Retail Bankers Unprepared For The Future

At a time when powerful forces are disrupting the retail banking industry, financial services executives agree that a transformation of the banking landscape is inevitable. Unfortunately, while they agree on the priorities that are integral to success in 2020, fewer than 20 percent feel prepared to address these priorities.

In a survey of 560 executives from leading financial institutions across 17 markets entitled, "Retail Banking 2020: Evolution or Revolution," PwC  found that 90 percent of financial services executives agree on the priorities that are the foundation for success in 2020, yet only a fifth (20 percent) feel well-prepared to address these priorities despite the fact that nearly all (96 percent) believe that a fundamental transformation of the banking industry is inevitable.

"Growth remains elusive, costs are proving hard to contain, returns remain stubbornly low and regulation is impacting business models and economics," said John Garvey, U.S. banking and capital markets leader at PwC. "Simultaneously, the evolution of technology and heightened customer expectations combined with the emergence of disruptive competitors creates new pressure to deliver higher levels of service at a time when value and trust in the sector is at an all-time low. Surviving and succeeding in this environment may require a fundamental rethink in approach."

Today's Challenges

The impact of growing and changing regulations is the primary challenge for retail banks in the U.S. (47 percent) and Europe (40 percent), where banks are trying to stop seeing regulations as a burden and hoping to weave compliance into the fabric of their operations.

In the U.S., attracting new customers (35 percent) and increasing profitability (33 percent) ranked second and third respectively, aligning with the hierarchy of investment priorities (56 percent regulatory compliance, 46 percent enhancing customer service and 30 percent implementing new technology).

Source: PwC Banking 2020 Survey

Nearly all respondents (97 percent) view innovation as a critical driver of growth – with companies who consider themselves innovative predicting 62 percent growth over the next five years, nearly double the market average of 35 percent and triple the 21 percent for the least innovative companies.

Despite understanding the importance, only 10% of CEOs view their organizations as innovation leaders. Further, 64% of CEOs agree that neither innovation nor operational effectiveness are dominant – and are looking to succeed at both.

PwC believes executives recognize they need to do things differently. According to the study, over 50% are planning to enhance their internal capabilities to foster innovation, and to create innovation management teams across business units. There is also a recognition that partnerships and third-party relationships may be the best way for banks to reap the benefits of innovation.

In the U.S., the primary areas mentioned for innovation were products (43 percent), customer interfaces/channels (60 percent), core platforms (50 percent) and customer need identifications (40 percent).

Finally, nearly three quarters (71 percent) of U.S. retail banking executives consider non-traditional competitors a threat, significantly higher than executives in Asia (42 percent), where more view them as an opportunity for partnering.

Bank Switching Increases As Consumers Look For Better Mobile Capabilities

After a period of relative stability, the primary bank switching rate increased by more than 40 percent in late 2013, with 60 percent of smartphone/tablet users reporting mobile banking capabilities as being either "important" or "extremely important" in their decision to switch.

After relatively stable switching rates since the financial crisis, the number of consumers switching primary banks jumped from 7.1% in the first half of 2013 to 10% in the fourth quarter of 2013 according to the "Mobile Financial Services Tracking Study" from AlixPartners. This is the highest rate of switching since the end of 2008.

The highest incidence of primary bank switching was evident among millennials, where the annual switch rate approached 20 percent. The rate of switching quickly drops for older segments of the population, with baby boomers and seniors switching primary banks at low single figure annual rates. 

% Who Switch Primary Bank in Past Year
Source: AlixPartners (March, 2014)

% Who Switched Primary Banks in Past Year by Age
Source: AlixPartners (March, 2014)

Among younger consumers, technology and innovation was of greatest importance, with the reasons for switching primary banks including:

• "My previous bank didn't offer the level of technology/innovation that I wanted"
• "My previous bank didn't offer the online services that I needed"
• "My previous bank didn't offer the mobile services that I needed"

For older consumers, the primary reasons for switching were because of a bad customer experience or because of a move, new job, etc.

Millennials Find Banks Irrelevant

A three-year study from Scratch, an in-house unit of Viacom, found that a third of millennials believed they won't need a bank in the future. These millennials, defined as those between ages 18 to 33, also ranked the top four banks in the "ten least loved brands" and would rather go to the dentist than to their bank.

Is this surprising? This segment of the population has grown up in an era that saw trust in banking erode due to the financial crisis and a near stagnant economy. This is also a period when new technology has enabled firms like Simple, Moven, Square and PayPal to be more relevant with a generation that would rather handle finances on their phone than in a branch.

Here are some of the findings from the Millennial Disruption Index:

• 53% don't think their bank offers anything different than other banks
• 1 in 3 say they are switching banks in the next 90 days
• 71% would rather go to the dentist than listen to what their banks are saying
• 33% believe they won't need a bank at all in the future
• Nearly half are looking for tech start-ups to overhaul banking
• 73% would be more excited about a new offering from Google, Amazon, Apple, Paypal or Square than from their own bank

These beliefs are coming from the largest generation in the U.S. (84 millions) with a new found purchasing power of over $1.3 trillion that represent the vast majority of new home buyers. They are far more tech savvy than previous generations, use their mobile devices continuously, look for deals in every buying category and are connected through multiple social networks.

According to the TD Bank Financial Education Survey, many millennials look to their parents and friends for advice on financial services and many still rely on their banks. Ninety percent use online or mobile tools for everyday banking activities, with 57 percent saying they used mobile banking more frequently than last year.

