Actionable Insights From APT's Financial Services Practice

Author Archives: Will Weidman

Video Killed the Bank Branch?

October 3rd, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Video Killed the Bank Branch?)

A recent American Banker article posed the question of whether some bank branches will be completely replaced by an ATM with video technology. The idea is that more complex transactions which cannot be completed at the ATM today could in the future be completed by a call center employee or a specialist in a remote office using video technology.

It would appear there is now more than one way for the branch to die. Customers continue to migrate towards online and mobile banking, and they may use increasingly sophisticated ATMs rather than set foot in a branch. In reality, neither will fully replace a branch, but this new technology offers interesting possibilities that banks should consider.

First and foremost, banks should start thinking about how this technology could impact staffing needs. Video ATMs could reduce the cost of servicing more routine transactions. We have worked with banks to measure the impact of ATM technology investments, such as remote check imaging. In some cases, this has reduced the need for tellers, and video ATMs could push this trend further.

This can allow banks to achieve bottom line savings, but they should also seriously consider shifting resources towards more specialized staff. The biggest benefit of adding technology in branches is that it often frees up resources to focus more on relationship management and increasing sales. As banks try out these new video ATMs, they should also try changing the staffing mix or adjusting staffing levels to find the right balance. Training programs are also important to help staff build this skill set.

Banks should also be highly targeted in how they invest in this technology or any new technology for that matter. This is an incredibly expensive investment, and, too often, we find that banks invest across the entire network. That is a waste of capital, and we have seen time and again that only a subset of branches will warrant this investment. Banks will need to determine if the investment makes sense based on a variety of factors, including branch traffic, size of the customer base, the competitive environment, demographics in the area, etc. When banks try out these new ATMs, they should therefore try them across a broad variety of branches that represent the full spectrum across these characteristics.

New technology is exciting and can help banks gain a competitive edge and find new ways to attract customers. However, without carefully testing the new technology’s business impact, it is all too likely that banks will overinvest and not realize all of the potential benefits.

Credit Card Fees: The Banker Response

August 19th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Credit Card Fees: The Banker Response)

“While the $6.6 billion lawsuit between the credit card industry and a trade association of merchants has been settled, the battle is far from over. A recent Wall Street Journal article highlights a part of the settlement with far-ranging future consequences: the right for retailers to charge more for customers who use a credit card. Banks need to immediately start preparing for the possible outcomes of this legislation, including retailers’ reactions at the register.”

Click here to check out APT VP Will Weidman’s recent byline in Banking Strategies.

Investing in the Branch of the Future

July 19th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Investing in the Branch of the Future)

There is intense debate right now about the future of the branch. Some say it will become increasingly obsolete as customers move towards online, mobile and other non-branch channels. Others point out that the majority of new accounts are still opened at the branch and customers look for who has the most convenient locations when selecting a bank. TD Bank is in this particular camp and recently announced an aggressive expansion of its branch footprint.

Time will tell how extensive branch footprints will be in the future but branches will continue to exist. The focus of attention, then, should be on understanding how to make branches more efficient, how to maximize revenue in the current environment and how to most effectively interact with customers as technology and channel preferences change. Click here to read more of APT VP Will Weidman’s Banking Strategies byline.

One Size Does Not Fit All

June 25th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on One Size Does Not Fit All)

American Banker recently featured an article on how banks too often take a “one-size-fits-all” approach and do not tailor strategies for specific branches.  They give an example where “a bank might opt to put wealth managers in all their branches when a better approach would be to staff up only those branches in more affluent neighborhoods.”

We also observe that banks do not differentiate strategies across branches and markets as much as they could.  Some banks have extended hours for all branches, but typically only certain types of branches see any benefit from longer hours.  The cadence and scope of remodels should vary across branches, but many times banks spend the same for each branch and remodel all branches on the same cadence.  Not every branch will warrant investment in new ATMs that can handle multiple deposits at once and provide video conferencing.

Our perspective differs from this article in that APT does not believe market research is enough to figure out the right approach by branch for every strategy.  Understanding the demographic, economics, and competitive environment and surveying customers on their preferences does not tell you the exact impact of adding a wealth manager on balances, account generation, and ultimately branch profitability.

Instead, banks should be executing business experiments to test new strategies and understand the exact impact of those strategies.  From there, determine where the program actually worked well and was profitable.  Did the wealth managers only work in more affluent neighborhoods?  How affluent did the area need to be?  Did that story change when there was a competitor across the street who historically has been strong with wealth management?

The world’s leading organizations are constantly leveraging big data to get smarter and develop more targeted strategies.  A key component is to test out new ideas and learn from those trials to inform the optimal approach by branch and by customer.

Who Wants More Fees?

June 8th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Who Wants More Fees?)

It turns out the answer may not be “no one.”

Banks are still struggling to replace fee revenue, and customers have reacted negatively to new fees on existing products.  Just look at what happened when Bank of America tried adding a $5 debit card fee. 

The only major product that has increased fees has been checking accounts, and most banks now charge $7-$10 per month or more.  However, many customers are exempt from these fees because they have a direct deposit set up or they maintain a certain minimum balance.  Banks continue to raise requirements for free checking.  According to the Huffington Post, SunTrust recently raised the minimum required balance from $500 to $1,500. But a large percentage of customers still qualify for free checking, and checking account fees alone will not be enough to plug the revenue gap.

