Jeff Judy

Jeff's Thoughts - November 5, 2014

Will "Financial Services" Mean You for Future Customers?

We're in the financial services industry, and these days there is a bewildering array of products and services available to our customers.

But it's the basics that bring them most of them in the door in the first place, namely, payment and repayment. That is, our industry supports the payment systems our customers use, and loans them money to pay for things as well ... expecting, of course, full and timely repayment of those credits.

On the payment side, we still talk about "checking accounts", even though our customers rarely write actual checks against those accounts! As written checks have been disappearing from our society, credit cards and debit cards and on-line bill pay have taken their place. We are still the facilitators of payments, even if the technology has changed.

On the credit and repayment side, when people need money, for their personal needs or for their businesses, they typically visit a bank or credit union, virtually or in person.

In other words, we are still associated with the most fundamental needs people perceive around money. But it is getting more and more difficult to assume that we will continue to be the default provider of "financial services", even of the most basic kind.

The traditional credit cards, for instance, no longer have the market to themselves. Anyone with a smart phone has the option to use the Google Wallet or Apple Pay systems to pay at some retail locations. Add to the mobile payment mix CurrentC, backed by retailers like Walmart, Best Buy, and Target. And then there are even alternative currencies like Bitcoin.

On top of all that, what about recent credit card problems at some major retailers? Yes, I know, those massive data breaches were not the fault of the card issuers, but the public isn't fussy about those details. To some extent, they broadly attach recent problems with the major brand names among credit cards, so new options are all the more appealing, especially to a generation that lives on their smartphones.

As for credit, options are growing there, too. The peer-to-peer lending site Prosper claims two million members and more than a billion dollars in loans funded, a number that is impressive when you consider the small amounts that members actually loan to one another.

Or consider crowdfunding sites like Kickstarter, where again individuals provide needed funds for specific projects. Originally most noticeable in the arts, the range of these resources has expanded dramatically. Recently, a nationally-recognized restaurant in my community built a whole new building, and they funded much of the kitchen equipment, some of the "nice to have" tools of their business, through Kickstarter. That's a small business loan that some community bank did not make.

Does this all really matter? I think so, on two levels.

First, as in the restaurant example above, these alternatives to the traditional banking industry are starting to become direct competition. How far that goes, it may be too early to say, but it is likely that more and more sources of financial services will be coming on the scene.

Second, and more importantly, these alternative services, aimed at the most basic functions our industry serves, can powerfully influence perceptions among the next generation of potential customers. Up to now, these services have truly been "alternatives" to the mainstream. But in the near future, a credit card or a deposit account or a traditional credit may come to be seen as just one among many options, and by no means the most likely option.

Then how do you get those new customers in the door, to expose them to a wider array of products and services? And make no mistake, these largely consumer services are moving in the direction of your business customers as well.

I'm sure your institution has a mobile app and a fancy web site. But were those built in anticipation of customer needs, or in response to the competition? If you are just keeping up with what others are doing, you are already falling behind.

It's a great time to know your customers, something that smaller institutions can do exceptionally well. Use that knowledge to decide where you want to compete, where you want to leave the field to others, and how you want to position yourself to be relevant to the basic financial services needs of the 21st century.