Friday, January 27, 2012

BIG’s Blog: U.S. Banks and Fundraisers Need a New Business Model

Nonprofit fundraising isn’t the only sector of the economy that is seeking out a new business model. How about American banks?

The consulting company McKinsey recently released a paper by Toos Daruvata that details the problems U.S. banks face and their need to fundamentally redo how they do business. “By business model, we mean how banks actually operate – how work is done, the degree of automation, the pricing and design of their products, and the underlying compensation systems.”

Aren’t banks still making money? Yes, but not enough. Banks are owned by investors and if an investor’s bank stock investment is worse than other classes of investments, the investor will sell their bank stock. If too many people want to sell their bank stocks, the stock price goes way down.

Today banks are being buffeted in three areas; expanded capital requirements, increased regulations, and consumers and businesses deleveraging. “These forces of change will compel banks to reinvent their core banking business. In five years, branch banking will probably look fundamentally different as branch layouts, formats, and employee capabilities change. The use of Internet and mobile devices will grow exponentially. Overall, the cost of serving each customer in a branch is likely to fall by one-third.”  

But what about fundraisers? If fundraisers stay with current failing fundraising business models then donations will begin to decline and the work or ministry of the organization becomes stunted. Soon donors that continue to hang on begin to see the organization declining and they, too, pull back.

There will be many nonprofit organizations that fail because their fundraising failed to adopt new fundraising business models.

When a bank fails, it is a bad thing. Some people lose their jobs and investors lose their investments. When a nonprofit organization fails – that is a tragedy. Critical services or ministries are lost to those who really needed them.


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