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This Week in Retail Banking | April 25, 2020

The Slow Re-Open Means a New Environment for Banking

As Georgia and a few other states begin to re-open the economy, banks will start thinking about the re-entry plans for their retail networks. But believing that things will go back to business-as-usual would be a mistake because there have been significant shifts in consumer interactions and perceptions of convenience, as well as changes in the way that banks provide sales and service.

PROTECTING AGAINST THE BRANCHLESS THREAT

Shoppers on FindABetterBank.com are expressing an increased willingness to consider direct banks when shopping for a new checking account. These attitudes match statements made about record account growth from Chime, Varo and Stash. While it isn’t surprising that consumers who have limited access to a branch network would be more willing to open accounts with institutions that don’t have branches, this shift could be very disruptive for traditional retail banks.

Neo-banks and direct banks were already capturing about 1 in 4 new U.S. primary checking relationships at the end of 2019, according to Novantas research. Novantas now believes that 25% could move up to 35% as consumers adjust to a limited-interaction model. This would have a tremendous impact on the viability of the branch network and would also deal a significant blow to fee income at most banks.

Banks can consider a defensive strategy on two fronts: existing-customer retention and new-to-bank acquisition.

When it comes to attrition, the most common bank-driven factors are typically related to fees or the digital experience. Some banks have waived all fees during the pandemic, and most will work with customers who make such requests. Either way, proactive strategies that ensure customers know the bank is willing to help can be very valuable in ensuring that customers don’t start believing the grass is greener on the branchless side. Banks can also reinforce the value of the branch and the role the bank plays in the community at these times. Banks that remind customers about the value they provide in the community – with branches and advice nearby – can help fight the onslaught from new competitors.

From an acquisition standpoint, most banks are still struggling to get quality new accounts through the digital channel. That means they are now stuck on the sidelines as the branch network operates with significant limitations such as reduced hours and capacity. Improvements to digital onboarding must be a key priority for all retail banks since those that have this capacity have experienced more digital account openings. Those trends will likely increase in a post-COVID-19 environment.

Consumer “Top 3” Bank Considerations Monthly Index
(vs. Avg of All Banks, 1.0 = Avg Each Month)
  • National Bank Avg
  • Regional Bank Avg
  • Direct Bank Avg

Source: Novantas | BankChoice Monitor
Note: March 2020 average – Top 3 is 13.3%; Nationals include Chase, BOA, WFGO; Direct banks include USAA, Ally, Capital One

TRANSITIONING THE ROLE OF THE STAFF

This crisis has presented a unique opportunity for banks to dictate the terms of engagement: limited hours, drive-up tellers, appointment-only lobbies, etc. This supply-driven change will have a long-term impact on the industry. Banks should consider the long-term roles of staffing, using the move back from COVID-19 as an opportunity to transition customers and colleagues into the interaction model that is best for the long-term. These include:

Limited hours: customers who continue to need branch access have adapted to the limited hours. This is partly due to the fact that many customers are working from home and have more flexibility in their day. Maintaining limited hours, especially in markets that are slower to re-open (e.g., work centers) may allow the bank to operate more efficiently. In order to maximize productivity, branch teams can use the closed hours to support contact centers or make proactive outreach to existing customers.

Appointment-only lobbies: As health concerns for customers and associates remain high, appointment-only access to lobbies will continue to encourage customers to adopt alternative channels. As noted in our benchmark data, new customer sales continue at 50% of pre-crisis levels despite almost universal adoption of appointment-based lobby access. This means thousands of customers are making appointments every day to open new accounts. Customers who need other face-to-face services (e.g., wire transfers) will continue to make appointments until digital alternatives are developed.

Market-based staffing: In reaction to this crisis, many banks changed traditional branch assignments and restacked team members in order to address vacancies, provide branch coverage and meet other needs (e.g., contact center, PPP loan processing, etc.). Going forward, we believe that it will be more efficient to align staff around “clusters” of branches, providing flexibility of team-member movement between branches. This will, in turn, drive the need for new management and control models, as well as distributed technologies to allow employees to switch between face-to-face, chat and phone. Such investments will be expensive and will need to be supported to a radically new service approach that will require intensive planning over the next six months.

There is little doubt that the industry is facing financial challenges in the coming months. The shifts in customer behavior from the pandemic will provide banks with an unprecedented opportunity to rethink the branch operating model. The pre-COVID-19 status quo just isn’t a realistic option.

BRANCHES WITH ADJUSTED HOURS
  • % of Respondents
CHANGES TO BRANCH ACCESS ( % OF RESPONDENTS)
  • 2% No Adjustment
  • 20% Restricted Lobby
  • 37% Drive-Up Only
  • 37% Lobby Appointment
  • 4% No Lobby Access

Source: Novantas SalesScape Comparative Analytics, Survey conducted week of March 23rd 

STIMULUS FUNDS POUR INTO LIQUID BANK PRODUCTS

Novantas estimates that approximately 20% of all consumer checking accounts received government stimulus funds in the week ended April 18, totaling more than 80 million direct deposits worth $147 billion. Most of the checking accounts that received stimulus had less than $2,500 in the account beforehand.

This indicates that the stimulus money is material to those who receive it. The question for future weeks is whether those funds will be quickly withdrawn from bank balances by financially-strapped consumers who need it to pay their bills.

A full weekly deposit tracker is available to CDA clients. Contact Adam Stockton at astockton@novantas.com for details.

Join Novantas for a webinar hosted by CBA on 4/28 to hear more about the impact of the crisis on the branch network and staffing.

Consumer Household and Checking Account Production (Sales per Branch per Week)

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

NEWS OF THE WEEK

The Financial Times reported that up to 20% of Goldman Sachs’ credit-card and personal-loan customers have requested payment deferrals due to COVID-19. That number is higher than those reported by other large banks.

The CEO of Redfin told CNBC that the real-estate brokerage is seeing a surge in interest for rural properties as people look to flee dense areas due to the pandemic.

LendingClub said in a regulatory filing that it is laying off 460 employees, including its president, to “better reflect current loan volume” and better position the company for profitability when the economy stabilizes. The cutbacks represent about 30% of LendingClub’s workforce. The company also implemented temporary salary reductions.

A growing number of banks announced they won’t use consumer stimulus funds to cover outstanding overdraft fees and other debts.

Chime CEO Britt told Bloomberg that the neobank distributed $1.1 billion in early-access stimulus funds before customers received the money from the government. Chime previously announced it was making the funds available early to certain customers.

Neo-bank Moven, which is closing customer accounts, encouraged its customers to move their accounts to Varo. The two companies are also exploring a partnership that would leverage Moven’s technology as Varo continues to expand.

Several news outlets reported that U.K. neobank Monzo submitted a de novo banking application with the U.S. Office of the Comptroller of the Currency. Separately, Monzo is also closing an office in Las Vegas that provided overnight support to U.K. customers, resulting in the loss of 165 jobs.

Mastercard and the University of Oxford Saïd Business School announced they are starting an online program about cyber risk for business executives. The six-week program will focus on cybersecurity threats, data privacy and digital ethics.

Stay up to date on the latest banking trends

For more information, contact Novantas Marketing

+1 (212) 953-4444


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