“Branches are banks’ retail stores but were designed for money. They were designed to handle physical forms of cash and cheques, as secure transaction centres. This is the core challenge of why everyone thinks branches will disappear. Because they are not retail stores engaging the brand community but transaction centres run like some administration process.”

In imagining — in Chris’ words — “how the branch experience becomes a retail experience fit for 2013 and beyond,” he identifies a few examples:

• Washington Mutual (Occasio) and Umpqua removed teller counters and opened the dialogue over a face-to-face table form.
• Caja Navarro and ING Direct instigate “community engagement” (Chris’ words) by having open house sessions. Caja Navarro offered evening classes in their stores including hair styling and flower arranging, and ING Direct offered sessions where anyone could just ask questions like: “how does a mortgage work?”
• Umpqua allows branches to be booked in the evening for cocktail parties or business meetings.

My take: These are all interesting examples of alternative (and creative) uses of branch space, but do little or nothing to prove that the branch is an economically viable (i.e., profitable) way of doing business for banks.

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In his post, Chris cites a Bloomberg article that appeared shortly after Apple launched its retail stores:

“Jobs thinks he can do a better job than experienced retailers. Problem is, the numbers don’t add up. I give them two years before they’re turning out the lights on a very painful and expensive mistake.”

Bet that guy wishes he could take those words back.

But the important point is why he was wrong. So-called “experienced retailers” were experienced at selling consumer products (clothing, jewelry, shoes) — not technology products.

At the time of Apple’s launching of retail stores, there were two frames of reference: 1) How existing retailers sold consumer products, and 2) How existing technology companies sold technology products. Apple stores didn’t fit either frame of reference, and hence, geniuses like the one at Bloomberg wrote them off.

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Apple reinvented the way technology products were sold. (It took a couple of tweaks, they didn’t get it right on the first try). What Apple has got right, regarding the sale of technology products, is creating a retail experience that is:

1. Visual. People want to see the product.
2. Tactile. People want to touch and use the product.
3. Informative. People want to talk to store reps who know about the products.
4. Advocative (I made that word up). People want reps who will recommend products that are right for the customer, not just for the store.
5. Lean. The buying process if fast, with a minimal number of steps. No waiting in cash register lines. Fast and lean.

Apple stores are successful because — for the most part — they succeed at accomplishing these five things. And it doesn’t hurt that the products Apple sells are products that consumers consider to be very important in their personal lives.

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This is why bank branches suck: They don’t accomplish these five objectives (yeah, I know, if I flip-flopped #2 and #3 we could say that branches aren’t VITAL. I hate stupid acronyms).

Granted, banks are handicapped here.

It’s tough to “see” and “touch” most financial products and services. You used to be able to touch a checking account — i.e., your checkbook — but nobody does that anymore, and you didn’t get that until days after opening your account anyway.

And, for the vast majority of consumers (at least here in the US), although money is really really important to us, our choice of financial products and providers isn’t. We spend more time figuring out what restaurant to eat out at on a Saturday night than we do which bank we do business with.

There is, however, no excuse for why banks don’t meet the informative and advocative hurdles.

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This is also why the various “branch of the future” concepts fall short: They don’t do anything to reinvent the way financial products are sold.

The branchlet concept is great — as are the hair styling, flower arranging, yoga classes, and cocktail party ideas. But they only address the efficiency (cost) side of the coin, not the effectiveness (sales) side.

Chris was spot on in describing the branch as a “transaction centre run like some administration process.” Hair styling and flower arranging classes, however, is just lipstick on a pig. 

Chris was also spot on in suggesting that banks should “combine the two worlds: the retail store and the remote experience.” But I’ve yet to see a “branch of the future” concept that does that. Most BOTF concepts bring more technology into the branch, but few (if any) do anything to integrate the branch experience with the remote experience.

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Banks (and credit unions) have two huge hurdles to overcome in order to make branches profitable:

1. Redefining how financial products are sold. Sitting down at a desk with someone who may or may not be well informed about the products, asking me personal questions about my finances that I have no interest in sharing, talking about they may or may not be right for me….it’s a crappy experience.

2. Getting more people engaged in the management of their financial lives. Chris talks about “using stores as a method of building a sense of community around your brand.” It works for Apple because people really care a lot about their choice of smartphones, PCs, and music devices. You don’t get brand engagement without product category engagement.

There’s a chicken-and-egg situation with this last point. If I’m not engaged in the management of my financial life, why would I go into a branch to learn how a mortgage works? (Unless, of course, there was a free meal there. Free drinks, even better. Offer Macallan 18yo Scotch and I’ll even come in for the hair styling and basket weaving classes).

