Viewpoint: Consumer Banking Industry Must Fight Its Way Out of the Transaction Trap

Peter Drucker said, "When talented people work very hard and produce consistently inadequate results, it is evidence of the obsolescence of your business model."

Most bankers would concur that they are working harder than ever yet continue to lose market share and market capitalization. Does this mean that banks have reached cultural irrelevance?

Consider this: The industry has worked for years to maximize the efficiency of its customer interaction. Bankers strive to optimize the transaction time, equating speed and accuracy with the customers' value proposition. As a result, customers have been trained to expect only that from banks: speed and accuracy. This crisis of diminished expectations has rendered banks' hard-won strengths difficult to parlay into customer loyalty and share of wallet.

When an industry behaves consistently enough for long enough, it produces some predictable consequences, which the banking industry has experienced. For example:

• Margins collapse. For years banks have been suffering from margin compression, anticipating further pressures on the margin, and working hard to create noninterest income to compensate.
• Crises in attracting and keeping talent. The best and brightest move on to bigger and better industries, looking for more challenging and rewarding work. While bank compensation is competitive, the industry has not been able to attract the choicest candidates out of top schools and fast-growing industries.
• Inability to introduce products successfully. There has been no major innovation in banking since the introduction of the cash management account - in 1979. Further, it took most banks 20 years to be able to produce a similar account. The industry has not launched breakthrough products that sweep market share and provide customers with compelling value.
• A rise in entrants that collapse industry boundaries. The monolines have been eating banks' lunch in certain product categories, most notably credit cards. Some are parlaying knowledge garnered through marketing a single product extremely successfully to other segments of the banking business. Banks try to compete with these players through relationship-building, but only a fulfill that promise effectively.
• The loss of most valuable customers. Banks continue to moan while Merrill Lynch and others capture their most valuable customers. While many of bankers plan and execute tactics to maintain relationships, they often keep the customers but not their wealth - the transaction business but not the most lucrative asset accumulation and management part and the credit component.
• The inability to attract young future customers. Many bankers worry about aging customer bases that are relegated to the CD world. Banks offer basic transaction services to younger clients but fail to expand business with them effectively. Many are lost to more adaptable providers.

Does all this inevitably add up to doom and gloom for the banking business? No. But it shows that banks must change the customer experience and value proposition. Unremitting focus on transaction efficiency as the main competitive advantage will almost guarantee that banks become transaction mortuaries, keeping the least-profitable part of the customer business and leaving the relationship-building to others.But breakthrough performers can turn the tide - by changing their image from transaction factory to trusted, broad-based financial adviser/supermarket. It is a challenging transformation, and a promising one.
Some banks are well on their way, and the winners will capture major benefits.

Ms. Bird, an executive vice president of Wells Fargo Bank, is based in Sacramento, Calif. Mr. Keeley is a strategic planner at Doblin Group, a Chicago consulting firm.