Banks Seek to Leverage Surveys to Build Small Businesses Engagement

In recent weeks, a range of leading national and regional banks have carried out small business surveys, many of which were timed to coincide with 2017 National Small Business Week (April 30-May 6). These include new surveys from Citizens Bank (Small Business Pulse) and Fifth Third Bank.

These surveys are designed to:

  • Generate brand awareness among small business owners
  • Underline the bank’s commitment to this market
  • Position the bank as a thought leader in the small business space
  • Promote the bank’s small business solutions

The following are six approaches that banks are using to leverage small business surveys to drive engagement with their small business clients and prospects:

  1. Establish a branded index.  Many banks measure small business optimism via an index. This enables them to both track this metric over time, as well as generate general business press attention. Citizens recently-published survey includes the Citizens Business Pulse Index, which is its measure of the small business climate. Other indexes include the Wells Fargo/Gallup Small Business Index and the Capital One Small Business Growth Index.
  2. Create a recurring survey. Many of the leading banks now conduct surveys on a quarterly, biannual or annual basis, which enables them to track small business metrics over time. Capital One has been tracking a Small Business Confidence Score consistently since 2008.
  3. Survey topics of interest. Most surveys focus on small business optimism and outlook. However, surveys also look to differentiate by covering other issues that should be of interest to small businesses. The U.S. Bank Small Business Annual Survey studies small business owners’ personal satisfaction as well as the desired attributes they want from their business bank.
  4. Use infographics to summarize survey findings. Presenting key findings from the survey (which will typically include a series of statistics) in a visually-appealing format allows readers to quick grasp important points the bank wants to make. Wells Fargo published a lengthy survey report, but it also created a one-page infographic that summarizes key takeaways.
  5. Version the survey for target marketsBank of America creates versions of its Business Advantage Small Business Owner Report for 10 target markets (Atlanta; Boston; Chicago; Dallas/Fort Worth; Houston; Los Angeles; New York; Miami; San Francisco; and Washington, D.C.). Similarly, PNC publishes its Spring Economic Outlook Survey findings for 10 regional markets.
  6. Position the bank (subtly) as a small business solutions providerFifth Third’s recent small business survey included findings on funding growth, while also positioning the bank as “committed to the development of small businesses throughout the Bank’s footprint.

Banks’ Branch Strategies Must Involve More Than Just Closing Branches

According to the FDIC, U.S. banks have been cutting branches steadily in recent years.  Offices in FDIC-insured institutions reached a high of 99,500 at the end of 2Q09, but have declined by almost 8% since then, to less than 92,000.

offices_in_FDIC_institutions_2Q07-2Q16

Bank branch reductions are primarily driven by two factors: cutting costs in a low-revenue-growth environment; and the belief that customers’ increase use of electronic channels for everyday banking needs means that banks need fewer branches.  According to the American Bankers Association, 73% of U.S. adults identified the Internet and mobile as their preferred banking methods, with only 14% naming branches. However, customers remain committed to branches.  According to a March 2016 Accenture survey, 87% of North American banking customers expect to still use bank branches two years in the future.  A branch strategy that simply consists of branch cuts fails to take into account customers’ ongoing branch affinity, as well as ignores the significant role that branches can play in helping banks meet sales and service goals. Here are four strategies that banks can follow to optimize their branch investments:

  • Create specialist branches.  Some banks are opening offices to target specific segments, such as commercial clients or high-net-worth individuals.  For example, BMO Harris opened a commercial banking office in Dallas in June 2016, while Wells Fargo opened a Middle Market Banking office in Albany in August 2016.  These branches are located, designed and staffed to cater to the characteristics and unique financial needs of these segments.  Unlike traditional branches that tend to form part of a network, these specialists branches can operate on a standalone basis, thereby ensuring that costs stay under control.
  • Use branches to promote digital services.  Recognizing the transition to electronic channels for everyday banking transactions, banks can leverage their branch network to demonstrate the ease-of-use and value of these digital services to customers who are slow to embrace technology, while also showcasing innovations to early adopters of new technologies.  Bank of America has deployed 3,800 ‘digital ambassadors’ in its branches who help customers understand and use its online and mobile banking services.
  • Overhaul branch staffing.  Smaller branches require fewer personnel, but the staff must be comfortable with performing a range of service and sales activities.  Embracing this model, PNC plans that half of its branches will have converted to ‘universal branches’ by 2020 (18% have done so to date)
  • Scale down the overall branch footprint. As they seek to reduce branch costs, banks need to take into account the benefits of having a physical presence in markets.  This can involve using smaller branch formats (one extreme example is PNC’s portable 160-foot  “Tiny Branch” on the West Virginia University’s Morganstown campus), reducing branch density, replacing a series of existing branches with one big flagship store, or even opening new branches in high-growth/high-potential markets.  Decisions on the number, location and format of branches should be based on analyzing a number of key factors, including: competitive intensity; market size, growth and composition; current branch usage; short-term costs; and longer-term savings.

