Community Banks and Credit Unions face a significant disadvantage in their pursuit of winning customers. Only 9% consumers switch their bank, they evaluate fewer than 2 banking options, and less than half of banking customers purchase additional products from their primary banking provider.
2nd Annual Edelman ‘Trust in U.S. Financial Services’ Survey released on February 23, 2011 finds that trust in Financial Services providers has decreased since 2009 due primarily to the perception that financial services companies have acted in a greedy manner and that the industry itself has made the problems worse. The survey was conducted in November 2010 with over 500 US consumers with the following demographics: Only 50% trusted Financial Services firms in general, and Community / Regional banks were deemed more trustworthy than Large National Banks by a wide margin. However, Affluents were less trusting of the Community / Regional Banks and more trusting of the Large National Banks than Individual Investors. This is of course, very disturbing, as most Community Banks rely on the Affluents to drive their institutions growth and profitability. Further analysis indicates that that Financial Services Firms underperform substantially on three key Trust metrics – Honest Communication, Transparency and Fair Pricing. Probably the most encouraging finding is that Bankers are still considered most credible sources of information, over Friends or Family (by a factor of 2x), over marketing / PR materials (factor of 3x), and CEO/CxO (by a factor of 7x). Edelman – [Read More...]
FDIC just released the updated Quarterly Banking Profile report for 4th Q 2010. Assessment of the report is a must for all Bank Executives (as well as Credit Union executives) as they evaluate their strategic plans and growth initiatives for 2011. 91% of the 7,657 Banks in the country are described at Community Banks with assets less than $1b; another 560 Banks are larger Community Banks / emerging Regional Banks with assets between $1b – $10b, and 107 Banks classified as mega-banks with assets greater than $10b. However, the 107 mega-banks control the vast majority of the market based on Assets and Deposits. On the flip side, the Community Banking segment that represents nearly 7,000 Banks and accounts for 91% of all institutions controls less than $1.5 trillion in assets and less than $1.2 trillion in deposits. Yet, the Community Bank sector is performing much better than the emerging Regional Bank or Mega-Bank, with Asset Yields of 5.17% and NIM between 3.79% and 3.89%. What is remarkable, is that the higher NIM is achieved despite the much higher COF. However, there is a problem. Community Banks underperform their larger peers – and underperform significantly [Read More...]
We believe that demographics and legacy decisions about branch locations will have severe repercussions for many Banks and Credit Unions. Executives in these institutions should be proactive in examining their specific situation, as well as exploring opportunities to grow their addressable market via “virtual branches”.
Bank Innovation recently started a discussion on Innovation within the Banking Sector. This is a topic ‘near and dear’ to me as I believe that Banks – and particularly Community / Regional Banks must take a leadership role on Innovation, if for no other reason than just pure survival. The following are my comments on Innovation in the Community / Regional Bank sector: Innovation is hard work and not everyone is capable. In large banks, there are typically a handful (literally) of people who are capable of thinking outside the box. These individuals contribute ideas and push hard to see them through the labyrinthine go-to-market process. Smaller institutions typically do not access to these types of individuals and/or their skill sets. My view is that what will emerge is a bifurcation in the industry – value added and commodity based services. Most retail banking services, are by definition commoditized, and thus can only compete on price (higher deposit rates and lower loan rates). As a result, Institutions pursing this strategy will need to focus on scale and/or specialize (eg. razor thin margins but very high volume; morph into a lean-and-mean loan production factory rather than a true retail bank) or [Read More...]
Thomas Brown of BankStocks.com reported from the Bank Director magazine’s annual “Acquire or be Acquired” conference in Phoenix that which we have all known for some time: regulatory pressure is escalating at an exponential rate competitive pressures are increasing As a result, scale is required to compete in today’s environment. It is widely believed that any bank under $1b assets will be challenged. The problem is that few buyers are interested in anything other than pristine organizations that present a meaningful opportunity.
Somewhat off the topic, but I thought that is a very interesting read from HBR. The paper entitled In a Downturn Provoke Your Customers, senior strategists talk about how best to engage with prospects to win deals. I found this piece to be of great insight, and believe that there is much that can be leveraged by Banks and Credit Unions as they evolve their thinking on how to differentiate in competing for customers – both retail customers and business customers.