It's hard to imagine a world where traditional banks don't exist, isn't it? Not if you never grew up with them (which may be the case for today's younger generation) or if you find the alternatives simply have a better customer experience. Alternative financial solutions and apps pose a major threat to traditional financial institutions, evidenced by the number of consumers who have latched on to the convenience and ease of "do it yourself" financial apps like Striped, Klick-X and Tripolti. And yet it seems financial institutions still haven't quite realized they're at risk.
Jamie Dimon, CEO of JP Morgan recently noted in his letter to shareholders that "Silicon Valley is coming." The reality is that Silicon Valley is already here and has been for the last couple years. In fact, Silicon Valley is already taking entire generations of customers away from traditional financial institutions at breakneck speed. The adoption of financial products from non-traditional financial services companies is happening. I recently took several taxi rides while on business in Boston, both Uber and non-Uber - nothing unusual in itself, but every one of the non-Uber drivers had their own Square reader. Mobile payment apps are only going to continue to increase in popularity (they are already used by over 300 million people a year!) and before long banks will lose their role as the trusted intermediary.
So how can banks compete?
The one major advantage banks have is they are still, by and large, considered the safest place to hold money. But this isn't enough to survive. Banks must innovate to keep pace with their digital competitors and they need to seriously ramp up the speed of their transformation. They can't just do it by changing what is easiest for the business as it is currently configured either. They need to include their customers in the process so they can understand how much they need to change.
How can banks find out what their customers want? Simple, ask them. But before you put up another survey on your site, think twice. Consumers want a conversation, not a multiple choice quiz. They want to be engaged. To engage consumers in reinventing your institution - and give them a viable reason to keep choosing you over your digital competitors - you need to bring them into a vibrant, ongoing conversation and make them part of your evolution.
Total Community can be key to survival.
A few forward-thinking banks are doing this with online customer communities. Barclays and Cortal Consors have already paved the way for a new digital banking model by creating thriving customer communities where customers play the central role in guiding product and solution development and engage in ongoing discussions that allow these banks to keep pace with their customers' expectations. Customer communities foster loyalty, give consumers a place to ask and answer questions, provide opportunities to tell the bank what they want, and are proven to grow revenue. In fact, community members are far more likely to buy more products and spend more per purchase than non-community members.
But interacting on your own website is not enough. You have to integrate these conversations with what is happening to your customer across the social web. Otherwise, you are looking at one small part of the picture and trying to interpret the complete meaning. Customers are having thousands of conversations about financial matters, from major life events (birth of children, retirement, etc.) to crisis events (death in the family, need to send money to relatives overseas, etc.) and it's going to be increasingly difficult for banks to play a meaningful part in those conversations unless they enlist a broader group of stakeholders in the effort. Banks have to make this Total Community conversation a core part of their re-invention. If they don't, they won't make it to the other side.
It goes back to human connection.
A Total Community approach to banking offers what traditional banks are used to creating: a sense of belonging among their customers. With Total Community, businesses engage the entire set of stakeholders (basically anyone who touches the brand, including customers, employees, shareholders and partners). And this is a key way traditional banks can outscore digital financial apps - by harnessing the power of connection. Apps may be convenient and yes, banking consumers will demand equal convenience - but banks that offer a community where members feel connected and valued as human beings will be able to offer something an app never will: the human touch and a real human being at the other end of the screen.
Banks can't afford to take their time to innovate.
Financial institutions are known for their conservative, slower approach to change. But the threat is not coming - it has already arrived in full force. Unless more financial institutions take the lead of Barclays and Cortal, they will not be here in a matter of years, not decades. At the end of the shareholder letter referenced earlier, Dimond remarked that banks are "analyzing all the competitive data and coming up with a response." Sorry Mr. Dimond, but this will take too long. Banks that go directly to customers and give them what they want will find that not only can they survive; it's the only way they will thrive.