Kristen Christian (Bank Transfer Day creator, and hero to thousands of creditunionistas) calls the video “an example of stellar marketing.”

My take: At a minimum, this video is ineffective from a marketing perspective. Potentially, however, it could be damaging to the credit union’s reputation.

Why is this video ineffective?

Because it won’t help it gain new members.

The video might be fine for getting existing members to feel better about the credit union. I don’t find the video funny in the least bit, but maybe some of the CU’s members do. Their opinion is more important than mine.

But for prospective members, this video does nothing.

First, how many bank customers are going to see this and become convinced that they should leave their bank? Answer: Few (and I’m being very generous).

Second, how does the video help bank customers who have already decided to leave their bank decide that Summit is right for them? Answer: It doesn’t.

There’s nothing wrong with using YouTube and humor in your marketing efforts.

It’s a matter of opinion and strategy on whether or not you want to use humor as a marketing approach. There are people in the industry who don’t believe humor has its place in financial services advertising, but all they have are subjective views to back up their position.

The use of video to demonstrate and show off a financial institution and its capabilities can be a powerful influence in the consumer’s decision making process. Unfortunately, Summit’s Sh!t Banks Say video doesn’t support a prospect’s decision process.

Summit does have another video on its YouTube channel, about telling kids about credit unions. This appears to be directed more towards existing members than to prospects, however. And when I checked, it only had 108 views, so it wouldn’t appear that many members or prospects were influenced by it.

The More Potentially Damaging Aspect

There is something else about the Sh!t Banks Says video that I believe could be damaging to the credit union’s repuation. Roughly 30 seconds of the 2 minute video is dedicated to bashing banks for their fees.

What’s that saying about people who live in glass houses?

A quick look at Summit FCU’s fee schedule reveals that the credit union charges:

• $10 per quarter for inactive accounts. So if you open an account and don’t do anything with it, the credit union will charge you $40 over the course of a year. For doing nothing.
• $5 for early account closure. Decide there’s a better place for your money within six months of opening an account at Summit? It’ll cost you $5.
• $20 per hour for statement copies for the previous quarter. I’m not sure who long it actually takes someone at Summit to do this, but the minimum charge is $5. And there’s also a $1 interim statement fee.
• $5 per month for account maintenance. This fee might not apply depending on the member’s benefit program level. But it’s still a fee.
• $5 for check copies. Online check copies are free, however.
• $5 for non-members to cash a check. If the non-member is older than 23, that is.

And the list goes on and on and on and…well, you get it.

The hypocrisy of Summit — and let’s face it, lots of other credit unions, as well — to bash banks for charging fees when its own fee schedule is no better is a shame. Any prospective member who does her homework on the fee schedule should be outraged by the implied claims of the Sh!t Banks Say video.

Each year, Forrester Research surveys consumers and asks them to rate their banks and credit unions on customer advocacy — the extent to which the FI does what right for its customers and not just its own bottom line. Year after year, credit unions score higher than banks on this metric. 

The hypocrisy of the Sh!t Banks Say video isn’t going to put much of a dent in those scores. Mostly because so few people will see it. But if credit unions, as a whole, continue to deploy this marketing technique, it might backfire and harm their collective reputation. 

OK, I admit, it’s not fair to call to call the questions that Pitney Bowes asked of consumers in the UK, France, Germany, and US “stupid.”

But the conclusions that PB draws from consumers’ responses to the survey demonstrate the pitfalls of asking survey questions in a certain way.

According to the study:

– 74% of consumers welcome a monthly special offer in the mail. One benefit of postal communications is that they are often opened at leisure, while email tends to inspire instant, and often more fleeting, attention.

– Three-quarters of customers say customer satisfaction surveys are perfectly acceptable. This presents a real opportunity for brands to use surveys to get to know their customers, and to then use their findings to broaden the brand experience, removing the need to second-guess customer desires and concerns.

Source: Pitney Bowes

My take: Not so fast, bucko.

Email inspires instant, fleeting attention, but snail mail is “opened at leisure”?

Oh really? According to the US Postal Service (which means, who knows what the Brits, French, or Germans do), 77% of people sort and read their mail immediately upon bringing it into the house. So much for “opened at leisure.”