Apple may have reinvented the way technology products are sold, but the company is successful with its retail strategy because they get people in the door. Ironically, when new products are released, there’s often a line, and people can’t get in. But you know what I mean. 

Flower arranging classes don’t count as a way of “getting people in the door.” Banks don’t have the luxury of having a “cool” product that, when announced, will drive flocks of people to line up at the door. 

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The recent consumer research I’ve done (not yet published) suggests to me people are increasingly engaged with their financial lives. Younger consumers are more engaged with their financial lives than older consumers, and certainly more so than older consumers were when they were in their 20s and early 30s.

But the financial services industry has a long way to go before it can talk about branches as a place that fosters a sense of “ownership, belonging, and loyalty.”

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1. Do you think that banks and credit unions should continue to increase their investment in the mobile channel? (Y/N)
2. Do you think the “voice of the customer” is important for bank and credit unions to pay attention to?  (Y/N)

If you said YES to both questions, you have a small problem (if you didn’t say YES to both questions, you have a big problem, and should leave this blog now and seek immediate help).

I can’t imagine that you would say NO to Q1. I can imagine, however, that you might hedge on Q2 and say there are times when the voice of the customer is more important than at other times.

Quit picking nits.

The problem is that there is very credible consumer research that — taken at face value — suggests that the mobile channel is not very important to financial services customers.

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Gallup recently surveyed consumers and asked about their channel preferences for 14 different types of banking interactions.

Before we take a look at the data, let me just say that the fact that Gallup asked about preferences for specific types of interactions makes their study head and shoulders better than most other studies, which don’t capture this level of detail.

Here’s what Gallup found:

Source: Gallup Business Journal, How Consumers Interact With Their Banks

There are a number of conclusions you might draw from this:

1. Consumers want to open accounts in a branch. After all, eight in ten consumers said they prefer to open accounts there.

2. Many consumers want to get in a car and drive to their bank every time they have a problem. Well, half of the consumers surveyed did say that they prefer to report a problem or annoyance in person or at a branch.

3. The mobile channel is the second-least important banking channel. Least important honors goes to online chat — not a single respondent listed it as their preferred channel for any of the interactions. But the mobile channel didn’t fare much better. The interaction type that the mobile channel got the most votes for was receiving alerts, but the 3% who preferred mobile pales in comparison to the 29% who want alerts to come to them 3-5 days later from the US Postal Service (for chrissakes, these idiots could walk down to their bank and get the news sooner).

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This is what the data says. It’s the “voice of the customer.” Can’t argue with it.

Sorry, @brettking, branches aren’t dead. People prefer to open accounts there. Sorry, @jimmarous, but all those studies you tweet and blog about that show that consumers prefer direct mail to other channels are wrong — it’s only true for receiving statements.

And for all you bankers and creditunionistas who keep investing in mobile banking capabilities, apparently you’re wasting your money. Nobody (except for a less-than-handful of weirdos) prefers the mobile channel for anything.

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Further analysis from Gallup (to find out what that analysis is, you’ll have to read the article for yourself — it’s not the job of this blog to save your lazy ass from doing a little work) led them to conclude:

‘Migrating customers from channels they prefer to use to channels they don’t may lower their engagement with their bank. Consequent declines in satisfaction and engagement could result in loss of revenue, profitability, and customer retention.”

My take: That’s a bit of a leap.

Forcing customers to use certain channels, preventing customers from using certain channels, and poor experiences in non-preferred channels may all lead to problems and issues.

But the term “migration” implies — at least to me –that there is a process, logic, and/or business rationale behind it. Paying customers (in the form of rewards, higher rates, or lower fees) shouldn’t lead to loss of profitability if the amount paid is less than the cost savings realized.

In addition, consumers who have never tried to complete a particular interaction in a particular channel is never going to say that channel is preferred — until they try it and find out that it really is a better channel for them. 

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Bottom line: Consumer channel preference is the most useless research stat out there. 

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Related posts:

Ignore Consumers’ Channel Preferences

The Truth About Bank Channel Preferences

Channel Preferences Don’t Matter

Mark encourages CUs to address questions about the organization’s value proposition and how it engages members. The CU Insight article, penned by CUES’ Charles Fagan, suggests that CUs identify the right planning horizon, get artistic, and leave time to incubate ideas.

No argument from me. All great ideas and suggestions for what to focus on in a strategic planning effort. Charles even goes on to recommend that CUs “include key players from all areas and levels in the organization”:

“CUES is small enough that we were able to include every staff member in the brainstorming sessions. This was a great professional development opportunity for our young professionals and others on the team who don’t think organization-wide on a day-to-day basis. Being inclusive also helps get staff buy-in for the ideas generated and the resulting strategic plan.”

