Banks Are In The Bush League

Who’s got a higher confidence rating, banks or George Bush?

The good news for banks is that the answer is banks. The bad news for banks is that it’s close.

According to the November Rasmussen poll, 35% of the people polled at least somewhat approve of the way the President has handled his job. That’s actually up 2 points from the October survey.

On the other hand, a new study released by market researcher Morpace found that just 38% of consumers are very confident in the banking industry. And that’s down six percentage points from the firm’s September survey

Given the events that unfolded in the past two months, that’s hardly a surprising finding. But what is noteworthy, though, is the decline in consumers’ confidence with their personal banks. According to the article in Marketing Daily:

“Banks have been rolling out messages of reassurance to current and potential customer alike. According to Morpace’s VP of Customer Loyalty Tom Hartley, ‘What the banks [have been] doing is communicating with customer more, through email, ads and other sources, doesn’t seem to be working in restoring their confidence.”

My take: I agree with Tom 100%.

Plenty of smaller institutions — community banks and credit unions in particular — have seen a nice influx of deposits over the past eight or ten weeks. Why? Because of their “safe and sound” messages? No. Because consumers are spreading out their deposits across institutions.

And quite frankly, I don’t think anyone believes any financial institution that touts how secure it is. Not when the CEO of one acquired firm goes on TV talking up his bank’s “bright future.” Or when another bank runs full page ads in major newspapers telling us how safe it is, only for us to find out more recently that is, well, not so financially secure.

So what should banks do?

1) Ignore the industry surveys. The economy is in the tanks, and FIs seem to be failing left and right. Of course the confidence rating of the industry as a whole is going to fall. Big deal. Your bank’s score is what matters — not the industry’s.

2) Stop trying to advertise your way to a higher confidence rating. Banks will build back their confidence ratings as new and existing customers experience a higher level of service. You cannot advertise your way to greatness.

3) Develop (or re-develop) an onboarding program. As new customers come on board, the key to their long term retention will be made or broken in the next 6 to 12 months. It’s critical for banks to recognize the types of relationships these new customers want to have with them. Are they simply spreading their funds across banks for security or are they abandoning old banks and looking for a new primary bank to have a relationship with? Quit wasting money on newspaper and TV ads, and put it into some marketing analytics efforts to figure out how to grow the relationship with the influx of customers who are coming in the door (thanks to no effort on your part).

4) Stay away from TARP money. (Are you listening credit unions?) I don’t know how, and I don’t know when, but at some point taking TARP money is going to create PR problems for the institutions that took those funds. 

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3 thoughts on “Banks Are In The Bush League

  1. Ron,

    as usual great commentary. As to your point number 3, I could not agree with you more. It seems that is all I do all day and all night.

    @dmgerbino

  2. On 4, I think you are right. For example, there has already been some bad press on Iberiabank taking TARP money even though by all accounts their balance sheet is solid.

    They want to use the money to buy banks in distress. Is that was TARP was designed to do?

  3. Hi Ron,

    I enjoy reading your take on these issues. Regarding the notion that consumers are hedging their bets by spreading out their deposits, I believe that is a big part of the story behind the run-offs from larger banks to community-based FIs.

    However, in speaking to new customers from some of these smaller institutions, I have found that there is a strong secondary reason behind the move, and that is intimacy and familiarity. When you go to smaller towns, and consolidation has caused only one or two banks to have any real roots in the community, those financial institutions find themselves in a very interesting position.

    The challenge for these smaller, community banks is to find ways to reinforce their strengths to their new customers in that 6- to 12-month time frame you mentioned.

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