If they open it at all, of course. DMCNY says about a third of consumers don’t open direct mail (which, of course, means that two-thirds do).

But all of this is missing the more important point: How does a consumer know that a piece of direct mail contains a “special” offer?

Do you think that consumers think of the volumes of credit card offers and other offers that come through the mail as “special” offers?

Or were they thinking of something more like “special discount” or “something for free” when they said “yes, we’d like special offers through the mail”?

The Keepers of the Direct Mail Channel will, of course, use the Pitney Bowes study as evidence that consumers prefer the direct mail channel. But smart marketers will take a more critical look at the study’s findings.

—————

The question regarding customer surveys is interesting, as well.

Somehow, PB went from “consumers say customer surveys are acceptable” to brands can use surveys to “broaden the brand experience, removing the need to second-guess customer desires and concerns.”

Huh?

What does “broaden” the experience mean?

OK, survey respondents said surveys were acceptable. But did they say (were they even asked?) how often it was acceptable to ask for their opinion? Did they say (were they asked?) what types of questions it was acceptable to ask?

I don’t know about you, but I HATE it when I visit a website for the first time and a customer satisfaction survey pops up. In fact, I hate it when it comes up on the 5th, 50th, or 500th visit.

And tell me again how it is a brand can “broaden” or improve the customer experience by asking me how likely I am to refer them to my family and friends on a scale of 1 to 10?

—————

Thanks for doing the research, Pitney Bowes.

But you’ve neither proved the value of the direct mail channel, nor provided new insights into customer satisfaction.

But, to my feeble defense, I’m just paraphrasing the title of a post on Social Media Examiner titled 5 Ways to Get Your Entire Company On Board With Social Media.

In the post, the author describes five things you can do to address the “biggest reasons for social media failure,” namely (according to the author) the “lack of top-to-bottom ‘buy-in’ from all employees in a company.” SME list five ”ideas for achieving complete social media buy-in from all employees:”

#1: Someone Must Take the Lead
#2: Educate Via an Event
#3: Encourage Employee Action
#4: Create a Company Social Media Newsletter
#5: Continue Training and Education

My take: What a total, utter, and complete load of BS.

If you do these five things, here’s what I can guarantee you: Someone in your organization (hopefully, for your sake, not to close to top of the organizational pyramid) will want to know why you’re wasting so much time and organizational effort.

It kills me that someone left a comment on the SME post saying “Great post Marcus!” (Unless it was Marcus’ mother or wife, which is totally excusable). 

If  getting people in your company on board with social media is a challenge for you, I’d like to weigh in with my recommendations. Oops, make that recommendation, singular. Because as far as I’m concerned, you don’t need to do five things to get people on board. Just one. 

Do this one thing, and I guarantee you will begin to get people on board with social media. Ready? Here it is:

Produce measurable, bottom-line results. 

Bring in new customers, sell more to existing customers, reduce costs, reduce process cycle time. There are a lot of things that could fit the description of “measurable, bottom-line results.”

If you do this, I guarantee — GUARANTEE — you that people in your company will get on board with social media.

If, however, you wish to take the advice of Social Media Examiner, good luck. Let me know how it goes. On second thought, don’t.

Wookin’ pa nub in all the wrong places, wookin’ pa nub.

Based on a (unrepresentative) survey of bank execs, it appears that banks, too, are wookin’ pa nub in all the wrong places.

The 300 or so attendees of Bank Director’s Acquire or Be Acquired conference were surveyed about a number of things, including this:

More than half of the respondents expect to grow through organic loan origination, while just 7% plan to grow through new revenue sources. (And you wonder why there are no banks in the list of top innovators).

I’m discounting the “mergers and acquisitions” answer since this was a conference about acquisitions, and the attendee pool was probably skewed towards those banks with a hankering for acquisitions.

