Business Deposits: Mining for Gold.and Finding It!
It seems that for the majority of credit unions entering into business services, most of the emphasis is being placed on business loans. A small business loan can be a big "chunk of gold" that is easy to mine. However, a profitable business deposit package should not be overlooked, even though it requires a different degree of work. Understandably, chipping away with business deposits a little at a time is more difficult, but I believe that deposits are the foundation on which the most successful small business programs are built. Business deposits allow for growth in membership, as well as for growth in balances at your credit union, often with solid spreads and fee income. And it is a recognized banking industry standard that you will have 10-20 business deposit accounts for every one business loan. Building the business deposit base is like planting the seeds for future loans and other services. Throughout my frequent credit union travels, I find that putting together a solid business deposit program is often a daunting challenge. Credit unions struggle to find the right product and pricing combinations. Operational issues abound, training efforts are large, and it takes a lot of research and expertise to arrive at the right answers for a package of business services. Below are what I believe to be the most important considerations for business deposits as they relate to the entire business services package. * Lead with the deposit side. It is very difficult to simply "go out and get business loans." I believe the most successful long-term strategy for building your business portfolio is to start with deposits. Every business needs a checking account-and most need other services like merchant bankcards, ACH, cash management, etc. When businesses use your credit union for these services, there is no doubt that they will turn to your credit union first when they need a business loan. * Roll out the right business deposit product package in phases. One thing that is important for all credit unions to consider when developing a business deposit program is prioritization. There are a multitude of products than can be offered in a business package-some are absolutely necessary and some are optional. In my opinion, the right package should start with business checking, money market, on-line banking and merchant bankcards. You can expand into other more complex products when the time is right. Implementing the deposit program will create a steep learning curve for the credit union, and management must be sure that staff understands and can effectively communicate all the necessary elements of each product in the package. This takes time, so properly phasing and prioritizing your product rollout is essential. * Investing in systems is not a requirement. Credit unions can put together a solid product package even with the system constraints that may exist for many. Host system limitations have never stopped us from implementing a solid business deposit program at any credit union. Of course you can buy cash management and account analysis packages from many system providers, but they are not essential. You will get more capabilities with these systems, but it will also cost you more. A simple cost/benefit analysis will tell you what level of new business you will need to generate to pay back your software investment. * Consult with your members to offer the right products for their needs/situation. The best way to provide quality service to your business members is to ask questions, and then tailor your product offering based on their feedback. Business services are not one-size-fits-all, so you must first know the right questions to ask. Then you must also be able to "paint the picture" for that business based on its needs. This sounds relatively easy, however, it's a skill that takes considerable practice to perfect. * Identify your niche and stick to it. This is an area where credit unions often fall short. I regularly hear that "our niche is in serving our members." I contend that you need to do a much better job than that in identifying your business niche. What kind of businesses can you serve best? Can you handle large volumes at your existing teller stations? Will you be the low cost provider? Are you taking full advantage of technology strengths? Once you've identified the strengths of your program, then you need to identify specific targets such as professionals, manufacturing, wholesalers, accounting, landscapers, construction, etc. Those who understand their key competitive advantages and use a targeted approach will be more successful because their products and sales efforts will be tailored to the needs of those businesses. Final thoughts Having proper expertise in business lending is essential. I submit that a similar level of expertise is required to be highly successful in the business deposit area. You don't need to go out and hire a team of commercial deposit experts, but you do need to have the right expertise to support the breadth of products needed to effectively serve your business members. Staff expertise can be developed with the help of industry experts outside the credit union. Building a successful business deposit program is not easy. Rest assured that there will be many small successes along the way, and over time your mining efforts will pay off with a "pot o' gold."