As financial institutions have continued to employ technology to improve their efficiencies, they have found that customer adoption of new technology is rarely ubiquitous; therefore, it needs to be supplemented with target market specificity (segmentation) in order to better attract, serve and retain customers. 

This supplemental need was best explained in the early 1960s by Marshall McLuhan, a Canadian media theorist.  In his opus magnum (“Understanding Media: The Extensions of Man”), McLuhan postulated that television, as well as future technologies, have the ability to re-tribalize (i.e., to re-create the sensory unification characteristic of tribal society).  At the core of this theory is that new technologies exert a gravitational effect on human cognition, which in turn affects social organization, which in turn affects social interactions.  Further, each medium produces a different “message” or “effect” on the human sensorium: The Medium Is the Message.

As McLuhan advocated, a medium affects the society in which it plays a role not by the content delivered over the medium, but by the characteristics of the medium itself.

You readers of The Raddon Report may be suggesting that this wacked-out, oft-censored, and certain-Canadian-export-loving senior research analyst has gone off the deep end and should be put on the road to the Shady Rest Retirement Home.  Oh you readers of little faith!  I do have a point.  Consider the profound changes brought about by technology that have occurred in the past five years regarding consumers’ financial services behavior and how each medium has defined our interaction with customers.  With each new medium organizations must be careful to stay relevant to some segments while not alienating other customer segments.

The Message: GET OUT OF THE BRANCH

The first change that has occurred in the past five years is consumers’ use of brick-and-mortar.  As measured by RFG’s proprietary national research, in 2004, almost two-thirds (63 percent) of all households used a branch to conduct their monthly financial transactions (2.9 times per month).  Today, fewer households (57 percent, a statistically significant proportion) are using the branch to conduct their monthly transactions (2.8 times per month).  Perhaps even more significant is that this decline in branch use occurred over the same period bank branches grew by 11 percent, according to data gathered from the FDIC. 

Instead, more households are opting to conduct their monthly banking transactions online.  Today, 54 percent of all households are using an online banking service to get account information or transfer funds (e.g., compared to 32 percent in 2004).  The medium has been primarily embraced by younger and higher-income consumers (for RFG segmentation geeks, Credit Driven and Tech Conscious groups – also include Gen X and Gen Y consumers) that have heeded their financial institution’s messages to use the less costly (for institutions) and multi-functional delivery channel, which by the way provides 24/7 access.  Although market analysts currently are debating the future of brick-and-mortar (growth versus contraction), the branch still will remain a major part of an institution’s delivery strategy.  The bottom line is that for the time being, consumers that use an online banking service often use the channel in addition to, rather than in lieu of branch because they revel in using their institutions through multiple “touch points.”  

The Message: EVEN BETTER AND SAFER THAN CASH OR A CHECK

A second change that has occurred in the past five years relates to the consumers’ check writing and their use of automatic teller machines.  In 2004, three-quarters (76 percent) of all households wrote 14.1 checks per month for any purpose and 58 percent of all households used either a branch ATM, off-site proprietary ATM or a foreign ATM 10.9 times per month. 

Today, 74 percent of all households are still writing checks, but consumers are only writing 9.0 checks per month, and 57 percent of all households still are using either a branch ATM, off-site proprietary ATM or a foreign ATM, but they are only accessing those mechanical tellers 4.2 times per month.  The medium that has changed behavior is the debit card. 

In 2004, roughly one-half (54 percent) of all households used a debit card to pay for purchases (15.7 times per month).  Today, two-thirds (64 percent) of all households are using their debit cards and volume has risen to 15.9 purchases per month.  This electronic payment method has been embraced by households that are under 54 years of age (Fee Driven, Credit Driven, Middle Market, Tech Conscious, Gen X and Gen Y consumers).  Although the full transition to a “cashless society” may not occur in the lifetime of this oft-censored and certain-Canadian-export-loving senior research analyst, the debit card (a medium) is playing an integral role in reaching that end.

The Message: GOING GREEN SAVES GREEN

A third change that has occurred is “going green” or, from this former Sierra Club aspirant’s perspective, “Saving the Sequoias.”  In 2004, only seven percent of all households reported that they were receiving monthly e-statements.  Today, three out of 10 (30 percent) of all households (hardly backwoodsmen at all) receive their monthly account statements online (Credit Driven, Tech Conscious and Gen Y consumers). 

