Banking's Future in the "Digital Marketplace"

A headline like this one usually gets bank and credit union executives to spend a moment contemplating the topic; in this case, the "Digital marketplace?". Questions pop up -- like, what is the "digital marketplace?"What parts of the banking business model, products and services are "digitally marketed or consumed," or soon will be? I posed several other relevant questions in a previous BS&T column on mobile banking and payments. "Are mobile banking and payments among the most promising innovations, capable of disrupting the retail banking market? Or, will they drive more bankers crazy, in both business and IT, chasing ever-elusive expectations?" Clearly, I think bank and credit union executives should be actively thinking about their future in the "digital marketplace." Part of my reasoning is due to what is at stake for these institutions.

For the past 12 years I have been tracking the size of and changes to the U.S. retail consumer's aggregate financial wallet. Or, think of the answer this way: How much money comes out of the consumer's wallet to pay for fees, interest expense, commissions, premiums and other charges that pay for all financial services used by all consumers each year? There are four fundamental dimensions to the consumer's wallet: transaction services (DDA, ATM/EFT/POS, etc.); investments (Time certificates, stocks, bonds, etc.); credit (mortgages, cards, other loans, etc.) and protection/planning (all insurance products, fee planners, etc.). I consider Wells Fargo as the banking industry "wallet share" leader. The average Wells Fargo customer product cross-sell ratio ended 2009 at 5.95 up from 5.5 at YE2007. Does an aggregate consumer financial wallet that spends over $1 trillion/year provide enough opportunity for your bank or credit union?

Bank of America and Wells Fargo are committed to serving all four dimensions in a meaningful fashion. Most other banks, and a growing number of credit unions, are committed to capturing the consumer's business in the first three dimensions. All of these institutions should be actively thinking about how the digital marketplace is changing each of the dynamics for each part of the consumer's financial wallet. If not, rest assured that the leading banks and some insurance companies (think USAA) are very active and will not rest -- the digital marketplace is here to stay on a 24x7x365 schedule for as long as I care to forecast (does anyone use forever in a forecast?).

Bankers should have a comprehensive view of how the digital marketplace for banking has been evolving over the past 15 years and be able to use that extended time frame as a guide for projecting the types of new capabilities that will have medium to high impact over the next three to five years. Bankers that let others take the lead will stay in the middle to back of the pack. One area that every financial institution should be spending energy on is their top-ranked click-through page off their home page -- which should be to the log-in page. Is your bank getting full value out of your log-in page, particularly as an online sales venue?

In the context of this column, selling your bank's services online is a "customizable" manifestation of the digital marketplace for each and every institution that has already invested in an online world. Would your bank like to realize what Bank of America does -- garner 16 percent or more of its new product sales from the bank's "digital marketplace" that now serves over 30 million customers? BofA has increased its percent of online sales from 7 percent in 2004 and 12 percent in 2005. Think about those figures for another moment -- and factor in that BofA is much bigger today than it was in 2004 (prior to buying Fleet and everyone since then). BofA continues to invest in transforming "online banking" into "online financial retailing." Does your institution? If not, why not?

Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of US banks and credit unions.