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

Are Bankers Ready For The Bank 3.0 Reality?

In an exclusive interview about his newest book, Bank 3.0, Brett King discusses how change occurring in the banking industry is inevitable, speeding up and disruptive. 

From the mobile wallet wars to the impact of social media, tablets and the 'de-banked' and digital consumer, Bank 3.0 shows why banking is no longer a place you go to, but something you do.

A great deal has happened since Brett King wrote Bank 2.0 in 2010. Two years ago, banks were under siege as the foundation of the banking system was close to collapse and the image of the industry as a safe and secure environment was being challenged. The impact of social media was just beginning to be understood by the financial services industry and mobile technology as we know it today was in its infancy. Heck, King even referenced his (now long gone) Blackberry in the first chapter of Bank 2.0.

With Bank 3.0, King discusses how consumers are less likely to view their retail banking provider in terms of capital adequacy, branch network, products and rates. Instead, customers are more likely to determine their banking partners by how easily they can access their accounts when they need to, and how much they trust their provider to execute business on their behalf. For those who read Bank 2.0, King's new book retains some of the foundation and case studies, but updates several areas based on what has occurred (and will be occurring) relative to digital delivery, payments, social media, and the power of 'big data'.

On the eve of the introduction of Bank 3.0 in the U.K. (introduction in the U.S. is scheduled for early November), I interviewed Brett King about his new book and about how he views the banking industry today.

What has occurred in the marketplace that warranted the publishing of Bank 3.0 just 2 years after your successful book, Bank 2.0?

Brett King: The marketplace has changed significantly around how consumers are engaging with their financial institutions. Compared to two years ago, traditional banks are challenged more than ever from a distribution perspective because of the movement to mobile and digital channels, and because they are not well positioned with their current bricks and mortar networks for a positive customer experience. 

The philosophy of banks, with their secure firewalls, operational structure and compliance mindset, is counter to how any other industry engages with customers in the digital space. Since Bank 2.0, the competitive environment has also changed a great deal, with partnerships being developed, alternative players and new bank start-ups being introduced, underbanked segments emerging, and social media merging with bank service engagement. People are beginning to take a functional and utility view of banking, which is why I say in the subtitle of the new book, 'banking is no longer a place you go to, but something you do'.

In Bank 3.0, you discuss that despite these marketplace and behavioral changes, traditional banks in the U.S. have made only minor changes to their distribution models. Where do you see bank branch distribution going in the near and mid-term?


Brett King: We have already seen a number of new players enter the market, especially in the payments space such as Isis, Square, PayPal, Google Wallet, etc. In addition, prepaid cards have become much more popular and represent the fastest growing deposit product in the U.S. This is significant since most bankers do not consider the product to be 'real banking'. From the consumer's perspective, however, prepaid cards are real banking. This is the mistake traditional bookstores and movie distributors made when new distribution alternatives emerged. They didn't take the challenge seriously. Bankers need to realize that prepaid cards are changing the way people are viewing bank relationships on the grassroots level. 

Finally, as transactions continue to migrate to online and mobile channels, we will see more and more banks reconfigure their traditional branches to reflect the new digital reality, with many banks also starting to close unproductive (and economically deficient) branches. These trends will only escalate going forward due to the costs of delivery and the reduced revenue potential.

No new U.S. bank charters have been issued in the recent past. What challenges are faced by start-ups like Movenbank related to regulations and other outdated barriers to entry?

Brett King: The challenges we've had have not been from regulators, but from the risk and compliance areas of the financial organizations we are trying to partner with. In fact, we've met with the Fed, the Treasury and the CFPB and they have all been overwhelmingly supportive of what we are doing. They understand the changes occurring in the marketplace, and have liked the financial literacy built into our product, our engagement model and the value we bring to the overall banking experience.

Alternatively, the banks themselves are having difficulty innovating . . . moving from the way they have done things in the past, using paper applications, signature cards, etc. to using web signatures and online authentication (which is much safer).

Do you see the cost of mobile innovation discussed in Bank 3.0 being an additional 'market disrupter' impacting the ability for smaller institutions to succeed and ultimately survive?

Brett King: The problem is that there are so many start-ups in the financial services and payments space that are impacting the way people view financial services that significant technology projects need to be undertaken by traditional banks just to keep pace. Investing in a technology layer, combined with the new costs of compliance, will be a challenge for smaller institutions. That doesn't eliminate the potential for smaller organizations to collaborate or to build partnerships to respond to market realities, but I don't see this happening.

With the rapid acceptance of tablets, how do you see tablets changing the way people do banking and the services banks may provide leveraging this technology?

