2013 CIB Annual Conference The Branch of Future: How to Plan for it Today Presented by: Andy Grinstead Senior Vice President Fiserv Bank Intelligence [email protected] Agenda The role of the branch is fundamentally changing and banks of all sizes must plan for the “branch for the future”. In this session, we’ll discuss: • Industry trends • Consumer trends • Branch trends • Case study • Action planning for my bank • Summary & conclusions 2 © 2013 Fiserv, Inc. or its affiliates. About Us • Online Advisory Solution • Established in 2000 and was privately capitalized • Acquired by Fiserv in October 2007 • Banking industry’s only Online Advisory Solution • Cost-effective delivery to institutions of any size • Bank Validation • Over 400 subscribing client financial institutions • Client banks range from $32 million to $26 billion in total assets • More than 1,500 planning sessions each year • Partner Validation • ICBA Preferred Service Provider • State and regional associations • Association for Financial Technology (AFT) 3 © 2013 Fiserv, Inc. or its affiliates. Five Year Industry Trends ROA has rebounded, but note that lesser Loan loss provision has driven much… As net interest margins are facing pressure… … as loan yields are pricing down… … and loan volume is less than optimal… Source: Q4 2012 BankAnalyst® Financial 4 © 2013 Fiserv, Inc. or its affiliates. Trends Point to Importance of Branch Efficiency … Cost of funds are nearing the bottom Loan production has been strong, but how much longer? Service charge fees have come under regulatory and behavioral pressure in the current environment Source: Q4 2012 BankAnalyst® Financial 5 © 2013 Fiserv, Inc. or its affiliates. Key Branching Issue: It’s the $$$$$, Right? • Costs for branches and staff represent 65% of the non-interest expense for the average financial institution. Branch & Staff Costs 65% ( of Non Interest Expense) Average Delivery System Expense = 37bp (12 percent of NIE) Average Personnel Expense = 168bp (53 percent of NIE) Average Total NIE = 316bp Median Deposit Service Charge Income = 21bp Median Core Deposits per Office = $34,128,000 6 © 2013 Fiserv, Inc. or its affiliates. Customer & Channel Trends Numerous “Game Changers” Business Models • • • • • • • Demographic shifts Social change Channel shifts Payments Regulatory change Lending patterns Talent management Macroeconomic and Geopolitical Risks • • • • • 8 © 2013 Fiserv, Inc. or its affiliates. Interest rates/inflation Unemployment U.S. housing market EU instability Energy and commodity prices Going for Growth: Untethered Interactions with Consumers and Businesses ATMs 3,000,000,000 Devices Branches Financial Institutions 9 © 2013 Fiserv, Inc. or its affiliates. It Is Indeed a Changing World… 10 © 2013 Fiserv, Inc. or its affiliates. Will “Alternative Channels” Really Take Off? 11 © 2013 Fiserv, Inc. or its affiliates. 12 © 2013 Fiserv, Inc. or its affiliates. Mobile Has Impacted Consumers’ Daily Habits and ... Mobile vs. Branch Strategy – The Customer Doesn’t Care. Voice Organizer SMS/Alerts Email/MMS Budgets Banking Communicate Payment Commerce Control Ticketing Maps Social IM/chat Create Transit Consume Search Blogs Mobile web Pictures Games Video TV 13 13 © 2013 Fiserv, Inc. or its affiliates. Music News A Personal Case Study… 14 © 2013 Fiserv, Inc. or its affiliates. 1. Signs up for new services faster 2. Responds to experience Gen Y… more than product 3. Is more likely to switch 4. Is more comfortable online 5. Is the mobile generation 6. Is on the move – capitalize! 7. Recommends a good experience more and faster 15 © 2013 Fiserv, Inc. or its affiliates. Online and Mobile Are No Longer “Alternative Channels” Transactions (in Billions) 80 70 60 50 40 30 20 10 0 ATM Source: TowerGroup, 2012 16 © 2013 Fiserv, Inc. or its affiliates. 13.40 17.00 5.00 6.40 8.20 10.60 28.50 29.70 30.80 32.10 33.10 34.10 14.00 13.70 13.50 13.40 12.70 12.10 11.00 11.20 11.40 11.50 11.60 11.80 2010 2011 2012P 2013P 2014P 2015P Branch Online Mobile Transacting at the Branch, But Are We Forcing Them Into This Channel? Why did you visit a branch last month? 