The five biggest retail banks—recognized by the brand names U.S. Bank, Chase, Bank of America, Citi and Wells Fargo—control over 50 percent of total assets in the U.S. and are driving the mobile banking agenda. In a race to meet the mobile transaction needs of their customers, these banks have all conquered the most basic services that soon almost all banks will have—mobile banking, mobile bill pay, mobile deposit, ATM and branch locators and P2P payments. Now in phase two of mobile banking, these banks are in an arms race to further engage with customers’ mobile lifestyles, particularly by helping people save money when they shop.
U.S. Bank has been previewing Peri, a mobile app that will launch soon that allows customers to instantly purchase products from what they hear on the radio and television or see in a print ad. For example, if you’re watching a TV commercial, Peri can simply “listen” to it to identify the product and find the place where you can buy it.
On the surface, apps like Peri seem a bit futuristic, but many of us actually already have these types of features on our phone right now. The Amazon app uses its “flow” image recognition technology to allow iPhone users to find the product in the app just by pointing the phone’s camera at it. U.S. Bank is simply taking the best in class, “for the future” shopping features and ensuring they can deliver that functionality in a way that helps their customers.
In a recent presentation to bank executives, Dominic Venturo, chief innovation officer for U.S. Bank Payments Services, shared another pilot program that will allow the bank to be a connector between its retail customers and small business customers. With this technology, merchants can see in real time where consumers are using the app and asking to receive discount offers.
If a customer decides “I want coffee,” or “I want lunch,” they just click in the app to request a discount offer. That message is sent to small businesses in the area, which can access a portal showing all the customers who are currently requesting a deal. The merchants that rise to the occasion will pop up on a map on the customer’s app in real time.
According to Venturo, it’s an entirely different way of thinking about search and awareness offers than banking has produced in the past. The program was tested in Minneapolis and saw offer-to-conversation rates in the mid-double digits, which is an extremely impressive redemption statistic.
In late 2012, Chase Bank acquired Bloomspot, a start-up company that used credit card data to allow merchants to target their best, most loyal customers with offers tailored to their specific interests. Bloomspot was started in 2010, and by the time it was acquired, it had around 2 million members and 500,000 merchants, while raising $46.1 million in venture funding. Chase bought Bloomspot for $35 million, taking in both its technology as well as its team. While Chase has yet to announce their exact plans, they’re likely to use the tools that Bloomspot built for their own debit and credit cards and mobile app experience.
Other big banks are also snatching up or partnering with start-ups that offer shopping assistance in the form of budgeting. When BBVA acquired Simple in 2014 for $117 million, they gained only 100,000 new customers but gained the technology that’s likely to steadily grow a massive audience. TD Bank also partnered with Moven in 2014 to offer customers more advanced financial management tools in their mobile app—tools that the online bank Moven had already built for its customers.
The rest of the world, particularly investors, are beginning to take notice of this growing sector. Just last year, there were 250 investment deals involving Fintech start-up companies, and that number has been growing since 2008. More and more, big banks are funding as well as buying some of these best in class start-ups so they can use their fresh new ideas.
While many other banks are just now catching up, U.S. Bank, Chase and other big banks are now on their way to offer products and services that go beyond the basics to impact their customers’ financial wellbeing.
Toronto-Dominion Bank’s (TD) recent partnership with Moven is a material strategic move to help the bank’s customers advance their personal financial fitness. Moven, along with other nontraditional mobile banking providers like Simple and GoBank, are challenging the financial industry’s line of thinking of what a mobile banking app can be. These types of bank apps offer budgeting tools that can help customers prevent overspending and learn how to more effectively save money.
Moven, the New York-based “neobank” founded by Brett King, brings TD the opportunity to offer customers more advanced financial management tools in their mobile app, including instant notifications about spending patterns and a variety of budgeting capabilities for each purchase. It’s a mutually beneficial partnership for Moven, who will now be granted access to three million TD Bank customers in Canada.
“The TD agreement with Moven offers our Canadian customers access to leading-edge technology with a simple, convenient and innovative way to manage day-to-day financial choices alongside long and short-term financial goals,” said Rizwan Khalfan, chief digital officer, TD Bank Group. “The addition of real-time money management capabilities to the TD mobile app demonstrates our commitment to comfort and convenience and to our growing leadership in the digital banking space. Customers will be better informed on how they use their money and empowered to improve their financial wellness with each spending decision they make.”
