Data and Audience
This isn’t the banking David versus Goliath scenario that most business leaders think it is.
In 1984 there were 18,000 different bank branches across the US. Today there are less than 5,000. The number of new banks has fallen to a record low, and the number of credit unions has also fallen from about 15,000 in 2004 to about 5,000 today. That is a steep drop in what is still a foundational industry, and those numbers will most likely continue to drop. It begs the question: With fewer financial institutions out there, shouldn’t there be less competition for certain mid-tier banks and credit unions to step up and fill the market shareiMarket share is the percent of total sales in a particular industry generated by one company. For example, if the global athletic footwear market is a $98 million business and Nike does 50% of those sales, they have a 50% market share in that industry. Market share is a standard measurement used to compare the size of a business in relation to its overall market and compet... Read More vacuum? Not exactly. Despite this reduction in the number of banks and credit unions, competition has increased— just not from rival banks and credit unions.
Consumers now have more options on where to bank than ever before because there has been a remarkable emergence of fintech competitors over the past half-decade. Quicken, Chime, SoFi, Acorn, and many others are the kinds of competitors that have moved quickly to address pain points and markets that banks and credit unions compete in. These new entrants offer new, customer-centric solutions to take consumers away. Whether it’s products with no annual fees or interest charges, no credit checks needed to apply for services, or no minimum security deposit — the fintechs have slid into soliciting their way into new consumers’ financial relationships by offering easy advantages and tech-friendly, in-demand services over most banks on credit unions.
The competition shows no signs of stopping, and not even in just the financial services industry. Sixty percent of executives said, in an Accenture survey, that their companies intend to regularly venture into other industries to spur growth. 2020 analysis by Competiscan determined that “fintechs are positioning themselves to their prospect base as the sole source for their clients’ financial needs. While many fintechs began with a foothold in one product category like personal loans or mobile investing – most are diversifying their product lineup to provide a suite of solutions that allow consumers to bank, invest, borrow, and manage their finances from one platform. This strategy is more convenient for the consumer.”
Rethinking the Competitor Landscape
Research from McKinsey suggested that banks and credit unions need to stop looking at traditional direct competitioniDirect competition occurs when two or more businesses offer the same product or service and are competing for the same customers. For example, McDonald's and Wendy's are direct competitors because the both offer a fast-food burger. Zoe's Kitchen would not be a direct competitor to McDonald's or Wendy's because they offer fast-casual Mediterranean food. They would be an ind... Read More and reassess just who their primary competitors are at this point in time.
“In almost all cases, banks will need to rethink their business model to defend against new competition and seize new opportunities,” the research explained, specifically when it comes from fintechs assessing gaps in the bank or credit union customer’s journeyiThe customer journey is a customer’s path from discovery of your product or service to their decision to purchase. Did your customer click on an ad for a Caribbean vacation and then maybe look at additional photos of the islands? Maybe they Googled “best places to stay in the Caribbean” or asked friends on social media for feedback from their trips before returning t... Read More to address their specific financial needs. These gaps include providing a seamless transition across all of a financial institution’s channels (branch, call center, online, and more), streamlined operations which substantially lowers costs, and a flexible customer service model which could move the customer along on their path to purchase the product or service.
A study by Harris Poll underscored this point as well: “Too many community financial institutions insisted on having their digital experience measured against their peers and competitors. This limited view created a false sense of security regarding the critical need for elevating their digital game, i.e., ‘Our digital experience needs work, but our peers are in the same boat.’ This mindset also led to a decrease in the sense of urgency institutions had about improving their digital experience, i.e., ‘The other institutions can’t move any faster than we can, so we can proceed with business as usual.’”
While some financial institutions offer fintech-inspired services — such as early check access and overdrafts with no fees — fintechs will gradually continue to cherry-pick the very best customers from traditional institutions and grow their portfolios. But as the Goliath in the space going against the Davids that are quickly achieving scale, banks and credit unions must look to disrupt themselves before the increased fintech competition. Here’s how.
1. Align on the Best Segmentation
In 2022, Millennials will become the largest segment of the population. Millennials have always been digital-savvy users and they will continue to push digital engagement. But banks and credit unions must be able to identify prosperous customer segments like millennials that are beginning to enter their peak economic and household-forming years, and capture the share of voice surrounding acquiring more customers like them.
Because of this segment, domestic economic growth should see a lift over the coming decade and beyond. So focusing on this segment, while not abandoning the highly loyal existent customer, means focusing on the future.
While brick and mortar branches will not be completely phased out for traditional banks and credit unions, Millennials are expecting to see an integration of digital and traditional channels to provide them seamless self-service for mortgage, consumer finance, and banking products and services. But banks and credit unions can’t expect to beat the fintech competition by just being more digital. This leads us to the next point.
2. Leverage Customer Data
While fintechs lead financial institutions on technological prowess and lower costs, banks and credit unions still have some inherent digital advantages. Huge customer bases and an extensive array of services must be energized by vast amounts of customer data, which the upstarts lack.
Customer data is an asset no other company has and can be used to help banks and credit unions provide proactive advice to customer segments. This translates into offering the consumer relevant and localized personalization in marketing communications like rate changes, savings benefits, convenience, branch addresses, and more.
Instead of a passive strategy of having customers come to banks and credit unions to save money and make payments, the wealth of data can easily differentiate brands from fintech competitors by knowing how to market at the beginning of the buyer’s journey when events occur in the buyer’s life that would result in the need for new products or services. Balance increases or decreases, debit transactions, and call center dispositions can also be leveraged to indicate the types of products and services that the consumer may need in the future.
Using this data, brands can hyper- personalize marketing communications across all channels.
3. Adapt AI-Driven Tools
Artificial Intelligence-adjacent automation is currently being used by many financial companies to prevent fraud, drive new services development, and optimize call center operations. Common marketing automation applications combine segmentation, targeting, channel preference, and personalization to provide a better digital marketingiDigital marketing is the two-way conversation that takes place between a brand and consumer through online marketing methods including websites, social media, mobile devices, blogs, video and email. Traditional marketing, which might have utilized a billboard or magazine ad, is considered one-way communication since the consumer can’t interact. Digital marketing gives th... Read More experience with customers to deliver content they want, when and where they want it.
This ability to get out ahead of expectations is a huge advantage for banks and credit unions. Maybe customers are using the financial institution’s mobile banking app to check their balance, or they’ve visited a branch to inquire about a personal or business loan, and maybe they’re new customers altogether. Automation gives banks and credit unions the proactive ability to roll out personalized cross-selling and upselling opportunities based on that activity across products. The range of the unique digital experience means utilizing AI-driven tools to be relevant at the individual customer level.
Banks and credit unions can’t sit back and think they’re only competing with other financial institutions any longer. The lines between what is a tech platform and what is a banking platform are constantly blurring, with new products and services looking to sweep up decades of market share dominance springing up every day. Providing solid accounts and access to funds isn’t a competitive advantage, and the future of banks and credit unions depends on overcoming increased competition from fintechs by helping customers save and better manage money in their everyday lives.