Putting the Retail Back in Retail Checking Design


mobile-rewards.jpgAsk bankers how they go about designing their retail checking products and most will answer with much more of a focus on the checking part than the retail part. Don’t get me wrong, the checking part is essential. The account has to be operationally secure, reliable and accurate in terms of supporting transactions and related information. However, customers have overwhelmingly shown they aren’t willing to pay for just checking. To be different, to generate much needed fee income and to really change the game of checking, banks must focus more on the retail part of retail checking. Here’s why.

With mobile and online banking growing rapidly, customers’ face-to-face interaction with bankers is becoming less frequent. As a result, customers’ experience with and connection to the bank is more tied to their direct interaction with their checking product and what that product delivers. Plus, the checking account continues to be critically important as the primary fee income vehicle on the retail banking side.

This begs the question, how does your bank design its retail checking accounts to be so relevant and engaging to your customers that they will gladly pay a fee for them? This is where the retail focus in the design of your checking products comes into play—your bank has to deliver to your customers a more meaningful and emotional experience with the product itself. It seems like the banking industry has talked forever about being retailers. Yet, very few banks apply basic retailing principles to product design. Even fewer have been willing to commit to doing what they need to do to experience the success of top retailers. For the last decade or so, it was easy to understand why—free checking and overdrafts were the gift that kept on giving, so thinking about retailing in regard to product design and relationship-building took a back seat.

To learn how to incorporate retailing to make your checking accounts more relevant and engaging so that your customers willingly pay for them, just take a look at the best retailers outside the banking industry. The online shopping websites LivingSocial and Amazon make incredible emotional connections with their customers yet rarely interact with them face-to-face. The customer relationship is almost entirely defined through the design of the product and the value it delivers. In most cases, the only interaction with the customer is by email.

So the next question begging to be answered is what retailing best practices are naturally transferable to incorporate into your checking products? There are many possibilities, but there are primarily three that easily fit into the design of a checking account and aren’t so costly as to make the monthly fee non-competitive. These three are local, mobile and social.

First, nearly every geographical market today is promoting the local mindset—thinking, supporting, buying local, etc. Banks already know this power of local as they already classify themselves as community banks (even the mega-banks employ this positioning). So it is very logical to extend this role to becoming a community connector. This means connecting your consumer customers who buy things locally with your small business customers who are looking to grow their sales.

Second, mobile delivery of banking products/services is here to stay. Banks that think like a top retailer already know that three of the top four ways consumers want to use their mobile phones involve shopping and coupons. (The Federal Reserve reports on “Consumers and Mobile Financial Services,” March 2012 and March 2013, provide a wealth of information about how consumers want to use their mobile phones, not how banks think they want to use their mobile phones.)

So combining these local and mobile best practices into a checking benefit like a local merchant discount network that delivers the discounts via a customer’s mobile phone is not only a difference maker but a game changer. Think about it—your retail customers talking about how their checking account saved them money on purchases and your small business customers seeing how your bank helped grow their business. Plus, it’s already proven that your customers will gladly pay a monthly reasonable fee to get access to attractive local merchant discounts, around $6 per account.

This leaves the social best practice. To be clear, we’re not talking about social media. What we’re referring to is purposeful communication that is unexpected, unselfish and engaging. The typical social experience of checking customers is they open an account and the bank doesn’t meaningfully communicate with them again until the customers have some type of issue or problem, or they come back in the branch. Smart retailers already know the power of purposeful communication, sending periodic emails to customers that make offers that usually save them money or at least recognize them as valuable customers.

If you want to put the retail back in retail checking, then study up on how other top retailers are using the local, mobile and social best practices and determine how your bank can incorporate these features into your checking accounts. Doing so will make your checking accounts different, change the game for your consumer and small business customers, and provide ample customer-friendly fee income that every bank needs.

*This article has been updated from an earlier version.

Video Banking: Folly or Foresight?


touchscreen.jpgThe past several years have not been kind to the retail banking business model. Low net interest margin, depressed lending demand, significantly eroded fee income and higher compliance costs have all contributed. Moreover, steady migration of branch transactions to self-service channels has been eroding branch foot traffic. The result is typically higher branch transaction costs and declining sales results. What is a bank to do?

