‘Sticking to the knitting’ and other things the local banks can teach the big boys…and other organisations

The second part of Michael Robinson’s BBC Radio 4 documentary series Fixing Broken Banking features the Cumberland Building Society and the German local bank Handelsbanken, which has branches in the UK.
Robinson’s persuasive thesis is that these comparatively small, locally-based banks have thrived while the big boys have floundered because they’ve stuck to the old-fashioned model of local, relationship-based banking. And when you listen to the programme you can hear why.
Here are some of the reasons why:

• They embrace proper relationship marketing by only accepting savings from and offering products to local people, only selling their products directly, not being driven by selling the most profitable products, quarterly targets or bonuses and by being “embedded with community”, in the words of the Cumberland’s chief executive. They demonstrated that after the floods in Cockermouth, when they were the only financial institution to contribute to the post-event flood defence fund.
  Their reward has been bad debt and repossession stats far lower than their rivals, partly because they know their customers better than simply from the data analysis tools used by the big banks.
• A key part of that is delegating decision-making to the level with the greatest knowledge of the customer, so managers aren’t just implementing top-down policies or sending data to head office decision-makers. This makes sense as the person meeting the customer will usually have far more relevant information than HQ e.g. local reputation of a business, NVCs from a customer talking about their financial situation.
• They “stick to the knitting” (in the phrase coined by Peters & Waterman in their classic In Search Of Excellence) by keeping their core business in the local banking they know (no leap off into backfiring risky sub-prime mortgages in search of continued high growth), being 98% funded from local savings (in the case of the Cumberland), staying at the scale they understand.
• They take managing their reputation seriously — by sticking to a low-risk strategy and walking their talk every day with their policies…which leads to stability and sustainable organic growth, which are, in mutually reinforcing.

Relationship marketing isn’t new or sexy, but its truths and benefits have never been more valuable in the uncertain times we all face.