How to Win in Small Business

Historically, financial institutions haven't given the Small Business segment the attention it deserves.  But the tide has officially turned!  With pressures on Mass Market Consumer profitability, many banks have turned to Small Business as a key area for long-term growth and profits, with a continued focus on deposits.  But in order to maximize its potential, financial institutions must be able to break out of going to market in the same old ways.  Jumpstarting a growth engine will require rethinking how banks attract, deepen and retain their clients; and will require banks to think about distinctiveness in ways they have not historically.

Join Curinos for a discussion with a panel of your peers as we leverage our proprietary industry data and insights to outline the critical drivers of small business success for your organization, including the importance of deposits and lending, segmentation, strong value propositions, operating model optimization and more!

Transcription:

Adam Stockton (00:11):

Everybody, we have the distinct privilege of going after lunch. So hopefully everybody had an extra Diet Coke for us and is going to be able to stay awake. We'll do our best to be entertaining. I'm Adam Stockton. I lead our retail deposit and lending businesses at Curinos. I'm joined by my colleague Olivia Lui, who leads our marketing product and value prop practice, and we're really honored to be joined today by Mark Valentino, the Head of Business Banking at Citizens. And Eric Lewis, the Interim Head of Small Business Banking at Truist. What we have today is going through a few challenges and opportunities in the business banking space. Small business continues to be in focus for so many financial institutions out there with fee pressures in mass market consumer and increased regulatory focus chipping away at the value of the mass market customer with declining margins on commercial deposits and a tough lending market. Overall, small business has been one of the real bright spots for so many banks. That is tremendously exciting for all of us in the room. It's a great place to be. There's lots of opportunity, but it's not easy out there. I don't know how many of you have had your executives come back and say, this is such a critical area for us. Can you do 20% more? Can you do 50% more? Can you just double that performance next year

Olivia Lui (01:49):

With the same amount of investment, though

Adam Stockton (01:52):

I was going to say resources, right? Exactly. Exactly. Same resources. And it's getting harder and harder to be able to do that. And so we wanted to both acknowledge some of the challenges and then really spend a good bit of time on what are the opportunities, how do we get out in front of those challenges and actually hit some of those aggressive goals. So going through the first challenge that we're facing, and I think Mark, you use this term is the now economy revenue is tight, competition is increasing. We're seeing across the board, deposits are the largest source of revenue, but with declining rates coming, that revenue is going to be under pressure. So there's less revenue to go around. Costs are higher with digital investments with fraud, some of the topics of earlier this morning, but customer expectations are also higher than ever. Businesses are using more products, they have more relationships with more FIS. They're demanding 24 7 service. And so the challenge is how do you meet those expectations in a world where the revenue and profit to go around just isn't there? So Mark, maybe that's the first question for you. How do you think about meeting those more complex needs without sacrificing the profitability and keeping business banking that shining example?

Mark Valentino (03:28):

Yeah, well thanks Adam. Great to be here. Hopefully I get trademark credit if Karen knows, uses this in the future now economy. But what I would say is I think as banks, we need to think about our operating models a little bit differently to serve small businesses going forward, very parallel to how banks are thinking about their consumer operating models slightly differently going forward. So especially as we talk about the lower business banking customer segment where profitability per customer is smaller, the historical model was I have a banker sitting in a branch that's ready to meet the needs of all of my business customers, and I'm not sure that that model is going to necessarily lend itself to a compressed revenue environment for banks. So I think question number one that we have to answer as an industry and as individuals is what is the right operating model in order to serve these customers?

(04:20):

And when you think about having to be more scaled, you think about digital and you think about self-service having to be the primary way that you reach small business customers. And so many of the things that we're doing at Citizens are leading with digital solutions, creating new cash management platforms that are geared towards more of the small customer where we can still capture a little bit of revenue because the capabilities are more sophisticated than what they might have in online banking. But at the end of the day, I think everyone kind of industry-wide needs to think about, okay, how do I serve these customers with the same level of service? Because the expectation, as you said, is still very high, but at the same time kind of capture some revenue margin. And I think the only way you can really do that is leading with digital and re-imagining kind of the people component of your operating model.

