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Does Your Bank Have an Unfair Advantage?

In a crowded marketplace, why would a consumer select your bank or credit union as opposed to your competitor? What makes your organization stand out from the rest? Is it enough to make a difference?

Today’s account holders can conduct banking anywhere they want — and that changes everything. They can open a checking account with Capital One 360, a savings account with Ally Bank, an investment account with Wealthfront, and a credit card with Chase. They can pay their bills on Mint.com, get a loan from Lending Club and make payments with Venmo.

It’s true that financial institutions still play a role in most of these instances. But location matters less and less. Soon enough, consumers in the United States will start wondering what’s the point of having more than 14,000 financial institutions across the nation. Having that many institutions may have made sense in an era when location was supremely important. But now? In the digital age, many of these institutions are bound to become less relevant. As Bradley Leimer from Santander puts it, “there will be blood.”

What’s the best way to survive?

It all starts with answering a basic question … Now that consumers can bank anywhere, why would they choose you?

As I talk to banks and credit unions, I find that many of them respond to the question by saying that consumers choose them because of their better customer service. They say things like, “We know our account holders by name!”

And yet, that’s hardly something to boast about. When I was in college, I worked as a teller at a community bank, and I read each customer’s name off of the computer screen the same way the tellers at Wells Fargo did. Knowing your customer’s name isn’t a differentiator. Every financial institution does this. If you think you’re going to win the future of banking by knowing people’s names, you’re in trouble.

Besides, since everyone claims they have better customer service, it’s not much of a differentiator … especially for a consumer who has never used you as their financial institution. It doesn’t help you to stand out from the crowd.

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What Is Your Unfair Advantage?

If you find that you keep answering the question above with some vague notion of having better customer service, the best way forward is to dig deeper. To do this you might ask, “What is our unfair advantage?” It’s a question that Chris Sacca, an investor in technology, urges companies to focus on relentlessly when they’re getting started.

So, what is your unfair advantage?

Maybe you specialize in a certain kind of car loan. Maybe you specialize in a certain class of investments. Or perhaps you work best with a certain kind of business loan. Don’t worry about appealing to everyone. Just be the best at that one thing. And don’t make your one thing customer service unless you have a very clear and specific way that you differ from your competitors.

You might look at Umpqua Bank to see how a dramatic shift in culture has brought them terrific gains in revenue. Or you might look at how BECU is investing in digital products that set themselves apart from other players in the market.

As you work to find an answer, excuses might come to mind. The biggest banks have more in assets. The neo-banks spend less on overhead. But those excuses are missing the point.

If you’re not large enough to do all things, don’t. If you have no choice but to pay for overhead, embrace it in a way that meets the needs of consumers in the 21st century. Just pick one profitable thing that your financial institution will be known for.

You have characteristics that no other institution has. It’s a matter of figuring out what those characteristics are and then developing those characteristics into full-fledged differentiators.

Focus on the User Experience

The place to start is by looking objectively at your user experience. Do some undercover work and check out the experience your competitors offer. Go through their account opening process. Use their digital products. Then be as impartial as possible, and answer this question: Do you provide an experience that sets you apart?

It’s also crucial to understand the state of the industry as a whole so you know what approaches will generate the best long-term profits. In order to understand the current state of how account holders view their financial services experience, Money Summit surveyed 501 random US consumers and found that:

  • 71% of consumers would prefer a simple and easy digital experience over friendly and helpful staff
  • 45% of consumers are frustrated with their digital banking experience on at least a monthly basis
  • 34% of consumers have opened an account with a new financial institution because of a better digital experience
  • 33% of consumers have completely stopped using a mobile banking app because of a poor experience

Based on these numbers, you can see that a strong digital banking experience brings enormous gains. Again, one third of consumers said they’ve opened an account with a new financial institution because of a better digital experience. It follows that if you offer a digital experience that sets you apart (i.e., if you make your digital experience your particular ‘unfair advantage’), you increase your chances of winning these account holders.

Some financial institutions are starting to realize that they can gain the upperhand in this area by partnering with third-party providers who specialize in user experience. To this end, Deutsche Bank regularly consults with startup companies and Capital One acquired LevelMoney and Adaptive Path.

Jesse James Garrett, the co-founder and Chief Creative Officer of Adaptive Path, says that “this is exactly the kind of problem Adaptive Path was created to solve: helping a company with the resources, but more importantly the will, to reimagine its strategies, processes, and design solutions to create better experiences for millions of people.” Leveraging expertise and products from a third-party provider like this is the perfect way to amplify your unfair advantage.

