Disruptive? Mobile? Regulated? Check, check, check


It’s funny the things that cross your mind in an airport. I snapped this picture of a classic American plane docked in Chicago pre-flight to China this morning. Patiently waiting by the gate must have been 200+ people, 95% of whom appeared glued to their iPad, iPhone or Android-powered mobile device. To say I was impressed is an understatement. Users of mobile technology are known for being many things: patient is not one of them. They want new tools, new applications and they want them today. Maybe I should have photo’d the departure lounge…

aa-flight.jpg

From the board room to a branch office, it’s no state secret that today’s mobile banking customers expect access whenever and wherever they are. With so many banks investing in new technologies that allow customers to complete transactions, manage accounts, and perform banking research via their mobile devices, one can see why. Mobile banking services — think remote deposit capture, two-way text banking, apps for locating branches and ATMs using GPS and bill payment — have become the norm. So how to differentiate your bank from your competitors?

In my next few posts, I’ll take a look at this question.  With banks (both big and small) riding the mobile wave to strengthen relationships and add to their bottom lines, I thought to set the table with insight gleaned from our friends at PwC.  Last month, the Banking & Capital Markets group published “How Retail Banks Can Thrive in a Disruptive, Mobile, Regulated World” to assess the implications and opportunities created by mobile phones and social media.  My cliff’s notes:

  • Social media continues to provide banks with new ways to improve brand recognition, expand customer reach, enhance a customer’s experience and introduce new products (for more, see these posts we ran in January about how to benefit from social media and social networking platforms);
  •  While most large national banks have slowed their pace of retail bank acquisitions because of regulatory limits, banks with access to capital continue to view acquisitions as a growth opportunity. Such acquisitions benefit banks by enabling them to (a) reduce combined operational costs by eliminating redundant back-office functions, (b) spread technology investments and regulatory compliance costs across a larger base, (c) gain access to new markets and customers for cross-selling, (d) increase the ability to invest in state-of-the-art technologies; and
  • Leading institutions are adopting a new customer-centric model to replace outdated product- centric models.

A few big takeaways for me? Bank execs need to quickly and decisively adopt new approaches or risk being left behind. Moreover, by tailoring channels to a specific customer segment or purpose, banks are capitalizing on the distinct and complementary roles of distribution channel, all while managing costs. Yes, this is the land of opportunity, and the applications of new mobile technologies and strategies bears close watching. More to come next week.

For all of us, job one


Maybe it’s all the traveling I am doing these days, but customer loyalty is top of mind. From American Airlines’ advantage program to Hyatt’s guest rewards, sometimes the littlest of things add up to something big (e.g. 1,099,622 miles flown on AA as of this morning). So yes, customer loyalty and me have a special bond, one worth exploring in the context of today’s financial community.

customer-service.jpgCase-in-point, I had the chance to watch PNC’s president (and head of Retail Banking) Joe Guyaux share his hows and whys of focusing on customer loyalty for one of the nation’s largest diversified financial services organizations. A keynoter at American Banker’s recent Best Practices in Retail Financial Services Symposium, he talked about PNC focusing on customer loyalty as a means to build a differentiated brand and grow customers while increasing (but not always maximizing) revenues. As a loyal PNC customer, I made a point of introducing myself to Joe after his talk concluded. You see, from slides on PNC’s definition of customer loyalty (“an enduring emotional connection and bond beyond our customers, employees and the PNC brand”) to the bank’s approach to creating brand ambassadors through social media, I was impressed to hear “the message from the top.” Indeed, what he shared with bank execs in Miami translated to the branches I regularly visit in Washington, D.C.  

Truth be told, one slide really stood out: PNC’s framework for winning loyal customers. Sure, we all know that loyal customers are integral to any business model. Still, interesting to note the elements that PNC defines to build and maintain that loyalty. Naturally, it starts with (and requires) engaged and empowered employees — and extends to:

  • A drive to deliver exceptional customer service;
  • The challenge to protect and grow its payments business;
  • A focus on earning a “share of a customer’s wallet;”
  • The discipline to maintain positive operating leverage;
  • Managing risks; and
  • Encouraging real and ongoing community involvement among staff.

While a number of banks espouse similar approaches to customer loyalty, PNC’s rise to its current position in the marketplace reminds us all that customer service really is job one. Seeing a message like Joe’s distributed and embraced across a national franchise? Impressive, to say the least.

Why Smaller Banks Should Worry About Interchange Fees


If you’re a bank CEO or director, you’re probably getting a little tired of Uncle Sam reaching into your institution’s pocket and pulling out handfuls of cash. Last year it was the new federally-mandated restrictions on account overdraft fees, which threatened to deprive banks of an important revenue stream just as they were struggling to recover from the effects of a deep recession in the U.S. economy. Fortunately for the industry, a significant percentage of retail customers opted into their bank’s overdraft protection plan, so the economic impact has turned out to be less than feared.