The “Branch of the Future” May be Emerging

While substantive branch transformation remains a rarity in North America, there appears to be a growing consensus that the status quo is unsustainable. Celent couldn’t agree more! To understand the state and likely evolution of North American retail banking, Celent fielded surveys in July 2010 and again in July 2012. In 2012, considerably more institutions indicate intentions to make modest to sweeping changes in branch configuration.

Institutions appear to be eyeing a variety of approaches. Some (55 percent in the 2012 sample, up from 24 percent in 2010) see enterprise wide branch design changes likely. An equivalent percentage (57 percent, up from 48 percent) see ultra-low-cost designs in the mix. These small, highly automated outlets may replace some existing branches, while others may be built instead of more expensive traditional designs in new markets. A common objective in contemplating redesign supports a sales/service rather than transactional model (66 percent up from 58 percent).

Source: Celent survey of NA FIs, July 2012, n=132

None of this is going to be easy, and banks are wisely being cautious about what to do and how to do it. What has changed over the past two years, however, is the growing number of banks contemplating branch channel initiatives. In the July 2012 survey, more than a third of banks and nearly half of credit unions surveyed expect significant changes in size, capacity, technology and staffing over the next five years. About a third expected more modest changes, and only about one in five surveyed financial institutions expect their branch networks to remain mostly the same over the next five years. We are witnessing a tipping point.

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Most branch transformation initiatives seek to achieve the dual objectives of cost reduction and improved sales effectiveness. But, branch transformation, whether modest or significant, doesn’t itself suggest the use of video. Is video banking going to be a good idea? Celent is bullish on the use of personal video conferencing in banking applications. But before defending this assertion, let’s first look at the variety of ways video can be used to accomplish these two objectives.

Video Tellers. Video is being used at drive-through locations and in branch lobbies and vestibules alongside transaction automation technology to provide a low-cost alternative to the traditional teller experience. Credit unions have taken the lead in the use of video tellers both as a replacement of traditional teller roles and as a way to augment traditional teller arrangements. Some financial institutions have used video kiosks (a.k.a., personal teller machines, or PTMs) in de novo branch designs while employing live branch personnel inside the branch to engage customers with needs that go beyond simple transactions.

Video SMEs. In contrast to using video to support routine (teller) transactions, some banks and credit unions are using desktop video conferencing applications to connect customers with subject matter experts (SMEs) such as lending officers and specialized customer support personnel. Consumers could also be connected to SMEs via desktop videoconferencing as part of an online banking experience.  Thus far, the prevalent use of video SMEs has been among smaller and rural branches as a way to provide cost-effective service delivery.

The business case for video banking has been demonstrated in many financial institutions, while in others, those still piloting, the jury has not rendered a verdict. Those with successful implementations have seen benefits that may surprise you.

  • Cost savings. Coastal Federal Credit Union centralized all its tellers and deployed 63 PTMs across its network.  Coastal replaced 74 branch tellers and supervisors with 44 tellers, supervisors, and service staff to support its 15 branches, resulting in a cost reduction of 41 percent while expanding branch hours by 86 percent.
  • Improved customer convenience. Multiple PTM implementations are being accompanied by expanded branch hours. Video SMEs can offer expanded offers and shorter (or no) wait times by connecting to an available SME regardless of physical location.
  • Improved sales results. Celent has interviewed multiple financial institutions asserting improved sales results through the use of video banking. In most cases, this occurs through automation—largely removing teller transaction processing and reconciliation activity from the branch environment. Remaining branch staff, freed from the administrative burden, can now be devoted to sales and service. With remaining branch staff more focused on sales and service at Coastal FCU, average sales per full time equivalent (employee) per day increased to 2.4, up 49 percent from 1.6 sales per FTE per day when each branch had tellers.

But, will customers accept video banking? Done well, customer response has been strong, with measurable improvements in customer satisfaction. Customer response appears to be strongest when video banking is introduced alongside meaningful benefits such as expanded branch hours or shorter drive-through wait times.

A few short years ago, this would likely have not been the case. Technology improvements have made video conferencing both affordable and more satisfying. The growth of Apple’s Face Time and Microsoft’s Skype bear testimony. But, just as Skype is not for everyone, video banking isn’t either. Celent expects the topic to remain controversial for years to come. In the meantime however, savvy banks will give the idea careful consideration.

