Caution! Bank transformation ahead: welcome to the 'new normal.' In this banking world of the future, the old business models are broken, and marketing takes on greater importance. The success formula includes stronger brands, more-engaged employees and compelling customer experiences.

• Author: Sullivan, Mary Beth
• Position: Industry overview

WHAT IS THE U.S. FINANCIAL SERVICES INDUSTRY going to look like in the future? It's difficult to say while so many challenges still exist. The clouds may have parted, but predicting how banking will take shape over the long term seems about as difficult as forecasting the weather a year from today. Given the current state of the economy, developments on the regulatory front, and the worsening mortgage foreclosure situation, we have a long way to go before the dust settles.

One thing is clear, however: The business models that drove growth and earnings in the past will not do so anymore. Companies hoping to succeed in the "new normal" will have to change their businesses in pretty dramatic ways. And if financial services companies change, that means that hank marketing will be transformed as well.

We are, in fact, already beginning to witness changes to banking business models. The largest banks are heavily burdened by troubled real estate assets and are reducing investment in trading operations, refocusing on core businesses, simplifying their product lines and, in some cases, shifting resources to global growth markets including China, Brazil and India.

Smaller community banks and thrifts with strong capital levels are looking for opportunities to boost small business and commercial and industrial lending to diversify their asset bases away from mortgage and commercial real estate loans and also to focus on business lines where client satisfaction is largely driven by factors other than price. The forces of change are such today that virtually all competitors must redefine themselves in order to survive.

Let's make a quick review of the current economic and banking landscape and the various challenges facing financial services institutions. After this, I will summarize the implications of these challenges and describe the ways that bank marketing must evolve in order to keep abreast of changes.

Economy: big problems remain

The global economic situation remains uncertain--and this has important implications for all banking companies that rely on capital markets, interest rates and other factors now influenced greatly by global events. The mortgage foreclosure situation promises to delay significantly the cleanup of toxic assets and therefore delay the economic recovery. Consumers and small businesses--the engines of growth--lack confidence, which in turn, depresses spending and investment levels. We have been told we are experiencing a jobless recovery and a return to a slow-growth economy. If so, the economic engine that lifted so many before the crisis will not be seen again for a very long time.

Regulation: more coming

The regulatory burden has clearly increased, and with the buildout of the Consumer Financial Protection Board, the merging of the Office Thrift Supervision and the Office of Controller of the Currency, increased focus on anti-money laundering (AML), and other pending developments, we can expect to see more regulation, stricter enforcement and compliance costs. The risk exists for increased regulation to choke off innovation at precisely the time when financial services companies need new capabilities to drive new sources of revenue.

Consumer/business behavior: help me help myself

Early in the recession, as consumers and businesses began to save and pay down debt, economists were uncertain if this thriftier behavior would last. It has--and it's clear that it's here to stay. As a result, consumer...