What is a Bank?
I find myself asking this question regularly in my role as an investor and as a bank director. Any business should ask what is its reason for being. It ensures regular review of its strategy and its competitive edge. In the case of financial services, it is critical given the speed of change in the environment.
Historically, banks were about place. The local bank (even if it is a big regional bank) occupied mind share in its market because it advertised and opened its branches to customers and prospects. The act of walking into a branch let the brand come to life for customers. This is true for consumers and businesses alike. Picking your “footprint” as the bankers like to say focused your resources and impact.
Secondly banks need deposit growth to feed the balance sheet to allow them to lend money and make a spread. On the consumer side they have focused on new accounts coming from consumers who are much younger than those consumers looking for a wealth manager or a doctor. So banks have experiences with younger cohorts of consumers well before other industries might make first contact.
My belief is that we have in a short time experienced a significant shift from the younger cohorts. They have in less than two years according to a study by Bain Consulting stopped coming into the branch. They have identified less with place and more with experience. Who is easiest to work with? Who charges me less in fees? Who has my best interest at heart?
If this is the new way forward, it will require a new definition of banking. Robin Hood is a bank by this definition. Marcus is a new form of bank fitting this model more so than other traditional branch laden banks. Focusing on customer experience may be the key to getting the attention and business of consumers. Worrying about NPS (net promoter scores) should drive any financial institution more so than worrying about NIM (net interest margin) perhaps.
We have invested in two startups – Long Game and Cushion who we think embody this new way of thinking about customer experience. Enjoy the interview with Lindsey Holden who is the founder and CEO of Long Game. See what you think about their way of gaining trust and delighting consumers.
Cushion gains trust by rebating checking fees. Over $200B per year is charged by the banking industry to consumers. Imagine a firm who helps you get some of this back. It would be easy to trust them when they offer you a new service. What a great customer experience that should build a new version of a bank or financial partner.
I welcome your answer to my question above to help shape my thinking. Send me your thoughts at firstname.lastname@example.org.
—Mark Casady, General Partner