Three Common Mistakes Banks Make

In my work as a research analyst, I run into three particularly common mistakes. Banks aren’t the only ones that make these mistakes. I make them too and have to be vigilant to avoid them.
1. Failure to appreciate diversity of needs or preferences
2. Failure to appreciate the shrinking half-life of facts
3. Failure to skate to where the puck is going
Let’s look at each one briefly…

Failure to appreciate diversity of needs or preferences This is utterly common. You see it in headlines all the time. “Millennials this…”, “Small businesses that…”, Community banks are…”. The trap involves extrapolating limited data to an entire population. Two current examples illustrate: The Use of AI in Banking is About to Explode. Apart from confusing AI with predictive analytics (which is more broadly used), the article asserts “explosive” future adoption of AI right around the corner. I’ll just say that this assertion vastly overstates planned adoption of AI among North American banks based on recent Celent research. Bank on Changes. Among other things, this pleasant article states “Smaller community banks like Edison, which emphasize personal service, said they have no plans to scale back drive-through or other services at brick-and-mortar locations.” While referring to a small number of community banks interviewed for the article, it projects those results on the entire community bank population.

So, are community banks planning on maintaining their current brick-and-mortar services in their entirety – despite the growth in mobile banking utilization? Some are and some aren’t. the figure below displays results a very question posed in a December 2016 Celent survey of North American financial institutions. “Compared to your current branch count, how many branches do you expect your institution will operate five years from now?” The report is not yet published. The idea is simple: banks serve diverse markets and make a diversity of decisions as well. The diversity of expected response is glaring in this data! So as not to give away too much of the report’s contents, I refrain from graphing the results of that question by asset tier. Failure to Appreciate the Shrinking Half-Life of Facts Assertions abound about customers, what they do, want and value. Some data points supporting these assertions are dated. This is increasingly dangerous. Samuel Arbesman argues for a shrinking half-life of facts in his book, The Half-Life of Facts. Most substantive change takes a while to accomplish – particularly among large organizations. I think many banks are at risk by assuming the facts as they knew them at the beginning of a protracted initiative will remain after the initiative is finished. When it comes to mobile, for example, six months is a long time and a year is eternity.

Failure to Skate to Where the Puck is Going Even those of us who aren’t hockey fans are familiar with the famed Wayne Gretzky quote about skating to where the puck is going instead of where it has been. I saw this up close and personal as part of a research effort exploring the current and likely evolution of retail delivery channel technology. Omnichannel delivery clearly remains aspirational at most institutions (I’ll defend that assertion thoroughly in the upcoming report). Yet, even as most surveyed institutions concede the importance of omnichannel delivery, the significant majority are not yet meaningfully engaged in bringing it about. How could that be? Many banks – particularly those with below industry average mobile banking customer utilization – aren’t feeling the pain yet. They are skating to where the puck has been. When they do feel the pain, it will likely be the result of much damage already inflicted.

Videoconferencing in Retail Banking: Is BMO’s move a Harbinger for More to Come?

This week, BMO announced its rollout of Cisco Tandberg desktop video conferencing terminals to 50 of its 1,600 branches in the US and Canada. The terminals are for use by the bank’s financial planners and small business specialists. The idea is simple: more efficiently and effectively deploy SMEs across BMO’s sprawling retail banking geographic footprint. SMEs would then spend more time engaging customers and less time traveling. A recent American Banker article sums up the initiative nicely. A number of factors are conspiring to cause US banks to challenge retail operating models. Improving branch channel – indeed multichannel – efficiency and effectiveness is no longer optional. Desktop video conferencing is one of many options available to banks to do just that. In this context, is the BMO initiative a harbinger of more similar initatives to come? In July 2010, Celent surveyed nearly 200 North American financial institutions about their use of branch channel technologies. The survey spawned a three report series: • Branch Banking in a Multichannel World: What Ever Happened to the “Branch of the Future?” Branch Banking in a Multichannel World, Part II: The Many Faces of Change Branch Banking in a Multichannel World, Part III: Case Studies in Branch Transformation Through the survey, Celent found desktop videoconferencing (for client use) among the least likely deployed of any of the technologies studied in the research. Overall, just 10% of FIs surveyed had or were piloting solutions and another 7% were planning to implement a desktop videoconferencing solution. Larger banks were more likely to be considering. Only kiosks ranked below desktop videoconferencing in usage or planned usage. videoconferencing Thus, it appears that BMO is an early adopter of a technology that might see eventual adoption by a third of the larger US banks. But July 2010 was a while ago. Celent plans to field another survey in the coming weeks. Participating FIs will receive complementary summary of results. Interested parties are invited to contact me directly at to be included in the survey panel.

Why do Credit Unions Operate more Advanced Branch Networks than Banks?

Celent fielded a survey among North American financial institutions in July to better understand the current state branch technology environment as well as likely midterm and longterm evolution. The results were surprising.
CUs Operate More Advanced Branch Networks

CUs Operate More Advanced Branch Networks

CUs have a much more advanced branch environment. Compared to banks: – 34% more use teller cash dispensers, 8% more use teller cash recyclers – 25% more use automated acct. opening systems – 23% more use automated loan origination systems – 23% more use image ATMs – 20% more use in-branch self-service technology The only branch automation technology areas in greater use among banks than credit unions are CRM solutions which are more common among larger financial institutions. Why would this be? What led credit unions to more consistently invest in branch automation technology than banks? I recently spent a day with the Association of Credit Union Senior Officers hosted by EasCorp in Burlington, MA.. The interaction solidified my thinking. Size and simplicity. Credit unions skew small. Most are well below $500m in assets. Small ships can turn fast. Smaller organizations also lack the multiple silos found among large organizations. Lastly, CUs typically have a single line of business. In contrast, many banks have multiple lines of business competing for capital budgets. IT infrastructure. CUs are more likely to be operating a single branch environment from a core processor, and more CUs run real-time core systems. In contrast, a higher percentage of banks operate multiple environments and are more likely using solutions from independent software vendors. Multiple environments means more lengthy and costly implementations. It’s easier to say “no”. Culture. CUs have a parsimonious culture. In addition, they seem more driven to grow their member base through referrals than mass marketing campaigns. This historical drive towards improving customer service has resulted in a commensurate spend for automation. The complete research results are detailed in the Celent report: Branch Banking in a Multichannel World: What ever happened to the “branch of the future”?