I think that the 56% planning to grow through loan volume are wookin’ pa nub, however. Am I’m not alone. Look at these quotes from conference attendees:

“I don’t see any reason to be optimistic on the horizon. It’s a struggle to keep loan volume up there.” — Bank CEO

“Housing prices in [my] area have dipped about 10-15% since the recession and loan demand is still low. There was too much excess and too much bubble. Everyone has to deleverage, the government and the private sector.” – Bank CEO

There’s some serious short-sightedness here. Over the past few months, my colleagues and I have written about a number of revenue-generating opportunities for banks (and credit unions):

• Direct deposit advance. Banks could generate $500 million in revenue from marketing direct deposit advances to their customers who currently use payday loans.
• Prepaid debit cards. By our calculations, a bank could recoup up to 20% of the lost debit interchange resulting from the Durbin amendment by marketing prepaid debit cards to existing customers.
• Merchant-funded incentives. Aite Group estimates that FIs will reap $1.7 billion in revenue from merchant-funded incentives by 2015.

Sadly, a number of bank (and credit union) execs I’ve talked to about these opportunities choose to see only the risks and downsides associated with them. 

Granted, reaping the revenue from these new opportunities is no slam dunk. But putting your faith in organic loan origination…well, that’s just being una panoonah banka. More seriously, it’s a telling insight into the innovativeness (or lack thereof) within the industry.

Does this just reflect the views of an unrepresentative set of banks predisposed to growing by acquisition? 

There’s good evidence that it doesn’t. In a study done by The Financial Brand and Jim Marous, loan growth was listed as the top marketing priority by one-third of banks, and 60% of credit unions. Check out the data and the blog post on Bank Marketing Strategy.

[Thanks to BankDirector.com and Grant Thornton for publishing the survey results]

“Credit unions, for all their benefits, just aren’t as good as big banks at closing the deal with prospective customers.”

The study, which was based on mystery shopping, not consumer surveys, found that big banks (>$10B assets) are better than credit unions when it came to:

• First impressions. Mystery shoppers entering large banks were were immediately greeted by a customer service representative 76% of the time, compared to 53% of the time at credit unions.
• Asking the right questions.  Mystery shoppers went in prepped to answer 11 anticipated questions. According to the article, “the large banks were much more consistent than the smaller institutions at asking the right questions to determine a prospective customer’s needs.”
• Building confidence. The article reports that “42% of mystery shoppers left the big banks feeling ‘confident that this bank would be the right choice,’ compared to just 30% who said the same of the credit unions and 22% at the small banks.”

My take: The title of the MainStreet article is a gross misrepresentation of the study’s results.

What the study captured was the sales performance of the different types of FIs, not the customer service performance. 

And in that context, the study’s findings aren’t surprising at all.

In my research on the digital marketing performance of FIs, big banks score significantly higher on demand generation, demand conversion, and account creation capabilities than credit unions. So, it’s little surprise to me that the big banks’ sales capabilities would be superior offline, as well. 

What the RateWatch/IntelliShop study demonstrates is not that big banks have superior customer service capabilities, but that their sales processes are more effective. 

——————–

There are some questions the study raises:

1. How does someone determine that someone else’s personality is “truly outstanding” in such a short interaction?

2. Why is having male service reps a sign of “gender equity”? Can men not deal successfully with female service reps? Does the gender ratio of reps have to match the ratio of branch visitors? (If it does, please let me know what idiot came up with that rule).

3. Who said that “asking the customer if s/he wants to open an account today” is a good thing?

The infographic’s bottom line regarding “confidence” misses an important point: It ignores how a customer decided to go into the branch in the first place. It’s likely, in this day and age, that someone deciding to open a new account has done their homework (i.e., research), and formed some opinions regarding which FIs to consider for the new account they need. 

In other words, asking “did you leave the bank confident that it was the right choice” can really only be answered in the context of what the customer’s expectations were going in — and not based solely on the branch interaction.

——————–

Bottom line: I’ve said it before, will say it again, and will keep on saying it: Credit unions have to stop patting themselves on their back for their (perceived?) superior customer service and get better at marketing and sales. Figuring out how to do that in both offline and digital channels will be a challenge for many credit unions. 

Mainstream consumers who willingly opt out of the traditional banking system.

Today, Aite Group published the report I wrote on this segment, which is titled The Debanked: A US$1 Billion Prepaid Debit Card Opportunity.

The report, written for Aite Group clients, focuses on the business opportunities this segment presents, and how to capitalize on those opportunities. To avoid cannibalizing the contents of the report, this post focuses on the other side of the coin: The threat this segment represents to banks, and yes, to credit unions.