TD is primarily located in Canada and in the northern U.S., yet consumers outside of these areas may be familiar with the bank because of TD’s #TDThanksYou campaign video that flooded the Internet this past summer, showing that TD Bank is making major advances in communicating its message in the digital age. The tearjerker video shows real TD customers being surprised by an ATM that has been transformed into an “automated thanking machine.” A voice from the ATM surprises different customers with gifts picked out just for them—a Blue Jays fan gets a personalized shirt, is surprised by baseball player Jose Bautista and gets the chance to throw the first pitch at an upcoming game. A mom of two boys is given an all-expense paid trip to Disneyland because she had never been able to take them. These and other heartfelt stories allowed the YouTube video to get over 6 million views in only one week. The video now has over 18 million views, making it one of the most successful viral videos to ever come out of the financial industry.
TD Bank’s most recent announcement about the launch of Moven is also getting the attention of the banking industry, as the majority of banks are still figuring out how to differentiate their mobile banking, while ensuring each move they make is customer-focused.
“Can I afford it?” is one of the most important questions people have to answer about their financial lives. That’s why the budgeting categories serve as one of the main features of Moven’s, and now TD’s, mobile banking app, allowing it to become more than just a list of transactions, but instead, a resource for every shopping decision. The categories are used to get people to focus on things they really need and separate that from the luxuries that can tempt people into overspending.
“If you want to get people to save money, you’ve got to stop them spending, so we’re helping them understand where they’re spending money,” said Brett King, founder and CEO of Moven, in a recent interview with The Globe and Mail. “What we start to see, after three to six months [of usage] is that people in certain categories—dining out, catching taxis—start to level off.”
Yet the financial industry may question—is teaching customers not to spend money going against the best interest of the bank? Moven and TD Bank understand that their best interest is helping customers, and one of the most valuable ways to do that is to help people spend money in a smarter way with the type of advanced technology that consumers of today demand.
When James C. Cherry, a banking executive with over 31 years of experience, left his position as chief executive officer for Wachovia Bank’s Mid- Atlantic Banking sector to take over a small community bank in Charlotte, North Carolina, with just a few branches, his goal was to create a competitive niche he could dominate.
“Our company is working to position itself between the small banks and the very large banks as a regional bank,” said Cherry, who is now chief executive officer at Park Sterling Bank Inc., Charlotte, North Carolina. “People don’t feel like they get the personal service they want from the large banks, yet that’s where everybody banks because they offer a broad array of products and services that the smaller banks can’t. Our objective is to exist between the two.”
The strategy is working. Over the past four years, Park Sterling has grown from three humble branches into a 53-branch institution with $2.3 billion in assets. According to Cherry, mobile banking is expected to play a significant role in his bank’s growth plans.
“I think everyone acknowledges that mobile banking is the fastest growing segment of banking services today,” he said. “I think most people believe that eventually your phone will literally be your bank.”
That could be a problem for smaller institutions that have extended online offerings to their customers but that have not yet made the leap to their own smartphone apps, according to Robb Gaynor, chief product officer of Malauzai Software, Inc., Austin, Texas, the firm Park Sterling turned to for its mobile banking platform.
“Community banks may be shrinking in numbers, but there are also community bankers who are growing their institutions,” Gaynor said.
Malauzai works with about 320 community banks and credit unions across the country, providing them with the tools they need to connect to their customers through smartphone applications. According to the company, 55 percent of all banks with less than $15 billion in assets currently have an app. The rest are already behind.
“Being able to distinguish yourself with mobile banking services becomes really important, but it becomes especially important for a company like ours that may have a relatively small footprint in some markets relative to the larger banks,” Cherry said. “Mobile banking can allow us to play larger than our footprint.” One of the solutions Malauzai provided is called PicturePay, a program that lets retail customers take photos of their bills with their smartphones to make a payment. Cherry says that bank customers like the app better than traditional online bill pay functionality offered through the bank’s website. It’s easier to use and doesn’t require the customer to re-enter information about the payment.
