CHICAGO-Online account opening (OAO) has a strong future, but it's not there yet-and it's the primary reason the physical branch will have a robust role well into the near future, according to one person.
"There's great technology, great potential, but in practice it hasn't worked the way it's advertised," said Scott Hodgins, research director for Cornerstone Advisors. Hodgins spoke here recently as part of the Filene Research Institute's "Future of the Branch" Colloquium, offering "The Bullish Case for Branches," a counterpoint to another session on "The Bearish Case for Branches" (see related story).
Hodgins cited A 2010 BancVue white paper that found just 10% of banks and CUs offer online account opening. He noted that number has likely risen since publication, but emphasized that even if the number stands at 30% it doesn't present any immediate risk to branch networks.
According to a Javelin study, the number-one reason most users chose OAO was to save time, but only 53% of consumers were successful in opening and funding a new checking account online. Hodgins cited a variety of reasons for that low success rate, including OAO only being available for existing members; poor integration of OAO into the rest of the FI's systems (including core systems, the funding vehicle and Internet banking); a lack of e-signature technology from the FI, and the fact that credit card funding is not yet widespread.
Old Fashioned, But...
Consumers may scoff at the old-fashioned idea of going to the branch to open their account, but within less than an hour members can walk out of the CU's branch office with a new account fully funded and a new debit or credit card in hand. On the other hand, said Hodgins, that process can take as much as a week if done online, because of test ACH transactions, the time it takes to fully fund the account and for cards to arrive in the mail.
Hodgins noted that mobile adoption continues to grow, but data from Forrester Research shows penetration only at about 16% as of Q4 2010, and most of that was for informational purposes rather than transactional. Of the features most commonly used, 70% of users checked balances and 33% viewed transactions, while only 27% used mobile bill pay and only 22% transferred funds within their financial institution.
While mobile is seen as a must-have, stressed Hodgins, it has not yet been proven as a driver of revenue, member growth or wallet share.
Hodgins also noted that small businesses need branches-something CUs should keep in mind as they work to expand member business lending.
Citing an article from Bank Technology News, a sister publication to Credit Union Journal, Hodgins said that only 5% of small businesses use remote deposit capture (though he admitted that the statistics only cover banks and not credit unions). Additionally, the last two years have only seen modest declines in branching, he said, and nearly half of that was due to Bank of America and the Wells Fargo/Wachovia merger.
The Bottom Line
The bottom line, he said, is that "unless you're a category killer like Pennsylvania State Employees CU, USAA or ING, you're going to need branches."
But institutions also need critical mass for a branch network to be effective, and there's a big future in smaller, more targeted, focused branching, Hodgins believes.
Hodgins reminded that in a 2011 survey of 12,000 consumers, 52% chose their FI specifically because of branch locations, and 74% opened their most recent account in a branch. Even among those that opened accounts online, 27% still said that branch location was a key factor in deciding where to bank.
The days of 5,000-square-foot branches are gone, he said, in part because new deposit growth won't support them. Rather, he said, CUs can use a leaner branch network to fund advances in electronic delivery.
