The Big Gamechanger for Differentiation

Last week at big.bright.minds, hosted by Filene at Princeton University, we learned about the facets of behavioral economics and how to be good choice architects for our members and customers.  One of the topics that the presenters covered was hassle factors and how even a small hassle, like having to click to another page on a website, can be enough of a hassle to lose someone in the sales process or keep them from doing something they actually want to do because it is too much of a hassle to proceed with the process.

Why?  Because we are all so busy that we don’t have time to do even the things that are really important to us!

The printer in my home office is a great example.  For some reason the other morning, it decided to stop working immediately after I’d printed a single page document.  I had sent two more to it immediately afterward and yet it sat idle for the rest of the day with the documents in the queue.   I was busy with other projects and deadlines so getting out my manual or consulting the help website for HP was too much of a hassle, so I dealt with not having a printer for an entire day because of this hassle factor. 

This hassle factor changed the way I would normally do things that one day because having to do without was more important to me than spending the time to figure out how to fix it.

Get Honest

What hassle factors are your members or customers facing in doing business with you?  Is your loan application process too cumbersome, or does it take too long to get through the call center to talk to a real person?  Unless you put yourself in the shoes of the consumer and remember that most people can’t afford any extra time caused by hassles, you may be losing actual loans, new accounts, and chances to help people who truly want to be helped but can’t be bothered with anything unexpected. 

I challenge you to take an honest look at your organization from inside out.  Ask your staff members what hassles (big or small) are keeping them from doing their jobs or being more efficient.  Honestly assess what things you can do for your customers or members to make their lives easier. 

At the end of the day, we all want more time.  That would make life easier.  More time to spend with those we love and do our favorite activities, or enjoy an extra few minutes of quiet.  If you can do the work to eliminate hassle factors by streamlining your processes, products, and interactions, you can give people the thing that means most to them…time.  

Amanda

We bring these philosophies to credit unions and community banks all over the country to help them with their strategic planning, marketing, and branding initiatives.  Contact me to learn more about how MarketMatch can help your financial institution define its "why" and achieve sustainable growth in the future.  Don't forget to ask about our ROI Guarantee - the only guarantee of its kind in the entire financial industry!

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What it takes to be Carnac the Magnificent.

As marketers, we are always looking into our crystal ball, reading the tealeaves and flipping the tarots. 

Whatever it takes to be the industry's Carnac the Magnificent.

"Who needs our product?  Who will buy?  What will they buy?  When?"  

As we discussed on August 12, a great deal of focus in the magical, mystical world behind the marketing curtain is spent in segmentation. The scientific and not-quite-so-scientific methods of running human being's through a filter to better manage our time and monitory resources.

Recent blogs have yakked about segmentation from topics like: 8 life stages that you should market to and Mirror Modeling and Birds of a Feather methodologies. These are all great ways to plan for today and the near future. (And they're absolutely brilliant prose!)

But how can you look a bit further out? Elementary, my dear Marketer ... watch the schools.

The 2004 NEA research paper, K–12 Education inThe U.S. Economy: Its Impact on Economic Development,Earnings, and Housing Values, discussed these findings:

"With regard to effects on economic development, one statistical study found that cutting statewide public K–12 expenditures by $1 per $1,000 of state personal income would reduce the state’s personal income by about 0.3 percent in the short run and by 3.2 percent in the long run. They also note that another study found that such a cut would reduce the state’s manufacturing investment in the long run by 0.9 percent and manufacturing employment by 0.4 percent. Similarly, another researcher found that a decline in educational quality, as measured by a 10 percent drop in standardized test scores, would lead to a 2 to 10 percent reduction in home values.They also cite a study that found a 10 percent reduction in school expenditures could yield, in the long run, to a 1 to 2 percent drop in post school annual earnings."

My simplistic, "If-Then" interpretation: When schools are managed poorly and/or necessary levies are routinely voted down - the level of education suffers. When the education suffers - people choose to move other places. When people move other places - so do business. When businesses move - so do jobs ... then the community truly can't afford the levies to fix the schools and the snowball gets bigger.