Adam Stockton (05:04):

One of the things I really want to hone in on what you said there is being all things to all customers is tempting, but ultimately we've seen it's rarely the past to success. Eric, how do you think about prioritizing and doing some of that segmentation so that you're not trying to be all things to all customers?

Eric Lewis (05:27):

Yeah, I think it has to align with the strategy. And so for a second, let me take a step back and talking about how things are hard, that's excluding weather patterns and so please thoughts and prayers for all those that have clients and teammates and family and friends that are in the Tampa, Florida area. A lot going on down there obviously, but you're absolutely right. You have to prioritize and it has to be part of an overall strategy and a value proposition. We would love to be all things to all people. Kind of double clicking on what Mark was saying out of the kindness of our heart, I sure we would love to have a relationship manager assigned to every small business, but the economics of that don't make sense. And so how do you scale scale appropriately? You really have to look at the cost to serve methodology and how do you automate some of those things, those general triage questions. I know the FinTech partners in the room are happy when you hear that type of terminology where we absolutely have to partner because some of the questions that you get, whether your annual sales revenue is half a million dollars or 50 million, the answer is the same. So how do you route those questions to get it answered easier through online or digital capabilities versus a person? And I know we'll get into more about how you repurpose that individual to add more value added conversations to the client.

Adam Stockton (06:43):

Maybe one more thing there, which is the partnerships and FinTech presents opportunity, but also challenge as you look at the fragmentation of the customer wallet, the increasing number of relationships both with traditional banks and with fintechs. Mark, how do you think about making sure that you're getting the wallet share and the profitability when even in cases where you don't have the full relationship?

Mark Valentino (07:15):

I think the way we're approaching this is trying to provide kind of a centralized hub for our customers so that they can do more with us. So if you don't have a digital platform that allows your customers to do something like maybe a more complex form of a payment or merchant services or you name it, they're going somewhere else to do that business with another vendor. And when they get to that other vendor, that other vendor may also offer other ancillary services and products. And so I think as banks, again, I'm going to come back to what we need to do as an industry is really kind of create an ecosystem, and this is our strategy at Citizens Create an ecosystem that integrates a lot of products and services that help business owners operate their business on a daily basis. And that might even go across not just banking services.

(08:02):

I think we heard this morning from payroll provider and some of the integrated embedded platforms that are out there on that topic. So really trying to create a hub or an ecosystem that allows a customer to do almost everything with you in terms of the financial needs they might have to operate their business. And I think banks have made a tremendous amount of progress on that. We've been rolling out a series of new products on our online banking. We've also added more products and services into our cashflow essentials platform. So there are ways in which you can kind of capture more of the customer wallet, but I think we have to think a little bit outside the box. It's not just traditional banking services anymore necessarily.

Eric Lewis (08:38):

Yeah. Can I add to that? I think that's a great point and I think something else that banks often miss and you have to look at things holistically with our clients. How do you tie the personal financial statement of a small business owner to the business financial statement? And that needs to be looked at, you need to have line of sight into that. I think it's over 80% of small business owners start the relationship with their bank, with their personal accounts. And so making sure our teammates, do you have a centralized vision of the client to make sure when you're talking to somebody they could be. I mean, a lot of our banks have either a premier or wealth segment, and I hear horror stories all the time of small business owners walking into a branch at a bank wanting to open a personal mortgage, and that bank treats them like they've never seen them before, even though they've been a small business owner with that bank for over 10 years. That is not a good client experience. That is not great for the client journey. That is not good for sticky relationships. And so I know we are very focused on making sure we have that holistic view to arm our teammates and improve the client experience.

Mark Valentino (09:37):

Yeah, that's a great point. I think we lose sight of the fact that the business owner is a consumer at the end of the day in most cases. And so when you give them a bifurcated experience that's unequal, it could reflect poorly on your institution.

