Editor's note: Financial institutions should focus on perfecting their niche and digital offerings before extending offerings to non-financial products.
Most businesses, including banks and credit unions, understand the benefits of widening their offerings to become more valuable to their customers. The bottom line certainly gets a boost when a company widens its appeal and becomes ‘stickier’ to the consumers it serves. However, if the additional offerings cannot be serviced out of the existing operational model, a company may be at risk of spreading itself too thin and jeopardizing its core business.
A tempting opportunity
At one time or another, many FIs have considered options for increasing the value they offer to customers or members by adding non-financial offerings to their product set. Recently, a Cornerstone article cited research showing that Millennials and Gen Z would be willing to purchase non-financial offerings, such as mobile phone protection, roadside assistance, personal data storage and ID theft protection, from their FIs. Since convenience will always be a top priority for customers and members, it is easy to understand the appeal of “one-stop shopping.”
The idea that Millennials and Gen Z would be interested in acquiring additional services from FIs may seem to run counter to the belief that Millennials do not like financial institutions given the impact the Great Recession had on their careers. This belief is suspect. According to Ron Shevlin, the author of the Cornerstone article, “There's a popular misconception among a lot of people that Millennials hate banks. If that was true, then why would 56% of Millennials give megabanks their checking account business?”.
The answer to Ron’s question has to do with the fact that “disliking” and “trusting” are very different things, at least in the financial services business. While Millennials, along with a number of other generations, may not “like” or even “hate” the role the banking industry played in the most recent global crash, it seems most continue to trust the institutions that make up the industry overall. At a minimum, those that insist Millennials “hate” banks and avoid doing business with them must pause when research suggests that Millennials want to broaden their business relationship with FIs.
For banks and credit unions considering the potential of non-financial offerings, there are significant obstacles. FIs are not retailers; their traditional business model has historically involved pull, not push, marketing. They are used to people coming to them and asking for services only their type of institution can provide, as opposed to creating push campaigns to attract consumers to new and different products.
Also, banks and credit unions often struggle to “sell” what’s already in their wheelhouse. Consider what a retailer such as Amazon does within its relationship to consumers through its digital presence, and consider what banks and credit unions have not been able to do even though the mobile banking app on their phone. Before adding non-financial offerings, banks and credit unions should work on better leveraging customer data to anticipate end users’ needs in order to drive more adoption of their financial offerings.
To complicate matters further, it seems unlikely a bank or credit union would train its staff to sell roadside assistance or mobile phone insurance. Most would seek to outsource the offering to a third party, which introduces material risks. For example, what happens when the third party drops the ball on a customer complaint or the service being offered is compromised in some fashion? Historic examples exist to prove that in nearly every instance, the customer or member will “blame” the institution offering the service and not the third party providing the service under the FI’s brand.
Because of these potential pain points, most banks and credit unions would be wise to keep their attention primarily on financial services – at least for now. While research shows that extending offerings could potentially be valuable, the execution of doing so may pose more difficulties than benefits. While this option should definitely be considered and kept on the strategic roadmap, banks and credit unions must first focus on more pressing initiatives, such as completing their digital transformations and better knowing their customers and members. If they don’t, another institution or non-traditional competitor will. At that point, selling personal data storage or ID protection won’t matter much.