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Financial institutions began catching on to loyalty programs a couple of decades ago. Now they’re so common­place that “loyalty program” is part of everyday speech. Banks can even advertise with headlines like “Join our loyalty program” without fear that consumers will say, “Join your what now?”

But I submit that loyalty programs don’t create loyalty.

Most loyalty programs award points toward freebies and privileges. The digital age has made them a cinch to manage by automating accounting and obviating membership cards. Of course, that’s a two-edged sword. When a program is too effortless, it’s easy to forget you’re  in it.

But that’s not why I said loyalty programs don’t create loyalty. I said it because frequency, which they can create,* isn’t the same thing.

Frequency vs. loyalty

Frequency doesn’t mean loyalty. It’s not even a measure of loyalty. Loyalty is altogether something else.

To illustrate the difference, here’s an experiment you can try on your own, provided you have no regard for your personal safety. Simply do one of the following:

• Tell a Harley owner that BMW makes a better motorcycle.
• Tell a Steinway artist that Kawaii grand pianos are just as good.
• Tell an iOS devotee that AOS is better, or an AOS devotee that iOS is better.
• Tell a deli owner to substitute generic mayo for Hellman’s.
• Tell a person in Guess jeans that Wranglers would look better.
• Tell a Broncos fan to cheer for any other football team.

Chances are you’ll get a reaction that falls somewhere between, if you’re lucky, mocking disdain and, if you’re not, outright violence inflicted upon your person. That’s because there are some brands whose customers you just can’t drag away.

That is loyalty. And it wasn’t created by handing out points.

I must now bring up what isn’t on the above list or any list like it. A financial institution. I have to wonder why the heck not.

Don’t tell me it’s because all financial institutions deal with dollars, and that one dollar is like any other dollar. It is equally true, or nearly so, that a motorcycle is a motorcycle, a smartphone is a smartphone, and jeans are jeans. To be sure, the above are quality products, but building wild-horses-couldn’t-drag-’em-away loyalty takes more. By “more,” I refer to an unbeatable, overall experience. The kind that customers latch onto and cannot find, or believe they cannot find, anywhere else.

Don’t get me wrong. Short of loyalty, frequency is a pretty danged good second best, so I’m all for points programs. It’s just that I am also for not stopping there. The financial institution that delivers an unusual, relevant, substantive, positive experience will do more than increase adoption and frequency. It will produce bona fide loyalty.

The goal isn’t just to be different. That’s why banks haven’t had much luck trying to set themselves apart with contrivances, such as designing lobbies that don’t look like lobbies and calling tellers something cooler than “tellers.”

The goal is to be the kind of different that actually matters to customers.

I’m not saying it’s easy. Even less easy is being the first in your vertical to pull it off. But then, that’s why there’s only one Harley-Davidson.

Amid talk of changes wrought by digital banking, the media consistently overlook a centuries-old, venerated industry whose demise could put thousands out of work. Will no one speak up for the noble counterfeiter?

Counterfeiting was inevitable from the moment currency was invented. As early as the fourth century BCE, nogoodniks in Mesopotamia were counterfeiting clay tokens. In 17^th century England, the Royal Mint employed no less than Isaac Newton—yes, that Isaac Newton—to bust counterfeiters. It appears that chasing down “the most notorious counterfeiter of his day” proved to Newton but a trifling challenge compared with chasing down the laws of motion.

It’s no exaggeration to call counterfeiting an industry. There’s the cottage industry side, where homebodies use ink-jet and laser printers to turn one-dollar bills into ten-dollar bills. Surprisingly, these low-quality forgeries have legs. According to Bloomberg as quoted by The Atlantic, the U.S. Secret Service reported that in 2013 “… nearly 60 percent of the $88.7 million in counterfeit currency recovered in the U.S. was created using inkjet or laser printers.”

There’s the big industry side, too. Take, for example, a not-unusual operation in Peru employing skilled teams of up to twelve at a time to crank out tens of millions in fake U.S. $100 bills. They take pride in their work, using quality presses, expensive paper, and a variety of inks. They even hand-weave polyester threads into the bills. Their product fools most counterfeit detecting equipment, with the fortunate exception of bank-owned sorters.

