There is much talk that nonbank financial service companies are luring customers from traditional banking environments.
Could such competitors be allies?
The answer can be "yes." Banks both large and small can benefit substantially from relationships with financial service companies, specifically those which provide nationwide products directly to customers by phone.
Some of these companies provide services on a "private-label" basis, in other words, on behalf of or in the name of the bank.
Thus, the bank remains in the spotlight of the customer's devotion, who attributes to the bank the cost savings and convenience of the service.
One major top-rated insurance company is an excellent example of a private-label service provider. Its business is solely derived from relationships with affinity groups, associations, and other institutions.
Pleasing Clients' Customers
The longevity of these relationships is its life-blood, and any cross-selling or luring of the institutions' customers would be suicidal. As might be expected, pleasing its clients' customers is paramount, and its customer claims satisfaction rates among the top five nationally.
A bank might partner with this company in order to provide customers with homeowner's insurance quotes upon application for a mortgage loan, the exact time when both the customer and the loan staff need the information.
The alliance is an alternative to tediously arranging and supervising a network of one or more insurance brokerages. Serving customers directly from one central location, this unique insurance company eschews traditional broker networks.
Making It Easy
As a result, the staff at all of the bank's lending offices can simply fax the required information to one central location. Thereafter, the customer is conveniently served over the phone, and the bank receives hassle-free reimbursement amounting to $25 to $50 per policy.
Similar alliances in industries other than insurance, even those which appear to be in direct competition, can provide yet greater profit.
Mortgage lenders are a good example. A handful are much the same as the insurance company mentioned, solely providing services on behalf of other entities.
Such a lender can provide loan products which the bank will not hold in its portfolio or for which too little volume is generated to profitably sell in the secondary market. The bank thereby fills in the gaps in its product line or replaces unprofitable products.
Customers Can Be Retained
The bank also retains customers who would have gone elsewhere to acquire the specific loan they desired. ARM lenders retain fixed rate customers. Fixed rate portfolio lenders can supply ARMs or jumbos they would not otherwise offer.
To illustrate further, consider the typical bank of $150 million or less in assets. Few offer loan programs for consumers with tarnished credit; such loans are too risky to maintain as assets and of insufficient volume to accumulate for resale.
Unfortunately, they may often encounter customers who, perhaps due to a medical bill, find themselves with several large credit card balances, high interest costs, and somewhat damaged credit reports.
Having equity in their home feeling vulnerable and embarrassed, they approach the bank for a home equity loan in order to consolidate their debts.
Offering What's Needed
By accessing the efficiency and strength of a private label lender which specializes in consolidation loans, the bank's loan officer can respond, "We've got what what you need," and then confidently dial an 800 number.
The result: $100 per origination plus relieved and grateful customers.
A lender who "tele-originates" mortgage loans on behalf of a bank can also be incorporated into a low-income or affordable housing initiative which bolsters CRA compliance.
Utlizing direct mail or telemarketing, loans can be advertised to households which are geographically or demographically targeted. The lender with whom the bank partners responds to 800 number inquiries, prequalifies, processes, and even funds the low down payment loans or refinances generated by the advertising.
Lender Absorbs Higher Costs
Thus, the lender, not the bank, absorbs the higher costs attendant with originating loans of small amounts for lower income borrowers.
It is interesting to note that the bank might procure $250 for each origination stemming from the program. Also, the bank may choose not to invest in or purchase the loans originated. Further, new customers may be acquired, enhancing cross-selling opportunities for the bank.
Another mortgage lending strategy utilizes a bank's existing relationships as an entree to new customers.
Within its trust or business services division, a bank might offer discount coupons to employers and pension sponsors so that they, in turn, may distribute them to employees as a special benefit or reward.
The $250 discount coupons reduce mortgage points or closing fees, and may be included in pay or pension checks. The bank can fund the discount by applying the $250 per origination received from the lender.
This strategy simultaneously increases the bank's affinity with commercial clients while introducing the bank to a significant number of new customers.
Alliances with service providers also enable banks to sell products to customers who are beyond the reach of some of its departments.
As an example, a majority of the households using the bank's credit cards may reside outside of the bank's mortgage lending arena. Utilizing the ability of the previously mentioned lender to tele-originate loans nationwide, a bank's card division may advertise refinance, purchase, and home equity loans to cardholders.
Again, the compensation the bank receives may exceed $250 per loan originated.
Conservatively speaking, this potential income is a great deal more than that procured by stationery and other items traditionally sold through statement stuffers.
In this example, as with those preceding, note that the time to design and implement a service is minimal. Because services are provided by a third party, overhead is also minimal, usually consisting of marketing expenses. Further, risk is low, because an unsuccessful program can be curtailed quickly without the penalty of wasted start-up costs.
The sample marketing alliances described enable a bank to sell additional services to existing customers, and, in some cases, acquire new customers. The service provider is not a competitor but a benefactor, delivering to the bank's customers convenient services and quality products.
The end result is income - income which would not otherwise be obtained.