Is the end in sight for banks? In October, Gartner forecasted that most banks as we know them today will either go out of business or barely exist by 2030, squeezed out by new competition, changing customer behavior and tech advancements.
In fact, Gartner used this word in a headline to describe heritage financial firms some 11 years hence: “irrelevant.”
At the heart of the matter, banks will owe their demise to staying stuck in old-school marketing tactics and obsoleteness to everyday banking customers: to never becoming important enough to them.
Wall Street, Main Street and the main walls banks face
When the Great Recession came, banking customers from Wall Street to Main Street fled for the exits. Many felt safer with the approachable likes of community banks and credit unions. Customers love them because the bankers know their names. They're more personal.
Today, larger banks through innovation can offer all kinds of digital accounts, services and conveniences. But if such banks were merchants such as Amazon, they would leverage those attractive features into loyalty. They would seize consumer attention, get a first-time purchase, get a repeat purchase and nurture them into loyal customers. Then when customers disengage, the bank has a chance to re-engage them or lose them.
Not so with most banks and credit unions. They don’t control this evolution like ecommerce merchants because they need to daily re-assert their importance in peoples’ lives. They function almost like the pharmacy’s “quick clinic”: a place you go for in-and-out treatment but not to check on your long-term health or discuss significant issues.
Assuming the latter role will take more frequent, personalized communications—not that banks find this easy. BAI Banking Outlook statistics show that 41 percent of banks reported in 2018 that it was harder to build and maintain relationships in a digital era, up slightly from 2017.
To many customers now used to the high-touch feeling they get from brands, banks indeed feel irrelevant. What they want is both the personal feel of their community bank and the tech/digital solutions larger banks offer. What’s missing? A central resource for their financial needs.
Data hurdles in the race to relevance
Data should be the fix, right? That’s key to understanding customers, what they want and when they want it. Unfortunately, fintech providers often compound the problem. Yes, they provide data solutions. But these move banks to focus on the data—not the customers themselves.
Once these providers turn on the data hose, banks start to swim in circles. And despite (or partly because of) this analytical flood, they drown in analysis before they reach solutions. The real problem never gets addressed. They don’t talk to their customers; they just keep churning, missing the opportunity to become part of their customers' everyday lives.
It’s not enough to know that someone’s name is Mary and she has three kids, or his name is John and he’s single. Not nearly enough. If a bank devotes its resources to becoming more service-oriented, it still risks that the goodwill created by great service will be trumped by the greater ability to solve someone’s needs.
And you can't be genuinely relevant until you solve someone’s problem and make their life easier. Think about some of the best ecommerce brands in the world and how often we go there before anyplace else. One of the first places I look for a consumer product is Amazon. Do they have it or something similar that matches my need? It’s a go-to destination.
That does not exist in banking. We never go first where we keep our money. And that lack of connection to customers adds up to lack of relevancy.
And so bank customers look elsewhere for help. That’s why fintech providers fail to help banks with analysis after analysis, chart after chart: It misses the mark on what customers need or want.
Banking at the speed of life
What to do, then? Consider the customer's perspective as a crucial part of data analysis, then take the information you glean and act on it. Sounds simple. It’s not. But it’s far from impossible.
To make this happen, banks must take two big steps. First, they need to adopt tech solutions that read data at the customer’s “speed of life”—not the speed or timing of marketing campaigns. Too many old-school marketing mindsets hold back the industry: run a loan program, run a CD campaign, create a new account promotion to drive brand checks activity.
Second, banks must create a process and mindset to act on valuable customer information as it arises.
Since we can't have 17 simultaneous marketing campaigns, we choose one or two: “We’ll do a brand campaign in the fourth quarter and a loan push in Q1, then we’ll build these programs. Our marketing spend is clear, so is the timing and we can defend the budget.” Now there’s a nice tidy project, plan or campaign map for 2019, right?
Wrong. It’s a dead end.
Banks face empowered consumers while nimble competitors chip away at their services through aggressive personalization. It’s time to recognize that every individual needs their own campaign, their own continuing programs: ongoing efforts that should never stop.
We should always promote loans to people who need loans and not everyone in scattershot fashion. When a customer looks for a loan, the bank should be present in that discussion. Some people will put money in a CD to save for something two years out; banks must address those needs and offer solutions. Smart banks see as many needs as people.
Measure by impact
Banks can still operate with an umbrella marketing plan that addresses brand, new branch openings or product launches—all relevant to maintain customer relationships. But the real issue isn’t about a yearly budget set in a conference room months before. It’s about impact.
If banks find customer approaches that succeed and drive new behavior, that will generate more revenue, opportunities and growth—and an “unlimited” budget to continue the push.
New loans and origination fees that exceed plan goals add up to newfound money. They don't really turn the marketing volume up or down. In fact, there really shouldn't be a volume. Instead, run initiatives where data reveals opportunities and address them. The return on investment will speak for itself.
We’ll see many banks falter and fail in the years ahead, no thanks to ingrained thinking and practices. Fast-changing rules of engagement and competition will crush the old ways. But the banks that succeed will use data to reshape themselves around the customer and respond to their needs: fully out front in the race from “irrelevant” to “you’re relevant.”
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Tyson Nargassans is CEO and founder of Saylent.