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Five Key Questions about Retail Banking's Future

The future of retail banking has rarely been murkier — and predicting it has rarely been more important for banks.

The economy and new regulations have made it increasingly difficult for banks to turn a profit from the old bread-and-butter business of taking deposits and lending money. At the same time, competition for this business is mounting. In recent weeks, banks of all sizes have tried to rethink their branch strategy, their staffing costs, their technology offerings and their alternate sources of consumer banking revenue.

"New regulation and … low interest rates have forced a change in the profit model for retail banks," Bill Demchak, the president and soon-to-be next chief executive of PNC Financial Services Group (PNC), told analysts earlier this month.

"In the new normal, we need to look at all of our customer relationships to improve profitability by cross-selling our diverse product mix, increasing share of wallet and where appropriate, redefining the fair value exchange with our customers. Think about that in the retail space as repricing retail," he added.

Demchak will be one of several senior executives gathering in Carlsbad, Calif., this week for SourceMedia's annual Best Practices in Retail Financial Services Symposium. He will be joined by Wells Fargo (WFC) CEO John Stumpf, JPMorgan Chase (JPM) Consumer Banking CEO Ryan McInerney and Zions Bancorp (ZION) CEO Harris Simmons, among several other leaders. Some of those executives are also be attending the Consumer Bankers Association's annual conference, which began Monday.

At both gatherings, senior retail executives are wrestling with many of the thorniest questions facing bankers today. Here are five questions they should ask.

1. How many branches should we close?

Banks including Citigroup (NYSE:C), PNC and SunTrust Banks (STI) are accelerating their branch closures, as they try to cut costs and rethink how to best compete for deposits. Demchak last week said PNC plans to close 200 branches, or 6.5% of its domestic network, during 2013. SunTrust, which closed 43 branches last year, is pruning back even more; CEO William Rogers said last week that the bank will close another 40 branches this quarter and is planning future cutbacks.

At Citigroup, CEO Michael Corbat in December announced plans to close 84 branches, including 44 in the United States, as part of a broader restructuring effort. He said last week that he is prepared to generally cut back even more if necessary: "If we don't execute on our plan, we'll not be afraid to take further actions to restructure the business," he told investors at a conference.

2. How many new branches should we build?

Even as some banks close some brick-and-mortar locations, they are building others elsewhere. JPMorgan Chase last month laid out its plans to reposition its branch network, closing some offices but ultimately increasing its net number of branches by about 100 annually, or 2%, over the next two years. Many of those branches will be devoted to selling affluent customers either mortgages or wealth-management services; McInerney told investors and reporters at the company's investor day that JPMorgan Chase already does business with 80% of affluent U.S. households, and that it wants to continue building branches close to where such wealthy customers live.

"We realize that how customers are using banks is changing," he said.

3. How many more people should we lay off?

JPMorgan Chase last month became the latest industry player to announce a sweeping round of layoffs; the country's largest banking company will eliminate some 17,000 jobs over the next two years, as it scales down its mortgage servicing operations and rethinks staffing levels in its consumer bank unit. Citigroup in December announced 11,000 layoffs, and other banks are also cutting back.

Some layoffs are stemming from branch closures or improved technology, which to some extent can replace human tellers. Mortgage divisions are tightening their belts; as the refinance boom tapers off and the worst of the foreclosure crisis eases, many banks are cutting back on their servicing staffs. In February, Wells Fargo (WFC) decided to terminate a mortgage joint venture with Edward Jones, and eliminated 210 jobs as it closed a related office.

4. How much revenue can we get from offering mobile and online technology?

Banks large and small are racing to offer their customers mobile banking, smartphone apps, tablet apps and services including mobile deposit  of checks and bill payment. Bank of America (BAC), JPMorgan and other large banks have said the increasing popularity of these services helps them cut costs while increasing customer satisfaction.

"We're now seeing customers choose to deposit checks using mobile technology 10,000 times a day, which saves us about $3.88 per transaction versus a deposit at the teller window. It is millions of dollars a year in difference," PNC's Demchak said last week.

Some bankers are looking at mobile technology as an opportunity to do more than just cut costs. U.S. Bancorp (USB) already charges 50 cents per mobile check deposit, and last week Demchak publicly mulled bringing in more revenue by instituting a similar fee at PNC.


