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BirdsEye View

I wrote this article five years ago.  Today I spent at the OCC learning from my peers and from the midsize bank supervision team.  As they discussed the risks facing our industry, they named THE RISK OF DOING NOTHING as their primary concern.  It reminded me of this article, which bears republishing as a reminder to all of us.

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Banking is under siege from so many fronts. From universal banks to FinTechs, from communications companies to Google, it seems like everyone is after our business.  This is not new, but it is intensifying.  Is there hope for anyone but the largest banks in this country?

The story of the railroads, which refused to accept that they were in the transportation business, is over-told.  There are so many other, more recent versions:

• Polaroid, which couldn’t believe that its ground-breaking product could be rendered obsolete, perfected technology which, in its entirety, became irrelevant to the mass market
• Eastman-Kodak, which couldn’t believe that the camera itself could become irrelevant to most users who are not avid photographers (which it did, as smartphone cameras improved more and more)
• Palm Pilot and Blackberry (remember them?

In addition, even industries which saw the writing on the wall and did something about it are losing ground.  Consider the Swiss watch industry, a leader in its field for over 500 years.  When the industry realized that the smart phone offers a more efficient way to tell time, they shifted their marketing position from the watch functionality to the watch as a fashion statement.  This was a smart move, but the sales of smart watches exceeded the sales of Swiss watches for the first time ever last year.

Add to the mix these facts:

• The largest market cap company in the world – Apple – didn’t exist thirty years ago
• Starbucks’ card sales approach $10B annually; can you figure out the float revenue?  And 21% of their transactions are now mobile-driven

The writing is on the wall.  We see it, but we’re not sure what to do about it.

ADDITIONAL THREATS

The industry, especially the non-universal banks, continues to shed businesses and lose the competitive advantage on many fronts:

• Mortgage
• Auto lending
• Consumer lending
• Business banking (once our bread-and-butter)
• Payments (consider the ubiquity of PayPal as a payment option on virtually all website stores)
• Payments (check out Cash; Venmo, a PayPal company; Apple Pay)

Most of us are keenly aware of this trend and are working hard to reclaim some of this lost territory, while others believe that sticking to a simplified business model is the better solution.

In the meantime, the larger banks are no longer struggling.  That gift has stopped giving.  Instead, they are leading the way in technology development and, shockingly, in service levels and customer experience in selected markets and segments.  Try opening an account in some of those large banks; or applying for a loan, using any channel you’d like.  I’m sad to report that the experience is excellent, and often offers a true omnichannel experience.  

A personal example:  I called Wells Fargo for an auto loan.  Not only was the voice on the other end professional and knowledgeable, but he actually listened, gave me the product that best matched my criteria (which were atypical), and seamlessly coordinated with a nearby branch to ensure the check was ready for me in a timely and convenient manner.  It was great, but it’s not so good for the majority of the banks in this country.

In addition to industry changes, the customer expectations are also changing.  I realize the shift happens unevenly across geographies and customer segments, but it IS undeniably happening.  It is driven by other forms of retailing which train customers to accept alternative methods of communication across the board.  As a result, customers learn that value can be added without an eyeball-to-eyeball connection.  They form strong engagement through technology, and increase frequency of use and contact through that technology.  It is so much easier to check your balance ten times a day on the phone than on the VRU…

IMPLICATIONS

The implications are significant to all of us, regardless to your customers’ demographic profile or location.  One clear implication is that continuing without effective planning for on-going, gradual change will render you obsolete. Another one is that no community banks can out-invest the universal banks, but any community bank can partner with service providers to offer near-parity in the customer experience they offer using technology.

My view – you don’t need to predict the future nor bet the bank.  You need to change your culture to become more nimble, to be willing to make mistakes (yes, mistakes) and quickly correct them as you innovate and learn.  Our expectation of perfection before we go to market will, by definition, render us obsolete in time.  

Consider the lifecycle of the athletic shoe:  you buy it, try it and, as soon as you’re comfortable enough in it to buy it again, you can’t.  It’s already off the shelves, rendered to “classic” status, and it can only be bought on “classic shoes” websites.  This pace is symptomatic of the pace we live in, and we should accept it and embrace it.

Any bank can adopt specific technological solutions that will delight the customer and reconnect them to the bank for years to come.  Consider biometrics, for example.  There are numerous solutions to use biometrics in virtually all areas of the bank.  Examples:

• Voice recognition technology in the phone bank.  Eastern Bank in Boston has been using it for a few years.  The results are amazing: shorten call time by 34 seconds on average while delighting customers with the speedy authentication and the feeling that “my bank knows me.”  The fraud reduction implications are also encouraging.
• Facial recognition software in retail.  Think customer recognition on site: fast, personal and positive.
• Facial recognition or voice recognition in your wire room as a fraud reduction tool.

 There are countless such examples of affordable technology that can be used to enhance your customer experience while reducing service time, friction and fraud.  Such applications will increase your market relevance and delay, if not altogether prevent, obsolescence.  These enhancements and others will not turn off your slow adopter segments either.  

PATH TO SUCCESS

 As mentioned above, the survivors will get there through culture change.  Agility is critical.  Competing with those FinTech companies is difficult because they move fast (sometimes too fast…) and are typically more creative than we are.  Your culture must accept non-catastrophic, contained failure, and shift toward faster time-to-market while containing the experimentation.  This attitude is quite different from the culture that got most of us to prosperity thus far.  It is essential for the future.  

Fight creating bureaucracies despite regulatory pressures.  While compliance, legal and risk management must be involved at all stages of development, from the initial idea onward, it doesn’t mean they should or want to slow the process down.  A bias for action and continuous learning is called for.

Learning fast is also critical, especially from non-banks.  Note how the survivors reinvent themselves time and time again.

And, as always, be disciplined.  Start with role clarity – who does what – and follow with holding yourself and your staff accountable to deliverables and deadlines, decision paths and business considerations.  Be operationally and financially disciplined.

In some ways, protecting our market share in this changing landscape is intimidating; however, all this uncertainty also by definition produces great opportunity, and I encourage us all to look towards these as a way to continue to serve our customers, our employees, and our shareholders.