitization need, but I don't want to gloss over the human capital element and we'll talk a little bit about that later on. And we are doubling down with respect to that and making a big bet on our people. But we believe that we've got the full breadth of capabilities to end up delivering from the small micro through the SMB up through the lower middle market space and help that customer grow, acquire, and then eventually into positioning themselves for an exit strategy.
Sandy Hanson (12:34):
And that's a little bit, I know not what we talked about in our prep sessions, but we were talking just earlier outside here is there is a lot of customers that are going to be transitioning their ownership in the next five years. Our data would tell us on the lower end of small businesses in the upper thirties to 40% amongst companies 500 to 2.5 in sales that think they're going to transition their ownership in the next five years. So we are going to be having a new crop of owners coming in. They might want to do things a little bit differently, but so it's important to not only build for that customer of the future, but as you were talking about with the business valuation and helping these current owners be able to make it through that process, through that wealth event, keep those funds for the private wealth management side of the business as well as have a seat at the table for the new potential.
Manny Tocco (13:24):
Yeah, I think whether we're talking about payments or digital platforms, all of this is fundamentally table stakes at the end of the day, and it's how we're showing up for our clients. And if it's a micro oriented business, I mean, clearly we can't end up having relationship managers facing off at a one-to-one just from an efficiency play. But these owner operators, what they do need in addition to digital services and self services, they want you to meet them where they are in terms of expertise. And so if they need to end up activating us SME, whether it's virtually or whether it's in the branch or a coverage banker, they want that experience. And they also expect that SLAs as it relates to triaging and servicing are within reasonable timeframes. And so I don't think that that can end up getting lost as we're sort of talking about digital capabilities in general.
Sandy Hanson (14:19):
And speaking of that, human capital, one of those tools that you have that it's a digital tool, but it really does help bridge the digital with the people digital assistant channel if you will, is your guided conversation tool that you have. What's the goal of that tool and how is that helping the main website, the main.com?
Manny Tocco (14:39):
Yeah, I mean, so we pulled back about 12 months ago and said, look, we've got to completely revamp and just reimagine what our.com looks like. How do we want to end up showing up when people start to surf the web and looking for a provider? And we had a lot of work to do with respect to that. So we started to end up delivering some insights, some thought leadership articles. We've got a great partnership with MasterCard around digital doors. I mean that's been really good from a value add perspective, but specifically the guided conversation that you're speaking about is really around helping a customer based upon some fundamental decision logic, get them to a good solution like a recommendation, and then they can self-service, whether it's around credit delivery within the.com or it's around our new digital account opening platform that we just ended up launching. And then if the recommendation is a little bit too sophisticated and it's not something that they can end up adjudicating through a self-service functionality, there's activation within that digital assisted channel that we just stood up and we're kind of testing and learning with respect to that. But that cohort of colleagues, or they're air traffic controllers, if you will, on everything on.com, but we are finding an immense amount of opportunity that's coming through the plumbing with respect to that. And we're excited.
Sandy Hanson (15:57):
That is very exciting and being able to, a lot of small businesses do want to self service, but they sometimes meet those roadblocks. So knowing that there's some way to help them get through those roadblocks a little bit more efficiently, I think could be very appealing to them. So speaking of your people, I know you've also made some significant investments in your human capital, and we talked earlier about how you segment the market. Let's talk a little bit about those segments in the people that are serving them. I know you're undergoing a fairly large change to your model, your coverage model. Can you talk a little bit about this and why the bank felt it was the right time?
Manny Tocco (16:35):
Yeah. Well, I'm going to pull back and I'll provide a little bit of some benchmarking statistics in terms of the causation for why now. We were sort of under punching our peer groups around month on book four, digital Cross or Cross-sell with those customers that were coming in the front door around micro. And we were sort of just haphazardly sort of penetrating those relationships. So we had an immense opportunity to really take a step back, let's look at our total coverage model and really apply some efficient processes and hardwire some of our coverage bankers that are virtual against our distribution network to end up driving around primacy better month on book four and making sure that they were digitally active, engaged and were properly cross sold from jump ball. And then sort of taking a step back and saying, all right, well how do we want to end up showing up with our infield coverage bankers?
(17:32):
And we had our small business bankers that were up to 5 million in revenue, we've now moved their demarcations up to 10 million and then our upper business banking from 25 to 50. That doesn't happen overnight. It's easy to say, it's hard to do, and there's a lot of l and d that goes into it and continuous education around curriculum and curating that and really putting some infrastructure in place. But what we face off against now is you've got the mass market customer that's just under an immense amount of pressure from a regulatory standpoint, and we needed our coverage bankers to start going up market and garnering very rich fulsome relationships that we can end up supporting and bringing the bell from a low cost, high cost perspective, non-interest income and very deep relationships where we can eventually end up positioning a private wealth banking proposition. And I think the micro oriented businesses are still coming into the branches. There's still opportunity there. There's a ton of low cost density that's there, but we need to be able to service them in a very efficient manner. And we're also contemplating some things around like, alright, if that's more of a hardwired experience with our distribution network, how does this start to end up evolving over time around on-demand activation when that principal does need subject matter expertise?