Being inclusive is important. I had a boss at a consulting firm who told me that “only senior execs formulate strategy” and as a result we had to ignore the front-line managers who really understood what the day-to-day issues were.

But regardless of how you structure your organization’s strategic planning process, regardless of which questions you address, and regardless of whether or not you get artistic and leave time for incubating, it’s likely that you’ll still have a strategic planning problem.

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The problem is a people problem. At the risk of oversimplification, you will likely have two distinct personalities participating in your strategic planning process: Dreamers and Solvers.

An employee’s job description might be a predictor of which strategic planning process role they play, but it isn’t 100% accurate. Their job description notwithstanding:

1. Dreamers look for greenfield/blue ocean opportunities. The dreamers are those who want to address (and even create) the potential market opportunities. Their contributions to the strategic planning process tend to focus on suggesting new products and services the firm could/should offer, the new consumer segments to go after (Gen Y is our future!), and the new emerging technologies that promise to make the organization orders of magnitude more effective and efficient (a billion people are on Facebook!).

2. Solvers want to fix today’s problems. Solvers are problem solvers. They see and feel the pain of the weaknesses of the existing system and want the organization to fix them and fix them now. They use the strategic planning process to advocate for these fixes, if for no other reason that there’s usually no other process that organization has in place for allocating resources to fix these problems.

The problem that results from this dichotomy in roles stems from two issues:

1. Dreamers are not always particularly good at figuring out the “how do we get there from here” question.
2. Solvers’ time horizon is usually too narrow and their content focus is a whole lot more tactical than strategic.

If you work at a credit union, you might have a third type of contributor (and another problem): The board of directors. In my experience, many of them — while highly committed to the success of the CU and often quite successful business people in their own right — aren’t particularly good contributors to the strategic planning process.

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If you’re the CEO (or member of the senior exec team) at a credit union, planning your CU’s strategic planning process/offsite, you’ve got some challenges to deal with:

• How do you balance the focus of the effort between the truly strategic and the tactical?
• How do you incorporate input from both the Dreamers and Solvers?
• How do you evaluate the skills of a facilitator who may be better at Solving than Dreaming (or vice versa)?
• How do you overcome (or at least recognize) your own inherent biases in this process?

No easy answers here. The first step is to recognize that there is no “formula” or “recipe” for successful strategic planning. 

In a recent industry analyst meeting, the CEO of a large financial technology firm laid out his firm’s vision for expanding into new markets within the financial services space. I asked him “Who do you see as your primary competitors standing in the way of your quest for world dominance?”

His answer (as best as I can recall) was “well, we have a number of competitors in the variety of spaces in which we play.” He did name four firms — one of which I wasn’t familiar, another which I would never have thought he’d mention (since this particular organization doesn’t sell software to financial institutions).

My take: His answer was unsatisfactory. You’ve got to know who you’re going to knock off the pedestal on your way to world dominance.  And this is of particular importance to credit unions.

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Let’s say you’re the 250th ranked tennis professional in the world. There are 249 other pros ahead of you on the list, but only one matters — that Djokovic guy. If you beat Djokovic you might not jump from #250 to #1 (or #2), but if you beat him, you’re in the big leagues. On the map. On the radar.

It might take you a while to get a chance to beat Djokovic, but the other piddly-sh*t pros don’t matter. They’re just the peons you have to slay and step over on your way to the top.

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In the world of financial services, the focus of your FI’s competitive strategy doesn’t necessarily have to be the largest provider in the market. It should be the one who has the best reputation, or best products, or best service, or best whatever it is that you compete on.

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Why is this so important? In a word, alignment.

When you know who you’re (really) competing against — or better yet, when you know who you want to knock off the pedestal — your organization has a much easier time deciding what to invest in, and what not to invest in.

What the other piddly-sh*ts do doesn’t matter. They’re pretenders to the throne. Only your firm is the true contender to the throne.

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Why tell you all this?

I saw a tweet today, from someone attending a credit union conference, quoting Chip Filson telling CUs “Don’t try to be ‘nice’ banks.”

Excellent advice, I couldn’t agree more.

But it reflects a problem that credit unions have: They set their sights on knocking banks off the pedestal.

No offense to bankers, but people, allow me to let you in on a little secret: If banks are on a pedestal, the pedestal isn’t very high off the ground.

Every survey I see (not to mention do) shows that credit unions are seen as having better customer service than banks, and higher advocacy (that is, seen as doing what’s right for the customer) scores than banks.

And I doubt that every one of those surveys is spot on. But it begs the question: If it is true, then why aren’t credit unions tearing up the charts in membership growth?

