Seeking to Defuse Consumer Anger

The Bank Administration Institute's Retail Delivery show always draws big names and lots of attention — the keynote speaker for this year's event in Chicago was former President Bill Clinton.

But there was an even bigger star this year, a presence from far outside the hallways and conference rooms, that made this year's event one of the most unusual banking conferences in years.

The public anger at banks for slights large and small, real and perceived, was palpable. It flowed almost visibly, like a stream of smoke, from one room to the next, from speeches to discussions of the challenges and opportunities facing banking.

Forums on marketing became object lessons on how to communicate strategy without making an adverse impact on an already incensed populace. Presentations on best practices for channel management turned into discussions on the mood of Occupy Wall Street protestors. And advice on social media strategies for small-business banking was dotted by talk of small entrepreneurs' mistrust of the "judgment" imposed on them by banks.

Talk of relatively nominal monthly fees for debit card purchases was everywhere, even in breakout sessions in which the stated topic — such as Web-enabled onboarding of new accounts — had nothing to do with debit cards, Dodd-Frank or interchange revenue. And online petition-distributing citizens who are livid over those debit fees found themselves unwitting feature players in PowerPoint presentations.

Whether they knew it or not, the thousands of people camped out in cities across the country protesting about high finance and economic imbalance, most of whom have probably never attended a banking conference, had a legitimate seat at the table.

"Don't wear a suit," joked IDC Financial Insights research director Marc DeCastro, quoting a Chicago cab driver who spoke to the analyst about people's general resentment toward bankers.

Tech Titans
DeCastro was a featured speaker at one of the BAI conference's highlights, a breakfast honoring the FinTech 100, an American Banker/Bank Technology News/IDC Financial Insights joint ranking of the largest tech firms by revenue generated from the financial services sector.

The top-earning company for 2010 was FIS, which supplanted Fiserv, the top earner in 2009's ranking. FIS was third in 2009. FIS has grown steadily since its acquisition of Metavante in 2009, with revenue overall jumping more than 40% last year, to $5.3 billion, with revenue from financial services rising 30%, to $4.4 billion. "The regulatory environment is very challenging, and we are looking for ways to help banks meet those challenges," FIS President and Chief Executive Frank Martire said after the award ceremony.

FIS and the others in the rankings, such as the top 10 companies Tata Consultancy, Fiserv, SunGard, NCR, Diebold, LPS, First Data, Nomura and Infosys, are chasing new financial services business by offering expanded technology to enable customer efficiencies, such as easier account openings and access to funds and transaction information; along with improvements in governance and risk management compliance and data management — all staples of the customer experience, risk management and security stresses that are impacting banks amid a recession followed by a weak recovery.

The troubled environment is apparent in the rash of bank closings that continue to plague the industry. DeCastro said the failure rate, while improving, is still a problem.

Though the number of bank failures easily surpassed triple-digit levels in 2009 and 2010, this year's pace should result in fewer than 100 failures, DeCastro says. Still, he says, there are more than 800 struggling institutions. "We feel the [failures] are not over yet."

The Elephant in the Room
Bank of America was also the big star of the show, though not in the way it would like. The bank's decision to charge $5 a month for purchases made with debit cards has gone viral in the worst way, and become a focal point in the national discussion of the animus toward large banks — a focus that's perhaps unfair, given that Wells Fargo and JPMorgan Chase are also planning new fees.

For credit unions and community banks, the debit fee issue is a welcome gift that's sparking a spike in new membership and queries into the call center, and a boon for technology to enable faster customer acquisition and onboarding. New member registrations spiked recently at BECU, and "we can thank Bank of America," Howie Wu, the credit union's vice president of virtual banking, said in a talk at the conference. "We have seen an incredible uptick."

Wu was one of many bank and technology executives who discussed the B of A fee. Wu said it could not be ascertained how many of the credit union's new customers came as a direct result of the B of A debit fee, nor did he say if the new customers complained about B of A when registering with BECU. But the connection was clear.

"Since the announcement by B of A, we've seen about a 15-20% uptick in volume," Wu told BTN after the conference. "As of [mid October] we've had a total of 7,600 new members total … 7,600 is about the total members we would enroll in a full month in previous months."

