I recently had the pleasure of speaking with John Hockenberry and Adaora Udoji on “The Takeaway,” on WNYC radio. It was a great discussion, during which I stepped back for a moment from the here-and-now of the economic crisis and glanced at the sun coming up against some clouds on the horizon.It strikes me that when this financial storm passes - and it will, eventually - two things will likely occur in the realm of consumer banking. One, as Americans we will have restructured our personal financial balance sheets. Right now, as a society, we are drowning in debt following a 25-year period that saw the growth of total U.S. debt - private and public - outpace the growth of GDP by a factor of four to one.We also are exploring the role of debt, and more specifically how to redefine credit models as we develop the next generation of lending products and services. What innovations can we make to credit cards so that they are more useful as a financial management tool? How can we change the way families think about household budgets, and provide banking tools to support them? Second, we will emerge into the dawn of a new financial era in which we change how we bank in some very fundamental ways. Much like how access to digital communications altered the way we filter and process news and information, the consumers’ drive to adopt and adapt new technologies will transform the banking processes.
But back to the here-and-now. Most Americans are going to go through a painful process of rebalancing their personal and family balance sheets. The fact is that debt had become an outsized variable in the equation, and we will need to see a return to more of a savings culture.
In that regard, one of the focus areas that Bank of America and MIT are working jointly on through the Center for Future Banking focuses on how to reverse the troubling erosion of personal savings in America. In the final years leading into this crisis, the savings rate in America actually fell below zero into the negative. Americans were collectively spending more than what they earned, and that’s just not sustainable.
As John said on the program, banking is about relationships and meeting the needs of our customers. At the end of the day, that’s one thing that won’t change.
Listen to the audio
December 3rd, 2008 at 10:02 pm
Jeff, a great and thought-provoking post. I dont know about the US, but in Australia, most financial institutions abandoned youth savings programmes and school partnerships years ago as unprofitable and too much hassle for the returns. Banking has not had a great social responsibility focus as a core value for a long time now. I am wondering how people ever learn and develop a savings ethic? Could it be that its similar to how a work ethic and an exercising ethic is developed? That kids who don’t see this at home as they grow up, repeat the patterns of their upbringing? So if our current generation of parents are the debt creators, how will those same parents magically turn into savers? and how will it transfer to the next generation - a generation that is already spending all their pocket money on mobile phone credit and itunes music? Is it possible that as bankers, we have to reach them on their own terms…through their ipods with YouTube style video clips, and through their mobile phones with encouraging SMS text messages when they make regular savings deposits?
January 28th, 2009 at 9:36 am
It is not just how customers will use banks, it is also who. During these tough economic times customers will form opinions about how they are treated by anyone they do business with. This is an opportunity to show how good a bank can be to their customers.
Your last lines sums it up. (As John said on the program, banking is about relationships and meeting the needs of our customers. At the end of the day, that’s one thing that won’t change.) However, are all of the branches, managers, employees, etc. in alignment? Do they understand and know how to build the relationships you talk about in your post? If so, then there is nothing to worry about. If not, there is the risk of lost business.
March 7th, 2009 at 1:21 pm
There is banking and there are banks. Banking and Financial services, through regulatory changes, have come to be synonomous. If we step back and consider something that is more akin to the old “savings and loans” we’ll see that there’s a whole part of the banking structure that still exists within this more narrow costruction — inclusive of Credit Unions. Small, often local associations often with some affinity relationship (fire/police, etc). In these institutions savings prevails. Business is won on rates of return and customer services. And the National Credit Union Association guarantees as FDIC guarantees for “banks.”
I ponder the concept of expansion of banks:
One stop shopping and “relationship bundles” often seem to be a great idea for corporations who are seeking to expand for their shareholders. Trust, safety, assurance, and a good rate of return are necessities for customers.
I also ponder the fact that “Local” (versus national or global) has somehow become a dirty word. While I travel extensively, how many people live outside a 30-50 mile radius of their home? How many people expect to enter “their” bank on a trip. What happened to travelers checks anyway? And isn’t that one of the advantages of a credit card is for?
Banking, in the future as in tomorrow, can’t simply think about BANKS. It has to consider changes in the industry. Inclusive of Credit Unions. Savings and Loans. The cash kept out of the system and shipped abroad or kept under matresses.