Disruption to community banks: And you thought an avalanche was disruptive

From a regulatory avalanche to outright disruption

“First there was a loud crack, and then the avalanche came—a 100-foot-wide wall of rock-hard snow….”

A witness describes an avalanche that killed seven just over a decade ago in Canada.

ABA avalanche of regulations in community banking
Download the full ABA guide for community banks: “An Avalanche of Regulation”

What does this have to do with my second year of attending the Missouri Bankers Association (MBA) “regulatory roundtable” in late summer?

Last year, Missouri Bankers Association CEO Max Cook gave an impassioned presentation on the regulation forced on community banks. He provided an infographic created by the American Bankers Association. It was compelling: the Avalanche of Regulation.

In just a few examples of its content:

  • The number of community banks in 1984 was 17,401. In 2013, only 6,146.
  • Nationwide, “almost one out of every five counties have no physical banking offices except those operated by community banks.”
  • And most concerning of them all: $31 trillion has moved to the less-regulated shadow system. That’s over three times the credit banks provide.

Cook said this avalanche of regulation is killing community banks.

Community banker's guide to bank regulation avalanche
Download “The Community Bank’s Guide to Surviving the Avalanche”

I was so moved by his presentation, I reached out to the ABA to request permission to share the infographic. We even created an Avalanche of Regulation survival guide.

If 2015 was the year of regulation, I believe 2016 has become the year of disruption.

Enter an era of disruption to community banks

It certainly was at the annual HYPE Bold Fusion young professional summit in Cincinnati. More than 900 twenty-somethings attended to hear five speakers address what it means to be an intrapreneur. Keynote speaker Chitra Anand and “Intrapreneurs” Ross Meyer, Valerie Jacobs, James Marable, and Tony Blankemeyer discussed their take on intrapreneurism: the act of behaving like an entrepreneur while working within a traditional organization.

HYPE Bold Fusion conference focused on business disruption

Let that settle in for a minute. An entrepreneur within the organizational construct. Does that mean the intrapreneur determines if he or she has a better way of doing things than your business already does them?

Yep. That’s what that means.

Sound disruptive?

It is. And we’re just getting started.

Think about the industries being affected by new ways of doing things.

In 2013, Blockbuster closed its last 300 stores. Netflix and others brought a new way to consume movies, eliminating the “middle man.”

In 2005, Proctor & Gamble purchased Gillette for $56 BILLION. The high margin disposable razor industry was an attractive market for the multinational consumer goods company. After all, their business is about shelf positions and facings. How else can you compete without those prized display locations?

You do what Unilever did….

You buy Dollar Shave Club for $55 BILLION less than what P&G paid for Gillette and avoid the “middle man” altogether. Today, mail order razors account for eight percent of the market. Not bad for an industry that didn’t exist five years ago.


Airbnb, Uber take on hotels and taxis.
Community banks, you’re next

Airbnb’s year-over-year growth was 113% compared to Marriott’s 8% and Wyndham’s 6% from ’14 to ’15. Airbnb started in 2010 and last year had 500,000 guests per day. Today, one of every 30 lodging units in the entire U.S. market is an Airbnb listing. Not too bad, considering the start-up were denied Silicon Valley investors when seeking $150,000 in 2008 for seed money. (These and more Airbnb stats)

Airbnb causes disruption for the hotel industry

Would you consider Airbnb’s reach growing 353 times what it was five years ago disruptive?

Oh, Airbnb also eliminates the “middle man.”

Any blog on disruption wouldn’t be complete without a take on Uber. Right?

To say Uber is doing well is an understatement. In 2013 its bookings were just under $700 million. Uber is projecting to do $26 BILLION in bookings in 2016. That’s a staggering 3,614% growth in JUST THREE YEARS!

Uber is a disruptor for taxi cab companies

Disruptive? You bet your bookings it is.

But there is another side to Uber’s success: What does Wall Street think?

Uber is still a “NFL” private company. By NFL I mean, Not For Long. Its valuation rests in the $63 BILLION range.

So what does Wall Street have to say?

Let’s take a look at Medallion Financial Corporation (MFIN). They provide financing to taxi companies. In 2013 their stock hit a high of $17.74. However, in 2012 Uber launched UberX. UberX gives an ordinary person with an ordinary car the ability to jump in the private car service business. Wall Street responded and MFIN’s stock price plummeted since that high in mid-2013. Today their stock hovers around $4.00. A 75-plus percent decline in just three years.

Disruptive? Umm, yes.

So is 2016 the year of disruption? Sure it is.

What can community banks do about it?

According to Tiffani Bova, former Gartner VP, distinguished analyst, and research fellow, and now SalesForce.com’s “global, customer growth, sales, and innovation evangelist” (a newly created positon—another disruption): customer experience is the next disruptor.

Here is what she said in a recent interview when asked What do you think are the top trends shaping the industry?

Looking at it from sales and growth specifically, the biggest trend right now is how important customer experience is in developing and supporting a brand and improving sales performance. The customer decides when and how they want to interact with brands, and this impacts the way companies sell to their customers. Big macro trends such as social, mobile, cloud, big data, and IoT help create different experiences, but ultimately the customer is becoming far more disruptive than the technology itself and shaping entirely new industries.

So there we have it; from razors, to hotels and auto service to community banking… disruption is everywhere.

Customer experience is the key to not just success, but survival.

If you don’t give the customer what they want, they just might eliminate you from the equation.

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