January 10, 2012

Quantipulation: Online Banks’ Deposit Growth

American Banker ran an article titled Online Banks’ Deposits Grow at Quadruple Industry Pace which stated:

Among the nation’s largest stand-alone direct banks, deposits have increased by 70% since the first quarter of 2008 to a combined $330 billion as of Sept. 30, or roughly four times the industrywide pace. Even for ING Direct, the largest and most established Internet deposit business, deposit growth of 27% since the first quarter of 2008 to $82 billion at Sept. 30 was far ahead of industrywide growth of 17% to about $10 trillion.

My take: The online banks may have grown far faster than other FIs (70% vs. 17%), but given the smaller base of deposits, that’s not very hard to do. In fact, if AB wanted to further sweeten the online banks’ story, it could have mentioned that their market share of deposits grew from 2.3% in 2008 to 3.3% in 2011 — a 43% jump in market share.

Ah, but now I’m the one quantipulating.

There is another side to this story, however.

Based on the numbers presented by the article, the online banks captured just 9% of the industry’s total deposit growth from 2008 to 2011. Meanwhile the top 5 banks (JPMC, C, BofA, WF, USBank) captured 40% of the deposit growth (my estimate is based on adding Wachovia into the WF numbers, and Wamu into the JPMC total).

While AB points out that the online banks’ growth rate is four times greater than the industry pace, it fails to mention that the top 5 banks’ deposit growth ($, not %) is four times greater than the online banks’ increase. In addition, as the online banks’ share of the total market grew from 2.3% to 3.3%, the top 5 banks’ share remained constant at 41%.

What it means: 1) Despite the “safety scare” of 2008-2009, and the “move your money” and other negative sentiment toward large banks in 2011, the top 5 banks are weathering the industry’s storm, at least from a deposits perspective; and 2) The online banks’ gains would appear to come at the expense of credit unions and community banks.

Oh, and the other thing it means is that, if you’re going to quantipulate, remember that there’s probably another side to the story. 

Posted by on January 10, 2012 in Marketing, Retail Banking and tagged , , , , , , , , .

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January 9, 2012

Credit Unions’ Achilles Heel?

If you work in financial services — and like market research data — check out Prime Performance’s 2011 Bank and Credit Union Satisfaction.

If you work for one of a handful of large banks, you probably won’t like what you see, and will probably stop reading half way through. If you work for a credit union, then enjoy this cup of kool-aid.

I’m not disparaging the study with that last statement. The study is well executed, the sample size is more than adequate. But as with much of the market research in financial services — and I am as guilty of this as anybody — data about credit unions is reported at the overall level, which obscures the differences in individual institutions.

Instead, I’m taking a playful swipe at the credit union folks who will see that credit unions are rated highest in every category tracked except for one, and pat themselves on the back, as they do every time a survey comes out that shows that they’re superior to the big banks.

There are, however, two things credit union people should take away from the survey results:

1. There is some halo effect going on here. I’m not surprised in the least to see higher satisfaction and higher advocacy (“Doing What is in Your Best Interest”) scores for credit unions. But significantly higher scores for “reps offer higher quality advice”, “reps have the expertise to handle your financial needs”, and “satisfaction with Internet banking”? OK, maybe I can give in a little on the first two of those criteria, but there are a lot of credit unions out there whose public Web sites are atrocities and whose authenticated site design and functionality is serious lacking. I suspect that many respondents are just giving their credit union a high score across the board regardless of their actual experience, as well as the opposite for some of the large banks.

2. Mobile banking scores. In the scheme of things, credit unions’ scores on mobile banking are hardly a cause for concern — 68% of respondents are satisfied, 12% dissatisfied. But in comparison to the scores on the criteria — where the percentage dissatisfied average between 2% and 3%, and the percentage are often in the mid- to high-80s — mobile banking might be a cause for concern.

Is mobile banking credit unions’ Achilles heel?

I’m coming to the conclusion that channels are segmentation tools. Sure, Seniors may use the Internet, but they still rely on branches — and the branch is probably the most influential channel impacting their satisfaction. Boomers are big users of the call center (as well as the Internet), and Gen Xers are big users of their banks’ and CUs’ web sites.

Gen Yers? Well, the mobile channel is becoming — if it isn’t already — their primary access channel. As (pretty much) every credit union in the US goes about trying to lower the average age of their member base by attracting Gen Yers, the mobile channel will likely be — if it isn’t already — the competitive battleground and point of differentiation. 

The challenge for credit unions is to look beyond mobile banking. Looking up account balances, transferring money between accounts, an even getting alerts are basic features. Every institution will have those capabilities before too long. 

What credit unions should be exploring and experimenting with are what I like to call “purely mobile” apps — capabilities like location awareness, augmented reality, and mobile payments that are available only through the mobile channel.

Public villains come and go. You don’t see too many articles about BP anymore. With time, banks won’t be the whipping boys they are today. 