The Un- and Under-banked

There’s a lot of press these days that alludes to Unbanked or Underbanked consumers. Unfortunately (but not surprisingly, given the intentions of the mainstream press), the differences between these terms goes unnoticed.

The FDIC published a report a while back in which they defined the Unbanked as consumers without a checking or savings account. The Underbanked was defined as consumers who use “alternative” financial products — like payday loans, check cashing services, rent-to-own products, etc. — in addition to their checking/savings accounts.

The Unbanked, per the FDIC, account for just 8% of US households. The Underbanked, on the other hand, totals 36% of US households.

Look to your left, look to your right, look in the mirror — odds are you just saw someone who qualifies as Underbanked.

Yet the bank-bashing press go ahead and paint the Underbanked as underprivileged, down-on-their-luck consumers getting taken advantage of by “predatory” large banks.

To be fair, there are many consumers in the ranks of the Underbanked who are going through tough times, find themselves un- or underemployed, in debt, and paying way more for maintaining a checking account than they should be.

Introducing the Debanked

But there’s a growing subsegment of the Underbanked that doesn’t fit this description — the Debanked. They’re young, highly educated, employed (or employable) — and they’re choosing to manage their financial lives without the help of a checking account, thank you very much.

They already use prepaid debit cards (GPRs), and are highly satisfied with the cards. (So please don’t tell me about the weaknesses and downsides of these cards, because what you and I think don’t matter — these people are very satisfied with the cards).

The Threat

And when they close out their checking accounts, $30-40 billion in deposits is coming out, and more importantly to banks, nearly $1.7 billion in revenue (including overdraft fees, monthly fees, lending fees, and debit interchange) is coming off the banks’ books.

My boss suggested to me that, while $1.7 billion might sound like a lot, as a percentage of total revenues, isn’t this just a drop in the bucket?

Yeah, maybe it is.

But there are reasons why this threat is important:

1. These aren’t “bad” customers. Back during the Bank Transfer Day frenzy, I speculated that maybe Bank of America had done the analysis, and determined that the customers they would lose by imposing a fee for debit card use were unprofitable customers they could afford to lose. It’s hard for me to see how the Debanked are bad customers. A larger-than-the-national-average percentage of them are college educated. Many are employed, and of those who aren’t, it’s because they’re still students. They’re heavy debit card users. And they bank and pay bills online (remember when the industry believed that the path to retention and profitability was to get customers to pay bills online?).

2. They might not be coming back. This is where the threat to credit unions come in. While CUs love to gloat about the number of people leaving big banks, the reality is that not all are leaving for credit unions. Many are leaving the traditional banking system. Considering the relative young age of the Debanked, and the desire on the part of pretty much credit union out there to lower the average age of their member base, this doesn’t bode well.

The short-term response to this threat is to develop and deploy a prepaid debit card program to keep these customers in the fold. Once again, please don’t tell me about the downside of the product, and how poorly other cards are designed. The failures of the Kardashians and Suze Orman aren’t indictments of the product — they’re simply examples of poor implementation.

The longer-term response is to re-evaluate the role of the checking account in the product portfolio. For too long, the product has been seen as the anchor product of a banking relationship. This assumption should be re-thought.

Bank Technology News reported on a survey of bank executives which found that:

“Eighty-seven percent of respondents say the hope of strengthening customer ties is driving the development of mobile banking apps at their institution. Competitive pressure was cited by 71%. Surprisingly, only 55% said that moving transactions to lower-cost channels was a driver and 53% cited new relationship acquisition.”

My take: What flavor of kool-aid are the 87% drinking that make them think that mobile banking apps will “strengthen customer ties”?

Every time I see this particular survey result (and I see it all the time), I’m reminded of something that Pat Swannick, who used to run the online channel group at Key Bank, once said to me:

“If every project that we invest in in the name of improving customer retention actually delivered on its promise, we’d be at 800% retention.”

The delusion of “strengthening customer ties” has been a part of the justification for nearly every new technology in the banking space for the past 15 years: online banking, online bill pay, eBills, PFM, and now mobile.

Did none of the people that left their bank for a credit union or smaller bank in the weeks leading up to, and including, Bank Transfer Day, use their bank’s mobile banking capabilities?

