The Beatles are arguably one of the most successful bands of all time, but their foray into the digital music space has long been frustrated. In their first week on the iTunes store, however, the Beatles amassed a staggering 2 million individual song downloads and over 450,000 in albums sales. Not bad for a band who stopped recording music 30 years before the iPod was even invented. Their success is evidence of something else entirely, and it should terrify banks mired in physical methods of banking.
Clearly most saw the writing on the wall, but rather than change, the RIAA and the industry as a whole buried their head in the sand, hoping to limp along till change was absolutely inevitable, or worse thinking that they were immune to change. By all accounts, the RIAA was woefully unsuccessful in this strategy. Today, new artists live or die based on their ability to move product in the digital space, and The Beatles move at long last into the digital space singles that the last bastions of support for traditional, physical music distribution is crumbling. In fact, physical "record" sales peaked in 1999 at $14.65 Bn. By 2007 Physical sales of music content were already less than in 1993 having reduced to around $10 Bn, and by then end of 2010 it is expected digital music sales will finally overtake physical sales all together. Clearly the sector was in massive trouble with its decision to resist digital sales and the hundreds of millions spent by the RIAA on legal bills were largely a complete and utter waste of money. Those precious funds should have instead been put into revitalizing the industry digitally. The RIAAs actions in this light were reprehensible.
The RIAAs attempt to kill off digital distribution failed dismally
What is under attack here is not DVDs, it's not The Beatles, RIAA, Books or CDs and vinyl -- what is under attack is physical distribution of goods that can easily be digitized. In that sense, the bank sector is in massive trouble because almost everything a bank does can be digitized.
Much of what our banking "experience" today means is wrapped up in the banking sector's love of physical distribution. The centre of retail banking from an organization structure perspective in most cases remains the branch, which started life arguably as a physical distribution point for cash. Branch P&Ls exceed 'digital' by a factor of 50-100 times in most retail banks of today -- an inequity that speaks volumes to ghastly outmoded thinking in bank boardrooms. Cash, Cheques, Plastic Cards, Branches themselves are all inevitable victims of this modality shift.
The Financial Times reported last week the following sentiment in the banking sector:
Banks across the UK, Europe and the US are now bringing service centres back into their local markets and investing heavily in their branch networks. More significantly, many are attempting to restore their battered reputations by putting customer satisfaction at the heart of their business.
Like The Beatles, most banks when threatened with this modality shift, will find it extremely uncomfortable. The reality is, though, if they embrace the change revenues will follow. To give you some indication of the vast gap between shifting modality and the reality of bank distribution strategy, most banks still classify Internet Banking as a 'transactional platform' for saving distribution costs. For most customers today, though, they are 30-50 times more likely to visit your bank by logging in to Internet or Mobile Banking than visiting a physical branch. The problem with bank strategy in this respect is, if you come to a branch a core strategy is to try to sell you a new product. Today, most banks don't sell anything through Internet Banking. If they did, most banks would be shocked to find out that they'd be actually selling more product online than through their entire branch network today.
It's not branches that is under threat today -- it is physical distribution. Banks can take the music industry approach and stick their head in the sand until things are absolutely inevitable, or they can adapt.
Follow Brett King on Twitter: www.twitter.com/brettking
If you're going to be a bank, be the best damn bank there is, because if you're not, a bank from anywhere in the world can clock your plow. If customers aren't singing your praises, they'll be singing at your funeral.
The same thing goes for insurance. Find a way to keep your customers happy ... don't give them grief or tell them why they can't be treated. Anyone anywhere on the planet could take your place, and they don't have an impressive building that you soon won't be able to pay the rent on.
Finance ... your job is to make your customers rich, and to ride on their coat-tails as they do so. Not to screw them (ahem). Not to work against them. Once again, if you forget that, anyone anywhere else in the world can take your business away. And they will.
Failure to mature a relationship between digital convenience (?necessity?) and "the old brick-n-mortar paper trail" is now coming back to bite the banking/financial industry over foreclosure documentation. They waltzed right into that problem with eyes wide shut. Banking is a whole lot more complex than selling tunes (and selling tunes is not simple on the back end either), but the longer banks shy from proactive engagement with their certain future the more dangerous it's going to be for them and the public.
While branch banks have been cash distribution systems, their most important function has been making loans on the eyeball-to-eyeball assessment. That too has dramatically changed, a loan officer does most of his diligence digitally today. More and more, even big ticket consumer loans for things like auto financing is done simply by digital rules.
I quit using a "bank" ten years ago for my small company. We use PayPal exclusively, for conducting online transactions, but also for payroll distribution, accounts payable, etc. Years ago we wrote our own tool to import PayPal's monthly statement into accounting, but today they offer their own bookkeeping tool. PayPal does not pretend to be a bank, but in addition to providing "virtual merchant account" credit card processing, they are rapidly expanding as a full transaction platform in other areas. A banker would be wise to get an account and play "customer" with it.
Peace,
Coyote
Maybe that is true of American banks, but in the UK banks are very good at selling their products online. In fact I find it impossible to log into my online bank accounts without having at least one offer for additional services presented to me.
I don't think banner ads and hyperlink contextual advertising behind the login is necessarily intelligent selling, as your comment indicates. What I'd like to see is targeted, personalized offers that give me unique value as a result of my relationship. If banks too the time to do that, then they would have something truly useful behind the login.
Brett King
Author - Bank 2.0