May 25, 2012 by 4 Comments
Finextra published an article yesterday that was also picked up by American Banker and others. The news was twofold: 1. Bank of America announced it enjoys 10 million mobile banking customers, up about 3 million from a year ago – about 43,000 new active mobile customers per week. 2. Concurrent with its swelling ranks of active mobile banking customer, the bank is closing branches and unplugging ATMs. The bank closed 154 branches and eliminated 631 ATMs in Q1, citing the move to online and mobile channels as a contributory factor according to the Finextra article. Celent is not surprized by the branch closure news. As explained in a recent Oliver Wyman report, Branch Flexing: An Agile Approach to Cost Management, April 2012, “to maintain profit levels in the face of a post-crisis and regulatory-reform decline in net revenue of about 32%, US banks would need to increase revenues by 12% a year for the next three years or cut costs by 18% a year, or a combination of the two.” Cost cutting isn’t optional, particularly among larger US banks. Making material cost reductions will require a re-examination of branch networks, which typically contribute between 40% and 60% of a modern retail bank’s costs. Branch flexing refers to a strategic realignment of branch resources (and cost) with customer profitability. Ultimately, branch flexing involves investments in technology, training, culture and compensation. Celent has advocated departure from traditional, teller centric retail operating models for some time. But what about the total number of branches. Is there an argument that the industry has built an unsustainable number of branches, flexing or not? We think so. The argument begins with a simple observation that the US branch density (branches per million inhabitants) has nearly tripled since 1970. Thus, before consumers enjoyed the ATM, telephone banking, internet banking or mobile banking, the industry served consumer’s collective needs with less than 22,000 FDIC insured branches. Do we really need 90, 000 now? We think not. But it’s not so much if they’re needed (The Economist had a great debate about that topic earlier this week), but will they remain profitable? If indeed we’re in a “new normal” of sharply reduced retail banking profitability, than the answer – to one degree or another – is “no”. Celent is developing a more detailed perspective on how many bank branches the US is likely to support over the next ten years. Stay tuned.
April 26, 2012 by Leave a Comment
Every duck hunter knows that in order to avoid coming home empty-handed, one must aim ahead of the bird – lead the bird as it is commonly referred. The idea is that if one aims directly at the bird, every shot will be a miss no matter how precise the aim. That’s because by the time the bird shot gets in the vicinity of the duck, it will have flown out of the shot pattern.
- How Much to Lead is the Tricky Part
January 5, 2012 by Leave a Comment
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. 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?
June 20, 2011 by 1 Comment
In October 2010, USAA announced its partnership with The UPS Store to act as an in-person deposit gathering channel for the bank – something USAA has done without for years and still managed to enjoy a deposit growth rate of roughly three times the industry average. Last week, USAA announced its Easy Deposit service is now available at 1,700 The UPS Store locations. From its start in 1983, the objective of USAA Federal Savings Bank was to leverage the company’s strong brand equity and high customer satisfaction among its insurance, credit, and brokerage customers to build a strong banking franchise. USAA struggled with attracting member checking and savings deposits— for good reason. Without a branch network, USAA relied on mail-in deposits. To facilitate, it has provided free self-addressed stamped envelopes for members. But this approach, with its delayed funds availability and high internal processing cost, was not a competitive proposition. USAA more recently pioneered desktop and mobile RDC solutions for its banking customers as an alternative for mail-in deposits which used to be its mainstay. The solutions have been a huge success. So why this? The obvious answer is that despite the overwhelming success of Deposit@Home and Deposit@Mobile, a significant number of USAA members aren’t opting in. Far from an indictment against remote deposit capture, USAA’s latest move – along with its opening additional full-service retail branch locations in Killeen, TX and Washington, D.C. speaks volumes about the enduring relevance of branch banking in our increasingly multichannel world. Moreover:
- This move gives credence to the “branch is not dead” argument. Financial institutions serve a diverse customer base with differing needs and preferences. As much of a success as Deposit@Home and Deposit@Mobile have been, they have not rendered branch banking obsolete – even for USAA. Traditional retail banks should expect significant deposit transaction migration to self-service channels with desktop and mobile RDC, but not overwhelmingly so. There will remain – for at least a number of years – important customer segments for which RDC solutions won’t appeal.
- On the other hand, retail branches are disturbingly devoted to deposit gathering. USAA’s move will give it quick access to 1,700 locations near its target geographic markets at a small fraction of the cost of traditional branches. Traditional banks that think they don’t compete with USAA need to think again.
- As transactions continue their migration to self-service channels, there will be increasing demands placed upon retail FIs to re-think their branch models. The status quo is no longer sustainable. As transaction volumes leave the branch, so will foot traffic. FIs will have to create new reasons for customers to visit the branch and obtain proportionally higher cross sell ratios just to maintain. At the same time, declining transaction volumes will produce increasing unit costs on the remaining transactions. It’s not a pretty picture.
