bg-arrow-down icon-arrow-up icon-back-to-top icon-linkedin icon-menu icon-search icon-twitter logo-white slider-arrow-left-gray slider-arrow-left slider-arrow-right-gray slider-arrow-right

This Month in Retail Banking | October 2020

In the month since our last update, school has started, President Trump and other elected officials have tested positive for COVID-19 and New York City is imposing new lockdown restrictions in neighborhoods that have experienced a spike in cases. It is safe to say that much of the country won’t be returning to pre-COVID behavior any time soon.

It’s been more than six months since banks began overhauling their operations to serve customers during the pandemic, but there is room to make more adjustments. Customer behavior is likely to remain altered and uneven well into next year, giving banks the opportunity to analyze recent activity and determine what’s working and what isn’t.

This Month in Retail Banking unveils new research that shows most customers have been satisfied with their banking experience during the pandemic. There are key exceptions, however, in the areas of appointment-setting and video conferencing.

Some banks have announced large branch consolidation plans, a development that isn’t surprising given the massive consumer preference shifts and the current expense environment. While branch consolidations will certainly continue, many banks are also looking to drive growth through new products, experiences or even selective new branches.

Meanwhile, checking household acquisition is nearly back on track for banks, but it is unclear what will happen to this behavior if officials set new restrictions that limit retail operations. That said, any significant lockdowns would likely result in a significant shift to digital activity.

CUSTOMERS ADAPT DURING PANDEMIC

The pandemic has reinforced that many Americans are perfectly comfortable performing even complicated banking tasks online, but the attachment to branches isn’t going away any time soon. Novantas has found that only about 30% of people agree with the statement “having a branch nearby is not important.”

New research from Novantas has found that consumers still prefer to be within 15 minutes of a branch. (See Figure 1.) The findings include all segments of customers regardless of how branch-dependent they are. This debunks the myth that less branch-centric customers would be willing to drive further to get to a branch. It also illustrates the need to consider “maximizing access” – a key element to distribution strategies moving forward.

Figure 1.

Willingness to travel to bank branch

Less than 5 minutes
5 to 15 minutes
16 to 30 minutes
More than 30 minutes
I don't need a branch

By channel segment

Thin-branch Ready
Channel Mixer
Branch Traditionalist
Innovation Seeker
Internet Ready

Source: Novantas | 2020 U.S. Branch Centricity (N=1008)* weighted on age/income
Q27 How far are you willing to travel to a bank branch?

Willingness to travel to bank branch

Less than 5 minutes
5 to 15 minutes
16 to 30 minutes
More than 30 minutes
I don't need a branch

By channel segment

Thin-branch Ready
Channel Mixer
Branch Traditionalist
Innovation Seeker
Internet Ready

Source: Novantas | 2020 U.S. Branch Centricity (N=1008)* weighted on age/income
Q27 How far are you willing to travel to a bank branch?

The research also found that older Americans are dominating the drive-through during the pandemic. This indicates they are adapting to lobby closures, but still want access to the branch for servicing. That said, they are also comfortable using a desktop or laptop for their banking needs. (See Figure 2.)  Interestingly, more than one-third of consumers between the ages of 18 and 22 reported that they had conducted banking activity by phone compared with just 14% of Americans between the ages of 51 and 72.

Figure 2.

Banking Activities during restriction – By age

Gen Z (18-22)
Millennials (23-37)
Gen X (38-51)
Boomers (52-71)

Source: Novantas | 2020 U.S. Branch Centricity (N=1008)* unweighted
Q16 How did your complete your banking activities while bank branch access was restricted?

The research is based on a 15-minute online survey that was conducted in September to assess the impact of COVID-19 on customer experience. The survey, which included more than 1,000 household financial decision makers across the U.S., analyzed consumer attachment to branches and measured their experiences and changes in the use of online/mobile banking.

