Who’s Right About The Future Model Of Banking? Maybe Everyone Is. At Least For Now.

People within banking have a lot of opinions around where financial services are headed. Your bank or credit union may have just completed their 2014 planning sessions and had some lively debates about the future model of banking and its impact on your initiatives.

While you might be on the side of Brett King and go all-in on the forces around digital disruption (I tend to be on that side of the fence, with a hint of hey-community-banks-and-credit-unions-wake-your-asses-up urgency), you might have seen and agree with several points from a recent American Banker post from Katya Grishakova entitled “A Return to Old School Banking.”

More on that in a minute. Katya’s post was part of a recent American Banker series on what customers want – and it’s worth a long look because I think we don’t put ourselves in the shoes of customers often enough. Here are American Banker editor Jeanine Skowronski’s introduction to the series and a link to the entire series of articles.

“…today BankThink introduces a new series, entitled “What Bank Customers Want,” in which people from different demographics will provide firsthand accounts of what they are looking for from the financial firm they do business with.

Contributors were asked to comment on broad issues – for instance, mobile versus brick-and-mortar banking – but also encouraged to get specific. 

Our fundamental pitch, however, was: “If you could design your perfect bank, what would it look like?”

Getting back to Katya’s article on returning to old school banking, here’s an excerpt:

Let me put it this way: I prefer the old-fashioned banking model. I don’t care for mobile banking. I don’t own an iPhone. I like my BlackBerry and I’m fine banking in a physical branch. The absence of mobile banking will not prompt me to change my bank.  

I pay my bills online, but prefer to make deposits and withdrawals (over $500) with a person.  

I don’t like to be hustled….In short, a good bank has to be there when I need it to be, no more or no less.  

I’m generally suspicious of any banking innovations. Any creative banking is an automatic blinking red light in my book. New products and services rarely are directed at making my life easier. Instead, they are meant to improve a bank’s bottom line at my expense.

The two primary functions of banking should be to take deposits and to make loans. All other services should be supplementary to these two primary activities. I wish banks would refocus more on traditional services.

Does any of that resonate with you as a financial services customer? Maybe in the same way in how you think about how travelling via plane was in the 1970’s perhaps? Or maybe you recognize that because the majority of financial services still have echoes from those roots? Either way, I encourage you to read Katya’s entire piece on what she wants from banking, because I feel it represents a sizable chunk of your existing customers who feel banking needs stick with its simpler roots and commitment to personal service.

Even as we shift toward digital experiences, we must remember to have the customer’s viewpoint throughout our design process and in mind as we craft simpler experiences (see Jin Zwicky’s fantastic piece today in Jim Marous’s Bank Marketing Strategy blog entitled Simplicity In Banking Is Anything But Simple).

This post must have struck a nerve because I saw a flurry of responses on Twitter the day it came out, reminiscent of the chatter a few months back when Slate writer  Matthew Yglesias published his piece suggesting we kill of community banks.) Here were some responses from that piece in the Federalist, American Banker, and from Aite Group analyst Ron Shevlin.) As with the Slate piece, Ron decided to respond to Katya’s longing for traditional banking as well.  And that’s where this topic gets interesting.

In his post Old-School Banking: There’s No Going Back, Ron states:

My take: The views expressed by the author of this particular editorial do not reflect what “bank customers want.”

Bank customers–OK, not all, but many of them, and especially those in the Gen Y and Gen X age groups–want to avoid talking to people at banks. They:

Do not want to make deposits “with a person.” They’re happy to have their paychecks automatically deposited in our accounts, they’ve become increasingly comfortable depositing checks and cash in ATMs, and they’re looking forward to using our smartphones to use some ridiculously-named service called remote deposit capture.

Do not routinely withdraw $500 or more on a regular basis. They pay with debit cards, credit cards, prepaid debit cards, and our mobile devices. They do not carry around $500+ of cash.

Do not need a live teller when they manage their brokerage and retirement accounts. First , because many people in this age bracket don’t have those accounts to begin with. Second, because many do not have nearly enough money in their brokerage and retirement account to warrant having a person assigned to “oversee” the account. And third, because nobody (OK, except maybe the author of the editorial) wants to talk to a “teller” about their brokerage and retirement accounts.

Are not OK with going into bank branches. They (think they) have better things to do, regardless if there’s a line in the bank or not.

Ron goes on to take on many of Katya’s points – again, I encourage you to read the entire post for context, lest I interject myself to any target list for this debate.

Naturally, American Banker had a response to Shevlin’s post.

In the response entitled, Why Assume Old-School Banking Is Old-Hat?, American Banker editor Jeanine Skowronski states:

I wanted to hold off on drawing conclusions from BankThink’s ongoing What Bank Customers Want series until we heard from more people of different demographics. But Ron Shevlin forced my hand.

We launched “What Bank Customers Want” after noticing a divide among pundits regarding what is currently driving and what will inevitably determine customers’ banking choices.

Each op-ed is admittedly anecdotal and not meant to represent the be-all-and-end-all of how customers collectively feel about banking. The aim, instead, is to solicit direct customer feedback that could, in the aggregate, point to trends, particularly among demographics, and supplement other research or oft-conflicting statistics on consumer sentiment towards banking. 

Something else which, based on the comments on Grishakova’s piece, may have gotten lost in translation: Unlike our earlier Future Model of Banking series, contributors weren’t asked to predict what the banking industry will look like five-to-ten years from now.

Grishakova isn’t analyzing trends. She’s not approaching the op-ed as a banking/fintech expert (even though she used to work in finance). She’s simply commenting on how she banks and how she would like to bank, under her ideal circumstances.

