Brett King

Posts Tagged ‘customer’

How to reduce your branch footprint in an orderly manner

In Branch Strategy, Customer Experience, Future of Banking on May 4, 2012 at 00:50

I guess with a title like Branch Today, Gone Tomorrow it’s no surprise that a lot of people think I’m anti-branch. I’m not anti-branch, I just don’t drink from the branch kool-aid fountain that goes something like “if only we could find the right formula we’d reverse this trend of not visiting the branch and customers would flock back to our physical space”. I think most Bankers and Credit Union executives, instinctively feel there is a change in the importance of the ‘channel mix’, but as often as I hear questions about how quickly this is going to occur, I hear executives talking about how customers used to behave. “But don’t customers need to come into a branch for lending products; to talk to a loan officer about more complex products?” This is a legitimate question in the old world, but it’s light on today in respect to the facts, which don’t actually indicate the branch is central to lending.

The fastest growing lending institutions in the country right now aren’t the big banks, community banks or even credit unions. The fastest growing lenders certainly aren’t mortgage brokers. The fastest growing lenders in the United States at the moment are actually peer-to-peer social networks, namely Prosper and Lending Club (thanks to @netbanker for this gem). In terms of percentage growth of loan book, you’ll be hard pressed to find any FDIC insured institution doing better. In fact, I’d wager that a 375% increase in Loan Originations in the last 18 months, coming off the back of the Great Recession as the global financial crisis is being called, is one of the most impressive new FI growth stories you’re likely to hear globally.

Lending Club growth thru April 2012

Last time I checked, neither Prosper, Lending Club or Zopa had any branches…

Why customers think they want branches
Now my point here is not to argue that P2P Lending is better, it is to argue that the perception that to sell a complex product you require bricks and mortar, just isn’t supported by the data. To be fair, however, there is actually some valid behavioral data at work here that comes out through qualitative research supporting the role of the branch for legacy customers. That is, that there are still plenty of customers who say they want a branch – that doesn’t mean they will visit it, but they like to have them around. In Branch Today I examined the data and reasons for the recent rapid decline in branch activity, both from a visitation and transactional measure, but the question is why some customers still say they want to visit a branch?

There’s really only three things that drive a customer to a physical branch:

  1. I need a physical distribution point to deposit cash (primarily for small retail businesses)
  2. I need advice or a recommendation for a product or need I don’t fully understand, or
  3. I have a humdinger of a problem that I couldn’t solve offline, so I’m coming into the branch to get relief.

Branch bankers hang on to #2 for dear life, hoping that this will somehow keep customers coming back, helping justify those massive budget line items dedicated to real-estate; sadly it just isn’t happening that way. And yet, when you ask customers what determines their choice of ‘bank’ relationship, often the convenience or availability of a local branch, remains a stalwart factor.

Since the mid-80s, branches the world over have generally been transformed into streamlined cost/profit centres. The industry has attempted to reduce cost and improve efficiency to optimum levels and in this light customers have been forced to trade off between either big bank efficiency and utility, or the personalized service of a high street, community banker interaction without all the bells and whistles.

Despite this drive for efficiency there’s still a lingering psychology of safety in physical banking place and density, which stem from long memories over epidemic ‘runs’ on the banking system during the great depression. So what remains are two core psychologies that play to the need for physical places which reinforces the safety of a “bank” where they’re going to entrust their cash :

  1. I recognize that I visit the branch less and less for banking, but I’d like it to be there just in case I need to speak to someone face-to-face about my money or I have a problem, OR
  2. The more branches you have, the less likely you’ll go under in the case of a ‘run’ on the bank

But who is going to pay for the space?
The big problem with this, of course, is that as customers more commonly neglect the branch in favor of internet, mobile, ATM and the phone (call centre), the economics of the real estate and branch staff is no longer sustainable. So how do you have a space that still ensures the confidence of those customers that require the psychological ‘crutch’ of a space they might need to go to, but who aren’t willing to pay more for the privilege and won’t change their day-to-day banking habits back to the branch because the web and mobile are just so much more convenient?

The answer is two-fold.

