April 14, 2004

Financial Services

Nice article on state of Branch Banks, The Web, and increased services for customers.

Where The Money Is

The Web was supposed to kill bank branches. Instead, banks are spending billions on them as a cornerstone of customer service.

By Steven Marlin, InformationWeek
April 12, 2004
URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=18900908

Adorned with balloons, a FleetBoston branch across from New York's Grand Central Terminal celebrated its grand opening one recent evening as commuters dashed to catch trains to Westchester and Fairfield counties.

Here in the country's media capital, Fleet intends this branch to be the latest in multimedia, ergonomics, and environmental design. Prominent signs bearing the Fleet logo will be replaced soon by ones bearing the logo of Bank of America, which merged with Fleet this year. The interior includes wall-mounted TV monitors displaying business and news headlines, an LCD stock ticker above the teller cages, and online banking and investment stations where customers check balances, transfer funds, pay bills, and even trade stocks via Fleet's Quick & Reilly brokerage unit. Weight sensors in the floor tell the machine to automatically log off customers when they step away.

Fleet will open a number of branches in Manhattan, Fleet executive VP Barker says.

Photo of Jeff Barker by Erika Larsen/Redux Pictures

Fleet has opened five such branches in Manhattan in the past 16 months and 45 to 50 in other cities. Several hundred other branches have been given a similar design, though without the tricked-out multimedia treatment. Fleet/Bank of America plans 250 new branches this year, targeting urban areas in particular. "The amount of buildout will be substantial" in midtown Manhattan, says Jeff Barker, Fleet's executive VP and New York regional manager.

Reports of the death of bank branches, common in the late 1990s, were greatly exaggerated. At the peak of the dot-com boom, banks were setting up separate Internet-only subsidiaries and taking steps such as charging $3 fees to see a teller, trying to reap fatter profits by discouraging expensive branch operations.

Things haven't quite worked out that way. The Internet-only subsidiaries withered away, while branches blossomed as a vital part of the growth strategy of banks such as Bank of America, KeyBank, and Washington Mutual. Rather than cutting off branches, banks are nurturing them with business technology to change them from an expensive, manual way to do routine transactions into more-profitable places to close customer sales.

U.S. banks will upgrade and renovate 30,000, or 26%, of their branches by 2006 and spend $1.4 billion on branch technology in 2006, up from $800 million last year, predicts Datamonitor, a market-research firm. Most of this spending will go toward enabling branch personnel to view all of a customer's relationships with a bank, connecting the bank's multiple service channels, and boosting customer self-service capabilities.

KeyBank is adding 20 branches this year, the most it has ever built in a single year. But building branches doesn't conflict with a full embrace of the Web: It successfully encourages customers to use self-service channels such as the Web for routine transactions. Branches account for 29% of daily transactions, behind ATMs (37%) and barely ahead of the Internet (24%). The Internet in 2001 surpassed call centers--now just 9% of transactions--and it appears headed to overtake branches as the No. 2 channel within a few years.

Getting a single view of a customer can be an expensive proposition, says KeyBank's Swanick (left), with CIO Rickert.

Photo of Patrick Swanick and Bob Rickert by Russell Lee

Banks have learned that branches are a vital distribution channel, and they can't expand into new territories without them. More than 90% of Key's retail sales take place in branches, says Patrick Swanick, president of Key Electronic Services. But making branches into highly profitable growth engines--and not just order-takers--requires giving employees information they can use to pursue sales. That's a big change from the traditional bunker mentality at banks. "The days of waiting for people to walk into branches are over," Swanick says.

Banks around the world spent $5 billion on customer-relationship-management software last year and will spend $7 billion in 2008, predicts TowerGroup, a research firm that tracks IT spending by banks.

