Niche Banking: The Cure for Financial Stress?

"Through a focus on a niche market, you have the ability to go deep when the vast majority of other brands have historically gone wide in market positioning.”  -James Robert Lay

Most of us feel stressed about money. You might say it's the common problem of the common people. So what can be done about it?

Niche banks are swooping in to become the heroes of the financial world. They fill a desperate need for financial literacy, credit assistance, and stress reduction. Picture a future where these niche brands are like economic superheroes, helping struggling people finally resolve their most pressing money problems. 

Common People, Common Pain

Niche banking is an emerging trend that’s predicted to grow significantly in the next 3 to 5 years. It presents a world of new opportunities for community banks and credit unions that are wondering what the future holds.

A podcast listener wrote in with the following question. "As credit unions and community banks seek to spin off new niche banking products or brands, what should we be thinking about at our organization?" This listener also asks, "How should we go about finding and validating a viable market segment? Should we start by looking for niche needs in our own customer base or should we be using market research to look outside?"

Related Content: Niche Is the New Local

These excellent questions are exactly what bank executives around the world should be asking themselves right now. Credit unions, community banks, and even fintechs are wondering how to “go niche” and begin to serve certain specific slices of the total audience.

Here’s how to start:

Look for the pain.

Start by identifying common problems that are causing pain for ordinary people out there in the world. The Digital Growth Institute teaches the acronym ALL for “going ALL in.” Here’s how ALL breaks down into a framework you can use to gain a deeper understanding of an issue like niche banking.

• A - Ask good questions that go beyond the obvious.
• L - Listen to what people are saying - and notice what they’re not saying.
• L - Learn through observing individuals’ behaviors.

When you go ALL in, you begin to see why focus groups are a waste of time. People think and act differently from how they say they think and act. In a focus group, someone will tell you they do one thing … then wake up the next morning and actually do something completely different. Instead, ALL reminds us of the power of observational research.

Getting back to the listener’s question, this means when you’re looking for a new customer set, your research can start internally by going ALL in with your existing customer groups. Look within your member/customer base and observe the daily pain points your customers are experiencing. 

Related Content: How Effective Are Focus Groups in Digital Marketing Strategy?

But it’s just as important to consider where your company’s future growth will come from. It’s probably not within your backyard pond, where you’re continually fishing for the same customers. Maybe your pond is overfished and it’s time to explore other ponds, lakes, and big blue oceans around the world.

Remember, today’s consumers are living in a fully digital space that comes with a new definition of community. Community goes beyond ZIP code and geographic boundaries. People now align behind shared interests, values, and aspirations.

Slapping On a New Label

Another listener writes in to say, “I would imagine starting a niche bank or banking solution is more than just about basic products with a new label slapped on it. Why must my leadership team truly understand the market and then offer unique products that specifically meet those needs?" 

Related Content: Legacy Infrastructure Is Holding Your Financial Brand Back

Indeed, niche banking isn’t about pasting a new label on the same old products. When you just slap a new label on a niche banking solution, you’re putting lipstick on a pig.

It requires a transformation in thinking.

Your team’s banking executives have a huge amount of historic knowledge but this comes with a legacy mindset. When they’re stuck thinking about how we’ve always done it, this mindset itself impedes growth.

Your legacy thinkers can experience personal transformations through training, education, and a resetting of expectations. They’re highly-talented people aching for direction when it comes to learning about fintech and niche banking. Take time to educate them!

Why Mindset Trumps Technology

Another listener asked, "What sort of technologies do we need when starting a niche bank or niche banking product?" 

Technology is a rabbit hole you can get lost in for hours. But as a discussion point, mindset trumps technology because technology is merely the tool to transform our customers’ lives. The organizational mindset is more important in terms of solving the common pain points of common people.

Related Content: Technology Shouldn’t be the Focus for Transforming Your Financial Brand

There’s an abundance of technology available to solve problems after you identify them. Broadly speaking, three issues transcend all niches, communities, and institutions. More than 20 years of research and 1,500 digital secret shopping studies show that all people want three things:

• Health - They want to feel physically healthy and emotionally stable.
• Wealth - They want to stop worrying about having enough money to solve problems.
• Happiness - They want their state of well-being to result in happiness.

Financial brands and fintechs are in the perfect position to make a positive impact here. Multiple studies show the correlation between a person’s physical well-being and financial status. Health, wealth, and happiness are all interconnected, so if you can impact someone’s wallet you can transform their life.

One of the greatest opportunities is through financial coaching. People need insight beyond the commoditized mobile banking every bank offers.

Coaching allows people to make progress on the habits that are deeply rooted within their belief systems and personal relationships.

Do Niches Need Experts?

The last question for today comes from a smart listener who asks, "What about talent? Would you say there needs to be some internal personal connection or someone in the community that identifies with these market segments as an expert?"

This excellent question highlights one of the biggest challenges of connecting with specific audience segments like doctors, musicians, or anyone else with highly specialized knowledge. How does your organization learn to speak the language? Do you need to have an expert on staff?

The short answer is: Yes. You need to attract talent from the niche market you’re trying to reach. Make sure you’re working with people who genuinely have knowledge and passion for the topic, then build a brand around these experts’ knowledge and expertise.

It’s called value creation. You’re creating value for consumers who tend to buy from businesses within a certain niche market. Meanwhile, you’re becoming a thought leader in the field.

As you establish relationships with your niche audience customers, valuable information is now being shared back and forth. This gives you a footprint in the marketplace and sets you apart from the laundry list of lookalike financial businesses in your field.

Envisioning The Future of Niche Banking

In the future, niche banking will probably look a lot like boutique digital shopping. Boutique brands will cater to specific niches of customers, maintaining strong connections through highly personalized services.

Remember, seeing things differently allows you to think differently. But just because you think differently doesn’t mean you’ll act differently. Acting on a fresh, new perspective takes time, resources, effort, and habit-building.

The future might seem murky and chaotic, but watch out for those scrappy niche financial brands. They’re already surviving and thriving in a digital sea of sameness.