How To Structure A Relationship Commercial Account

Relationship Bank Account Structuring

While many banks say they are all about developing a relationship, few have an account structure to support that claim. Since deposit values are heating up, we thought we would take a look at what a commercial relationship banking package looks like and how you can use the package to drive fees, balances and profitability performance. Structured the right way, a commercial banking package does your heavy lifting for you. It speeds up the sales process, promotes cross-sell, retention and performance. We have interviewed 20 of the most successful banks in this area to arrive at a template that can save you countless hours of testing, debate, and structuring. 


Alignment Is Step One


Many banks already have a retail relationship bundle but have not designed a commercial package. If your bank already has a retail relationship deposit offering, then you probably want to mimic that structure to maintain product alignment. Banks should also pay attention and possibly restructure their commercial account deposit tiers so there is not a conflict or discrepancy between a relationship package and a standalone account. 


Relationship Banking

Banks also want to be clear what their goals are. This is where many banks go off the rails as they design a relationship package without an end goal in mind. The below template was designed for overall performance including balance building, fee generation, retention and low-interest rate sensitivity. This is to say we are trying to optimize cumulative lifetime customer value. However, if it is the goal of the bank is to mainly build balances or fees, then you will want to adjust accordingly.


In addition, you obviously want to modify the product offerings and pricing to fit your bank’s targeted demographics and current product capabilities.


Expected life and effective duration of deposits   

Draw Them In


Some banks start their relationship bundle with $50,000 or more of combined balances. We propose starting your entry level combined balance threshold at $25,000. We think this is a mistake to start too high. While you don’t want to hurt your profitability by discounting, your goal, in our opinion, is to grab that loyal small business customer early, incentivize them to consolidate their core business at your bank and help them grow.


Having the below-proposed account line up is also designed to give your bank a competitive offensive advantage. When competing against banks like BBVA Compass, who starts their combined balance requirements at $100,000, there is plenty of room for your bankers to come in with a Bronze or Silver account package and take customers away.  


The Offset to Tiers and Interest Rate Sensitivity


Banks that insert tiers into their standalone deposit products end up building balances but make the account more interest rate sensitive. Banks need to walk a fine line here in creating value. If you jump the rate too much between deposit tiers, you may find that you’ve hurt deposit performance and destroyed more value than you’ve created. 


Moving to a relationship account package dampens that interest rate sensitivity and extends out the customer’s expected life so that value is almost always created.


The Template


We designed the below template in three tiers. There is an important aspect of deposit design as three of anything is easily understood and the structure aids in a faster decision and sales cycle. Further, since the middle tier is most often chosen, the Silver package below is shaded towards greater bank profitability.


The below template assumes a basic account bundle to include online, mobile, bill pay, account alerts, debit card and credit card.


Relationship Account Package


Banks can add to the above any rewards programs (highly recommended), ID protection, business continuity products, IT support or any other specialty products. In general, the rule of thumb is about a 10% to 20% discount on bundled products.


Putting This into Action


The above commercial relationship template will allow your bank to compete with any bank in the nation. The products and pricing were designed to go head-to-head with Citibank, Bank of America, BBVA Compass and others. The average account profitability using a similar commercial account package is multiple times greater than a standalone account. Increasing the number of products per account while incentivizing usage, dramatically increases retention while making the accounts less sensitive.


The result is better performance in any rate environment compared to a standalone commercial account.


The added benefit here is that banks provide their employees with a complete relationship package that is still fairly unique in our industry. This gives bankers something new to talk about with their customers while offering better alignment between a relationship-driven product and the relationship focus of the bank.