leveraging branch delivery with online account opening

Driving Revenue & Profit in the eChannel…

Paul McAdameCom AdvisorsMarch 2, 2010

Best of Both WorldsLeveraging Branch Delivery with Online Channels

© 2010 eCom Advisors

An opportunity to provide a differentiated customer experience

Increase new account growth

Increase cross-sell

Increase online services activation

Reduce operating expenses

Online Channel

Branch Channel

New Customer Accounts


Discussion topics

The Multichannel Mandate

The Customer Journey

Management Implications


Branches, 28%

Internet, 32%

ATM, 22%

Mail, 11%

Telephone, 6%

Mobile, 1%

Banking Method Used Most Often (2009)

27%

22%20%

37%

31%

26%

52%

47%

43%

2007 2008 2009

% Citing Branches as Channel Used Most Often (By Age Group)

Age 55+

Age 18 - 34

Age 35 - 54

The influence of eChannels is accelerating

Source: ABA telephone survey of 1,000 U.S. consumers conducted by Ipsos-Reid. The 2009 survey was conducted Sept. 14 - 16


Many forms of e-banking & payments have reached mass-market penetration

Innovators

Enthusiasts,Change Agents

2.5%

Early Adopters

Respected, Opinion Leaders

13.5%

Early Majority

Pragmatic, Deliberate

34%

Late Majority

Conservative, Skeptical

34%

Laggards

Traditional, Suspicious

16%

Mobile Banking

Debit /ATM CardPre-paid Card

Online Banking

Online Bill Pay (biller site)

Online Bill Pay (bank site)

Contactless Debit Card

Sources: • Adoption curve framework: Everett Rogers, “Diffusion of Innovations.”• Adoption data points: Federal Reserve Bank of Boston, 2008 Survey of Consumer Payment Choice


The portion of transactions reliant on brick & mortar branches is low, and decreasing…

6

Primary Transaction

Account

Electronic Bill Pay

Transfers

Benefits

Retirement ACH Debit

ATM

Checks

Paycheck

DEPOSITS DISBURSEMENTS______________________Electronic

Checks

Cash

Cash withdrawal

Cashier’s Check

Money Order

DEPOSITS DISBURSEMENTS_______________________Branch dependent

Debit Card

70%

30%


In spite of this, the # branches and branch operating expenses have increased dramatically

0 5 10 15 20 25 30 35

NEW YORK-NORTHERN NEW JERSEY-LONG ISLAND, NY-NJ-PA

LOS ANGELES-LONG BEACH-SANTA ANA, CA

CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI

DALLAS-FORT WORTH-ARLINGTON, TX

SAN FRANCISCO-OAKLAND-FREMONT, CA

WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV

BOSTON-CAMBRIDGE-QUINCY, MA-NH

MIAMI-FT. LAUDERDALE-MIAMI BEACH, FL

ATLANTA-SANDY SPRINGS-MARIETTA, GA

UNITED STATES TOTAL

Bank Branches per 100,000 Residents

2000

2008

$1.8 B

$.69 B

$1.7 B

$1.1 B

$.13 B

$.46 B

$.27 B

$.35 B

$.63 B

$27.3B

Additional annual branch operating

expenses

Source: FDIC and U.S. Census Bureau. eCom Advisors analysis


Customers still reward banks for branch convenience…But for how much longer?

What if a third of new accounts are opened online in five years?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

Accounts Opened in Branches

Accounts Opened Online


The unit costs of branch-based interactions will steadily increase

Mobile

Online

ATM

IVR

Call Center

Branch

$0.08

$0.17

$0.85

$1.25

$3.75

$4.00

Per Transaction Costs by Banking Channel

Source: TowerGroup, Fiserv/M-Com

Branch Network;

50%

Call Center, ATM, OLB; 6%

Marketing; 15%

Opera-tions; 20%

Overhead; 5%

Other, 4%

Today, 50% of retail bank costs come from the branch network

Source: Highline Financial, Novantas


Online account origination is now a competitive “must have”

