The Long Tail of Banking
The Long Tail of Banking
The Brick-and-Mortar Effect
Historically, banks have had a brick-and-mortar distribution system: expensive branches, substantial overhead, and capital-intensive investments with a long path to ROI. Plus, each branch is geographically limited in its reach, rarely able to serve customers further than a radius of a few miles.
That means the banks had to generate a healthy volume of customers within that limited radius of service capability, so that the bank could generate enough revenue to support itself. Because the banks had to achieve a substantial market share within the general community, they had to position themselves accordingly: appealing to the masses. We call this need for broad appeal “The Brick-and-Mortar Effect.”
Online Banking and Direct Banking
When Online Banking was introduced in the late 1990’s, it gave banks a new, additional channel through which to reach its geographic radius, and reduce in-branch transactions. But it wasn’t until Internet-only direct banking was developed in the early 2000’s that banks were able to eliminate their geographic boundaries, and other brick-and-mortar limitations, completely. These direct banks, with their lower overhead costs, have been able to complete strongly on price, and have gained much traction in the rate wars.
Still, the traditional banking wisdom has remained: that it’s best to appeal to the masses to attempt attracting large volumes of customers.
Enter the Long Tail
Today, with the help of Nicheruptive, the concept of The Long Tail is ready to take its effect on the banking industry, allowing banks to profitably serve small groups of narrowly defined customers, finely segmented into groups with similar interests, passions and psychographic traits.
In summary, The Long Tail of Banking functions on the following equation:
Low-cost, reusable banking infrastructure
+ Infinite distribution capabilities via the Internet
+ The emergence of highly specialist communities of people
+ Consumer expectations that experiences will be tailored to individuals
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= The opportunity for highly specialized niche banks, with a very low break even point for profitability