PicturePay doesn’t even require the customer to use a computer to pay their bills, Cherry said. “It’s really an extraordinarily user-friendly, attractive product. It positions us very well to deliver on our tagline, which is, providing ‘Answers you can bank on.’’’
According to Malauzai, about 15 percent of the average bank’s customers will use PicturePay to process their monthly bills. That compares to about 4 percent of bank customers who typically use traditional online bill pay functionality.
“The uniqueness of these products, the fact that they’re not offered generally in our marketplace, sets us apart from our competitors in exactly the way we are trying to distinguish ourselves,” Cherry said. “This speaks to the viability of community banks. Today, bankers can get products and capabilities that previously required more scale than the smaller community banks could muster, but that can now allow them to compete very effectively with the larger banks.”
Ralph Marcuccilli is president and CEO of Allied Payment Network, the company that provides the back-end processing for the PicturePay feature. “I think what Malauzai has proven is that community banks can really lead,” he said. “They don’t have to sit back and wait for the big banks to deliver the technology that >customers are adopting. They can really be out in front of them.”
For Cherry and his institution, it’s about providing the tools bank customers want without sacrificing the feel of a community- based bank.
“We don’t market ourselves as a community bank, nor do we market ourselves as a large bank,” Cherry said. “We market ourselves as a bank that is large enough to provide customers with the solutions they need and small enough to deliver those in a personal way. We think (PicturePay) will result in increased interest in our company, which always translates into increased business.”
Consumers’ relationships with banks are becoming dependent on how products and mobile banking fit in with their lifestyles. And if that relationship is going downhill, customers are much quicker to break up with their bank. That’s why leading banks are on the prowl to find the next great way to offer more than just the basics. They’re adding interesting features to mobile, introducing ways to help customers save money and offering more relevant benefits—all to create positive, lasting relationships with customers.
Who’s Making the Switch? Starting at the end of last year, there has been a spike in the number of people who are switching banks. According to a study by AlixPartners, in the first half of last year, about 7 percent of people switched their checking account provider, and that number jumped to 10 percent by the end of the year. That’s the highest it has been since reaching 13 percent during the financial crisis of 2008. Today, mobile technology is driving the switching. Sixty percent of smart phone or tablet users in the last quarter of 2013 said mobile banking played an important or extremely important role in their decision to switch.
Those kinds of numbers tell a big story, but they also leave a need to hear the voices of actual bank customers who are shaping those trends. In StrategyCorps’ man-on-the-street style consumer research videos, we’re asking people those types of questions, and this clip in particular shows a deeper look into the mind of the “mobile switcher” and what is most important to her.
She’s putting her own mobile lifestyle before her relationship with a local branch. And that’s a trend that is only becoming more common among consumers of tomorrow.
Simple Realizing that social media is defining the way people interact with their phones, Simple has created a mobile banking app modeled after a Facebook and Twitter-like experience. With each purchase, you can add photos and notes to remember something about that transaction, and the app automatically geo-tags your location. You can also include hashtags in your notes, so by typing #lunch, for example, you are using a budgeting tool that categorizes all purchases with that same hashtag. It’s all for your eyes only though, so rather than these features being used to share things with other people online, they are simply used as familiar concepts that make spending and budgeting become easy and practical.
Are all those features necessary for me to manage my purchases? Not necessarily.
Does being able to use hashtags with my banking app and getting funny gifs in messages from customer service make me really like them? Absolutely.
Bank of America Another benefit nearly every consumer can appreciate is saving money, and Bank of America now has a two-year head start in taking advantage of this concept. Bank of America released in a 2012 press release, “Our customers continue to tell us how important it is to save money while they shop.” And since then, Bank AmeriDeals has been their response to that request. Customers log into their Bank of America mobile banking app and select the Bank AmeriDeals section of the app. They can scroll through a list of discounts and activate the ones they want to use, and the cash back from those discounts are applied automatically when making a purchase.
While the app currently lacks a wide variety of deals and location awareness, there are indications that Bank of America will be updating the app to include location-based deals later this year. That brings the chance of an even further lead over banks that haven’t made these types of connections with their customers. Discovering how to build your products in ways that can enhance how customers are already using their mobile phones gives you the opportunity to not only keep the customers you have but to also attract new ones.
