What happens when non customers use your ATMs? Do you try to convert them into bank customers?
Here’s what came up on my screen when I used a Wells Fargo ATM while travelling in California.
Not too long ago, banks were asking whether they really should invest in Internet banking. Now many are raising the same questions about consumer remote deposit. As my daughter would say, “I don’t get it!”
Our youngest daughter grew up in Vietnam and joined our family when she was 8 years old. She learned English quickly, but understanding idioms and some of our illogical customs remained challenging.
A few months after she joined us, we took her to summer camp along with the rest of her siblings. “It will be fun,” we told her.
She looked around.
“No air conditioning? No TV?”
“I have to share a room with 12 other girls, sleep on an upper bunk, and eat in the dining hall with 100 other people?”
“You have to pay for this?”
“I don’t get it!”
Here’s what I don’t get the reluctance of many banks to adopt consumer remote deposit capture (scanning checks or taking photos on their smartphone and transmitting them to the bank).
A few weeks ago I listened to a presentation by USAA, Chase, and others, about their Consumer RDC strategy.
USAA explained how 35% of deposits now come through remote capture. They explained how they could specifically attribute a 10% increase in total deposit growth to this channel, and how they had plans to continue to grow consumer Remote Deposit to 65% of total. Both USAA and Chase explained how fraud was lower than expected and articulated some of their fraud control techniques. They talked about how the duplicate check problem was really not a problem.
There were lots of questions – mostly about risk.
So I was thinking:
“Consumers become their own proof operators and send checks directly to you, fully imaged.”
“Fraud is lower than regular check deposits.”
“Consumers like this channel, and move their relationship to banks that offer it.”
“But you are still worried, and are holding back because you prefer to have customers take their checks to high cost branches with expensive tellers.”
“I don’t get it!”
Everyone is worried about DDA and payment revenue, but some banks have a clear roadmap for success.
If your inbox looks like mine, every day I get a new round of confusing emails:
- “Free checking is dead, really dead”
- “Free checking is still very viable – at least for community banks”
- “Debit rewards? Not sustainable in the new environment”
- “Debit rewards? You still need it, just have to revamp your program”
- “Durbin will be the death of us – it’s the last nail in the coffin”
- “Durbin will revised and it won’t be so bad”
- “All of this means that customers are being driven out of the banking system, leaving us with fewer opportunities”
It’s enough to make your head spin!
But I am very encouraged.
In a few weeks I’m chairing a panel discussion at the BAI’s Payments Connect Conference – it’s called “Bankers Respond to the Industry Challenges”. As I’ve spent time talking with the panelists and discussing the solutions they are implementing, I am tremendously encouraged that there is a clear path forward for revenue improvement.
Three very different banks have agreed to participate on this panel: Comerica, Fifth Third, and BBVA Compass. Each has different target markets and different marketing strategies. Each is big enough to have explored and analyzed a wide range of issues and opportunities. Each is specific in their recommendations.
I hope you can join us. If so, please stop by and say hello. I’m expecting thoughtful but lively interaction.
I was reading the in-flight magazine on Southwest Airlines recently and came across an article titled Last Tech, a salute to the best bygone gadgets. It was stuff like typewriters (remember before computers?), payphones (who can find one?), photo film (we’ve all gone digital), and — stop the presses — checkbooks!
Who writes checks anymore? Ninety one percent of consumers have checks but they only account for 14% of payments. According to a recent Federal Reserve study, 39% of consumers expect to decrease their check writing activity in favor of other payment means, especially on-line bill payment.
In the UK, which invented what we know as the modern check in 1681, the number of checks written has declined to the point that the Payments Council has decided to completely eliminate the check clearing system in 2018. Sweden and Norway have already discontinued paper checks. We’re headed in the same direction, just not by formal mandate. In the US, the number of checks written now is only 21% of the number in 2002.
