Practically all Dutch banks have matured on all levels by doing ‘everything’ for ‘everybody’. A great achievement, but in a connected and increasingly digital world, this is not necessarily an advantage. The personal, unique relationship with the customer is increasingly fading and disruptors or specialists are lining up to take over parts of the value chain. As such, they gradually snatch away business from the traditional parties. What to do?
Differentiation between banks has become more and more difficult over the years. In the past, points of differentiation were clearly addressed in both communication and operations: Postbank empowered consumers, NMB embraced entrepreneurs, ABN AMRO accelerated ambition, Rabobank rooted in society. Today, these clear differences in positioning are not that prominent anymore. Generally, Dutch banks aim for both private individuals and entrepreneurs without focusing on specific segments, strive to be leading in sustainability and ESG, and are mature in terms of customer experience and digitization. As a result, the differences have become tiny. In terms of their core business, most Dutch banks, and certainly the larger ones, take care of the entire value chain, from maintaining customer relationships and selling products and services, to bearing the full (financial) risk of those products. In doing so, they can be considered ‘allrounders’.
Dutch banks do 'everything' for 'everyone', except for a few specialized parties. This went well for a long time, but in a digitizing world customers have come to expect more. Customers expect the same personalized, seamless and consistent customer experience as they are used to in other sectors such as online shopping and social media. Digital technology facilitates these experiences. However, new and sometimes aggressive disruptors usually excel at it compared to banks. Fintech startups, but also technology giants, have entered the market and are gradually pulling customers and businesses away from traditional banks. Sometimes bit by bit, sometimes in larger chunks.
In our view, banks need to distinguish themselves (again) to be able to repel this attack on their position. Show what the organization excels in, show for which customers they are the best choice, and then serve those customers in a superior way. In our view, banks can consider four profiles to determine their strategic positioning: Front-Office Champion, Back-Office Champion, Functional Specialist and the already mentioned Allrounder.
The Front-Office Champion focuses first and foremost on ownership of the customer relationship through a platform business model. The strategic focus is delivering an unmatched, superior customer experience. Products (branded and/or white labeled) are distributed through direct channels, but the risk is sold off their own balance sheet to third party investors.
Typical for the Back-Office Champion, on the other hand, is the focus on carrying the risk of the (banking) products on the balance sheet. The bank is not directly visible in the customer relationship and products are only distributed through platforms and indirect channels.
Finally, the Functional Specialist decides to be a niche player. It focuses – on behalf of other financial institutions – on specific functions and tasks, for example KYC, custody or e-Identity services.
Large banks may be reluctant to immediately adopt one of these profiles. However, in our view, in the long run 'not choosing' will be a recipe for failure. It would mean accepting that their position as Allrounder – and their business – will continue to be eroded by competitors or disruptors that do distinguish themselves and win the minds and hearts of consumers predominantly on the back of more convenience or financial benefit.
Disruption can happen fast. That is why right now, banks need to take steps to become a Connected bank and choose a distinctive profile. How? Start with your mission or purpose by asking the question why your organization exists in the first place, from an emotional as well as a functional perspective. Next, determine which customers fit that functional and emotional purpose. And which products or services can best support that same purpose. Roughly speaking, the desired profile follows from the answers to these questions.
In our view, Dutch banks must realize that they cannot continue to do 'everything' for ‘everybody’. Their mutual interchangeability will increase, while new, recognizable parties with a clear profile will steal more and more parts of the value chain away from them. So, back to the drawing board. Determine what makes you unique and develop these characteristics into an irresistible, renewed identity. While you still can…
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