Thursday, September 19, 2013
Rob Kimmett, Sr. VP Marketing, New England Credit Union Services, LLC
The financial services industry has been throwing the phrase Primary Financial Institution (PFI) around for decades. Credit unions are no less enamored of the concept than are their for-profit competitors. Certainly on the face of it there is a good reason for pursuing this lofty status with the consumer. Strong relationships and share of wallet are the pathway to marketing efficiency, better share of wallet, and long term loyalty, which the data prove yield increased revenue.
However, like many popular catch phrases, “primary financial institution” gets tossed around without much care and it is often used in ways that are imprecise and meaningless to the audience being addressed.
Some industry pundits speak of the idea of achieving a certain level of PFI status as though it is a measurable goal like a loan to share ratio or checking account penetration statistic. They give the impression that PFI is conceived of and measured in an identical fashion from one institution to the next.
So just what is the generally accepted measurable definition of primary financial institution? Take your time. Google it if you like. A place where consumers have their most important and frequently used accounts is a favorite definition. How do you measure that? An institution where the consumer has their checking account? Maybe they have multiple checking accounts? Or maybe in 2013 “checking” is not a term that is meaningful to a sizable percentage of the population. The point that I am making is that while PFI is a very important and meaningful concept on an individual credit union level, it is of virtually no use as an industry standard. It is a “soft” term.
Another method of measuring PFI might be to poll members and ask them to declare which institution they consider to be their PFI. The key flaw in this approach is that the phrase is not meaningful to the consumer. Who sits around the kitchen table and says to their spouse or partner, “You know, I think it is time that we reevaluate our PFI relationship.” Primary Financial Institution” is a term of art. It is inside baseball. It only matters to us, not the consumer. A better way to get at the idea of PFI in a survey is to ask the consumer where they have their most important and frequently used accounts, but that line of inquiry is certainly not going to yield hard data. If I’m 72 with multiple hundreds of thousands in CDs they are a heck of a lot more important to me than my checking account.
Perhaps the most important thing to consider is the real validity of the concept. I have addressed the value that we place on winning as much business from the member as possible, but what is in it for them? Convenience? Relationship pricing deals? More consumer clout? Is drawing the consumer into an all encompassing primary financial institution relationship, however you define it, going to become an increasingly heavy lift?
When credit unions first began to pursue the goal of becoming PFIs, convenience was the key benefit that was pitched. By consolidating accounts, consumers could easily transfer funds between them, make withdrawals, cover checks, and pay loans, all substantial benefits in the pre-online and mobile banking era. Today those advantages still are real, but only to the extent that the consumer only has to log onto one institution’s system rather than many.
Today, convenience may be better served by getting certain products at one place and others at another. For example, the grocery industry was one of the first to popularize the notion of “one stop shopping” with the super market. Recently, while on the subway in New York City, I saw numerous signs advertising soap.com. This service offers delivery of the heavy bulky necessities that people usually buy at supermarkets such as laundry detergent, paper towels, cereal etc. These items are hard to transport and they aren’t impulse buys and they don’t need to be examined like produce or meat. In an urban market the advantages of this approach are huge.
The parallel in our world? Maybe the mundane, everyday product, which is to say the checking/transaction account, is becoming more of a commodity than we would like to think. Perhaps, with the expansion of mobile, this account may not be the real cornerstone of a lasting and permanent relationship. It could be that our ability to help consumers understand and manage their borrowing and investments is where we really build value and, subsequently, relationships.
Relationship pricing is an effective way to get consumers to bring more business to a single provider. However, the consumer who is attracted by price will be fickle and those benefits must be readily apparent and meaningful. The other problem with this approach is that price appeals tend to “commodify” products and services. Great pricing is a must but it can’t be the only benefit that the consumer perceives or the next great price from another provider may well lure them away.
Consumer clout or being a part of a true two way relationship is a benefit that credit unions are uniquely poised to be able to deliver. In fact, it is a large part of our heritage and success. This distinction is hard to communicate effectively but easy to demonstrate. Good brand promotion, together with top performance, is the key.
So, is PFI a meaningful concept? It is if it drives credit unions to continue to work hard for their members. On the other hand, is percentage of PFI status individually or collectively useful as a benchmark for measuring success? I don’t think so.