Beyond Primary: Relationship Banking's Big Problem

Hi there,

What if I told you that Primary Banking, as we know it, was dead?

Since the old days, the “gold standard” for growing a consumer banking businesses has been relationship banking.

Become the one institution a household primarily relies on. Win outsized share of wallet. Easy to understand. High ROI if you got it right. Primacy for the win.

The playbook was simple:

1. Deliver decent onboarding: Make it easy to walk into a bank and open a primary checking or savings account. Incentivize connecting that account to payroll, and get direct deposits every two weeks.

2. Create consistency: Provide seamless coverage across products with a skilled account manager and a good CRM (customer relationship management system). Cross-sell into higher margin products and services like credit cards and wealth management.

3. Remain relevant: As customers approach major milestones (Getting your first car? Buying a house? Saving for college?) put relevant offers and rewards in their path and cross-sell into a multi-line relationship.

Done right over time, you’ve increased loyalty, earned sticky deposits that provided a low-cost source of capital to grow a lending business, and transitioned a single account holder into primary banking relationship.

But, a few things have changed that are making it harder to predictably win “primacy.” Perhaps even more concerning for institutions, is the possibility that idea of primacy itself may be gone for good.

So what’s changed/changing?

Competition and fragmentation of deposits

A near-zero interest rate environment and explosive FinTech innovation created an unprecedented level of competitive pressure on every part of banking over the past 15 years. Almost overnight, consumers could send money faster, borrow more cheaply and — even with small balances — be offered superior interest rates just for opening up new deposit accounts. Ultimately, while most consumers did not move all of their money to challenger banks and digital wallets, a shift in willingness to have multiple relationships did occur. From new banks, to payment apps, to embedded finance players, consumers suddenly had lots of new places to stash deposits.

More informed consumers with real needs

I recently wrote about the rise of the “bionic consumer” in the context of the shifting power dynamic between providers of commodity services and their customers. One big takeaway was that it’s now easier than ever for customers to understand and optimize all of their purchasing decisions:

Do I have the right financial products (rate, reward, cost, service, values, etc) given what my needs are today?

The even bigger takeaway is that consumers will be able to passively optimize their financial lives; their AI money “agents” will hunt, compare, and analyze choices and changes in the market for them 24/7 across a huge set of factors and dimensions.

Better informed customers navigating a challenging economy will mean more demands on every provider and a greater portion of deposits up for grabs.

Open banking and money servers

As US regulators establish the particulars of what open banking will look like, one thing seems clear: much like in the UK, the advent of open data and seamless account-to-account (A2A) money movement will likely increase fragmentation and impact share of dollars kept in the “primary banking” relationship unless that provider is serving up the very best rates.

How?

1. Ease of A2A money movement
2. Rules-driven (aka algorithmic) money movement based on risk appetite, timing of different cash flow needs and yield

In the future your average family may break *all* of their money up into buckets they need to access over 15, 30, 60 and 90 days+, with AI “re-balancing” their money all the time to optimize.

Sounds a lot more like web servers than static financial deposits, doesn’t it?

While this future of an always on, always optimizing version of consumer banking might not be a reality tomorrow, it feels almost certain that financial institutions (FIs) of all sizes will no longer be able to rely on steady paychecks (we didn’t even touch the explosion of 1099 income) into a direct deposit account as a predictor of primacy.

So what, then? A new time calls for a new playbook.

Enter the  “Command Center” strategy: Become the very first place consumers turn to when they are even thinking about what to do with their money.

The Command Center strategy has a few key elements that banks will need to address:

• From walletshare to mindshare: Moving from simply being a payment method or a place to store money to being a trusted partner and co-pilot
• Lead with help: To be a partner, banks will need to create value in non-traditional, non-transactional parts of the journey. Don’t wait until a person is ready to buy a house to compete for their attention with rate and rewards… Give them tools and experiences to make and manage their long term buying plan.
• New kinds of partnership models: Consumers have a large and increasing number of FI relationships. Rather than try to get those consumers to switch completely in service of the traditional primary relationship, smart institutions will leverage their institutional platforms to convene partners and create robust experiences; capturing commercials even when they don’t fully own the journey end to end.

We’re all going to need to learn new tricks to serve tomorrow’s customers in a dynamic market with new rules:

“I didn't come here to tell you how this is going to end. I came here to tell you how it's going to begin.” - Neo

You ready?