Jeanine goes on to talk about several of Ron’s point’s, and defends Katya’s point of view quite well, but adds some flourishes to fill in Shevlin’s thinking that (again) derived a response from Ron in the comment section.

Again, my point in writing about this at all isn’t to provide a blow by blow of each piece. Please read all three pieces, finishing up with Why Assume Old-School Banking Is Old-Hat? and the comment section, because I actually think each one of these three pieces make some great points. So maybe each author is right.

Why do I say that? It’s the same reason I have been quoted as saying that today is “simultaneously the most interesting and terrifying time to be working within financial services.” Here was my response to the American Banker article (as posted in the comment section):

Wow. Quite a back and forth here. I think this is a good ‘debate’ to be having, because I think it’s more than a discussion about old school vs. new school preferences (ask Blockbuster’s reliance on brick and mortar worked out for them). I think it’s a discussion about the future of the financial services model itself.

While there are too many points in both pieces to really address in a comment section – and honestly good points on both sides – because you’re both right in a way – the banking model is shifting – and quickly. There are certainly plenty of customers that still want traditional banking services delivered – in person, in branch, with people they form a relationship with and trust – but the financial services model, like so many industries around us, is profoundly changing and shifting due to changes in both consumer behavior and expectations due to the ability to deliver complex services through digital. Concepts of loyalty, convenience, and value are in a state of tremendous flux.  

Our 108-year-old bank (like most community financial institutions I’m assuming) derives its historical reputation via our in person service – not necessarily through our technology (though we’ve been working to change that of course).  What is happening more and more though, as we add new self-service channels, digital is very quickly marching to replace traditional in-person experiences – deposits, lending activity, transfers, account opening, and even financial advice. As we’ve built out digital table stakes like A2A and P2P, PFM services, mobile apps, mobile deposit, integrated tax services, and other digital service channels to mitigate the need to visit brick and mortar – we are reacting to changes driven by shifts in customer behavior and competition from big banks, NeoBanks, and non-traditional players like Walmart and T-Mobile that bring scale. Not to mention the competition for app-driven mind share that payment providers are working toward (there are over 930 payment startups now – doesn’t that keep you up at night?).

It’s not a matter of if traditional brick and mortar services are out of touch with today’s consumers, it’s how your financial brand will react to and append service delivery options to derive customer satisfaction and value across the product and service spectrum – and how to do so profitably. You should be very worried about how are we going to reach that next generation of customers – while still maintaining services critical to customers today. We’ve got clients today who’ve been with our bank for four or five generations, but it’s critical that we connect to that next generation using SnapChat, WhatsApp, and Instagram on a daily basis. We’re doing this by delivering the type of value-added personal one-to-one interaction and service, whether it’s in person or through digital, and often a combination of both. This involves a huge shift in thinking in order for us to deliver these experiences.

As I wrote in my “There Will Be Blood: The Era of Engagement Banking” post last year as part of American Banker’s Future Model of Banking series, technology is accelerating the shifting expectations of traditional financial relationships with our customers as well as the banking industry’s historical sources of revenue, growth, retention and customer loyalty. What is the future of the financial services model? As much of traditional banking services become a utility, those that leverage personalized banking experiences for their profitable customer niche segments will thrive. As we move further into digital experience, the next decade will be even more incredibly disruptive than what we saw in the recent economic downturn. By the end of this decade there will be 40% fewer banks and 50% fewer credit unions. There will be blood indeed.

I don’t think Ron was really attacking the original poster. I see his efforts as part of a continuation of an ongoing wake-up call for the industry. I truly appreciate Jeanine’s defense of the original article – these type of customers may indeed be in the majority still – but that is really starting to change as digital marches forward. Traditionally delivered in-person financial services may not be moving toward complete extinction, but we need to be prepared for changes ahead. Personal relationships in banking will always be involved, but delivering contextually aware financial services in beautifully crafted experiences is becoming a necessity to maintain relevance with digital natives.  

Who’s right? Who’s wrong. Maybe everyone is. At least for now.

I, for one, will be looking forward to Brett King’s next book, due out April 14th. This one will be centered around content from his radio show Breaking Banks, and will likely cause some more discussion at your bank or credit union’s boardroom.  I can’t wait.


5 thoughts on “Who’s Right About The Future Model Of Banking? Maybe Everyone Is. At Least For Now.

  1. Bradley,

    I’m just catching up on this whole debate this morning, but I have to say the most troubling part of Katya Grishakova’s original post was her statement “I don’t own an iPhone. I like my BlackBerry.” Doesn’t that statement sort of invalidate the rest of the debate? 🙂

    In all seriousness, I’m surprised that you and the other commenters on Jeanine Skowronski’s response post didn’t take up a couple of more pages. This is a subject that can be debated endlessly. However, as you stated, the underlying shifts in technology and consumer behavior are apparent. Regardless of what side of the Great Branch Banking Debate you fall on, the emergence of digital banking is undeniable.

    That said, perhaps we are entering the “long tail” age of banking in which a multitude of different banking models can all succeed serving different market niches? As you say, maybe everyone is right.

    1. Thank you for your comment. I think multiple models will exist…the question is how many sub 20 billion dollar banks will exist, how many financial and payment neobanks will rise up and truly gain scale as the number of financial services firms dwindle. While mobile and digital are driving experiences that lead (and sometimes react to) consumer and business behavioral change, there will still be a segment of any business model (in this case our Blackberry toting friend) that is reluctant to move at the same pace as the forces around it. It will be interesting to watch.

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