Small Banks Can't Be All Things to All People

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Many community banks pride themselves on knowing their customers. In a traditional banking environment, that means bankers can recognize the customers entering the front door of a branch, offer a handshake, and greet them by their first name.

But what does it mean to know your customer as banking moves to the digital realm? If bankers can answer that question, then they've taken the first important step toward becoming an innovative digital company.

Knowing your customers comes down to knowing what people need from their banks and how banks can fulfill those needs. Back when customers came into branches to do their banking, these questions could be answered via face-to-face conversations. Now banks often need to find this information through other means: customer surveys, customer experience mapping, ethnographic studies, and analyzing personal, transactional, and public data.

All of these tools should be used to understand what bank customers need, how they go about their banking, and how to make their regular banking activities more seamless and convenient.

That knowledge can help organizations solve their customers' real-world problems. Without it, new initiatives run the risk of wasting resources on innovation for innovation's sake, creating solutions that have no impact on customers' lives.

To start building that knowledge, a bank needs to start with this question: what is my bank's identity? In other words, whom does my bank aim to serve? Some banks might celebrate the diversity of different customer segments that they serve. That isn't a formula for long-term success, however. A bank model that aims to serve everyone's needs will prove unsustainable for those without massive budgets to spend on digital innovation. Banks' resources will be better spent on serving one or two customer segments better than the competition can.

This focused strategy will give smaller institutions the invaluable currency of brand recognition and loyalty within its chosen customer groups. It will also make the bank more customer-centric by default. It's easier to build a banking experience around the customer when that customer is narrowly defined. It's hard to do so when the customer is simply "anyone."

Once the bank has zeroed in on the customer segments that it will serve, it needs to have a plan about how it will serve their needs better than the competition. Knowing what your customers need begins with understanding their lifestyles and financial goals:

  • What are they trying to accomplish when they log in?
  • How are their finances being impacted by trends in their environment?
  • How do they perform their banking tasks?
  • What obstacles do they face in accomplishing those tasks? What tools do they use to perform them?
  • How do their other digital activities (like social media or online shopping) influence how they bank?

A bank that is targeting urban, upper middle-class professionals will have very different answers to these questions than one serving a small rural community where most residents make a living in agriculture. Both of these banks can thrive — they're just going to do it by offering different things.

The first should build a mobile-first banking experience for its on-the-go urban professionals. The second bank might find that its customers aren't so enthusiastic about mobile, but tthat they need fast access to credit for their farms or businesses that support the local rural community. Therefore the latter bank would need to focus on streamlining and automating its credit approval and loan servicing processes, finding alternative ways to determine credit-worthiness to grow its customer base, and improving its management of customer relationships so that the bank is top-of-mind when a customer needs credit.

For either of these banks, the number-one objective should be to know their customers' financial needs and habits inside out. They should have a granular understanding of how the customers they serve go about their everyday lives, how they fit their banking activities into them, and what pain points they experience with those activities.

Starting an innovation project with that knowledge will give banks a competitive advantage. When a bank knows from the outset that its initiatives are fulfilling customers' needs, it will avoid building solutions that risk lukewarm adoption.

The first step in developing any new product or service is finding a problem to fix. Having those problems already mapped out will give banks a head start on inventions that have real-world applications, furthering a cohesive long-term strategy for innovation.

Paul Schaus is president and chief executive of CCG Catalyst. Follow CCG Catalyst on Twitter and LinkedIn.

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