[Economic Essay Contest] Our bank will be your lifetime partner…and find the perfect match for you!

Bomi Yoon

By Lee Seung-yup

The 2008 financial crisis left noteworthy footprints in the history of banking that completely altered the banking industry. The fundamental revenue-earning activity of a commercial bank is garnering deposits from savers and making loans to corporates and households, raking in interest from the borrowers.

Nowadays, banks have expanded beyond their traditional value to seek more resilience, stability, and more profit through business diversification. Such diversification has created more bumpers for banks, allowing them to maintain sustainable profit even in the economic downturn, eventually benefiting not only the banks but also contributing to the country’s economy.

Although banks have already entered divergent industries such as used car sales and telecommunication services, I assert that such expanded industries are not fully utilizing the intrinsic nature of banks to create synergies. I believe that banks should broaden their business scopes through the long-term relationship-matching service industry.

The inherent attribute that is embedded in the banking industry is trust. People hold the belief that banks are the most trustworthy place to store their most valuable asset. That reliability is the cornerstone that allows banks to expand their business scope to long-term relationship matching services.

Banks’ credibility will resonate with the long-term relationship matching service’s seriousness, and thus, banks will be able to retrench substantial setup costs that otherwise would have been needed to establish such a brand image.

Once potential users are convinced by the brand image, banks can differentiate their position within the industry by providing objective information on one’s economic conditions. I concede that banks must gather consent from the users when opening such sensitive information to a third party, and most of the users would be reluctant to disclose one’s financial status.

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However, I believe that since the target audience is those seeking long-term relationships, potentially hoping to find someone to get married through the service, banks’ ability to access such information will be a competitive advantage and will be compelling to the target customers. How much more explicit can you get when receiving financial information directly from the bank?

Moreover, synergies created by good business-scope decisions can be easily followed when eliciting efficiencies, which usually stem from economies of scale or economies of learning. The same marketing team that promoted banks can be augmented to advertise the newly introduced industry, or the same sales team can be utilized to sell matching services to those seeking serious relationships. Since they share the same culture and values, it would be easier for banks to control the service qualities and experiences provided.

In addition, customers can easily recall and match that banking and matching industries operate under the same theme when the theme of the advertisement and client service experiences are analogous.

The matching service industry is the epitome of the industry that requires network effect.

The network effect is an effective way to create a colossal entry barrier. It occurs when customers’ willingness to pay increases due to a large number of people using the same service. Thus, it is crucial for a matching service to have significant numbers of website traffic. The more people use the service, the wider the range of candidates from which others can choose, leading to an increased willingness to pay and resulting in more profit.

In this sense, banks can take advantage of their existing customer base to generate network effects. It would be much easier for banks to sort out prospective clients from the database and initiate launching promotions targeting the customers.

For instance, banks can hand out a free 3-month subscription to a client who has expressed interest in long-term relationships. Owing to well-established databases, banks can get a head start by evoking the network effect easily, compared to other competitors who ought to start from scratch.

In spite of such advantageous edges that banks can wield, the traits alone cannot guarantee success. Banks need to establish rigid criteria to make their matching pool healthy. For example, eHarmony, one of the most thriving long-term relationship matching services in the U.S., refused to sell membership to around 20 percent of its potential clients. The refuted individuals included underage people, who were already married, and had been divorced multiple times. As seen in the case, to align with core values and brand image, banks need to be prudent when selling membership.

In addition to rigorous standards, a well-maintained matching algorithm that boosts success rate between the users will be another game changer. Additional features, such as relationship guidance and enhanced security and privacy measures, can also differentiate oneself from competitors.

In conclusion, banks can broaden their business scope by entering long-term relationships and providing matching services. Banks possess distinctive features that will be a competitive advantage in the industry when employed aptly. Setting foot in a new and unfamiliar realm will be unprofitable at first, but once the synergies between the industries kick off, they will certainly pay off eventually.

Lee Seung-yup is a student at the University of Michigan-Ann Arbor, Master of Business Administration.

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