Here are some frightening comments picked up at bank conferences in the last six months from executive level bankers:
– “Regulators have finally realized their destiny and made it impossible to stop the Fintech industry from taking over retail banking.”
– “Banking has reached singularity – the point when computers know more about where the industry is going than we do.”
– “We need depositors more than they need us.”
– “Thankfully I’ll be retiring before the changes really hit.”
If you share these, or their sentiments, here’s an alternative view: We are entering a period of opportunity for the banking industry to address a bigger part of customers’ lives than ever before. What’s better is that there will be revenue to be made, lots of it, if a bank hits on something that people truly want.
Banks are sitting on a gold mine. Think of what a Fintech could do with the “assets” of a bank. They have the most coveted natural resource of all: a network of people and businesses that rely on them. In a community bank, that network is even more interesting because the members live near each other. Talk about fertile ground for new money making ideas. Think of the businesses over the last few years that built successful enterprises by first creating a network of connected users, and then leveraging them for profit.
The successful banks of the future will do one thing very well – offer a steady stream of new tools and advice that enable people and businesses to be much better with their money. Successful banks will not rely solely on targeted advertising to acquire new customers. The successful banks will see customers dropping by their websites and offices for a much more basic reason – because they want something. The most successful advertising (and cheapest too) will come from the mouths of existing customers or even non-customers caught up in the excitement. A bank has to answer that question, “What can we do to create excitement?”
Like what? If a bank is asking, that’s a great start. One answer is, “try something and find out.” There are way more possibilities than answers today. Specialization is how some other industries have dug out of similar disruptions. Why has Fox News risen up in a declining industry, bypassed others, and now enjoys share like the biggest? Because they specialized (even if they don’t admit it). Why are smaller local food brands hitting the jackpot in the natural/organic grocery market? Why are craft beers growing at 15-20% while Bud and Miller dropped 4-5% last year? Because they are specialized approaches.
How about banking specialization? Absolutely. Looking at the FDIC call report data, I randomly (honestly) picked four banks that fit this ROA history: Below 0.50% ROA in 2006 and above
1.50% in 2014. The common thread? Specialization.
- Bank 1: $509 million bank specializing in Family Wealth.
- Bank 2: $1.7 billion bank specializing in C&I and CRE lending, with all their five branches placed in growing metropolitan areas in their region, with their branches focused directly on builders and commercial CEOs.
- Bank 3: $1.07 billion bank specializing in home improvement loans with an indirect feeder in the energy efficiency business.
- Bank 4: $289 million bank specializing in, (get ready) traditional banking. Their core specialties revolve around a splashy Mortgage Center, and a high end customer “club” that connects people to the community and each other. They don’t even offer mobile.
There are opportunities out there. It could be in focusing primarily (not entirely) on a certain age demographic, a particular industry group, a type of business need (e.g. asset based lending, small business international).
- Educate the Board. Earn their support that the upside-down banking environment requires a fresh approach to strategy, including some innovation that differentiates the bank.
- Get better data on your market, and your bank. Understand what they say are your strengths. Understand their pain points. If the bank has not already, it is time to change the bank’s relationship with data analytics.
- Don’t do a survey – start walking around. Talk, listen, ask, and understand.
- Rethink (or consider throwing out) the current strategic plan. If it is primarily a tactical plan with to-do lists, then it is not a strategic plan at all. The Fall season is an excellent time re-define the bank’s future with a brightly lit vision to start off next year with momentum.
- Consider a new approach to arriving at a strategic plan, starting right from who is invited to be part of the sessions and how to motivate them to produce the best results.
- Try something. Tweak it, try again. Keep changing. Keep refreshing. Keep delighting.
If you can’t tackle this on your own, get some help! Bankers are busy. Strategic Planning begs for outside perspectives since banks often live in a traditional box that even the most effective bank management teams and conservative Boards of Directors find difficult to break through.