This is the first in a series of posts how building and using more effective Customer Insights can yield improved performance and competitive advantage for banks and financial institutions.
Recently, we worked with a bank that was looking to improve their bottom line by focusing on commercial deposits and lending. Commercial banking in general, and small business banking in particular, is very profitable and involves less regulatory management than retail consumer banking. But for many banks, small business lending is embedded in their consumer channel, and it’s a challenge to identify “cloaked” commercial opportunities that walk in the door asking for consumer loans.
This bank wanted help with identifying commercial opportunities in order to better service these customers. This required that the bank create a more complete view of all account relationships, across deposits and loans, for both their traditional consumer business as well as small business banking. The solution should bring together all of this information from internal systems, as well as leverage 3rd party data to expose relationships between consumer household accounts and commercial accounts where none had previously existed within the bank. With this insight, all acquisition and servicing solutions could access this centralized information to help better assess risk and opportunity regardless of the channel or servicing activity.
Equifax has experience helping clients solve for these challenges. The Equifax solution helps enable banks to more effectively service the following scenarios:
A small business owner applies for a commercial loan, but his consumer loan accounts are already significantly leveraged, and he has very little in the way of deposits with the bank.
In this scenario, the bank can access real-time information about the individual’s consumer relationships in order to make a more effective risk decision for this business customer. The solution leverages the small business owner information to access all existing account relationships, so these can also be included in the credit risk evaluation.
A small business owner applies for a commercial loan, but a lack of credit information limits the approved loan amount below the requested amount. The owner also has multiple consumer products with the bank, including considerable deposit and investment assets.
In this scenario, the bank can now evaluate the loan request taking into account the owner’s entire banking relationship, which would likely lead to approval for this business loan. Without sufficient information, the bank could make a decision that leads to the loss of a long-term profitable account.
A prospect makes a consumer loan application that is really intended to start a small business, but that is not immediately apparent from the loan application.
In this scenario, the best interest of the bank would be to get the customer in the right mix of products early on, so that they can help the customer grow their business. The bank should leverage indicators of small business ownership to help expose commercial opportunities.
The table below sums up how access to deeper customer insight can help banks improve customer service and drive more favorable results around small business lending.
|Small Business Loan Application||Small business owner highly leveraged on consumer accounts at bank||Small business information used to locate consumer risk within bank portfolio||Improved risk assessment by including internal consumer account factors|
|Small Business Loan Application||Small business owner has considerable account and deposit relationships with bank||Small business information used to locate consumer account information, depicting a broader account picture||More favorable small business loan terms available, protecting overall account relationships|
|Consumer Loan Application||Owner plans to use consumer loan accounts to manage small business||Indicators of small business ownership help expose commercial opportunities||Bank better meets small business needs, and positioned for growth within the commercial account.|
Equifax is a leader in helping banks build and manage systems that create linkages between their consumer and commercial portfolios. Real-time access to more account insight allows servicing systems to help make better decisions. These are common challenges in the industry. For one bank, we found an additional 15% of small business owners that were not included in the customer’s small business portfolio. Deeper customer insight is the key to better servicing small business needs.