Respondents also delivered some sobering insight to banks that are encouraging customers to use video conferencing. (See Figure 3.) Despite the growing popularity of video services like Zoom, the capability ranked low among all respondents when asked about the methods they have used to conduct banking activity during the pandemic. The main issue is that people are uncomfortable not knowing who will be on the other end of the video. This suggests that video for everyday servicing and sales may be challenging. It could, however, represent an opportunity for advisors in wealth or business banking where the customers already know their relationship managers.

Figure 3.

Reasons for not video conferencing

Source: Novantas | 2020 U.S. Branch Centricity (N=1008)* weighted on age/income
Q20 Which of the following best describes why you would be unlikely to interact with a banker/advisor via video conference?

DIGITAL ACCOUNT OPENING

Even though consumers remain attached to branches, this isn’t the time to reduce spending on marketing for digital account opening. Research from Novantas’ FindABetterBank.com shows banks need to improve the process.

The good news: more than two-thirds of people who opened an account digitally completed the process in 30 minutes or less. (See Figure 4.) That said, the process of getting there is often fraught with difficulties that make many potential customers jump ship, including requirements that they verify their identity in person and confusing financial jargon. (See Figure 5.)

Figure 4.

Digital Account Opening Completion Process

Length of Process

Digital Account Opening Completion Process

Length of Process

Source: Novantas Customer Knowledge | FABB DAO Survey
Sample: FABB Shoppers who opened digitally (N=374)

Figure 5.

Stage At Which Online Process Abandoned

Reasons for Not Completing Process Online

Source: Novantas Customer Knowledge | FABB DAO Survey
Sample: FABB Shoppers who didn’t complete process (N=111)

Additionally, banks need to consider the question of whether it is worth making improvements if the customers who open accounts digitally are of lower quality and unlikely to stay at the bank. It may take 30-45 minutes to open an account in the branch, with an associate helping the customer to find the right product and wrestling old systems to make the account opening appear seamless. In the digital channel, people are less likely to complete the account opening and, when they do, are less likely to be in the right product and are less likely to truly use the account.

BRANCH CLOSURES LOOM

Branches are bound to rank high on the list when bank managements intensify the call to reduce expenses. After all, banks are awash in deposits, interest rates will stay low for the foreseeable future and overdraft revenue is sinking. But banks may be at risk of shooting themselves in the foot if they just close the bottom 5% of branches in each of the next three years in order to make cost savings targets. By conducting consolidation decisions on a one-off basis, the bank risks beginning a death spiral and challenging the prospects for future growth.

Historically, the challenge for many banks is that they haven’t conducted any form of reinvestment. Savings from branch consolidations have flowed to the bottom line, leading to near-term expense savings but long-term customer reduction. As there are fewer ‘no-brainer’ closures out there, it means that it will be even more critical to replace lost sales. The challenge for banks in the next 5-10 years is that in a world where branch-centricity declines, banks can’t rely on acquiring customers through the branch that is closest to them. Therefore, marketing and branding increase in their importance. Customers need to know more about the institution than simply a branch is nearby.

For most banks, marketing investment will be a key lever as well, though best-in-class institutions will deploy both disruptive products and marketing in order to drive growth with fewer branches. Look to the success of the neobanks as an example of this.

As there are fewer ‘no-brainer’ branch closures out there, it means that it will be even more critical to replace lost sales.

LATEST TRENDS

Consumer household acquisition and consumer checking unit sales have shown similar levels of recovery, but began to fall off toward the end of August. Trends in the coming weeks will be important, especially as places like New York City impose new restrictions in certain neighborhoods due to a surge in COVID-19 cases. (See Figure 6.)

Figure 6.

Industry Consumer HH Production*

Acquisition
Attrition
Net Growth

INDUSTRY CHECKING ACCOUNT PRODUCTION*

Acquisition
Attrition
Net Growth

Source: Novantas’ Comparative Deposit Analytics, representative sample of banks submitting weekly
Note: Average reflects all bank branches, does not exclude closed branches

Subscribe

Stay up to date on the latest banking news