So, when you're trying to decide where to build a branch, or what region of your footprint should demand your attention, or where the future opportunity is ... of course, look at the current demographics, employment and economy ... but also look at the schools. They hold the key to every city's future.

We bring these marketing philosophies to credit unions and community banks nationwide, and would love to bring them to your institution too. Contact us to see how.

With more than 255,000 visits worldwide, we hope that you enjoy this blog.  If you find it helpful, please share it with your colleagues. Also, check out our YouTube Channel for short video blogs about financial marketing.  

MarketMatch is also a nationally and internationally requested speaker. Contact us to bring our marketing ideas to your next conference.

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Online Banking Key To Satisfaction and Growth at Credit Unions

According to recently released research, credit unions continue to score higher than banks in six key areas that have been found to drive customer satisfaction.

Interestingly, however, while lower rates and fees are still a significant component of a positive member experience, the impact of improvements in the online/mobile channel delivery will have the greatest impact on increased customer satisfaction in the future.

CFI Group, a customer satisfaction technology and analytics firm, in an inaugural study entitled "2013 Credit Union Satisfaction Index," measured six primary drivers of customer satisfaction on a 0-100 point scale and found that credit unions consistently scored high in all categories, with each driver scoring in excess of 80 points. This score was higher than many other industries including retail banking. 

CUSI Satisfaction Driver Scores

Of the six drivers of satisfaction measured, however, the 2013 CUSI found that only four play a significant role in driving member satisfaction and, therefore, should be the focus of the industry. At the top of the list for primary drivers that could impact future satisfaction were "online banking," "branch staff," "branch convenience," and "information/communications." 

The chart below illustrates the contribution of each primary driver towards increasing member satisfaction. The two missing drivers of satisfaction ("rates and fees," and 'products and services") have already 'maxed out' as a driver of additional satisfaction according to the study, thereby limiting any the impact that an improvement in these two drivers would have on future member growth.

Driver Contribution to Increasing Satisfaction

When viewed in terms of the "impact" of each satisfaction driver, the study also provides quantification of each driver's potential to improve the overall satisfaction score. For instance, for each point of improvement in the driver score (left side of chart), the overall satisfaction would increase by the value of the impact (right side of chart). Again, there is nominal impact for any improvement in either "products and services" or "rates and fees".

It should be noted that the impacts of each driver can also go either way, so a decrease in any score on the left will have a negative impact on satisfaction by the multiplier on the right.

This research supports several other industry studies that highlight the importance of a strong online and mobile banking offering. While once used by only early adapters, online and mobile banking are now 'table stakes' in the competition for members and deposits, and are becoming a point of differentiation for many organizations as they continue to roll out innovations (mobile check capture, photo bill pay, ATM locators, etc.).

Because of the importance, credit unions need to be in a position to at least keep pace with the leaders in the marketplace (including major banks), and potentially find solution partners that can provide differentiated applications for online, mobile and tablet service delivery.

In addition, at a time when financial institution branch and employee consolidation is inevitable, credit unions should be sensitive to the potential risk and opportunity for following the consolidation trend. With "branch staff" being the second most important driver of member satisfaction, the potential for cost savings through consolidation should be evaluated against the backdrop of the importance of the front office team to the perception of credit unions as being more consumer focused than their banking counterparts. 

“CUSI is an important tool for benchmarking and tracking its competitive differentiators," said CFI Group CEO Sheri Petras. "CFI Group is proud to have worked so closely with the industry to apply the proven ACSI methodology to evaluate current customer satisfaction, and how that satisfaction level will impact the ongoing success of its financial institutions."

Impact on Future Behavior

The CUSI model also measured the impact of each driver on potential future behaviors using the American Customer Satisfaction Index (ACSI) methodology. By using multiple questions around the importance of each driver and applying optimal weightings, the study was able to determine how the current overall satisfaction within the credit union industry could impact growth opportunities for the industry.

As shown below, all potential outcomes were strong, with retention of a member being most likely and the recommendation to a friend also being strong. While the score for using an additional service was also rated high, it is up to each credit union to take advantage of this future opportunity.

