the branch of future: how to plan for it today · of all sizes must plan for the “branch for the...

The Branch of Future: How to Plan for it Today

Andy Grinstead

Senior Vice President, Bank Intelligence Solutions from Fiserv

© 2013 Fiserv, Inc. or its affiliates. 2

About Us

• Online Advisory Solution

• Established in 2000 and was privately capitalized

• Acquired by Fiserv in October 2007

• FI industry’s only Online Advisory Solution

• Cost-effective delivery to institutions of any size

• Client Validation

• Over 400 subscribing client financial institutions

• Clients range from $32 million to $26 billion in total assets

• More than 1,500 planning sessions each year

• Partner Validation

• ICBA Preferred Service Provider

• State and regional associations

• Association for Financial Technology (AFT)


The role of the branch is fundamentally changing and FIs

of all sizes must plan for the “branch for the future”.

In this session:

• Industry trends

• Consumer trends

• Branch trends

• Case study

• Action planning for my FI

• Summary & conclusions


Five Year Industry Trends

Source: Q4 2012 BankAnalyst® Financial

ROA has rebounded, but note that lesser

Loan loss provision has driven much…

As net interest margins are facing pressure…

… as loan yields are pricing down…

… and loan volume is less than optimal…


Trends Point to Importance of Branch Efficiency

Source: Q4 2012 BankAnalyst® Financial

… Cost of funds are nearing the bottom

Loan production has been strong, but how

much longer?

Service charge fees have come under regulatory and

behavioral pressure in the current environment


Key Branching Issue: It’s the $$$$$, Right?

Costs for branches and staff represent 65% of the non-

interest expense for the average financial institution.

• Average Delivery System Expense = 37bp

(12 percent of NIE)

• Average Personnel Expense = 168bp

(53 percent of NIE)

• Average Total NIE = 316bp

• Median Deposit Service Charge Income = 21bp

• Median Core Deposits per Office = $34,128,000

Branch &

Staff Costs

65%

(of Non Interest Expense)

Customer &

Channel Trends


Numerous Game Changers

Business Models • Demographic shifts

• Social change

• Channel shifts

• Payments

• Regulatory change

• Lending patterns

• Talent management

Macroeconomic and

Geopolitical Risks

• Interest rates/inflation

• Unemployment

• U.S. housing market

• EU instability

• Energy and commodity prices


ATMs 3,000,000,000

Devices

Branches

Financial Institutions

Going for Growth: Untethered Interactions with

Consumers and Businesses


It Is Indeed a Changing World…


Will Alternative Channels Really Take Off?


Mobile Has Impacted Consumers’ Daily Habits

Mobile vs. Branch Strategy – Consumers Don’t Care

Blogs

IM/chat

SMS/Alerts

Music

Search

News Video

Mobile web

Games

Maps

Budgets Payment

Commerce Banking

Ticketing

Transit

Social

Pictures

Email/MMS

Organizer Voice

Communicate

Create Consume

Control

TV

C:/Documents and Settings/cgrimes/Local Settings/Temporary Internet Files/Local Settings/Temporary Internet Files/PayPal Demo/PayPal Demo.ppt


A Personal Case Study


1. Signs up for new services faster

2. Responds to experience more than product

3. Is more likely to switch

4. Is more comfortable online

5. Is the mobile generation

6. Is on the move – capitalize!

7. Recommends a good experience more and faster

15

Gen Y…


Online and Mobile Are No Longer

Alternative Channels

11.00 11.20 11.40 11.50 11.60 11.80

14.00 13.70 13.50 13.40 12.70 12.10

28.50 29.70 30.80 32.10 33.10 34.10

5.00 6.40 8.20 10.60 13.40 17.00

0

10

20

30

40

50

60

70

80

2010 2011 2012P 2013P 2014P 2015P

ATM Branch Online Mobile

Transactions (in Billions)

Source: TowerGroup, 2012


Branches Remain a Critical Cog in the Delivery

System

Preferred Channel

Branches continue to be the preferred channel for making deposits.

Importantly, opening new accounts and problem resolution remains

critical roles of the branch.

0%

25%

50%

75%

100%

WithdrawCash

TransferFunds

Pay Bills DepositChecks

ServiceIssues

Apply for aLoan

OpenChecking

Branch ATM Internet

(1.) Source: RFG National Research Study, 2012

(2.) Source: RFG National Consumer Research, Spring 2013

1.

2.


Transacting at the Branch, But Are We Forcing

Them Into This Channel?

Why did you visit a branch last month?

Fiserv Proprietary and Confidential

3%

5%

2%

5%

4%

7%

4%

86%

3%

3%

4%

5%

3%

7%

7%

87%

5%

6%

6%

7%

9%

9%

15%

82%

10%

8%

10%

8%

13%

15%

24%

81%

Change account information (name, etc.)