While the percentage of banks that offer mobile banking is growing, the largest banks — those presumably hardest hit by BTD — have been the early adopters.

So what has online banking online bill pay, eBills, and mobile banking — not to mention the billions of dollars invested in enterprise-wide CRM applications — done for those banks’ customer retention efforts?

You’ll pardon me if I conclude: Very little.

The 87% expecting to “strengthen customer ties” would also appear to be ignoring some market research conducted in 2011 by the American Bankers Association on consumers’ channel preferences which found that:

The least preferred method of banking was the mobile channel, which dropped from 3% in 2011 to 1% this year.

If just 1% of consumers prefer the mobile channel to other channels, then what impact is mobile going to have on overall customer retention rates?

Last year, I published an Aite Group report called The Impact of Mobile Banking: The Case for Mobile Marketing. In the report, I concluded that mobile banking:

1. Will have a detrimental impact on revenues. The ability to better monitor balances helps consumers avoid overdrawing on their accounts, which will lead to fewer overdraft fees, negatively impacting bank revenue.
2. Doesn’t drive mobile payments. Mobile shopping drives mobile payments, which in turn drives mobile banking.

Don’t get me wrong: I’m a strong proponent for the mobile channel. But I’m also an advocate for making a realistic business case for making mobile channel investments. The realistic business case has three components: 

1. Revenue generated from improved marketing efforts. Banks and credit unions must get a whole lot better at mobile marketing — in the form of cross-selling, influencing choice of payment cards, merchant-funded reward offers, and driving mobile payments — in order to recoup their investment in mobile banking.

2. Lower costs from transaction migration. The 55% that said that moving transactions to lower-cost channels was a driver of mobile banking investments are on the right track. But unlike past efforts, this time around banks and credit unions have to realize the potential savings by downsizing other channels, and forcing customers to give them up. The rationale that bankers give for not doing it — fear of losing customers — is ridiculous. They’re losing customers anyway.

3. Competitive differentiation. The battle for differentiation through the mobile channel will come from the deployment of “purely mobile” applications — applications that use the capabilities of the mobile channel that are unique to the channel, and can’t be replicated in other channels (e.g., location awareness, augmented reality).

Porting online banking capabilities to the mobile channel doesn’t qualify as differentiation and will do little to “strengthen customer ties.” Please don’t harbor mobile banking delusions like 87% of your peers appear to do.

Filed under: Credit Unions, Financial Services, Marketing, Mobile Tagged: Bank Technology News, Credit Unions, Financial Services, Marketing, mobile banking, Mobile Marketing ]]> http://snarketing2dot0.com/2012/02/06/mobile-banking-delusions/feed/ 9 rshevlin FIs live with mobile banking http://snarketing2dot0.com/2012/02/03/quantipulation-bank-transfer-day/ http://snarketing2dot0.com/2012/02/03/quantipulation-bank-transfer-day/#comments Fri, 03 Feb 2012 14:40:45 +0000 Ron Shevlin http://snarketing2dot0.com/?p=6447 Continue reading →]]> An article on GOOD News suggests that “with 5.6 million people and counting, the Move Your Money campaign worked.” According to an analyst quoted in the article:

“if we assume that the average American family has $3,800 in the bank, and we assume that only 300,000 of the 5.6 million people who moved had even that much, that’s more than a billion dollars divested from big banks. In the end, it won’t stop them from chugging along, but it proves that a concerted effort to change the status quo can be worth a lot, literally and figuratively.”

My take: There are a few statements here that might not stand up to scrutiny.

1.To say that the number of people that have switched account is 5.6 million and counting, suggests the “movement” is still active. It’s certainly true that people switch banks everyday, but there’s no evidence that the rate of switching is anywhere near the rate it was in the month leading up to BTD.

2. I’m having a little trouble with the claim that it was the Move Your Money campaign that worked. My understanding is that the MYM was started long before Q3 2011. Attributing the success of the late 2011 switches to this campaign seems disingenuous to me.

