NOVEMBER 2007: FEATURE
BANKING
The Niche Need
Thirty-five years ago this summer, Pacific Continental Bank
opened its first set of doors in Eugene. Small and community
minded, the bank at the time was simply interested in garnering
new business, any business.
“We started like most small companies do,” says
Hal Brown, a 22-year veteran of the company and CEO for the
past five years. “We took any business that would
come.”
The bank now has 14 branches in Oregon and Washington. It
still courts business from any customer looking for a good
community bank, but something happened at Pacific Continental
over the past three and a half decades as well. Through
experience and evolving expertise, the bank carved several
niches, and today it counts dental practices and nonprofits
among its specialty banking areas.
“In addition to the broad spectrum, we want to be the
go-to bank in five to 10 specialties,” says Brown.
“We do not ignore any business relationship. These are
just very defined levels of expertise, and they’ve
developed nicely for us.”
The niche market is nothing new to banking. Bank of the West
has had an agribusiness line since it was founded in 1874.
KeyBank has been aiming business toward Native Americans for at
least 50 years, and Wells Fargo launched a lending program for
women-owned businesses more than a decade ago.
But with banks laboring to separate themselves from the
competition, to somehow show that their checking accounts or
loans are better than the others, the niche market is proving
to be an important differentiator in the quest for a bigger
piece of the banking pie.
“You can’t be all things to all people and do it
well,” says Linda Navarro, president and CEO of the
Oregon Bankers Association. “As with any business, banks
will find their niches. As the economy evolves and new sectors
develop, there’s an opportunity for banks to
capitalize.”
THE FOCUS OF OREGON BANKS on niche markets is not necessarily
a sign of desperation even though some of the state’s
publicly traded banks have seen their stock prices drop this
year. For example, in late July, shares of Umpqua Bank’s
parent company, Umpqua Holdings Corp., were down 34% from the
beginning of January.
But overall deposits continue to rise — $42.3 billion in
2005 to $45.3 billion last year — as do the
opportunities in niche markets.
Much of what’s driving the specialty bank market is good
old competition between banks of all sizes. Oregon’s
community banks — the more than 30 banks in the state
with less than $1 billion in assets — find niches to
secure and expand their share of the market against the big
boys such as Bank of America, whose Oregon assets are at $14.7
billion.
Larger institutions use their vast resources to target
specific markets — minorities, women or low-income
workers, for example — to fill unmet needs and cross-sell
additional products and services.
Banks of all sizes also cite increasing competition from
credit unions as an impetus to find unique markets.
“I think banks have realized that because of all this
competition, each one needs to find a place where they’re
comfortable and can grow their business,” says Brown.
Mike Paul, president and CEO of The Commerce Bank of Oregon,
says a drop-off in net interest margin has also forced banks to
look at the sources of their net income. “There are two
sources of income for banks: services charges on deposit
accounts and loan fees,” he says. “You can’t
just load up your existing client base with more
fees.”
Among the more traditional specialties in the banking industry
are focuses on professional services, women, minorities and
agriculture.
Casey Garten, senior relationship manager for Bank of the
West’s agriculture group, says the diversity of
agricultural goods here, from wine grapes and berries to
nursery stock and dairy products, makes Oregon an attractive
place for agribusiness banking. The bank has about $90 million
in agricultural loan commitments in Oregon.
“And it’s a marketplace that we think is going to
continue to grow in terms of the credit needs,” he
says.
Though the eight agribusiness bankers who cover Oregon are
based in northern California, Garten says plans to add staff
here are in the works. All of the bankers have an ag
background, and they focus solely on agribusiness. The bank
also tends to the agriculture market by offering specialized
financial products for farmers and processors, such as
development loans that help cover costs from the time a crop
goes in the ground until its first year of production.
Wells Fargo began targeting some of its niche markets in 1995,
when company-initiated research revealed unmet needs for
women-owned businesses. Since then, it has loaned more than $29
billion to such businesses nationwide. The bank targeted Latino
businesses starting in 1997, African-Americans in 1998 and
Asians in 2002.
“There are niche markets that need to be served,”
says Tawni Nelson, vice president and business banking manager
for Wells Fargo in the Portland metro area. “A lot of
what we do is education and just making sure that a particular
niche market knows that we know they are a growing and valuable
business segment.”
Much like Bank of the West’s agribusiness
specialists, KeyBank has bankers who deal in nothing but
Native American financial services. While the bank has been
working with tribes for more than 50 years, targeted efforts
began in 2004 when it became clear that a sharper focus would
benefit not only the tribes but shareholders as well.
Today, the bank has more than $900 million in financial
commitments to tribes nationwide, $17 million here in Oregon.
That’s not huge compared to KeyBank’s overall
assets — some $93 billion nationally — but Mike
Lettig, national executive for KeyBank’s Native American
Financial Services, says the market’s horizon is
promising. “The economic evolution in tribal country is
in its infancy,” he says.
LESS TRADITIONAL NICHE MARKETS have begun to catch the
attention of banks as well. KeyBank, for example, has set its
sights on low-income earners referred to as the
“unbanked” — potential customers without
access to regular bank accounts.
In August, KeyBank introduced a payroll and government
check-cashing service for Oregon residents who don’t have
bank accounts. Known as KeyBank Plus, the service charges
customers 1.5% of a check’s value — the maximum fee
is $25 — to cash checks. Customers can sign up for the
service with one piece of identification, but KeyBank also
employs ID verification technology.
The bank also offers financial literacy classes to help
low-income earners find stable economic footing.
Both efforts aim to offer services to more people — and
increase the pool of customers to which KeyBank can cross- sell
products and services.
“All banks are looking to grow their client base,”
says Paula Parks, the KeyBank vice president in charge of
rolling out the check-cashing service in Oregon. Parks says the
bank aims to get 30% of KeyBank Plus users to sign up for more
traditional banking services.
Wells Fargo recently launched a money transfer service that
focuses on customers who frequently send money to countries
such as Mexico, El Salvador, China, India and Vietnam. And The
Commerce Bank of Oregon has landed 25 new clients this year in
its targeted nonprofit niche but is also looking for new
unconventional markets.
Some niche markets for the bank are evolving through
third-party relationships. For example, The Commerce Bank of
Oregon approaches its medical customers with the health-care
remittance reconciliation services of its sister company,
Provider Pay, to help them electronically format invoices.
“You’ve got to add value by finding something
they’re doing that you could provide through a third
party — and then charge them for it,” Paul says.
“We’re separating ourselves from the competition on
this one.”
He also sees opportunities arising in the fast-growing realm
of sustainability.
Lani Hayward, executive vice president of creative services at
Umpqua Bank, says Umpqua has long targeted niche markets, such
as women-owned businesses, without “putting a wrapper
around it” as many banks do. That’s not to say that
the bank doesn’t see value in cultivating specialty
markets. It actually has big plans for its new store in
Portland’s South Waterfront District to begin using
technology to help identify various niches and then serve them
with specific products and services. That could mean, for
example, offering online content tailored to a particular
niche.
“There’s a lot to say for really studying segments
and breaking through with something that really differentiates
you,” she says. “After all, at the end of the day,
we’re all still offering the same stuff.”
Jon Bell is a Portland-based
business journalist.
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