Originally published on December 3, 2012.

The Battle for the Bank Account: And Why the Banks Will Probably Lose


Brett King, best-selling author and disruptor, explores the end-game in the emergence of the mobile wallet and what it means for the humble bank account. With more than 60% of the world’s population without a bank account, with the ubiquitous nature of mobile phone handsets and the increasingly pervasive pre-paid ‘value store’ – will banks still be able to compete? When you can get your salary paid directly onto your phone, when your iTunes account doubles as a prepaid debit card and when you can use Facebook to send money – will there be any need for traditional retail banking in the future?

Does Checking Need a New Name?


6-19-13_StrategyCorps.pngChecking accounts have been around in some form or fashion since 100 B.C. when the Roman argentarii (money changers) issued an early form of checks to their clients. Checking accounts then made their way to the U.S. during the early 1700s as colonists adopted the popular checking system brought over from Europe. Then in the early 1860s, The National Banking Acts laid the groundwork for the national check clearing system.

Yet today, the main reason for calling this account a checking account—the writing of checks—seems to be losing its descriptive accuracy. Checks have been declining in importance and in volume for the last decade or so (down from 16.9 billion in 2000 to 5.1 billion in 2012 per the Federal Reserve). Ask folks 30 years old or younger about checks, and they’ve either never written one (and don’t even know how to write one) or could count the total number they’ve written on their fingers and toes.

As a frequent attendee, exhibitor and presenter at retail banking conferences, I get to talk to lots of bankers and listen to a lot of speakers. While the term checking is still commonly used (and the acronym DDA for demand deposit account, to a lesser extent), everyone in retail banking seems to be struggling with what else to call it. I’ve heard terms like the generic bank account and the slightly more descriptive transaction account and debit account.

However, these names fall as short as the term checking does. The drawback with these alternative names is they are way too bank- and functionally-centric, employing terms generally unrecognizable by the public such as debit and demand deposit.

With alternative banking channels like online banking, online bill pay, mobile banking, mobile deposit and bill pay, smart ATMs and electronic person-to-person payments driving down interaction with real live bankers, the product actually delivering these functions becomes even more the identity and reference point of the customer relationship. The product housing these functions is increasingly the primary connection of your bank customer to your bank. Or as Brett King, the author of the books Bank 2.0 and Bank 3.0, puts it, “Banking is no longer a place you go… it’s just something you do.” And most of the doing relates to typical checking transactions. So the new term for checking must express a more customer-centric purpose of engagement.

But your bank can’t just call it something different and leave it at that. The account must truly be upgraded from ordinary checking delivered in the past. The checking account of today and in the future must deliver much more intrinsic value and convenience than ever before. It must connect with customers better and differently for your bank to be relevant in their lives.

Your customers are already thinking about their checking accounts differently (and using them differently too), so your bank must think about them differently as well, including not only what you call the account but also what it delivers—a relationship-building experience.

Who knows how that will evolve into a new name to replace checking or DDA? Something short, sweet and more meaningful will develop. I have some ideas already on this, do you? If so, let’s compare notes and maybe get this naming issue resolved sooner rather than later!

The Top Five Retail Checking Trends for 2013


outlook-new.jpg2013 holds much promise and potential for financial institutions (FIs) willing to think, believe and invest in checking product design and delivery that takes into account the top trends shown below. For those FIs that don’t, good luck waiting for overdrafts to make a comeback or for customers to start gladly paying for traditional checking-related benefits.

#1 Customer Friendly  Fee Income Will Continue to Emerge

2013 will mark the beginning of many more FIs deciding to design checking accounts that are so good that their customers will actually want them enough to willingly pay for them. Design previously   employed to devise complicated account terms and conditions that result in customer confusion and unfriendly penalty fees will be rechanneled into innovative design of great products focused on a fair exchange of value with customers for a reasonable monthly fee. This customer-friendly, fair value approach is the only way to generate massive, growing and sustainable fee income in today’s regulatory environment.  

#2 Relationship Building Will Necessitate  a More Engaging Product Experience

The rapid and projected growth of online and mobile banking (e.g. a March 2012 Federal Reserve study) has reduced branch traffic (25 percent over the past five years per consulting firm Bancography). This limits the number of opportunities for customers doing routine, checking-related transactions to interact directly with branch employees and experience firsthand exceptional customer service.