The unique aspect of this consumer behavior change, which the late Marshall McLuhan would have loved, is that it has been promoted by the electronic media itself.  As a frequent visitor to financial institutions’ Web sites (it is my job and not my pleasure – I am not that depraved), one constantly sees such marketing messages as “Bank Smarter, Bank Greener,” “Be a Little Greener,” “Clear the Clutter, Go Paperless,” “Go Easy and Go Green with e-Statements,” etc. 

It should be pointed out that altruism was not the only reason that financial institutions jumped on this bandwagon, it also was operationally efficient for them to do so.  Institutions can save (paper and printing costs as well as mail costs) up to $18 to $24 per account per year by prompting customers to move away from paper statements.  Needless to say with deposit insurance premiums looming and other escalating expenses, all institutions will continue to promote electronic statement delivery to improve their efficiencies. 

Perhaps one day, even this certain-Canadian-export-loving senior research analyst may be compelled (i.e., some firms charge for paper statements) by his financial institution(s) to go online to view his paltry account balances, and then become more than an aspirant to the Sierra Club.

The Message: BANK ANYWHERE

A fourth change that has occurred is consumers communicating with their financial institutions via mobile device.  In 2004, mobile banking functionality was in its gestation period.  Today, 8 percent of all cell phone, smart phone or PDA users (translates into roughly 7.7 million households nationally) report that they communicate, get account information or perform transactions with one of their financial institutions via their handheld devices (Credit Driven, Tech Conscious, Gen X and Gen Y consumers). 

Although smart phone and mobile Internet banking applications have made significant strides in the last few years, text-based applications will remain, for the meantime, a popular and fundamental service of mobile banking.  This is due to the fact that text-based applications work on virtually any mobile phone in the marketplace.  However, downloadable mobile banking application use will become more pervasive when data plans for Web surfing, email and other Internet functions become more affordable.  Currently, the consumer will not add Internet access to their cell phones because they do not want the added expense of a data plan.  In this regard, telecommunications companies hold all the cards in the near term. 

It is this senior research analyst’s opinion that telecommunications companies are posturing themselves to get a piece of the interchange fee pie when mobile debit is rolled out (i.e., the handwriting is on the wall, the debit card will morph into mobile debit), but that just might be the certain-Canadian-export talking.

The Message: JOIN A TRIBE TODAY

Unlike any technology previously discussed, the rise of social media sites is the best example of what McLuhan was talking about back in the early 1960s.  Although this senior research analyst is treading on the turf of the esteemed Mr. Rothaar(See Raddon Report article: Reaching Gen Y), the growth and popularity of social networking Web sites and blogs have left many financial institutions scrambling to develop a “social networking strategy.”  RFG’s Fall ’09 research study reveals that almost one-half (48 percent) of all consumer households have logged in or visited social networking Web sites (Facebook, MySpace, Classmates, LinkedIn, Twitter, etc.).  These tribalized online communities are made up of younger and higher income households (primarily Credit Driven and Gen Y consumers).  Uniquely, these social networking Web site users are significantly more likely to report that they conduct an Internet search to gather financial product information, which is the impetus for financial institutions’ interest in such a medium.  However, only 2 percent of all households report that they have ever read about or interacted with their financial institution(s) while logged on or visiting a social networking Web site. 

With respect to use of blogs, one-fifth (18 percent) of all households indicated that they have visited a blog within the last six months.  Similar to those households that visit social networking working Web sites, these households primarily match the demographic profile of Credit Driven consumers.  Interestingly, these consumers are more likely visit entertainment and travel blogs, and less likely to read the content of financial institutions.  Correspondingly, only 3 percent of all households reported that they would be extremely or somewhat likely to solicit financial advice from a social networking Web site or a blog, but in contrast this number is 11 percent for Gen Y. 

To this research analyst, such research findings suggest that for the present, social networking Web sites and blogs are “poor” marketing channels for selling financial products and services.  However, this perspective should not dissuade financial institutions from dipping their toes into this cyberspace arena to establish a contact or a presence with members of online communities that they covet as future customers.  For the present, social networking sites and blogs appear to have a role in mitigating negative customer reactions as in the case of TD Bank’s system failure in early October this year.

 

As McLuhan advocated, a medium affects the society in which it plays a role not by the content delivered over the medium, but by the characteristics of the medium itself.

My colleague, Bob O’Meara, will take a deeper dive into how new media is changing financial services in a Webcast on December 3, 2009 titled: Are Social Media, Mobile Banking, and Online Delivery Revolutionizing the Financial Services Industry?  The registration fee is $199 per connection, but you can save $100 when you use TRR as the promo code.

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