What is the Future of the Branch?

When was the last time you went into a branch to do any banking outside of opening a new account, closing an account, getting a mortgage or doing a mystery shop? Better yet, did you even go into the branch to establish your last financial services relationship? For me, I most recently opened a Virtual Wallet Relationship and never saw a banker in person. What was amazing about the experience is that I was 'cross-sold' a savings account, debit card, online banking, auto save and bill pay without ever feeling like I was sold or talking to a banker. I did it myself . . . all online.

So, what is the future of the bank branch? According to a channel preference survey conducted by the American Bankers Association (ABA) last August, 25 percent of consumers preferred to bank online as opposed to any other channel.
For the first time, this channel preference exceeded the desire to bank in a branch office. And, while consumers over 55 clearly preferred to use a branch, every other demographic group preferred the speed and convenience of the Internet.

It is interesting to note that even though the mobile channel is definitely a area of significant investment and interest in our industry (as noted by my blog on June 7), the adoption rate was only 1% in the survey, with much of the activity still being transactional in nature. Despite this, Bank of America has opened more than 4 million mobile banking relationships.

In a recent set of blogs by industry pundit Brett King entitled, Branch Networks: Where Do We Go From Here? (Part 1 and Part 2), he makes a very strong case for banks reorganizing to make their organization structure channel agnostic. In much the same way that most industry experts believe product silos should be torn down in favor of customer segment management, King makes the case for having channel managers all as equal peers with the focus on the customer and an eye on how money is actually transferred among the channels, how the channels are used and how revenue is generated.

King also indicates that the branches as we know them today need to change in both form and function. With a core function of the daily branch operation concentrating on check processing, and with the number of checks written dropping while technology such as business and personal Remote Deposit Capture is increasing, something needs to change. We are already seeing the architecture of new branches change, with more specialized sales/service offices surrounding a smaller transactional lobby. But even these sales and service offices could be remote, and most of the transactions done today are too costly to be handled using expensive real estate.

Eventually, we will probably see different channel strategies such as Huntington Bank's strategy of expanding branch hours on weekdays and opening on Sundays or possibly branches that resemble an Apple retail store where the focus is on customer engagement and specialized service and where transactions are more of a by-product. The focus on new strategies is even part of this Fall's BAI Retail Delivery Conference where there will be a Multi-Channel Strategy Summit led by representatives from Novantis and M&T Bank.

Whatever strategies are selected, it appears the days of expanding branch networks are gone and we will see an emphasis on consolidation, optimization and the leveraging of new technology to integrate the branch as part of a broader and improved customer experience. As Brett King said in his recent blog, " . . . it's time to start to think out of the box".

How is your bank changing their delivery channel emphasis?

Bank 2.0 is a Bank Marketer Must Read

There are not many books (or anything else for that matter) that I find compelling enough to pre-order. Sure, there may have been a Cleveland Indians or Cavaliers championship jersey I jumped the gun on, but I have never stood in line for an Apple product or pre-ordered a movie to be the first on my block to own it.

I made an exception a few weeks back with the book Bank 2.0 - How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King not only because I was intrigued by the title, but because I have been following Brett's Banking4Tomorrow blog for a couple months and I find his take on the changes in our industry both enlightening and spot on. King is also an international speaker and is an industry advisor on Huffington Post (Business News).

This evening, Brett King’s book Bank 2.0 begins US distribution with a NYC launch (I actually ordered one from overseas a couple weeks ago and several more for some of my colleagues and clients from a U.S. distributor). While I am definitely not done with the close to 400 page book, it is a great business read for anyone involved in marketing, channels, distribution, innovation or the product area in a financial institution.

The book begins by discussing the significant changes that have occurred and will occur in customer behavior as a result of the advent of the Internet and smart phone and the expectations associated with these channel shifts. King discusses the impact of the shift in control from the bank to the customer and the choices that have resulted and will result in the future. These changes are illustrated in his book's video presentation.

While there is a bit of an international bias in the book due to Brett's background, his observations are all valid and well documented with statistics even though the banks and consumers in the states may be a bit behind their counterparts overseas. He illustrates the three stages of consumer behavioral disruption as shown below.

Part 2 of the book is all about the channels that customers use and the ways banks will need to reconfigure these channels in the future to win. Individual chapters focus on the branches, call centers, online banking/web, mobile and even ATMs. What I found both surprising and different about this section compared to many business books is that King is not shy about providing both opinions on how to address the changes that are occurring (with facts to support his recommendations) as well as a vast number of real life examples of both the good and bad in the industry. There is definitely a continuous ROI focus on all of his thoughts based on his vast experience in the industry. 

In the third section of the book, there is a look into the future of banking. Brett digs much deeper into the customer experience and channel impact of the changes that have already taken place and what bankers can expect in the future. As can be expected, there are discussions around social networking, new technologies, the future of payments and what the banks role may be in the P2P world as well as a good analysis of the impact on bank sales, marketing and advertising.

Throughout the book, King challenges banks with regard to their response to the massive customer changes in the past decade. In fact, he has even developed an inforgraphic around the lack of true innovation banks have done and whether the innovation has been done in the areas that matter.

This book is both thought provoking and fact-based, and is definitely a must-read for any banker (or industry supplier) who wants to stay current with the massive changes in our industry and wants a glimpse as to what is right around the corner.

Reaching the ATM Customer With Intelligent Personalization

About a month ago, I visited my neighborhood branch office on a Saturday to open a few new accounts and was surprised to see the vast difference in customer traffic outside the branch compared to inside the office. More specifically, it was clear that the traffic outside the office was almost entirely for the ATM, since during my 30 minute visit only 3 people were served through the drive-up window while no less than 25 customers used the ATM. The manager even mentioned that she had offered the drive-up lane to the long line of ATM users, only to be told that, "we only need to make a withdrawal" (I guess many people don't remember the purpose of withdrawal slips).

