We interviewed Ron Shevlin, Director of Research at Cornerstone Advisors, about what has changed in financial services marketing, how millennials manage their finances, and why the primary point of interaction is no longer what it was twenty years ago.
What’s changed over the past 10 years within financial services marketing?
A couple things have changed. First of all, new forms of marketing have emerged. If you go back 20 or 30 years ago, you’ll see more traditional forms of advertising or marketing. It was really about outbound marketing, where marketers placed ads and messages in media—like tv, radio, prints—that were really designed to get people's attention, create awareness, and perhaps create affinity that drove them to take action in branches predominantly.
What changed, of course, was the internet and digital channels. But you know what's funny is that to a large extent, marketing itself didn't change. It was still outbound. You just placed banner ads on portals and other media sites that generated a lot of traffic, but that was still dominated by trying to create awareness, affinity, and action that took place somewhere else.
So that was the traditional form of marketing or advertising.
What's changed over the past 10 years or so is the emergence of a new form of marketing, what people call inbound marketing, where use search engine optimization, blogs, and social media to drive people to the websites to interact and engage. It created a different form of marketing.
That's one way that marketing has changed.
What's complicating factors today is that another new form of marketing is emerging and should be emerging. I think of it as activity-based marketing. That is, marketing in the context of the activity that the consumer or the prospect is performing. Now, at it's most basic level when you go into a fast food restaurant and that cashier says "Would you like fries with that?" That's a form of activity-based marketing. They're marketing to you in the context of ordering food. It's not very sophisticated, it's not data-driven, but at its most basic level that's activity based marketing.
Now, for example let's talk about what USAA does with its car buying service, or its auto-circle app. When you download this mobile app that you use to check car inventory across dealerships, you can see a comparison of cars, read people's reviews, and access the carfax information. Then you can use the app to go through and actually apply for the car loan and buy the insurance. What you really find is that the experience is a new form of marketing. It's a new way for USAA to engage, to create awareness of their products, to engage their members in the car loan and insurance buying processes.
There are also new ways of engaging and new ways of creating data about how people actually shop. We might look at using Zillow to do that. You're using this in the home buying process, but companies like Chase have developed apps like My New Home, which accesses the realtor data based, tracks the homes you're buying, shows you where they are, tracks these things, and ultimately drives you to the mortgage brokers. Interestingly, I don't think they're actually driving people that apply for the mortgages online, but they could be in doing that.
In addition, a fintech company up in my neck of the woods in the northeast has developed an app that they call a wedding planning app that banks can white label. Say you’ve got a young Gen-Y couple that just became your customers. Maybe they'll be getting married. Do they have any clue what they're getting themselves into? Absolutely not. So they download an app that helps them track all the purchases that they have to take care of, tracks the invitations, all the providers. But here's an opportunity because it's white labeled by a bank, to actually push debit and credit cards. Maybe they can push a loan that they need to meet all the expenses. It's a different form of marketing because it's contextual, in the context that the consumer is executing or performing. But I think this is something that many traditional marketers don't really have a strong grasp on. So what's happening is lots of new forms or maybe not lots of new forms, but new forms of marketing are emerging and making it tough for a lot of financial services or bank marketers in particular to really keep up with this and understand how to allocate their resources to all these new opportunities.
So is this new form of marketing similar to making segments? I mean, it sounds like this could be a different way of thinking, where you're talking about activities rather than personas? Or are they synonymous?
Well, there is some segmentation that kind of applies here at a couple of things.
First, from a life-stage perspective, the examples I gave were probably millennial-driven in terms of buying cars, buying homes, having babies, getting married kind of stuff. But you could apply this to retiring as well. What do you do when you're retired? The challenge there is that from a demographic perspective around usage, the older consumers, those who are on the cusp of retiring, are probably a lot less dependent on mobile devices. Maybe still dependent on online and desktop computing, but that makes for a very different set of experiences that the marketer has to design for. And also there's the question of whether or not they're really well positioned to attack that market, versus let's say wealth management or asset management providers.
