Retail Systems: It Pays to Push Self-Service, Study Suggests

With the right kind of marketing to a well-chosen group of customers, banks can boost self-service transaction volumes and thereby reduce operating costs substantially, research sponsored by the Bank Administration Institute indicates.

The study says that if banks can simply increase the self-service allegiances of customers who are already infrequent or moderate users of automated teller machines and other remote methods, a typical branch could cut its annual transaction processing costs by $120,000.

And that is doable through basic promotional and educational techniques like price incentives and "sales," telemarketing, demonstrations, and in- branch seminars, said Jane Wood, president of Product Evaluation Inc., La Grange, Ill., which did the analysis for the BAI.

"Self-service customers - those who do at least 80% of their business that way - are profitable, regardless of how many transactions they carry out each month," Ms. Wood said at the recent BAI "branchless banking" conference in Orlando.

Getting other people's transaction patterns to match those of the self- service group can yield the cost-saving bonanza, and almost half of the national retail customer base is seen as susceptible to such "behavioral change."

These are the 46% of customers identified as "mixed channel" users - terminology borrowed from First Manhattan Consulting Group's 1993 report on retail delivery systems, also commissioned by BAI. The other 54% of customers, based on data supplied by many of the largest U.S. retail banking organizations, were evenly divided between those who mostly rely on self-service and those who do virtually everything in person at branches.

Customers in both the mixed-channel and branch-oriented groups who have low transaction volumes are generally profitable, because they do not overburden branch systems and personnel. But "high transactors" are unprofitable - and seen as eminently persuadable.

"Focus on the mixed-channel, high-transactor segment," said David Wano, program director for retail banking at the Chicago-based BAI. "This is the largest segment and the easiest to sway."

Speaking at the Orlando conference, Mr. Wano cited Citicorp, BankAmerica's Seafirst subsidiary in Seattle, and First Chicago Corp. as industry leaders in "selling convenience" and "targeting customers" who are the best candidates for self-service conversion.

Mr. Wano acknowledged that First Chicago created controversy when it announced charges for some teller-assisted transactions, but he said no bank in the country did a more sophisticated customer-behavior analysis to arrive at its range of service and pricing options.

"The message was simple: Let machines handle routine transactions and save the staff for where they can add value to a relation ship," Mr. Wano said.

The Product Evaluation research, a followup to the First Manhattan report, included a national 500-consumer survey of banking habits. Its calculation of potential branch-cost savings of $120,000 a year was based on making the transaction patterns of today's mixed-channel users similar to those of self-service-oriented customers.

For example, 89% of the self-service group were characterized as frequent ATM users, compared to 69% of the mixed-channel group. Getting the latter segment up to 89% would result in 920 customers at a branch performing 5.7 more ATM transactions a month, or 5,244 total transactions, and the bank would save 80 cents on each.

The study showed that of mixed-channel customers, 29% do banking by phone and 18% use debit cards. To match the self-service profile, those percentages would have to rise to 48% and 29%, respectively, generating almost 5,000 more remote transactions.

The potential swing at a typical branch - including ATMs, telephone, debit cards, and direct deposits and bill payments - would be 11,693 transactions a month, and a savings of about $10,000, Ms. Wood said.

She also said that banks must address four behavioral factors to increase self-service reliance: awareness, peace of mind, convenience, and cost. The survey indicated peace-of-mind concerns, such as personal safety and the miscrediting of deposits, are the only major remaining obstacles to ATM usage, "and these are easy to market against," Ms. Wood said.

A convenience issue - the forgetting of personal identification numbers - did not arise in an ATM context. But 12% of self-service customers and 17% of mixed-channel users said this is a problem for telephone banking.

Also, 14% of self-service customers and 25% of the mixed group were not even aware of the availability of banking by phone.

Ms. Wood suggested that bankers "market the way retailers do ... playing to customers' desires and needs" and understanding demographic details. For example, branch-oriented customers tend to be older and lower on the income and education scale than self-service customers, and mixed-channel people more resemble the self-service than the branch group.

She said time savings, convenience, and personal safety would be the "hot buttons" in promotional messages.

But Ms. Wood left one caveat, saying bankers must not lose sight of the need to broaden and deepen customer relationships. If they are too successful in getting customers to migrate to self-service, product offerings could become commoditized and "you can lose their loyalty," she warned.

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