This article by Peak Performance consultant Jon Voorhees was originally published in BAI Banking Strategies on October 10, 2016. Voorhees is former head of distribution strategy and execution at Bank of America Corp.
It seems like every week you hear about another bank’s plans to close some large number of branches. Some analysts predict (though I don’t agree) that half of all branches open today will close in the next few decades as online and mobile banking fully takes hold with consumers and small businesses.
Due to today’s very low interest rate environment, margins have been squeezed for several years. Banks have felt unrelenting pressure to cut expenses. And branch closures represent a natural target because customers have migrated many of their transactions to the newer, more flexible e-channels rolled out over the last ten years. There are even seemingly ubiquitous phrases that CEOs and CFOs trot out when announcing closures. Like these:
- “The retail bank is undergoing a dramatic transition,” Fifth Third Bank CEO Greg Carmichael told shareholders in a meeting earlier this year. “It’s driven by consumer behavior. But our branches are still critical to driving products and services to customers.” Just last month, Fifth Third announced it would shed 44 more branches, in what Carmichael said would be “an annual exercise.”
- The bank continues to “experience a shift in consumer behavior patterns away from branches and towards more self-service,” Bank of America CFO (and now vice chairman) Bruce Thompson told analysts during a 2015 conference call.
- “Any retail business should always be growing in new communities, subtracting in some, having the branches adjust to the new reality,” JPMorgan Chase CEO Jamie Dimon said in 2015. “We’re not getting smaller because we’re guessing at this stuff. We are getting smaller because of the lessening need for operations in branches now as people are doing far more on mobile phones.”
During my 30-plus year career I was fortunate to work in an environment that allowed us to develop and test some creative analytics. In the past dozen years or so I’ve had the opportunity to use those learnings to close more than 2,000 branches successfully. Branch closures can only work if the bank can do three things:
This article by Peak Performance consultant Jon Voorhees was originally published in BAI Banking Strategies on September 12, 2016. Voorhees is former head of distribution strategy and execution at Bank of America Corp.
I’ve read many articles about the death of bank branches since I started in the industry more than 30 years ago. Since then, my position hasn’t wavered much: Bank branches aren’t going away—but they must change. Why? Three reasons:
- For most banks, branch networks are the first or second largest expense category.
- Most banks have seen human-based transactions, and the accompanying branch traffic, drop as consumers adopt online and mobile channels for routine transactions.
- Yet most banks still capture the vast majority of all sales activity in the branch.
In my experience, there is no simple answer to the question, “We know we need to change but what should we do about it at our bank?” The action plan depends on your customer base, strategy and condition of your branches.
Recent articles describe the various approaches banks take to shrink, automate or even transform the branch into a coffee shop. A 2015 FMSI study indicated that the average number of teller transactions per branch had fallen 45% since 1992. But teller transactions don’t represent the totality of why customers visit branches: Many are now done at the ATM at the same building.
Yes, total traffic is down—and banks have shrunk staffs accordingly. A Price Waterhouse Coopers study reported that average staffing levels at branches had dropped from an average of 13 to just 6. But there’s a lower limit to staff size if you’re going to continue serving your customers.
So how can banks balance the demands of customer service and still achieve a higher return on investment? As priorities go, banks must link their various digital channels to branches rather than undertake major renovations.
True: Some branches need remodeling due to age and condition, or to improve efficiency. Yet no bank can afford the capital expense of remodeling most or all of their branches−nor would extensive investment in physical facilities necessarily change the customer experience. Most banks, however, could make the required investments to alter how their customers interact with their bankers and branch.
The evolution of new alternative electronic and digital channels shouldn’t drive the demise of the branch but instead its transformation. Just a generation ago, customers communicated with banks through traditional channels—in person, by phone and by mail, the same ways they connected with each other. Yet today, digital-savvy consumers communicate in many new ways and should be able to do the same with their bankers.
That said, integrating new channels represents much more than simply adding free Wi-Fi or public PCs so customers can perform online banking at the branch. While that may help demonstrate your service capabilities, it doesn’t get much use. Think about it: Why would you visit the branch for online banking when you can do it from your phone, tablet or computer?
How then should banks re-design the branch for the 21st century? By focusing on functionality and integrating digital technology that improves the customer experience.
Here are three strategies and scenarios to consider:
- Teller wait alerts. John Doe has to deposit a $15,000 check he received for selling his vintage 1956 Ford pickup. John works downtown at a small accounting firm and it’s the busy tax season. He can’t stay away from the office long, and the check is too big to deposit via mobile app. But that’s okay: John pulls up his bank app and after a few clicks, it tells him which branch has the shortest teller wait. If all the waits are too long, John can set up a text alert to notify him when wait times reach less than five minutes. Later, John gets a text that the branch just down the block has a short queue. He heads over and, based on John’s cell phone location indicator, the greeter gets a notice on her tablet that John just entered the branch. Later that day, John receives an electronic receipt and an offer for a special rate CD on the money he just deposited.