Olivia Lui (09:54):

Which is a great segue into opportunity number one. So the role of digital overall, right? This is just to give a sense to everyone where the role of digital in having the perception and really the leading digital capabilities for small business is extremely important. You can see that even pre pandemic versus today at this point we're talking about 82% of small businesses want this and it is one of the most important drivers and attributes. And you can see even on the right hand side, even breaking this down by different types of actions. Is it opening an account? Is it actually getting service? That blue bar continues to increase over time? And so maybe Eric, we'll start with you. Part of this is, and we talked about this a little bit inherently as an industry, we started small business as more of a banker led type of relationship. Overall, how do you think about inserting digital roadmap, the digital experience within that ecosystem?

Eric Lewis (10:50):

No, I love this slide, especially the right side of the slide and how the question has evolved from 2018 to now. And the question used to be, I can do this on my phone, I can do this online. And now the question is how come I can't do this online? How come I can't do this on my phone? And that's really important and you need to have those digital experiences, you need to have that. And so something I've been thinking about is not having great digital features can be bad, but also having digital features that don't work well can be worse. And so that's extremely, extremely critical in the multi-channel approach. And there has to be consistency. And this is where the partnership again comes into play. It is not easy to operate a multi-channel when you're within a segment because you need, how do you ensure that client consistency in that journey? You have multiple teammates in different channels and as if Mark is talking to a client, then I have to pick up the client and I'm talking to 'em. It can't feel like we're working at separate financial institutions. And too often that's the case.

Olivia Lui (11:49):

Yeah.

Eric Lewis (11:49):

So something else I'll just say, as you think about the great wealth migration, that's a term that's going around right now. So you have about $84 trillion in assets are going to be transferring from baby boomers into younger generations. If you look at small business owners that are baby boomers, 70% of them are going to be transitioning those in the next 10 to 15 years to younger generations. And we've heard it earlier today, what are those younger generations want? They want modernized banking, they want robust product sets, they want innovation, they want it now. And so in order to do that partnership between the bank and fintechs and open banking, that has to be really symbiotic.

Olivia Lui (12:24):

Yeah. Mark, anything else to add on that front?

Mark Valentino (12:27):

Yeah, this takes me back to the first slide about the now economy. And so everyone in this room probably in the next week, let's just say, will try to do something on their phone with some type of vendor, whether it's a bank or another vendor that you use. And if you can't do it pretty immediately you're going to be pretty upset and you're going to look for alternatives. And that's now transpiring. I think it's moving into the banking industry. When we think about great companies that have great customer experience, they have great customer experience in multiple settings, in multiple forms. So that kind of omnichannel approach. So if you think about an Amazon or a Disney, you name it, a really true kind of consumer brand, they provide amazing experiences no matter where they meet you. And I think banks have to up their game to provide that kind of experience, whether to Eric's point, the customer's calling into a contact center, walking into a branch, dealing with their banker, using their mobile app, if that experience is not equal, it kind of ruins the brand. It doesn't matter. It could be just one thing. And so I think banking as an industry has to raise their game in this whole topic.

Olivia Lui (13:40):

So maybe building off of that, it's given the amount and massive amounts of digital investment or investment in digital from the national banks and certainly a lot of the fintechs, Eric, you were mentioning as well throughout this conversation. How do you think about then a framework behind digital investment? What do you prioritize or how do you prioritize? There's so many things that you have to turn on.

Eric Lewis (14:05):

I think one thing we have to also realize is banks are notoriously siloed. What? Wow, I didn't think that would be a shock to most of the crap. So when you're thinking about those digital investments, again, your tech stack has to be aligned and making sure you're conversing across the enterprise.

(14:22):

And we've seen this where you have one part of the bank is holding onto their tech and may be working well for their so-called segment of clients where it has such a functional use case in other places of the bank. And so you need to be able to communicate across the enterprise and use those tools because again, investing in technology, it's expensive and it should be. But if you're prioritizing the right way, making sure it's aligned with the strategy and the tech stack, then you can create some efficiencies that are better for the long term. And like Mark was saying, all this is for the client experience and banks, we're not just looking at other banks to see how we rank in client experience. We're looking against the Chick-fil-As and everything else, the companies that are just known for their client experience. And that's really, really important.

