leveraging branch delivery with online account opening
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Driving Revenue & Profit in the eChannel…
Paul McAdameCom AdvisorsMarch 2, 2010
Best of Both WorldsLeveraging Branch Delivery with Online Channels
© 2010 eCom Advisors Page 2
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
© 2010 eCom Advisors Page 3
Discussion topics
The Multichannel Mandate
The Customer Journey
Management Implications
© 2010 eCom Advisors Page 4
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
© 2010 eCom Advisors Page 5
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
© 2010 eCom Advisors Page 6
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%
© 2010 eCom Advisors Page 7
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
© 2010 eCom Advisors Page 8
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
© 2010 eCom Advisors Page 9
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
© 2010 eCom Advisors Page 10
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
© 2010 eCom Advisors Page 11
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
© 2010 eCom Advisors Page 12
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%
© 2010 eCom Advisors Page 13
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
© 2010 eCom Advisors Page 14
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
© 2010 eCom Advisors Page 15
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)
© 2010 eCom Advisors Page 16
Online account opening with branch support will move us past the inflection point
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%
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
© 2010 eCom Advisors Page 17
Re-invention of online account opening from purely online to “online with branch support”
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%
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
© 2010 eCom Advisors Page 18
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
© 2010 eCom Advisors Page 19
Discussion topics
The Multichannel Mandate
The Customer Journey
Management Implications
© 2010 eCom Advisors Page 20
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
© 2010 eCom Advisors Page 21
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
© 2010 eCom Advisors Page 22
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”
© 2010 eCom Advisors Page 23
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
© 2010 eCom Advisors Page 24
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
© 2010 eCom Advisors Page 25
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
© 2010 eCom Advisors Page 26
You will generate ROI from providing superior customer experiences to today’s early adopters
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%
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
© 2010 eCom Advisors Page 27
Discussion topics
The Multichannel Mandate
The Customer Journey
Management Implications
© 2010 eCom Advisors Page 28
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
© 2010 eCom Advisors Page 29
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
© 2010 eCom Advisors Page 30
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
© 2010 eCom Advisors Page 31
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
paul@ecomadvisors.com
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
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