Relationship Growth Opportunities

In addition to analyzing member satisfaction, the CUSI research also determined product and service penetration among those surveyed. Similar to most financial institutions, the penetration of primary financial services (checking, savings, debit card) by credit unions was high across all age categories. For other product types, the penetration was lower than in the banking industry, and differs significantly across age groups (mostly caused by lifecycle needs).

Credit Union Product Penetration

Product Penetration by Age

Of more importance than product penetration, however is the purchase intent of the 400 random credit union members surveyed. Consistent with many other studies conducted for the banking industry, auto purchases are on the horizon for many households in the coming months. What may be somewhat unique to the credit union industry may be the high percentage of households that indicated a CD opening was in their future plans, possibly reflecting the older demographic mix at many credit unions.

Purchase Intent

What is important to note is that 'purchase intent' does not perfectly reflect reality, since people's financial plans and the reality of the economy, etc. can impact new account openings.

In addition, in light of the primary findings in this study, the potential for effective cross-selling can be significantly impacted by households doing more of their transactional banking through online and mobile channels. As online banking grows, interaction with branch staff will decrease.

This phenomenon will make it even more important that branch staff continue to have a strong interest in member’s well being, making sure that they (the members) are well aware of the additional products availability and the benefits of obtaining them through the credit union.

In addition to an increasing level of importance of the branch staff and all direct customer contact personnel, credit union marketers will need to find new ways to connect with members and to present product offers to members at the right stage of their buying cycle. This will require new technology tools and potentially new systems to better understand your customers and their needs.

Additional Resources

2013 Credit Union Satisfaction Index - CFI Group (May 2013)

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The Key Ingredient to Successful Business Development

During my first week here at MarketMatch, I’ve been commuting from Columbus to Englewood (a little over an hour drive) in order to get acclimated to the team and my new role as VP of Client Management.  I wanted to maximize this extra time in the car by listening to an audio book.  My business coach, Dan Stover, recommended a book to me about leadership, and so I spent those hours in the car this week learning about how to be a better leader.

One of the things that stood out to me was a point the author made about passion.  Our body language as we speak about something is the indicator of the amount of passion we have about the subject on which we are speaking.  Passion cannot be faked. 

You can know the ins and outs of a given service – for example, like all of the kinds of checking accounts your financial institution offers and their features.  But, if you don’t bank there and realize the benefits for yourself and really look to see how your credit union or bank is truly helping someone financially, your body language is going to convey something less than passion.  Therefore, the likelihood of making a sale is substantially less. 

How many conferences around the country have sessions for successful business development?  Like, a lot.  But here’s a piece of advice: your biggest asset as a business development person is yourself and the stories you have to tell. 

Even though banking is an errand, we are in the business of emotions.  People aren’t emotional about their loans!  They are emotional about what loans get them: a new car, a bigger house with a backyard for their kids to play in, a dream wedding, or a few extra dollars when ends won’t meet.  These are the stories on which we should be building our product suites, our marketing strategies, and our business development plans. 

Everyone has a story when it comes to their financial picture.  Find the stories.  Therein lies the passion with which you can weave a pitch to a new business client, a meeting with a potential new homeowner, or a potential employer group. 

Amanda

MarketMatch solves business problems for credit unions and banks through marketing by providing FOCUS, generating MOMENTUM, and creating measurable RESULTS.  

Contact me to learn how MarketMatch can help you with your marketing efforts, whether it is through marketing strategy, branding or rebranding, budget planning, and much more.  Learn more about all of our client services by clicking herewww.marketmatch.com/services.

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Are Some Banks Too Small to Survive?

With increasing regulatory capital requirements, declining interest margins, a greater need for investment in innovation and new competition, there are many in the industry who believe that smaller banks may have limited opportunity for growth in the future. 

These pressures may lead to an acceleration of consolidation in the banking industry that impacts both small and mid-tier banks and results in a significantly reduced number of institutions in the future.

While attending both the BAI Payments Connect and CBA Live conferences in Phoenix last month, discussions often revolved around the heavy financial and organizational impact of new capital requirements and of regulatory compliance being faced by institutions of all sizes. It was also clear that the investment in advanced technology and the pace of innovation was creating a distinction between the 'haves' and the 'have nots'. While there were some exceptions, this line of demarcation appeared to be defined by the size of organization.