DDA Deposits Credit Card Consumer Loans Mortgage

Bank of America HEL, Auto

Chase HEL, Auto Wells Fargo HEL, Auto, Personal Citibank HEL, Personal PNC HEL, Auto HSBC US Bank HEL, Auto SunTrust HEL, Personal Capital One HEL, Auto BB&T HEL

Source: eCom Advisors review of bank websites, as of 02/22/2010


Four significant shifts in thinking are required

1. A growing number of customers will trade local branch presence for an improved online value proposition

2. It’s time for meaningful modifications to the density, configuration and operations of the branch network

3. It’s time to invest branch channel savings into the next generation of eChannel capabilities

4. It’s time to stop viewing online and branch as distinct channels when it comes to new customer and account generation. It must be an integrated customer experience


Yes, online banks can make money!!! Segmented and multichannel players perform well

Source: Call Reports, eCom Advisors analysis

$ Bln.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

$0

$10

$20

$30

$40

$50

$60

$70

$80

Total Deposit Balances

ING Bank fsb

E*TRADE Bank

USAA Federal Savings Bank

Charles Schwab Bank

Ally Bank 2005 2006 2007 2008 2009

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Net Operating Income to Assets

All Commercial Banks Assets $10B+

- 4.57%


Traffic

Products Page

Apps Initiated

Apps Completed

Apps Funded

Within many banks, the process is inefficient and not necessarily customer friendly

TrafficInternal/External organic and marketing (Banner Ad ) - viewed a page with “Apply Now” on it.

Apply NowClicked “Apply Now” and landed on the “Overview” page.

Application InitiatedClicked “Next” button on the “Application Start” page and landed on the “Personal Info” page.

Application SubmittedCompleted the app. and clicked “Submit”

Funded AccountsACH/Internal Transfer/Check

10% fail due to fraud / risk reasons

44% industry Conversion Rate*

Industry Averages

50% initiate app from the first / products page

20% drop at personal info questions

70% complete the application

20% drop out for manual verification

* Conversion Rate begins at application

Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s

10% drop after providing contact info


Practices of higher performing banks

Banks that target their efforts are happier with their results

Minimal impact to abandonment rates when customers are presented with a maximum of 6-7 “out of wallet” questions

Sports sites and local web sites are used as low cost channels that led to acquisition of long-term relationships with customers (versus-bankrate.com)

Anticipate that ~ 30% of applications will be kicked out due to address verification and risk management guidelines

Prioritize manual call backs to targeted segments. Industry average success rate for the applications that were followed up with an email or a call is 10% - 25%

Applicants that dropped out of the online process and then called the bank had a 20%+ close rate

Average acquisition/online conversion cost:

− $2.00 - $3.50 for fully automated

− $8 - $15 with manual involvement

− $56 - $85 per account marketing cost

Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s


We need to start thinking about “online branches” and how they support physical branches and reduce overall delivery system costs

Branch Manager

Assistant Manager

Personal Banker

Personal Banker

Teller Supervisor

Teller

Teller

Teller

7 – 9 FTE

Manager

Relationship Manager

Personal Banker

Personal Banker

Marketing Coordinator

Technical / Database

6 – 7 FTE

~ $2 million to build

~ $1.75 million annual operating expense

Physical Branch Online Branch

~ $1.2 million first year operating expense (fully loaded with staff, technology & extensive marketing)


Online account opening with branch support will move us past the inflection point

Innovators


2.5%

Early Adopters


13.5%

Early Majority


34%

Late Majority


34%

Laggards


16%

Source: Adoption curve framework and insights regarding adoption; Everett Rogers, “Diffusion of Innovations.”

Relative Advantage – the degree to which an innovation is better than the idea it supersedes

Compatibility – the degree to which an innovation is consistent with past experiences

Technology Clusters – Adoption of innovations are higher when the technical elements of the process are perceived as being highly interrelated


Re-invention of online account opening from purely online to “online with branch support”

Innovators


2.5%

Early Adopters


13.5%

Early Majority


34%

Late Majority


34%

Laggards


16%

Source: Adoption curve framework and insights regarding re-invention; Everett Rogers, “Diffusion of Innovations.”

