Finding a Competitive Edge in Your Own Backyard
Having a competitive advantage is the backbone of every successful enterprise, from Wall Street giants like JPMorganChase to the small-scale businesses like the two gentlemen selling coffee and donuts outside our office on Madison Avenue. It’s that one unique factor, product, or service that sets them apart from the competition, something that no one else can offer. This concept, however, presents a significant challenge for banks because their primary product – money – is completely commoditized. So, how can a bank gain a competitive advantage?
A bank’s product, by definition, is identical to others – money. It cannot offer a superior form of money than the bank next door. However, it can provide more favorable terms, superior customer service, or perhaps leverage its sheer size as a competitive advantage. Some banks even offer additional perks like toasters or other household appliances to attract clients. In essence, a bank must provide something beyond just the money to gain a competitive edge.
Some banks have found their competitive advantage by expanding into new markets or acquiring other banks to increase their deposits and scale. However, others are taking a different approach. As reported by Allissa Kline, banks like Citi, the nation’s third-largest bank, and Citizens Financial Group, the 17th, are capitalizing on their existing branch networks. They plan to tap into the potential of the communities where they currently operate, growing their business from within.
Citi plans to revamp its existing network of 650 U.S. branches, while Citizens is also modernizing its branches. Their focus is not on acquiring new clients but deepening relationships with existing customers and ensuring they provide the right coverage and scale. Of course, being the nation’s third-largest bank also serves as a significant competitive advantage for Citi.
AI and Competitive Advantage
Artificial Intelligence (AI) has disrupted many industries, including banking, potentially threatening their competitive advantage. One way for companies to maintain their relevance in the face of this new technology is to adopt it and integrate it within their existing systems. This tactic is especially applicable to software companies, as most people who use software do not fully understand it, making it easier for the company to incorporate new technologies.
Take FIS and Fiserv, for example, two companies that create software specifically for clients and then package and sell the software along with services. Banks are significant clients for these companies. Recently, both firms have introduced new AI-based products that work within their existing software offerings, according to Penny Crosman.
Earlier this year, there was concern about whether AI’s capabilities in coding could render companies like Fiserv redundant. If an AI chatbot could spin up programs in a day, would there still be a need for such companies? But this fear overlooks the complexities of risk management and industry understanding that companies like Fiserv and FIS provide. Rather than being threatened, these companies are incorporating AI into their offerings to stay competitive.
FIS, for example, has launched an AI bot designed to detect financial crimes, while Fiserv has released an AI-based operating system that works with its core and payments software. By maintaining a competitive advantage, these companies ensure their services remain indispensable to their clients, just like banks who build relationships through their branch network and competitive interest rates. In essence, every company, regardless of its size or industry, needs a competitive advantage to thrive.
Whether it’s a bank, a software company, or even the guys selling coffee and donuts on the corner, finding and leveraging a competitive advantage is key to business success. And sometimes, that advantage might just be right in your own backyard.
Source: Here
