Apathy: The Traditional Bank’s Biggest Threat January 6, 2010
Posted by nichebanking in Niche banking, Problems with traditional banking, The Long Tail of Banking.3 comments
I always tell my banking colleagues that any bank or credit union’s number one competitor is not another bank or credit union. It’s apathy. It’s the fact that consumers just don’t give a damn about their banking. It’s weird: people care about almost nothing as much as money, but couldn’t care less about the banking services that support that money.
So how do you break through the apathy? You create an experience that engages people on their turf–the playgrounds of their lives. Engages their existing interests, their passions, their hobbies. You give them an experience that’s first and foremost about those things they love, and let the banking part come in where it fits naturally. It’s the difference between a bank having a sales culture, and having an engagement culture.
That’s niche banking.
Niche banking is the apathy killer. Think of it this way: traditional banking strategies and marketing are about taking banking, and decorating it in a way that attempts to encourage people to care. This rarely works, though, which is evidenced by the undeniable apathy consumers have for their banks. Niche banking is the opposite–it takes something people already care about, and just adds banking services as an unforced extension of that thing they already care about.
Ciao for now, PFI December 17, 2009
Posted by nichebanking in Niche banking, Nicheruptive, Problems with traditional banking, The Long Tail of Banking.add a comment
In my approaching-a-decade of working in banking, I’ve only come across one or two banks or credit unions who didn’t claim they wanted to be their customer/member’s primary financial institution (PFI). And to a certain extent, that’s a big “duh”, right? I mean, who wouldn’t want their customers to engage in financial monogamy?
I think we need to say goodbye to expectations of PFI status, and hello to role player status. The migration of certain (not all, I realize) customers to online-only direct banks and alternative financing resources (peer-to-peer lending, for instance) has created this wallet splintering even more. You might have your high-yield checking account at the local community bank, have a CD through Ally and then a personal loan through Lending Club. Each company plays a role in the customer’s life, but doesn’t have all the business, nor does it try to be all things to that customer.
Instead, it has that one piece of the business that it does really, really well.
This is really the same premise as with niche banks. Instead of trying to be everything to all types of customers, the niche banks we are building here at Nicheruptive are focused on doing what they can do really, really well: creating unique, social customer experiences that are 110% about that niche’s passion. The banking is secondary.
So will Nicheruptive banks not want to be their customers’ PFI? It’s not critical, and we don’t expect that we will be PFI for most of our customers. But the irony is this: we’re confident that our long tail approach to banking is going to create much more passionate customers than any other bank or credit union…meaning we just may get more of their business after all.
Micro-segmentation: The basis of niche banking December 2, 2009
Posted by nichebanking in Bank customer segmentation, Microsegmentation, Niche banking, The Long Tail of Banking.4 comments
Earlier this week on Twitter, we were pleased to see some good conversation about niche banking (check out @miinsider, @jenshefner, @stacyliz and @matt_vance on 11/30/09 for some of the conversation exchanges).
@Matt_Vance used the term “micro-segmentation” in his tweet, asking if there was really a point to micro-segmentation in banking. Based on the concept of the long tail, the answer is a resounding yes! In fact, it’s micro-segmentation that is truly the basis of niche banking: dividing customers into tiny segments. (Special thanks to Matt for providing a great term, micro-segmentation, for us to use in explaining our concept.)
But the key for niche banking is in how the micro-segmentation happens. For long tail banking, customers must be micro-segmented by interest, passions and pursuits…not by demographics. I point this out explicitly, because the natural tendency in banking is to slice and dice customers and targets by criteria such as age (Gen Y), geography (within a region, or a credit union’s charter zone), social status (high net worth, etc.), race or profession (business owners, teachers, etc.). With niche banking, though, it’s important to tap into people’s passions, and become part of the communities that form around those passions. After all, it’s not “being a business owner” that brings people together into social communities, it’s a passion for being one’s own boss, or commiserating about cash flow woes, that brings people together.
Bye Bye Mass Appeal; Hello Niche Appeal November 24, 2009
Posted by nichebanking in Bank customer segmentation, Niche banking, Nicheruptive, The Long Tail of Banking.4 comments
In the last post, “Why Small Slices Didn’t Work…In the Past,” we discussed how in the “olden days” (like last year) a brick-and-mortar bank would need to have mass appeal in order to attract the critical mass of customers needed to make the bank viable. This resulted in very bland, diluted brands that don’t offend anyone…but also don’t really resonate with anyone.
