Financial Institution Transformation
It is Not a Magic Box …It is a Business Strategy
The Financial Industry is in a period of major change. Consumers continue to migrate away from the traditional Branch and Teller model while a growing number of business attempt to adapt to this new era. “Branch Transformation” has been the buzz word in the industry for quite some time with manufacturers offering their versions of a magic box as a solution. In many cases, these boxes have turned out to be failed technology experiments at the Financial Institution’s expense.
If the goal is to improve consumer service while lowering costs, would it not be sensible to discover what consumers want, then implement a strategy using the research to better serve them? These tools will vary greatly dependent on the strategy developed by each institution. The first step to developing a solution to any challenge is to define the questions first.
The team at Automated Transaction Delivery has completed a series of studies to better understand the consumer service challenge.
The result of this study will differ for each Financial Institution’s strategy and their long-term objectives. A few examples are: What devices will be used for delivery, the outstanding foundation technology and all possible future delivery technology.
What Method of Service do Consumers Prefer?
Financial Institutions and the corporations that provide them with products have been historically slow adopters of new technology. The best method to determine consumer preference is to research other industries who have been much quicker to adapting to the latest consumer service trends and developing the technology to serve them. We at Automated Transaction Delivery completed a study looking at many other consumer service industries and the businesses who developed leading strategies solving the consumer service challenge. These industries include travel, retail, fast food, and convenience.
In each of these, the business strategy was the same; Let the technology deliver the transactions while people focus on consumer service. These industries continue to develop the tools to enable self-service first where the result is improving efficient consumer service while continually lowering operational costs.
These industries continue to develop the technology to enhance the ability for consumers to process their own transactions and enabling their staff to focus on consumer service.
- Southwest Airlines is a leader in developing a Self Service First Strategy. Their latest assisted self-service kiosk that has improved efficiency to the point that TSA is challenged with the change in traffic volume.
- Walmart has developed a self-service kiosk and have doubled from 4 kiosks per attendant to 8.
Consumer preference has also migrated to these devices and consumers will wait for this option rather than go to a traditional checkout clerk.
How Do Consumers Prefer to Pay for Goods and Services?
Understanding how consumers pay for goods and services is vital to developing a strategy to provide them with access to the methods to pay. The key to any consumer self-service deliverable is the payment card. Understanding their function and trends is important to any business strategy. They enable access to deliver consumer transactions and will likely retain their leading role in consumer preference in payments for the foreseeable future.
The method to understand card trends start with the 2 major sub categories: Credit and Debit
The trend for credit cards indicates a decline with the 3rd leading group begin customers that have no credit cards (29%) at all and the number of credit cards per consumer follows this trend. In the period of this study the average consumer ownership of credit cards reduced from 3.1 to 2.6.
The decline in the number of credit cards that consumers own combined with debit cards are only second to cash in consumer preference and use. This data indicates the lag in mobile adoption and preference by consumers. The 2014 Federal Reserve Payment study results indicate that 71% of consumers use payment cards while only 27% reported mobile and continued in a 5-year forecast.
Card fraud continues to be a challenge driven by major data breeches and skimming. The late adoption of EMV technology by the U.S. has made them the global leader in card skimming fraud. The misunderstanding about EMV chips and skimming is that if the magnetic stripe is present on a payment card they are susceptible to skimming.
The current card base in the U.S. is about 454 million and the prevalence of card fraud continue to drive the requirement to replace 1 in 5 annually or 91 million cards reissued a year. The standard 5-7-day reissue time is a major inconvenience for consumers. The efficient delivery of new and replacement cards should be considered in any business transformation strategy while a growing number of instant issue solutions are available to enable this capability that is vital to consumers.
Consumers Prefer Self-Service First
Self-Service and the introduction of Assisted Self-Service continue to be the most important channel for any Financial Institution. While branch traffic declines and mobile apps struggle to gain momentum, the ATM and its growing functionality continue to be the choice of most consumers.
Consumers continue to indicate that convenience is the leading factor in deciding where to obtain their financial services. The definition of convenience continuously changes based on the day of the week or time of day that consumers are looking to complete transactions. The recent trend shows they are migrating to later times in the day or in the week, whereas Saturdays now lead in the most transactions delivered.
Location, Location, Location
The location where consumers prefer service is also following the trend in migration of branch traffic. Traditionally placing an ATM at the existing branch to provide basic transactions when the facility is closed was the best approach. A current study follows that trend where consumers are preferring to use Self-Service in more convenient locations such as strip malls and retail stores.
In determining the true cost of Self-Service, we must look beyond the evident cost of the device and maintenance. What is the cost in deposits and accounts when consumer convenience is lost to a competitor? If these devices are another means of delivering transactions we should look at it from that perspective. If we look at Self-Service for convenience it is a far better value than a traditional branch ($59K-$3k Per month) and the results are the same from a transaction delivery ($1.60- $.50 per transaction) perspective.
What Methods of Service Do Consumers Prefer?
