Hotel chains such as Marriott International—with multiple brands under a corporate umbrella—can provide bank marketers for with the ultimate destination for fresh ideas.
Here’s why: Hotel chains often have a lock on maintaining customer satisfaction even as they reach out to new constituencies and change culture. Granted, a bank is often justifiably proud of its name, history and heritage. But established branding can limit employees and customers—especially in the face of nimble, upstart competitors.
As positive as a strong brand can be, weaknesses abide. A bank’s cautious attitude to new approaches invites customers to pigeon-hole them: good, say, in branch services but inappropriate for higher value needs such as private banking and investments. The stakes are higher still with millennials, regarded by some as an elusive and coveted group. Their expectations for wide-ranging options leave bank profitability in the balance.
But what if banks, like hotel groups, operate multiple brands under a central unifying theme? These brands could cater to targeted product needs or specific segments—and mount a strong response to private equity-funded fintech startup.
Today’s bank leaders face a business environment where more new competitors scout a segmented marketing turf. Meanwhile, bankers must address how to retain current customers who drive bank earnings—even as they attract emerging segments. Consider: What if those segments would respond better to a different approach?
Increasingly, the culture that supported a bank’s long success may block the way to meeting the future expectations of customers in younger generations.
To that end, many “digitally enabled” startups have developed successful, sustainable business models. Whether with deposits, lending or investments more fintechs aim at segments they see as attractive and underserved by traditional banks.
So far, traditional banks have weathered minimal earnings impact, as these new companies target consumers they’ve largely ignored. But that’s likely to change as these new players mature and gain loyal customers.
The list of the “niche” segments that “newcos” focus on continues to expand, both for specialized products and demographic groups. These include:
- consumer loans (Upstart)
- small business loans (OnDeck)
- depositors who seek higher yield (Marcus)
- young investors who want self-service and advice (Betterment)
- depositors with social concerns (Aspiration with its motto “Save Money, Save the Planet”).
Banks struggle to serve many of these segments; small business loans, for example, lose money unless a lender leverages streamlined processing and risk-based pricing. Millennials want a fully digital experience; younger investors may want to avoid the advice experts banks use to differentiate themselves and generate fees.
Lodging in your consciousness
Understandably, banks shy from taking steps that break with past success. I have frequently heard clients who reject working with fintechs, concerned that upstart methods will hurt the bank’s brand.
But look at how the hotel industry manages different constituencies. Hilton operates 17 hotel brands. Marriott has 30 within eight categories. A “classic luxury” hotel such as the St. Regis can cost more than $700 for a night in New York, while a Residence Inn is more in the $200 range for a hotel in walking distance from the St. Regis.
The St. Regis or Waldorf Astoria customer is unlikely to stay often at a Residence or Fairfield Inn and vice versa. But all these brands remain profitable even with their varied price points and expense bases. Service level and amenities differ as does the overall customer experience. But even the cheapest hotel provides an acceptable level of cleanliness, friendly service, safety and customer satisfaction. The Marriott brand, no matter the hotel, engenders trust and loyalty.
Why can’t banks do the same and offer different product types to different slices of the consumer and business markets—using multiple brands but under a Marriott-like master moniker?
Few banks possess the bandwidth to operate 30 brands. But they can select their spots and slowly pilot one or two new initiatives, focusing on loan areas or market segments where they want to gain a foothold. For example, small business loans of less than $100,000 or a holistic millennial solution could represent two areas to develop under separate brands.
Strike up the brands
Small-loan profitability demands a digital application, streamlined processes and rules-based decision-making process. High tech and a zero-exceptions philosophy must supersede the traditional high-touch, customized approach banks seem to prefer. In addition, customer service needs to focus on self-service and a call center or chat room, rather than dedicated record management.
Banks also need to charge relatively high interest rates (often in the teens) to justify origination costs, underwriting, credit losses and other expenses. In some instances management hesitates as the bank could suffer reputation risk and alienate customers. A distinct small business offer with its own brand can address much of that concern and free the small business group from any corporate shackles.
If a bank wants to build millennial market share, a separate brand may prove even more critical. Some banks have already branded in this way, with Bank of America’s Erica, Wells Fargo’s Greenhouse and Capital One’s Eno: virtual assistants that help with money management. But these one-off initiatives don’t reboot a bank’s foundational approach. It’s worth reviewing some relatively new entrants, aimed at millennials, to understand the competitors’ distinct approaches.
Betterment. This investment website leverages technology while charging low fees and serving as a fiduciary. The company emphasizes its ability to personalize a portfolio based on an investor’s needs and risk appetite.
OnDeck. The business loan site features customer testimonials and states “decisions in minutes,” a claim not many banks would make or customers would believe.
Upstart. This consumer lender’s site says, “You are more than your credit score. On Upstart your education and experience help you get the rate you deserve.”
These firms target millennial needs and several (such as Aspiration) directly "diss" bankers and industry for using lobbyists and practicing politically incorrect lending.
The road ahead: Branding together
MUFG Union Bank’s PurePoint Financial probably represents the most prominent example of a bank launching a separate brand, in this case aimed at deposit generation. But as last month’s demise of Chase’s Finn demonstrates, separate brands do not guarantee success.
As banks must adapt quickly to new competitors and operate in an environment where speed and agility matter more than ever, multiple brands may be a winning strategy. Marriott maintains that its brands “give people more ways to connect, experience and expand their world.”
Limited brand expansion may do the same for a bank’s customers and employees: and for some institutions, pave a brand new path to success.
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The president of Financial Institutions Consulting (FIC), Charles Wendel is a regular contributor to BAI. He can be reached at CWendel@ficinc.com.
Listen to Charles Wendel on his recent BAI Banking Strategies podcast, “Aiming to please SMBs."