Leveraging Branch Delivery with Online Account Opening

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Traditionally, banks have viewed the online channels as competitive with bank branches. But that is rapidly changing. The combination of accelerating online channel utilization and the pressure most banks face to dramatically reduce operating expenses are leading an increasing number of executives to examine where the lines between branches and online channels are blurring. This presentation explores opportunities to marry the differentiating benefits of online channels with those of in-person, local branches to drive more fee revenue and deposits at a lower total cost than was achievable just a few years ago. It highlights how your competitors might utilize an integrated “clicks and mortar” strategy to attack your institution, steal your customers and reduce your profits.

Other key topics include:

-- Online channel innovations and the substitution/augmentation impacts on branch-based transactions

-- How online account opening and funding is creating new value for branch banking

-- The roles of online channels and branches in financial product shopping and purchase behaviors

-- Why online is not cannibalistic to the branch and why banks that don’t aggressively pursue deposits and payments online risk losing existing customers

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Leveraging Branch Delivery with Online Account Opening

  1. 1. Best of Both Worlds<br />Leveraging Branch Delivery with Online Channels<br />Paul McAdam<br />eCom Advisors<br />March 2, 2010<br />
  2. 2. An opportunity to provide a differentiated customer experience <br />Branch Channel<br />Online Channel<br /><ul><li>Increase new account growth
  3. 3. Increase cross-sell
  4. 4. Increase online services activation
  5. 5. Reduce operating expenses</li></ul>New Customer Accounts<br />
  6. 6. Discussion topics<br />The Multichannel Mandate<br />The Customer Journey<br />Management Implications<br />
  7. 7. The influence of eChannels is accelerating<br />Source: ABA telephone survey of 1,000 U.S. consumers conducted by Ipsos-Reid. The 2009 survey was conducted Sept. 14 - 16<br />
  8. 8. Many forms of e-banking & payments have reached mass-market penetration<br />Online Bill Pay <br />(bank site)<br />Online Banking<br />Contactless Debit Card<br />Online Bill Pay (biller site)<br />Pre-paid Card<br />Debit /ATM Card<br />Mobile Banking<br />Innovators<br /> Enthusiasts,<br />Change Agents<br />2.5%<br />Early Adopters<br />Respected, <br />Opinion Leaders<br />13.5%<br />Early Majority<br />Pragmatic, Deliberate<br />34%<br />Late Majority <br />Conservative, Skeptical<br />34%<br />Laggards<br />Traditional, Suspicious<br />16%<br />Sources: <br /><ul><li>Adoption curve framework: Everett Rogers, “Diffusion of Innovations.”
  9. 9. Adoption data points: Federal Reserve Bank of Boston, 2008 Survey of Consumer Payment Choice </li></li></ul><li>The portion of transactions reliant on brick & mortar branches is low, and decreasing…<br />Electronic <br />______________________<br />DEPOSITS<br />DISBURSEMENTS<br />ATM<br />Primary Transaction Account<br />Paycheck<br />Electronic Bill Pay<br />Benefits<br />ACH Debit<br />Retirement<br />70%<br />Checks<br />Transfers<br />Debit Card<br />Branch dependent <br />_______________________<br />DEPOSITS<br />DISBURSEMENTS<br />Checks<br />Cash withdrawal<br />30%<br />Cashier’s Check<br />Cash<br />Money Order<br />6<br />
  10. 10. In spite of this, the # branches and branch operating expenses have increased dramatically<br />Additional annual branch operating expenses<br />$1.8 B<br />$.69 B<br />$1.7 B<br />$1.1 B<br />$.13 B<br />$.46 B<br />$.27 B<br />$.35 B<br />$.63 B<br />$27.3B<br />Source: FDIC and U.S. Census Bureau. eCom Advisors analysis<br />
  11. 11. Customers still reward banks for branch convenience…But for how much longer?<br />What if a third of new accounts are opened online in five years?<br />Accounts Opened in Branches<br />Accounts Opened Online<br />
  12. 12. The unit costs of branch-based interactions will steadily increase<br />Source: TowerGroup, Fiserv/M-Com<br />Source: Highline Financial, Novantas<br />
  13. 13. Online account origination is now a competitive “must have”<br />Source: eCom Advisors review of bank websites, as of 02/22/2010<br />
  14. 14. Four significant shifts in thinking are required<br />A growing number of customers will trade local branch presence for an improved online value proposition<br />It’s time for meaningful modifications to the density, configuration and operations of the branch network<br />It’s time to invest branch channel savings into the next generation of eChannel capabilities<br />It’s time to stop viewing online and branch as distinct channels when it comes to new customer and account generation. It must be an integrated customer experience<br />
  15. 15. Yes, online banks can make money!!! Segmented and multichannel players perform well<br />$ Bln.<br />All Commercial Banks Assets $10B+<br />- 4.57%<br />Source: Call Reports, eCom Advisors analysis<br />
