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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