I have a good friend who is a senior executive at one of the largest banks in the United States. A few years ago, I asked him, in a heavily regulated industry, where each bank offers basically the same services at the same rates, how they differentiated the brand from the other top 10 institutions. “We have over $2 trillion in assets under management, over 5,000 branches and 15,000 ATMs nationwide,” was his quick response. Impressive statistics by any measure. His comments are consistent with similar conversations I’ve had with friends in the banking sector. They reflect that, in the banking and financial services industry, the size of the institution has historically been the core customer value proposition. And it stands to reason.
As the banking system grew, consumers wanted assurances that they were trusting their money to institutions too big to fail. Oh, well. It was nice while it lasted. The world has changed dramatically and it’s time for banks to rethink their value proposition. It’s time for a facelift in the banking industry.
Your Brand Is Your Customer’s Experience
About 10 years ago, the banking industry discovered the Internet. Until that point, the customer experience was made up of the ATM, a long hold time on the phone, or waiting in line at a branch. With great fanfare, banks stepped into online banking.
The problem was that the online tools were virtually unusable. The new online tools also created confusion as to which services you could do online and which ones you had to go into a branch to handle. As it took a while, the online tools improved, allowing users to pay bills as well as do other basic banking services.
What the banking industry should have learned from this experience was that customers were changing. They now wanted a better experience, one that gave them more control over when and how they did their banking. Consumers shifted the value proposition from the total assets under management and the number of branches to the customer experience. The challenge is that many (most?) banks are still stuck in the past.
Technology Is Your Brand Differentiator Today
In 1998, two companies merged to create PayPal, the first and still the largest online payments company. Spotting the banking industry with over 100 years of experience, PayPal grew into a brand that today has over 30 million merchants and 400 million active users doing over 20 billion payments a year. Certainly, in 1998 at its founding, PayPal didn’t focus its customer value proposition on the size of the institution. Instead, it focused on the user experience for both merchants and their customers.
In 2011, two of the top 10 banks announced, with great fanfare, that they were joining forces to step into the online payment business with a joint venture called ClearXChange. Frankly, I’m not sure what “ClearXChange” means. Perhaps one of my banking friends can provide some insights into what sounds like an inside baseball banking term! Perhaps it’s no surprise that ClearXChange closed down in July of 2022.
PayPal understood that by building a strong user experience, it would build a strong and valuable business. Ironically, the fact that it didn’t have massive assets under management, or a sprawl of branches to manage, was an advantage. Today, brands compete and differentiate based on the customer experience. The innovative use of technology has become your brand differentiator.
All Customers Are Preferred
In 2009, I received a “Concierge Key” card from a major airline. I had recently gone over 3 million miles with the airline and assumed that’s why I received the card. The instructions with the card were scant, other than having a unique 800 number to call when needing assistance. Over time, I found that there were some unique services, such as early boarding, access to lounges, and expedited travel between gates, that came with the card.
I still couldn’t figure out what the criteria for the card was, though, until a conversation I had with an airline representative who was helping me make a very tight connection on an international flight. “Oh, it’s not mileage, customers who receive the Concierge Card are our most profitable customers,” the rep said.
The banking industry has developed a similar approach with “Private Client Services” or “Preferred Customer Services.” The problem is the value is low and the services are similarly hard to understand.
A few years ago, on one of my every-five-year visits to a bank, a manager hustled over and wanted to welcome me to its “Private Client Services.” I sat down and politely listened as they walked me through a really pretty brochure. In the end, it was clear this offer was simply based on having a certain level of assets in the bank and not based on offering much in the way of clear value or differentiated services.
Look, I get it, not all customers are created equal and every business wants to retain its best customers. The issue is how. The Internet has democratized many markets. I don’t know and don’t care how big of a customer of PayPal or of Amazon I am. I want a robust, continually improving customer experience.
A Path Forward for Banking
The combination of accelerating demographic changes and the inexorable march of technology is creating a very challenging time for the banking industry. Additionally, it’s about to get worse. I’ll save blockchain, cryptocurrency, and FinTech for another post. But as new currencies and new ways of trading become mainstream, they will put further pressure on the legacy banking industry.
The path forward to dazzling customers is through the customer experience banks provide. It is the new “assets under management.” Having smart, well-heeled bankers tell customers how much they appreciate their business is nice. However, it’s not a differentiator today and will be even less so tomorrow.
The role of technology in identifying, developing, and refining the customer experience in financial services is essential today. So much so that I predict that the next generation of banking CEOs will come with deep technology experience and understanding. Banks need to start with the customer experience at the center of their business today and understand how this experience is built on technology, not the number of branches you have. While regulation has historically protected and, at times, saved the banking industry, the incursion from big tech is accelerating. Customer experience is already a core competency.
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