The answer has to be: Because they’re not clear about who they’re really competing with. They don’t know who they have to knock off the pedestal on their way to world dominance. 

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When I observe and hear about credit unions’ strategic (or so-called strategic) planning efforts, I’m underwhelmed. These efforts quickly devolve into tactical planning efforts that determine which projects will get funded in the coming year. 

Strategy isn’t just about how you compete, it’s understanding who you compete with.  Sorry to be critical, but there are a lot of credit unions out there doing a lousy job of strategy creation/formulation. 

A recent HBR blog post titled How to Tell a Story with Data offers the following points of advice: 1) Find the compelling narrative; 2) Think about your audience; 3) Be objective and offer balance; 4) Don’t censor; and 5) Edit, edit, edit.

My take: My points of advice differ. And I think we more rigor (dare I say methodology) regarding data storytelling.

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I don’t have an issue with “find the compelling narrative” and “think about your audience” but these points are actually part of a broader process that the article doesn’t define.

Think of data storyology — the art and science of telling stories with data — as having two broad components: 1) Finding the story in the data, and 2) Telling the data story.

If I were to draw a picture, it would look like a yin/yang diagram, not a flow.

Finding the story in the data is an iterative process that involves utilizing data management and statistical tools to cut and analyze data. But in also involves applying human judgment and experience to figure out what the “story” is.

The HBR blog author describes “finding the compelling narrative” as:

“Giving an account of the facts and establishing the connections between them. The narrative has a hook, momentum, or a captivating purpose. Finding the narrative structure will help you decide whether you actually have a story to tell.”

I wish he would have left that last sentence off. If you find a narrative structure, you have a story. Whether or not that story is worth telling is a different issue.

Finding the narrative structure is more than “giving an account of the facts and establishing a connection,” however. In fact, the “account of the facts” is probably the least important part of the story because it’s the part that many people either already know or think that they know.

The interesting part of the narrative is the why, who, and when (more so than the what).  The “what” is the plot, but the “why” is what gives the plot some depth. And just as poor character development in a book diminishes the quality of the book, leaving out the “who” in a data story produces an incomplete (and potentially boring) story.

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Finding the story is just the Yin part of the equation. Telling the story is the Yang.

This is where the “think about the audience” part comes in. Good data storyologists (or data artists) often define or uncover multiple stories in the data. Those stories likely have different levels of appeal to different audiences. Telling the story starts with defining who the audience is for the data story, and which of the data stories that were defined is most relevant, or how those stories tie together.

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At this point, however, my opinions veer from the blog author’s.

Telling the data story is anything BUT being objective and balanced. Data storyology is about educating, influencing, and motivating people. As a data artist, the last thing you want to do is be objective and balanced. You want to draw upon your insights, opinions, and experience — which are all subjective — to tell the best story. The article says that “a visualization should be devoid of bias.” Perhaps a point for future discussion, but I think that this is simply impossible.

The article also says that “Balance can come from alternative representations (multiple clustering’s; confidence intervals instead of lines; changing timelines; alternative color palettes and assignments; variable scaling) of the data in the same visualization.”

First off, this is a very narrow interpretation of “balance,” in that relates to just visualization. Data storyology is about more than just data visualization. Visualization is not the story.

In addition, I would encourage any budding data storyologist to “censor like hell.” The absence of censorship equals data dump.

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With a story and an intended audience, there’s still the art of telling the story.

A number of years ago, the analyst firm I worked for brought someone to train us on the art of storytelling. Still one of the best training sessions I’ve ever had.

The story trainer told us to think about the development of a story in terms of the story’s impact on the audience’s mood, and to strive to achieve the following mood pattern:

To summarize, think of the story development as: 1) Stuff is happening (neutral mood), 2) Things are going to get worse (or the things that are happening will cause problems, doom, despair) 3) Stuff happens or will happen to make it all better.

Story example: Little red riding hood is walking in the woods (#1), she gets captured by the big bad wolf (#2), she gets saved by the Woodsman #3).

Data story example (in financial services): Consumers are fed up with paying the high cost of checking accounts (#1), new providers are coming into the market to steal banks’ customers and drive profitability even lower (#2), banks can deploy new technologies and marketing analytical techniques to provide new forms of value to consumers to retain them and make them more profitable (#3).

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All the talk about the rise of data scientists misses the boat, in my book. We need people who can take the data, and not just find the story in the data, but the tell the story in a way that educates, influences, and motivates people. That’s not science — it’s art. It’s data storyology.

Yet another consumer survey from yet another technology company finds that bank customers want…..wait for it….a seamless and personalized customer experience. And that consumers are even willing to share personal information with the bank in order to get that personalized experience!