81% 82% Make a deposit or withdraw cash 87% 86% 24% 15% Obtain a cashiers check or money order 7% 4% 15% Resolve an account issue 9% 7% 7% Open or close an account 9% 13% Access safety deposit box 3% 4% GenY (21-32) 8% 7% 5% 5% GenX (33-47) Boomers (48-66) Seniors (67+) 10% Sign paperwork Use Notary 6% 4% 2% 8% 6% 3% 5% 10% Change account information (name, etc.) 5% 3% 3% Source: 2012 Fiserv Consumer Trends Survey – 12/12/12 17 © 2013 Fiserv, Inc. or its affiliates. Fiserv Proprietary and Confidential Retail Banking Channel Interactions 2015E Source: Brett King 18 © 2013 Fiserv, Inc. or its affiliates. Takeaways… Will branches remain a relationship cornerstone for acquiring and retaining deposits and growing profitably? Fewer transactions in branches – focus shifts to advice, loans and small business services. The implementation of self-service technology in branches will free branch staff to spend more time with customers. Branches must be tightly integrated with other delivery channels, giving customers channel choice. Financial Institutions must focus on providing an outstanding experience in every channel – including mobile and tablet. 19 © 2013 Fiserv, Inc. or its affiliates. Branch Format Trends 21 © 2013 Fiserv, Inc. or its affiliates. Many Different Combinations of “New” (just a few examples) Form Factor / Look and Feel / Components Services Offered / Staffing Required Technology Ultra-modern Financial planning Video tellers Ultra-traditional Brokerage Self service kiosks Flagship branch (your $ is safe with us) Small business services Surface technology Restaurant / Coffee shop Tax advice On-line “everything” coordination / CRM Community space Lending advice Digital walls Smaller footprint / Portable and pop up Small business “rental” space Straight through processing Concierge / Kids area Flexible staffing skills & hours Customer recognition 22 © 2013 Fiserv, Inc. or its affiliates. Citibank – “Smart Banking” • • • • • • • • Flagship branch “Smart Banking” Interactive sales wall Highly trained staff Enhanced image ATM Free Wifi Media walls Access to global experts via video conferencing • Private seating lounge for Citigold customers Source: Citigroup.com, thefinancialbrand.com 23 © 2013 Fiserv, Inc. or its affiliates. Community Bank – Bridge Online and Offline Experience • St. Petersburg, FL • Five Zones: - Teller Zone Sales & Advice Zone Dwell Zone Community Zone Brand Zone • Inspired by Apple • “A visual barometer for the company’s brand, mood, social awareness and public relations” Source: thefinancialbrand.com 24 © 2013 Fiserv, Inc. or its affiliates. Umpqua Bank – Stores vs. Branches • • • • • • • • • • • Early adopter Retail vs. bank “Stores” vs. branches Service based – Ritz Carlton Starts with people Connection to local business Ice cream truck to local events Yoga classes Children’s theaters Interactive technology Clean design Source: umpquabank.com 25 © 2013 Fiserv, Inc. or its affiliates. North Shore Credit Union – “Financial Spa” • • • • • • • • Vancouver, BC “Financial Spa” Concierge Carved pine columns Granite and stone Private lounge Refresh bar – cappuccinos, hot towels “Bringing the beauty of the outside, inside.” Source: EHS Design, North Shore Credit Union, thefinancialbrand.com 26 © 2013 Fiserv, Inc. or its affiliates. Naugatuck Savings Bank – Extend Hours • Naugatuck, CT • Design concept around convenience • Personal Teller technology • Extended hours • Two way video with a teller • Investment center • Fully trained staff for loans, deposits, cash management Source: naugatucksavingsbank.com 27 © 2013 Fiserv, Inc. or its affiliates. Virgin Money – The “Cool Factor” • Guildford, UK • Modern blend into architecture • “Fresh approach to high • • • • street banking” Access to Virgin Money products Free use of • Wifi • iPads • iMacs No hard sell policy adopted by all staff Community events – baby grand piano Source: thefinancialbrand.com, virginmoney.com 28 © 2013 Fiserv, Inc. or its affiliates. Where Do Community FI’s Fit In? Start With the End in Mind – Acru A Community FI Case Study • Woodstock, GA • Needed to rethink what “banking” meant • Metrics are critical • Small business, business owners, professionals are key targets • Surveyed the market about banks and their money - Highly emotional issue - Last thing we need is more loans and deposits Listen to the Acru story at www.acruwealth.com - Baseline solutions assumed; web, mobile, etc. - They want more – trusted advisor to help with strategies for Money that fit their “Life” Acru Wealth, LLC (Acru) is a subsidiary of Community & Southern Bank 30 © 2013 Fiserv, Inc. or its affiliates. Thinking Outside of the Box – Creating Valuable Reasons to Visit the Branch • Ai3 Architectural Firm • Café Style –community and small business gathering space • Wealth strategists • Frictionless environment - “Wealth Bar” - Clarity Conversations and Clarity Maps - Community support & events 31 © 2013 Fiserv, Inc. or its affiliates. Actions Speak Louder Than Words…. https://acruwealth.com/community/author/brad 32 © 2013 Fiserv, Inc. or its affiliates. Where To Start Step Back – Ask the Tough Questions What’s the historical purpose of our branches? • Core deposits? • Loans? • Customer service / transactions / account opening? • Branding awareness? Key Questions: How has each branch performed? If we were starting a bank today, would we anticipate the same number of branches? 