- On-line appointment setting. George and Martha Washington both worked as school teachers. Over the years they opened accounts at various banks. They also have multiple credit cards, investment accounts and retirement funds—all at different places. After online research, George and Martha decide to consolidate their accounts at one bank. Online, they set an appointment with a personal banker for a Saturday. Bob Banker gets the request and aligns the right business partners to join the session. Because George and Martha want to move accounts with decent balances, Bob and his team can offer a more comprehensive relationship package, set up online banking and introduce the bank’s investment management tools. Lastly, they set up a more complete financial review, an appointment they later reschedule via texts. In less than 90 minutes, George and Martha are on their way to simpler financial life.
- Pre-order services on-line and fulfill in the branch. Billy Baker runs the local artisan bakery. His staff is small, so breaking away for a bank run can pose a problem, especially if there’s a wait. Like many small retailers, Billy has a high demand for coins and small currency. At 9:45 one morning, Billy notices he’s running low—so he texts his banker with his order. About 30 minutes later, he gets a text back telling him the order is ready. Billy walks down the street and meets with his banker, who unlocks the small safe under his desk to retrieve Billy’s order. After a quick signature, Billy heads on his way.
Are we far from that kind of future experience? These capabilities exist today but haven’t been fully integrated into a consistent set of customer experiences. The reason: All too often, channels lack the proper coordination.
I live near the Canadian border. When I travel to Canada, we check the border crossing wait time on our computer or phone. If U.S. Customs can do that, why can’t banks post wait time for tellers, ATMs, or even platform staff?
There are so many things you can do to transform your branches—but how many of them can you afford? The evolution of bank branches doesn’t have to be exclusively about a new look and feel that, per branch, could cost hundreds of thousands or even several million dollars.
Integrating technological solutions to improve customer experience and can be rolled out network-wide with cost-effective, impactful results. When you integrate digital channels, you give customers better information to control their interactions with branch staff—and tackle the challenges of change head on.
The following article, quoting Peak Performance Consulting Group’s President David Kerstein, appeared in S&P Global Market Intelligence on August 8
Some of the largest U.S. banks hope to entice their customers with real-time, P2P payment capabilities like those offered by PayPal Holdings Inc. and other fintech companies.
As member banks go live on the clearXchange network, a unified payments channel, customers will be able to send and receive money in real time. So far, Bank of America Corp., Capital One Financial Corp., JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co. have the real-time payments capability up and running. Fellow network owners PNC Financial Services Group Inc. and BB&T Corp. have yet to go live on the network. An Early Warning spokesperson said that while all members are in the process of integrating the capability, go-live dates vary by bank.
But mobile bank apps remain the second-most popular channel for sending and receiving money, according to S&P Global Market Intelligence’s Mobile Money survey. According to the survey data, PayPal landed the top spot as the most popular payments application. The financial technology company’s recently expanded agreement with Visa Inc. gives users access to Visa Direct, enabling the same sort of real-time transfers touted by the clearXchange cohort.
Bank of America went live with clearXchange in February 2016. During the bank’s second-quarter earnings call, Chairman and CEO Brian Moynihan said the company saw $13 billion in P2P payments, year-to-date. That is 28% higher than in 2015, Moynihan added.
At a Morgan Stanley conference in June, Wells Fargo CFO John Shrewsberry predicted that the cohort of large banks will redefine its goals for clearXchange in the near future and questioned the sustainability of other P2P channels.
“I don’t know why anybody would use any other way to do it, frankly, if the bank was offering it for free,” he said. “I’m safe. I’m secure. It’s easy. I’m there.”
BB&T Chairman and CEO Kelly King gave his perspective on the network at the Morgan Stanley event as well. He said that clearXchange is an important step in thwarting cyber security risk, putting payments in a “more controlled environment” and making the process timelier for clients.
“To be honest, one of our biggest concerns is cyber security risk for the whole industry — these are giant steps that really remediate a lot of that,” King added.
JPMorgan Chase executives highlighted the security of the clearXchange network during the bank’s second-quarter earnings call. CFO Marianne Lake pointed out that “bank-level cyber security” and the option to send funds without providing bank credentials is a positive for JPMorgan’s customers.
“As you know, we have QuickPay already, and we saw reasonably significant volume, $21 billion on QuickPay last year and growing,” Lake added.
During the company’s most recent earnings call, PNC executives said the bank plans to roll out clearXchange in the third quarter of 2016. “I think it is incredibly important long term because in effect it creates a new payment rail,” PNC President and CEO Bill Demchak added.
