USAA Gets into Branch Banking (sort of…)

This week, USAA announced its partnership with The UPS Store to act as an in-person deposit gathering channel for the bank – something USAA has done without for years and has managed to enjoy a deposit growth rate of roughly three times the industry average recently. USAA expects the free check-deposit service, USAA Easy Deposit, will be offered in 1,700 The UPS Store locations by the spring. USAA is a reciprocally owned and diversified financial services company serving active duty, retired, and former military personnel and their families. It offers a wide variety of services including consumer banking. While it has always served the military, USAA has broadened its eligible membership over the years as its financial strength and operational capacity would support. In 2005, all enlisted personnel became eligible for USAA membership, and in 2009, USAA opened its membership to another 3 million former service members and their families. From its start in 1983, the objective of USAA Federal Savings Bank was to leverage the company’s strong brand equity and high customer satisfaction among its insurance, credit, and brokerage customers to build a strong banking franchise. USAA struggled with attracting member checking and savings deposits— for good reason. Without a branch network, USAA relied on mail-in deposits. To facilitate, it provided free self-addressed stamped envelopes for members. But this approach, with its delayed funds availability and high internal processing cost, was not a competitive proposition. USAA more recently pioneered desktop and mobile RDC solutions for its banking customers as an alternative for mail-in deposits which used to be its mainstay. The solutions have been a huge success. So why this? For starters, Easy Deposit isn’t exactly a new idea for USAA. In 2006, USAA partnered with Financial Technologies, Inc. (FTI) a subsidiary of now defunct Net Bank to operate a network of local deposit taking locations branded as Quick Post service. It provided free overnight depository services at any UPS Store location nationwide to the delight of members. UPS shipped the check deposits nightly to a capture site in Louisville, KY, where FTI performed deposit review and item correction, sending data and images to USAA. Quick Post was discontinued, however, in late 2006 as part of a Net Bank reorganization. USAA needed a replacement - so it turned to something even better; Deposit@Home and later Deposit@Mobile. So after tasting the delights of RDC, why would USAA be turning back the clock with Easy Deposit, even with its operational improvements over Quick Post? I have three thoughts. • On one hand, this move gives credence to the “branch is not dead” argument. Financial institutions serve a diverse customer base with differing needs and preferences. As much of a success as Deposit@Home and Deposit@Mobile have been, they have not rendered branch banking obsolete – even for USAA. Traditional retail banks should expect significant deposit transaction migration to self-service channels with desktop and mobile RDC, but not overwhelmingly so. There will remain – for at least a number of years – important customer segments for which RDC solutions won’t appeal. • On the other hand, this move underscores the extent to which branches have become primarily a deposit gathering channel. Of course they are. Branch level deposits are a staple branch scorecard metric. The problem is, FIs depend on considerable sales success to justify the prodigious investment needed to build and maintain a competitive branch presence. USAA’s move will give it quick access to 1,700 locations near its target geographic markets at a small fraction of the cost of traditional branches. Traditional banks that think they don’t compete with USAA need to think again. • Finally, as transactions continue their migration to self-service channels, there will be increasing demands placed upon retail FIs to re-think their branch models. The status quo is no longer sustainable. As transaction volumes leave the branch, so will foot traffic. FIs will have to create new reasons for customers to visit the branch and obtain proportionally higher cross sell ratios just to maintain. At the same time, declining transaction volumes will produce increasing unit costs on the remaining transactions. It’s not a pretty picture. Welcome to the new normal.