Only problem here…well, actually, it’s one of a number of problems here…is that this really doesn’t hold water.

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Before I explain what the main problem is here, I should come clean and give you the self-psychoanalysis of what’s bugging me here.

It’s not simply a claim that doesn’t hold water.

It’s two other things: 1) the Questionable Chain, and 2) the potential revenue loss.

Here’s the Questionable Chain:

1. A technology company commissions a consumer research study which asks consumers questionable questions…
2. …which produces a bunch of questionable conclusions….
3. …which finds their way into a questionable press release…
4. …which provides a questionable argument for why said technology company’s technology should be purchased.

Here’s the potential revenue loss: They didn’t pay ME (or my firm) to do the study for them.

So yes, I have some dishonorable (questionable?) reasons for bashing the research. But that doesn’t mean that what I’m going to say about it is wrong.

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I’m not going to provide a link to the research or name the company. You can Google it and figure it out. I’m deluding myself into thinking that if I don’t mention the firm’s name, I can avoid pissing them off.

The headline of the press release reads as follows: “Consumers want a more seamless and personalized customer experience from their bank.”

My take: No they don’t.

Consumers want things to work. Period. But if you must elaborate, they want things to work the way they expect those things to work, when they use them, and where they use them.

And consumers don’t want to have to think about any of it. They just want it to happen. If you really think about it, what they really want is for banks to be invisible.

“Seamless” is a term that implies that there are seams that need to be hidden or sewn together. I don’t want “seamless” pants, I don’t think my wife wants a “seamless” dress. We want clothes that fit and look good.

Same mentality applies to banking. Consumers don’t think in terms of “seams.” It’s true that there are interactions that require handoffs between channels or people within the bank, and yes, customers don’t want things falling through the cracks or to have repeating their problem five times.

But those interactions are really few and far between for most customers. Most customers don’t start checking their account balance in one channel, and finishing it another. Or starting to pay a bill online and then completing the payment on their smartphone.

The concept of channel integration or consistency in banking is misused and overrated.

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The other problem with the press release headline is something that is very common among the customer experience transformists: There is no such thing as “the” customer experience.

Interactions between a bank and its customers run the gamut of many different types of transactions and interactions. There is no single “experience.” Washing over the differences in the types, qualities, and importance of the various types of transactions/interactions is fool’s work.

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A third problem with the press release: When asking consumers if they would provide more personal information in order to get more “personalization,” what does that really mean?

What are we talking about when we say “personalized” experience and what information is really needed to provide it?

Asking “would you be willing to provide personal information for a more personalized experience” — without getting into more specifics — is simply poor research. It makes for a nice headline, but it’s completely useless, and very misleading.

Let’s explore this for a moment.

How about I personalize your experience on this blog if you provide me with some personal information. OK?

So….why don’t you tell me your sexual fantasies, and the next time you access my site, I will show you pictures of people engaging in those sexual activities.

A “personalized” experience based on your personal information.

OK, sorry. Back to reality.

What exactly is a bank going to do to “personalize” customers’ transactions and interactions? (I’m trying to avoid using “experience”).

There have been lots of attempts to do this already: Use the customer’s name online or at the ATM, customize a dollar amount to be withdrawn at the ATM or the amount to be transferred between accounts, based on previous transaction history.

But those didn’t require additional “personal” information.

I simply don’t understand what personal information I’m supposed to be giving up in order to get a more “personalized” experience that I can’t visualize.

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The release also quotes a company exec as saying “Retail banks that succeed in providing a seamless customer experience across all channels to market- branch, mobile, online, contact center- will be the winners of the future. Superior customer experience will be the only long term sustainable differentiator.”

Nonsense. 

A corporate competency to continuously design, develop, and deploy superior products and services can be a sustainable differentiator. And as I mentioned before, customers don’t use every channel for every transaction/interaction, so this concept of seamlessness just doesn’t hold water. 

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The rationale for publishing research like this comes down to some combination of two reasons as I see it: 1) To generate publicity, or 2) To align or tie the company’s products to the concept of customer experience.

It may have succeeded on the first point, but I think it does little to accomplish the second. 

• Pipe effect. Friends of a borrower, especially close and off-line friends, act as financial “pipes” by lending money to the borrower.
• Social herding effect. When friends of a potential lender, especially close friends, place a bid, a “social herding” effect occurs as the potential lender is likely to follow with a bid.
• Prism effect. A friend’s endorsements via partially funding a loan reflects negatively (i.e., becomes a “prism”) on the value of the loan to a third party.

What the study shows is that the volume and patterns of lending and borrowing are influenced by, and strengthened by, the extent of the relationship between participating borrowers and lenders.

