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Are You Winning?

Lately I’ve seen a lot of posts bemoaning the lack of innovation in the bank and credit union industries.  I do agree that companies such as industry outsiders Apple, Google, Square and BankSimple seem to be leading the industry disruptions.  But there are companies, such as Ally, TD Bank and USAA, that are also innovation driven.

One thing that I’ve noticed about these three companies is, they all seem to be customer-centric.  While every bank and credit union talks about their great service, these three seem to back it up.  USAA and TD Bank especially seem to offer products that allow their customers to bank the way that is most comfortable to them.  Unlike their peers, these institutions don’t follow the crowd.  They lead the crowd and let everyone else pay catch up.

This follow the crowd mentality has always been something that has bothered me.  Especially when you realize that following everyone else is what brought us to this crisis in our industry.  But I think there are other issues at play here.  In the past, bankers were the ones that controlled the flow of money.  Without much work on their part, bankers could just wait for customers to come to them with requests.  Now, with disruptive technology, one does not have to rely on a bank to get access to capital.

I believe this “wait and see” approach is one reason there has been a lack of innovation in banking.  Here’s one example: everyone tends to agree that mobile banking will play an integral part in the future of banking.  But I’ve seen comments on blogs where executives were reluctant to offer mobile alerts because it will reduce NSF fees, so they were just holding off on mobile altogether.  Not very customer-centric is it?  Never mind that offering mobile alerts could drive up customer acquisitions and increase income.  They’re more focused on the “potential” loss of fee income.  But as competitors begin to offer mobile, they reluctantly look to add the service.

Now, the biggest reason for the lack of innovation?  That would be fear.  Particularly, the fear of losing entrenched power.  If you think about it, most bank and credit union executives view IT as a cost center.  Therefore, they don’t look at it as a competitive advantage.  Also, they don’t understand it, and really don’t want to understand it either.

Over the last few years, there have been articles about the purpose of physical branches changing.  Branch traffic has been steadily declining for years.  This means that the opportunities for cross-selling have gone down also.  But online usage is trending up.  Which means online account openings, bill pay, mobile, and other online services are also trending up.  Also, customer acquisitions are cheaper online.

So in order to survive, the people that currently have the power have to deal with those IT people.  Which means they’d have to give up power.  But more importantly, if the branch isn’t as important and online is, what will their future purpose be?  They don’t know that much about online banking, but they know a whole lot about branch banking.  Better to keep their head in ground and ignore the change that is happening around them.  Just maintain the status quo at all costs.

We all know that people that ignore change and try to stay the same are just spectators.  Spectators aren’t in the game.  If you’re not in the game, that means you can’t possibly be winning.  Which means you’re losing.

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The Death of Free Checking

January 2, 2011 Leave a comment

All I wanted for Christmas was for someone to sit down with me and explain how a checking account was profitable.  Well, I didn’t get that present, and I still don’t know.  Now, I don’t really believe that free checking accounts will go away.  But I do believe that banks and credit unions that continue to focus on checking accounts may go the way of the dodo.

Changes in banking laws have done nothing but hurt the profitably of checking accounts.  In the past, fee income and interchange fees drove the focus on this account type. Now, overdraft fees have been drastically reduced.  It also looks like a law will be passed that will limit the amount that can be earned from interchange.  But as they say, trouble comes in threes.  Number three will be mobile payments.

This summer, iPhone 5 will hit the market, and along with it, NFC capable phones.  Although the Android based Nexus S is NFC capable, it’s not currently being used with mobile payments.  Apple will change that.  Even with “antennagate”, Apple has sold close to 6 million iPhone 4s.  A newer phone that fixes the old problems and adds NFC will be big.  The kicker would be offering the iPhone on Verizon’s LTE network.

With all of this pushing down the profitably of checking accounts, why would banks and credit unions continue to focus on them?  I think the industry has it wrong.  Checking accounts are the razors, savings accounts are the blades.  If you look at the history of the industry, savings and loans are how we made money.  Fee income from checking accounts was just the gravy and caused the industry to get lazy.

Once it got to the point that fee income became the focus, the beginning of the end started.  The interesting thing is, customers seem to be most interested in savings and convenience.  According to one poll*, customers that signed up for Bank of America’s “Keep The Change” and Wachovia’s (Wells Fargo) “Way 2 Save” programs did so to build their savings accounts.  Of course, the banks most likely did it to build their interchange fee income, but they also built up their deposit base.

I am definitely in the savings and customer convenience camp.  Apparently, I’m not the only one.  At the end of the day, banking is a service industry.  Focusing on customer needs is what built the industry.  Now, it’s what will save it.

*The people surveyed consisted of me (BofA customer) and a cousin (Wells customer).  See, you can find a statistic for anything

Photo from Ziggy on GoComics.com

It’s Service, Not Sales

The other day, a co-worker and I were discussing our opinions on the shifting focus onto sales in the banking industry. We both felt that the industry seems to care less and less about servicing the customer. My co-worker, who is a trainer for branch staff, gave me an example from one of her training sessions.

A trainee was lamenting about how annuities sucked. She said they were very difficult to sell because very few customers had that much in an account. The chances of a customer having $10,000 available to open one were miniscule.

