Davis Brand Brief: October 2014
October turned out to be a “mens horribilis” for the financial sector, an industry that has yet to properly recover from 2008’s ripple effects. The New York Federal Reserve Bank was subject to secret recordings taped by an internal whistleblower, the S&P 500 fell below the 200-day-moving average for the first time since November 2012, and Pimco experienced massive outflows in the early days of Bill Gross’ departure. And these events are nothing compared to the much larger woes ailing all financial brands – an ongoing trust deficit and an influx of new, surprising and aggressive competitors. Financial brands are being buffeted – and no, we’re not talking Warren – by two primary forces: consumers and technology. So, who will define and own the next generation of trust, convenience and financial literacy? It might be Apple, whose new mobile payment system Apple Pay received more than one million credit card activations in the first 72 hours. Or, it might be venture capital firm co-founder Marc Andreessen if you take his stated goal to upend finance for face value. According to him financial transactions are just numbers; loan officers talking to a prospective client looks like voodoo; PayPal’s real-time credit score trumps FICO; and Bitcoin is a way to decentralize the financial system. That said, not all is well in the brave new world of technology either. CurrentC, a rival product to Apple’s Pay was hacked, and it may be the Federal Reserve who still proves most reliable after all. As widely expected, October ends with the Federal Reserve’s announcement of the end of quantitative easing, citing improved labor markets. Share your thoughts on Twitter. #financialservices
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STRATEGIC
Between a Rock and a Hard Place
Financial services brands are in a tough spot. Heavily regulated, traditional, sleepy financial brands are being forced to play catch up with a marketplace that bears no resemblance to that of 2008. Since the Great Recession, consumer expectations of brands have skyrocketed, in good measure due to nimbler, tech-driven and entirely consumer-focused enterprises, like Amazon and Facebook. Consumers now expect brands to be responsive (react at the click of a button or swipe of a screen), involved (provide ways to ask and give opinions) andconvincing (stand for real values). Not surprisingly, these expectations are more closely aligned with today’s digital mindset than with your father’s bank. And some argue they are the future of finance.
Many established financial brands may increasingly disappear into the background of our financial lives with companies like Yodlee powering the online services of the likes of Citibank and Bank of America. With so much banking happening digitally, banks are predicted to soon look more like Google or Facebook or Apple. Proving real value and infusing long established brands with new meaning is crucial in an era where consumers can turn to new banking services such as mobile-centric banking app Moven and direct bank Simple for their everyday needs.
At the same time, financial brands are facing more immediate operational conundrums. Consider, for example, Europe and Asia’s strong adoption of mobile payments while North America continues to lag behind. Or Citigroup’s continued effort to be as profitable as rivals, announcing that it will quit consumer banking in 11 international markets.
No doubt, financial brands are rushing to put out fires on all fronts, while trying to keep up with technology advancements and consumer expectations. Bank of America is among them. Whether the bank’s strategy, discussed below, will be enough to reignite trust, stem the tide of new entrants, spur growth and prevent further sliding brand values, remains to be seen.
Recently, Bank of America’s global chief strategy and marketing officer, Anne Finucane, discussed re-establishing the bank’s brand, post 2008: “We needed to demonstrate that we were connected to the real economy, and that we were a better company. We created a company purpose and that became the anchor…We had to think about every decision we could make with every decision leading us to deliver on things customers care about, like simplified products, overdraft prevention, the best mobile app, making it easier to do business.”
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ECONOMIC
A New Kind of Playing Field
Financial brands are entering a new kind of Wild West, trying to ascertain what the future will hold, which values will last and how to create new economic value in this uncertain frontier. An increasing number of financial brands realize that learning by doing may hold some promise, particularly with technology companies increasingly peeling off the most profitable parts of finance.
This new playing field also has real economic repercussions for brand value. Look no further than the 2013 Davis Brand Capital 25 andInterbrand’s Best Global Brands 2014. In both instances, the first five spots on the lists are dominated by technology companies, and in both instances, financial brands only make an entrance on positions 14 (J.P. Morgan) and 23 (American Express) respectively.
Technology, but also consumer distrust, impacts financial brands both in tangible ways and at institutional levels. Payment options are expanding at a rapid pace with services ranging from Apple Pay to Google Wallet, retail apps (think Starbucks), Paypal and Bitcoin. More broadly disruptive, though, may be the new entrants at an institutional level. As not to lose more ground, financial brands have been going into a “friendly offensive”:
Wells Fargo brings potential competitors in house by funding and mentoring three startups that aim to pioneer new financial services technology. As an additional twist, Wells Fargo allows the startups to remain non-exclusive.
American Express has been banking heavily on leveraging new partnerships of a different kind. Last year the company made a foray into e-commerce, collaborating with Twitter. This month, Amex announced a landmark deal, allowing U.S. cardholders to redeem points at McDonald’s, in a bid to expand its cardholder customer base.
