Since 1987, the Financial Executive Publications have covered important banking issues for financial executives nationwide. Each quarter we bring you new insights on industry trends, marketing success stories, profiles of key market segments, and actionable research data.
Here are highlights from recent issues. Click on article title to read abstract; click on "full text" to read entire article.
Rising mortgage rates are usually bad news for mortgage lenders. Yet, the dot.com lenders seem to be taking recent rate hikes in stride. These new-age lenders argue that their technological prowess will enable them to outperform traditional mortgage companies by streamlining processes and controlling overhead. So far, they only have captured a small piece of the market, but it's enough to make traditional mortgagers nervous. As technology continues to change the face of the mortgage industry, lenders will have three choices: Build the technology; buy it; or don't play.
A growing number of financial institutions are offering small business customers everything from office supplies to rental cars through their Web sites. However, few are integrating these offerings into a total small business strategy. As a result, many will fail to realize the deeper small business financial relationships they are seeking. For a small business portal to succeed, institutions must do three things:
With the recent passage of the "Electronic Signatures in Global and National Commerce Act," Congress paved the way for consumers to conduct more of their traditional financial transactions online. In addition, the law may help both financial institutions and corporations save money by allowing them to complete many transactions electronically instead of shipping papers back and forth. Already, financial institutions are looking for ways to get digital certificates into the hands of their customers. Once they do, the technology could prove to be the mandatory e-commerce tool.
Somewhere between the boomers and the Xers lies a generation lost. "Generation Jones" is defined as those born between 1954 and 1965, which means one in four U.S. adults belongs to this group. They are not the idealists that boomers are, nor are they the cynics of the X generation. Instead, they strike a balance between the two, striving for a meaningful purpose in life and financial security. Jonesers are definitely mainstream.
They're not the same old "old folks." In fact, aging baby boomers are so unlike previous "seniors" in both attitude and lifestyle that they've been given a new designation: the mid-youth market. Over the next few decades, midlifers will challenge our notions of how consumers over 50 should behave. Part of the original "me generation," this cohort is generally well-educated, highly individualistic and self-indulgent. However, these boomers are facing some tough financial realities when it comes to aging. Most will receive smaller pensions than their parents; they will have to wait longer to collect Social Security benefits; and many can expect longer life spans that may include nursing home care.
As banks evolve their Web sites beyond basic services and take on broader roles, financial portals will become more commonplace. Portals, which may include search engines, calendars, and other customizable content, help make a site "sticky." In other words, they help attract and keep visitors. The challenge for financial providers is to find the right mix of financial and nonfinancial content that will strengthen their brand and deepen customer relationships.
It used to be that the heart of every consumer's financial relationship was the checking account. Conventional wisdom held that if you had the customer's checking account, you were just one cross-sell away from acquiring his savings, loans, and perhaps his investments and insurance. Today, however, bankers no longer have a lock on customers' financial relationships. In fact, most consumers are more likely to have a "relationship" with their insurance agent or their broker, rather than their banker. As insurers, brokers and other financial firms roll out new bank-like products, it could spell trouble for traditional institutions.
The recent flap over "screen scraping" is one more example of how technology is driving bankers to adopt new business models. Screen-scraping software allows an information aggregator to collect financial data on its customers' behalf from many financial services companies, which it then consolidates into one place. This collection is done through "bots" or software "agents." These bots can perform myriad tasks, from comparison shopping for financial products, to seeking out financial information on companies, to responding to inquiries online. To prepare for the new bot-infested online landscape, bankers must educate themselves about this technology, says Marcus P. Zillman, CEO of BotTechnology.com.
Financial marketers are rediscovering the opportunities inherent in targeting older consumers, who collectively earn $2 trillion in income and control 50 percent of the nation's discretionary income. Recent polls reveal pre-retirees and retirees have little knowledge of how to manage their retirement nest eggs. Consequently, many financial firms are launching new products aimed at "wealth management" rather than at "wealth accumulation." To target these consumers, financial marketers must focus on life events that trigger the need for financial products.