The second aspect of the segmentation here is that not every Gen-Y or millennial wants these kinds of things. It tends to be the segments who are more engaged in the management of their financial lives. It actually tends to be those who are more highly educated, and if not affluent today, clearly on the path to becoming more affluent. So that makes it more attractive from the bank perspective that these are the future affluent customers. But really are these segments are more engaged in the management of their financial life. That is still not a majority of consumers by any stretch of the imagination, but I will say this: if you look generation by generation, it's a much higher percentage of millennials who are more engaged in the management of their financial lives at 25 or 30 than previous generations were at those ages.
I know this is going to be hard for you to believe, but I'm actually in my mid-50s. I know, it's hard to believe. But 30 years ago I didn't care about this kind of stuff. Today's millennials should care more about this stuff, and even though they're not particularly good at managing their financial lives, they do care more about it. So giving them the tools to engage them I think is one way that marketing is really changing today in bank marketing.
That's interesting. So what is the biggest obstacle getting in the way of executing these ideas?
I'm not sure that you can pin this down to one obstacle. There are a bunch of obstacles here.
One obstacle is clearly resources. Now, if you are a megabank, you probably don't actually have the resource limitation problem. Marketing spend at these megabanks is in the billions of dollars, and they have plenty of money to throw at this stuff. But they still have a challenge in getting stuff executed in a very complex organization where there's always competing priorities. Mid-sized financial institutions are much more challenged in terms of how they build this stuff. Many financial institutions in the mid-sized range are highly reliant on their core vendors, who are quite frankly behind in the development of a lot of these things because of where their roadmaps are.
Another obstacle is that many banks still believe in the branch as the core, central driver of relationships. I think it's tough for a lot of executives who have been in the industry 30, 40, even 50 years to make that mental shift to say, "Wait a second, you can build relationships with technology."
One of the best quotes that I've seen was from the guy who started Commerce Bank back in the 70's. Vernon Hill. Back in the early 2000's when everybody was investing in online banking, even before mobile banking, his bank was not making big investments in online banking, and some newspaper or magazine asked him why not. His answer was very telling. I never forgot it. He said, "because nobody wants a relationship with a machine." And I looked at that and I said, "That's all well and fine, but guess what, buddy? No one wants a relationship with a brick."
It's not about the relationship with the brick, and it's not even about the relationship with the person. How many Apple fanatics are there out there. Do they know anybody who works at Apple? How many loyal Amazon fans? Do they know anybody who works at Amazon? It's not about the people, it's about the capabilities that can very well be provided through technology. But this is a mental shift for a lot of bankers. They're still hanging onto the idea that it's about people, and only people can deliver the relationship. This is part of the challenge in the industry.
So it sounds like you're proposing a cultural shift. Is that right? Are you saying that to get through these obstacles, financial institutions need to reframe the way they think about appealing to their consumers?
Well, they need to reframe the way they think. Is that a cultural shift? I don't know. I'm always kind of hesitant to go down that route because then everyone would just say, "Oh... it's a "cultural shift." It generally takes some instigators, some trouble makers within an institution, who go out and try some things, experiment, get some small successes, build it up until the institution can see that there are ways to do this that are different from the traditional approaches.
Do you need wholesale cultural shift to do that? No, I think the wholesale cultural shift comes over time as people learn that there are different ways of doing things than how it was done. I think if you come at this from the perspective of needing a big cultural shift, then you're not going to get there because you're putting the wrong objective out there. The objective is not to achieve cultural shift. The objective is to achieve business success. Drive relationships, drive business.
Let's wrap up with a final question. What should banks and credit unions be keeping their eye on as we move into the future?
Not that nobody else has said this before, but it's really about mobile and the usage of mobile devices. Mobile has become rapidly ingrained in consumers' behaviors. Whether the branches die or not is not the point. The point is that the predominant channel of engagement is the mobile device. And what does that mean from a delivery perspective? It doesn't mean shutting down the branches. It means building out more and more capabilities to the support that device as the primary point of interaction.