It Takes More Than Deposits To Create A Banking “Relationship” With PPP Customers

Bank PPP strategies

If I’ve heard it once, I’ve heard it hundreds of times. Over the recent months, when discussing a bank’s experience facilitating PPP loans, the banking executive I’d be talking to would say, “when we made a PPP loan to a non-customer, we required them to bring over their deposits.” And what was so interesting about this very predictable reoccurring response was the tone each banker used when saying the words “we required them to bring over their deposits.” There was almost a victorious tone to their communication as if to say, “we achieved the goal of creating a banking relationship”.

For decades, a banking relationship has been defined as having a customer who has deposits with the same bank that made them a loan. The idea is that a customer was more secure and less likely to leave a bank if they had deposits ─ especially core deposits in your bank. This is a very outdated way for bankers to think about their customer relationships.

A Personal Relationship and a Banking Relationship Are Very Different “Relationships”

Bankers around the country – especially community bankers – promote the value of having a relationship with a banker. At no time in recent history has that been more apparent than when the SBA rolled out their Payroll Protection Program.

Tens of thousands of business owners, in a state of panic, turned to smaller institutions to get the guidance and help they needed to secure PPP loans. From my conversations, it seems like many banks required non-customers to bring over deposits in exchange for helping that customer secure a PPP loan. The assumption is that now we have a customer’s deposits, we have a “banking relationship.”

Here is the problem, the definition of having a “banking relationship” has gotten confused with having a “personal relationship” with each borrower. Bankers pride themselves on knowing their customers well, especially when it comes to long term customer relationships. But knowing a borrower well is a personal relationship which differs significantly from the definition of a true banking relationship.

Banking Relationship Defined

A banking relationship is defined on three measures ─ a bank’s ability to:

  1. Expand the number of products used by a customer
  2. Increase the percentage of wallet share your bank has with each customer
  3. Grow the lifetime value of each customer relationship

As you can see “knowing a borrower well” isn’t a metric for creating a “banking relationship.” And in fact, most banks have considerable room for improving their ability to generate more business from PPP and existing customers and the numbers don’t lie. According to Kaufman Hall:

  • 80% of a bank’s customers are unprofitable
  • 1% of customers generate 30% of your revenue
  • 2% of customers generate 50% of your revenue
  • 20% of customers are a drain on earnings

Clearly, if only 2% of your customers generate half your bank’s revenues, then it’s going to take far more than deposits and loans to improve relationship profitability.

What Can Be Done To Improve Relationship Profitability?

1. Start Incenting For Relationships, Stop Incenting For Transactions

The incentive comp structure for many banks today focuses on improving two metrics ─ loan growth and deposit growth. When banks incent for growth, bankers focus on production and transactions. When gross production is the desired production outcome, bankers (and all salespeople for that matter) focus on closing as many deals as possible oftentimes regardless of the size and quality of those deals. They are focused on getting deals closed not deepening and expanding customer relationships.

The question to ask yourself when considering revising your bank’s incentive compensation is what behaviors and outcomes do we want to reinforce?

If you’re seeking to improve relationship profitability, then you’ll need an incentive comp structure that focuses your commercial and branch teams on the behaviors that drive the desired outcomes.  For this, you’ll want to take more of a “scorecard” approach which looks as follows:

  • 70% to 80% of the incentive compensation is tied to loan and deposit growth
  • 20% to 30% of the incentive compensation is tied to any number of outcomes:
  • Improved relationship profitability
  • Adding additional products and services which drives fee income
  • Customer retention
  • Referrals to internal partners
  • Referrals to customers
  • Warm introductions received

When generating organic growth and improving relationship profitability are key business outcomes, your incentive compensation structure must align to keep your bankers focused on executing the right behaviors needed to drive these outcomes.

2. Focus On Uncovering Problems, Not Just Solving Them

Bankers typically think alike. (It’s like that in every industry niche) Much of your focus is on solving customer’s credit and financial problems. That’s not bad per se, it’s what customers expect of bankers. It’s not so great though if you’re trying to differentiate you and your bank from the dozens of other institutions in your market. Given a bank’s primary product is money, the most commoditized product on the planet, what can your bankers do to differentiate themselves and add value to each existing and PPP customer relationship?

In many of the institutions that have hired my firm, I would have the opportunity to work with wealth management, trust, and private banking teams in addition to their commercial and branch teams. In my work with many of these teams, I discovered that wealth managers, trust officers, and private bankers tended to have a different approach to working with customers that their counterparts in the bank’s commercial and branch divisions.

Fundamentally, I discovered that ─ in general – commercial and branch bankers focused on solving customer problemswhereas wealth managers, trust officers, and private bankers focused on uncovering customer problems. But it went beyond just trying to uncover problems that were related to wealth management and trust issues, their intent and questions were designed to uncover problems on a broader scope within the business as well as with the business owner personally.

Why was it their intention to ask questions on a broader array of issues than just wealth management and trust matters? The answer is as simple as it is powerful. Their intention with this approach was to differentiate themselves from the myriad of other providers in their market, they intended to position themselves as a consultant and resource.

With your PPP (and existing) customers, if you can focus on learning more about their visions, goals, and objectives before you even begin to discuss financial matters, you will go a long way to differentiating yourself.

Taking it even further, you can ask questions that uncover non-banking needs. Now you’ve hit the holy grail. When you uncover non-banking needs with their sales, operations, fulfillment, employee retention, or any other business challenge, the likelihood is your bank may have a bank customer that solves those types of matters. When you can make a warm introduction from one customer to another bank customer, you have truly differentiated yourself and your institution. And those two customers who now have a relationship, both will be incredibly happy to make a warm introduction on your behalf.

Once the PPP forgiveness process is over, will your PPP customers remain at your bank? If you begin to implement a few of these tested recommendations, you’ll stand a much better chance of having them become a full banking relationship.

To learn more about how to convert PPP customers into full banking relationships go to


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