I bank, you bank, we bank, they bank. Everyone banks – well not everyone actually.
These days, we tend to think of banking as something we do rather than of banks as somewhere we go to do business. And in many cases our “banking” does not involve a bank anymore. Consumers have plenty of non-bank alternatives for credit, lending, payments and even saving. There are so many non-bank alternatives, in fact, that the Consumer Financial Protection Bureau has added “non-bank” entities to their watch list.
Much like telco where many people no longer use a wireline phone, many consumers have voluntarily “debanked” giving up their checking and savings accounts in favor of prepaid debit cards. With interest rates on savings accounts virtually non-existent, fee avoidance and convenient access to their funds is of more value than traditional bank services to many consumers. For more on the “debanked”, follow Ron Shevlin of Aite Group here in Boston.
Someone once tried to convince me that “it isn’t cussing unless it’s a verb” and in her terminology – turning banking into a verb would be a very bad thing – as in “Bank You!” So how did Bank become a dirty word? I believe that it was happening even before the financial melt-down and that there are many factors:
- As Banks transitioned from privately held or even mutual institutions to publicly traded ones, the expectations for continuous growth and profitability overran all other values.
- Outrageous growth and profitability expectations led to cannibalization of the industry, fast and furious acquisitions and poorly executed integration of acquired entities. This in turn affected customer service and devalued brands.
- Often, profitability growth was achieved through high fees and interest charges (“high” meaning inappropriate to the size of a transaction such as a $35 fee for a late payment of $20 or credit card interest rates in excess of 25%.)
- When regulators cracked down on less-than-consumer-friendly banking practices, many revenue sources were lost or reduced. The immediate response was not to find new services to offer, it was primarily to find new ways to levy charges on the services they already offer like charging fees for use of debit cards, or directing the fees to the merchants instead of consumers (who then pass them on to consumers.)
- Banks failed to recognize the extent to which social media would expose these practices and allow consumers to compare and openly discuss pricing, service and value.
- While, many banks embraced technology as a potential way to cut costs, few understood the technical implementation requirements necessary to increase customer value, or the potential of non-traditional banking services to do so.
- Banks also failed to recognize the growing array of non-bank services that were luring customers away from banks for some, or in some cases, all banking services.
- And, of course, the whole “too big to fail” and TARP fallout dug a hole in the public trust that will take a lot of time and a big shovel to fill. Edelman’s 2012 Trust Barometer (slide 11) shows that trust in US banks fell from 69% in 2008 to a low of 24% in 2011.
So, how can banking make itself a noun again? Forget the buzzwords of “build relationships” and “create warm fuzzy customer experiences” and just try to be a better bank. If banks try to be better at delivering services instead of just better at collecting fees, the relationships and experience will follow. Here are a few thoughts as we start out 2013:
- Make branches relevant again. Bancography estimates that branch traffic has decreased by 25% over the past five years. Branches need to change focus from delivering transactions to delivering support and advice.
- Make “virtual branches” out of bank websites. Approachable, useful and transpaprent, websites should proactively help customers find the lowest cost or highest return services from the bank; alert customers when they’re in the wrong “banking bundle.” And don’t forget to integrate local, mobile and social channels into the “virtual branch” to keep customers connected and informed.
- Design checking and deposit products that customers are willing to pay for rather than “free” products that destroy trust through hidden fees. Product design and simplification will be a key differentiator in the year ahead.
To paraphrase a previous post: if Banks want to do better, they have to be willing to be better.