Positive Employee Experience… More Customers and Growth

Last week I attended the Enterprise 2.0 conference in Boston.  It got me to thinking about how these “new” tools can effect the way we do business.  My colleagues at nGenera, Don Tapscott and Tammy Erickson, have spent a great deal of time researching and talking about how the different generations (Boomer, Gen X, Gen Y, etc.) approach work and technology in general.  I’m not going to discuss that, directly, but I am going to discuss what can be learned about today’s technology and how we can make our bank and credit union institutions competitive and functional in the marketplace.  Because if we don’t innovate and evolve we will wither and die.  The key is to do this in a smart way.  Not to just throw the newest and greatest thing in the marketplace into your mix.  To spend time and energy on something to just sound cutting edge, if there is no business purpose to it, is a fools errand and you will actually be less efficient.

I believe that if smaller institutions start embracing Web 2.0 collaborative technology they can use this to grow their franchise with the younger generation and expand their market outside their geographic territory.  This is especially true with the asset side of the balance sheet.  Deposits, other than CDs, are more difficult to attract because larger banks have an advantage with their ATM network.  However, there are ways around this, too.  The more innovative institutions are reimbursing customers for foreign ATM fees now.  If this continues I believe that ATM fee income will evaporate over time and banks will need to look for another source of revenue anyways.  It is the smarter institutions that are planning for this possibility.   More than just about any industry “retail banking” tends to take a wait and see attitude to anything new.  Whether it is technology or new delivery methods no one wants to be first and everyone copies everyone else.  More and more we are seeing non traditional banks coming into the “banking” arena.  With companies like Merrill Lynch offering traditional banking products and retailers like Wal-Mart working to change Depression era banking laws to break into the market.  The key is to now capture the Facebook generation with the services and delivery channels, not necessarily different products, that will attract them.  If some of this collaborative technology is used in house so that your summer interns and recent college graduates can get their ideas shared and acted on this will should naturally flow into customer delivery.  Especially if these younger employees, through their Facebook and LinkedIn networks, start bringing in more younger customers.  The key is to listen to them and handle this the right way otherwise these networks will be used against the institution.   You won’t be able to attract these workers, or younger customers, to your institution.  This will in turn, lead to a contraction in your customer base over time as your older customers aren’t replaced with newer ones.  If we have learned nothing else today’s technology has sped up information flow to either our benefit or detriment.   I believe that even though larger institutions would seem to have a leg up with their financial resources and in house expertise.   Smaller institutions have opportunities to effectively compete and grow due to their flatter organizational structure and ease to move decisions through to market. 

 I would be interested in hearing your thoughts on this topic.  Specifically, if you are currently going down this road and what the results have been.

P2P Lending Follow Up…

The saying is “necessity is the mother of invention”.  In this case necessity may be the mother of demand.  A few months back I wrote about P2P lending and what kind of future it would have.  It seems that demand for these loans is picking up since banks and conventional lenders are tightening the spigot to loan dollars.  Especially, when it comes to small businesses.  These loans tend to have lower rates than credit cards.  As long as the loan can be funded it might also be easier to acquire rather than going through the necessary paperwork a conventional lender would require for a home equity loan.  There is also the issue as to how much equity there is in the home with housing values coming down.  Which is another risk existing lenders may not want to shoulder.  According to the Wall Street Journal article which says the current market for these loans is $100 million and expected to increase tenfold by 2010 it is still a relatively small amount compared to the entire market. 

I would contend that if traditional sources of funding shrinks and the demand is still there the market will turn more and more to any source, including P2P, for funding.  If this happens and borrowers find P2P lending as easy and secure as they demand why would they ever have any desire to return to traditional lenders.  I can see potential parallels to this scenario and that of the U.S. auto industry of the 1970’s.  Where the auto industry ceded the lower end of the market to the Japanese.  When the consumer found they could get a better product cheaper they became loyal customers and never went back to domestic cars.  I’m not saying this is going to happen.  However,  if current players in the lending market wish to remain there they should have a strategy to at least compete and tap into this market.  Zopa, one of the P2P lenders partnered up with a half dozen insightful credit unions earlier in the year to offer Zopa’s services.  In a recent conversation I had with Doug True from FORUM Credit Union, one of Zopa’s partners, he told me that as of right now most of their customers taking advantage of this lending option are individuals.  However, there are “micro businesses” who are also using this service.  A lot of micro businesses that are started and run on the Internet would be naturals.  These people understand the Internet and they can easily shop from a loan on-line rather than run around to a bunch of banks or credit unions.  Doug also informed me that they are going to be expanding education, in conjunction with Zopa, of this promotion to their members.

