Two things startled us yesterday. The first was when we found out that our laser printer was on the list of the most toxic office equipment. It turns out, according to Australian research, printers spew out tiny partials of toner that embed in the lungs to create damage. The other startling thing we heard was that Bank of America started paying 5.25% for a 3-month CD special. This is a bank that usually shows pricing discipline. This is why we were so surprised they were paying above FHLB and brokered CD levels for the first time since the early 1990s. With IndyMac at 5.40%, Countrywide at 5.35%, and now BofA paying up, how is a community bank going to compete?
Here is the answer – you are not. Seriously, stop looking at other banks. It doesn't matter what the competition does since you are not competing on rate; so why track it? Besides, rate surveys are inherently inaccurate, they lag a week and most banks don't possess the time or resources to really figure out cross-sensitivities anyway. Chances are your bank is all about service. If this is true, why do you even bring up rate? Why not track service? Do you ever see Tiffany & Co. market on rate? UPS? Ritz Carlton? Starbucks? Never. They market on service, on selection, on quality - but never on rate. Do you think customers even try to get discounts at Tiffany's? The answer, according to a store manager is "almost never." In fact, if they did, they would sell less not more as the product and brand would be devalued in the marketplace.
We all know that marketing on rate makes your balance sheet more sensitive, raises your cost of funds and trains your customer. However, like smoking or sitting next to a printer, competing on rate also has some other long-term unintended consequences – it damages you.
Chances are your mission statement says nothing about rate, yet many banks use it as a primary tool. Employees see management come out with a nice CD promotion and think to themselves - "it is OK to please the customer on rate." If you think training your employees is hard, try retraining them. It is multiple times more difficult to undo previously rewarded behavior than to train correctly in the first place.
Enhance your cash management options, segment your customer base, bundle your products, get more of a sales culture, be more proactive in client consulting and spend more on marketing. Add value through service and you will make inroads. Granted, marketing on service is a longer, more disciplined process than marketing on rate, so retraining is needed.
If you need help, we stand by with our Liability Coach product ready to assist. We have a verifiable track record helping hundreds of banks lower their interest rate sensitivity. In the meantime, consider staying true to your service focus and ignore other banks that market on rate. Oh yea, we also suggest you move away from your laser printer.