BECU, formerly Boeing Employees Credit Union, stresses the importance of integrated self-service branches and online service in registering and serving a fast-growing membership base. About 12,000 new members signed up online during the past year at BECU, which now has about 9.5 million members that are served by only 40 branches.

"Our online enrollment platform was built from the get-go to handle the increased volume from an infrastructure perspective," Wu said. "The increased volume is easily consumed by our servers and our [automated clearing house] limits for funding are adjusted to handle both the volume and the potential for large transactions."

After the B of A announcement, a number of other credit unions and community banks reported increased consumer interest in their institutions, as well as a spike in marketing and outreach programs, such as account migration concierge services, to lure even more customers.

After the conference, a Bank of America spokesperson responded to BTN with its side of the debit fee issue. The spokesperson in late October issued a statement that said B of A "is committed to being clear; predictable and transparent with our customers about fees to help ensure they know exactly what they are getting and how much it costs and to providing them with choices."

The statement also said the economics of offering a debit card have changed with recent regulations. "As a result, Bank of America will introduce a $5 monthly usage fee for customers who use their debit cards for purchases through a phased rollout beginning in early 2012," it said.

B of A said this new fee allows the bank to continue to offer fraud protection ($0 liability), overdraft prevention, record keeping, fraud monitoring, and savings programs. "Customers who value debit's features and convenience can choose to use their debit cards by paying the fee. Customers who don't want to pay this fee can continue to access their checking accounts to get cash from ATMs, through online bill pay, and increasingly through their mobile phones and with P-to-P transfers," B of A said.

The bank also said for customers who don't use the debit card for a purchase in a given month, there is no fee (i.e., ATM use and person-to-person transfers are free. ATM cards will no longer be usable for purchases at point of sale).

B of A has also suffered from some ill-timed tech glitches, another problem that's systemic to the entire banking industry. At the FinTech breakfast, DeCastro was about halfway through a presentation on the state of the banking industry when he showed a slide detailing Bank of America's recent website glitches, a sample of a problem that also afflicts a large portion of the financial services community.

"There's been a lack of investment in IT infrastructure, similar to what's impacting the U.S. with issues with highways and other [physical] infrastructure," DeCastro said.

Ensuring reliable access to channels such as websites, mobile apps and contact centers is of particular import considering the public mood surrounding banking amid national protests.

"It's not a good time to start having issues," DeCastro said.

A Failure to Communicate
Part of the bitterness over new fees is how banks handle the communication of new fees to customers, said Paul McAdam, Fidelity National Information Services Inc.'s senior vice president of research and thought leadership. At the conference he referenced Molly Katchpole, a consumer who had collected more than 220,000 signatures on a petition over Bank of America's $5 debit fee.

McAdam did not address the virtue of the protest, but said it is important to understand consumer needs to gauge customer profitability and forge loyalty-driven retention.

In a slide presentation, Nate Wehunt, senior vice president and digital channels manager for City National Bank of Los Angeles, highlighted a quote from Katchpole's online petition: "[By using the debit card] I'm using my own money, I'm saving money and I'm sick and tired of banks looking for ways to take my money because they can't pay for their own mistakes."

Katchpole's frustration is fueled by banks' own failures in communicating with their customers, Wehunt said.

"We have to help customers understand that providing a financial account is not a free thing to do," Wehunt said. "We do a very poor job of communicating value proposition to our clients."

Communication between technology and business units is also an important in helping a bank sympathize with customers, panelists said. Sales staff must be familiar with a bank's online content if they are to grasp customer intent, because most customers do their research on the Web — 77% of customers research bank products online, according to new FIS research.

"Does your sales force understand what's online? I don't know, but I doubt it," Wehunt said.

Changing the Channel
The national mood also bled into a discussion on cross-channel sales and migration strategies.

During a panel on achieving cross-channel success during turbulenteconomic times, James Van Dyke, founder of Javelin Research, discussed the mood of many consumers at the time of the protests, and the overall distress and worry that many people have because of the slow economy and their personal financial health.

