Perspective on Banking: Commodity or Not?

My long-time friend and some-time business partner, Bob, recently sent me a three-part series on the banking industry which appeared in the American Banker recently.

Contained in the third installment of the series was this passage,

"....Brand matters to bankers, even though many observers see banking as a commodity business.

"It's not like we are selling steel; there is a real customer interaction that occurs, both in the branch, on the Internet, over the phone," said Sallie Krawcheck, the chief financial officer of Citigroup Inc. "When you interact with the customer as often as a bank does on an issue that is as important as money, I don't think it is a commodity at all. There is real brand equity in the client experience of these financial services companies." "

I must say that I beg to differ. While branding may matter to bankers, it has historically rarely mattered to customers. Money may be important, but, then, so is oil or copper.

They are commodities, despite their occasional high prices and short supply. Money is no different.

Despite what Krawcheck would like to believe, money is a commodity, and so is credit. If it weren't, we wouldn't have interest rate competition among lenders during periods of healthy growth and credit demand. In fact, her company, Citigroup, is a prime example of how credit and financial services businesses are not well-branded.

Consider the chart on the left, from Yahoo, displaying Citigroup's stock price relative to the S&P500, for the past five years.

Doesn't look much like a branded goods purveyor with healthy growth and good margins, does it? Unless, of course, it only meets market expectations. However, I'd suggest that whatever Citi has been doing, isn't working.

And that probably includes Krawcheck's insistence that the company's basic product, money and forms thereof, is not a commodity. The whole point of money, credit, and tradeable financial products is to be commodities.

Most consumers resent having to pay and ask a bank for access to their own money. Credit is the one product they go begging for. But even there, in this era of oversupply of credit sources, consumers are more judicious, and less desperate, than they had to be in decades past.

No, I don't think financial services has done very well trying to make credit and money a branded, provider-unique product or service.