The banking experience: Renaissance or crisis?

If you haven’t noticed, the banking industry is facing a growing backlash. As existing fees increase and new fees are introduced, customers have reached a boiling point—and most of the anger appears to be aimed at big banks. 

According to the Credit Union National Association, at least 650,000 people switched to credit unions in October 2011. This came after Bank of America announced plans to charge a $5 debit card purchase fee and other big banks seemed poised to follow suit. While obviously a short-term windfall for credit unions and smaller banks, I wonder about the long-term impact of this exodus and whether smaller banks can retain the newly acquired customers over time. And, on the other end of the spectrum, why are larger banks losing customers and what can be done in the future to combat losing customers to smaller institutions?

Let me start by sharing a general observation based on our work with both larger and smaller financial services firms. When a customer chooses a bank, there’s almost always two fundamentally opposed forces at play. Customers might position it as convenience versus personal service. But from a marketing perspective, I think of it as user experience versus customer experience. Unfortunately for consumers, it’s a rare occurrence to find a bank that provides both convenience and personal service—or a great user experience and a great customer experience. As a result, customers see it as an “either/or” proposition, not an “and” proposition, and customers are forced to choose one over the other.

Conventional thinking goes something like this: With branches on every corner, ATMs dotting most cities and easy remote access, big banks offer 24/7 convenience by employing the latest technology. The smartest of the big banks then build great user experiences to layer on top of that technology. Unfortunately, this is often done as a stand in for great service and comes at the cost of the customer experience (or personal service, as a customer would call it).

On the other hand, customer experience has always been the province of smaller banks and credit unions. They’re smaller and therefore really get to know each customer’s needs. However, smaller banks often fall short when it comes to technology because they don’t have the profits and therefore the resources of the big banks. As a result, they can’t compete when it comes to convenience and remote access. They might offer online banking, but rarely is it a great experience.

So in the end, who wins? Big or small? Convenience or service? User or customer? Customer or bank?

The answer is simple—in both the long term and the short term. The winner will be whoever finds a way to turn their approach from an “either/or” into an “and” proposition—providing a great user experience and a great customer experience, combining convenience and service.

Interestingly, there are some recent offerings—both traditional and non-traditional—that seem to be banking (pun intended) on this very approach. In fact, some of the upcoming offerings aren’t actually banks at all but in the consumer’s eyes they’ll function like banks. The one receiving the most buzz is the non-traditional upstart Simple (until recently known as Bank Simple). Based on their website, they’re architecting the user and customer experiences first and then building from there. We’ll see how well they deliver as they bring in customers but by starting with the experience, I’d say they may be one the first to capitalize on the “and” strategy.