My take: Credit unions (and community banks) should interpret these findings to find ways of introducing P2P lending-type practices into their lending processes.

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The 2013 Financial Brand survey of marketers found that — not surprisingly — lending is at the top of the list of marketing priorities for the near future.

How are credit unions and community unions going to compete for the borrowing business that’s out there? If it’s going to be by berating big banks, pointing to the results of bogus customer experience surveys, and going on and on about how great their customer service is…then I’m not sure the results will be all that much better than they’ve been in the past.

Which is to say, not very successful.

What the results of the academic study suggests to me is that a credit union or community bank could improve its market share of the lending business in an area by creating a community of lenders and borrowers to redirect and/or insulate the flow of funds away from other sources and destinations to the CU or community bank.

I’m not suggesting that a credit union or community bank try to recreate a Prosper or Lending Club. Those firms have gone through a regulatory rigamaroll that no CU or bank wants to go through.

But I can’t help but think that are ways to avoid that regulatory nightmare and still achieve some of the feel of the P2P lending platform.

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On a P2P platform like Prosper, a lender (or multiple lenders) — OK, wait. Let’s call them for what they really are: Investors. On a P2P platform, an investor or investors lend(s) money to a borrower. The platform isn’t really an intermediary, it’s simply an enabler — i.e., enabling two or more parties to find each other and execute a transaction.

What does a bank/CU do? It finds depositors, takes their money, and promises something in return (where that something may or may not be financial). It then takes those deposits and lends some portion of it out to borrowers it deems worthy of receiving those funds.

The bank/CU is an intermediary. Depositors have no idea who gets the money, nor do they have any say in who gets the money or at what rate. There is no relationship or connection between depositors and borrowers.

But what if there was a relationship or connection? The academic study implies that the “platform” — in this case, the bank or CU — would benefit because lenders (in this case, depositors) and borrowers would be more likely to transact with each other.

In other words, one way for credit unions and community banks to gain market share in the lending market is to create a mechanism for depositors (lenders) and borrowers to create and strengthen a relationship.

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That “relationship” doesn’t necessarily have to be a one-to-one, named connection. A bank or CU depositor could provide input into determining who receives their deposits (or some percentage of it) by some dimension that characterized a borrower. For example, the depositor could indicate that they would like their funds lent to someone buying their first home, or to a small business owner who needs funds to grow their business, or to someone looking to pay off debts. They wouldn’t necessarily get to direct 100% of their deposits, but by giving depositors an ability to direct some percentage of the funds, it would approximate what’s happening on a P2P lending platform.

By making the elections of funds deployment public, other community members would see where their peers are looking to direct funds, and — as the study implies — become more likely to elect that their funds go to the same places. With publicly available information about where depositors would like to direct their funds, potential borrowers who fit the description(s) would become more likely to turn to the bank/CU for a loan, knowing that the FI is looking for borrowers like them. 

The deposit nature of the relationship wouldn’t be changed — that is, the deposits would not become investments in the sense that they are on a P2P lending platform. The bank/CU is still an intermediary determining the creditworthiness of a borrower and the rate at which that borrower qualifies for a loan. But the depositor gets to provide some input into who gets the money (or some percentage of it).

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I realize I haven’t thought through this completely, and, for all I know, there’s  some regulatory issue that stops this in its tracks. I’m just thinking about how smaller FIs are going to compete with the big ones for the coveted lending market.

You don’t know me from Jack, but I’ve got some advice for you regarding your newly announced prepaid debit card, so I hope you’ll hear me out.

I may be a lot older than you, but we have a couple of things in common:

1. We’re both great singers. Of course, you sound great on a stage in front of tens of thousands of people. I, on the other hand, only sound good singing in the shower, with the water running. Naked.

2. Females scream when they see us. With you, they’re screaming out of some kind teen adulation and idolatry. They scream at me because I’ve done something wrong, or because I was singing. Naked.

Despite our similarities, there’s one big difference between us: I understand the world of financial services. And I’m betting you don’t.

Your prepaid debit card isn’t going to succeed and — out of the goodness of my heart — I’m going to tell you why, and offer you some advice on what you could do differently to improve the odds of the card’s success.

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First off, I really can’t blame you for getting into the prepaid debit card business. Piece of cake, isn’t it? You lend your name and image…and other people do the rest of the work. $3.75 million for 14 months of doing nothing must make Joe Biden really jealous. He only earned $375k in the past 14 months for doing nothing.

You don’t happen to know Kim, Khloe, and Klueless Kardashian, do you? You might want to take a look at their botched prepaid debit card initiative.

The overwhelming reason why your card won’t succeed is that you don’t understand who buys prepaid debit cards. It’s not the 13 year-olds with whom your brand name and draw is strong.

