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This Week in Retail Banking | June 6, 2020

The U.S. is grappling with heightened uncertainty this week as the COVID-19 pandemic appears to be improving in many states, protests grip the country after the death of George Floyd and Friday’s unemployment report came in stronger than expected. New York City, the nation’s epicenter of the pandemic, will begin re-opening on June 8. Elsewhere around the country, however, cases are rising.

For retail banking, there are myriad supply and demand issues that will need to be assessed in coming months to determine if the business and behavioral changes that have been experienced over the last 10 weeks are temporary or permanent. These range from transactions and sales volumes to channel preference. The answers also may be different according to bank type and region. Novantas will continue to analyze sales, transaction and cell phone data as banks plan their path forward.

THE FUTURE OF ACCOUNT OPENINGS AND TRANSACTIONS

Branch-based sales and transactions slowed significantly in the past 10 weeks as banks closed lobbies in many locations and customers followed “stay-at-home” orders. Attrition, which was already quite low, ground to a halt as life events were put on hold and banks offered fee forgiveness to customers who were experiencing financial hardship.

Total Teller Transactions (MIL)

Sample: March / April 2019, March 2020 – 10,725 branches reporting transaction volumes; April 2020 – 9,953 branches reported transaction volumes
Source: Novantas’ SalesScape

Consumer Checking Account Sales by Region

Midwest
Northeast
South
West
Southwest

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

Those consumers who are shopping for a new checking account are doing so because of traditional drivers. Life changes such as a move or a marriage are the most common reason why people seek new accounts, followed by a bad experience at the current bank. Research from FindABetterBank.com indicates those drivers of acquisition are staying constant in markets that have been among the first to reopen, such as Atlanta.

Reasons Consumers Are Shopping

Week 1
Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
Week 8
Week 9

Sample: FABB shoppers – week 1-3/30 to 4/5 (N=157), Week 2-4/6 to 4/12 (N=215), Week 3-4/13 to 4/19 (N=365), Week 4 -4/20 to 4/26 (N=275), Week 5-4/27 to 5/3 (N=304), Week 6-5/4 to 5/10 (N=282), week 7-5/11 to 5/17  (N=167), week 8 – 5/18 to 5/24 (N=123), Week 9 – 5/25 to 5/31 (N=96)
Note: Other – Reasons include first time openers, bank mergers, and fraud protection; **Answer option added on week 4
Source: Novantas Customer Knowledge | COVID Pulse Survey #3

Reason for moving – “I moved, married, or had another life event”

South
West
Northeast
Midwest

Sample: FABB shoppers – week 1-3 is 3/30 to 4/19, Week 4-6 is-4/20 to 5/10, week 7-9 is 5/11 to 5/31
Source: Novantas Customer Knowledge | COVID Pulse Survey #3

Because most bank branches haven’t fully reopened their lobbies yet, it is unclear if supply-side factors are playing a role in these unusually low attrition rates. It is logical to expect the demand for new accounts to reset to pre-COVID levels when markets reopen, but only time will tell. At this point, Novantas believes that there could be a prolonged period of low switching rates as the country transitions back into business-as-usual mode. Traffic data suggest that while there was a large increase in movement relative to a month ago, movement patterns haven’t shifted too much in the last couple of weeks and still remain down by 30-40% in many markets.

U.S. Retail Store Visits

Volume of Visits (indexed to 2/5)

Essential
Non-Essential

Rolling 2-Week Change in Visits

Essential
Non-Essential

Source: Novantas Analysis, NovaLocation, PlaceIQ

THE FUTURE OF CHANNEL PREFERENCE

The pandemic has accelerated the shift by consumers and businesses to e-commerce for everyday goods. That has especially been the case in areas that had large outbreaks of the virus and where people avoided crowded stores.

Banks have experienced this trend as more customers open accounts away from the branch. Online newcomers like Chime have also seen a surge of digital account openings. The question, then, is whether consumers will revert to their previous habits of opening an account in a branch or whether the transition to online account openings will stick.

So far, it seems that the answer may be mixed. In analyzing account openings, Novantas has seen digital account openings go up across the board. That was particularly the case in April. The analysis is more mixed in May, however, as branches pick up some new account openings and digital acquisition numbers decline a bit. This suggests that while some of the gains in digital account opening will likely be permanent due to the broader adoption of e-commerce, part of the bump came because people were forced to open accounts online since branches were closed.

No matter the trend, banks must focus on digital capabilities in order to provide a smooth and seamless experience for consumers who prefer to open their accounts online. Otherwise, these potential customers may be gone forever.

THE FUTURE OF BRANCH DEMAND

Consumer are being trained to avoid branch lobbies at the moment, adapting to the current environment by using the drive-through, appointments or digital tools. While this is good from a transaction migration standpoint, it also points to a larger issue of how important the branch will be to consumers in the future. As banks teach consumers that they really don’t need to go into the branch to interact, it also makes them more comfortable using a direct or neo-bank.

Chime and Varo have both reported record account acquisition numbers during the crisis, which makes sense given both the decline in branch-centricity and the nature of their value proposition. These two neobanks have pulled away from their fledgling crowd and that has become even more apparent during the crisis. Novantas will take a deeper look at these fintechs in next week’s report.

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CONSUMER DEPOSITS ON THE RISE

As expected, customer average balances have increased for both customers who received stimulus money and those who didn’t. This increase in balances is attributed to the typical end-of-month payments, in addition to spending trends remaining low and heightened consumer saving overall.

And for the first time, lower-tier customers are seeing their balances exceed balance levels that were in place before the stimulus. Continued concern about the state of the economy and employment prospects may be prompting these consumers to save as much as possible for an uncertain future.

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

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

More banks across North America began announcing post-COVID-19 plans for their employees. While Canada’s biggest banks said they would keep most of their Toronto staff home until at least September, CNBC reported that Morgan Stanley would start returning traders to its Times Square headquarters this month. And Citigroup CEO Michael Corbat told Bloomberg that the company hopes to bring 5% of its Manhattan-based workers back to the office in July or August.

Brex, a fintech that provides corporate credit cards for technology start-ups, said it was restructuring the company and laying off 62 employees due to expectations for slower growth as a result of COVID-19.

For the fourth month in a row, Apple is letting customers defer payments on their Apple Card that is issued by Goldman Sachs. The company told customers that they can skip their June payments if they are having financial difficulty making them.

The Acting Controller of the OCC warned that state-mandated lockdown orders may threaten the “stability and orderly functioning” of the finance system. In a letter to the U.S. Conference of Mayors, Brian Brooks said that bank collateral may be at risk if cities shut down businesses that violate lockdown rules or businesses are vandalized during lockdowns. He also wrote that face-mask requirements create the risk of an increase in bank robberies.

More than three-quarters of human-resources executives surveyed by the Conference Board survey said they expect to see an increase in the number of employees who primarily work remotely one year after the pandemic. As a result, there will be fewer people commuting to city centers, resulting in reduced spending on food, retail and other services.

Neobank Varo raised $241 million in Series D financing, raising its funding total to $419.4 million as it seeks approval for a national bank charter.

Nearly two-thirds of American consumers are delaying visits to brick-and-mortar retail stores because they are afraid of getting sick, according to a study from Ipsos. When deciding to return to stores, consumers believe the most important health and safety practices include company-issued face coverings, managing the number of customers entering stores and six-foot social distancing markers.

Stay up to date on the latest banking trends

For more information, contact Novantas Marketing

+1 (212) 953-4444


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