Cheers,

Ron J Williams

Partner at Co-Created, Empire Startups Contributor

Contact our team to start a conversation!

I’m a partner at Co-Created, one of the few “venture builder” firms specializing in helping large organizations make big, strategic bets on building better futures (aka “good growth”). That means I spend a LOT of time thinking about how we deliver real value. Not just ideas, workshops, and decks full of theoretically sound recommendations, but real value. Real progress. Real outcomes.

In this rapidly changing world, the needs of companies, their customers and the world as a whole are shifting at warp speed, which means those of us who bring the “outside-in” must continue to evolve to meet corporate partners where they are at…with more than billable hours and advice.

How should we do that? Why do I think this way? Strap in…

(Easter egg at the bottom for music fans)

State of the advice business

Last weekend, I found myself with a rare hour alone (I have two little girls), engrossed in a Wall Street Journal article on the current state of management consulting. The headline: we are seeing a seismic shift in the industry. For the first time, leading firms are not just downsizing their workforce but are also parting ways with partners, a previously unheard-of practice. A 2022, a report cited that the management consulting market had grown to $973.67 billion in spend globally, reaching a fever pitch during the pandemic. So what changed in the last two years?

Rising interest rates, fears of looming recession, and an uncertain geopolitical climate has caused global enterprises to scale back investment in external “for-hire” expertise and change management. The environment is now very different from the record-setting years of early pandemic when large enterprises poured billions into consultant coffers to get help imagining transformation in an all-of-a-sudden remotely working, masked, terrified and economically dislocated world. Now, more companies are taking the reins themselves, increasingly choosing to internalize the monumental tasks of envisioning their futures and driving transformation.

This shift reaffirms a long-held belief of mine that the management consulting role and business model are rooted in a bygone era: One in which the pace of change in business was slower. Before software began “eating the world” and the information revolution brought us not just the world’s information in our pockets (thanks internet, qualcomm, apple, google) but now the means to critically analyze that information in seconds (thanks AI).

Management consulting’s core value proposition historically was about professionalizing ‘management’ itself: 1) helping good leaders consistently make great decisions in service of shareholder value and 2) managing complexity through rigorous research, analysis, and benchmarking to well-understood standards. The best do it so very well. And truly, some of the brightest and most successful executives I’ve encountered in business are former consultants.

The consultants aren't the problem. The model is.

The management consulting model is at its best when change can be easily dimensioned and predicted, based on historical precedent. But the accelerating pace of disruption over the last 30 years has demonstrated that exponential change from novel sources is impossible to accurately predict from the safety of your desk. Advice based on models does not cut it. You have to get your hands dirty building the future to really understand the future.

💡When access to expertise and critical analysis was hard to come by, establishing and standardizing frameworks that could then be packaged with advisory was brisk business.

💡So was becoming the trusted partner for optimization and financial engineering that signaled professional management, efficiency and fiscal responsibility. The street loved it all.

However, as the world adjusts to a pace of change that only continues to accelerate, the traditional consulting model of dispassionate, research-based opinion falls short. Why?

Because at some point providing opinions without having "skin in the game" or direct accountability for execution and the long-term success of the organization, leaves the "client" short.

In a breakfast of bacon and eggs, the chicken is involved but the pig is committed.

Tell me something I don't know

A former colleague at a large company once said to me that consultants are paid millions “to take your watch and tell you the time.” More generously IMO, management consultants often serve as highly effective tiebreakers, lending their reputation and brand weight to confirming what clients may already suspect, rather than challenging clients to explore less familiar, riskier, unventured paths.

This all hit home for me and our work at Co-Created when a corporate partner, who genuinely valued our collaboration, referred to us as "the best consultants" they had ever worked with. Great vibes to be sure, and yet I found myself internally stuck on the label. Consultants. Who, me? Us?

That moment led me to explore what truly differentiates a partner from a consultant. We at Co-Created consider ourselves “partners,” and “operators,” not consultants. Why? Because partnership is not about delivering a presentation and walking away; it's about ownership of outcomes, about being as invested in the success of an initiative as our clients are. It's about rolling up sleeves and doing the doing—opportunity identifying, venture building, growth fostering, co-creating—activities that go beyond advice and counsel. It’s getting in the trenches at all levels of the organization; digging in with the business leads, testing with marketers, building alongside the PMs, not just behind closed doors in the boardroom. We embrace risk, we innovate, we deliver—not just once, but repeatedly, iterating beyond the initial idea to truly meet the market and its real-world complexities arm-in-arm with our corporate partners.