While I realize the primary advantage of using an ATM is speed and convenience, are bank marketers missing an opportunity to expand communication through this channel? Having a captive audience, if only for a couple minutes, provides the opportunity to both target communications as well as collect insight.

According to a white paper entitled, "The Use of ATM Screens to Augment Marketing Initiatives" presented by sponsored by Elan Financial Services, 40 percent of the adult population use ATMs 10 or more times in a month. For many cardholders, like myself, the ATM is the most frequent touchpoint connecting a customer and his/her bank. Based on the white paper, the opportunities for communication exist during 'waiting periods' when the transaction is being processed. Specifically, these opportunities include:

• On the welcome screen when the transaction choice is being made
• On the wait screen when the consumer is provided the opportunity to make additional choices
• On the thank you screen when the card and receipt are being dispensed

The opportunity for enhanced communication was also very well presented in a webinar on November 18th entitled, "How the Self-Service Channel Will Evolve in the Next Five Years", presented by Phoenix Interactive Design, Inc. and Larry McClanahan from Fifth Third Bank in conjunction with ATM Marketplace. During this presentation, it was illustrated how ATM messaging can now be personalized leveraging the bank's MCIF system enhanced by device awareness, geolocational determination and even expanding to two way communication with the objective being to enhance the customer experience, improve sales results and increase loyalty.

In my travels, it is clear many banks are testing the expanded software and hardware capabilities of the ATM channel enabling marketing and product owners to deliver highly targeted and visually appealing static or video communications to customers based on their demographics, current relationship (or lack thereof), other marketing messaging being delivered through other channels, geographic location, time of day and type of device being used (full function ATM, cash dispenser, in branch kiosk, etc.). Instead of printing ridiculously long sales messages on ATM receipts or using a 'one size fits all' approach to communication, banks can leverage the screen and alternative channels to personalize messages.

For instance, on my return from the BAI Retail Delivery Conference in Las Vegas this year, I used a Wells Fargo ATM for a withdrawal and was asked if I would be interested in a consolidation loan from the bank. Instead of a long sales message that would slow down the transaction or a printed message on the receipt that would be thrown out, they provided the option of email delivery of the offer as shown below.

I am assuming this ATM strategy was in a test mode at the time since I didn't have the student loan referenced on the ATM. In addition, the email follow-up (shown below), which I expected to receive almost instantaneously, didn't arrive to my inbox for two weeks, which indicated the possibility that the follow-up process was still manual at the time.

In any event, this type of integration of channels and messages is an enhanced sales process compared to long, less targeted screen messages or receipt communication. In fact, there is no reason why the ATM can't be integrated with other customer communication that can extend into the branch based on the time of day and location of ATM, or to a mobile phone or even an iPad. Much like Wells Fargo has offered to have ATM receipts delivered to a mobile device or email, mobile devices also provide the ability for immediate locational offer delivery (possibly including tickets to an event, merchant funded offer or mobile banking funding option), while the iPad provides expanded communication real estate and functionality not available at an ATM or even through a personal computer.

With more and more banking being transacted out of the branch and the expanded capabilities offered by both hardware and software firms supporting the ATM delivery system, time will tell which banks will make the most of this opportunity to communicate to a relatively captive, active and mobile audience in a way that resonates and generates results. Keys to success will be some of the same communication and marketing rules from other channels (audience, channel, timing, offer) combined with the ability to better measure results by channel, location and timing.

What is your bank doing to enhance the revenue generating and service aspects of your ATM network? I would love to hear from you.

Revenue Replacement in a New Regulatory Environment

In my travels over the past 18-24 months, a single unifying theme seems to be of primary importance for all of the banks I visit . . . the need to find new sources of revenue to help offset the impact of environmental, competitive and regulatory changes that have occurred in our industry. With the potential of the Durbin Interchange Amendment hanging over our heads, lost overdraft fees from Reg E in our rear view mirror, the ability to pay interest on business deposits and the implications of the Card Act just 18 months ago, bank earnings are being squeezed from all directions.

According to Novantas, the regulatory changes alone have slashed retail banking revenues by more than $50 billion per year compared to pre-crisis levels. To make this number even more staggering, Novantas estimates that the equivalent cost savings needed to offset these lost revenues would entail closing 50,000 branches or would require a 1500% increase in maintenance fees. Neither of these options are feasible.

As banks look forward, while it will definitely be important to control costs across the organization, the immediate challenge will be to focus on ways to generate revenues that are significant and sustainable over time. To do so, banks should analyze opportunities across the entire customer lifecycle including product innovation, repricing, new engagement and cross-sell strategies, channel migration, improved marketing and enhanced measurement of results.

Here are the top ten revenue replacement strategies I believe banks should focus on in today's environment. Some are rather rudimentary, while others may entail a paradigm shift within the organization in order to be implemented. Still others may not be consistent with your bank's brand or position in the marketplace. These strategies were the foundation of a presentation done at the 2011 Louisiana Bankers Association Annual Convention in New Orleans.

