Innovative Partners

When it comes to innovation, the newest things can be found in the most familiar places. As community banks have striven to innovate amidst the industry's challenges, they have found a friend in partnerships. Specialized third-party service companies know that customer service is what community banks do best. These companies have figured out how to meet the needs of community banks and, in a partnership with them, provide bank customers with the products they want. The result is a marriage of the face-to-face customer service of a community bank with the competitive product of its partner company..Cost is always a concern. Cost puts a cap on the availability of new technology-based products and on marketing budgets. Pioneer Bank of Mapleton, Minn., appreciated this after it opened a new branch in the Mankato market in 2004. Like most community banks, Pioneer has never needed to spend large sums on marketing; its marketing was its reputation and its face to face relationships with its customers. "Our roots are in agriculture," said David Krause, president of the $270 million bank. "We are not a bank that does a lot of advertizing because we have branches full of community bankers who coach your kids in baseball and sit next to you at church.".The Mankato market brought a new challenge for Pioneer: With nearly 50,000 residents, the area has 17 other banking institutions with 33 branches. Wells Fargo has four locations in the area. "Wells Fargo really dominated the market; they look established, that's their advantage," Krause said. Other community banks also were trying to come into the market. It's hard to sell the friendly, hometown banker message with so many others saying the same thing, he added..BancVue's Kasasa line.After a challenging six years, Pioneer partnered with BancVue, a banking innovation company that offers community banks a sizeable menu of competitive account products. BancVue wants community banks to have a brand of checking and savings account products that rivals those of larger banks. "The idea is to provide consumers the products of a large bank with the service of a community bank," said Gabe Krajicek, BancVue's president..When a bank partners with BancVue, the bank contributes to a marketing pool that BancVue uses to promote the product across the country. This arrangement allows each individual bank to have a much longer marketing reach. Partner banks get the benefit of an economy of scale in terms of both competitive products and marketing. "I am now using my marketing dollars in a way that really sends a message," Krause said. "Re-directing the dollars we were already spending got a message out there that people aren't seeing from a community bank.".In September of 2010, Pioneer launched Kasasa Cash and Kasasa Saver, two of BancVue's account products. Kasasa Cash is a free high-interest checking account. Kasasa Saver is a standard savings account that allows the customer to also save the cash earned from Kasasa Cash. Within 18 months of launch, Pioneer added 2,500 new Kasasa accounts and 60 percent of those were new customers to the bank. "That is the best growth period we've had in our history," Krause said. .Pioneer Bank has continued to employ more BancVue products. In February, it began offering Kasasa Tunes, a product that allows customers to earn free media downloads. BancVue also is helping Pioneer set up Kasasa 360, an online financial management tool, for the bank's customers. .First Security Bank & Trust of Charles City, Iowa, called its relationship with BancVue win-win for the bank and its customers. In an environment when banks are flush with cash, loan demand is mild and interest rates are low, banks need to rely more on fees for income. Kasasa products are designed to cut costs, win fees and gain customers. Kasasa accounts reward customers who accept e-statements rather than printed statements that have to be mailed. This saves the bank money. Some accounts encourage debit card usage. The more a customer uses the card, the more rewards points he earns and the more transaction fees the bank earns..The adoption of BancVue's products has caused a shift in First Security's account strategy. The bank welcomes accounts from people who maintain only modest balances – the kind of accounts that banks traditionally have shunned. The focus is on fee income rather than interest expense, Farrell said. The bank is now "allowing the overdraft fee income and debit card income to offset the interest expense," said Mike Farrell, CFO for the $430 million bank..BancVue also has increased the avenues through which the bank can attract customers on the web. In addition to its own website, First Security can gain new customers through the Kasasa website. New customers can find First Security through checkingfinder.com a BancVue website.."We get people who come to us through all three venues," said Jennifer Ehlebracht, retail vice president. "The Kasasa national brand gives us a media outreach that we never could have afforded," added Penny Gray, First Security's vice president of marketing. "When we band together we can purchase media nationwide; we just couldn't afford that kind of media attention on our own.".Prepaid cards.Page County State Bank's partnership with Business Solutions, a subsidiary of the American Bankers Association, increased the bank's product offerings without adding significant risk..Business Solutions teamed with TransCard, a prepaid card core processor, and MasterCard to provide pre-paid card services to community