Innovation in mobile banking can be big and bold, transforming customer activities into completely novel experiences. Or its scope can be narrow, aimed simply at automating tedious manual tasks. Either way, the effect is powerful. “Mobile features are definitely disrupting our user base and the industry,” says Jim Simpson, senior vice president and chief information officer at City Bank of Texas, a $2-billion asset bank based in Lubbock, Texas.
Under the category of big and bold is a mobile payment service currently in pilot at Minneapolis-based U.S. Bank, a unit of $371-billion asset U.S. Bancorp. Designed to eliminate even the smallest barriers to online shopping, the new service, called Peri, alters how consumers interact with print, radio and TV ads. Through QR codes as well as digital and audio watermarking, which embeds digital information into audio, digital and printed materials, consumers can simply point and click their phones at ads, leading them directly to a mobile web page where they can purchase the product. Customer and credit card information is preloaded, so customers don’t even have to enter their data. The time from when a consumer sees an ad for a product and then purchases it is practically nil.
U.S. Bank plans to roll out Peri this fall as a white-labeled product with one or more partners, and expects fashion retailers to be particularly interested. A product of the bank’s merchant processing unit, Peri will likely be embedded into other consumer shopping apps, say for purchasing fashion, with the goal of winning over new merchant customers and boosting processing volumes. Though the U.S. Bank name will not appear front and center with customers, the Peri app definitely pushes the bank into aspects of payments that go well beyond the usual back-end processing. “It’s a broader way of thinking about things,” says Dominic Venturo, chief innovation payment officer for payment services at U.S. Bank. “It’s different from where payment companies and banks have been involved before.”
Venturing into new areas and redefining the role of the bank is different from the approach taken by City Bank of Texas, where the more modest goal is to move simple, everyday processes onto mobile devices. “We’re not going to solve the payments equation,” Simpson says. “In the short term, we’re focused on everyday features.”
City Bank’s straightforward goal has not prevented it from introducing several leading-edge mobile applications. Simpson says City Bank was the first to let customers deactivate their debit cards via mobile. For customers who fear their card may be lost or somehow compromised, the turn-off feature offers immediate peace of mind. Once the card has been located or replaced, it can be turned back on again. “We’ve had a ton of success with that,” Simpson says. Similarly, users who are traveling can block or enable foreign card transactions. Another new City Bank service is the ability to re-order checks via mobile, rather than have to go to a branch or online.
Perhaps the biggest feather in City Bank’s cap is its early entry into mobile photo bill pay. Similar to the increasingly popular mobile check deposit, mobile bill pay lets users snap a picture of a bill to initiate payment. The data captured on the picture serves to set up the payee, eliminating the slow, frustrating process of typing in a name, address, account number and other information on a mobile phone. “There’s no manual set-up,” Simpson says. “That’s the magic of it.”
Easy set-up has a lubricating effect on bill pay usage. Ralph E. Marcuccilli, president of Fort Wayne, Indiana-based Allied Payment Network, which offers a mobile photo bill pay solution known as Picture Pay to 25 institutions so far, notes that users are more apt to pay one-off bills like doctor and dentist visits if they can simply take a picture of the bill, rather than do a manual set-up.
The hassle of incorporating bills, especially irregular ones, into online bill-paying routines has caused online bill payment usage to stagnate. Despite its long history, online and mobile bill payments executed through financial institutions account for only about 25 percent of all payments, according to Marcuccilli. He expects that number will expand to 40 percent within five years, as people warm to the idea of using photos to facilitate bill payments, and also come to appreciate the value of having all their bills stored and executed at a bank-owned site.
City Bank of Texas, which uses Allied Payment Network’s Picture Pay, has seen “tremendous growth” in the service after one year, Simpson says. Many customers are “just abandoning” the traditional online bill payment service for the mobile one—at a nearly double-digit percentage rate month over month, he says. New customers are also flocking. “We’ve documented case after case of customers who have come to us based on the mobile app,” he says, without revealing numbers. “We feel it’s an extreme competitive advantage.”
Mobile banking at City Bank has advanced so far, it has outpaced what the bank can offer through its traditional online services. As a result, the bank recently signed an agreement to use the extensive online banking system of Austin, Texas-based Q2 Holdings Inc., a provider of virtual banking solutions, which will allow it to deliver its new mobile-based services, like the on-off debit card switch, through the online channel, something its previous online banking provider was not able to fulfill.
