Unlocking the synergies between Affluent/HNW and SME banking

Asian-based banks are aggressively expanding their Affluent/High Net Worth (HNW) banking value propositions in light of growing economic prosperity and affluence within the region.

In Asia, SME (Small and Medium Enterprise) business owners are increasingly becoming an important source of business for Affluent/HNW banking business units.

Over the years, Asian banks have grown their SME lending portfolios and developed relationships with business owners and entrepreneurs.

The SME segment thus represents an attractive base of customers for Affluent/HNW banking divisions to target and grow their future business.

Experience has shown that clients with both SME banking and Affluent/HNW banking relationships are likely to be 40-60% more profitable compared with standalone business banking customers and are less likely to attrite.

Hence, there is a need for Affluent/HNW Banking and SME business units to collaborate and work as “one” in order to source new business from each other’s customer base and proactively manage and nurture customers holding both relationships within the bank.

After the economic crisis in 2008, banks have acknowledged the need to closely observe customers with both a commercial and an Affluent/HNW banking relationship and monitor the interdependencies between their business and personal wealth.

Banks can start by formally recognising this segment of customers and differentiating the value proposition and services offered.

Addressing the needs of this unique segment of customers also requires effective collaboration between the Affluent/HNW and SME banking divisions. Banks that can realise the potential of this segment will be able to strengthen their positioning across the SME and Affluent/HNW banking businesses whilst improving customer stickiness and increasing overall customer profitability.

“Recognising the Customer”
Formally acknowledging the existence of customers that have both business and Affluent/HNW banking needs and monitoring them on a continual basis is critical. Relationship managers need to have visibility of their client’s other relationships within the bank for two reasons.

On one hand it helps to identify potential for cross-selling whilst on the other hand it provides visibility and understanding of how other relationships within the bank can potentially impact other portfolios. During the economic crisis, liquidity was tightened and as a result, SME owners drew from their personal wealth to support their business working capital requirements.

It would have helped if the Affluent/HNW banking relationship manager had visibility over the SME banking division’s intention of limiting the customer’s business line of credit such that the Affluent/HNW relationship manager could have taken proactive measures to reduce the outflow of assets from the bank and perhaps convince the customer to withdraw funds from other sources.
 

“Working as One”
Business units need to proactively work together to identify and provide opportunities to cross-sell. This however assumes that relationship managers are competent to identify opportunities for cross-sell and are well versed in the other segment’s product and service offerings.

Typically there are clearly defined rules of engagement in terms of how each relationship manager should approach and execute a cross-sell referral and how they should collaborate with one another.

Customer sensitivities and protocols also need to be considered and respected. To enable this, there is the need for a formalised referral process; incentives need to be in place to illicit cross-selling behaviour and relationship managers need to be trained in the other segment’s suite of offerings so that they can confidently sell.

Furthermore, formalised governance involving both business units is required to endorse and provide direction in the execution of cross-selling activities.
 

“Differentiating the Value Proposition”
There is an opportunity for banks to define a differentiated value proposition for customers holding both an Affluent/HNW banking and SME banking relationship.

Based on observations of other markets, differentiated value propositions could potentially focus on how customers are serviced. A decision to create a differentiated level of service needs to consider the profile and characteristics of existing customers.

For differentiated servicing, some ideas explored by banks include providing a single relationship manager to manage both business and personal banking relationships.

Affluent/HNW customers who are proactively involved in the day-to-day running of a business are likely to expect a seamless experience across their personal and commercial banking relationships versus an Affluent/HNW customer who is not involved in the day-to-day management of their business.

For example, relationship managers at one of the banks are already providing a single point of contact across both SME banking and affluent banking needs for customers who are owner or operators of the business. For banks in Asia this is not dissimilar to customer sales and servicing models where the branch manager plays a dual role in serving the individual and SME banking needs of their top customers.

Key Success Factors
Exploiting the potential benefits which Affluent/HNW and SME segments have to offer one another requires the following:

1. Establishing Cross Business Unit Governance
Typically the key barriers to effective cross business unit collaboration are organisational silos. Clearly defined roles and responsibilities need to be mapped across SME banking and Affluent/HNW banking business units in order to go-to-market. There are two practical questions to consider.

The first is how the sales process will be governed across the two businesses. Assuming the customer is a standalone SME or Affluent/HNW banking customer, the relationship owner will need to be informed or updated if there is intent to market or cross-sell products and services. This is important as the relationship owner can provide details and recommendations based on the strength of the existing relationship including whether the client has the propensity to take on more products and services.

Secondly, the rules of client engagement need to be formalised to establish at what point in the sales process does it makes sense to introduce the customer to a relationship manager from another business unit.

2. Enriching Single Customer View
Most customer data marts today separately capture information pertaining to their individual and business banking relationships within the bank and contain little information on relationships in other parts of the bank. Banks can start enriching their 360 degree view of SME and Affluent/HNW banking customers by reviewing their customer relationship management tool, capturing basic details of relationships in other parts of the banks and the dedicated relationship managers who are servicing those portfolios.

For standalone affluent/HNW customers, information should be captured with regard to the customer’s occupation and source of funds. Such information can help establish whether the customer could be a prospective SME customer. Whilst for standalone SME customers, should the owner and operator of the business be the same, it can also provide insights as to whether they have the potential to become an Affluent/HNW customer.

As banks start to build out their single customer view, they can begin to develop more sophisticated customer insights including their overall customer relationship profitability (for both personal and business banking portfolios) and propensity scoring on the likelihood of them being interested in taking on another relationship within the bank. Given the materiality of customers holding both relationships, they will need to be managed and nurtured as a unique customer micro segment.

3. Enhancing CRM Capabilities
Customer Relationship Management (CRM) functionality for relationship manager and advisor desktops will need to be enhanced to provide visibility and additional information about the customer’s relationships within other parts of the bank. Additionally, there is a need to enable automated referral generation, routing and tracking to and from other parts of the bank.

For example, an SME relationship manager would be able to create a referral to the nearest Affluent/HNW banking relationship manager. Tracking will then enable monitoring of the sales cycle status and the quality of referrals including conversion rate. Formalised working relationships between branches and SME banking centres will need to be established at a local area level.

4. Recognising and Managing Performance
Business units need to be recognised based on the referrals they generate for other businesses. At a business unit level there will need to be cross-selling KPIs and recognition incentives to ensure cross business referrals are occurring and to recognise the efforts of a business unit identifying and referring opportunities to another unit. Recognition could be in the form of shadow or partial revenue allocation.

Business unit cross-sell targets will need to be cascaded downwards and incorporated as part of the relationship manager’s scorecard. At the individual relationship manager level, the referring relationship manager would need to be rewarded accordingly based on the quality and conversion of the referrals.

Conclusion
In light of Asia’s economic prosperity there is a growing need for banks to increase the level of recognition of customers who are or who have the potential to take on both an SME and Affluent/HNW banking relationship and acknowledge the potential value this micro segment has to offer.

Banks can no longer afford to neglect the importance of this segment and will need to focus on proactively nurturing and creating differentiated value propositions. The key challenge will be eliminating the constraints and silos which limit effective collaboration between business units.

This will require changes in organisational structure, operating model and development of new and enhanced CRM capabilities. Banks can take the first step in this journey by simply formalising the recognition and understanding of this micro segment.