• Move Beyond Free Checking: With the implementation of Reg E and the potential impact of the Durbin Amendment, virtually every bank in the country is reviewing their checking product offerings to determine how they can positively impact earnings without negatively impacting their customer franchise. Much of this customer portfolio and product review is long overdue. The reliance on a 'free' lead product where penalty fees from the lowest balance accounts fund the majority of the portfolio is not sustainable. While some banks are building a much more robust segmentation strategy, where the relationship value will be more in line with the cost to the customer, other institutions are looking to a menu based approach, where components of the account (debit card, rewards program, ATM transactions, security services) are priced independently. Integral with this repricing strategy is the need for effective communication of changes and the opportunity to place customers in the best product set for their lifestage and transaction behavior. I cover this in a previous blog post entitled, Minimizing the Impact of Unintended Consequences.
• Focus on Quality Customer Growth: With the cost of new customer acquisition increasing and the quality of many new customers no longer meeting expectations, many banks are focusing their efforts on quality as opposed to quantity of customer acquired. Models are being developed that are based on incremental lift, potential for engagement, balance growth (using tools such as IXI wealth indicators) and likelihood for cross-sell and retention. In addition, many banks are fine-tuning their acquisition strategies to focus on branch trade area, neighborhood level direct communication as well as time tested programs like new mover acquisition. Many of these acquisition programs are at the carrier route level, taking advantage of postal economies. Finally, some organizations have had tremendous success leveraging their web sites, search engines and even social media to drive quality new account growth.
• Improve Customer Engagement: According to a study from Aite Group entitled, Measuring Customer Engagement: Making the Metric Matter, customers who have a higher level of engagement (more money movement, more transactions, online bill pay, direct deposit, more inquiries) are more likely to open another account with their bank in the next 12-24 months (27% vs. 5% for low engagement households), are more likely to recommend their bank to a friend (41% vs. 23%), and have a much more positive view of their financial institution. In addition, a more engaged household is significantly more profitable as shown by numerous research studies and covered in my blog post, A Business Case for Onboarding, where I illustrate the many financial benefits to a robust, multi-channel customer communication process in the first 90 days of the relationship.

Onboarding touchpoint roadmap example

• Restructure Rewards Program: In the past, the majority of rewards programs were funded primarily with interchange income. With the potential for this revenue stream to be negatively impacted by the Durbin Amendment, the structure and underlying strategy for bank rewards programs need to be evaluated. Options that banks are considering include the complete removal of a rewards component from some or all classes of accounts, an adjustment in the value of the reward program currency and even the potential for an annual fee associated with the program. Another strategy is to move the funding of the rewards program from the bank to the retailer with a merchant-based rewards program partnership. Leading providers in this space include Cardlytics, BillShrink, Segmint and Bling Nation as well as home grown options that connect the merchant to the customer. The benefits of a merchant-funded reward program are many, with the primary advantage being the offering of much more targeted rewards to a finite audience of the bank based on online transactions. For more insight into merchant-based rewards, visit my blog post on the subject. 
• Expand Share of Wallet Initiatives: In the BAI Banking Strategies article written by Sherief Meleis from Novantas entitled, Relationship Expansion: Sharpening the Focus, he points out that a bank would only need to increase the amount of business done by each customer by 15% in order to offset the $50 billion revenue shortfall facing our industry. While definitely not a slam dunk by any means, the concept of expanding share of wallet with current customers is far less daunting than trying to increase fees to compensate for the impact of legislation over the past 24 months. According to Novantas, approximately one quarter of deposits ($900 billion) as well as one half of loans ($4 trillion) and half of investments ($3.7 trillion) remain unconsolidated with primary financial institutions. Their research also indicates that as much as two thirds of these relationships are held by customers who are attitudinally willing to consolidate. The key for banks implementing this strategy will be to avoid boiling the ocean or overwhelming the customer with blanket communications. Instead, it is imperative to reach the right customer, at the right time, with the right message using the channel they prefer. A good discussion of some easy to implement cross-sell strategies is available on my blog post from April 15, 2011.
• Shift Debit/Credit/Prepaid Emphasis: While the Durbin Amendment may change the financial benefits of the debit card, it definitely doesn't change the importance of debit as an engagement and payment device. Some banks may be impacting the equilibrium of this payment device by adding annual fees, transaction fees and spending thresholds to the product. It is yet to be seen if these charges will stick or if they have a negative impact on the customer experience. Alternatively, banks can continue to encourage usage of the debit card while expanding their marketing efforts to include the potentially more profitable credit and prepaid debit cards. Serving alternative ends of the demographic spectrum, the appeal of credit cards is usually for people that want to leverage the grace period to their advantage. The appeal of the prepaid debit card is for people that want the convenience of a debit/ATM card without the fees of a checking account. The growth of the prepaid debit market has been significant in both the lower and mid demographic segments as people get frustrated with banking fees or have been closed out of the traditional banking system.
• Optimize Communication Channels: As the number of marketing messages received by each consumer has skyrocketed exponentially over the past decade, the control of consumption of these messages has definitely shifted from the marketer to the consumer. As economic growth has slowed and budget constraints at banks have impacted the amount of funding we have for marketing initiatives, there is a need to leverage less expensive, but potentially more expansive channels such as email, social media and even formal word of mouth strategies. Instead of replacing traditional media with electronic channels, however, banks need to manage a blend of channels that will yield the best results. For most initiatives, it is not an either/or proposition, but a media mix that needs to be optimized for each customer segment and marketing objective. This is definitely an area where a test and learn mindset is needed and where improved analytics are needed to determine channel attribution.
• Deliver on the Mobile Banking Promise: According to recent comScore research, 29.8 million Americans accessed financial services accounts (bank, credit card, or brokerage) via their mobile device in Q4 2010, an increase of 54 percent from Q4 2009. The report also found that preference for online access and security concerns topped the list of reasons why consumers have not yet used mobile banking. With such a skyrocketing growth and with the vast majority of banks now offering mobile banking, strategies need to be set forth that will ensure that mobile banking customers become engaged with their mobile banking provider as opposed to using the channel as a utility similar to an ATM. Studies show that mobile banking can effectively reduce costs related to call center usage and increase retention if the channel is enhanced with Personal Financial Management (PFM) applications and if the channel becomes more interactive and intuitive (a delivery device for rewards). The development of mobile banking strategies also need to include strategies for iPad applications that expand the mobile banking horizon far beyond what can be done on a smart phone.
• Reconfigure the Branch Model: As the use of electronic channels continues to increase, the functionality of the traditional bricks and mortar branch changes as well. Over the past several months, several innovative branch models have been tested including the Citi version of an Apple store as covered on The Financial Brand website. Going a different direction, but still focusing on the branch, Huntington Bank has recently purchased the rights to dozens of supermarket branches, extended hours to include evenings and Sundays and is in the midst of a $70 million branch refresh in which it will make over all of its 608 branches with new digital signage and e-merchandising. A third strategy is to significantly downsize the retail space, recognizing that the opening of accounts, responding to inquiries and handling transactions can be done using a much smaller footprint. The 'right' answer is not clear yet, and may reflect the bank's brand promise more than being strictly a cost or revenue decision. (Discussion on making the ATM channel more productive can be found on my November post)
• Increase Focus on Metrics That Matter: As opposed to being a cost center, marketing is increasingly being looked upon to generate revenue and to be able to show the impact of their programs. Measurements such as marketing ROI, incremental revenue lift, lifetime value and internal rate of return are all metrics that matter to the CEO and CFO and need to be built into all revenue strategies. In addition, where the sales cycle is longer, marketing is now expected to develop Demand Generation programs as opposed to simply lead generation initiatives, nurturing leads much farther in the sales funnel with an eye towards the final sale. I covered the new sales funnel in my blog post on February 26.