With the Internet, however, that’s no longer the case. In fact, the Internet is making that approach totally obsolete. You see, the web is amazing at delivering tailored, specific and relevant content to people, based on what they’re interested in. You’re into left-handed crocheting? No problem. Love baking your own vegan dog biscuits? Easy to find others who share that passion.
In fact, not only has the Internet enabled this, it’s training us to expect this level of niche information. It’s showing us that we no longer have to put up with boring, generic content or experiences.
Thanks to the Internet, banking today knows no geographic boundaries–and there’s no need to try targeting every-other-person in a specific region, in order to create a viable bank.
Let’s look at a rough, crude calculation, just to make a point. Each US-based Internet direct bank has access to the 227 million Americans online. If you assume an average $2 billion bank might have maybe 50,000 customers or so (just a ballpark), that means each of those banks needs 0.02% of the US population as its customer. Two one-hundredths of a single percent. That’s a pretty small and narrow slice of the population, and you don’t have to cast a very wide net to get that portion of the market. So why are banks marketing as if they need to be attractive to everyone?
See–there is no need to be generic anymore. In fact, there’s a need to NOT be generic anymore. There’s a need to be so ridiculously focused that you can deliver a highly specialized niche experience that a certain group of people will LOVE, and all the others (the vast majority) will hate. Today, mass appeal is almost off-putting. It’s niche appeal that gets people fired up and passionate.
The question then, of course, is how exactly do you go about doing that? The answer to that question is exactly why we formed Nicheruptive, and we look forward to sharing our plan with you.
//2FVVEF9FJXPW
Why Small Slices Didn’t Work…In the Past November 18, 2009
Posted by nichebanking in Niche banking, Problems with traditional banking, The Long Tail of Banking.3 comments
In our last post, “Niche Banking: A Big Chunk of a Small Pie,” we discussed how the future of banking (niche banking, of course) will be in serving high percentages of small, narrowly defined customer segments. This begs the obvious question: “well, Mr. Long Tail Know-It-All, if pursuing high percentages of small, narrowly defined customer segments is so brilliant, why hasn’t the industry been doing it all along?”
It’s a good question.
Here’s why. Before the Internet became a primary delivery channel for banking services, banks were only brick-and-mortar based. If you wanted to start a de novo bank, you’d raise millions upon millions of dollars in capital, jump through the pain-in-the-butt regulatory approval process, and eventually open your doors. At that point, you had a huge financial burden to dig yourself out of, and a finite amount of branches (often just one) to work with in order to generate revenue and eventually profits.
You also had a finite potential market to pull customers from–probably the folks living within a 5 mile radius of your branch (unless you were in a super rural location, most customers would not drive more than 5 miles to get to you when there was another bank closer and more convenient). So, what was your strategy? Well, obviously, it was to be as widely appealing as possible to your potential market, so that you could draw enough customers to be viable and pay for the huge costs of capitalization and start-up that you just endured.
In other words, you had to be vanilla and generic enough so as not to turn anyone off…because you needed a lot of customers in order to make your bank viable.
In other words, you had to have mass appeal.
“So,” you may be asking yourself, “what has changed? Isn’t that still the case?” Well, no, it’s not necessarily the case any more. And the reason is that the Internet has created a whole new method of delivery that:
- breaks these geographic confines of the past
- greatly lowers the ROI hurdle
- allows for much stronger and more distinct brands to emerge, for more narrowly defined customer segments
If you’re lucky, maybe we’ll explain more in the next post. 
Stay tuned.
Niche Banking: “A big chunk of a small pie” November 11, 2009
Posted by nichebanking in Niche banking, Problems with traditional banking.1 comment so far
A big chunk of a small pie. This headline is just 7 short words. But it represents a whole new way of segmenting the market of potential customers. Here’s what I mean:
Today’s banks look at the entire market (defined by geography and often demographics, but rarely more narrowly defined than “you can fog a mirror and live within 3 miles of our branch”) and try to gain a share of this market. In other words, today’s banks get a small piece of a big and extremely broad market.
Niche banks do the opposite. They look at the entire market, and then define a narrow slice of it (defined NOT by geography or demographics, but by psychographics, interests, passions, etc.). Then, they try to gain a LARGE share of that tiny little slice. We’ve put together a graphic to show the difference between traditional banking and niche banking.