Here’s what you should be thinking about:
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Why do you still have “checking accounts” instead of consumer and business cash management accounts? The basic consumer and business transaction account needs a new model, not just because most consumers and small businesses don’t write checks any more but because the economics have changed significantly with new regulation. Isn’t this the time to take a hard look at your consumer and business deposit products to insure they meet customer needs and will be profitable in the new environment?
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Why do you still staff your teller lines the same way when teller activity in most branches is not sufficient to support fully dedicated tellers? Labor is our single biggest cost, and yet most banks cling to outmoded management models despite dramatic changes in the quantity and type of branch activity. Shouldn’t you be reviewing your branch staffing models, teller line automation, and branch front line skills?
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Why do you still organize deposit operations back offices along basically the same model despite the fact that the type of activity has changed, and the skills needed to manage future payment streams are different than what was needed in the past? Shouldn’t you be re-thinking the way you manage your deposit back office?
- Why do you still design branches around transaction activity (teller, drive-up, etc.) despite the fact that branches are changing from transaction points to sales and service centers? A few banks have started implementing new bank models with great success. Shouldn’t you be looking at this for the next branch you build, or for existing facilities you remodel?
Despite all the changes in the way customers use bank branches, and the talk about “death of branches”, the reality is they aren’t going away. Yes, consumers and businesses are writing fewer checks, and that means teller transactions are down. Yes, our customers are rapidly increasing their use of mobile and other electronic channels. But the branch network is still the key distribution channel, preferred by 68% of consumers and small business.
But branches will change:
- Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).
- Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.
- Branch managers will need improved market management skills. With fewer teller transactions, branches will be more like sales centers, and this means greater micro-market knowledge and calling skills to improve trade area sales penetration.
- Banks will implement tighter cross-channel integration with hub branches and call centers, especially for expert support and customer advisory functions. Leading banks are already experimenting with video conferencing and similar technologies.
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Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet.
What should you be doing now? The most successful financial institutions – large and small — are already working on their staffing, market management, and front line technology. Are you reviewing your teller staffing models? Have you already begun training universal branch staff? Have you upgraded your front line relationship management technology?
During any period of change, some wait for the fog to lift and the path to become clear, while others start testing new pathways forward. In many respects, the path is clear — we just don’t know how fast these changes will happen. Now is the time to start preparing for the changes you know are coming.
I’ve been polling banks and credit unions on the results of their Reg E opt-in efforts. Successful financial institutions are achieving a total opt-in rate in the mid 80% range, with opt-in rates for the most active overdraft privilege users in the mid 90%.
Deposit fees are an important source of revenue and it is critical that your opt-in program successfully minimizes income loss. In the short term, this means maximizing consumer acceptance, especially among the roughly 10% of customers who are the source of about 80% of deposit fees. This is important now to preserve revenue, but it is also a long term strategic imperative: as fewer consumers write checks, deposit fees will be driven by debit activity and you’ll lose that future income opportunity if you don’t get your customers to opt-in.
If your program is not attaining total opt-in rates around 85%, and if you aren’t getting about 94% opt-in for the 10-15% of your customers who are the heaviest users, then you should be re-evaluating your program.
While many financial institutions have a very good handle on these dynamics, I’m continually surprised by the very basic questions I get, especially (but not always) from community banks and credit unions. I’m particularly surprised at how often I’m asked “Do we need to get consumer opt-in if we don’t charge for debit overdrafts?”
The simple answer is “no”, but if you don’t get positive opt-in you never can charge a fee for that service. And you should.
It’s OK to have more flexible and forgiving policies, if that is your customer centric and competitive strategy. But not charging at all either means you are refusing all transactions, even for customers who have very significant relationships with you and simply made a mistake (therefore not delivering the highest level of customer service), or you are authorizing payment without any compensating fees for the service you are giving and the risk you are taking.
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There’s a balance that works for you and your customers/members. We can help you find it. Peak Performance Consulting Group has best practices and unique solutions, with a proven track record of success helping clients achieve industry leading results. Contact us
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