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highlights

 

Remaking the Branch

There are few topics that so engage the minds of retail bankers these days as the future of the branch. The continual migration of customer transactions from the branch to electronic channels can no longer be ignored, particularly in an era when profitability is under pressure and every expense must be scrutinized.



The Mobile Transformation

The mobile banking landscape has changed greatly in recent years as customers graduated from simply checking their account balances on the cell phone to actually making payments via the device. Increasingly, mobile banking is transmuting into mobile payments.



Banks Are Not All the Same
Bankers that fall into the 'we’re-all-the-same' trap are setting themselves up for failure, since it is possible for financial institutions to differentiate themselves. by CHARLES WENDEL
Jan 3, 2014  |  2 Comments

I heard a comment at a recent conference that I have heard too many times before: “We banks are all alike. We only compete on price.” If that attitude permeates your company or any of your lines-of-business, you are likely positioning yourself with an undifferentiated marketing approach that can only result in poor returns. We also hear from another set of bankers who claim they have created differentiated approaches when, in fact, they are deluding themselves. They too will generate subpar returns in what has become a slow growth and hypercompetitive market.

The self-defeating comment above resonated because of a Wall Street Journal column titled “Lenders Looking All Too Similar,” which quotes a customer as saying, “In the end, banks are really all the same.” Really? From the perspective of someone who has looked at hundreds of banks from the inside, my response is No! Good banks are not the same and, most importantly, their customers know it.

The best banks often differentiate themselves less by the products and services they provide than how they sell those products and to whom they sell them. They avoid the lemming-like rush to the latest product or technology-based scheme and stick to their core business and core customers. We are in an era in which the opportunity to “invest” in technology literally is never-ending but the return, both economic and strategic, of doing so needs to be questioned.

Getting Rid of ‘Hobbies’

The WSJ article highlights one issue that has plagued the industry, namely, the tendency of banks to do too much rather than too little. Many banks avoid focus, one of a handful of factors that can distinguish them with their customers. As UBS’s chief finance officer reflected, “We were trying to be all things to all people in all regions.” The column also quotes Citigroup CEO Michael Corbat describing how his bank is dealing with this same tendency: “We have gotten rid of many things that today would be classified as hobbies.” Products and businesses need to be reevaluated in light of their returns and customer importance, among other factors.

How does a bank avoid being “like” other banks when there are about 7,000 banks in an increasingly regulated industry offering largely similar products? Examples of distinctive approaches exist with banks both large and small. Minneapolis-based U.S. Bancorp, for example, with over $350 billion in assets, has traveled a consistent and deliberately narrow path for decades. It operates no “hobbies” and a recent investor report showed it to be among the top five providers (and often among the top two or three) in the 20 businesses in which it operates. U.S. Bank has enjoyed stability both in top management and in terms of the businesses it has chosen to develop and, conversely, to avoid. It has always emphasized risk management and refused to stretch for growth, operating as a true relationship bank, rather than a bank that claims to be relationship-oriented.

Signature Bank, with $20 billion in assets and based in New York, provides another example of a bank that is not competing solely on price but rather on the expertise of its relationship management teams. The bank attracts experienced players who often have become frustrated with the bureaucracy of big banks. Signature’s bankers can establish their own franchise and develop an annuity-like income based upon the revenues they generate. The bank’s culture and compensation encourages a proactive banker who, rather than selling a commodity product, works to provide solutions for clients, a very different emphasis.

Even banks that have gone through some hard times during the recent downturn can differentiate themselves. Stuart-based Seacoast National Bank of Florida, with about $2 billion in assets, recently terminated an OCC enforcement action. Despite this, the bank created a unit called “Accelerate” that focuses on small businesses and lower-end middle market companies. Each office can make substantial credit decisions; one additional senior signature allows for the approval of most loan requests. Speed, accessibility, and local knowledge serve to differentiate this effort, along with strong risk management. Other differentiated banks include Los Angeles-based City National Bank, First Republic Bank of San Francisco and South Bend, Ind.-based 1st Source Bank.

Outside of traditional banking, merchant advance (MA), person-to-person (P2P) and person-to-business (P2B) lenders offer the same cash flow lending product as banks but do so in a way that provides differentiation. They offer a service that banks could provide at least as well, given a bank’s access to account information and inherent customer relationship power. However, bank concerns over compliance and potential public relations issues keeps most away from these areas, giving up a huge earnings stream to nonbanks and private equity firms. For the MA firms, the nature of the customers they serve and their willingness to lend where the banks will not enables them to earn a pricing premium by providing real customer value.

Many banks, on the other hand, have permitted themselves to default to offering the same products to the same customer set as competitors. They have also narrowed the credit box in which they operate, resulting in more banks fighting over a smaller customer set. That is one reason an increasing number of banks are focusing on lending areas such as equipment finance and asset-based lending. While the basics of these products may be the same industry-wide, the deeper and more complex relationship these products support can distinguish bank providers with their customers.

Viewing yourself as being the same as your competitor is simply a loser’s strategy, one that conveys a mindset that is closed off to the creativity and focus on excellent execution that has allowed other banks to succeed. And unfortunately, the increasing role of compliance officers within organizations often seems to serve as an excuse for inaction and limited innovation across the bank.

Yes, many of the fundamental bank products are the same, but smartphones and autos are also products that often perform the same functions while maintaining a distinctive brand and attracting different customer sets. While few, if any, banks will ever achieve the brand power of Apple or Samsung, they must avoid competing as the low-priced player or viewing themselves as just another commodity product provider. Taking that path will surely relegate institutions to generating low returns and becoming increasingly irrelevant to their customers.

Mr. Wendel is president of New York City-based Financial Institutions Consulting, Inc. He can be reached at cwendel@ficinc.com.

 

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comments

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matt purvis
1/14/2014 12:09 AM

You make a strong case. Competing on price is a race to the bottom. At the same time, consumers are truly ready for more from their financial institutions. We call it Brand Animation(TM). Rather than treating your brand as an "art project"--nice design, graphics and high-minded tag line--what if we first took our brand promises seriously? Bringing a brand to life, demonstrating its meaning, has real power in an industry where many believe "we're all the same." Brand Animation is the strategic alternative to the race to the bottom.

neil stanley
1/6/2014 8:40 AM

Bravo Mr. Wendel! For more encouragement in this regard, think about what can be done with arguably the most commoditized bank offerings – time deposits. Time deposits comprise 20-40% of many bank balance sheets. By implementing processes, products, and sales tools that robustly consider the customer experience, the fundamental needs of the financial institution, and the motivations of the bank front line, we observe dramatic enhancement of profitability, employee professionalism and morale, and customer responses. If this can be done with the utilitarian time deposit, think what can be done across the spectrum of bank offerings!