Implications of the 2010 Federal Reserve Payments Study

Implications of the 2010 Federal Reserve Payments Study
The Federal Reserve published a summary of its 2010 Federal Reserve Payments Study this week. Predictably, the study evidenced double digit growth in debit and prepaid cards from 2006 through 2009, alongside essentially flat credit card usage. The study evidenced a continued decline in check writing of -6.5% CAGR, from 33.1 billion in 2006 to 27.5 billion in 2009. The anatomy of check usage was well reported in the study as well, with an analysis of check writing by counterparty and purpose based on a random sampling of checks processed by a small number of large banks. The results show double digit declines in C2B check writing (-11%), modest declines in B2B (-2%) and B2C (-3%) check usage and a growth in C2C check writing. In other words, businesses aren’t kicking the check habit – much.
Anatomy of Declining Check Usage

Anatomy of Declining Check Usage

The implications of these findings are many. One deserves special mention in my opinion. Less check writing alongside growing use of self-service channels is eroding branch foot traffic like never before. It’s no shocker that check volumes in the United States have been declining for most of the last decade. What appears less well understood is the long-term effect of this decline and what financial institutions should do in response. In addition to steady declines in check writing is a steady growth in self-service deposit activity taking the form of image ATM and RDC usage. The aggregate impact of these trends points to dramatic erosion in branch transactional activity – and with it foot traffic. The chart below shows a conservative Celent estimate of resulting average effect on branch foot traffic. teller-transactions This is a polarizing picture. For financial institutions with highly automated branch networks and well-trained personnel, these trends can point to significant cost reductions without compromising customer service. For other financial institutions, branch channel cost reductions will prove comparatively elusive. All financial institutions should embrace these trends as a mandate to quickly develop multichannel sales and service infrastructures to accommodate the quickly changing landscape.

Comparing Channel Priorities: Europe and the US

Comparing Channel Priorities: Europe and the US
I recently reviewed an Oliver Wyman report on multichannel banking among large European banks that includes the results of a survey of 30 European retail banks from France, Germany, Italy, Spain and United Kingdom. Taking note of relative channel priorities among survey participants, I was compelled to compare those with stated priorities among US banks surveyed in July as part of a Celent research effort aimed at understanding the current and future state of branch infrastructure leading to a report published in August. The Celent survey gathered responses from 187 financial institutions. Among them were 33 banks in the >US$50b asset tier. The graph below compares stated channel priorities between the Europe and US >$50b responses. The graph shows the percentage of respondents rating each channel as #1, #2 or #3 in spending priority.
Source: separate Oliver Wyman and Celent surveys

Source: separate Oliver Wyman and Celent surveys

I’d like to offer a few observations and invite your comments. In both regions: • Multichannel investment is a high priority • Branch channel remains the highest priority, closely followed by the internet channel. Interestingly, branch channel priorities are nearly identical across the two regions. • Mobile banking is the lowest priority channel However, there are several significant differences. Specifically: • The ATM channel is a much higher priority among large European banks than it is among the US sample. 50% of the EU banks rated the ATM channel #1 or #2 in priority compared to just 19% among large US banks. • The mobile channel is a comparatively low priority among EU banks (17% placing mobile banking among the top-2 priorities versus 26% among large US banks). Now, two questions for our readers. Feel free to post a comment or e-mail me directly at bmeara@celent.com if you wish to weigh in off the record. 1. Why is the ATM channel such a comparatively high priority among EU banks? 2. Conversely, why is the mobile banking channel such a comparatively low priority? I’ll post a summary of responses along with a Celent/Oliver Wyman position next week.

USAA Easy Deposit Press Coverage Misses the Point

USAA Easy Deposit Press Coverage Misses the Point
This fall, USAA began offering free check deposit services at nearly 30 United Parcel Service Inc. stores in San Antonio, where USAA is headquartered, and San Diego. USAA, whose main office is its only branch, plans to expand the service to more than 1,700 UPS sites nationwide by spring. Some of the press coverage of this initiative would have readers concluding USAA’s move into physical branch like deposit mechanisms is somehow a concession that its Deposit@Home and Deposit@Mobile services somehow fell short of the mark. Not so. Not even a little. The notion that not all customers enthusiastically embrace self-service transaction methods isn’t exactly a shocker. Most FIs (USAA included) serve a diverse customer base. Instead, USAA’s growth over the past several years absent a branch network is a huge success story and directly challenges the status quo among the significant majority of US banks. USAA grew its deposits at roughly three times the industry average since 2001 – and nearly doubled its growth since the launch of electronic check deposit gathering channels. Far from an indictment of Deposit@Mobile, USAA’s Easy Deposit initiative gives testimony to today’s multichannel imperative. But, instead of spending millions for traditional brick and mortar branches, USAA created an in-person deposit gathering channel on the cheap. By doing so, it has turned the historic competitive advantage of traditional retail banks (their collective branch networks) into a competitive cost disadvantage. Sure, there is a segment of consumers that prefer to transact with their FI in person – a shrinking segment. Soon, USAA will be competitive among that segment as well. Whoa – wait a minute – what about cross selling? The main point of USAA’s growing market share as well as its Easy Deposit initiative is this: the idea that bank branches are necessary for effective selling is simply a myth. There won’t be much selling of USAA services in the UPS stores. Not to worry, USAA has learned how to sell effectively with its other channels. In this capability, USAA has a significant competitive advantage. Today’s industry wide challenge is learn how to sell and service customers effectively across all channels. This must be done with efficiency ratios and net promoter scores that are both compelling by historic standards. USAA continues to do so as its growth exemplifies.

The newest alternate channel: Branch

The newest alternate channel: Branch
Visiting with lots of bankers and technology vendors at BAI, one hears a great deal about alternate channels, and multi-channel integration. My conclusion after all these discussions is that the new alternate channel is the branch. More customers use “alternate channels” such as internet banking, mobile banking, IVR and ATM, than use the branch. I think banks need to turn their thinking around and think of the automated channels as primary channels and the branch and call center as alternate channels when their primary channels can’t do the job. Most new consumers have already changed their mindsets. Bankers would be well advised to do the same. Branch is the alternate channel.

I’m Sorry Mr. Customer, I Have No Idea Who You Are!

I’m Sorry Mr. Customer, I Have No Idea Who You Are!
I just returned from a rare visit to my bank branch. As I was waiting in line, the man in front of me was in the process of screaming at the teller. He was furious that the teller had requested he provide his birthdate and mailing address information prior to handing him cash. She politely explained that her request was for security purposes and that she was doing this for his own protection. The man was insulted, disgusted that the bank employee did not recognize him. He was quite blunt with her saying, “I am in here every second day, don’t you know who I am by now?” Was the customer’s reaction uncalled for, or was the bank employee in the wrong for not recognizing the customer? How could this interaction have been improved? Please share your thoughts.