From PayPal’s perspective, the competitive space is shareable. At a Bernstein conference June 1, PayPal President and CEO Dan Schulman pointed out that the company is “gaining a tremendous amount of share” in terms of volumes, but said a “huge rising tide” in the digital payments space means there will not be a single winner. Still, Schulman said that the fintech company is focused on creating a “consistent” experience amidst more fragmented competition.
Although fintech companies have reshaped consumer expectations, banks are calling customers back home to their primary financial institutions. Since consumers have broadly adopted mobile banking, financial institutions like those in the clearXchange network could create a “tremendous advantage” by solidifying P2P capabilities within their existing applications, said David Kerstein, president and founder of Peak Performance Consulting Group.
“Providing this option I think does give banks an advantage over non-bank options,” he said in an interview.
Kerstein went on to compare the current state of P2P payments to the emergence of mobile banking. Large banks’ promotional efforts around mobile banking apps popularized the technology with consumers, even though the concept was not particularly novel at the time, he said. Kerstein suggested that the same thing could occur with the capabilities offered by the clearXchange network.
“It may be at a turning point where it isn’t just something that’s kind of this niche offering that comes from PayPal,” he added.
S&P Global Market Intelligence’s Mobile Money survey was conducted Jan. 23 to Feb. 3 across a nationwide random sample of adults 18 years and older, with n=3,897 U.S. mobile bank app users, surveyed online. Survey results have a margin of error of +/- 1.6 percentage points at the 95% confidence level.
The Following is an edited extract from an interview with S&P Global Market Intelligence. The original can be found here
S&P Global Market Intelligence recently spoke with Jon Voorhees, former head of distribution strategy and execution at Bank of America Corp. During his 17-year tenure Voorhees led the transformation of BofA’s physical distribution channels including branches and ATMs. He has joined Peak Performance Consulting Group as consultant and adviser.
S&P Global Market Intelligence talked to Voorhees and Peak President David Kerstein about different distribution strategies.
By Rabia Arif
S&P Global Market Intelligence: Do you think banks are innovating enough to keep up with the current times and how important is it to change?
Voorhees: Many firms out there are aware they need to change but they don’t know how to actually do it. And they are stuck in the… analysis/paralysis mode. They just need to get on with it.
The thing about branch distribution or ATM distribution is, change doesn’t come quickly. I think most organizations today are not moving quickly enough and it’s because they are fearful of the downside of not doing it well.
Kerstein: There are legitimate issues that people are worried about. Most banks are a combination of acquisitions, which means that they have got a mishmash of real estate. They might have a paramount amount of capital invested in them, and they are not easy to reconfigure.
Voorhees: The typical branch that’s out there is on average over 30 years old. So you step back and say, what was banking like in the 1970s? Because, that’s what the physical plan was designed for. And there has been so much change. So, bankers are struggling with the question of what’s the right definition of branch transformation.
What is the cost if banks don’t decide to change? Or if they feel that they don’t have the resources needed to make the change?
Kerstein: Everyone has limited capital. No one has unlimited ability to be able to go and make modifications and technology investments, even if they have perfect foresight about what the optimal ones would be.
Voorhees: The first step for the firm, and what we would want to do with banks, is understand where they are and where they would like to be, regardless of the amount of capital or time.
Then the question really revolves around, “OK, what’s the most cost-effective way to get there and how long might it take? Might I need to change that target end state, because it might take too long?” The downside risk of saying, “It’s too expensive to change, so I won’t,” is that your competitors will and your customers will. And at some point, what you offer won’t meet what they need, and they will go to someone else.
Kerstein: And unless you start making incremental steps, it forces you at some point to say, I have a tremendous amount of catch-up to do, or it’s unsustainable or unaffordable.
For banks that go mostly digital, for instance EverBank Financial Corp, their cost to funding is significantly higher compared to peers, probably because of a smaller branch network. How do you balance that cost?
Voorhees: I have spent some time studying the “branchless banks.” And you are right, their cost to funding is generally significantly higher than the community or larger or regional or national banks. In fact, among the big banks, they have a very, very low cost to funding, because they are able to capture so much deposits through their branch networks. In Bank of America’s case, even though they closed a thousand branches, they are still adding $60 billion or $70 billion deposits a year.
What these mobile or e-banks are trying to bank on is that they can offset the higher cost of funding by having other lower operating costs. The challenge is are there enough customers out there who are willing to bank that way and essentially not have a physical footprint to interact? Personally, I think that e-banks are a niche. They will have a place, but, it’s not going to replace the bulk of the industry. It is a different kind of financial model.
I read an article this week about this small credit union, which had 10 or 11 branches and they closed all branches to become an e-channel kind of bank. If you look at their return on assets, it dropped to less than 0.5%, which is terrible. So you know, it sounds good, but if you don’t look at the totality of the business model, you have to question whether it’s really sustainable. Midvale, Utah-based Ally Bank has probably done the best job of building a big customer base and a big deposit base. And they have done this incrementally. They have one branch, which is the headquarter branch. You need to have one for a charter, but they are probably the one who are making it work, because they have scale.
