Even though the press suggests banks are making big money, the retail banking business has been tough since the recession. This is mostly due to low interest rates: Consumers (at least those that still have savings) are shifting assets from deposit accounts to the stock market in search of higher returns. The spread on the interest rate that banks pay on deposits versus what they charge on loans is so small that the big banks are looking at dramatically changing how they manage their consumer business. They are backing off building any new ‘brick & mortar’ branches, eliminating tellers and installing technology like “smart ATMs” for consumers to use for their transactions.
But here’s the rub: Banks need consumer deposits to fund loans, and loans are where they make their money. It has surprised me that the top-tier banks are pursuing a single strategy — this move to technology — rather than a two-path strategy that protects their relationship with those consumers that represent the greatest volume of deposits, the older generation.
I look at my mother and in-laws as examples. They are loyal to their bank precisely because they find it more convenient and reassuring to deal with a person, not a machine, for their deposits and withdrawals. Although the big banks are committed to providing technology support to their customers, I can tell you from first-hand experience that it will never work. There is something so foreign, so intimidating (“How can I be sure the money really went into my account?”), that these people will look for other, more traditional banking options. And they’ll take their money with them.
This means big opportunities for other banks to promote their relationship-oriented services. You would not want to avoid technology, but you would want to supplement it with traditional customer service to take advantage of this disruptive time in the banking industry.