Traditional banks and credit unions spend way too much time trying to tackle so many problems that they can’t become truly great at any one thing. By contrast, take one of the most successful disruptors, PayPal. PayPal began as a company that just moved money between two accounts securely. Years later, at around a $106 billion market cap, PayPal continues doing the same thing — moving money between two accounts.
It might be doing a little more than that at this point, but PayPal became exceptional at moving money between two accounts and built a great business and brand around that.
Key Question: What does your financial institution do exceptionally well?
Granted, most financial institutions aren’t trying to be PayPal. But financial institutions that lack a niche — an area of focus that they’re really good at — will crumble.
Just imagine the world five years from now. Amazon — along with many other large brands — has already rolled out its financial services arm. In five years, 60-80 million Americans will be Amazon Prime members. Let’s say 10% adopt an Amazon Checking account. That’s on top of those that are already flocking to Amazon’s amazing credit card.
Who are those millions of Americans? And which financial institutions will they be leaving as they adopt an Amazon checking account?
“We must risk offending the few in order to create a better foundation for our future.”
While Amazon will certainly attract some traditionally under-banked consumers, they will also steal many of traditional institutions’ best consumers away. The net cumulative number of checking accounts that might migrate over to big brands like Amazon, Apple, Square, and other up-and-coming fintechs (e.g., SoFi, Credit Karma) could be staggering. The fintech incursions will send a shudder throughout the industry.
Those financial institutions that become very good at a few things now will be prepared to weather the storm — and hopefully thrive while it rages. The financial institutions that continue to try to be everything to everyone will struggle to differentiate as Amazon, and others, continue their financial services expansion.
For strategy to change, banks and credit unions must do something hard: We must risk offending the few in order to create a better foundation for our future.
- ‘Amazon Bank’ Is Already Here, Without a Charter or Regulatory Approval
- How To Acquire More Checking Accounts In An Amazon World
7 Ways to Survive the GAFA Attack
To fight against the threats presented by the likes of Google, Amazon, Facebook and Apple (GAFA), here are some ways to make your financial institution great at a few things, rather than becoming an also-ran generalist:
1. Develop a prioritization framework. Bank and credit union executives often allow vendors and consultants to draw up their roadmap. They are easily persuaded to want every bright new shiny object they see. You’ve been there — the temptation is push your team to implement it tomorrow. Instead, when a new concept presents opportunity for you, prioritize it alongside the other initiatives you’re already working on.
2. Make it popular to say “no.” Saying “no” is not mean. Stepping up and disagreeing is often a learning experience for those involved. A classic example of this happened recently when someone said that our credit union’s collections software needed a complete overhaul. I asked, “What’s our default/collection rate?” The response: “We have fewer defaults than almost anyone in the industry.” But why would we overhaul our collections software if we have almost no defaults?
3. Embrace being high touch with consumers. Amazon will never be able to compete with your financial institution when it comes to personal touch. If you have a presence in your community, use it. People love having a human to talk to and we can’t shy away from that. Yes, digital is critical to our future, but our humanity gives us the edge. For example, Stanford FCU’s home-buying seminars fill up every time we offer them (currently once a month). My question was, “Why don’t we try doing home buying seminars twice a month?
4. Try 10x improvement experiments. We have a goal of finding and executing on between two and four improvement opportunities in the coming year, and We expect about half of our experiments to result in a true 10x improvement. We mine our own data, spending a significant amount of time looking for trends and opportunities based off of what we know our consumers are doing today. After all, we know every transaction going in and out of their account. That data alone is incredibly rich. The insights we derive from this data help influence where we could see the biggest gains.
5. Spend time with customers. Soon after my arrival at Stanford FCU there were some concerns about the experience our members were having with our online account-opening software. Rather than rely on the opinions of our own staff, we called about 100 members who had opened accounts in the past six months to probe their experiences. One member asked about our member referral program. They had recently referred a friend and wanted to know when they would receive their $25. The member had this beautiful accent, and we quickly realized that international communities are very tight. We did some research and quickly found some big opportunities for us to better engage the international community, specifically with an emphasis on referrals. This situation illustrates how simple questions and basic conversations can shape how you identifies opportunities and solve problems throughout your organization.
6. Invest in the right talent. People across the banking industry are talking about “digital transformation.” However, they’re often looking at exact same people that have been around forever — those with little- or no real digital experience — to transform their products and services into digital offerings. If financial institutions are going to survive, they’re going to need different talent. If you find the right person they may be able to transform several internal resources, but I believe in the case of the digital transformation we must also deeply consider a transformation of talent.
7. If you have a great brand, double down on it. At Stanford FCU we’re fortunate to have a great brand. Our connection with Stanford University helps drive new memberships and also sets a high expectation for those that work with us. But what do you do if you don’t have a great brand? First, be aware of that. Too many financial institutions believe they have a great brand when they really don’t. If you’re aware that you don’t have a great brand, then you’ll have to find other ways to specialize and provide value.
Bottom Line: If banks and credit unions play their cards right, they can position themselves to take on the big brands as they expand their offerings into financial services — not across the board, but in their chosen specialties. If financial institutions take these necessary steps, they can position themselves for tremendous growth, even while the big brands and fintechs continue to ramp up. If the strategy remains butting heads in every direction.