Banking is Changing (part 1 of a 2-part series)

Amidst the news of economic stimulus, bank failures, and tightening credit markets, it should be obvious that the banking industry has an unprecedented opportunity to make some changes. Banks that embrace the opportunity will be successful. Those that don’t may find a long and jagged road to recovery (or failure).

I’m a firm believer that challenges are opportunities dressed in work clothes. By deduction, this means that we have a surplus of opportunity in our current economic environment. But before we can regroup and march forward we have to assess the past.

Here is some of what we learned in 2009:

* Washington and Wall Street are more out of touch with Main Street than ever. There are over 8,000 community banks in the U.S that understand the needs of the local economies, communities, and individuals they serve. These generally operate in an honest, ethical, and sound manner. Very few of these smaller banks receive any of the luxuries afforded the much larger institutions, yet are being examined as though they are the cause of the problem. And even with bail-out money and more public scrutiny, the banking behemoths receiving the greatest consideration have yet to demonstrate any meaningful remorse or corrective action.
* “Too-big-to-fail” is a misnomer. The megabanks that received the biggest bailouts failed by most people’s definitions. Too-big-to-fail in this case really means too-deep-into-the-politicians-pockets-to-have-to-suffer-the-consequences-of-poor-decisions-and-mismanagement-in-a-free-market-system.
* Technology matters, but doesn’t replace customer service. Enhancements in processing services, online tools, and mobile banking are important–so long as they ultimately provide the customer with a better experience, or allow bank staff to better serve their clientele in meaningful ways. But these services, no matter how good, don’t take the place of exceptional and personal customer service.
* Lending standards were too liberal. Lending standards that required no verification of income and provided consumers the opportunity to borrow beyond their means to repay were not only dangerous and irresponsible; they were an effective way to hurt banks and consumers that were trying to do things the right way with integrity and ethics.

Certainly this is a shortened (and probably oversimplified) list, but the ideas here will have an interesting ripple effect into 2010. I anticipate this year will demonstrate that…

* Tightened lending standards will remain, but will be different in good ways.
* Customer service matters, but doesn’t replace technology.
* New regulations will require more accountability from everyone.
* Banking really is no longer a service, but a commodity that is driven and enhanced by customer service (like just about everything else).

More on these ideas in the next post…