U.S. Bank is similarly devoted to mobile. It is so taken by the power of mobile imaging to improve the customer experience that it has introduced a family of mobile-photo based services under the umbrella, Photo Banking. Photo bill pay, introduced in March 2013, is one of three related services available so far, along with photo check deposit and photo balance transfer. The photo-based services are part of a larger effort to inject more sizzle into banking. “We need to build amazing customer experiences,” says Niti Badarinath, senior vice president and head of mobile banking and payments. “So why not use imaging as a really powerful way for customers to get information into accounts?”
Improving the customer experience has led to hard and soft benefits, including more engaged customers and higher retention rates, Badarinath says. Clearly, the service has caught customers’ attention; transaction volumes for photo bill pay are expanding at a rate of 300 percent annually, although from a small base. In addition to strengthening current relationships, photo bill pay has unexpectedly come to serve as a switch kit for new customers, as they discover how easy it is to enter all their biller information. Even without a kit, mobile in and of itself is a good enough reason for many customers to switch banks, making U.S. Bank determined to stay ahead of the curve. “The better we get at cool innovations, the more we think we’ll be the bank of choice,” Badarinath says.
Topping U.S. Bank’s agenda for 2014 is photo account opening. As it has with all its photo banking efforts, U.S. Bank will work with San Diego, California-based Mitek, which provides mobile imaging to banks, to allow customers to open bank accounts using photos of driver’s licenses or other documents that are stored in their phones. In addition to imaging, the new app will likely take advantage of other features specific to mobile devices and tablets, such as the ability to touch, swipe and incorporate voice.
With more than 2,200 financial institutions already using its mobile check deposit application, Mitek is continuing to push the boundaries of mobile imaging. Its mobile account-opening app became available at the end of April, and while it has yet to be rolled out at any institution, interest is high, according to Mike Strange, Mitek’s chief technology officer. Early adopters are most interested in using the app to bring the feel of an Apple store into their branches. Instead of sitting at desks and typing in codes, roving greeters could swipe screens and snap pictures, opening accounts immediately. And by using mobile check deposit, accounts could be funded right away.
A streamlined method of account opening fits in with the industry’s push toward reduced branch footprints. Banks could even take the show on the road, pushing account openings out to community events, like baseball or football games. Wherever it occurs, the high-tech account-opening process sets the tone for the rest of the relationship. “Customers are thinking mobile first,” Strange says. “Banks need to have a process that mimics what customers are looking for.”
Infusing a bank with a mobile-first mentality requires a much larger commitment than simply rolling out a few applications. Support from the very top of the management structure is vital. U.S. Bank, for example, has benefitted from the creation of a 13-person group, headed by chief innovator Venturo, that is devoted to long-term, research-driven product development. “We need permission to be able to try new things,” Venturo says. “Without the right environment, it would be really hard to get anything done.”
Banks have to offer some kind of mobile banking service these days to compete. But deciding what to offer, what to spend, and what will provide the biggest bang for the buck are difficult questions for the board. Bank Director magazine got on the phone with Sutherland Global Services’ Niket Patankar to discuss how the board can develop a mobile strategy, what banks are offering, and what revenue opportunities are available. The company provides customer care, IT, and back and front office services, including mortgage banking servicing and processing.
What are the most popular mobile services that banks provide? Banks are still in the early stages of mobile banking. The most popular are balance information, interaccount transfers, transaction history and basic customer self-service. Some banks offer advanced transaction services. Some allow a customer to search for a bank location by branch or ATM, while some offer bill pay. With respect to innovation, some banks are offering mobile wallet (the ability to carry cash around on your mobile device, load your debit and credit card information, and use the phone to make payments) and person-to-person payments (pay other people instead of companies). Banks also have the ability to offer contextual offerings through a mobile device for more revenue opportunities. A simple example is a person on a biweekly payroll. This person goes to a store to buy something on a Saturday, and it costs $200 but he has a $100 balance. But the bank knows the payroll is coming and therefore, the bank can offer a short-term, two-day advance for a fee of $3 right there. People will pay for that convenience.