The occasional bungler provides a degree of comic relief. One fine morning in 1991, employees of Graphic Reproductions, a large Salt Lake City printing company not far from my home, arrived at work to find windows papered over and presses dripping green and black ink. An astute worker called the Secret Service. Owners William A. Schraegle and Ronald P. Miller mounted an interesting defense at trial. Surely, they argued, the state didn’t think they intended to spend the five million in bogus bills they’d printed. They did it merely, they claimed, for the “professional challenge” and had “no plans to actually use the money.” Hard to imagine, but the Secret Service didn’t buy it. Still, U.S. District Judge Bruce Jenkins was lenient. He sentenced Schraegle and Miller to, respectively, 36- and 33-month prison terms and, incredibly, fined them just $5,000 apiece—about a tenth of a percent of what they’d printed.

Given the investment and risk of counterfeiting paper currency, you’d think the bad guys would have a heyday counterfeiting digital currency. Just imagine the reduced overhead—no warehouse, no presses, no paper, no ink, no having to weave in polyester threads, and no smugglers. All you’d need is a laptop and a hacker.

Or so it would seem, until you take a closer look.

One of digital currency’s strengths is that it leaves a trail of credits and debits on myriad computers throughout the world. You might get away with hacking one computer, but hacking all of them is pretty much impossible. Right now, anyhow. Even cryptocurrency the likes of Bitcoin appears impervious.

But take heart, would-be digital forgers. News of Bitcoin’s meteoric rise has spawned a new opportunity, namely, the marriage of cryptocurrency with Ponzi schemes. There is, however, a downside. Folks who try it end up in jail.

It’s getting to the point where earning money the old fashioned way is looking more and more attractive.

TRUE STORY: A local business owner recently pulled up to an ATM only to be greeted by an out-of-order sign. Cursing his luck, he was about to speed off in search of another ATM when at the last minute a solution occurred to him. On other side of the wall holding up the ATM was a branch of his bank. He had all but forgotten that he could conduct transactions inside.

Victim of our own success

For years banks did their best to move clients away from the teller line. Bank-by-mail, telephone banking, ATMs, and now digital banking—all were great ways for banks to cut costs of personnel and bricks.

The good news is that it seems to have worked. The services people are comfortable handling on their portable devices boggles the mind. They check balances, view transactions, make intra- and inter-bank transfers, make loan payments, pay bills, make purchases, open accounts, deposit checks, apply for loans, download statements, view check images, search transactions, view statements, invest, apply credit cards, make credit card payments, download data to the likes of Quicken and Quickbooks, text money, split checks at restaurants, and more.

By contrast, the list of transactions you can’t do online is short. You can’t deposit currency online, tuck a digital dollar into a birthday card, or print currency. (Not legally, anyway.) And there will always be certain high-level commercial transactions that demand face-to-face meetings.

The bad news is also that it seems to have worked. Now that it’s possible to conduct the majority of financial transactions via portable devices, it’s equally possible to forget how to do things the old-fashioned way. This has led to a good deal of speculation about the eventual fate of buildings known as “banks.”

Fueling the speculation fire are reports that over the next two years Wells Fargo plans to close 900 branches. Earlier today Finextra reported:

As it books a $3.25 billion fourth quarter pre-tax charge related to the misselling scandal, Wells Fargo says it plans to make savings by closing around 900 branches by 2020.

That’s inflation for you. Ten days ago, CNN Money had it at just 800 branches.

Kodak or Blockbuster moment

As early as 2013, Forbes contributor Tom Groenfeldt questioned the continued need for banks. Reporting on Money2020 in Las Vegas and SWIFT’s Sibos international banking conference in Dubai, Groenfeldt bluntly observed:

I concluded that like the dog that didn’t bark, the absence of persuasive arguments for banks was in itself interesting.

I’ve listened to banks proposing to act as trusted intermediaries between individual buyers and sellers … and wondered if they had ever heard of Craigslist or eBay. Why would buyers and sellers register with a bank to accomplish transactions they can do fairly well through existing platforms?  Others have talked about providing guidance in purchasing consumer goods—something Amazon, for one, already does well.

Last summer, Bloomberg Businessweek quoted former Barclays Chief Executive Officer Antony Jenkins’s prediction that banks …

… could face a “Kodak moment” where they approach obsolescence in five to 15 years at the hands of new financial-technology companies.

Jenkins followed up with another analogy in an interview with CNBC:

Bank branches will be “as common as a Blockbuster video store in a few years’ time,” former Barclays CEO Antony Jenkins told CNBC on Monday, adding that his prediction about mass closures of physical banks is happening faster than he thought.

Jenkins, who now runs a fintech (financial technology) firm called 10X, warned banks of the impact of not keeping up with technological innovation. The ex-Barclays boss, who left the bank in July 2015, said artificial intelligence (AI) will have a profound impact on banking that could mean branches become obsolete.