Use Notary

Sign paperwork

Access safety deposit box

Open or close an account

Resolve an account issue

Obtain a cashiers check or money order

Make a deposit or withdraw cash

GenY (21-32)

GenX (33-47)

Boomers (48-66)

Seniors (67+)

Source: 2012 Fiserv Consumer Trends Survey – 12/12/12


Retail Banking Channel Interactions

2015E

Source: Brett King

Mobile 20-30 Times per month

Web/Tablet 7-10 Times per month

ATM 3-5 Times per month

Call Centre 5-10 Times per year

Branch 2-3 Times per year


Takeaways…

• Will branches remain a relationship cornerstone for acquiring and

retaining deposits and growing profitably?

• Fewer transactions in branches – focus shifts to advice, loans and

small business services.

• The implementation of self-service technology in branches will free

branch staff to spend more time with customers.

• Branches must be tightly integrated with other delivery channels,

giving customers channel choice.

• Financial Institutions must focus on providing an outstanding

experience in every channel – including mobile and tablet.

20

Branch Format

Trends

© 2013 Fiserv, Inc. or its affiliates.

Many Different Combinations of New - Examples

23

Form Factor / Look and

Feel / Components

Services Offered /

Staffing Required Technology

Ultra-modern Financial planning Video tellers

Ultra-traditional Brokerage Self service kiosks

Flagship branch

(your $ is safe with us) Small business services Surface technology

Restaurant / coffee shop Tax advice On-line “everything”

coordination / CRM

Community space Lending advice Digital walls

Smaller footprint /

portable and pop up

Small business “rental”

space

Straight through

processing

Concierge / kids area Flexible staffing skills &

hours

Customer recognition


Citibank – Smart Banking Concept

• Flagship branch

• Smart Banking branches

• Interactive sales wall

• Highly trained staff

• Enhanced image ATM

• Free Wifi

• Media walls

• Access to global experts

via video conferencing

• Private seating lounge for

Citigold customers

Source: Citigroup.com, thefinancialbrand.com


North Shore Credit Union – Financial Spa

• Vancouver, BC

• Financial Spa Concept

• Concierge

• Carved pine columns

• Granite and stone

• Private lounge

• Refresh bar –

cappuccinos,

hot towels

• Bringing the beauty

of the outside, inside

Source: EHS Design, North Shore Credit Union, thefinancialbrand.com


Community Bank (C1)–

Bridge Online and Offline Experience

• St. Petersburg, FL

• Five Zones:

• Teller Zone

• Sales & Advice Zone

• Dwell Zone

• Community Zone

• Brand Zone

• Inspired by Apple

• “A visual barometer for

the company’s brand,

mood, social awareness

and public relations”

Source: thefinancialbrand.com


Coastal Federal Credit Union – Extended Hours

• Raleigh, NC

• Design concept around

convenience

• Personal teller technology

• Extended hours

• Two way video with a teller

• Reduced staff cost

• Allowed the CU to staff more

efficiently

Source: coastal24.com; usatoday.com


Umpqua Bank – Stores vs. Branches

• Early adopter

• Retail vs. bank

• Stores vs. branches

• Service based – Ritz Carlton

• Starts with people

• Connection to local business

• Ice cream truck to local

events

• Yoga classes

• Children’s theaters

• Interactive technology

• Clean design

Source: umpquabank.com


Virgin Money – The Cool Factor

• Guildford, UK

• Modern blend into architecture

• “Fresh approach to high

street banking”

• Access to Virgin Money products

• Free use of

• Wifi

• iPads

• iMacs

• No hard sell policy adopted

by all staff

• Community events – baby

grand piano

Source: thefinancialbrand.com, virginmoney.com

Where Do

Community

FIs Fit In?


Start With the End in Mind – Acru A Community FI Case Study

• Woodstock, GA

• Needed to rethink what banking

meant

• Metrics are critical

• Small business, business owners,

professionals are key targets

• Surveyed the market about FIs and

their money

• Highly emotional issue

• Last thing we need is more loans and

deposits

• Baseline solutions assumed: web,

mobile, etc.

• They want more – trusted advisor to

help with strategies for money that fit

their lives

Acru Wealth, LLC (Acru) is a subsidiary of Community & Southern Bank

Listen to the Acru story at www.acruwealth.com


Thinking Outside the Box – Creating Valuable Reasons to Visit the Branch

• Ai3 Architectural Firm

• Café Style –community and

small business gathering

space

• Wealth strategists

• Frictionless environment

• Wealth bar

• Clarity conversations and

clarity maps

• Community support & events

© 2013 Fiserv, Inc. or its affiliates.

