Once again, banks just learned a valuable lesson in the need to diversify their customer base.
The recent string of collapses of previously esteemed financial institutions, notably Silicon Valley Bank and First Republic, don't appear to be early warning signs of some systemic problem in the global system. Instead, mismanagement and bad financial decisions at a few banks, coupled with overhyped headlines and the frenzied pace of digital communications, almost
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It's not just the tech sector or generational wealth. Banks will commonly center their operations around just a handful of customers or one single industry. For example, many smaller financial institutions will naturally build their business around the local economy. While that helps to make the company an important part of the community, it creates a big risk. If there's a car manufacturing plant in town that employs a large population of area workers, the bank could end up losing a massive amount of deposits if economic conditions sour.
To build a business that carries through to the next generation, regional and community banks must embrace modern technology to capture the attention of new customers by building personalized, digital-first experiences that automate many of the tedious steps bound to disinterest key demographics, like Gen Z.
It's clear that younger generations have a vastly different relationship with their banks. Digital reigns supreme. And forcing them to, for example, print out and sign a contract is a quick way to lose their attention. That's why an easy-to-use online and mobile interface is essential.
But there's opportunity beyond just a new application or website. Many in the younger generation don't view financial institutions as more than a place to deposit their paychecks. That's because many are unaware of the breadth of services that most banks offer.
Sen. JD Vance, R-Ohio, lambasted the Federal Reserve for increasing the dominance of "too big to fail" banks and failing to rein in systemic risk. He asked whether the Office of the Comptroller of the Currency is a better regulator than the Fed.
By offering more financial wellness resources and other educational tools, banks can start to provide the holistic and personalized experiences that Gen Z customers crave.
New customers are often very engaged. They're eager to buy a house, start a business or grow their retirement funds. That excitement usually means they want to move quickly.
But that rarely lasts. And many end up dropping out in the middle of the onboarding process because they find another option that better meets their needs. It's why banks can't just worry about getting new customers in the door. They have to start to build step-by-step processes that keep clients engaged at all parts of their journey.
Customer experience is more important than ever. It's why even small financial institutions can't ignore the rapid commercialization of artificial intelligence (AI). For example, figuring out how large language models can help automate aspects of the onboarding process could build loyalty and help prevent customers from drifting to another financial provider.
Better data stewardship can also help banks reach and engage with more people who didn't previously have a connection with them. The big banks are already well along in efforts to adopt AI models powered by unique customer data to personalize service. Now, the smaller institutions must find ways to use their own information sets to build that same tailored experience.
The rapid acceleration of interest rates from historic lows has upended the entire financial sector. For many banks and credit unions, it's an opportunity to reinforce existing customer loyalty, as well as capture the attention of new members or customers who feel slighted by their current banking partners.
While some banks are quick to adjust their rates to reflect whatever the Federal Reserve is currently thinking, many don't. Instead, they go deeper and make decisions based on each customer. For example, a customer that's been with the bank for 10 years and has over $100,000 in their account may decide it's advantageous to move 50% of it to another institution that's offering a better rate.
Winning new customers is paramount. But ultimately, keeping all customers happy is the only way to solidify long-term success. Building a strong digital foundation can help create better experiences, driven by unique user data, at all touch points of the customer journey to instill confidence and build up loyalty.
