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Outsourcing – A New Path
to Building Customer Loyalty

During the last several years, rapid advances in technology have strengthened operational efficiencies, but, at the same time, weakened the reliable and long-term relationships traditionally established between business customers and their lenders. At a time when financial services are on the verge of becoming a commodity, many are now using a double offense strategy: providing ancillary products and outsourcing. For customers, this effort to drive loyalty and retention has translated into value-added banking services, alternative financial products, easier access to third party providers and professionals, and more efficient delivery systems.

While executing on their one-stop-shopping strategy, many financial institutions are focusing on cost, quality and timeliness to further drive success in cross-selling products to existing business customers. Once a customer has accessed an array of services from their financial institution, they are unlikely to go through the hassle of re-establishing this multi-faceted relationship at another institution.

One-Stop-Shop Now Includes Outsourcing

To augment their value-add for customers, among other things, banks and non-bank lenders are looking at outsourced solutions to provide services they do not offer or services that don’t make sense to develop in-house. Some of these include receivables and cash management, access to alternative balance sheet liquidity providers, and other treasury functions such as hedging, liquidity management and back-office functions (Cap Gemini Ernst & Young, 14 Sept 2000).

In many cases, the outsourced relationship is transparent to the customer. The only thing that’s visible is the effectiveness and efficiency of the product or service that’s delivered and the ease with which the customer can conduct multiple business functions at a single financial institution.

What’s the payoff for going to the trouble of adding ancillary and outsourced products and services? In The Loyalty Effect (www.loyaltyeffect.com), Frederich Reicheld says that a mere 5% improvement in a company’s attrition rate can push profits up to 75% higher.

In the Eyes of the Client Cash Is King

So, where should financial services companies now concentrate their retention efforts? Bankers report cash liquidity as customers’ number one concern.

Typically, institutional customers do not recognize the subtle differences between commoditized financial services companies. Money is fungible and indistinguishable among financial institutions. The cost of funds is lower than it has been in some 40 years, and nearly every institution is feeling the pinch in pricing loans to their best business customers. Consistently, it’s the availability of credit or refusal of credit which drives customers to change banks or establish relationships. And, in our current volatile economy, getting credit is no easy task.

In his February 27, 2002, *Wall Street Journal article, Tighter Credit May Stifle Capital-Spending Revival, Greg Ip writes “An association survey of small- and medium-sized manufacturers found 34% said credit is harder to get compared with last year, while 6% said it is easier. The remainder saw no change.” In the same article, Ip reports the “Federal Reserve surveys of bank-lending officers have also found that banks have been tightening lending standards on commercial and industrial loans since the second half of 2000. While the rate of tightening slowed a bit in the last survey, conducted in January, it remains faster than in the last quarter of the 1990-91 recession.”

Outsource Customer Credit Requests and Build Customer Loyalty

Now many financial services firms are outsourcing out-of-the-box credit requests in order to offer borrowers and their representatives’ cash liquidity and easy access to a wide variety of financial institutions. By partnering with an institutional finance agency like Primagency, financial services firms can become the “one-stop” place to go for all their financial needs. At the same time, these firms can help their clients to get the credit they need to grow and prosper, while maintaining their client relationships through the debt financing process.

A customer’s continued reliance on a wide array of products and services pays big dividends in battling commoditization and downward pressure on prices and profits for the financial institution. The crusade to achieve high customer satisfaction means, therefore, that outsourcing services, such as debt financing, to a trusted partner can be a critical element in a financial institution’s retention strategy.

*See the March issue of Primagency’s Navigator newsletter to read Greg Ip’s full article, Tighter Credit May Stifle Capital-Spending Revival.

+Go to www.federalreserve.gov/boarddocs/SnLoanSurvey/200202/default.htm for a complete report on the Federal Reserve survey of bank-lending officers.