Customer engagement: how little things make a big difference (one analyst’s experience)

Typically, analysts opine based on analysis of industry data, informed by product demonstrations, telephone interviews and occasional focus groups. This time, I simply share my own experience at a top-5 US retail bank to illustrate how even seemingly little things may have significant customer impact – both favorably or unfavorably. This past weekend, I had a document needing to be notarized. Both my spouse and I had to sign the document and we had a busy weekend agenda. Recalling that as an account holder at a top-5 US bank, notary public services would be free of charge, I planned to visit a convenient branch in-between Saturday morning events. What could be easier? Recalling this bank was one of the relatively few that offered digital appointment booking, I thought it brilliant to book an appointment, rather than taking my chances upon our arrival at the branch. Plus, I was looking forward to getting up-close and personal with the appointment booking workflow. The bank’s appointment booking application was marvelously easy to navigate, but to book an appointment; one had to select an area of interest. This is a reasonable and beneficial requirement, because selecting an interest area ensures the subsequent meeting occurs with someone with requisite knowledge. The problem was that notary services wasn’t listed in the drop-down menu of interest areas. No appointment for me! Without the ability to book an appointment, I sought to make sure the branch nearby to our other activities would be open when we were available. Back to the bank’s website. Easily done, except for the repeated “Make an Appointment” buttons staring at me upon nearly every mouse click, which at this point served as an irritant. It caused me to think. On one hand, well-done to the bank for making the ability abundantly obvious. On the other hand, why no appointments for notary services. Are such needs rare, or does the bank only invite appointments for direct revenue-generating activities? The closest branch was no longer offering Saturday hours, so we trekked to another branch that was a bit out of our way, arriving just past noon. Being a Saturday, I expected it to be busy, but was unprepared for what I saw. Three staffed teller positions were active. All offices were conducting meetings and there were four people waiting in the lobby – complete with restless children which we were happy to entertain. To “speed service”, I was invited to check-in. The process wasn’t exactly high-tech. It consisted of a clipboard resting on a small table with space to write my name and time of arrival. Most of the previous names were scratched out with a combination of black and blue ink, so I figured our wait time would be acceptable. User impressions aside, I was struck with the notion that this very large bank had no consistently gathered information about why customers visit their branch, if they were actually served or not, or what their wait times were – unless some poor soul transcribed all our scribbles into a database. Not likely. Maybe that’s why they don’t offer appointments for notary services. After about a 10-minute wait, we were greeted by a well-dressed young man offering to assist. He quickly affirmed his ability to perform notary services and asked what it was that we needed notarized. I presented him our 1-page quit claim deed, whereby he apologetically replied that, while he was a notary, the bank was not able to notarize deeds. If only we had another sort of document, he would have gladly helped us. At least, he offered an alternative for us – driving back to the UPS Store next to where we hadbeen. No wait + $2.00 and we were done. We didn’t even need an appointment. I learned an important lesson that day.

Getting creative about banking alliances

I travel. A lot. And in the spirit of full disclosure, Delta and Starwood are my go-to airline and hotel chain. It helps that they have a mutually reinforcing arrangement whereby I receive miles for my Starwood stays and SPG points for my Delta flights. It just so happens that I’d already settled on these two, so I didn’t have to change my alliances, but on balance, even had I been another hotel patron, this alliance would have weighed heavily when deciding where to lay my head on the road. It helps, too, that Delta status gives me SPG benefits (late checkout, etc.), and vice versa. This is a nice extension beyond the airline code-share alliances of OneWorld, StarAlliance and SkyTeam. Because of my travel I tend to pay attention to emails and offers that many might ignore. The most recent was a note that I recently received from Hertz offering to bump me up in Hertz status if I had a certain level on Delta. I rent cars much less frequently than I fly or stay at hotels, but it’s easy to guess which car rental company I’ll be sure to use in the future. What does this have to do with banking? Credit card companies already partner with airlines (e.g., Delta and AMEX, American and Citi) and banks cooperate with merchants to offer Merchant Funded Rewards, but these are relatively superficial. What might the next, more substantive, level of partnering look like? Are there opportunities for deeper symbiotic relationships with retailers, phone or cable companies, or the like? The details will vary depending on the industry, but as we kick off the new year, it’s an interesting strategic question for banks to consider.