The Gen Y and other Internet savvy borrower are the natural introductory market to use this as their first source for lending.  After-all, the number of Internet banking customers is always growing.  This lending option is just an extension to that.  Also, P2P seems designed for the Facebook, Gen Y demographic.  I’m starting to think that P2P lending is here to stay and with the current lending contraction by financial institutions this is just the push it needs to be a real player.

Day of Reconing, SecondLife Banking will be no more

In my post, ”How soon before there is a Web 2.0 retail bank?“, I mentioned that Wells Fargo is taking advantage of SecondLife by building an online community and educating consumers on their products.  As we will see, that is one of the smart way to wade into the Web 2.0 banking arena.  Until an institution can decide how they want to deliver products and services, based on the feedback they get from their customers, the education option is the safest way that any established institution should be exploring.  I’m bringing this up because SecondLife has banned banking from its site effective Jan. 22nd as reported by TechCrunch.   These “banks” that were actually accepting transactions only existed in the virtual world.  The problems and fraud causing this shutdown echos what is said in Bank Systems & Technology by Maria Bruno-Britz that “accountability is so important in financial services” and myself, in the above mentioned post, where I talked about an institution’s reputation and dependability.  Trust and reliability are the lifeblood of a successful financial services.  This isn’t to say that your bank can’t go out of business.  However, some government agency is always looking over their shoulder to make sure they are obeying laws and regulations.   When the marketplace advances very quickly the regulators and legislatures react after the Wild West effect has taken place.   What we are seeing here is that the market is self regulating and SecondLife has done the smart thing and shut this service down before any more bad press can hurt their reputation. 

If this story gets into the mainstream press it has the potential to continue to leave consumers with a bad taste for web based banking.  This is especially true if consumers can’t draw a distinct line between the different offerings from various institutions and instead see them all as the same.    

The question remains, who is going to be the leader in the Web 2.0 banking world?  To this I think there will be no one answer.  Each bank or credit union will probably adopt some of the new technologies to fit their market and customers as the need arises.

Maybe my name should be “Carnak”

A funny thing happened while I was in the process of writing my last blog post.  Zopa teamed up with a list of credit unions in the U.S.  Now, part of this strategy is marketing based, to get their name out there and to make a presence.   But, a big part of it is also market based.  As I stated in my last entry until they had a way to tap into the wider market Zopa would stay a minor force.  This strategy also gives Zopa access to an existing funding source with an established market presence, in the form of their CU partners. 

Based on the following quote the forward thinking institutions, like these CUs, recognize that they need to do something now to tap into the needs of Gen Y, “The merging of financial services and social networking is a great way to reach the younger generation,” says Doug True, senior vice president of FORUM Credit Union of Fishers, Ind., one of Zopa’s launch partners.   I applaud Zopa and their credit union partners for attempting to get the ball rolling and experimenting with new products for the market.  Again, to reiterate what I mentioned in the last post the cost of establishing a program like this isn’t very great.  Not to mention, by being new and innovative they are getting a lot of press, me included, off of this offering.  The jury is still out as to whether this will be successful.  There are a couple of barriers to wide acceptance.  The first question is, will a large enough segment of the general public want to get involved and be direct lenders to strangers, in order to make this a worthwhile program?  How about the timing of this offering?  With all of the credit issues in the news lately will this also put off potential lenders?  Most of the market of potential borrowers, for these high rate installment loans that this program is offering, are exactly the same people that are having difficulty today making mortgage payments.   The best I can say for now is “stay tuned”.

Getting back to the subject of Gen Y…

They may be youngest generation in the workforce right now and yes, they take to new technology and social networking easily.  However, they are still just consumers who want the same service like everyone else.  Heather Peters of Pleasanton, CA based Javelin says, “It is a common misconception that Generation Y is a web- or digital-only generation who sees no value in face-to-face interactions or traditional channels, such as ATM, branch or phone…”.  As most of us who have been in the industry for any period of time will attest, this is one area we can improve on.  There are many reasons for some quality deficiencies in our industry and I would be interested in hearing your take as to which ones are the most critical and how they can be addressed.

Lastly, I would like to point you to a very good blog post I ran across from Tim McAlpine’s entry on the Open Source CU site.  He also touches on a lot of the subjects I’ve spoken about here.  The main one being, no one in banking organizations in general are taking ownership or sees the importance of these new ways of doing business.