The Flagship Store
If you need to instill confidence in the brand, then the best way is to build a new, large square footage space that screams new-age, tech-savvy branch banking with coffee and comfy chairs! Think the opulent Airline loyalty lounges that started to emerge in the late 80s. Think Virgin Megastores or the “Gold Class” cinemas of the 90s. Think Apple Stores today.

Brand spaces that inspire confidence. Enable a connection with your customers. Spaces that tell customers you’re all about service, advice and solving their banking problems – not about tellers and transactions.

Jeff Pilcher at FinancialBrand.com regularly covers the best of these new Flagship and Concept Stores, so head over there if you want some examples to work from. However, this is not exactly going to lower your bottom line around distribution. If anything it’s going the other way. Knowing that you’re going to have to downsize, the average FI will only be able to support a handful of Flagship stores in key, high-traffic, high-visibility location. So how do you equalize the ledger?

The Satellite Service Space
Supporting the Flagship stores at your secondary locations (i.e. anywhere that is not your best, most densely populated geography) will be very simple, cash-less brand presence stations. These will be small spaces in prime traffic locations like shopping malls, without any teller space, but the space to service the pants of a customer who needs that advice or help with a sticky problem. If they want cash, there will be an ATM. If they want to deposit notes or checks, the ATM can do that too, or you might incorporate a dedicated check deposit machine in the space too. In fact, the bank representative in the space could just use his iPad for that – although it’s better to move them to the ATM and go no transaction in the service space.

A good example of this sort of space would be the likes of smaller UPS franchise stores, or the BankShops of the TESCO variety in the UK. Small footprint of no more than 300-500 square feet, but enough space to represent your brand and tell customers they can still come and see if you if they need a solution.

UPS Franchise Stores

Spaces don't need to be big to provide service

The ratio of flagship store to satellite spaces will probably be at least 10 to 1, if not greater. You don’t need every branch to be “big” in the new reality; to give your customers a level of comfort that you are safe enough to put your money with them. In fact, as the likes of UBank, ING Direct and Fidor show, for some customers you don’t need any spaces. But for those that still want a space ‘just-in-case’ then this strategy is a great transitional approach.

One day soon, within the next decade, we’ll need less than half the branches we have today. But as we make that transition, the need for a space to be an available component of service and support remains a key component of what we call financial SERVICES. It just doesn’t have to cost us the earth.

When PFM is no longer enough…

In Customer Experience, Internet Banking, Offer Management, Retail Banking on February 8, 2011 at 13:13

At Finovate Europe last week we saw a lot of what I would generally classify as “me too” PFM efforts. While there were a few stand out examples, such as Meniga and Linxo, I don’t think these platforms are robust enough for where we are going. This says a lot I know, because most banks are still not at this basic stage of having PFM deployed and I’m already talking about what comes next, but if you’re a bank about to invest in PFM – then think about whether it goes far enough.

The fact that there is a lot of activity in the PFM space shows that the time is very quickly coming for some sort of customer relationship footprint aggregation/mobilization. But, it’s going to take more than a few fancy pie charts, a drag and drop goal function, and seeing your account usage on a timeline to pimp out my Internet banking.

The information deluge and filtering

One of the challenges I see moving forward is that a pie chart of your portfolio, or a pie chart of spend patterns, or a fancy presentation of your account statement is only going part of the way. Increasingly I need to be able to filter information quickly and understand the context and relevance of that information to me at a glance. While a pie chart is potentially an effective tool to show me some of that, and might even be central in some scenarios, there is a lot of other relevant information that might be prioritized.

Mint Screenshot

There's always a pie chart in there somewhere...

