The Antidote to Commodity Hell

If you’re feeling trapped in rate competition, you’re in “Commodity Hell”… and it’s not a fun place.

 

When your customers and prospects view you as no different than the bank down the street, you create a situation where retaining customers and attracting new ones is beyond difficult.

The first reaction is to blame the customers. You’ve heard it at banking conventions before. Someone will complain, “Customers don’t care about relationships anymore. It’s all about rates and fees.”

That’s backward thinking.

Yes, it is all about rates and fees if you don’t give the customer any other good reason to use in making their decision.

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How to Attack the Root Cause of Net Interest Margin Compression

The constant “need” to match rates to win a deal is a symptom, not the cause of the net interest margin crisis in banking today.

 

The cause is much more profound.

It’s inside each of your lenders, and it may be inside of you. Frankly, it’s not your fault (or theirs). It’s unconscious and has been a limiting belief in the banking industry for at least 100 years (probably longer).

And don’t worry, if you’re frustrated with your margin, but feel you have to fight any way you can to keep the customers you have and get new ones,

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The Big Lie about Low Rates

Let’s get one thing straight. Low price IS a strategy.

And consciously or unconsciously, every time you match rates to win business, you’re saying, “Our strategy is to be the lowest price bank in our market.”

If you’re going to go the low-price route, at least make a conscious decision to pursue that strategy rather than have it be the result of dozens or hundreds of little unconscious decisions to match rate. And do it with the understanding of history.

Consider the history of the low-price strategy in business.

Let’s start with Sears.

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Is this addiction killing your bank’s profit?

It creeps up on you…usually in a moment of desperation.

A prospect comes in and says “So and so bank down the street offered rate X.  If you can get me a loan at a rate that is half a percent lower, then you have my business.”

Now you feel trapped.  You want to close this deal, but you know if you lower your rate, the deal won’t be profitable…but you know if you don’t lower your rate, the prospect walk out the door and down the street to do business with your competitor—and then it happens…

You lower your rate to “buy the business.”

The temptation to rate match has become an epidemic in community banks across the country. 

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How to Avoid the Price-Matching Pandemic

 

Here’s the thing about price: matching price is an addiction. When you’re discounting, it has a debilitating future impact on so many different things. It sabotages your ability to recruit, hire, and train the very best. It deteriorates your best customer service efforts, because you can’t invest in the customer service that you have. It doesn’t allow for you to have cutting-edge products and services, because the money’s not there. You have no top-line products, and you are not a salable equity, because your multiple of book is reduced when people are looking at purchasing your bank.

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