Ready for the 'Mad Max' World of Digital Banking?
Welcome to the digitized world of banking an impersonal, commodity-type business where price is everything, service is automated and loyalty doesn't exist.
In this "Mad Max" post-apocalyptic world of apps and bots, community banks lay in ruin, fintechs come and go, and megabanks dot the vast desert wasteland.
Few banks survive the harsh environment. It's not compatible with their strengths, their interests or their mission.
Once, banks ruled the landscape, but they succumbed to the hordes from the West who worshipped everything digital. Every banking transaction, every customer interaction and loan decision, every piece of investment advice has been reduced to an algorithm. Branches were burned, lobbies pillaged, and employees replaced by automated chat lines. Speaking to an almost-live person requires pushing the appropriate language button on a Facetime app.
The industry's relentless pursuit of an all-digital world points to a bleak future for banks like the one I have just described. The only chance for avoiding the doomsday scenario is for financial institutions to recognize the implications of the all-digital environment, and then draw up a survival plan. Here are some of the indicators that suggest the dire situation ahead.
Consumers see little difference between banks. Nearly four-fifths of the population considers one bank as good as another and the situation is getting worse. In one year, the number of customers viewing their banking relationship as transactional versus relationship-based jumped from 71% to 79% according to a 2015 Accenture study of 4,000 consumers. If customers can't see a distinction, there's no loyalty. They show little hesitancy about switching banks. Most customers don't even check their current bank before purchasing a product from another institution. A majority of the people surveyed by Accenture said they went to other sources to purchase auto loans (70%), brokerage accounts (61%), retirement accounts (53%), financial advice (52%) and home mortgage loans (52%) according.
With no meaningful difference, consumers choose banks as they might any commodity; they base purchase decisions on convenience and price. When banking is conducted from the palm of your hand, every bank is convenient so the only determinant that matters is price.
In a race to the bottom, everyone loses. Profits plummet. High-expense institutions are squeezed out of the market. National banks will concede retail customers to fintechs with no legacy costs. Market leaders only win until the next slicker, lower-priced alternative emerges.
Banks have no one to blame but themselves. Much like the nearsighted bull charging full tilt at the bullfighter's red cape, banks are rushing to bring consumers the conveniences of mobile banking without preparing for the consequences. Neither bull nor bank sees the potential life-ending threat hidden behind the red flag.
Community bankers must construct a survival strategy.
The solution is as old as soap operas. Detergent manufacturers were engaged in a similar race to the bottom when they came up with the concept of branding. Procter & Gamble and other manufacturers created distinctions between products where no meaningful differences existed. They developed positioning lines like "stronger than dirt" and "adds brightness to whites" to create niches that appealed to various market segments. Cartoon characters and celebrities such as Ronald Reagan helped products stand out and build loyal followings.
Banks aren't commodities, but financial institutions have done such a good job of marketing products and technology, and such a poor job of marketing themselves, that customers believe all banks are basically the same. Few banks have distinct brands. It's near impossible to build a distinct brand around technology because replication is easy and competitors can catch up quickly.
The key to bank branding is employees. Once you've made sure employees treat customers well, show them in action resolving customer issues, helping business clients, and working in the community. Customer service is still the most important factor when selecting a bank, cited by 42% of consumers; location comes in second (24.3%), according to a recent study by NGDATA. Superior service retains customers and inflates profit margins. Other branding approaches could be based around specific product or audience niches.
Reducing the financial industry to digits and algorithms maybe a good approach for fintechs, but it makes no sense for banks interested in profits and long-term viability. Put a survival plan in place before it's too late.
Kevin Tynan is senior vice president of marketing at Liberty Bank in Chicago.