The small business market continues to be a fierce battleground as bankers, nonbank lenders, and other financial services companies vie for a bigger share of small business owners' wallets. To compete more effectively, some institutions, including North Fork Bank and Sandy Springs Bank, are discovering the power of packaging financial and nonfinancial products tailored to the needs of their small business clientele. Here's a look at what it takes to establish your institution as the single source provider of financial services to small businesses
Effective training can spur large groups of people to achieve amazing feats. But to transmit a consistent, compelling idea throughout an entire organization is a feat in itself. Spoon-feeding facts and slogans won't convince people to leap onto the bandwagon. That's why companies like Celemi Inc. are designing new training techniques that eschew conventional lectures and slides in favor of instructional methods that guide employees to find their own answers and draw their own conclusions. Break-out groups collaborate on mental puzzles, thought-twisters and hypothetical problems, and there's always a little fun built in along the way.
In the financial services industry, Internet initiatives are being launched at a frantic pace. More than 40 percent of financial services firms said they were investing in 10 or more Internet projects, according to a recent poll. Although many institutions have established a Web presence by developing in-house resources, online customers have grown more sophisticated and are beginning to demand more from their institutions' systems. Consequently, many financial providers are facing substantial upgrades, which raises an important question: Is it better for us to build a new Internet infrastructure ourselves, or should we outsource it?
When it comes to Internet banking, Scandinavia's banks are setting a blistering pace for the rest of the world. While U.S. banks penetrate less than 10 percent of their retail customer bases with Internet service, Scandinavian banks are recording 20 percent penetration rates, as well as a much higher number of online transactions. Scandinavian banks enjoy a head start due to a willingness to invest heavily in technology and security. Moreover, these banks view Internet banking not as the wave of the future, but as reality for the here-and-now that is no less a part of the normal routine than opening accounts or cashing checks.
The Internet is playing a crucial role in opening doors of opportunity for small businesses. Small businesses currently experiencing online success do it by filling niches larger competitors have missed. By knowing their customers and working harder to serve them, small business' online sales are projected to grow from today's 8 percent of total revenue to 17 percent by 2002. For financial institutions, there is significant competitive advantage to converting small business customers to Internet banking. Internet banking can complement online small business initiatives, and even small banks can duplicate the small business service offerings of larger institutions.
As new privacy laws take effect, bankers must stay in touch with legislators on a state and national level. Several states have tried to enact stringent privacy regulations which would supersede federal guidelines if they are more comprehensive. Overzealous state legislators who may be uninformed about the effect of broad new laws could force institutions to adhere to requirements that differ from state to state. Since financial institutions and third-party marketers alike must comply with privacy rules, institutions should join forces with their marketing partners to develop privacy guidelines that benefit consumers and the companies that serve them.
Last year, banks' sales of traditional insurance products rose 35 percent to $8.6 billion. Yet, their collective share of total premium was well below 5 percent of the nation's total premium volume. The trouble is banks do not have a business model that capitalizes upon their unique distribution abilities. Rather, most banks are buying or partnering with traditional agencies and trying to shoehorn these entities into their existing infrastructures. It won't work. Instead, banks would be better off to emulate financial services companies like USAA, who conducts virtually all of its business via direct marketing, with inbound telemarketing at the center of the company's distribution strategy.
To truly leverage their presence on the Internet, bankers must not only appreciate what people are doing online, they must embrace those activities. According to polls, the number one reason people log on to the Internet is to send and receive e-mail. Communicating is followed closely by gathering information. So what do financial institution Web sites do to participate in either one of these top online activities? For the most part, not much. Financial institutions must do more to draw customers to their sites, including offering more consumer information and value-added services.
Last year the top two lenders for small businesses were not banks at all, but the credit issuers Mountain West Financial and American Express. A third, Advanta Corp., which also provides credit cards and other forms of small business financing, was ranked in the top five. Organizations such as Merrill Lynch and American Express are capitalizing on name-recognition and moving into the small business arena at cyber-speed, introducing products that provide business discounts, cash management services, online merchant services, and more.
The financial services industry should pay special attention to the emerging black middle class. According to a recent survey, the buying power among African-Americans has risen 66 percent since 1990 to nearly $500 billion last year. While whites still hold the lead in terms of investments and savings, this minority is poised to reduce that gap in the years ahead
A PSI Global study says 94 percent of consumers do not want their financial services provider sharing private information with third parties without their permission. This comes as no surprise to those of us in the financial services industry. Protection of customer privacy has always been the foundation of our business. However, some consumers have been duped into believing that banks are looking for any opportunity to bilk trusting consumers. As a member of one of the most trusted segments of the financial services industry, you should be outraged by such slanderous insinuations. Moreover, you must stay abreast of privacy regulations as they're drafted, and alert lawmakers if you find any pieces that are anti-competitive or unworkable