Innovations are re-invented

– Changed or modified in the process of its implementation

Occurs when an innovation must be adapted to the structure of the organization that is adopting it

Later adopters profit from the experiences gained by earlier adopters

Re-invention leads to:

– A faster rate of adoption

– A higher degree of sustainability


Online shopping with in-store pickup is quickly becoming the norm in retailing

In 2007, Walmart rolled out Site to Store to its entire U.S. network of 3,330 stores

– 50% of Site to Store orders are new customers to Walmart.com

– Site to Store accounts for 1/3 of Walmart.com sales

– When arriving at the store for a Site to Store order pickup, 20% of customers spend $60 or more on in-store purchases

– By consolidating shipments of online orders to stores instead of to consumers’ addresses, Walmart saves 1,000 gallons of gasoline each week and 20,000 packing boxes each month

Christmas 2009 shopping season: 40% of Walmart.com orders were picked up at nearby stores for free

Testing drive-through windows in Chicago and Minneapolis where customers can pick up online orders

Ace Hardware Best Buy Kay Jewelers L.L. Bean Lowes

Nordstrom Office Depot REI Sears Tiffany & Co.

Other retailers with e-commerce websites that offer in-store pickup

Source: Walmart website & press releases


Discussion topics





Aw

aren

ess

Con

side

ratio

nR

esea

rch

Dec

isio

n

Buying Event

Act

ivat

ion

Exp

erie

nce

Loya

lty

Multiple channels play key roles through the entire purchasing process

Tria

lDefections

ShoppingAccount Opening

OnboardingRelationship

Building


Shopping for and purchasing banking products is a multichannel experience

10%

13%

22%

55%

Source: McKinsey & Company

Purely offline sales

Purely online sales

Offline sales influenced by online touchpoints

Online sales influenced by offline touchpoints

Cross-channel impact

2008 McKinsey European survey of banking/insurance customers


The multichannel shopping & account opening experience

Shops online for bank account Online chat with CSR during shopping process Completes account application online Establishes account and communication

preferences Opts to complete the final documentation and

funding process at a branch Schedules an appointment at branch to

complete the process At the end of the session, notified that’s

prequalified for loan up to $10,000 Pop up message. “Thank you. Call us if you

have questions”


The multichannel account funding & activation experience

Email confirmation of account opening details Banker leaves “Looking forward to our appointment”

voicemail Day before the appointment, receives a text

message reminder on mobile phone Arrives at branch for appointment Banker greets customer and has all information Banker helps customer enroll in online services and

account alerts. Receives activated debit card Banker explains opt in and overdraft protection

opportunities Banker probes for credit opportunities


Onboarding: Multiple, non-intrusive touchpoints during the first month

1st email 2nd email 3rd email Welcome message

Account funded and ready for operation

Practical information

When checks and debit cards will arrive

How account operates and fees

Account benefits

Highlights other services related to DDA

Promotes:

– ATM deposit

– Online banking

– Bill payment

– Overdraft protection

– Alerts

Leads into cross-sell based on monitoring of account behavior

Notifies of other bank services

Welcome kit via mail

Phone call from bank

Getting customer familiar with bank & account Relationship expansion

Day 1 Day 7Day 5 Day 14 Day 28


Survivors

Students &Gen Y

Upwardly MobileGen X & Y

Borrowing Families

Mature Bank Loyalists

Self Directed Mass Affluent

Saving Families

For starters, apply this multi-channel approach to your most valuable / profitable customers

Checkless Checking Account

~ 10% of population

Young, Tech Savvy Account

~ 25% of population

Retirement Income Account

~ 10% of population

Tech Savvy, Emerging Affluent Account

~ 15% of population

Mass Market, Loyalty Account

~ 40% of population

Age

Inco

me

/ W

ealt

h


You will generate ROI from providing superior customer experiences to today’s early adopters

Innovators


2.5%

Early Adopters


13.5%

Early Majority


34%

Late Majority


34%

Laggards


16%

Source: Adoption curve framework and insights regarding early adopters; Everett Rogers, “Diffusion of Innovations.”

