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The Bottom Line
Despite a Risky Business, Distributors Stay in the Black.
BY SHARON McLOONEFORM, Dec. 1994
The financial services industry is changing, and distributors need to rethink their strategies. In addition to the mergers and acquisitions that have occurred for more than a decade, financial institutions are beginning to diversify their products and services. The lines between savings and loans, stock markets and commercial banks are blurring. Financial institutions that survived the weak economy in the '80s recreated themselves for the '90s. The re-creation includes banks selling insurance and stockbrokers offering checking accounts, according to Gordon Peterson, president of Hart Forms & Systems, a distributorship in Eden Prairie, Minn.
Winbrook Associates, a distributorship in Billerica, Mass., took advantage of the changes in the banking industry by restructuring and targeting small and medium size banks. About 10 years ago Dale Lattanzio, vice president and treasurer of Winbrook, and his brother Chuck, president, responded to changes in the New England economy by offering forms management services. Concurrently, they discontinued selling computer tape, printer ribbons and traditional forms. "We spent a lot of time talking to constituents and found they wanted services such as warehousing and forms management," says Dale Lattanzio.
The Lattanzio brothers bought a 20,000-square-foot warehouse and banked on the philosophy "if you build it, they will come." But it took some time before banks were ready to use it. "Our kid used to roller skate in the back of the warehouse because we couldn't fill it up at first," says Dale Lattanzio. But the '90s are proving profitable. "Gradually we got more orders for warehousing, and now our business is booming," he says. Winbrook recently leased an additional 10,000-square-foot warehouse.
The M & A Impact
Voracious large banks continue to gobble up smaller banks. The number of banks in the U.S. has decreased 24 percent since 1983 to 11,710 in 1993, according to the Federal Reserve. However, the merger and acquisition shakeups in the financial industry don't seem to deter distributors. "We've lost two accounts this year because of bank acquisitions, but we've also gained accounts for the same reason," says Dale Lattanzio. Performance of Memphis Inc. lost four accounts because of acquisitions, but President George Altizer says wins and losses generally balance out. Performance sold to a small bank that sent its data processing to a larger bank, according to Altizer. A new owner acquired the small bank and completed the data processing internally. However, the distributorship has won accounts by serving banks that acquire other financial institutions and pass on the newly acquired needs to Performance.Joe Novak, owner of BFC Forms Service Inc., a distributorship in Addison, Ill., says his company sold to 500 banks during the last 10 to 15 years, but currently sells to about 300 because of consolidation. Despite the decrease in accounts, the company maintained the same revenue by increasing the amount of forms and services it supplies to the remaining accounts. "If you were to open a bank tomorrow, we could sell everything but hardware, office supplies, furniture and roll products," says Novak. "Banks have taken out some frills like balloons and lollipops, but there's still a lot to offer them," he says. Automated teller machines offer new opportunities for distributors to sell roll products and plastic cards. Last year Novak supplied a bank with a black and white employee training manual on how to sell mortgages.
Peterson sells optical disks to some of his accounts, including rural banks. "In addition to imaging, many banks use optical disk systems for archival or backup purposes," he says. "Because a user can find data randomly from an optical disk, it's often more efficient than retrieving data from a computer's magnetic tape," which must be searched serially.
Distributors should understand the type of technology a bank uses to service it correctly. "It's necessary to understand a bank's workflow and accounting system," says Altizer. "Ask yourself if the bank is [reducing the number of documents it uses] and if it uses microfilm, microfiche or optical disks. If banks use a Panasonic optical disk drive, you probably want to sell them Panasonic optical disks," he says. Peterson expects different brands of hardware will become compatible as more hardware manufacturers get into the market.
Trends
Altizer, who worked for The Burroughs Company for 18 years and independently for the last 15, says there has not been a great deal of change during the past several years in the products and services he provides. "Three or four banks have put in image processing, but statements and envelopes are still the big items," says Altizer, who sells primarily to rural banks. Altizer sells 91/2 x 11 and 147/8 x 11-inch continuous forms for statements, often with 2- or 3-color logos, and rolls for ATMs. He advises distributors to monitor Federal Deposit Insurance Corp. regulations. "The FDIC changes its rules about once a month, requiring new statements and other forms," says Altizer. For example, the FDIC may change the number of days a local check must clear through a bank; this information is often backprinted on a statement. The FDIC is very good at notifying its member banks about the changes, according to Altizer. But it's important for distributors to check with accounts that are FDIC insured for any recent changes, he says.Peterson also finds clients are increasingly interested in security features. "Now that account holders may be responsible for fraud, there's more awareness and more requests to secure commercial, cashier and certified checks," he says. All negotiable documents are secured in a locked cage in Hart Forms & Systems' warehouse. The company marks boxes with coded descriptions so it's not evident that the box contains negotiable items, according to Peterson. Winbrook Associates has a truck driver on staff who delivers negotiable documents.