But then along came the Dodd-Frank Act, which not only imposes a greater and more costly compliance burden on the banking industry, but also drastically reduces the interchange fee that big banks–defined as $10 billion in assets or larger–are permitted to charge merchants on debit card transactions. The Act directed the Federal Reserve to set the maximum rate for debit card transactions, and in December the Fed proposed a cap of 12 cents–down from an average of 44 cents per transaction today.

The Fed is still soliciting comments under its normal rule-making process, and is required by Dodd-Frank to finalize the new rate by April 21. A 12-cent cap would result in a 70 percent to 85 percent reduction in debit card income for large banks, according to an estimate by the consulting firm Raddon Financial Group.

As bad as that sounds (and it is bad), the outcome of this latest threat to bank profitability is far from clear.

Raddon Vice President Bill Handel says that large banks like J.P. Morgan Chase & Co. are already considering a variety of strategies to mitigate the impact. For example, J.P. Morgan is testing a monthly $3.50 debit card fee in Green Bay, Wisconsin. (Under the current system, merchants end up paying the interchange fee, while retail bank customers are able to use their debit card for free.) The bank is also testing a $15 monthly checking fee in Marietta, Georgia.

One possible outcome of the new fee cap is that large banks will have to start charging for things–like debit cards and checking accounts–that used to be given away for the purpose of attracting core deposits. “The ‘free’ environment that we have been operating under will cease to exist,” says Handel.

The only problem is, Raddon’s research shows that consumers have become so accustomed to getting their retail banking services for free that they will balk at paying a monthly debit card fee. Instead, they will be more likely to either reduce their debit card usage in favor of paper checks (which are more costly for the bank to process)–or look for a free debit card at a smaller bank that isn’t affected by the cap. And that would seem to give small banks a huge competitive advantage since they could still offer their debit cards and checking accounts for free.

Not so fast. Smaller banks might think they’re shielded by Dodd-Frank from the sharp economic impact that large banks will feel, but that protection might not hold up in the real world outside of Washington, D.C. Predicts Handel, “We don’t believe the less-than-$10 billion exemption will hold up over the long haul.”

Visa Inc., the country’s largest card payments company, has said it will adopt a two-tiered pricing system for debit card transactions, one for large $10-billion-plus banks that will reflect the new Federal Reserve mandated cap on fees, and a second system for smaller banks that does not place a cap on fees. But Visa and its smaller payments competitor – MasterCard Worldwide – are member associations dominated by the same mega-banks that will be most hurt by a 12-cent cap. Handel says it’s not logical to assume that large banks like J.P. Morgan Chase and Bank of America will passively sit by while they lose debit card and checking account customers to small banks that can afford to subsidize those products with their higher interchange income.

“[The card companies’] brands are backed by the big banks,” says Handel. “If the big banks say to Visa and MasterCard ‘You can’t continue to have a two-tiered system,’ they will have to listen.”

A company spokesman said yesterday that MasterCard had not yet made a decision on whether it will adopt a two-tiered system for debit card fees, but don’t be surprised if the 32-cent per debit card transaction advantage that smaller banks seem to enjoy thanks to Dodd-Frank ends up much, much less.

Social Media Series: A Look Ahead


This is the fifth and final post on the value of social media for today’s financial services executive. Over the last month, we’ve looked at the fundamentals and why you need to care about newer trends and technologies, how some have successfully incorporated social media into their institutions way of doing business, the need for individuals and companies to be both authentic and transparent, and how you might personally get up and running if you’re not already. Today, we look ahead to social media in 2011.  

As this series draws to a close, cue the music*:

If this is it
Please let me know
If this ain’t love you better let me go
If this is
I want to know
If this ain’t love baby
Just say so

By now, we all know that social media marketing carries the same risks as traditional marketing. But with the continued surge in social services like those offered by Twitter, LinkedIn and Facebook, social networking platforms present powerful ways to connect with employees, consumers and shareholders of all generations.

fortune.jpg

Social media blends technology and social interaction; done right, it can be a win/win/win. Such networking co-creates value for you, your financial services company and your customers. Community building is something we all can do more of in 2011; hopefully these columns have inspired you to think about how you can get engaged and stay involved with conversations about your institution. Yes, a LOT has been written about social media, so I thought it would be interesting to share three predictions for 2011.  

Beyond the standard ‘you will train employees on the proper way to communicate with customers through social media,’ I’m excited to see the following take place:

  1. As more people take to mobile technologies (coupled with a wider adoption of tablets like the iPad), marketing efforts that incorporate online, in person and in print activities — supported by social media plans — will appreciate in value.
  2. Customer service departments take over as the main proponents of social media, with the full support of the CMO and leadership teams.
  3. Banks leverage geo-tagging applications to prepare/predict for traffic in their branches and at least one gets into social gaming in a big, big way.

Have a few predictions of your own that you’d like to share? Leave a comment for us below. While this is the last post on this particular series, our VP of Digital Strategy will be leading a panel discussion at our annual Acquire or Be Acquired conference in Scottsdale later this month. If you’re game to share your view(s) with her, I know she’d appreciate your thoughts.

*Can’t get the refrain out of your head? You have Huey Lewis & The News to thank for that.