Brett King: As we have seen in the retail space already, mobile will change the context of banking including where and how a consumer conducts business. For instance, the process of buying a home and securing a mortgage becomes much different when the shopping for the mortgage is done online significantly before a customer enters a branch (if they do so at all). A tablet can also provide a rich user experience due to the real estate of this device compared to a smartphone and the tactile capabilities compared to online interaction.

Turning this around, if a customer can get this experience on a tablet, why can't that level of experience be replicated at the ATM, as part of online banking and even in the branch? In the end, I think the growth in tablets will force banks to build enhanced customer experiences across all channels.

You have a section in your book dedicated to the impact of social media in financial services. How do you see social media changing banking in the future?

Brett King: Currently social media is impacting banking in a couple ways, including servicing and social dialogue. Customers are increasingly expecting to be able to reach their bank regarding service issues using Facebook or Twitter and get a response immediately. Many banks are falling short in this area, not providing adequate support for 24/7 social channel access.

In addition, consumers are using social media to follow and engage in dialogue about brands (both positively and negatively). If a brand performs well, this can lead to advocacy which in turn can lead to referrals and new business. This positive dialogue becomes critical in restoring trust in an individual bank's brand.

At the end of each chapter in your book, you provide key lessons and recommendations for banks willing to embrace change and take advantage of market opportunities. What is the biggest risk facing traditional banks as they move forward?

Brett King: The biggest risk facing traditional banks is the distribution and cultural bias towards physical branches. The difficulty in unwinding this investment is extremely difficult due the vast scale of branch networks. How do you turn such a ship in such a short time when you are so used to doing things in a certain manner? Leasing and rental contracts present a hurdle, but changing the branch-based culture at most banks may be a bigger challenge.

Your book contains dozens of case studies and references to financial institutions around the world that are innovating and developing new ways to engage with customers. Where is the greatest banking innovation occurring today?

Brett King: The countries that I believe are the best at this would include Australia, many of the Latin American countries like Brazil, some of the countries in the EU including some of the Danish banks and Swedish banks. In my opinion, the U.S. is definitely at a disadvantage due to their over investing in branch networks. The non-banks and new start-ups provide the best examples of innovation in the states."

Commonwealth Bank of Australia - Kaching Facebook Banking

Bank 3.0 is about the transition from banking dependent on a physical structure to banking that can be done at a time and place most convenient to the customer. It is about a new form of engagement and experience that harnesses the power of the internet without sacrificing the 'human touch'. It is about leveraging the potential of big data for better 1:1 interactions and more powerful marketing. 

Brett King's newest book emphasizes that consumer behavior is changing faster than ever before and that banks need to decide if they will embrace the change or be a victim of the change. Innovation and experimentation are no longer an option. They are the only way to do business.

Bank 3.0 was released today in the U.K. and is scheduled to be released in the U.S. in early November. In addition, Brett King mentioned that he will be offering free copies of his new book to Twitter followers over the next couple weeks on a first tweet, first served basis. Brett's Twitter handle is @BrettKing.

Banking Leaders Discuss 2014 Strategic Planning Priorities

CROWDSOURCING SERIES

As we enter the planning season with a marginally better economy than last year, banks and credit unions are faced with margin compression, high operating expenses, new competitors and channel disruption that challenge even the most efficiently run organizations.

To assist with this year's strategic planning process, I asked some of the foremost global leaders in the banking and credit union industry to provide thoughts on what they believe are the 2014 strategic planning priorities. This blog post is a companion to the post done at the beginning of the year regarding trends expected in 2013.

Understanding that each financial institution and market is different, it was interesting the uniformity of priorities offered to bank and credit union management by the more than 30 industry leaders I interviewed for this post. And while the ability to execute against these strategic priorities may be impacted by size of organization and other dynamics, there was a consensus among those who I spoke with that 2014 may be one of the most important planning cycles ever.

Enhance the Customer Experience

Improving the customer experience was the foundation of almost all of the responses I received around 2014 strategic priorities. Whether we are talking about branch reconfiguration, mobile banking applications, back office operations, etc. banking industry leaders believe an improved customer experience is the key to growth. 

As was said by Mary Beth Sullivan and the team from Capital Performance Group in their May/June Newsletter, "Many banks have a long way to go to get the basics right, so banks and credit unions should focus first on the basics. Once the basics are humming, ask yourselves: What can we do to be sure that our customers are better off banking with us than with our competition? What will make our customers lives better? How can we help them solve specific problems they are dealing with? Answers to these questions will define the experience you seek to create."

Beyond 'the basics', other specific strategic initiatives were recommended by Steven J. Ramirez, CEO of Beyond the Arc. "Developing a proactive complain management process that goes beyond regulatory requirements can drive new customer experience projects", says Ramirez. He also believes financial institutions need to determine how they can be a finger swipe away from providing guidance and support through mobile devices.

