ON THE FUTURE OF BANKS, WALMART, AND DECLINING BANK TRANSACTIONS
A couple of weeks ago I had the pleasure to meet Dr. Dewey Todd at the FIS™ 2014 Client Conference. Dewey stands out a bit from the normal banking crowd. He can usually be found at the center of a large group, telling captivating stories in a slow, southern drawl. All while sporting his trademark bowtie.
A little background: Dewey is a solution architect in FIS‘ Global Financial Institutions (GFI) division and is primarily responsible for Omnichannel Banking, Customer Engagement and Branch Transformation Strategy. In addition to 30+ years of banking and IT experience, Dewey holds a Ph.D. in Managerial & Decision Sciences from Georgia State University, with a research focus on the decision-making processes within the financial industry. In other words, he works with the big banks, has a pretty good pulse on the banking industry and has some pretty impressive educational credentials backing him up.
As a follow up to the conference, Dewey agreed to kick off our “3 Question” interview series. Enjoy.
When researching your background, I saw that one of your areas of study was decision theory. Can you walk me through the decision process of someone who is choosing a bank and how a bank can influence that decision?
Yes, from a research perspective, my Ph.D. is in decision science, which is largely decision theory. Within that discipline I’ve generally targeted how a bank makes decisions. Most of my research and all my publications are around great decision-making.
From an individual perspective, I do study it extensively and right now, quite honestly, it’s really a challenging environment. Anyone who will sit here today and tell you exactly what banking will be like five years from now is a genius with a crystal ball or is making it up. There is so much changing so fast, none of us can really know what branch banking is going to be like five years from now.
But today, and for the foreseeable future, most customers still see convenient locations of branch offices as critical for their decision on where to bank. All the research shows that location is number one.
Number two is that they want their bank to have all of the technology integrations with the devices that they’re finding convenient. Most people today have a cell phone and most of those are smart phones. People want to be able to do things like deposit checks remotely with their phone. Very few people looking for a new bank will select one that doesn’t offer mobile banking, online banking, and online bill pay. Some like to refer to the digital options as a channel, but it’s really not. It’s the new foundation for customer engagement. Digital is just as important to the branch as it is to the customer. Rather than seeing it as a threat to the branch’s continuance, the bank needs to embrace mobile and online in the ways they can help reduce the cost of the branch infrastructure and make it easier to reduce branch size, increase technology-related savings and make the branch more relevant for the interactions for which assisted and full-service are better suited than self-service options. Plus, let us not forget that it is this technology that is driving the paperless environment that will help banks reduce costs significantly. In other words, it is digital banking that creates the necessary ecosystem to make the paperless branch viable.
When you look at banks that are not traditional, like the internet banks, people who choose them usually are doing it because of research they have done. They determined it was a better fit for them – better rates, better fees. In that case, they don’t care as much about branch locations. It’s more about getting the best deal on a money market account or managing their retirement portfolio.
There are also exceptions for the branch rule. There are people who never darken the door of a branch and don’t intend to. It doesn’t even enter their mind. Out of those people who say that a branch is important to their decision, many don’t go to the branch or don’t go very often.
The very interesting statistic to me is that the more someone goes to a branch, the higher their level of satisfaction with the bank. That’s from a JD Power and Associates study from earlier this year (2014). To me that’s very real. Customer satisfaction is important. We find that people are pretty sticky and do not change banks very often. They almost have to be prodded into it. They’re either moving, their bank closes a branch or they’re just unhappy.
I was just reading a study today where they found that 72% of Americans aged 18-to-34 would bank with Walmart, Google, or T-Mobile if they offered banking services. Do you foresee new players challenging the traditional banks?
The threat of possible disintermediation by alternative financial services providers is something that banks have taken to heart and, from my experience, view with a sense of urgency. While consumers continue to place a high level of trust in their banks, there is an opportunity to find ways to onboard customers, particularly in the 18 to 34 year old segment, more seamlessly and move them more quickly into a traditional banking relationship. For this segment, known as Gen Y, the onboarding process is critical, otherwise there is a risk of losing those customers to these alternative threats.