Olivia Lui (15:03):

That's a great point. And it's the out of industry experience actually setting the stage, right?

Mark Valentino (15:09):

That's right. Customers don't care anymore that you're a bank and the expectation's not that, oh, my buying bank can't do this as well as name your other company. Everyone wants to be able to do whatever they need to do right now. It doesn't matter if it's banking or non-banking.

Olivia Lui (15:24):

Yeah, perfect.

Adam Stockton (15:28):

So the second big challenge that we wanted to focus on then is declining rates. Declining rates should present some opportunity to lower costs, but it also adds a whole bunch of pressure as well. 64% of deposits sitting in DDA is the big driver behind small business deposits being more attractive than deposits in any other segment that has led to low cost deposits through the rising rate cycle, which has led a lot of CFOs to say we want more of those. And even when we look at savings and MMDA 40% are already sitting under 200 basis points. So there's a lot of less rate sensitive money out there. I think of looking at these charts in two ways. One is, hey, it's great that 75% of your deposits are not rate sensitive, but 25% of them really are. And if you only focus on the 75%, I don't think many of you around the room would be able to lose 25% of your deposit book and have your CFO and treasurer be too happy about that.

(16:40):

And so you have to ultimately focus on both. Before I ask the question, I do also want to mention I forgot to at the beginning, all the slides are available in the app, so you're welcome to take pictures, but please don't feel you need to, you'll have access to all of 'em. So Eric, maybe we'll start with you. How do you think about managing both sides of that barbell? You'd like as much of that 75% as you can and you'd like that proportion to grow over time, but if you're not paying really good rates to that 25%, then you're losing out on meeting a big chunk of your customer needs.

Eric Lewis (17:21):

You can't look at each client's situation as transactional. And so to me, that comes into play and having true line of sight into overall relationship profitability. So you're not operating in a silo, there's a word again, but as you're thinking about clients in repricing and something else, I forget the exact number, but when you're thinking about the amount of CDs that are going to come up for maturity next year that need to be repriced, and so some of the things we're working on is how do you get proactive about addressing that? And I'm very passionate about that because I'm tired of approving exceptions for CD penalties over and over again. And so making sure that there is a good discipline around balance sheet management and that's also educating our teammates. When you think about small business bankers, a lot of them are coming out of retail branches and other places around the bank, very talented folks, but we also have to prepare them and understand balance sheet management and how the bank truly operates.

(18:21):

Sometimes they're coming from a world where it's like, I got a new account and that's great and I got this money, much money in the accountant, that's fantastic. But they don't really understand the logistics and how it plays into the over profitability and how it flows through the balance sheet. And so some of the things we're doing to partner again from a FinTech standpoint is what are the signals that we're getting for these clients ahead of time? So you're looking at significant trends, trends and transactions or swings in deposit accounts and how do you take that and understand external wallet share to hopefully deepen the relationship so that way if you do have to reprice some deposits, you can see the overall profitability and make sure it makes sense and you're keeping that margin.

Mark Valentino (19:03):

I love that you brought up kind of the view from the banker and coming out of the retail world. So I have a commercial banking background, so a little bit different. And I would ask everyone in the audience, how many of your bankers do you think truly understand, truly understand even a concept of how interest rates affect the bank's overall p and l and the trade off between DDA and money market, and as they're migrating customers from low cost deposits into high cost deposits. And then I'll ask a second question is, does their compensation structure and plan have any relation to that at all? And in most cases, I see a lot of people nodding in most cases. For most people the answer is no. And so there are some underlying structural changes that I think, again, you probably need to make around educating bankers on how the bank's balance sheet works, especially in environments just like this because this is when we're most at risk for pricing as things are coming down.