Should you charge customers to access their accounts via mobile? No. You will lose your customers that way. A personal financial management tool might be something customers are willing to pay for, such as a simple note telling them, ‘you spent $200 in groceries, your average spending has been $150 on groceries,’ which helps that customer make a financial decision. You can always offer more functionality within the mobile app that is transaction-oriented, for which customers will pay (the equivalent of in-app purchases), just like people pay the convenience fee for withdrawing from other banks’ ATMs.
What factors should a bank consider when deciding on a mobile strategy? Where is your bank headed? Who are your customers? How is your customer demographic changing? What services and functionality should your bank offer, what are the costs and expected benefits, tangible and intangible, and what is your bank’s ability to analyze usage? You can offer this great service, but if nobody is using it, you need to know that. You need to look at the different kinds of costs. What is the cost of implementing it and maintaining it and marketing it to let customers know about it? It’s a simple cost-benefit analysis that should be presented to the board. It needs to be based on analytics. Your mobile strategy cannot be based on your gut feeling. In terms of benefit analysis, what has moved the needle in terms of similar services at other banks? If that’s not available, your conclusion needs to be based on detailed analysis of your customer base.
How does rolling out a mobile strategy impact the branch network? There are still some customers who like to walk to a branch, but that number is declining as we speak. Mostly, they are going to a branch if they have exhausted other options, if they have an issue or a complex problem that has not been resolved through self-service options, or if they are seeking advice. If you are staffing your branch with the normal skill set of a teller, you will not be able to offer that. Branch traffic is declining. It has been coming down over the last seven or eight years. The number of visits from the average customer per year is coming down from 12 to 2. Branch traffic reduction is not necessarily a bad thing. It’s an opportunity to engage with the customer at a level that is unique. You need the best customer relationship managers there who can sell innovative products at the branches.
Brett King, who founded the bank alternative called Moven, made a name for himself with his book, Bank 2.0, which pushed banks to think about how they needed to transform themselves in the digital age. In his latest book, “Breaking Banks: The Innovators, Rogues and Strategists Rebooting Banking,” King offers up interviews with the disruptors and the people trying to keep banks from losing their shirts to the disruptors. Executives from the likes of PayPal, Google, USAA, the Bitcoin Foundation and peer-to-peer lending networks such as Lenddo make an appearance in this book.
How did you choose the title, “Breaking Banks,” for your book? Do you think banks ought to be broken? The final chapter is called, ‘We’re not breaking banking; we’re rebooting and rebuilding it.” We are realizing that the way we used to bank, it’s not translating into the way we live right now. A classic example is if you are a Generation Y [graduate] getting your first job and going to a bank, the first thing the bank is going to try to give you is a checkbook, which makes absolutely no sense.
In your book, many expect mobile phones to transform the industry. In what ways does the banking industry get this wrong? The key problem is that we’ve thought of mobile as another channel for the bank. We’ve either tried to get Internet banking on a small screen, or let’s stick a debit card in a mobile wallet so we don’t have to carry plastic. Those two things just mimic existing things. The really interesting thing is that we can do something completely different.
What is an example of that? In the ‘60s and ‘70s, when you went to the bank to withdraw cash, you knew exactly how much money you had to spend. When you ran out of money, you didn’t buy anything. Now, we are having a resurgence in awareness and control coming through mobile. The most important question a bank can answer today is: Can I afford to buy this? The bank doesn’t see that as a useful engagement with a customer. But from the customer’s perspective, in terms of my money, that’s the most consistent and most important question you can answer for me. When you go into an Apple store, you would like to buy a phone, the first question is: Do I have enough money? Yes. Can I afford to buy this? Let’s say the answer is no. You have rent coming due. But the bank can say: You could buy it if we do this for you, which is in-store financing. Banks right now are having the epiphany that mobile and the Internet can be a revenue channel, but they have the issue of cannibalizing revenue from the branch, and how do we get the compliance and risk guys to agree to let us fulfill this revenue digitally in real time? This is an industry issue that we have to solve over the next few years. This is where the neo-banks [such as Moven and Simple] and the new players [such as peer-to-peer lending platforms] have an advantage, because they don’t have those hang-ups about what we have done in the past.
