Jeff Judy

Jeff's Thoughts -February 11, 2015

Rethinking Competition

Rethinking Competition

This fall, an interesting blog post about community bank products and services happened to catch my eye. Titled "Community Banking in the 21st Century: The Reality", it was written by community banker Pat Dalrymple.

Dalrymple suggests that one of the primary challenges faced by community financial institutions, in the current environment, is " quite simply, putting on acceptable loan assets". Most of us would certainly agree with that.

He then takes the approach that the basic definition of banking is "making a profit on the movement of money". That perspective suggests some lost opportunities to him, from SBA lending to residential mortgages to reverse mortgages. What's novel about his observations is that he is talking about recapturing revenue that might otherwise be lost completely.

For instance, when it comes to business lending, he observes that many businesses that may not fit your community bank do eventually get credit from someplace else. A number of these go to so-called "shadow lenders", non-traditional sources of capital that may specialize in certain types of loans or credit needs. Some of these large lenders are eager to pay well for referrals.

And if you can't do that business credit with your customer, is it better just to wave goodbye, or is it better to help them find credit elsewhere and get financially rewarded for it?

I'll leave you to read his post for his full reasoning about SBA and other examples of revenue opportunities. The point I want to make is that if your thinking about competition, any competition, is too rigid, you may be missing these opportunities.

First, re-evaluate your competition with large and specialized lenders. If you are locked into thinking of them as "taking away our business", you won't send them a thing. But if they are going to get the business anyway, if you can get paid for facilitating that, and if you also boost customer loyalty through your help, isn't that at least worth a look?

In other words, isn't it time to review who your competitors are and consider whether some of them could work in a partner, or even an agent, relationship?

Second, is it hard for your institution to consider delivering a service that your other community bank rivals are not offering? Is the fact that none of your rivals are doing it the real reason you do not offer various products and services? Don't you want your competitors to follow your lead, instead of the other way around?

If your beliefs about competition, and about how your products and services, are the same ones you had a couple of years ago, you haven't adapted to the new reality of financial services at smaller institutions. And if you are not regularly reviewing how you define "the competition", you could be leaving a lot of money on the table.