Financial industry futurist and blogger Scott Bales believes bankers need to get out of the office and talk to real customers, developing empathy for their problems, behaviors and desires if they want to develop offerings that align with the needs of the market. According to Bales, "The goal is to build experiences, not products".

Sankar Krishnan from Sutherland Global sees customer experience as the 'X factor' across all channels and interactions the customer has with their financial institution. Comparing what banks need to strive for with customer experience leaders Apple, Amazon and Quicken Loans, Krishman believes banks need to excel at aligning people, process and technology. 

Sam Maule from Carlisle & Gallagher Consulting Group believes that recent start-upssuch as Moven and Simple (and perennial cx leader USAA) are the best at visual engagement and customer experience. He quoted one of his banking clients as saying, "I would pay $500K for ONE great user experience designer. FSI's are horrible at this. We have massive data systems, huge BI tools, and more, but none of that means jack for consumers if there isn't an amazing user experience."

Finally, best selling author and acclaimed management advisor Joe Pine believes banks and credit unions must go beyond providing just checking accounts and loans.

Define Mobile Positioning

In response to the growth in smartphone adoption and customer demand, most financial institutions offer basic mobile services. But those are just table stakes. Going forward, banks and credit unions now need to determine how to position this channel for the future. 

Senior Aite analyst and Snarketing 2.0 blogger Ron Shevlin states, "The most important strategic question banks and credit unions need to address is how will the mobile channel help FIs add more value to the customer relationship, help differentiate the institution, and create a strategic advantage". He adds, "If the 2014 strategic planning process can answer these questions, it will drive decisions regarding pricing, product offerings and customer segmentation."

Noted technologist Bradley Leimer from Mechanics Bank agrees that banks need to move beyond 'mobile banking 1.0' and adopt a mobile-first mindset in regard to application development, marketing, service and transactional functionality. According to Leimer, "Banks need to build simplified journeys similar to those offered by Moven, Simple, Bluebird, GoBank and USAA." (Leimer expands on his strategic planning thoughts on his Discerning Technologist blog here). 

Senior marketing professional, Lori Philo-Cook from InnovoMarketing believes that financial institutions also need to improve the marketing of the mobile channel to customers, including enhanced training of employees and one-on-one demonstrations to customers. "The key is to better understand the needs of customers and provide personal demonstrations on how mobile banking can meet these needs", says Philo-Cook.

Multimedia and special projects editor of Finextra, Elizabeth Lumley believes it is time for banks to go beyond just mobile banking improvements and to place their bets on mobile payment partnerships. While the winners in payments have not been determined, she believes waiting is not an option.

Integrate Delivery Channels

As noted by Capital Performance Group in their May/June newsletter strategic planning article, everyone is talking about the future of branches because there is so much fixed cost tied up in this channel where fewer and fewer transactions are taking place. The challenge is not the opening or closing of a branch, however. It is the ability to integrate capabilities and information across channels, delivering an consistent experience.

Dominic Venturo, chief innovation officer at U.S. Bank believes banks and credit unions need to quickly adjust to the disruption in financial delivery channels. "Now that the majority of consumers in the US are carrying a smart-phone of some type and the technology has been used to eliminate the need to visit a branch for many activities (opening account, depositing a check, paying a bill, sending a gift card, etc) how will the delivery model of your institution change to remain relevant?", says Venturo. He adds, "The mobile wave started just a few short years ago and has already changed how we do business. Planning for the future of delivery should have already started, but if it hasn't, now is a good time."

Another retail banking executive at a top 5 financial institution believes FIs need to move to omnichannel banking which maximizes cross-channel consistency and provides a seamless user experience where and when the customers desires. This includes scenarios where the customer may begin their transaction using one channel and finish it with another.

To this end, Nicole Sturgill, research director for retail banking at CEB TowerGroup recommends, "Adjust channel strategy from ‘all transactions in all channels’ to ‘seamless integration across channels’. Our research shows that consumers prefer reduced effort over choice. They’d rather know which channels will be fastest and work best than try a channel that doesn’t work for what they’re trying to achieve. Instead banks and credit unions should focus efforts on ensuring that customers can move easily from one channel to another without degrading the experience."

Industry recognized innovator Matthew Wilcox also believes 2014 should be the year of breaking down internal channel silos and to determine how banks and credit unions can leverage channels to not just allow the client to self-serve, but to provide a positive full-service experience regardless of the channel.

Unfortunately, the back office of many financial institutions makes it difficult to break down silos that have been in place for years says Fred Hagerman, chief marketing officer of Firstmark Credit Union. He still believes that a disconnected experience has risks.

