Building Lines of Business for Banking Growth

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Intro: This is Believe in Banking, a podcast series for decision makers, influencers, and leaders, featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcast features information and conversations designed to enlighten and empower.

Gina Bleedorn (00:18): Welcome to our Believe in Banking podcast. I’m Gina Bleedorn, President and CEO of Adrenaline.

Juliet D’Ambrosio (00:24): And I’m Juliet D’Ambrosio, Chief Experience Officer at Adrenaline.

Gina, I am interested to start this conversation because one of the things that I love so much of working so closely with you is that I think we’re able to weave together some of our generational differences and our similarities in our perspectives and how we think through the world and what we present to our clients, and even just how we show up at work. I, as you know, am Gen X very proudly, but I feel like I lean towards a Millennial mindset in things like my tech adoption, my digital outlook on the world. And you, I think no one can introduce your particular generational standing better than you can.

Gina Bleedorn (01:18): Yes, I am the unofficially crowned first millennial. It’s not something that anyone else has claimed, so I’ve claimed it really my particular birthday to tell everyone my age. I was born in the middle of 1980, the most commonly referenced year dividing line between Gen X and Gen Y, AKA Millennials. And so I believe that crowns me as the first millennial or some have said the last Gen X, something in between. But I do very much straddle, I think I also lean more to Gen Y, but connecting all generations is something I try to do and we try to do with our business. And that’s very much something we’re going to focus on today is what different generations and more importantly emerging generations want from banking. And specifically around that, an emerging trend around line of business focus for banks and credit unions and the advantages that that focus can bring particularly at the local branch level.

Juliet D’Ambrosio (02:28): And we’re seeing this play out anecdotally. There are macro data trends. There is just an increasingly competitive banking environment, and I think we could really say that at any point and every month it actually becomes increasingly competitive. But community banks hold about 11% of banking assets today. They also make about 37% of small loans to businesses, and that’s the first area that comes to mind when I think about line of business growth. What we are seeing anecdotally with our clients from the community banking sector, credit unions and banks, is an expansion across all their LOBs into small business, into commercial, into wealth, all of which are happening both as they look to acquire and then deepen relationships with their current customers. This idea around small business particularly is interesting as we think about the needs and the kind of customers and what they are looking for from a small business banking partner to what a commercial customer is looking for, to what a wealth customer is looking for.

Juliet D’Ambrosio (03:43): And it’s all rooted in different audience needs and how we are seeing banks get smarter about serving those. And they’re using analytics like value-based segmentation, they’re using AI, all of which help them identify those customer segments within their markets and so they can more effectively meet them. And if they do and when they do, there’s a big reward on the other side. In fact, Bain just came out with a report that showed that targeted lines of business enable more effective offers. They enable banking brands to create and offer more relevant line of business services, which can lead to a 22% increase in customer retention and a 4% boost in profitability and data don’t lie. So there are some very big advantages to this line of business expansion.

Gina Bleedorn (04:42): Juliet knows, and most people around me know, a love of a report I have from Accenture that was originally called Purpose-Driven Banking. It came out around the time of COVID and it got lost, I think in COVID, but it represented a giant middle market of wealth opportunity. So in addition to small business Juliet that you just explained, in addition to small business or commercial, depending on your size institution, the other emerging area we’re seeing come out is wealth. Everything from private banking to just regular wealth management. And that particular Accenture study revealed a giant a $2 trillion underserved gap in what they called emerging wealth for customers that aren’t your typical private bank clients but are wealthier than your average retail client and are willing to pay for wealth services. And now five years later, that is coming to fruition with many efforts, really a rush of efforts. We’re seeing from our clients of all to target and capitalize on private and on wealth and those two things at institutions from every size down to very small community banks and credit unions up to some of the largest banks in the country. We are seeing efforts being done to target small business, commercial wealth and private bank.

Juliet D’Ambrosio (06:19): And what’s interesting about wealth, we think about it and it started in that report, your beloved Accenture report, but it has deepened as time has progressed where five and a half years passed the beginning of COVID, that the idea of wealth has just gotten redefined and democratized in some ways. So the typical, and I wish you could see how hard I am doing air quotes with my fingers, the typical wealth customer or wealth member isn’t the older stodgier very established in their career or even retired person of old, these are younger people who don’t maybe have $2 million in investible assets, but they do have $500,000, maybe they have $50,000 in investible assets and they’re looking for help from their banking partner. We see a massive transfer of wealth that’s currently underway and is only going to pick up momentum. If you look today, Boomers, Gen X, the older Gen X, are still the primary wealth management customers, but 124 trillion, that’s trillion dollars of wealth, is changing hands right now with millennials and even Gen Z receiving the lion’s share as their boomer parents move on and Gen X themselves, and I shout out to all my Gen Xers, were never part of the news cycle or were never top of mind, but Gen X is expected to receive up to 31 trillion of that.

