Being boring

Financial marketers should resist the urge to be cool.

I hope you slept well. One thing’s for sure, you and I have had more rest this weekend than UBS and Credit Suisse board members, not to mention the poor soul in charge of Blackrock’s social media.

Read on to learn why:

① Banking should be boring.

② Your customers want to have their heart appealed to as well as their head.

③ Regulators now need to address the risks from rising interest rates.

④ Banks should be readying their own digital currencies to coexist with CBDCs.

⑤ All marketing should be human to human.

⑥ If you see a bandwagon, it’s too late.

⑦ Britain hasn’t benefitted from Brexit.

What's new

Oceans of ink have been spilt this week trying to explain what went wrong at Silicon Valley Bank (spoiler: it had nothing to do with being woke) but the take that caught my eye was Anne-Sylvaine Chassany’s in the FT.

Source: The Financial Times, 17 March 2023

① In short:

“Bankers can be many things but can they ever be ‘cool’? The fact that Silicon Valley Bank boss Greg Becker sought to portray himself and his now defunct bank as such should perhaps have been a red flag for the tech community it was serving, as well as for regulators. Indeed the concept of cool seems very remote to banking, at base an intermediary business that transforms deposits into loans.”
“SVB’s pitch led to a structural business model problem. Its client base — which was concentrated among companies or entrepreneurs typically with large deposits — was always higher risk in a bank run than a diversified bunch of retail customers. Meanwhile the lending side of SVB’s strategy — the money making part of it — had some related problems. The bank did not have a lot of leverage to impose higher rates on its borrowers, partly because it relied on them so much for their deposits. Neither was it well-positioned to lend to other industries, given its focus on one single ecosystem.”
“Another problem was that the bank overlooked the important but boring job of risk management. At a time of low rates, its decision to invest in long-dated held-to maturity securities to boost profit was not irrational. But a more anxious and less cool bank might have paid more attention to the mismatch risk on the balance sheet. They could have used swaps to hedge the portfolio against higher interest rates, or invested in more suitable securities, a former European bank executive remarked.”

Why it matters

SVB carved out a successful niche for itself. It quite deliberately differentiated itself from traditional banks by - for the best part of 40 years - courting an audience of West Coast venture capital fund managers and start-ups that other lenders had eschewed. It did so not only by being less risk adverse than most but also by marketing itself as culturally more like its clients than its competitors. And it worked. SVB grew faster than any of its competitors.

Fast forward to 2023 and this story matters because it reminds anyone responsible for growing a financial services business that standing out from the pack can be dangerous if it’s done on the wrong measure. Being ‘cool’ is not how you run a bank. Boring is safe. Boring is good.

This is a tough lesson for marketing folk to learn. It’s in our nature to want to differentiate our product from others. The question we’re left with then is, how should we attract customers? As you’ll read in Top Stories 👇🏻 this week, even in B2B, it’s not all about appealing to the head - the heart has to be wooed too.

What to do about it

Take action

② Your customers’ heads will want to know you can help them grow revenue/wealth, mitigate risk or cut costs. The problem for your marketing team is that all you competitors will likely be ticking those boxes too. So what of the heart? That’s where this is an opportunity to differentiate yourself - just not by being ‘cool’, okay? Instead, consider more valiant attributes:

Be green: It’s somewhat overdone now but that’s because there’s still huge demand for it - customers flock to firms that can demonstrate their ESG credentials. Doing good is good for business.
Be friendly: Brands like Monzo and Starling have distinguished themselves from established banks by breaking down formalities, being pragmatic, and generally going out of their way to help.
Be luxurious: Metal cards, Mayfair offices, Madonna tickets - some brands know how to make their customers feel rarefied.

Get help

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Top stories

The other articles that are worthy of your time.

FINANCE

What’s wrong with the banks

③ Regulators now need to address the risks from rising interest rates.

