Thoughts from American Banker Retail Banking Conference 2015
2015/03/16
Stephen Greer
This last week the American Banker Retail Banking Conference 2015 was going on in Austin, TX. As expected, it was a great way to read the temperature of the banking industry. The conference was well attended, with broad representation from all institution sizes and markets. There were a couple of overarching themes throughout the event. Competitive pressures on smaller institutions were top of many bankers´ minds. The conference was full of community bankers discussing evolving business models and the pressures its placing on their ability to gather deposits. Customer centricity is forcing a convergence of traditionally segregated value propositions. Large banks are now trying to compete on serving the customer and they´re positioning themselves to look and feel like a community experience. New entrants and delivery models are also opening up the competitive landscape. Consumers are no longer limited by geography when choosing a bank, and they have a growing number of alternative financial options from which to choose. Smaller institutions are finding it hard to overcome some of the barriers of resources and marketing that arise as the competitive landscape broadens. Many presenters discussed developing non-traditional revenue streams. With interest rates low and new regulations following the financial crisis, banks are running incredibly thin margins, and traditional revenue sources are no longer viable. Presentations focused on targeted marketing for “moneyhawks”, new P2P models (e.g. P2P lending), and new payment schemes. A few thoughts on some of the talking points:
- Breaking down omnichannel applications for financial services: Omnichannel within banking was a popular talking point between attendees and among presenters, and it´s obvious there´s still more than enough ambiguity around its application in the context of banking. One of the presentations used non-FI examples to look at how banks can approach integrating omnichannel into customer interactions. Home Depot was an interesting case study. The retailer combines the in-store and app experience to enhance the customer buying process. Customers can browse the app and make a list of the materials they need. The app shows only what´s in stock at the nearest physical location, and each item is given a corresponding aisle number for easy location on arrival. While in the store, customers can scan QR codes on each product to bring up specific measurements and statistics. This is the essence of an omnichannel experience. It´s not about doing everything from every channel—it´s about optimizing the customer experience across the variety of methods used to interact with the retailer (or bank).
- Community banks differentiating from large institutions: This was a common thread running throughout the presentations. How do community banks grow deposits in a climate of shrinking deposit share? Presenters proposed some solutions. One spoke of the need to market correctly. A recent study found that despite problems with megabank perception, 73% of those asked said a recognizable brand was important in choosing a financial institution. A regional bank poll of millennials found that not one could name a community institution in their area. These institutions find it hard to inform consumers about the value they provide, and often lacking the resources and experience to do so. A few small institutions spoke about shifting towards serving small businesses. Despite only having 20% of deposits, community banks are responsible for 60% of small business loans. Focusing on small businesses could be a way for small institutions to remain viable, without having to drastically alter their businesses.
- eCommerce and Merchant Funded Rewards (MFR) through mobile banking to help consumers save: During one of the sessions, a banker made a good point: consumers don´t need help spending, they need help saving. The comment reflected a number of discussions about the role financial institutions can play in helping consumers save money, but was echoed across a handful of presentations on digital commerce. US Bank discussed Peri, its eCommerce app developed in cooperation with Monitise, while other presenters spoke about card-linked and MFR propositions. These initiatives are definitely innovative, but is conflating the ideas of saving and driving commerce shaping the conversation around a fundamentally misaligned approach? First, will a bank´s eCommerce app be able to compete with the likes of Amazon and Google? Banks often do not have the customers, data, or pricing competitiveness to match big online retailers, and they seldom win on brand favourability. Second, even when these initiatives are successful, do they really help people save? For many, the data isn´t targeted enough for banks to offer deals on purchases a consumer was going to make anyway. For example, based on one bank´s demo, a customer would go to make a purchase at a retailer and the bank app would push out a geo-located card-linked offer for a nearby restaurant. This requires additional spending. Without the right data, these programs are mostly playing off impulse purchasing, not saving.
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Stephen, you point out an interesting paradox. Pressure on return on equity coming from increased levels of regulation at a time when community banks can leverage their customer understanding to deliver a customer-centric business model and in turn improve profitability.
I would bet that in general banks do not know their customer very well. This was confirmed in some research conducted by PwC* where only 75% are making investments in developing a customer-centric business model.
*https://youtu.be/CRO2XlptbZs (John Garvey from PwC comments on banking trends)
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Thank you Stephen for the recap. Very interesting information on the poll of millennials who cannot name a community bank. I strongly believe in the community bank model and think as technology continues to evolve it will allow even the smallest institutions to increase their reach and presence. Community banks must keep abreast of the developments in FinTech and build strong collaborative partnerships in order to capitalize on opportunities for growth.
Thanks for the comments Tom. I completely agree about the importance community banks play in the financial services industry and the value they bring to the consumer. Based on a few reports, research, conversations, etc, my reading of the industry is that there are many community banks that consider themselves less vulnerable to the business model changes in the industry than some of their larger peers. I also think far too many community institutions see declining financial performance and thin margins as a barrier to tech investment, leading them to hunker down with traditional means of doing business. Small players definitely don´t have it easy, but there a number of ways to explore new growth opportunities that many institutions are leaving on the table. Your view on collaboration and keeping up with FinTech is right on.