COMMERCE NOW

A Podcast dedicated to topics impacting the world of connected commerce & consumer centric solutions for banking to retail and all the payments and Fintech in between

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What Can Financial Institutions Learn from Retailers 12/04/2020

What Can Financial Institutions Learn from Retailers Summary: On this episode, DN's Simon Powley interviews guest Peter Wannemacher a Principal Analyst at Forrester Research. They discuss what they think the banking industry can learn from the retail industry to help support branch banking. Resources: Other Podcasts you may enjoy: Websites: Guests/Host LinkedIn Profiles: Guest: Transcription: Simon Powley (): Well, hello, everyone. Thanks so much for joining us today for another edition of COMMERCE NOW. I'm excited to be sitting on the opposite side of the mic today, hosting this, along with our returning guest, Peter Wannemacher from Forrester Research. Welcome, Peter, and thanks so much for joining me today. Peter Wannemacher (): Thank you very much. Good to be here and thank you for having me. Simon Powley (): Well, listen, yeah, we're glad to have you on today. You and I were talking I guess a couple weeks ago now, post-COVID and the impact of the industries, and really enjoyed the conversation. It was kind of a warm-up, I think, to today. But what I really found intriguing was really the talk about the parallels between banking and retail. Simon Powley (): I kind of told you a little bit about my perspective of working for large FIs in the past that we had called our branches. Now they're called financial centers, but in the past, they really were even moved around and called them stores. There were times that we really focused on hiring retail folks, and then didn't. So it seems like it's kind of ebb and flowed. Simon Powley (): But lately, I haven't really heard much about people learning as much from retail or the parallels of retail banking with a traditional retail network. And I think you and I both think there's something there. So talk to me a little bit about what you think the banking industry, how they underestimate retail, and maybe what can be learned from the retail industry to help support branch banking. Peter Wannemacher (): Yeah, so I definitely agree with you that there's a lot there and there's a lot to learn from retailers, in some cases directly from, right? I mean, there are some big banks that have hired from... I won't name names, but there are some big banks that have hired from retailers or from related, right? So media companies like Disney, travel companies that have been successful like JetBlue. We've seen some hires at executive and strategy roles that have been successful. But they, as you sort of... I think you said it pretty explicitly, but you at the very least implied it's still more limited than I think it ought to be. Or maybe to put that another way, banks could do even more to yes, maybe hire from retail, but more importantly, to learn from retail. Peter Wannemacher (): One way to think about this is... We, Forrester, wrote a report called What Banks Can Learn From Retailers, and it was almost exactly five years ago. For the purposes of our conversation, we can call it five years. When I went through, there were nine pieces of advice we had in there. And there were a couple that banks have improved, like cross-channel design. I think there's still a lot of work that could be done there, but there's a fair amount. Peter Wannemacher (): When you think about how many banks now offer... I mean, in the time of COVID, the demand has decreased significantly, but there are still times when someone wants to go into a branch or have a conversation or have a video call or have a phone call, and navigating the move from a mobile device or a PC-based website to that other channel, that human channel or touch point within that channel is one that I've seen some progress on, some real progress. Peter Wannemacher (): There are lots of others though, things that will... I'm sure we'll get into in this conversation, but things like search, notifications, even just how they think about the positioning of products. The nature of products is different in retail than is in banking, and that's going to remain true for the foreseeable future and probably forever. But the thinking about how you position products and how you design for product shopping, there's still a ton to learn from retailers for bank executives and managers. Simon Powley (): Yeah, I love that. Yeah, you're bringing back fond memories from my past Disney efforts around onstage versus offstage behavior in the branch. Or the Ritz-Carlton approach of the morning huddle, and how to properly execute that to ensure that you're prepared for that sort of things. Simon Powley (): But I'm fascinated. Let's do talk about positioning of products, because I've thought about this through the years. It's very different to walk into something, call it a Walgreens or an Apple store, and have a product display, pick it up, play with it, touch it, have someone describe it to you in such a way that it's useful. And then having to talk about how to position a bank product differently, if I'm understanding you. So tell me a little bit more about that positioning of products, because I think that's something that will continue to be a challenge as the landscape continues to evolve for branches. And I think it is something they can take away from retail. Peter Wannemacher (): Yeah, so just to be clear, I'm thinking about the conceptual positioning, not so much the physical positioning in a branch, for example, or if a bank calls it a store. There is something... I mean, I want to spend most of our time today talking about the things banks can learn from retailers, but we should sort of have in the back of our heads the whole time that there are some genuine differences. Some ones that should adjust how you, if you're listening to this and you're a bank executive or someone working with a bank executive, and one of them is... Peter Wannemacher (): I mean, the reason why there are stores, physical stores in retail is very different and always has been than the reason that there are branches for banks. That's noteworthy. I mean, there has never been... Even the few physical elements of banking, like a debit card or a physical credit card, no one ever goes into a branch and sort of flips through their credit card to choose which one they want. That's just not how it works. So that distinction is important as we think of that. Peter Wannemacher (): But to go right back to your question. So our advice five years ago to banks... And as I said, when you look at our advice, some of the banks really have taken it to