Why "Partner" mindset?

We believe our role is to de-risk the future for our partners, transforming the first good idea into an even better reality through rapid experimentation and testing in the market. Our work with leading organizations across industries goes beyond advisory to actively participating in the creation and operationalization of real-world offerings;  often paving the way for these solutions to be internalized, built, and launched at enterprise scale by our partners.

Co-Created is composed of founders, operators, and builders who understand the gravity of taking risks for long-term growth and are willing to build that future alongside our partners. Our commitment is to not just predict but to actively shape the outcomes alongside our partners. In this rapidly evolving business landscape, our mission is to help companies boldly build better futures - delivering value beyond this quarter’s earnings call.

We don’t simply sell advice or time. We de-risk. We develop. We deliver. Beyond the deck. We value learning through experimentation, focusing on the right problems and moving fast because we know the only way to navigate uncertainty is to do.

So for those of you who maybe aren't familiar with how we use venture building to unlock impactful new growth and then double down, reach out. Always happy to chat.

For now let me quote the inimitable Jay Z:

Allow me to reintroduce myself.

My name is Ron J Williams, partner at Co-Created, and we are not consultants.

Reach out to start a conversation.

I came across a fantastic twitter thread about fully automating personal finances leveraging GenAi and I paused. While applying AI to to finances may seem like a simple extension of long building fintech trends, I see some bigger implications: specifically three intersecting themes that may permanently change the relationship between tech-enabled customers and the companies seeking to serve them.

Better-informed customer, with nearly free access to limitless analytical power (not just search but *summary and synthesis*) and the ability to automate previously un-automatable tasks (like drafting legal-sounding documents to get money back from providers) is a game changer. Customers will know more, expect more, and be able to seamlessly change providers.

We’ve never before seen this level of customer empowerment in the history of capitalism and companies are not ready.

So how should businesses think about what's coming?

📈 1. Rise of the informed customer: Faster & Smarter

Your customers know more today than they did yesterday. More about their fitness, their relationships, their screen time, their money, and even that new bop on Spotify (thanks AI DJ X!); and they’re putting this knowledge to use. What’s more, anything they don't understand is only a google search, social post, swipe on their For You Page or ChatGPT prompt away.

This means even before they’re paying customers, consumers are also getting better at understanding how effective your business is at serving them and their community. They're beginning to see how you (and your competitors) make, spend and invest money plus how much value you pass on to them; which in turn tells them whether or not they should be (or continue to be) your customer.

Companies will have a harder time hiding behind fees and recurring subscriptions they hope people forget about. In fact consider this: "Hidden" penalties & fees will no longer be able to hide. Hard-to-understand fine print with unfair terms will be dragged into the daylight, dissected on hashtag#finTOK and amplified into the ether.

🧠 2. Decision Support for all: a.k.a. Kayak and Credit Karma for everything

The internet + AI leveraging Large Language Models to distill the world's knowledge into well-summarized, synthesized information = highly actionable, super-optimized recommendations for all of us.

Remember what it was like to buy plane tickets in ye days of olde when there was no incentive for carriers to share details on pricing anywhere except in channels they controlled?

Remember trying to figure out different ways to fly somewhere while staying within a budget? Kayak changed that. Not only for the customer but also, by looping search and purchase intent back for carriers and hospitality; creating new ways to compete more dynamically for customer dollars. In so doing, they changed expectations around the table and ushered in a new era of customer choice.

We've watched something similar begin to happen in consumer finance with personal finance management apps ("PFMs") entering the market en masse to assist with everything from budgets to tracking subscriptions to automating savings via "Round Ups".

Certainly better than being on your own with no plan but still too much work. Like paper maps.

And then over the past couple of years we started to see upgrades. Tools sitting across multiple accounts, aggregating and analyzing everything together at a high level; updating you in real time for changing conditions (i.e. changes in income, daily spend, etc). Definitely better than paper maps to help you get to the location you specified…but nothing helping you figure out if you’ve even picked the right destination and then making a plan.