Both Virginia-based chief marketing officer of Geezeo, Bryan Clagett, and Market Insights' senior strategist Jim Perry from Chicago agree that financials should get out of their branch-based comfort zone.

London-based mobile/digital consultant for Keatan and publisher of The Bold War blog, Michael Nuciforo may state it best when he says that banks must move from a perspective of self-service (getting customers to do hated tasks themselves) to selfless service (where we focus on how the customer wants to interact). "New technology and changing customer behaviors mean that there are widening gaps between the processes of the past and the expectations of the new", says Nuciforo.

Reduce Enterprise Costs

It is no surprise to financial institutions of all sizes and in all countries that costs must be reduced as revenues have decreased and margins remain low. Many banks and credit unions have made cost reduction a perennial foundation of their strategic planning process, but more needs to be done in 2014.

"Banks must manage the cost base of the physical infrastructure and staff costs in branches to ensure that overhead of traditional operations are minimized while effectiveness of such operations are maximized", offers the Chairman of the London-based Financial Services Club, Chris Skinner. 

Bob Palmer, global financial services marketing lead at IBM agrees that there needs to be a continuation of the enterprise cost reduction strategies that are already in place. He believes these initiatives need to include a more aggressive reduction in workforce with a correlated reconfiguration/reduction of branch networks.

Melanie Friedrichs, analyst at Andera feels automation of core banking services also needs to occur. "For most institutions, I think that cost cutting through the better application of existing technology is the easiest path to a better margin", stated Friedrichs. Specific examples she provided include: increasing the percentage of deposit accounts and loans originated online, creating incentives to use online or mobile banking over branches and call centers, and investing in technology, perhaps even branch automation technology, to improve staff efficiency.

Author, 2012 American Banker Innovator of the Year, 'Breaking Banks' radio host and founder of Moven Brett King believes that banks need to dig even deeper for cost reductions. In his normal disruptive style, he challenges traditional financial organizations to make a significant paradigm shift.

Fellow disruptive thinker Deva Annamalai from Zions Bank agrees that banks need to identify processes that are outdated and archaic and get rid of them. "There is nothing more dangerous than sticking to things that we have done in the past because we are too lazy to change them," says Annamalai. "Your customers' tolerance for unneeded traditions like signature cards and other long and costly processes is wearing thin. Competitors who provide simplified, frictionless banking are ready to serve these customers."

Optirate CEO, Serge Milman adds that the future of banking may require additional scale. "Scale is needed to diversify 'concentration risk' (customer, geographic and product), attain lower funding costs, reduce unit costs, absorb regulatory burden and gain access to a broader base of potential customers," says Milman. "Options include organic growth and acquisitions."

Leverage Data

The discussion of 'big data' permeates our industry trade publication, industry meetings and blogs like mine (see here, here and here). This is because most financials sit on some of the richest sources of data of any industry, yet we rarely leverage it as effectively as possible. 

Recognized top innovator Matthew Wilcox states that while investments in innovation data management are up, banks still lag behind other disruptive companies in recognizing payoffs. "Banks have a strong hold on massive amounts of customer data and understand that their data is truly a gold mine", says Wilcox. He adds, "Initially, banks should avoid major new data initiatives until they get good at using the data they already have". 

Scott Bales suggests that banks may want to look outside their organization for help. "Bankers may want to look to data scientists, who can create stories from data to derive patterns, trends, insights and add context to interactions with consumers. The bank who best leverages their data best will ultimately win." 

Fred Hagerman from Firstmark Credit Union agrees. 

Understanding and processing data from various internal systems is imperative according to Zions' Deva Annamalai. "Break down data silos within the organization and facilitate information flow which will lead to a better customer experience," states Annamalai.

A strategic priority for banks should include the delivery of a mature enterprise data management structure that provides true parity based reporting between operational, performance and financial information", offers Jeff Fisher, director at Perficient. "From here, banks should build capabilities to further extend a bank’s ability to segment customer data and create a solid foundation to execute on a strategy to monetize customer data".

Sam Maule from Carlisle & Gallagher Consulting Group agrees and adds, "We all must be better at drilling into the contextual data that matters for customer engagement and not on creating executive dashboards for PowerPoint decks. Data analytics must lead to actual application and engagement with consumers, from customer acquisition to origination, marketing, education, collections, fraud, etc."

Nicole Sturgill from CEB TowerGroup believes that channel preference would be a great starting place for many financial institutions. "Know a customer’s preferred channels, both individually and in the aggregate. At the individual level, understanding how a customer wants to bank can drive how they are served, what products are offered, and how they are offered. At the macro level, understanding the channel preferences of the customer base can drive strategic decisions on channel investments as well as management structure."