heart. I don't want to make this all about the negative. But I think you and I and our listeners care a lot more about what the work is now than kudos, well done by some leaders in the past five years. I'm going to focus on that. Peter Wannemacher (): So one of our pieces of advice was base merchandising on user needs, not product silos. Which in some sense is yeah, I mean, we've heard that before. But if you look at banks' websites and mobile apps and mobile sites, right? Or responsive. Whatever they use, and most of them use multiple channels and touch points. Well, so in retail, they've done a good job of helping customers explore based on what they want, right? Peter Wannemacher (): There's some really specific examples of this. If you look at J.Crew, what they do... And they've done and they've continued to do this, and Sephora does this really well is, "What are you looking for?" You probably don't care how we think about our product selections or categories. We care about how you're looking for it. And that includes some specific... So microsites around winter storms are coming for J.Crew, and so let's take you to our best jackets and stuff like that, right? Which ultimately, it's just outerwear, but they're thinking about it from the mental model of the customer, right? Peter Wannemacher (): Or Walmart does this really well, both in store and online. They're actually better than most online. About average for in store from what I've seen in our research. At back to school, right? Back to school meant something different in 2020, sadly. But there is still such a thing as school, and hopefully there will be again something that looks like what it used to be. Simon Powley (): Agreed. Peter Wannemacher (): So they did a much better job. If you look at banks... And back to school, banks occasionally have something around that. But the big thing in banking is life events, big milestones that happen in people's lives and are the number one catalyst for people looking for a financial product. And yet, if you look at the average banks... Not just the average. If you look at the overwhelming share of banks' websites, and apps, and mobile sites, and I think branches, but I'm not as knowledgeable about that, they are not... The organizing principle of that positioning is almost never what's happening in that person's life that they might need X product. Peter Wannemacher (): You see a little bit of it. I'll give a quick example here. TD does this. So I want to give a little bit of kudos to TD. They do this. But it's buried, right? It is not the primary organizing principle. It's not the main way you find what you need as a customer or prospect. It is secondary. Peter Wannemacher (): And this doesn't need to be totally reorg... Especially in digital spaces. You don't need to totally rearrange everything, right? I understand why you want to let people, if they know they want to get a credit card, do a scroll over and look at all the credit cards, right? I don't think you have to abandon that traditional positioning in merchandising to allow people to weigh in to other options, right? Things where... Peter Wannemacher (): And this is what, again, you could look at based on life events. I'm moving. What are all the things I might need? Or what we've seen, and I think you and I have talked about before, guided product recommendations, where a customer answers a couple of questions and then is provided proactively and in a personalized way with some suggestions, right? So I'm answering a few questions about who I am and what's going on in my life, or just what I need financially, and you, the bank, provide me with. And there's a large share of people, somewhere between 30% and 45% of most banks' customers that prefer this kind of method for finding what they need. So banks really fall short there. Does that make sense? Simon Powley (): It does entirely. Yeah, no, that's very interesting. I'd agree with you. I think those life events are key. I think from a sales process, there's no question. I think the financial institutions are focused on it, but their execution or ability to dive in that the way some other retailers is more challenged, if I'm understanding you correctly. I think you're spot on there. Simon Powley (): I think about the marketing that can be done through social media or those kind of things for retailers. My understanding, and you may have a better understanding of this probably do than I do, is they can really take data and analyze how much time you're looking at a particular product or service to help determine and target things for you in the future. Are those some of the lessons is how to leverage big data and analysis and those kind of things a part of how banks can also do that? Or what advice would you have around the digital capabilities a little bit more? Peter Wannemacher (): Yes, and you nailed it. It's the leverage or the making use of data. So banks have two big advantages here over retailers, which is they tend to have lots of data. I mean, more or less. It's hard to quantify. But they have lots of actionable data, especially for their existing customer. So I'm going to start by answering that. Prospects is a little bit different, and there is a creepiness risk that I'll talk about in just a second. Simon Powley (): For sure, yeah. Peter Wannemacher (): But people that you have a current relationship with, you have lots of data about them, and they're actually very comfortable. There are some exceptions. So you want to allow them to opt out. Some people's favorite personalization is no personalization. Remember that. But in general, if you have an existing relationship with them, they're quite happy for you to utilize that. Peter Wannemacher (): We did this, I won't name names, but there was a big bank that we did some work with where they greeted everyone on their mobile app with, "Happy birthday" when it was their birthday, but nothing else. Not like, "Let's think about do you want to get your financial house in order because of your birthday?" Or even just maybe a perk, right? Maybe an offer, whatever it may be. Peter Wannemacher (): Now, most people still aren't going to go for that, but they'd done nothing. And when we talked to them, it was because they were really worried that people would feel weird about that. And the answer is for the vast majority of people, if they have an existing relationship with you, right? If they've authenticated into your website or your app, no, that's good. Honestly, the reaction, when we did some research on this, was, "You should know it's my birthday. I have all my money with you. Of course you know that. That doesn't make me feel weird at all." There's a very small percentage that are going to opt out of