Competition in the banking industry comes from an unexpected source
It used to be that banks worried when another banking institution moved into town or another branch opened near their prime location. These days, competition in the banking industry comes from a surprising place: major retailers such as Wal-Mart and Starbucks. In fact, Accenture predicted traditional banks will lose 20 percent of their business to retailers by 2020.
Though it seems like an unlikely combination at first, this evolving business model fits perfectly with the way people go about their daily lives. Everyone has to go to the store, and most people are pressed for time. By adding banking services to a retail store’s existing services, it eliminates an errand from consumers’ days that could become significant when added up over time.
From a retailer’s perspective, all customers need banking services, so adding this option gives them an advantage over competitors and an opportunity to boost revenue. Though there are some challenges to overcome — especially in the implementation phase — this new model is likely to continue its expansion, especially among large retailers that have the expertise and infrastructure to easily make it happen.
Same concept, different versions
Do you need a checking account with your jug of milk? TIME reported that Wal-Mart partnered with Green Dot Bank to offer checking accounts, even to customers who may not be able to get an account with a traditional bank. Customers can deposit money at Wal-Mart and use the ATMs in the store for free. This model works because it fits with Wal-Mart’s overall business strategy of offering items at a low price and targeting lower-income consumers.
Starbucks takes the same concept of offering a banking product aimed at its target customers in a different direction. The coffee retailer offers a mobile wallet along with its prepaid cards, which have been wildly successful to the tune of $1.2 billion currently stored in the accounts. Fortune reported that this means Starbucks is holding a larger amount of customer money than many banks.
Mobile apps and differentiation
When it comes to competition in the banking industry, mobile solutions can help banks differentiate their offerings from those of retail bankers. By taking the same customer service mentality as retail banks, traditional banks can determine their customers’ needs and use mobile apps to fill those needs. For instance, banks whose customers are typically young adults might consider apps geared toward budgeting and financial planning. Financial institutions looking to increase business customers may look into delivering apps that solve business problems, such as storing tax records and expense receipts.
By looking carefully at the opportunities not filled by the competition, banks can spread awareness of their brands while engaging new customers and provide services and products retailers don’t offer, such as loans and mortgages.