Improve Marketing and Sales Effectiveness

As I discussed last month in my blog, the consumer purchasing funnel has changed forever, with the majority of consumers beginning their purchase process using online channels and less and less frequently preferring to visit a branch to open a new account. This new paradigm requires a shift in marketing emphasis from 'push' marketing, where mass media would bombard a consumer with messages, to 'pull' marketing, where time, place, offer and channel become much more important. 

This significant change in the purchase process requires a rethinking of strategic priorities for bank marketers in 2014 and beyond. 

James Robert Lay, president of PTP New Media and advisor to the credit union industry is a strong advocate of building a digital strategy that will lead to increased leads and sales. According to Lay, "Moving to digital channels requires banks and credit unions to stop thinking about digital as a tool that works independently of other channels and processes, but instead works together as part of a system or process." Lay continues, "Once banks and credit unions accept that the business model will need to change when dealing in a digital world, banks and credit unions need to explore how digital can align with people and products around a unified purpose."

London-based retail channel director at Misys, Alex Bray emphasizes that the future reduction in branches across the globe will require digital marketing acumen. "Banks and credit unions need to build relationships, differentiate brands and identify customer needs through digital channels instead of face to face as branches disappear," states Bray. "I think gamification and social media marketing will also play a big role here as will the importance of 'one-touch' mobile marketing."

Financial Services Club's Chris Skinner also believes that a strategic priority for 2014 will be to find ways to leverage social media and mobile for growing share of wallet through deepening customer relationships.

Finally, Elizabeth Dias, financial services and retail marketing manager at Perficient speaks for many of the banking leaders interviewed around the new strategic direction of marketing. "Successful financial services innovators will start to leverage a more integrated portfolio of technologies to be where their customers are today and identify new ways to create utility with their digital marketing strategies for tomorrow," says Dias. "There is a great opportunity for marketers to use tools like Vine, Instagram, Twitter, Facebook and Google or to develop a mobile app to solve a problem, make life easier, and of course engage with the customer as they map the digital customer journey."

Define a Differentiation Strategy

According to the list of strategic planning priorities developed by Capital Performance Group, there has never been a better (or more important) time to identify your institution's niche. How do you become the 'go to' financial provider for a specific retail or business segment? And how can you increase revenues (and potentially reduce costs) through this differentiation at a time when the consumer thinks all financial providers look pretty much the same?

According to Keatan's Michael Nuciforo, it may be as 'simple' (or difficult) as being the firm that executes the best against their plan. "The banks that are winning are the banks that are delivering," says Nuciforo. "They have refocused not on analysis paralysis, but on quality and speed of delivery." 

Serge Milman from Optirate and Melanie Friedrichs from Andera voice a similar warning around building differentiation in a crowded marketplace. While they agree that banks and credit unions need to develop strategies to set themselves apart in the marketplace, they both emphasize that there needs to be a highly focused commitment to the strategy.

Amber Farley, director of interactive services and media at Financial Marketing Solutions in Nashville, reminds us that, "Companies that usually do the best are ones that have a brand that permeates throughout the entire organization. The best companies value customer service and they make consumers want to be a part of their story". She suggests that more time and investment should be spent on internal branding initiatives by improving internal communication and energizing the organization. 

"Once each member of the entire team (from executives to the front line staff) is a brand ambassador for the bank, I think it is equally important to communicate the brand message in a consistent and aesthetically pleasing manner so that community members desire to be a part of the story. That's how life-long customers are made". 

Finally, fintech technologist Bradley Leimer emphasizes that differentiation (and innovation) do not need to be created internally or in a vacuum. Instead, he emphasizes the power of partnership with outside providers. If your firm is not able to address all of the external requirements of your customers and the marketplace, are unable to test, iterate or develop agile or lean processes that can help differentiate your organization, or simplify the customer journey and build a unique customer experience, partnering with an outside disrupter that can lead the way may be a better option. (read more about Bradley's perspective here).

Revenue, Security and Regulation

As was very profoundly offered by SourceMedia's Editor in Chief Penny Crosman, the financial services industry can't ignore the 'elephants in the room' . . . the ongoing need for revenue, the increasing importance of improved security and the reality of a heightened compliance environment. The negative impact of neglecting any of any of these strategic priorities could easily offset any benefits from the strategies discussed above.

Finding new ways to generate fees from new innovations or established products, testing new security options which will allow for greater acceptance of mobile banking and mobile payments and finding ways to improve compliance with fewer dedicated resources will be 'must haves' in 2014.

