Letting customers outgrow niche banks October 22, 2010
Posted by nichebanking in Niche banking, Nicheruptive, Problems with traditional banking, The Long Tail of Banking.add a comment
One of the traps that most traditional banks and credit unions fall into is feeling the need (maybe even the duty?) to have products and services that serve customers throughout their entire lives. The thought of losing a customer because they have evolved or outgrown the company is terrifying to the bank. And it doesn’t take a rocket scientist to see how this feeling leads to the overly long product menus we see at today’s financial institutions, and the “we can be–and WANT TO BE–everything to everyone” mentality that is so pervasive.
So let’s go ahead and get one thing straight right now: Customers will frequently outgrow Nicheruptive‘s niche banks. They will move on when we no longer fit them. And not only is that totally OK, it’s critical.
Here’s they key: The wider range of customers and/or needs you try to serve, the less you can possibly truly tailor your experience to a niche group of people. The more you stretch to accommodate more breadth, the more you stray from your vision. Instead, our banks will be boutiques.
Nobody goes to In-N-Out because of the wide range of food choices to fit any lifestyle. Nobody goes to ING Direct for full-service banking. And those aren’t even niche companies…just companies with a commitment to their strategies. Just imagine the focus a true niche bank will have.
The Easiest Part of Banking: The Banking July 26, 2010
Posted by nichebanking in Future of banking, Niche banking, Problems with traditional banking, The Long Tail of Banking.add a comment
Every industry, every business, has aspects that are challenging and difficult, and others that are easier. If your business is making movies, getting people excited about your product is relatively easy (because people love movies!). But crafting a unique and compelling story, and getting it funded, produced and distributed within budget, is the harder part.
In banking, it’s the exact opposite: ongoing banking operations are pretty easy, while attracting customers in a way that allows you to optimize your net margin and grow both sides of your balance sheet is the harder part. Most bank and credit union CEOs I know don’t spend much of their time on questions like “how are we going to get these transactions processed? or “how are we going to process these loan applications?” Instead, their focus is on issues like growth and management–the more truly challenging parts of the business.
Yet when bankers sit down to answer a question like “how are we going to grow?”, the solutions they arrive at are, ironically, all about improving the “banking” part of their business. Their answers tend to be things like “we will enhance our online service delivery,” “we will innovate our products and services,” and “we will provide the greatest customer service in delivering our products to customers.”
In other words, “we will improve the banking part of our banking.”
This is not where the energy should be focused.
The hard part of banking is not the banking itself–that’s the easy part. The hard part is creating something that people care about, breaking through apathy, and creating engagement that will drive the business forward.
That’s why the future of banking will be owned by banks that figure out how to address this hard part, and stop spending so much energy fixated on the same things the rest of the industry is obsessed with. They will understand the difference between “extreme customer satisfaction” (the typical goal) and “actually caring” about the bank (a yet-to-be-reached achievement, which should be the real goal). They will create huge separation between customers who can “gladly tolerate” doing business with them (like most community banks and credit unions), and customers who relate so strongly to the brand that they feel incomplete without it (like Apple’s customers).
A long tail bank is all about achieving exactly those goals: addressing the hard part.
A Terrible Fit For Most People May 15, 2010
Posted by nichebanking in Bank customer segmentation, Niche banking, Problems with traditional banking.1 comment so far
One of the fairly universal things about today’s banks is that–while they may not admit it–they generally believe they can be everything to everyone…all varieties of needs, and all varieties of values.
Serving All Varieties of Needs…: You’re unbanked? We’ve got products to help you build a credit history. You own a small business? We can help you grow. You’re affluent? We’ve got private banking services! Etc.
…And All Varieties of Values: You like to bank remotely without talking to anyone? We’ve got all the latest in remote deposit capture, mobile banking and more. You like a lot of in-person hand holding? Great, because we’re relationship bankers! You’d prefer better rates over personal service? Guess what, we can give you both! Yada yada.
When you’re a niche bank, it’s an understatement to say you don’t want to serve everyone. In fact, you know you’re a flat out TERRIBLE fit for 99% of people…and even if those 99% wanted to bank with you, you wouldn’t let them. You’d turn them away, because you know you’re not a fit for them, and that ultimately they’ll only be so-so customers at best.
But guess what? Those 1% of people who you ARE a good fit for? You’re not just a good fit, you are an AMAZING fit for them. You are their dream come true, and they’re better customers than you could ever hope for.
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.
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.
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.