something like that, and that's okay. And you want to be giving them, right? Firms like Chase and Capital One are doing a better job of giving people control over their data and opting out of things. Peter Wannemacher (): But for the most part, so yes, you hit the nail on the head when you said it's about leveraging that data. So what retailers... Over a third of Amazon's sales, according to Amazon themself, come from product recommendations based on data about the customer's behavior. And that includes sometimes within search, by the way, which is something that banks should do better as well. So yeah, this is something that banks need to be leveraging better. Peter Wannemacher (): Every bank I work with and every bank who I'm sure you and I both talk to has mountains of data. It's making use of that data. And there are some limitations, right? We understand there's some legal and compliance issues. But the vast majority of the issues is putting in place the backend data infrastructure to enable that, and then making good use of it on the front end to enable better... Yes, it might be marketing. It might be product recommendations, which are a form of marketing, but can be... If you take that mental model of what the customer needs, what might be happening in their life, it can feel like advice and valuable advice. So yes. Short answer is yes. Simon Powley (): Yeah, no, interesting. And the personalization, we've talked a lot about that, that customers are looking for. And I think you're spot on. I mean, the information can be gathered from Amazon about... Because I'm on that site regularly, obviously, and love their frictionless journeys, and we should talk about that. But they don't have as much information that I have provided to them as my financial institution with KYC requirements. Simon Powley (): So certainly, I've had to tell my bank, through obligation, personal stuff about me that Amazon may not know. They're having to pick it up. And banks- Peter Wannemacher (): That's right. Yeah. Simon Powley (): ... do have that kind of big data where they can do the balance there to really personalize those needs and personalize my experience, which I know is very important to them. Peter Wannemacher (): Yeah, and generally speaking, I mean, there is this sort of... There's a creepiness danger, and that banks should not [inaudible 00:13:31]. Simon Powley (): Yeah, talk about that before we go onto the next topic. Tell me about that, because I agree. Peter Wannemacher (): Yeah. Well, for starters, when you're talking about... People talk a lot about banks being too siloed, and they're almost always right, right? I think they're always right, essentially. There is however... So if you think about the role you play in people's lives, I'm talking about not you personally, but the bank plays in people's lives. There is a clear distinction, more so than in almost any other industry, between someone who has an existing relationship with you and someone who doesn't. And unlike retail and lots of other industries, there's a pretty clear line there, right? Peter Wannemacher (): In other words, am I a Target customer right now sitting at my house talking to you? I don't know. I go to Target sometimes, right? If I want to stop being a Target customer, I just don't go to Target ever again. Peter Wannemacher (): If I want to stop being a Bank of America customer, let's assume I'm a Bank of America customer, I have to extricate myself from that relationship. There's an inherent stickiness to that, which has a lot of implications. But one it has is that it means that there is a clear distinction between a bank that I have a relationship with, and I may not love them, but I have a relationship with them, and one I don't. Peter Wannemacher (): So executives and strategists of banks should absolutely... I want you to remove many of your silos. And I even want you to maybe get rid of the silo between dot com site and secure site. That's often the language that bank executives use. But I don't want you to lose sight of the mental model customers have of the role you play in their lives, which is very distinct between those two. Peter Wannemacher (): So the risk of creepiness is pretty darn low when it comes to those existing customers. I mean, you could say something inappropriate, right? We could talk about... But it is not going to be... It was almost never just because you seem to know about them, that they're very comfortable. In contrast with the prospects. I think if you're a bank executive, you should essentially treat prospects as though they don't want to know that you know much about them, right? Maybe you let them opt in, right? You can say, "Hey, we can use your location to find the best rate for you for X product," which is sometimes necessary. But you want to be transparent and upfront, set expectations why we need this. Which involves some UX design choices that are really important. Peter Wannemacher (): I mean, and there are other folks at Forrester that are much smarter than me about the privacy and creepiness questions. Folks like Fatemeh Khatibloo, who does brilliant research here. But in terms of for bank executives specifically, that's the sort of most important headline is- Simon Powley (): Got it. Peter Wannemacher (): It's not a silo, but it is a great wall between those two groups, and you should keep thinking about that as being a clear distinction. Simon Powley (): Great. Yeah, I'd love to, at another time, talk a little bit about those relationships and more of the subscription model and how that affects the differences between an online provider and a bank. Because I think there's something there in terms of pricing and the way they do that. But we'll have to table that for another conversation. Peter Wannemacher (): Yeah. Well, we can table it, but I will say yeah, I mean, we've done some research and people do think... I've had bank executives, understandably, say to me like, "Well, isn't the monthly fee basically a subscription?" In the eyes of customers, the answer is- Simon Powley (): No. Peter Wannemacher (): ... no. Simon Powley (): Absolutely. Peter Wannemacher (): So yeah. And they pay for financial. Digit is a FinTech, a direct to consumer FinTech brand that is not a bank. It seemingly doesn't plan to be one. What it does is it has a proprietary algorithm. It moves your money to savings at another bank for you, right? That is its value prop. It has a subscription price. And the way people think about what they're paying for is very different than the way they think about how they pay for traditional financial providers. Some of that's good news, some of it's bad news. But your instinct there is, I think,... /episode/index/show/commercenow/id/16956971