Will adopt based on mass market communication

Better educated Wealthier Higher social status Greater upward social mobility Interpersonal networks that extend

outside of their local system Change Agents Opinion Leaders Role models


Discussion topics





Each cell in the “multichannel account opening experience” requires explicit attention & ownership

Online Branch

Shopping

Branding & promotion

Customer communications

Channel roles

Account Opening

Channel roles, process & handoffs

Employee roles & training

Sales tools & customer communication

Technology & vendor mgmt.

Financials & metrics tracking

Onboarding

Channel roles, process & handoffs

Employee roles & training

Sales tools & customer communication

Technology & vendor mgmt.

Financials & metrics tracking

Develop guiding principles, strategies and tactics for each cell

Sr. Exec Oversight


Best Buy’s defeat of Circuit City is instructive

Strategy Discount retailing, focused on products Focused on customer experience

Web Presence Stuck in Web 1.0 mode A selling site, online brochure and not

easy to navigate

Continuously experimenting with online strategies that put the customer at the center of the effort

Product Innovation

Stopped selling appliances Didn’t move aggressively enough into

gaming Missed out on big in-store promotions

with thriving companies like Apple

Acquired Geek Squad to provide better post sales support

Acquired Magnolia Home Theater Use customer scenario planning to customize

shopping experience for key customer groups

Investing in Employees

In March 2007, made a cost cutting blunder by firing more expensive and experienced hourly employees and replacing them with lower paid people

That same year, the CEO received compensation of $7 million

Invested in training and employee retention Extensive technical training for employees Consistently rated as one of the best retail

employers CEO makes ~$4 million per year

Source: Time magazine. CustomerThink.com

http://rds.yahoo.com/_ylt=A0geu81TJ0ZLqlgAI9pXNyoA;_ylu=X3oDMTB2azc2bWY4BHNlYwNzYwRjb2xvA2FjMgR2dGlkA01BUDAxNl8xMjQ-/SIG=1iigdsjjk/EXP=1262975187/**http:/images.search.yahoo.com/images/view?back=http://search.yahoo.com/search?ei=UTF-8&p=best+buy+logo&w=434&h=297&imgurl=autoracingsport.com/wp-content/uploads/nascar/bestbuy_logo.jpg&size=30.7kB&name=bestbuy+logo+jpg&rcurl=http://mncampusalliance.wordpress.com/&rurl=http://mncampusalliance.wordpress.com/&p=best+buy+logo&type=jpeg&no=1&tt=12,190&oid=122d73532ed862d2&tit=bestbuy+logo+jpg&sigr=116miqgji&sigi=11u8h9erb&sigb=11ncflq3d


Management implications: Some potential quick fixes

Education– Have every frontline employee open an account online

Sales goals & performance tracking– Recognize the multichannel influence in sales goal setting

– Recognition of leads that come in online, but are opened in a branch

Employee compensation & recognition– Incent branches to encourage customers to open accounts online

– Pay commissions for online sales made within a specified distance to the branch

– Give the online sales team credit for sales closed in branches – when customer researched online but opted to close in a branch

Marketing & Customer Experience– Measure the return from online advertising and search engine marketing across

total sales across all channels, rather than just against online sales

– Create a team dedicated to creating experiences for the customer journey


Contacts

eCom Advisors provides executive consulting services to banks, billers, vendors and investors in financial services technology and online banking, billing and payments. Our consultants possess 175+ years of direct operating experience, and are considered leading experts in the industry. We help executives make their most crucial ecommerce management decisions.

Paul McAdameComAdvisorsOne Westbrook Corporate Center, Suite 300Westchester, IL 60154

[email protected]

708.449.7743(office)

630.865.3135 (cell)

Atlanta office

Columbus office

Boston officeChicago office

3340 Peachtree Rd. NEAtlanta, GA 30326404.848.7709

5650 Blazer ParkwayDublin, Ohio 43017614.734.8372

95 Washington St.Canton, MA 02021781.784.1663

1 Westbrook Corp. Cntr.Westchester, IL 60154630.865.3135

leveraging branch delivery with online account opening

Economy & Finance

abatelephone survey

early majoritypragmatic

early adoptersrespected

adoption curve framework

adoption data points

online services activation

federal reserve bank

change agents2