The numbers are clear; Branch usage is declining. Fact is transactions conducted in bank branches is dropping 5-6% per year due to direct deposit, debit, electronic bill pay and other check displacement. For example, with more and more of their customers shifting to digital, JPMChase has seen the blend of deposit transactions move from 90% teller / 10% ATM in 2007 to 42% Teller / 48% ATM / 10% mobile in 2014. A seismic change in just 7 years. The bottom line impact for Chase and everyone else is shrinking branch traffic leaves fewer sales opportunities: New accounts opened per branch FTE have declined 23% since 1997*.
At the same time, traditional media and direct response is becoming less efficient as a means of acquiring and converting prospects. In this environment, Workplace Banking can be a highly effective and efficient acquisition channel by reaching prospective customers at their workplace.
The sales recipe is timely: Workplace Banking puts bankers in front of prospects and customers they no longer see in branch with opportunity to sell, service, advise, and generate incremental revenue. The model elements are simple; marketing to employees where they congregate (at the worksite), where there’s a commonality (they work for the same firm), and where there’s an endorsement (from their employer), that the program is special. The result is a cost efficient sales and servicing model that builds an acquisition annuity stream: As company hires new employees, the bank has opportunity to acquire new customers.
Continuing the theme of efficient, timely and simple, the Workplace Banking channel provides clear benefits for all constituents:
- For companies, offer components such as Financial Education & Financial Planning provide a relevant and tangible way to enhance their employee benefits package with result being increased employee productivity with reduced financial stress. This type of workplace offering also reinforces employee/employer relationship with employees learning how to better manage personal finances with education and planning.
- Employees also receive an improved level of servicing with dedicated banking team to work with right at their worksite. At the same time, Banks get a consistent set tools and practices to drive incremental revenue, strengthen relationships with commercial and small business customers and increase branch productivity.
- For Branch Bankers, Workplace Banking helps them achieve growth goals with increased new account production. Importantly, the workplace sales and service model will also help Bankers transition from ‘transactor’ to ‘advisor’ with enhanced job knowledge and skill development – something every bank is looking to achieve as the branch model continues to evolve.
In the final analysis, Workplace Banking addresses this key industry-wide challenge: Banks need revenue growth, but customers shifting away from branches, the traditional source of acquisition and cross-selling. The time is right for Bank’s to place a renewed emphasis on building-out this important sales and service channel.
They are, of course. But it isn’t the looming issue that it was in the recent past.
We are still in tabulating responses to our Banking Outlook Survey but one conclusion is clear: regulation and compliance cost is no longer top of the list of concerns. In fact, it is one of lowest ranked factors – either #7 or 8 — when compared to other issues expected to impact earnings over the next 12-18 months. This low ranking surprised us since banks are still investing more in compliance expense. For example, M&T Bank had extensive discussion about the cost of regulatory compliance in it’s 2014 Annual Report. More recently, Wells Fargo reported that regulatory and compliance costs were one of the main culprits behind a 6% increase in expense during the first quarter.
As we probed further into the comments and conducted follow up interviews with senior bank managers, it was apparent that they consider regulatory issues to be a known constraint. Predictable. Their banks have been through several post-Dodd/Frank examinations and have made the adjustments necessary to keep the regulators satisfied. Likewise, the CFPB’s priorities are known. They may not like the regulatory regime, but this is now “business as usual”, and its impact is generally understood.
Additionally, some of the concern about future regulation has moderated. The CFPB has pushed back release of draft rules further restricting overdraft fees, and therefore they are unlikely to take effect before mid-2016. The complaint management process does not seem as threatening as it once did. And the political winds have shifted in Washington and the sins of the banking industry are no longer burning issues. Even the FDIC is talking about regulatory relief to institutions considered low risk or highly capitalized. According to the proposal, this would impact 94% of all banks.
But there will be more regulation and it will impact revenue. It is inevitable that the CFPB will impose further constraints on consumer fees, in particular overdraft fees from debit card usage. At a minimum there will be requirements for more standardized disclosures and procedures (check or debit order presentment, minimum “forgiveness” amount, etc.). More likely, there will be limits on total annual charges, focused on the 8.3% of accounts that pay 73.7% of all fees. A limit of 25 total overdrafts per customer per year, which is considered at the high end of potential restrictions, is estimated to result in a 60% loss in NSF income. A more restrictive policy would have even greater impact.