Though he did not take a position on the protests or placing blame for the unrest, Van Dyke said banks could be a positive force in a variety of ways to reach out to anxious consumers. One such strategy is using strong analytics to properly match consumer needs for financial services with the proper channel or mix of channels to improve overall experience and satisfaction. "The point is there is an opportunity to look for a shared win with the customer, there are a lot of unmet needs," he said.

Van Dyke was joined on the panel by bank execs including Ashley Ross, senior vice president of integrated channels at Bank of America; Tom McDermott, senior VP of cross-channel strategy for SunTrust Banks; and Jennifer Wilson, senior vice president of internet channel strategy for BBVA Compass Bank.

While none of the bank execs addressed the protests, the panelists discussed the perils of channel migration for channel migration's sake. All mentioned that moving consumers to lower-cost channels for that purpose would leave a bad impression. "Forcing customers into certain service channels because of profitability will result in unintended consequences," Wilson said. "You have to find a way to give people a reason to go to a channel."

Banks have spoken about cross-channel consistency and experience for years, but it's perhaps never been as difficult to manage as it is now, as new channels such as mobile and new venues such as social media become more complex and more widely used. Discovering what consumers want from their bank and how to match that with channel investment requires an expansion in customer research, better customer relationship management technology, new ways to determine customer satisfaction, and analytics that separate how consumers generally feel about a new piece of technology with their comfort with actually using that technology for banking.

"We look at use of channels versus what consumers prefer to do, and that drives [our] investments," said McDermott, who added the bank has combined consumer banking, marketing and tech departments as part of the effort. B of A's Ross also said her position works across channels, and the bank has looked for ways to target individual segments or individual channels.

Van Dyke added that since most consumer interaction with banks takes place across a number of channels — at times by the bank's design — it's useful to view initial contact as part of a cross-channel strategy.

"When you look at online account opening, one out of two times that a consumer attempts to open an account online, it fails," said Van Dyke, citing his firm's new research. "Sometimes that's actually intentional, [the bank] wants want people to come into a branch, but sometimes it's a cross-channel relationship from the beginning."

Focus on the Customer
Some banks are using new branch design, mobile wallets and social media — three of the hottest areas of bank innovation — to improve relationships with consumers.

For example, U.S. Bank is using social media to improve relationships with small-business clients, while Extraco Banks is investing in new branch technology and hiring new branch staff to enhance service. And Citigroup is pushing its involvement in mobile wallets while advocating other banks do the same.

At U.S. Bank, research conducted in preparation for a social media strategy for small businesses concluded that people in the segment don't think highly of their banks.

Chris Swanson, vice president of small-business Internet strategy for U.S. Bank, says research done by the bank in advance of building a social media strategy for its small-business research found that the segment largely views banks as a venue for only transactions, as opposed to a partner; and viewed banking relationships as an almost obligatory part of doing business. "Finance is viewed as an administrative task," said Swanson, who outlined his bank's strategy of using social media as a means to improve small-business relationships during a session at the BAI conference.

The bank is using a Facebook page to operate contests in which business owners can post videos or message on how well their business is performing or how good their ideas are, with cash prizes as the lure.

Another outreach includes YouTube videos on topics such as the "five basics for good credit" in which an owner of a small business provides tips on how businesses can keep their finances in order.

The idea behind the strategy is less about selling specific financial services than it is about the bank lightening the mood between the institution and small-business clients, making the relationship more conversational and less institutional.

"We want to say that we're more than just a check processor," Swanson says. The relationship between bank and small business is often strained because the bank is viewed as a possible financial barrier that can keep an entrepreneur from getting his or her business off the ground. "There's this inherent judgment that goes with banks when it comes to small businesses."

Meanwhile, Extraco Banks in Temple, Texas, has taken the opposite tack of large banks such as Bank of America in several ways.

Where big banks are starting to charge debit fees to make up for interchange income lost to the Dodd-Frank Act's Durbin amendment, Extraco has rolled out a debit rewards program that shares some of the interchange income that remains. Extraco has also been investing in branch technology and in the hiring and training of branch staff.

"What got us started was inefficiency in our bank lobbies," says James Geeslin, vice chairman and chief sales officer at Extraco Banks, who spoke with Bank Technology News at the conference. "It was somewhere south of a library and north of a funeral home." Employees learned the job from the person who preceded them, and over time the job designs changed.

