A good example of themes can be found in Sin City. Take, for instance, the Paris casino and the Venetian casino in Las Vegas. These are essentially exactly the same product, just with different motifs. They are both still casino/hotel/resorts with the same business model.

Some people may incorrectly argue they are niches. That’s not the case for these companies–here’s why:

• They make money the same way: they sell hospitality experiences, provide gambling, shopping and other activities. Their revenue and expense categories are very similar.
• The experience they deliver is the same. Sure, things “look” like Paris or Venice at either venue, but the experience they are selling is the same.
• The experience is not authentic–it’s cosmetic and faux.
• The experience is not engineered specifically for customers of a certain segment.  People don’t come to The Venetian because they have a common love for Venice; they come because they want a fun Las Vegas experience…which is the same as what the Paris sells.

There are existing theme banks. Take Redneck Bank for instance. Catchy, funny and gets attention.  But does it create a true experience tailored to a certain group of people who align with being rednecks? And does it make money in a unique way that is centered around this redneck service?  Nope. It’s just like any other bank, but it comes in a different flavor.

The world deserves true niche banks.  That’s where Nicheruptive comes in.

Today, let’s discuss the differences and establish some definition:

Theme
A theme is like a motif. A creative idea that ties multiple parts of something together. Most importantly, it’s decoration. It’s a costume. It’s a flavor. It doesn’t change the core item itself, it just adorns it in a consistent and thematic way that is meant to attract certain people. “Under the hood,” a theme bank is the same as any other bank, it’s just dressed up differently to be more interesting to certain target audience members. The bank’s business model is still the same; it just has a consistent and unique aesthetic, cosmetic layer. Any existing bank could convert itself to a theme bank by simply putting on a new costume.

Niche Concepts
A true niche concept is not decoration, a flavor, a costume or any other type of cosmetic layer. Instead, a niche concept alters the item itself, so that the item is built differently to better serve a specific audience. “Under the hood,” a niche concept bank is not necessarily like other banks at all. It might not make money in the same way as others. It might not be organized the same way, staffed the same way, or provide the same products or services. Its business model is different. As a result, it does look and act cosmetically different on the outside…but it’s also different on the inside.

It’s important for us to gain a common understanding of the differences between themes and niche concepts. Those who don’t understand the difference will perceive the niche banking movement as a new marketing gimmick. Those who get it will see it’s a revolution that will change the industry’s DNA.

Stay tuned for more discussion on themes vs. niche concepts.

In this case, today’s banks don’t develop strong niches because they are afraid.  Afraid of what, you ask?

Afraid of leaving opportunity on the table.

Afraid that if we don’t cast the net wide enough, we won’t catch enough fish.  Afraid that if we aren’t as generally acceptable to the masses as possible, we won’t maximize our customer base. Afraid that if we don’t maximize our customer base, we won’t make as much money as possible.

So the question becomes, is this fear legit? Are we justified in being scared?  Are we not afraid, but actually just being prudent and responsible?

To be fair, it’s understandable that there is so much fear. Being broad (the opposite of niche) seems like the commonsense strategy to gain a critical mass of customers. And in the olden days, like pre-1995, it was probably a legit concern.

But not today.  In fact, today, broad is less appealing than ever before. Consumers have become accustomed to tailored, personalized experiences that fit them like a glove.

So when will the industry change?  Well, like with everything else in banking, banks want to be innovative but don’t want to be first.  So somebody has to be first, setting a precedent and a “case study” for Boards of Directors across the country to take solace in.

That is what we’re working on.

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.

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.

@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.

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.

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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.

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.

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.