The Traditional Community Banking Model is Dead


retail-banking-2-12-16.pngConsumer banking needs have not changed all that much over the last decade. However, the way those needs are met are going through transformational change. As such, community banks must find ways to shed the traditional ways of delivering banking services and morph into the new reality. Those banks that embrace the change will win, big. Those that do not will be acquired by those that do.

So what is the transformational change? It basically boils down to two key thoughts. The industry is now all about customers, not products, and it’s all about relationships, not transactions. Although fundamental in concept, these are dramatic changes from the traditional community banking model.

Historically, banks have focused on products, not customers. This is reflected in the fact that banks organize themselves along a product orientation. This results in numerous employees chasing the same opportunity. Even worse, it results in banks spending resources chasing certain customers with a product basis they will never use or buy. For example, older baby boomers are saving for retirement. As such, they need savings, investment, trust and advisory services. Trying to sell them a 30-year mortgage has a slim chance of success. Trying to sell retirement services to a millennial also will be met with failure. Banks need to focus on customers. We need to learn from our retail brethren and listen to the customers’ needs and then bring forward our products and services that meet the customers’ needs. This greatly enhances the likelihood of success, as we are giving customers what they want and need as opposed to what we want to sell. Selling hot soup in the middle of the summer is not a sustainable business model. It may get some limited sales, but is the wrong product at the wrong time.

Banks have also focused on transactions as opposed to relationships. This made sense when we had a product orientation. However, customers breed relationships and so we need to build and maintain them. Banks need relationship managers to be the primary point of contact with customers. They will act as a traffic cop, directing customers to in-house expertise that meets the customers’ needs. Their job is simple: Know the customers, their needs, their business and their personal situations and then meet and exceed those needs.

To shed the traditional model, banks must embrace a different culture. This means we need to:

  1. Adopt customer segmentation across all silos within the organization
  2. Reorganize into a customer-centric model
  3. Hire relationship managers (call them whatever you want)
  4. Establish strong calling programs 
  5. Create affinity with various customer segments

Integrating these concepts into a bank’s culture requires a commitment from the board and CEO. They will need to accept change and be willing to change the business model accordingly. They will need to break down the traditional silos inside the bank and integrate all departments into a customer-centric mode.

The following list is proven to aid in this endeavor.

  1. Create relationship managers and have them report directly to the CEO. Banks will still have product managers, but they must coordinate through the relationship managers.
  2. Integrate customers into your budgeting and planning process. This means plan on getting customers and their relationships as opposed to various non-related products.
  3. Build product bundles that fit targeted customer segments.
  4. Target and track market share of customer segments.
  5. De-emphasize brick and mortar and emphasize targeted delivery by segment.
  6. Track family, friends, neighbors and acquaintances as sources of new business. Leverage off affinity.
  7. Proactively identify opportunities and chase them. Do not wait for customers to knock on your door or call you.

Banks can continue to whine about falling spreads, lack of core business, high expenses and low fee income, or they can change with the times and shift to a customer-friendly, relationship-oriented culture. Banks who do thrive and become acquirers. Banks who do not will wither and likely become acquired. We have numerous case studies of banks that are shedding the traditional models in favor of the new on and all of them are winning in their markets.

How to Make Your Bank Customer-Centric


5-7-13_Celent.pngWinning retail banks will provide a different and better offer of value. They will:

  • Be customer-centric (finally) by delivering more than simply plumbing
  • Have a strong digital offering (mobile, tablet and online)
  • Turn zero-sum games into win-win situations

Here’s the cold, hard truth: Retail banking today is a means to an end for customers. Banking lets people accomplish other, more enjoyable things. Banking is not fun; it’s not a destination; and it’s not something that people would choose to do given any reasonable alternative. With the products and services that banks offer today, most often the highest praise that can be given is, “That wasn’t terrible.”

So what can banks do to change the game so that they have a realistic chance of having their customers actively praise them? Three actions, driven by technology and spurred by non-bank competition, can help banks transform customers’ feelings about them.  

First, banks should (finally) become truly customer-centric. The industry has been talking about this for a dozen years, but this time—really—it’s getting serious. Here’s why: Technology has advanced enough to make a host of truly useful solutions feasible, and consumers are demanding to be served differently now.

Exposed to great online experiences from Amazon to Zappos, customers wonder, not unreasonably, why banks can’t do the same?  And when the banks fail to deliver, frustrated financial services consumers begin to look around for someone who can do a better job delivering on their raised expectations.  

Second, banks must have a strong digital offering. This encompasses not just online, but also mobile and tablet devices. Bank of America predicts that in less than two years it will have more customer access accounts via mobile devices than through the online channel. And more than half of millennials now choose their bank based on its mobile experience.  

Third, banks should create win-win situations with the customers. The retail banking business model has been constructed as a zero sum game: Banks win when customers lose, and vice versa. There’s a finite pie that banks and customers have to share, and one group’s piece grows as the other’s shrinks. That’s not the basis for a fruitful relationship.  

Bankers should search for ways to create positive-sum games by aligning the interests of the bank with those of its customers. When the customer does well, the bank benefits. For example, banks can increase assets by helping customers understand (and act on) the need to save for retirement.  

Win-wins can also take the form of partnerships with third parties by delivering value to customers that they wouldn’t be able to get on their own. With some merchant offers, for example, banks can provide value to small business (i.e. new customers) and retail customers (in the form of discounts).

A bank’s internal organization is typically the biggest barrier to delivering a truly customer-centric experience. Banks have gotten away with a lot for a long time because alternatives were few and customers were conditioned not to expect too much. But that paradigm has been irreversibly altered; banks can’t let antiquated organizational silos stand in the way of delivering new value to newly empowered customers.  

Changing will be hard, but guess what? Customers don’t care. They don’t care about legacy systems, or regulatory burdens or organizational structure. They want what they want, and will be delighted when you surprise them with something that they didn’t even know they needed.  

Maxims for a customer-centric bank in the mobile age:

  1. Put the customer first and be in his or her corner
  2. State your offer of value clearly
  3. Save your customers time
  4. Save your customers money
  5. Let them know when they’ve done well