If the food distribution business is the best industry in America today, which industry is the worst?  In my opinion, furthest behind the curve is the consumer banking industry.

Why?

Lack of customer focus. There is little evidence that traditional bankers really care about individual customers. I was talking to a friend in the banking industry, and I referred to the enormous business potential of consumer banking. He didn't understand what I was getting at. I said, "You know, car loans, home loans." My friend responded, "Oh, you mean originations." My mind was on customers, but his mind was on managing a loan portfolio, yield spreads, and selling tranches of loans to other companies.

Of course, these technical things matter. Wal-Mart excels in such technical issues as deciding where to build warehouses and what type of accounting systems to use. But they never forget that the technologies exist to support some person standing in line waiting to pay for underwear. By contrast, most bankers have become far removed from the reality of the customer.

Dearth of innovation. With the single exception of the ATM, banking is one of the few industries that has scarcely changed (from the customers' side) in the past 30 years. The experience of walking into a bank and handling a routine transaction is exactly the same as it was in 1969 when I spent a summer as a teller. Back office technology has changed, but not the banking we see from the front of the counter.

If you're a banker, you may disagree. You may believe that banking has changed dramatically in the past 30 years. But if you'd spent your life working in the movie industry or the semiconductor industry or even the car industry, you'd have a better idea of what real change feels like.

Size for the sake of size. The banking industry is obsessed with big mergers, few of which even pretend to promise better customer service. The only change most customers experience as a result of these mergers is that we have gone from being merely a number to being merely a number with more digits.

The giant banks have swollen well beyond any conceivable economies of scale. When a multibillion-dollar bank merges with another multibillion-dollar bank, the only real savings they experience is that they have one overpaid management team instead of two. The worst symptoms of elephantiasis have long since set in, like those automated telephone systems: "If you are a former customer of National Bank, press 1. If you are a former customer of First Bank, press 2. If you would like to speak to a human being, you have the wrong bank."

Weak branding. Exactly what is the difference, to the average consumer, between Bank of America and Wells Fargo, between Bank One and Comerica? Industry "leaders" invested millions in creating and building the NationsBank brand and then just flushed it away.

Citibank appears to be the only bank that is truly committed to building a brand. They are expanding their global network of ATMs (readily identifiable by their blue signs) and doggedly pursuing the individual consumer with a strongly unified identity. Beyond Citibank, there is a near-total lack of serious brand building and differentiation among the major banks.

Note that many of the same indicators are equally grim for other financial service companies, including the big insurance companies and stockbrokers. In no industry is "me-tooism" more prevalent. Television is littered with financial industry ads that say, in effect, "We are the place you should come to because we are the place you should come to." There are exceptions: Charles Schwab comes to mind. But don't hold your breath waiting for real differentiation or innovation to sweep the industry. Many of us have been waiting for decades.

Big Opportunities in Financial Services

Having pronounced this indictment against the financial services industry, look at the other side – the opportunity. Financial services are already one of the largest industries in the wealthier nations of the world. As the baby boom generation ages and retires, the industry will only grow bigger. In the middle-income and poorer nations, the demand for basic financial services like checking accounts will skyrocket in the coming decades, followed by demand for more sophisticated services. Today's car loan customer is tomorrow's mutual fund buyer. Additionally, the use by many countries of privatized "social security" systems will only add to the demand.

One of the few recently announced acquisitions in banking that makes sense to me is Citibank's move to become one of the top bankers in Mexico by acquiring Banacci. On a global basis, consumer financial services is a highly promising, still-embryonic industry.

While government regulations have historically limited the financial services that banks can offer, those regs are gradually dying off. Alert industry leaders are now preparing to compete in the entire arena of financial services, at home and abroad. But at the same time, they should learn an important lesson from retailing. Most markets can support only a few department stores, but many specialty stores. While Wal-Mart and K-Mart are duking it out for leadership in the general-merchandise category, you may prefer to be Home Depot or Office Max or even Dave's Bridal Shop. In the same way, most of the companies that will profit from the global rise of financial services will be specialists.

Today the most interesting companies in the industry include a "small-town broker" (Edward Jones), an innovative auto insurer (Progressive), two companies that began by serving government employees (USAA and Geico), two independent information providers (Morningstar and—ahem!—Hoover's), and two bold innovators (Charles Schwab and Vanguard).

Most of the companies today being built as "financial supermarkets" will not stand the test of time. The few that do survive and prosper will be characterized by customer-centered innovation, powerful branding, and merging only when the payoff goes beyond cost reductions.

I believe today's financial industry environment, with the lack of leadership on the part of the biggest companies, offers tremendous opportunities for new entrants and smaller competitors. It's a great time for all types of outsiders, including specialized niche service providers, new companies from abroad, and ambitious local banks, brokers, and insurers. These types of companies can enter the market with a clean slate and flexibility.

For example, HSBC (formerly Hong Kong and Shanghai Banking) is forging a global brand, unburdened by the baggage and negative traditions of the big U.S. competitors. Specialty companies like Edward Jones, Morningstar, and Progressive can grow in the direction of their choice.

Meanwhile, most of the innovation is coming from local banks. Vernon Hill's Commerce Bank (Commerce Bancorp) of Cherry Hill, New Jersey, keeps its branches open seven days a week and models its business on successful retail chains. It acts like a service company that cares. When the Wall Street Journal ran a cover story on Commerce in May 2000, the bank had assets of $7 billion. Its stock and deposit growth were among the highest in U.S. banking. Even so, in this era of giants, they were not even among the top four banks in their home state. But today the company is up to $8 billion in assets, and still growing. With its positioning line of " America's Most Convenient Bank," this is a much more promising enterprise than the giants that make headlines with giant deals.

Alabama-based Compass Bank is aggressively investing in convenient local bricks-and-mortar branches when others are not, especially in fast-growing areas (they must be studying their geography!). Both Compass and Commerce use technology aggressively, but they use it in addition to personal service—not in place of service.

I believe that most of the so-called industry leaders in financial services are in the same position today that Sears, AT&T, and GM were in 30 years ago – or the headline-making Continental Airlines of 15 years ago – they have nowhere to go but down. For more agile and alert competitors, nothing beats being in a boom industry with weak leadership. If you ran a bank, would you, like a lemming, follow the big firms or would you pioneer a new concept like Commerce Bank?