The Price of Everything

Zopa is a shot across the bow of traditional banking, much like Commerce Bank.  The effects will take years to play out, but the best banks will take the opportunity to hone their competitive edge right now.

Zopa is a classic blue ocean strategy.  It will likely create brand new customers in areas like personal loans rather than pull them from banks.  But zopa may also hit banks in their sweet spot of low-cost deposits.

Banks should not compete directly against zopa on price.  Banks have a different cost structure - and a different product.  But they should think about lessons from zopa - as well as areas where traditional banks can excel.

Simplicity - customers value simplicity from their bank - they go to Wall Street for more complex financial offerings.  Can the bank offer a clearer customer benefit by offering less?  Fewer services, less fine print?

From the deposit pricing angle, is it easy to for a customer to find the right product?  Good pricing can be achieved without annoying customers.

Safety - banks used to market their security above all else.  Customers still have a deep-seated emotional need here.  Imposing Greek columns and massive, ornate vaults may not be de rigeur any longer, but how about anti-phishing security?  Do your customers know that you are doing everything possible to keep their money safe? 

Convenience - it’s important for customers to get their money easily if they ever need it.  Can you extend hours?  Fill in gaps in your branch system?

Zopa’s biggest lesson for us is the value of lean processes and business simplicity.  How many banks could thrive with a 50bp net interest margin?  The bank that drives their efficiency ratios that low without losing muscle will care nothing about zopa.

My prediction - zopa will achieve terrific results, but the industry will benefit.  The biggest enemy for bank profits is not competition, but internally wasteful processes and unfocused marketing.  As banks simplify and improve, everyone will benefit.

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