I was telling a friend of mine–a senior executive at a mid-size credit union–why many banks and credit unions deceive themselves when they say their competitive advantage is their superior level of service (if you want to know why, see this [1] and this [2]).
My friend said:
“You don’t get it. We do have superior service. It comes down to knowing our members better than any mega-bank could ever know them.”
I looked at him and said, “You, my friend, don’t know JACK! Or Jill, or Jim, or Jerry, or Jeannie, or any of your other members whose names start with the other 25 letters of the alphabet.”
I explained to him that his credit union knows just a thin layer of who its members are. Sure, when a member walks into a branch, employees know that it’s Jack Jones, that his wife’s name is Jane, and that they have two wonderful kids, Jenny and Jeffry who attend Jefferson College. I told him, however, “Your credit union doesn’t know:
- How much money Jack has. You only know how much he has with you. And if he’s got any money, it’s a good bet he doesn’t have much of it, let alone all of it, with you. So you really don’t know his investment needs or risk tolerance.
- What Jack’s financial goals are. Oh sure, you have a PFM app that has a goal tracking capability. But PFM users account for what, 10% of your overall member base? What’s the chance that Jack is one of those members AND uses the goal tracking feature?
- How Jack makes his money. Oh sure, you might know how much he makes because you can see that direct deposit coming in every month, but you don’t know if that stream of income is safe and stable, or if Jack works in an industry that is on the decline.
- How Jack spends his money. You’ve got a piddly percentage of your member base using your online bill pay platform, and it’s a good bet you didn’t issue all the credit cards he has, so you really don’t know where the money is going. And worse, you’re not even doing anything to analyze the debit card spend data you do have.”
Sensing that I had won yet another debate [3] regarding banking, I eased off the gas pedal and said to my friend: “So you see, you don’t know Jack. And as I look around the industry, it’s the mega-banks and fintech startups–not the community banks and credit unions–that are doing something about it.”
***
“Yeah, but where and how are we going to get that data?” asked my friend.
“Sit down, grasshopper,” I counseled, “and I’ll tell you the secret to member data collection, but only if you promise not to share the secret with anyone.”
“Tell me, or I’ll kick your snarky @ss out of my office,” he replied.
“YOU ASK THEM.”
“Hold on a minute here, you yourself said that consumers aren’t using PFM tools like goal-setting features, let alone account aggregation that would give us that kind of information. And consumers don’t like to have all their financial eggs in one basket, nor do they trust financial institutions with all their data,” he retorted.
“Listen, pal, all I’ve heard from you credit unions over the past five years is how your Net Promoter scores are through the roof–and that the big banks’ scores are in negative territory–and how every consumer survey finds that credit unions are so trusted by their members. If your members really do trust you–and are so likely to refer you to their friends and family–then why wouldn’t they share personal financial information with you?”
“So, that’s all we have to do–ask them?” he inquired.
“No, you have to use your transaction and interaction systems to capture the right data points, and then analyze that data to make judgments and assumptions about your member base.”
“But we don’t know how to do that,” he admitted.
***
If you don’t have the right data about your members (customers), aren’t capturing the right data about your members (customers), and don’t or can’t analyze the data to figure out what the right data is and make assumptions and judgments about your members (customers), then:
- How in the world can you say you know your members (customers) better than any mega-bank could? and
- Your so-called competitive advantage isn’t much of a competitive advantage, is it?
***
Over the past two years (or so), I don’t think I’ve encountered a bank or credit union executive who doesn’t want to improve his or her organization’s analytics capability. I also don’t think I’ve met one who really knows how and where to start to do that. Nor do I think I’ve met one whose CFO would be comfortable with the fact that, even if they had a plan for where to start and what to do, there is no calculable–or reliably calculable–return on the investment needed.
This is what strategy is all about–understanding your advantage, or deciding on what that advantage should be–and making the investments needed to build the capabilities to leverage that advantage. Even if you can’t put an ROI number on it.
***
Back in the late ’90s, a couple of really smart consultants wrote a book called The Discipline of Market Leaders in which they asserted that market leaders excelled on one of three competitive dimensions, while maintaining reasonable levels of performance on the other two. Those dimensions were: 1) operational excellence, 2) product leadership, and 3) customer intimacy.
The reaction of many firms was predictable:
- “We don’t want to compete on price and be the low-cost provider.” Which completely misinterpreted what dimension #1 was all about.
- “We’re in a commodity business, so there is no opportunity to compete on product leadership.” Which completely missed the opportunity to de-commoditize a commodity business.
- “We compete on customer intimacy, and knowing our customers better than our customers.” Which completely overlooked what intimacy really meant, and what investments were required to achieve and maintain that intimacy.
***
If you work at a community bank or credit union and tell me, “I don’t think we can compete on the basis of product leadership,” I don’t think I’d try to talk you into it. If you tell me that operational excellence isn’t for you, I might try to educate you on what that really means before accepting your answer.
If competing on customer intimacy is going to be your path to advantage, fine. But what does that really mean? It doesn’t mean knowing who your customers/members are when they walk in the door or log on. It means putting that intimacy to work by providing advice and guidance that other FIs can’t because they don’t know your customers/members as well as you do.
You’ll have to know Jack–or you’ll have to hit the road, Jack.
-rs
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