I am sure I have missed revenue opportunities that banks are pursuing to replace revenue lost due to recent changes in the marketplace. Can you share some of your ideas on my blog for others to react to?

Banking Industry Leaders Discuss Findings of Intuit Financial Management Survey

In conjunction with the release of Intuit Financial Services' 4th Annual Financial Management Survey, Banking.com hosted a Twitter Town Hall yesterday, bringing together financial industry leaders to discuss loyalty and channel migration as well as some of the challenges and opportunities facing the banking industry. The following is a recap of the very robust one hour dialogue. (the complete transcript can be found using #IFSsurvey on Twitter)

The Town Hall discussion began around the issue of customer loyalty and the finding that many consumers thought their financial provider was not 'in touch' with their needs. Given the events of the past week, where many large banks reversed decisions around the implementation of fees due to highly vocal negative sentiment amplified by social media and credit union trade group support, most participants believed that banks are not leveraging current insight and technology to make better decisions and provide value added service. 

Tobin Lee (@Tobin_Lee), Intuit Financial Services spokesperson stated, "It is time for a banker mindset shift; cultivating deeper relationships, more meaningful engagement and stronger advocacy for growth". Campbell Edlund from EMI (@EMI_mktg4sales) added, "These findings provide a very strong argument for a communications plan around the customer lifecycle". 

The already robust dialogue really took off as the discussion moved to the acceptance and utilization of banking channels (especially mobile and tablet banking). Bradley Leimer (@leimer) from Mechanics Bank in the San Francisco Bay area believed mobile strategy will be the key to future engagement due to the portability and 'always on' nature of the device. He also believed that the correlation between mobile banking and smartphone use (41% of respondents owned a smartphone) could indicate a lower engagement with financial technology in general for non-smartphone users.

Edlund added that while there is currently a higher penetration of smartphones than tablets, tablets can not be ignored by banks since Oracle found that tablet ownership is expected to increase significantly in the next year. She also warned that we need to be cautious not to get ahead of the acceptance curve. . . "we always underestimate inertia". Brett King (@brettking), author of Bank 2.0 and founder of Movenbank went a step further stating that within 3 years all bank websites will need to be built for tablets first. He also believed that branches will continue to diminish in presence and utility (according to the study, 27% of respondents still visit their branch once a month in addition to ATM visits).

Mark Zmarzly (@BankMarketing) did not believe bricks and mortar would completely go away, but definitely felt the relevance of branches will change. "It's easy to say branches will go away, but is that realistic? They have to evolve, but customers will never let them become 100% irrelevant." King responded that with the drop in branch transactions, the economics of the branch are not working. I (@jimmarous) illustrated the model of Boeing Employees Credit Union in Seattle, where only 2 of the 40 branch network have tellers, while the installation of multiple ATMs at offices and around the city have an average of 10,000+ transactions each. 94% of the transactions at BECU are done electronically, according to Howie Wu (@howie_wu) from the credit union.

"Relevance is the key to banking for tomorrow," stated King. "By 2015, mobile will be the #1 day-to-day channel, OLB #2 with the branch network being #5. The challenge for mobile and online will be developing great customer journeys". King doesn't believe these journeys exist today and believes the goal should be to have banking so pervasive that it is not tied to a branch, device or website, but is everywhere customers are.

Edlund pointed to the retail industry as a forerunner for what we will see in financial services. "Social and tablets will change the landscape in banking as they have in retailing", Edlund stated. (During the Twitter Town Hall, there was even a discussion of the integration of TV as a channel for banking). Representatives from EMI in Boston (EMI_mktg4banks) emphasized that we will continue to see a blurring of all channels with social media providing some of the glue for enhanced communication. Gamification and location-based rewards were also seen as a key elements of engagement by Leimer and Edlund.

