Bank of America Should Become a Credit Union

I have decided that the best course of action for Bank of America may be to become a credit union. Despite the regulatory hurdles and government scrutiny that the bank would need to deal with, it may be an easier course of action than trying to catch a break with our industry's trade press, the general media and definitely those using social media to respond to every move the bank makes.

For instance, American Banker published a story last week from Ed Roberts entitled, Bank Transfer Day Spurs Big Membership Growth at CUs. The story cited that the credit union industry had near record growth in the second half of 2011 . . . 'after the ill-fated September announcement by Bank of America of monthly debit fees prompted Bank Transfer Day'. This growth of 850,000 members in the final six months of the year contributed to an annual growth for the credit union industry of almost 1.3 million new accounts, reported the NCUA.

According to my calculations, a growth of 850,000 new members for the second half of 2011 represents an average of fewer than one incremental new account per credit union (not per branch) a day. The statistics are roughly the same when you look at the annual growth rate as well. Assuming that the number of new members represented incremental growth, the 1.3 million new members reflect only a 1.4% growth over 2010 according to the 2010 Government Census. 

How does this become newsworthy? In almost all U.S. major newspapers, a version of this article ran including a reference to both Bank Transfer Day and Bank of America. The Los Angeles Times ran a headline, Banks' Fees Pay Off - For Credit Unions while Forbes ran an even more sensationalized headline, Credit Unions Membership Soars as Customers Spurn Big Banks. Does any other industry get as much press for close to flat line growth? Shouldn't this be more realistically considered business as usual? 

Banks Need to Collect More Insights to Communicate Effectively

By Bob Williams, Director of Marketing Technologies at Harland Clarke and author of the blog, The Merchant Stand.

A friend and colleague Jim Marous shared an article from American Banker on Googe+ entitled Banks Underuse Mobile for Communication. The article discusses challenges that financial institutions have with communicating with their customers through mobile devices. While mobile device applications and mobile optimized sites are becoming more common, and expected by account holders, financial institutions are not using the mobile channel for proactive communication. Kael Kelly, senior director at Varolii is quoted in the article “Banks don’t have the data that they need. A lot of the phone number data doesn’t easily distinguish between a mobile number and a land-line.”

So the idea that banks don’t know what data they have made me think about some other data that Jim Marous shared about financial institutions and customer data. Like this tweet about banks not having email addresses for their account holders.

The challenge I see is missing or unintelligible customer profile data. That problem expands beyond the boundary of the financial services industry. It’s really a common need for any type of business. Another challenge is the misuse (or lack of use) of the data that an organization has. Another conversation with Jim last week revealed that he noticed his bank mention that online banking was 'down' using Twitter. While admirable that they used a more modern social media tool for this notification, there probably aren't many people following Twitter the way Jim does. Making matters worse, they didn't use either his email address (which is tied to his online banking account) or SMS (the bank has his cell phone) to make this notification. In other words, the bank had the tools, but didn't use what was at their disposal.

Big Data Provides Big Opportunity for Bank Loyalty

In a new regulatory environment, banks are faced with changing the foundation of rewards programs that were previously funded by interchange income from credit and debit cards. With debit interchange funding gone, FIs still need to continue to find ways to improve bank loyalty and drive the desired card behavior. In addition, banks need to leverage “big data” and mobile payments in the hope that they can replace some of the revenue lost as a result of Reg E and the Durbin Amendment.

Optimally, the future of rewards and loyalty will allow banks and credit unions to take advantage of the “Loyalty Trifecta” (my term for bringing together the benefits of 1) payment and transactional insight, 2) targeted offers and personalized communication as well as 3) mobile offers and payments).

To get an insider view of the challenges and opportunities available to banks today in the area of rewards and loyalty, I reached out to the leaders of four companies that provide unique solutions to the banking industry and who also will be co-panelists with me at the upcoming BAI Payments Connect 2012 Conference & Expo in a session entitled “Rewards in a Mobile Banking Environment.” 

Thanks to Tom Beecher, CEO, Cartera Commerce Inc.; Rob Heiser, President and CEO, Segmint; Schwark Satyavolu, CEO, Truaxis; and Rod Witmond, senior vice president, Product Management & Marketing, Cardlytics Inc who agreed to participate in the panel and contribute to this interview.

Note: An abridged version of this interview is also located as a BAI Banking Strategies article entitled, Big Data Drives 'Loyalty Trifecta' for Banks.

Banks Need to be Proactive to Stop Switching Trend

According to the 2012 U.S. Bank Customer Switching and Acquisition Study just released today by J.D. Power and Associates, continued frustration with fees and service has resulted in increased levels of switching at large, regional and mid-sized banks, with smaller banks and credit unions faring significantly better.

The study found that 9.6% of consumers switched their banks in the past year compared to 8.7% in 2011 and just 7.7% in 2010. But not all financial organizations were impacted equally. In fact, there was a extremely wide disparity between the switch rates at larger banks (avg. of 10% - 11.3%) and the .9% switch rate of switching at smaller banks and credit unions (a reduction from 8.8% in 2011).

Interestingly, roughly half of those leaving big banks went to another big bank. This could likely be attributed to the importance of being able to serve the customer as their life circumstances change and the importance of convenience as defined by the customer. According to Michael Beird, director of the banking services practice at J. D. Power and Associates, "Our study showed that consumers at smaller banks and credit unions were more likely to shop for an alternative provider if their financial needs  changed. In addition, bricks and mortar and the availability of advanced mobile technology is a value proposition that has yet to be overcome by smaller banks and credit unions." The disparity between large and small bank offerings of mobile services was reinforced by the recent Javelin Strategy & Research study, Mobile Banking, Smartphone and Tablet Forecast 2011 - 2016.

Banks and Credit Unions Focusing on Onboarding to Build Revenues

There has never been so much pressure on financial institutions to maximize the revenue and relationship potential of each customer. With government regulations reducing fee income, historically narrow interest rate spreads, and consumer satisfaction with many financial institutions wavering, there's a need to ensure that once a customer opens a new account, every effort is made to help the customer understand and use their account, expand their relationship, and increase loyalty to your organization.

While time and resources have been dedicated to new customer acquisition processes in the past, a majority of financial institutions are now working to implement or improve the communication process right after account opening and for several months into the relationship. And instead of a single welcome letter (or nothing at all), more and more organizations are using a series of well-timed, personalized communications leveraging multiple channels to improve effectiveness.

According to the recently completed 2012 Financial Services Marketing Survey done in partnership with The Financial Brand, both banks and credit unions indicated that onboarding would be one of the most important strategies for the next 12-24 months, with virtually no institutions stating that the importance of onboarding would be less.

2012 Financial Services Marketing Survey