43 Retail Banking Myths

CROWDSOURCING SERIES

With the financial services industry changing so quickly, it should come as no surprise that many assumptions banks and credit unions believed to be true for years could actually be rendered obsolete. To uncover retail banking myths and provide new realities, I reached out to more than 40 global financial services leaders including bankers, credit union executives, industry analysts, advisors, publishers and editors, bloggers and fintech followers and got 43 myths.

Myth 1. Banks must embrace big data to be successful
Reality: Most banks and credit unions have not fully leveraged insight that is currently available within their firewalls. Account ownership, demographics, product use and other behavior data should be used for offers and communication before adding unstructured data from outside the organization.
Data analyst from $20 billion bank

Myth 2. The majority of consumers prefer to open "important" accounts in the branch.
Reality: When deciding what channel to use, consumers weigh a number of factors (eg. reliability, speed, safety, convenience, time of day, cost, previous experience, brand perceptions, etc. etc.)
Jim Bruene, Editor & Founder The Finovate Group | Online Banking Report | Netbanker blog

Myth 3. New market entrant competition is limited to deposits and payments but lending is safe.
Reality: Over the past five years, emerging Online and Independent lenders, many of whom did not exist during the depths of the Credit Crisis, have stolen 10% market share away from primarily the midsize / regional banks in the US.
Wayne Busch, managing director of Accenture's North America Banking practice

Myth 4. The branch is dead. 
Reality: It's not even on life support. There is a place for a brick and mortar experience albeit with fewer bricks and less mortar. We need to rethink the branch model and experience, but bankers will be offering a strong physical (and digital) presence for decades to come.
Bryan Clagett, CMO, Geezeo

Myth 5. We need to excel in omnichannel banking
Reality: There is no such thing as a channel. Our objective should be to ensure a consistent digital approach across the whole customer engagement without thinking about channels. Channels should be considered as digital platforms that provide customer touchpoints.
Chris Skinner, Chairman, The Financial Services Club 

Myth 6. Boomers like the touch of paper.
Reality: While this was true in the past, it is now a myth based on recent research from Celent.
Bob Meara 
Senior Analyst, Banking Group, Celent 

Myth 7. If you don't cross-sell a new customer within the first three months of the relationship, you've lost the chance to cross-sell.
Reality: It is better to focus on engagement (go with) services in the early days of a relationship, but selling additional products is best done later in the relationship when more is known about customer activity, product use, financial goals, etc.
Ron Shevlin, Senior Analyst, Aite Group

Myth 8. Bankers need to at least sell 6+ (or 10+) products to customers to remain profitable.
Reality: More products doesn't mean guaranteed profitability or engagement. More importantly, the focus should be on customer needs and an improved experience as opposed to the bank or credit union's goals of 'more products sold'.
Deva Annamalai, Bank Marketing Technologist, Salt Lake City

Myth 9. Customers are not willing to pay for mobile remote deposit capture.
Reality: Several banks have started to charge for this service without impact to their adoption/usage targets.
Matthew Wilcox, 
Managing Director of 
Marketing Strategy and Innovation, Digital Payment Solutions
, Fiserv

Myth 10. To purchase a complex banking product, the face to face relationship with an expert is irreplaceable.
Reality: The same was said for selling shoes. 
However, this does not mean you will not need any more experts, in combining face to face rendez-vous and remote access or to describe the rules of artificial intelligence software.
Raphael Krivine, 
Director AXA BANQUE

Wearable Banking Still Not Ready for Prime Time

MOBILE STRATEGIES

In the past year, wearable technology has emerged as the next big consumer electronics market category, particularly in the areas of health and wellness. To capitalize on this growth opportunity, banks and payments firms are investing in wearable product innovation to expand their mobile banking platform. The question remains whether mainstream consumers will find an advantage to adding yet another device to do their banking.

There have been a number of studies conducted on the potential penetration of wearable devices and the acceptance of these devices by consumers. Speculation is a confusing mix of skepticism and hype, as can be expected with any new technology where there is low overall awareness and where viable uses are still being developed.

One of the most interesting studies done on wearables has been done by TNS showing that awareness of both smart watch and headset wearable technology over the past several months is increasing rather rapidly. Unfortunately, during the same period, usage remains almost non-existent and desire to use the technology is actually decreasing.

The decrease in desire to use wearable technology could be caused by the high cost of early wearable technology introductions combined with the lack of strong, unique capabilities of the devices introduced to date.

These findings are similar to a late 2013 study by Harris Interactive, that showed that despite a lack of understanding on potential uses, nearly half of Americans (46 percent) are at least a little interested in owning a wristband or watch device with over one-quarter (27 percent) saying that they would be somewhat or very interested. Fewer were interested in an eyewear device (36 percent at least a little, 20 percent somewhat or very).

An Accenture study entitled, 2014 Digital Consumer Tech Survey also found 52 percent of consumers in six countries were interested in buying wearable technology, particularly for health and fitness reasons, with 46 percent potentially wanting smart watches and 42 percent seem interested in web connected glasses.