Geeslin looked at retailers such as Starbucks to see how their employees go about their work and how they're able to multitask.

"We wanted to make sure the customer experience was great, that we touched customers within a few seconds of walking in the door, that we didn't have people hiding behind the counter while people in other parts of the branch were swamped," Geeslin says. "Sometimes the lobby tellers were really busy, while relationship bankers were sitting behind a desk figuring out what to do."

The bank decided to consolidate the relationship manager and teller jobs and develop "universal" bankers. It beefed up its hiring process, requiring applicants to provide 15 references each and go through three to nine interviews, including participating in role-play exercises. Then all the employees were put through 12 weeks of training given a test to be certified as universal bankers.

The first result of all this was an elimination of wasted time, Geeslin says. Branch lobby traffic has been falling 10% a year for the past four years.

The bank bought several pieces of technology to complement this effort and drive efficiency in the branches. It implemented cash recyclers that count and deposit money, so that the tellers don't have to. Tellers don't miss the cash counting and drawer balancing they used to have to do at the end of the day. "I'd be strung up in the lobby if I tried to take those away," says Sandy Dixon, executive vice president and group executive for operations at the bank. This automation allows the tellers to come out from behind the teller window and "swarm" customers.

"When you get swarmed by wasps, they own you," Geeslin says. "We want to touch people within three to four seconds of entering the branch."

The tellers can be stationed at open pods and walk customers around to other parts of the branch, such as the self-service kiosks and phones. All the employees wear headsets so they can fill in for and assist one another when needed.

Apparently customers like being swarmed; customer satisfaction is up 20% at Extraco, employee retention is up and transaction times have been cut in half.

Jack Henry software called Vertex helps the tellers work efficiently by providing speed keys for specific transactions and by providing image deposit capture, letting any disputes take place while the customer is present (this also eliminates the back-office check processing work).

Another element in smoothing over relationships with consumers is by offering choice — particularly when it comes to mobile payments.

Dickson Chu, global head of digital networks and mobile for Citigroup, told conference attendees that consumers will decide which mobile wallets they want to use and that is why financial institutions should participate in as many as possible, a Citi executive said at the conference.

Citi at this writing was the only bank participating in Google Inc.'s near-field-communication-based mobile payment effort. But Dickson Chu, global head of digital networks and mobile for Citi, said he expects others will join Google Wallet and believes the participation of multiple financial institutions will help drive consumer adoption.

"This is an open wallet and it should be," Chu told attendees at one of the best-attended sessions. "No consumer wants to sign up for just one thing."

Indeed, Google will compete with Isis and other more established mobile wallet providers as NFC phones become more widely available.

Isis, a joint venture of AT&T Inc., Verizon Communications Inc. and T-Mobile USA, was criticized early on when it appeared it would partner solely with Discover Financial Services. Isis has since made deals with all the card networks.

Developing an open system is what helped spark Citi's interest in becoming an initial partner. Google believed that it would take more than a single financial institution to help build its wallet and someone had to step forward and invest funds into an endeavor that was going to be more than just a trial, Chu said.

Chu urges other banks to embrace the idea of an open system.

"Take the consumer point of view and get in the wallets where your customers want to be," he said.

Dominic Venturo, chief information officer for payment services at U.S. Bancorp, seconded Chu's plea to financial institutions.

"We have to get past [the idea] that there will be one option," he said. "Customers don't want that. That fundamental customer choice is the key to getting this out there."

First Data Corp., which is the trusted service manager for Google Wallet, may take the concept of open systems and variety in the market even further.

First Data is not bound exclusively to Google Wallet and is available to work with other mobile wallet providers, Ed Labry, president of First Data North America, said at the conference.

"Just because Google is first to market is not to say others will not come and consumers will not have multiple wallets in their phones," he said. "We think banks and certain retailers will have their own wallets."

And what those mobile wallets bring to consumers could include more than the ability to do payments at the point of sale.

Labry reiterated a common theme emerging in discussions about NFC-based mobile payments: the potential effect of marketing offers.

Other mobile wallets that may be developed do not necessarily have to include a payment function but "you'll have couponing, loyalty programs and even tickets that can be downloaded to the phone," he said.