Industry Consolidation in Financial Services

Celent recently released two reports looking at the state of banks and credit unions: And Then There Were None: The Disappearance of Community Banks and Catch CU: The Ongoing Evolution of the Credit Union Market. The analysis within each report shows a clear trend towards industry consolidation. The number of commercial banks in the US is declining rapidly, from 11,462 at the end of 1992 to 5,809 in 2014, while credit unions in the US went from 10,316 in 2000 to 6,491 in 2014. As the industry consolidates, the majority of institutions disappearing are disproportionately coming from the lower tiers. For banks, the point at which institutions see rapid decline is around $300 million in assets and below. For credit unions, that number is around $50 million and below. The figures below provide a broad summary view of what´s happening in each industry. For every asset tier, the CAGR for inflation-adjusted deposit and institution growth is charted along with the difference between the two. Asset tiers with a negative difference between the growth of deposits and institutions are declining on a per institution basis. This is an effective summary when assessing the health of a tier. Picture 1 Picture 2 Banking is obviously becoming more complex, and competing is no longer a matter of opening a branch, setting up an ATM, and accepting deposits. The past 10 years have seen the rise of internet banking, bill pay, know your customer (KYC), Office of Foreign Assets Control (OFAC) compliance, mobile banking, consumer and business remote deposit capture, branch capture, and much more. Most small institutions don´t have the resources to stay on top of it all, and the requirements to “keep the lights on” leave pockets dry for modern customer facing applications and services that have become crucial to growing deposits. Is the consolidation good for the industry? What role will small banks and credit unions play in the future? Is further consolidation inexorable, or will the industry soon meet a healthy equilibrium? Feel free to comment.  

Bemoaning the Decline in Branch Foot Traffic: It Could be Worse!

Banks and credit unions have been bemoaning the decline in branch foot traffic for some time now. In part, this is a result of widespread and accelerating consumer preferences for digital channel interactions. In a 2012 Celent survey of North American financial institutions (an effort we intend to repeat in 2014) , nearly half of respondents expected a 10% to 25% runoff over the next five years. Many expect a higher rate of decline. Transaction Migration 2012 Source: Celent survey of NA financial institutions, July 2012, n=132 Data collected by Financial Management Solutions, Inc. (FMSI) among its sizeable client base of small and midsize financial institutions suggests an annual decline of around 3% over the past three years. Declines are likely steeper among large banks resulting from significant digital channel investments. It Could be Worse…If banks are struggling to accommodate declining branch foot traffic, other retail segments have it much worse. According to ShopperTrak, a leading analytics vendor to the retail industry, even as U.S. retail sales rose about 3% over the November – December 2013 holiday period, foot traffic declined 15%. December 2013 was particularly hard-hit, with foot traffic down 18% from December 2012. Why this is occurring is no mystery. The good news for retailers is that sales growth has returned, somewhat. The long-term picture, clearly driven by economic trends, is cautionary, with year-over-year growth rates eroding since the early 1970’s. Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The larger retail picture makes banking’s misery look modest. foot traffic comparison Source: FMSI, ShopperTrak National Retail Sales Estimate(NRSE ®) used with permission So what will the future hold? Where are we on the inexorable transition from brick and mortar shopping? Look at any forecast; omnichannel banking has just begun. What banks should do in response will be the subject of my next blog.