Consumer service preference and trends can be determined by the rate that they use each channel. For this study, we segmented these channels into 3 groups, Traditional Branch and Teller, Mobile and Assisted\Self Service. The trends in each of these channels have been continuous for some time and are not likely to change. The traditional branch and teller channel continues to decline with a majority of this migration going to new mobile solutions. Self-Service support by new Assisted Self-Service solutions continue to lead with almost half of the transactions being delivered by this channel.
Branch and Teller
Current data indicates that this method continues its decline, in fact Bank of America has announced that it is using a 5-year period to determine if “Branch Banking” is at all viable. The continuing growth in labor costs and the decline in teller economies of scale\volume make this the most expensive way to deliver transactions. The current consumer preference migration will likely not change this decline.
Even if the hysteria of “Cash is Dead” and “Mobile is the Future” may be true, eventually, mobile technology continues to be very slow in adoption and consumer preference. Many other countries globally are accepting this technology but in the US consumers continue to look toward other methods that they believe are more secure and easy to use.
This segment includes the ATM, Branch Transformation and Assisted Self-Service solutions. This method continues to lead consumer preference, replacing the decline in branch and teller and loosing little ground to mobile. Self Service is a well-established means that consumers are accustom to and look for, in fact, the ability provide convenience fee free transaction continues to be a concern.
The Tools that Enable Your Business Strategy
The business strategy that each Financial Institution develops will determine the proper tools and investments to make. Each channel and the available tools have their benefits and weaknesses that we will look at individually using the latest data available. We will attempt to remove some of the misleading information that has become prevalent today.
The result of this data indicates that there is now one channel to delivery of consumer service. The declining branch (as we know it currently) and the continuing preference in personal service indicate that a new “Branch” is necessary. Mobile has been slower than expected in consumer acceptance making it a weary solution to choose while self-service continues to lead in consumer preference. Developing a business strategy that aligns in investment and focus with these results is likely the best model to use.
Mobile is the Future…Not Exactly the Present
Mobile continues to be the biggest “buzz” and some are recommending abandoning all the other channels to offer just mobile. The current data indicates this to be a mistake for today’s consumer. Currently only 33% of consumers use mobile for financial services which leaves 67% preferring other methods of consumer service. The major challenge with mobile is the fact that the prevalence in the use of cash remains strong and growing in volume.
What functionality do Mobile Users Use? The current Federal Reserve Mobile Study indicates that the 33% of consumers using they use it primarily for informational (Monitoring Accounts and receiving alerts) while transactions continue to lag led by account transfers. These current users continue to look to the Branch and Self-Service for most of their transactional needs.
Mobile technology is the future and must be part of any transformation strategy, but only if the objective is to serve current consumers. The overstatement “Death of Cash” is noted in current Federal Reserve circulation data. 50% of remaining consumers indicating no interest in the channel even if offered. Also, the continual security concerns of most consumers in this technology with growing numbers of data breaches and technology hacking lure interest away. These factors will only drive the advancement of other channels to deliver consumer service for the foreseeable future.
Branch Transformation Enabling Consumer Service
The Financial Institution Branch continues to play an important role in the delivery of consumer service even though some have declared it past its usefulness. Consumers continue to prefer personal service for advice, new accounts and wealth management. If the branch is to remain viable it must evolve by reducing costs and becoming more consumer service based rather than transactional cash management locations.
Integration Enabling Technology
Branch Device integration should be based on what is referred to as a “core integration.” These solutions should be core integrated to enable the ability to deliver as much of the teller transaction set as possible.
Service Enabling Devices
There are a growing number of transaction enabling devices that are being introduced by an increasing number of providers. These devices and their use have the goal of aiding or removing current requirements from branch staff allowing them to focus on consumer service. We will now look at each of these in general terms.
- Teller Cash Recycler
Teller cash recycling technology removes much of cash management requirements from consumer service personnel. They improve security, enhance counterfeit detection and speed transactions. They can be used for the branch vault for buys and sells.
- Assisted Self-Service Kiosks
Assisted Self-Service kiosks are intended to supplement branch personnel. They are designed to deliver the transactions to current clients. This requirement makes a “core integration’ the preferred method of enabling these devices. The attended environment allows for the use of a reduced capacity device.
- Digital Media Marketing
Marketing to consumers as indicated by a BAI study is one of the top solitons that Financial Institutions are interested in. Digital media marketing has the capability to change your message at any time. The solution also enhances the appearance of a leading-edge consumer service provider.
Business Transformation What is the Real Cost?
There are a growing number supplier offering their version of a solution for Branch Transformation. Most of these suppliers base their products on concepts that require development that they look to Financial Institutions to finance. These quickly become technology experiments where the results, deliverable time and costs differ greatly from what was proposed. Getting answers to these simple questions up front can save time, frustration and long-term costs in solutions that may never deliver what was originally promised.
Transformation products are mainly market on concepts that are long to develop if ever to delver what was originally promised. Knowing the answer to what it does NOW and what is a concept will save the frustration of long term development pain.
These concepts selling businesses underestimate the time to develop new technology. The major challenge is in the antiquated foundation technology that they are attempting to use for development. Obtaining a fixed timeline for any promised concepts is critical.
How Much Does It Really Cost?