A conundrum was discussed with regard to the needs of small businesses where checks still prevail and the need for branches. King believed that we will see significant attention paid to mobile payments for businesses in the next couple years, while I added that tablet apps for business are also being developed to respond to the needs of the business community. NFC was also seen as a game changer with regard to the need for branches for small businesses. Bob Williams (bob_williams) from Harland Clarke believed that, while check usage is definitely dropping, there are much greater efficiencies today than in the past with RDC and other electronic tools.

It was clear from the Intuit research that was just released, the Bank 2020 research released in April, and the discussion during the Twitter Town Hall today that there is significant disruption in the banking industry with regards to channel support and device utilization. The consumer movement to new banking channels is mirroring the movement to more sophisticated devices such as smartphones and tablets. Many consumers are NOT choosing one device or channel over another, but are using multiple devices depending on their personal needs.

Consumer desire for an integrated banking experience without friction will need to be supported by banking organizations in the future. Distribution networks (whether tangible or intangible) will need to support an expanding array of capabilities that may include integration within retail or social sites as opposed to standing alone.

As I stated to the participants of the Twitter Town Hall at the end of today's discussion, "If banks are not prepared for the channel migration that is already underway, they may experience the impact of 'Bank Transfer Decade'".

Note: A summary of the findings of Intuit Financial Services' 4th Annual Financial Management Survey and recently released related research is available in my previous Bank Marketing Strategy blog post.

If you weren't able to join us, what are your thoughts around the impact of channel shift away from the branches and towards other media? Will we see the elimination of branches completely? Will another device or technology unseat smartphones and tablets?

I would love to hear from you.

Banks Need to Collect More Insights to Communicate Effectively

By Bob Williams, Director of Marketing Technologies at Harland Clarke and author of the blog, The Merchant Stand.

A friend and colleague Jim Marous shared an article from American Banker on Googe+ entitled Banks Underuse Mobile for Communication. The article discusses challenges that financial institutions have with communicating with their customers through mobile devices. While mobile device applications and mobile optimized sites are becoming more common, and expected by account holders, financial institutions are not using the mobile channel for proactive communication. Kael Kelly, senior director at Varolii is quoted in the article “Banks don’t have the data that they need. A lot of the phone number data doesn’t easily distinguish between a mobile number and a land-line.”

So the idea that banks don’t know what data they have made me think about some other data that Jim Marous shared about financial institutions and customer data. Like this tweet about banks not having email addresses for their account holders.

The challenge I see is missing or unintelligible customer profile data. That problem expands beyond the boundary of the financial services industry. It’s really a common need for any type of business. Another challenge is the misuse (or lack of use) of the data that an organization has. Another conversation with Jim last week revealed that he noticed his bank mention that online banking was 'down' using Twitter. While admirable that they used a more modern social media tool for this notification, there probably aren't many people following Twitter the way Jim does. Making matters worse, they didn't use either his email address (which is tied to his online banking account) or SMS (the bank has his cell phone) to make this notification. In other words, the bank had the tools, but didn't use what was at their disposal.

There’s no doubt that many organizations have a good process to manage customer profile data and communication. But for those that don’t, I believe there is a fairly simple solution.

A Simple Multi-Solution for Collecting Profile Data
The first step is to collect accurate information at the time of new account opening. That seems obvious, but for many businesses this may require updating the customer/client profile record to support addresses for current communication mediums. That means distinguishing between phone number types such as home, mobile, work etc. It means a place for an email address as well. If is it a business, you may also want to include a variable field for social media type contact information. At a minimum, require one phone number and one email address. If the customer insists they do not have an email address, then fill the field with an agreed upon standard such as (noemail@yourbusinessdomain.com)

I understand there are regulations governing anti-spam communications via email and SMS text. But I don’t think banks or other businesses need to over think/engineer a basic solution to keep accurate profile data.  The email and phone number should be required and make sure the customer knows when they establish the account that you may use this information to contact them with important notices about their account. You can optionally create a permission indicator (opt-in) that is designated for future marketing or non-marketing communications. While these changes may require IT, online banking and branch management support, the customer experience and cost benefits are significant.

A Simple Multi-Channel Solution for Keeping Profile Data Accurate
I suggest sending notifications through multiple channels annually for customers to check and update their profile contact information. Here are some possible touch points:

1. Pop up in the online account area after login.  Remember, customers are in your system by their own choice. So this is a fair message to display to them regularly. This is also an area where the customer can self-serve any updates they need to make.
2. Email reminder. Don’t ask the customer to login from the email message or reply to it. That’s a technique used by phishing attacks and creates mistrust. Rather, use the email to notify and request the customer update their profile information the next time they login to their online account or the next time they visit a branch/store location.
3. Post the reminder message on Facebook/Google+/Twitter and other social sites where customers may follow your brand for the purpose of receiving communication. These social medium platforms are broadcast platforms. You don’t need permission to place messages there and customers that see a message from your account page are there by their own choice.
4. Leverage the ATM. While some ATMs are equipped with interactive communication options, the ATM can at least be used as a reminder tool. Of maybe use a QR code on the ATM for customers to go to a log-in site for updating.
5. Put the reminder message in a recording for customers holding for live assistance. It’s a simple reminder that they should keep their profile information up-to-date to help with important account notifications.
6. Have any branch/store employees verify with customers on a designated week (quarterly or annually) that their information is up-to-date information. This only covers the customers that are serviced in-person for that week, but it’s a great touch point for interaction and shows that your brand is proactive to keep good records. Branch POS material can also emphasize the need for updated information.
7. Messaging on all statementing and promotional materials. Emphasizing the 'green' aspects of keeping all communication channels up to date makes this a priority all year long.