3. The comment that a billion dollars divested from big banks is “worth a lot, literally and figuratively” doesn’t hold water. As of the end of September 2011, the 5 largest U.S banks — or what the article despicably calls the “predatory” banks — had a little more than $4 trillion in deposits. A billion dollars is 0.03% of that. Let me put that in perspective for you: As a percentage of my annual salary, I spend more than 0.02% when I take my family out for dinner.  Even if $10 billion came out of the top 5 banks, we’re still not even talking a quarter of one percent of the deposits they have.

Why is this important?

Because credit unions are deluding themselves, and missing the more important picture.

While they obsess over painting large banks as Doofenshmirtz Evil Incorporated, the $1 billion leaving the big banks pales in comparison to the $30-40 billion leaving the system.

In an Aite Group report that I’ll be publishing next week, I’ll define a segment of consumers I call the Debanked: Mainstream consumers who willingly opt out of the traditional banking system, taking their $30-40 billion with them to alternative financial services providers.

These people aren’t just leaving big banks, they’re leaving all banks and credit unions behind. And these are not disadvantaged, uneducated consumers. They’re highly educated, employed, make decent money, and they’re young.

I don’t have the data to prove it,but I’m betting many of the Debanked aren’t aware of credit unions and the alternative they provide.

CU professionals can go on patting themselves on their backs for a supposed “job well done” regarding Bank Transfer Day (even though most credit unions didn’t actually do anything), but it’s all quantipulation as far as I’m concerned.

Lots of interesting data points and trends in this report. Here’s what caught my eye:

1. PNC is kicking @ss. The bank’s satisfaction level jumped from 57% in Q1 2010 to 79% in Q1 2011. The 57% number was down from 70% in Q1 2009. My guess is that these changes reflect two things: 1) The drop in 2010 reflected PNC/Nat City merger fallout, and 2) The bump in 2011 reflected the great job PNC did with the merger and the bank’s success with its Virtual Wallet product. The 79% level is 9 percentage points higher than Chase or Wells Fargo, 16 points higher than Citi, and 17 points higher than BofA. Kudos to PNC.

2. PFM interest and use is anemic. This might reflect the blending of the demographic segments. In other words, it might be too late to get Boomers, and maybe Gen Xers, interested in PFM. Would love to see the numbers for Gen Yers. But the Comscore numbers are not reassuring for PFM vendors, nor for online channel execs at banks looking for ways to use the online channel to add value to the customer relationship. (Side note: I’ve got an Aite Group report on PFM coming out in late Feb/early March that will define strategies for addressing the issues banks and CUs are having with PFM). Just half of BofA and Wells Fargo customers are aware of those banks’ PFM tools. In contrast, 60% of PNC customers know about Virtual Wallet, and 63% of USAA members know about the Money Manager tool. Both BofA and WF have had their PFM offering a lot longer than PNC and USAA has had theirs.

3. Nobody knows about P2P payments. And of those that do, few use it. This is a cause for concern because a number of the core apps providers I’ve talked to recently are expecting P2P payments to be big, and become a revenue generator for both themselves and the banks that offer it. Personally, I think banks go about marketing P2P payments all wrong, and Comscore’s numbers give me some proof for my contention.

4. Social media efforts go unnoticed. I’m sure you’re tired of hearing me bash social media gurus and zealots regarding their baseless claims about the miracles of social media, but Comscore’s stats really tell a story. Less than one in five consumers are even aware that their FI has a presence in the social networking space.

5. Email is an effective communication channel. Email sure takes a beating in the blogo- and twitter-sphere. According to the Comscore report:

“…the impact of receiving emails to new account opening activity is on the rise. While the response rate on offers to open a new account is still modest at 6%, it represents a doubling of last year’s rate. In fact, email is highly effective in increasing customer awareness and engagement in other offerings, with 17% of recipients visiting the site to get information on other products.”

6. Remote deposit capture awareness is low. Just 29% of smartphone owners are aware of  the ability deposit checks remotely (I know of an 8 year-old who knows about this feature). This surprised me considering the importance so many bankers place on RDC as a way to differentiate their organization, and attract younger consumers.

Overall, lots of good stuff in this report. Nice work, Comscore.

“In spite of all the regulation that helps prop up legacy business models and protect established companies, much of banking is ripe for digital disintermediation-and it’s starting to happen already. Fundamentally, banks connect those with money to those who need it. By limiting access to the systems that handle the transactions, banks have been able to charge big fees. But the walls are breaking down now, just like they did in the music business.”