This means the checking product’s inherent value has to step up to play a larger role in building customer relationships. To do this, the checking account’s “customer connection factor” (CCF) will need to be much higher than it is today. In 2013, more and more FIs will realize the growing importance of the checking CCF and design and deliver accordingly. The top FIs are already there.  In 2013, they will smartly integrate applicable retailing best practices like local, mobile and social into their design and delivery. Those that wait to improve the CCF and rely solely on great customer service will regret this decision.

#3 Fixing the Unprofitable Relationships Will Be Required

The primary revenue generators (loans and fees) will continue to struggle to recover in 2013, while operating costs will continue to rise. This stubborn financial pinch will necessitate that FIs can no longer ignore dealing with the approximate 40 percent of their checking household relationships that are unprofitable (and make up only 3.5 percent of total revenue and 2.2 percent of all other deposit and loan relationship dollars). FIs will fix these relationships by actively employing the first two trends and not depending exclusively on the elusive cross-sale. Otherwise, the financial pinch will continue its squeeze and hurt.

#4 Optimizing the Existing Base of Profitable Checking Customers

Just as important as financially optimizing the unprofitable relationships is getting as many of the approximate 60 percent of customers who are profitable to experience your product’s improved CCF. This is the plan to optimize protecting (retaining) and growing existing profitable customers.

The top way to do this is to let them experience checking products with higher CCF than what you offer them today. Getting this done means FIs must also use innovative ways to get these enhanced products into the hands of these customers via unordinary marketing strategies like sweepstakes, contests, satisfaction guarantees, email communication, viral promotion and small business community tie-ins. Free or modified free checking will still be the dominant product strategy (only 9 percent of community banks have gotten rid of it and another 9 percent plan to). The difference maker when it comes to optimizing the experience of your best customers is for products to be better, not just free.

#5 Simple, Simple, Simple Will Win

This has been a trend for many years before 2013 and will most likely continue for years after. There are the three simple things FIs can do to win the retail checking game more in 2013 than in 2012. First, simplify your line-up down to three accounts (two if you don’t offer free checking) and clean up the grandfathered ones. Second, don’t invest in a branch sales report that tracks more than just direct sales, cross sales and referral sales by product that can’t be ranked in terms of sales performance down to the individual employee. Third, your checking-related sales incentive plan must be always on, (not just “on” when connected to a product or marketing campaign) and  explainable and calculable in less than thirty seconds.

Statistics stated are from StrategyCorps’ proprietary database of over two million accounts and polling research of about 100 FI executives.  

Experience Radar: Retail Banking Customers Pay For Valued Experiences


PwC’s Shivali Shah explains how our Experience Radar research is different from other customer experience models. Despite many threats to profitability, retail banks have rich opportunities for growth. Customers will pay for banking experiences they value. The challenge lies in delighting customers through experiences they value rather than exhausting resources on offerings they ignore. 

Download Related PwC Publication:
PwC’s Experience radar: 2013, US Retail Banking  

The Mixed Blessing of Bank Deposits


mixed-blessing.jpgThe U.S. banking industry is drowning in deposits and that’s not necessarily a good thing. As of June 30, deposits in U.S. banks (but excluding credit unions) totaled $8.9 trillion, up nearly 8.5 percent from June 30, 2011, according to the Federal Deposit Insurance Corp. Total bank deposits have actually increased every year since 2003, although the increase from 2011 to 2012 was the sharpest jump over that time.

There’s no great mystery why this is happening. The U.S. economy’s uncertain outlook and a volatile stock market has led many consumers and businesses to park their investment funds in insured deposit accounts rather than risk losing a big chunk in another market meltdown. Normally banks would be quite happy to have a surfeit of low-cost deposit funding, but it’s actually something of a mixed blessing nowadays. Slack loan demand and low rates of return on investment securities like U.S. Treasuries, the latter a direct result of the Federal Reserve’s easy money policy in recent years that has kept interest rates low, are making it very difficult for banks to earn a decent return on all those deposits.