Actions Speak Louder Than Words

33

https://acruwealth.com/community/author/brad

https://acruwealth.com/community/author/brad

Where To Start


Step Back – Ask the Tough Questions

What’s the historical purpose of our branches?

• Core deposits?

• Loans?

• Customer service / transactions / account opening?

• Branding awareness?

Key Questions:

How has each branch performed?

If we were starting an FI today, would we anticipate

the same number of branches?

Benchmark

Your FI


Consider Your Operating Strategy and Benchmark

Example:

• Consider

VLO – Very

Low Balance

Accounts

• Offices are

smaller = more

offices required

but…

• Lower COF and

more service

charge $


Benchmark Medians

Lower COF

and

More Service

Charge Income


Measure Your Key Branch Efficiency Metrics

Benchmark and

calculate opportunity $:

• Core Deposits Per

Office

• Revenue Per Office

• Accounts Per Office

• Revenue Per FTE

• Loan $ Per FTE

• Deposit $ Per FTE

• Accounts Per FTE

Analyze the Potential

Market Opportunity


Utilize Available Tools for Analysis


Identify Potential Consumer Segments


Fully Research & Understand Your Targeted

Segments

U.S. Statistics U.S. Households: 6,872,214

Median HH Income:$91,185

• Flourishing families

• Suburbanites with high incomes, large

homes (and mortgages), and

substantial income-producing assets

• Well educated with executive jobs

• Most likely of all groups to manage

their finances online--paying bills,

transfers

• Risk averse / wide variety of insurance

• These well-off families pursue active

lifestyles

• Use credit cards that help them rack

up airline reward miles


Target Specific Product Demand: Home Equity


CEO Strategies Group National Average

18 to 34 35 to 44 45 to 54 55 to 64 65 +

$125,000+

$50,000

to

$124,999

Less Than

$50,000

Age &

Income

Low Income Depositor

21.4%

Credit

Driven Middle Market

Middle Income

Depositor

10.3%

19.8% 22.4%

Upscale 8.7%

Fee Driven

17.3%

Take Action with Segments


Identify Potential Business Targets by Branch

Deposit Opportunities

Loan Opportunities

Cash Management

Merchant Card

Determine Your

Optimal Branch

Footprint


Consolidate Branches?


Analysis to Consider

Bank Intelligence Analysis

• Branch investment matrix

• Performance ratios (Delivery

system capacity)

• Market growth potential

• Performance of the branch

• Proximity of other branches

• Competitive saturation

• Competitor type

Examples of Other Data

• Branch profitability

• Do we own or lease

• Actual cost savings

• In market loans

• In market deposits

• Volume of transactions

• Intangible value of transactions

• Reputation risk

In case study example, branch capacity is a $4.5 million annual opportunity


Expand Footprint?


Expansion Considerations

• Ratios indicate an earning engine in a slow growth market

• Capital considerations

• Future earnings capability

• Very high current market share

• LPO vs. branch

• M&A vs. De novo

• Use tools to identify potential markets

Combination of growth, target segments and not as saturated

as current markets and/or have the ideal competition type Ideal

Markets

MW bank in slow growth markets searched every county

across half their state to identify 8 potential LPOs. Currently

looking for the right person to become the market president. Example


All Markets are Not Created Equally- Think Franchise

Clemmons, NC branch vs. Johnson City, TN branch


Narrow the Focus for Each Branch to a Few Combinations

Deposits

Origination

Commercial

Health Svc

• Deposits

• Loans

+

• Retention

• Origination

• Cross Sale

+

• Consumer

• Commercial

+

• Specific

Segments/Niches

Example

Take Action


• How much will we invest in technology and alternative channels?

• How many branches will we have?

• Who & what types of customers will they serve?

• Where will they be?

• What will they look and feel like?

• Who will staff them?

• New lines of business?

• Benchmark where you are today

• Take stock of your strengths and weaknesses

• Identify rationalization candidates

• Identify best target opportunity for each branch market

• Begin process of choosing your head(s) of Internet/mobile/payments

Take Action – Next Steps

55


• Review your institution’s metrics

• Visit Station 16 – Review your institution’s custom BankAnalyst®

Market results in the Solutions Center

• Visit Station 19 – Visit with our Raddon Financial Group colleagues

to review options for member analytics and profitability

• Schedule – An in-depth, 60-minute market opportunity session for

your institution ([email protected])

• Tell us what you think! It’s easy – locate this session in your Mobile

Event Guide, then input your rating, from 1 to 5 stars.

Next Steps

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Andy Grinstead

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The Branch of Future:

How to Plan for it Today