CPG's September/October Wire Newsletter
CPG's September/October Wire Newsletter
The consumer banking business remains fertile territory for disruptive, innovative business models – whether delivered by banks or a new form of competition.
Is it possible to make the competition irrelevant? This is one of the tenets of the well known “Blue Ocean Strategy” concept published by Harvard Business School Press in 2005, before the financial crisis. While there’s been much talk of the need for innovation in financial services since the crisis began and as the imposition of onerous new regulations has impacted bank profitability , there hasn’t been much talk of the Blue Ocean concept of creating demand and focusing on noncustomers.
How do you define a “noncustomer”? Suppose we consider a noncustomer to be anyone who isn’t actively engaged in managing his or her financial life.
This is a big group. A survey conducted earlier this year by First Data Corporation and Market Strategies International revealed that only 45% of consumers say that they actively manage their cash flow. What about the other 55% of consumers? There have been only a handful of new value propositions strong enough to convert some people from inactive to more active financial managers, including PNC’s Virtual Wallet and Intuit’s Mint.com. While these products have been successful, there’s still a lot of room for innovation on this front. Will BankSimple also make inroads into creating new demand? Will mobile financial technologies spur consumers who are not actively managing their finances to do so?
One thing is clear: the consumer banking business is fertile territory for disruptive, innovative business models based on factors that are highly valued by consumers. With 55% of consumers not actively managing their finances, perhaps it really doesn’t matter what your competition is doing because, whatever it is, it isn’t working so well.
Read the full article at www.bai.org/bankingstrategies.
Five Things We Liked at the ABA Marketing Conference
We recently attended the 2011 ABA Marketing Conference in Baltimore, MD, and we were very impressed with the amount of actionable, practical information that was delivered. When we were not participating in the debate on free versus fee checking, we soaked up a variety of information on:
- Getting started in social media. Too often we leave social media sessions feeling disappointed or overwhelmed. This time, we left with a good idea of what banks can do to get the most leverage out of limited resources in these channels. We also left with the best swag of the conference – a sample social media policy and a set of guidelines for employees to use in communicating via these platforms. It is important to have both – a social media policy lays down rules on what can be said, while guidelines help coach employees on how to say something in a manner that is consistent with your brand and value proposition.
- Ideas for utilizing the most under-leveraged assets of banks – the information you collect about how customers use their money. This data can be used to help customers find ways to save and/or spend more wisely. TruAxis (formerly BillShrink) has found that 89% of customers would like banks to use this information to analyze their bills and help them identify lower cost providers. Other opportunities include offering personalized discounts, recommendations for future purchases (like those provided by Amazon or Netflix), and allowing your debit card to serve as an electronic loyalty card for local businesses.
- Reboarding. Everyone talks about onboarding, the process by which new households are introduced to the bank during the first few weeks after they open their account and (hopefully) convinced to buy additional products. We also liked the idea of giving some extra attention to single-service households, using targeted messaging based on analysis of existing information on those households, and working to cross-sell additional products/services to these customers (as presented by Marquis).
- Intel’s Smart ATMs. And no, we don’t just mean ATMs that can work without envelopes. In the marketplace, Intel was busy demonstrating new technology that can tell banks who is standing at a particular ATM, how long they look at your messaging, and which message they pay the most attention to. This also works with digital signage.
- The secret to success with small business owners. It turns out that the answer to this conundrum is fairly simple – take the time to listen to small business owners and understand what their most pressing issues are. If, by the end of a conversation with a current/prospective client, your bankers can speak to the business’ size and lifestage, its staff size (and plans to expand), the owner’s vision (is he/she thinking about next year, or just getting through next quarter?), and the owner’s level of community involvement, then they will be well-positioned to offer that client the products/services they need most. In the study that revealed this, Deluxe Enterprise Operations also found that businesses that have had to deal with three or more banks during the course of their existence are less likely to trust banks to handle their business.
Thanks to the ABA for a great 2011 Marketing Conference!
CPG has numerous proprietary models and analytic solutions. For samples and more informtion on how these solutions can help your bank - visit our featured solutions.
Adapting the Branch Channel for a Changed Marketplace
Our solutions include:
- BankRank – a branch office performance and market opportunity model for branch network planning.
- Profit forecast models –including five-year strategic forecasting models, product redesign impact models, and denovo branch profitability models.
- SandDollar Business Intelligence Software – impaired loan management system.
Adapting the Branch Channel for a Changed Marketplace
Strong opinions abound on the future of bank branches. Will branches be relevant 10 years from now?
The answer is yes.Branches will remain relevant and important, but technology solutions are already changing the business of financial services and what happens in bank branches. As transactions move increasingly out of the branch channel, bankers must rethink the role of the branch to keep the channel relevant in today’s marketplace. Branches can play a vital role in building new revenue streams and improving efficiencies – actions that banks must take in the current weak environment for lending-based earnings.
At most banks, however, big changes are needed to make this work. There are three strategies that should be part of every retail bank business plan today:
Branch network rationalization. All branches are not, and should not, be created equal. Branches should be segmented by activity levels, opportunity within the market area served, and viability from a physical design/cost/visibility standpoint to inform action plans for every office. This should be done with an eye toward closing, consolidating, or downsizing where appropriate and shifting investment toward high opportunity markets and multichannel development.
New staffing mandates. Big changes are underway at many banks already as branch-based employees become responsible for needs-based dialogue, proactive selling, and community involvement – and spend less time supporting transactions. Staffing models will vary by type of branch, but where opportunities exist for future growth, banks will seek to upgrade branch staff skills and arm these bankers with better customer insights.
Better branch design. Not only do branches need to be designed so that they add value to the experience of customers who use them, but also to provide more compelling reasons for consumers to enter them in the first place. Banks at the leading edge of branch design are creating more engaging experiences through the use of touch screen technologies and elevating the branch role as a community resource.
Experienced branch network managers bring valuable insights to the transformation process and must be engaged in the change effort for it to succeed.
The demise of the branch channel has long been predicted. It won’t happen anytime soon, but branches, and what takes place inside them, must evolve to keep up with the times.
Regional Trends in M&A
As is evident in the graph to the right, the M&A environment in 2011 has varied significantly by region. The median price paid for unassisted, whole bank acquisitions this year ranged from 0.92 to 1.62 times tangible equity, depending on the geography analyzed. Unsurprisingly, banks purchased in the west and southeast regions of the nation have commanded much lower multiples, as these institutions continue to work through the aftereffects of the housing bust.
At first glance the high performance of the southwest region may be surprising; however, a deeper look shows that the states of Texas and Louisiana comprise all but one of the transactions in this region year-to-date. These states have weathered the housing crisis better than other southwestern states such as Arizona, and prices paid for banks have remained stronger in Texas and Louisiana as a result. In general, bank M&A prices remain well below levels seen in the run up to the financial crisis, but banks selling in certain regions are certainly faring better than some of their counterparts.