How financial institutions around the world conduct business--and what we can learn from them.
By Franck Schuurmans, Ph.D., CAE
My headline, as far as I can tell, is not a Yogi Berra line, though it would have been a good candidate for yet another brilliant statement on the obvious by the legendary Yankee catcher. We all recognize that we live in a global village and that the “World is Flat,” according to a recent bestseller by New York Times columnist Thomas Friedman. Yet many people have a very myopic outlook on life and live within a narrow framework that is bolstered by overconfidence and distorted information that only confirms their persistent fallacies.
Such an attitude can be dangerous as AT&T has learned in recent years. The venerable industry giant went broke—its wireless division sold to Cingular; its land lines, to SBC. This even though AT&T managed to spent a good $110 million on consultants to tell it, from every possible angle, that its path was not sustainable.
Deregulation, new competitors, new technologies and new consumer behaviors floored the once mighty giant. Much had to do with not having a broad consumer understanding or anticipating how rapidly successful markets and products, like cell phones, can unfold. Consultant predictions for AT&T put the cell phone market at the max at several hundred thousand units total whereas in reality that’s how many people sign on daily!! Voice over Internet protocol is only the next big thing waiting to change the telephone industry’s business model, the make-up of the value chain and the distribution of profit pools.
Think Outside Your Market
What is the relevance to credit unions of AT&T’s decline and the seismic changes that are impacting the world of telephony (a $1 trillion business according to a recent article in The Economist)? For one thing, financial institutions know a thing or two about deregulation, changing consumer behavior, new competitive environments and the role of technology. But as with the many developments that shaped the world of telephony, that change did not take place inside the industry first and, as important, it did not take place within the geographic boundaries of the mother company or its major market. For example, the drastic changes in the world of telephony and connectivity took place in Finland of all places!
So it is important to track changes that take place in other industries—for instance the battle between Nokia and Windows over who will control the next generation handsets, as well as the need for cell phone providers to add more services, now that VOIP may render cell phones a free service item in the future. This makes players in the industry more inclined to promote online services, PDAs and other add-ons, including wireless banking, hoping consumers will find the options as desirable as an iPod to the ears of a weary traveler.
Equally important is to track events that happen on distant shores, as those who have a late start can benefit from leapfrogging established incumbents and change the way business is conducted. In many third-world countries, for example, credit and other card programs have languished because of the absence of a reliable phone system. That was an obstacle to instantly checking available balances on accounts. However, the failure to develop a complex cable system in poor countries can be overcome by developing cell or satellite phone systems that render land lines unnecessary.
At home, a simple trip to a few area hotels offers you that insight when you view the myriad lines available in many established hotels for “in-room fax (a dud), Internet TV (a dud), dial-up (another dud) and fast or not so fast modems of different origins. With wireless capabilities in many buildings and cities, suddenly there is no more need to crawl on hands and feet under a desk to make a connection, you simply click “accept” and off you go. Interestingly enough, the less expensive the hotel, the more likely the service is free; access to the Internet is no longer an expense item for travelers but an incentive to get their business! How things change!
To track changes inside the financial industry but outside the U.S., Decision Strategies International Inc. recently commissioned a study (Banking Trends in Europe, Asia, Pacific and Latin America). A few of the top findings:
After years of investments and numerous well-published missteps, the much-heralded efficiencies of scale and scope are finally taking hold. The ability to implement, manage and leverage technology, both as an interface with customers and in the front and back offices, is one of the Key Success Factors that is beginning to drive a wedge between the winners and the also ran. This is, however, robust technology utilization and not necessarily dreamy concepts that consumers do not wish to pay for. IT is increasingly becoming a utility, and efficient use of that utility provides the edge. Certainly IT offers opportunities for depth and reach as discussed widely in the ’90s, but not successfully realized at that time.
Despite the many naysayers, the branch continues to be at the center of sales opportunities for banks and other players in financial services. Furthermore, pricing strategies in delivering services are key to the operational success of institutions across the globe, and these pricing structures vary widely depending on the level of marketplace maturity, the intensity of competition, the role of regulators and the strength of consumers. Readers will be surprised to see the degree of consolidation of financial service providers in other countries, as those go hand in hand with a branch density the U.S. left behind in the ’50s. Yet, in more than one way, the research shows many banks are well on their way to “getting it right” even though this right answer may emanate from some unexpected corners.
“Embedded finance”—that is a financial product embedded in the actual product, for instance a car with advantageous financing—needs to be carefully monitored, especially by credit unions that largely depend on car and home loans. What if nationwide Realtors offered financing as part of the home purchase through the Realtor, with far better conditions than any competitor could match because they have allied themselves with a major mono-line player and can offer strong discounts and competitive rates? Finally, if your cell phone can function as a method of payment, what does that mean to the traditional role of intermediary of banks, credit unions and their corporates: endgame, check?
It is all too soon to say where the various strands of the story may lead, but any executive or board member who fails to take notice is as culpable to the potential demise of the industry as those officials—Democrats, Republicans and Independents—who failed to act, knowing that New Orleans levees would not hold.
Leadership is to contemplate the impossible and to be prepared even if only in your mind.
Study highlights:
- Pricing strategies are at the core of efficiency efforts and behavior modification.
- IT spending is up but not in new fangled initiatives.
- The branch is king.
- New technologies across the globe but will consumers use the many options?
- Customer segmentation takes on many forms across the world from age to psychographic.
- The French Post Office offers extensive services to “fragile customers” that will allow the disenfranchised in society to participate in cheap and accessible financial services—services that would make any credit union proud.
- Sclerosis abounds in the “Old Europe” while it simultaneously works on the cutting edge of new product development (use your cell phone to scan a barcode to make a payment!!).
- Immigrant services offered by the Spanish savings bank La Caixa are geared to those who have to support their families at home who are often victim to ruthless loan sharks.
- Turkey, 25 years ago a backward nation stalled in the 19th century, is an example of a country on the cutting edge of mobile payment.
- Artificial intelligence is the new resource for all consumer needs in practice in the U.K. at the British bank Cahoot.
- The housing market the world over is the topic of discussion in the board room and at the kitchen table.
- Japan is back from the brink but not quite ready.
In the full report, Banking Trends in Europe, Asia, Pacific and Latin America, check out the various drivers of change across the globe, and review how different organizations have identified different Key Success Factors and different business models. Review also the many similarities and especially the credit union population specific initiatives that many organizations are developing even though their name may not include the phrase “credit union.”
Next Steps
To help infuse relevant insights from our world report into your organization’s own strategy, at a management meeting discuss your current knowledge of what happens in the world around us. Also, visit the DSI Web site and take the Peripheral Vision test (in the lower left hand corner) to see if your team is sufficiently aware of changes that may be shaping up right now.
Finally, discuss this question at your board meeting: Do we know what we don’t know and do we have processes in place to deal with a renewed acceleration of member needs?
Franck Schuurmans, Ph.D., CAE, is director of non-profit practice for Decision Strategies International, a CUES Financial Suppliers Forum member in Conshohocken, Pa. Read Franck’s other posts in the CUES Skybox Strategy archive (scroll down for earlier posts).
Learn more about CUES/DSI Strategic Planning and Facilitation Services, including how one CU used this planning model to avoid a crisis.
Also, download a copy of 2010 Scenarios for Credit Unions: An Executive Report, produced in partnership between CUES and DSI.
Hear Franck speak about the "Blue Water" innovation strategy at CUES' Execu/Summit, March 5-10 in Beaver Creek, Colo.