The first item in GOBankingRates.com’s article “6 Banking Services That Will Be Obsolete in 10 Years” happens to be “bank branches and bank tellers.” And in 2015 ZeroHedge all but gleefully cheered, “And The Good News: Banks Will Be Obsolete Within 10 Years.”

Too soon to despair, not too soon to take heed

But hang on. A building is a feature. The benefit banks deliver is the ability to manage funds.

True, the more people use their portables, the greater the risk they’ll credit their portables rather than the financial institutions underlying their apps. It’s imperative not to let that happen.

Yet the move to digital banking presents an opportunity. People check in with their banks far more often on their portables than they ever did with their feet. Every check-in is a contact, and every contact is an opportunity to build the relationship.

Just as other online businesses pull off solid brands and relationships—like Amazon, iTunes, or or now Bebe, which last year threw in the physical plant towel to become an online-only merchant—so can banks.* If a bank slips into utility status, it will not have been inevitable but the result of failure to seize those frequent contact opportunities.

Relationships have always distinguished banks from parity products and, worse, mere utilities. The move to digital banking may threaten the distinction—but threaten needn’t mean obliterate.

________________________

* For insights on how banks can build strong digital brands, see my posts here, here, here, here, and here.

It had to happen sooner or later. “No cash accepted” signs are popping up.

Not long ago, CBS News Moneywatch reported that …

… increasing numbers of restaurants and retailers are now snubbing the lowly dollar bill.

Some merchants such as SweetGreen, a salad chain, refuse to open their registers for cash, telling customers they can pay only with mobile payments or cards. With some newer vending machines, only a card or mobile wallet will get that cold Coca-Cola to roll down the chute.

For many merchants, the benefits of accepting only plastics and digital payment more than compensate for interchange fees. No cash on hand means no worries about holdups, short change artists, pilfering employees, or opportunists grabbing cash from an open till. It makes tracking inventory a snap. It speeds transactions, since cashiers needn’t take time to count out change. It also alleviates the problem of employees who can’t figure out how to count out change, a solid merchant benefit even if it doesn’t speak well for the rising generation’s math skills.

But … is not accepting cash legal?

Since every U.S. bill says, “This note is legal tender for all debts, private and public,” one might ask if it’s legal for an establishment not to accept cash. Apparently many indeed do ask, as evidenced by the fact that no less than the U.S. Department of the Treasury felt it necessary to weigh in on the matter:

… the Coinage Act of 1965 … states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.  [Italics added.]

As to the distinction between debt and not-debt, The Fiscal Times explained,

Let us say it is very late at night and you need gasoline for your car … until the customer has put gas into the car, the customer does not owe the station owner anything. However, if the customer is allowed to pump gasoline into the car first and then pay, the owner must accept all types of U.S. bills because the customer has a debt to pay.

The same issue arises on an airplane. If you want to buy a drink for $5, the airline doesn’t have to accept your cash as long as it requires you to pay for the drink first.

The Department of the Treasury statement further explains:

Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise.

One state, Massachusetts, does say otherwise. Returning to The Fiscal Times article:

Massachusetts … actually does have a law on the books that requires all retail establishments to accept cash payments. However, at the present moment this law appears relatively unknown, the exact definition of a retail establishment is unclear, but most importantly the law specifies no penalties for breaking the law.

Don’t expect such a law on the national level, not least because even the United States government would stand to gain considerably from going cashless. According to “The Cost of Cash in the United States” by Bhaskar Chakravoti and Benjamin D. Mazotta of Tufts University’s The Fletcher School, cash costs the U.S. about $200 billion annually:

The most important cost of cash to the US government is forgone tax revenue from cash transactions. A conservative estimate yields this value to be $100 billion annually. The government also incurs cash-related expenses from the production and distribution of cash in the United States. In 2012, these costs totaled $1.2 billion.

Cash will still be around for a long time

As I have written before, cash is not likely to fully exit American commerce. As the above-cited Moneywatch piece points out,

About one out of 13 U.S. households are unbanked, which means they have don’t traditional banking accounts, such as checking or savings accounts. Such families tend to be lower-income and rely on cash to make their purchases.

Even consumers with bank accounts rely on cash at certain times. Cash comes in handy for gifts, tipping for great service, and, when needful or simply desirable, not leaving a paper or digital trail.

Ironically enough, the law seems to require banks, the very champions of plastics and digital payments, to accept cash for loan payments. But who knows? That may change. Indeed, the future these days seems to change every hour. It keeps the digital payments business exciting.