My trainer friend asked her what was the first car she got at 16. The trainee looked confused, but answered with something like a late model Honda Civic. My friend then said, asking your typical customer to open an annuity is like you being able to go out and buy a BMW 700 series at age 16.

She went on to say that you can’t expect a DDA customer to pull $10,000 out of thin air. You have to take the time to build a financial relationship with your customers. You always hear that you have to sell sticky products to your customers. Typically, this is direct deposit, online banking, bill pay and e-statements.

After listening to my friend, I no longer feel that these are sticky products. If all you have is a DDA relationship, the customer could easily go across the street to a competitor. Believe me; it’s really not that hard to change your direct deposit and online banking information. If your new bank uses the same bill payer as your current bank, they may even be able to transfer your information over.

My friend told me that her old branch is reaping the rewards from her work years ago. When she sat down with a new customer, she opened the checking account and setup the other “sticky” services. Also, she would talk to them about opening a savings account, even if they didn’t have the minimum amount.

She explained that yes, they would get a $4 monthly fee, but she’d set it up so that each pay period, $25-$100 (whatever the customer was comfortable with) would be deposited into their account. This way, after a couple of months, they would have the minimum balance and begin building an emergency fund.

After 6 months to a year, she would sit down with them again and suggest moving some of the money to a CD so that they could get a better rate. They would still have some money for emergencies, but also be building more wealth. Within a couple of years, she’d refer them to our investment group. During all this, she’d be building a personal relationship with all her customers, plus getting more referrals as they told their friends.

After our conversation, it hit me that a savings account is the stickiest product that we have. It’s also the foundation for building a relationship with our customers. It all starts with servicing the customer and having their best financial interest in mind. As my friend said, it’s a lot easier to sell that $10,000 annuity when you service the customer and help them save that amount to being with.

Who’s Your Targeted Customer?

March 18, 2008 2 comments

Contactless cards, mobile banking, personal financial management software, FaceBook applications. All of these can be great for the financial services industry and a lot of people are trying to figure out the best way to leverage them. The question is, who are you providing these services for?

Have you actually sat down and had a group session discussing your plans for these new services? Or is it more like a 3 year old, wanting what big brother (competition) has? There seems to be a lot of “me-too-ism”, mostly because of fear. “If the big boys have it, we have to get it also in order to compete.”

Whether that is true is open for discussion, but if you do decide to follow the leader, do you have a plan? As an example, let’s take mobile banking. Most FIs fall into one of two categories: 1. Let’s be a first mover in the market or; 2. Let’s see what problems the first movers have and which channel (SMS, WAP, client app) wins out.

The biggest problem for adoption that I see is, no one is talking about how to market this new service. Yes, statistics show that 99% of people in the world have a mobile phone. Yes, even your grandmother knows how to “txt her bff”. Yes, Asia, Europe, and Africa have mobile payments, which is growing daily by leaps and bounds.

But for some reason, I don’t think your customers really care about the statistics. Better yet, do you have any idea what your customer wants? A couple of weeks ago, I overheard two couples talking about our bank and one was trying to access our online banking on his Blackberry. When I finished my meal, I went over and introduced myself. I told them that we were looking at mobile banking and explained a little of it to them. When I finished, I asked if it was something they would be interested in. Both couples said yes and the one with the Blackberry said we could sign him up ASAP.

We’ve also done a survey with our retail and commercial online banking customers. The responses matched up with what consultants, such as Javelin, have been saying. However, it all boils down to how we offer this service.

Honestly, I don’t think most of our older customers would be interested in mobile banking. Unfortunately, we also have an older customer base. But if we marketed mobile banking to the younger crowd, we could bring in brand new customers. Since we have a few local colleges in the area, I think that’s a good plan. This age group also “lives” on their cell phone and would most likely be open to “on-the-go” services.

We’re all trying to grow our customer base. But instead of buying new technology and just fitting it into your current customer base, think about how it can benefit you in other ways. Before you just add that new service all willy-nilly, you need to have a plan. As the saying goes, “Those that fail to plan…”

Do You Have Friends in IT?

August 20, 2007 Leave a comment

I am very fortunate in that everyone in my department gets along with each other. We’re also thought of as the “Can Do” department. Because of us, there are a lot of software applications that are being used by the bank’s employees to accomplish their daily tasks. It wasn’t always this way. A lot of it is because we’re so easy to get along with. We’re very approachable and we make it a point to give people exactly what they want and need.

It’s not unusual for other departments to approach us with ideas for custom applications that they need. I’m sure other FIs would be quite envious of the applications we’ve already developed here. The thing is, this wouldn’t even be possible if we weren’t on friendly terms with other departments. Personally, I’ve been given the name of “eGeorge” because of what I’ve done for others here. Everyone, including both back office and branch staff, pretty much knows me and seems to think highly of me. The same goes for others in my department.

The point of all this is, you need to get to know your IT people. Once we open up, we’re a lot of fun to be around. Most of us don’t fit that “geek” profile and we have a lot more in common than you may think. Plus, the better we all know each other, the better the work relationship can become. Believe me, I’m a lot more open to doing some development for someone that I like than someone I don’t.

Having a few friends that can help push your agenda along and get you the tools you need, can be very helpful. IT can either make your job easier or it can make it harder. I’m all for easy. Besides, more friends equal more people to beat up on in Wii Sports.

Categories: Relationships