Juliet D’Ambrosio (07:56): And we also see, speaking of Gen X, that it really is their time now that Gen X has racked up almost 10% more 401K millionaires in the third quarter of 2024. So as this need for financial services among younger generations grows to think intentionally and act strategically to grow the wealth that they have, they’re moving away from typical banking products into these wealth, really a need for wealth, a need for expertise, a need for planning. And the other thing that we know about these generations is that there is a gap in financial literacy. So while their need grows for wealth planning and for advice, we know that they don’t feel that confident. They don’t have a sense of what to do next. So there is a real gap that financial institutions of all sizes can step in to fill there. And that’s really what we’re seeing with this growth. You mentioned, Gina, you called it I think a gold rush almost to get in and begin to fill that gap.

Gina Bleedorn (09:11): And that brings us then to what can be done in particular at the branch level because the role of the local branch, the role of the genuine community connection and the role of local relationships within bankers that work at the bank that are not always connected to activities at the branch, all of those things on the whole are underutilized right now. And many lines of businesses within financial institutions are operating a bit in their own silos and the branch is the place for the deposits and the branch is the place for retail, but actually the branch can be the place for initiating and deepening relationships with different lines of business, even with new to firm, new to bank, and new to credit union clients. And that’s really the gold rush that we’re seeing is different organizations trying to bring that to life in a different way. That requires in many cases, both a staffing behavioral and change management shift internally as well as a different design and retail delivery approach externally to customers. That is no easy undertaking, but if getting line of business is a role of your organization, you need to get on it quickly because all of your peers and those bigger than you and smaller than you, we are seeing so much activity ramp up in this space.

Juliet D’Ambrosio (10:44): I think that there’s an idea around local and all these line of business opportunities that are happening. And what can be unlocked at the branch level is that when having conversations, when opening relationships, whether it is small business, whether it’s commercial or wealth like we were talking about, people need connection. They need to connect. And so as the branches become those centers, they’re evolving into those centers of connection, those magnets for advisory services, gathering points where you are able to have a conversation to sit across a table or in a hosting area and have conversations with someone that is guiding you through big decisions. And that’s really what our community financial institutions, the big advantages that they have in unlocking the branch superpower is that those relationships are local, they’re kept local. And so that strength at the branch becomes a way to reinforce and redeliver on the promise of that community relevance to these customers that are seeking more.

Gina Bleedorn (11:58): We have long been saying that complex financial needs are best addressed in person and sometimes that can be simply problem resolution, but when it comes to wealth and when it comes to commercial and these more highly personalized services that require highly personalized advice, there is truly no better way to deal and address customer needs than in person. So this is truly a huge opportunity

Juliet D’Ambrosio (12:27): And I think what we are seeing from our clients at least is that the opportunity is being championed at all levels of the banking leadership. There is a true recognition that a sea change is at hand and that the branches are now moving from this idea of cost center to really acquisition magnets in that there is real value to be unlocked at the branch and considering how they can serve these changing needs. And I want to bring the conversation back to what we are learning and understanding around how Gen Y, but also Gen Z, what they want and how they see the world is helping to shape how our clients are showing up. We do a lot of tracking. We did a report a couple years ago called Gen Z and the Future of Finance that looked at exactly that perceptions of and preferences for this rising generation around banking, but really around everything, how they relate to brands.

Juliet D’Ambrosio (13:30): It’s been a couple years and the world changes quickly. And we are doing constant reporting. We have some fresh data that you’ll see show up in all of our channels and believe in banking on our website across our socials leading up to ultimately we will be doing a new report, but we’ve learned so much about how Gen Z and millennials want to bank and how they want their values reflected back to them. That is if we can sort of boil down everything to the differences in these generations, actually it’s not about digital, even though that’s surprising to all of us. Yes, digital is table stakes. Yes, they want to interact and have digital channels for banking at their fingertips, but really it’s around this idea of values. Does the brand, whether it’s a financial brand or a clothing brand, does the brand’s values align with mine?

Juliet D’Ambrosio (14:28): The degree to which millennials especially say, yes, I will only interact with a brand, I will only give business to a brand if their values are closely aligned with mine. I would switch financial providers for stronger values alignment. We are seeing greater than 50% of millennials and Gen Z saying that that is key to their switching behavior. And so bringing it back to this idea of how the branch can begin to reflect back those values either as wealth customers or just customers or members generally this idea that we are here, the financial institution are here as a reflection of who you are and what you believe in bringing that purpose of what they serve, not just as we’re going to transact well or we’re going to provide a secure place for your money, but we’re going to be a place that listens to you and that reflects who you are and what you want your money to do, I think is key to that. And that has lots of implications in both branch design, in staffing and training and for the employee experience as well. So it’s sort of a new frontier on all these fronts

Gina Bleedorn (15:45): And that brings us to what we’re actually seeing with our clients, what people are doing about all this. And to your point, Juliet, the values which really shows up as local relevance at the branch, that connection is the starting point. Don’t forget even just being local, that is a shared value. So we’ve talked about before, locality being the superpower of community banking and community credit unioning, which we think maybe should also be a word, but what we’re seeing are a few things, and it’s happening at the community, at the regional, even at the national level. Institutions are trying to bring forth more visibility to their services and they’re doing so in a few different ways. Some are designating entire areas within the branch through certain approaches to signage and marketing. Others are simply through marketing only more awareness around the line of business. And many have been doing that for years, but there’s a more concerted, blanketed effort to do so.