Keys to a Successful Planning Process

Whatever strategic initiatives are agreed to by a bank's or credit union's management, it should be shared and communicated with bank employees so they understand the organizations’s mission, vision, goals, and objectives and the employees’ role in achieving the objectives.

In its simplest form, a bank’s strategic planning process should answer the following four questions:

1. Where are we now?
2. Where do we want to be?
3. How do we get there?
4. How do we measure our progress?

In today's marketplace the strategic planning process must be dynamic and focused. Unfortunately, at many institutions I visit, the process becomes nothing more than an adjustment to the prior year's plan without adjustments that reflect the rapidly changing industry dynamics. In others, there is a lack of unified focus that can lead to disruption and competing priorities.

Simply going through the motions is a recipe for disaster as articulated by credit union advocate Tim McAlpine, president of Canadian-based Currency Marketing and Jeff Marsico, EVP of bank strategy at The Kafafian Group and fellow blogger.

Fintech advisor and CEO of Clientific, J.P. Nicols cautions, "Too many banks try to be all things to all people, and the universal bank model really needs significant scale to work. Bank executives should spend a a good share of their strategic planning time evaluating all of the businesses they are in (or not in) and make an honest assessment of potential growth rates and the investments and scale needed for success".  He adds, "Business lines not making the grade should be divested or closed and the investments diverted to lines where they can legitimately compete and win". 

I hope some of these suggested strategic priorities help in your 2014 planning process. Thanks to the dozens of financial service leaders that were so kind to share their thoughts.

If you have other priorities that you believe will help your fellow FI associates, I would love to have you post these in the comments section.

Additional Resources

Strategic Priorities for 2014 Planning - Capital Performance Group (June 2013)

Banking Leaders Predict Major 2013 Trends - Bank Marketing Strategy (January 2013)

Strategic Plans That Make A Difference - Mary Beth Sullivan for BAI Banking Strategies (August 2012)

Semiannual Risk Assessment: Spring 2013 - Comptroller of the Currency (June 2013)

Ten Keys to a Solid Strategic Plan For Banks - Sageworks Blog (July 2012)

Meaningful Strategic Planning Can Happen - ABA Banking Journal (May 2012)

Today's Mobile Banking Apps: Table Stakes or Cutting Edge

There is no disputing that the U.S. mobile banking landscape is changing rapidly. Larger banks are setting the stage for broader market trends, while smaller banks (and even some regional players) play catch up in the development of new functionality.

What are some of the top U.S. banks doing that is innovative and what has quickly become table stakes in a game of mobile app one-upsmanship? And is mobile banking innovation becoming a value-added differentiator that can drive new revenues?

Over the past 18 months, mobile banking applications have evolved beyond the basics to include specialized functionalities, improved user experiences and an expansion of platforms supported. A year ago, mobile remote deposit capture (RDC) was live at only five of the top 13 banks. Today, it is a 'must have' banking application that has the potential to drive revenue. Similarly, P2P is now taking center stage at most banks despite some logistical hurdles, with five banks adding this functionality in the past 12 months.

How are banks keeping up with consumer demands? How are they keeping up with each other? What's next? In the third report in a series on the state of mobile banking released by the financial research and consulting firm Celent, a review of new application development is provided along with a glimpse into the future. 

In the 44-page report, The U.S. Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top U.S. Banks, Celent found that larger banks tend to out-develop and out-adopt smaller institutions by a significant margin. “The channel is still relatively new, but leaders in the digital channel space are beginning to take offerings into the realm of value-added services that are context-sensitive, timely, and utilize big data", says Dan Latimore, senior vice president of Celent's Banking Group and coauthor of the report. "There’s a large disparity among digital offerings—industry leaders are light-years ahead of the laggards.”

Below is Celent's view of the mobile landscape as it continues to evolve. As can be seen, Emerging Capabilities include a more advanced stage of interaction with more knowledge-driven tools and analytics. While some of these may not be pursued by every organization, Celent believes most will be tomorrow's standard. Interestingly, some of the functionality in the Future Focus is already being implemented on a global basis (see previous post 'Banks Accelerate Mobile Banking Innovation', June 2013). 

While the future may be considered speculative, some components are beginning to appear at the more progressive institutions (U.S. Bank and BBVA Photo Bill Pay) and at some of the new players such as Moven, Simple, GoBank and BlueBird (see 'Challenger Brands & Disruptive Ideas: Learning From The NeoBanks', Financial Brand, August 2013).