So if banks cannot add fees to existing products and cannot raise enough revenue from checking account fees, then what will they do?  (more…)

Succeeding with Service Fee Innovation

May 9th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Succeeding with Service Fee Innovation)

A recent article in Banking Strategies highlighted that the biggest challenge with fee revenue may be changing consumer preferences rather than increased regulation.   “The decrease in service fees started three years prior to any relevant regulatory mandate,” so the main driver of reduced revenue may that consumers have simply become less willing to pay for traditional products and services.

Banking Strategies argues the banks need to determine what services customers want and how much they will actually pay for those services.  The article calls for “an integrated study that brings together information on consumers’ preference, price sensitivity and the competitive landscape.”

It is expensive to invest in new products or services, and this type of research can help prioritize investments.  However, consumer studies are not sufficient by themselves. (more…)

Breaking Down New Strategies to Improve ROI

April 6th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Breaking Down New Strategies to Improve ROI)

This month, Banking Strategies released an editorial discussing some new challenges as banks focus more on multi-channel delivery. The strategy suggested is to create a profitable, scalable, and flexible multi-channel delivery strategy that caters to a new customer. This new customer requires a seamless experience across channels and is much more fee sensitive than we’ve seen in the past.

Adjusting the current delivery strategy is operationally difficult. Some channels need to be modified and others need to be introduced into the mix. Ideally to mitigate the risk involved in these major changes, banks should consider approaching these shifts as a set of small steps. As we’ve seen recently with Bank of America back-tracking on debit card fees, pulling a few small levers can cause dramatic disruptions. Banks should understand the customer response to each of these steps, so that the overall delivery strategy is built off only the small changes and additions that truly drive value.

As banks begin to use this approach, they will need to accurately determine what works, what doesn’t, and what will work if fine tuned. The robust way to do this is by piloting some of these new ideas in a small subset of branches. Trying out these strategies in a subset of the branch network, enables leaders to correctly understand the impact of these ideas, without making costly missteps in network-wide rollouts. Carefully isolating ideas that truly generate incremental profits is essential for many banks to survive today’s turbulent environment.

BofA Takes it Slow and Tests New Fees

March 9th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on BofA Takes it Slow and Tests New Fees)

Last week, the Wall Street Journal shared that Bank of America is considering changes to its checking account fees.  The fees being considered are steep and range from $9 to $25 a month, though customers could avoid fees through actions like maintaining a minimum balance or adding a mortgage.

In this latest step, Bank of America announced that it will pilot these programs in Arizona, Georgia, and Massachusetts.   In recent years, many banks have quickly rolled out new programs that ended up not working and hurting performance.  For example, Bank of America tried introducing $5 monthly debit card fees but experienced significant backlash and had to roll the fees back. 

We are glad to see BofA testing before a broad rollout this time around.  This approach will significantly reduce losses from programs that do not work.  However, there is more opportunity to understand how to market these types of initiatives. (more…)

Overdraft Limits: Learn from Credit Cards

March 2nd, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on Overdraft Limits: Learn from Credit Cards)

Banking Strategies featured an article recently describing how banks need to move away from fixed overdraft limits and develop a more nuanced approach.  Many are still using the same overdraft limit for all customers.  As a result, the limit is too high for some customers making them more likely to default while the limit is too low to properly serve other customers.

Smart credit card providers have become adept at finding the right limit for each type of customer.   They test different limits with thousands of prospective customers and compare against random control offers.  By measuring the impact of different limits and segmenting the result by criteria like credit scores, they can determine the right limit for each type of customer to maximize revenue and minimize default.

Finding the right overdraft limit is a tougher problem.  Banks do not have the luxury of sending offers to tens of thousands of random prospects, and there is risk of losing customers by not getting the limit right.  Banks also have a wealth of information about each customer, and it is challenging to know what is important in setting overdraft limits.  Is prior balance fluctuation the most important indicator or do factors like tenure or demographics matter more?

To find the optimal dynamic overdraft strategy, banks need to find a way to try different approaches with a limited number of customers.  It will be important to both measure the impact of each strategy and to also identify which factors matter most in setting the overdraft limit for a customer.  With overdraft revenue squeezed by regulation, banks need to be innovative and rigorous in their approach to maximize revenue and minimize default.

B of A Takes On Groupon

February 8th, 2012 | Posted by Will Weidman in Uncategorized - (Comments Off on B of A Takes On Groupon)

The Washington Post recently wrote an article featuring a partnership between Bank of America and tech firm Cardlytics that brings forward a game changing idea. The new program will use past debit and credit card transaction data to offer B of A customers targeted discounts at relevant retailers.  We have highlighted in the past that B of A needed to improve its approach to debit cards; this is a great innovation and a big step in the right direction.

Most retailers have a loyalty program or something similar to strengthen and grow the relationship with existing customers.  Many offer cut-rate promotions made available to the general public, with the “deal of the day” being a recent extreme example.  With these promotions, retailers offer huge discounts to anyone who signs up, yet a large portion of redeemers are consumers that will take advantage of the offer and never shop again.

By leveraging past purchasing information, B of A is providing something much more compelling.  For example, an offer could be targeted just to consumers currently shopping with a competitor.   By targeting those with a willingness to spend in the category, this is more powerful for merchants and will presumably make the offers more relevant for consumers.

There are several important factors to make this a success.  (more…)