The Mobile RDC Cost-savings Myth
2013/08/22
Mobile RDC (mRDC) is so hot right now. And, for good reason – the capability matters to consumers. In fact, consumers value it rather highly compared to other mobile banking functionality. In a June 2013 Celent survey of US internet active consumers, mRDC was the second most highly valued capability surveyed, with two-thirds of smartphone users ranking the capability “highly valuable” (6 or 7 on a 7-point scale). Among those surveyed, mRDC was more highly valued than person-to-person payments (54%) and the emerging capability to enroll a new bill payee using the phone’s camera (46%) which a handful of banks offer. 
Despite the obvious wisdom in adopting mRDC, there’s a growing chorus advancing the assertion of prodigious cost savings realized with every mRDC deposit. Some assertions are in the $4.00 per deposit range. The argument is based on estimates of average per-deposit transaction costs of $4.50 or greater for branch deposits and as little as $0.25 for mRDC. Vendors cite these numbers as if the business case were inviolate and cost savings immediate. I think this is hogwash for several reasons. 1. Cost savings through mRDC - or any self-service mechanism for that matter – is only realized when a commensurate operating cost reduction in the branch infrastructure is affected. Easier said than done. Most banks have long since thinned their teller ranks. More substantive cost reductions must come through process redesign, automation, physical redesign and organizational change. These are huge undertakings. Banks are grappling with the unsustainability of their branch networks. mRDC isn’t their silver bullet. It’s simply contributes to the erosion in foot-traffic already taking place. 2. Branch transaction cost estimates, even if precise, are usually fiction. Most banks I’ve interviewed concede their activity based costing models are rudimentary at best. More importantly, branches serve multiple, important functions beyond deposit processing and these are often not reflected in the transaction cost estimates. 3. mRDC cost savings are argued to be a result of displacing teller transactions with low-cost self-service deposits. Great idea, but what about the ATM channel most banks just invested in? How much cannibalization of image ATM deposits are assumed in the calculation? Not much I dare say. To the extent this occurs, it erodes the theoretical cost savings of mRDC. 4. And lastly, the total costs of mRDC are typically understated once licensing, maintenance, support, compliance and training are included. Where does this leave us? mRDC is a great innovation; a real win-win. But, unless your head of retail is willing to commit to $4.00 in cost reductions for every forecasted mRDC deposit (I haven't met one yet), the cost savings claims may be more theoretical than real. Said another way, migrating transactions to self-service channels remains an important objective. Let’s not overstate the short term cost savings associated with doing so.
Despite the obvious wisdom in adopting mRDC, there’s a growing chorus advancing the assertion of prodigious cost savings realized with every mRDC deposit. Some assertions are in the $4.00 per deposit range. The argument is based on estimates of average per-deposit transaction costs of $4.50 or greater for branch deposits and as little as $0.25 for mRDC. Vendors cite these numbers as if the business case were inviolate and cost savings immediate. I think this is hogwash for several reasons. 1. Cost savings through mRDC - or any self-service mechanism for that matter – is only realized when a commensurate operating cost reduction in the branch infrastructure is affected. Easier said than done. Most banks have long since thinned their teller ranks. More substantive cost reductions must come through process redesign, automation, physical redesign and organizational change. These are huge undertakings. Banks are grappling with the unsustainability of their branch networks. mRDC isn’t their silver bullet. It’s simply contributes to the erosion in foot-traffic already taking place. 2. Branch transaction cost estimates, even if precise, are usually fiction. Most banks I’ve interviewed concede their activity based costing models are rudimentary at best. More importantly, branches serve multiple, important functions beyond deposit processing and these are often not reflected in the transaction cost estimates. 3. mRDC cost savings are argued to be a result of displacing teller transactions with low-cost self-service deposits. Great idea, but what about the ATM channel most banks just invested in? How much cannibalization of image ATM deposits are assumed in the calculation? Not much I dare say. To the extent this occurs, it erodes the theoretical cost savings of mRDC. 4. And lastly, the total costs of mRDC are typically understated once licensing, maintenance, support, compliance and training are included. Where does this leave us? mRDC is a great innovation; a real win-win. But, unless your head of retail is willing to commit to $4.00 in cost reductions for every forecasted mRDC deposit (I haven't met one yet), the cost savings claims may be more theoretical than real. Said another way, migrating transactions to self-service channels remains an important objective. Let’s not overstate the short term cost savings associated with doing so.
It sounds like the argument for 'do nothing' is based on uncertainties about economics - which can be readily addressed - and fear of channel cannibalization / sunk-cost.
I agree 100% that recognizing value from mRDC requires more than just a cosmetic tweak to front-office operations... instead, given the evaporating interest / demand for Branch based support, Banks ought to consolidate street-level stores and transition advisory services into off-street level office buildings. Branches and related activities account for 60%-70% of the total cost base for Banks (particularly true for Community and Regional Banks). The opportunity to achieve enormous value should not be fully explored...
The details of the business case for rationalization is obviously a pre-requisite for small and large Bank alike, and the effort is not as challenging as some believe. Both small and large Banks have more than sufficient data that is readily available to build such business cases. If such expertise is not resident in-house, Banks ought to look to external consultants for support.
What about ATMs? There are many options for managing existing ATMs, including relocating them to stand-alone ATM-only facilities. Even an expensive investment such an ATM should not preclude doing the right thing especially when 2 - 4 ATMs with total investment of around $200k does not come close to the savings opportunity associated with a single Branch location that can easily run into several million dollars annually.
The trends are obvious - it isn't a question of 'If'... it is a question of 'When'. When do we begin to recognize that our earlier investment decisions are no longer consistent with consumer preferences? When do we begin to accrue cost savings?
My view: Sooner is better than Later.