Current Evolution of Mobile (Celent, June 2013)

Key Findings of the report include:

• Mobile, and more broadly digital channels, have become core parts of banking in 2013. Mobile devices are now just as much a tool to keep people out of branches as they are to facilitate interaction. Consumers are more eager to engage through a smartphone, and as nontraditional players rush in to fill gaps left by legacy financial institutions, CIOs are beginning to feel the pressure to build out digital capabilities.
• Digital channels are in a continuous process of evolution, proliferation, and adaption. While remote deposit capture was 'new' a year ago, it is now a basic functionality. Innovation in the mobile channels is ongoing with today's innovations quickly becoming tomorrow's table stakes. 
• Banks are moving forward in their evolution of digital channels, but it's a slow and sometimes confusing process. It’s no surprise that banks aren’t considered innovators: it’s difficult, expensive, and risky to innovate. Yet, banking is entering a time of customer-centricity, where each institution defines this concept differently.
• New functionality is on the horizon, but not yet front and center. This includes: 1) Speech recognition, 2) Social media integration, 3) Mobile PFM tools, 4) Easy access account balance, 5) Cardless cash withdrawal, 6) Debit card on/off switch, 7) Remote mobile bill pay, and 8) Biometric security.

How Are The Top Banks Doing?

Mobile is definitely moving beyond the replication of online banking services and into value-added features built to serve more specific use cases and even different segments of the bank (retail consumer, small business, wealth management, commercial, etc.). As shown above, the evolution is trending towards an environment where solutions are being 'bought' vs. 'built' and where engagement of the customer on a contextual level is beginning to be achieved. 

Using a features and functionality scoring sheet for each mobile platform (developed as part of the previous Celent research 'What's App, Doc: A Biannual Evaluation of Mobile Banking at Top U.S. Banks'), Celent evaluated apps for the Apple iOS, Android, Safari web browser and text banking. Scores were compiled for the top 13 banks in the U.S., with banks grouped into three categories based on the following criteria:

• How easy was it to find the desired function?
• How easy was the app to use?
• Was the information presented intuitive from a navigation perspective?
• Did the app take advantage of standard OS functionality to enhance familiarity?

A very in-depth evaluation was performed for the following functions on each mobile platform to determine breadth of offering. Each function was evaluated on a number of levels with values placed on each of the following capabilities: 

• Balance inquiry
• Recap of previous transactions
• Bill payments
• Moving money (RDC, A2A, P2P, etc.)
• Merchant-funded rewards
• PFM tools
• Social Media integration
• Geolocational tools
• Marketing and sales
• Security
• Customer support
• Personalization
• Alerts

Celent grouped the banks in this report into the following three categories: most improved, noticeable improvements, and minimal/ no changes.

1. The most improved apps include Bank of America and US Bank.
2. Apps with noticeable improvements are Capital One, Wells Fargo, and HSBC.
3. Banks with minimal or no changes to their mobile offerings include BB&T, Chase, Citibank, Fifth Third, PNC, Regions Bank, SunTrust and TD Bank.

According to Dan Latimore, "While Chase continues to build on their mobile excellence, some apps have been playing catch up." And while not making significant changes does not necessarily mean the mobile banking site was poor, standing still in today's mobile marketplace is not a solid long-term strategy.

Interestingly, in an unrelated research study conducted by Xtreme Labs for the period May 18 - June 1, 2013, entitled 'U.S. Banking Apps Report: Customer Reviews', a different set of 'winners' emerged based simply on the number of positive and negative customer ratings in both the Apple iTunes Store and Android Play Store. A minimum number of reviews were required for any app and an averaging of reviews was used for scaling. While significantly less scientific than the Celent research, the Xtreme Labs research provides a social media commentary on customer sentiment around mobile banking apps.

Of the largest banks reviewed by Xtreme Labs, RBS Citizens, had the highest score on the iOS platform (4.5 out of 5 and a 93% favorability rating) and one of the best scores on the Android platform (4.5 out of 5 and a 97% favorability rating). USAA, American Express, Wells, TD Bank, Chase, BB&T and Regions and U.S. Bank also scored well in this study.

Conversely, PNC (not virtual wallet), SunTrust, TD Bank, Fifth Third, Bank of America, Well Fargo and USAA also appeared on the negative side for the iOS platform in the Xtreme Lab study, indicating that the mobile apps were not considered the best for everyone.

Issues to Address in Future

Beyond the need to explore the development of additional functionality that makes engagement easier and leverages big data more effectively, Celent saw some trends they believed warrant attention in the near term.

Marketing and Cross-Selling

As was noted in my June 2013 blog post around Mapa Research's study of global mobile banking innovation, U.S. mobile banking apps still haven't leveraged some of the power of cross-selling from a mobile device. While the Celent research noted that many banks have attempted some form of 'product pushing' or advertising of services, there seems to be minimal leveraging of big data insights to drive contextual offers. "Splash screens and real estate crowding banner ads should be left to online banking", say Latimore. "Apps should move toward offering up product suggestions (without sacrificing user experience) as well as being able to facilitate the beginning of an enrollment process, which can be finished at the branch, over the phone or online".

