I Don’t Think those Words Mean What You Think They Mean – Redefining Customer Convenience in the Age of Embedded Financial Services

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Ask any financial services executive what their top strategic priority is, and they will likely say something to the effect of “improving customer convenience” or “removing friction from the customer journey”.

Indeed, the latter statement was, verbatim, what 58% of respondents in Jim Marous’s 2020 retail banking trends survey said when asked what they thought the three most important trends for this year would be.


However, as Jim correctly notes, the shift of “Use of big data, AI, AA and cognitive computing” to the number two spot is actually disconcerting – as the data and analytics is truly the innovative foundation (“the how”) for creating a frictionless customer journeys (“the why”). Saying that you want to improve customer convenience or remove friction has become, in the financial services industry, a buzz word of sorts – something we know is important – but not defining innovative new approaches and prioritizing the work needed to make it happen.

If we, as an industry, want to actually be innovative then we need to start by being more specific. I keep hearing the word “convenience” when talking about customers. To paraphrase a favorite movie quote of mine:

“You keep using that word. I do not think it means what you think it means.”
— Inigo Montoya, The Princess Bride

Redefining Customers

What do I mean by being more specific? This quote from an article by Ron Shevlin on the end of competitive moats in banking caught my eye:

There is only one US-based institution that might be considered to have a moat: USAA.

It’s not scale that gives the firm its moat. And while it certainly enjoys very high levels of trust from its members, that’s not the root cause of the moat, either.

The credit for the moat goes to USAA’s: 1) superior knowledge of its target market (military members), and 2) ability to design and deliver products and services to meet the unique needs of those members.

The root of Ron’s argument is that as traditional barriers to entry in banking are lowered – such as the need for a banking charter being obviated by banking-as-a-service (BaaS) providers – the only sustainable way for banks (and fintechs) to build a competitive advantage is to focus on meeting the unique needs of a narrow segment of customers; military members and their families, Uber drivers, professional gamers, etc.

This requires banks to move beyond the generic, universal banking definition of a “customer” that we’ve used for decades and get much more specific.

Jared Franklin at Alliance Data offered this interesting rule-of-thumb:

The approach underlying these statistics is what’s important – it’s about getting specific – choosing to focus on the 2.6 million nurses in the U.S. rather than the 16 million people working in the healthcare industry overall. Because even though nurses work in the same industry as doctors, laboratory technicians, and administrative staff, the characteristics of their job (pay, schedule, responsibilities, stresses) are unique and thus deserving of tailored financial services products and experiences.

Put simply, banks need to adopt the mindset of the fintech startups they are increasingly competing with – identifying narrowly-defined target markets and developing hyper-specific offerings with a strong product-market fit – which is made possible by data, advanced analytics, and technology.

If You Don’t, Non-banks Will

The imperative for banks to start focusing narrow customer segments now is being driven by the increasing ease with which non-bank companies across a variety of industries can (and already are) deliver tailored financial services to these same customer segments.

I mentioned Uber drivers as a potential target segment above, but guess what? Already done.

Uber is creating a new division called Uber Money to handle its growing financial services business. The group will oversee everything from the company’s credit and debit card offerings, to digital wallets for riders, to products used by drivers to get paid in a timely manner.

The emergence of BaaS and other fintech infrastructure providers has paved the way for any company to quickly offer compelling, personalized financial service products to their customers. And because those products can be embedded into those companies’ existing distribution channels and leverage the data those companies already have on their customers, the resulting value proposition for those customers can be overwhelmingly strong.

Here’s Matt Harris from Bain Capital Ventures:

Having these financial functions integrated with software enables new functionality, leveraging the persistent connection to move beyond transactions to relationships. We’ve already been trained to conduct financial transactions inside of software applications (think payments inside of Uber), so if you’re utilizing software to run your business, using that same software to get paid and make payments is logical and more natural than going to your financial institution to do so. These relationships are data-rich, which leads to smarter cross-sell, prequalification and massive risk reduction.

The concern for banks isn’t that any one of these non-banks will suddenly become a major universal banking competitor (that fear, even with huge companies like Amazon and Google has always been a bit overblown). Rather, the concern is that each of these companies, by offering financial products that complement and build on top of their core offerings, will disrupt small slices of banks’ existing product portfolios for their specific customer segments.

Put simply, the fear is death by a thousand cuts.

Thriving in a New Environment

In order for banks to thrive in this new competitive environment, there are three key things they’ll need to do:

  • Establish new silos. The universal banking model isn’t well suited to serving the unique needs of small customer segments. Internal ownership of the customer can’t be distributed across product LOBs, it must be centralized within the groups that best understand the customer. Surety Bank in Florida is a good example of this new mindset:
    While several banks are experimenting with digital-only brands in the hopes of broadening their deposit footprint, Surety Bank in DeLand, Fla., is planning to launch three, each aimed at a different niche market. The first one, introduced this summer, is called ‘booyah’ and is aimed at college students and young graduates…”We’re looking to launch two more banks in 2020,” said Ryan James, Surety Bank’s CEO. “We’re currently working with former and professional athletes on creating a digital bank to support professional athletes and fans.”
  • Rethink product development. Building a best-in-class financial services product for a niche customer segment will require a new approach to product development – one that extends beyond a bank’s four walls.

    The product must be embedded in the channels that the target customers already use to conduct their day-to-day business (i.e. non-bank channels) and it must be bundled with ancillary products and services that they already value (i.e. non-bank products and services). Making this happen will require partnership and business development skills that are largely foreign to most bank product management organizations today.

  • Talk about time, not convenience. 86,400. That’s how many seconds are in a single day. It’s the one thing that unites every niche customer segment. The question for banks looking to serve those segments is do you understand what ‘convenience’ really means to them? Can you understand what the value of those 86,400 seconds is to a teacher? Or a nurse? Or an Uber driver? Or a sailor on a submarine?

    The purpose of banking – which has been brought into sharp relief by the current public health and economic crisis – is to democratize the ability to achieve financial security and build wealth. And one of the great luxuries of wealth is the ability to buy time; to reclaim some portion of those 86,400 seconds spent on tasks we have to do and redistribute them to tasks we want to do.

The first step to better serving a narrower segment of customers is to be able to describe, in exacting detail, the unique benefits that you will deliver to them.

Let’s start by really thinking before using the words “customer convenience”. They don’t mean what we think they mean.

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