Key uses legacy in-house software to provide relationship managers in each of its more than 900 branches with detailed views of top-tier customers whom employees call on personally. Now it's working on delivering the same views of the other 98% of its customers who are engaged through branches, over the Web, on the phone, or at ATMs. Key is implementing data-mining software from Siebel Systems Inc. to produce higher-quality sales leads by analyzing information found in customer files and gathered via marketing surveys. To be sure, some tech-driven productivity attempts have flopped. Following the lead of brokerage firms, which let clients conduct trades via mobile phones, many banks launched similar services. It turns out that customers don't need to check their savings-account balances all that often--unless they're already at an ATM trying to get cash. Key expected to sign up at least 1,500 customers when it launched its service a few years back; it got 700. The idea simply failed to catch on, Swanick says. Similarly, Bank of America experimented with outfitting branch personnel with PC tablets, letting them roam the lobbies and interact with customers; customers liked it, but it proved too expensive.

Internet-only subsidiaries such as Bank One Corp.'s WingspanBank failed because executives mistook online banking for a product instead of a delivery channel. Today, the Internet is just one indispensable component of a retail strategy (see story, "Online Ties: Web Banking Makes Customers Less Fickle").

Yet all this--the goal of making branches a go-get-'em sales vehicle, the success of online banking, a diverse channel strategy--highlights a problem that banks, despite years of trying, still struggle with: getting a single view of all customers' business.

Customers increasingly expect access to all their banking relationships (checking, credit card, mortgage, etc.) via any means (ATMs, branches, telephone, or the Internet). Systems for engaging a customer at the branch and on the phone "are no better than the degree to which you understand all of that customer's relationships," says analyst Richard Bell at research firm Financial Insights.

So as banks revitalize their branch strategies, they're taking an approach that focuses less IT spending on channel-specific systems--teller systems for branches, voice response for call centers, self-service for the Web and ATMs--and more on systems that organize customer data for all those channels to use. "When you compare channel-specific and multichannel spending, multichannel is becoming more and more important," Bell says.

ATB Financial, a 145-branch Canadian institution, integrated Siebel Systems CRM software into its 200-person call-center system at a cost of about $6 million four years ago. Now it's bringing that same integration to bank tellers in an 18-month project. This is no small effort: about $8 million for branch-teller software from Eontec and integration with the Siebel system, plus another $8 million for infrastructure, including all new PCs for tellers. ATB also plans to create a customer-information file from which customers would be assigned a unique identifier, letting the bank track customer relationships across individual systems for credit cards, mortgages, and checking accounts, says Ken Casey, ATB's senior VP of retail banking. That effort, which would cost at most $5 million, would provide that single-customer view in a sort-of intranet. "When customers identify themselves to a teller, the teller's screen will bring up the entire relationship," Casey says.

Royal Bank in Toronto uses Information Builders Inc.'s Focus data-integration software to pull together customer information from any business unit of the bank into a consolidated view, for a customer or a bank employee servicing that customer. The rows of customer data sitting in silos scattered throughout the bank offer a potential bonanza, if banks can only figure out a way to get it into one place. "In the banking industry, there's tons of information, but to bring that down to the desktop is a challenge," says Andy Hanna, head of report management and distribution at Royal Bank.

Wells Fargo & Co. tackled that issue by creating a data warehouse for customer information so that when a person goes online to apply for a mortgage, for example, the form will be prefilled with name, address, account numbers, and similar information.

Creating a single view of customer information out of systems spanning multiple product lines, geographic regions, and distribution channels can be an expensive proposition. "The issue is, how do you get information out of those systems and share it in an actionable way?" Key's Swanick says.

ATB is training branch personnel in cross-selling, such as inquiring whether a mortgage customer is aware of a low refinancing rate and, if the customer appears interested, referring him or her to a mortgage specialist in the branch. The customer-information file would make it easier to identify customers likely to be interested in such sales opportunities and communicate them to the teller's terminal while the customer is standing there. Beyond revenue opportunities, banks have another reason for branch renewal. Following an interruption of several years, the mergers and acquisitions wave that characterized the industry for two decades has returned. It's burst back to life in recent months with the megamergers of Bank of America and FleetBoston, as well as J.P. Morgan Chase and Bank One.

