Chief Investment Officer
BirdsEye Viewtrends in retail banking
This Following on the heels of my article on branching, which received lots and lots of reactions, I'd like to return to my semi-annual updates on various lines of business. The first one is on Retail Banling, the next will overview trends in Commercial Banking, and the next on Wealth Management. I hope you'll find them all topical, and look forward to your feedback and insights.
Also, many thanks for your comments on both Liat's and Dick's articles recently posted on the website, www.anatbird.com. Check out Dick 's latest contribution: an insider's guide to Rome sculptures. He is a renneissance man, and his selecetions are both obscure and outstanding. Dick will also be posting my tips on visiting Charleston, SC shortly as well.
On a more sober note, l trust you recall my note about our "adopted" son, Dave Volk, who left for Iraq in January. Dave is back on American soil after being seriously injured by a suicide bomber attack. He suffered a punctured kidney, multuiple fractures in his leg right below the kneecap and a serious concussion. Others in his squad did not fare as well... Please join me in praying for a full and speedy recovery for Dave and his commerades in arms. They are all heroes who put their life on the line for us, and I will be eternally grateful to them for their courage.
PS Pictures of Dave in his hospital room are posted on the website slide show.
Trends in Retail Banking
Twice a year I offer my perspective on trends in banking's major lines of business. Here is what I see unfolding in the Retail business, and commercial banking and wealth management will follow.
Banking the unbanked
In their quest for fee income and DDA balances, banks are flocking to the unbanked space. Early entrants, such as Republic of KY and Riverside of FL, have created innovative, highly profitable and attractive products to serve the unbanked in ways that offer win-win for customers and shareholders alike. Both product offerings create a path for unbankable customers (for any reason: banckruptcy, no credit history, etc.) to rehabilitate themselves and work their way back into the "bankable" segment.
Key elements in ensuring successful entry into this customer segment include:
Neglecting the plastics
The mega-banks have largely realized that plastic is quickly replacing the checking account as the core relationship vehicle for retail consumers, especially Gen X and Gen Y members. They are working hard on solidifying their "first in wallet" position among their customers for both transactions (debit card) and credit (credit card), supporting the effort with enhanced product features, attractive reward programs that include BOTH plastics and strong cross-selling both in and outside the branch. Meanwhile, many SuperCommunity Banks are still mulling over whether re-entering the credit card business makes sense, and most have low debit card penetration and activation on their checking bases. This is a mega-trend that is happening as we speak. Just ask your kids (if you have any children age 18-35) when was the last time they balanced their checkbook, or whether they even know where their checkbook is.
Key elements in re-entering the world of plastics with a "bang" include:
Back to service
SuperCommunity Banks often claim they differentiate themselves on the basis of service. They continue doing mystery shops to demonstrate how service is improving, and feel much better as the shop scores climb. My question is: how can those score rise while customer retention behavior doesn't change? My answer: the shops are a placebo, and reality is different. In many banks, service is not truly differentiatable. The larger banks have recognized that and are doing their best to improve service through various initiatives. While admittedly they have many limitations in effectively executing these drives, they also are not as bad as they used to be, and some have met with success in refocusing their retail workforce on operationalizing service. SuperCommunity Banks need to look in the mirror and ask the question: is my service truly excellent, as my mission statement and strategic plan say? And, if not, what can I do to build a true service culture without compromising sales growth and operational efficiency?
Some thoughts involve:
More banks than ever, including the big guys, are identifying specialty customer segments they go after, and dedicate employees with specific expertise to prospect and service these segments. They range from churches and funeral parlors to home owner association and engineering companies. Some niches are more deposit-rich than the mass market, and, through focus and industry knowledge, banks are making inroads in capturing more than their fair share of such segments.
Key success factors include:
Again, the burning need for deposits, coupled with the almost universal decline in interest free DDAs as a percent of total deposits, is rekindling banks' interest in group banking. The idea is simple: take your current products, package them nicely, and then offer to the employees of your commercial customers. The opportunities are huge! Yet again, the mega-banks are already onto this opportunity, but, as always, execution effectiveness is sporadic.
A successful group banking program typically has:
The success of ING and City Direct, followed by Emigrant's performance, has left others salivating for internet deposits. Countless banks in the SuperCommunity Banking range are thinking about building internet banks, or in the process of doing so, or have launched them. It's a hot topic. There is a lot to be said abuot the subject, but, as it's not strictly a retail banking initiative, I'll leave it to another time. It is, though, a hot trend among banks. My only comment at present is: beware of the LILO principle (last in, last out)...