(20:04):

And so I think there's a huge education piece that you just touched on, and I think it's also related to incentive and compensation for bankers to know how do I create a win-win for the customer, but also create a win-win for the bank because ultimately that's where their paycheck comes from. And so I think there's a huge opportunity there. It wasn't necessarily a topic that we were going to talk about today, but I think you really touched on it, Eric, about the education piece and some of the things that we're trying to do culturally is actually spot on right now is kind of driving the bankers to think about, okay, if I position this product to the customer versus this product, what does that mean for the bank? And then trying to directly correlate that to make it so what does it mean for the banker?

Eric Lewis (20:46):

We actually make it mandatory for our bankers earnings calls on your calendar. That's the best way to learn. Get the transcript, read through, sit down with your leaders, have a recap after the earnings calls. It's kind of a built in way to help educate bankers.

Mark Valentino (21:00):

Yeah, I think it's a huge opportunity whether you're in retail, business, commercial, it's just to say, okay, there's trade offs we make and if your incentive plan is built on kind of widget sales products, they're going to be losing something and not being able to connect a lot of those dots. And it's especially important related to deposits and especially important I think right now.

Adam Stockton (21:19):

One thing I wanted to ask one follow up question on there is, Eric, you brought up CDs and until last year or two years ago, CDs would never have been mentioned at a conference once away. What's your view of what is the role of CDs over the longer term in terms of do they have a role in small business banking and what is it?

Eric Lewis (21:43):

Well, I think the joy of being an economist is you can make whatever predictions and not be held accountable. It's almost like being a meteorologist that ebbs and flows with interest rate fluctuations. So I mean, I know there were things we were looking at over the past 24 months from a FinTech standpoint in trying to analyze CDs and looking at the interest rate environment and rates coming down we're like, okay, we're going to repurpose those funds elsewhere. And we all know what it was like before where you're looking at pre COVID and there was money flowing off the balance sheet into off balance sheet type deposits and banks had to manage through that. So I think you have to stay fluid. I don't have a perfect answer to that. I think you just really need to stay fluid and try and stay ahead of things. But I'll go back to my comment around when you're looking at your investment dollars and where you're going to purpose, make sure you're looking at the macro economic environment to make sure you're purposing those dollars in the right place.

Mark Valentino (22:39):

The only other thing I want to add to this topic, I think it's really relevant and it's advice we give our customers in terms of pricing. So we should probably take the advice ourselves as bankers. One of the ways around this whole mix of customers move wanting to move from low cost to high cost, and that's happened across all banks of course, is to really try to create more distinct, I think you used the word value propositions. And so one of the things that we're looking at at Citizens is how do we create a much more bundled solution for each of our segments In business banking, we have a pretty wide segmentation, zero to 25 now zero to 50. And so each segment has different needs, but how do we create kind of true value proposition through products and services at a really transparent price point that requires that they have a certain amount of deposits, for example, in their DDA versus other areas. And so you can kind of come at this problem from a different angle, which is if you're giving the customer true value and true capability, they're going to be a little bit less sensitivity perhaps on pricing of their deposits. And so that's just another way to come across on this problem.

Adam Stockton (23:49):

Yeah, great point and a great segue too into primacy.

Olivia Lui (23:53):

Perfect segue into primacy, the role of primacy. And a big piece of this is really understand, is there value to primacy? I know we talked a little bit about this earlier in terms of the economics kind of breaking down a little bit, right? There are more competitors out there, it's more expensive to actually acquire small businesses overall. But what's interesting here is that the value of a primary relationship versus a non-primary relationship, we still see much better deposits, much stickier deposits and much more robust relationships that include not only deposits but also your lending side, your investment side overall. And part of this, and part of this is how we see though that definition of primacy actually start shifting a bit, right? Historically, we've always seen operating account as the primary absolute definition of what a primary bank, who their primary bank is. That's wherever they have their operating account.