Make Sure Account Holders Know Why You’re Irreplaceable

Whatever your unfair advantage is, make sure that every employee and every account holder knows about it. When a consumer opens a new account with you, don’t use the time cross-selling them your full list of products just to squeeze more revenue from them. Everyone does that.

You’ll need to do things differently. When someone opens an account with you, spell out exactly how your institution is irreplaceable. Spell out your intrinsic value. Spell out your unfair advantage.

If you do that (and keep doing that!), your account holders will see that even while they can choose to bank anywhere, they can’t afford to not bank with you. And that’s how — whether you’re a bank with $2 trillion in assets or a credit union with $2 million in assets — you’ll stay in business.

For more on the importance of user experience, check out the white paper ‘Design an Experience that Empowers Account Holders‘ by MX.


jonphoto_100Jon Ogden is the director of content at MX, a fintech company that works with digital banking providers to empower account holders at banks and credit unions. He writes at Money Summit and MX.com. Jon can also be followed on Twitter.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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Comments

  1. Great article! But I doubt the execs of these banks will take this to heart.

    Maybe I’m just pissed off about the teller mystery shop I failed yesterday even though I’m not a teller and shouldn’t be behind the window (expect a rage-filled post on my blog venting about that soon), but I see what most banks consider to give them the edge and I’m not impressed. It’s almost scary.

    Exactly as you said NOT to do, the banks I’ve worked for, including my current employer, has made customer service its defining attribute. No, not customer service. Hospitality. The branch “experience”, as if depositing your check is some sort of spiritual awakening. Tellers are pushed above all else to use warm welcomes, fine farewells, introduce themselves, use the customers name 3 or 4 times lest they forget, have meaningful conversations, thank them for their business, sniff their hair, invite them back to the branch, and about 45 minutes worth of other nonsense that don’t improve actual customer service or do anything to grow the business. While it’s nice to hear your name used, that’s not what customers are looking for. I’ve read the failing shops, including my own, and the customers STILL gave glowing reviews! Same for the survey calls. This shows me that the banks aren’t even paying attention to the very feedback they pay companies to go out and collect.

    I’m not saying that tellers SHOULDN’T be using their customers’ names. But if you said (and I agree) that touting “better customer service” is the laziest, bare minimum, and just plain wrong way to differentiate yourself from other banks, then I’d say most banks aren’t even doing THAT. They conflate customer service with hospitality, which in banking is simply the ILLUSION of customer service. I can think of dozens of ways to improve actual service, from staffing levels to streamlining procedures to technology maintenance (functioning computers; a big ally in providing customer service) to the complete revision of certain policies and products. The banks will do absolutely none of these things.

    One more thing to vent on–further showcasing my lack of confidence in the banks’ ability to differentiate themselves from their peers when they can’t even handle basic functions–I have NEVER, in all my years in banking and in all the banks I’ve worked in, seen the tellers given training on how to sell, explain to a customer why they’re funds are still unavailable, detect counterfeit checks while dealing with a belligerent customer, etc. REAL training, not online tests that are clicked through between customers. No training and not even talking about them at the meetings and whatnot. Nope, instead it’s “Use their name and figure everything else out on your own”. Touting an unfair advantage? What would that be? “Come to our bank. We actually TRAIN our staff!”. And then when something goes wrong and goals aren’t met, it’s our fault for not doing the job we weren’t trained for.

    Sorry to rant. Sorta my thing (my entire blog is based on this). But it makes our jobs EXTREMELY frustrating and it makes me lack confidence in the banks’ ability (or willingness) to take an honest look at themselves and do a transformation that gives them that defining attribute, that unfair advantage. All they know how to do is tout their “customer service” which really isn’t even customer service. Like you said, the “unfair advantage” seems to be knowing all their customers’ names and I don’t see this mindset going away anytime soon.

    Sincerely,
    ARB–Angry Retail Banker

  2. I love how these fee free checking accounts aren’t really fee free and you don’t find out until things start bouncing. They replace the bounced check fees and return 3 month’s worth of 10$ month fees that were “accidentally charged” but they can’t go back any farther than 3 months. If I was the IRS they sure could. Than when you think every thing is ok. Before your out the door (oops) everything they did to reverse their mistakes re=reverses. Than you get a nasty call from someone who has no idea what’s going on and back to the bank I go. As if my time isn’t valuable at all. I have a prepaid card because I’m so Sick of the game. Risk versus recovery is all big money thinks about. Sick of holding too!

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