Marketing
Distributors' marketing strategies depend on the demographics of the financial institutions they serve. Peterson recommends that distributors rethink their marketing plans for the '90s as financial institutions continue to venture into each other's territory. "In some ways it's easier to market to the financial industry these days-now they all offer the same things," he says. Because of this convergence, different types of institutions, such as thrifts and commercial banks, use the same software.Peterson sells to commercial banks with deposits of less than $100 million and credit unions, usually based in farming communities. In smaller banks there is usually no purchasing officer, he says. Often he deals with a cashier or data processing manager. In addition to optical disks, Peterson sells custom continuous forms, custom cut sheets, statements, notices, checks, statement envelopes, printer toner, printer ribbons and MICR encoded documents. Peterson previously worked for Burroughs installing computer hardware and software, primarily for banks. Through his affiliations, he worked out a deal with a software company that refers Performance to its clients for their forms.
Lattanzio says the New England financial community is "a close-knit fraternity that remains loyal if you can break into the market and prove yourself by providing excellent service." Winbrook has sold to banks for about nine years, about the time that Winbrook's focus moved from forms sales to forms management. When banks were going out of business in the '80s, they turned to Winbrook for assistance. "The New England bust was a boon for our company," he says. "Banks became interested in forms management for survival." However, the company did lose two accounts due to acquisitions during that period.
"Banks depend on distributors," says Altizer. "It's a matter of constant visits. Some accounts need visiting daily, weekly or monthly." His accounts look to his company to remind them when they need a new supply of return envelopes or when it's time to order holiday checks, according to Altizer. Scott Jayne, sales manager of distributorship Financial Forms & Supply in Des Moines, Iowa, sells ad specialties, optical disks and basic financial forms such as DDA statements to banks, credit unions and savings and loans. "Banks use a completely different vocabulary than anyone else, and it's important to learn it," according to Jayne. He recommends asking a lot of questions and finding a mentor, whether it's someone in banking or the forms industry. "One document, like a counter ticket, might run through five different machines. You've got to know the equipment and the back room procedures," he says. "It can be a hard sell; you're selling to a person that watches money all day. You don't pull large margins out of a bank." He sells the same forms management package to several different banks, which allows the banks to "group buy" at a discount though the banks are not affiliated.
Bob Connor, president of C.U. Data Systems, a Bryn Mawr, Pa., distributorship, sells primarily to credit unions. "Credit unions are not as focused on profit as banks, but geared toward member service," he says. According to Norman D'Amours, chairman of the Alexandria, Va.-based National Credit Union Administration, most of the credit unions that exist today are small, nonprofit, member-oriented organizations that didn't participate in "many speculative practices that brought down other financial institutions." Last year there were 71 credit union failures including involuntary liquidations and assisted mergers-a 20-year low. This compares with 114 failures in 1992, 130 in 1991 and 164 in 1990, according to the NCUA. The nation's 13,000 credit unions nationwide range from those for small teachers' associations to Pentagon employees.
Connor supplies statements, checks, receipts, envelopes and marketing brochures. "The brochures range from simple reflex blue on white to sophisticated 4-color pieces, depending on the budget of the credit union," he says. Connor targets credit unions that use a specific data processing system and offers a group discount on forms.
In the wheeling and dealing '80s, financial institutions looked at the world through rose-colored glasses, but the bottom line turned out to be red. In the '90s, the survivors have come back with a vengeance to be the most efficient, streamlined and competitive companies in the industry. These companies rely on the forms industry to help them stay in the black.
Sharon McLoone is assistant editor of FORM magazine.
Thanks to manufacturers Adams Business Forms Inc., Topeka, Kan.; Alabama Bag Co. Inc., Talladega, Ala.; and Wise Business Forms Inc., Alpharetta, Ga.