Mapping

While it is understandable that many banks may be a bit skittish around using Apple Maps for branch and/or ATM directions given early flaws with the iOS application, using Google Maps from within the Safari browser was found to be slow and 'clunky' compared to the integrated option from Apple. Celent believes the risk may be worth it. Another option (used by both PNC Bank and U.S. Bank) may be the use of augmented reality for locational guides.

App Design and Platform Changes

Celent noticed that a number of apps in the study had little or no change from the previous report from Q4 2012. While this may not seem out of the ordinary if compared to bank website redesigns, and certainly falls in line with the industry's normal 'wait and see' approach, this speed of change is not acceptable to most mobile users who are used to constant and frequent enhancements to apps.

In addition, as tablets of all forms have exploded onto the marketplace, banks have done a terrible job of developing applications that take advantage of this very unique platform. Beyond the tactile and length of engagement differentiation of this platform, the demographics of the typical user (more affluent and more digitally astute) warrants a greater focus.

PFM on Mobile

There is no disputing that PFM on mobile has yet to gain any traction. Banks are struggling to define what PFM should be and what it should look like on different channels as well as platforms. The majority of consumers are not attracted to charts and graphs on mobile devices (there is a segment however). But PFM on mobile may provide promise if looked at in the perspective of improved receipts, budget updates and even gamification. Merchant-funded reward integration is also possible with geolocational capabilities providing the ability for immediate rewards through the mobile device.

While some banks are testing some of these capabilities (most notably the neobanks like Moven as covered here in my early 2013 blog post), there is quite a bit of debate on whether the investment in development can be recouped without a value-added pricing model.

According to Latimore, "Eventually, Celent imagines high-value advice on savings, alerts for overspending on a budget category, or GPS-enabled deals. The camera is another unique attribute to the mobile phone that can be used to provide a snapshot of spending."

The Long Road Ahead

Mobile banking has quickly evolved from being a more cost effective way to handle balance inquiries to a core component of every bank's delivery network. We have moved from a transaction focus to an engagement focus, with CIOs beginning to feel the pressure to build out mobile capabilities. 

With basic mobile transactions such as balance inquiry and moving money, simplicity is the 'new black'. With more sophisticated interactions, the use of 'big data' for insight dissemination and solution recommendations is the key to success. In all cases, Celent found a trend away from 'bolt-on modules' to more holistic approaches that will require significant investment.

While other industries have reached young adulthood in mobile integration, mobile banking is still in its infancy. With shrinking margins and more regulatory pressure, banks must determine if there is the potential for mobile services to generate revenue that can help offset development costs and replace lost fee income. Without fees from new value added services, what is the ROI of mobile banking? (see previous BMS post, 'The Revenue Power of Emerging Financial Solutions", August 2013)

According to Celent's Dan Latimore, "While mobile banking definitely expands a bank's ability to reach new and existing customers, and while there is significant movement by some organizations, there is still a long road ahead for others."

About the Report

The report reviewed is the third in Celent’s series on the state of mobile banking at top US financial institutions. The report examines mobile application offerings at the top 13 US banks in significant detail, beginning by looking at the state of the mobile market in the US. Celent graphically explains trends in mobile, and tries to make a case for what the future of mobile will look like. The report then dives deeply into the breadth of functionality and usability at each of these banks. Finally, each bank’s mobile application is profiled in depth, with accompanying screen shots to illustrate relevant points. This report is the best of its kind and is intended to serve as a guideline for conversations around how to strategically align mobile development with prevailing best practices.

A webinar on this study in conjunction with Kony, entitled, Tomorrow's Mobile Banking - Hear What Top U.S. Banks are Doing to Get a Glimpse Into the Crystal Ball is scheduled for September 11, 2013 at 2PM ET. 

Additional Resources

The U.S. Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top U.S. Banks - Celent (June 2013)

Mobile Banker Vendor Solutions - Celent (April 2013)

What's App, Doc: An Updated Biannual Evaluation of Mobile Banking at Top U.S. Banks - Celent (January 2013)

U.S. Banking Apps Report: Customer Reviews - Xtreme Labs (July 2013)

Tomorrow's Mobile Banking - Hear What Top U.S. Banks are Doing to Get a Glimpse Into the Crystal Ball - American Banker Webinar sponsored by Kony (September 11, 2013)

Mobile in 2013: A Digital Digest Featuring Gartner Research - Kony (March 2013)

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