How far can the private-label envelope be pushed?
That’s the question I ask myself when thinking about the future of wholesale banking.
Bankers have historically walked a wholesale-banking tightrope. On the one hand, the nation’s largest banks have sought to serve their wholesale clients absolutely. In fact, the need for profound wholesale banking was one of the arguments against nationalization of the largest US banks at the height of the credit crisis.
Yet, banks have actively sought to minimize encroachment on their turf by non-banks. The last 20 years of banking history is littered with knockdown fights over non-banks getting into financial services, with in nearly every case, the first punch thrown by the banking industry.
There are notable exceptions, of course, with private-label credit card lending being the most prominent among them. But the private-label machine largely stops pumping at credit cards. I see opportunity here. With bank brands in the dog house, it makes sense for bank wholesale banking units to think more creatively about selling financial services products through a proxy.
This goes well beyond an equipment leasing program. Payments, online banking, factoring, general financial support to suppliers all fall under the umbrella of potential private-label initiatives. Sure, some such initiatives are available to corporate bank clients, but I see far greater opportunity for vastly more. Will banks be giving up something to gain something in the long run? Sure, but banks have lost a degree of leverage coming out of the credit crisis and it would behoove them to adopt a more agreeable posture in their wholesale banking businesses. Put another way, the tightrope has moved somewhat.
You are right, JJ. Insurance agencies rarely work as far as I can tell in a banking environment. I think the biggest reason is that Bankers are uncomfortable with how insurance agents are compensated. Commission up front enough to pay the staff and keep the lights on, with contingency commissions for producing good business for your major carriers if all goes well. They also misunderstand the insurance buying process. They seem to think that the typical insurance buyer, even fairly complex businesses, do their own research and then go ask for what they want. The fact is, many insureds need counseling on what they need by a competent professional who cann assess their exposures and help describe the varying options that are out there. The bankers seemed to think that just get a licenses and sit soembody out by the front door with a sign and the cosnumer would just come and buy. The only banks that I have seen make a decent go at insurance are those that bought well established agencies, with well reputed professionals and plenty of markets and excellent account loyalty and retention and left them alone. And they came to grips that there is typically very little cross polenation of bank customers into the agency operation or vice versa.
Tim