The following information, for example, is not going to be important everyday, but at certain times, it could be quite useful:

  1. You just got paid your salary
  2. Your mortgage account doesn’t have enough money in it for the next payment
  3. Your phone bill is due tomorrow but you haven’t set up a payment
  4. The $25k you have deposited in a savings account should be deployed in a CD or other instrument to be getting better interest
  5. Your wife just maxed out her credit card (ok, I’m told that she’s allowed to do that…)
  6. A retailer you visited 3 times in the last 3 weeks will give you a 15% discount if you use your bank visa card this month
  7. Houses in your neighborhood have just been revalued upwards
  8. Your anniversary is a week away, and here is a special offer for a romantic night away

Then there is statistical information that is useful:

  1. Spending habits that are good/bad
  2. Progress towards a goal
  3. More efficient use of your money
  4. Spending mix
  5. Portfolio rebalancing based on Risk Profile
  6. Available balance on your credit card
  7. Loan refinancing options

This is a lot of information to show on a pie chart or a single screen, so either the bank will cram this information into a ‘dashboard’, or just not show it at all. The capability to filter this information and give direct, relevant feedback to the customer is essentially missing in most banks today.

Seriously, the key to transforming the relationship of the client of today is firstly to demonstrate your value as a bank in the relationship, and second, to anticipate the client’s needs. At the moment, Internet Banking as a platform probably does neither of those well. PFM is a step in the right direction, but it has a way to go, purely because of the volume of information we’ll need processed and the need for relevance.

Digital Relationship as the new metric

Today I received an email from my relationship manager asking me if I would be happy to recommend her. It went something like this (sanitized to protect the bank):

You may have recently received a letter inviting you to ‘Share your Experience’, and I want to take this opportunity to further highlight the features and benefits of this programme. If you know someone, a friend, family member or colleague who would benefit from having a <bank> relationship, I would really appreciate your referral. By introducing someone to <bank>, you open the door for them to the same high level of attention, international services and financial opportunities that you currently enjoy as a <bank> client.
Email Note from my Relationship Manager

I actually have no problem recommending my RM (Relationship Manager) because she has done an excellent job. But there are a few issues I take with the above communication.

Firstly they sent me a letter…seriously?

Secondly, the assumption is that I perceive their service as they do, i.e. “the same high level of attention”, especially given the fact that their digital presence is significantly sub-par.

I’m logging in to Internet banking, and would be logging into mobile banking (if they had it), something like 5-10 times a week. The average customer is doing something similar each month. I visit their ATMs 2-3 times a week, and I visit their branch about twice a year, if I have no other choice.

So their best place to build a relationship with me is online, but they honestly don’t understand that based on their current platform. That relationship will be built through connecting with me through understanding me, and personalizing the dashboard that interfaces me to the bank.

Data visualization is a great start

Infographics are a great benchmark for customer data visualization

Unless you’ve been living under a digital rock these last couple of years, you may have noticed the very interesting trend to represent data and statistical information in a form called Infographics. These graphical representation of data are an excellent method of taking complex graphs, statistics, and information and filtering it for general consumption. Banks, and others, can learn a thing or two about filtering and data visualization from this trend.

Another great approach is that of the iPad app flipboard which aggregates streams of information in an easy to consume format. Could you provide a more interesting way to display account and credit card usage information, perhaps linked back to offers from specific retailers too?

The last step will be all about management. This is the ability to respond to a trigger, an event or a critical piece of information and proactively suggest a response to the customer that builds trust and the service relationship.

Get these right and you’ll have a relationship dashboard that connects you to the customer in a way that no bank does today…

What is in a Twitter name? That which we call a customer…

In Customer Experience, Retail Banking, Social Networking, Strategy on August 13, 2010 at 02:10

Apologies to Shakespeare for the modified Romeo and Juliet reference, but the question is valid – what is in the ‘name’ of a customer these days? I’m on Twitter, I’m on Facebook, I have various other profiles online on sites like LinkedIn, etc but none of this information appears relevant to most of the service organizations I interacted with daily. But if this identifies who I am – why is that no one asks me for my Twitter name in customer interactions these days?

Why is it that today that there are many banks who won’t let me open an account unless I have a home telephone number (a landline) – which quite frankly I haven’t used for a number of years now (in fact I don’t even know my home phone number) – and yet in respect to mechanisms which I use a whole lot more frequently than a home telephone number for communication, namely FB and Twitter, they completely ignore me? I have to say these days I’d probably be a whole lot more likely to talk about my bank on Twitter, than I would wait for their call on my home telephone number, which I don’t use.

