Tick Tock

The Union of Concerned Scientists has a cheery little symbol of the depth of their concern called the Doomsday Clock. The clock is used by the group to represent its estimation of how close to nuclear midnight (war) the world is. The fact is, if the Union’s Doomsday Clock was set to indicate how close banking is from being “uberized” (an event that can have a nuclear-type impact on an industry), the minute hand might be only two or three minutes from midnight.

This was true before the pandemic, but the lockdowns during the pandemic moved the minute hands on the clock closer to midnight for community banks and credit unions. A rise in the adoption of digital channels, the increased use of those channels by those already used to using them, and the shuttering of branches created a perfect storm that has more people open to remote banking. Given the rise in the accounts opened at digital-only banks, it would seem that many are even fine with the idea of banking with entities that have no branches at all.

Changes in Latitudes, Changes in Attitudes

During the pandemic, a survey of clients at one consulting firm seemed to indicate that the leadership at community financial institutions understood this sea change. The majority of those responding to the survey listed digital transformation as their number one priority. However, it may be that this level of focus came from a place of panic. Could a return to life without lockdowns reduce this level of panic and the concern these executives have about digital transformation?

A discussion with an executive at a software company provided evidence that this could be the case. My colleague revealed that the community banks and credit unions he had spoken with were still using decision cycles that run 12 to 18 months, with implementation cycles running longer. These same institutions are still layers of approvals from various players, committees, and boards, so that risk (personal and institutional) is spread as thin as possible.  

Here lies the crux of the matter. Change is something that traditional banking has always resisted. This resistance is embedded in the culture of these organizations. To be able to keep the Clock of striking midnight at your institution, that culture will need to now only change but also be redefined.

That probably sounds a bit dramatic, and certainly, there are bankers who have heard all this before and are starting to regard such assertions as a form of “The Boy Who Cried Wolf” syndrome. A recent Harris survey suggests that the dam may actually have more than a leak in it, given the lack of loyalty consumers have in the now normal. According to the survey, 40% of respondents said they would leave their primary institutions for a better digital experience.

That would seem to be a number that merits a bit of drama if you are a community financial institution facing an onslaught of mega and challenger banks. Even if the number is considered more a reflection of dissatisfaction than an intent to leave, another study done by a leading research firm revealed that 27% of those surveyed were already planning to leave their primary financial institution over the next two years. (CTA: InvestorKeep Makes Your Institution Sticker)

Taking Care of Business

Setting aside the 40% who said they would leave IF they found a better digital experience, a double-digit decrease in customers or members over a two-year period would represent nuclear winter for most community financial institutions. If such a mass defection were to occur, some of these institutions would be disproportionately impacted. For those that suffer, there will be others that benefit. There is no reason some of the benefactors can’t be community institutions.

The key will be prioritizing the actions required to achieve such a goal. It so happens that the Harris survey referenced above offers some demographic data that can help influence how those priorities are set.   Of those willing to leave for a better digital experience, the majority were from households with incomes of $100,000 or more annually. Since no one can keep all their members or customers at home, focusing on those whose retention or attrition most impact the institution’s bottom line seems almost self-evident.

Much has been made of personal financial management tools for the masses. The idea is a good one and key to long-term success. But, if I were trying to lead my institution through the uberization of banking, in the near term, I would focus on tools that create value-add for my high-net-worth households since their retention or attrition has the most potential impact to the bottom line. The tools this demographic requires can be vastly different from other client segments. Finding the right tool – a tool that delivers value in terms of saving time, presenting actionable information, and protecting their net worth – would go a long way in ensuring the impact to the bottom line is a positive one.