We met up with Bradley Leimer, Head of Innovation at Santander Bank North America, to talk about how banks and credit unions can win account holders in the new digital economy. His solution is to adopt an advocacy model, where financial institutions shift from thinking about the value they take from consumers to thinking about the value they provide to consumers.
Here's the transcript:
One of the things we saw in the industry — in the ‘90s especially — was that a lot of institutions took the Citibank model, which was they broke out products into silos and they broke out relationships into silos. With data tools and the way that we looked at profit, it was this idea that I’m not going to look at all of the customer and their needs, I’m going to look at a piece. I’m just going to look at the fact that I need to sell more mortgages or our balance sheet needs more savings, or whatever it might be.
When you do that, you take away the possibility of a longer term relationship because what you’re doing is selling product. You should be selling based on an individual and a household and business’s needs. The longer term profit involved with this longer view isn’t a quarter, it isn’t a year, it isn’t 5 or 7 years. We’re talking about a lifetime of value. So customer lifetime value, rather than a metric of profit, should be a metric of value that you’re bringing back to that customer. This idea that a customer has a short lifetime value with you because the average tenure at your institution is 7 years is ridiculous. People live long lives, they shouldn’t be at their bank or credit union for 5 or 7 years. This should be a multiple decade, multiple generation relationship. This is why you need to flip customer lifetime value on its head.
How is the advocacy model profitable?
So when you look at profit of a bank and you look at the way it’s brought form product on up to customer profitability, it’s the old 80/20 adage where 20 percent of your customers are paying for the rest of the bank’s ability to deliver. Because you’re looking at a shorter term for what that profitability is because it’s all market driven. But when you look at profit in a longer term view like you get with an Amazon or a Google you can still get these margins and can still really reverse this idea of short term gain on your customers’ backs.
We had a stat about $38 billion in overdraft fees just a couple years ago to consumers. Think about what that says to the whole swath of consumers when they think of banking. Think about the detriment to the industry when you talk about fees and charges. Fee income is not the long term answer. Fee income is a choice that is no longer viable in an age where the consumer has a louder megaphone than ever. So there’s a shift that’s happening in terms of adding value, adding customer value that is based on advocacy, and I think that’s critical going forward and the way we’re giving back value is to be more transparent and to show our customers and members that banking is critical. It’s a critical component of our economy and our lives, but it doesn’t have to just be about how much I get from you on the institution side. You’re giving back so much more because you’re helping people live their lives, reach their dreams and find a more deep generational aspect to their financial life, and that’s critical.
How should financial institutions market this to end users?
We’re looking at delivering services that are more simple, more personal, more fair. So it’s transparent, it’s simpler in terms of the process, simpler in terms of the way that we’re getting needs met and how you can reach out to us. You combine digital tools, people, the best standards in how financial services are being delivered, and then you’re applying that in a way that there’s continual value in this advocacy model. And I think it naturally becomes part of the brand. If on top of that you add financial education, and you help people move from Point A in their lives to Point B in their lives, when it isn’t always about product but it’s about leveling up in terms of building wealth, the ability to gain more from the income they have and that’s what financial services has to model. And in many ways some are already. But I think it’s going to be a broader industry trend.
Bradley Leimer is a thought leader and practitioner in the digital banking space. The thoughts and opinions expressed in this piece are his own and not necessarily that of his employer. You can connect with Leimer at LinkedIn and follow him on Twitter.
Also read our interview with him from earlier this year.