(8) Comments



Comments (8)
All of those questions provide a solid background to the cuirrent state of retail bankign and the challenges it faces. However I am missing one key link: security. It is everywhere, consumers are concerned about security, whether it is for card-present, online or mobile transactions. In fact the biggest issue for consumers and banks is ID theft. Research seem to indicate that consumers favour receiving notification from their bank of unusual activity on their accounts/cards; this appears to be paramount to good customer service, with people's preference to be alerted on their mobile phones marking a move away from a 2011 trend of being notified via their home phones.

With immediate notification and action now demanded by customers, it's good to see there's a step in the right direction with some banks now notifying customers of any change via mobile phone. By doing so it enables new invisible techniques like Proximity (Proximity Correlation Logic) and voice biometrics to be used for authentication across all electronic and cards transaction channels. On the other hand, it can also have negative consequences: fraudsters will be quick to take advantage of the mobile phone as a means of spear-phishing; fraudster sends SMS informing customer that a transaction has occurred and to ring the number in the SMS if not correct. Such a message may induce the customer to call the number and end up speaking to the fraudster.

As the world moves to a more mobile centric and real-time environment, paying anytime, anywhere using a smart phone or tablet, it's not surprising that preferences on how a bank contacts their customers is moving in the same direction. This is another step in the convergence process; the same device, with regard to banking, transacts, protects and communicates. Ultimately we need to get to a situation where the authentication process is "invisible" and the customer is never contacted unless something is wrong. Mutual authentication and voice biometrics will take care of the rest!
Posted by Filsjean | Monday, April 08 2013 at 10:53AM ET
Consumers are gathering in Belgium to form a new Bank. I is such a disruptive way against what the banking industry is doing, that it might just work. see: http://www.thebrightid.com/?p=580
Posted by thebrightid | Saturday, March 30 2013 at 5:46PM ET
Maybe the banks should look carefully at what has happened to the music industry for an insight to where they are heading. Trying to contain customers within a brand to "increase wallet share" is last century's thinking. Where is the new thinking that recognises that the banks are running on others' money, who want ready access to it, a say in how it is applied (social responsibility - why do they bother? No one believes a word of their reports) and a level of service that genuinely puts the customer first. They destroyed all trust from customers by their own self serving behaviour, so what makes them think any savvy customer is going to be interested in being cross sold any products under their brand? When did any bank last create any product that genuinely delivered industry leading returns for their customers? Until they change their reward systems, they are going to stay in total ignorance of what to do next. They say the sure sign of madness is doing the same thing over and over and expecting a different result.

Maybe the big question is what is the point of banks in the 21st century? If they weren't hiding the true nature of the collapse in phony asset values that they spent so long fabricating, would they serve any useful purpose at all? They are too much aligned with western politicians so when you talk of bankers now, it is impossible to separate the influence (and self interest)of politicians and retail/investment/central banks. It is the whole edifice that needs to change. Rearranging the deck chairs on the Titanic isn't going to stop the ship sinking.
Posted by ticketyboo | Monday, March 18 2013 at 1:31PM ET
Interesting to see there is no emphasis on what the customers may want. Banks' product levels worldwide remain pitifully low at 1.2-1.3 when the aim is to reach 4 and you can't score less than 1. No change there then! Expect plenty more mis-selling cases until the attitude changes. Where is the next Mike Harris for the banking sector?
Posted by Richard Parlour | Friday, March 15 2013 at 11:30AM ET
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Posted by Sabughos | Wednesday, March 13 2013 at 5:22PM ET
I find the notion of charging for mobile channel "convenience" to be a "strategy" which is unlikely to survive any longer than the industry's previous pipe dream of charging the consumer for internet banking or debit card use. If one does intend to charge customers for individual channel usage---which I think is fundamentally wrongheaded----at least ask if you are creating incentives or disincentives for behaviors that you want to encourage, on the part of customers whom you hope to attract.
Posted by TJR Easton | Wednesday, March 13 2013 at 8:58AM ET
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Posted by timcook | Tuesday, March 12 2013 at 8:01PM ET
I think there may be a sixth question to put on the agenda:

How can Retail Bankers recover from the damage done to their brand as a result of the failed foreclosure review process and other gross economic insults to the body politic? (aka "the customer base")

Mr. Demchak, and others in his position probably do not want to acknowledge the impact of essays such as the one posted at:


This kind of testimony, however, is not going away, and it exposes some of the fundamental issues facing the financial services industry.

The decision to focus on "competition for wealthy customers' asset-management business" is not shocking: eventually, some of these banks may find out that no one else is willing to give them the time of day, much less trust them with any of their money.
Posted by teknoscribe | Tuesday, March 12 2013 at 7:31PM ET
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