banks. Banks enroll in Business Solutions' Community Bank Prepaid Program as a partner. The card servicer and the bank share revenue, the bank sells the product and the servicer provides the rest.."We can't really take a loss. We share revenue so if it doesn't do well we don't lose anything," said James Johnson, president of the $88 million bank in Clarinda, Iowa. TransCard started by selling directly to non-bank businesses as a way for companies to reduce payroll costs. "Then we realized that banks had relationships with these companies already," said Mark Levitt, chief marketing officer at TransCard..Page County State Bank doesn't assume any new expenses in the partnership, but it gains access to high cost technology. For a share in the revenue, TransCard provides mobile banking, online bill-pay, free credit scores, personal financial management tools, and customer service at any time of day, all 365 days of the year. "The technology cost is shouldered by the provider because of the revenue sharing agreement," Johnson said. "We have a partner that is there 24 hours a day, seven days a week." The prepaid card has more features than are offered with the bank's free checking accounts. "It's something we cannot afford to do on our own as a community bank," he said..State Bank of Riverdale can now offer its customers an alternative to a checking account, especially those customers who need all the bells and whistles. "I can get excited about the product," said Phil Jossi, president of the $68 million Nebraska bank. "There are things available through the card, which aren't available through the bank; it gives the bank an alternate product for those who want online features.".State Bank also can offer an alternative to customers who cannot qualify for a checking account. "The best group of people for this product is those who have trouble managing a checking account," he said. State Bank had one customer who was always being assessed overdraft fees. "We put him on the program and now he has an extra $200 a month to spend," Jossi said..A partnership with a prepaid company can help banks avoid denying service to a checking account customer, but what about a bank's small business customers?.Creative lending partnership.Small businesses don't tend to have the collateral lenders need. Small businesses' financials and tax returns are not often readily available nor are they sufficiently compelling in many cases. Also, small businesses don't tend to have an attractive credit score because they typically need to raise capital quickly and use credit cards to do so. These factors can make it difficult for banks to lend to a business customer. Nonetheless "access to capital trumps all other products for loyalty," said Glenn Goldman, president of Capital Access Network, a small business lending and research company..Business customers also tend to have larger relationships with their bank. "Banks love their small business customers for their DDA accounts, mortgages and wealth management, but these don't involve extensions of credit," Goldman said. Banks can find themselves in the difficult position of having to turn those customers down for a small business loan, he added. "The risk is the loss of that customer. When we started we wanted to solve these pain points.".To address these problems, CAN has developed a real time underwriting process. CAN will monitor two pieces of information in real time: the small business's daily volume through its card processors and its deposits in its bank account. In doing so, CAN is able to monitor a customer's cash flow by the hour. It doesn't have to wait until a customer doesn't make a payment to determine the customer is having difficulties. The company is so confident in its underwriting process that it will provide un-securitized loans to the bank's customers even if they don't have an impressive credit score.."Our different approach to underwriting and risk allows us to say yes when the bank has to say no," Goldman said..In one instance, CAN lent more than $200 million to the customers of one bank. "When we met with the bank the CEO said, 'Wait, some of those companies have credit scores in the 400s,'" Goldman said. CAN's write-off rate is in the single digits..CAN is also able to track economic trends in its customers' marketplaces. Since it has lent more than $2 billion to 40,000 businesses since it opened in 2000, it has comparison data to make even better credit decisions. "We have not only tracked the small businesses, we have tracked how a geographical area of the country has performed over a given year. We can compare regional trends and industries," Goldman said..CAN has begun to partner with community banks as a lender. It offers banks the ability to pre-emptively offer credit to a business customer. This product is called Prelook. Banks that use the product will give CAN a list of small business customers the bank would never lend to. CAN then advises the bank which customers it might consider. If the bank decides to extend an offer to those customers and the customer accepts, CAN handles everything else..It believes its underwriting process is so sturdy that it will take the risk of providing the capital to the customer, service the loan, and also pay the bank an origination fee. "The benefits of the program are very real," Goldman said. "We hear from our bank customers that customer satisfaction grows, it lengthens customer life cycles and allows the bank to be viewed as a problem solver, and it brings fee income to the bank," he said.