¶ … Battlers Regroup to Fight the Big Banks

The January 11, 2011 AFR article "Little battlers regroup to fight the big banks" by Jane Searle analyzes smaller bank and non-bank's use of diversification and target marketing to generate new revenue in the wake of the recent financial crisis. The loss of revenue from mortgages due to the world banking crisis and the tightening of credit markets has forced lenders to promote new financial instruments. They must reframe their marketing to attract customers and generate revenue, while complying with new government regulations and a social environment of heightened mistrust.

Many small institutions are offering discounted financial planning to target smaller investors, who might have shied away from engaging in this because of the price of the service. When one aspect of the economy begins to tighten up, it is critical that a bank can generate sources of revenue from other investment areas. Large banks have always had greater opportunities to diversify but to remain competitive smaller banks must similarly try to engage in risk management, and not only focus on one or two aspects of the market. Some small 'non-conforming' institutions are also expanding into debt collection, commercial financing, debt management, and even equipment rentals.

The credit crisis has also impacted non-banking institutions that have offered mortgages in the past. Immediately after the crisis, borrowers shied away from them, despite the fact that these institutions offered more competitive rates. Non-bank's reputations as lenders had been tarnished by the subprime crisis. The banning of 'exit fees' and greater regulation of the mortgage industry has caused some borrowers to return, and impelled non-bank entities to offer new services to more specifically target this market. This is critical for these entities to remain competitive. They are focusing upon consumers with lower-quality credit histories who they do not consider 'bad risks.' They act as advocates for such consumers, helping lenders negotiate with brokers while still complying with new regulations placed by the government upon lending to higher-risk borrowers. This enables them to provide added value to consumers in an underserved market segment, and generate an automatic audience for their 'brand' of financial services.

Reference

Searle, Jane. (2011, January 7). "Little battlers regroup to fight the big banks." AFR.