A few weeks ago, Sen. Elizabeth Warren offered the public a window into the hearts and minds of legislators and bank regulators. If banks want access to government-provided deposit insurance, they should be limited to boring banking, she said.
There's just one problem: today's wired customers are not interested in boring banking. They want sizzle, differentiation, personality, relevancy, engagement, and even dare I say it fun.
To be clear, Sen. Warren's remarks about boring banks were made in the context of discussing the need to protect government-insured deposits from banks' risky trading activities. I certainly do not blame her for her concerns. But I do think her comment is indicative of deeper problems with lawmakers' and regulators' attitudes toward the financial industry. The mission of regulators is to make sure that banks are following the rules and are risk-averse, which means discouraging them from going outside the norms of traditional banking. By contrast, it is an axiom of finance that it is necessary to take on more risk in order to increase returns. This means that regulation steers banks away from taking risks that would help them remain competitive and avoid being boring.
All banks must manage risk. But this needn't be their sole focus any more than a restaurateur's sole purpose should be to prevent contaminants from getting into food. Of course this is important. But the restaurant won't survive if it neglects to create dishes, service and décor that keep people coming back for more.
Similarly, banks need to shake off their boring reputations and give customers a reason to engage. For example, many banks believe that millennials have no interest in going into branches. But they might, if more banks offered welcoming and educational experiences. My own son prefers talking to people to get direction on important issues, so branches would seem to be a naturally good fit. But when he approached a bank during college, he emerged feeling rejected and brushed aside, as if he was just a kid with no money. He tried to like banks but found that banks didn't want his attention.
Community banks need innovation that goes beyond technology. They must think about new ways to engage customers meaningfully and make sure they walk away having learned something of value. The same goes for senior citizens, middle-aged families, single parents and all other residents within banks' communities. A bank podcast that offers tips on saving or how to navigate the fine print on a loan document could be a big hit with millennials. An in-branch seminar on when to start drawing Social Security benefits could fulfill the same purpose with older clients.
It makes sense for Sen. Warren to be worried about derivatives and other risky activities jeopardizing retail customers' funds. But she should be just as worried about the slow atrophy of traditional retail banking. After all, app developers are already pulling away the retail deposits that fund American banks. And they're not doing it by sticking to well-worn paths, but by being the least boring option around.