Omni-Channel Roundtable in Toronto — the Summary

We recently held a banks-only roundtable at our offices in Toronto to discuss “New Imperatives for Omni-Channel Delivery.” With representation from Canadian and US financial institutions, we had a robust conversation around the movement from “multi-channel” (old and siloed) to “omni-channel” (integrated and mutually reinforcing). Some of the attendees had interesting – and fairly recent – titles: “Director, Multi-Channel Experience” and “Director, Multi-Channel Strategy” were two that were particularly noticeable, while two others had “Channels” in their title.  Taking an integrated view of the channels portfolio appears to be catching on in Canada! Some interesting observations surfaced.
  1. Banks are rolling out channels and touchpoints without necessarily teaching the customer how to best use them.  When ATMs (or ABMs, north of the border) first came out, bank personnel would walk customers over to them and give them a basic tutorial. There is precious little analogous activity in our new digital channels; we simply assume that customers will pick up on how to use them.  Apple has trained us to think that really good experiences need no tutorial, but that’s not necessarily the case in banking, particularly when it comes to security concerns.
  2. The session didn’t address Personal Financial Management (PFM) directly, but when we touched on it, the group took off on a twenty-minute tangent!  There’s clearly a lot of interest in PFM despite anecdotal adoption rates that continue to hover around 10%.
  3. Piggybacking off existing infrastructure, e.g., the AppStore ratings engine and comments section, is a great way to garner customer feedback. The key, obviously, is to listen and act on the comments that customers provide, and at least one bank watches its ratings assiduously and uses the feature requests and complaints as a key driver of release improvements.
  4. As in the U.S., the fate of the branch network is an important strategic issue. One component that will have some bearing on this is video banking, whether through hardpoints or consumer devices (laptops or tablets). Bankers are clearly keen to determine how video can supplement other channel experiences.
  5. A sneak peek of a Celent survey of Canadian banking customers showed their behavior to be remarkably similar to Americans’.  While there were a couple of exceptions (to be detailed soon in an upcoming report), there were no huge disconnects.  Despite some of the differences in the structure of our two banking systems (oligopolistic vs. fragmented, and cooperative on infrastructure vs. wildly independent), our consumers tend to view and use their banks similarly.
We’re looking forward to additional roundtables in 2014.  If you’ve got specific topics you’d like to see addressed, or cities you’d like us to visit, please let us know!

The demise of Blockbuster and the rise of the new independent video rental store

Earlier this year, Celent released a report, Branch Boom Gone Bust: Predicting a Steep Decline in US Branch Density, which made comparisons between the decline of brick-and-mortar video rental stores, like Blockbuster, and branch banking in the US.  Celent argued that the decline of Blockbuster at the hands of digital alternatives is a cautionary tale for banks that still value a traditional branch network. As I’m sure no surprise to most, Blockbuster recently announced that they would be shutting down all remaining retail locations—around 300—effectively ending operations.
“This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment,” said Joseph P. Clayton, DISH president and chief executive officer. “Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.”
From the chart below, taken from the above Celent report, its clear that this has been in store for a while.


Yet as countless blogs and news articles praise or nostalgically lament the once-great video giant’s downfall, an old question is being explored once again: what will happen to the independent video rental store?  Put simply, they’re evolving. Faced with years of low business and an ever shrinking cult customer-base, many small video retailers are innovating in an attempt to draw business back into stores, adding value in areas un-served by Netflix or Redbox. From the an article by
“Videology in Brooklyn put a bar in front and a big video screen in back, where customers can sit at tables and drink while watching free screenings. It doesn’t even look like a rental outlet anymore — it moved all the discs aside from the new releases off the floor and put in computer kiosks for customers to browse the inventory. Vidiots in Santa Monica, supported by its community and patrons from the Hollywood film community, raised money to open a screening room and a non-profit foundation that holds workshops, classes, and outreach programs. It’s redefining its sense of purpose.”
Is this an example for banks?  Sure it is.  Similar to what’s happening in retail, banks can add value to a branch-based experience. Consider this line from the above quote: “[The video store] doesn’t even look like a rental outlet anymore.”  Small video retailers are refreshing the idea of what a video store is, and what it could be.  Smaller banks like Umpqua Bank have already explored this idea years ago, and even megabanks like Wells Fargo are exploring the possibility of compact “boutique” branches. The rise of digital The other day I came across a cool chart from Horace Dediu that does a good job at visualizing the change in consumer behavior that drove Blockbuster underwater, and is driving younger generations toward less branch engagement.  A larger version can be found here.   The adoption of smartphones and tablets, even in relation to internet and mobile phones, sit in stark contrast to the group.  The second part of the graph shows the duration of growth from 10% adoption to 90% adoption in years. For smartphones and tablets (estimated), these numbers are in the single digits. The result is a substantial decrease in the development life-cycle of innovation, early adoption, and late adoption. For branches, this means a dramatic and rapid shift in the way consumers interact with their financial institutions. Blockbuster trailed both Netflix and Redbox by almost five years before releasing competing products.  The company not only failed to react to shifting demand, they arguably contributed to it. The founder of Netflix started the company after he paid $40 for a late video rental.  Blockbuster continued to remain unmoved by customer complaints over late fees, eventually settling a series of lawsuits over the matter.  Customers in turn, looked to innovative start-ups (i.e. Redbox and Netflix) to fill the void.  Blockbuster failed to adapt. The path forward is a mix of early adoption and, like independent video stores, a rethink of traditional business practices.  Let’s be clear, branches won’t die, but it’s difficult to make the case that significant redesign won’t happen. Will banking bloggers someday down the road, sitting in an independent video rental coffee shop, write about the nostalgia of traditional branch banking?  Probably.

