Banks Should Choose One Thing and Do It Well
Community banks should take a lesson from Olympic athletes: Decide what you want to be the best at and then work hard at doing that thing better than everyone else.
You don’t see Michael Phelps trying out for the track and field team. As a gifted athlete, he could probably become a decent runner, but rather than waste time becoming a mediocre runner, he spent his hours and hours of training time in the pool, perfecting his stroke and reaching the pinnacle of his sport.
Do you want to excel at running? Or do you want to excel at swimming? Or in banking terms, do you want to excel at being the best retail bank with an infrastructure to support an omnichannel strategy, better technology in your branches from touchscreens and video conferencing to next generation ATMs? Or do you want to excel at offering the best business banking experience to your business customers with leading cash management products, merchant services, and robust commercial lending facilities? Because unless you’ve got a huge technology budget, it’s likely that by trying to do everything, you won’t do anything really well.
The days of community banking doing everything will continue, but having a niche is a requirement. Having a branch at 5th and Main is not as important as it once was, because technology makes every bank local. Look at some of the most successful banks today (other than the largest of the large). They tend to be focused with emphasis on a particular area of banking. Banks with a focus on environmental sustainability, for example, attract customers from throughout the U.S., and they tend to lend almost twice as much of their assets on their balance sheet when compared with the big banks, and deliver comparable returns on assets.
Live Oak Bank ($430 million) states it is the nation’s only bank whose sole mission is to lend to independent business owners. Evergreen Bank Group ($510 million) has developed a nationwide niche in lending to consumers purchasing high-end motorcycles. GoBank, a brand of Green Dot Bank ($821 million) and is a subsidiary of Green Dot Corporation is a technology-centric, pro-consumer Bank Holding Company with a mission to reinvent personal banking for the masses.
In the search engine age, the proliferation of review sites — everything from Trip Advisor to Yelp to Glassdoor — is changing how consumers and businesses choose products and services and yes, even banks. Think about how you search for retail products. Whether it’s a big screen TV or a hotel room, chances are that in addition to a Google search to get a listing of potential TVs or hotel rooms, you’ll look at review sites to see what others have to say. You do your homework before you even set foot in a store or walk into a lobby of a hotel.
And for the younger generation, reviews on the Internet are incredibly powerful. This is a generation that goes online for all its information. The typical 26-year-old doesn’t ask his dad where to get a car loan—he looks online and reads reviews.
When customers review your bank, what will they write? Will they describe how your bank is a decent, all-around bank or will they describe what made their interaction with your bank stand out? Chances are they’ll write specifically about their experience with your account opening process or friendly service or quick decision on a loan.
Take a look at the customer reviews for Simple. From reading those reviews you get an immediate sense of the bank’s niche and what it excels at: Helping customers get a handle on their financial lives with smart budgeting and saving.
Another reason that doing one thing well or ‘niche banking’ is key is that consumers and business owners will search online for a specific attribute. They won’t do a Google search on ‘bank,’ but they will do a Google search on ‘bank with the best fees’ or ‘bank with best veterinary loan’ or even ‘best green bank.’
And no one is going to search for ‘best community bank.’ The vast majority of consumers have no idea what ‘community bank’ means. They are also not going to search for ‘best checking account.’ The younger demographic doesn’t even know what a checking account is. They think in terms of debit accounts but banks continue to use outdated terminology to describe their products and services. If you don’t know what to call something, ask your kids.
For your community bank to survive, you need to define your niche. Once you pick your playground—what you are really good at—you can compete against the larger banks. Trying to compete against the larger banks with their huge technology budgets in all areas just means that you will always fall short. A community bank simply doesn’t have the both the breadth and depth to appeal to the masses the way a Chase or BofA or Wells can. Why even try?
However, if you pick one thing to do really well, you can stand out in your market. By picking a niche, you will be able to funnel your budget into that product and service and innovate.
Paul Schaus is the president, chief executive officer and founder of CCG Catalyst, a bank consulting firm. Contact him at consultant@ccg-catalyst.com or 1-800-439-8710.
