What Banking Needs to Become

In this quarter's Strategy + Business Magazine, Vanessa Wallace and Andrew Herrick discuss the significant changes in the banking industry over the past few years and how bank's business models, capabilities and practices must change as well. In their very good article, they emphasize that the purpose of banking and the needs of the customer have remained relatively consistent with regards to safe havens for savings and consistent access to credit for investment.

The environment has changed, however, with the competitive landscape changing, the regulations increasing and the public trust eroding. In addition, the times of high growth have ended.
They argue that banks will need to revert back to a much more simple value chain, where there are far fewer intermediaries between the customer and the bank. In short, banks will need to get closer to the customer.

From a marketing perspective, they propose that leading banks will need to sharpen their capability for capturing customer information in a timely manner. This means analyzing customers’ product holdings, cash flows, behaviors, and personal circumstances. Depth of relationship will be more important than breadth. It will be more valuable for a bank to have an 80 percent wallet share of 1 million customers than a 10 percent share of 8 million customers. Greater wallet share permits greater insight into buying patterns, credit risk, and loyalty, enabling a stronger, more profitable lifelong customer relationship. For their part, customers will find that scarce credit lines are more accessible when they concentrate their banking activities among fewer providers.

In addition, banks will have to innovate to better serve the needs of their more loyal customer base. This will take the form of better cash flow management tools that utilize multiple channels. In addition, the emphasis on insurance and investment services will most likely increase since the goal will be to serve all of the client's financial service needs.

Consumers will be rewarded for their loyalty with better rates, fewer fees and easier access to scarce credit.