My take: The banking and music industries aren’t analogous.

In response to the article, @dmgerbino tweeted “I disagree. Banks/CUs are embracing change. The music industry tried to stop it.”

David’s right, but there are a number of other reasons why the viewpoints in the article are off-base, and why the music industry suffered what it did:

1. The product form changed… Although the music industry saw plenty of change in product form from 1950 to 2000 (from vinyl to cassettes to CDs), one thing was constant: The product was a physical product. It wasn’t until music became a predominantly virtual product that the industry began to suffer.

2. …which caused the cost of production to plunge…. In and of itself, the digitization of music doesn’t explain that industry’s woes. Another contributor is that, as a result of this digitization, the cost of producing the product dropped. Virtually any musician could produce a high-quality mp3 file.

3. …and caused the cost  of distribution the plummet… In addition to making it easy to produce the product, musicians could easily do an end-run around the traditional distribution channels and go direct to their fans.

4….which exacerbated intellectual property rights….The fly in the ointment — illegal file sharing — became more like a mothra in the ointment thanks to Napster and subsequently other sites. This created a need for new approaches and new firms with the capability of protecting and enforcing these rights.

5….and resulted in new business models. iTunes and other companies emerged to fill the need. Today, people subscribe to music online. And it’s even getting worse for traditional players in the industry. Recently, I watched Bob Weir’s band Ratdog broadcast a live concert from his new TRI Studios in Marin County. It was free, and attracted about 100,000 viewers. They could have easily charged $5 and with even just 20,000 views grossed $100,000. The variable costs of touring from city to city can be avoided.

Now let’s look at the banking industry:

1. The product form hasn’t changed. I find it interesting that the author of the article says that banks “fundamentally connect those with money to those who need it.” That’s one part of the business. But payments — think of this as the “transfer of funds” — make up a pretty big portion of what a bank does, no?  When you write a check, or use your debit card against your bank account, you are fundamentally triggering a transfer of funds from your account to someone else’s. It’s certainly true that access mechanisms — how we check our balances, transfer funds between our own accounts, etc. — has changed, and become more electronic.  But the underlying form of the product has been electronic for some time now.

2. The need for security drives up costs. As far as I know, no one has tried to steal the music off my hard drive (it’s mostly Grateful Dead music, which is widely available on the Internet, anyway). But protecting the funds in my account is a pretty big deal. And as most banks know, it requires a lot of investment to ensure that accounts are protected from fraudulent activity. So-called disintermediators to the banking industry often seriously underestimate the cost of doing this.

3. Risk management is a requirement. Security and fraud are one thing, risk management is another. When a bank makes a payment it often assumes the risk of non-payment (something Dick Durbin can’t seem to understand). Any potential newcomer can design a fancy front-end website to disintermediate the banks. But that doesn’t alleviate the need for risk management.

4. Regulations create barriers to entry. While the bank haters love to point to regulations as something that keeps the barriers to entry erected, most bankers know that there are scores of regulations that drive up costs and eat into profitability (FYI: I’ve estimated — with the help of Continuity Control — that the largest 100 banks in the US spend $1 billion on compliance each year). Potential disintermediators looking to get into the industry must adapt to the regulatory environment.

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All of this is not to say that we won’t see new entrants into the industry. But what we’re not seeing — at least not right now — is the disintermediation of banks. New entrants are not creating radically new business models that are threatening the legacy players.

In fact, one of the author’s examples shows how banks’ role is strengthened, not disintermediated: Square. Today, many micro-merchants are forced to accept cash or checks from their customers because they haven’t been able to accept credit cards. By outfitting these merchants with card readers, more payments can actually flow through the banks that issue credit cards.

Another of the author’s examples — Simple — does create a new interface to banks, but doesn’t eliminate banks from the financial services equation.

Bottom line: There’s no doubt that the financial services will dramatically change in the next 10 years. But because of the complexity of moving money — including technological complexity, security concerns, risk management needs, and regulatory compliance — banks aren’t going to be disintermediated a la the music industry. The fat lady may be singing to the big music companies, but she ain’t singing to the banks.