Recapping Future of the Bank Account Roundtable

We just assembled a group of UK retail bankers for a discussion on The Future of the Bank Account. Against the backdrop of the month-old implementation of the directive that bank switching be seamlessly completed in seven days , banks were keen to understand the implications of changing consumer needs and behaviors, evolving regulations, and new competitors. Celent see a consumer’s bank account serving three main purposes:
  • Receiving funds (money in)
  • Storing and Managing funds
  • Paying funds (money out)
We were interested in exploring how these key functions might evolve and what banks need to do to respond. The group crystallized three key notions central to making tomorrow’s bank account a success:
  1. Trust
  2. Perceived fairness
  3. Value added services
Customers must trust their primary account provider to keep their money safe and to do right by them.  The opportunity lies, though, in not avoiding breaches of trust, but in seizing the opportunity to do the unexpected right thing – going above and beyond to earn customer loyalty.  Trust also implies transparency: being upfront with your customers about how you’re going to deal with them, and demonstrating the value that you provide. It’s all too easy for customers to take for granted something marketed as “free.” Banks need to do a better job demonstrating that there is actually a lot of value in a “free” banking account (which is admittedly much easier said than done). The psychology of retail consumers generated a good discussion, particularly around the notion of fairness, which in the end comes down to perceived fairness.  Tied closely to trust, fairness means that consumers have to feel that they are being treated the way they deserve, not in a series of one-off transactions, but in the context of a continuing relationship. Finally, because bank accounts (and payments, the most salient feature) are, by and large, commoditized, the opportunity for differentiation comes from value added services.  Still nascent, most of these services will revolve around relationships and data (in one form or another). Banks will need to determine what their portfolio of value added services will be. In conversation there was a clear belief that proponents of the seamless switching scheme, and the potential idea that bank account numbers be make portable if not enough people start to switch banks, may fundamentally misunderstand people’s relationship with their bank. In mandating that everyone have access to a free account, regulators may have inadvertently made it harder to compare accounts on an apples-to-apples basis.  Additionally, banks face the challenge of serving these accounts in a cost-effective way, no small task. Inertia is an extraordinarily powerful force in personal financial services; getting people to change banks or the way they do things with their bank is hard.  However, the right value added services might be enough to persuade consumers to switch banks, although the jury is still out.  The challenge that many new payments schemes face is, “why is this different than simply tapping your card.” There was some belief that success and failure will be determined at the bricks and mortar side of the bank, rather than through digital channels. Many would dispute that notion; they next few quarters will give us an indication of whether that’s true. Clients who’d like to explore this further can read Zil Bareisis’ report, The Rise of the New Bank Account?