What makes this multi-year increase in deposits so interesting is that it has occurred at the same time banks have been closing branches and pruning their networks. As of June 30, according to the FDIC, there were 97,337 bank branches nationwide, down from a high of 99,550 in 2009, and there has been a consistent year-over-year decline since then. There’s no mystery why this is happening either. Two seminal events since 2010—new restrictions on overdraft charges and a cap on debit card fees—have taken a big bite out of the profitability of most retail banking operations and banks have responded by cutting costs, partly through layoffs but more so through branch closings. That deposit levels have continued to rise, even as the number of branches has declined, has no doubt made it easier for banks to trim their brick-and-mortar networks.

But here’s the rub. What happens if in a few years the U.S. economy makes a strong comeback and retail investors are once again confident enough to put their money into the stock market? Banks don’t have to compete with the stock market now for consumer funds, but they would in that scenario. Most banks have developed multi-channel distribution systems with the traditional branch as the hub and alternatives like automated teller machines, in-store branches, the Internet and more recently the mobile phone as spokes. And while remote channels like online and mobile have steadily grown in popularity in recent years, how effective will they be as deposit gathering tools if banks must once again compete for funds?

Here’s my best guess at what the future holds: Don’t be surprised if, say, five years from now the trend has reversed itself and banks are once again opening new branches.  It might be like a relic of days gone by, but a deposit war between Main Street and Wall Street would be just the thing to give the hoary old bank branch a new lease on life.

In Search of the Perfect Checking Line-Up


perfect-score.jpgMany bankers are nobly searching for the perfect consumer checking line-up: One that connects better with customers, is more financially productive, differs dramatically from the competition and meets the changing needs of customers.

In that search, there are a lot of factors to consider, including macro and micro market segmentation, an array of home grown ideas and third-party solutions, a myriad of consumer buying trends and personal preferences, plus a lot more too lengthy to mention. It’s enough to make your hair hurt.

So, is there such a thing as the perfect consumer checking line-up? And if not, what should you focus on to get as close as possible to the perfect checking line-up?

From my standpoint, there’s not a perfect line-up today that every bank can “plug and play.”  Rapidly changing technology, evolving consumer behaviors, individual financial requirements of a particular financial institution, and most recently the fluid checking-related regulations all make a perfect line-up impossible.

To get close to the ideal of a perfect line-up, I suggest you subscribe to an “easy as 1-2-3” way of thinking, deciding and then doing.

The first 1-2-3 will work no matter your financial institution’s situation because it is consumer-centric and not bank-centric. So start your thinking here and you’re on your way:

  1. Understand how consumers really choose a checking account.
  2. Make the line-up as simple as possible to make it easy to buy and sell.
  3. Make the products as good as you possibly can so you’re not only competitive but also have at least one account your customers will happily pay for.

Once you have these as your guiding principles, let’s focus on each one individually.

Consumers choose an account based on their buyer type. So here’s the second 1-2-3, the three types of buyers:

  1. A Fee Averse Buyer – This buyer wants free checking if it’s available or the cheapest account you offer.
  2. An Interest Buyer – This buyer wants the best yield possible on their deposits and expects a market yield or above market yield.
  3. A Value Buyer – This buyer wants the best account at your institution, is most focused on account benefits and is willing to pay for the account if there’s a perceived fair exchange of value.

Your branch bankers’ product knowledge or your online merchandising message will play a significant role in helping customers decide which type of buyer they are. Top-performing retail financial institutions know this stone cold. They don’t automatically assume nearly every customer is a fee adverse buyer because they’re not. About 50 percent are. Value buyers make up about 40 percent. And in today’s interest rate environment, about 10 percent are interest buyers.

Once you understand how your customers choose checking accounts, what type of accounts should you offer and how many? The answer is the third 1-2-3. For line-up simplicity and ease of buying and selling (and the sanity of your customer and your branch banker), there are only three types of checking accounts you should offer:

  1. A No/Low Fee Account
  2. An Interest-Bearing Account
  3. A Value-Based Account

Of course, the most common no-fee account in today’s market place is unconditionally free checking. However, more and more institutions are now offering  free checking with conditions, that is, free if a simple condition is met, like getting e-statements instead of paper ones or keeping a minimum balance. If this condition is not met, then there’s a penalty fee, which is sometimes modest and at other times extremely penal for the value received.

