Banks discover charities can be a lucrative field


March 21, 1994|By LESTER A. PICKER

There are times when nonprofits feel they can only talk to one another, when the for-profit business world simply does not seem to be listening.

Well, there's one interface between charities and for-profits that stands in stark contrast to that scenario. When it comes to a nonprofit's financial assets, banks and other financial institutions are breaking down the door to gain access. In recent years, entire banking divisions have been created exclusively to capture the assets of nonprofits to manage.

We typically think of nonprofits as asset-poor. However, American nonprofits collectively own more than a trillion dollars worth of assets. More than $350 billion annually flows through them. It's no wonder that banks are lining up to harvest that market.

"What drove us to specialize in this market," reports John Hennessey, "is the size of the industry. In the mid-Atlantic, it's a $30 billion business and you cannot ignore it." Hennessey is vice president of the nonprofit specialty group at NationsBank in Baltimore.

A solid banking connection is critical for nonprofits in today's highly competitive marketplace. Nonprofits must look for ways to increase financial efficiencies and to get maximum value from their investments. However, banks historically have not well understood the distinctive financial needs of nonprofits. Conversely, nonprofits' executives and most of their board members have not been versed in financial matters. The end result has been the lack of a common language.

"Initially, we weren't looking for ways to deliver specialized products," says Hennessey. "We were looking for ways to improve the operations of our existing nonprofit clients. But, by listening to what they wanted, we were able to tailor products to the various nonprofit segments."

Banks throughout the nation are designing approaches to segmenting and serving the nonprofit industry. Crestar, which holds the major share of the nonprofit market in the District of Columbia, has grown a profitable business serving nonprofits, according to Tim Lee, vice president of its not-for-profit division.

"Nonprofits have unique missions and purposes," says Lee. "They exist to serve their constituents. A bank needs to look past its normal credit and noncredit guidelines in working with nonprofits. When banks first get into nonprofit work, that can be a problem. But, with experience, you get comfortable with it."

Lee, who has guided banks -- which don't compete with Crestar -- on working with nonprofits, reports that a loan committee often calls back ready to decline a loan request but feeling that it may be missing something. "There are nuances of the nonprofit industry that must be taken into account," Lee says with a knowing smile. "As long as banks continue to treat nonprofits poorly, banks like Crestar will flourish."

What is the key to a bank's success in the nonprofit market? "The most critical issue is for banks to listen to the needs of their nonprofit clients," says Lee, "then fit services to those needs."

NationsBank's Hennessey echoes that sentiment and goes one step further. "A bank had better know each segment of the nonprofit business. A labor union is different than a charitable organization. Then you have to develop products on a collaborative basis."

According to Hennessey, nonprofits need to stay focused on quality programs while continually cutting expenses. They also need to improve information-gathering and reporting, especially regarding their donors. One byproduct of a bank's focus on nonprofits as a profitable segment is that it causes banks to be more involved in volunteer work. That creates a win-win that benefits the community, according to Hennessey.

Lee believes that the future will see nonprofits revamping their investment policies to be a bit less conservative. "We're also always looking at ways to bring automation to the collection of receivables. Lock box services, for example, are constantly changing for the nonprofit community."

Now that banks see nonprofits as a fitting and profitable industry segment, both sides should benefit from the relationships being formed.

(Lester A. Picker is a philanthropy consultant. Write to him at The Brokerage, 34 Market Place, Suite 331, Baltimore, Md. 21202, [410] 783-5100)

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