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This Week in Retail Banking | July 25, 2020

Even though cases of COVID-19 are rising in most states and now total four million across the U.S., people still aren’t staying home. Furthermore, checking account acquisition hasn’t declined significantly like it did during the initial surge in cases. States are re-imposing some restrictions on movement, but it doesn’t seem like the activity will come to a halt like it did before.

Regardless of whether we’ve hit a “new normal” or not, banks cannot ignore the fact that the retail business is accelerating its shift from strategies based on branch centricity to a more digital-first, customer-centric model. Consumers are interacting with brands like Zoom, Amazon and Seamless more frequently than ever in their day-to-day lives and their sophisticated digital engagement approaches set the bar in terms of expectations. Banks must raise the bar quickly on their digital capabilities, particularly when it comes to onboarding and personalization.

ONBOARDING WOES POINT TO NEED FOR STRATEGY CHANGE

A great frustration for many bankers is that after working hard to acquire new customers, 30-40% decide to leave the bank in the first 12 months. Making matters worse, attrition rates rise to more than 50% for accounts that originate in the digital channel. The challenge for banks, then, is how to tailor experiences and messaging in this critical period to replicate “human” relationship-building skills and scale them for digital environments.

After working hard to acquire new customers, 30-40% decide to leave the bank in the first 12 months. Making matters worse, attrition rates rise to more than 50% for accounts that originate in the digital channel.

In examining trends among customers who opened accounts in April, we saw a significant jump (25%) in attrition rates compared with February 2020 (just pre-COVID) or April of 2019. With the impact from COVID-19 likely to remain for several additional months, banks should consider how to optimize onboarding in the near-term. A key question is whether they need to make structural changes to the onboarding process in order to drive greater adoption and retention on the march toward a digital future.

One of the biggest challenges with onboarding customers is the large number of pain points associated with the process today. These difficulties include the application process, account funding, the set-up of online and mobile banking, the receipt and use of a debit card and setting up direct deposit.

The reality, though, is that none of these are particularly easy to solve, especially for consumers who open an account without any human interaction. Further complicating matters for many banks is the legacy state of technology and/or processes that make it difficult to streamline the experience and discourage customers from completing the process.

After working hard to acquire new customers, 30-40% decide to leave the bank in the first 12 months. Making matters worse, attrition rates rise to more than 50% for accounts that originate in the digital channel.

In examining trends among customers who opened accounts in April, we saw a significant jump (25%) in attrition rates compared with February 2020 (just pre-COVID) or April of 2019. With the impact from COVID-19 likely to remain for several additional months, banks should consider how to optimize onboarding in the near-term. A key question is whether they need to make structural changes to the onboarding process in order to drive greater adoption and retention on the march toward a digital future.

One of the biggest challenges with onboarding customers is the large number of pain points associated with the process today. These difficulties include the application process, account funding, the set-up of online and mobile banking, the receipt and use of a debit card and setting up direct deposit.

The reality, though, is that none of these are particularly easy to solve, especially for consumers who open an account without any human interaction. Further complicating matters for many banks is the legacy state of technology and/or processes that make it difficult to streamline the experience and discourage customers from completing the process.

Historically, banks have relied on bankers to coach people through this process, first with opening the account in the branch, followed by a 2-2-2 or 3-3-3 program (calling the customer two days after opening, two weeks after opening and two months after opening). Making matters even more difficult, people who open accounts digitally tend to dislike answering the phone.

Therefore, it is critical for banks to get more thoughtful about the onboarding process.

For branch-opened accounts, it is essential to accomplish as much at the point-of-sale (POS) as possible. Although this may lengthen the account-opening process, banks can ensure they get an email address for each customer, demonstrate that they have simplified the digital banking setup and hand them a debit card (thanks to instant issuance in the branch).

Banks can also customize the onboarding experience, particularly for customers who have opened accounts in digital channels. This means looking for ways to make the onboarding experience and messaging specific to them and their needs. For some, that might mean a multi-channel process and connecting them with instructional and educational content at key moments to get them fully embedded in the relationship. For others, it might mean a speedy mobile experience combined with personal quality email check-ins from a banker and the extension of exclusive offers designed to deepen the relationship. The bottom line: providing relevant, consistent communication in the customer’s preferred channel during the onboarding process will be what makes or breaks the relationship with the customer.

For customers who seem to be “stuck” at any point in the opening process, an appropriate and gentle nudge in preferred channels has the potential to make a significant difference. Many consumers are comfortable getting nudges via email, text or phone call and will actually opt in to these types of communications. Banks have the ability to use multi-channel approaches to reach people and, depending on the capacity of the branch staff, can potentially use the sales force more strategically over time.

Personalized marketing means serving up the right offer, at the right time, in the right channel. And with approximately eight seconds to capture consumer attention, what you say and how you say it matters a lot. In the past, this kind of experience and message personalization has required a veritable army of marketers and engineers to map out, design and hard-code (often over multiple years). Many banks never made the investment. The good news: advances in AI mean the time-consuming process of personalization can be automated.