The question I asked several industry thought leaders over the past couple weeks is whether smaller banks are in a position to survive given the massive industry changes on the horizon. While their responses varied regarding the chances of survival for today's community bank (and smaller credit union), there was unanimity in their belief that smaller institutions must quickly adjust to the 'new reality' of increased capital requirements and regulatory pressures, a greater focus on revenue, and a need to innovate for an enhanced customer experience.

"The thing that keeps me up at night is that we will likely see an industry contraction in the next decade like we never experienced", states Bradley Leimer, vice president of the $3.2 billion asset Mechanics Bank in California. We are moving from over 14,000 financial institutions today to less than 5,000 in the next 10 years (maybe sooner). This is due to the changing nature of consumer behavior with the introduction of mobile and social and technological innovation, but also due to systematic changes to the banking model itself."

Also supporting my informal findings, Emily McCormick, director of research and writer for Bank Director, interviewed the risk officer of an $8 billion bank holding company for Bank Director's 2013 Risk Practices Survey. He told her that, while he found a lot of positives in the regulations coming out of Washington, this could be a challenge for smaller banks that lack the resources and staffing to keep up.

McCormick also believes there's a technology challenge, "Internally, smaller banks need the right resources to do things like manage risk, but they also need the resources to compete. While smaller banks have the significant benefit of connections within their local business communities - giving these banks a potential advantage in business lending - customer expectations for services like mobile and online banking will continue to rise."

Increased Capital Pressures

According to an Invictus Consulting Group report entitled, Buyers and Bleeders, more than half of today's institutions will need to participate in some type of M&A activity based on new capital requirements alone. This includes as many as 2,000 banks that should sell due a lack of financial return and/or a lack of capital. In addition, the report believes that as many as 3,500 institutions have enough capital, yet lack loan demand and therefore need to deploy their capital to acquire banks that will grow their business. Unfortunately, even some of these firms with capital may not have enough to spend to grow to the level to be competitive.

An interview of Adam Mustafa, managing director of Invictus, was done by Bank Director Magazine to discuss the research report findings. 

Impact of Increased Compliance

According to an October 2011 research report developed by Aite Group entitled, Reducing Banks' Compliance Toll, the annual cost of compliance for banks well exceeds $1B. Unfortunately, many of these costs (personnel, software, etc.) are 'fixed' infrastructure costs which place a heavier relative burden on smaller organizations who still must comply with many of the same regulations.

According to the Aite report, however, many institutions have failed to take advantage of technology and process improvement steps that could reduce redundancy and paper intensive processes that are a major contributor to these costs. Aite (and many other consultancies noted in the report), believe that the end game is an 'electronified' organization that can eliminate paper and enable real time information management.

Unfortunately, this automation of processes requires a substantial investment that may bring long term benefits, but is not affordable to many smaller institutions today given other priorities.

The Innovation and Distribution Imperative

While we could discuss for days whether or not the improvement of branch-based, web, online and mobile interactions should be considered 'innovation', there is no disputing the fact that the typical banking customer is expecting more services, delivered through more channels than ever before. As I experienced in person at the two conferences in Phoenix, the investment in innovation is both required and substantial.

According to Leimer, "If community based institutions are going to relevant going forward, they need to be much more agile and much more focused on partnerships with technology providers and other similar shaped financial institutions. We must work together to partner and innovate to deliver community based services in a hybrid model - centralizing resources, sharing innovations, riding on non-traditonal service frameworks - the type of cooperation these institutions haven't historically embraced." 

In addition, as consumers embrace the smartphone and do more of their banking online and through mobile devices, additional negative dynamics occur. According to Sherief Meleis, partner at financial consultancy Novantas, the reduced importance of local branching means that banks are moving from being primarily local retailers (where the average community bank could simply out-local the big banks), to product/marketing organizations where there are indeed economies of scale. 

"In an environment where the branch importance is diminishing from a transaction perspective, it’s difficult for smaller banks to afford the required fixed cost (just like with regulation and compliance). Our analysis suggests that super-regionals and national banks have substantially higher returns to branch network position, due to their ability to invest in product innovation and brand marketing."