Developing innovative mobile capabilities may very well be one way in which they get back into their customers’ — and the public’s — good graces. Not to mention a way for start-ups like Movenbank and Simple, or even firms like Google and Facebook , to offer banking-like products that compete with established banks and credit unions. 

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I hope the mobile banking scores in the Prime Performance study raise some discussions in credit unionland. In the meantime, congrats to CUs for kicking bank butt on the Prime Performance satisfaction survey.

JAN 10 UPDATE: Well, at least I now know that CUs aren’t ignoring the mobile opportunity. Check out this article titled Credit Unions Gear Up for Mobile Banking Explosion on the Credit Unions Online site. 

Posted by on January 9, 2012 in Credit Unions, Marketing, Mobile, Retail Banking and tagged , , , , .

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January 5, 2012

Social Media’s Half-Life

As I look back on nearly 30 years of being in the working world, two observations dominate my thought process:

  1. It’s taken me 30 years to become a….senior analyst? That’s it? That’s all I’ve done? Other analyst firms have “senior” analysts who aren’t even 30 years old, let alone have been working for 30 years.
  2. Management fads come and go. At their peak, true believers think it’s the fad to end all fads. But they end. Every management fad has a half-life. And the half-life of most management fads is about three years, maybe four.

The first observation reflects an issue I should take up with my shrink. (Or my dope dealer, cuz’ he helps take care of a LOT of issues).

The second observation I’m going to deal with here.

Over the past ~30 years, I’ve seen five management fads:

1. Client/server. The advent of PCs in the early to mid 80s led to the client/server fad (a term that Forrester claims to have coined) that proclaimed that PCs were taking over the world, and would lead to the decentralization and democratization of businesses everywhere.

2. Reengineering. The reengineering boom came in the early 90s as firms woke up to the realization that the business functions they were organized in performed business processes that cut across those functions. By redesigning those processes — reengineering them, that is — they would achieve step function improvements in efficiency and effectiveness that would drive profitability to astronomical levels.

3. Knowledge management. The late 90s brought on the knowledge management craze as companies became concerned that their “organizational knowledge” was walking out the door each night at 5pm each night, and could get hit by a truck walking across the street. It was the only period in the history of mankind where companies cared whether employees lived or died.

4. Digital business. The early part of this century brought with it the rise of the digital business as everything companies did would be done over the Internet alleviating the need for physical presence like stores, bank branches, etc.

Which brings us to the fifth, and current management fad of my long, not-so-illustrious career:

5. Social media.

The most annoying thing about each of the fads that have proceeded the current one is that, for some inexplicable reason, business people can’t seem to do anything that isn’t related to the current fad.

Case in point: Weather.com

There’s simply no reason why Weather.com needs this feature. It’s not even really being “social” — the page simply picks up weather-related tweets from people who are supposedly in my geographic region. I say “supposedly” because one of the tweets listed above talks about the weather in Dubuque. Where the hell is Dubuque? Iowa? I’m in the Boston area, for chrissakes.

From a business perspective, I don’t get this, either. Is Weather.com driving deeper engagement with the site enabling it to sell more advertising space? Seems like a stretch to me.

While the innovation junkies and gurus yell and scream that we need more innovation! to improve the economy and restore profitability to businesses, it’s stuff like the above from Weather.com that companies are coming up with.

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The current social media mania fad has produced a behavior commonly found in past fads: The relabeling of existing tools and technologies under the banner of the current fad.

When I started at Forrester Research in 1997, the first report I did was on knowledge management. It was truly a piece of shit report. What I couldn’t fathom, while doing the research for that report, was why every technology project that companies were proposing to do were labeled “knowledge management” projects.

Well, I understand why now. It’s how you get your project funded.

The relabeling of technologies is prevalent today, as well. Take a look at this comment from a Forbes blog (which references an outstanding report from Aite Group that…hey!…that I wrote!):

“Also interestingly, of all of the social media sites followed by Aite Group, only LinkedIn increased its overall use between 2009 and 2011. LinkedIn does not, however, address the client servicing side of the social media question. What about e-mail marketing systems such as Constant Contact? To me, this is one of the easiest and most efficient ways to enter the social media game, and it allows you to not only provide clients with information, but also in a branded way!”

(my emphasis)

Email is a social media tool? I thought social media caused the death of email?

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There’s no doubt in my mind that we are smack in the middle — the high point (or low point, depending on your perspective) — of the social media fad. 

If past business history is any guide — that the half-life of a management fad is 3-4 years — then we have another year, or maybe two, of dealing with this hysteria. 

But what worries me is that the past may be not be a good predictor in this case. Here’s why: This is the first management fad that has transcended the business world to the consumer world. 

Consumers, for the most part, were oblivious to the previous management fads. Oh sure, they might have experienced changes in the customer experience resulting from initiatives spawned by the fad, but they weren’t really conscious of the management fad itself.

Not so this time around. 

Consumers and businesses are partners in driving this new fad. 

This fad could go on for 10 years. 

I hope my shrink and dope dealer are ready to help me through it.

