We can make some predictions about what the Retail Financial Services landscape of the future will look like, based on our starting point and the driving forces we’ve identified.
The retail financial services landscape will become even more competitive than it is today. Legislation/regulation and technology will be the two important sets of forces driving this effect.
As the effects of deregulation take hold there will be more players than ever. We’ve seen brokerages, for example, get into the banking business, but you can expect folks in other industries to follow suit. Retailers like Wal-Mart and logistics companies like UPS are actively considering offering banking options to their customers. More organizations will jump on the bandwagon.
The other important driver of increased competition is the Net. Increasing reach and transparency increase competition by shifting power down the value chain, by lowering barriers to entry, and by increasing price competition. The increasing speed of business of all types that the Net fosters acts as a multiplier on reach and transparency.
Expect some credit unions to go after dramatic growth by becoming more bank-like and extending their field of membership to “all Earthlings” or “anyone with a pulse.” When this strategy works, it will effectively move the credit union into the community bank space. When it fails it is likely that the credit union will fail with it.
This could harm all credit unions. Historically the brand image of credit unions has attached more to the credit union movement and less to the individual credit union. If a credit union becomes just like a bank in the popular mind, it will definitely have a negative impact on credit union marketing and it may change the image of credit unions in the minds of legislators.
Expect banks to increase the pressure on Congress to eliminate the tax exemption for credit unions as many of them become more like banks. This could lead to either elimination of the tax exemption all together or to a re-establishment of tighter restrictions on fields of membership and tighter definitions of “common bond.”
Most banks will try to grow by brand extension. Expect a giant buying spree to continue for a while as banks of all sizes scramble to buy up brokerages and insurance agencies. Before ten years is out, expect a giant sell-off when the problems of culture overwhelm the visions of synergy.
Other banks and credit unions will develop strategies that bring in new customers and members and then use active programs of cross-selling, up-selling, and relationship selling to move them into a Primary Financial Institution (PFI) relationship with the organization. Wells Fargo is already doing an excellent job of using their educational loan section as a way to establish a relationship with students in college who are then candidates for more products and services as they age.
Consumers are likely to increase the number of financial institutions that they deal with. While they will still maintain a PFI they will spread their business around because there will be increased competition for their business and because the Net makes it possible to search for, investigate and compare offerings, and transfer funds with a few mouse clicks.
Back in 1982, John Naisbett's book, Megatrends, introduced us to the concept of high tech/high touch. That's still a good concept, but it will take on a new face in the new century. Watch for high tech/high touch to become anonymity/relationship. Be prepared to offer folks options for quick, self-guided and private ways to do business, for options that include knowledgeable people to help them and the ability to switch rapidly and easily between the two.
