Today’s account holders can conduct banking anywhere they want — and that changes everything. They can open a checking account with Capital One 360, a savings account with Ally Bank, an investment account with Wealthfront, and a credit card with Chase. They can pay their bills on Mint.com, get a loan from Lending Club and make payments with Venmo.
It’s true that financial institutions still play a role in most of these instances. But location matters less and less. Soon enough, consumers in the United States will start wondering what’s the point of having more than 14,000 financial institutions across the nation. Having that many institutions may have made sense in an era when location was supremely important. But now? In the digital age, many of these institutions are bound to become less relevant. As Bradley Leimer from Santander puts it, “there will be blood.”
What’s the best way to survive?
It all starts with answering a basic question … Now that consumers can bank anywhere, why would they choose you?
As I talk to banks and credit unions, I find that many of them respond to the question by saying that consumers choose them because of their better customer service. They say things like, “We know our account holders by name!”
And yet, that’s hardly something to boast about. When I was in college, I worked as a teller at a community bank, and I read each customer’s name off of the computer screen the same way the tellers at Wells Fargo did. Knowing your customer’s name isn’t a differentiator. Every financial institution does this. If you think you’re going to win the future of banking by knowing people’s names, you’re in trouble.
Besides, since everyone claims they have better customer service, it’s not much of a differentiator … especially for a consumer who has never used you as their financial institution. It doesn’t help you to stand out from the crowd.
What Is Your Unfair Advantage?
If you find that you keep answering the question above with some vague notion of having better customer service, the best way forward is to dig deeper. To do this you might ask, “What is our unfair advantage?” It’s a question that Chris Sacca, an investor in technology, urges companies to focus on relentlessly when they’re getting started.
So, what is your unfair advantage?
Maybe you specialize in a certain kind of car loan. Maybe you specialize in a certain class of investments. Or perhaps you work best with a certain kind of business loan. Don’t worry about appealing to everyone. Just be the best at that one thing. And don’t make your one thing customer service unless you have a very clear and specific way that you differ from your competitors.
You might look at Umpqua Bank to see how a dramatic shift in culture has brought them terrific gains in revenue. Or you might look at how BECU is investing in digital products that set themselves apart from other players in the market.
As you work to find an answer, excuses might come to mind. The biggest banks have more in assets. The neo-banks spend less on overhead. But those excuses are missing the point.
If you’re not large enough to do all things, don’t. If you have no choice but to pay for overhead, embrace it in a way that meets the needs of consumers in the 21st century. Just pick one profitable thing that your financial institution will be known for.
You have characteristics that no other institution has. It’s a matter of figuring out what those characteristics are and then developing those characteristics into full-fledged differentiators.