Four types of people drive the prepaid debit card market: 1) People can’t get checking accounts; 2) People who can get checking accounts but don’t want to (the Debanked); 3) People with a checking account who use prepaid debit cards as a tool to help them control their spending; and 4) Parents who want to give their kids a payment mechanism.

In markets like the cereal and toy markets, kids heavily influence their parents’ choice of products. Not so in the prepaid debit card market.

In other words, no one who actually gets a prepaid debit card cares that a card is sponsored by you, J-Dude. Oh sure, there are parents who will evaluate your card, but when they see the fees associated, they’ll probably turn somewhere else. Lots of cheaper alternatives on the market, and coming on the market. In other words, your star power won’t be enough to overcome the weaknesses of the offering.

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The CEO of the card company was quoted as saying that the card gives teens “freedom and independence while also teaching them the fundamentals of financial responsibility.”

As the father of a teenager, about-to-be teenager, and a former teenager, giving teens more “freedom and independence” isn’t a goal I’m particularly fond of.

But the need for better financial education, literacy — and even more importantly — discipline, is real. I would be a big fan of a card that can deliver that. But I really don’t see how your card does that. Your quip about watching one’s spending whether one has $100 or $100 million is nice, but are you really planning to provide any ongoing financial education around the card? Yeah, I didn’t think so.

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So here’s my advice to you. Do one of the two following things:

1) Pull a “mea culpa” and back out of the deal. Make a public statement that you’re pulling out. Blame it on your advisors, your agent, your parents, whoever, for getting you into a deal that capitalizes on your name at the expense of families who can’t afford the fees associated with the card. Yes, I know that the CEO of the card company said that “most fees are avoidable” but did you ask what percentage of existing cardholders are able to earn their way out of fees? Just because other fees charge an inactivity fee doesn’t mean your card should.

2) Really commit to being a spokesman…er, spokesboy…for teen financial literacy. What often passes as “financial education” is sorely lacking. Static web pages and brochures that lecture people about spending too much isn’t effective. Simplistic advice about “foregoing Starbucks once a week” and how it will save hundreds of dollars a year isn’t what’s needed by most teens (as well as adults). Teens need hands-on tools and real-life experience managing money in order to develop financial literacy. If you’re really committed to doing this, then revamp your card’s fee structure, make sure that the tools (online access, PFM, receipt management, etc.) are either in place or will be developed by your partner, and get out there and sell this thing. 

It’s your call Jay Bee. But thanks for hearing me out. 

p.s. Can I get an autographed picture of you? It’s for my daughter. Really.

“Mobile transactions are easier for customers and cheaper for banks to service, according to Diebold, a company which specializes in ATM and branch transaction services. In the company’s 2010 investor presentation, it estimated a $4.25 per transaction expense at a bank branch versus only 8 cents through mobile banking. A 2013 Deloitte study found 40 percent of consumers were willing to pay more for the ease of mobile banking, too.”

My take: There’s so much wrong with that paragraph — both stated and implied — it’s hard to know where to begin.

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So let’s begin with the first sentence. Why would mobile transactions be “easier” for customers? Because they don’t have to go to into a branch to conduct the transaction? What if the transaction (or interaction) requires some discussion or involves some level of complexity?

If we’re talking about checking the balance on a account, or transferring funds between accounts, then sure, a mobile transaction may be easier for a customer to do than doing it other channels or through other methods. But the blanket statement “mobile transactions are easier for customers” doesn’t hold water. Unless, of course, you assume that the only transactions that exist are those that more easily done through a mobile device.

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The implication of the second sentence — which states that branch transactions cost an average of $4.25 per transaction vs. $0.08 per transaction for mobile transactions — is that shifting transaction volume out of branches and into the mobile channel will result in huge cost savings for banks and credit unions.

Won’t happen. Not unless you shut down a large number of branches, which is a whole lot easier said than done. In addition, these cost estimates are terribly misleading. They are not variable costs. The branch does not start the day with $0.00 in costs and add $4.25 (on average) every time someone comes in to conduct a transaction.

The CNBC article quotes Brett King as saying “Customers, on average, visit a branch 85% less than they did in 1995.” Assuming that the branch transaction volume declined by 85%, then a driver of the supposedly high transaction costs in a branch is the fact that the volume of transactions in insufficient relative to the cost of operating the channel.

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And if you do shut down branches, there might be negative side effects. Again, from the CNBC article:

“Even in the face of real estate and transaction costs, bank branches are a critical tool to attract new customers—if only serving as expensive billboards for the company in a choice-heavy world. ”It’s going to be very difficult to convince people…that you’re a major presence in a market and you’re here to serve them if you don’t have any physical presence,” said Jonathan Larsen, Citigroup’s global head of retail banking.”