Customer profiles are out of touch

Understanding customer behavior and how we are ‘tribally’ connected to our peers in the social networking landscape is a pretty fundamental requirement for service organizations these days if they want to influence brand perception. At a minimum, a bank should be ready to respond to me via Twitter, Facebook, Mobile or similar mediums, but in respect to traditional customer profile information like my home telephone number, my home address (which is increasingly irrelevant to my bank relationship), my employer’s telephone number, and such – this type of data is practically useless from a behavioral or service enablement perspective these days.

Your customer profile today is about two things for a bank, namely KYC and Segmentation. KYC is a industry compliance term which refers to “Know Your Customer” – it is seen as the basic information or data set that a bank needs to know to assess your risk profile as far as likelihood of issues around AML (Anti-Money Laundering), etc as is required generally as part of a process by regulators for new customers. On the segmentation front, the classic method of segmentation these days is still based around demographics such as age, salary, where I live, how many kids I have, etc and informs classic marketing campaign development.

Increasingly both of these outcomes are out of touch with the reality of the digitally enabled customer. I am here to tell you that despite all the KYC information my bank has captured about me, that in respect to my risk on a financial basis this data is almost certainly irrelevant. Far more important for them would be information on where I am travelling to, which partner ATM machines I use when I travel, how I conduct cross-border transactions, who is having access to my basic information that could threaten the safety of my identity, and how I manage my finances on a daily basis. The fact is, I’ve never been asked about any of this stuff, which is far more informative to my transactional risk profile than what my monthly salary and deposit patterns are.

Bank's often talk about customer knowledge as a differentiator...

The role our digital footprint plays

The key information for a bank moving forward is not demographic data, it’s not about where I live or what my home phone number is, it is about what I do…

In that respect, the data trail I leave for banks is extremely informative. The interactions I have with the bank are likewise hugely instructive from a future service and risk perspective. For example, my bank has data on which retailers I like to shop at, which airlines I travel, the cars I drive, the laptop I own, the mobile devices I utilize, the properties I own, the property I live in, and a bunch of other extremely useful information in respect to offers they could present me with. However, this data is just never used.

I get credit card usage offers from retailers I never frequent – why doesn’t the cards team send me offers for retailers where I’ve shopped before? I get offered personal loans and increased credit card limits when I don’t need them – when I might be interested these offers are nowhere to be seen. I get offered opportunities for new credit cards for airline loyalty programs that I’m not affiliated with – why can’t they work out which airlines I use and proactively offer to transfer my credit card points to my airline program?

Recently the team at Abu Dhabi Commercial Bank in the United Arab Emirates were looking at ways they could improve the suitability of offers for card usage for customers. There were suggestions around using location-based messaging technology through telecommunication providers to target you when you were at various shopping malls around the Emirates, but the Telco network operators proved to be light on this capability. So ADCB looked at behaviors – how did customers behave when they went shopping?

Behavioral analysis suggested that a customer who went to a mall was almost always certain to do one of two things. Initially go to an ATM machine upon arrival and pull out cash, or alternatively use their credit card to make a purchase. So ADCB worked out they didn’t need the mobile operators to work out WHERE customers where, they only needed to look at live transaction data for location triggers. So now ADCB can provide you with a time sensitive, location sensitive offer based on your behavior and can simply send it to you via SMS. Far more constructive than flooding me with broadcast messages that are more miss than hit.

Conclusion

Today banks don’t know me. The data they choose to use in respect to my profile is largely irrelevant. The data they have on me and could have utilize in respect to my behavior is much more relevant to how I’ll interact with the bank in the future.

So if you are a bank – do you know my Twitter name, have you friended me on Facebook? Do you know my mobile number and what type of phone I use? Are you matching offers for services and products to me based on what I’ve done or am likely to do? If I talk about you on Twitter, would you know that I’m a customer and could you engage me on this issue next time I call the call centre? If not – you really don’t know me at all.

Bank Customer Channel Intensity

In Retail Banking, Strategy, Technology Innovation on April 7, 2010 at 23:43

As I’m speaking to more and more banks about BANK 2.0 a glaring realization is coming together. I think this has to be a core role with the bank moving forward – why? Because this is what someone needs to tell management for them to get it right.