Since some customers may have fees associated with SMS texting, it’s not advisable to use that channel unless you have established that as part of their profile setup.

The email channel is different in this multi-channel approach because it is a message to an individual area. In fact, email addresses that are not accurate may return as undeliverable. Consider monitoring undeliverable emails and putting these customers on a list for follow-up through other means such as phone or postal mail.  Alternatively, remove email addresses from the profile record if they are not deliverable after three attempts.

What do you think? Should it be difficult to keep accurate profile data and request the customer update/verify it with recurring frequency? Do you have a process or program at your organization that has worked? I would love to know.

Bank Brand Loyalty Tested With Every Move

When it comes to lifestage marketing events, new movers have always represented a significant opportunity and risk. This is because consumers who move tend to significantly increase spending in a variety of categories while also changing their brand loyalties as to where they shop, eat, buy personal services and even bank. 

But, with new home sales in 2011 being 80 percent below the peak in 2005 (making the number of existing and new home sales the lowest in almost two decades), should bank marketers still invest in this target audience? Do consumers still spend at the same rate as in the past? Is this target audience even scaleable?

Interestingly, despite the ongoing reduction in home sales, the number of people moving has steadily increased since mid 2009, indicating that consumers in transition still represent both a risk and opportunity for marketers. In fact, the New Mover Report 2012 from Epsilon found that consumers continue to spend thousands of dollars in the months following a move, representing a valuable opportunity for those marketers who can identify and effectively communicate to new movers. 

The study also found three major themes when they looked at consumer spending habits, brand affinity and channel preferences associated with a move from one location to another:

• Consumer brand loyalty is tested during a move, with new movers being twice as likely to change brands or service providers than non-movers.
• New movers have an interest in changing and/or upgrading services such as banking, credit cards and insurance after a move.
• Direct mail continues to be a highly valued channel for receiving information during a move, and is even highly valued by Gen Y consumers.

New Movers and Home Purchasers are Not Synonymous

According to the U.S. Census Bureau, roughly 17% of Americans move each year, representing more than 53 million people. Those who move tend to be younger, with the distance of the move also being greater for younger demographic segments. The only exception being those households reaching retirement (around age 65) who also are more likely to move. 

Research shows that while the economy is showing signs of slow and steady recovery, the volume of home sales continues to lag behind the highs achieved in the past. As a result, the ratio of renters on the move versus new homeowners continues to favor renters as it did in 2011. While this trend is not necessarily surprising given the scope of the housing market difficulties, marketers need to understand the difference between these two segments of movers as it relates to demographics, loyalty and purchasing behavior. The good news is that both new movers and home purchasers appear to be on the upswing.

The bad news is that as many as 33% of the people who move do not report their new address to the USPS (the central compiler of the National Change of Address (NCOA) file. As a result, targeting new movers (or even keeping a house file current) requires compiling multiple list sources including utility connections, phone changes, county records, etc.

Do Households on the Move Remain Brand Loyal?

Research shows that even when a household moves a short distance, marketers can't assume purchasing patterns will remain the same. According to the research done by Epsilon, brand loyalty is tested during a move, with the frequency of changing providers/brands being twice as likely for a new mover compared to a non-mover (some categories of services have a much higher propensity of change).

As shown below, some of the lowest levels of loyalty were in the category of professional services, where the difference in likelihood of changing brands between movers and non-movers were greatest for home insurance (3:1), auto insurance (2:1), credit cards (2:1), and banking accounts (3:1).

While a move, by itself, may not prompt a change in providers, it does appear to put loyalty to a specific brand or provider in play which indicates a defection risk for current customers and acquisition opportunity for prospects in a trade area.

When the research dug deeper into the reason for why movers changed brands, the overwhelming reason for change in the professional services category was the move itself (63%) compared to pricing (40%), service (19%) or any other feature/benefit offered.

Finally, beyond changing brands, new movers were also more likely to acquire or upgrade products and services in the professional services category. As was the case for the reason why movers switched brands, new movers indicated that the move itself as a major reason for acquiring or upgrading a professional service (59%), with pricing again being important but taking a back seat as a reason for upgrading (39%). 

What Communication Channel(s) are Best?

As consumers use more and more channels to shop and buy services, it should be no surprise that a multichannel approach is recommended to connect with new movers related to retaining or acquiring households on the move. While there is very little disparity between the preferred channel of communication between movers and non-movers, word of mouth (referrals), email and direct mail are the channels most often mentioned as the way households want to learn about products and services. 

It should be noted that recent research indicates the desire for direct mail being even more pronounced for the marketing of financial services as discussed in a number of previous blog posts including As Channel Proliferation Increases, Consumers Still Prefer and Trust Direct Mail for Financial Services Communication (December, 2011). This study also indicated a higher preference for direct mail among Gen Y consumers than for any other channel.

And while there is always a great deal of buzz among marketers around the use of social media, this channel is the least desired by both movers and non-movers. That said, social media should still be integrated as part of a marketing strategy since targeting new movers using social media will be much easier than with other channels such as mass media and email (due to list availability and accuracy).

Key Take-Aways for Marketers

As I mentioned in my previous post on the subject, Targeting New Movers for Enhanced Growth (February, 2010), the keys to reaching this transitional segment include:

• Be the first in the mailbox (or on the computer, phone or newspaper box) after a household moves to avoid clutter and benefit from early decisions
• Develop a system of immediate processing of prospects/customers to provide the foundation for being the first to reach the new mover in your category
• Measure the incremental impact of the program against your alternative acquisition/retention initiatives

For the majority of my clients, a new mover program is the foundation of their acquisition efforts, generating one of the strongest returns on investment and a steady flow of new households at a time when market growth is at a premium. In addition, a physical convenience is becoming less important for households, more and more of my clients are looking for ways to identify current customers who may be preparing for (or have just completed) a move to protect this household from attrition.

