If there was a unifying theme from the many sessions I participated in this week, it was that revenue lost from last year's Reg. E and this year's Durbin amendment can not be completely recaptured through repricing. Instead there needs to be a stronger focus on targeted customer acquisition, share of wallet growth strategies, retention, product innovation and cost containment. While everyone at the event seemed to be interested in what others were going to do around checking repricing, the energy was definitely focused on building a stronger platform for the future.
Sessions at the conference started with a review of the BAI/Finacle Innovation Imperative Customer Sentiment Study completed last Fall, which found that while there is still a ways to go in the customer's confidence in the economy and the banking industry in general, the view of bankers is more closely aligned with the consumer than in the past couple years. This uniformity of beliefs should assist as banks try to build messaging around their checking repricing and try to improve the customer experience. The study also found that the customer's perception of their bank being 'innovative' tends to correlate with satisfaction, product ownership and overall confidence in their bank.
Steve Mott from BetterBuyDesign followed the BAI research presentation with a very fast paced competitive overview of the payments industry, including a discussion around Google, PayPal and several potential payments platforms from the U.S. and even China. His message was that it will be up to the banks to leverage their customer relationships, distribution network and trust advantages to maintain some level of ownership of the consumer payments continuum. He emphasized, however, that the bank 'ownership' of payments is anything but guaranteed.
David Stewart, Senior Expert from McKinsey & Co. expanded on his recent BAI Banking Strategies article, emphasizing the continued importance of the debit card in the bank's payment product arsenal. In addition to providing financial metrics around the value of the debit customer and the real impact of repricing with net interest margin and other fees are included, he emphasized that trying to move mindshare or marketshare from debit to credit may be close to impossible in today's economic environment. David also shared the view of McKinsey that the potential for merchants to 'steer' payments from one payment vehicle or another was unlikely since doing so may actually cost the merchant more in discounts than could be retrieved in interchange savings.
David also left the attendees with the following strategies for trying to reposition the debit product in the future:
- Base debit strategy on new debit economics as opposed to the old economics
- Price products for competitive advantage
- Rationalize customers on the relationship level not just checking level
- Remember that the debit product is still sticky and builds customer engagement
- The millennial generation provides a good opportunity for growing payment volume (especially around mobile)
- Ease of use and convenience drive payments behavior
- Debit is still the preferred payment method
- Credit for online purchases expected to increase
- Micropayments will continue to increase
The afternoon sessions revolved around ways that banks are trying to take back the payments franchise and extend relationships beyond just the DDA, with speakers from the Federal Reserve, Fiserv, Comerica, Fifth Third, Peak Performance Consulting, Novantas, TD Bank and Huntington Bank all providing unique viewpoints. It was clear during these sessions that the days of every bank having close to the same product set are over. While some of the larger banks may retain a Free Checking program (PNC's decision was referenced often during the conference), many are completely revamping their deposit product portfolios in a way that reinforces their brand and leverages their customer franchise. All of the banks were also bullish on credit products as well as the need to continue to capture increased share of wallet.
Hank Israel from Novantas stated that banks should segment their customers based on channel preference and will most likely price their product set in one of the following ways:
- Keeping Free Checking (hoping to make it up on volume)
- Fee for services (make it up within the checking product set)
- Product bundling (packaging product sets based on customer needs)
- Relationship pricing (drive value from relationship perspective)
Tuesday's sessions focused on how banks can go on offense through mobile banking, prepaid debit and mobile payments as well as how institutions can better defend their customer base through onboarding and rewards. Some of the key takeaways from the mobile banking session presented by FIS and M&I Bank included:
- Smart phones will be used by the majority of consumers by the end of 2012
- Mobile banking will surpass online banking by 2015
- Remote deposit capture is the 'power app' that engages the customer (more are needed)
- Mobile banking customers have a 53% lower attrition rate (Tower Group)
- Mobile banking customers decrease VRU use by 55%
Greg Schreacke from First Federal Savings Bank and Robert Gitner from Velocity Solutions discussed the market potential for prepaid debit and how a bank could build a checking product set around the card. Research was presented that showed the following characteristics of a prepaid debit user:
- 53% have a checking account
- 50%+ want a prepaid debit because of overdraft fees
- 47% want immediate access to funds
- 46% believe they can get better service at a retailer than a bank
- 43% have had a previous problem that limits their ability to open a traditional checking
While many banks are still trying to build the business case for mobile payments, the following benefits were shared:
- Customer acquisition and retention benefits
- Lower cost of servicing
- Revenue generation potential and revenue retention
- Competitive parity
- Better customer experience
- Deeper customer engagement
The presentation that I did in partnership with Bill Stamp from KeyBank focused on the market trends around onboarding as well as the basics on development and implementation of a successful onboarding program. Interestingly, when the attendees were informally polled as to their current onboarding programs, while the majority were doing something, less than half were using more than one communication channel, very few were leveraging three channels, and only one bank was communicating with their customers more than 5 times in the first 90 days. It was stressed that this lack of a focused and consistent onboarding process could hamper organization's objectives of improving customer engagement, increasing fee income and definitely hurt cross-sale and retention efforts.
Bill's presentation around KeyBank's onboarding program illustrated that developing and managing an onboarding initiative is an ongoing process where testing of offers, channels, and communication sequence and cadence is continuously needed. Bill also shared how an onboarding process can reinforce cross-selling done at the new account desk and the importance of reinforcing engagement with services before the cross-selling of other products.
To further reinforce the importance of engagement and retention in a highly competitive and revenue challenged marketplace, Tom Brooks from Regions Financial Corporation, Lynne Laube from Cardlytics, and Aaron McPherson from IDC Financial Insights showed how a highly innovative merchant-funded rewards program may be the answer for banks looking to move away from a 'reactive' interchange funded program to a 'proactive' program that could be bring higher value to the customer and even make money for a bank.
Lynne Laube discussed two macro trends in the banking industry that has paved the way for a merchant-funded program:
- Digitization of payments (where and how payments are made)
- How customers relate to banks (>50% have online banking with 7 visits a month to their online banking site)
While the program at Regions is relatively new, the benefits included:
- No enrollment is required (all customers with online banking and electronic statements are included)
- Ease of value transfer (no coupons are needed since the customer can electronically 'activate' an offer and 'redeem' the offer simply by using their debit card)
- Immediate notification of earnings/rewards
- Rebates deposited directly into account
- Offers are targeted and relevant
- Integrated user experience
- Fully funded as opposed to being a contingent liability like with points programs
Without a doubt, this was a well-timed conference covering a broad range of topics on the front burner of many banks. On each attendee 'to do' list upon leaving, I am sure there will be a review of any pricing changes not yet implemented, a strong focus on ways to engage and retain new and existing customers we can ill afford to lose, and a much more accelerated movement to future payment products like mobile and even P2P.
I would love to hear from other attendees about their experience and takeaways.