In 5 more years I suspect we’ll look back at those very same personal finance apps and think of their aggregation and clunky tagging of expenses as quaint. Moreover, we’ll realize they weren’t doing the real job: protecting us from bad decisions and helping make better plans. We’ll chuckle at the fact that even with all those all tools consumers still used to blindly sign credit card, rental car and lease agreements without understanding the fine print; or reflecting on how the average customer used to negotiate with businesses and fight through customer support all on their own.

Being able to look across millions of documents, billions of clauses, and thousands of transactions in order to optimize for specific personal goals (and ways to achieve them) is not something the average customer can do. In contrast, AI-enhanced bionic customers will be able to see the Matrix of possibilities and easily answer questions like:

• "Which subscriptions should I keep given my usage and overall expenses?"
• "When and what should I sell if I need a down payment in 18 months?"
• “What percentage of my assets should I hold in cash and stock for the next 12 months based on our current household spend and how should I spread it around to maximize for safety?”
• “Should we stay in the city or move to the ‘burbs given the age of kids and the current job market??”

They will make better choices all day, every day. And many businesses will lose customers in droves, until they adapt.

Understanding patterns at scale to map optimal strategic personal choices will be a game changer in the power dynamic between customers and providers.

The result: For financial institutions, insurance providers and any industry with very little differentiation at the product level (i.e. a checking accounts is a checking account) companies will be auditioning for their roles every single day, 24 hours a day. Understanding, aligning, and evolving with your customers will become your best competitive advantage. This will look like differentiated services and experiences that haven't even been imagined yet.

🤖 3. Time for some action: Data + Optimized choices + Automation = 🤯

If "Decision Support for all" is about helping customers understand and make complex choices, this last trend is about overcoming the Action Gap -  the distance between what you should do and what you actually do to follow through.

Action Gap = the distance between what you should do and what you actually do to follow through

Today a customer may intend to dump you for another company with better rates, or spread their deposits around based on something they heard or read about FDIC. But the amount of friction involved in fully researching competitors, calling customer service to switch accounts, or retaining counsel to claw back an erroneous charge might just feel like too much. So they forget about it and move on.

Decision support services will take the next big jump beyond showing you your choices to acting on those choices on your behalf. When they do, that action gap will go to zero...for everyone.

Slowly at first but as regulatory pressure on big banks and big tech increases requirements for making customer data portable AND usable, there will be a big shift in not only what AI is allowed to read (i.e. analyze) but also write to (i.e. take actions like moving money).

AI-enabled “analysis and action” automation will guide customers through their interactions with most providers in near real-time overseeing basic functions like where to keep money across all accounts; asking for input only when faced with higher stakes or unfamiliar patterns.

It’ll make day-to-day financial management blissfully boring for most people…and be a huge challenge for institutions stuck in the slow-moving past of dissatisfied customers staying put because of inertia.

The result will be like a Level 5 self-driving EV that can sense when you need to take over before you do...but for your money.

What might that look like? Maybe Wealthfront. Maybe SpendFriend.AI.

In a world where AI knows stuff like:

• Literally ALL of the very best rates across checking, savings, CDs and other short term debt instruments
• Your cashflow patterns and risk tolerance
• Your desire to buy a home within the next 24 months (but lack of a plan)

……your money will drive itself and tell YOU where to go.

Your deposits will flow seamlessly from one account to another optimizing for the right combo of time-based availability and risk-adjusted returns. You’ll never again let a company that overcharged you keep that $20 just because you're too busy to sit on a call for 30 minutes. You won’t even be the one calling. Your AI will handle it for you.

Most businesses will need to reconsider drivers of long term growth to address this empowered, bionic customers who sees right through them and expects more.

Final Thoughts and a challenge question

How will smart businesses cultivate loyalty in an infinitely optimizing world of bionic customers? I believe they will:

• Start to focus on a new kind of “command center” strategies (i.e. be the starting point in a customer journey)
• Lean into building trust via radical transparency around data and business models
• Prioritize customer success and advocacy for customers (which will require knowing a lot more about what they really need...and committing to actually serving them)

And that's just the beginning...

This may be the biggest shift of power in the customer-provider dynamic we’re going to see in our lifetime.

What are you doing to get ready for the Bionic Customer? What experiments are you running? What are you learning?

Tell me what you think. Push back. Share examples of how this is playing out in your world.

If this is particularly interesting to you, drop me a note. I’ve spent years in this problem space and am always happy to chat about what we’re seeing in our work at Co-Created helping organizations figure out bolder, better futures.

Link to original twitter thread