(24:51):

But increasingly, we're actually starting to see, oh, it's actually the bank who gave me my first loan and I actually moved my operating account over to the bank that gave me my first loan and or it's the folks who actually made my payments and my invoicing really easy for my customers. And so I actually was able to switch over, but it's because of that particular or that particular feature from value proposition, if you will, that gave me the ability or gave me the confidence that this could be my primary institution. So maybe let's start with Mark, where you are heading. How do you think about primacy today and maybe moving forward, what does that evolution look like and how do you measure it?

Mark Valentino (25:32):

Yeah, so we look at two metrics. We look at primacy and we look at digital engagement separately from privacy. So we want to see how many of our customers are actually doing something digitally with us and we want to see what percentage of our customers are primary. We measure it basically through a series of metrics based on how many activities or events are happening or payments or things of that nature happening in their accounts. And we're pretty obsessed over it. In fact, it's an area we think we can do even better on. And so we've really kind of surrounded the topic because of the points that you just mentioned. The data is very clear that if you have the primary operating account, you get a lot more of the share of wallet of that customer, if not all of it. And it's hard to measure on the lower end because you get so many new companies, new people that walk into the branches open up accounts, and they may never do anything ever again with that business. It might've just been an idea. It's never like a clean set of data, but we do measure enlarged swaths across our segments.

(26:28):

One of the reasons we're making so many investments digitally into our online banking platform and rolled out our kind of middle of the road cash management platform for small businesses is because we're trying to garner more of that primary operating business from those customers. What we've seen happen over the last call it 24 months is folks rate shopping and going and opening maybe a money market account at another financial institution, and that's fine, but that's also very short term.

(26:58):

So if you're a bank and if you played that card and said, you know what? We're going to price money markets or CDs at the higher end of the market, try to win more deposits over right now, that's a good strategy probably if you needed deposits. But then are you penetrating the customer and getting more of their other business or is that just going to be hot money that eventually moves back when things get equalized? And so we have kind of played a little bit less on that strategy and a little bit more on the digital strategy only because we think that higher end money market game is a short-term game, but if you truly get the customer's payments, activities or payroll or things of that nature, that's a true customer to the bank that's going to stick around long-term as long as you're providing 'em a good experience. And so we are really obsessed with the topic of primary banking.

Eric Lewis (27:43):

Absolutely. Yeah. Well, we're in sync there for sure. Primacy is so important, and I haven't seen anybody with a set definition of primacy, and I think it is going to continuously evolve. I think it absolutely is. Operating accounts, some treasury transactions, other things that come into play, but you can quantify it. I mean, I think it's 20% or more additional revenue if you have that primary relationship. Something else I tie to Mark's comments is you have to be able to reward primacy. How do you reward loyalty? I think the client experience should be different for clients that have been with the bank and they're your primary bank versus somebody that you're trying to bring into the bank from a business development standpoint and all the bells and whistles that come along with that from a holistic point of view. So that's something that we are very, very passionate about as well. But that primacy metric is so, so important.

Mark Valentino (28:36):

Do you guys have a rewards program that you've rolled out yet today?

Eric Lewis (28:40):

Yeah, we do. And so it ties into the strategy with the personal financial statement that I was talking, whether premier or wealth of all things, but that plays into the other products that you need as a small business owner and to card and other things. So if you have primacy and you have loyalty, you should get better rates you should get when it ties into the transactions and the bundle. And again, that's what keeps the relationship sticky, and that's why banks over the last 10 years are doing everything they can to try and attract these small businesses because it's low cost deposits. And if you can bundle these products together, offer it and execute it well, and that's something else I'll just quickly say. I think sometimes we get so focused on the onboarding, we forget about the next steps. Our bankers are so excited to get in the door and close that deal. What are the next steps? How are you working with your internal partners? Are you going to have those lifecycle conversations so you can continue to build that primacy and also get whatever external wallet share is still existing?

