Citi’s geolocation move

American Banker just ran an interesting article about Citi’s foray into the use of geolocation (beacons) as it pilots several use cases in its “smart branches.” Several thoughts immediately came to mind as I read Tanaya Macheel’s well-written article:

  • The use of beacons for cardless access to branch ATMs after business hours was the lead use case cited in the article. But, that’s just one of a growing number of potentially very useful applications for beacons in retail financial services.
  • Banks have barely scratched the surface in more usefully integrating digital and physical channels as they seek to maximize customer engagement.
  • Geolocation, in particular, is under-utilized by retailers (especially banks) and remains largely experimental.

My hat is off to Citi for its purposeful investment in developing expertise in this area and to American Banker for writing about Citi’s work. In my view, the most impressive aspect of this initiative isn’t so much Citi’s pushing the technology envelope; it’s the organizational effort that was likely required. Getting its branch operations, mobile product management, IT and LOB leadership aligned represents real commitment to innovation.

How far ahead of the industry is Citi?

Here’s one data point. In Celent’s inaugural Branch Transformation Research Panel survey in (June 2015), we sought to establish a benchmark on just how far and how fast NA institutions were pursuing branch channel transformation. Of course, several questions addressed planned technology usage. Out of a dozen examples of technology usage, geo-location ranked dead last in terms of the liklihood of usage in future branch designs – just 27% of surveyed institutions thought the use of beacons would be "somewhat likely" or "very likely".

Branch Tech Usage

Pretty far I'd say!

Is the branch the newest digital channel?

The branch is an important channel is every bank, but the rise of digital raises two questions: what’s its role in with a digital engagement model, and how should banks think about its value? First, consider some of the challenges of the traditional branch for the modern, digital consumer:
  • Branches suffer from lack of talent availability. The best person for the job is not always going to be in the right location at right time. Yet mobile is driving “right time, right place, instant” contextual interactions, and consumers are increasingly expecting this level of service.
  • Many of the frontline staff are underpaid and undertrained, yet are the face of the institution. They often aren´t trained properly or paid enough to care about delivering the kind of customer service banks are trying to deliver through digital.
  • It’s difficult to distribute foot traffic across locations. Some branches suffer from massive queues, while employees at other locations are killing time on Facebook. This adds cost, lowers efficiency, and is incompatible with demand for instant service from consumers as well as modern IT delivery.
Digital has allowed industries to overcome some of the barriers facing other customer experiences. The challenges facing branches are no different. Virtualizing the workforce, aggregating talent, and allowing customers to access them remotely, either in a branch environment or from a personal device, is at least one path forward. Banks need to start thinking about the branch as a digital channel. Some institutions like Garanti Bank in Turkey, ICICI in India, and Umpqua Bank in the US are already starting to think in terms of remote delivery. As video service becomes more mature (i.e. video advisory through tablets), user experiences across devices will begin to blur, and the branch of the future will look even more like a digital experience. In the new environment, the branch becomes another presentation layer. Vendors like Cisco are already starting to move in this direction, combining telepresence, remote signature, displays, and other infrastructure to allow banks to facilitate remote interactions using context information. Others in the market are beginning to follow suite. The branch of the future has been a topic of discussion since the advent of online banking and mobile. While some meaningful progress has been made in branch transformation, some large institutions have launched numerous pilot ideas and concept branches that have amounted to little more than PR stunts. The role of the branch is changing, but it’s obvious that many aren’t exactly clear what that role is going to be. By talking about the branch as a digital channel, institutions may be better able to craft a true omnichannel strategy for customer experience.

More comments on the “branch is dead” debate

*As mentioned in an earlier blog, the persistence of the “branch is dead” debate seems to be to betray the deeply invested interests on each side of the debate. In many financial institutions, digital and physical channels still have separate reporting structures (Figure 1). In Celent’s October 2014 survey of North American financial institutions, we found that less than a third of responding FIs have a single person responsible for all delivery channels. Interestingly, this appeared to be more likely among large banks. Channel Org Another observation is that much of the debate is deeply polarized – all or nothing – as if banks serve a static and homogeneous market. Neither is true. Most banks serve a diverse client base whose needs and preferences are in a state of change. Niche players, such as Moven, can take a more polarized (or shall we say extreme) position. A third (and my favorite) observation is that all too often, inaccurate assertions are made about channel usage as if demographics were a sole and causal determinant. We hear it all the time; “Millennials don’t use branches.” “Old people don’t use digital channels” and so on. In March, the US Federal Reserve published its third instalment of comprehensive consumer research on the topic, Consumers and Mobile Financial Services 2015. It makes for insightful reading. One myth the report busts is that digitally driven consumers have little use for other channels. Nothing could be farther from the truth – at least for the present. The survey (an online survey administered with a managed panel of nearly 3,000 consumers designed to be representative of the U.S. eighteen and over population) sought to understand how mobile banking users (35% of the panel, up from 30% in 2013 and 26% in 2012) used other channels. The results may surprise you. A few tid-bits:
  • Between 2011 and 2014, mobile banking usage has grown strongly across all age groups. Among 60+ consumers, usage has nearly tripled.
  • Hispanics reported the highest incidence of P12M mobile banking usage (53% of those having bank accounts, compared to 39% in the overall sample).
  • While mobile banking users are using the platform frequently and consistently, they also interact with their banks through more traditional branch and ATM channels. 72% of mobile banking users frequented a branch in the past month.
Channel Access Chart *1 Of those who used channel in past 12 months *2 Of those who used channel in past month Separately, respondents were asked to rank the three main ways they interact with their bank or credit union. 21% of mobile banking users ranked the mobile channel first. 13% ranked the branch first. Two implications from the diversity of channel usage that characterizes today’s consumers:
  1. Omnichannel is a legitimate pursuit. All channels need to be optimized.
  2. Banks neglect the branch channel at their peril.