The costs proposed by many suppliers are difficult to understand and contain hidden costs. It is vital to know before you start any transformation to understand the total cost of ownership. Obtain a 5-year total cost commitment prior to beginning any Transformation.
The Devices That Enable Self Service
The functionality you can offer will vary not only by Financial Institution but by location and determining the right functionality in the right place is key to your overall business strategy. The options for functionality are growing with technology and we can look at each aspect to assist the frequency and scope of the deliverable. In locations where all current Assisted Self-Service functionality has been enabled, allowing the consumer to choose what services they wanted and how they were delivered, Self-Service cash delivery remained the leading option.
Cash delivery remains the priority by consumers and the immediate and convenient access to cash should be a priority in any business strategy. The devices that deliver cash are quite economical allowing for many to be placed in convenient locations with little investment.
The opinion that deposit acceptance is not something that should be considered because check usage continues to decline is a misleading idea. Deposit automation was originally designed for the acceptance of checks but currently this functionality is following cash and check trends. The acceptance of cash deposits are far surpassing checks currently which continues to make deposit functionality a consideration for consumer service.
Assisted Self-Service like any technology has its benefits and challenges. If the objective is to provide personal service after branch hours or in convenient locations this technology will deliver that capability. As indicated in our transactional data when given the option consumers will choose self-service first for most transactions. This indicates that video enabled personal service alone is likely not a good option that will result in longer transaction times and cost per transaction.
The Transformation is only as good as the technology that enables it.
The technology that Financial Institutions use currently to enable the devices that deliver consumer service is more than 50 years old and can be consider antiquated. The fixed servers and hard-wired communications greatly inhibit the ability to develop and deliver any new functionality. This technology continues to drive up the cost of maintaining existing or introducing any new solution. The traditional suppliers of products are becoming old in their methods also. While they talk about new solutions it takes them years to make them viable while they look for Financial Institutions to fund their technology experiments.
If the future is Mobile… Why not use the Technology that Enables it?
The current consensus and the obvious future is that mobile consumer service is the future. The technology that enables mobile devices uses a foundation that consists of cloud based computing capability and the flexibility of wireless communications. It is simple agent (app) based where a connectivity agent resides on the device and the capability resides in the central (cloud) server. Currently the capability exists to use this technology to enable a growing number of new transformation solutions. This technology greatly reduces the cost of introducing new functionality and maintaining existing. As the speed of new technology and requirements to apply security software continues to grow this enabling technology will soon be a necessity.
Technology Enabled Business Model
In the many years leading up to now, Financial Institutions used the same Branch and Teller model to serve consumers. The solution for growth was simple, build another branch with the prevailing opinion being “If you build it they will come.” The rising cost of this model, the preference of the consumer and the growing demand and changing opinion of convenience make a new approach necessary.
Hub and Spoke
The “Hub and Spoke” model has been used for distribution and service delivery for many years. In this model, a central hub supports and enables many smaller distribution or service locations. In the case of the Financial Institution, the branch offering expanded personal service would act as the hub while self and Assisted Self-Service are the spokes. This model greatly reduces operational coast while improving convenient consumer service.
There is no single solution or model that fits every financial institution. These models will vary based on the size, budget and goals of each. The technology applied will also vary based on the demographics is the area, the proximity to the hub (branch) and the population they are intended to serve.
You need look no farther than the largest Financial Institutions to understand the transformation model that is currently prevalent. The 3 largest of these are currently using the same business model to transform their businesses. They continue to develop their Mobile capability, gradually close branches and use technology to improve the remaining. Also, they use Self-Service and Assisted Self-Service to provide convenience at a fraction of branch cost.
What is the Transformation Solution?
The requirement for consumer service continues to migrate toward Self-Service first. If Financial Institutions want to adapt with this developing market, then a transformation away from the traditional methods of consumer service is needed. Transforming branches will only achieve part of the solution for what has become the least preferred form of service. If the goal is to serve consumers, then a business transformation is the best approach looking at all aspects of consumer service.
The Formula for the Solution is Simple
Does New Consumer Service on old Technology Make Sense?
Mobile is based on technology that includes cloud computing capability and the flexibility of wireless communications. If we are eventually going to mobile, we should want to develop new solutions and taking advantage of new technology. Integration is the key to providing seamless consumer service across all channels and this developing technology achieves this. Relying and building upon old technology will only result in another expensive integration eventually.
Is it about Transformation or Serving Consumers?
If the goal is to provide consumers with the greatest service available, we must develop the means to deliver it. Consumers want Self-Service first in reliable, convenient locations and personal assistance when they need it. Devices with the focus on self-service with the ability to include assistance when needed will supply convenience. Remote maintenance capability will enhance reliability and achieve far superior results than the current onsite service reliant model.
Is the Objective Efficient Consumer Service?
If we are looking to serve consumers in the most cost-effective manner we must look at it in the same manner. Branches and cash managers (tellers) are the currently most expensive means to serve consumers. Building a network including these full-service locations and a varying network of Self and Assisted Service kiosks will prove to be the best value in providing consumers the service they are looking for today.