This position was shared in a recent American Banker article entitled, "Why Regional Banks Are The Right Size Right Now" where the case was made that regional banks benefit from the scale to absorb compliance and regulatory costs better than their smaller brethren, yet are nimble enough to develop new technologies that can improve service delivery and efficiencies. This was evident in their chart showing the ROE for different sized organizations.

Power of Shared Services

As shown above, critical mass is a "sine qua non" for success in today's highly competitive market place. One of the impediments to small size is that it gets difficult to embrace new technologies and improve your operating margin as investments in technology do not give the same payback as it would for the larger banks. Therefore small banks need to take advantage of some one else's strength and critical mass and deal with a service partners and business process outsourcers that are able to improve efficiency ratios.

According to Nicole Sturgill, research director for retail banking and cards for CEB TowerGroup, "Small banks have the opportunity to take advantage of single supplier discounts (i.e. using one solution for branch sales and service, online banking, mobile banking, etc.). In addition, there are a number of solutions that cater to the community bank and credit union markets, which offer lower pricing because they are selling to thousands of institutions (i.e. mobile RDC and PFM)." She adds, "While these solutions may not offer all of the wiz bang functionality of a large bank solution, the increased focus on personal service that a smaller bank provides may give them parity if not an edge on the larger banks."

While there are some very good banks of all sizes, the efficiency ratios get better as we have some critical mass, according to Sankar Krishnan, global banking engagement head for business process outsourcing leader, Sutherland Global. "Companies that provide operations and technology services to banks and are able to improve the operating metrics have a great role to work with the smaller institutions (Community, Regional etc). They can provide industry best-in-class knowledge and help support their efforts to get better on efficiency ratios and operating margins."

Some Small Banks May Survive . . . If They Have a Plan

There is very little doubt that, given the economic environment and the paucity of available capital for smaller banks, the number of banks will certainly decline over the next several years. This decline may simply be a continuation of recent history – or the consolidation of the banking industry could accelerate. While most of the advisors I contacted agreed that small banks must take an aggressive stance to increasing sales and reducing costs to survive, they also believed that some smaller institutions may be positioned to succeed in the future. 

Mary Beth Sullivan, managing partner of Capital Performance Group, thinks that earnings pressures for smaller banks will be even more significant in 2013 than in the past but states that many banks may not simply succumb to the pressures to consolidate. "Smaller banks are sometimes odd characters . . . many will continue to hold onto their independence as long as possible."

Serge Milman from Optirate warns that deploying technology and/or introducing products and services without the benefit of a comprehensive business strategy is an effort that is likely to disappoint.  "Just look at institutions that have deployed these tools and most will show little or no improvement in profitable customer growth, increased wallet-share and certainly, not higher ROE.  This approach is analogous to attempting a cross-country drive without a map (or GPS) --- no one would try this, yet Bankers do exactly this every day of the week!"

Milman continues by saying, "The journey to growth, profitability and customer loyalty must begin with a sound strategy that is supported with a measurable and implementable operational plan.  Community Banks can succeed, but to do this, they must embrace the reality that the world has changed and they must willing to adapt."

"There's only one strategy that makes sense for smaller banks: get more sophisticated about analyzing customer feedback and leverage the voice of the customer to prioritize which initiatives to pursue," stated Steven Ramirez, CEO of communications consulting firm Beyond the Arc in an email interview.

"Smaller banks have the potential to gather deeper insights about their customers, but few of them do. Since small banks can't invest in everything, they need to focus on what really matters in their local market."

Brad Leimer probably summed up the conundrum of smaller banks best when he said, "There is space for community minded institutions in the financial marketplace of the future - but they will look and act much differently than today - simply because the banking model has seen a significant shift."

Additional Resources

Buyers and Bleeders: Invictus Group (March 2013)

Bank Director 2013 Risk Practices Survey: Bank Director (March 2013)

Reducing Banks' Compliance Toll: Aite Group (October 2011)

Why Regional Banks Are The Right Size Right Now: American Banker (April 2013)

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