  16. 16. Within many banks, the process is inefficient and not necessarily customer friendly<br />Industry Averages <br />Traffic<br />Internal/External organic and marketing (Banner Ad ) - viewed a page with “Apply Now” on it.<br />Traffic <br />Apply Now<br />Clicked “Apply Now” and landed on the “Overview” page.<br />Products Page <br />50% initiate app from the first / products page <br />Application Initiated<br />Clicked “Next” button on the “Application Start” page and landed on the “Personal Info” page.<br />20% drop at personal info questions <br />Apps Initiated <br />10% drop after providing contact info<br />70% complete the application<br />Apps Completed <br />20% drop out for manual verification <br />Application Submitted<br />Completed the app. and clicked “Submit”<br />10% fail due to fraud / risk reasons <br />Apps Funded <br />Funded Accounts<br />ACH/Internal Transfer/Check<br />44% industry Conversion Rate* <br />* Conversion Rate begins at application<br />Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s<br />
  17. 17. Practices of higher performing banks<br />Banks that target their efforts are happier with their results<br />Minimal impact to abandonment rates when customers are presented with a maximum of 6-7 “out of wallet” questions<br />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)<br />Anticipate that ~ 30% of applications will be kicked out due to address verification and risk management guidelines<br />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%<br />Applicants that dropped out of the online process and then called the bank had a 20%+ close rate<br />Average acquisition/online conversion cost: <br /><ul><li>$2.00 - $3.50 for fully automated
  18. 18. $8 - $15 with manual involvement
  19. 19. $56 - $85 per account marketing cost </li></ul>Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s<br />
  20. 20. We need to start thinking about “online branches” and how they support physical branches and reduce overall delivery system costs<br />Physical Branch<br />Online Branch<br />6 – 7 FTE<br />7 – 9 FTE<br />~ $2 million to build<br />~ $1.75 million annual operating expense<br />~ $1.2 million first year operating expense (fully loaded with staff, technology & extensive marketing)<br />
  21. 21. Online account opening with branch support will move us past the inflection point<br /><ul><li>Relative Advantage – the degree to which an innovation is better than the idea it supersedes
  22. 22. Compatibility – the degree to which an innovation is consistent with past experiences
  23. 23. Technology Clusters – Adoption of innovations are higher when the technical elements of the process are perceived as being highly interrelated</li></ul>Innovators<br /> Enthusiasts,<br />Change Agents<br />2.5%<br />Early Adopters<br />Respected, <br />Opinion Leaders<br />13.5%<br />Early Majority<br />Pragmatic, Deliberate<br />34%<br />Late Majority <br />Conservative, Skeptical<br />34%<br />Laggards<br />Traditional, Suspicious<br />16%<br />Source: Adoption curve framework and insights regarding adoption; Everett Rogers, “Diffusion of Innovations.” <br />
  24. 24. Re-invention of online account opening from purely online to “online with branch support” <br /><ul><li>Innovations are re-invented
  25. 25. Changed or modified in the process of its implementation
  26. 26. Occurs when an innovation must be adapted to the structure of the organization that is adopting it
  27. 27. Later adopters profit from the experiences gained by earlier adopters
  28. 28. Re-invention leads to:
  29. 29. A faster rate of adoption
  30. 30. A higher degree of sustainability</li></ul>Innovators<br /> Enthusiasts,<br />Change Agents<br />2.5%<br />Early Adopters<br />Respected, <br />Opinion Leaders<br />13.5%<br />Early Majority<br />Pragmatic, Deliberate<br />34%<br />Late Majority <br />Conservative, Skeptical<br />34%<br />Laggards<br />Traditional, Suspicious<br />16%<br />Source: Adoption curve framework and insights regarding re-invention; Everett Rogers, “Diffusion of Innovations.” <br />
  31. 31. Online shopping with in-store pickup is quickly becoming the norm in retailing<br />In 2007, Walmart rolled out Site to Store to its entire U.S. network of 3,330 stores <br />50% of Site to Store orders are new customers to Walmart.com<br />Site to Store accounts for 1/3 of Walmart.com sales<br />When arriving at the store for a Site to Store order pickup, 20% of customers spend $60 or more on in-store purchases<br />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<br />Christmas 2009 shopping season: 40% of Walmart.com orders were picked up at nearby stores for free<br />Testing drive-through windows in Chicago and Minneapolis where customers can pick up online orders<br />Other retailers with e-commerce websites that offer in-store pickup<br /><ul><li>Nordstrom
  32. 32. Office Depot
  33. 33. REI
  34. 34. Sears
  35. 35. Tiffany & Co.
  36. 36. Ace Hardware
  37. 37. Best Buy
  38. 38. Kay Jewelers
  39. 39. L.L. Bean
  40. 40. Lowes</li></ul>Source: Walmart website & press releases<br />
  41. 41. Discussion topics<br />The Multichannel Mandate<br />The Customer Journey<br />Management Implications<br />
  42. 42. Multiple channels play key roles through the entire purchasing process<br />Shopping<br />Account Opening<br />Onboarding<br />Relationship Building<br />Buying Event<br />Activation<br />Experience<br />Loyalty<br />Trial<br />Awareness<br />Consideration<br />Research<br />Decision<br />Defections<br />
