Probably like many of you, I see articles here and there about banks not being particularly innovative. The premise is that banking business models were largely formed in an industrial era but that the American economy and indeed, most of the world’s economy, is now in the digital era.
There was an article posted on LinkedIn not too long ago with the lead-in: “Banking is very pedestrian with not much excitement or glamour. . . .”
For someone to charge that a banking career is pedestrian and neither exciting nor glamorous is just nuts.
My perspective is that of a commercial lender. Lenders are sales people. So we earn our livelihood convincing others to bank with us. We have to start with the customer, and the customer is initially a prospect.
So we must engage the prospect in such a way that we are seen as a resource. We are the portal to a stream of information and to a commodity that is essential to economic society. The personality of an effective salesperson is God-given. But the service we deliver and our credibility in delivering it—that’s something quite different.
How well we convey our competence and value is a calculated process honed by native skill, training, and experience. We don’t get this out of a book or a manual.
From the inside out
Once we have the opportunity to earn a shot at a piece of loan business, we become analysts. This is in the sense that we must figure out what works best for the customer and that means understanding the customer’s enterprise.
Whether our concept of the need (and the solution) fits with the risk profile of the bank is probably the heart of how we earn our pay.
Not all risks are for banks. It seems paradoxical in a long career that usually the customers understand that fact better than many bankers. We are not casual about how we assess risk as simply put, not all lending risks are for banks.
The credit committee is usually the ultimate hurdle. Lenders have to present in such a way that risks are properly understood and not trivialized. This can be a balancing act and the creative lender/analyst knows how to do this in a fair and objective way. He or she must “sell the committee,” but neither overstate nor understate the level of risk.
If there’s an ethical dimension to lending money, it’s in how the risk is presented.
Then there’s the matter of satisfying any bank’s series of internal controls. Loan Review and auditors need to know that the proposal conforms to the bank’s standards in a variety of ways, including both the spirit and the letter of the transaction. Deals have to be structured properly, consistent with credit underwriting standards but they need to be documented rigorously and reliably.
What I’ve been describing it a sense of what it takes to get a deal on the books. Convincing the prospect to bank with you; representing yourself to be competent, knowledgeable and helpful to a business owner; and then convincing the professional skeptics within the bank that a particular loan should be made is a series of successive activities.
How much of this sounds dull or unimaginative?
Who can responsibly say that these essential tasks don’t require imagination and skill? Is this how we are to understand the term “pedestrian?”
The ongoing discipline
Once the loan is funded, it has to be managed. This means that the lender must be current on the borrower’s business—the current financials and the business’ prospects. A funded loan is never completely static. It is improving or deteriorating every day thanks to the macro business climate, local conditions, and the day-to-day business skills of the borrower.
For several years, the competitive environment for bankable credit opportunities has been intense. The regulatory environment has had much to do with this but success is also dependent on the skills of the lender as an overseer, a business confidante, and observer of the local scene. A lender doing his job is constantly seeking new opportunities for lending money and expanding his bank’s share of the economic pie.
Banking has always been primarily a relationship business. Efficiencies of scale have focused on eliminating many human intervention points across the full spectrum of banking services and that has occurred in lending too. Such “economies” include credit scoring and other mechanical rather than personal interfaces. But this increases the need and the importance of the personal touch as well as the skill of the banker.
So it seems to me that in a successful commercial lending business model, there remains the need for creative intervention of a human sort.
Digitalization can speed the flow and make processes more adaptive. But at its heart, commercial lending is a highly interpersonal business where we earn our way by being creative with our customers and their needs and with our banks in the management of the risks of financial intermediation.
This highlights, too, what is developing as a critical future issue for banks. Beginning probably 15 years ago, banks began to pull back on credit training. As internal routines were automated (digitalized) and streamlined, a bank’s credit function could operate with less staff.
That ultimately—and unfortunately—led to rethinking and justifying the costs of internal training programs as well as most other processes.
Tomorrow’s business bankers
Where are the lenders going to come from to man the lending desks 10-15 years from now? Certainly talking about working in a pedestrian industry doesn’t help.
For commercial lenders who are firmly set on a lending career path, lack of newly trained talent augurs well for lucrative careers and job security. But what might it really portend for the industry?
Maybe too many people have paid too much attention to the nonsense that banking isn’t innovative or interesting. I can’t imagine anything further removed from reality.