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PCBB Banc Investment Daily July 10, 2015
Banc Investment Daily
July 10, 2015

Waterloo Or Somewhere Close

History buffs recently celebrated the 200th anniversary of the defeat of Napoleon in Belgium, most commonly attributed to have occurred at Waterloo. It turns out though, that the battle didn't really take place at Waterloo, but instead was nearby at Braine-l'Alleaud and Plancenoit. This was a French- speaking region as opposed to the Flemish-speaking Waterloo. It seems the Duke of Wellington, as the victorious general, decreed in a dispatch to London that the defeat had happened in Waterloo. Maybe he couldn't pronounce the name of the town where it really happened or he just liked the name Waterloo. We will never know, but we do know that in the end, the name stuck.
In banking, details can be equally important. Many banks are finding that customers want to shop online before making decisions about where they bank. Every bank has a website designed for this of course and information exists on lots of products, but probably not details like lending rates.
This makes sense when you consider that loan pricing levels are closely protected. After all, the bank that gives away its loan pricing levels invites in competitors to easily undercut them. Further still, pricing is different for every customer.
When done correctly, loan pricing depends upon other aspects of a customer's relationship with the bank that includes deposits, other loans, associated family banking relationships etc. Besides that, if a customer has to speak to someone in the bank to get specific information, it gives customer service reps the opportunity to try to sell them other products.
All of this is true to a point, but in many ways each argument here also defends the old model of banking that requires people to go into a branch in order to do serious business with the bank. If customer behavior and the adoption of electronic access has so radically altered how payments and deposits are made, does it make sense to still think the same forces don't apply to the loan business? This could explain why so many customers, especially younger ones, are looking outside the banking system to shop for a mortgage or even a business loan.
Let's consider how posting pricing for business loans could help a bank. It is given that any publicized pricing offers only a general guideline and should include disclaimers that pricing differs by individual and banking relationship (plus is based on other metrics like collateral value and DSCR). It is also a given that banks already actively post mortgage rates that are dependent on credit score, amount of equity and other factors to determine the ultimate rate.
When considering posting rates online, realize that customers and competition likely already know your bank's position in the market, so there should really not be any big surprises. Consider as well that if all the options and variables make your bank's pricing too complex to make any sense on a website, it may be time to reassess whether your pricing process is needlessly complex. Clearly presenting charts and data that give customers a general idea of what rates to expect might shorten the sales cycle and drive in more business.
Fees are important too. Remember that it's easy to waive a fee or lower a rate for a valuable customer, but difficult to charge more, so have room to maneuver.
This kind of transparency can be risky, but it also may lead to greater confidence from your customers and prospects in that they can perform due diligence ahead of time. It could lead to a shorter sales cycle and less wasted time as the mystery is gone. It also may help your bank as tire kickers who are not even in the ballpark won't sit down at your loan officers' desks to begin with.
Pricing is central to any customer relationship and loan pricing is most frequently a deciding factor. To meet the needs of your tech savvy customers and prospects, give them a way to do research first. Done right, it will save staff time and shorten the sales cycle.