Author Archives: mronan

Reports of branch channels’ demise greatly exaggerated

A few months ago, Bank of America reported that it would consolidate reducing the size of its branch network, with speculation that it would eventually close up to 10% of branches (Bank of America has grown its branch network aggressively over the past decade (organically and through acquisition) and even with a 10% decline, the bank would have approx. 5,500 branches).

Some industry commentators saw this announcement as indicative of the long-term demise of the branch channel.   With self-service channels accounting for a majority of service transactions, branch density does not have to be as high, so some branch consolidation is inevitable.

However, the bigger change is the repositioning of branches as platforms for more complex transactions that require one-to-one transactions with specialists.  The staff mix in branches will change, with fewer tellers needed to handle everyday transactions, and greater deployment of sales specialists (Chase recently reported that it grew its sales specialists from 5,454 in 1Q09 to 6,319 in 1Q10).

Direct banks continue to grow deposits

Direct banks continue to outpace bricks-and-mortar banks in terms of deposit growth.  These direct banks continue to aggressively promote high rates, and are also benefiting from consumers’ increased comfort with online banking.

—USAA grew deposits 16% in 2009 to $33.5 billion

—Ally Bank (a unit of GMAC) grew deposits 55% y/y to $30.0 billion at the end of 2009, based on offering high rates on deposits, strong customer services, clear terms and conditions, and a significant investment in advertising.

—American Express launched its Personal Savings from American Express program in the second quarter of 2009, and this contributed to its U.S. retail deposits rising 70% y/y to $26.3 billion at the end of 2009.

–Like American Express, Discover has been on the hunt for deposits in order to create more diverse funding sources for credit card and other lending. Its deposits rose 114% to $14.8 billion at the end of 2009.

–Bucking the high-growth trend were ING Direct, which grew U.S. deposits by only 5% in 2009, having grown at very strong rates in recent years.  In addition, E*Trade Bank reported a decline in deposits in 2009, as it sought to reduce its balance sheet.

Going forward, the rate of growth in deposits for direct banks should moderate (with many of these banks having attained a critical mass of deposits that they can deploy to fund lending).  The focus for many direct banks will shift from aggressive deposit acquisition to customer retention as well as cross-sell of additional products and services.

Bank of America BankAmericard Basic Visa sign of things to come?

Bank of America recently launched the BankAmericard Basic Visa, featuring a single APR of Prime +14% (17.25%) on purchases, balance transfers and cash advances, and no default rate.  The card also has no over-limit fee, a flat late fee of $39, no introductory offer, and no universal default.

Given the arrival of new credit card legislation in the coming months, this type of pricing could become the norm in the coming quarters.  The card launch also reflects a bank-wide emphasis on clarity.  In April 2009, the bank introduced the Clarity Commitment for mortgages, and extended this to home equity loans in November.  It also recently launched online advertising, promoting “clear, easy-to-understand products.”

This card is a part of a suite of BankAmericard-branded credit cards, which also include Visa, Cash Rewards Visa Signature and Power Rewards Visa Signature.  These cards have an APR range (10.99%-19.99% on Visa, and 12.99%-20.99% on Card Rewards and Power Rewards).  And the three cards have a 24.24% rate on cash advances and 27.24% default rate.