Commercial Loan Automation
Small Business Banking
BirdsEye Viewchase go-to-market strategy implications to community banks
I have written before about the JPM Chase retail banking strategy. The company recently released an update of its strategic blueprint and execution against it in all lines of business. Again, I find interesting nuggets in the document across all business lines that are relevant to all banks which I am sharing below.
Chase certainly doesn’t get everything right, and its investor marketing materials are just that – marketing materials. And yet, the data and insights they contain are enlightening to all.
The bank has had a strategic blueprint that, appropriately, hasn’t changed much in recent years. Its pillars are mirrored in strategic plans of banks of all sizes nationwide:
• One Chase experience (omni-channel)
• Expense management
• Risk and control environment
• Information security
• Talent attraction, development and retention
These principles resonate with any management team, demonstrating yet again that execution is the key differentiator in our industry.
Overall, the strategy is simple:
1. Build scale with great products and marketing
2. Engage the customers to drive profitability and lower attrition
3. Deepen relationships across the franchise
Chase has continued to execute on its strategy of simplifying the customer experience which yields higher self-service adoption. That, in turn, enabled operational efficiencies and workforce reduction, which have lowered costs. 80% of transactions 4Q18 have been completed through self-service channels, a staggering number. Surprisingly, inbound calls per household to the phone bank fell 3%, and the cost per call was also down 7%. Also interesting is the increase in technology and digital headcount by 2,000, accompanied by a decrease of 7,000 staff in the operations area. The trifecta of technology investment, self-service/customer engagement and operating cost reductions exceeding investment cost is impressive and relevant to all of us. While we do not want to duplicate the Chase experience, we can utilize this formula to deliver on our own brand promise more efficiently and with greater customer satisfaction.
Another important element is Chase’s portfolio of investments that will fuel long-term results. Technology investments in 2018 are expected to generate over $1B of annual run-rate savings and an ROI of 2X. These savings were not created at the cost of customer satisfaction. To the contrary, the customer experience continues to be further differentiated, with nearly 50 million active digital users. Chase is playing the long game here, reaping benefits for years to come from its decade-long commitment to a strategic path of simplification, self-service and continuous digital enhancements.
Old-fashioned banking and marketing still works for Chase as well. In addition to explosive credit card growth, the bank has added 2mm+ new consumer banking households with $15B of average deposits. The bank has opened 10 branches in three expansion markets (Boston, Washington DC and Philadelphia) and plans on 8 more such markets. It is important to recognize that the digital experience doesn’t replace or displace branches. On the contrary, it is designed to improve the branch experience for non-self-service transactions. I consider that a dangerously effective combination.
Chase’s digital platform is embedded in their customers’ daily lives. Monthly logins per customer continue to grow, driving engagement. Customers are more satisfied (net promoter score is 10 points higher among digitally-engaged households), more engaged (their card spend is 2x other households) and her deeper Chase relationships (digitally-engaged households have twice as many multiple LOB relationships than all other Chase households. The Chase strategy has proved that effective digital engagement yields greater customer satisfaction, engagement and cross-selling. All banks can learn from this result and utilize this lesson in a more targeted fashion aimed at specific customer segments or product suites.
Further evidence to this engagement are customers’ involvement with the mobile app (21 logins per month in 2018), a 50% increase in number of transactions where customers split a bill with friends using Zelle (it should be said this is on a relatively low base) and a huge (30%) percentage of check deposit transactions through the phone. All these indicate engagement that translates into lower operating costs coupled with greater customer satisfaction.
Another impressive result at Chase is execution against new customer engagement. For example, while acquiring many new customers is an accomplishment we all desire, anchoring those newbies is what we’re really after. 75% of new Chase customers are mobile-active after 6 months, and the number of mobile-active consumer banking customers continues to grow (albeit at a slower pace of 8% annually). The variable cost per consumer household has been lowered as a result by 14% over the past 5 years, and teller transactions cut by a third. Average new checking relationship balance increased 40% since 2014, and share of new primary bank relationships in the past two years is triple that of Wells Fargo and 75% higher than BofA. Customer satisfaction has increased, while attrition declined 2.5% in the past 5 years.
AB: Customer satisfaction and NPS are good measures, but, in the final analysis, customers vote with their feet. Reduction in attrition is more meaningful to me than survey results.
Another counter-intuitive strategy Chase deployed in recent year is targeted branch growth in specific MSAs with high population density and deposit growth opportunity. Chase found that customers transact less frequently at the teller line but they still highly value a physical presence. Convenient branch locations are still the top consideration driver for prospective switchers, they say. Plus, 70% of the bank’s deposit growth in the past 5 years was driven by households who frequently use branches.
Based upon this information, Chase resolved to expand its physical network to attractive new markets that will improve the bank’s physical coverage by reaching 80 million more US consumers. Chase also found that cross-selling existing customers, particularly its highly profitable card product line, is an excellent value proposition, as existing customers show a 2.2X higher response rate. Similarly, cross-selling mortgage to existing customers has been strong, attributed partly to simplified digital mortgage process and a differentiated experience for Chase customers. A Chase customer finds their mobile application pre-filled to streamline the home loan process; their income and employment are automatically verified; they receive personalized pre-approved offers and they get an on-time closing guarantee for home purchase loans.
Chase is intent on rewarding their customers with improved bank products, experiences and pricing, copying the highly successful airline model. They are committed to moving beyond points to strengthen customer loyalty, and have evidence to show why the investment pays off. Highly engaged customers spend roughly 1.5x more than low-engagement customers; they are 2x more likely to adopt a second product; they generate 2.6x more in pretax income, and show 4 points higher NPS than card-only households.
They applied this playbook to existing customers and have grown deposit share from 13% to 16% in the top 10 markets while reducing branch share.
Reviewing Chase’s strategy should resonate with all my readers. Every one of us can benefit from:
• Driving engagement by improving the customer experience
• Expanding branches in a highly targeted and rational approach, coupled with deploying a smarter, leaner branch footprints across existing and expansion markets
• Integrating digital and physical distribution
• Migrating non-value-add transactions to lower cost channels and drive operational efficiencies
None of these strategies is size-dependent. They are not scale-driven but strategically motivated, and they can and should be executed within your distinct, specific brand promise.
AB note: Chase’s other lines of business follow a similar strategy. For example, the commercial side added 39 MSAs in the last decade, and is looking to grow physical presence in a targeted way, toward covering more of US GDP and middle market.