  43. 43. Shopping for and purchasing banking products is a multichannel experience<br />2008 McKinsey European survey of banking/insurance customers<br />Offline sales influenced by online touchpoints<br />Cross-channel impact<br />Online sales influenced by offline touchpoints<br />Purely offline sales<br />Purely online sales<br />Source: McKinsey & Company<br />
  44. 44. The multichannel shopping & account opening experience<br />Shops online for bank account<br />Online chat with CSR during shopping process<br />Completes account application online<br />Establishes account and communication preferences<br />Opts to complete the final documentation and funding process at a branch<br />Schedules an appointment at branch to complete the process<br />At the end of the session, notified that’s prequalified for loan up to $10,000<br />Pop up message. “Thank you. Call us if you have questions”<br />
  45. 45. The multichannel account funding & activation experience<br />Email confirmation of account opening details<br />Banker leaves “Looking forward to our appointment” voicemail<br />Day before the appointment, receives a text message reminder on mobile phone<br />Arrives at branch for appointment<br />Banker greets customer and has all information<br />Banker helps customer enroll in online services and account alerts. Receives activated debit card<br />Banker explains opt in and overdraft protection opportunities<br />Banker probes for credit opportunities<br />
  46. 46. Onboarding: Multiple, non-intrusive touchpoints during the first month<br />Getting customer familiar with bank & account<br />Relationship expansion<br /><ul><li>Welcome message
  47. 47. Account funded and ready for operation
  48. 48. Practical information
  49. 49. When checks and debit cards will arrive
  50. 50. How account operates and fees
  51. 51. Account benefits
  52. 52. Highlights other services related to DDA
  53. 53. Promotes:
  54. 54. ATM deposit
  55. 55. Online banking
  56. 56. Bill payment
  57. 57. Overdraft protection
  58. 58. Alerts
  59. 59. Leads into cross-sell based on monitoring of account behavior
  60. 60. Notifies of other bank services</li></ul>Welcome kit via mail<br />Phone call from bank<br />Day 1<br />Day 7<br />Day 5<br />Day 14<br />Day 28<br />
  61. 61. For starters, apply this multi-channel approach to your most valuable / profitable customers<br />Tech Savvy, Emerging Affluent Account<br />~ 15% of population<br />Retirement Income Account<br />~ 10% of population <br />Young, Tech Savvy Account<br />~ 25% of population<br />Mass Market, Loyalty Account<br />~ 40% of population <br />Income / Wealth<br />Age<br />Checkless Checking Account <br />~ 10% of population<br />
  62. 62. You will generate ROI from providing superior customer experiences to today’s early adopters<br /><ul><li>Will adopt based on mass market communication
  63. 63. Better educated
  64. 64. Wealthier
  65. 65. Higher social status
  66. 66. Greater upward social mobility
  67. 67. Interpersonal networks that extend outside of their local system
  68. 68. Change Agents
  69. 69. Opinion Leaders
  70. 70. Role models</li></ul>Innovators<br /> Enthusiasts,<br />Change Agents<br />2.5%<br />Early Adopters<br />Respected, <br />Opinion Leaders<br />13.5%<br />Early Majority<br />Pragmatic, Deliberate<br />34%<br />Late Majority <br />Conservative, Skeptical<br />34%<br />Laggards<br />Traditional, Suspicious<br />16%<br />Source: Adoption curve framework and insights regarding early adopters; Everett Rogers, “Diffusion of Innovations.” <br />
  71. 71. Discussion topics<br />The Multichannel Mandate<br />The Customer Journey<br />Management Implications<br />
  72. 72. Each cell in the “multichannel account opening experience” requires explicit attention & ownership<br />Sr. Exec Oversight<br />Develop guiding principles, strategies and tactics for each cell<br />
  73. 73. Best Buy’s defeat of Circuit City is instructive<br />Source: Time magazine. CustomerThink.com<br />
  74. 74. Management implications: Some potential quick fixes<br />Education<br />Have every frontline employee open an account online<br />Sales goals & performance tracking<br />Recognize the multichannel influence in sales goal setting<br />Recognition of leads that come in online, but are opened in a branch<br />Employee compensation & recognition<br />Incent branches to encourage customers to open accounts online<br />Pay commissions for online sales made within a specified distance to the branch<br />Give the online sales team credit for sales closed in branches – when customer researched online but opted to close in a branch<br />Marketing & Customer Experience<br />Measure the return from online advertising and search engine marketing across total sales across all channels, rather than just against online sales<br />Create a team dedicated to creating experiences for the customer journey<br />
  75. 75. Contacts<br />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. <br />Boston office<br />Chicago office<br />95 Washington St.<br />Canton, MA 02021<br />781.784.1663<br />1 Westbrook Corp. Cntr.<br />Westchester, IL  60154<br />630.865.3135<br />Atlanta office<br />Columbus office<br />3340 Peachtree Rd. NE<br />Atlanta, GA 30326<br />404.848.7709<br />5650 Blazer Parkway<br />Dublin, Ohio 43017<br />614.734.8372<br />

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