USAA and UPS Stores: A Lesson in Branch Relevance

In October 2010, 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 still managed to enjoy a deposit growth rate of roughly three times the industry average. Last week, USAA announced its Easy Deposit service is now available at 1,700 The UPS Store locations. 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 has 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? The obvious answer is that despite the overwhelming success of Deposit@Home and Deposit@Mobile, a significant number of USAA members aren’t opting in. Far from an indictment against remote deposit capture, USAA’s latest move – along with its opening additional full-service retail branch locations in Killeen, TX and Washington, D.C. speaks volumes about the enduring relevance of branch banking in our increasingly multichannel world. Moreover:

• 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, retail branches are disturbingly devoted to deposit gathering. 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.
• 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.
• USAA obviously isn’t selling in The UPS Stores. Any cross-selling will be for UPS Store products and services, not those of USAA. This isn’t a problem for USAA because it has become adept at selling its wares without face-to-face interaction. Traditional retail banks need to learn this art! For most U.S. financial institutions precious little sales effort exists apart from the branch network. This too is unsustainable.

Again, welcome to the new normal! What do you think?