Kerstein: I agree completely with Jon’s comment. Because even if you look at Charles Schwab Corp., which started as being completely online, they have over the years opened facilities in major markets. I don’t think that you can think of this as, “I can be exclusively digital.” Because, people want that convenience of being able to bank the way they want to.
Voorhees: There is still that need for physical. But, you are giving customers more control over how they want to interact with you. So, the bank’s value is in getting them to adopt cheaper channels to use.
Small banks don’t have the same amount of resources as larger banks. What do you guys think should be the starting point for them?
Kerstein: Jon how many branches did you start off with?
Voorhees: 6,151 in  and today it’s down in the 4,600 range, so about a three quarters of the size. And we started at 19,000 ATMs and it’s down to 16,000 today.
Kerstein: So, these sound like enormous numbers and they are. But think about it this way: They reduced their branch footprint by 25%. Some of these were markets that Bank of America exited because they were low-growth markets or didn’t have opportunities to grow and others were re-configuring and consolidation of nearby branches etc. But, a 25% reduction, over a course of how many years was that, Jon?
Voorhees: Eight years.
Kerstein: Over eight years. On the ATMs, it was a 15% reduction. If I would translate it back down to a network that has, let’s say, 50 branches. The amount of change that’s going on through the network, what is 25% of that? Twelve over a period of years. So that’s not unaffordable. That’s not an unimaginable change. And there are in fact community banks who have done this very successfully
Digital Payments are growing, and financial institutions have high expectations for adoption. But with usage rates stalled, is this the right time for community and regional banks to invest, or should other options be considered first?
We just finished an analysis of Mobile Wallets and P2P payments. Here’s a few key points, but read the full article for more detail.
There is wide belief among financial services executives that mobile wallets and P2P payments will shortly become basic table stakes, similar to mobile banking. According to the 2016 Debit Issuer Study, commissioned by PULSE, almost three quarters of financial institutions expect at least 15% of debit transactions will migrate to mobile in the next 5 years, and nearly half believe the migration will be in excess of 25%. They have invested accordingly: issuer adoption of mobile payments has surged and 65% of debit cards are now eligible to be loaded into mobile wallets, up from 30% in 2014.
Financial Institutions are similarly enthusiastic about the growth in P2P payments. According to Pulse, 76% of financial institutions either offer, or are in the process of implementing P2P payments, up from 51% in 2015.
But despite the enthusiasm, payments using smartphone mobile wallets at the checkout counter are stalled at small numbers and minimal growth after an early surge driven by introduction of new iPhones and Apple Pay. According to Pulse’s study, only 3.9% of debit cards are enrolled in a mobile wallet, and they account for a minuscule 0.19% of debit payments. P2P usage is likewise very small. Our estimates, based on analysis of data from Chase and the Federal Reserve are that P2P represents about 7% of total payments and 3% of value.
What’s hindering adoption? It’s not lack of awareness. But with adoption still low, why are financial institutions so optimistic?
Is the marketplace changing? Maybe. The long anticipated implementation of chip cards and merchant installation of chip enabled terminals might spur adoption. As for P2P payments, the future is harder to discern.
Invest cautiously and pick your spots. While looking to the future, don’t forget basic blocking and tackling – and the payoff from what we know to work today.
See the full analysis and our 4 recommendations (with some fancy graphics) in our TheFinancialBrand article.
The pros and cons of the Universal Associate model has been one of the hotly debated topics in the industry. But institutions that have made it work have experienced increased sales, lower staffing costs, and greater staff retention.
Ric Carey, who has had extensive experience in implementing and managing the Universal Banker model has put together a detailed toolkit that covers:
- Best practices in converting existing branches and staff
- Identifying the best employee prospects for this type of position
- Incorporating operations and loan training, how to incorporate culture and service quality
- Recruiting and interviewing concepts to hire the best employees
- Branch design and technology ideas that support this staffing model
- Structuring the Universal Branch Employee job position, promotions and pay
- Multiple implementation strategies
Bank-at-Work has proven to be an effective channel for bank’s to acquire new clients, deepen existing relationships and generate incremental revenue. But fully leveraging the channel requires that banks maintain a cohesive structure around their workplace program.
The Webinar will review the key components of Bank-at-Work structure and provide best practice tips for successful program implementation.
Key takeaways for Webinar participants:
- Understand the dynamics behind best-in-class workplace programs and amount of new business they generate.
- The impact of inadequate program structure; error’s that will impede your workplace initiative.
Dates and times not convenient? Sign up for the events and view the archived version later or share with other members of your group who are unable to attend. Or, contact us to arrange alternative dates.