Banks are behind the times
By Tom Dougherty
Refusing to Change
A few years ago, when developing a brand for a bank, we had a thought. Research had shown anger at banks was continuing to rise.
Overdraft fees were among the many irate issues consumers had a beef with. It felt like highway robbery to them to be charged $35 (or so) if they over-drafted by a mere five bucks. They were steamed.
So we suggested to the bank executives, why not limit the overdrafts you charge? You could even put in a million stipulations but the message would be powerful: We don’t think you’re careless with your money. Other banks just charge you for every little mistake.
Those execs looked at us like a colony of ogres had leapt out of our heads.
I use this story to illustrate how little banks are willing to change to increase market share. In fact, they are often not interested in market share at all. They are into increasing the “share of wallet” of their current customers.
Share of Wallet
Share of wallet used to mean only making sure customers had their primary checking account with you along with their savings, a mortgage, car loans and retirement.
But it’s going further than that now. Free checking used to be one of the table stakes that banks promoted endlessly promoted with no impact. No one cared because no one would switch for something they already have.
Things have changed. Bankrate.com has reported that more than 60% of banks now charge for a checking account.
How much more of the share of wallet can banks keep taking?
What’s at Stake
The answer is they can’t. That’s why another strategy must take its place. And that means thinking like a business in which taking customers from other banks is paramount.
If you don’t, you could be one of the 191 commercial banks that shut its doors in 2012 in the US. The “share of wallet” strategy is becoming so limiting that banks are angering their customers so much that they will just pack up and leave.
Our prediction is that largest banks in the US, such as Bank of America and Chase, will start gobbling up more market share by being the default choices of the market. Right now, those two, along with Wells Fargo and U.S. Bank, charge a maintenance fee, but the others are joining in the game. PNC Bank, for instance, stopped allowing free checking accounts to open on August 18.
That means free checking will be gone and the playing field will be even. When everything is equal, the default choice becomes the market leader. If you are not the market leader, you will not be preferred.
You can feel the panic elsewhere. Banks closed 2,267 branches last year, while opening only 1,149 for a net loss of 1,118 branches nationwide, according to research firm SNL Financial. (See work Stealing Share did for First Financial Bank here)
You are Being Ignored
The art of stealing share begins with looking honestly at your own brand. Surprisingly, this is where most bank brands fail.
Most believe their customers love them because the few who come into branches represent just one end of the spectrum. You may also hear from those who are most angry with you, but it’s the middle bunch – usually the largest audience – that makes the difference.
Because of that, banks often fall into the mistaken belief that they are already different and better than the competition.
The truth is often more shocking – and revealing – than just that banks are institutions of derision. It’s often that they are ignored.
What’s worse is that the ones currently not using you are completely oblivious to you. You simply don’t matter.
How Banks Steal Market Share
The reason most banks are ignored by those who currently do not choose them is banks look and feel all the same. Most customers want to leave their bank at some point. They are fed up.
The problem is that they look at the current landscape and think, “Why would it be better over there?”
Knowing the emotional triggers through quantitative research is incredibly valuable for bank brands to steal share. With those in your pocket, you can adapt your offerings to them in addition to honing your brand and its messages.
That means looking from the outside in, not the inside out. While charging for checking is becoming the norm, how does that make your customers – and the customers of the competition – behave? Is there a way to position yourself against that, while still remaining financially viable?
The answer is found in your brand. If your brand, for example, is about “simplicity,” than making the process of checking as simple as possible becomes the marching orders that infiltrate everything, including checking.
The strategy is clear. You must be willing to trade wallet share for market share. That means positioning yourself against the competition – being truly different and better, from the point of view of those who are currently not choosing you – and thinking non-traditionally.
Maybe not having overdraft fees isn’t so mind-boggling after all.