Most readers of this blog are familiar with the fact I spend most of my time these days working with financial institutions on developing strategies to maintain and grow core funding. With the Proposed Interagency Guidance on Liquidity and Funds Management, the pressure to grow core funding is going to increase considerably in 2010. If I were you, I’d be taking this message seriously. I sat in the second row at the ABA Convention in October 2009 listening to FDIC Chairman Shelia Bair say to the crowd that the majority of bank failures in 2008 and 2009 were liquidity risk related. What her message said to me is they intend to ‘fix the problem’. I expect the Guidance to morph into a final document very quickly!
Meanwhile at an ABA Convention Liquidity Risk breakout session, at which I was one of the three presenters, Mary Frances Monroe of the ABA staff presented data showing that industry loans outgrew deposits in 14 out of the last 17 years. The three exceptions were 2001 (9/11), 2008 and 2009. I was tempted to ask Chairman Bair the question, “How do you expect the industry to reduce their reliance on non-core funding when loans consistently outgrow deposits in times when the economy is healthy?” I was tempted, but I held my tongue.
Here’s the real problem. I think the big banks can grow deposits as fast as loans in spite of industry trends. Why? Because they are successful in capturing Generation Y (20 to 30 year old) customers. On the other hand, most of you reading this column are not successful in growing Generation Y relationships. How do I know? Because I ask the question at nearly every presentation, I make these days. When I ask for a show of hands from shops that feel they are successful in attracting generation Y, there are no hands raised. Folks, Gen Y are our customers of the future.
Why are we not successful with this age group? Because …
- We don’t understand their values and the differences in their behaviors from our other customers.
- We don’t offer the products they want.
- We don’t know how to market to them.
With the World Series in progress, I’ll use this analogy. Strike 1! Strike 2!! Strike 3!!! You’re out.
This is not a new message. I’ve been delivering it so much lately, I’m tired of saying it, and many of you are tired of hearing it.
It is time we pulled together and did something about it!
Here’s what I know about Generation Y. How do I know? Two live in my house!
- They are not wedded to branches. Once they have established a relationship with an institution, they don’t care whether it is a block away or 1,000 miles away. They think your branches are lame and one of the last places they would want to spend their time. Don’t believe me?
- Then explain how ING Direct went from zero to $70 billion in seven years with no real branches.
- They don’t carry cash and they don’t write checks. Their currency is a debit card. They are not afraid to pull out their debit card to pay for a dollar menu item at McDonalds.
- They don’t respond to traditional marketing. They don’t read the newspaper, don’t read their mail, watch TV stations where you won’t spend your advertising dollars, and are too busy texting while driving to read your billboards.
- When they want to find something they need, they fire up Google or Bing and run a query. They will not type “Madison Bank “ or “Madison Credit Union” into Google. They know that query take them to lots of home pages as boring as your branches. They will type “Madison High Interest Checking” or ”Madison Mortgage”. If you aren’t on the first Google result page, forget it. Someone else will get their business.
- If you are on the first page and they click your link, sending them to your home page is the kiss of death. They know how to use the back button on their browser and will use it until they find a landing page specific to their query. When they find it they will say, “This bank or credit union ‘gets it’.” Most likely today, it will be a big bank web site.
- They want immediate gratification. If they identify a product they wish to buy, they want to buy it NOW! Don’t ask them to call your branch or call center. They found you at 3:00 AM for Pete’s sake. Your call center isn’t open!
- They are your future. If you don’t get them now, good luck trying to get them in the future. Have you ever tried to move a checking account with ACH direct deposit, other ACH debits and credits, internet banking and bill pay? You practically have to put it on life support to move it. They won’t.
As some of you know we’ve been in the Web development business for financial institutions almost since the beginning. When I first reviewed financial institution presence on the Web there were about 50 financial institutions that had a Web site. No, not in your community! In the entire world! That was about 15 years ago.
In those days the Holy Grail was to have a Web site. A bit later it was to offer Internet Banking. Now everyone has both. However, just for chuckles, do a Google search on “Madison, WI High Rate Checking.” Except substitute the name of your city and state for “Madison, WI”.
I just ran that query as I was writing this Blog entry. Guess what came up first in the search engine optimization section of the Google result page. A Madison hotel Web site for goodness sake. That’s how bad we collectively are at optimizing our Web sites for search engine queries. And Madison WI is a relatively high tech city and home of the credit union movement! The good news is it doesn’t take much to get to the top of the list because the competition is so incompetent! Of course plenty of big national banks had paid advertising dollars to appear on that “Madison, WI” query page. Most of them don’t have Madison branches. Guess what? Generation Y doesn’t care.
Yes, today it all about being found when people run queries looking for products and services. You can accomplish this in one of two ways. You can pay for positioning. That’s what the big banks do – pay per click. For them it is a lot cheaper to pay per click than it is to optimize their Web sites for searches on all the communities they serve, or might want to serve. The huge advantage most of you have is that it is relatively easy to optimize your web site for searches on key words for your community. You put the money into your Web site and don’t have to pay Google for every click.
So we are changing our approach to our business, just like you need to change yours. Want to hear more? COME TO OUR FREE XSPEAK Webinar on December 15th, 2009 where we’ll discuss this in more detail.
And we’re working on some really creative ideas that are aimed at your needs right now. How is this for a teaser? How would you like to offer a savings product that:
- Delivers a yield to your customers of 7-8%.
- Has no interest expense to you.
- Generates interest income.
- Grows loans.
That is the kind of product we’d like to help you deliver in the future.