This really gets to the problem of the channel costs that people throw around. The $0.08 mobile channel transaction likely produces no revenue, while the $4.25 transaction might.

It’s akin to why I want to slap people who think direct mail is dead upside their heads. It’s about ROI. If a <1% response rate produces $1 million in revenue for a $10k investment in direct mail, and a 10% response rate in another channel (e.g., social media) produces $10k in revenue for a $1k investment, the larger response rate doesn’t matter. Sure, the social media campaign cost less, but the direct mail campaign produced more revenue.

It’s the same with channel costs. Looking at average transaction costs ignores the composition of those transactions. Smart managers don’t ignore the transaction composition.

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My guess is that Apple could save a lot of money by cramming its products into much smaller stores, and locate those stores in the seedy sections of the cities where they do business. In fact, they could just shut down those stores, and take all product orders online. I’m sure the company could develop a mobile app to merchandise products and take orders.

Yet it doesn’t, and everybody with a Twitter account falls over each other to tell the world how great their Apple store experience was.

Nobody brags about their bank branch experiences, though (except for my dad).

The real problem with bank branches isn’t a higher cost per transaction. It’s a two-fold problem: 1) transaction composition is (still) skewed too much towards service (vs. sales) transactions, and 2) those sales transactions suck.

OK, that last point (#2) was unfair and unsubstantiated.

But the fact of the matter is that many of the sales-related transactions that occur in branches are conducted by employees unqualified to help consumers make smart decisions about their financial lives. And the information that the employers — banks and credit unions — provide to those employees to help conduct those sales transactions is woefully lacking.

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There are industry participants and observers who think that branches will become places where consumers will go to discuss their financial needs and lives, and become more sales-oriented than service-oriented. Others think branches are dead (or rapidly dying) and have no shortage of data to prove their point. 

I think the debate is stupid. There’s no reason why any particular bank or credit union couldn’t go branchless. And there’s no reason why any particular bank or credit union couldn’t make their branches the equivalent of an Apple store. 

It’s not a matter of whether or not branches are a good idea (or not), or whether they’re alive or dead — it’s a matter of execution. It’s about having a commitment to making the branch work (or getting rid of them), and understanding the inconsistent and conflicting decisions that so many banks and credit unions make that undermine channel strategies.

For related posts, see:

What To Do About Bank Branches

Distorted Visions Of The Branch Of The Future

You started by drawing two vertical lines and two horizontal lines, which combined to create a nine-square grid. You then put your shape (X or O) in a box to claim it, alternating with your competitor to “own” the grid (and win the game) by securing three boxes in a row.

In some ways, that’s exactly what marketing is.

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A credit union contacted us recently and asked us how they could better understand the consumer landscape in their footprint to help them win more lending business. I proposed that they play tic-tac-toe. We’d start by drawing a tic-tac-toe board, and go one step further and label the rows and columns:

On our board, the three rows correspond to the timing of consumers’ borrowing needs: Immediate, intermediate, and longer-term (not length of loan, but how immediate the need for a loan is). The columns correspond to consumers’ propensity to consider a credit union for their borrowing needs: Low propensity (or likelihood), moderate propensity, and high propensity.

Through consumer research, we would segment the consumer population using this tic-tac-toe board, and help the CMO organization understand:

1. The market opportunity each segment represents by estimating the allocation of consumers to each segment.
2. The demographics, channel behaviors, and financial services-related attitudes of consumers who belong to each segment.
3. The marketing challenges each segment represents (e.g., what holds consumers back from considering a credit union).
4. The marketing tactics required to capture the borrowing-related business from consumers in each segment.

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Generalizing the board a bit, another firm might not capture “propensity to borrow from a credit union” but “propensity to consider XYZ.”

But much as a tic-tac-toe player must weigh the consequences of capturing a particular cell on the board, marketers must determine the costs, benefits, and competitive consequences of going after consumers in any particular segment.

If the majority of consumers are in the upper right hand bucket, you might want head down to the bar for an early beer. If the majority of consumers are in the lower left hand bucket, you might get sent down to the bar for an early beer.

If the majority of consumers are in the seven other buckets, you’ve got some marketing decisions to make.

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The art is in determining how to allocate consumers to segments.

It’s not enough to just ask consumers “will you consider XYZ for your next purchase?” but to derive the likelihood by looking at past behavior. Same with product timing. A consumer may say that she or he has a longer-term need for a product, but good predictive modeling may indicate that certain behaviors, attitudes, and purchases indicate that the need may be more immediate than the consumer thinks or is willing to say.