According to Don Hinman, SVP of Data Strategy at Epsilon, "An average household moves every five years on average and spends approximately $9,000 on a broad array of goods and services. By understanding at a deep level where new movers are spending and what opportunities are available to gain share of wallet, brands can create more effective, targeted campaigns to reach consumers during this transition."

The 2012 New Mover Report can be downloaded free of charge here.

Additional Insights:

U.S. Census Bureau Geographic Mobility/Migration Tables - December 2012

The Changing Definition of Convenience in Banking

Historically, one of the reasons people have chosen big banks has been their large network of branches and ATMs. Especially for people like myself, who travel across the country frequently, finding a place to conduct basic transactions without a fee was a competitive advantage for those institutions with a wide distribution network.

Recently, however, small institutions have been working on ways to erode this advantage, closing the gap through expanded ATM networks, improved online banking and now mobile banking services. In short, technology is quickly changing the definition of convenience for bank customers.

A recent study, The New Banking Value Proposition, from market research firm Chadwick Martin Bailey, finds that credit unions and smaller banks are maintaining their perception of having high levels of personalized service while also catching up with their larger competitors in terms of banking convenience. For those smaller institutions who are focusing on new technologies, this can allow them to more effectively compete for the increasing number of accounts in motion. Additional findings include:

• While 42% of consumers state that they use a large national bank (21% regional, 13% community, and 21% credit union), the tenure of relationship (and the value received) is inversely correlated to the size of organization.

• Online and mobile banking have quickly become key components of banking convenience. While consumers still value the branch and ATM access, 43% agree that banking convenience and having good online services are synonymous. As shown below, while large bank customers place a higher value on branch and ATM convenience, the customers of credit unions place a higher value on online services. It is expected that mobile banking service convenience will mirror or surpass the convenience value of online banking in the future.

• Somewhat surprisingly, the research found that credit unions receive very high marks on the access to and performance of new technologies from their customers. While some of this rating may be related to the type of services desired through online and mobile channels by credit union customers (balance inquiries as opposed to more sophisticated uses), this does go against the typical perception of credit unions being less technologically advanced. It should be noted, however, that community and regional banks did not fare as well on technology performance.

In an interview with Bank Marketing Strategy, I asked Jim Garrity, Managing Director of Chadwick Martin Bailey’s Financial Services practice why he believes there is such a difference in offerings as well as consumer perception of technology innovation between credit unions and small banks? His response was, "Much of what you describe can be attributed to differences between the customer bases; credit unions are pulling customers from further away than small banks. A function of this is credit union customers wanting and needing remote access solutions more than the typical community bank customer." He also believed that credit unions often have larger pockets of young members than community banks and these customers are simply more comfortable with remote transactions.

I questioned Jim further around the introduction of new technologies in the mobile wallet and payment areas, and whether this may make differentiation between larger banks and their smaller competitors even less pronounced. Garrity responded, "The speed of technology adoption at credit unions and smaller banks is definitely quickening, but larger banks continue to have the advantage of being able to build this functionality 'to order', whereas small banks and credit unions need to purchase this functionality 'off-the shelf.'  So, while the pace of implementation is undoubtedly quickening, that doesn’t mean that big banks don’t retain the advantage being able to get there first."

Finally, I wondered if digital innovation and the importance of 'have it now' convenience could be the Achilles heel for an entire segment of the industry? Jim believed that what all banking players need to worry about is if banking is following the same path as bookstores —where many small players were selling a commodity product, then the conglomerates (the Barnes and Nobles and the Borders) dominated and forced many small bookstores out of business except in those cases where the business wasn't valuable enough or there was an unserved niche.

According to Garrity, "What we have here is that several players are vying to become the next 'Amazon of banking,' with an online presence supported by products produced by others (i.e. Simple and Movenbank)." 

There is no doubt that this research, combined with the learnings of the bookstore industry, provides some lessons to be learned from around the changing nature of convenience, the impact of commodity price pressures, the importance of service differentiation, and the relevance of community connections, etc. The key will be whether the distribution disruption continues at the same pace, how consumers will respond to the changes in the marketplace, and whether banking can alleviate concerns around security and perceived risk with digital channels.

Video overview of The New Banking Value Proposition

Banks Transforming Branch Networks to Improve Efficiencies

A lot has been written lately around the desire for banks to transform their branch networks given the consumer acceptance of alternative channels and the need to reduce distribution costs. In the past week, there has been coverage in both the American Banker as well as in BAI's Banking Strategies publication (see links to recent articles and white papers below).

One such report, published by the financial market research firm Fitch Ratings entitled, U.S. Banks: Rationalizing the Branch Network, expects that both fewer numbers of branches and different types of branches will be serving customers in the future. According to the report, the continuously increasing cost structure of banking, accompanied by a challenging revenue environment and higher capital requirements is prompting banks to evaluate all expense categories — especially their branch distribution system, which is one of the most significant expenses.

Past Branch Growth

For the past 30 years, branch growth continued unabated while the number of financial institutions declined by more than 50%. The growth occurred largely through consolidation and de-novo expansion, with the objective being to expand a bank's footprint and customer base and therefore low cost deposits and loans.

Expanding a bank's footprint was viewed by consumers as being synonymous with 'strength', and provided a bank the ability to market more cost efficiently. In the past, branches were also the primary form of distribution. The result was that markets with stronger economic activity became overbanked (similar to the growth of gas stations and car dealers in the past and drug stores today).