Five Strategies to Adapt Bank Branches to The New Normal

There is a wealth of evidence that consumers are using online and mobile channels as the primary channels for their everyday banking needs:

  • Having reached critical mass in online banking penetration, the largest U.S. banks continue to report strong growth in active mobile banking customers (Chase +23% y/y to 17.2 million; Bank of America up 17% to 15.5 million; and Wells Fargo +22% to 13.1 million)
  • Regional bank customers are also growing their usage of non-branch channels.  45% of PNC customers use non-branch channels for a majority of banking transactions.  Fifth Third reports that ATM and mobile channels’ share of deposit volume rose from 12% to 31% over the past two years. KeyBank claims that online and mobile transactions are growing by 9% annually, while branch transactions are declining by 3%.

The rise of self-service channels for everyday banking transactions is leading banks to re-assess their investment in their branch networks.  For example, banks are changing traditional assumptions as to what constitutes optimal branch density within markets.  In a recent presentation, KeyBank claimed that branch density is now less relevant as long as a bank can pair branches with a good mobile offering. In addition, in a low-revenue-growth environment, banks are under pressure to cut costs in order to meet earnings expectations. As a result of these factors, banks are cutting branch numbers.

  • Bank of America is expected to cut branches to below 5,000 by the end of 2014, compared to more than 5,700 in the second quarter of 2011.  It recently announced the sale of branch clusters in North Carolina and Michigan.
  • Over the past six months Citibank sold all of its branches in Texas, as it focuses its energies on a select number of large metro markets.
  • KeyBank has closed or sold 8% of its branches over the past two years, and plans to cut its network further, by about 2-3% per year.

However, banks remain strongly committed to their branch networks.  This is largely due to the fact that consumers continue to value the branch channel, even if usage has declined.  A recent ABA survey found that 21% of consumers named the branch as their preferred banking channel, up from 18% in 2013. In addition, banks recognize the benefits in encouraging customers to use multiple channels.  Wells Fargo found that customers using its stores as well as online and mobile channels have a 70% higher purchase rate than customers who only use online and mobile. With in this mind, the following are five branch strategies that banks should follow, with examples of banks that have already implemented these approaches:

  1. Deploy new branch formats.  Given lower traffic and transaction volumes in branches, banks should launch branch prototypes with smaller footprints, so that they can maintain their physical presence, but at a lower cost.
    • PNC has converted 200 of its branches to a smaller format, with 100 more to follow by the end of 2014.
  2. Launch flagship branches in selected markets.  With changing ideas around branch density, bank can consolidate multiple branches into a large flagship store.  These flagship stores act as a brand beacon for the bank in specific markets, as well as providing space for the bank to showcase new innovations
  3. Reconfigure branch staff.  As branch activity is switching from transaction processing to sales and advice, and branches switch to smaller format, bank can reduce the average number of staff per branch, but should also change the functional balance, with fewer tellers and more sales specialists.
    • In the 18 months to June 2014, Fifth Third cut 22% of its branch service staff, but increased sales staff by 6%.
    • Over the past year, PNC has grown its number of investment professionals in branches by 4%.
  4. Incorporate technology into branches. As consumers become more accustomed with using technology for their everyday financial needs, banks should showcase customer-facing technology in branches.  This can enhance the user experience and capture sales opportunities
    • Regions is installing two-way video to enable customers communicate directly with bankers via an ATM.
  5. Open branches outside of footprint.  As having a critical mass of branches in a market is no longer a prerequisite for success, banks can open branches beyond their traditional retail footprint, to target specific consumer or business clusters.
    • City National has established branches in New York City, Atlanta and Nashville, dedicated to targeting entertainment firms that are clustered within these markets.