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!”
Every year SNL financial publishes a survey of in-store banking trends, and they are kind enough to seek our opinion — and give us credit for a few quotes!
At most banks, in-store (supermarket) banking has not fulfilled its’ promise of “one-third the income with one-fifth the expense”. But there is a way to crack the code.
Think about the potential for small specialty branches, similar to in-store, that would allow you to pinpoint special markets. Apply these concepts to create low cost distribution at high value targets such as office campuses, hospitals, employer headquarters, densely packed urban neighborhoods, and other similar venues.
Think about the facilities design and staffing. These are not just a standard branch shrunk smaller — it needs an entirely different operating model.
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’ll leave it to the stock analysts to ponder whether Comerica paid too much (the deal is not accretive to earnings until 2013), but from a strategic perspective it is a good move:
- It leverages Comerica’s strengths. Sterling is primarily a business bank. That’s Comerica’s sweet spot, and it permits them to leverage their strong marketing and relationship management skills
- It is manageable in size and scale – Comerica is experienced at integrating banks of this size
- It improves Comerica’s distribution in key markets: their branch network in Houston will double, Dallas-Ft. Worth branches will increase 27%, and Comerica will gain entry to San Antonio (and Kerrville) where it does not have any branches
What does this mean for Texas banks?
It confirms that M&A is on the rise in 2011, and we should see many more opportunities for sellers and buyers
It creates opportunities in specific markets: 8 Sterling branches are in very close proximity to existing Comerica branches (less than a mile) and there will inevitably be some branch consolidation
It will create opportunities to target attractive customers. Risk management and pricing will convert to Comerica’s standards as soon as the deal closes, and this will mean changes in loan and deposit relationship management:
- Commercial loans: 69% of Sterling’s loans are real estate related (54% Commercial and 15% Consumer) – by comparison, 63% of Comerica’s Texas loans are C&I. Expect Comerica to reduce their exposure to real estate related loans, even those that are well performing. On the other hand, it will be a more formidable competitor in C&I.
- Deposit relationships: Sterling’s COF is 22 bp higher than Comerica’s and they are more dependent upon interest bearing accounts. Comerica may be less aggressive at maintaining deposit relationships that are price sensitive. On the other hand, the new entity will be more effective at acquiring non-interest bearing consumer and commercial deposits.
It will ultimately create a stronger competitor in Kerrville, but in the short run it will create opportunities to take share from Sterling, which is the market leader (29% share of deposits)
It will add another strong competitor to the highly competitive San Antonio market, as Comerica leverages its new distribution to build relationships.
No matter how effectively Comerica handles the conversion (and they are skilled at integrating banks like Sterling), there will be opportunities as personnel, products, pricing, risk management, and systems are integrated.
Comerica estimates that Sterling’s expenses will take a 35% haircut. Staff and customers may be nervous, unsure what this means to them – and willing to talk to a competitor just to hedge their bets. Some won’t be happy, no matter how well it is handled.
To take advantage of this opportunity it is important to have a plan. There will be a window of time when things are “unfrozen”, and represents the best time to recruit skilled staff and acquire strong new customer relationships. But the window will close: Comerica will work hard to identify and retain staff and customers. Once the full conversion occurs and uncertainty gives way to stability, the opportunity is lost.
Don’t assume that there will be disruption that works in your favor. It takes effort and discipline to capture profitable customers and top performing staff from a competitor that wants to keep them. Without a detailed plan, you risk missing the window of opportunity – and only capturing the customers and staff that Comerica was willing to lose.
“We’re primarily a Commercial Bank that also does some Retail. Why do we need a retail strategy?”
Here’s why:
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It’s a big revenue opportunity. Think of it as The Law-of-Large Numbers – you may be primarily focused on commercial accounts but 80% of your customers are Retail. If you have only 10,000 customers but can increase revenue by a modest $2 per month, that’s $240K incremental earnings per year.
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There’s a big opportunity to reduce expenses. The typical bank has 60-70% of its expense base tied up in distribution and servicing. Think you don’t have opportunities there? Time and again we’ve seen found 15-20% improvement in productivity. You just need a few selected “wins” to really impact the bottom line.
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You can use Retail to leverage your Commercial strategy. Most banks fail at this. The branches do their thing, and Commercial Lenders/Relationship Managers do theirs. But you can significantly improve your effectiveness by developing and implementing a coordinated strategy where Retail’s daily activities pro-actively support and further your Commercial strategy.
Big revenue opportunity. Big expense opportunity. Big opportunity to use Retail to pro-actively support your Commercial strategy.
Contact us – we’ll show you how to quickly and efficiently identify and capture the opportunities that make sense for your institution.
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?
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