Providing relevant, consistent communication in the customer’s preferred channel during the onboarding process will be what makes or breaks the relationship with the customer.

Providing relevant, consistent communication in the customer’s preferred channel during the onboarding process will be what makes or breaks the relationship with the customer.

Banks can also customize the onboarding experience, particularly for customers who have opened accounts in digital channels. This means looking for ways to make the onboarding experience and messaging specific to them and their needs. For some, that might mean a multi-channel process and connecting them with instructional and educational content at key moments to get them fully embedded in the relationship. For others, it might mean a speedy mobile experience combined with personal quality email check-ins from a banker and the extension of exclusive offers designed to deepen the relationship. The bottom line: providing relevant, consistent communication in the customer’s preferred channel during the onboarding process will be what makes or breaks the relationship with the customer.

For customers who seem to be “stuck” at any point in the opening process, an appropriate and gentle nudge in preferred channels has the potential to make a significant difference. Many consumers are comfortable getting nudges via email, text or phone call and will actually opt in to these types of communications. Banks have the ability to use multi-channel approaches to reach people and, depending on the capacity of the branch staff, can potentially use the sales force more strategically over time.

Personalized marketing means serving up the right offer, at the right time, in the right channel. And with approximately eight seconds to capture consumer attention, what you say and how you say it matters a lot. In the past, this kind of experience and message personalization has required a veritable army of marketers and engineers to map out, design and hard-code (often over multiple years). Many banks never made the investment. The good news: advances in AI mean the time-consuming process of personalization can be automated.

CONSUMERS WORK FROM HOME, BUT THEY DON’T STAY THERE

Despite the increase in COVID cases, retail visitation remained steady with average DMA visit volume up 12% (only 5% of DMAs experienced a decline). The notable exception is work centers where retail traffic remains weak since many Americans are still working from home. With many schools unlikely to open in full this fall and with cases of the virus still rising, a growing number of employers are telling staff that they can continue working remotely at least until the end of 2020.

Banks will have an incentive to keep branch lobbies open, with the exception of a few areas like work centers and malls where traffic is still significantly depressed. Since banks have now seen the benefits of increased focus on outbound efforts, the hope would be that banks will do more to clearly define roles and create separation between reactive volume and proactive sales.

Several banks have started deploying thin-network strategies, where the downtown is often a key element of the plan. These players will need to re-think how they can drive high visibility at a time when people are staying closer to home. This could include increasing top-of-funnel marketing in those markets to compensate for the falloff in “walk-by” impressions.

U.S. Consumer Traffic Trends

(Change in Weekly Visits vs. Jan. 30 – Mar. 4)

Activity by Store Type

Essential Store
Non-Essential Store
Bank

Activity by Market Type

Feeder
Hybrid
Work Center

Source: Novantas Analysis, NovaLocation, PlaceIQ

Market Type Definitions (click + to expand)

  • Feeder – Markets with very few businesses and daytime population (residential) is much larger than nighttime population (working)
  • Hybrid – Markets that have a combination of workers and residential population within the market
  • Work Center – Markets where more people work than live

BALANCES FALL AFTER TAX DEADLINE, BUT LESS THAN USUAL

Balances declined in response to the July 15 tax deadline, but the size of the drop was lower than what is normally seen after April 15 tax deadlines. Higher-tier customers experienced expected levels of outflows, but the declines were offset by material increases among lower-tier customers and those who received stimulus funds.

This indicates that bank accounts for many Americans are still being propped up by government stimulus programs, including unemployment benefits that are slated to expire at the end of the month. Any action taken by Congress to either extend the $600 unemployment benefit or let it expire has the potential to meaningfully shift the continued deposit growth trajectory.

There was also a material decline in savings balances, driven by change to existing balances. We believe this is a result of individuals directly paying tax bills from their savings accounts due to the low rates these balances are earning.

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

NEWS OF THE WEEK

The Federal Reserve extended the Main Street Lending Program to nonprofit organizations. “Nonprofits provide vital services across the country and employ millions of Americans,” said Chair Jerome Powell. The program is aimed at providing unforgivable loans to small-and-medium size businesses that were in sound financial condition before the pandemic but are now struggling to maintain operations and payroll.

Mortgage applications rose 4.1% as mortgage rates stood near a record low, according to the Mortgage Bankers Association. Home-purchase applications were up 19% from a year ago.

Separately, sales of existing homes jumped nearly 21% in June compared with May, according to the National Association of Realtors.

Online lender Kabbage announced the launch of a checking account for small businesses that offers a 1.1% APY and doesn’t have maintenance fees. The accounts are issued by Green Dot Bank.

Reuters reported that Royal Bank of Scotland will let most of its employees work from home until next year.

Fintech Brex, which provides corporate credit cards for technology start-ups, said it is offering FDIC insurance on its cash-management account as part of a partnership with UMB. The move comes weeks after Brex announced a restructuring that included laying off 62 employees.

Ascena Retail Group, parent of brands like Ann Taylor, Loft and Lane Bryant, became the latest big retailer to file for Chapter 11 bankruptcy protection.

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