Convenience – Is it Driving Banking Innovation?
According to Michael Porter, a Harvard business professor and strategy guru, a company’s long-term survival dictates that a business strategy be chosen. Three primary strategies for consideration include:
- Dominating a specialized market
- Providing consumers with the lowest cost for products and/or services
- Differentiating services and/or products
When looking at any range of financial services, one must now consider how innovation is leveraged to deliver on these strategies, and how customer convenience is ultimately a primary benefit.
The definition of convenience has also changed. Ten years ago, convenience was more associated with the number of branches on the way to work and whether you could get in touch with a loan officer by phone. Today, it’s more about whether the online banking experience is efficient, whether a consumer’s mobile device is easily used and how quickly the financial service provider responds via email.
Innovation Everywhere
Today’s consumers have a plethora of options available from large and small banks, credit unions, investment companies and now check cashers. Additionally, mobile banking is sky rocking with not only basic functionality but now also includes mobile RDC, funding new accounts via mobile capture, and real-time investing with sophisticated alerts. In essence, innovation creates a new definition of consumer convenience.
Take for example, the USAA model of allowing consumers to fund their new account by taking a photo of a blank check from the funding account. A recent innovation by Union Bank’s “Banking by Design” allows its customers to customize their checking accounts by choosing which features they want. Innovation has also opened the door to non-traditional start ups such as Simple, offering spending analytics to allow consumers to make better financial decisions.
According to Matt Wilcox, Senior Vice President of eBusiness strategy for Zions Bancorporation; Customers are interested in having several channels to access their banking services, the more channels a bank offers, the deeper the customers’ engagement.
How Check Processing is Still a Factor
Each strategy can be applied, but to do so, one must make good decisions on vendors, infrastructure and short term vs. long term considerations. For example:
- Dominating a specialized market can work extremely well, particularly with a well rounded marketing strategy. Innovations are important, but a specialized market can be strongly influenced by a powerful brand with marketing and sales continually reinforcing the market position. Example: Identify names and addresses of customers from check images and target those prospects with optimized marketing and sales campaigns.
- Providing consumers with the lowest cost for products and/or services is accomplished when the infrastructure is put in place to drive unit costs down. Organizational discipline, efficiency focus and a philosophy for constant improvements that yield cost savings will yield an overall cost to offer products enabling institutions to offer “more for less”. Examples include implementing new generation check recognition capabilities with 95-98% automation versus older generation systems with 75-80% performance.
- Finding a way to differentiate services and/or products with innovation typically only delivers an advantage on a temporarily basis. It is much easier in today’s banking environment for competitors to “respond” to innovations by offering outsourced services, branded as part of your solution suite. This is where a platform with an open architecture and good integration techniques enable institutions to continuously adopt new technologies ahead of competition. Many times, a “bridge” interface, simplifies use of new solutions.
While new features can help draw in new customers, time will tell how well it keeps customers from switching and whether convenience will be something consumers will pay for. One thing is for sure, the drive for more convenience will continue to drive innovation and allow financial institutions to stand out in the competitive banking marketplace at least temporarily.