Imagining the Future of Retail Banking

October 6, 2009

predict_future_2009

Reading the various reports from Finovate 2009 got me wondering what all of these new developments portend for retail banking.

A couple of future scenarios come to mind:

  • The Competition Scenario
    Currently, banks compete mostly on rates, offers, and intangibles. There just hasn’t been that much else to differentiate them. With the recent flurry of online and mobile applications, however, the next phase of competition could very well focus on products and features. Of course, this phase would necessarily be short-lived.  Not only are products easily replicated, people have a limited appetite for novelty.  Still, for the short term, product innovation could be the hot ticket.
  • The Mashup Scenario
    This is one I’ve talked about before. Consumers may opt for an a la carte approach to banking—a financial version of the daily me. In this scenario, the “bank” would be a mashup of online and mobile applications, reflecting the individual consumer’s needs and preferences. The consumer would select applications, a la carte, from a universe of brands. It’s unclear how traditional banks would fit into this scenario.  Possibilities could include application providers, aggregators, or links to the brick-and-mortar world.

Is it just me, or is there something about all this that feels like dotcom fever?  Mint’s recent sale to Quicken seems to have had an impact.

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Posted by tombrzezina

The Digital Death of the Community Bank

September 4, 2009

According to J.D. Power, image now trumps proximity when it comes to selecting a bank.

I’ve seen a lot of bank surveys over the years, and branch location has always been the foremost factor in consumer choice.  Now it’s the brand.  I can only speculate here, but with so much bank business moving online, the branch may have already lost more of its value than we know.

In a previous post, I wrote about new technologies infringing on branch territory.  Now there’s this:

Digital innovation—intentionally or not—continues to siphon value from the branch.

This concerns me because, as the branch goeth, so goeth the community bank.

A community bank, by definition, serves a specific community.  Where is there room for the community bank in our (seemingly inevitable) digital future?  A digital bank is rootless; it exists, for all intents and purposes, in abstraction.  And, in that ethereal realm, it’s all about the brand (technology too quickly becomes a commodity).  I’m not sure how a community bank could hold off a juggernaut like BofA in such an environment.

Which is a shame because, if we lose community banks, we lose bankers like Ken Fergeson—bankers who care about the people living and doing business around them.

This isn’t nostalgia.  I thrill to new technology as much as the next humanoid.  But in the digitization of banking, we just may lose more than we gain.

I’d love to know what you think about this.  Are community banks doomed to obsolescence or will they survive by redefining community banking, much as social media has redefined community?

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Posted by tombrzezina

Is the Sun Setting on the Old Bank Branch?

August 24, 2009

We’ve seen a lot of news surrounding branches lately, none of it good for brick and mortar.

A new Bain report suggests that UK banks may need to shut down a third of their branches to be profitable.  Bain estimates that return on equity for branches could drop to 50% of what it was before the recession.

Closer to home, Bank of America is closing 10% of its branches.  That’s about 600 banking centers.  At $2MM+ per branch in start-up costs, BofA is writing off over  a billion dollars (a conservative estimate).  Those branches must be making a serious dent in profitability.

BofA is also eliminating wire transfers from branches, making them an automated online function.

On another front, smart ATMs are actually replacing tellers.  According to Bank Technology News, “The machines have high-speed, two-way video and audio link to a call center.”

Smart ATMs would obviously solve a number of cost-related branch issues.  But they could also centralize the user experience.  Inconsistency among branches is an ongoing point of frustration for many banks, and centralization could be just the ticket.

Then, of course, there has been tremendous online development in financial services—Wesabe, Lending Club, Smarty Pig, ING, etc.

I’m hard-pressed to think of a retail banking function that hasn’t been replicated or improved online.  Especially when you consider that direct deposit and debit cards have essentially eliminated the need for cash.  If you absolutely must deal in cash for some (ahem) reason, look no farther than the nearest smart ATM.

And once mobile banking shifts into high gear, forget the address.

It’s easy to imagine a day when branches have become more of a choke point than a channel.

The reason it’s easy is that we may already be there.

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Posted by tombrzezina

Banks vs. Mobile Phone Operators

July 6, 2009

Have you seen the Why Mobile Companies Will Become Banks video?  If not, make sure you’re sitting down before watching it.

Add mobile companies to the growing list of new competitors.  According Eric Auchard of Reuters, this is how the situation currently stands:

“The phone industry sees mobile money as a vast new market beyond existing voice, text and data services. But, banks, with support from financial regulators, long have resisted efforts by mobile phone operators to edge in on their customers.  That’s not stopped the phone industry from making inroads into basic financial services such as money transfers, payments and transactions.”

Out of curiosity, I dug up a couple of fun facts:

  • 88% of the U.S. population have mobile phones
  • 74% of the U.S. population use banks

I wonder how long banks will be able to hold mobile companies at bay?

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Posted by tombrzezina

Community Banks: It’s the End of an Era

June 23, 2009

mobile_marketingWell, it’s happened.  Cell-phone-only homes now outnumber those with landlines only.

The ways in consumers use mobile is also expanding—news and content, exchanging SMS text messages, shopping for products and services, checking email, playing games, searching for locations, getting driving directions, and conducting mobile banking transactions.

ABI Research predicts that over 150 million mobile subscribers will access banking services on their mobile devices in 2011.

“The next generation,” says Mickey Alam Khan of Mobile Marketer, “will not have the same affinity for e-mail, so you’ve got to have mobile.”

If your bank isn’t taking advantage of mobile marketing yet, it’s definitely time to start.

That doesn’t mean you should start bombarding customers and prospects with promotional messages.  Mobile is different from other media—it’s a highly personal channel for what Seth Godin would call permission marketing.

Mobile efforts need to be opt-in, positive, highly relevant, somewhat entertaining, and of specific value to individuals.

A recent article in Advertising Age discusses a number of advantages unique to mobile. The article is directed at retail stores, but it’s not hard to imagine how banks could similarly benefit.  Mobile marketing can:

  • Link marketing campaigns to brick-and-mortar sales for true ROI
  • Turn browsers into buyers
  • Drive direct, two-way interactions with the brand
  • Build a database of opt-in consumers
  • Provide more control over messaging than traditional in-store displays

Most of the larger banks are knee-deep in mobile, and more community banks are getting on board every day.  Within a year, banks not using mobile will risk losing customers to those who do.

Wouldn’t you rather be in the latter group?

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Posted by tombrzezina

Regional and Community Banks are Going Mobile

June 9, 2009

Everyone knows that mobile banking is where the industry is going.  But not everyone is aware of how fast it’s going.  Mobile banking is moving at a much quicker pace than online banking ever did.

According to research from TowerGroup, the number of people actively using mobile banking in the U.S. will grow by more than five times by the end of 2013—from 10 million to over 53 million active users.

Mobile banking is becoming consumers’ channel of choice. The recession has prompted consumers to manage their finances more closely—they want real-time access to and control of their finances.  And that makes it do or die for all banks.

Not wanting to be left behind, the number of small and medium-sized banks offering mobile banking, is growing by the day.  Regional and community bank with active mobile programs include:

There are many more. I just wanted to show how banks of all sizes—across the country—are going mobile.

Mobile banking allows customers to stay connected to the bank no matter where they are. They would, for example, be able to transfer funds while traveling.  For banks with a smaller footprint or with a handful of branches scattered across a large territory, mobile banking could be a real boon.

The core message is clear—mobile banking is not hype.  Start working on your program now, before it’s do-or-die.

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Posted by tombrzezina