CPG's September/October 2010 Wire Newsletter
Guidelines for Branch Network Optimization
Operating efficiency is crucial in the post-reform environment, and banks today are wise to focus attention on their branch networks. Branches are expensive to build and maintain, and while new technologies are diminishing the transactional role of the branch, branches remain a critical source of revenues, new customers, and low cost deposits. Five critical elements should be addressed today to put an effective branch channel plan into place and maximize the return on the branch network investment.
Role of the Branch Channel– sales and service objectives and office types.
Banks must have clear definitions of the sales, service, transaction processing, marketing, and customer experience roles of the branch channel today and must also be proactive in defining how these roles will evolve over the next several years.
Branch Network Optimization – network size, structure, and market placement.
Many banks have put the brakes on de novo expansion, and for the first time in over a decade, branch closures are outnumbering branch openings across the U.S. Branch bankers must continue to look for new market opportunities and existing branches that may benefit from additional investment; however, it will be equally important to identify consolidation candidates to rebalance the branch portfolio over time.
Branch Design – office layout, staffing, branding, and merchandising requirements.
As the role of the branch evolves, so too, must branch design and staffing. Designs should align with a company’s branding strategy while also facilitating the achievement of sales and service objectives. Many banks are reconfiguring offices to add self service stations, financial education centers, and areas for consultative discussions – all of which imply changes to staffing requirements.
Work Process & Technology – the mechanics that enable offices to fulfill role objectives.
Branch technology is rapidly enabling banks to streamline transaction processing, reduce errors, and most importantly, provide an enhanced and consistent customer experience. Some European providers, like Deutsche Bank and Barclays, are deploying Microsoft’s new Surface technology (
http://www.microsoft.com/surface/en/us/default.aspx) to enable representatives to provide customers with useful account collateral and walk through online banking and other computer-based banking features.
Performance Management – productivity, efficiency, and targeted customer experience.
Metrics that measure sales, service, and efficiency remain critical to driving behaviors in the branch, but these metrics must increasingly be balanced with performance criteria that support achieving a defined customer experience. For example, in a time when customers want and need help, does it really make sense to overweight account sales in branch goals?
The population of smartphone users continues to grow. The iPhone 4 sold over 1.7 million units in its first three days on the market, and IT researcher IDC is now predicting that 2010 smartphone sales will eclipse 2009 sales by over 50%. As smartphones become more prevalent, apps, or third-party software applications that users can download to add new features to their phones, are becoming a major way for retail and service providers to reach their customers. According to a recent PEW study, almost a quarter of U.S. adults are active app users. This represents a significant market opportunity for banks and credit unions, especially those targeting Gen Y customers.
The finance and banking app selection, however, still leaves much to be desired. A survey by Nielsen that accompanied the PEW study ranked the “Banking/Finance” app category as only the seventh most popular. However, the banking/finance app marketplace is poised for growth. This past summer, JPM Chase joined USAA in providing its customers with the ability to deposit checks from their iPhones. Now Bank of America is preparing to test a remote deposit capture app of its own. And the number of innovative financial solutions – mostly from third party technology companies – continues to grow, as evidenced by the increase in competition seen at recent Finovate conferences. (See recent Finovate winners at
www.netbanker.com/2010/10/finovate_fall_2010_best_of_show_winners.html.)
Many industry analysts believe mobile banking adoption rates will increase exponentially. Those companies that get on board early will enjoy a significant advantage, especially in terms of capturing the nation’s large youth segment as they make their initial choices of financial providers.
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Highlights from CPG's Recent Survey of Retail Deposit Products
CPG recently conducted a survey of the deposit product suites of 40 institutions – 20 large regional banks and 20 community banks
– and reported back on best practices in the October issue of ABA Bank Marketing. Key best practices uncovered by the survey are listed below. Those interested in the full results can find the original article at www.capitalperform.com.
1. Product Features:
- Review existing rewards programs to ensure that they provide targeted incentives and attract either specific customer segments (example: Gen Y) or specific types of activities (example: online bill pay enrollment).
- Explore ways to offer value-added services such as overdraft protection, identity theft protection, or expanded free ATM access. Charge a fee for these services – or position them as a reward to the customer for expanding his or her bank relationship.
2. Product Access:
- Give every customer the option of going paperless.
- Offer personal financial management (PFM) solutions – even simple ones can have a large impact – and explore ways to integrate the solution with the online banking platform.
3. Marketing:
- Organize products by customer need (savings) and goals (college) and position products as solutions to these specific needs.
- Make product comparisons simple and easy by providing either brief descriptions up front or a side-by-side comparison.
The Basel III Standards are Only One Piece of the Capital Puzzle
When international regulators released the much anticipated new liquidity, risk, and capital requirements under Basel III, the initial reaction from most in the industry was one of relief. The generous timeline for implementation (full phase in by 2019), as well as the lower-than-expected minimum capital ratios, represented a relative victory. According to an analysis by SNL Financial, when the Basel III capital standards have been implemented, only 4.7% of U.S. institutions would currently be noncompliant with the proposed 7.0% (including the 2.5% conservation buffer) Tier 1 Common Equity Ratio, 4.6% would currently be noncompliant with a proposed 8.5% Tier 1 Capital Ratio, and 5.7% would be noncompliant with a proposed 10.5% Total Capital Ratio. This is not a large number of institutions, and the Basel III guidelines give those that are currently noncompliant plenty of time to raise capital as needed. If the Basel III standards were the only guidelines that banks needed to worry about, there likely would be no problem.
However, still unknown is what action and requirements U.S. regulators will implement on their own under the Dodd-Frank Act. While Basel II was never fully implemented in the U.S., it is likely that U.S. regulatory authorities will swing to the other end of the spectrum this time around and implement more stringent requirements than those called for under Basel III. Swiss regulators have already taken just such action. While they have given their two “too-big-to-fail” banks (UBS and Credit Suisse) the same timeline as Basel III for implementation, their Total Capital Ratio will need to be a minimum of 19% by 2019, compared to the 10.5% called for under the Basel III guidelines. This 19% is comprised of a 10% Tier 1 Common Equity Ratio and the other 9% is comprised of contingent convertible bonds. While Swiss regulators have historically been more conservative than their U.S. counterparts, it is easy to imagine that U.S. regulators will impose capital requirements somewhere in between Basel III standards and those of the Swiss. What those requirements will be is still unknown, and that will continue to cause significant uncertainty among executive managers in determining appropriate profitability targets.
Advertising by Financial Institutions
Out of the top 100 national advertisers, eight were financial institutions or credit card companies during 2009. At the top were Bank of America and JPMorgan, each spending well over a billion dollars on advertising during the year. American Express was not far behind, with $1.29B spent on advertising during the year. Much of this advertising was brand-building (really brand-restoration) in nature. Rebuilding trust doesn’t come cheap.
Quoteable:
“The foolishness between Washington and the banks goes on, and the economy is held hostage as a result. …not only does the economy remain hostage to Washington, but so do bank shareholders.”
~ Nancy Bush, NAB Research, LLC
“Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011.”
~ Chris Whalen, Institutional Risk Analytics.
“In the face of all this (and what has not yet been created), we believe many banks will choose to sell-out rather than deal with the complicated web of regulations.”
~ RBC analysts, including Gerard Cassidy
“… the [Durbin] amendment is tantamount to regulating ‘the price of a Burger King hamburger solely to the costs of the meat and the bun.’”
~ William Cooper, Chairman and CEO of TCF Financial Corporation