- USAA obviously isn’t selling in The UPS Stores. Any cross-selling will be for UPS Store products and services, not those of USAA. This isn’t a problem for USAA because it has become adept at selling its wares without face-to-face interaction. Traditional retail banks need to learn this art! For most U.S. financial institutions precious little sales effort exists apart from the branch network. This too is unsustainable.
June 9, 2011 by Leave a Comment
Multichannel is more than a buzzword, it’s a way of life in retail financial services. With consumers increasingly using a growing array of self-service channels to interact with their financial institutions, many banks are struggling with creating and implementing a vision for their most expensive channel – the branch network. For the majority of FIs, the branch channel is plagued by at least three challenges: 1. Cost control 2. Declining foot traffic 3. Eroding relevance How to address these challenges given today’s capital constraints and multiple other pressing priorities can be vexing. These challenges are going to be discussed in detail on June 16th at the Celent Innovation and Insight Day. I’ll be moderating a panel discussion with the following retail banking executives: • Sandy Dixon | EVP/Group Executive, Operations | Extraco Banks • Andrew Lederer | VP, Business Process Manger | Kennebunk Savings Bank • Deanna Savage | SVP, Branch Operations & Administration | UMB Bank I look forward to seeing you all at Celent Innovation & Insight Day in Atlanta. Readers of this blog are eligible for a discount on their registration fees by using the discount code web_celent.
May 16, 2011 by 3 Comments
BAI Banking Strategies recently published an excellent piece on multichannel management featuring an interview with Jim Di Ciaula of BMO Harris Bank. Reading the article inspired me to share two common pitfalls in multichannel management: following the customer and listening to the zealots. Both are examples of channel myopia. Following the Customer In a previous post we addressed the all too common method of determining channel priorities – following the customer. In a Fall 2010 Celent survey of North American financial institutions, the most common mechanism for determining channel spending priorities was simply measuring and reacting to channel usage. In other words, as channel usage goes, so goes channel investment. The inevitable result of this approach is to continually lag the market. Bad idea, but way too many financial institutions are stuck in this rut. Listening to the Zealots An apparently less common approach is to let hype drive distribution channel decisions. As example, one analyst whose focus included social media castigated me for not including social media as a unique distribution channel in our 2010 research as evidence of myopia. Apparently in that analyst’s mind, social media is every bank’s way to riches and rightfully belongs as a #1 channel priority. I’m still wondering how social media constitutes a delivery channel. Seems to me, social media might be more usefully considered a growing array of communications mechanisms that need to be integrated into multiple delivery channels. One interesting observation Celent uncovered as part of its research on branch channel transformation was a pervasive multichannel discipline among financial institutions having highly advanced branch channels. Going into the research, I fully expected to find branch channel zealots among FIs having highly evolved branches. Stands to reason, we thought, that FIs with staunch branch advocacy would be investing most heavily in the branch channel and perhaps neglect the others. What we found was just the opposite. Instead, in nearly every case, FIs having the most highly evolved branch channels were also committed to a rigorous multichannel management discipline and had competitive (and increasingly integrated) ATM, internet and mobile channels too. Jim Di Ciaula is right; multichannel management is both art and science. But, avoiding some common pitfalls can help financial institutions get beyond channel myopia towards a more balanced objective of maximizing their collective effectiveness.
February 3, 2011 by 3 Comments
Tablet computing is on an obvious growth trajectory, but is this trend something banks should be acting upon, and if so – how? Said another way, led buy Apple’s iPad, will tablets change banking? In the words of Sarah Palin, “You betcha!”. We see tablets contributing to financial services channel delivery both inside the branch network and as a viable self-service channel on its own. Tablets provide distinctive and compelling attributes that, in our opinion, will drive adoption: • Mobility compared to the desktop platform, with the ability to operate usefully in both online and offline environments. • Particularly rich video delivery capability. • A unique form factor making the platform particularly useful for interactivity between staff and bank customers. Several examples of tablet applications may help illustrate. USAA Federal Savings Bank this week launched its iPad application after months of design effort aimed at leveraging iPad’s unique attributes. Like USAA’s internet and mobile channels, the application provides banking, insurance, investments and financial advice in one place. That’s where the similarities end. The tablet application enjoys less latency. Significantly more content is available above the log-in and it’s more intuitively and easily acquired. And, the content is available whether online or offline. See: www.usaa.com. Financial Management Solutions, Inc. (FMSI), a provider of workforce automation solutions aimed at small to midsize financial institutions will be introducing an iPad integration to its Lobby Tracking System (LTS). LTS is a web-based, queuing and reporting tool that tracks key productivity, sales and service indicators. Running LTS on a tablet in addition to desktops will provide FIs new options beyond traditional desk based concierges. Finantix, a Venice Italy based provider of front end sales and service solutions launched its Wealth Apps 2.0, a comprehensive suite of wealth management applications for the Apple iPad last month and plans similar applications for its banking platform sales application in the future. Finantix won Best of Show at Finovate Europe this week with its app. Tablet apps are clearly nascent in retail banking at the moment. Banks should evaluate the use of tablets in future branch initiatives and keep the heat on vendors that are slow to respond. Why? Because tablets will help branches sell more effectively with a reduced training burden. How might this work? Currently most banks rely on branch staff to engage customers as directed by staff-facing CRM systems (or no system at all). Using a tablet interactively with clients reinvents the experience. It holds the promise of a more engaging interaction – one in which branch staff interact alongside clients as coaches. In the process, much paper can be eliminated and workflow efficiency much improved. As a self-service channel, tablets will likely emerge as yet another development opportunity. No one really wanted another delivery channel to manage, but this one looks like it’s a keeper.