Olivia Lui (29:37):

That's a great point. And we see, I would say across the retail space, both in consumer and small business, is that once you get that person through the door, that onboarding journey becomes a critical part of the journey. And if you don't unlock that primacy primary relationship within that first really six months, then that's it and you've lost, you kind of lost your chance. What are some of the frameworks or best practices you think from an onboarding experience that you can offer in the space?

Eric Lewis (30:07):

I think it's at a certain time period after onboarding, we kind of call it the delight phase. It's 90 days

(30:14):

You've onboarded the product, let's just say, is the client using the product? That's key because you don't get any revenue if the client's not using the product. And I've seen places where teammates are incented for products that haven't been utilized and that can throw off your internal metrics in a number of ways. And so I think that's key is just making sure you have that continuous follow up, but especially after a time period after they've been onboarded and just having that regular cadence. I mean some of that, it doesn't sound fancy, it's not really a silver bullet, but it's just about consistency and execution.

Olivia Lui (30:52):

Mark, anything to add?

Mark Valentino (30:54):

I was going to touch on his loyalty and rewards concept because again, it plays back to customers don't care anymore that you're a bank. They're used to this concept of loyalty and rewards in there are other areas of life now the credit card companies were probably the leaders in that early on for financial institutions. But now what Eric's talking about is what other benefits do I get from being a customer of yours? And that's what they see in their other customer experiences, whether it's discounts, preferred pricing. And so I do think it's a really interesting way to go after the primacy topic and challenge is to try to create that programming so that customers feel like they're getting more from you because they're doing more with you.

Eric Lewis (31:42):

Like we were talking about earlier with client experience and comparing across various industries, it's the same thing with reward programs. We can't be comparing banks against banks. We need to look at everything else.

Mark Valentino (31:51):

Exactly. It's outside of the banking chassis, 100%.

Adam Stockton (31:57):

So that conversation was touching a lot also on this third challenge, which is that the competition and cost for acquiring those new DDAs is a lot higher than it was before. I mean, over the last five years increased 50% from $1,200 on average to acquire a new DDA all the way up to 1800. And that also ties back into the multichannel that we were talking about earlier where it's not just bankers now it's still bankers. So you have to carry the cost of all of the bankers, but now you also have to do marketing to reach the customers who don't want to come into a branch, who don't want to talk to a banker. How are you going to reach them? Marketing, you have to pay for it. And ultimately you then also need the product features for the customers who are going to research ahead of time. So rather than focusing more on the challenge here, maybe Olivia, you can talk a little bit about what some of those businesses are looking for now, who are looking for more than just a banker relationship and how you can lean into that.

Olivia Lui (33:06):

And this is a fascinating trend that we continue to see. This is where this is telling us the role of digitization within the small business space, products and services as well as the role of advice are now the two biggest factors or increasingly biggest factors from pre pandemic to today. The piece that's actually dropped in importance is actually convenient locations. And again, not to say that branches your branch network and your frontline are not important. It's just that the density of your branches are no longer as important, especially for these businesses. So then when we think about product and marketing, it goes back to both of your points around what is the right value proposition? How do you go to market in a way that's not just we reliant on, we have the best people. That's why. So maybe let's start, Mark, let's start with you.

Mark Valentino (33:59):

Yeah.

Olivia Lui (33:59):

From a product and marketing perspective, how do you think about turning those two levers up in this space?

Mark Valentino (34:03):

So a few quick thoughts. One of the reasons the cost has gone up so much is the competition has now gone up so much in this space. This was largely kind of a sleepy segment within banking at all commercial banks, and I think it's gotten a lot more attention over the last two, three years because of the low cost deposit base. As liquidity crunches came, everyone was like, oh, wow, there's a lot of DDAs over business banking. So then you've seen this massive investment in both digital and people in the space. So that's first and foremost. We run an annual small business survey, and actually these topics come up very high in terms of wanting more insights and expertise, and it's one of the reasons why we're taking that kind of customer based insight and actually doing a lot more on the digital front because it's what they're telling us they want. And so you do start to get a little bit less people-centric in small business and a little bit more digital, and probably that'll accelerate probably the next several years. But your platform absolutely has to have, whether it's online banking or another platform, has to have capabilities that provide some level of insights,

(35:07):

Personal insights, customized insights based on those customer's needs. We've rolled out a cashflow forecasting tool in our cash management platform to do just that. We'd like to scale that out because it's answering and solving for these types of problems. But I do tell our bankers all the time that the customers that we're trying to bank, especially in the upper segments of business banking.