How much of a threat are these alternatives? There are threats and opportunities. Ten years ago, the biggest sellers of books were Borders and Barnes & Noble. Now, it’s Amazon. If the traditional players can’t adapt their distribution method, then someone else comes in and fills that gap. A few traditional players survive. Some of the record labels still survive, for example, and the larger book publishers still survive, but the smaller book stores have tended to disappear.
I want to inject some skepticism into this, because does it really matter that most banks are not as good at selling online as Amazon? How much of a threat are these neo-banks given that regulators heavily regulate the banking system, and start-up capital is high? The reality is that you are going to have a bit of a mix. You are going to have the bigger banks make that transition first, and downsize the number of branches and shrink the bank branches. For the smaller banks, unfortunately, there is going to be a lot of consolidation. As these alternatives [to banking, such as neo-banks] come in, they will work with the big banks who will offer FDIC insurance and compliance on the back end. It’s not going to be a wholesale reboot and all the banks disappear. It’s going to be a case where probably the larger banks survive and some banks will become a wholesale provider. It’s likely the fastest growing financial institutions in the United States or the world in the next decade will not be traditional banks.
I often hear people say that branches can be transformed to offer advice rather than transactions. But you say advice in the branch is no longer a differentiator, and you also are critical of attempts to give advice in the branch because the customer can view that as an attempt to upsell them. If you think about what will build a strong relationship with the bank, it’s the bank’s ability to solve your problem or answer your questions. Once you are competing inside a branch against a [mobile] platform that can give you advice every day, you just can’t give advice enough or advice that is useful enough. That dramatically changes the economics of the branch. In five years’ time, it’s not going to be like the branch we have today. It might be like a small coffee shop or an Apple store where you have your Geniuses [to help solve problems]. It won’t be a heavy selling environment.
As more and more consumers are relying solely on their mobile devices, banks have to provide mobile products that their customers want and need. In this video, Dave DeFazio of StrategyCorps shares how some community banks are moving their mobile banking applications beyond the standard transactions.
Heartland Bank has just 11 offices in central Ohio. The holding company, Heartland BancCorp near Columbus, Ohio, has $600 million in assets. The company is not traded on any public exchange and traces its roots back more than 100 years in agricultural lending.
But that doesn’t mean Heartland is behind the curve when it comes to technology. In fact, Heartland developed its own mobile banking applications, has person-to-person bill pay, mobile bill pay, surcharge-free ATMs across the nation searchable on your smartphone, and a host of other digital products designed to serve customers’ needs.
“The technology is here and it’s affordable,’’ said Heartland Chairman, President and CEO G. Scott McComb at Bank Director’s Growth Conference in New Orleans recently. More than 120 bank directors and officers attended the two day conference May 1-2, which focused on growing the bank organically, mostly through technology, data-based marketing and sales, and niche or specialized lending.
Bank of America and JPMorgan Chase & Co. may have more resources to develop technological solutions and service them, but community banks increasingly have options as well. Technology providers such as Deluxe Corp., CSI, CDW, StrategyCorps and MoneyDesktop described how banks well below the $50-billion asset range can still gain access to sophisticated technology. For instance, community banks can now analyze credit agency data to find out which of their customers are shopping for an auto loan, and then send customized marketing materials to those customers.
Banks can help customers budget and manage their entire financial lives with online banking tools, which also give banks a trove of potential marketing data on them. Banks can generate fee income by sending coupons to their customers based on the geo-location given by their smartphones. Analytical tools also allow banks to track what customers are saying about them on social media.
First Financial Bankshares, a $5.8-billion asset bank holding company in Abilene, Texas, allows customers to take pictures of their bills with their smartphones, send the pictures to First Financial Bank, and the bank will pay their bills. Similar products are being marketed to banks much smaller than First Financial.
Jeff Casey, a senior vice president at the bank, said mobile customers use three times the number of products and services of other bank customers and are 2.5 times more likely to stay with the bank than other customers. He advised banks to think five or 10 years into the future and plan for the fact that technology will be radically different by then. A full 25 percent of First Financial’s mobile banking customers currently don’t use a laptop or desktop to do their banking. “You have to get rid of this idea that you’re always going to have online [desktop or laptop] banking,’’ he said.
