Allison Netzer, Chief Marketing and Strategy Officer at Nymbus.
When people first began using financial institutions to protect, grow and manage their money, geography defined everything about the way they banked. If a bank or credit union was not accessible from where they physically spent most of their time, people could not (or would not) bank there. Over time, financial institutions created ways to grow despite the limitations of in-person banking by opening multiple branches, enabling certain transactions to be done over the phone and connecting credit unions through shared branch networks.
The last two decades — and especially the last several years — have transformed this model. Branch proximity is becoming less critical: Only about 22% of credit union members and 39% of bank customers said they chose their institution primarily because of its convenient location, according to the CFI Group 2019 Credit Union Satisfaction Index report. According to the same study, 20% of people now conduct all their banking activities without interacting with a person. With software and mobile device security getting better and better each year, the “digital-as-default” model is erasing physical boundaries and making niche the new local. Any financial institution can now expand its reach and grow by focusing on hyper-targeted markets that aren’t defined by ZIP codes.
To remain competitive, simply adding online or digital features for transactional services is likely not enough. Accenture found that retail and commercial banks have spent $1 trillion in IT transformation over the last several years. However, while “half (50%) of banks are achieving higher profitability and returns on equity, driven by greater operating leverage … they’re not achieving differential revenue growth.” As the chief marketing and strategy officer of a company that helps financial institutions launch digital banks, I’ve found that people want more from their banks than just mobile transfers and bill pay: Financial institutions (FIs) should move toward more innovative paths that offer better experiences.
For many people, better experiences come from better understanding. In a sea of online activity and constant information overload, consumers will likely notice when financial services are tailor-made for them. To grow, FIs should work to understand the particular needs of niche markets. For example, physicians often graduate with a high student debt load, and they may move around frequently at the beginning of their careers to follow fellowships and other job opportunities. One of our customers decided to focus solely on this segment and offer both personal and business services that take the unique schedule, lifestyle and financial needs of physicians into account.
Niche markets exist outside of job titles as well. Millennials face very specific barriers to financial health, from high student debt loads to an unaffordable, inaccessible housing market in many areas. (According to 2019 Apartment List data, 70% of millennial renters who plan to own a home are waiting because they can’t afford one.)
Financial well-being and education tools often lag behind other digital transformation initiatives, and this can come at a price. According to EVERFI’s 2018 report “The Secret to Customer Loyalty: Relationship Banking,” 32% of consumers said they left their financial institution due to inadequate or nonexistent financial education tools and services.
To make growth happen now, banks should pave a new path.
Creating personalized, specific digital bank offerings can seem intimidating to financial institutions. Targeted messaging, services and products can resonate with their intended market quickly, efficiently and effectively — especially when wrapped tightly in great branding. And just like how local financial institutions may function better when they are an integral part of the neighborhood, digital banks that target a niche market can achieve greater success when they think about their digital efforts as part of their greater brand ecosystem.
Banks and credit unions should work to build their digital brands and explore new revenue streams, attract new market segments and expand their reach quickly in a way that aligns with their needs and capabilities. They can do so in three ways:
• Buy: For banks looking to hit the ground running, choosing a pre-built, fully-chartered digital niche bank that has been thoroughly tested and incubated might be their best path to capitalizing on a fast-moving market. This option allows banks to move quickly into the market and reduces the chances of a competitor seizing the opportunity first. By selecting a niche that aligns with both short-term opportunities and their vision for long-term growth, banks can capitalize on their existing strengths. Niche bank brands should tap into new pockets of their existing community and focus on delivering a better, more personalized customer experience.
• Build: For banks that want a more hands-on approach, they can execute their vision for digital growth by creating a launch plan and a comprehensive, functional toolkit. While this is a longer, more involved process than simply buying a pre-built bank from a portfolio, it’s possible to quickly build and launch a new digital bank. Rooting decisions in data and a “minimum viable audience” approach is important for success if you take this route: How many potential new customers do you need to make this investment make sense? What kind of affinities or gaps exist for this audience that your institution can deliver on exceptionally well? Much like buying a pre-built bank brand, banks looking to build a new digital brand should leverage their existing knowledge, infrastructure and audience to reach new markets that are cohesive with their overall vision for growth.
• Grow: The leadership of existing digital banks should consider leveraging a data-driven auditing process to gain insight into how resources can be more effectively applied to achieve aggressive growth. Develop experiences that ensure full consumer engagement, and pair those with a strategy that can evolve as customer needs and behaviors change. This goes far beyond marketing and surface-level design changes and requires a thoughtful look at how the underlying technology infrastructure will support a seamless, integrated digital experience. Banks should think about what products and services are in nascent stages now but will likely dominate financial services in the future, then plan for the capacity needed to support new shifts in the next five to 10 years.