It's easy for such banks to merge in name only, missing out on some of the business advantages for which they merged. During the late '90s, Key was expanding geographically and became the first bank to operate as a single, nationwide bank. But calling itself a national bank was one thing; becoming one was another. "When you grow through acquisition, you're stuck with all these different systems, even within a single channel," CIO Bob Rickert says. Thus, a deposit made at a branch in Albany, N.Y., might not show up on the system of a branch in Cleveland until the next day. This was clearly unacceptable from a customer-service viewpoint.

The technology strategy Key pursued was to build proprietary middleware, called Key Server, that pulls together information from systems across geographic regions and makes it available through any channel. Integration challenges are tough, but critical to a bank's competitive advantage, Rickert says.

Not everyone follows Key's approach of developing middleware in-house. ATB is developing middleware using IBM's WebSphere application server, Casey says. Other banking middleware providers include Eontec, Harland Financial Solutions, and Sanchez Computer Associates (recently acquired by Fidelity National Financial), which have incorporated standards-based software such as Java 2 Enterprise Edition in their products. "The guiding principle is to provide one version of the truth," says Anuj Dhanda, CIO of retail and wholesale banking at PNC Financial Services Group Inc.

A major impetus for the merger of Bank of America and FleetBoston was to reap $1.1 billion in projected cost savings by integrating their retail operations. Fleet's retail systems will be converted to Bank of America's sometime next year. Whether it achieves that goal will depend on organizational as well as technological skills. For example, Fleet was on the verge of completing a business-transformation project when the merger was disclosed; that and other projects have been killed or placed on hold, says Joe Paolantonio, director of banking operations at Fleet. Still, a sledgehammer approach to integration is preferable to one in which the parties waste time haggling over details while competitors figure out ways to grab their customers. "If you're a competitor, you're asking, 'What can we do while they're distracted?'" Key's Rickert says.

For the banking industry, the distractions of technology fads such as online-only subsidiaries have passed. Now that banks have once again accepted branches as an indispensable channel, bankers can focus on the right technology and information to make sure brick and mortar equals sales and profit.


Online Ties: Web Banking Makes Customers Less Fickle April 12, 2004

By Steven Marlin

Just because the Internet didn't kill bank branches or launch a score of Internet-only banks doesn't mean it hasn't irreversibly changed the banking industry.
Customers who bank online are 50% less likely to switch banks, says Sona Chawla, executive VP of Web channel management at Wells Fargo & Co., which has 5 million online customers that make up 43% of its total checking-account base. Customers who bank online and use online bill payment are 80% less likely to leave, Chawla says.

Efforts such as Bank One Corp.'s online-only subsidiary, WingspanBank, failed in part because bankers thought they could peddle checking accounts online the same way they do credit cards, says Richard Bell, an analyst at research firm Financial Insights. "People are willing to buy a credit card online, but when it comes to giving money to someone for safekeeping, that's a different proposition," Bell says.

That's why asset-management companies such as Merrill Lynch, E-Trade, TD Waterhouse, and State Farm have succeeded with setting up online-banking subsidiaries: Instead of pitching banking services as products, they've offered them as an added convenience. Since customers are apt to go online frequently to conduct trades or view portfolios, it makes sense to let them pay bills or write checks at the same time.

A few Internet-only banks, as opposed to offshoots of existing banks, have found life in the niches. Internet-only NetBank Inc. has attracted 164,000 customers--mostly affluent and well-educated--who don't need or want to interact with humans when conducting banking transactions. Its deposits have grown from $654 million in 1999 to $2.5 billion in 2003.

Online banking is a must-have in today's business, but KeyBank CIO Bob Rickert remembers it as a leap of faith when the bank started. Key began adding transactional capabilities to its site in the mid-1990s, when most bank Web sites consisted of brochureware, if they existed at all. Online now is likely to overtake branches in just a few years and become Key's second-most-used banking channel, trailing only ATMs.

Bell predicts that as baby boomers age and spend more time with their retirement accounts online, the Internet will evolve into the primary delivery channel for financial services. In the future, conventional banks will need to broaden their range of online services if they hope to keep pace with the Merrills and E-Trades of the financial world.

Where The Money Is

Posted by Craig at April 14, 2004 03:00 PM