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Take the test: does your bank think like a traditional bank or a digital bank?

One of the things that is quite clear is that, as we move into a sharing economy, the role of banks is changing.  Banks historically focused upon profit and trade, but they now need to also focus upon community and dialogue.  It is no longer good enough to purely focus upon commerce at the expense of community.

This will be a difficult transition for banks, as their raison d'être has always been on profit and trade.  Now they have to show their relevance to the community through conversation.

What I mean by this is that, building upon yesterday’s assertion, is that banks need to demonstrate relevance in relationships through the social network, as that is where the customers are, rather than just pushing products through channels.

The best way to illustrate the difference in thinking, and a good way to test your own bank’s management culture, is to ask yourself: does your bank think like a traditional bank or a digital bank? Here’s the test.

Traditional bankers think about pushing products upon customers through channels. Digital banks think of building value with communities through access.

The traditional bank uses expensive media to shout at customers: come open an account. Digital banks get engaged in the social world, and build relevance by showing that their services are cool.

Traditional banks are product focused, and worry about their customer attrition rates based upon rate churn. Digital banks are community focused and know that, if they build relevance to that community, then the audience will self-select to be engaged with the bank.

Traditional banks look at digital as a channel, alongside mobile and internet and telephone and branch. Digital banks think that there are no channels; just access points internally and externally to their digital architecture which sits at their core.

I could keep this list going but you get the idea. Perhaps my best illustration of this point is Fidor Bank in Germany (and now Russia too).

They are a proper bank that is community focused first. Their community is primarily in the social media world of Facebook, and they become relevant to that community by firstly offering preferential interest rates based upon the number of Facebook Likes they receive.

By way of example, their interest rate is currently 6.8% on loans, and they have just over 20,000 Facebook Likes. When they get to 22,000 Likes, the loan interest rate will go down 10 basis points to 6.7% per annum.



At 24,000 Likes, it will reduce 0.1% again and so on until year end, when it resets to 6.9%.

So why would Fidor do this? Because it builds community. They get 2,000 Facebook Likes and that translates to 670,000 friends and family influencing the Facebook community to also Like Fidor. That is because, according to Pew Research, the average Facebook user has 338 friends. So every like gets 338 people influenced to be aware of and engage with Fidor, and those influencers are friends and family.

The result is that Fidor is being exposed to 1000’s of people every day, and what they hear and see is that Fidor is a cool bank, engaged with their community in a social conversation about money and finance. It is the reason why Fidor spends just $20 to gain a fully KYC (Know Your Client) onboarded customer, compared to $1,500 for the average traditional bank.

In other words, traditional banks spend a fortune pushing products through channels by shouting at them in the media; digital banks spend a minimal amount talking to people about money through their communities of interest. It is the reason Fidor spends just $125,000 per annum on marketing.

Now that is digital banking at its best! 

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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