Third-quarter results underscored the need for banking companies to find new ways to make money.
In an era of shrinking loan books and mixed economic signals, more banks are chasing the personal business of their business clients.
These "Gemini" relationships — twinning personal and commercial business — tend to be some of the most profitable for banks because of the amount of deposits they generate and the number of additional products sold. Yet only a handful of banks have formal programs to get their retail and commercial divisions to work together.
But now that the financial crisis has forced banks to revert to less-risky banking models, more and more banks are taking a harder look at coordinating the marketing efforts of separate divisions to capture more business from each customer.
"Going after an owner's business and personal deposits is going after the Holy Grail, because you have both sides of the relationship," said Les Dinkin, a managing director at Novantas LLC. "Those customers tend to use even more products and services, and so they tend to be stickier."
Dinkin recently conducted a study of several banks and found that these customers often generate about 50% of retail earnings from spread income on higher amounts of low-cost core deposits and higher deposit fees.
Overall, these customers, which Novantas dubbed "Gemini" or "mixed" households, generate over $60 billion in deposit spread and fee revenue industrywide each year. That number could grow substantially, Dinkin said.
Indeed, Charles B. Wendel, the president of Financial Institutions Consulting Inc., said that business owners tend to have two or three times the amount of money in their personal checking accounts than the average retail customer. Business owners also tend to take out more consumer loans than other retail customers — in addition to taking out business loans and using services such as cash management, lockboxes and payroll services. They are also more apt to use wealth management products.
The $140 billion-asset Regions Financial Corp. in Birmingham, Ala., is one banking company that encourages partnerships between its retail and commercial divisions, using a computerized referral system on the company's network that Regions instituted last year called "All-In-One."
"If you are only thinking about the business account and not their personal account, you are not leveraging the relationship to maximize value," said John Asbury, a Regions executive vice president and head of the business banking division.
"The more products and services the relationship has, the more profitable it's going to be."
Regions' business and retail bankers also partner to make presentations to employees of their commercial customers. The company is currently making between 6,000 and 10,000 presentations a month.
The coordinated efforts have helped boost Regions' core deposits, one of the ways to measure the success of the partnerships, as commercial deposits and the personal deposits of business owners can make up a significant chunk of core deposits, Asbury said. In the third quarter, Regions' noninterest-bearing deposits rose 17.6% from a year earlier, to $21.2 billion.
The $16.2 billion-asset Cullen/Frost Bankers Inc. in San Antonio does not have a formal referral system, but its chairman and chief executive, Dick Evans, said that bankers from different divisions at times go together on sales calls to key prospects to sell a package of products.
"Certainly each line of business has their own incentives, but for significant opportunities, we also have a team approach," Evans said. "If you're working as a team and everybody is helping everybody grow their business, you will be more successful."
Cullen/Frost actively monitors the success of such partnerships for certain key prospects each week in the company's executive management meetings, he said.
Cullen/Frost also has a bank-at-work program to attract the deposits of employees of its commercial customers, Evans said.
In the third quarter, the company's noninterest-bearing deposits rose 14.2% from a year earlier, to $4.3 billion.
Experts say banks have many internal challenges to overcome. These include resolving trust issues between the divisions and ensuring the appropriate banker gets financial credit for the referral.
Even with formalized structures to target business owners, convincing a businessperson to switch their personal accounts from another bank is much easier said than done — particularly if they've been a customer there for years, said Marcia Wakeman, a director at the consulting firm Capco in New York.
"That's the hardest one to move, because it can also include direct deposit, bill pay — and moving it takes a larger effort," Wakeman said.
On the flip side, it can be challenging for the bank that has a business owner's commercial account to also attract the personal account, she added.
Frank Terzuoli, a managing principal at Capco, added that some business owners would prefer to keep their accounts at separate banks, so they will not be tempted to commingle funds. Others are wary of having their employees who handle their business accounts have access to their personal checking account.
Novantas' Dinkin said that banks can overcome these particular challenges by actively marketing the entire package as a value-added proposition about convenience and service.
"Banks should tout that having all of their accounts at one bank could simplify their financial lives," he said.