Banks, unlike most other industries, cannot differentiate themselves purely by product offerings. In 1997 the Virgin One Account was introduced providing a revolutionary way of combing personal saving and loans into one account providing an accelerated way to payback debt while reducing a clients’ overall interest payments. By the early 2000’s the Virgin One Account was consistently recognized as an industry leader. Shortly there after the concept of a one-account was everywhere and today it is nearly as universal as a simple savings account and if your bank doesn’t have it I’ll bet you they’re working on it. Credit card loyalty programs are another example where an innovative idea provided the initial market entrant with a competitive advantage for about a minute before every bank on the block had a similar offering.
Market advantages based on product are rare and short lived in the banking space. A loan is a loan; a savings account is a savings account. When a true eureka moment comes along the competitive advantage of being first to market with a truly unique and revolutionary product will only last until there is a realizable shift in market share. At that point the other banks will move their considerable resources to stop their customers from jumping ship and scramble to provide the same product offering. The incestuous nature of banking, general aversion to risk, and the shockingly rare existence of original thinking within the product space ensure that products are essentially the same across the industry. The same is true of channel offerings. Those quick to adopt alternative delivery channels are never alone long before everyone else in the industry is onboard as well.
I continue to stress the point that the only true difference within the banking industry is in the process. Truly understanding your clients and tailoring your process to meet their individual needs. Two banks will sell the same product. Bank A will complete the origination process in 1 day. Bank B will complete the origination process in 5 days.
Which one is better? On the surface the one that completed the process quicker – Bank A. But which bank had a better customer experience? Which bank will the client blog or post positively about, talk to their friends about, recommend? These are the questions that should be asked to answer the question correctly. Banking transformations cannot be predicated on cost cutting alone (speeding process and commoditizing services). Banking transformations need to be about creating value for the client, and by default the bank, transforming the client experience. Transformations centered on client experience, process redesign to support a valuable customer experience, and turning vast amounts of data into valuable (to both client and the bank) information will be the most successful. Best of all – it is hard to replicate an exceptional client experience. This means market differentiation and competitive advantage are sustainable when the process is paramount in the transformation.