Chief Investment Officer
Commercial Loan Automation
The book "The Tipping Point" describes a social pattern where, after an often slow build-up, a phenomenon reaches the tipping point and gathers huge momentum in a very short period of time, becoming very impactful. It's like riding a roller-coaster which slowly trudges up the hill for seemingly an interminable time, only to tip over and come down with incredible speed.
We have seen such phenomena in our business repeatedly. Internet banking is an example, as are ATMs, debit cards and other, typically technology-related, changes. Wisely, our industry by-and-large was slow to react, preferring not to be on the bleeding edge. Conversely, we often are also too cautious to make the move when the tipping point has already occurred, thus missing marketplace opportunities. Sometimes we even drag our feet until customers yell hard enough for us to make the move, kicking and screaming all the way.
I believe we are approaching another such tipping point. Much has been said about the branches and their demise. Little has been done. After all, what would we be without branches? I totally agree. And yet, how many of your own branches are deserted most of the day to the extent that a cannon shot through them and not harm anyone? How many times in recent years did you visit a branch only to be told that you just missed the customer rush? It's time to take a fresh look at distribution.
The first point to be made about distribution is: IT'S NOT JUST THE BRANCHES. Even physical distribution includes every branding point, most notably ATMs. Such points contribute to the network effect and create a perception of ubiquity, which is what you're after.
Secondly, those branches are still the cornerstone of your distribution and will continue to be for years to come. Just check out your nearest mall and see all the kids making purchases at those stores, not online. This is not to say that the online channel isn't growing in important daily. It merely suggests that branches are here to stay for a long while.
At the same time, what's happening at those branches is changing dramatically. As adoption rates for online banking, electronic bill-pay (through us or directly to the biller) and direct deposit skyrocket, check-based transaction volumes plummet. We are at the tipping point as we speak, and we need to do something about it.
1. Reconfigure your branches' physical layout. Most of our branches are too big and have too much space for tellers. Dropping teller transaction volumes indicate more sales posts within the branch are needed and fewer teller windows. The sooner you make the adjustment the greater your sales growth will be.
2. Use branches for consistent branding even if they don't offer an opportunity for consistent look. Branding is very important to younger customers, and brand loyalty will become even more important as they migrate further into remote channels. Look the same and project the brand promise you are committed to. It doesn't mean total branch refurbishing; it does mean a facelift.
3. Reconfigure your branches' staffing. Fewer transactions should mean fewer tellers, but they often don't. Controls and compliance issues dictate staffing even when customers volumes don't warrant it. Here's a thought: visit supermarket branches. They found many ways to address this issue and operate with fewer people because they simply never had enough space to put all these people in. Many are reverting to a universal banker concept. I like the concept, except if the end result is that you're paying as banker to do a teller's job, the idea doesn't work. It only makes sense when the banker is truly a banker and a sales person, not a transaction processor.
4. Take a fresh look at your online bank and ensure branding is fresh and consistent with your brand promise. See point #2.
5. Consider online sales prompts and account openings more seriously. It's time. If your compliance department says you can't do it, point to ING, Citi and thousands of other banks who found a way to do this legally.
6. Social media presence is nice but not yet meaningful. A page of Facebook or Twitter might give you some response, but most users don't want to interact with you that way. This is not how they use these channels. There are exceptions (Capital City of FL and their Twinkles Banks character and his girlfriend Star, or FirstMerit and their moose mascot). But this is an idea whose time might never come. On the other hand, what about YouTube? Give it some thought...
7. Innovative thinking works. Consider, for example, M&T's upcoming ATM introduction. The machine is configured so you can insert up to 30 checks and 50 bills at one time for a deposit. The ATM images each check, totals them, and prints the check deposit image on the receipt for the customer. The bills are automatically counted and the number and denomination totals are printed on the check. There is no deposit slip or envelope required so a customer can simply insert their bankcard, enter their pin, select the deposit function, and then put a stack of checks and cash into the ATM and the rest is "automagic" as they say. The check deposits are sent by the ATM as X.39 images directly into the back shop for clearing.
This "commercial ATM" offers a win-win combination to the customer and the bank.
a. For the customer: Because the ATM fully automates the cash deposit and the bank settles the check deposits via the check image(s) there is no mid-day cut-off, the ATM cut-off for same day check deposits is 8pm (vs. noon to 3pm at the branch). Customer benefits are:
i. Earlier availability for check deposits (and if the deposit is made after the branch mid-day cut-off) 100% of the cash portion of the deposit is available in real time.
ii. 24/7 availability.
iii. Customers see their bank "keeping up" and modernizing by updating its communication of financial information and services. They like the check deposit images on their receipts, the "no deposit envelopes and slips"', and the 100% cash availability in real time.
b. For the bank: As noted above, because the ATM is fully automated all deposit transactions are fully settled without human intervention.
i. No need to take tellers off the line for the mid-day cut-off to settle the ATM nor to re-process the ATM deposit transactions. The branches love both of these benefits.
ii. Since 62% of over-the-counter transactions are deposits, and most of these are ATM-able, actively migrating these deposit transactions to the ATM will reduce branch operating costs. It can also turn the tellers into a sales force (from transaction processors).
iii. Potential secondary benefits for customer retention and account acquisition due to improved sales by freeing tellers to cross-sell.
But the most important message of today's BirdsEye View remains to be told: The future is in mobile banking. This is an idea whose time has not come yet, but the phone has already won the device wars. Younger generations are using their email and computers less and less, but they will not be caught dead without their cell phone. Be ready for that tipping point to occur, because this will be an important one. Try paying your kids' allowance on your phone and you'll see what I'm talking about. Or try prying the phone from your kids' hands and you'll see what I'm talking about as well. Last, put your airline boarding pass on your phone and you'll see why mega banks are beginning to accept check deposits that way.
Mobile phone banking is a critical component of the future distribution of financial services. We're not there yet, but when we get there, it will be a revolution.
Fifteen years ago the visionary Dick Kovacevich, then CEO of Norwest, had among the banks strategic initiative one that he called "Where, When and How". The idea was: let the customer choose where, when and how they want to bank. It's up to us to figure out how to respond to this challenge.