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.  

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!

Two Kodak Moments to Consider

Few global brands have created the equity of Kodak. For decades, Kodak was synonymous with family memories and led the world in intellectual capital related to imaging – in both chemical and digital realms. Kodak is a household name if there ever was one. For example, the colloquialism, “Kodak Moment”, refers to a rare, one time, moment that is captured by a picture, or should have been captured by a picture. In its own stunning Kodak Moment, it appears the company is facing likely bankruptcy. Once a US$16 billion annual revenue juggernaut, the company now fights for survival. Another Kodak Moment comes with a picture. Georgia-based RaceTrac is opening a new store today in an Atlanta suburb that company leaders say will serve as the prototype for all new RaceTrac stations. At 6,000 square feet, the new store is one-third larger than the typical station and includes new features such as free wireless Internet access, indoor and outdoor seating, expanded food and beverage offerings, a frozen yogurt bar, and a walk-in “beer cave” room for chilled beer. On the outside, the store looks vastly different from a typical gas station, with such features as stone columns and stacked-stone accents. “It’s really something you’ve never seen in a convenience store,” said spokeswoman Sherri Scott, who compared it to a mini grocery store. “The whole goal is to take you back to the idea of a neighborhood store versus a traditional gas station.” The company, headquartered in the Atlanta area, operates more than 300 gas stations in four states.
RaceTrac's New Prototype Store

RaceTrac's New Prototype Store

What do these two Kodak Moments have to do with banking? Nothing and everything. Neither is directly related to banking, of course. But, both are examples of established entities challenging their operating models – or not. For Kodak, making strategic investments in digital imaging that would cannibalize its film business was a tough decision – one it waited way too long to make. Retail banks face a similar challenge in “alternative” channel innovation when doing so will cannibalize branch traffic. In contrast, RaceTrac is challenging what it means to operate a convenience store. It’s doing so when the complexion of the average c-store hasn’t changed much in the past few decades. Sound familiar?

Celent Banking Innovation & Insight Day Roundup

Last Thursday, Celent hosted it’s annual Banking Innovation & Insight Day. It’s the first time we have held an event in Atlanta and were pleased by the fantastic turnout. We had a broad range of panel sessions and presentations, all following a common theme – banking innovation. Bank Systems & Technology wrote up a brief article describing the theme for the event. Bart Narter welcomed the group with a brief presentation and we then launched into a fascinating discussion on branch of the future moderated by Bob Meara. Bob’s panelists from Extraco Banks and Kennebunk Savings Bank did a great job demonstrating to the audience why the branch is far from dead. Bank Systems & Technology wrote up an interesting article on the session. From there we switched into a series of sessions focused on mainstream, AKA electronic, channels. The audience was swept into online and mobile nirvana with sessions on the future of online banking (with panelists from ING Direct, Bank of Montreal, and BBVA Compass), payments innovation, and mobile banking (with panelists from Bank of The West, City National Bank, M&I Bank, and Bank of America). Last but certainly not least, awards were presented to the banks selected for our 2011 Model Bank initiative. Stay tuned on more about the model bank awards from Bob Meara. All presentations from the event are available for Celent clients to download on our web site. There were quite a number of tweeters in the room providing an event play by play. We invite you to review what folks had to say about the event on Twitter . If you would like to see a few photos from the event please visit our Flickr photostream.

Reporting from the Celent’s Banking event in London

Celent Banking team has kicked off 2011 with a bang. In addition to the flury of new reports, we hosted an industry event in London. Management of multiple channels continues to be high on many of our clients’ agendas, and so we decided to focus on the multi-channel theme and called our event “Branch is Dead; Long Live the Branch.” Bart Narter, Celent’s Senior Vice President for Banking opened the event and introduced two distinguished guest speakers representing two sides of the argument. Batting for the “Branch is Dead” corner was Mr. Steve Townend, CEO and co-founder of MoBank, an independent mobile money management app in the UK. He asserted that “customers increasingly want and need to control their finances in ways that allows them to get on with their lives” and claimed that mobile is becoming an important financial management tool for many consumers. At the other side of the argument was Mr. Anthony Thomson, co-founder and chairman of Metro bank, the first UK high street bank to be launched since Queen Victoria ascended to the throne. Given the Metro bank’s core values of convenience, service, transparency and engagement, branches are very much a cornerstone of the bank’s value proposition. It was a hard act to follow for the two Celent’s Senior Analysts, but Bob Meara and I accepted the challenge. Bob painted the vision of the branch of the future, describing it as a “journey, not a destination”. While bank branch renewal programmes can take different shapes and forms, Bob is yet to find a bank that is happy to say “we are done”. And I began with the assertion that the UK banks can do more with their investment into the online channel and use the channel for more than basic customer self-service. I shared with the audience some of the lessons from the other markets, such as how banks are re-claiming the P2P payments. However, eWise payo, UK-focused Online Banking ePayments solution represents perhaps the biggest opportunity for the UK banks to leverage their investment into online banking and Faster Payments infrastructure. Now is the right time for the UK banks to make a decision whether they should adopt such a solution. Finally, the event concluded with a mobile banking and payments panel, featuring Celent analysts from around the world, including France, Japan, China, Korea and the US, which not only affirmed the rising importance of a mobile device in financial services, but also demonstrated the diversity of development patterns around the world. And that is the value that Celent brings to its clients – a global insight based on deep local expertise in multiple markets. If you attended the event, we hope you enjoyed the presentations and networking opportunities. If not, we missed you and hope to see you at our next event – don’t forget to check our website for the latest schedule.