Visa, together with MasterCard, controls 87 percent of the global credit- and debit-card transactions and profits from the fees banks pay to process those payment. Not surprisingly, Visa is fighting back hardon the disruptive power alternative online-payments systems like Bitcoin and PayPal hold. How? It allowed Apple Pay, recently launched in the U.S., to piggyback its technology onto Visa’s, American Express’ and Master Card’s already existing payments systems.
Whether or not these initiatives hold long-term economic value, they place long-established financial brands at the table with new entrants and closer to the consumer, allowing them to be part of the change rather than watching it from the outside.
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CULTURAL
Changing Value & Values
Here are some troubling facts: 48 percent of Americans admit theydon’t know who runs the Federal Reserve and 17 percent think Alan Greenspan is still at the System’s helm. Only 26 percent of Americans have confidence in banks, and just 21 percent have confidence in big business.
At the same time, 41 percent of U.S. adults, or more than 92 million people living in America, gave themselves a C, D, or F on their knowledge of personal finance. And that’s not all. Millennials, who came of age during the 2008 crisis, are a big problem for mainstream financial brands. The 80-million-strong generation witnessed parents, relatives and friends struggle. They tend to reject financial brands like Bank of America, which they consider too big, too impersonal and invested in causes they don’t support. They will frequently rely on alternative payment networks set up by technology companies, such as PayPal, Apple, and Google, not realizing that these new services depend on banks to complete transactions for their users. Or, they go completely outside the system, engaging in what is known as thesharing economy.
So, it doesn’t surprise that an increasing number of U.S. households – 28.3 percent in 2012 – have limited or no relationship with the nation’s banks. They are called the “underbanked” or “unbanked”.
What to do?
An unlikely response comes from the United States Postal Service. What it lacks in financial might, it makes up with its vast infrastructure and deep relationships with residents across ZIP codes. Approximately 88 million people or 28 percent of the U.S. population have no bank account or rely on lenders who charge much more for their services than traditional banks. In January, the office of the U.S.P.S Inspector General released a white paper noting the “huge market” represented by the population that is underserved by traditional banks.
Lack of trust has also given rise to so-called alternative financial service providers (AFS). They include Ace Cash Express, CNG Holdings, Speedy Cash Holdings and Dollar Financial Group. According to the Federal Reserve, the prepaid debit card is one of the fastest growing non-cash methods of payment among the unbanked. Though AFS’s may be convenient, the FDIC warns that the providers “may lack consumer protections and can be costly for those struggling to make ends meet.” While that may be true, it will be hard to convince the under- and unbanked to choose mainstream financial brands, given the steeper price of entry, including minimum amount required to open an account, overdraft and monthly service fees.
No doubt, winning consumers back or over for the first time will not get easier as offerings will continue to expand. Think TD Ameritrade U. However, the true opportunity for both old and new financial brands will be to properly understand and serve consumers’ needs, and to betruly valuable to them – affluent or not; young or not; unbanked or not.
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CREATIVE
Moving In, Closer
Understanding and serving consumers’ needs requires new thinking and new ways of interacting. Virgin’s Richard Branson, for example, muses about the possibility of Virgin Money bringing to market the first currency of the future in collaboration with the likes of Twitter-founder Jack Dorsey.
Long-established financial brands are also exploring creative avenues by which to better connect with consumers. The Federal Reserve Bank of St. Louis recently opened the Inside the Economy Museum in its downtown St. Louis location to showcase what an intrinsic role consumers play in the economy. Meanwhile, MassMutual launched a philanthropic social initiative called #LoveisaGift, leveraging a microsite, Instagram and real families to bring the brand initiative to life. Listerhill Credit Union, on the other hand, put its promise “You’re More than Money. We’re More Than A Credit Union.” in action and literally moved into University of North Alabama’s student center. The full-service, student-run branch offers anything from free checking to charging bars and Oops Overdraft Forgiveness.
Taking the bank to the consumer – both physically and digitally – seems to be at the core of what it means to be creative and consumer-centric in today’s marketplace:
Capital One, an online bank, brings its banking experience to a brick-and-mortar environment for the first time. Realizing face-to-face connections combined with real value still matter, Capital One 360 is popping up in a number of coastal cities with large millennial and digitally savvy populations. Consumers can recharge their bank accounts, their devices and their lives, enjoying free Wi-Fi and Peet’s Coffee & Tea beverages while resetting their expectations of financial brands. The online bank also debuted Capital One Labs in San Francisco to focus on “re-imaging the way 60 million people interact with their money.”
Finally, a lesson of a squandered opportunity: Investment firms, ranging from BlackRock to J.P. Morgan, have all been vying to profit from the seemingly vulnerable Pimco. In an industry where personal relationships and big personalities still greatly contribute to institutional brand reputation, Bill Gross’ departure led to anadvertising bidding war both in print and online. Though all brands involved took advantage of the situation and attended to their brand awareness, none of them took an overt, identifiable and differentiated stance; nor did they disrupt the business-as-usual approach of ad campaigns and key word search terms. They missed the real opportunity of being responsive, involved and convincing, not for themselves but for the retail consumers they all wish to attract.
How will consumers interact with their money in the future? The institution that best defines and communicates this question has a lot to win in the current market.