For the interest account, customers still want as much interest as they can get (which isn’t a lot these days) and feel like the higher the balances they keep in the account, the higher the interest rate should be. Here we find a tiered-rate account with interest beginning at a stated (reasonable) balance level rather than from the first dollar. This rewards and encourages higher balances for these buyer types while letting you manage your interest expense.

The value account is one that’s not as easy to design. Having only basic checking services and charging fees for them is risky. So there is the need to enhance the value account beyond the most basic checking services. And consumers have stated in studies and in their buying actions that they will happily pay for selected non-traditional checking account benefits. (See my earlier article on BankDirector.com, “Getting Bank Customers to Happily Pay Fees.”)

If designed right, this value account can generate significant, customer-friendly revenue of at least $75 per year from about 40 percent of your customers.

So while there’s not a perfect line-up that’s an easy “plug and play” into every financial institution, you can get very close to it and produce great results by following the guidelines mentioned above.

Five Ways Banks Can Build Mutually Rewarding Customer Relationships


thumbs-up.jpgIf you think about the people in your life that you are closest to, chances are they’re the ones that you’ve shared the most experiences with. Those experiences build the involvement needed to grow relationships—between people and also between people and brands. Because there are few things as personal as money, banking is an industry that has a huge opportunity to engage people in experiences that build lasting and mutually rewarding relationships. Yet it’s a segment that has low satisfaction rates (44 percent were extremely or very satisfied with their bank in an October 2011 Harris Poll).

To better understand the opportunity, we commissioned a study on people’s attitudes toward their bank and most importantly, how they felt their bank felt about them.

One big discovery is the difference between the way people feel about their bank and how they perceive their bank feels about them. About 39 percent of people surveyed feel indifferent toward their bank—they neither like, love nor loathe it. But when asked how they feel their bank feels about them, 54 percent feel their bank is indifferent toward them and another 6 percent feel their bank loathes them. I doubt there are many human relationships that could survive under that scenario.

When asked how open to switching banks people were, 30 percent said they are very likely or indifferent/open to switching—that means nearly a third of customers are vulnerable on any given day. A Harris Poll looked even worse for the bigger banks: 46 percent of JP Morgan Chase & Co., 40 percent of Bank of America Corp. and 54 percent of Wells Fargo & Co. customers are extremely or very likely to change their bank. When you consider an American Bankers Association study found that it’s seven times more expensive to replace a customer than to keep them, it seems that the opportunity and the need to build stronger relationships is very real.

Here are five ways banks can build mutually rewarding customer relationships and become a champion for them:

Champion customer needs by focusing conversations on “what they want to do” rather than “what we have to sell you” which just furthers the feeling that the customer doesn’t matter. Banks can rewrite the language used by everyone in the bank to reflect the needs and the power of their customers. One example is Opus Bank. The bank was founded on the belief that strong businesses build strong communities and everything they do supports people with the vision to drive job growth, including their tagline, which is a call to “Build Your Masterpiece.”  

Give people credit for knowing how they like to use their money by creating a culture of choice that allows people to customize their accounts and services.  While many aspects of financial products are regulated, banks could let people choose the other services they value. Where one person might value free wire transfers, another might prefer something entirely different.

Be a valuable resource that champions people’s desire to do something with their money. Think Nike+ for money. Offer financial management tools that help people set goals, track their progress using their account data, and get rewarded for their achievement. This could be a great opportunity to tie in commercial banking partners like retailers and restaurants in each geographic area. We are beginning to see new banks (e.g., Simple) emerge that leverage technology to not just make transactions easier but to actually empower the consumer.

Create communities for customers to share financial advice with each other and with the bank. Banks can show that they embrace customers as people (not just their money) by adopting the behaviors of sociable people, i.e. by being accessible, interested in what people have to say, and providing inspiration to help them achieve what they want to with their money. Regional banks like Umpqua Bank have done a great job of using technology to create a personal touch outside the bank. In contrast to the 98 percent of social media commentary about banks that is negative, theirs is 99 percent positive and almost to the point of fostering a “my bank is better than your bank” pride.

Empower employees to act in the best interest of their customers and reward them based on their personal contributions to the relationships they have. This is particularly important as customers switch to online banking and each interaction takes on more importance.

While creating these kinds of experiences may not directly sell more banking products, they have real business value. They build involvement with your customers and that involvement will lead to deeper relationships that are more mutually rewarding and profitable.