Click to enlarge
The long tail of banking is about these small slices…and lots of them. So why don’t we see this strategy in the banking industry today? Because this doesn’t work in a brick and mortar world…which we have lived in until recently. More on this in our next post.
Banks: Target How Many Market Segments? November 4, 2009
Posted by nichebanking in Niche banking, Nicheruptive, The Long Tail of Banking.add a comment
Today, in my normal Twitter activity (@nichebanking), I came across this good post on BankInnovation.net, called Target Niche Markets with Enhanced Online Experience. It starts out with a good, simple question: ”How many different market segments should banks target?”
I’d like to respond to a slightly different question: ”how many different market segments should the banking industry target?” My answer: infinite. This is exactly what the long tail of banking is all about–going further and further down the tail, “slicing and dicing” customers into lots and lots of unique segments based on psychographics rather than demographics or geography. Right now, as the article points out, the industry’s idea of segments is “consumers, small businesses, and micro-businesses.” These segments are about .2 centimeters down the tail. Instead, there is an opportunity for banks to go MUCH further down the tail, as the article (and the speaker at the BAI Retail Delivery Conference) points out.
As for the question of how many different segments an individual bank can target, that answer is depends on the bank’s ability to commit to a new model of doing business. Based on the Nicheruptive way of thinking (and I believe what Harris Bank’s Nate Wehunt was insinuating), a “bank” could target dozens of different segments…and the customer wouldn’t even know or care. That’s because the key, of course, is that it may just technically be one entity (a “bank”) but in practicality and customer experience, it would appear as dozens of different banks.
What is The Long Tail? October 29, 2009
Posted by nichebanking in Niche banking, Nicheruptive, The Long Tail of Banking.4 comments
Who needs who? October 19, 2009
Posted by nichebanking in Niche banking, Problems with traditional banking.2 comments
Have you ever noticed the incredibly different tone and dynamic between a bank or credit union’s deposit-oriented relationships, and lending-side relationships? In a nutshell, here’s how it goes:
Deposit Relationship: The bank/credit union needs the deposits badly, but has absolutely no value proposition to help it win. Plus, the customer can go anywhere and get basically the exact same product. So the bank is desparate to get whatever deposit dollars it can get. In other words, the bank needs the customer worse than the customer needs the bank. Keep in mind deposits cost the bank money.
Lending/Borrowing Relationship: The bank/credit union needs to generate revenue, which it does by lending. The customer can turn to many different sources to borrow their money. The bank’s message and tone is “we’ll see if you can qualify to borrow money from us, and if you do, we might do you a favor and lend the money to you–consider yourself lucky.” The dynamic of the relationship is such that the customer feels lucky to be granted the blessing of borrowing money from this bank. In other words, lending is how the bank makes money, but the bank acts like the customer needs them worse than the bank needs the customer.
So to sum up, in the arena where the bank really needs to earn business so that it can make money (lending), it makes customers feel like they are lucky to even be considered for a loan. They might as well put a sign on the door that says “Welcome–just a reminder that you bank here because we let you be so lucky.”
Is this ass backwards or what?
This dynamic is interesting and odd–and quite different than what happens in other industries. For instance, if I walk into a car dealership with $25k in my pocket and want a Honda Accord, I feel like I have the leverage. I’m the one with the money, they’re the ones starving for a sale, and I can get the exact same product at a dealership down the street. And I’m not afraid to let them know that I have the leverage, and if they want my business they have to earn it.
This is not the case in banking, though…for some reason. In the future follow-up posts (Parts 2-?), we’ll examine why this is the case, and most importantly, how a niche banking model changes and improves this dynamic.
And hopefully lots more. Please add your comments and ideas to the discussion.
Who We Are…In Case You’re Wondering October 15, 2009
Posted by nichebanking in Niche banking, Nicheruptive.add a comment
If you’re following us on Twitter (@nichebanking) or reading this blog, you may be wondering who we are. After all, our website, http://www.niche-banking.com, doesn’t give any names or much contact info. So what’s the deal?
Well, it’s not a secret. We’re not trying to play games with you (although this anonymity is kind of fun, we admit). Seriously, though, we’re simply trying to get a few more ducks in a row before we open the kimono completely and share with you the full extent of what we’re up to. Believe us, we are REALLY excited to share it with you. And yes, we think it will be big. Super big.
Thanks for your patience, your interest and letting us participate in your communities: your blogs, on Twitter, etc. We look forward to sharing all with you shortly! In the meantime, carry on…
