Banks must reconnect with their customers if they hope to beat specialty financial firms like Countrywide in mortgages, MBNA in credit cards, or Fidelity Investments in mutual funds, a top industry analyst said Monday.
"The truly exceptional performers are going to excel in sales and marketing, and they are going to explode and rebuild their distribution systems," said Thomas K. Brown, senior vice president of Donaldson, Lufkin & Jenrette. "Superior execution of traditional skills - risk, expense, and capital management - is just going to enable banks to stay in the game."
Presenting his third "Future of Banking" report at the American Bankers Association's annual convention here, Mr. Brown said branches are not dead - but must be reconfigured if banks are to recover market share lost to specialty financial firms, which he calls "category killers."
Branches of the future, he said, should focus on serving certain segments of a bank's customer base. For example, a branch could be designed exclusively to serve small businesses or affluent retail customers.
"Be more effective with your customers by physically re-designing the branches to fit their needs," he advised the bankers.
In an interview, Mr. Brown said Norwest Corp. has already adopted this strategy. The Minneapolis-based bank invited potential home equity customers to a model branch to hear an expert talk about remodeling projects.
"It is the distribution of financial services to retail and small business customers that represents the greatest growth for banks," he said.
But branch personnel must be armed with the technology needed to sell products to customers. "Engage the frontline troops," he advised. "Give them a vision, and make sure it's executed."
Mr. Brown, who has been analyzing the industry since 1980 and has been the top-rated regional bank analyst for seven of the last eight years by Institutional Investor magazine, released his first future of banking study in September 1994. Then, he argued that banks must change dramatically to survive. By February 1995, when his second study was issued, Mr. Brown was scolding the industry for not heeding his advice.
"Many banks still did not recognize the threat that the category killers posed," he said. "These companies had sprung up and had been stealing market share from banks for a decade.
"As the banks got bigger through consolidation, they got further and further way from their retail customers," Mr. Brown said. "Now the big banks are charging back to their best customers."
In this third report, to be released soon, Mr. Brown said most of the industry realizes change is inevitable. But for many, particularly community banks, it is too late, he said.
"I Believe that because the order of magnitude of change is just too great for some of them," he predicted.