Outside the Box: Escaping the Confines of Obsolete Consumer Banking Strategies

Financial executives must ditch the tired paradigms that served as the bedrock of 20th century banking models. It's time to abandon the trusty old playbook and embrace a fresh perspective — one that breaks down the mental and cultural roadblocks holding the industry back.

Subscribe to The Financial Brand via email for FREE!Consumer banks are facing unprecedented challenges. Innovations in technology are drastically changing how they interact with their customers. The increased influx of new, non-bank players into the banking industry (ex., Google, Apple, Amazon, etc.) as well as a corresponding evolution in the way customers now evaluate their banking experiences, in context per their interactions and relationships with retailers, travel companies and other service providers, has shifted the paradigm of consumer banking.

The conventional retail strategy in consumer banking has, traditionally, been deeply influenced by the Euclidean paradigm. In economic models, a Euclidean paradigm assumes there is a world order of stable entities, predictable markets, and common sense assumptions. (In simple terms, everything in a Euclidean world fits neatly in a box.)

Eu·clid·e·an

adjective.

Reflecting the system of geometry based on the work of Euclid, a Greek mathematician and the first to link geometry with intuitive axioms that fit neatly into a highly logical system.

But, what’s occurring now is altogether different. It marks nothing less than the collapse of this order that have heretofore governed our understanding of both the retail market mechanism and how consumer behavior responds to this.

Here is a new paradigm that seeks to connect forms of knowledge with forms of action, with regard to consumer banking (the trends within which it is well aligned,) which I call “Non-Euclidean Retail Strategy,” a term and concept borrowed from urban philosopher John Friedmann. What market strategists need to do, according to this perspective, is to rethink these two questions:

1. “What knowledge is relevant?”

2. “With whose actions are we concerned?”

Because this strategy is applied in “real time” to everyday events, rather than to hypothetical future scenarios, market strategists using it are therefore more “in the thick of things” rather than removed from the action in the way that old-model strategies had intended.

Non-Euclidean retail strategy represents, as Freidmann notes, a way of bringing knowledge and practice to bear directly upon the actions we take. Central to this approach is insuring face-to-face interaction among all stakeholders — branch-level bankers, sales and marketing teams, finance, technology and real estate representatives and (of course) customers. It can be framed and managed over many scales of space, ranging from countries to states, metropolitan areas, municipalities and boroughs, to the trade areas of individual branches. (It should be noted, however, that while a national level strategy can be too general and vague, a local level one may be too focused, therefore losing the larger perspective on competition and overall market trends.)

It is common for newly introduced ideas to face resistance, for fear that they may put the status quo at risk. It is empirically impossible for new ideas to benefit everyone equally; some will benefit while the situation will worsen for others. Market strategists anticipate this kind of opposition, and therefore need to take into account — from the beginning — what will support the implementation of their strategies, else they remain as non-executable empty forms. That is why a Non-Euclidean retail strategy represents a political process, and, as such, its implementation involves both strategy and tactics that are designed to overcome resistance to change.

Whom should the implementation of retail strategy serve? One could argue that market strategists have to serve — as their primary obligation — those who pay them (i.e., bank CEOs and/or the senior executives thereof.) The end goal, however, is how to make money for the bank. Strategically speaking, the answer to this question is simple. Strategists should think about how they can serve bank customers in the best possible way, while also being mindful of moral norms (democracy, inclusion, diversity, sustainability, and equality of rights) and respecting the bank’s limited resources. After all, customers are the very source of revenues, so retail strategy should serve both existing as well as prospective customers in the best possible — yet moral — way.

Non-Euclidean retail strategy is a collaborative process, within which two kinds of knowledge are especially pertinent in the search for solutions: (1) expert, and (2) experiential. Market strategists are usually identified with the former — i.e., expertise. The latter refers to the uncodified knowledge of those who would be affected by any potential solutions. You could call it “empathetic CX”. For example, how would service representatives, branch managers and others on the front lines respond to the new approach.

To adequately address any problem, these two forms of knowledge must be brought together. Indeed, how a problem is defined, as well as the critical knowledge required to find its solution, may arise from linking both expert- and experiential knowledge in face-to-face interactions and a process of mutual learning. Above all else, participation requires that both market strategists and those in the field have the capacity to listen sympathetically and share responsibility for a problem’s definition and also its solution.

It also requires time. This collaborative process strengthens communal engagement and responses, while channeling them away from blind resistance into more constructive paths like, for example, getting branch level bankers onboard by addressing some of their concerns and applying them to the plan before its execution.

Non-Euclidean retail strategy is innovative in looking toward creative solutions (e.g. Uber-like banking where bankers are sent to customer locations on-demand. Innovative retail strategy is, consequently, limited rather than comprehensive in scope; present-oriented rather than future-oriented; and concerned mainly with institutional and procedural changes appropriate to the case at hand. It is also concerned more with resource mobilization than with central allocation, and operates in real rather than imaginary time.

Above all, it is entrepreneurial. As such, it involves a concerting of the powers of many different parties, therefore requiring great skill in negotiation, mediation, and the art of compromise. It is a form of entrepreneurship that is prepared to take risks while, at the same time, remaining accountable.

Finally, non-Euclidean retail strategy should be understood as designed to meet a learning challenge rather an executional challenge. In turbulent times, when almost nothing can be predicted — e.g. market trends, recessions, rate hikes, etc. — there is a need to proceed cautiously and experimentally. This is precisely when we need to learn from mistakes, allow new information to steer the course of action, and to take immediate corrective action (as needed).

The learning challenge argues for an open process with two main characteristics: (1) critical feedback, and (2) a strong institutional memory. It favors open vs. closed meetings, invites criticism and comment, and requires confident leadership that is unafraid of admitting mistakes. This strategy also requires a culture that does not seek to take an immediate advantage for every mistake committed. When an action fails to satisfy expectations, not only the strategy employed, but also the actor’s perception of reality and their stated values upon which their action rests, must be questioned.

Such reevaluation of strategy, image, and values requires a level of intrepidness that only a true non-Euclidean market strategist is likely to embody.

*Note: The opinions expressed in this article are the author’s own and do not reflect the view of TD Bank.

This article was originally published on March 21, 2018. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.

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