Olivia Lui (35:29):

Yeah.

Mark Valentino (35:30):

Those customers are not walking into the branches anymore. We need to go and find them and meet them where they are. We're still happy to get a lot of the smaller customers that come into the branches. That's how we grow our base. And we can use all of our wonderful digital tools and our support tools for that. But to your point, those customers are no longer really walking into your branches. Those larger, more sophisticated customers, you have to go to them doing their own research. So marketing has to be online, it has to be multifaceted versus what it used to be.

Olivia Lui (35:58):

Yeah.

Eric Lewis (35:59):

Absolutely. And so to add on to some of your points, the branches are still very much a primary channel when you look at all of the small businesses and the sheer number of them. So they are still going to be going to the branches and utilizing the other channels. I think one of the things that we very much focus on is educating our clients on expectations on what to get through the various channels.

(36:20):

So when you go to a branch, here's what you can expect when you're interacting digitally, here's what you can expect and here's to come and when you're interacting virtually, here's what you can do. And so I think of it as blending tech with talent. You mentioned all the insights and all the technology that we have. I would say robots aren't here to replace people. Robots are here to replace the robots in people. So you take those people, and again, the capacity is really important to providing expert business and financial advice when you look at the slide. And so you have to give your people the capacity to have those conversations. And then those branches are less about transactions and more, they almost become incubators

(36:57):

And financial health centers. And that's kind of how we're starting to look at that way. And we have to educate our clients. I always go back to a story that I saw where a client was kind of complaining about sitting in the drive-thru too long. And so we reached out to the clients and looked at their profile and said, well, why are you in the drive-thru? You can do this on your phone. And so something that simple, which can improve the client experience, what makes a lot of obviously improvements there. But from a product and marketing standpoint, again, I think it comes back to strategy,

(37:27):

Knowing that you can't be all things to all people, especially from a business development standpoint. So are you looking at what core markets do I want to play in? What industries do I want to play in? How do I build a differentiated product set to go along with that strategic marketing strategy and then arming your people with the multichannel and having, again, a very pure and concise strategy that the teammates can understand and execute on. It's got to be simplified so everybody can understand it and want to be successful at it.

Mark Valentino (38:00):

I would just add for the larger, more sophisticated small businesses, typically the CPA is still viewed as the advisor to a small business customer. We want our bankers to become that advisor, and that comes through colleague engagement and education. I'll give you guys a good example. I think in one recent customer survey we did, about 60 ish percent of our customers are going to be transferring or selling their company in the next five years.

(38:28):

So we know that now we have to figure out how to get in front of that. So at Citizens, we have a very robust investment banking group, typically has not served small business before. So do we rally around that a little bit? There's a huge wealth management opportunity in that transfer that's going to be happening across the country in many ways. And so when I think about providing expert business and financial advice, the role of that banker could be really massive. Even as we're scaling out digitally, the role of that banker could be really massive in terms of providing that advice in terms of transfer of company ownership, et cetera. And we've made large investments in wealth management and now private banking as well, which ancillary kind of provides some support for this type of challenge. So I think the banker still plays a really central role, especially for those larger, more sophisticated small businesses. But you have to kind of build it around a planning process and an advice-based process as opposed to product selling. Yeah.

Olivia Lui (39:25):

I love that both of you hit on the importance of differentiation and the importance of finding the right segments and the right moments of truth to actually be there so that they stick with you. Yep,

Adam Stockton (39:38):

Absolutely. Well, thank you so much for Mark and Eric for joining us today. Of course. We really appreciate it. Thank you. Thanks everybody. Thank.