“The high-speed collapse of SVB has cast light on an underappreciated risk within the system. When interest rates were low and asset prices high the Californian bank loaded up on long-term bonds. Then the Fed raised rates at its sharpest pace in four decades, bond prices plunged and the bank was left with huge losses.”
“You might think that unrealised losses don’t matter. One problem is that the bank has bought the bond with someone else’s money, usually a deposit. Holding a bond to maturity requires matching it with deposits and as rates rise, competition for deposits increases. At the largest banks, like JPMorgan Chase or Bank of America, customers are sticky so rising rates tend to boost their earnings, thanks to floating-rate loans. By contrast, the roughly 4,700 small and mid-sized banks with total assets of $10.5trn have to pay depositors more to stop them taking out their money. That squeezes their margins—which helps explain why some banks’ stock prices have plunged.”
“The other problem affects banks of all sizes. In a crisis once-loyal depositors could flee, forcing the bank to cover deposit outflows by selling assets. If so, the bank’s losses would crystallise. Its capital cushion might look comforting today, but most of its stuffing would suddenly become an accounting fiction.”

TECHNOLOGY

Standard Bank CEO worries retail CBDC could be unfair competition

④ Banks should be readying their own digital currencies to coexist with CBDCs.

“On Thursday, Standard Bank’s chief executive Sim Tshabalala expressed broad support for central bank digital currencies but argued that a retail option could result in unfair competition.”
“‘The key question is whether the retail banking arm of the public sector is subject to the same kinds and levels of regulation as its private sector competitors,’ he said. ‘If so, then all is well. If not, then calling it a CBDC rather than a state-owned retail bank does nothing to mitigate the risk and moral hazards that an unfairly regulated institution could introduce into the financial system’.”
“Mr. Tshabalala moderated his position by arguing that retail CBDCs have an important role to play in society, for example, by helping to enhance financial inclusion and fight tax evasion and other financial crimes. He did not mention that consumers are aware of the tax evasion angle, which could be a drag on CBDC adoption.”

MEDIA & MARKETING

What do your B2B customers really want?

⑤ All marketing should be human to human.

Source: Harvard Business Review, 16 March 2023

“B2B sellers often think of customers as rational decision-makers who seek to maximize value, reduce costs, and save time. But a study of 2,128 office workers across the United States, the United Kingdom, France, Germany, Spain, and Italy found that B2B customers prefer interactions that fuel their psychological needs — even if they require more time or cost more money.
“Viewing customer service through the prism of the three core psychological needs — autonomy, relatedness, and mastery — opens up a wealth of opportunities for elevating service.”
“Customers prefer choice over problem-solving, human connections over speed, and growth over a quick fix. So, to fuel autonomy, don’t fix — collaborate; to fuel relatedness, connect intelligently; empathise sparingly; and to fuel mastery, grow your clients’ skills.”

WILDCARD

‘Metaverse’ themed co-working space opens

⑥ If you see a bandwagon, it’s too late.

“A new co-working space has today launched in Oxford Street which will be themed around the ‘metaverse’ and help to bring creatives and investors into one space.”
“It features bespoke demo spaces that will allow companies involved in the development of the metaverse to ‘trial new technologies and products, while an NFT gallery will allow global artists to showcase their work’.”
“Gabriela Hersham, co-founder and chief executive Huckletree said: ‘Huckletree has always been at the forefront of the future of the workplace. Web3, and the metaverse are already present across our everyday lives and bringing companies together in the heart of London will allow them to adapt quickly to the evolving landscape’.”

Off cuts

The stories that almost made this week’s newsletter.

The last word

⑦ Michael Heseltine, over lunch with the FT, on Brexit:

Michael Heseltine. Source: The Financial Times, 17 March 2023

“The whole thing was a lie. The unforgivable thing about Brexit is that it was all phrases without any evidence, without any idea how to turn those phrases into actions.”

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Wishing you a productive week,

P.S. Are you old enough to miss your BlackBerry? You’ll want to watch this: