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highlights

 

Remaking the Branch

There are few topics that so engage the minds of retail bankers these days as the future of the branch. The continual migration of customer transactions from the branch to electronic channels can no longer be ignored, particularly in an era when profitability is under pressure and every expense must be scrutinized.



The Mobile Transformation

The mobile banking landscape has changed greatly in recent years as customers graduated from simply checking their account balances on the cell phone to actually making payments via the device. Increasingly, mobile banking is transmuting into mobile payments.



Point, Counter Point on Mobile Banking
The mobile revolution in banking is here, as we’ve been told countless times, but what’s the business case? by MARK RIDDLE
Jun 17, 2013  |  3 Comments

We have all read ad nauseam how important mobile is to the future of retail banking, so, long live mobile!

Like many of you, I’ve had moments of doubt, when the business case for robust mobile programs didn’t seem all that clear.

Let’s begin by defining mobile banking: Mobile banking is any banking activity that can be conducted on a smartphone or tablet with internet access. Primarily via smartphone, it would include but not be limited to paying bills, viewing account balances, depositing checks remotely by taking a picture of the check, text chats with bank staff, person to person payments (P2P), scheduling appointments in a branch location with specialists (calendars and e-mails), text alerts for balances or when credit card was used, applying for a loan via mobile such as credit card or mortgage, opening a deposit account, making a loan payment, transferring funds, or solving a problem like replacing a lost debit card or making a point-of-sale purchase using a smartphone (e.g. digital wallet).

All well and good, but what’s the business case? Most bankers cite their mobile or omni-channel or multi-channel strategic vision as “anything you can do at a branch could be done digitally, or via mobile device.” Let’s take a closer look at that.

Making the Case

Online banking is the primary channel used today for checking balances, transferring funds, making loan payments, receiving text alerts, and paying bills. Since mobile is relatively new, most of the functions I just mentioned are done via online banking today. Mobile banking has the potential to replace or reduce this online banking as well as grow in the future. This is a real possibility since smartphone and tablet ownership now exceeds half the U.S. population, according to the BAI Mobile Tracking Study, powered by AlixPartners. Of the smartphone and tablet owners, 39% have adopted mobile banking. However, channel substitution does not make a great case for future mobile investments, especially if the mobile channel is no less expensive than the online banking channel. Online and mobile banking have real cost savings implications since branch-based transactions are the most expensive form of transactions.

However, the branch is the primary channel used today for non-routine activities such as applying for a loan or deposit, opening or closing a loan or deposit, or solving a problem with an account. Overall, online and mobile are very limited today for these more complex and more profitable banking activities.

So far, as you can see, I have not made a very strong case for mobile banking investments. This highlights the essential problem banks have in “making the case for mobile.” The following are some point/counterpoints that keep going through my head when I try to make that case:

Point 1: Mobile is primarily used by younger customers who do not have much money (balances) today and with the new fee income regulations, banks cannot make money on this segment anymore.

Counter Point 1: Banks want to grow new customers. New customer growth comes from younger customers who open new checking accounts. Twice as many customers under the age of 34 switch primary banks than the general population because of mobile banking, according to the BAI/AlixPartners study. Furthermore, this same research shows that branch teller transactions are dramatically reduced after mobile banking adoption, making these customers lower cost-to-serve at a time when most banks have excess branch capacity. Young people are the future, and most bankers worry about the aging demographics of their current customer base.

Point 2: I will simply be a fast follower of emerging technology; no need to be the market leader.

Counter Point 2: Younger customers are switching due to mobile so you may lose some existing customers and not gain many new ones. As mobile banking becomes more mainstream the problem worsens and you run the risk of never catching up to the market leaders. At the very least, staying up-to-speed on mobile banking developments will allow you to be a fast follower.

Point 3: Doesn’t introducing the mobile channel take away from the cross-sell potential of the branch?

Counter Point 3: Banks can use ATM and branch locator applications to make it easier for customers to find their sales locations. Additionally, the ability to schedule appointments with bank specialists to discuss more complex transactions and products is a weakness today in the branch channel. There could be a synergistic model of mobile helping drive more traffic and conversations (sales opportunities) to branches. Mobile has the potential to collect behavioral and locational data for more intelligent bank offers to customers (aka one-to-one marketing).

Point 4: As bankers, we need to be paid for value. We plan on monetizing mobile offerings as we roll out new features and functionality that add value to our customers.

Counter Point 4: Google (Gmail) plans on charging for P2P whereas most banks offer this for free. For Google, all the added value or charge for each transaction is that all of your contacts are already in Gmail, so no need to type them in. Using a bank example, some banks charge for remote deposit capture. This service may be worth the price for the customer not to go to a branch or ATM to make that deposit. Obviously, competition from banks and non-banks will dictate the ability to charge for new services. Remember, most banks charged for online bill pay when it was rolled out until competition made it free today.

So, have I made the case for mobile investments? Like many new channel investments, the business case today is most likely the cost of doing business (aka table stakes). Some of the mobile investment will be recouped through better retention of existing customers who use mobile and love it so they will not leave. Also, nearly 20% of young customers will switch primary banks for mobile so you could gain some market share today (assuming you are not a fast follower).

Longer term, I believe mobile will be a driving force that will change both the size of branches and the interaction within the branches. However, this will be a long-term pay-off, not a short-term one. The BAI/AlixPartners study will continue to track, on a quarterly basis, the features and functionality of mobile that are most appealing to customers. We will also bring together the mobile banking leaders in a roundtable format to discuss the challenges and opportunities in the mobile landscape.

Mr. Riddle is a director at BAI and can be reached at mriddle@bai.org.

 

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comments

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serge milman - optirate
6/20/2013 5:09 PM

Here are a few considerations that might help with the business case: 1) Consumers are migrating to online & mobile to conduct an ever increasing percentage of their tasks The old adage in customer service is for businesses to serve their customers when, where, and how the customer chooses. Clearly, most Banks fail to appreciate this nuance, which, in part, is resulting in significant disintermediation by the likes of goBank, BlueBird, Simple, Moven, ING, Ally and others. 2) Banks fail to leverage available channels to improve sales & service capability It is true that today most of “non-route” tasks such as opening a deposit account, applying for loans, or solving other problems are performed in the Branch… but this is only because most Banks have failed to provide the capability to conduct these activities online or in the mobile channel. Thus, the Branch is credited with these transactions by default. Customers continue to be inconvenienced, Banks face deterioration of consumer loyalty (based on lack of meeting customers’ needs), and Banks fail to realize the revenue & profit opportunity available from their current (and prospective) customer base. 3) “Complex” transactions not all that complex, after all There are many Bank and non-Bank entities who have been able to fully enable their “virtual” channels for products including account open, auto lending, mortgage lending, personal lending, and other similar solutions. Brokerage companies – Schwab, eTrade, MerrillLynch, and many others – have been successful in transitional virtually all of their customer interactions to online and mobile channel. Insurance companies – both P&C and Life / Annuity – have also been remarkably successful in utilizing online & mobile to drive a considerable portion of their business. Bankers who insist that consumers need to “handheld” while opening a checking account, or applying for an auto or home loan, are only fooling themselves. Few disagree that online and mobile channels will dominate customer sales & service interactions. Perhaps we can argue about the timing … will the tipping point occur in 2 years or in 5 years? But I suggest that the answer to this question is irrelevant! We all know that online and mobile channels are substantially more cost effective for Banks. We all know that online and mobile channels provide for much greater convenience for the customer. The rationale for ignoring this opportunity escapes me. Having said this, simply deploying some set of capabilities online and mobile channels is insufficient and likely to be ineffective. A ‘me-too’ approach followed by too many Banks will almost certainly disappoint. Banks need to develop comprehensive and rational business strategies that speak directly to the value proposition to their various customer segments, and how they will meet the anticipated need.

prue duggan
6/19/2013 3:23 AM

I totally agree with Eric, it's not an 'either/or' world anymore. I recently read another great article expanding on the omni-channel banking experience concept here: http://banknxt.com/10764/banks-must-go-flat-out-for-real-success/ How possible it is with today's IA structures, both business and IT is debatable though.

eric larse
6/18/2013 9:17 AM

As with all channels, branch, ATM, contact center, online, or mobile - banks need to meet the customer in the channel of their preference for the specific transaction at hand. Looking at it from a channel replacement standpoint is flawed because the POV is too bank centic rather than customer centered. So in my mind - it is the cost of doing business. You have customers out there who are going to expect it - and it is in your best interest to meet them in the channel of their choice.