The complaint management process did not concern most bankers as it applies to their institution specifically. “We will have heard it all on Yelp or Twitter before anyone contacts the CFPB”, was one comment we heard. The impact is more likely to be longer term. The CFPB advertises itself as a “data-driven, evidence-based agency”, and will use the Consumer Complaint Database to frame future regulation. According to their website, “We analyze complaint data to help with our work to supervise companies, enforce federal consumer financial laws, and write better rules and regulations.” As the database of complaints grows so to will their ability to mine it for trends and insight.
The data is public and the full dataset is downloadable, which means that the industry can see the trends and respond to them – but it also means that public interest groups can obtain the database and use their analysis to pressure specific institutions, and to lobby for additional industry limits.
Moving forward, improved data management is the key to both better compliance policy and reduced compliance expense. Regulators have determined that bad data is at the heart of bad risk management. Banks should be looking for ways to fix their data, which is often inconsistent, insufficiently documented and poorly governed within lines of business, and therefore difficult to use cross-functionally to compare lines of business within the enterprise. Unsurprisingly, business units are hesitant to disrupt front-line processes in favor of an enterprise definition of variables that creates no short term benefit to them. But ultimately regulators will insist they do.
Banks are blessed with substantial customer information. One way to use that information to drive sales is to categorize customers into groups with similar product demand. Why do that? To compare the performance of sales people on an apple to apple basis. That type of comparison holds employees accountable and guides the action of sales managers. Let’s look at an example of that.
The financial services industry is facing a host of challenges. Although overall earnings are up, ROE and ROA remains low. Going forward, the industry still has to deal with the headwinds of increased regulatory burden, low interest rates, and changing consumer behavior and channel usage.
These challenges put pressure on financial institutions to develop more focused strategies in order to create sustainable growth.
We reach out to industry leaders on a regular basis to ask their thoughts on the most important industry issues impacting revenue and earnings, and the most effective strategies to create competitive advantage in today’s environment.
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As consumers and small businesses shift to alternative channels, it is critical that financial institutions improve the operational and sales efficiency of the brick and mortar channel. That means fine tuning every point of contact to optimize effectiveness.
Financial institutions of all sizes are facing challenges to their retail branch system. Technological innovation, starting with the introduction of ATMs, then internet banking, and most recently mobile banking, has resulted in declining branch usage. Consumers and businesses don’t need to go to the bank as frequently as they did in the past now that routine monetary and service transactions can be easily handled on a personal computer or smartphone.
Consumers want branches, but declining usage is reducing sales opportunities and revenue growth. As routine servicing and monetary transactions continue to migrate out of the retail branch, the fundamental nature of bank branches must undergo a dramatic transformation.
The bottom line is that, with fewer teller transactions, branches must become more efficient as sales and marketing centers. This can be achieved through greater micro-market targeting of marketing messages in order to maximize the sales opportunity from limited branch traffic and to optimize trade area sales penetration.
Up to now, many financial institutions have employed a one-size-fits-all strategy. Branches are often similar in size and style with limited differentiation. More importantly, marketing strategies are frequently implemented uniformly across the network with limited variation of messaging based on unique branch or trade area characteristics.
Improve Revenue with Targeted Strategies
According to American Banker, 82% of the top 50 banks in the US offer workplace banking. Most community and regional banks also have a program, but few banks are successfully cross-selling Workplace Banking into their Commercial and Business Banking client base. Instead, many banks resort to branch discretion for targeting accounts. Branches often default to calling on local targets, such as retailers and other companies with a high mix of lower wage, more transient employees.
The net result is in smaller average account balances, acquired with discounted bank-at-work pricing, which is not a prescription for success.
So here’s the question: Why do we so many of us settle for a “Two Bank” approach when it comes to Workplace Banking when the benefits of “One Bank” are so clear? Maybe we need to baseline why “One Bank” is worth striving for.