Right now today I believe that in most developed economies if we properly measured Internet as a channel we’d find that it contributes on a par with Branches in respect to revenue. Internet is the primary day-to-day channel for almost half the retail bank’s customers today.

My argument is as follows. Let’s take a product like mortgages – in the USA, UK, Hong Kong, Singapore, Australia, Malaysia or similar with 70-75% internet penetration. Most people would be doing their primary product research on the web before committing to a mortgage. In some cases they might actually apply online, but even if they don’t apply online they are still doing the bulk of their research online then they’d call to make an appointment or use an online enquiry form, etc. The key component of the sales process has really happened outside the branch (i.e. the ‘hook’), but in the end it’s likely that a bunch of sales get recorded as ‘branch’ revenue when actually the lead was generated online. Same with credit cards, life insurance, etc.

Now, internally as a bank we tend to have revenue as a key measure because it directly effects profit and therefore EPS (Earnings per share). What we look from a financial metrics perspective is what Branch A, Product B and Direct Channel C did month-on-month as a comparison of relative performance over time. We look at revenue for product as a whole, we look revenue for the channel as a whole, but I don’t believe banks generally have a clear picture of how customers engage for a product ‘journey’ and where the revenue is really coming from. Additionally, we probably have a fair idea on transaction traffic per channel, but do we know how that traffic has changed over the last 2-3 years? What is the pattern? Can we predict more accurately where customers will be going in the future.

The fact that we’re recording product revenue like mortgage, cards, life policies as ‘branch’ or inbound ‘call centre’ revenue when the lead and initial engagement was likely through the online channel, this results in skewed operational budgets, management strategy, etc. Revenue alone is a poor reflection of the actual customer engagement with the bank from a channel perspective.

You can tell me if I’m wrong here…

What we need to do is inform bank strategy. To understand how to engage customers more efficiently, we need to know what they are doing holistically, not just channel by channel separately. This will better inform organizational strategy, marketing, etc.

Mortgage Journey – Customer Channel Intensity

What triggers a mortgage buy? Normally the initial trigger is when someone finds a property they want to buy. So they have two or three potential contact points before they engage with the bank on a mortgage – a real estate agent, a real estate website and a developer. Then we know that a customer engages with a bank. They’ll probably go to their own bank first, but if they have multiple bank relationships, they’ll make an enquiry through each. How do they do it?

They’ll either ring the call centre, walk into a branch, or go online. Since 2002-2003 that the number of leads that have come through internet and call centre have been increasing relative to branch. This is a trend we need to know about because it tells us where customer behavior is going and where we need to support the customer engagement most efficiently to secure their business. It’s hard to predict when a customer is going to need a mortgage, but we do know that when they are ready to ‘apply’ our ability to close that customer depends on three things, approval time, rate or how competitive the proposition is, and how easy it is to engage with your bank on that product.

Measuring how much revenue we did on mortgage product through Channel A or Channel B and how much it increased from Q409 to Q110 doesn’t help the bank understand effectiveness in engaging the customer through the journey. Revenue could be a function of economic conditions, housing supply and demand, etc. So revenue management doesn’t necessarily inform the bank from a strategic perspective. However, if we know at which points of the journey the customer used which channel, and how that pattern of engagement is changing over time, then we have a winner. This can help Banks more accurately target marketing/media buy, it can help us figure out which partners (real estate, developers, etc) to be targeting, it can help Banks optimize channel experience where it most matters, etc.

Recording mortgage application 'revenue' through the branch is a 'false positive'

The objective is as follows:

1. Help the organization quantify changing behavior in respect to bank contact/engagement
2. Form more productive budgets and targets based on more balanced channel metrics and expectations
3. Help inform organizational strategy so that org/reporting structure can be reformed
4. Help inform marketing and media buy strategy where dollar spend will be most effective (this in itself will help reform marketing too).

We all recognize that a total channel, total relationship, total profitability view of the customer is essential moving forward for retail banking. So the question becomes how to collate that data organizationally. Until you lift the hood and see all this data, then it’s just too hard to really know where revenue lies.

