I came away from Brett’s presentation and the drama he created around the death of the branch with a jumble of thoughts coursing through my limited gray matter. Some of his assertions about the future of banking I definitely agreed with; of others I was a bit skeptical. The thought, however, that repeatedly kept coming to my mind was best summed up by Bill Gates in his book Business @ the Speed of Thought where he made the basic point that people, especially industry pundits, “always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” For the past hundred years banking has been a lot like a poor plastic surgery patient – other than a few nips and tucks around the edges, banking hasn’t fundamentally changed. Bankers are still stuck to their “branch and differentiation through service” models while the world swirls quickly around them, making their business evermore obsolete. They have clearly been “lulled into inaction.”
Like Brett, I have little doubt that checks are dying, that branch transactions are in definite decline vis-à-vis electronic transactions, and that payments revenue is under attack both from Washington and non-traditional players. At the same time, I see the banking model under a serious and necessary state of evolution rather than revolution in the next decade, contrary to some of Brett’s prognostications.
Bank 2.0 notes that Gen X and Y and millennials rarely set foot in a branch to transact business, don’t write checks, and live on their smart phones. These behaviors will impact the way FIs provide services and interact with their customers. The reason I don’t think the sky is falling quite yet is probably overly simplistic – the younger generations, for the most part, don’t have much money as retail customers and don’t drive banking decisions as commercial customers (i.e. they aren’t CFOs and controllers yet). HOWEVER, they will have money and they will drive business decisions. The older generations who have all the cash and run companies do still like coming to branches, talking to call center agents, golfing with their commercial bankers, and having salespeople from cash management pay them visits every quarter or two. To me, the greatest challenge for banks and credit unions in the next 10 years will be how to create the Real Bank 2.0 – a business model that straddles the divide between the hundred-year-old way of doing business that millions of consumers and businesses cling to while preparing for the next generation of financial service delivery that millions more will be gravitating toward.
Four key capabilities/changes FIs should consider to transition to the Real Bank 2.0 are listed below. I would credit some of my fellow consultants at Gonzo’s mother ship Cornerstone Advisors for some of these concepts that have been discussed in other GonzoBanker articles. How a bank puts it all together is the trick.
By way of “strategy,” many banks watch their largest competitors to see what products, services and channel capabilities they offer and then do what they do a year or two later. Guess what? That ain’t no strategy. As the saying goes, “innovate or die.” Banks need to have, at a minimum, an executive (if not multiple people) that focuses on fostering an innovation capability, staying ahead of industry trends, and collaborating with peers to develop unique products and services for niche markets. The days of copying the big guys are numbered.
This is hardly the optimal way to approach creating the ideal customer experience. Banks need to develop a strong channel competency to stay competitive and retain customers. Customers want to move effortlessly between channels – a near impossibility when responsibility for channels and the customer experience is divided up by a bank’s dysfunctional org chart. As my colleague Terence Roche advocated in Meet Your New Senior Executive – The Head of Channels, there should be one senior executive at every FI responsible for channels and the customer experience no matter which channel a customer uses or which line of business “owns” that customer.
The Real Bank 2.0 business model will be highly dependent on payments and the associated data identifying where consumer and commercial customers are spending their money – information that is invaluable to retailers. The bank of the future will understand how to mine this data and partner with retailers to create compelling loyalty programs and offer discounts to their customers.
The traditional bank org structure will definitely NOT foster developing the capabilities listed above. I challenge bankers to rate their institutions on a scale of A-F for innovation, channel management, and payments and analytics. I’d love to hear from anyone out there who thinks they have an “A” in all three areas.
Look around your senior management table today. If in two years’ time the same folks are there with no representation from Innovation, Channels and the Customer Experience, and Payments/Analytics, you won’t be prepared for the Real Bank 2.0. It’s a gamble I wouldn’t want to take.
All for now.
When it comes to your organization’s vision, they should be.
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3 thoughts on “The Real Bank 2.0: Preparing for the Future of Banking the Gonzo Way”
Scott Sommer’s article on The Real Bank 2.0 raises excellent questions about the banking industry’s capacity to manage change. We will see a dramatic change in transactional banking that will significantly redefine the traditional bank branching model. For innovative banks, there will be great opportunities.
Thanks for the comment Dan!
Great, thought provoking article, as usual from the Gonzo Bankers.
Banking is about where the personal transportation business was in 1908. The Model T was launched but most transportation outside of railroads was still horse based.
If for the next 20 years you focused on serving the horse based world you might still be in business but declining. You sold wagons, harnesses, saddles, horse feed, and wooden replacement parts.
If for the next 20 years you focused on serving the automobile based world you were likely doing well and growing. You sold new cars, gasoline, oil, rubber tires, and metal replacement parts.
I’m 60 and I haven’t been in a branch office for years except for a taking care of transactions for a business I help out which is not used to doing things electronically. My daughters, ages 21 and 28, do all their banking online including depositing any check they get via their iPhones.
As we all know you can’t be all things to all people and survive in business. You do need to define whether your primary commitment will be to the past or the future. If you are typically one of the last institutions to offer advanced online services in your market you are likely to be overrun by your competition.