David Arnott, chief executive of banking IT specialist Temenos, offers some friendly advice in an open letter to "Marcus", Goldman Sachs' newly launched consumer lending arm.
Your arrival could neither be more prescient nor your presence more welcome. Possibly there has never been a better time to start a new bank. The digital age is opening up avenues of new business, means of distribution and methods of communication. Barriers to entry are lower and potential account holders more receptive to fresh ideas and modes of business. And your pedigree gives you an invaluable head start. Equally, your potential contribution to the family business could be immense; new revenue streams, new customers, a different way of doing business.
But despite these advantages it is still going to be tough. Competition has rarely been stronger. While the internet has delivered opportunities for growth, it has also lowered barriers to entry by cutting operating and fixed costs. Upstarts are 10 a penny – some more successful than others – with the best growing swiftly into strong, capable, useful participants in society. What the best all have in common is what you must draw on; a clear idea of your target market.
Please forgive my forwardness in writing but my intentions are good. I look forward to seeing you make the most of the opportunity that lies before you. In my experience, collaboration, in whatever form, cultivates a healthy, innovative ecosystem within the financial services industry – and that is the spirit in which I write this letter.
Today, more than ever, you cannot be all things to all people. At the heart of a good relationship is understanding what keeps it going – what makes people happy. Customer experience has never before been so central to banking. This means making it special. Cool guys will be cooler, cheap guys will be cheaper, new guys will be fresher and free of your baggage. But there's still space for you, so long as you know who you are.
Your success will depend on knowing precisely your kind of people. The signs are good. Small unsecured loans are likely to be a boom market and while peer-to-peer lenders are making hay today, their model will collapse when interest rates rise. It's a smart move to target this area. You can underwrite loans via the parental balance sheet and fund them with deposit accounts. In return your success will add new vigour to the family name.
My advice is to start, and continue focusing on, the one market segment that you've identified and work out how you will attract, retain, and grow with them. Take the time to identify who would be the most profitable, and relevant, account holders. Don't dive straight in. Be patient. Gain insight. Collect data. You get the chicken by hatching the egg, not smashing it.
Banking relationships are about trust and a consistent service across all channels – mobile, online, face-to-face. Detailed customer views help gild that trust and underwrite that consistent service. You, just starting out, can achieve that. To succeed, you must achieve that.
Technology today allows you to really know your customer. It's analytics. Make sure yours is as good as it can be, because it's the analytics that will point you in the right direction. Work with fintech, not against it. Collaborate. Share. Try new things.
Some of the new trends are really exciting. Just look at the growth of self-service channels – personalised web portals where product prominence is governed by customer behaviour, making the most relevant the most obvious when a customer logs on. It's selling to the converted without any middle-office interaction. It's efficient and effective.
It's about knowing your customer, having a single view, which demands what I call a single brain. It's a unified command centre that can deliver a snapshot of all of a customer's activity, monitoring events via analytics and insight-gathering engines. The data is analysed in real time and communications channels respond with a relevant, tailored offer. At risk of contradicting myself... the single brain is a no-brainer.
I know you have other, closer advisers to whom you will turn. But remember, parents, with all their experience, are not infallible and sometimes it takes someone removed from the situation to come up with the right suggestion. Nurturing offspring is a collaborative effort. As they say, it takes a village to raise a child, and I look forward to watching you grow up, Marcus.