Insights from our Omni-Channel Roundtable

Celent recently hosted a client event called New Imperatives for Omni-Channel Delivery.  Motivated by the convergence of channels, we designed this forum to explore banks’ need to coordinate all the ways they touch customers across the entire set of organizational silos. Celent’s belief is that in the New Normal, retail delivery will never be the same. Retail banking customers are driving the most fundamental change in delivery that the industry has ever seen; these empowered consumers have new knowledge and expectations that are forcing banks to up their game.  Additionally, because the way that banks make money is changing radically, banks have no choice but to reconsider their overall system of retail delivery. A large expense for retail banks is their branch network.  It will have to change.  The branch of the not so distant future is more than just talk this time; it’s not optional.  It will entail transaction and sales/service automation; physical re-design; and cultural and organizational change.  Moving to this new branch mindset is a journey, not a destination.  Results will almost always delivered in increments, not via a “big-bang.”  Additionally, branch transformation needs to be executed in a multichannel context, and quickly.  Ultimately, this will result in fewer, smaller, more efficient and more effective branches. On the more technology-oriented side, Celent surveys show that mobile banking and multi-channel delivery are “top retail banking technologies.”  The tablet will act as a catalyst to the redesign of online banking as online and mobile are growing rapidly in priority.  Tablets are unique devices that provide a unique experience and shouldn’t be thought of us simply larger phones.  Digital startups are challenging the status quo with slick experiences and innovative business models.  In response, banks have to become digital powerhouses; they must take advantage of emerging opportunities and use them complement physical channels. We opened up a free-flowing discussion with a few questions for our banking attendees.  We think retail bankers of all stripes will do well to ponder them.
  • What is the customer’s perspective?
  • How do you coordinate between the branch, digital and other channel teams?
  • Do you watch other industries?  Who and how?
  • What are you doing to grow digital sales?
  • How will the role of the branch change in an omni-channel environment?
Celent clients can explore these topics more deeply through a host of current reports.  We’ll be reprising this event in Toronto on November 18; here’s the link: Additionally, we’ll be hosting a bankers-only roundtable called “Evolve or die: the future of the bank account” in London on October 17. Details at Finally, we’ll be hosting a broader cross-industry event on October 3 in San Francisco.  Entitled “What’s Next: The Search for Disruptive Innovation,” you can find out more at Hope to see you there!

No “Big Bangs” in Branch Transformation

Glen Fosella wrote a good piece for Bank Systems & Technology this week, where he suggests: “While many banks are rethinking their long-term strategy for expensive branch networks, there are steps banks can take now to reduce costs and inefficiencies in the branch while providing a better customer experience.” We couldn’t agree more. Like it or not, banking (along with every other retail segment) must adapt to address seismic changes in consumer preferences and usage of digital channels. The trends are real, inexorable and accelerating. The trends are also global, with Nordic countries well ahead of North America in terms of internet usage, digital banking usage and right-sizing of the branch channel. For example, ABN AMRO saw more customer mobile banking logins than internet banking logins in early 2012. The Mobile banking channel now represents over 60% of all customer non-branch interactions. It currently operates 400 bank branches in the Netherlands. It once operated over 800. The branch channel needs to be more effective and efficient. But, what exactly is the “branch of the future”? Celent sees a marvellous variety of operating models and physical designs being deployed, but no one gets there in one “big bang”. To Glen’s point, while banks develop their long-term omnichannel delivery plans, there are great benefits to making incremental changes to the network NOW. In fact, Celent finds that approach largely common among banks with highly evolved branch infrastructures. The figure below shows the journey taken by a large number of banks globally. Baby Steps Gradually, most bank branches will look and operate very differently than most do now. But, getting there is difficult, expensive and risky. In our opinion, wise banks get there through a series of measured steps, while testing and learning as they go. But, do get going!

From Libraries to Bank Branches

Technology can clearly be an input used to transform traditional industries. Banking has plenty of tradition, and has already experienced plenty of change. What can banks learn from other industries that have successfully gone through a transformation process? Cushing Academy, a Massachusetts boarding school, has successfully transformed its library (read about it here and here). Gone is the old, sparsely populated library. In its place is a popular and modern digital library / cafe, complete with TVs and a $12,000 espresso machine. This example was recently brought to my attention by a bank client (and Cushing Academy alumnus). There is clearly a lot we can take away from this example. It’s a fine mix of technology and tradition, in a model that increases engagement. The bank branch, like the library is far from dead – it does however need to be reinvented in order to service clients effectively. Bob Meara has blogged and written about branch banking, I encourage you to take a look. What do you think of the Cushing Academy example? What can banks learn from it?