That’s why there needs to be a strong sense of urgency by banks to create greater engagement, to leverage mobile technology and the app approach and to forge deeper, lasting, more profitable relationships sooner with these segments in particular. These groups will represent more than half of all the income generated in the U.S. by 2025.
What the banks have got to do is drive relationship building with the customer to something that is mutually beneficial. They need to figure out ways to take those customers, especially those that represent the potentially profitable, and either increase their share of wallet or structure their fees to make that relationship more profitable for the bank, while still creating value for the customer. That will drive loyalty with the customer. Creating strong engagement is how banks can create that lasting loyalty, even with the 18 to 34 year old segments – and how they can diffuse any potential threats by alternative financial services providers.
So, this kind of builds into the last question. With branch transactions declining yearly, what steps should financial institutions take to remain relevant?
Rather than close branches, forward thinking financial institutions are transforming the branch, moving to a different model – and it has to be a very significant change.
Number one, they have already cut full-time employees back about as far as they can within the current model. But, they are still staffing for peak-time transaction volumes. If they want to keep their branches relevant, they must emphasize the roles of problem resolution and new sales opportunities, while at the same time figuring out a way to keep them from being a cost burden on the bank.
So that means they have got to figure out a way to reduce FTEs without jeopardizing service and time available to the customer. That’s largely going to happen through automation, through technology. The devices provided give them tremendous flexibility. They no longer have to worry about using a vault to maintain daily cash flow, at least not in the way that they have to today. Now, branch personnel go into the vault a few times a day replenishing cash drawers and emptying cash drawers; they no longer have to worry about that. Also, because of that and increased speed and reliability, they can probably cut back from three tellers to one teller in many cases, as long as assisted-service devices are also integrated into the model.
So, that means that one of the things they are going to have to do is put in configurations where the customer has an element of self-service, but they still have a personal banker there to complete the transaction or to keep the cost of the transaction low. There are also going to be branches that will be a self-service branch like an ATM is today. However, look at the self-service model from other industries – no matter how many kiosks the airline or grocery store puts in, they still need human resources there to help with problem resolution. People like that warm engagement of dealing with someone. When they can look into your eyes, you have their attention and a trust is forged. Even when talking to a live human being over the phone, people do not necessarily feel that type of security.
Banks must continue to push the low-value, high-volume transactions to a lower cost channel. That may be a technology within the branch, allowing the personal banker to become involved in complex decision making and problem solving and to take better advantage of these devices being able to deliver cross-selling and problem resolution.
Let’s face it, a cash recycler is very expensive and the answer is not to take every teller station and put a cash recycler there. You provide multiple connections for those devices for a reason and they have been designed so that the bank can take two or three teller windows and streamline them to one window, in combination with a teller cash recycler, one scanner, one printer. Instant cost savings! The many to one configuration gives you that.
A smaller footprint and a re-orientation of the personal banker away from being a teller to being a universal banker are critical to driving real branch transformation.
ABOUT DEWEY TODD
Dewey W. Todd, Ph.D.
VP, Omnichannel Banking and Branch Transformation Strategy
Office of Innovation & Solutions
Global Financial Institutions Division
FIS
Dr. Dewey Todd is a Business Solution Architect in the FIS Global Financial Institutions division and is primarily responsible for Omnichannel Banking and Branch Transformation Strategy. Dewey joined FIS in 2002 as a Project Manager for branch transformation projects, and in 2003 became a Product Manager for TouchPoint. In that role, Dewey guided product strategy and innovation, and managed the TouchPoint Teller, TouchPoint ATM, and TouchPoint Connect products from inception. Dewey has been extensively involved with product sales, solutions, and implementations for banks across all regions and tiers. His career in banking reaches back to 1983 when he started as a Teller with Union Bank & Trust Co. in Montgomery, Alabama (now part of Regions Bank), and over the last 30 years he has been involved in product management, retail banking, bank servicing, software development, bank IT management, decision analytics, and project management. In addition to his degree in Banking and Finance from Troy University, Dewey holds a Ph.D. in Managerial & Decision Sciences from Georgia State University, with a research focus on the decision making processes within the financial industry, as well as trends in banking channels. He is widely published in journals and has published a book on Decision Making that was based on his research from the banking industry.