Sandy Hanson (18:52):
And we talked a little bit too before this, is that the micros, they don't really want a lot of proactive service. They are the doers. They are the bakers or the florists. They're doing the day-to-day financing. They didn't go into their business to do the financing. It's just another hat they have to wear. So not that they don't always need it, but they're not really looking for that proactive service, a banker to come to them and talk to them about different things. They're set in their ways, good or bad, but the upper end, they do want that consultative service, that proactive service. They want a banker who understands their objectives, knows what they're doing, but regardless of the sales size of the company, if they have a problem or an issue, they want a response in two to three hours. They want somebody to get back to them via email or via phone and let them know, acknowledge their problem, let them know that you're working on it, that you will get it resolved in an X amount of time.
Manny Tocco (19:43):
Yeah, there's been a ton of great content through today's session and a lot going into tomorrow, but we haven't really talked about, and maybe I don't want to steal somebody else's thunder if this is going to get covered off on a track, but we haven't really talked about service. And I actually think that in a commoditized industry where you're going to have, again, going back to digitization and payments and all of that is going to end up being fundamental table stakes. The way that you're really going to differentiate yourself in the market is around a value proposition that's insulated around service being consultative, being a thought leader and being able to support that customer from an end to end standpoint. And that's how you're really going to end up driving sticky relationships and shareholder value.
Sandy Hanson (20:26):
Yeah. So let's talk about this new model and how is this going to change with training for bankers?
Manny Tocco (20:33):
I mean, so I'll digress before I answer the question. So I mean, banks have historically gotten out of the training business if they've done it. It's been a check the box type of experience. Fundamentally, it shows up in modules and again, oh, you went through training, you went through onboarding. Now you're ready. Go get after it. Right? We all know what this is like. And candidly, we do it from a bottom up approach. We don't really take the top down approach around really making sure that our leaders are prepared as they're out in the field, they're show coaching, and they're really sort of helping to stimulate improvement around how they're facing off against customers in the market. So this is a major platform that we're starting to invest in within sales enablement, and it shows up within l and d and we're hiring for a myriad of different roles to be able to support our coverage bankers going up through this new change. I think for our small business bankers, some of what they do today is going to be what they do tomorrow. I mean, they're going to call in centers of influence and they're going to prospect and they're going to nurture their clients and deepen, and that's good. But I think when you start to move the demarcations up, the conversation that talk track does start to get a little bit more sophisticated and we're going to provide our people with proper air cover.
Sandy Hanson (21:51):
Now, I know you with your private investors acquisition, the private bank growth strategy, you've put a lot of more private bankers kind of in your staff. What about business makers? Will you be adding business banker
Manny Tocco (22:06):
Staff? I think it's a huge investment. We've all been talking about this. Everybody's bullish on business banking. I don't think that that's any different than its citizens. And we want to pick our spots. We want it to be data-driven. I think that there's a lot of white space in some geographic markets. I think there's some cottage verticals that we're really leaning into that we have a right to win. That's going to be something that we really start to lean into in fiscal 25. And I think there's some strategic lift outs that we're going to look at in terms of the upper end of the market. We want citizens to end up being a talent magnet. And I think that that starts with the leadership team. I think our leadership team is some of the best that I've seen at Citizens, and I've been here for a long time. And I think that we we're on a really solid trajectory, but I think we've got a big people investment. I think that shows up within l and d transformation, but also where we're going to end up looking to end up hiring some coverage bankers and do some strategic left outs.
Sandy Hanson (23:09):
Now, we talked a lot about the different investments citizens has made, both human capital and some of these digital tools really helping to meet customers where they're at every stage and provide all those tools that they might need. Why do you think it's been important for citizens to keep a heightened focus on new technology?
Manny Tocco (23:28):
I'll go back to the table stakes conversation. If we don't obsess about a very cohesive digital journey, we're going to be left out in the dark. And whether it's a money center or it's a non-bank entity, they're going to come in to eat the lunch. And so we're maniacally focused on that, and we attend events like this and want to be on the forefront of technology. And that's really what's going to end up providing some differentiation long term is to continuously keep investing in various different platforms and iterate. But again, I think who's waking up every day and opening the laptop and obsessing around the digital journey for business banking that has to be well accounted for. Otherwise it's an afterthought, particularly if you're sort of riding adjacent to something that's more consumer oriented. Business banking is very bespoke, and again, we've talked about the diversity just within the business banking chassis. From micro to SMB to lower middle market, it's different. And how you show up is different. The platforms are different, different, and we're just going to keep investing.
Sandy Hanson (24:50):
You mentioned differentiation. What do you think is the most important thing that citizens needs to concentrate on to be able to differentiate yourself from your competitors?
Manny Tocco (25:01):
I think it's our people. I hate to keep saying that it is all about our people, and it's the colleague experience, which is ultimately going to end up translating into the customer experience. I'll go back to highly commoditized industry. Everybody has money movement capabilities. Everybody has mobile deposit, a check scanner. That's not going to give you the right to win. And we have to nurture our people and feel like we're invested in their future. And if we're invested in their future, they're going to be invested in the growth of our clients.
Sandy Hanson (25:36):
Yeah. Great. Well, thank you. Do we have any questions in the room? No. Okay. Well, thank you.
Manny Tocco (25:47):
Thank you, Sandy, so much
Sandy Hanson (25:48):
For this discussion. Yeah, I think there's a lot of exciting things happening at Citizens. I, for one, I'm excited to continue to watch and watch your numbers and provide 'em to you, and I anticipate they're going to continue to climb.
Manny Tocco (26:00):
Thanks so much. Thanks for having me here.
Sandy Hanson (26:02):
Thank you.