When I was in banking, there was a particularly large and aggressive credit union in one of the bank's key markets. I began to refer to that credit union as our arch-nemesis because some members of management felt that the credit union was unfairly stealing customer relationships from the bank. The theory was that this credit union would lure the consumer in with low loan rates, made possible through their tax-exempt status, then would cleverly convince them to move their entire relationship away from the bank. The complaint among management was that credit unions can offer these ridiculously low rates because they don't have to pay taxes like banks do. A tax-paying, publicly-traded bank could not afford to offer similar rates, or so I was told. I vividly remember an executive approaching me early one morning and asking, "Do you really think that we can compete with credit unions?" I said to him what I honestly believed and what I maintain to this day "Yes, of course we can. Unless you think that all the consumer cares about is rates. And if that is the case, we might as well shut the bank down now."
So, what do consumers really care about? What factors are key to selection and loyalty when it come to financial services? Here are my top five.
1. Accessibility- I know that based on some bold predictions about 15 years ago, branch offices should be obsolete by now. And for some purposes, they are. However, having a certain critical mass of locations in a geography is still important to a large number of consumers and businesses. The presence of the branches facilitates the personal interactions that some consumers prefer and that some transactions require. Further, the visual presence of the branches in a community have a significant impact on both the brand's image and the likeliness to be considered. Banks have the advantage when it comes to branches. Credit unions do offer a service called shared branching which allows a member of one CU to conduct transactions at the branch of another CU, but that concept is not (yet) widely understood or accepted by members. Further, shared branching supports only certain transactions and does not support account applications or openings.
Of course user-friendly online banking, bill pay, and mobile banking services are also requirements of accessibility, but banks' greatest advantage here is branch presence.
2. Customer Experience- Making customers feel valued, respected and appreciated is a timeless concept that applies to all industries. Banking is a very personal industry, and banks that meet or exceed the customers' expectations for service will enjoy greater loyalty, engagement, repeat business and referrals. Credit unions are generally smaller, friendly institutions that foster an environment of individual customer attention. In general, banks may or may not have the advantage here. However, customer experience is one way that a bank can create an advantage and can set itself apart from the competition, whether that is another bank or a CU. Using the customer's name, thanking them for their business, and smiling really don't cost anything, so the ROI is excellent. A somewhat more challenging aspect of customer experience, and one where smaller institutions probably have the advantage is being responsive to the customers' needs and requests. Typically, as a financial institution becomes larger, the customer finds himself further removed from someone with the authority to solve a problem or make an exception. (Excuse me, banks, I think your red tape is showing.)
3. Pricing- It's true that credit unions are tax-exempt. And it's true that those that are well-run can therefore offer lower loan rates and higher deposit rates than most banks do. Credit unions' fees are also often lower, too. And pricing definitely matters to customers, which is why I've listed it here at #3. The trick for banks is to exercise discipline and focus on efficiency in order to offer pricing structures that are as competitive and fair as possible to all stakeholders (customers and investors). If that means that your bank's pricing structure is not the best in the market, then you would be wise to make sure that you are the best at delivering on the other factors listed here. Examples across other industries prove that customers will pay more for Accessibility (Zappos), Customer Experience (Apple), Product Offering (Lexus), and Brand Affiliation (Ralph Lauren). In fact, most of those examples could apply to more than one of the categories. However, when a customer needs a product that is considered a commodity, such as duct tape, any retailer will do. If you are the duct tape bank, then you probably cannot compete with credit unions.
4. Product Offering- There is a lot of talk in the banking industry about products being commodities. I'm not sure that is completely true, and I know that I have met some very talented product managers in my career, though I have sometimes seen their ideas quashed by budget restrictions or technology constraints. A product team that has enough research, analysis, and insight to truly understand their customers, that focuses on features and value propositions that the market really cares about, and that has the support of management to implement, can be a very effective weapon in the fight for market share. The good news for banks is that they are more likely than most CUs to have the resources to operate this way.
5. Brand Affiliation- I have met more than one banking executive who dismisses branding as a key competitive factor in their industry but has an Apple iPhone in his pocket, drives a BMW to the office, and is wearing a Rolex. Brands matter because they are the customer's first clue about what to expect from a product or business, including financial institutions. They also matter because the brands we choose say something about us to others. Whether or not executives, loan officers, and tellers realize it, banks build their brand over time through the way they treat customers, through their involvement in the community, and through their sales and marketing efforts. Customers have perceptions of individual bank brands, if they are aware of the bank. Both perceptions and awareness determine whether or not your bank will be considered for their next financial need. Do banks or credit unions have the brand advantage? I would recommend some market research to determine that in your markets.
What do you think? Leave a comment below.
Next Week's Topic: Can credit unions compete with banks?
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