Regional Banking Opportunity

As our last piece, Human-less Banking, showed, banking will soon exist entirely in the data center. This raises a question: if banking becomes a digital product, a stream of zeros and ones lightly traversing the digital superhighways, will there even be a purpose for the existence of physical bank branches? From a binary point of view, we think not— banks will have to step up their game and completely re-imagine the entire customer experience. In other words, banks will have no choice, but to humanize themselves more than any time in their recent history. They will have to prove to their customers their continued relevance to their communities and provide a justification for their continued existence.  

To understand the potential role banks may play in the future, we must first look at their unique sources of competitive advantage over all other businesses. Even in an entirely digitized industry, banks still hold enormous leverage, with two key strengths: vast amounts of customer data, and highly intimate customer relationships.  

Banks know more about you than nearly any other institution. They know where you buy, how you buy, how much you buy, your patterns of buying, where you live, your financial health and what demographic you belong to. They know how much money you make, and when the paychecks suddenly stop being deposited, they know you are not working. Though they don’t (yet) know exactly what you buy, the amount of data they hold on each customer is colossal. They potentially know more about their customers than even Amazon or Facebook. If data is the new oil, banks are drowning in oceans of data. If they hope to survive, they need to learn how to swim. 

Banks also maintain deeply intimate relationships with many of their customers. When you want to buy a car, a home, save for retirement, or invest in your child’s education, you go to a bank. They are present at many significant milestones in their customer’s lives and they are eager to help. These high-fidelity and disciplined relationships that banks have with their clients provide them with a depth of trust that few institutions hold. Banks must harvest these relationships and use the intimacy they have with customers and the communities where their customers live and work, to provide entirely unique and helpful services and products.  

We’ve identified a variety of ways that banks may be able to leverage customer data and relationships to stay relevant, build new businesses, and play a more central role in the communities in which they operate.  

Community Commerce 

Given that banks know so much about where and how you like to buy, along with every other fellow customer in your community, they can drive local purchasing and consumption at a ferocious rate and improve relationships and connectedness within local communities. They can become the more knowledgeable and useful daily deal provider of the future. If a bank knows that you (or your neighbor down the street) like to buy from Louisa’s Bagels twice per week, it will be able to offer unique rewards and benefits redeemable at Louisa’s. All the better if Louisa’s happens to hold an account with the same bank. The same can be applied to any type of business— spas, gyms, doughnut shops, bars, and many others. Banks can shepherd their customers to businesses across their communities and provide deals that are targeted, relevant, meaningful and drive transactions to local merchants. Consequently, they will cultivate a positive brand image within their local communities. For regional banks, this could be a wonderful way to drive commerce and support local economies. For larger institutions, you may see deals with international chains such as Starbucks or McDonalds that may unlock streams of purchasing and provide additional revenue for banks. Cash App launched a program in this vein, offering $1 off at any coffee shop with the use of its app, along with “Boosts” discount offers at a number of popular chains, including 10% off at Whole Foods, Dominoes, Chipotle, Chik-Fil-A, and others.  

Community Services 

The financing-only model of banks today might soon seem quaint and outdated. If a bank knows a customer is about to buy a home or a car, could they not also offer a plethora of local bank-approved third-party services to help you complete your purchase? Going way beyond giving customers lists of approved merchants, we envision a world where all the merchants belong to the bank. Banks will one day package mortgages with home inspection, home insurance, home remodeling, and even architecture and home decorating services. For a car purchase, they can bundle a set of services that includes insurance, maintenance, and accessory items. In fact, they may open branch locations inside dealerships. Afterall, the car purchasing transaction can take more than two hours to complete, that is a lot of time to spend with a captive customer who is making the second biggest purchase in their life. With the amount of data and relationships that banks hold, they may package purchases with third-party services with a rate and breadth that is unmatched. Bridge Bank is blazing a trail in this area, in the M&A space, with its recent founding of Bridge Bank Gateway, a paying agent platform for M&A paying agent services, private placement, performance escrow, indemnification, initial offerings/subscription deposits and project finance escrows. 

Community Town Square 

Some banks might be thought of as commercial real estate offices with a bit of financing on the side. Owning a large portfolio of physical branches spread around a region, at a time where consumers are choosing to do 100% of their banking digitally, may be either a burden or an opportunity for a regional bank. We see high-touch and high-fidelity community interactions and commerce within former branches allowing customers to immerse themselves within a bank’s brand. Branches can be nearly anything that banks want them to be— coffee shops and workspaces, financial education and literacy centers, markets, restaurants, community centers— all bank-branded, and offering unique services, experiences, and rewards to their customers.  

Similar to airlines offering lounge services, bookstores offering coffee and treats via internal coffee shops, or parking garages turning into event spaces, branches may one day be town squares of community, connection, financial education and exchange. Capital One bank is already taking steps in this direction with the opening of the Capital One Café, offering coffee, Wi-Fi, event space, and a place to congregate and relax at select branches. Other examples of this include Barclay’s Eagle Lab, a conversion of an old branch into a maker space that offers coworking, networking and structured learning opportunities for individuals, business, and even larger corporates. Barclays remains one of the only banks still opening new branches.  

Banks will shift from being vendors of finance to the brand name of a new kind of club. They will become pillars of their communities. Consumers will be given the opportunity to not only partake in deals with local businesses and third-party providers but enter physical locations that offer products or services at a price that only their bank can provide. We foresee this compelling packaging of products, services, experiences, and deals enabled by banks leveraging their data to drive consumption and local economic growth. Banks can return to being what they were before the rise of the faceless international corporation— places of congregation and engines of commerce. Faceless finance no more, banking will reemerge with a friendly face.  

We’re already helping our clients make this vision a reality. Can we help you?