Marketing Concepts for Banking in the New Millennium

INTRODUCTION With the beginning of the millennium, there is a need to focus on the fact that banking has changed and is changing at a very rapid pace. In fact, the industry has undergone more changes in the previous five years than all of the prior 50 years combined. It is also important to realize that this rapid change is not just limited to the banking industry--it touches every phase of American life as the computer, competition, and the Internet change the way products and services are delivered. How can banks position themselves to be competitive? Some key questions that need to be asked about marketing bank products in the millennium are: What will banking look like in the future? Will bank asset size determine success or failure? What will banks have to do to insure success? How will the new competition impact the individual bank? Can all of the banks make the cut? If so, Will banks have a rising investment value? Will the banks be relevant to their customer/prospect base? What has changed in banking since 1980? Interstate banking has become a reality. The firewalls between commercial banking and investment banking have been eliminated by the repeal of the Glass-Steagall Act, Bank consolidation has been extensive, with big banks replaced by giant banks. Nonbanks and secondary markets have taken a major role in retail lending. Most loan funding has become almost totally interest rate sensitive. Thrifts have lost any status that they previously held and historic reason for being. The desire to reduce costs has resulted in automation has transformed backroom and delivery systems, and technology has changed in geometric proportions. What has not changed since 1980? Banks and thrifts are highly profitable and growing. Branches are still the primary focus of banking. Customers prefer small institutions to large ones. Deposit insurance continues to have a major impact on customer money placement. Small business lending remains highly specialized. Quality service continues to be critical to bank customers. FACTORS IMPACTING FINANCIAL INSTITUTIONS Looking at the net impact on banking since the 1980s, large banks are in a race for size and national marketshare. Mid-sized banks and stock thrifts are doing well but face the greatest likelihood of having their markets erode and their organizations being acquired. Small banks and thrifts are doing very well, but the future contains a large number of unknowns. As banking enter the 21st century, they must consider several pertinent factors. Some 43 million households own personal computers. Conservative estimates predict that 60% of the households in our country will be online by the end of the year 2000. Computers are providing more processing power for less money. For example, in the early 1970s, Bank of the Southwest in Houston purchased the first third generation computer mainframe used to process a bank. They paid $1.3 million for that computer. Today, most laptop computers costing some two or three thousand dollars are more powerful than that 70s state-of-the-art computer! This is the information age. The improvements in connectivity through fiber optic cable had over 10 million households with DSL (digital) technology in 1998. The Internet with its worldwide web has changed and is changing the way Americans conduct their business. With these changes there has been a cultural shift in American living and in the assumptions financial institutions make. The customer expects to get things done instantly, efficiently, and without human mediation. Perception of reality in terms of distance, hours, etc. no longer exists. When it comes to technology and banking, the market paradigm has been transformed. Today, banks have computer banking, unattended telephone balance response, and automatic bill payment. Banking is evolving with its existing customer bases looking at and larger arrays of products and financial competitors that they must compete with. …