Open Source Banking – the solution to lagging innovation (Huff Post)

In Media, Mobile Banking, Retail Banking, Social Networking, Strategy, Technology Innovation on March 14, 2010 at 07:13

See the original entry on Huffington Post

Since writing BANK 2.0 I’ve been meeting constantly with banks who either have such huge organizational barriers to rapid innovation or conceptually still don’t appreciate the need for rapid change around customer. In fact, this is a global problem. Banks know how to run banks, but as they are pushed more to be something more akin to software houses, design houses, and integrators, their organizations are just not built for new priorities.

Think of it this way, when Amazon first launched on the scene, other booksellers like Barnes and Noble were extremely resistant to the concept of online book sales because they were so heavily invested in a physical distribution model. So much so that B&N attempted to acquire the biggest wholesaler of books that Amazon used to put a halt to their success. The FTC and pressure from other independent booksellers scuttled that deal, and thus B&N were somewhat forced to attempt to mimic Amazon’s approach online to prevent further loss of market share. Having said that, today only 13% of B&N’s revenue comes from the online arena.

In many ways the physical distribution model is even more embedded within most banks, dominating not only the organization structure, but even the way the manufacturer and positioning of product is carried out. With time to market for new products measured in months or years, and with a dominance of metrics still based around channel silos and their revenue performance, it’s going to be even tougher for most banks to adapt to a psyche of continuous customer experience innovation around the internet, mobile phones, new media, branch automation, and P2P payments. Thus, despite the shroud of regulatory protection that is afforded by a banking license, we see third-parties whose innovation threatens to disintermediate banks quicker than ever.

Take PayPal’s success. PayPal’s commercial launch in late 1999/early 2000 went largely unnoticed by banks. Bank’s believed that customers were unlikely to put in their credit card details for a non-bank online company due to the risk of fraud and abuse, but today PayPal accounts for between 27 per cent and 50 per cent of online payments. No bank would attempt to argue today that PayPal is not a competitor in the payments space, but card issuers and banks failed to garner the sort of momentum in innovating the payments

The need for innovation is rapidly speeding up, and to be fair some banks are scrambling to respond to interest in mobile banking and social networking, but most are finding the reality of innovation difficult to master. The key stumbling blocks to innovation in the customer experience remain the long-held metrics for business unit performance being based around channel silos and revenue gains within those silos, along with organizational structures that still favor ‘retail distribution’ over ‘alternative channels’. Are banks doomed to fail?

For banks, the key must be to utilize their unique platform for transactional capability, and to extend their products to be as pervasive as possible. However, banks just don’t have the bandwidth to be everywhere they need to be as quickly as they need to be. Is there a way banks can extend their reach, but not be solely reliant on their own organization.

Let’s talk about Apple. Apple iPhone launched in 2007, but already it has over 180,000 applications available, they’ve sold over 36 million units in the last 2 years and have more than 1 billion downloads annually from their iTunes platform. Yet Apple develops just a very small fraction of the Apps available for the iPhone – the developer community does by far the majority of app development.

In respect to channel innovation, why can’t banks take the same approach? If banks created APIs (Application Program Interfaces) to hook into their transaction and product sales platforms, as long as their APIs looked after the security and compliance requirements, then third-parties could actually create the new interfaces, applications, bundled product and cross-sell opportunities that banks need to create for their customers.

As so much of the interaction between customers and the bank these days is done through electronic interfaces, let’s open up the development of these interfaces to innovative developers and the community. Let’s build collaborative social networking sites that allow customers to define product parameters and benefits, but where the bank executes the actual product application through their back-office. Let retailers of big ticket items integrate personal loans directly into their sale experience, airlines integrate travel insurance into their booking engine, and real estate companies integrate mortgage product into their property search engines.

Developing point-of-impact opportunities where bank product or services are integrated into customer experience is going to take more than an innovative bank. It’s going to take an open capability, a library of APIs, automated credit risk assessment and straight through processing. Once in place, however, these tools will enable almost unlimited innovation of the customer experience without the constraints of a bank organization chart, channel silos or outdated financial metrics.