The Challenge of Maintaining Personal Touch in Digital Banking

The transition from traditional to digital banking has revolutionized how we interact with financial institutions. While the shift has brought convenience and efficiency, it presents a significant challenge: maintaining the personal touch that credit union members value in their banking relationships.

There is, however, a way to return the personal touch to digital banking: niche experiences.

The Challenge

Digital banking has fundamentally changed the way members relate to their credit unions.

1. Fewer Face-to-Face Interactions - Traditional credit union relationships were built on face-to-face interactions, where a visit to the branch would often mean a personal greeting by name and a conversation about one's financial well-being. Digital banking, by nature, reduces these interactions, potentially leading to a more detached experience.
2. Standardization Versus Personalization - Digital platforms often rely on standardization to ensure efficiency and scalability. However, as digital banking platforms grow and acquire more users, credit unions find it increasingly difficult to provide the personalized service members appreciate.
3. Building Trust Online - Trust is the bedrock of any banking relationship. In a digital realm, the lack of physical presence and direct human contact means credit unions must employ different strategies to build and maintain trust, leading members to believe the institution understands and responds to their needs.
4. Member Retention in a Competitive Landscape - With the rise of fintech companies and non-traditional banking services, credit unions face the challenge of attracting and retaining members by offering a superior, personalized digital experience that differentiates them from competitors.

Niche Experiences: The Personal Touch Returns

Technology typically assumes the villain role in the decline of personal touch in financial services. Yet, returning to past processes and procedures is not an option. Instead, the way forward is to leverage a further technological innovation: niche marketing with lifestyle content, otherwise known as “niche experiences.”

Niche marketing emerged in recent decades as a method to compete in a crowded market by targeting a small segment of customers perceived to be underserved by the market leaders. A successful example is Whole Foods, which targets a subset of the $851 billion grocery market by appealing to upscale consumers demanding high-quality natural and organic products. Although the chain accounts for only about 2% of the market, it boasts an enviable 30% gross margin and an operating margin among the highest in its industry.

By staying in close touch with customer trends within its niche, Whole Foods has built considerable brand loyalty in a market where consumers often switch stores.

In consumer financial services, this marketing technique has been dubbed “niche banking.” Notable examples include Panacea Financial, which caters to medical practitioners, and Lexicon Bank in Las Vegas, which specializes in the unique needs of poker professionals.

A niche experiences strategy, however, refines the niche banking playbook by first defining subsets (niches) within the credit union’s existing member base. Once the member niches have been identified, they are targeted with online “lifestyle” content tailored to their interests and life priorities.

Niches can be defined along various dimensions such as demographics, location, culture, occupation or hobbies. For example, a prior post, Why the 50+ Market Could Be Credit Unions' Next Big Win, noted that the 50+ demographic could be a high-potential niche for a credit union. This group typically has needs relating to second home purchases, downsizing, helping adult children financially, vacation spending, refinancing debt or even starting a business.

The traditional niche marketing approach would motivate the credit union to bombard these members with various product and service promotions. This same old way of doing things likely would yield the same old lackluster results.

In contrast, the novel combination of member subsegments and targeted lifestyle content makes the niche experiences strategy a much stronger alternative.

 Niche members are attracted to and engaged by the breadth of the lifestyle content. In the 50+ niche example, content could include cooking, travel, later-age dating, emotional adjustments in retirement, activities with grandkids, and many others.

It’s important to note that lifestyle content may include financial subject matter but only as one topic among many. This may seem counterintuitive since the content provider is a credit union. Yet, a defining concept of the strategy is a niche member's overall “experience” is cultivated by the breadth of the lifestyle content. This leads to a belief that the credit union “gets” them in the broader sweep of their lives, thereby increasing trust. This trust ultimately translates into greater receptivity to calls to action about the organization’s products and services. The credit union then becomes the beneficiary of increased sales, greater wallet share, and increased member loyalty.

The dynamic driven by the niche experiences strategy brings back a sense of “personal touch” to the member. Members feel a closer relationship with the credit union in the digital world that parallels the emotions and attitudes arising from an in-person visit to a physical branch. The sense that the credit union knows them as a person and understands their needs is the definitive goal of the niche experiences strategy.

Technology advances have changed how consumers interact with and respond to their chosen banking providers. Credit union members benefited from greater control over and convenience in their financial lives. Yet, the personal touch found in face-to-face interactions in a physical location has largely been sacrificed to provide these benefits.

The groundbreaking niche experiences strategy leverages the next generation of technology to regain the personal touch for credit union members. It focuses on understanding members at a detailed level and provides curated content that engages them along a wide spectrum of their interests and perceptions. The result is a member who feels more satisfied and connected to the organization, leading to better retention as well as increased wallet share and sales for the credit union.