Branch Profitability

While in the past fees have subsidized branch networks, recent regulations (Reg. E and interchange regulations) have significantly reduced the ability to generate fee income (especially in lower income areas where branches were built to satisfy Community Reinvestment Act (CRA) requirements. Additional regulatory, human resource, real estate and compliance costs combined with the impact of a lower interest rate environment with lower spreads have further impacted the ability to support an expensive branch network.

As shown below, while non-interest income per branch has fallen off recently, non-interest costs continue to rise.

Changing Consumer Transaction Behaviors

As noted in my previous post, The Changing Definition of Convenience in Banking, a large percentage of consumers no longer equate branch distribution with convenience. While there are still some demographic segments who put a premium on the ability to transact at a local bricks and mortar facility (older demographics and small businesses), more and more consumers are banking from their desktop, ATM and mobile phone. 

While many consumers still prefer to perform account opening and more involved financial transactions at a branch, the Fitch Ratings report references Fiserv's 2011 Consumer Trends Survey that indicated that the vast majority of households with internet access (80% or 79M) use online banking, and that the growth rate of using this channel is increasing rapidly. The study also showed a substantial increase in the use of the mobile channel.

In short, changing consumer transacting behaviors combined with continued technological advances and the lower costs to the customer and bank associated with online and mobile banking, will continue to support a shift from traditional branches to digital channels.

In fact, Fitch expects increased technology spending over the near to intermediate term by the banks to continue to improve efficiency and streamline operations. While over the near term these additional technology expenses may offset cost savings from culling bank branches, longer term it should improve earnings and, therefore, returns to shareholders.

Impact of Reducing Branch Networks

Fitch views the reductions in costs, and therefore improvement in earnings, as the biggest near-term positive to the reduction (or at least the reconfiguration) of branches. Fitch also believes that larger banks with more resources are in a better position to benefit from both a technology spending and cost-savings perspective.

In the study, Fitch notes that financial institutions unable to transform their branch models in the near term may actually suffer declining market share and customer attrition since consumers are demanding new ways of transacting with their bank. Alternatively, the increased use of technology could have the impact of making it easier for customers to move funds from one bank to another, which could have the unintended impact of increasing customer attrition rates and decreasing the stickiness of deposits as banks encourage channel shift.

Branch Transformation Alternatives

With the increased cost structure of branches, changing consumer transaction behaviors and potentially negative impact of simply closing branch offices, what might be the new banking distribution model? Fitch and Infosys both believe that technology, innovation and channel integration will play a major role in the transformation of bank distribution.

While new banking entities such as Simple and Movenbank can build a truly branchless bank, traditional financial organizations will need to find the right balance of branches and alternative channels to maintain a physical presence while still moving to a more feasible cost structure for the future. And while the announcements of branch closings are becoming more commonplace (BofA, KeyBank, PNC, HSBC, Capital One) to various degrees of controversy, the decision to close or modify a branch location will not be an easy one.

Digitally Enabled Branches

Some banks, like ABN AMRO have introduced a high tech teleportal that utilizes interactive technology without the presence of any staff. The branch can conduct the majority of the functions of a traditional branch through the interaction with a 3D screen that provides an effective, albeit different, branch experience.

Banks wanting to maintain a reduced staffing model without eliminating all direct human interaction have integrated digital and video technology to supplement a reduced staff in a smaller facility. Phone banking, self-service teller stations, online banking stations (using iPad style devices) and video web conferencing are being used in some banks for loan processing and even cross-selling.

ATM Modernization

With ATM capabilities expanding rapidly, some banks are increasing the presence and utilization of ATMs to handle more customer needs. We have already ATMs that can accept checks, make bill payments, provide change and even issue stamps and movie tickets. Future advances will include the potential for live video interaction and customer support and new ways to access cash utilizing mobile devices. These expanded capabilities will allow banks to reduce (or replace) a traditional bricks and mortar branch.

Enhanced Branch Value Proposition

For those branches that remain, banks must extract a higher value from the existing real estate through improved cross-selling, expanded services (brokerage, advisory, insurance, community outreach, etc.) and an overall enhanced customer experience. Citibank has gone as far as developing branches inspired from the Apple store, integrating modern design with technology and high customer service to improve engagement and sales (see Citi Rolls Out Its Version of the Apple Store in The Financial Brand).

With banks needing to reduce and reconfigure their distribution networks due to cost and revenue implications, disruption in bank distribution will continue. In an environment where customer fees have recently increased and dissatisfaction with the banking industry is still at high levels, any perceived cutback in service levels will be met with quick and widespread negative publicity and potential for further regulatory push back. This will leave banks with having to balance their need to change their distribution strategies with potential negative public sentiment.

It will eventually fall on the shoulders of bank marketers to soften the impact of any negative response through effective (and proactive) communication using all available traditional and digital/social media channels.

What do you think will be the best near and long term distribution strategy for banking? What will be the impact of the new banking entities that will enter the marketplace without branches? I would love to know.

Recent Related Articles on Bank Branch Transformation
Riding the Innovation Curve for Branch Transformation
Boiling the Frog: Time to Re-think Branches?
Branch Consolidations: Handle with Care
Bankers Talk Bluntly About Closing, Streamlining Branches
The Branch Killers Have It Backwards in Eyes of BB&Ts King
Bank Branches Are Dead

Recent Related White Papers
Infosys - Branch Bank of the Future: Transforming to Stay Relevant
Fitch Ratings - U.S. Banks: Rationalizing the Branch Network