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PCBB Banc Investment Daily February 20, 2014
Banc Investment Daily
February 20, 2014

Finding Our Way

We travel around quite a bit visiting banks around the country. During our travels, it is fun to sample the food and culture across this great country of ours. Given community bankers are spread out all over the U.S., we are huge fans of GPS satellite navigation technology. It certainly helps us find our way much more easily than we used to. Interestingly, GPS had begun development in the 1960s by the Department of Defense for military use. Civilian use became common when lower priced devices became available around 2006. The primary device was a box stuck to the windshield that displayed a map and in a bland monotone voice instructed one to "turn right in 100 yards". It would even respectfully instruct the driver to "make a legal U turn" if you blew it and drove past a key turn in the road. While this was nice, technology has advanced so quickly that in just a few short years the GPS on the dash is no longer needed. Phones now do the trick, so who needs another device?
What is remarkable is how little time it took for technology to render the GPS device on the windshield as useless as an 8 track tape player (raise your hand if you remember those!). Every industry is undergoing radical change with the increasing speed of technological development. One recent book entitled "Big Bang Disruption: Strategy in the Age of Devastating Innovation" discusses how new competitors often find success when entering a market. The new organization starts by wooing a company's least profitable customers with something similarly priced but with better or more customizable technologically. The incumbent is unlikely to fight for these customers until the new product becomes better known. During that time, the new competitor proceeds to chew its way up through the customer base of the established one. Some examples of this in the banking world are Bluebird with its Walmart-based payment services, PayPal entering small business lending and a number of other non-bank entities that, at least thus-far, seemingly do not have to comply with very many banking regulations.
What is an incumbent bank to do then? One tactic is to offer rival products to keep your customers, but only if it can be accomplished without undermining your profits. Products are being created and then disappearing at neck-breaking speeds, so there is the risk that the entity offering the threatening product or service may not even care if it makes money. Consider that right now Google doesn't give a hoot about making money on its navigation system or even if it puts Garmin and TomTom out of business. Google simply wants full integration into every part of people's lives and is playing a much longer game. Bluebird is probably more interested in savings for Walmart on credit and debit transactions than in stealing your bank's customers, but who knows where that all goes.
To stay on top of things, identify your best customers and relentlessly protect them. Do not share any information on these customers with any competitors - ever. Talk to these customers all the time to see who is pitching them, what services they have recently seen and immediately alert management so your bank can react to these threats quickly.
Then, be sure to closely monitor innovations, products and providers to see which ones are threats. Banks need to offer innovative services to keep moving forward, but quickly dump obsolete ones that no longer serve a purpose.
Technology already has a profound effect on your customers and how they do business with your bank and this will only increase. Embrace what is effective, reject what is a fad and remember that good service is always the primary pillar of great customer satisfaction.