January 6, 2011 by 1 Comment
This revisits an earlier blog entry comparing stated channel priorities between US and European banks. I’m encouraged by the spirited discussions it spawned. Some have been critical of bank’s slow – even flawed – approach to multichannel delivery. We agree. There are clear philosophical, generational, organizational and systems barriers to a swift and through transition from a branch centric to multichannel operations. If it were easy, more banks would be there, but it’s an intricate and complex set of challenges in many financial institutions – particularly the large ones. But, that wasn’t the point of the last blog entry. Rather, it meant to simply highlight some differences observed in relative channel priorities between Europe and the US, particularly the mobile and ATM channels. So let’s return to the two questions posed earlier with the benefit of the many that were so kind as to weigh in with their perspectives. 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? But, first a short digression on the research cited. In both the Celent and Oliver Wyman research, surveys used a forced ranking technique when inquiring about relative channel priorities. Doing so requires survey respondents to select one answer as first priority, another as second, and so on. The idea is to better distinguish among closely competing priorities. An alternative approach is to invite respondents to rate each channel on a relative priority scale. The risk in doing so is that everything can look “most important”. Neither approach is perfect. In retrospect, I wish we had asked the question both ways. Here’s why. The specific question asked in the Celent survey was: “Given limited resources, indicate the relative priority among your delivery channels based on what gets funded in your organization.” More than a few respondents noted that channel priorities are all very closely grouped, and that coming up with a clear ranking order was difficult. Add to that, within any given financial institution, the stated channel priority might vary internally. That said, the data presented above might overstate (somewhat) the practical priorities among channels. Practically, does it really matter if a given channel is priority #2 versus priority #3 if all requested projects get funded? Perhaps not, but the differences can shed insight into how financial institutions think about the various channels. The Celent survey also asked respondents, “What is driving these priorities?” The response was an open text field, meaning respondents could type in anything they wanted. The answers are revealing. By a large margin, most FIs said that the following drive channel priorities: 1. Customer demand or channel usage (a clear #1) 2. Transaction cost (a distant #2) 3. Competition – FI’s perceived need to react to competition or be disadvantaged (an even more distant #3) Relatively few FIs in Celent’s sample seemed to indicate that channel priorities are based on a long-term strategy. Instead, many seem to be chasing transaction metrics. In other words, the greater the channel usage, the higher its priority. The obvious problem with this approach is that emerging channels will be under appreciated by definition. More strategically driven FIs will choose to get ahead of the usage curve – in fact influence channel usage with innovative delivery mechanisms. Such FIs will likely forever remain in the minority. Back to the questions… So if channel priorities are driven by usage in most FIs, then the differences between Europe and the US might be explained (at least in part) by differences in the payments landscape between the two markets. Cash usage, in particular, remains higher in Europe compared to the US. For example, the Payments Council announced in December 2010 that debit cards have just overtaken cash usage in the UK. Such occurred in the US around 2005 or so. Consequently, ATMs would be logically more highly used in Europe than in the US and a higher channel priority as a result. Additionally, there are more examples of in-branch self-service in Europe than the US, serving to broaden the functional use of ATMs as well as overall usage. What about mobile banking differences? Several weighed in suggesting that Europe has had mobile banking for years, so it’s not as trendy as it has become in the US – and that’s why the mobile channel is a lower priority in Europe. I tend to think that the differences have more to do with how “mobile” is defined in the minds of individual survey respondents. If Europeans consider smart phones as “internet devices”, then the explosive growth of smart phones might be associated with the internet channel – a very close #2 priority behind the branch channel in Europe.
December 8, 2010 by Leave a Comment
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.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. 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.