How To Condition Your Banking Clients

Bank Client Management

We recently worked on a request for proposal (RFP) with a bank.  The opportunity included a large commercial loan, a deposit relationship and substantial treasury management services.  The commercial lending team, branch management, and the treasury services group spent a lot of time on the proposal and came up with a creative solution.   On the date of the company’s board meeting, the Company’s CFO informed all of the bidding banks that the board liked one specific feature of our proposal and the bidding process would be extended by one week to give all of the other banks an opportunity to include that same feature.  We quickly assumed that the bank would withdraw its proposal.  Why would a banker allow the borrower to change the RFP process, share ideas with competitors and allow those competitors to resubmit bids?  To our surprise, our banking team “sharpened its pencil” and decreased pricing on the loan and increased pricing on the deposits.  The reasoning by the banker was since all of the competing banks would now incorporate the specific feature that the company’s board found compelling, our proposal would be less so, and our products must now be priced cheaper. 


The above is a classic example of conditioning in behavioral psychology and we see many examples of this phenomenon in banking.  The psychology experiments conducted by Pavlov and Skinner also apply in banking and bankers are well served to understand which conditions they want customers to learn and how prospects should respond when a banker presents a specific stimulus.


Appropriate Conditioned Responses


Bankers should train prospects and customers in their market to expect certain elements from their bank services and condition those prospects and customers to react in a certain way.  Here are some examples of conditioning that can separate average and top performing banks:


Products & Innovation: Banks that differentiate their products, condition customers to expect novel ideas and solutions.  The alternative is to present the same ideas, terms, and structures as every other bank in the market which forces banks to compete on price.


Service: Banks that deliver on service, condition customers to expect support, approval times, and follow-up that exceeds their customer’s expectation.  The alternative is to compete on price, or worse to compete for substandard credit.  Banks need to understand lead their customers to understand the value of service and then condition their clients to pay for that service.


Relationship Value: Banks need to honestly decide if they are relationship providers or transactional bankers.  Both models can work, however, if banks truly want to create relationships they must structure products and processes that foster relationships. For example, a single, short-term three-year loan is a transaction. But, a ten-year loan that has rate concessions built in for treasury management, international services, deposit accounts or other bank products can lead to a relationship over time. Banks that want to create a relationship must condition customers to expect longer-term commitments that prevent borrowers from shopping the loan every few years.


Education: Bankers need to identify certain areas where they need to educate their clients. For example, holding a fixed rate for a loan constant during the origination process conditions the customer to believe that market rates don’t move. Alternatively, naming a spread and educating the customer on capital markets, helps all parties. In similar fashion, some bankers will argue that prepayment provisions are not accepted in their market. However, we see a customer in those same markets accept insurance company and conduit financing with onerous prepayment provision.  Those lenders have educated their borrowers and conditioned them to accept these prepayment provisions.


Risk: Banks must decide what risks they are willing to take and which risks are not within their business model. Once decided, banks need to condition customers on what to expect. If banks are not in the business of taking “excessive” credit risk, they must condition prospects to expect low pricing for pristine credit quality.  Equally, if banks cannot make a spread on interest rate risk, banks must condition customers that they are not in the business of taking on long-term fixed rate duration and offer customers an alternative way to eliminate that risk for the borrower.  National banks have conditioned borrowers to expect just that. 



Many readers will counter that if they try to condition customers and prospects, they will lose many customers.  That is precisely the point.  The commercial customers that you want should absolutely love what your bank does and the services that your bankers offer.  If there must be prospects and customers that hate what you do, they are the ones that must walk away from you and your bank.  Every successful bank has haters.  Apple is both beloved and hated. Luckily, Apple has realized that for every customer that thinks the Compay’s products are overrated and overpriced, there are enough that think the opposite to make it one of the most successful companies in the in the history of the world.

Likewise in banking, there are enough people that will love what you offer if you condition your customers correctly.  If you treat your best customers well, they will turn into evangelists for the bank. These customers will turn into your best salespeople.

Back to our proposal example above.  One senior banker on our team summed it nicely.  He stated; “I don’t trust a customer that changes the RFP proposal and I don’t want to do business with customers that expect this from us.  I know what I can do and what the bank can deliver and I do not need more practice.  We would gain more respect from this customer if we politely declined to re-submit our bid.”   Our bank customer ultimately lost the bid but conditioned this prospect and everyone they communicate with to expect a few things from this.  First, expect this bank to lower its price when asked.  Second, accept ideas to be shared against them with competitors and third, continue to view it’s service as a commodity to be won by the lowest bidder through multiple rounds, not just one fair proposal.