If you asked 100 retail bankers what they’re working on, 99 will say some sort of digital distribution channel for consumer banking: online account opening, digital loan application, digital cross-selling, mobile marketing and so on. Nearly every survey underlines that financial institutions are making digital product distribution a top five priority right now and for the foreseeable future.

It’s understandable why. The coronavirus pandemic exposed most banks’ lack of attention to and investment in their digital distribution channels, with the exception of the megabanks and the digital banks that were clearly ahead of the curve and reaped the rewards of having alternative channels up and running. This growth came at the expense of community banks that are losing – both in terms of new customer acquisition and being identified as the primary financial institution.

Same Products, New Channel

But what’s strange about this focus on distribution is that most banks have done nothing to actually enhance or differentiate the consumer banking products they’re trying to distribute more widely. They’re still offering the same staid products – namely the checking and savings accounts – and consumer loans they’ve provided for years – with no new features or benefits.

The major product innovators have been the digital banks and fintechs like Chime (early direct deposit and no-fee overdraft), SavvyMoney (credit scores and pre-approved loans), Acorns (personal money management and investing) and Affirm (buy now, pay later during online checkout).

These businesses have no choice but to distribute their products digitally. But they understand that to be successful, they must offer deposit and loan products that don’t resemble anything like the products offered at practically any bank. They’re beating traditional banks to the punch on this product differentiation and enhancement, especially when it comes to younger consumers.

Granted, one of the challenges facing companies that are offering any kind of product is how to drive awareness and visibility for it, and fulfilling that promise with a great buyer experience. The philosophy of “If we build it, they will come” is nau00efve – and it’s not viable for newly offered products. When it comes to existing products like checking accounts that are essentially commodities in today’s marketplace, thinking “If we build another distribution channel, we will sell more” is a likewise fantasy-minded approach.

Distribution, Meet Product
The reality is that product and distribution must be emphasized equally for optimal and sustainable success, especially when talking about traditional consumer banking products. Creating a broader, varied way to market and sell these products isn’t enough. If your bank’s checking account or consumer lending products don’t offer anything that a customer can’t get from a thousand other competitors, having a digital way to market, sell and distribute this product will offer minimal marginal gains at best.

Why are product distribution and product equally important? There’s a lot of noise competing for people’s attention, especially in the consumer banking products arena. If your institution wants to cut through the noise and resonate with existing customers or prospects, you have to create awareness with easily identifiable and differentiated value that can be marketed, sold and distributed however the end user wants to engage with and receive it.

A robust consumer banking product with an average distribution channel is likely to perform better than an average consumer banking product with an above-average distribution channel. Distribution itself – in the form of online account opening, digital loan application, digital cross-selling and mobile marketing – can’t make up for a product that hasn’t been differentiated, upgraded or enhanced in a way that consumers find exciting and interesting.

You have to look no further than the digital banks and megabanks to see that they’re winning by focusing on both product and distribution – not just one or the other. A very successful retail banker summed it up this way: “Product features are more important than ever, and so is a consumer-friendly distribution channel for those products.”


Mike Branton