It is clear, however, that banks are having a difficult time keeping up with the needs of this segment. While banks spent time improving the online banking experience, millennials had already moved to mobile devices for communication, transacting, entertainment and information. The industry's response, for the most part, has been to provide mobile access to online banking platforms. Only banks built for the mobile device like Simple, Moven, GoBank, Fidor, mBank, Soon and Hello seem to see the future.

9 Secrets to Building Customer Engagement in Banking

Virtually every bank and credit union has the acquisition of new customers as a top priority for 2014. But generating a new account is only the beginning. To generate near-term profitability and long-term relationships, the new customer must become fully engaged. 

Customer engagement can not be achieved in a day, week or a month. It is the foundation of a relationship that includes trust, dialogue, a steady growth in service ownership and a growth in share of wallet if done correctly. The alternative to focusing on building customer engagement is a relationship that does not meet its full potential or customer attrition.

According to Gallup research entitled, The Financial and Emotional Benefits of Fully Engaged Bank Customers, the tangible benefits of a fully engaged customer that is both attitudinally loyal and emotionally attached to the bank include the following:

• Increased Revenues, Wallet Share and Product Penetration: Customers who are fully engaged bring $402 in additional revenue per year to their primary bank compared with those who are actively disengaged, 10% greater wallet share in deposit balances and 14% greater wallet share in investments. Fully engaged customers also average 1.14 additional product categories with their primary bank than do customers who are 'actively disengaged'.

Source: Gallup (2014)

• Greater Purchase Intent and Consideration: An engaged customer not only holds more accounts at their primary bank, they also look to that same bank when considering future needs. At a time when so much of the shopping process is done online, improving your bank's chances of being in the customer's consideration set is important.

• Becoming a Financial Partner: Less tangible, but no less important, the Gallup research showed that an engaged customer builds a bond with their bank or credit union that every financial institution would covet. According to the research 54 percent of engaged customers strongly agree that their bank helps their financial dreams come true and a similar percentage believe their bank makes their life more enjoyable. Most importantly, 71 percent of engaged customers say they will use their current bank for the rest of their life.

Here are the secrets to setting the foundation for strong customer engagement:

1. Improve Acquisition Targeting

Customer engagement begins before a new customer even opens an account. With today's depth of data and processing capability, it is possible to find new prospects that are similar to the best customers who already have accounts at a financial institution. By building acquisition models that look at product usage, financial behavior and relationship profitability, opening accounts that have limited potential for engagement or growth is reduced.

Beyond demographic, financial behavior and product use modeling, geographic modeling is also important since the strongest potential trade areas are not always clearly defined by branch radius mapping. 

2. Change the Conversation

One of the key elements of building an engaged customer relationship begins with the conversation during the initial account opening process. To build trust, the conversation must focus on making sure the customer believes that you are genuinely interested in getting to know them, are willing to look out for them and that, over time, you will reward them for their business/loyalty.

This early conversation needs to focus more on capturing insight from the customer and discussing the value different products and services will have from the customer perspective as opposed to simply discussing features. The goal is to illustrate to the customer that the products and services being sold will meet their unique financial and non-financial needs. 

Some of the insight that should be collected (beyond the basics) includes:

• Financial objectives
• Primary financial decision maker in the household (it is often the wife)
• Communication channel preference(s) 
• Accounts held elsewhere (balance details are not as important as knowing the category)

Unfortunately, research studies indicate that the majority of branch personnel have difficulty having in-depth conversations with customers around needs and the value of an organization's services. In other words, having a firm grasp of product knowledge is no longer enough. The initial focus should also be on sales quality as opposed to sales quantity. 

Interestingly, some financial institutions have begun utilizing iPads to collect insight directly from the customer. While seeming less personal, an iPad new account questionnaire standardizes the collection process and usually is able to collect far more personal information than the bank or credit union employee is comfortable collecting.

3.  Communicate Early and Often

It is interesting how banks and credit unions set objectives for expanding a customer relationship and engagement and then establish arbitrary rules around communication frequency and cadence. It is not uncommon for a bank to limit the number of 'touches' to one a month or less despite the fact that a new customer has been shown to desire significantly more interaction as part of their new 

relationship.

In fact, research from J.D. Power has found that the optimum number of communication messages during the first 90 day period from both a customer satisfaction and relationship growth perspective is seven 'touches' across various communication channels.

An example of an onboarding engagement communications plan is shown below. The contacts below don't include additional media such as online and mobile banking messaging, ATM messaging, digital retargeting, etc. It is important to remember that at the very least, an engagement communications plan should include a 'thank you' message within the first 5 days of the account opening (from either as new or existing customer).

	Focus	Messages Sent	Email	Mobile
Day 1	Welcome & Activation	Welcome Kit Preapproved Offer	Email Capture	Mobile Capture
Day 2	Thank You		Welcome Email	Welcome Text
Day 5	Utilization	New Account Follow-Up 'Go With' Service Discussion	Alert Notification Sign-Up	Alert Notification Text
Days 7-30	Utilization & Engagement	Branch Phone Check-In Engagement Letter	Engagement Email (Direct Deposit/Online BillPay)	Engagement Text (Direct Deposit)
Days 30-60	Utilization & Engagement	Branch Engagement Call	Day 30 Engagement Email Day 45 Utilization Email	Engagement Text (Mobile Deposit)
Days 60-90	Engagement & Cross-Sell	Call Center Relationship Expansion	Modeled Engagement Service Email	Engagement Text Rewards Offer
Days 90-180	Cross-Sell	Call Center Relationship Expansions	Modeled Service Cross-Sell	Modeled Service Cross-Sell

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