We talked to Dan Latimore, Senior Vice President at Celent, about the state of marketing in financial services. Dan says that banks need to let go of their traditional mindset and adapt to the digital age. He also says that some banks will only get there "one retirement at a time." As bankers with traditional mindsets leave the industry, new voices will change it. Will banks move fast enough? What exactly has changed? What's the most important thing financial institutions should be doing? These are the questions we discuss in this interview.
What has changed over the course of the past 10 years in terms of marketing in the financial services space?
The biggest evolution in this space has been in social. And yet there are still a lot of banks out there that don't let their bankers access Facebook or Google or Twitter, or any other social sites. These sites are blocked on their work computers. How they're supposed to do anything without a special exception is kind of crazy. So there's no doubt, as we've seen here at this forum over the past day, that banks have got to do a better job of this.
Let's drill down into that a little bit. What would it look like if it were done well?
Well, the biggest hesitancy in all of this has been regulation. Banks are concerned about what kind of audit trail they need. They worry about what happens if someone says something inappropriate or misleading and they're captured on tape or digitally. So the banks put in very self protective rules. That's not going to cut it in this day and age, and they're going to have to give their employees more power. They're going to have to trust them more, train them better, and push this power down to the front lines in ways they haven't necessarily been that comfortable with in the past.
What do you think is the biggest thing that banks should be doing that they're typically not doing?
Banks have in the space of less than 10 years completely seen a shift in the power relationship with their customers. Banks used to say, "Here's what we have, we'll see if we will deign do business with you." Things have shifted completely.
There's this notion in the philosophy of science that science precedes one funeral at a time as the old ideas literally die out. Latimore's corollary is that banking progress proceeds one retirement at a time, and we've still got leadership who is still in this old mindset. As they retire and as you get more millennials in positions of leadership they will realize that the power balance has shifted with their customers and start to do things differently as a result.
That's fascinating. So you're saying the change is going to happen just as time progresses?
Well it's going to happen incrementally. There are very few hockey stick changes that involve people because people are really slow to change. The biggest force in personal financial behavior is just inertia. And if it's been working well enough for me, and there is an old way to do it, path of least resistance is to keep on doing it. If there's something completely new that hasn't ever existed, like mobile banking, people will adopt it but the curve is still very slow there.
So do you think that by implication, banks are fine? They're safe where they are?
I think banks are in a decent position. They're kind of jogging along, and there's a threat coming up behind them, coming very fast. If banks just stay where they are, they're going to be toast. Banks have got to start moving, and they've started, and they have to pick up steam and accelerate if they're going to stay ahead of this oncoming threat. Fintechs have prodded banks so far to make needed changes. Banks can't stop now, they've got to keep that process of change going if they're going to be relevant going forward.
What's the threat you're saying is coming behind?
It's a combination of things. It's fintechs, it's changing consumer expectations, it's regulation, it's macro-economic factors. I mean zero interest rates for 6 - 7 years now is a complete change to the business model. So all of these things are forcing banks to adapt and they have done fine so far, but they can't let up. If interest rates rose a lot and all of a sudden that interest income was something they could rely on in a meaningful way, then my biggest concern is they would say "Oh, we're safe now. We can stop." And that would not be sufficient.
What do you think the world would look like if they did stop? Thinking ten years from now, let's say that a bank just decides "Oh, we're safe. We're good. We don't really need to adapt." What does that look like?
They won't be around. Look we've got 12,000+ financial institutions still in the US. A large number are sub-1 billion. The capital required to satisfy regulars and to make meaningful technology investments is huge. A lot of them are going to face a very difficult time and are going to have to merge or be acquired. But bigger banks too are going to have to change, or they're going to see their customers float away or just not get new customers and sink into oblivion.
You mentioned fintech companies. A lot of banks see them as enemies, or at least they are a little hesitant to embrace fintech companies. What's your position in terms of fintech companies and banks being partners or being enemies?
I'm not sure it's necessarily either or. I've seen interest evolution over the last three years where at first you would see a lot of these new fintechs trying to go B2C directly. You see almost none of them now, because banks do have brand and trust and capital and huge assets. They just can't squander them. Fintechs now are much more B2B, or B2B2C. The combination of a fintech and a bank is better than either one alone, but it's still not perfect because their interests aren't strictly aligned. They've got different time tables. They've got different cultures. It takes time to get things done. It takes time to establish trust. So it'll be better, but banks are not necessarily great at working with others. And procurement is just one example. And to be fair, it's muscle they haven't had to exercise, but they'd better start. Because working with a fintech and spooling up a new vendor over 6 months isn't going to cut it. Because the vendor will move on, the market will move on.
Anything else you think is important to know going forward over the next 10 years in terms of what banks need to be anticipating today as they look forward into the future?
Someone had a great metaphor when we were discussing what banks have to do differently. They said banks need to move away from being the troll under the bridge to being the Boy Scouts helping people across the street. Banks have got to figure out how it is that they can do well when their customer does well, and align their interests together. I think this notion of a zero-sum game where I win you lose is a thing of the past. It's not we will win together. I as a bank will do well when you as my customer will do well. Let's figure out how I can help you. You will see the value that I provide and pay me for it, and pay me for it gladly. Not because I have succeeded in slipping something by you, but because you believe that I'm behind you and I deserve to be compensated so that I can keep on doing well by you.