Gina Bleedorn (16:49): You’ll see more of it on external facing, window clings, digital screens, things like that, but even signage on the outside. And some are even moving to dedicated spaces only for wealth and for private, but just regular old wealth management or the new definition of it that is emerging. And a lot of the question many are facing is now a question of real estate allocation. What has typically been owned by retail but needs to support LOBs more. There’s a big question around how do I do that? How much space is appropriate, what staffing is appropriate? And many are not equipped. I mentioned earlier the change management, but they’re not internally set up to equip frontline retail staff with line of business knowledge to make those referrals. But many again are trying. So I would say one place to begin looking if line of business expansion is important to your organization, where are the operational blind spots?

Gina Bleedorn (17:53): Don’t leave branches out of the loop. And then how are you empowering the people you need to empower to make those connections? Then it gets into, and Juliet was speaking to this, the design and the experience at the branch itself. Many are not designed to support private advisory conversations in the way that they should be. They don’t have the right digital tools perhaps inside the bank, and if it just looks like a big teller line when you walk in, because most branches are designed in that way, that’s not appealing to somebody who really wants to have a private consultation. When you think about the private consultation journey, is it one where they are going into a very formalized closed door office or something that feels a little more casual, supporting different levels of conversation is something we’ve talked about in design of spaces for a long time, but now looking to support line of business, particularly these complex wealth and small business and commercial conversations now that need is growing even more.

Juliet D’Ambrosio (19:02): I could not agree more that it’s operational and also design-led that are creating these transformations that are allowing the line of business expansion. And I think we need to be realistic that not all community banks or credit unions should go out and expand across all lines of business to have full LOB coverage today, but rather to look at what the opportunities are to serve that are based in the local needs and that relevance and something else to consider, especially as we think about the design of the experience. And by that I mean the connection of both operational and design change that we are seeing that there is not a dilution of the overall brand promise as the line of businesses begin to expand, but rather a deeper connection to that overall brand promise. So as we get more segmented in who we are serving and what we are serving and the types of services and how that comes to life everywhere across digital channels and at the branch that there is not a dilution of that overall brand promise and the purpose, but rather it is done within the overall brand that we are delivering ultimately on that brand promise.

So, we see it come all the way back and connect the dots from the service to the branch to the brand itself to be able to really unlock the opportunity that we see before us. branch literally across the street from a Chase branch.

Gina Bleedorn (20:46): Really the highest profile example of what we’re talking about in practice is probably Chase’s JP Morgan locations. They announced a number of months ago that they were opening 14 new ones and they’re planning on 31 by the end of next year. And JP Morgan is for their affluent up to 750,000 in investible assets and they are dedicated locations targeted only to this demographic and the entire journey map of how they capture to what they look like on the outside to what the experience is on the inside. Something we’ve found out through research with high net worth and even emerging high net worth, some very much like to be seen and some very much don’t. And so having a journey that supports both more private or truly weighs in and out and perhaps more public weighs in and out and of course supports private conversation. That’s something the locations need to take into account.

But they are also putting their JP Morgan branches in proximity to their Chase branches, so they can literally do that migration and have that referral. And of course they have the real estate capital, they have the brand presence to do this at scale effectively, but what they’re doing is a good strategy and it is something that others should consider. And it does come back to, I mentioned that ultimately the major challenge here is around real estate because in an existing branch you don’t want to be alienating to non-wealth or non-commercial customers, but also conducive to supporting them. So that really ideally warrants a more separate location, but whether that is a designated area in a branch that is separated or like JP Morgan a separate location, these are powerful strategies that elevate awareness and support the experience customers want.

Juliet D’Ambrosio (22:52): And that brings to mind another powerful strategy that we’re seeing that is it’s a little bit of an offshoot from a line of business separate strategy like with the JP Morgan, this is with a client, a very large super regional that takes a tiered strategy and approach to the design of their branches. So in areas with very high concentrations of potential wealth customers, mass wealth if you will, we’re looking at piloting different approaches to creating a design of the experience that’s elevated overall. And that’s true of all customers that walk into that branch, but having finishes, having a more sophisticated brand experience or designed brand experience there that are more conducive to wealth conversations and having more areas for, like you said, those private or semi-private conversations versus a traditional teller line approach. So this can be done at lots of different ways and at scale depending on everything from real estate availability, real estate footprint to individual business strategies of the financial institutions.

We’re seeing this play out within our own clients and of course at large scale with JP Morgan in so many different ways. What we do know though is that it all comes back to, we can sort of pull it all the way back into customer experience and I think that that is what we’re seeing, whether it’s a JP Morgan and Chase or it’s the way that the super regionals are taking more tiered approach to mass wealth or community financial institutions are expanding lines of business and considering how to serve both inside the branch and outside of it, coming back to meeting their customer’s needs, their demands, their wants, and ultimately what they’re seeking from a relationship to continue to provide real advantage for both the institution and the customer themselves.

Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision makers, influencers, and industry leaders in financial services.

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