As would be expected, younger consumers, males and households with children under 18 were the most interested. Interestingly, there was no significant difference is level of interest based on income, despite the potential high cost of the technology.

The overall sentiment today is that there is still skepticism around the technology, with close to half of those surveyed by Harris believing the devices are just a fad (49%). Slightly fewer than four in ten Americans said they would only be interested in the technology if it could replace something they already use. However, one other finding of the poll is interesting: 48% admitted that they’d like to be able to access smartphone functions without having to dig in their pocket or bag.

5 Lessons Bankers Can Learn From WhatsApp

MOBILE STRATEGIES

On the surface, the purchase of WhatsApp by Facebook for $19 billion seems to have little to do with retail banking. Digging deeper, however, the transaction illustrates the most important consumer trends today that bankers must understand or risk becoming irrelevant in the future.

Interestingly, these trends were also important to the sale of Simple to BBVA a day later.

Is WhatsApp worth $19 billion? By traditional financial metrics, the consensus is no. But Facebook is justifying the price by citing WhatsApp’s startling growth, which has been even faster than Facebook’s early years.

In discussions with analysts, David Ebersman, Facebook’s chief financial officer, compared WhatsApp to companies with the potential to grow to 1 billion users. “The primary thing we focused on was how healthy this network is and the pace at which it was growing,” he said. “We looked at other networks that have achieved this kind of scale and that helped provide a framework", Mr. Ebersman said. More than just raw growth, WhatsApp has grown in the key demographic that many believe Facebook has been losing as of late...the Millennials.

So, what lessons can retail bankers learn from WhatsApp...especially when our industry is surrounded by traditional thinkers and legacy systems?

The Shift to Mobile is Seismic

The shift to mobile is unprecedented, with combined smartphone and tablet usage rapidly overtaking the desktop. This mobile trend is driven by increased application-based actions (e.g., communicating on social networks, posting photos, tweeting) and task-oriented web usage (e.g., location-based searches). While Facebook was built for the desktop and migrated to mobile, WhatsApp was built for mobile first, giving the network an advantage in today's marketplace.

This shift presents strategic challenges to banks that also until now have built mobile banking apps starting with the desktop experience. As more users are accessing their banking relationship from mobile devices, it makes more sense to begin development with the form and function of mobile. By doing so, the design and flow of the mobile banking application improves as the user-experience becomes more narrowly defined.

In todays mobile-first ecosystem, we should be developing downloadable mobile banking apps. When we do so, we enable the customer to access their address book, bypassing the need to enter information to make payments, etc. We also can allow access to mobile photo libraries instead of uploading photos from different websites. Finally, the app can more easily push alert notifications directly instead of relying on emails or requiring the customer  to check a website.

A well built mobile banking app is just two taps away, while accessing and using online banking via a mobile device is far more cumbersome. If built correctly, the mobile banking app will also get a prominent icon on the home screen (the mobile version of share of wallet).

Going forward, it is much better to scale the mobile experience to the desktop as has been done by Moven, GoBank and Simple. By doing so, instead of removing online banking functionality for mobile (or developing a separate but parallel mobile site), additional elements can be added if needed to supplement and enhance the user experience on the desktop/tablet.

Payments Innovations Replace Debit and Credit Cards

PAYMENTS STRATEGY

At a time when payment innovation seems like an everyday occurrence, it is exciting when new ideas come along that embrace both mobility and simplicity. In separate personal user tests, LoopPay allows me to make contactless payments at virtually every retail point-of-sale terminal while Square Cash enables me to collect money from friends with an email.

Here's why I no longer need a wallet filled with plastic.

When I initially covered these payments innovations in late 2013, both LoopPay and Square Cash drew my attention because of their unique strategies to impact the way people make payments. LoopPay promised to deliver a device that would 'trick' a traditional POS terminal into thinking a card was being used, making virtually every transaction contactless. Square Cash provided a secure method of making P2P payments via email. LoopPay's value proposition was to provide an easier and more secure way to pay merchants while Square Cash aimed to simplify P2P transactions.

Loop Wallet

Several weeks ago, I received my Loop Fob, the first in a series of Loop Wallet 'AppCessories' that would allow me to securely store and organize my payment, loyalty and gift cards in my iPhone while making contactless payments at more than 90% of today's terminals worldwide.

My first impression when I received my Loop Fob was that, while the packaging was very well done and provided a clear overview of what was needed to use the device, the device was larger than I anticipated. Once I began to use the device, however, I found the fob to be convenient while serving to whet my appetite for the soon to be released iPhone ChargeCase.

The Loop Fob Wallet AppCessory Packaging

Loop Wallet Set-Up

Once I downloaded the LoopWallet application from the iPhone store (Android version to be introduced shortly), I simply signed-up for the service and answered a series of security questions within the app. The securitization was complete after I entered an activation token that was sent to my connected email account.

Loading my cards was done using the card reading component of the fob while the fob was connected to my iPhone. A nice feature of the scanning process was the optional feature of adding a picture of my cards, the customer service phone numbers for for each card and an example of my signature. I could also add gift and loyalty cards as well as my drivers license to be part of my Loop Wallet. 

