Author Archives: mronan

Are Banks Capturing Branches’ Full Marketing, Sales and Service Potential?

A number of recent surveys have shown that electronic channels – notably online and mobile banking – have taken over from branches as the primary customer service channels. This has led to some extreme speculation on the future of the branch channel. The industry consensus is that there will be a role for the branch channel in a future omnichannel banking environment, but there is a good deal of debate on what that role will be.

And banks’ role in everyday banking transaction processing diminishes, banks are starting to tap into the sales, marketing and customer support potential of the branch channel, in areas like:

  • Customer acquisition: A Bancography 2012 survey found that 95% of new accounts are opened in the branch. And a recent Novarica survey found that 58% of people under 30 would not consider opening an account at a branch that does not have a branch nearby.
  • Cross-sell: Some banks are already starting to overhaul both branch structures and staffing to reflect an expanded sales function. Bank of America recently discussed a redesign of its branches, which includes private rooms for meetings with financial specialists, as well as videoconferencing for remote access to experts. Banks should also be looking to upskill and support tellers to generate referrals for in-branch or remote specialists.
  • Branding: The branch is the most physical manifestation of a bank’s brand. As such, branches should reflect and extend overall bank advertising efforts in signage, collateral, etc.  In addition, advertising should promote branch strengths.
  • Customer support: While electronic channels have advantages over branches in areas like convenience and 24-hour access, consumers continue to express a preference for branches for addressing financial needs that are more complex and/or personal in nature. A 2012 Cisco survey found that 84% of consumers are interested in a “specialty branch,” which would provide advice and personal, customized assistance.  The most popular types of advice would be financial education, notary public services and tax preparation.
  • Community relations: Branches are a tangible expression of a bank’s commitment to a specific market. Some banks are already redesigning branches to take on more of a community role.  Umpqua Bank is a standout performer in this regard, with its cutting-edge branches including a “Discover Wall” that showcases neighborhood events, Local Spotlights on selected small businesses in the local area, as well as branch-specific Facebook pages.
  • Research & Development: A number of large banks (such as Citibank, Bank of America and Umpqua) have opened “flagship” stores that showcase the bank’s latest sales and service technologies. In addition to creating local buzz for the bank as positioning it as a cutting-edge financial provider, these branches enable the testing of new products, services and technologies prior to wider deployment.

For banks to get the best return on their branch investment, they need to understand the changes in how consumers and businesses interact with their banks, develop a more holistic view of branch capabilities, and work to integrate branch-based activities with other bank marketing, sales and service initiatives.

Leading Bank Credit Card Issuer Focus on Higher-FICO consumers

A recent EMI blog highlighted the differing outstandings growth rates for different categories of credit card issuers, with the top three issuers (Chase, Bank of America and Citi) all reporting reduced outstandings, while regional banks are growing outstandings, albeit from much lower bases.

However, further analysis using data from annual regulatory filings reveals significant variations in outstandings within leading bank credit card portfolios for different FICO credit score categories.

The three leading credit card issuers reported lower outstandings between end-2011 and end-2012.  For each of these issuers, outstandings fell in all FICO categories, but the rate of decline was significantly higher for lower FICO segments, which led to higher FICO categories increasing their share of total outstandings.

  • 740+ FICO share of Bank of America outstandings rose from 38% in 2011 to 40% in 2012.
  • The 660+ FICO segment accounted for 84% of Chase credit card outstandings at the end of 2012, up from 81% in 2011
  • Citi has an even high concentration of outstandings held by consumers with FICOs of 660+, at 95% at the end of 2012, up from 91% a year earlier, and only 74% at the end of 2010.

Most of the leading regional bank credit card issuers grew outstandings in 2012, with stronger growth rates for higher FICO segments.

  • Wells Fargo reported y/y growth in all FICO segments, even in the lowest FICO segment.
  • PNC reported overall outstandings growth of 8% in 2012, fueled by an 11% rise for the 720+ segment, partially offset by a 5% decrease in outstandings held by consumers with FICOs below 620.
  • SunTrust followed a similar pattern to PNC, with a 25% increase in the 700+ FICO segment, and a fall of 12% in the <620 segment.
  • However, Regions bucked the regional bank trend with outstandings declines in the higher FICO segments and increases in the lower segments.

These trends are increasing competitive intensity for higher-FICO consumer credit card spending and borrowing, with new card launches, value-added features, bonus offers to drive acquisition and activation, and enhanced rewards programs to boost usage and retention, as well as cross-sell initiatives targeted at the bank’s private banking and wealth management clients.

In addition, the extent of the decline in sub-prime credit card portfolios means that many issuers are turning to non-credit card payment methods (including debit, prepaid and secured cards) to meet the payment needs of consumers with lower FICOs.

FDIC bank data shows continued C&I–and even some small business–loan growth

This week, the FDIC published end-4Q12 data for all U.S. banks showing that U.S. banks’ commercial and industrial (C&I) loan portfolios rose 12% in the year to end-4Q12.  This marks the sixth consecutive quarter with double-digit y/y growth, although the rate of increase has fallen from a high of 16% in 2Q12.

Banks are increasingly looking to commercial lending as a way to grow their overall business, but they are concerned that the current growth rate can be sustained, in particular given the precarious nature of the U.S. economic recovery.  The following chart shows that the strong growth rates over the past two years has resulted in C&I loan portfolios returning to levels seen just prior to the financial crisis.

The data also shows a market difference in C&I loan portfolio growth performance by different bank-asset classes, with larger banks significantly outperforming those with less than $1 billion in assets.

Although banks’ C&I loan portfolios have recovered strongly in recent years following the financial crisis, small business loan portfolio growth remains elusive.  The FDIC started to report small business loan data in 1Q10, and since then small business loan portfolios have decreased by 10%.  However, there are signs that this period of decline has finally bottomed out, with a y/y increase of 0.4% at the end of 2012.

As with their overall C&I loan portfolios, larger banks–led by banks with $1-$10 billion in assets–reported strongest small business loan portfolio growth, while community banks with less than $100 million in assets saw a 13% y/y decline in their small business loan portfolios.