Posted by on January 5, 2012 in Humor, Marketing, Social Media and tagged , , , , .

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January 2, 2012

Two Marketing Imperatives For 2012

It seems to me that many of the marketing predictions and advice I see (or am nearly forced to see thanks to my Twitter buddies’ links) from consultants, pundits, and gurus are focused on social media — oops, I mean social business — and big data.

Writing on the topic of social business, one guru recently wrote:

Companies of all sizes will need to transform their business and existing infrastructure, and reverse engineer the impact of business objectives and metrics. Businesses will have to embrace all of the disruptive elements, such as mobile and social technology, in a new, cohesive organization that is focused outward and inward.

My take: What a load of nonsense. Reverse engineer the impact of business and metrics? What the hell does that mean?

Writing about big data, the same guru said:

Companies will need to centralize BI to feed every aspect of the business – marketing, product, innovation and customer service. Only then will BI help companies transform themselves into true social businesses.

My take: Demonstrates a complete lack of understanding of the dynamics of organizational structure. Centralizing BI to feed “every” aspect of the business is a prescription for failure as very few — if any — organizations have the resources to do this, let alone the ability to prioritize the competing demands of those functions. Nothing will stifle the innovative use of analytics and data like centralizing BI.

For my money, Esteban Kolsky said it best:

Big Data is nothing new. We have had tons of data to manage for very long times. If you really think it through, the problem is not Big Data. The greater challenge to organizations is not how to manage Big Data, rather how to separate data from noise and just handle data and discard noise. You don’t need a new analytics strategy, you need a new filtering strategy.

Despite  all the predictions and advice around social business and big data, there are two areas that get short shrift in the press and blogosphere. While there are certainly other imperatives for marketers in 2012, these two are getting overlooked:

1. Customer Advocacy. No, no, no, no. I do NOT mean “having your customers advocate on your behalf.” I mean “being perceived as doing what’s right for your customers and not just your own bottom line.”

For years, I’ve been fighting a losing battle to have marketers view customer advocacy my way. It started with research I did in 2004 where I found that bank (and credit union) customers who rated their FI highly as doing what’s right for their customers and not just their own bottom line were more loyal to their FI, more likely to recommend their FI, and more likely to grow their relationship with their FI than other customers. Customer advocacy isn’t some airy-fairy concept. It’s comprised of:

  • Simplicity. Firms that simplify their customers’ lives — as opposed to making things more complicated than they need to be — are viewed as customer advocates.
  • Benevolence. Firms that are seen as always on their customers’ side for problems and concerns and that are willing and able to assist customers get high marks for benevolence.
  • Trust. Doing what’s right, even if not regulated; Always honoring promises; and Going out of the way to protect customers’ privacy.
  • Transparency. Transparent firms show fair rate and performance comparisons and make their rates and fees crystal clear.

When I first started talking about this in 2004, many banks dismissed the idea. And why not? They were making money hand over fist, why should they care. But in 2012, the situation is very different. Banks are struggling to grow. There’s something else that’s different today: Popular sentiment.

Have you listened to an Obama speech lately? Every other word out of this mouth is “fair” — calls for more “fairness” in just about everything. Why does he do this? No, not because he cares about fairness, but because he knows that it resonates.

Most of us have grown up hearing “life’s not fair.” Maybe. But we will live in a point of time where people are saying: “It doesn’t have to be that way.”

Companies that are viewed as Customer Advocates are viewed as being “fair.” And this is critical, because firms that aren’t viewed as advocates, or as “fair” can’t get away with raising prices or levying fees.

Reading the popular press, you would think that credit unions didn’t charge any fees for anything. That’s not true, of course. But because credit unions are seen — on the whole — as customer (member) advocates, they’re not vilified like the banks (particularly the large ones) who don’t enjoy those perceptions on the part of their customers.

There are a number of things that bank marketers can do to improve their customer advocacy scores in 2012. Going into those details is outside the scope of this post, though.

2. Political Tightroping. Like it or not, this is a very polarized time in our history. Maybe not more so in the past, but it sure seems like it to me. Unfortunately for marketers, they can’t afford to be on the “wrong” side of the fence.

When Donald Trump was in the news for considering a presidency run, firms that advertised on his show were badmouthed and boycotted. More recently, there was an attempt (that was met with at least some success) to get GoDaddy customers to leave the firm because of their support for the proposed SOPA regulations.

Marketers have to be extremely careful in 2012 who their firm supports in political races and which proposed policies and regulations they support or oppose.

This notion of “tightroping” goes beyond politics. Marketers need to re-evaluate who they use as spokespeople, in order to avoid embarrassing situations like having idiots like Alec Baldwin bite the hands that feed them.

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Social business is just another in a long line of aspirational ideas (re-engineered business, knowledge-based business, digital business). Big Data, as Esteban Kolsky says, is nothing new, and isn’t the problem.

Marketers would be better served to focus on customer advocacy and political tightroping in 2012.

Posted by on January 2, 2012 in Analytics, Financial Services, Marketing, Social Media.

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