34 © 2013 Fiserv, Inc. or its affiliates. Benchmark Your FI Consider Your Operating Strategy and Benchmark Example: Consider VLO – Very Low Balance Accounts Offices are smaller = more offices required but… Lower COF and more service charge $ 37 © 2013 Fiserv, Inc. or its affiliates. Benchmark Medians Lower COF and More Service Charge Income 38 © 2013 Fiserv, Inc. or its affiliates. Measure Your Key Branch Efficiency Metrics Benchmark and calculate opportunity $: • Core Deposits Per Office • Revenue Per Office • Accounts Per Office • Revenue Per FTE • Loan $ Per FTE • Deposit $ Per FTE • Accounts Per FTE 39 © 2013 Fiserv, Inc. or its affiliates. Analyze the Potential Market Opportunity Utilize Available Tools for Analysis 41 © 2013 Fiserv, Inc. or its affiliates. Identify Potential Business Targets by Branch: Deposit Opportunities Loan Opportunities 42 © 2013 Fiserv, Inc. or its affiliates. Cash Management Merchant Card Identify Potential Consumer Segments 43 © 2013 Fiserv, Inc. or its affiliates. Fully Research & Understand Your Targeted Segments U.S. Statistics U.S. Households: 6,872,214 Median HH Income:$91,185 44 © 2013 Fiserv, Inc. or its affiliates. • Flourishing families • Suburbanites with high incomes, large homes (and mortgages), and substantial income-producing assets • Well educated with executive jobs • Most likely of all groups to manage their finances online--paying bills, transfers • Risk averse / wide variety of insurance • These well-off families pursue active lifestyles • Use credit cards that help them rack up airline reward miles Target Specific Product Demand: Home Equity 45 © 2013 Fiserv, Inc. or its affiliates. Determine Your Optimal Branch Footprint Consolidate Branches? 47 © 2013 Fiserv, Inc. or its affiliates. Analysis to Consider Bank Intelligence Analysis Examples of Other Data • Branch investment matrix • Branch profitability • Bank performance ratios • Do we own or lease • • • • • (Delivery system capacity) Market growth potential Performance of the branch Proximity of other branches Competitive saturation Competitor type • Actual cost savings • In market loans • In market deposits • Volume of transactions • Intangible value of transactions • Reputation risk In case study example, branch capacity is a $4.5 million annual opportunity 48 © 2013 Fiserv, Inc. or its affiliates. Expand Footprint? 49 © 2013 Fiserv, Inc. or its affiliates. Expansion Considerations 50 Ratios indicate an earning engine in a slow growth market Capital considerations Future earnings capability Very high current market share LPO vs. branch M&A vs. De novo Use tools to identify potential markets Ideal Markets Combination of growth, target segments and not as saturated as current markets and/or have the ideal competition type Example MW bank in slow growth markets searched every county across half their state to identify 8 potential LPOs. Currently looking for the right person to become the market president. © 2013 Fiserv, Inc. or its affiliates. All Markets are Not Created Equally- Think Franchise Clemmons, NC branch vs. Johnson City, TN branch 51 © 2013 Fiserv, Inc. or its affiliates. Narrow the Focus for Each Branch to a Few Combinations Example • • • • • • • • 52 © 2013 Fiserv, Inc. or its affiliates. Deposits Loans + Retention Origination Cross Sale + Consumer Commercial + Specific Segments/Niches Deposits Origination Commercial Health Svc Take Action Take Action – Next Steps 54 How much will we invest in technology and “alternative” channels? How many branches will we have? Who & what types of customers will they serve? Where will they be? What will they look and feel like? Who will staff them? New lines of business? Benchmark where you are today Take stock of your strengths and weaknesses Identify rationalization candidates Identify best target opportunity for each branch market Begin process of choosing your head(s) of Internet/mobile/payments © 2013 Fiserv, Inc. or its affiliates. Connect with us: Complementary Benchmarking and Market Review for your Bank Andy Grinstead [email protected] 678-375-5229 55 © 2013 Fiserv, Inc. or its affiliates.
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