This fact is creating challenges for banks trying to decide where to invest. Deluxe Corp.’ Vice President Scott Wallace cautioned banks not to try to be all things to all people. The type of customers you want and the delivery mechanisms they need will determine the technology and tools to buy.
McComb, Heartland Bank’s CEO, said that community banks actually have an advantage when it comes to data and technology. Community banks are nimble because of their size and can make decisions quickly based on their customers’ needs. They know their customers better than bigger banks do. They are the American colonists fighting the English in a war against the big banks. They can be first to market, not laggards when it comes to meeting their customers’ needs. And that could mean the difference between being relevant or not at all.
There is unprecedented change afoot in the banking industry. Technology is rapidly evolving and it’s changing consumer expectations about how banks should be serving them.
The ubiquity of mobile devices and tablets has changed the banking business forever. An example of how quickly technology is transforming our lives can be seen in your own board room. Two years ago, boards used printed materials for meetings. Now, almost all my clients are using tablets to access board meeting materials.
Community banks, in particular, have been slower to embrace technology as a means to interact with and serve customers. In doing so, they risk becoming obsolete. Directors and boards will need to stay on top of this sea change and work with senior management to address it.
Below are some key issues for directors and boards of community banks to consider and discuss with senior management.
Customer Loss Versus Investment Return
The debate inside community bank boardrooms about offering the latest customer-focused technology applications often hinges on whether there is an adequate return on investment (ROI). That, no doubt, is a legitimate question, given the current economic climate and the industry’s profit profile. But the debate needs to go beyond whether the expense is prudent or even if these new tools can actually connect consumers to the bank in faster, more immediate ways.
More to the point, if a bank isn’t already actively working out how to offer these solutions, it may become marginalized by only offering products and services that have become commodities.
The traditional banking products—credit, savings and payments—are necessary ones. But what those products look like and how we interact with our customers is going to change drastically and will be radically different from the services offered today. When trying to recently describe how a passbook worked to my children, I realized that the days are soon coming when it will be just as difficult to describe the concept of a checkbook.
Bank boards will need to engage in active discussions about how and when to offer the new tools customers are demanding, whether those products be remote deposit capture, person-to-person payments, mobile check deposit, “picture pay’’ for bill paying, and remote re-loading of pre-paid cards. Fundamental to survival in our rapidly changing industry is the ability of community banks to leverage their existing strong customer connection in an age when visits increasingly are digital.
Deciding on a course of action, of course, will require careful thought and a solid plan, but it is critical to understand that it would be a costly mistake to wait until these new technologies can cost justify themselves. Customers will simply find another bank that offers what they want.
Evaluate Bank Branch Strategies
Directors and boards also need to assess how these new technology offerings may impact bank branch strategies, where ROI often is a huge consideration. Offerings like remote deposit capture and mobile check deposit can reduce branch traffic as customers no longer need to visit a branch to conduct tasks now enabled by technology. This presents an opportunity to evaluate whether or not real estate and staff expenses can be reduced and offset the costs of technology implementation.
Other technologies such as virtual customer service—where a customer interacts with a service representative based in a remote location via a kiosk that is physically located in a branch—also are impacting branch staffing needs.
Realize Benefits of New Capabilities
Rolling out these new technological capabilities for consumers also can provide hidden benefits. Data generated by the use of these technologies can be harnessed so that community banks can generate actionable insights. For example, a community bank can monitor how frequently a customer remotely re-loads a prepaid card along with the amounts being loaded. If the amount reaches a certain threshold, the bank might consider offering this customer a checking/debit account or another product.
Directors and boards need to know if their community banks have the ability to collect and analyze this data in a meaningful way. If not, community banks can either build in-house capabilities or use external providers.
Take the Road Less Traveled
Community banks that continue to turn a blind eye towards new technology may be on the cusp of irrelevance.
The challenge will require a wholesale shift in the way a community bank conducts business. The issue revolves around how the bank’s board and the bank’s management behave— how the organization goes about the business of banking.
Our industry must heed the hard lessons learned from other industries—such as the print media and music distribution—that failed to adjust to new technological advances that eradicated their long-held business models overnight.
The model that defined our industry for generations has now been turned on its head. The road to transforming your community bank won’t be short. But, it’s a road that must be taken.