Author Archives: mronan

Citi retail banking/card reorganization illustrates importance of having strategy and structure in synch

An article in Dow Jones Newswires yesterday reported that Citi has reorganized its U.S. retail banking and credit card operations, in order to improve sales and service.  The reorganization is based around customer segments, product development, and distribution.  In announcing the reorganization, Citi acknowledged that its previous structure was too product-centric.

In recent years, banks have emphasized their renewed focus on relationship banking.  These banks are now starting to understand that, to achieve their vision of relationship optimization, strategy and structure need to be in synch.  Benefits of having customer-based organizational structure:

  • The company has a much greater ability to anticipate, and react to, changes in the marketplace
  • Customer ownership rules are more clearly delineated
  • Product development starts from the perspective of the customer rather than the product
  • Employee compensation is based on the attainment of customer-focused metrics (acquisition, retention, lifetime value), rather than reaching sales goals for products that may adversely affect long-term relationships
  • Sales teams become more specialized around different segments, develop a more holistic understanding of customer needs, and can present more comprehensive solutions.  Training and sales support are also recast to focus on segments rather than products

JPMorgan Chase commits to the branch network

About a year ago, Bank of America announced that it would close up to 10% of its branches in the next few years.  Some industry commentators interpreted this as signalling the demise of the bank branch.  In a previous blog, EMI argued that this was not the case, but that the role of the branch is changing, with other channels handling a majority of day-to-day transactions, and with branches increasingly used for complex transactions that require face-to-face interaction.

Banks’ continued commitment to the branch channel was highlighted in JPMorgan Chase’s Investor Day presentations this week.  Some branch-related takeaways from these presentations:

  • JPMorgan Chase opened 154 new branches in 2010, expects to open 225 new branches in 2011, and plans to add up to 2,000 new branches in the next five years (more that half of which are planned for its key growth markets of California and Florida)
  • Branches accounted for 35% of new credit card account production in 2010, up from 11% in 2006.  Branches are now Chase’s largest credit card acquisition channel

In addition, JPMorgan Chase has adapted to the changing role of the branch by hiring more sales specialists.  According to its latest quarterly financials,  Chase personal bankers rose 21% y/y to more than 21,700 in 4Q10.  Sales specialists grew 22% to almost 7,200.

As banks recommit to fostering long-term relationships with their customers, they see branches are playing an integral role.  From a sales and marketing perspective, key challenges include:

  • Ensuring that the customer experience is consistent across all service channels (branch, call center, online, mobile, etc.)
  • Changing branch layouts
  • Training and providing support tools to new and established branch personnel to adapt to the new role of the branch
  • Communicating the wide range of services available in branches to customers and prospects

Volumes for Leading Card Issuers Are Recovering

In their most recent quarterly financials, the leading U.S. credit card issuers continued to show improvement in spending volumes. Credit card volumes were significantly hit in 2009, as consumers pulled back on discretionary spending, and as credit card issuers retrenched and reduced account numbers.

The following chart shows that most leading issuers returned to year-on-year growth in credit card volume in 2010, and that the rate of growth has steadily improved.

The reasons for the recent improvement in card volume are:

  • Overall economic recovery, with corresponding growth in consumer spending
  • Issuers’ promotion of card spending as a source of revenue, in particular as outstandings growth has been largely absent

A number of card issuers recently predicted that card outstandings should grow in the second half of 2011, but we expect that issuers will continue to push card volume, and aim for a good balance between spending and lending.