Iconoclasts are forecasting the end of the retail bank branch. Simple and Moven have gone so far as to delete the word "bank" from their names, and make the rounds at industry events heralding the brave new branch-free landscape.
But US consumers and small businesses are channel omnivores. Give them mobile, online, ATM, phone and branch—all will be used by some, and some will be used by all. The cost of channel choice is great, and retail margins are on a diet, so reinvention is an economic necessity. Channel R&D is accelerating as banks large and small find the unique branch blueprint.
Forget the movies, head to the branch. Small but mighty Umpqua Bank, with 200 "neighborhood stores" in the Pacific Northwest, is starting a "slow banking" revolution. Giant plasma touchscreens are used as "Discover Walls" to showcase neighborhood events, local merchants and podcasts. Wii bowling nights and Food Truck Tuesdays are big draws. Umpqua's strategies add up to fast growth in key demographics: young, upscale families and small businesses.
No longer solo, the branch is now the fulcrum of an omnichannel world. TD Bank lives their tagline—"America's Most Convenient Bank"—legacy of the 2008 Commerce acquisition. TD's 7-day, evening hours branch access has long been a differentiator. Now, omnichannel integration is sophisticated. Local branch manager videos and banner ads are served up in real-time by recognizing customer IP addresses. No surprise TD's 2013 ad campaign abandons Regis and Kelly for "Bank human, again" featuring their branches as the headline act.
Tellers are out, specialists are in. Chase, with 5600 branches, ha s got the yin and yang of their branch future figured out. Service costs are being squeezed through self-service kiosks: ATMs on steroids that can handle 90% of all teller transactions. At the same time, Chase is ramping sales horsepower with a six-fold increase in Private Bank branch presence , delivering 5x growth in the number of Private Bank clients since 2010. Other Sales Specialists in branch have grown 20%. And Chase's net branch count is increasing, with new builds that are smaller and specialist-rich.
Going virtual and mobile: PNC is working towards a vision of less physical density and more multi-channel options, reducing their branch count from today's 2850 selectively. Going well beyond the now-familiar mobile deposit and digital/social contact center options, PNC is rapidly expanding mobile stores, street teams, community brand ambassadors and segment-specific "thin branches" that match the needs of their micromarket. Watch for the famous "PNC Conversation" to get even smarter and better.
Cut the ad budget and buy or build branches: Since 2008, M&T has doubled in size to 725+ branches, but its footprint radius has grown a mere 27 miles. Branch density is a strategy M&T uses effectively to build brand awareness and bank profitability, and acknowledges it enables a lower advertising budget. M&T's invested in activating branches through clever and comprehensive management of their Baltimore Ravens and Buffalo Bills partnerships, ranging from in-branch promotions with players and shared community service programs to management of the franchise like a mega-branch, complete with sales goals. Banking Built for Baltimore demonstrates M&T's smart leverage of branch penetration and sponsorship potential.
The answer to branch strategy isn't as simple as develop or dismantle, reinforce or reduce. Like most strategy and marketing wins, it's about defining a course that magnifies strengths, mitigates disadvantage and sets a course that fits your franchise, and your future.
If you are so inclined, most things can be viewed through a lens that turns them into proof points for the importance of a focus on customer experience. It didn't require much effort, though, to walk away from the SIIA All About the Cloud conference with a sense that success in the cloud is all about customer experience.
Fundamentally, the SaaS business model necessitates an absolute focus on ensuring customer success and delivering positive customer experiences. Without the traditional lock-in provided by on-premise software – now that it's installed, they're not going to switch – SaaS companies are forced to put their money where their name is by delivering on the "service" promise. Delivering value to the customer and gaining their trust is the new lock-in.
Hearing about several "NextGen" companies who built their offerings with the customer experience in mind: Armor5's value proposition features ease of end-user access and xTuple's 5 minute rule to gauge whether the customer's first five minutes using the application will be positive.
Affirmation of the idea that whoever in the organization is responsible for customer success should have financial incentives associated with that success: Servoy compensates sales people based on the revenue generated by its clients' applications; Totango's Guy Nirpaz suggested that Chief Customer Officers have revenue goals driven by retention and cross/up-sell.
Highlighting by Shlomo Weiss of SafeNet of the fact that "shelfware" – the purchased and unimplemented software either on-premise or in the cloud – is a significant opportunity for companies that drive adoption.
Dissemination by Nick Mehta of Gainsight of the idea that investment in retention is just as important and vital as investment in customer acquisition marketing and sales.
Outstandings (11 issuers reporting, analysis excludes Capital One, which acquired the HSBC card portfolio in 2012, so its growth rate would skew the data): A weighted average of 11 leading credit cards issuers shows that average credit card outstandings fell 2% year-over-year (y/y) in 1Q13. The three largest issuers – Chase, Bank of America and Citi – all reported y/y declines. However, outstandings growth came from Wells Fargo (who reported that credit card penetration of retail banking households rose from 30% in 1Q12 to 34% in 1Q13), regional banks with relatively small portfolios (e.g., PNC, SunTrust and Fifth Third), as well as "monolines" (American Express and Discover). These outstandings trends bear out the industry predictions we made in a blog at the start of 2013.
Volumes (8 issuers reporting): leading issuers grew credit card volume 6% y/y in 1Q13, which is relatively consistent with recent quarters. However, growth rates have moderated from the 2010-2011 levels, when issuers were overwhelming focused on building volumes. Wells Fargo led the way with a 14% volume growth rate, driven by an 18% rise in new consumer credit card accounts.
Revenues and expenses (5 issuers reporting): Revenues rose 2% y/y, led by Discover (+11%) and American Express (+5%). The lack of outstandings growth means that net interest income remains relatively anemic, with a rise of 1% y/y. Noninterest income grew 5%, with relatively healthy growth rates from American Express, Discover and Bank of America. Noninterest expenses fell 1%, with both Chase and Bank of America reporting significant declines (reductions of 8% and 7%, respectively). Provisions for loan losses rose 5%, albeit from very low levels in 1Q12.
Charge-off rates (11 issuers reporting): The weighted average charge-off rate for these 11 issuers was 3.62%, down 65 basis points (bps) y/y, but up 5 bps q/q. 10 issuers reported charge-off rate y/y declines. The exception was Capital One, which acquired the HSBC credit card portfolio (with a higher charge-off rate) in 2012. Compared to 4Q12, 10 issuers reported charge-off rate increases and the other two were unchanged, indicating that the era of charge-off rate declines may be coming to an end.
30+ day delinquency rates (8 issuers reporting): 7 of the 8 issuers providing 30+ day delinquency rate data reported y/y declines. As with the charge-off rate, the exception is Capital One. Interestingly, 7 of the 8 issuers reported q/q declines. The exception was American Express, whose 30+ day delinquency rate was unchanged. So, while the period of charge-off rate declines may be ending, the continued decline in delinquency rates will moderate charge-off rate increases.