The last step of the initialization process was to designate a default card that would be used when the fob is disconnected from my phone (the majority of my transactions have been with the fob disconnected). The default card can be changed at any time when the fob is connected to the phone. The tutorial below was a great way to understand the application process and usage of the Loop Fob.

Tomorrow's Checking: Built For The Mobile-First Consumer

PRODUCT STRATEGIES

The checking account is the foundation of a customer relationship and has withstood the test of time even as electronic payments and debit cards have replaced checks, online banking has eliminated the need for paper statements and remote deposit capture has made a trip to the branch a rare occurrence.

But all that we have become accustomed to is about to change as we enter the era of the downloadable bank account.

The downloadable bank account differs from today's checking account because it is built specifically for Customer 3.0. This customer manages much of their life on the go from their smartphone, wants access to real-time information about their finances and wants the ability to transact business without checks or plastic. They are the type of customer who pays for their coffee with their Starbucks mobile app, and uses mobile deposit capture instead of going into the bank or credit union branch.

Tomorrow's checking is not just having mobile access to a traditional checking account. It is a bank account built for mobile.

It is a downloadable mobile banking application that provides the basic money storage and money management capabilities of today's checking as well as integrated payments, contextual insight and an overall customer experience not being provided by traditional financial institutions today. It is easy to open and manage using a mobile device, and is similar to the products offered by Moven, Simple GoBank, Bluebird in the U.S. and mBank, Fidor, Hello, CommBank and Soon overseas. Tomorrow's checking may not have any associated plastic card, but may be able to store alternative currencies as was recently announced by Standard Bank.

Both Moven and Simple Provide Exceptional
Mobile Banking Contextual Insights

While the traditional checking account may not completely go away anytime soon, the risk of not meeting the needs of the mobile-first customer is increasing. This is because more new players are entering the marketplace such as T-Mobile's Mobile Money, with the potential of providing a downloadable bank account to a much broader audience than just the underbanked, unbanked and debanked. With either an already established physical presence or no bricks and mortar, these services can be provided at a lower cost than traditional banks.

Combining the attributes of a prepaid card and a traditional checking account, new checking disruptors can provide FDIC insurance, the ability to make direct deposits and electronic payments, accessibility to nationwide surcharge-free ATMs, mobile deposit capture and even branch access, checks and integrated rewards.

Attacking on a different front, players such as Google, PayPal, Amazon, Apple, Isis and others are hoping to control the digital wallet processing component of the payments ecosystem, leaving traditional banks with only depository functions.

Banks Can't Close Branches Fast Enough

BRANCH STRATEGIES

U.S. banks are closing branches in record numbers as customers are increasing their use of mobile and online banking. Yet, in conversations with seven of the nation's top ten banks, many more branches would be closed if there wasn't concern for public or governmental backlash.

Do banks have an obligation to keep branches open, or will the need to cut costs drive an accelerated wave of new closures?

According to SNL Financial, banks closed a net 1,487 branches last year. That's the highest number of net closures since the research firm began tracking the statistic in 2002. The majority of these closures have been attributed to the increasing use of online and mobile banking as technology enables consumers to manage their accounts, make remote deposits and shop for services more efficiently from desktops or smartphones.

Despite these closures, the number of bank branches in the U.S. still hovers above 80,000 according to the FDIC, making the U.S. one of the highest branched countries per capita in the world. That is why, in an era of sluggish revenue growth and heavy compliance costs, most bankers are trying to close or reconfigure underperforming branches as quickly as possible.

But closing branches involves more than just locking the doors and informing customers of other banking and branching options. In conversations with banking executives from seven of the largest banks in the country, I was told that between 50 percent and 80 percent of all branches that should be closed based on financial considerations are not closed due to potential regulatory or public relations repercussions. With many analysts saying that 25-30% of all branches are unprofitable, this could represent a 'backlog' of well over 10,000 branches nationwide.

In my discussions with these banks, it was mentioned that many of the branches that are not carrying their weight from a revenue perspective are either in lower income markets or in small rural areas where access to an alternative nearby physical location may be limited. This creates a unique dichotomy between a prudent financial decision and the desire to maintain trust and goodwill lost during the financial crisis.

When I asked whether reconfiguring these underperforming branches was an option, many of the executives I contacted said that they were even concerned about negative reaction to replacing tellers with automated kiosks or moving to smaller physical footprint locations. Said one banker, "We're caught between a rock and a hard place with many of the closings we would like to do. The decreasing number of transactions at many of these offices makes them highly unprofitable, but moving to an automated model brings its own issues."

The perceived obligation to keep branches open, and the real estate related costs of closing branches, may explain the rather conservative rate of branch closures to date despite branch transaction volumes that continue to plummet and costs that continue to rise. The same challenge is being faced by banks worldwide, evidenced by a recent U.K. article in The Telegraph asking, 'Do Banks Have a Duty to Keep Branches Open?' Interestingly, more than half the people who responded did not believe banks should be required to keep unprofitable branches open.

Telegraph (UK) Consumer Survey (2014)